FLORES & RUCKS INC /DE/, S-3, 1996-08-16

FLORES & RUCKS INC /DE/
S-3, 1996-08-16
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 16, 1996

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FLORES & RUCKS, INC.,
ISSUER

FLORES & RUCKS, INC.,
AS GUARANTOR
(Exact name of registrant as specified in its charter)
------------------------------------

<TABLE>
<S> <C> <C>
DELAWARE 1311 72-1277752
LOUISIANA 1311 72-1210660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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8440 JEFFERSON HIGHWAY
SUITE 420
BATON ROUGE, LOUISIANA 70809
TELEPHONE: (504) 927-1450
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
------------------------------------

ROBERT K. REEVES
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
500 DOVER BOULEVARD, SUITE 300
LAFAYETTE, LOUISIANA 70503
TELEPHONE: (318) 989-5900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------

Copies to:

<TABLE>
<S> <C>
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
4200 TEXAS COMMERCE TOWER 2001 ROSS AVENUE
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 220-4200 (214) 953-6500
ATTENTION: JOHN F. WOMBWELL ATTENTION: CARLOS A. FIERRO
</TABLE>

------------------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Subordinated Notes
due 2006........................ $150,000,000 100% $150,000,000 $51,725
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Subsidiary Guarantee(2) (3) (3) (3) (3)
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Common Stock, $0.01 par
value(4)........................ 1,750,000 shares $30 $52,500,000 $18,104
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</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Flores & Rucks, Inc., a Louisiana corporation, is a subsidiary of Flores &
Rucks, Inc., a Delaware corporation, and is registering a guarantee of the
payment of the principal of, and premium, if any, and interest on the notes
being registered hereby. Pursuant to Rule 457(n) no registration fee is
required with respect to the Subsidiary Guarantee.
(3) No separate consideration will be received from the purchasers of the %
Senior Subordinated Notes due 2006 with respect to the Subsidiary Guarantee.
(4) Includes 200,000 shares subject to the Underwriters' over-allotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

EXPLANATORY NOTE

This Registration Statement contains two forms of Prospectus; one to be
used in connection with the offering of % Senior Subordinated Notes
Due 2006 (the "Notes Prospectus") and one to be used in connection with a
concurrent offering of Common Stock (the "Common Stock Prospectus"). The closing
of the offering being made pursuant to the Notes Prospectus (the "Notes
Offering") is not conditioned on the closing of the offering being made pursuant
to the Common Stock Prospectus (the "Common Stock Offering"), nor is the closing
of the Common Stock Offering conditioned on the closing of the Notes Offering.
The form of Notes Prospectus immediately follows this page and is followed by
alternate pages for the form of Common Stock Prospectus.
<PAGE> 3

***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 16, 1996
PROSPECTUS
$150,000,000
FLORES & RUCKS, INC.
% SENIOR SUBORDINATED NOTES DUE 2006
[FLORES AND RUCKS, INC. LOGO]
------------------------
Interest on the % Senior Subordinated Notes due 2006 (the "Notes") of
Flores & Rucks, Inc., a Delaware corporation ("F&R" or the "Company"), will be
payable semi-annually on and of each year commencing
, 1997. The Notes are redeemable at the option of the Company in whole
or in part, at any time on or after , 2001, at the redemption prices
set forth herein, together with accrued and unpaid interest, if any, to the date
of redemption. Upon a Change of Control (as defined herein), each holder of the
Notes will have the right to require the Company to purchase all or a portion of
such holder's Notes at 101% of the aggregate principal amount thereof, together
with accrued and unpaid interest, if any, to the date of purchase. Furthermore,
under certain circumstances, the Company may become obligated to offer to
purchase all or a portion of the Notes at 100% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of purchase with
the net proceeds of certain Asset Sales (as defined herein). See "Description of
the Notes." The net proceeds of the offering made hereby (the "Notes Offering")
will be used in part to effect the acquisition of certain oil and gas producing
fields situated primarily in the central Gulf of Mexico (the "Central Gulf
Acquisition").

Concurrent with the Notes Offering, the Selling Stockholder (as defined
herein) is offering 1,550,000 shares (1,750,000 shares if the Underwriters'
over-allotment option is exercised in full) of common stock, par value $0.01 per
share, of the Company (the "Common Stock") for sale to the public in a separate
offering (the "Common Stock Offering"). Consummation of the Notes Offering and
the Common Stock Offering are not contingent upon each other and there can be no
assurance that the Common Stock Offering will be consummated. The consummation
of the Notes Offering is contingent upon the consummation of the Central Gulf
Acquisition.

The Notes will be general unsecured senior subordinated obligations of the
Company which will be subordinated in right of payment to all existing and
future senior indebtedness of the Company, pari passu in right of payment with
all existing and future senior subordinated indebtedness of the Company and
senior in right of payment to all future subordinated indebtedness of the
Company. The Notes will be guaranteed on an unsecured senior subordinated basis
by the Company's subsidiary, Flores & Rucks, Inc., a Louisiana corporation, and
the guarantee may be released under certain circumstances. As of June 30, 1996,
on a pro forma basis after giving effect to the Notes Offering and the
application of the proceeds therefrom as described in "Use of Proceeds," the
Company and its Restricted Subsidiaries (as defined) would have had
approximately $125 million of indebtedness that effectively would rank senior to
the Notes, and no indebtedness that would be expressly subordinated to the
Notes.

The Notes will be represented by a Global Certificate registered in the name
of the nominee of The Depository Trust Company, which will act as the Depositary
(the "Depositary"). Beneficial interests in the Global Certificate will be shown
on, and transfers thereof will be effected only through, records maintained by
the Depositary and its participants. Except as described herein, Notes in
definitive form will not be issued. The Company does not intend to list the
Notes on any securities exchange. See "Risk Factors -- Absence of a Public
Market for the Notes."

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note................................... % % %
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Total...................................... $ $ $
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</TABLE>

(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $685,000.
------------------------

The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, subject to approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Global Certificate will be made through the book-entry
facilities of the Depositary on or about , 1996.
------------------------

MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
------------------------
The date of this Prospectus is , 1996.
<PAGE> 4

[MAP DEPICTING THE LOUISIANA COASTLINE AND ADJACENT GULF OF MEXICO SHOWING
THE LOCATION OF THE COMPANY'S EXISTING AND NEW PROPERTIES APPEARS HERE]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE NOTES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Certain terms relating to the oil and gas business are
defined in the "Glossary of Certain Oil and Gas Terms" section of this
Prospectus. Unless the context indicates otherwise, references in this
Prospectus to "F&R" or the "Company" are to Flores & Rucks, Inc., a Delaware
corporation, its predecessors and their respective subsidiaries. The estimates
of the Company's proved reserves as of December 31, 1995 set forth in this
Prospectus are based on the report of Netherland, Sewell & Associates, Inc.
("Netherland Sewell"). The estimates of the Company's proved reserves as of June
30, 1996 and pro forma proved reserves for the Central Gulf Acquisition as of
June 30, 1996 set forth in this Prospectus were prepared by the Company.

This Prospectus contains certain forward-looking statements with respect to
the business of the Company and the industry in which it operates. These
forward-looking statements are subject to certain risks and uncertainties which
may cause actual results to differ significantly from such forward-looking
statements. See "Risk Factors."

THE COMPANY

The Company is an independent energy company engaged in the exploration,
development, acquisition and production of crude oil and natural gas with
operations focused primarily on the coastal onshore and shallow water offshore
regions of Louisiana (the "Louisiana Gulf"), one of the most prolific oil and
gas producing regions in the United States. As of June 30, 1996, the Company had
estimated proved reserves of approximately 36.7 MMBbls of oil and 44.1 Bcf of
natural gas, or an aggregate of approximately 44.0 MMBOE, with a Present Value
of Future Net Revenues of approximately $279.0 million and a Standardized
Measure of Discounted Future Net Cash Flows of approximately $238.2 million. On
a BOE basis, approximately 83% of the Company's proved reserves on such date
were oil. Virtually all of the Company's existing proved reserves are
attributable to Company operated wells or leases and approximately 89% of these
reserves were classified as proved developed at June 30, 1996.

The Company has focused on opportunities to acquire and develop properties
in the Louisiana Gulf. The Louisiana Gulf encompasses the Mississippi River
deltaic region (both offshore and onshore), which is the second largest
producing deltaic region in the world, with cumulative historical production of
over 21 billion BOE. A substantial number of the oil and gas fields in this
region have extensive production histories, and the Company believes that many
of these properties may possess substantial remaining reserves and significant
additional development, exploitation and exploration opportunities. The
Company's objective is to take advantage of these opportunities through the
application of recent advances in seismic and other exploration technologies
combined with maintaining an operating cost advantage as an independent
operator.

The Company's primary operations are currently located offshore in the
Mississippi River deltaic region and consist of the Main Pass 69 field ("Main
Pass 69"), the South Pass 24 and South Pass 27 fields (the "East Bay Fields")
and related production, compression and storage facilities (the "East Bay
Facilities" and together with the East Bay Fields, the "East Bay Complex"). Main
Pass 69 and the East Bay Fields are three of the top 20 fields in the Gulf of
Mexico based on total historical production. Main Pass 69 consists of 67
producing wells located on 16,058 gross (14,177 net) acres in state waters 70
miles southeast of New Orleans, Louisiana. The East Bay Fields consist of 428
producing wells located on 31,598 gross (31,579 net) acres in Plaquemines
Parish, Louisiana and adjacent federal waters. The Company's fields include a
total of 72 known producing horizons with over 700 known oil and gas reservoirs,
providing significant opportunities to enhance current production and ultimate
reserve recoveries through development and exploratory drilling, recompletions,
and in-fill and horizontal drilling. Primarily by capitalizing on these
opportunities, the Company has increased its average daily production by 59%
from 15,047 BOE for the year ended December 31, 1994 to 23,862 BOE for the
twelve months ended June 30, 1996. Since August 1, 1996, the Company's average
daily production has exceeded 30,000 BOE.

3
<PAGE> 6

The East Bay Facilities serve as a support base for the East Bay Fields.
One of the largest production complexes in the Louisiana Gulf, the East Bay
Facilities include oil processing facilities with a capacity of 70 MBbls per day
and gas compression and dehydration facilities with a capacity of 240 MMcf per
day. The East Bay Facilities, which are currently operating at approximately 30%
of processing capacity, provide a centralized operations hub with capacity
available to support expanded production through the Company's exploration,
development and acquisition programs. Management believes that any such
increased operations can be achieved with substantial economies of scale through
higher utilization of this fixed asset base.

The Company has recently extended its operations in the Louisiana Gulf to
include several coastal onshore exploration projects and believes this region
has been underexplored due to its complex geology and lack of 3-D seismic data.
Advances in 3-D seismic acquisition techniques over the past few years have led
the Company to purchase options to conduct a 3-D seismic survey and explore for
oil and gas on 26,945 acres in eastern Cameron Parish, Louisiana on its Mallard
Bay prospect area ("Mallard Bay"). The Company is currently conducting a 70
square mile proprietary 3-D seismic survey on Mallard Bay along with its 50%
working interest partner, Mobil Oil Exploration and Producing Southeast Inc.
("Mobil"). Over 70 prospects or leads have been identified at Mallard Bay from
review of 2-D seismic and subsurface data. Separately, the Company recently
acquired seismic and lease options covering 14,060 acres in its Lacassine Refuge
prospect area ("Lacassine") located approximately 6 miles northwest of Mallard
Bay which it expects to develop in 1997.

RECENT DEVELOPMENTS

On July 10, 1996, the Company entered into a Purchase and Sale Agreement
with Mobil to acquire interests in certain oil and gas producing fields and
related production facilities (the "Central Gulf Properties") primarily situated
in the shallow waters of the Central Gulf of Mexico, offshore Louisiana, for an
anticipated net purchase price of approximately $132 million, subject to
reduction if certain preferential purchase rights of third parties on portions
of the properties are exercised (the "Central Gulf Acquisition"). Subject to
assignment of the applicable operating agreements, the Company anticipates that
it will become the operator of approximately 75% of the properties. As of June
30, 1996, the Central Gulf Properties had estimated proved reserves of
approximately 14.0 MMBbls of oil and 60.4 Bcf of natural gas, or an aggregate of
approximately 24.1 MMBOE, with a Present Value of Future Net Revenues of
approximately $155.1 million and a Standardized Measure of Discounted Future Net
Cash Flows of approximately $122.4 million. For the six months ended June 30,
1996, estimated average net daily production on the Central Gulf Properties was
approximately 4,800 Bbls of oil and 29,000 Mcf of natural gas from approximately
125 producing wells on 90,013 gross (50,810 net) acres. Pro forma for the
Central Gulf Acquisition, the Company's average daily production is expected to
increase by approximately 30%, and its proved reserve mix is expected to shift
to approximately 74% oil and 26% gas from the current mix of 83% oil and 17%
gas. The closing of the Central Gulf Acquisition is expected to occur
concurrently with the consummation of the Notes Offering, subject to approvals
by the management and Board of Directors of Mobil and the Company, and subject
to the aforementioned preferential purchase rights.

The Central Gulf Acquisition will allow the Company to significantly expand
its primary operations by establishing a new core area in the central Louisiana
Gulf region while acquiring properties which it believes are complementary to
its existing asset base. The Central Gulf Properties represent a large acreage
acquisition in proximity to properties with prolific production histories. The
Company believes the Central Gulf Properties have substantial similarities with
its existing Main Pass and East Bay Fields, including a significant proven
reserve base with large exploitation and exploration potential resulting from
the Company's utilization of recently acquired 3-D seismic data. The Company
therefore expects to maximize the value of the Central Gulf Properties by
utilizing exploration, exploitation and development techniques similar to those
employed on its existing properties. The Company has already identified over 60
drilling prospects on the Central Gulf Properties that it intends to pursue.
Also, the Company believes that it will be able to integrate the Central Gulf
Properties into its existing corporate infrastructure, which should result in
future economies of scale and enhanced cash flow.

4
<PAGE> 7

STRENGTHS

The Company believes it has unique strengths that position it to continue
as a successful independent operator in the Louisiana Gulf, including the
following:

Quality of existing operations. The East Bay Fields and Main Pass 69 are
three of the 20 most productive fields in the Gulf of Mexico based on total
historical production. These fields have extensive production histories and
contain significant reserve and production enhancement opportunities. Production
from the East Bay Fields and Main Pass 69 has been predominantly from the upper
10,000 feet of sediment. While cumulative historical production from these
horizons has exceeded one billion BOE, the Company believes that potential may
exist for additional reserves to be found at these horizons, as well as deeper
horizons. As of August 9, 1996, the Company's existing properties collectively
comprised over 63,982 net acres of Louisiana state and federal offshore leases
(42,248 of which are held by production), including 15,707 net lease acres which
were acquired by the Company during the first six months of 1996 for exploratory
purposes, a large portion of which are adjacent to its producing leases.

Extensive technological database. As of August 8, 1996, the Company owned
approximately 516 square miles of 3-D seismic data and over 20,000 linear miles
of 2-D seismic data in and around its core properties. In addition, the Company
is nearing completion of a 70 square mile 3-D seismic survey covering Main Pass
69 as well as a 70 square mile survey covering Mallard Bay. These surveys are
expected to be completed by the end of September, 1996. Additionally, to
complement the Central Gulf Acquisition, the Company has acquired approximately
191 square miles of 3-D seismic data covering the Central Gulf Properties and
surrounding acreage. F&R uses state-of-the-art seismic evaluation technology in
its exploitation and exploration activities in order to reduce risks and lower
drilling costs. The seismic evaluation technology is integrated with subsurface
data to improve the Company's ability to properly define the structural and
stratigraphic features which potentially contain accumulations of hydrocarbons.
The Company employs 19 geoscientists to integrate and evaluate its expansive
seismic data base. Management believes the availability of 3-D seismic coverage
for the Gulf of Mexico at reasonable costs enhances the potential for returns on
exploration and development activities in the area.

Efficient operator. The Company is a 100% working interest owner and
operator of virtually all of its existing wells, allowing it to control
expenses, capital allocation and the timing of development and exploitation of
its fields. Since 1992, the Company has decreased lease operating expenses by
28%, from $5.45 per BOE for the period from inception (April 20, 1992) through
December 31, 1992 to $3.95 per BOE for the six months ended June 30, 1996. Prior
to the Company's ownership, lease operating expenses at the East Bay Complex in
1989, 1990, and 1991 were $8.15, $10.58, and $9.74, respectively, per BOE and
lease operating expenses at Main Pass 69 in 1989, 1990 and 1991 were $6.59,
$11.33 and $8.17, respectively, per BOE.

Expertise in the Louisiana Gulf. Management believes the Company's
existing asset base and personnel provide it with competitive advantages for
operating in the Louisiana Gulf. The Company's senior operating personnel as
well as its 19 geoscientists and 17 petroleum engineers have substantial
experience, largely through tenure at major oil companies, in the technical
challenges arising from exploitation and exploration of this region. The Company
has also assembled a team of field personnel, most with over 15 years of
experience in operating the East Bay Complex, Main Pass 69 or other large
properties in the Louisiana Gulf. Management has extensive experience and good
working relationships with federal, state and local regulatory agencies in this
region.

Expandable base of operations. The Company has additional capacity
available at its East Bay Complex and Main Pass 69 production facilities, which
can provide a foundation for further acquisition, exploitation and exploration
in the Louisiana Gulf to achieve additional production at relatively low
incremental costs. Because of the strategic location of the East Bay Facilities
between extensive offshore production and onshore processing and transmission
facilities, the excess capacity can also be used to provide services to third
parties operating in the area. The Company also believes that its operating and
administrative personnel and systems can efficiently manage the addition of
producing properties and related operations through geographic concentration,
technical expertise and economies of scale based on existing infrastructure and
the maintenance of low overhead costs.

5
<PAGE> 8

BUSINESS STRATEGY

The Company's strategy is to increase value by increasing its reserve base
and by continuing to decrease unit costs. The Company intends to grow its oil
and gas reserves by capitalizing on its strengths through the exploitation of
its existing properties, the exploration for new oil and gas reserves on its
existing properties and elsewhere and the acquisition of additional properties
with exploitation and exploration potential. The Company intends to decrease
unit costs by streamlining existing operations and increasing production. The
Company is implementing this strategy by:

Continuing development and exploitation of existing properties. The
Company is actively pursuing the development of its existing properties to fully
exploit its reserves through recompletions, horizontal and development drilling,
waterfloods and 3-D seismic enhanced exploitation drilling. F&R uses advanced
technology in its exploitation and exploration activities in order to reduce
risks and lower costs. Further, the Company seeks to drill wells with multiple
pay objectives, allowing it to reduce the risk of exploring deeper prospects by
attempting to exploit shallow reservoirs in the same well. Primarily as a result
of its development and exploitation drilling success, the Company has increased
its average daily production by 59% from 15,047 BOE for the year ended December
31, 1994 to 23,862 BOE for the twelve months ended June 30, 1996. Since August
1, 1996, the Company's average daily production has exceeded 30,000 BOE. The
Company currently has an inventory of over 330 reserve and production
enhancement projects on its existing properties. In light of these projects, the
Company plans to increase its development and exploitation drilling capital
expenditures from approximately $22 million in 1994 and $42 million in 1995 to a
budgeted amount of approximately $66 million for 1996.

Expanding exploration program. The Company is expanding its exploration
program in the Louisiana Gulf which is designed to provide exposure to selected
higher risk, higher potential rate of return prospects. The Company expects to
increase its exploratory drilling expenditures from approximately $12 million in
1995 (22% of an approximate $55 million drilling budget) to approximately $26
million in 1996 (28% of an approximate $92 million drilling budget), with
further increases possible. In order to reduce exploration risk, the Company
will apply state-of-the-art technology to identify prospects and, where
possible, select well locations with multiple pay objectives. The Company
believes the seismic database and operating experience derived from its existing
properties provide it with a competitive advantage in evaluating new prospects
on properties sharing the same or similar geologic characteristics. The Company
utilizes these assets and its experience to identify and acquire new leasehold
acreage and existing producing properties that it believes contain significant
exploration potential. In the first six months of 1996, the Company acquired
42,651 net acres of seismic options and oil and gas leases, a large portion of
which are located adjacent to its producing leases, including seismic and lease
options covering 26,945 acres in Cameron Parish. Based upon preliminary
evaluation of seismic data prior to acquisition of these leases and options, the
Company believes it has significantly enhanced its inventory of prospects.

Pursuing strategic acquisitions. The Company is continually evaluating
opportunities to acquire producing properties which may possess, among others,
one or more of the following characteristics: (i) potential for increases in
reserves and production through exploration and exploitation drilling, (ii)
proximity to the Company's existing operations, or (iii) potential opportunities
to reduce expenses through more efficient operations. While the Company focuses
primarily on the acquisition of producing properties involving large acreage
positions, it evaluates a broad range of potential transactions. Company
personnel have substantial training, experience, and an in-depth knowledge of
the Louisiana Gulf area, as well as established relationships with a number of
major and large independent energy companies operating in this region. These
factors, in combination with state-of-the-art geological and engineering
technology, assist in identifying properties that meet the Company's acquisition
objectives.

6
<PAGE> 9

THE NOTES OFFERING

Securities Offered......... $150,000,000 principal amount of % Senior
Subordinated Notes due 2006 .

Maturity Date.............. , 2006.

Interest Payment Dates..... Interest on the Notes will be payable semi-annually
in arrears on and of each year,
commencing , 1997.

Optional Redemption........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after , 2001 at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption.

Guarantee.................. The Notes will be initially guaranteed (the
"Subsidiary Guarantee") by Flores & Rucks, Inc., a
Louisiana corporation (the "Subsidiary Guarantor"),
the sole operating subsidiary of the Company. The
Subsidiary Guarantee will be a general unsecured
senior subordinated obligation of the Subsidiary
Guarantor and will be subordinated in right of
payment to all existing or future senior
indebtedness of the Subsidiary Guarantor, pari
passu with all existing and future senior
subordinated indebtedness of the Subsidiary
Guarantor, and senior in right of payment to all
future subordinated indebtedness of the Subsidiary
Guarantor. The Subsidiary Guarantee may be released
under certain circumstances. See "Description of
the Notes -- Subsidiary Guarantees of Notes." The
Subsidiary Guarantee is limited to the extent of
any payment that would constitute a fraudulent
transfer or conveyance under federal or state law.
See "Risk Factors -- Fraudulent Conveyance
Considerations Relating to Subsidiary Guarantee"
and "Description of the Notes -- Subsidiary
Guarantees of Notes."

Certain Covenants.......... The Indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain
covenants, including, without limitation, covenants
with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances
and sales of restricted subsidiary stock; (iv)
limitation on transactions with affiliates; (v)
limitation on liens; (vi) disposition of proceeds
of asset sales; (vii) limitation on guarantees of
indebtedness by subsidiaries; (viii) limitation on
dividends and other payment restrictions affecting
subsidiaries; and (ix) limitation of mergers,
consolidations and transfers of assets. See
"Description of the Notes -- Certain Covenants."

Mandatory Offers to
Purchase................... Upon a Change of Control, each holder of the Notes
may require the Company to purchase all or a
portion of such holder's Notes at a purchase price
equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any,
to the date of purchase. See "Description of the
Notes -- Certain Definitions." In the event of
certain asset dispositions, the Company will be
required to make an offer to purchase the Notes at
100% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of
purchase. See "Description of the Notes -- Certain
Covenants -- Change of Control" and "-- Limitation
on Disposition of Proceeds of Asset Sales."

Ranking.................... The Notes will be general unsecured senior
subordinated obligations of the Company which will
be subordinated in right of payment to all existing
or future senior indebtedness of the Company, pari
passu with

7
<PAGE> 10

all existing and future senior subordinated
indebtedness of the Company, and senior in right of
payment to all future subordinated indebtedness of
the Company. As of June 30, 1996, on a pro forma
basis after giving effect to the Notes Offering,
the Company and its Restricted Subsidiaries would
have had approximately $125 million of indebtedness
that effectively would rank senior to the Notes.
Subject to certain limitations set forth in the
Indenture, the Company and its subsidiaries may
incur additional Indebtedness. See
"Capitalization," "Description of the Notes" and
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity
and Capital Resources."

Use of Proceeds............ The net proceeds to the Company from the Notes
Offering will be used to complete the Central Gulf
Acquisition and for general corporate purposes,
including for working capital, or to repay
outstanding indebtedness under the Company's
revolving credit facility (the "Revolving Credit
Facility"). See "Use of Proceeds."

Absence of a Public Market
for the Notes.............. There is no existing market for the Notes and there
can be no assurance as to the liquidity of any
markets that may develop for the Notes, the ability
of holders of the Notes to sell their Notes or the
price at which holders would be able to sell their
Notes. Future trading prices of the Notes will
depend on many factors, including, among other
things, prevailing interest rates, the Company's
operating results and the market for similar
securities. The Company has been advised by the
Underwriters that, subject to applicable laws and
regulations, such firms currently intend to make a
market in the Notes after the consummation of the
Notes Offering, although they are not obligated to
do so and may discontinue any market-making
activities with respect to the Notes at any time
without notice. The Company does not intend to
apply for listing of the Notes on any securities
exchange. See "Underwriting."

Common Stock Offering...... Concurrent with the Notes Offering, the Selling
Stockholder is offering 1,550,000 shares (1,750,000
shares if the Underwriters' over-allotment option
is exercised in full) of Common Stock for sale to
the public. The Company will not receive any
proceeds from the sale of Common Stock by the
Selling Stockholder in the Common Stock Offering.
The consummation of the Notes Offering and the
Common Stock Offering are not contingent upon each
other and there can be no assurance that the Common
Stock Offering will be consummated or if so on what
terms.

RISK FACTORS

An investment in the Notes involves certain risks that a potential investor
should carefully evaluate prior to making such an investment. See "Risk
Factors."

8
<PAGE> 11

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The summary historical financial data set forth below for the years ended
December 31, 1993, 1994 and 1995 for the Company have been derived from the
audited financial statements and notes thereto contained elsewhere in this
Prospectus. The financial data for the six months ended June 30, 1995 and 1996
are derived from unaudited financial statements of the Company. The unaudited
pro forma balance sheet data as of June 30, 1996 gives effect to the Notes
Offering and the Central Gulf Acquisition as if they had occurred on June 30,
1996. The unaudited pro forma statements of operations data for the year ended
December 31, 1995 and for the six months ended June 30, 1996, give effect to the
Notes Offering, the Central Gulf Acquisition and the March 1996 public offering
of shares of Common Stock by the Company as if they had occurred on January 1,
1995. The summary historical and pro forma financial data are qualified in their
entirety by, and should be read in conjunction with the "Unaudited Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the notes thereto included elsewhere in this Prospectus. For additional
information relating to the Company's operations, see "Business and Properties."

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 1995 1996 1996
-------- --------- -------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER FINANCIAL
AND OPERATING DATA:
REVENUES & EXPENSE DATA:
Revenues..................................... $ 47,483 $ 75,395 $127,970 $178,333 $55,872 $69,082 $101,734
Direct Operating Expenses.................... 19,201 30,324 40,047 53,271 18,970 22,044 27,473
General & Administrative Expenses............ 5,032 10,351 11,312 11,762 5,613 6,025 6,250
Depreciation, Depletion & Amortization....... 20,140 36,459 54,084 78,712 23,167 28,973 41,018
Interest Expense............................. 1,055 4,507 17,620 24,961 8,493 8,188 12,358
Loss on Production Payment Repurchase and
Refinancing(1)............................. -- 16,681 -- -- -- -- --
Net Income (Loss) Before Income Tax Expense
(Benefit).................................. 2,227 (22,179) 5,210 9,930 (251) 3,850 14,634
Income Tax Expense (Benefit)(2).............. -- -- (4,692) (2,875) -- 1,514 5,666
Net Income (Loss)............................ 2,227 (22,179) 9,902 12,805 (251) 2,336 8,967
Earnings (Loss) per Common Share(3).......... -- -- 0.66 0.76 (0.02) 0.13 0.48
OTHER FINANCIAL DATA:
EBITDA(4).................................... $ 23,422 $ 35,855 $ 77,645 $114,333 $31,684 $43,468 $ 70,466
Net Cash Provided By (Used In) Operating
Activities(5).............................. 103,112 (115,485) 58,880 -- 40,642 47,260 --
Capital Expenditures(6)...................... 123,600 74,477 73,652 -- 44,770 64,771 --
Ratio of EBITDA to Interest Expense(4)....... -- -- 4.4x 4.6x 3.7x 5.3x 5.7x
OPERATING DATA:
Sales Volumes:
Oil (MBbl)................................. 2,850 4,286 6,057 7,890 2,630 3,008 3,890
Gas (MMcf)................................. 3,704 7,234 12,393 23,093 5,619 7,016 12,337
MBOE....................................... 3,467 5,492 8,123 11,739 3,567 4,178 5,947
Average Prices(7):
Oil (per Bbl).............................. $ 13.82 $ 14.24 $ 17.39 $ 17.50 $ 17.77 $ 19.80 $ 20.03
Gas (per Mcf).............................. 1.81 1.76 1.82 1.74 1.72 2.86 2.78
BOE (per BOE).............................. 13.30 13.42 15.75 15.19 15.81 19.05 18.88
Lease Operating Expenses (per BOE)........... $ 4.10 $ 4.29 $ 3.70 $ 3.68 $ 3.99 $ 3.95 $ 3.69
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------
HISTORICAL PRO FORMA
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net.............................................................. $216,380 $348,580
Total Assets......................................................................... 256,721 403,721
Long-Term Debt....................................................................... 128,160 275,160
Stockholders' Equity................................................................. 84,452 84,452
</TABLE>

9
<PAGE> 12

- ---------------

(1) The amount shown for the year ended December 31, 1994 represents primarily
the excess of the purchase price of nonrecourse volumetric production
payment interests (the "Production Payments") over the book value of the
Production Payments liability as of December 7, 1994.

(2) The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through the date of the Company's initial public
offerings (the "Initial Offerings") (December 7, 1994), no historical
federal or state income tax expense has been provided for in the financial
statements. In conjunction with the Initial Offerings, the Company
converted to a C corporation under the Internal Revenue Code. The Company
recorded a deferred tax asset of $6.3 million, offset by a valuation
allowance of $6.3 million at December 31, 1994 and a deferred tax asset of
$4.7 million at December 31, 1995. As a result of the reversal of the
valuation allowance, the Company recorded a net income tax benefit of $4.7
million in the year ended December 31, 1995.

(3) If the Company had recognized a tax provision at statutory rates for the
year ended December 31, 1995, rather than an income tax benefit, historical
earnings per common share would have been $0.22 for such period. Earnings
per share has not been presented for periods prior to or including the date
of the Initial Offerings, as these amounts would not be meaningful or
indicative of the ongoing entity.

(4) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the recognition of noncash revenues
associated with the Production Payments. EBITDA is not intended to
represent cash flow in accordance with generally accepted accounting
principles and does not represent the measure of cash available for
distribution. EBITDA is not intended as an alternative to earnings from
continuing operations or net income.

(5) Cash flow from operating activities in 1993 includes $95.7 million from the
sale of the Production Payments. Cash flow from operating activities for
the year ended December 31, 1994 was reduced by $123.6 million related to
the repurchase of the Production Payments.

(6) Includes $115.5 million in the year ended December 31, 1993 related to the
acquisition of the East Bay Complex.

(7) Excludes results of hedging activities which increased (decreased) revenue
recognized in the years ended December 31, 1993, 1994 and 1995 by $1.2
million, $1.7 million and $(0.5) million, respectively. Including the
effect of hedging activities, the Company's average oil price per Bbl
received was $14.23, $14.56 and $17.27 in the years ended December 31,
1993, 1994 and 1995, respectively, and the average gas price per Mcf
received was $1.81 and $1.84 in the years ended December 31, 1994 and 1995,
respectively. The Company did not enter into any hedging activities
relating to gas during 1993. Hedging activities decreased revenue
recognized in the six months ended June 30, 1995 and 1996 by $1.0 million
and $10.5 million, respectively. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $17.32 and
$17.92 in the six months ended June 30, 1995 and 1996, respectively, and
the average gas price per Mcf received was $1.75 and $2.17 in the six
months ended June 30, 1995 and 1996, respectively.

10
<PAGE> 13

SUMMARY HISTORICAL AND PRO FORMA RESERVE INFORMATION

The following tables set forth information with respect to the Company's
proved reserves as of December 31, 1995, as estimated by Netherland Sewell,
independent petroleum engineers for the Company. The information with respect to
the proved reserves of the Company and the Central Gulf Properties as of June
30, 1996 have been estimated by the Company. The pro forma combined reserve
information gives pro forma effect to the consummation of the Central Gulf
Acquisition as of June 30, 1996. See "Summary -- Recent Developments" for a
description of the Central Gulf Acquisition. As of December 31, 1995 and June
30, 1996, the average sales prices used for purposes of estimating the Company's
proved reserves, the future net revenues therefrom and present value of such
future net revenues were $2.56 and $2.59 per Mcf of gas and $18.94 and $19.74
per Bbl of oil, respectively (excluding the effect of net price hedging
positions). For additional information relating to the Company's reserves, see
"Risk Factors -- Reliance on Estimates of Proved Reserves," "Business and
Properties -- Oil and Natural Gas Reserves" and Note 15 to the Company's
consolidated financial statements.

<TABLE>
<CAPTION>
JUNE 30, 1996
PROVED RESERVES(1)
------------------------------------------------------------------------------------
CENTRAL CENTRAL CENTRAL
GULF GULF GULF PRO
COMPANY COMPANY COMPANY PROPERTIES PROPERTIES PROPERTIES FORMA
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL COMBINED
--------- ----------- -------- --------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)........................... 32,463 4,233 36,696 9,413 4,624 14,037 50,733
Gas (MMcf)............................ 41,397 2,681 44,078 40,702 19,729 60,431 104,509
MBOE (6 Mcf per Bbl).................. 39,362 4,680 44,042 16,196 7,912 24,108 68,150
Estimated Future Net Revenues (Before
Income Taxes)......................... $306,082 $36,996 $343,078 $119,917 $85,329 $205,246 $548,324
Present Value of Future Net Revenues
(Before Income Taxes; Discounted at
10%).................................. $251,515 $27,508 $279,023 $100,824 $54,292 $155,116 $434,139
Standardized Measure of Discounted
Future Net Cash Flows(2).............. $238,161 $122,366 $360,527
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
PROVED RESERVES(3)
--------------------------------------
COMPANY COMPANY COMPANY
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)................................................................ 31,702 2,127 33,829
Gas (MMcf)................................................................. 48,635 1,941 50,576
MBOE (6 Mcf per Bbl)....................................................... 39,807 2,451 42,258
Estimated Future Net Revenues (Before Income Taxes).......................... $261,848 $17,982 $279,830
Present Value of Future Net Revenues (Before Income Taxes; Discounted at
10%)....................................................................... $223,880 $10,855 $234,735
Standardized Measure of Discounted Future Net Cash Flows(2).................. $203,940
</TABLE>

- ---------------

(1) The reserve information as of June 30, 1996 was prepared by the Company's
engineers in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission"); however, such reserve information
has not been reviewed by independent reserve engineers. In accordance with
rules and regulations of the Commission, the pre-tax estimated future net
revenues, pre-tax present value of future net revenues and the Standardized
Measure of Discounted Future Net Cash Flows for the Company have been
decreased by approximately $7,595,000, $6,861,000 and $4,596,000,
respectively, representing the effect of hedging transactions entered into
as of June 30, 1996.

(2) The Standardized Measure of Discounted Future Net Cash Flows prepared by the
Company represents the Present Value of Future Net Revenues after income
taxes discounted at 10%.

(3) In accordance with rules and regulations of the Commission, the pre-tax
estimated future net revenues, pre-tax present value of future net revenues
and the Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company have been decreased by approximately $7,669,000, $7,181,000 and
$4,929,000, respectively, representing the effect of hedging transactions
entered into as of December 31, 1995.

11
<PAGE> 14

RISK FACTORS

An investment in the Company involves a significant degree of risk.
Prospective purchasers should give careful consideration to the specific factors
set forth below, as well as the other information set forth in this Prospectus,
before purchasing the securities offered hereby.

When used in this Prospectus, the words "anticipate," "estimate," "project"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Among the key factors that have a
direct bearing on the Company's results of operations and the industry in which
it operates are fluctuations of the prices received for the Company's oil and
natural gas, uncertainty of drilling results and reserve estimates, competition
from other exploration, development and production companies, operating hazards,
abandonment costs and the effects of governmental regulation. These and other
factors are discussed below and elsewhere in this Prospectus.

REPLACEMENT OF RESERVES

The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable. The
proved reserves of the Company will generally decline as reserves are depleted,
except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, or
both. In order to increase reserves and production, the Company must continue
its development and exploration drilling and recompletion programs or undertake
other replacement activities. The Company's current strategy includes increasing
its reserve base through acquisitions of producing properties and by continuing
to exploit its existing properties. There can be no assurance, however, that the
Company's planned development and exploration projects and acquisition
activities will result in significant additional reserves or that the Company
will have continuing success drilling productive wells at low finding and
development costs. Furthermore, while the Company's revenues may increase if
prevailing oil and gas prices increase significantly, the Company's finding
costs for additional reserves could also increase. For a discussion of the
Company's reserves, see "Business and Properties -- Oil and Natural Gas
Reserves."

PRICE FLUCTUATIONS AND MARKETS

The Company's results of operations are highly dependent upon the prices
received for the Company's oil and natural gas. Substantially all of the
Company's sales of oil and natural gas are made in the spot market, or pursuant
to contracts based on spot market prices and not pursuant to long-term,
fixed-price contracts. Accordingly, the prices received by the Company for its
oil and natural gas production are dependent upon numerous factors beyond the
control of the Company. These factors include, but are not limited to, the level
of consumer product demand, governmental regulations and taxes, the price and
availability of alternative fuels, the level of foreign imports of oil and
natural gas, and the overall economic environment. Any significant decline in
prices for oil and natural gas could have a material adverse effect on the
Company's financial condition, results of operations and quantities of reserves
recoverable on an economic basis. Should the industry experience significant
price declines from current levels or other adverse market conditions, the
Company may not be able to generate sufficient cash flow from operations to meet
its obligations and make planned capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business and Properties -- Oil
and Gas Marketing and Major Customers," and "-- Governmental Regulation."

The availability of a ready market for the Company's oil and natural gas
production also depends on a number of factors, including the demand for and
supply of oil and natural gas and the proximity of reserves to, and the capacity
of, oil and gas gathering systems, pipelines or trucking and terminal
facilities. Wells may be shut-in for lack of a market or due to inadequacy or
unavailability of pipeline or gathering system capacity.

In order to manage its exposure to price risks in the sale of its crude oil
and natural gas, the Company from time to time enters into energy price swap
arrangements. The Company believes that its hedging

12
<PAGE> 15

strategies are generally conservative in nature. As of August 2, 1996, the
Company's net exposure relating to existing swap arrangements (the cost the
Company would be required to pay to buyout all contracts associated with its
existing swap agreements) was approximately $2.9 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters."

EFFECTS OF LEVERAGE

After giving pro forma effect to the Notes Offering and the application of
the net proceeds therefrom, the Company will be highly leveraged, with
outstanding long-term indebtedness of approximately $275 million as of June 30,
1996. See "Use of Proceeds." The Company's level of indebtedness has several
important effects on its future operations, including (i) a substantial portion
of the Company's cash flow from operations is dedicated to the payment of
interest on its indebtedness and is not available for other purposes, (ii) the
covenants contained in the indenture (the "Existing Indenture") related to the
Company's 13 1/2% Senior Notes due 2004 (the "Senior Notes") require the Company
to meet certain financial tests, and the Existing Indenture contains, and the
Indenture will contain, other restrictions that limit the Company's ability to
borrow additional funds or to dispose of assets and affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired.
Moreover, future acquisition or development activities may require the Company
to alter its capitalization significantly. See "-- Replacement of Reserves,"
"-- Substantial Capital Requirements," "Managements Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of the Notes."

The Company is currently in compliance with all covenants contained in the
Existing Indenture and has been in compliance since the issuance of the Senior
Notes.

The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to oil and gas prices, general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors. See "-- Price Fluctuations
and Markets" and "Capitalization."

DRILLING RISKS

Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating, and other costs. The cost of drilling,
completing and operating wells is often uncertain. The Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, many of which are beyond the Company's control, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment and services.

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development, production and
abandonment of its oil and natural gas reserves. The Company intends to finance
such capital expenditures primarily with funds provided by operations and
borrowings under the Revolving Credit Facility. The Company increased direct
capital expenditures from approximately $35 million in fiscal 1994 (excluding
acquisitions) to approximately $69 million in 1995. The Company has budgeted
$124 million for direct capital expenditures in 1996.

The Company believes that, after debt service, it will have sufficient cash
provided by operating activities and availability under the Revolving Credit
Facility to fund planned capital expenditures through 1997. If

13
<PAGE> 16

revenues decrease as a result of lower oil and gas prices or otherwise, the
Company may have limited ability to expend the capital necessary to replace its
reserves or to maintain production at current levels, resulting in a decrease in
production over time. If the Company's cash flow from operations is not
sufficient to satisfy its capital expenditure requirements, there can be no
assurance that additional debt or equity financing will be available to meet
these requirements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

ACQUISITION RISKS

The Company constantly evaluates acquisition opportunities and frequently
engages in bidding and negotiation for acquisitions, many of which are
substantial. If successful in this process, the Company may be required to alter
or increase its capitalization substantially to finance these acquisitions
through the issuance of additional debt or equity securities, the sale of
production payments or otherwise; however, both the Revolving Credit Facility
and the Existing Indenture include, and the Indenture will include, covenants
that limit the Company's ability to incur additional indebtedness. See
"-- Effects of Leverage." These changes in capitalization may significantly
affect the risk profile of the Company or, in the case of the issuance of
additional equity securities, may be significantly dilutive to holders of Common
Stock. Additionally, significant acquisitions can change the nature of the
operations and business of the Company depending upon the character of the
acquired properties, which may be substantially different in operating or
geologic characteristics or geographic location than existing properties. While
it is the Company's current intent to concentrate on acquiring producing
properties with development and exploration potential located in the Louisiana
Gulf, there is no assurance that the Company would not pursue acquisitions of
properties located in other geographic regions. Moreover, there can be no
assurance that the Company will be successful in the acquisition of any material
property interests. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

RELIANCE ON ESTIMATES OF PROVED RESERVES

There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
Company's historical reserve information set forth in this Prospectus represents
estimates based on reports prepared by Netherland Sewell, as of December 31,
1995, and by the Company, as of June 30, 1996. Likewise, the pro forma reserve
information set forth in this Prospectus relating to the Central Gulf Properties
represents estimates based on reports prepared by the Company, as of June 30,
1996.

Petroleum engineering is not an exact science. Information relating to the
Company's proved oil and gas reserves is based upon engineering estimates.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions concerning future oil and gas prices, future operating costs,
severance and excise taxes, development costs and workover and remedial costs,
all of which may in fact vary considerably from actual results. For these
reasons, estimates of the economically recoverable quantities of oil and gas
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net cash flows
expected therefrom prepared by different engineers or by the same engineers at
different times may vary substantially. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. See "Business and
Properties -- Oil and Natural Gas Reserves."

The Present Value of Future Net Revenues referred to in this Prospectus
should not be construed as the current market value of the estimated oil and gas
reserves attributable to the Company's properties. In accordance with applicable
requirements of the Commission, the estimated discounted future net cash flows
from proved reserves are generally based on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower. Actual future net cash flows also will be affected by factors such as the
amount and timing of actual production, supply and demand for oil and gas,
curtailments or increases in consumption by gas purchasers and changes in
governmental regulations or taxation. The timing

14
<PAGE> 17

of actual future net cash flows from proved reserves, and thus their actual
present value, will be affected by the timing of both the production and the
incurrence of expenses in connection with development and production of oil and
gas properties. In addition, the 10% discount factor, which is required by the
Commission to be used to calculate discounted future net cash flows for
reporting purposes, is not necessarily the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with
the Company or the oil and gas industry in general.

COMPETITION

The Company operates in the highly competitive areas of oil and natural gas
exploration, development and production with other companies, many of which may
have substantially larger financial resources, staffs, and facilities. See
"Business and Properties -- Competition."

OPERATING HAZARDS AND UNINSURED RISKS

The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures, and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims,
and other damage to properties of the Company and others. Additionally, the
Company's oil and gas operations are located in an area that is subject to
tropical weather disturbances, some of which can be severe enough to cause
substantial damage to facilities and possibly interrupt production. As
protection against operating hazards, the Company maintains insurance coverage
against some, but not all, potential losses. The Company's coverages include,
but are not limited to, operator's extra expense, physical damage on certain
assets, employer's liability, comprehensive general liability, automobile,
workers' compensation and loss of production income insurance. The Company
believes that its insurance is adequate and customary for companies of a similar
size engaged in operations similar to those of the Company, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on the Company's financial condition and
results of operations.

ABANDONMENT COSTS

Due to the Company's large number of offshore producing wells and expansive
production facilities, government regulations and lease terms will require the
Company to incur substantial abandonment costs. As of June 30, 1996, total
abandonment costs for the Company's existing properties estimated to be incurred
through 2008 were approximately $56 million, and total abandonment costs for the
Central Gulf Properties estimated to be incurred through 2009 were approximately
$31 million. Estimated abandonment costs have been included in determining
actual and pro forma estimates of the Company's future net revenues from proved
reserves included herein, and the Company accounts for such costs through its
provision for depreciation, depletion and amortization. Under the terms of the
acquisition agreements for the Company's existing principal producing
properties, the Company is required to fund periodically restricted cash
accounts as a reserve for abandonment costs on such properties. See "Business
and Properties -- Abandonment Costs" and Note 12 to the audited consolidated
financial statements of the Company included elsewhere herein.

COMPLIANCE WITH GOVERNMENT REGULATIONS

The Company's business is subject to certain Federal, state, and local laws
and regulations relating to the exploration for, and the development, production
and transportation of, oil and natural gas, as well as environmental and safety
matters. Many of these laws and regulations have become more stringent in recent
years, often imposing greater liability on a larger number of potentially
responsible parties. Although the Company believes it is in substantial
compliance with all applicable laws and regulations, the requirements imposed by
such laws and regulations are frequently changed and subject to interpretation,
and the Company is unable to predict the ultimate cost of compliance with these
requirements or their effect on its operations. Under certain circumstances, the
Minerals Management Service ("MMS"), an agency of the U.S. Department of the
Interior, may require any Company operations on federal leases to be suspended
or

15
<PAGE> 18

terminated. Any such suspensions, terminations or inability to meet applicable
bonding requirements could materially and adversely affect the Company's
financial condition and operations. Although significant expenditures may be
required to comply with governmental laws and regulations applicable to the
Company, to date such compliance has not had a material adverse effect on the
earnings or competitive position of the Company. It is possible that such
regulations in the future may add to the cost of operating offshore drilling
equipment or may significantly limit drilling activity. See "Business and
Properties -- Abandonment Costs," "-- Governmental Regulation" and
"-- Environmental Matters."

On August 25, 1993, the MMS published an advance notice of its intention to
adopt regulations under the Oil Pollution Act of 1990 ("OPA 90") that would
require owners and operators of offshore oil and natural gas facilities to
establish $150 million in financial responsibility in case of a potential spill.
In May 1995, the U.S. House of Representatives approved a bill that would amend
OPA 90 to reduce the level of financial responsibility to $35 million. The U.S.
Senate passed a related measure on November 17, 1995 that would also amend OPA
90 to reduce the level of financial responsibility to $35 million. The Clinton
Administration has expressed its support for this legislation, but has not yet
taken any action on the bills approved by the U.S. House of Representatives and
the U.S. Senate. The MMS has indicated that it would not move forward with the
adoption of the rule until the United States Congress has had an opportunity to
act on the pending amendments to OPA 90. Based on the passage of these bills and
the support of the Clinton Administration, it appears that the level of
financial responsibility required under OPA 90 will be reduced and the MMS will
probably not move forward with the adoption of its rule as it was proposed. The
impact of the regulations, however, should not be any more adverse to the
Company than they will be to other similarly situated owners or operators in the
Gulf of Mexico region.

DEPENDENCE UPON KEY PERSONNEL

The success of the Company has been and will continue to be highly
dependent on the Company's Chairman of the Board and Chief Executive Officer,
James C. Flores, and a limited number of other senior management personnel. Loss
of the services of Mr. Flores or any of those other individuals could have a
material adverse effect on the Company's operations. The Company can make no
assurance regarding the future affiliation of Mr. Flores with the Company. See
"Management."

CONTROL BY FOUNDER

James C. Flores beneficially owns an aggregate of 3,535,504 shares of
Common Stock, constituting approximately 18.1% of the outstanding shares of
Common Stock. In addition, William W. Rucks, IV (the "Selling Stockholder")
beneficially owns an aggregate of 3,463,010 shares of Common Stock, of which up
to 1,750,000 may be sold in the Common Stock Offering. Subject to the completion
of the Common Stock Offering, Mr. Rucks has granted to Mr. Flores the option to
purchase up to 1,600,000 shares of Common Stock owned by Mr. Rucks during the
three year period commencing upon consummation of the Common Stock Offering. In
connection therewith, Mr. Rucks will grant Mr. Flores an irrevocable proxy to
vote the 1,600,000 shares of Common Stock, constituting an additional 8.2% of
the Company's outstanding shares of Common Stock, during the option exercise
period and Mr. Rucks will resign as Vice Chairman and President of the Company.
Accordingly, Mr. Flores is in a position to control or influence actions that
require the consent of the Company's stockholders, including the election of
directors.

SUBORDINATION OF NOTES; HOLDING COMPANY STRUCTURE

The Indenture governing the Notes will limit, but will not prohibit, the
incurrence by the Company of additional indebtedness that is senior in right of
payment to the Notes (including by reason of structural subordination of the
Notes to the indebtedness and other liabilities of the Company's subsidiaries).
In the event of bankruptcy, liquidation, reorganization or other winding up of
the Company, the assets of the Company will be available to pay the Company's
obligations on the Notes offered hereby only after all Senior Indebtedness (as
defined) has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on the Notes. In addition, under certain circumstances, no
payments may be made with respect

16
<PAGE> 19

to principal of, premium, if any, or interest on the Notes if a default exists
with respect to any Senior Indebtedness. See "Description of
Notes--Subordination."

All of the Company's operating income and cash flow is generated by Flores
& Rucks, Inc., a Louisiana corporation ("FRI Louisiana"), and a wholly owned
subsidiary and Restricted Subsidiary under the Existing Indenture. As a result,
funds necessary to meet the Company's debt service obligations, including the
payment of principal and interest on the Notes, will be provided by
distributions or advances from this subsidiary. In addition, for state income
tax purposes FRI Louisiana will covenant with the Company to assume, as between
the Company and FRI Louisiana, the payment obligations under the Notes in
exchange for the advance of substantially all the net proceeds of the Notes
Offering to FRI Louisiana. Such intercompany assumption will not affect the
primary liability of the Company under the Notes.

As of June 30, 1996, on a pro forma basis after giving effect to the Notes
Offering and the application of the proceeds therefrom as described in "Use of
Proceeds," the Company and its Restricted Subsidiaries would have had
approximately $125 million of indebtedness that effectively would rank senior to
the Notes.

The Existing Indenture imposes limits on the ability of the Company and its
subsidiaries to incur additional indebtedness and liens and to enter into
agreements that would restrict the ability of such subsidiaries to make
distributions, loans or other payments to the Company. The Indenture will
contain similar provisions. However, these limitations are subject to various
qualifications. Subject to certain limitations, the Company and its subsidiaries
may incur additional secured indebtedness. For additional details of these
provisions and the applicable qualifications, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of the Notes -- Ranking," "-- Certain
Covenants."

FRAUDULENT CONVEYANCE CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEE

The Company's obligations under the Notes will be guaranteed on an
unsecured senior subordinated basis by the Subsidiary Guarantor. Various
fraudulent conveyance laws have been enacted for the protection of creditors and
may be utilized by a court of competent jurisdiction to subordinate or avoid any
Subsidiary Guarantee issued by a Subsidiary Guarantor. It is also possible that
under certain circumstances a court could hold that the direct obligations of
the Subsidiary Guarantor could be superior to the obligations under the
Subsidiary Guarantee.

To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by the Subsidiary Guarantor with the intent to hinder, delay or defraud
any present or future creditor or that the Subsidiary Guarantor contemplated
insolvency with a design to favor one or more creditors to the exclusion in
whole or in part of others or (y) the Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing the Subsidiary
Guarantee and, at the time it issued the Subsidiary Guarantee, the Subsidiary
Guarantor (i) was insolvent or rendered insolvent by reason of the issuance of
the Subsidiary Guarantee, (ii) was engaged or about to engage in a business or
transaction for which the remaining assets of the Subsidiary Guarantor
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
the court could avoid or subordinate the Subsidiary Guarantee in favor of the
Subsidiary Guarantor's other creditors. Among other things, a legal challenge of
the Subsidiary Guarantee issued by the Subsidiary Guarantor on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the issuance by the Company of the Notes. To the extent
the Subsidiary Guarantee is avoided as a fraudulent conveyance or held
unenforceable for any other reason, the holders of the Notes would cease to have
any claim in respect of such Subsidiary Guarantor and would be creditors solely
of the Company.

On the basis of financial information and other information currently
available to it, the Company believes that the Notes and the Subsidiary
Guarantee issued concurrently with the issuance of the Notes are being incurred
for proper purposes and in good faith and that, after giving effect to
indebtedness incurred in connection with the issuance of the Notes and the
issuance of the Subsidiary Guarantee, the Company and the Subsidiary Guarantor
are solvent and will continue to be solvent, will have sufficient capital for
carrying on their respective business and will be able to pay their debts as
such debts become absolute and mature.

17
<PAGE> 20

Further, since the Company will advance all of the net proceeds from the Notes
Offering to FRI Louisiana in order to apply such proceeds to their intended
uses, the Company believes that FRI Louisiana will have received fair
consideration or reasonably equivalent value for the issuance of the Subsidiary
Guarantee. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
the Notes."

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

There is no existing market for the Notes and there can be no assurance as
to the liquidity of any markets that may develop for the Notes, the ability of
holders of the Notes to sell their Notes or the price at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company has been
advised by the Underwriters that, subject to applicable laws and regulations,
such firms currently intend to make a market in the Notes after the consummation
of the Notes Offering, although they are not obligated to do so and may
discontinue any market-making activities with respect to the Notes at any time
without notice. The Company does not intend to apply for listing of the Notes on
any securities exchange. See "Underwriting."

18
<PAGE> 21

THE COMPANY

The Company is a corporation organized under the laws of the State of
Delaware. The Company's principal executive offices are located at 8440
Jefferson Highway, Suite 420, Baton Rouge, Louisiana 70809, and its telephone
number is (504) 927-1450.

COMMON STOCK OFFERING

Concurrent with the Notes Offering, the Selling Stockholder is offering
1,550,000 shares of Common Stock to the public. In addition, in the Common Stock
Offering the Selling Stockholder has granted the Underwriters an option to
purchase up to 200,000 additional shares of Common Stock to cover over-
allotments. The consummation of the Notes Offering and the Common Stock Offering
are not contingent upon each other and there can be no assurance that the Common
Stock Offering will be consummated.

USE OF PROCEEDS

The net proceeds from the Notes Offering are estimated to be approximately
$ million. Of such proceeds, approximately $132 million will be used to
consummate the Central Gulf Acquisition, and the remainder will be used for
general corporate purposes, including for working capital, or to repay
outstanding indebtedness under the Revolving Credit Facility (estimated to be
approximately $30 million as of September 30, 1996). The indebtedness under the
Revolving Credit Facility was incurred for working capital purposes, bore
interest at a weighted average rate of 8.25% at June 30, 1996 and has a final
maturity date of December 31, 2000. See Note 9 of Notes to Consolidated
Financial Statements.

19
<PAGE> 22

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996, and as adjusted to give effect to the Notes
Offering and the application of the net proceeds therefrom (assuming net
proceeds of $ million) as described in "Use of Proceeds." The information
presented below should be read in conjunction with the consolidated financial
statements of the Company and notes thereto, "Selected Historical Financial and
Operating Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in or incorporated by reference
into this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving Credit Facility.......................................... $ 3,000 $ --
Senior Notes....................................................... 125,000 125,000
Notes offered hereby............................................... -- 150,000
Other long-term debt............................................... 160 160
-------- --------
Total long-term debt....................................... 128,160 275,160
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding................................ -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
19,555,223 shares issued and outstanding........................ 196 196
Additional paid-in capital......................................... 89,734 89,734
Retained earnings (deficit)........................................ (5,478) (5,478)
-------- --------
Total stockholders' equity................................. 84,452 84,452
-------- --------
Total capitalization....................................... $212,612 $359,612
======== ========
</TABLE>

20
<PAGE> 23

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The selected financial data set forth below for the period from inception
(April 20, 1992) through December 31, 1992, and the years ended December 31,
1993, 1994 and 1995 for the Company are derived from the audited financial
statements and notes thereto contained elsewhere in this Prospectus. The
financial data for the six months ended June 30, 1995 and 1996 are derived from
unaudited financial statements of the Company. The selected historical financial
data are qualified in their entirety by, and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes thereto included
elsewhere in this Prospectus. For additional information relating to the
Company's operations, see "Business and Properties."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
-------- ------- -------- --------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS AND OTHER FINANCIAL AND
OPERATING DATA:
REVENUES & EXPENSE DATA:
Revenues
Flores & Rucks, Inc. (1)............................ -- $13,279 $ 47,483 $ 75,395 $127,970 $55,872 $69,082
Combined Acquisitions (2)........................... $121,275 95,018 38,197 8,707 -- -- --
Direct Operating Expenses
Flores & Rucks, Inc. (1)............................ -- 6,687 19,201 30,324 40,047 18,970 22,044
Combined Acquisitions (2)........................... 72,991 40,155 13,779 4,089 -- -- --
General & Administrative Expenses..................... -- 385 5,032 10,351 11,312 5,613 6,025
Depreciation, Depletion & Amortization................ -- 3,420 20,140 36,459 54,084 23,167 28,973
Interest Expense...................................... -- 241 1,055 4,507 17,620 8,493 8,188
Loss on Production Payment Repurchase and Refinancing
(3)................................................. -- -- -- 16,681 -- -- --
Net Income (Loss) Before Income Tax Expense
(Benefit)........................................... -- 2,584 2,227 (22,179) 5,210 (251) 3,850
Income Tax Expense (Benefit) (4)...................... -- -- -- -- (4,692) -- 1,514
Net Income (Loss)..................................... -- 2,584 2,227 (22,179) 9,902 (251) 2,336
Earnings (Loss) per Common Share (5).................. -- -- -- -- 0.66 (0.02) 0.13
OTHER FINANCIAL DATA:
EBITDA (6)............................................ -- $ 6,245 $ 23,422 $ 35,855 $ 77,645 $31,684 $43,468
Net Cash Provided By (Used In) Operating Activities
(7)................................................. -- 38,042 103,112 (115,485) 58,880 40,642 47,260
Capital Expenditures (8).............................. -- 34,978 123,600 74,477 73,652 44,770 64,771
Ratio of Earnings to Fixed Charges (9)................ -- 11.1x 3.0x N.M. 1.3x 1.0x 1.5x
Ratio of EBITDA to Interest Expense (6)............... -- -- -- -- 4.4x 3.7x 5.3x
OPERATING DATA:
Sales Volumes:
Oil (MBbl).......................................... -- 670 2,850 4,286 6,057 2,630 3,008
Gas (MMcf).......................................... -- 1,484 3,704 7,234 12,393 5,619 7,016
MBOE................................................ -- 917 3,467 5,492 8,123 3,567 4,178
Average Prices (10):
Oil (per Bbl)....................................... -- $ 16.18 $ 13.82 $ 14.24 $ 17.39 $ 17.77 $ 19.80
Gas (per Mcf)....................................... -- 1.64 1.81 1.76 1.82 1.72 2.86
BOE (per BOE)....................................... -- 14.48 13.30 13.42 15.75 15.81 19.05
Lease Operating Expenses (per BOE).................... -- $ 5.45 $ 4.10 $ 4.29 $ 3.70 $ 3.99 $ 3.95
</TABLE>

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
---------------------------------------- ----------
1992 1993 1994 1995 1996
------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and Gas Assets, Net............................................ $31,557 $122,933 $160,950 $180,582 $216,380
Total Assets....................................................... 37,396 132,172 181,982 216,095 256,721
Long-Term Debt..................................................... -- 13,448 154,039 171,692 128,160
Deferred Revenue on Production Payments(11)........................ 32,347 108,784 -- -- --
Stockholders' Equity............................................... 349 (825) 9,703 19,976 84,452
</TABLE>

(See footnotes on following page)

21
<PAGE> 24

- ---------------

(1) Historical 1992 Company data is presented for the period from the date of
formation of the Company on April 20, 1992 through December 31, 1992.
Historical company data reflect the acquisitions of Main Pass 69 on June
11, 1992, the East Bay Complex on June 10, 1993, and a 12.5% minority
interest thereon on December 7, 1994.

(2) Represents combined revenues and direct operating expenses for (i) all of
Shell's interest in Main Pass 69 and the East Bay Complex until the
acquisition by the Company of 87.5% of such interests on June 11, 1992 and
June 10, 1993, respectively and (ii) the 12.5% ownership of Main Pass 69
and the East Bay Complex acquired by Franks Petroleum, Inc. on June 11,
1992 and June 10, 1993, respectively, until acquired by the Company on
December 7, 1994.

(3) The amount shown for the year ended December 31, 1994 represents primarily
the excess of the purchase price of the Production Payments over the book
value of the Production Payments liability as of December 7, 1994.

(4) The Company was formed as an S corporation under the Internal Revenue Code
and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through the date of the Initial Offerings, no
historical federal or state income tax expense has been provided for in the
financial statements. In conjunction with the Initial Offerings, the
Company converted to a C corporation under the Internal Revenue Code. The
Company recorded a deferred tax asset of $6.3 million, offset by a
valuation allowance of $6.3 million at December 31, 1994 and a deferred tax
asset of $4.7 million at December 31, 1995. As a result of the reversal of
the valuation allowance, the Company recorded a net income tax benefit of
$4.7 million in the year ended December 31, 1995.

(5) If the Company had recognized a tax provision at statutory rates for the
year ended December 31, 1995, rather than an income tax benefit, earnings
per common share would have been $0.22 for such period. Earnings per share
has not been presented for periods prior to or including the date of the
Initial Offerings, as these amounts would not be meaningful or indicative
of the ongoing entity.

(6) Earnings before interest, taxes, depreciation, depletion and amortization.
EBITDA has not been reduced for the recognition of noncash revenues
associated with the Production Payments. EBITDA is not intended to
represent cash flow in accordance with generally accepted accounting
principles and does not represent the measure of cash available for
distribution. EBITDA is not intended as an alternative to earnings from
continuing operations or net income.

(7) Cash flow from operating activities in 1992 and 1993 includes $36.8 million
and $95.7 million, respectively, from the sale of the Production Payments.
Cash flow from operating activities for the year ended December 31, 1994
was reduced by $123.6 million related to the repurchase of the Production
Payments.

(8) Includes $34.3 million in the year ended December 31, 1992 related to the
acquisition of Main Pass 69. Includes $115.5 million in the year ended
December 31, 1993 related to the acquisition of the East Bay Complex.

(9) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense on all
indebtedness. The ratio for the year ended December 31, 1994 is not
meaningful because earnings were inadequate to cover fixed charges by $22.3
million.

(10) Excludes results of hedging activities which increased (decreased) revenue
recognized in the 1993, 1994 and 1995 periods by $1.2 million, $1.7 million
and $(0.5) million, respectively. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $14.23,
$14.56 and $17.27 in the years ended December 31, 1993, 1994 and 1995,
respectively, and the average gas price per Mcf received was $1.81 and
$1.84 in the years ended December 31, 1994 and 1995, respectively. The
Company did not enter into any hedging activities relating to oil during
1992 or relating to gas during 1992 and 1993. Hedging activities decreased
revenue recognized in the six months ended June 30, 1995 and 1996 by $1.0
million and $10.5 million, respectively. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $17.32 and
$17.92 in the six months ended June 30, 1995 and 1996, respectively, and
the average gas price per Mcf received was $1.75 and $2.17 in the six
months ended June 30, 1995 and 1996, respectively.

(11) Amounts represent deferred revenues recognized from the sale of the
Production Payments. See Note 4 to the consolidated financial statements of
the Company.

22
<PAGE> 25

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma balance sheet as of June 30, 1996 gives
effect to the Notes Offering and the Central Gulf Acquisition, as if they had
occurred on June 30, 1996. The unaudited pro forma statements of operations for
the year ended December 31, 1995 and for the six months ended June 30, 1996,
give effect to the Notes Offering, the Central Gulf Acquisition and the March
1996 public offering of shares of Common Stock by the Company (the "March 1996
Offering") as if they had occurred on January 1, 1995. The Central Gulf
Acquisition has been accounted for using the purchase method of accounting. Such
unaudited pro forma financial information has been prepared based on estimates
and assumptions deemed by the Company to be appropriate and does not purport to
be indicative of the financial position or results of operations which would
actually have been obtained if the Notes Offering, the Central Gulf Acquisition
and the March 1996 Offering had occurred as presented in such statements or
which may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to oil and gas
production declines, price changes, future supply and demand, financial
instrument agreements, future acquisitions and other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The pro forma financial information should be read in conjunction with the
historical financial statements of the Company and the audited financial
information on the Central Gulf Properties which are included elsewhere in this
Prospectus.

23
<PAGE> 26

FLORES & RUCKS, INC.

CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
ADJUSTMENTS FOR
PURCHASE OF
CENTRAL GULF OTHER
HISTORICAL PROPERTIES ADJUSTMENTS PRO FORMA
---------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales................... $69,115,492 $30,474,080(a) $ 2,178,128(b) $101,767,700
Plant processing income............. (33,473) (33,473)
----------- ----------- ----------- ------------
Total revenues................... 69,082,019 30,474,080 2,178,128 101,734,227
OPERATING EXPENSES:
Lease operations.................... 16,522,030 5,429,438(a) 21,951,468
Severance taxes..................... 5,521,763 5,521,763
Depreciation, depletion and
amortization..................... 28,973,040 12,044,660(a) 41,017,700
----------- ----------- ----------- ------------
Total operating expenses......... 51,016,833 17,474,098 68,490,931
General and administrative expenses... 6,025,000 225,000(a) 6,250,000
Interest expense...................... 8,188,026 6,649,243(c) 12,357,864
(2,848,155)(d)
368,750(e)
Other expense......................... 1,779 1,779
----------- ----------- ----------- ------------
Net income before taxes............... 3,850,381 12,774,982 (1,991,710) 14,633,653
Income tax expense (benefit).......... 1,514,704 4,918,368(f) (766,809)(f) 5,666,263
----------- ----------- ----------- ------------
Net income............................ $ 2,335,677 $ 7,856,614 $(1,224,901) $ 8,967,390
=========== =========== =========== ============
Weighted average common shares
outstanding......................... 17,620,538 18,807,455(g)
Earnings per common share............. $ 0.13 $ 0.48
</TABLE>

24
<PAGE> 27

FLORES & RUCKS, INC.

CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ADJUSTMENTS
FOR PURCHASE OF
CENTRAL GULF OTHER
HISTORICAL PROPERTIES ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales................... $127,406,084 $47,466,689(a) $ 2,896,377(b) $177,769,150
Plant processing income............. 564,042 564,042
------------ ----------- ----------- ------------
Total revenues................... 127,970,126 47,466,689 2,896,377 178,333,192
OPERATING EXPENSES:
Lease operations.................... 30,023,426 13,224,835(a) 43,248,261
Severance taxes..................... 10,023,104 10,023,104
Depreciation, depletion and
amortization..................... 54,083,782 24,627,971(a) 78,711,753
------------ ----------- ----------- ------------
Total operating expenses......... 94,130,312 37,852,806 131,983,118
General and administrative expenses... 11,312,153 450,000(a) 11,762,153
Interest expense...................... 17,620,226 12,385,779(c) 24,960,752
(5,782,753)(d)
737,500(e)
Other income.......................... (302,597) (302,597)
------------ ----------- ----------- ------------
Net income before taxes............... 5,210,032 9,163,883 (4,444,149) 9,929,766
Income tax expense (benefit).......... (4,692,263) 3,528,095(f) (1,710,997)(f) (2,875,165)
------------ ----------- ----------- ------------
Net income............................ $ 9,902,295 $ 5,635,788 $(2,733,152) $ 12,804,931
============ =========== =========== ============
Weighted average common shares
outstanding......................... 15,043,122 16,758,082(g)
Earnings per common share............. $ 0.66 $ 0.76
</TABLE>

25
<PAGE> 28

FLORES & RUCKS, INC.

CONSOLIDATED PRO FORMA BALANCE SHEETS
AS OF JUNE 30, 1996

<TABLE>
<CAPTION>
ADJUSTMENTS
FOR PURCHASE OF
CENTRAL GULF OTHER
HISTORICAL PROPERTIES(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 819,468 $8,675,000 (h) $ 9,494,468
Joint interest receivables........ 1,229,810 1,229,810
Oil and gas sales receivables..... 16,112,617 16,112,617
Accounts receivable-other......... 3,700,000 3,700,000
Prepaid expenses.................. 1,019,583 1,019,583
Other current assets.............. 1,370,150 1,370,150
------------ ------------ ----------- ------------
Total current assets...... 24,251,628 -- 8,675,000 32,926,628
Oil and gas properties -- full cost
method:
Evaluated......................... 332,287,198 $81,435,200 413,722,398
Less accumulated DD&A............. (143,013,084) (143,013,084)
------------ ------------ ------------
189,274,114 81,435,200 270,709,314
Unevaluated properties excluded
from amortization.............. 27,106,066 50,764,800 77,870,866
Other assets:
Furniture and equipment, less
accumulated depreciation of
$1,891,211..................... 2,793,110 2,793,110
Restricted deposits............... 5,269,835 5,269,835
Deferred financing costs.......... 4,823,582 6,125,000 (i) 10,948,582
Deferred tax asset................ 3,202,863 3,202,863
------------ ------------ ----------- ------------
Total assets.............. $256,721,198 $132,200,000 $14,800,000 $403,721,198
============ ============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities.................... $ 37,240,733 $ 37,240,733
Oil and gas sales payable......... 4,548,963 4,548,963
Accrued interest.................. 1,447,287 1,447,287
------------ ------------
Total current
liabilities............. 43,236,983 43,236,983
Long-term debt...................... 128,160,111 $132,200,000 $14,800,000(h) 275,160,111
Other noncurrent liabilities........ 638,609 638,609
Deferred hedge revenue.............. 233,167 233,167
Stockholders' equity:
Preferred stock................... -- --
Common stock, $.01 par value;
authorized 100,000,000 shares;
issued and outstanding
19,555,223 shares at June 30,
1996........................... 195,552 195,552
Paid-in capital................... 89,734,455 89,734,455
Retained earnings (deficit)....... (5,477,679) (5,477,679)
------------ ------------
Total stockholders'
equity.................. 84,452,328 84,452,328
------------ ------------ ----------- ------------
Total liabilities and
stockholders' equity.... $256,721,198 $132,200,000 $14,800,000 $403,721,198
============ ============ =========== ============
</TABLE>

26
<PAGE> 29

FLORES & RUCKS, INC.

NOTES TO PRO FORMA FINANCIAL STATEMENTS

1. BASIS FOR PRESENTATION OF PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma balance sheet as of June 30, 1996 gives effect to
the Notes Offering and the Central Gulf Acquisition, as if they had occurred on
June 30, 1996. The unaudited pro forma statements of operations for the year
ended December 31, 1995 and for the six months ended June 30, 1996, give effect
to the Notes Offering, the Central Gulf Acquisition and the March 1996 Offering
as if they had occurred on January 1, 1995. The Central Gulf Acquisition has
been accounted for using the purchase method of accounting. Such unaudited pro
forma financial information has been prepared based on estimates and assumptions
deemed by the Company to be appropriate and does not purport to be indicative of
the financial position or results of operations which would actually have been
obtained if the Notes Offering, Central Gulf Acquisition, and the March 1996
Offering had occurred as presented in such statements, or which may be obtained
in the future. In addition, future results may vary significantly from the
results reflected in such statements due to oil and gas production declines,
price changes, future supply and demand, financial instrument agreements, future
acquisitions and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

The pro forma financial information should be read in conjunction with the
historical financial statements of the Company, and the audited financial
information on the Central Gulf Properties which are included elsewhere in this
Prospectus.

2. ADJUSTMENTS

The pro forma adjustments included in the pro forma financial statements
are described as follows by the alphabetical notation:

(a) Reflects increases relating to the purchase of the Central Gulf
Properties, including the proceeds from the Notes used for the acquisition of
the Central Gulf Properties.

(b) Reflects an increase in pricing from historical pricing to that which
the Company would have realized under its contracts.

(c) Reflects an increase in interest expense of $15.0 million and $7.5
million for the twelve months ended December 31, 1995 and the six months ended
June 30, 1996 respectively, relating to the issuance of the Notes partially
offset by a reduction of $2.6 million and $.9 million for the twelve months
ended December 31, 1995 and the six months ended June 30, 1996 respectively,
relating to the repayment of debt which is assumed repaid with proceeds of the
Notes Offering and the March 1996 Offering.

(d) Reflects a reduction to interest expense associated with the
capitalization of interest on unevaluated property costs incurred in conjunction
with the acquisition of the Central Gulf Properties. This reduction is partially
offset by a reduction in the average interest rate used in the calculation of
capitalized interest on other unevaluated properties resulting from the issuance
of the Notes at a lower interest rate than the Company's existing average
interest rate.

(e) Reflects an increase in interest expense related to additional
amortization of deferred financing costs resulting from underwriting discounts,
fees and other expenses associated with the issuance of the Notes.

(f) Reflects an adjustment in income tax expense relating to the change in
pre-tax income resulting from the above adjustments. The adjustment is based
upon a blended Federal and Louisiana state income tax rate of 38.5%.

(g) Reflects the increase in common shares from the March 1996 Offering,
the proceeds of which were assumed to have been utilized to repay debt.

(h) Reflects a $150.0 million increase in long-term debt associated with
the issuance of the Notes partially offset by a $3.0 million reduction relating
to a payment on the June 30, 1996 Revolving Credit Facility balance and the
$132.2 million purchase price of the Central Gulf Acquisition reflected in note
(a).

(i) Reflects an increase in deferred financing costs relating to
underwriting discounts, fees and other expenses associated with the Notes.

27
<PAGE> 30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in or incorporated by reference into this Prospectus.

GENERAL

The Company is a Delaware corporation formed in September 1994 to acquire
and own 100% of the outstanding Common Stock of FRI Louisiana. FRI Louisiana was
formed in April 1992 to take advantage of opportunities to acquire and develop
certain offshore properties in the Louisiana Gulf. FRI Louisiana acquired from
Shell Main Pass 69 in June 1992 and the East Bay Complex in June 1993. In
connection with the acquisition and development of its properties prior to the
Company's initial public offerings (the "Initial Offerings"), FRI Louisiana
entered into several transactions including, but not limited to (i) the sale of
volumetric production payments (the "Production Payments"), (ii) obtaining
secured loans (the "JEDI Loans") from the Joint Energy Development Investments
Limited Partnership ("JEDI"), a venture between the California Public Employees
Retirement System and Enron Capital Corp. and (iii) the assignment of a 12.5%
interest in Main Pass 69 and the East Bay Complex to Franks Petroleum, Inc.
("Franks").

On December 28, 1993, in order to reduce state franchise tax liabilities,
FRI Louisiana transferred its 87.5% interest in Main Pass 69 and the East Bay
Complex to a Louisiana limited liability company (the "LLC") in return for an
87.5% ownership interest in the LLC. Franks also contributed its interest in
such properties to the LLC in return for a 12.5% ownership interest in the LLC
(the "Minority Interest").

In conjunction with the Initial Offerings of 5,790,000 shares of Common
Stock at $10 per share, the sale of the $125,000,000 Senior Notes and entering
into the $50 million Revolving Credit Facility, the Company (i) acquired 100% of
the outstanding common stock of FRI Louisiana from James C. Flores, trusts for
the benefit of his children and William W. Rucks, IV in exchange for a total of
8,248,000 shares of Common Stock, (ii) repurchased the Production Payments,
(iii) purchased the Minority Interest, and (iv) repaid other debt owed by the
Company, including the JEDI Loans.

On March 19, 1996, the Company completed a public offering of 4,500,000
shares of Common Stock at a price of $14.75 per share. Net proceeds from this
offering were approximately $62.2 million, of which $15.4 million was used to
repay a note payable to Shell Offshore, Inc. and approximately $33.0 million was
used to repay indebtedness under the Revolving Credit Facility.

Since acquiring the East Bay Complex and Main Pass 69, the Company has
reduced field costs at both operations primarily by combining administrative
functions relating to both properties, reducing the number of operating
personnel and providing incentive compensation. For example, the two properties,
which were formerly operated as separate cost centers, are now integrated with
respect to logistics, administration and other support functions. In addition,
the Company was able to reduce the number of field personnel by approximately
37% at the East Bay Complex and 44% at Main Pass 69. The former cost centers
were also converted to profit centers with compensation levels tied to operating
and financial targets. Primarily as a result of the aforementioned actions and
increased production, lease operating expenses decreased by 28% from $5.45 per
BOE for the period from inception (April 20, 1992) through December 31, 1992 to
$3.95 per BOE for the six months ended June 30, 1996.

On July 10, 1996, the Company entered into a Purchase and Sale Agreement to
acquire the Central Gulf Properties, consisting of interests in oil and gas
producing fields situated in the Gulf of Mexico, offshore Louisiana, for an
anticipated purchase price of approximately $132 million. Current estimated net
production on the Central Gulf Properties is in excess of 7,200 BOE per day,
which would represent an increase of approximately 30% in the Company's current
average daily production. The closing of the Central Gulf Acquisition will occur
concurrently with the consummation of the Notes Offering, subject to approvals
by the management and Board of Directors of the Company and Mobil, and subject
to preferential purchase rights of third parties on some of the Central Gulf
Properties.

28
<PAGE> 31

Management believes the acquisition of the Central Gulf Properties, along
with the Company's recent exploration efforts in the onshore coastal regions of
Louisiana, substantially increase the Company's future exploration, exploitation
and development opportunities while diversifying the risks associated with these
activities. The proximity of these new areas to the Company's existing
properties allows for economies of scale associated with leveraging the
Company's current corporate infrastructure. Additionally, management believes it
will be able to take advantage of its unique operating strengths in pursuing
each of these areas. In particular, application of the geological, geophysical
and operational experience derived from its existing properties may enhance the
likelihood of success in these new areas, due in part to the geological
similarities shared by the entire Louisiana Gulf region.

The following table reflects certain information with respect to the
Company's oil and gas properties. Sales volumes, revenues and average sales
prices presented below have been segregated into those subject to Production
Payments and amounts in excess of Production Payments in the applicable periods.
The amounts for the year ended December 31, 1993 and for the year ended December
31, 1994 do not reflect the 12.5% Minority Interest prior to its acquisition on
December 7, 1994.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
SALES VOLUMES
Oil (MBbls)
Excess over Production Payments........ 1,537 2,771 6,057 2,630 3,008
Production Payments.................... 1,313 1,515 -- -- --
------- ------- -------- ------- -------
Total Oil Volumes...................... 2,850 4,286 6,057 2,630 3,008
======= ======= ======== ======= =======
Gas (MMcf)
Excess over Production Payments........ 1,542 3,456 12,393 5,619 7,016
Production Payments.................... 2,162 3,778 -- -- --
------- ------- -------- ------- -------
Total Gas Volumes...................... 3,704 7,234 12,393 5,619 7,016
======= ======= ======== ======= =======
REVENUES (1)
Oil
Excess over Production Payments........ $24,477(2) $43,106(2) $105,360 $46,728 $59,561
Production Payments.................... 14,918 17,906 -- -- --
------- ------- -------- ------- -------
Total Oil Revenues..................... $39,395 $61,012 $105,360 $46,728 $59,561
======= ======= ======== ======= =======
Gas
Excess over Production Payments........ $ 3,340 $ 6,757 $ 22,581 $ 9,650 $20,032
Production Payments.................... 3,376 5,951 -- -- --
------- ------- -------- ------- -------
Total Gas Revenues..................... $ 6,716 $12,708 $ 22,581 $ 9,650 $20,032
======= ======= ======== ======= =======
AVERAGE SALES PRICES (1)
Oil (per Bbl)
Excess over Production Payments........ $ 15.93(2) $ 15.56(2) $ 17.39 $ 17.77 $ 19.80
Production Payments.................... 11.36 11.82 -- -- --
Net average oil price.................. 13.82 14.24 17.39 17.77 19.80
Gas (per Mcf)
Excess over Production Payments........ $ 2.17 $ 1.96 $ 1.82 $ 1.72 $ 2.86
Production Payments.................... 1.56 1.58 -- -- --
Net average gas price.................. 1.81 1.76 1.82 1.72 2.86
BOE (per BOE)
Excess over Production Payments........ $ 15.51 $ 14.90 $ 15.75 $ 15.81 $ 19.05
Production Payments.................... 10.93 11.12 -- -- --
Net average price...................... 13.30 13.42 15.75 15.81 19.05
Severance Taxes (3)......................... $ 4,998 $ 6,747 $ 10,023 $ 4,745 $ 5,522
Lease Operating Expenses (3)................ $14,204 $23,577 $ 30,023 $14,225 $16,522
Lease Operating Expenses (per BOE).......... $ 4.10 $ 4.29 $ 3.70 $ 3.99 $ 3.95
</TABLE>

(See footnotes on following page)

29
<PAGE> 32

- ---------------

(1) Excludes results of hedging activities which increased (decreased) revenue
recognized in the years ended December 31, 1993, 1994 and 1995 by $1.2
million, $1.7 million and $(0.5) million, respectively. Including the
effect of hedging activities, the Company's average oil price per Bbl
received was $14.23, $14.56 and $17.27 in the years ended December 31,
1993, 1994 and 1995, respectively, and the average gas price per Mcf
received was $1.81 and $1.84 in the years ended December 31, 1994 and 1995,
respectively. The Company did not enter into any hedging activities
relating to gas during 1993. Hedging activities decreased revenue
recognized in the six months ended June 30, 1995 and 1996 by $1.0 million
and $10.5 million, respectively. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $17.32 and
$17.92 and the average gas price per Mcf received was $1.75 and $2.17 in
the six months ended June 30, 1995 and 1996, respectively.

(2) Includes Main Pass 69 sales of 629 MBbls and 800 MBbls for the years ended
December 31, 1993 and 1994, respectively, subject to a long-term contract
at prices averaging $1.23 per Bbl below prevailing market prices for the
year ended December 31, 1993 and $1.29 per Bbl for the eleven months ended
November 30, 1994. The long-term contract was terminated in connection with
the Initial Offerings. See "Business -- Oil and Gas Marketing and Major
Customers."

(3) Volumes delivered under production payments were received by Enron Reserve
Acquisition Corp. ("ERAC") free and clear of severance taxes and lease
operating expenses. These costs were borne in full by the Company under the
terms of the Production Payments.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996

Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
six months ending June 30, 1996 and the comparable period in 1995:

<TABLE>
<CAPTION>
SIX MONTHS 1996
COMPARED TO
SIX MONTHS 1995
---------------
<S> <C>
Increase (decrease) in oil and gas revenues
resulting from differences in:
Crude oil and condensate --
Price................................................... $ 6,116
Production.............................................. 6,717
---------
12,833
Natural gas --
Price................................................... 7,982
Production.............................................. 2,399
---------
10,381
Plant processing and hedging, net.......................... (10,004)
---------
Increase in oil as gas revenues.............................. $ 13,210
=========
</TABLE>

The Company's total revenues increased approximately $13.2 million, or 24%,
to $69.1 million for the six months ended June 30, 1996, from $55.9 million for
the comparable period in 1995. Production levels for the six months ended June
30, 1996, increased 17% to 4,178 MBOE from 3,567 MBOE for the comparable period
in 1995. The Company's average sales prices (excluding hedging activities) for
oil and natural gas for the six months ended June 30, 1996 were $19.80 per Bbl
and $2.86 per Mcf versus $17.77 per Bbl and $1.72 per Mcf in the prior period.
Revenues increased by $9.1 million due to the aforementioned production
increases and by $14.1 million as a result of increased oil and gas prices.

For the six months ended June 30, 1996, the increase in the Company's total
revenues was partially offset by a $9.5 million decrease in hedging revenues and
a $.5 million decrease in plant processing income. In order to manage its
exposure to price risks in the sale of its crude oil and natural gas, the
Company from time to

30
<PAGE> 33

time enters into price hedging arrangements. See "-- Other Matters -- Energy
swap agreements." The Company's average sales prices (including hedging
activities) for oil and natural gas for the six months ended June 30, 1996, were
$17.92 per Bbl and $2.17 per Mcf versus $17.32 per Bbl and $1.75 per Mcf in the
prior period. The Company is also contractually committed to process its gas
production from Main Pass 69 and the East Bay fields under certain processing
agreements. Plant processing income (loss) represents revenues from the sale of
natural gas liquids less the costs of extracting such liquids, which costs
include natural gas shrinkage. Income from plant processing fluctuates primarily
as a result of changes in volumes processed, and changes in prices for natural
gas in comparison to changes in prices for natural gas liquids. Such price
changes are usually not proportionate due to the generally higher price
volatility of natural gas. For the six months ended June 30, 1996, plant
processing income decreased due to natural gas liquid prices remaining
relatively stable, while natural gas prices generally increased.

Lease operating expenses. Lease operating expenses decreased to $3.95 per
BOE for the six months ended June 30, 1996, from $3.99 per BOE in the comparable
1995 period. This decrease is primarily the result of increased production at
the Company's East Bay field, which has substantial fixed operating costs due to
the capital intensive nature of the facilities and the underutilization of
capacity. For the six months ended June 30, 1996, lease operating expenses were
$16.5 million, as compared to $14.2 million in the 1995 period. This increase
partially results from fluctuations in normal operating expenses, including
operating expenses associated with increased production, as well as an increase
of $.7 million in workover expenses. For the six months ended June 30, 1996,
workover expenses were $1.3 million, as compared to $.6 million in the
comparable 1995 period.

Severance taxes. The effective severance tax rate as a percentage of oil
and gas revenues (excluding the effect of hedging activities) decreased to 6.9%
in the six months ended June 30, 1996, from 8.4% in the comparable 1995 period.
The decrease was primarily due to increased production from new wells on federal
leases and from state leases which were exempt from state severance tax under
Louisiana's severance tax abatement program.

General and administrative expenses. General and administrative expenses
per BOE decreased to $1.44 per BOE in the six months ended June 30, 1996, from
$1.57 per BOE in the comparable 1995 period. This decrease is primarily a result
of increased production in the 1996 period. For the six months ended June 30,
1996, general and administrative expenses were $6.0 million as compared to $5.6
million in the comparable 1995 period. This increase is primarily due to costs
associated with increased corporate staffing, partially offset in the 1996
period by an increase in the capitalization of a portion of the salaries paid to
employees directly engaged in the acquisition, exploration and development of
oil and gas properties.

Depreciation, depletion, and amortization expense. For the six months
ended June 30, 1996, depreciation, depletion and amortization ("DD&A") expense
was $29.0 million as compared to $23.2 million in the comparable 1995 period. On
a BOE basis, DD&A for the six months ended June 30, 1996, $6.94 per BOE as
compared to $6.50 per BOE for the six months ended June 30, 1995. This variance
can primarily be attributed to the Company's increased production and related
capital cost additions from the 1995 and 1996 drilling programs, partially
offset by the increase to proved reserves resulting from the programs.

Interest expense. For the six months ended June 30, 1996, interest expense
decreased approximately $.3 million to $8.2 million from $8.5 million in the
comparable 1995 period. This decrease in interest expense can primarily be
attributed to the repayment of a portion of the Company's debt with proceeds
from the issuance of 4,500,000 shares of Common Stock at $14.75 per share on
March 19, 1996.

Other (income) expense. Other (income) expense decreased by $.1 million in
the six months ended June 30, 1996 from the comparable 1995 period. This
decrease primarily relates to the Company recording a $.4 million loss in the
first quarter of 1996 associated with the classification of a portion of its
future swap arrangements as speculative, partially offset by the aforementioned
increase in interest income in the 1996 period.

31
<PAGE> 34

Income tax expense (benefit). For the six months ended June 30, 1996, the
Company recorded income tax expense of $1.5 million. During the comparable 1995
period, no income tax benefit was recorded due to a valuation allowance which
existed at June 30, 1995.

Net income. Due to the factors described above, net income for the six
months ended June 30, 1996, increased to $2.3 million, an increase of $2.6
million from a net loss of $.3 million for the comparable 1995 period.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995

Revenues. The following table reflects an analysis of differences in the
Company's oil and gas revenues (expressed in thousands of dollars) between the
year ended December 31, 1995, and the comparable 1994 period:

<TABLE>
<CAPTION>
YEAR ENDED 1995
COMPARED TO
YEAR ENDED 1994
---------------
<S> <C>
Increase (decrease) in oil and gas revenues resulting from differences in:
Crude oil and condensate --
Price.................................................................. $19,143
Production............................................................. 25,205
-------
44,348
Natural Gas --
Price.................................................................. 811
Production............................................................. 9,062
-------
9,873
-------
Plant processing and Hedging, net...................................... (1,646)
-------
Increase in oil and gas revenues............................................ $52,575
=======
</TABLE>

For the year ended December 31, 1995, the Company's total revenues
increased approximately $52.6 million, or 70%, to $128.0 million from $75.4
million for the comparable period in 1994. Production levels for the year ended
December 31, 1995, increased 48% to 8,123 MBOE from 5,492 MBOE for the
comparable period in 1994. The Company's average sales prices (including hedging
activities) for oil and natural gas for the year ended December 31, 1995 were
$17.27 per Bbl and $1.84 per Mcf, respectively, versus $14.56 per Bbl and $1.81
per Mcf, respectively, in the comparable 1994 period. Oil and natural gas
volumes sold pursuant to Production Payment obligations represented
approximately 35% and 52% of total sales volumes, respectively, for the year
ended December 31, 1994. As a result of the repurchase of the Production
Payments on December 7, 1994, the Company was able to sell all of its production
at market prices in 1995 as compared to previously selling a portion of its
production subject to the Production Payments at implicit contractual prices per
BOE substantially below then current market prices.

For the year ended December 31, 1995, the Company recognized additional
production of 950 MBOE and related revenues of $15.0 million associated with the
Minority Interest purchased December 7, 1994. Of the $15.0 million, $12.4
million was primarily related to production associated with the purchased
Minority Interest with the remaining $2.6 million primarily related to increased
oil prices for the 1995 period.

For the year ended December 31, 1995, the Company's total revenues were
further affected by a $2.2 million decrease in hedging revenues partially offset
by a $0.6 million increase in plant processing income. In order to manage its
exposure to price risks in the sale of its crude oil and natural gas, the
Company from time to time enters into price hedging arrangements. See "-- Other
Matters -- Energy Swap Agreements." The Company is also contractually committed
to process its gas production from Main Pass 69 and the East Bay fields under
certain processing agreements. Plant processing income (loss) represents
revenues from the sale of natural gas liquids less the costs of extracting such
liquids, which costs include natural gas shrinkage. Income from plant processing
fluctuates primarily as a result of changes in volumes processed, and changes in

32
<PAGE> 35

prices for natural gas in comparison to changes in prices for natural gas
liquids. Such price changes are usually not proportionate due to the generally
higher price volatility of natural gas. For the year ended December 31, 1995,
plant processing income increased due to higher volumes of natural gas processed
and because natural gas liquid prices remained relatively stable, while natural
gas prices generally decreased.

Lease operating expenses. On a BOE basis, lease operating expenses
decreased 14% in the year ended December 31, 1995, to $3.70 per BOE from $4.29
per BOE in the comparable period of 1994. This decrease is primarily the result
of increased production in both fields, which have substantial fixed operating
costs due to the capital intensive nature of the facilities and the
underutilization of capacity. Lease operating expenses for the year ended
December 31, 1995 were $30.0 million, as compared to $23.6 million for the
comparable 1994 period. The increase in lease operating expenses for the year
ended December 31, 1995, from the comparable 1994 period was primarily related
to the Company's operating expenses associated with increased production, the
purchase of the Minority Interest in December 1994, an increase in painting and
other preventive maintenance type programs which the Company believes are cost
effective, and increased workover costs in the 1995 period. Workover expenses
increased to $1.4 million for the year ended December 31, 1995, as compared to
$0.9 million for the comparable 1994 period.

Severance taxes. The effective severance tax rate as a percentage of
revenues decreased to 7.8% in the year ended December 31, 1995, from 8.9% in the
comparable period of 1994. This decrease was primarily due to increased
production from new wells on federal leases and from state leases which were
exempt from state severance tax under Louisiana's severance tax abatement
program.

General and administrative expenses. General and administrative expenses
per BOE decreased 26% to $1.39 per BOE in the year ended December 31, 1995 from
$1.88 per BOE in the comparable period of 1994. In the year ended December 31,
1995, general and administrative expenses were $11.3 million, as compared to
$10.4 million in the comparable 1994 period. The increase in general and
administrative expenses for the year ended December 31, 1995, from the
comparable 1994 period is primarily due to increased corporate staffing, an
increase in director and officer insurance premiums, an increase in franchise
taxes and in incentive compensation. These increases were partially offset by
the nonrecurring $0.9 million release and indemnity expenses incurred by the
Company in the year ended December 31, 1994, a decrease in legal and other
professional fees during 1995 and by an increase in the capitalization of the
salaries paid to employees directly engaged in the acquisition, exploration and
development of oil and gas properties during 1995.

Depreciation, depletion, and amortization expense. For the year ended
December 31, 1995, DD&A per BOE remained relatively unchanged at $6.66 as
compared to $6.64 in the 1994 period. Total DD&A expense for the 1995 period was
$54.1 million, as compared to $36.5 million for the comparable 1994 period. This
variance was primarily related to the Company's increased production and related
capital costs from the 1994 and 1995 drilling programs, as well as the increase
in proved reserves. Also contributing to increased DD&A expense was the December
1994 acquisition of the Minority Interest.

Interest expense. Interest expense for the year ended December 31, 1995
was $17.6 million, an increase of approximately $13.1 million from $4.5 million
for the comparable 1994 period. This increase was due primarily to interest
expense relating to the Senior Notes and the Revolving Credit Facility. This
increase was partially offset by interest which was capitalized during the year
ended December 31, 1995, of $2.8 million, as compared to $.1 million in the 1994
period.

Income tax expense (benefit). The Company was originally formed as an S
corporation under the Internal Revenue Code and, as such, all income taxes were
the obligation of the Company's stockholders. In conjunction with the Initial
Offerings, the Company converted to a C corporation under the Internal Revenue
Code. Due to a valuation allowance, the Company did not record a tax benefit for
the year ended December 31, 1994. During 1995, due to drilling successes and
increases in realized prices, the Company generated income from operations.
Based upon current estimates, management believes it is more likely than not
that the deferred tax asset will be realized. As a result, in 1995 the Company
reversed the valuation allowance and recognized a tax benefit of $4.7 million.

33
<PAGE> 36

Net income. Due to the factors described above, net income increased
approximately $32.1 million from a net loss of $22.2 million for the year ended
December 31, 1994 to net income of $9.9 million for the year ended December 31,
1995. For the year ended December 31, 1995, net income before the income tax
benefit was $5.2 million.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994

On June 11, 1992, the Company acquired Main Pass 69, and on June 10, 1993,
the Company acquired the East Bay Complex, each from Shell. Due to the
significance of the East Bay Complex to the Company's operations, most of the
variances in the statements of operations between the twelve-month periods ended
December 31, 1993 and 1994 are attributable to the inclusion of the East Bay
Complex for the full twelve-month period ended December 31, 1994 versus
approximately six months of post-acquisition activity for the twelve-month
period ended December 31, 1993. In addition, in conjunction with the Initial
Offerings and entering into the Revolving Credit Facility, the Company
repurchased the Production Payments, purchased the Minority Interest in the LLC,
and repaid other debt owed by the Company.

Revenues. The Company's total revenues increased approximately $27.9
million, or 59%, to $75.4 million for the year ended December 31, 1994, from
$47.5 million for the comparable period in 1993. Production levels for the year
ended December 31, 1994 increased 59% to 5,492 MBOE from 3,462 MBOE for the
comparable period in 1993. The Company's average sales prices (including hedging
activities) for oil and natural gas for the year ended December 31, 1994 were
$14.56 per Bbl and $1.81 per Mcf respectively, versus $14.23 per Bbl and $1.81
per Mcf, respectively, in the prior year. Oil and natural gas volumes sold
pursuant to volumetric production payment obligations represented approximately
35% and 52%, respectively, of the Company's production for the year ended
December 31, 1994. Subsequent to the Initial Offerings, none of the Company's
production was subject to such obligations.

The aforementioned increase in the Company's total revenues was impacted
primarily by the increase of $28 million in oil and gas sales associated with
the East Bay Complex, which the Company acquired in June 1993. This increase in
production was a result of a full period of reporting for the East Bay Complex
in 1994 as well as from the completion of several exploitation and development
projects. In addition, the Company recognized approximately an additional 1/8
production and related revenues of $1 million subsequent to the purchase of the
Minority Interest in the LLC. Finally, revenues were higher as a result of the
repurchase of the Production Payments due to the Company being able to sell all
of its production at market prices as compared to previously selling a portion
of its production subject to the Production Payments at implicit contractual
prices per BOE substantially below current market prices. Revenues increased by
approximately $780,000 relating to these increased prices.

The increase in the Company's total revenues was further affected by a $0.6
million increase in hedging revenues partially offset by a $0.2 million decrease
in plant processing income. In order to manage its exposure to price risks in
the sale of its crude oil and natural gas, the Company from time to time enters
into price hedging arrangements. See "-- Other Matters -- Energy Swap
Agreement." The Company is also contractually committed to process its gas
production from Main Pass 69 and the East Bay Complex under certain processing
agreements. Plant processing income (loss) represents the net of revenues from
the sale of natural gas liquids less the costs of extracting such liquids, which
costs include natural gas shrinkage. Income from plant processing fluctuates
primarily as a result of changes in volumes processed, and changes in prices for
natural gas in comparison to changes in prices for natural gas liquids. Such
price changes are usually not proportionate due to the generally higher price
volatility of natural gas. For the year ended December 31, 1994, plant
processing income decreased due to a downward trend of natural gas liquid prices
during the first three quarters of the year, a period during which natural gas
prices remained relatively high. During the latter part of the year, natural gas
liquids prices increased while natural gas prices were lower, which reduced the
loss incurred earlier during the year.

Direct operating expenses. The majority of the Company's production is
from oil wells, which are typically more expensive to operate than gas wells. As
such, the Company's operating expenses per BOE may be higher than those incurred
by other independents whose production is primarily from gas wells. Lease

34
<PAGE> 37

operating expenses increased 66% to $23.6 million for the year ended December
31, 1994, from $14.2 million in the comparable period of 1993. The increase
corresponds with the increase in production levels of oil and natural gas
relating to the acquisition of the East Bay Complex. On a BOE basis, lease
operating expenses increased 4% in the year ended December 31, 1994, to $4.29
per BOE from $4.11 per BOE in the comparable period of 1993. The increased rate
results from increased production at the East Bay Complex, where lease operating
expenses per BOE are higher than at Main Pass 69. The East Bay Complex
experiences higher lease operating expenses per BOE as a result of a number of
factors, including: (i) the capital intensive nature of its facilities and the
underutilization of capacity at these facilities (which were originally
constructed to handle significantly higher production) (ii) differing weather,
water depth, and geographic concentration of wells (resulting in greater field
personnel transportation costs and dredging costs) and (iii) approximately 2.3
times the number of wells per BOE produced. In addition, lease operating
expenses increased by approximately $300,000 relating to the purchase of the
Minority Interest in December 1994.

The effective severance tax rate as a percentage of revenues decreased from
10.6% in the year ended 1993 to 8.9% in the comparable period in 1994. This
decline was due to the additional production from the East Bay Complex, which
had a lower severance tax rate than production from Main Pass 69. The severance
tax rate for the East Bay Complex is lower than that for Main Pass 69 as a
result of federal leases within the East Bay Complex, which are exempt from
severance taxes.

General and administrative expenses. General and administrative expenses
increased 108% to $10.4 million for the year ended December 31, 1994, from $5.0
million in the comparable period of 1993 due primarily to increased staffing as
a result of the acquisition of the East Bay Complex, the payment of directors'
fees, and legal matters, all of which were resolved in 1994, including a one
time charge to earnings in the 1994 period of $0.9 million related to release
and indemnity expenses.

Depreciation, depletion, and amortization expense. Depreciation, depletion
and amortization expense increased by approximately 82% to $36.5 million for the
year ended December 31, 1994, from $20.1 million in the comparable period of
1993. The depreciation, depletion and amortization expense rate increased to
$6.64 per BOE for the year ended December 31, 1994 from $5.80 per BOE for the
year ended December 31, 1993. This increase primarily results from the
acquisition of the East Bay Complex which has a higher depreciation, depletion
and amortization rate per BOE, primarily due to a higher acquisition cost per
BOE and to significant future capital and abandonment costs. In addition,
depreciation, depletion and amortization expense increased in 1994 relating to
the December 7, 1994 acquisition of the Minority Interest in the LLC and the
purchase of the net profits interest.

Interest expense. Interest expense increased approximately 309% to $4.5
million for the year ended December 31, 1994, from $1.1 million in the
corresponding period of 1993 due primarily to additional indebtedness of the
Company. The Company recorded interest expense of $1.1 million for the month of
December 1994 relating to the Senior Notes.

Income tax expense (benefit). The Company was formed as an S corporation
under the Internal Revenue Code and, as such, all income taxes were the
obligation of the Company's stockholders. Therefore, through December 7, 1994,
no historical federal or state income tax expense has been provided for in the
financial statements. In conjunction with the Initial Offerings, the Company
converted to a C corporation under the Internal Revenue Code. Due to a valuation
allowance, the Company has not recorded a tax benefit as of December 31, 1994.
See Note 6 to the Consolidated Financial Statements.

Interest income and other revenue. Interest income and other revenue
increased from $172,695 for the year ended December 31, 1993, to $748,479 in the
comparable 1994 period. Included in the 1994 total was $460,850 relating to the
Company's consolidated share of a management fee which the Company charged the
LLC. No management fee was recorded in 1993 as the LLC was not formed until
December 28, 1993. In addition, in 1994 the Company had additional interest
income relating to notes from current and former stockholders.

One time charges in 1994. On December 7, 1994 in connection with the
Initial Offerings and related transactions, the Company recorded a loss on the
repurchase of the production payments of $15.7 million

35
<PAGE> 38

which represented the amount paid to repurchase the Production Payments in
excess of the book value. In addition, the Company recorded as an expense in the
fourth quarter of 1994, the balance in deferred financing associated with the
JEDI Loans on December 7, 1994 when the loans were paid in full.

Net income. Due to the factors described above, net income decreased from
$2.2 million for the year ended December 31, 1993 to a loss of $22.2 million for
the comparable period in 1994. Excluding the one-time charges discussed above,
the 1994 loss would have been $5.5 million.

LIQUIDITY AND CAPITAL RESOURCES

The following summary table reflects comparative cash flows for the Company
for the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1995 and 1996:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities(1)............................ $103,112 $(115,485) $ 58,880 $ 40,642 $ 47,260
Net cash used in investing activities...... (100,741) (46,607) (77,699) (46,566) (66,867)
Net cash provided by (used in) financing
activities............................... (2,400) 162,462 18,463 5,463 20,214
</TABLE>

- ---------------

(1) Cash flow from operating activities for the year ended December 31, 1994
was reduced by $123.6 million related to the repurchase of the Production
Payments. Cash flow from operating activities in 1993 includes $95.7
million from the sale of a Production Payment.

For the six months ended June 30, 1996, net cash provided by operating
activities increased by $6.6 million. This increase relates primarily to
increased revenues, partially offset by increases in lease operating expenses,
severance taxes and general and administrative expenses. Accounts receivable
increased by $3.0 million for the six months ended June 30, 1996. The increase
was primarily related to a $3.7 million receivable for monies deposited in
association with the potential acquisition of certain oil and gas properties.
Subsequent to June 30, 1996, a third party exercised preferential purchase
rights to acquire the properties. This increase was partially offset by a
decrease in oil and gas sales receivables. During the six months ended June 30,
1995, accounts receivable increased by $2.3 million primarily relating to an
increase in oil and gas sales receivables. Accounts payable increased by $22.1
million during the 1996 period as compared to an increase of $18.7 million in
the comparable 1995 period. The increase in accounts payable is primarily a
result of variances in vendors payable resulting from a more aggressive drilling
program in the 1996 period.

Cash used in investing activities during the six months ended June 30,
1996, increased to $66.9 million as compared to $46.6 million in the comparable
1995 period, reflecting the more aggressive 1996 drilling program.

Financing activities during the six months ended June 30, 1996, generated
cash of $20.2 million, as compared to $5.5 million in the comparable 1995
period. The increase in cash during the 1996 period was primarily a result of
the issuance of 4,500,000 shares of common stock at $14.75 per share on March
19, 1996, of which the Company's net proceeds totaled approximately $62.2
million. This increase in cash was offset by the payment of a $13 million note
to Shell Offshore, Inc. and a $29.2 million reduction in net borrowings on the
Company's Revolving Credit Facility. During the 1995 period, the Company
increased its borrowings on the Revolving Credit Facility by $15 million. In
addition, the Company received cash from the sale of stock in the 1995 period of
$.4 million.

36
<PAGE> 39

Capital requirements. The Company's capital investments to date have
focused primarily on exploration, acquisitions and development of proved
properties. The Company's expenditures for property acquisition, exploration and
development for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
-------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property acquisition costs of evaluated
properties.................................... $115,490 $25,442 $ 624 $ 30 $ 39
Property acquisition costs of unevaluated
properties.................................... -- 14,736 2,381 1 3,069
Exploration costs (drilling and completion)..... 422 8,467 12,153 7,339 16,029
Development costs (drilling and completion)..... 6,631 21,634 42,443 29,642 31,113
Abandonment costs............................... 1,057 727 236 33 154
Geological and geophysical costs................ -- 1,362 5,953 3,692 3,779
Capitalized interest and general and
administrative costs.......................... -- 660 4,476 1,878 2,699
Other capital costs............................. -- 1,449 5,386 2,155 7,889
-------- ------- ------- ------- -------
$123,600 $74,477 $73,652 $44,770 $64,771
======== ======= ======= ======= =======
</TABLE>

A primary component of the Company's strategy is to continue its
exploration and development activities. The Company intends to finance capital
expenditures related to this strategy primarily with funds provided by
operations and borrowings under the Revolving Credit Facility. During the six
months ended June 30, 1996, the Company spent $47.1 million on exploration and
development drilling and $3.8 million on 3-D seismic surveys and other
geological and geophysical costs. Included in other capital costs for the six
months ended June 30, 1996, is $6.6 million, which relates primarily to capital
costs incurred on production facilities and flowlines. The Company is also a
party to two escrow agreements which provide for the future plugging and
abandonment costs associated with oil and gas properties. The first agreement,
related to East Bay, requires monthly deposits of $100,000 through June 30,
1998, and $350,000 thereafter until the balance in the escrow account equals $40
million, unless the Company commits to the plug and abandonment of a certain
number of wells in which case the increase will be deferred. The second
agreement, related to Main Pass 69, required an initial deposit of $250,000 and
monthly deposits thereafter of $50,000 until the balance in the escrow account
equals $7,500,000. As of June 30, 1996, the escrow balances totaled $5.3
million.

In addition to developing its existing reserves, the Company attempts to
increase its reserve base, production and operating cash flow by engaging in
strategic acquisitions of oil and gas properties. The Company intends to utilize
approximately $132 million of the net proceeds from the Notes Offering to fund
the Central Gulf Acquisition. In order to finance any other possible future
acquisitions, the Company may seek to obtain additional debt or equity
financing. The availability and attractiveness of these sources of financing
will depend upon a number of factors, some of which will relate to the financial
condition and performance of the Company, and some of which will be beyond the
Company's control, such as prevailing interest rates, oil and gas prices and
other market conditions. There can be no assurance that the Company will acquire
any additional producing properties. In addition, the ability of the Company to
incur additional indebtedness and grant security interests with respect thereto
will be subject to the terms of the Existing Indenture and the Indenture.

The Company's other primary capital requirements for the remainder of 1996
will be for the Central Gulf Acquisition and the remaining $62 million of its
$124 million 1996 direct capital expenditure budget. The Company expects to fund
its obligations with proceeds of the Notes Offering, borrowings under the
Revolving Credit Facility and operating cash flow.

Liquidity. The ability of the Company to satisfy its obligations and fund
planned capital expenditures will be dependent upon its future performance,
which will be subject to prevailing economic conditions, including oil and gas
prices, and to financial and business conditions and other factors, many of
which are

37
<PAGE> 40

beyond its control, supplemented if necessary with existing cash balances and
borrowings under the Revolving Credit Facility. The Company expects that its
cash flow from operations, availability under the Revolving Credit Facility and
net proceeds from the Notes Offering will be adequate to execute its 1996
business plan. However, no assurance can be given that the Company will not
experience liquidity problems from time to time in the future or on a long-term
basis. If the Company's cash flow from operations and availability under the
Revolving Credit Facility are not sufficient to satisfy its cash requirements,
there can be no assurance that additional debt or equity financing will be
available to meet its requirements.

The Revolving Credit Facility has a borrowing base of $50 million. The
lenders may redetermine the borrowing base at their option once within any
12-month period as well as on scheduled redetermination dates as outlined in the
Revolving Credit Facility. The borrowing base automatically reduces by an amount
equal to one-sixteenth ( 1/16) of the borrowing base in effect on March 30,
1997, and continues to reduce at each quarter end beginning March 31, 1997,
unless the Company requests and is granted a one-year deferral of such
reductions.

The Company's ability to draw additional amounts on the Revolving Credit
Facility is limited to the extent that adjusted consolidated net tangible assets
(as defined) minus certain net production revenue (as defined) exceeds 110% of
all indenture indebtedness (as defined). Adjusted consolidated net tangible
assets is determined quarterly, utilizing certain financial information, and is
primarily based on a quarterly estimate of the present value of future net
revenues of the Company's proved oil and gas reserves. Such quarterly estimates
utilize the most recent year end oil and gas prices and vary based on additions
to proved reserves and net production. As of August 15, 1996, the Company's
outstanding balance on its Revolving Credit Facility was $28.5 million,
including $2.0 million which represented a letter of credit associated with
future abandonment obligations. The Company had remaining availability of $21.5
million under the Revolving Credit Facility as of August 15, 1996.

The Company is currently conducting a consent solicitation with respect to
the Senior Notes to increase its ability to borrow under a revolving credit
facility from $50 million to the greater of (i) $50 million and (ii) $30 million
plus 20% of adjusted consolidated net tangible assets (as defined in the
Existing Indenture). Receipt of the necessary consents is not a condition to the
Notes Offering or the Central Gulf Acquisition. Assuming the necessary consents
are received, the Company may seek to increase the borrowing base under the
Revolving Credit Facility.

Effects of Leverage. The Company is highly leveraged with outstanding
indebtedness of approximately $128 million as of June 30, 1996 ($275 million
upon giving pro forma effect to the Notes Offering and the application of the
net proceeds therefrom). The Company's level of indebtedness has several
important effects on its future operations, including (i) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
interest on its indebtedness and will not be available for other purposes, (ii)
the covenants contained in the Existing Indenture require the Company to meet
certain financial tests, and the Existing Indenture contains and the Indenture
will contain restrictions which limit the Company's ability to borrow additional
funds or to dispose of assets and may affect the Company's flexibility in
planning for, and reacting to, changes in its business, including possible
acquisition activities and (iii) the Company's ability to obtain additional
financing in the future for working capital, expenditures, acquisitions, general
corporate purposes or other purposes may be impaired.

Pursuant to the Existing Indenture, the Company may not incur any
indebtedness other than permitted indebtedness (as defined in the Existing
Indenture) unless the Company's consolidated fixed charge coverage ratio (as
defined in the Existing Indenture) for the four full fiscal quarters preceding
the proposed new indebtedness is greater than 2.75 to 1.0 (3.0 to 1.0 if the
indebtedness is incurred after December 1, 1997) after giving pro forma effect
to the proposed new indebtedness, the application of such indebtedness and other
significant transactions during the period. In addition, the Company's adjusted
consolidated net tangible assets (as defined in the Existing Indenture) must be
greater than 150% of indebtedness after giving effect to the incurrence of the
proposed new indebtedness and related transactions. The Indenture is expected to
contain a provision requiring a consolidated fixed charge coverage ratio of 2.5
to 1.0, but is not expected to contain a provision requiring maintenance of a
specified level of adjusted consolidated net tangible assets. As of June 30,

38
<PAGE> 41

1996, the Company's consolidated fixed charge coverage ratio was 5.1 to 1.0 for
the preceding four quarters, and its adjusted consolidated net tangible assets
were 211% of indebtedness. After giving pro forma effect to the Notes Offering
and the application of the net proceeds therefrom, the Company estimates that
its adjusted consolidated net tangible assets would have been 170% of
indebtedness as of June 30, 1996. If the ratio of adjusted consolidated net
tangible assets to indebtedness falls below 110%, the Company may be required to
buy back a portion of the Senior Notes.

In accordance with the terms of the Existing Indenture, if the Company
disposes of oil and gas assets, it must apply such proceeds to permanently pay
down indebtedness other than the Senior Notes or within 270 days of the asset
sale, purchase additional oil and gas properties to replace the properties sold.
If proceeds not applied as indicated above exceed $10 million, the Company would
be required to offer to purchase outstanding Senior Notes or other pari passu
indebtedness in an amount equal to the unapplied proceeds. The Indenture is
expected to contain a similar, but more flexible provision. See "Description of
the Notes."

The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to oil and gas prices, general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors. See "Risk Factors -- Price
Fluctuations and Markets" and "Capitalization."

OTHER MATTERS

Energy swap agreements. On June 30, 1993, the Company entered into a
Master Energy Price Swap Agreement (the "Swap Agreement") with Enron Capital &
Trade Resources Corp. ("ECT"), pursuant to which the Company and ECT enter into
energy price swap arrangements from time to time. These arrangements obligate
the Company or ECT to make payments to the other at the end of a determination
period based on the difference between a specified fixed price and an average of
floating prices over the determination period, applied to a specified quantity
of crude oil or natural gas. All of the Company's currently outstanding swap
arrangements use a floating price for crude oil based on NYMEX light sweet crude
oil futures contracts. Under the terms of the Swap Agreement, if the Company's
net exposure exceeds $5.0 million, ECT can require the Company to establish and
maintain a letter of credit for the amount of such excess, rounded up to the
next multiple of $500,000. Net exposure is based upon the amount by which the
Company's payment obligations to ECT under energy price swap arrangements under
the Swap Agreement exceed the payment obligations of ECT to the Company under
such arrangements. As of August 2, 1996, the Company's net exposure to ECT under
all contracts covered by the Swap Agreement was approximately $2.9 million.

As of June 30, 1996, the Company's open forward position was as follows:

<TABLE>
<CAPTION>
OIL GAS
---------------------- ----------------------
AVERAGE AVERAGE
YEAR MBBLS PRICE BBTU PRICE
- -------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996........................................ 1,550 $18.25 1,230 $1.97
1997........................................ 300 18.55 -- --
1998........................................ 300 18.55 -- --
1999........................................ 300 18.55 -- --
2000........................................ 300 18.55 -- --
----- ------ ----- -----
Total.................................. 2,750 $18.38 1,230 $1.97
===== ====== ===== =====
</TABLE>

As a result of hedging activity under the Swap Agreement, on a BOE basis,
the Company estimates that 36% of its estimated remaining 1996 production which
is classified as proved reserves as of June 30, 1996, will not be subject to
price fluctuation for 1996.

39
<PAGE> 42

Currently, it is the Company's intention to commit no more than 50% of its
total annual production on a BOE basis to such arrangements. Moreover, under the
Revolving Credit Facility, the Company is prohibited from committing more than
75% of its production estimates for the next 24 months to such arrangements at
any point in time. As the current swap agreements expire, the portion of the
Company's oil and natural gas production which is subject to price fluctuations
will increase significantly, unless the Company enters into additional hedging
transactions.

Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas and oil sold
in the spot market. Prices received for natural gas sold on the spot market are
volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil prices generally follow worldwide oil prices
which are subject to price fluctuations resulting from changes in world supply
and demand. While the price the Company receives for its oil and natural gas
production has significant financial impact on the Company, no prediction can be
made as to what price the Company will receive for its oil and natural gas
production in the future.

Gas balancing. It is customary in the industry for various working
interest partners to produce more or less than their entitlement share of
natural gas from time to time. The Company's net overproduced position decreased
from 1,080,726 Mcf at December 31, 1995, to 1,014,884 Mcf at June 30, 1996.
Under the provisions of the applicable gas balancing agreement, the
underproduced party can take up to 50% of the Company's entitled share of gas
production in future months to eliminate the imbalance. During the make-up
period, the Company's gas revenues will be adversely affected, minimized by an
unjust enrichment clause contained in the gas balancing agreement. The Company
recognizes revenue and imbalance obligations under the sales method of
accounting.

Environmental. The Company's business is subject to certain federal,
state, and local laws and regulations relating to the exploration for, and the
development production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have become
more stringent in recent years, often imposing greater liability on a larger
number of potentially responsible parties. Although the Company believes it is
in substantial compliance with all applicable laws and regulations, the
requirements imposed by such laws and regulations are frequently changed and
subject to interpretation, and the Company is unable to predict the ultimate
cost of compliance with these requirements or their effect on its operations.
Under certain circumstances, the MMS may require any Company operations on
federal leases to be suspended or terminated. Any such suspensions, terminations
or inability to meet applicable bonding requirements could materially and
adversely affect the Company's financial condition and operations. Although
significant expenditures may be required to comply with governmental laws and
regulations applicable to the Company, to date such compliance has not had a
material adverse effect on the earnings or competitive position of the Company.
It is possible that such regulations in the future may add to the cost of
operating offshore drilling equipment or may significantly limit drilling
activity. See "Business and Properties -- Governmental Regulation,"
"-- Environmental Matters" and "-- Abandonment Costs."

On August 25, 1993, the MMS published an advance notice of its intention to
adopt regulations under the Oil Pollution Act of 1990 that would require owners
and operators of offshore oil and natural gas facilities to establish $150
million in financial responsibility in case of a potential spill. In May 1995,
the U.S. House of Representatives approved a bill that would amend OPA 90 to
reduce the level of financial responsibility to $35 million. The U.S. Senate
passed a related measure on November 17, 1995 that would also amend OPA 90 to
reduce the level of financial responsibility to $35 million. The Clinton
Administration has expressed its support for this legislation, but has not yet
taken any action on the bills approved by the U.S. House of Representatives and
the U.S. Senate. The MMS has indicated that it would not move forward with the
adoption of the rule until the United States Congress has had an opportunity to
act on the pending amendments to OPA 90. Based on the passage of these bills and
the support of the Clinton Administration, it appears that the level of
financial responsibility required under OPA 90 will be reduced and the MMS will
probably not move forward with the adoption of its rule as it was proposed. The
impact of the regulations, however, should not be any more adverse to the
Company than they will be to other similarly situated owners or operators in the
Gulf of Mexico region.

40
<PAGE> 43

BUSINESS AND PROPERTIES

GENERAL

The Company is an independent energy company engaged in the acquisition,
exploration, development and production of crude oil and natural gas with
operations focused primarily in the Louisiana Gulf. As of June 30, 1996, the
Company had estimated proved reserves of approximately 36.7 MMBbls of oil and
44.1 Bcf of natural gas, or an aggregate of 44.0 MMBOE with a Present Value of
Future Net Revenues of $279.0 million and a Standardized Measure of Discounted
Future Net Cash Flows of approximately $238.2 million, of which approximately
89% are classified as proved developed.

RECENT DEVELOPMENTS

On July 10, 1996, the Company entered into a Purchase and Sale Agreement
with Mobil to acquire interests in certain oil and gas producing fields and
related production facilities primarily situated in the shallow waters of the
Central Gulf of Mexico, offshore Louisiana, for an anticipated net purchase
price of approximately $132 million, subject to reduction if certain
preferential purchase rights of third parties on portions of the properties are
exercised. Subject to assignment of the applicable operating agreements, the
Company anticipates that it will become the operator of approximately 75% of the
properties. As of June 30, 1996, the Central Gulf Properties had estimated
proved reserves of approximately 14.0 MMBbls of oil and 60.4 Bcf of natural gas,
or an aggregate of approximately 24.1 MMBOE, with a Present Value of Future Net
Revenues of approximately $155.1 million and a Standardized Measure of
Discounted Future Net Cash Flows of approximately $122.4 million. For the six
months ended June 30, 1996, estimated average net daily production on the
Central Gulf Properties was approximately 4,800 Bbls of oil and 29,000 Mcf of
natural gas from approximately 125 producing wells on 90,013 gross (50,810 net)
acres. Pro forma for the Central Gulf Acquisition, the Company's average daily
production is expected to increase by approximately 30%, and its proved reserve
mix is expected to shift to approximately 74% oil and 26% gas from the current
mix of 83% oil and 17% gas. The closing of the Central Gulf Acquisition is
expected to occur concurrently with the consummation of the Notes Offering,
subject to approvals by the management and Board of Directors of Mobil and the
Company, and subject to the aforementioned preferential purchase rights.

STRENGTHS

The Company believes it has unique strengths that position it to continue
as a successful independent operator in the Louisiana Gulf, including the
following:

41
<PAGE> 44

of Louisiana state and federal offshore leases (42,248 of which are held by
production), including 15,707 net lease acres which were acquired by the Company
during the first six months of 1996 for exploratory purposes, a large portion of
which are adjacent to its producing leases.

BUSINESS STRATEGY

42
<PAGE> 45

development drilling, waterfloods and 3-D seismic enhanced exploitation
drilling. F&R uses advanced technology in its exploitation and exploration
activities in order to reduce risks and lower costs. Further, the Company seeks
to drill wells with multiple pay objectives, allowing it to reduce the risk of
exploring deeper prospects by attempting to exploit shallow reservoirs in the
same well. Primarily as a result of its development and exploitation drilling
success, the Company has increased its average daily production by 59% from
15,047 BOE for the year ended December 31, 1994 to 23,862 BOE for the twelve
months ended June 30, 1996. Since August 1, 1996, the Company's average daily
production has exceeded 30,000 BOE. The Company currently has an inventory of
over 330 reserve and production enhancement projects on its existing properties.
In light of these projects, the Company plans to increase its development and
exploitation capital drilling expenditures from approximately $22 million in
1994 and $42 million in 1995, to a budgeted amount of approximately $66 million
for 1996.

Expanding exploration program. The Company is expanding its exploration
program in the Louisiana Gulf which is designed to provide exposure to selected
higher risk, higher potential rate of return prospects. The Company expects to
increase its exploratory drilling expenditures from approximately $12 million in
1995 (22% of an approximate $55 million drilling budget) to approximately $26
million in 1996 (28% of an approximate $92 million drilling budget), with
further increases possible. In order to reduce exploration risk, the Company
will apply state-of-the-art technology to identify prospects and, where
possible, select well locations with multiple pay objectives. The Company
believes the seismic database and operating experience derived from its existing
properties provide it with a competitive advantage in evaluating new prospects
on properties sharing the same or similar geologic characteristics. The Company
utilizes these assets and its experience to identify and acquire new leasehold
acreage and existing producing properties that it believes contain significant
exploration potential. In the first six months of 1996, the Company acquired
42,651 net acres of seismic options and oil and gas leases, a large portion of
which are located adjacent to its producing leases, including seismic and lease
options covering 26,945 acres in Cameron Parish, Louisiana. Based upon
preliminary evaluation of seismic data prior to acquisition of these leases and
options, the Company believes it has significantly enhanced its inventory of
prospects.

43
<PAGE> 46

SUMMARY PROJECT INVENTORY FOR EXISTING PROPERTIES

Consistent with the drilling strategies discussed above, set forth below is
a summary of the Company's current inventory of reserve and production
enhancement projects on its existing properties. While the Company presently
intends to complete these projects, the number, type and timing of the proposed
projects are subject to continued revision as a result of many factors,
including the availability of capital to fund such projects, initial test
results, the price of oil and gas, weather and other general and economic
conditions. The Company currently has budgeted approximately $62 million of its
$124 million direct capital expenditure budget for 1996 to apply towards a
portion of the following projects.

<TABLE>
<CAPTION>
NUMBER OF
TYPE OF PROJECT PROJECTS
-------------------------------------------------------------- ---------
<S> <C>
Recompletion/Workovers........................................ 158
Waterfloods................................................... 9
Development Drilling.......................................... 74
Horizontal Drilling........................................... 14
"Develocat" Drilling.......................................... 36
Exploration Drilling.......................................... 42
---
Total....................................................... 333
===
</TABLE>

Recompletions. A recompletion involves the completion of an existing well
bore in a formation other than one which has previously been productive.
Existing wellbores on the Company's properties have numerous recompletion
opportunities and are an important part of the Company's proved reserve base.
The Company uses the latest completion techniques to effect high productivity
recompletions. A recent dual recompletion was the SL 1012 #323 which initially
tested at a combined rate of 1,104 BOPD and 1,570 MCFPD from the K2L and H2
zones.

Waterfloods. A waterflood is the injection of water into a reservoir to
fill pores vacated by produced fluids, thus maintaining reservoir pressure,
assisting production and enhancing reservoir recovery rates. The Company
currently operates 34 waterfloods and has identified 9 potential waterflood
projects.

Development Drilling. Development drilling involves wells drilled within
the proved area of an oil or gas reservoir to a zone known to be productive.
Studies in certain areas on the existing properties have revealed significant
reservoir extension opportunities and in-fill drilling locations in existing
reservoirs. For example, in 1996 the Company successfully drilled the "Oiler
Prospect", State Lease 1388 #B74, which initially tested the So and Tl sands for
a combined rate of approximately 1,271 BOPD and 1,057 MCFPD.

Horizontal Drilling. Horizontal drilling permits the operator to contact
and intersect a larger portion of the producing horizon than conventional
vertical drilling techniques and can result in both increased production rates
and greater ultimate recoveries of hydrocarbons. The Company has identified
several reservoirs which have low relief structural or bottom water drive
characteristics that can be more economically produced with horizontal well
completions. For example, in 1996, the Company's Cypress 3 horizontal well, the
State Lease 1007 #55, was completed in the "K" sand and is currently producing
in excess of 5,000 BOE per day.

"Develocat" Drilling. Develocat drilling involves evaluating deeper
untested sands classified as exploratory while developing a shallower known
reservoir. The Company attempts to access stacked pays and multiple reservoirs
from a single well bore in order to reduce risk for deeper objectives by
providing alternative uphole reserves. For example, in 1996 the Company
successfully drilled its Cypress 2 prospect, the State Lease 1007 #52 well,
which initially tested at a combined rate of 1,689 BOPD and 709 MCFPD from the J
and K1 sands.

Exploration Drilling. Exploratory wells are drilled to find and produce
oil or gas reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of oil or gas in another reservoir or to
extend a known reservoir. The Company conducts a controlled exploration program
in the Louisiana Gulf which is designed to provide exposure to selected higher
risk, higher potential rate of return prospects. The

44
<PAGE> 47

Company manages its exploration risks by limiting its exploration expenditures,
applying state-of-the-art technology such as 3-D seismic surveys to identify
prospects and, where possible, selecting well locations with multiple-pay
objectives. In addition, the Company would consider, in selected circumstances,
selling a portion of a prospect to an industry partner while preferably
remaining as operator. Utilizing 3-D seismic data, the Company in 1996
successfully drilled the OCS 693 #11 well on its "Aladdin Prospect" which
initially tested at a rate of 10,768 MCFPD.

The following opportunities are representative of the type of exploration
projects the Company is currently pursuing:

The Grand Isle Block 68 "Highside" prospect is named for the producing trap
style of the project. The test well will evaluate prospective sands beginning at
6,000 feet and continuing to 13,000 feet. The directional well will attempt to
follow the high side of a regionally productive down-to-the-north fault system
which has been proven productive above 6,000 feet on offsetting acreage.

The "Catapult" prospect is located in West Delta Block 55 just west of the
Company's East Bay Fields. The test well is designed to evaluate two primary
objectives in the geopressured section from 12,000-14,000 feet. The trap at the
shallower LF Sand level is a downthrown closure with additional trapping
provided by a smaller antithetic fault. The deeper Lower OG objective is
stratigraphically trapped on the same large fault system. Both prospective sands
have production analogies in adjacent fields.

Two high potential projects have been identified on the Company's newly
acquired federal lease covering Main Pass Block 138. The Company has acquired a
new 3-D seismic survey that has helped identify numerous bypassed or unevaluated
prospects on the block. The "Vision" prospect targets multiple stacked shallow
Pliocene Sands on the upthrown side of a growth fault. The "Phase" prospect will
test a deep-seated four-way closure in the Miocene Cib Carst sands updip to
hydrocarbon shows on the block as well as shallower amplitude anomalies.

Matterhorn, a deep lateral salt and subsalt exploration prospect, underlies
the Company's producing acreage in South Pass 27 Field. Production to date has
largely been from shallow sands overlying the salt mass, with very little
drilling having been directed to deeper salt-sediment traps. The Company is
currently reprocessing its seismic data using pre-stack time and post-stack
depth migration and AVO analysis to further evaluate the deeper horizons lying
beneath the salt mass.

The Company has recently extended its operations in the Louisiana Gulf to
include several coastal onshore exploration prospects since the Company believes
this region has been underexplored due to its complex geology and lack of 3-D
seismic data. Advances in 3-D seismic acquisition techniques over the past few
years have led the Company to purchase options to conduct a 3-D seismic survey
and explore for oil and gas on 26,945 acres in eastern Cameron Parish,
Louisiana. The Company is currently conducting a 70 square mile proprietary 3-D
seismic survey over Mallard Bay along with its 50% working interest partner,
Mobil. Over 70 prospects or leads have been identified on Mallard Bay from
review of 2-D seismic and subsurface data.

Separately, the Company recently acquired seismic and lease options
covering 14,060 acres in the Lacassine area located approximately 6 miles
northwest of Mallard Bay which it expects to develop on its own in 1997. The
Company expects to conduct a proprietary 3-D seismic survey over the approximate
25 square mile Lacassine area situated east of the prolific Chalkley Field
complex (with cumulative production of over 430 BCFGE) and west of the South
Thornwell/Lakeside Field complex (with cumulative production of over 966 BCFGE),
areas of multiple stacked Oligocene age pays. Prospects have been identified
which offset shows or pays in major producing sands in the area. They are
trapped by regional down-to-the-south faulting with further complication by
ancillary faults, which is a typical trap style for the area. An existing 3-D
survey has partially validated a portion of the prospect area with further
seismic verification expected to result from the planned seismic survey.

45
<PAGE> 48

PROPERTIES

Main Pass 69

The Company owns an average 97.6% working interest in the Main Pass 69
field. The Company's interest in Main Pass 69, which includes the Company's
interest in the adjacent South Pass One field, consists of 67 producing wells
located on approximately 16,058 gross leased acres in state waters 70 miles
southeast of New Orleans, Louisiana. The field was discovered in 1948, and has
pay sands ranging in age from Pliocene to upper Miocene, with the bulk of
production historically coming from the Pliocene. For the three months ended
June 30, 1996, the Company's average daily sales at Main Pass 69 were 3,035 Bbls
of oil and 4,656 Mcf of gas. As of June 30, 1996, Main Pass 69 had proved
reserves of 6.6 MMBbls of oil and 5.3 Bcf of natural gas.

The Main Pass 69 field includes onshore and offshore facilities located in
Plaquemines Parish, Louisiana. The onshore facilities are located on the north
bank of Pass-A-Loutre, bounded by the Gulf of Mexico to the north. The offshore
facilities, which include wells, production platforms and related structures,
extend northwest approximately seven miles from marshes adjacent to the banks of
Pass-A-Loutre into water depths of approximately 15 feet in the open water
areas.

Main Pass 69 has five production platforms and one waterflood platform.
These platforms each contain separators, tanks and manifolds. Most of the wells
in Main Pass 69 are on gas lift or are within one of the active waterflood
projects. Main Pass 69 also contains a central facility located one mile south
of the field on the north bank of the North Pass of Pass-A-Loutre. The facility
contains oil storage tanks, crude oil transportation facilities, living
quarters, a warehouse, a loading dock, a boat maintenance shop, a floating plane
dock and administrative offices. The central facility is the control center for
the Main Pass 69 properties and provides a support base for the entire field
operation. Based on the excess oil storage and production capacity, and its
proximity to an existing oil pipeline system, the central facility is able to
accept increased production from internal as well as external sources.

East Bay Complex

The Company owns an average 99.1% working interest in the East Bay fields.
The East Bay Complex consists of 428 producing wells located on approximately
31,598 gross leased acres and onshore and offshore facilities in Plaquemines
Parish, Louisiana and adjacent federal waters. The South Pass 24 field was
discovered in 1950 and the South Pass 27 field was discovered in 1954. Both
fields have sands that range in age from Pliocene to Miocene. Production has
been established from 40 horizons comprising 240 reservoirs from the South Pass
24 field and 51 horizons comprising 460 reservoirs from the South Pass 27 field.
For the three months ended June 30, 1996, the Company's average total daily
sales at the East Bay Complex were 12,895 Bbls of oil and 35,837 Mcf of gas. As
of June 30, 1996, the East Bay Complex had proved reserves of 29.8 MMBbls of oil
and 35.2 Bcf of natural gas.

The offshore facilities, which include wells and related structures, extend
southeasterly approximately seven miles from marshes adjacent to the East Bay
facilities into water depths of up to 80 feet in the State of Louisiana and
federal waters of the Gulf of Mexico. The major offshore facilities consist of
over 630 well jackets with 980 well slots and major structures such as manifold,
production and waterflood platforms. Approximately 95% of the active producing
wells require gas lift.

The onshore facilities are located on the east bank of the Southwest Pass
of the Mississippi River and are bounded by the Mississippi River on the west
and the Gulf of Mexico on the east. The major onshore facilities consist of oil
processing facilities with capacity for 70 MBbls per day, a crude oil storage
tank battery, a produced water treatment plant, gas compression and dehydration
facilities with a capacity of 240 MMcf per day, living quarters, an electric
power generator, instrument air systems, sewage disposal, a boat maintenance
shop, a heliport, a floating plane dock and a loading dock.

The gas compression system is comprised of 21 compressors totaling 63,000
horsepower for gas lift operations and sales. Maximum compressor capacity is 250
MMcf per day. Four stages of compression are used to compress produced gas from
45 psig to about 1,400 psig. The compression system generally maintains an
onshore suction header pressure of about 45 psig and a fourth stage discharge
header pressure of between

46
<PAGE> 49

1,300 to 1,400 psig required for offshore gas lift. Gas not required for gas
lift is sold from the third stage discharge header. The average daily gas flow
rate to supply the gas lift system is approximately 170 MMcf per day.

All gas sold or used for gas lifting is processed through a dehydration
system to less than six pounds of water content per Mcf of gas. Three glycol
dehydration units provide a capacity of 250 MMcf per day for gas dehydration.

Oil from three offshore free water knock out ("FWKO") platforms is received
at the oil processing and storage battery. The oil processing facility consists
of three 20,000 barrel stock tanks, two 10,000 barrel cylinder tanks and various
oil and water transfer pumps.

The produced water treating plant facility was built in 1990. The facility,
which receives produced water from the offshore FWKO platforms and the oil
processing facility, skims and cleans produced formation water at a capacity up
to 240 MBbls of water per day.

The maintenance and utilities facilities include instrument air systems,
utility and fire control water facilities, a sewage treatment plant and electric
power generation. Electrical power for the entire central facility is provided
by four electromotive diesel 1,450 horsepower engines each with 1,000 kilowatt
generators.

OIL AND NATURAL GAS RESERVES

Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of crude oil and natural gas, the Estimated Future net
revenues (before income taxes), the Present Value of Future Net Revenues (before
income taxes) and the Standardized Measure of Discounted Future Net Cash Flows
as of June 30, 1996. Information with respect to the Company's existing
properties was prepared by the Company's engineers in accordance with the rules
and regulations of the Commission; however, such reserve information has not
been reviewed by independent reserve engineers. In accordance with rules and
regulations of the Commission, the pre-tax estimated future net revenues,
pre-tax present value of future net revenues and the Standardized Measure of
Discounted Future Net Cash Flows prepared by the Company have been decreased by
approximately $7,595,000, $6,861,000 and $4,596,000, respectively, representing
the effect of hedging transactions entered into as of June 30, 1996. The
information with respect to the Central Gulf Properties has been estimated by
the Company.

<TABLE>
<CAPTION>
JUNE 30, 1996
PROVED RESERVES
------------------------------------------------------------------------------
CENTRAL CENTRAL CENTRAL
GULF GULF GULF PRO
COMPANY COMPANY COMPANY PROPERTIES PROPERTIES PROPERTIES FORMA
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL COMBINED
--------- ----------- -------- --------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Proved Reserves:
Oil (MBbls)..................... 32,463 4,233 36,696 9,413 4,624 14,037 50,733
Gas (MMcf)...................... 41,397 2,681 44,078 40,702 19,729 60,431 104,509
MBOE (6 Mcf per Bbl)............ 39,362 4,680 44,042 16,196 7,912 24,108 68,150
Estimated Future Net Revenues
(Before Income Taxes)........... $306,082 $36,996 $343,078 $119,917 $85,329 $205,246 $548,324
Present Value of Future Net
Revenues (Before Income Taxes;
Discounted at 10%).............. $251,515 $27,508 $279,023 $100,824 $54,292 $155,116 $434,139
Standardized Measure of Discounted
Future Net Cash Flows(1)........ $238,161 $122,366 $360,527
</TABLE>

- ---------------

(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the Present Value of Future Net Revenues after
income taxes discounted at 10%.

47
<PAGE> 50

Presented below are the estimated quantities of proved developed and proved
undeveloped reserves of crude oil and natural gas, the Estimated Future Net
Revenues (before income taxes), the Present Value of Future Net Revenues (before
income taxes) and the Standardized Measure of Discounted Future Net Cash Flows
for the Company as of December 31, 1995. Information set forth in the following
table is based upon reserve reports prepared by Netherland Sewell, independent
petroleum engineers, in accordance with the rules and regulations of the
Commission. In accordance with rules and regulations of the Commission, the
pre-tax estimated future net revenues, pre-tax present value of future net
revenues and the Standardized Measure of Discounted Future Net Cash Flows
prepared by the Company have been decreased by approximately $7,669,000,
$7,181,000 and $4,929,000, respectively, representing the effect of hedging
transactions entered into as of December 31, 1995.

<TABLE>
<CAPTION>
PROVED RESERVES AT DECEMBER 31, 1995
-----------------------------------------------------
DEVELOPED DEVELOPED
PRODUCING NON-PRODUCING UNDEVELOPED TOTAL
--------- ------------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net proved Reserves:
Oil (MBbls)................................ 23,588 8,114 2,127 33,829
Gas (MMcf)................................. 14,525 34,110 1,941 50,576
MBOE (6 Mcf per Bbl)....................... 26,008 13,799 2,451 42,258
Estimated Future Net Revenues (Before Income
Taxes)..................................... $ 144,062 $ 117,786 $17,982 $279,830
Present Value of Future Net Revenues (Before
Income Taxes; Discounted at 10%)........... $ 147,664 $ 76,216 $10,855 $234,735
Standardized Measure of Discounted Future Net
Cash Flows(1).............................. $203,940
</TABLE>

- ---------------

(1) The Standardized Measure of Discounted Future Net Cash Flows prepared by
the Company represents the Present Value of Future Net Revenues after
income taxes discounted at 10%.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
The quantities of oil and natural gas that are ultimately recovered, production
and operating costs, the amount and timing of future development expenditures
and future oil and natural gas sales prices may all differ from those assumed in
these estimates. Therefore, the Present Value of Future Net Revenues figures
shown above should not be construed as the current market value of the estimated
oil and natural gas reserves attributable to the Company's properties. The
information set forth in the foregoing tables includes revisions of certain
volumetric reserve estimates attributable to proved properties included in the
preceding year's estimates. Such revisions are the result of additional
information from subsequent completions and production history from the
properties involved or the result of a decrease (or increase) in the projected
economic life of such properties resulting from changes in product prices.

In accordance with the Commission's guidelines, the engineers' estimates of
future net revenues from the Company's properties and the Present Value of
Future Net Revenues thereof are made using oil and natural gas sales prices in
effect as of the dates of such estimates and are held constant throughout the
life of the properties except where such guidelines permit alternate treatment,
including the use of fixed and determinable contractual price escalations. The
prices as of June 30, 1996 were $19.53 per Bbl of crude oil and $2.58 per Mcf of
natural gas for the East Bay Complex and $20.62 per Bbl of crude oil and $2.63
per Mcf of natural gas for Main Pass 69. The prices as of December 31, 1995 were
$18.86 per Bbl of crude oil and $2.57 for Mcf of natural gas for the East Bay
Complex and $19.23 per Bbl of crude oil and $2.51 per Mcf of natural gas for
Main Pass 69. The foregoing prices exclude the effect of net price hedging
positions. Prices for natural gas and, to a lesser extent, oil are subject to
substantial seasonal fluctuations and prices for each are subject to

48
<PAGE> 51

substantial fluctuations as a result of numerous other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "-- Oil and Gas Marketing and Major Customers."

PRODUCTIVE WELLS AND ACREAGE

Productive Wells

The following table sets forth the Company's existing productive wells as
of June 30, 1996:

<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C> <C>
Oil....................................................... 488 470
Gas....................................................... 28 22
--- ---
Total Productive Wells.................................. 516 492
=== ===
</TABLE>

Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connections. Wells that are
completed in more than one producing horizon are counted as one well. Of the
gross wells reported above, 25 had multiple completions.

Acreage Data

Undeveloped acreage includes leased acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres expressed as whole numbers and fractions thereof. The
following table sets forth the approximate developed and undeveloped acreage in
which the Company held a leasehold mineral or other interest at June 30, 1996.

<TABLE>
<CAPTION>
UNDEVELOPED
DEVELOPED ACRES ACRES
---------------- ----------------
GROSS NET GROSS NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal waters............................................ 4,330 4,330 9,995 7,495
State waters and onshore.................................. 43,997 37,918 16,403 14,240
------ ------ ------ ------
Total................................................... 48,327 42,248 26,398 21,735
====== ====== ====== ======
</TABLE>

In addition, the Company has acquired options covering 26,945 acres in
Cameron Parish, Louisiana, which allow the Company to conduct 3-D seismic
operations on Mallard Bay and to subsequently acquire oil and gas leases on such
acreage.

49
<PAGE> 52

DRILLING ACTIVITIES

The following table sets forth the drilling activity of the Company on its
properties for the period from April 20, 1992 (inception) through December 31,
1992, and for the years ended December 31, 1993, 1994 and 1995.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1992 1993 1994 1995
------------ ------------ ------------- ------------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive............................... 0 0 0 0 1 .88 1 1
Nonproductive............................ 0 0 0 0 1 .88 3 2
Development Wells:
Productive............................... 0 0 3 2.19 10 8.75 17 17
Nonproductive............................ 0 0 0 0 1 .43 0 0
---- ---- ---- ---- ---- ----- ---- ----
Total................................. 0 0 3 2.19 13 10.94 21 20
==== ==== ==== ==== ==== ===== ==== ====
</TABLE>

NET PRODUCTION, UNIT PRICES AND COSTS

The following table presents certain information with respect to oil and
gas production and lease operating expenses attributable to all oil and gas
property interests owned by the Company for the period from April 20, 1992
(inception) through December 31, 1992, for the years ended December 31, 1993,
1994 and 1995 and for the six months ended June 30, 1995 and 1996.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 20, 1992) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- ----------------
1992 1993 1994 1995 1995 1996
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)...................... 670 2,850 4,286 6,057 2,630 3,008
Gas (Mmcf)....................... 1,484 3,704 7,234 12,393 5,619 7,016
MBOE............................. 917 3,467 5,492 8,123 3,567 4,178
Average Sales Prices(1):
Oil (per Bbl).................... $16.18 $13.82 $14.24 $17.39 $17.77 $19.80
Gas (per Mcf).................... 1.64 1.81 1.76 1.82 1.72 2.86
Per BOE.......................... 14.48 13.30 13.42 15.75 15.81 19.05
Average lease operating expenses
(per BOE)........................ $ 5.45 $ 4.10 $ 4.29 $ 3.70 $ 3.99 $ 3.95
</TABLE>

- ---------------

(1) Excludes results of hedging activities. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $14.23,
$14.56 and $17.27 in the years ended December 31, 1993, 1994 and 1995,
respectively, and the average gas price per Mcf received was $1.81 and
$1.84 in the years ended December 31, 1994 and 1995, respectively. The
Company did not enter into any hedging activities relating to oil during
1992 or relating to gas during 1992 and 1993. Hedging activities decreased
revenue recognized in the six months ended June 30, 1995 and 1996 by $1.0
million and $10.5 million, respectively. Including the effect of hedging
activities, the Company's average oil price per Bbl received was $17.32 and
$17.92 and the average gas price per Mcf received was $1.75 and $2.17 in
the six months ended June 30, 1995 and 1996, respectively.

OIL AND GAS MARKETING AND MAJOR CUSTOMERS

The revenues generated by the Company's operations are highly dependent
upon the prices of, and demand for, oil and natural gas. The price received by
the Company for its oil and natural gas production

50
<PAGE> 53

depends on numerous factors beyond the Company's control, including seasonality,
the condition of the United States economy, particularly the manufacturing
sector, foreign imports, political conditions in other oil-producing and natural
gas-producing countries, the actions of the Organization of Petroleum Exporting
Countries and domestic government regulation, legislation and policies.
Decreases in the prices of oil and natural gas could have an adverse effect on
the carrying value of the Company's proved reserves and the Company's revenues,
profitability and cash flow. Although the Company is not currently experiencing
any significant involuntary curtailment of its oil or natural gas production,
market, economic and regulatory factors may in the future materially affect the
Company's ability to sell its oil or natural gas production. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company has a long term contract to sell all crude oil volumes produced
from the Company's East Bay fields to Shell at a price based on the highest
monthly posted price of a number of principal purchasers of crude oil in the
South Louisiana area. The contract expires in June 2003. The Company markets its
remaining crude oil and natural gas production pursuant to short-term contracts.

For the year ended December 31, 1994, sales to ERAC accounted for
approximately 78% of the Company's oil and gas revenues. For the year ended
December 31, 1994, sales to Enron Oil Transportation and Trading accounted for
approximately 21.0% of the Company's oil and gas revenues. For the year ended
December 31, 1995, sales to Shell Oil Company, Murphy Oil USA, Inc. and Enron
Capital & Trade Resources Corp. accounted for 64%, 19% and 14%, respectively of
the Company's oil and gas revenues. For the six months ended June 30, 1996,
sales to Shell Oil Company, Murphy Oil USA, Inc. and Enron Capital & Trade
Resources Corp. accounted for 54%, 14% and 19%, respectively, of the Company's
oil and gas revenues.

Due to the availability of other markets and pipeline connections, the
Company does not believe that the loss of any single crude oil or natural gas
customer would adversely affect the Company's results of operations.

COMPETITION

The oil and gas industry is highly competitive in all of its phases. The
Company encounters competition from other oil and gas companies in all areas of
its operations, including the acquisition of producing properties. The Company's
competitors include major integrated oil and natural gas companies and numerous
independent oil and natural gas companies, individuals and drilling and income
programs. Many of its competitors are large, well established companies with
substantially larger operating staffs and greater capital resources than the
Company's and which, in many instances, have been engaged in the energy business
for a much longer time than the Company. Such companies may be able to pay more
for productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment.

Capital available for investment in the oil and natural gas industry has
declined significantly as a result of decreases in product prices, changes in
federal income tax laws and adverse economic conditions generally affecting the
industry and the country as a whole. As a result, there is substantial
competition for such capital.

OPERATING HAZARDS AND UNINSURED RISKS

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<PAGE> 54

that its insurance is adequate and customary for companies of a similar size
engaged in operations similar to those of the Company, but losses could occur
for uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage. The occurrence of an event that is not fully covered by insurance
could have an adverse impact on the Company's financial condition and results of
operations.

EMPLOYEES

As of August 1, 1996, the Company had 230 full-time employees, none of whom
is represented by any labor union. Included in the total were 96 corporate
employees located in the Company's Baton Rouge, Louisiana and Lafayette,
Louisiana offices, as well as 132 employees who work in the Company's East Bay
and Main Pass 69 fields. The Company considers its relations with its employees
to be good.

OTHER FACILITIES

The Company currently leases approximately 8,600 square feet of office
space in Baton Rouge, Louisiana, where its administrative offices are located,
and approximately 41,304 square feet of office space in Lafayette, Louisiana and
approximately 1,150 square feet of office space in New Orleans, Louisiana, where
the Company's technical personnel are collectively located.

The Company also leases dock and warehouse space in Venice, Louisiana.

TITLE TO PROPERTIES

The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and gas
industry. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties. The Company's Revolving Credit Facility
is secured by substantially all of the Company's oil and gas properties. The MMS
and Louisiana State Mineral Board must approve all transfers of record title or
operating rights on its respective leases. The MMS and Louisiana State Mineral
Board approval process can in some cases delay the requested transfer for a
significant period of time.

GOVERNMENTAL REGULATION

The Company's oil and gas exploration, production and related operations
are subject to extensive rules and regulations promulgated by Federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
laws.

The State of Louisiana and many other states require permits for drilling
operations, drilling bonds, and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from wells, and the regulation
of spacing, plugging, and abandonment of such wells.

The Federal Energy Regulatory Commission ("FERC") regulates the
transportation and certain sales for resale of natural gas in interstate
commerce pursuant to the Natural Gas Act of 1938 ("NGA") and the Natural Gas
Policy Act of 1978 ("NGPA"). In the past, the Federal government has regulated
the prices at which oil and gas could be sold. Deregulation of wellhead and
certain other sales in the natural gas industry began with the enactment of the
NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act
(the "Decontrol Act"). The Decontrol Act removed all NGA and NGPA price and
nonprice controls affecting wellhead sales of natural gas effective January 1,
1993. While sales by producers of natural gas, and all sales of crude oil,
condensate and natural gas liquids can currently be made at uncontrolled market
prices, Congress could reenact price controls in the future.

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On April 8, 1992, the FERC issued Order No. 636, as amended by Order No.
636-A (issued in August 1992) and Order No. 636-B (issued in November 1992) as a
continuation of its efforts to improve the competitive structure of the
interstate natural gas pipeline industry and maximize the consumer benefits of a
competitive wellhead gas market. The FERC proposed to generally require
interstate pipelines to "unbundle,"or separate, their traditional merchant sales
services from their transportation and storage services and to provide
comparable transportation and storage services with respect to all gas supplies
whether purchased from the pipeline or from other merchants such as marketers or
producers. The pipelines must now separately state the applicable rates for each
unbundled service (e.g., for natural gas transportation and for storage). This
unbundling process has been implemented through negotiated settlements in
individual pipeline restructuring proceedings. Ultimately, Order Nos. 636, et
al., may enhance the competitiveness of the natural gas market. It is impossible
to predict at this time the ultimate form and effect of Order No. 636. While
Order No. 636 will not directly regulate the production and sale of gas that may
be produced from the Company's properties, the order could affect the market
conditions in which the gas is sold and the availability of transportation
services to deliver the gas to market.

Certain segments of the industry have opposed aspects of Order Nos. 636, et
al., and several parties have sought court review of those orders. Furthermore,
after the FERC issued orders approving the individual pipeline restructuring
plans authorized pursuant to Order No. 636, various parties sought court review
of certain of these pipeline restructuring orders. Upon court review, any or all
of Order Nos. 636, et al., or the individual pipeline restructuring orders may
be reversed in whole or in part and remanded to the FERC for further action
consistent with the court's decision. It is impossible for the Company to
predict the ultimate outcome regarding this court review. In addition, the
composition of the FERC has changed considerably since the issuance of Order
Nos. 636, et al. The Company cannot, therefore, predict the ultimate outcome or
duration of the unbundled Order Nos. 636, et al regime.

The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of market-based rates for interstate gas transmission. While any
resulting FERC action would affect the company only indirectly, the FERC's
current rules and policy statements may have the effect of enhancing competition
in natural gas markets by, among other things, encouraging non-producer natural
gas marketers to engage in certain purchase and sale transactions. The Company
cannot predict what action the FERC will take on these matters, nor can it
accurately predict whether the FERC's actions will achieve the goal of
increasing the competition in markets in which the Company's natural gas is
sold. However, the Company does not believe that it will be treated materially
differently than other natural gas producers and marketers with which it
competes.

Recently, the FERC issued a policy statement on how interstate natural gas
pipelines can recover the costs of new pipeline facilities. While this policy
statement affects the Company only indirectly, in its present form, the new
policy should enhance competition in natural gas markets and facilitate
construction of gas supply laterals. However, requests for rehearing of this
policy statement are currently pending. The Company cannot predict what action
the FERC will take on these requests.

Commencing in October 1993, the FERC issued a series of rules (Order Nos.
561 and 561-A) establishing an indexing system under which oil pipelines will be
able automatically to change their transportation rates, subject to prescribed
ceiling levels. The indexing system, which allows or may require pipelines to
make rate changes to track changes in the Producer Price Index for Finished
Goods, minus one percent, became effective January 1, 1995. The FERC's decision
in this matter is currently the subject of various petitions for judicial
review. The Company is not able at this time to predict the effects of Order
Nos. 561 and 561-A, if any, on the transportation costs associated with oil
production from the Company's oil producing operations.

Under the Outer Continental Shelf Lands Act ("OCSLA"), the FERC also
regulates certain activities on the Outer Continental Shelf (the "OCS"). Under
OCSLA, all gathering and transporting of natural gas on the OCS must be
performed on an "open and non-discriminatory" basis. Consequently, the Company's
gathering and transportation facilities located on the OCS must be made
available to third parties. In addition,

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the MMS imposes regulations relating to development and production of oil and
gas properties in federal waters. Under certain circumstances, the MMS may
require any Company operations on federal leases to be suspended or terminated.
Any such suspensions or terminations could materially and adversely affect the
Company's financial condition and operations.

Certain of the Company's businesses are subject to regulation by the
Federal Natural Gas Pipeline Safety Act of 1968 and other state and Federal
environmental statutes and regulations.

The Oil Pollution Act of 1990 (the "OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills and liability
for damages resulting from such spills in United States waters. A "responsible
party" includes the owner or operator of a facility or vessel, or the lessee or
permittee of an area in which an offshore facility is located. The OPA assigns
liability to each responsible party for oil removal costs and a variety of
public and private damages. While liability limits apply in some circumstances,
a party cannot take advantage of liability limits if the spill was caused by
gross negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in its cleanup, liability limits likewise do not
apply. Few defenses exist to the liability imposed by the OPA.

The OPA also imposes ongoing requirements on a responsible party including
proof of financial responsibility to cover at least some costs in a potential
spill. On August 25, 1993, the MMS published an advance notice of its intention
to adopt regulations under the OPA that would require owners and operators of
offshore oil and natural gas facilities to establish $150 million in financial
responsibility. Under the proposed regulations, financial responsibility could
be established through insurance, guaranty, indemnity, surety bond, letter of
credit, qualification as a self-insurer or a combination thereof. There is
substantial uncertainty as to whether insurance companies or underwriters will
be willing to provide coverage under the OPA because the statute provides for
direct lawsuits against insurers who provide financial responsibility coverage,
and most insurers have strongly protested this requirement. The financial tests
or other criteria that will be used to judge self-insurance are also uncertain.
In May, 1995, the U.S. House of Representatives approved a bill that would amend
OPA 90 to reduce the level of financial responsibility to $35 million. The U.S.
Senate passed a related measure on November 17, 1995 that would also amend OPA
90 to reduce the level of financial responsibility to $35 million. The Clinton
Administration has expressed its support for this legislation, but has not yet
taken any action on the bills approved by the U.S. House of Representatives and
the U.S. Senate. The MMS had indicated that it would not move forward with the
adoption of the rule until the United States Congress has had an opportunity to
act on the pending amendments to OPA 90. Based on the passage of these bills and
the support of the Clinton administration, it appears that the level of
financial responsibility required under OPA 90 will be reduced and the MMS will
probably not move forward with the adoption of its rule as it was proposed. The
impact of the regulations should not be any more adverse to the Company than it
will be to other similarly situated or less capitalized owners or operators in
the Gulf of Mexico Region.

ENVIRONMENTAL MATTERS

The Company's operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling, emission,
transportation and discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness or wetlands and other protected areas; and
impose substantial liabilities for pollution resulting from the Company's
operations. The permits required for various of the Company's operations are
subject to revocation, modification and renewal by issuing authorities. The
Company believes that its operations currently are in substantial compliance
with applicable environmental regulations.

Governmental authorities have the power to enforce compliance with their
regulations, and violations are subject to fines or injunction, or both. The
Company does not expect environmental compliance matters to

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have a material adverse effect on its financial position. It is also not
anticipated that the Company will be required in the near future to expend
amounts that are material to the financial condition or operations of the
Company by reason of environmental laws and regulations, but because such laws
and regulations are frequently changed, and may impose increasingly stricter
requirements, the Company is unable to predict the ultimate cost of complying
with such laws and regulations.

The following are examples of environmental, safety and health laws that
potentially relate to the Company's operations:

Solid Waste. The Company's operations may generate and result in the
transportation, treatment, and disposal of both hazardous and nonhazardous solid
wastes that are subject to the requirements of the federal Resource Conservation
and Recovery Act and comparable state and local requirements. The Environmental
Protection Agency ("EPA") is currently considering the adoption of stricter
disposal standards for nonhazardous waste. Further, it is possible that some
wastes that are currently classified as nonhazardous, perhaps including wastes
generated during pipeline, drilling and production operations, may in the future
be designated as "hazardous wastes,"which are subject to more rigorous and
costly disposal requirements. Such changes in the regulations may result in
additional expenditures or operating expenses by the Company.

Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state statutes, also
known as "Superfund" laws, impose liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. These persons include the owner
or operator of a site, and companies that transport, dispose of or arrange for
the disposal of, the hazardous substances found at the site. CERCLA also
authorizes the EPA, and in some cases, third parties to take actions in response
to threats to the public health or the environment and to seek to recover from
the classes of responsible persons the costs they incur. Although "petroleum" is
excluded from CERCLA's definition of a "hazardous substance," in the course of
its ordinary operations the Company may generate other materials which may fall
within the definition of a "hazardous substance." The Company may be responsible
under CERCLA for all or part of the costs required to clean up sites at which
such wastes have been disposed and for natural resource damages. The Company has
not received any notification that it may be potentially responsible for cleanup
costs under CERCLA or any comparable state law.

Air. The Company's operations may be subject to the Clean Air Act ("CAA")
and comparable state and local requirements. Amendments to the CAA were adopted
in 1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from the
operations of the Company. The EPA has been developing regulations to implement
these requirements. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with maintaining or obtaining operating permits and approvals
addressing other air emission-related issues. However, the Company does not
believe its operations will be materially adversely affected by any such
requirements.

Water. The Federal Water Pollution Control Act ("FWPCA") imposes
restrictions and strict controls regarding the discharge of produced waters and
other oil and gas wastes into navigable waters. Such discharges are typically
authorized by National Pollutant Discharge Elimination System ("NPDES") permits.
The FWPCA provides for civil, criminal and administrative penalties for any
unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the Oil Pollution Act of 1990, imposes substantial
potential liability for the costs of removal, remediation and damages. State
laws for the control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of petroleum
or its derivatives into state waters. In addition, the Coastal Zone Management
Act authorizes state implementation and development of programs of management
measures for non-point source pollution to restore and protect coastal waters.
By January 1, 1997, unless authorized by an individual or general EPA permit,
for which the Company has applied with regard to its East Bay fields, the
federal NPDES permits prohibit the discharge of produced water, and some other
substances related to the oil and gas industry, from wells located in the
coastal waters of Louisiana. Although the costs to reformat Company operations,
if required, to comply with these zero discharge mandates under federal or state
law may be

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significant, the Company believes that these costs will not have a material
adverse impact on the Company's financial conditions and operations.

Protected Species. The Endangered Species Act ("ESA") seeks to ensure that
activities do not jeopardize endangered or threatened animal, fish and plant
species, nor destroy or modify the critical habitat of such species. Under the
ESA, exploration and production operations, as well as actions by federal
agencies, may not significantly impair or jeopardize the species or its habitat.
The ESA provides for criminal penalties for willful violations of the act. Other
statutes which provide protection to animal and plant species and which may
apply to the Company's operations which include, but are not necessarily limited
to, the Marine Mammal Protection Act, the Marine Protection and Sanctuaries Act,
the Fish and Wildlife Coordination Act, the Fishery Conservation and Management
Act, the Migratory Bird Treaty Act and the National Historic Preservation Act.

Wetlands. Pursuant to the FWPCA, the United States Corps of Engineers,
with oversight by the EPA, administers a complex program that regulates
activities in wetland areas. Some of the Company's operations are in areas that
have been designated as wetlands and, as such, are subject to permitting
requirements. Failure to properly obtain a permit or violation of permit terms
could result in the issuance of compliance orders, restorative injunctions and a
host of civil, criminal and administrative penalties. The Company believes that
it is currently in substantial compliance with these permitting requirements.

Wildlife Refuges/Bird Sanctuaries. Portions of the Company's properties
are located in or adjacent to federal and state wildlife refuges and bird
sanctuaries. The Company's operations in such areas must comply with regulations
governing air and water discharge which are more stringent than its other areas
of operations. The Company has not been, and does not anticipate that it will
be, materially affected by any such requirements.

Safety and Health. The Company's operations are subject to the
requirements of the federal Occupational Safety and Health Act ("OSHA") and
comparable state statutes. The OSHA hazard communication standard, the EPA
community-right-to-know regulations under Title III of the Federal Superfund
Amendment and Reauthorization Act, and similar state statutes require that
certain information be organized and maintained about hazardous materials used
or produced in the operations. Certain of this information must be provided to
employees, state and local government authorities and citizens.

The Company incurred approximately $430,000, $620,000, $694,000 and
$405,000 relating to environmental compliance during 1993, 1994, 1995 and the
six months ended June 30, 1996, respectively.

ABANDONMENT COSTS

The Company is responsible for payment of abandonment costs on the oil and
gas properties it operates. As of June 30, 1996, total abandonment costs on the
East Bay Complex and Main Pass 69 estimated to be incurred through the year 2008
were approximately $56 million. Estimates of abandonment costs and their timing
may change due to many factors including actual production results, inflation
rates, and changes in environmental laws and regulations.

In connection with its acquisition of the East Bay Complex and Main Pass
69, the Company entered into two escrow agreements to provide for the future
plugging and abandonment costs of these properties. The East Bay agreement
requires the Company to make monthly deposits of $100,000 through June 30, 1998,
and $350,000 thereafter until the balance in the escrow account equals $40
million unless the Company commits to the plug and abandonment of a certain
number of wells in which case the increase will be deferred. The Main Pass 69
agreement requires monthly deposits of $50,000 until the balance in the escrow
account equals $7.5 million. Such funds are restricted as to withdrawal by the
agreement. With respect to any specifically planned plugging and abandoning
operation, funds are partially released to the Company when it presents to the
escrow agent the planned plugging and abandonment operations approved by the
applicable governmental agency, with the balance to be released upon the
presentation by the Company to the trustee of evidence from the governmental
agency that the operation was conducted in compliance with applicable laws and
regulations. As of June 30, 1996, the escrow balances totaled $5.3 million.

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In addition, the MMS requires lessees of OCS properties to post bonds in
connection with the plugging and abandonment of wells located offshore and the
removal of all production facilities. Operators in the OCS waters of the Gulf of
Mexico are currently required to post area wide bonds of $3 million or $500,000
per producing lease and supplemental bonds at the discretion of the MMS. On
January 17, 1995, amended May 1, 1996, the Company entered into an agreement
with Planet Indemnity Company ("Planet") whereby Planet agreed to issue $11.7
million of MMS surety bonds for the Company and the Company agreed to post
collateral for same in favor of Planet. The collateral includes a mortgage on
the Company's federal (OCS) leases in the amount of $8.2 million, a letter of
credit for $2.0 million and a pledge of certain rights to escrowed funds. The
Company has posted a total of $14.2 million of bonds with the MMS and has
satisfied all requirements for bonds imposed to date by the MMS. Pursuant to a
schedule imposed by the MMS, the Company will be required to post additional
bonds up to a total bonding level of $24.6 million by January 1999, unless the
Company is determined by the MMS to be exempt from such requirement due to
certain financial tests. The Company does not anticipate that the cost of any
such bonding requirements will materially affect the Company's financial
position. Under certain circumstances, the MMS may require any Company
operations on federal leases to be suspended or terminated. Any such suspensions
or terminations could have a material adverse effect on the Company's financial
condition and operations.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business that management
believes would not have a material adverse effect on its financial condition or
results of operations.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSTION
- --------------------------------------- --- --------------------------------------------
<S> <C> <C>
James C. Flores........................ 37 Chairman of the Board of Directors and
Chief Executive Officer
William W. Rucks, IV................... 39 Vice Chairman of the Board of Directors and
President
Richard G. Zepernick, Jr............... 35 Executive Vice President, Chief Operating
Officer and Director
Robert L. Belk......................... 47 Senior Vice President, Chief Financial
Officer Treasurer and Director
Donald W. Clayton...................... 60 Director
Milton J. Womack....................... 70 Director
Charles F. Mitchell.................... 47 Director
Robert K. Reeves....................... 38 Senior Vice President, General Counsel and
Secretary
David J. Morgan........................ 48 Senior Vice President -- Geology
Michael O. Aldridge.................... 37 Vice President and Controller
William S. Flores, Jr.................. 39 Vice President -- Operations
Doss R. Bourgeois...................... 39 Vice President -- Production
Clint P. Credeur....................... 40 Vice President -- Reservoir Engineering
</TABLE>

The following biographies describe the business experience of the directors
and executive officers of the Company.

James C. Flores has served as Chairman of the Board of the Company since
its inception and as Chief Executive Officer since July 1995. From 1985 to 1992,
Mr. Flores served as Vice President of FloRuxco, Inc., an oil and gas
exploration company. From 1982 to 1984, Mr. Flores was an independent petroleum
landman.

William W. Rucks, IV has served as President and Vice Chairman of the Board
of Directors since July 1995 and served as President, Chief Executive Officer
and a Director of the Company from its inception until July 1995. From 1985 to
1992, Mr. Rucks served as President of FloRuxco, Inc. Prior thereto, Mr. Rucks
worked as a petroleum landman with Union Oil Company of California in its
Southwest Louisiana District, serving as Area Land Manager from 1981 to 1984.
Mr. Rucks will resign as President and Vice Chairman of the Board of Directors
upon consummation of the Common Stock Offering, but will continue to serve as a
member of the Board of Directors of the Company.

Richard G. Zepernick, Jr. has been with the Company since its inception,
presently serving as Executive Vice President and Chief Operating Officer. Mr.
Zepernick became a director of the Company in September 1994. From June 1992
until May 1993, Mr. Zepernick served as Senior Vice President and Secretary of
Flores & Rucks, Inc. From 1985 to 1992, Mr. Zepernick served as General Manager
of FloRuxco, Inc. Prior thereto, Mr. Zepernick worked as an independent
petroleum landman.

Robert L. Belk has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since 1993. Mr. Belk became a director of the
Company in September 1994. Prior to joining the Company, Mr. Belk accumulated
over twelve years experience in public accounting working for Ernst & Young
(1981 to 1988) and H.J. Lowe & Company (1988 to 1993). Mr. Belk is a Certified
Public Accountant.

Donald W. Clayton has served as President and Director of Voyager Energy
Corp. since 1993. From 1992 to 1993 he served as President and Director of
Burlington Resources, Inc. and was the President and Chief Executive Officer of
Meridian Oil Company from 1987 to 1993. Mr. Clayton serves on the Louisiana
State

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University Petroleum Engineering Industry Advisory Board. Mr. Clayton become a
director of the Company in January 1995.

Milton J. Womack has owned and operated a general contracting firm in Baton
Rouge, Louisiana since 1955. Mr. Womack is Chairman of the Board of Union
Planters Bank of Louisiana, serves as a member of the Louisiana State University
Board of Supervisors and is a director of Union Planters Corporation. Mr. Womack
became a director of the Company in January 1995.

Charles F. Mitchell, M.D. is an otolaryngologist and plastic surgeon who
has operated a private practice in Baton Rouge, Louisiana since 1978. He is also
a Clinical Assistant Professor at the Louisiana State University Medical School
in New Orleans and Clinical Instructor at the University Medical Center in
Lafayette, Louisiana. Dr. Mitchell became a director of the Company in January
1995.

Robert K. Reeves has served as Senior Vice President, General Counsel and
Secretary of the Company since May 1994. From November 1993 to May 1994, Mr.
Reeves served as the Company's Vice President and General Counsel. Prior to
joining the Company in 1993, he was a partner in the law firm of Onebane,
Bernard, Torian, Diaz, McNamara & Abell in Lafayette, Louisiana, where he worked
for eleven years.

David J. Morgan joined the Company in 1993 as Vice President -- Geology and
became a Senior Vice President in December 1995. Mr. Morgan has 27 years of
experience in the oil and gas industry. From 1983 to 1993, Mr. Morgan served as
a geologist for and President of Morgan Resources, LTD., an oil and gas
exploration company. Mr. Morgan previously worked as a geologist for Sun Oil
Company, Baton Rouge Exploration Company and Campbell & Associates, an oil and
gas exploration and production company, from 1974 to 1977.

Michael O. Aldridge joined the Company in June 1992 as Vice President and
Controller. From 1991 until 1992, he was Vice President and Chief Financial
Officer of Fleet Petroleum Partners. From 1980 through 1991, Mr. Aldridge worked
for Ernst & Young where he attained the position of senior manager. Mr. Aldridge
is a Certified Public Accountant.

William S. Flores, Jr. joined the Company in 1993 as its Vice President --
Operations. Mr. Flores worked from 1988 to 1993 at CNG Producing Co. where he
served as a Senior Operations Engineer. From 1983 to 1988, he worked for Stokes
& Spiehler, Inc., an engineering consulting firm, and from 1981 to 1983, he
worked for Apache Corporation (formerly Dow Chemical Oil & Gas Division).

Doss R. Bourgeois has served as Vice President -- Production of the Company
since August 1993. From 1982 to 1993 Mr. Bourgeois worked for CNG Producing Co.
until he joined the Company. His positions at CNG Producing Co. included
Production Engineer, Manager Offshore Production, Supervisor Drilling
Engineering, and finally Workovers & Completion/Workover Superintendent. From
1979 to 1982, he was employed as a Drilling Engineer with Mobil Oil Company.

Clint P. Credeur has served the Company as Vice President -- Reservoir
Engineering since 1993. Mr. Credeur served as a Reservoir Engineer and Special
Projects Engineer with Chevron U.S.A. from November 1987 to December 1992. From
1981 to 1987 Mr. Credeur was a Projects Engineer with Tenneco and from 1978 to
1981 he was a Reservoir Engineer with Conoco.

James C. Flores and William S. Flores, Jr. are brothers; there are no other
family relationships between any of the directors and executive officers of the
Company.

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DESCRIPTION OF THE NOTES

The Notes will be issued under an indenture to be dated as of ,
1996 (the "Indenture") between the Company, as issuer, FRI Louisiana, as a
Subsidiary Guarantor, and Fleet National Bank, as trustee (the "Trustee"). A
copy of the Indenture in substantially the form in which it is to be executed
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Indenture, including the definitions of certain terms
contained therein and those terms that are made a part of the Indenture by
reference to the Trust Indenture Act. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain
Definitions."

GENERAL

The Notes will be unsecured senior subordinated obligations of the Company
limited to $150,000,000 aggregate principal amount. The Notes will be issued
only in registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, on and interest on
the Notes will be payable, and the Notes will be transferable, at the office or
agency of the Company in the City of New York maintained for such purposes,
which initially will be the corporate trust office or agency of the Trustee
maintained at 777 Main Street, Hartford, CT 06115. In addition, interest may be
paid, at the option of the Company, by check mailed to the registered holders of
the Notes at their respective addresses as shown on the Note Register. No
service charge will be made for any transfer, exchange or redemption of Notes,
but the Company or the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be payable in connection
therewith.

The obligations of the Company under the Notes will be guaranteed on an
unsecured senior subordinated basis by the Subsidiary Guarantor. See
"-- Subsidiary Guarantees of Notes."

MATURITY, INTEREST AND PRINCIPAL PAYMENTS

The Notes will mature on , 2006. Interest on the Notes will
accrue at the rate of % per annum and will be payable semiannually on
and of each year, commencing , 1997, to the Person
in whose name the Note is registered in the Note Register at the close of
business on the or next preceding such interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.

REDEMPTION

Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption
date), if redeemed during the 12-month period beginning on of the
years indicated below:

<TABLE>
<CAPTION>
YEAR PRICE
---------------------------------------------------------------- -----
<S> <C>
2001............................................................ %
2002............................................................ %
2003............................................................ %
2004 and thereafter............................................. 100%
</TABLE>

Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes (or any portion thereof that is
an integral multiple of $1,000) for redemption will be made by the Trustee from
the outstanding Notes not previously called for redemption (or otherwise
purchased

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<PAGE> 63

by the Company) on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided, however, that no Note with a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption and
accepted for payment.

Offers to Purchase. As described below, (a) upon the occurrence of a
Change of Control, the Company is obligated to make an offer to purchase all
outstanding Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase and (b) upon certain sales or other dispositions of assets, the Company
may be obligated to make offers to purchase Notes with a portion of the Net Cash
Proceeds of such sales or other dispositions at a purchase price equal to 100%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of purchase. See "-- Certain Covenants -- Change of Control"
and "-- Limitation on Disposition of Proceeds of Asset Sales."

SUBORDINATION

Payments of and distribution of or with respect to the Senior Subordinated
Note Obligations will be subordinated, to the extent set forth in the Indenture,
in right of payment to the prior payment in full in cash or cash equivalents of
all existing and future Senior Indebtedness, which includes, without limitation,
all Credit Agreement Obligations and Senior Note Obligations of the Company. The
Notes will rank prior in right of payment only to other indebtedness of the
Company which is, by its terms, expressly subordinated in right of payment to
the Notes. There is currently no indebtedness of the Company which would
constitute such subordinated indebtedness. In addition, the Senior Subordinated
Note Obligations will be effectively subordinated to all of the creditors of the
Company's subsidiaries, including trade creditors, except by virtue of a
Subsidiary Guarantee to the extent such Subsidiary is a Subsidiary Guarantor.
See "Risk Factors -- Subordination of Notes; Holding Company Structure."

The Indenture will provide that in the event of (a) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company (or its creditors, as such) or its assets, or (b) any liquidation,
dissolution or other winding-up of the Company, whether voluntary or
involuntary, or (c) any assignment for the benefit of creditors or other
marshaling of assets or liabilities of the Company, all Senior Indebtedness of
the Company must be paid in full in cash or cash equivalents before any direct
or indirect payment or distribution, whether in cash, property or securities
(excluding certain permitted equity and subordinated debt securities referred to
in the Indenture as "Permitted Junior Securities"), is made on account of the
Senior Subordinated Note Obligations. In the event that, notwithstanding the
foregoing, the Trustee or the holder of any Note receives any payment or
distribution of properties or assets of the Company of any kind or character,
whether in cash, property or securities, by set-off or otherwise, in respect of
Senior Subordinated Note Obligations before all Senior Indebtedness is paid or
provided for in full, then the Trustee or the holders of Notes receiving any
such payment or distribution (other than a payment or distribution in the form
of Permitted Junior Securities) will be required to pay or deliver such payment
or distribution forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full.

During the continuance of any default in the payment when due (whether at
Stated Maturity, upon scheduled repayment, upon acceleration or otherwise) of
principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letters of credit or fees relating to letters of credit
constituting, any Designated Senior Indebtedness (a "Payment Default"), no
direct or indirect payment or distribution by or on behalf of the Company of any
kind or character shall be made on account of the Senior Subordinated Note
Obligations or any obligation under any Subsidiary Guarantee unless and until
such default has been cured or

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waived or has ceased to exist or such Designated Senior Indebtedness shall have
been discharged or paid in full in cash or cash equivalents.

In addition, during the continuance of any default other than a Payment
Default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated (a "Non-payment Default"), after
receipt by the Trustee from the holders (or their representative) of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
no payment or distribution of any kind or character may be made by the Company
on account of the Senior Subordinated Note Obligations for the period specified
below (the "Payment Blockage Period").

The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the holders (or their representative) of
Designated Senior Indebtedness stating that such notice is a payment blockage
notice pursuant to the Indenture and shall end on the earliest to occur of the
following events: (i) 179 days shall have elapsed since the receipt by the
Trustee of such notice; (ii) the date, as set forth in a written notice to the
Company or the Trustee from the holders (or their representative) of the
Designated Senior Indebtedness initiating such Payment Blockage Period, on which
such default is cured or waived or ceases to exist (provided that no other
Payment Default or Non-payment Default has occurred or is then continuing after
giving effect to such cure or waiver); (iii) the date on which such Designated
Senior Indebtedness is discharged or paid in full in cash or cash equivalents;
or (iv) the date, as set forth in a written notice to the Company or the Trustee
from the holders (or their representative) of the Designated Senior Indebtedness
initiating such Payment Blockage Period, on which such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
the holders (or their representative) of Designated Senior Indebtedness
initiating such Payment Blockage Period, after which the Company, subject to the
subordination provisions set forth above and the existence of another Payment
Default, shall promptly resume making any and all required payments in respect
of the Notes, including any missed payments. Only one Payment Blockage Period
with respect to the Notes may be commenced within any 360 consecutive day
period. No Non-payment Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 360 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days (it being acknowledged that any
subsequent action, or any breach of any financial covenant for a period
commencing after the date of commencement of such Payment Blockage Period, that,
in either case, would give rise to a Non-payment Default pursuant to any
provision under which a Non-payment Default previously existed or was continuing
shall constitute a new Non-payment Default for this purpose; provided that, in
the case of a breach of a particular financial covenant, the Company shall have
been in compliance for at least one full 90 consecutive day period commencing
after the date of commencement of such Payment Blockage Period). In no event
will a Payment Blockage Period extend beyond 179 days from the date of the
receipt by the Trustee of the notice and there must be a 181 consecutive day
period in any 360-day period during which no Payment Blockage Period is in
effect. In the event that, notwithstanding the foregoing, the Company makes any
payment or distribution to the Trustee or the holder of any Note prohibited by
the subordination provision of the Indenture, then such payment or distribution
will be required to be paid over and delivered forthwith to the holders (or
their representative) of Designated Senior Indebtedness.

If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."

By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Notes, and funds
which would be otherwise payable to the holders of the Notes will be paid to the
holders of the Senior Indebtedness to the extent necessary to pay the Senior
Indebtedness in full, and the Company may be unable to meet its obligations in
full with respect to the Notes. In addition, as described

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<PAGE> 65

above, the Senior Subordinated Note Obligations will be effectively subordinate
to the claims of creditors of the Company's subsidiaries, including trade
creditors.

As of June 30, 1996, on a pro forma basis, after giving effect pro forma to
the sale of the Notes and the estimated application of the net proceeds
therefrom, the aggregate amount of outstanding Senior Indebtedness would have
been approximately $125 million. See "Use of Proceeds," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Although the Indenture will
contain limitations on the amount of additional Indebtedness that the Company
and the Restricted Subsidiaries may incur, the amounts of such Indebtedness
could be substantial and, in any case, such Indebtedness may be Senior
Indebtedness or Indebtedness of Subsidiaries (to which the Notes will be
structurally subordinated except for Indebtedness of a Subsidiary Guarantor).
The Indenture will prohibit the incurrence by the Company of Indebtedness which
is contractually subordinated in right of payment to any Senior Indebtedness of
the Company and senior in right of payment to the Notes. After giving effect to
the issuance of the Notes and the application of the net proceeds therefrom,
there will be no indebtedness of the Company which is subordinated in right of
payment to the Notes and there will be no indebtedness of the Company which is
pari passu in right of payment with the Notes.

SUBSIDIARY GUARANTEES OF NOTES

Initially, FRI Louisiana will be the only Subsidiary Guarantor, however,
other Restricted Subsidiaries may in the future incur Subsidiary Guarantees of
the Notes as described herein. Each Subsidiary Guarantor will guarantee, jointly
and severally, to each Holder and the Trustee, the full and prompt performance
of the Company's obligations under the Indenture and the Notes, including the
payment of principal of (premium, if any, on) and interest on the Notes pursuant
to its Subsidiary Guarantee. The Subsidiary Guarantees will be subordinated to
Indebtedness of a Subsidiary Guarantor to the same extent and in the same manner
as the Notes are subordinated to Senior Indebtedness. In addition to the
Subsidiary Guarantee, primarily for state income tax purposes, FRI Louisiana
will covenant with the Company to assume, as between the Company and FRI
Louisiana, the payment obligations under the Notes in exchange for the advance
of substantially all the net proceeds of the Notes Offering to FRI Louisiana.
Such intercompany assumption will not affect the primary liability of the
Company under the Notes.

The obligations of each subsidiary Guarantor are limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guarantee shall be entitled to a contribution
from each other Subsidiary Guarantor (if any) in a pro rata amount based on the
Adjusted Net Assets of each Subsidiary Guarantor.

Each Subsidiary Guarantor may consolidate with or merge into or sell all,
substantially all or any portion of its assets to the Company or another
Subsidiary Guarantor without limitation, except to the extent any such
transaction is subject to the "Merger, Consolidation and Sale of Assets"
covenant of the Indenture. Each Subsidiary Guarantor may consolidate with or
merge into or sell all of substantially all of its assets to a corporation other
than the Company or another Subsidiary Guarantor (whether or not affiliated with
the Subsidiary Guarantor), provided that (a) if the surviving corporation is not
the Subsidiary Guarantor, the surviving corporation agrees to assume such
Subsidiary Guarantor's Subsidiary Guarantee and all its obligations pursuant to
the Indenture (except to the extent the following paragraph would result in the
release of such Subsidiary Guarantee) and (b) such transaction does not (i)
violate any of the covenants described below under "Certain Covenants" or in the
Indenture or (ii) result in a Default or Event of Default immediately thereafter
that is continuing.

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Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its Assets) to a Person other than the
Company or another Subsidiary Guarantor and pursuant to a transaction that is
otherwise in compliance with the Indenture (including as described in the
foregoing paragraph), such Subsidiary Guarantor shall be deemed released from
its Subsidiary Guarantee and the related obligations set forth in the Indenture;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its Guarantees of, and
under all of its pledges of assets or other security interests which secure
other Indebtedness of the Company or any Restricted Subsidiary shall also
terminate or be released upon such sale or other disposition. Each Subsidiary
Guarantor that is designated as an Unrestricted Subsidiary in accordance with
the Indenture shall be released from its Subsidiary Guarantee and related
obligations set forth in the Indenture for so long as it remains an Unrestricted
Subsidiary.

Although the Indenture does not contain any requirement that any
Subsidiary. (other than FRI Louisiana) execute and deliver a Subsidiary
Guarantee, certain covenants described below require a future Restricted
Subsidiary to execute and deliver a Subsidiary Guarantee prior to the, guarantee
of other Indebtedness. See "Certain Covenants -- Limitation on Guarantees of
Indebtedness by Restricted Subsidiaries."

CERTAIN COVENANTS

The Indenture will contain, among others, the covenants described below.

Limitation on Indebtedness. (a) The Indenture will provide that neither
the Company nor any Restricted Subsidiary will create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable for the payment
of (collectively "incur") any Indebtedness (including any Acquired
Indebtedness), other than Permitted Indebtedness and Permitted Subsidiary
Indebtedness, as the case may be; provided, however, that the Company and its
Restricted Subsidiaries that are Subsidiary Guarantors may incur Indebtedness if
(x) the Company's Consolidated Fixed Charge Coverage Ratio for the four full
fiscal quarters immediately preceding the incurrence of such Indebtedness (and
for which financial statements are available), taken as one period (at the time
of such incurrence, after giving pro forma effect to: (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was incurred
and the application of such proceeds occurred at the beginning of such
four-quarter period; (ii) the incurrence, repayment or retirement of any other
Indebtedness (including Permitted Indebtedness) by the Company or its Restricted
Subsidiaries since the first day of such four-quarter period (including any
other Indebtedness to be incurred concurrent with the incurrence of such
Indebtedness) as if such Indebtedness was incurred, repaid or retired at the
beginning of such four-quarter period; and (iii) notwithstanding clause (d) of
the definition of Consolidated Net Income, the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any Person acquired or disposed of by the Company or its Restricted
Subsidiaries, as the case may be, since the first day of such four-quarter
period, as if such acquisition or disposition occurred at the beginning of such
four-quarter period), would have been equal to at least 2.5 to 1.0.

Limitation on Restricted Payments. (a) The Indenture will provide that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, take the following actions:

(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than dividends
or distributions payable solely in shares of Qualified Capital Stock of the
Company or in options, warrants or other rights to purchase Qualified
Capital Stock of the Company);

(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Wholly Owned Restricted Subsidiary of the Company) or any options, warrants
or other rights to acquire such Capital Stock;

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<PAGE> 67

(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness;

(iv) declare or pay any dividend on, or make any distribution to the
holders of, any shares of Capital Stock of any Restricted Subsidiary of the
Company (other than to the Company or any of its Wholly Owned Restricted
Subsidiaries) or purchase, redeem or otherwise acquire or retire for value
any Capital Stock of any Restricted Subsidiary or any options, warrants or
other rights to acquire any such Capital Stock (other than with respect to
any such Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company);

(v) make any Investment (other than any Permitted Investment);

(vi) in connection with the acquisition of any property or asset by
the Company or its Restricted Subsidiaries after the date of the Indenture,
which property or asset would secure or be subject to any Production
Payment obligations of the Company or its Restricted Subsidiaries, make any
investment (of cash, property or other assets) in such property or asset so
acquired in addition to the amount of Indebtedness (including Production
Payment obligations) incurred by the Company or its Restricted Subsidiaries
in connection with such acquisition; or

(vii) incur, create, assume or suffer to exist any guarantee of
Indebtedness of any Affiliate (other than (a) guarantees of Indebtedness of
any Restricted Subsidiary by the Company or (b) guarantees of Indebtedness
of the Company by any Restricted Subsidiary, in each case in accordance
with the terms of the Indenture);

(such payments or other actions described in (but not excluded from) clauses (i)
through (vii) are collectively referred to as "Restricted Payments"), unless at
the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the amount
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution), (1) no Default or Event of
Default shall have occurred and be continuing, (2) the Company could incur $1.00
of additional Indebtedness (excluding Permitted Indebtedness) in accordance with
the "Limitation on Indebtedness" covenant, and (3) the aggregate amount of all
Restricted Payments declared or made after the date of the Indenture shall not
exceed the sum (without duplication) of the following:

(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the month after which the Indenture is signed and ending on
the last day of the Company's last fiscal quarter ending prior to the date
of such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss), plus

(B) the aggregate net cash proceeds received after the date of the
Indenture by the Company as capital contributions to the Company (other
than from any Restricted Subsidiary), plus

(C) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of shares of Qualified Capital Stock of the
Company or any options, warrants or rights to purchase such shares of
Qualified Capital Stock of the Company, plus

(D) the aggregate net cash proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company, plus

(E) the aggregate net cash proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of
its Restricted Subsidiaries) of debt securities or shares of Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the

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Company to the extent such debt securities were originally sold for cash,
together with the aggregate cash received by the Company at the time of
such conversion or exchange, plus

(F) To the extent not otherwise included in the Company's Consolidated
Net Income, the net reduction in Investments in Unrestricted Subsidiaries
resulting from the payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case
to the Company or a Restricted Subsidiary after the date of the Indenture
from any Unrestricted Subsidiary or from the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as
provided in the definition of Investment), not to exceed in the case of any
Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the Company
and its Restricted Subsidiaries in such Unrestricted Subsidiary after the
date of the Indenture, plus

(G) $15,000,000.

(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:

(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above (and such payment shall be
deemed to have been paid on such date of declaration for purposes of any
calculation required by the provisions of paragraph (a) above);

(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of,
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company;

(iii) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for or out of the aggregate net
cash proceeds of a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
and

(iv) the purchase, redemption, repayment, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness (other
than Redeemable Capital Stock) in exchange for, or out of the aggregate net
cash proceeds of a substantially concurrent incurrence (other than to a
Restricted Subsidiary) of, Subordinated Indebtedness of the Company so long
as (A) the principal amount of such new Indebtedness does not exceed the
principal amount (or, if such Subordinated Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) of the Subordinated Indebtedness being so
purchased, redeemed, repaid, defeased, acquired or retired, plus the amount
of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses of the Company
incurred in connection with such refinancing, (B) such new Subordinated
Indebtedness is subordinated to the Notes at least to the same extent as
such Subordinated Indebtedness so purchased, redeemed, repaid, defeased,
acquired or retired, (C) such new Subordinated Indebtedness has an Average
Life to Stated Maturity that is longer than the Average Life to Stated
Maturity of the Notes and such new Subordinated Indebtedness has a Stated
Maturity for its final scheduled principal payment that is at least 91 days
later than the Stated Maturity for the final scheduled principal payment of
the Notes.

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under clause (3) of paragraph (a) when declared, but not also when subsequently
paid pursuant to such clause (i)), and the actions described in clause (iv) of
this paragraph (b) shall be Restricted Payments that shall be permitted to be
taken in accordance with this paragraph and shall not reduce the amount that
would otherwise be available for Restricted Payments under clause (3) of
paragraph (a).

(c) In computing Consolidated Net Income of the Company under paragraph (a)
above, (1) the Company shall use audited financial statements for the portions
of the relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (2) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.

Limitation on Issuances and Sales of Restricted Subsidiary Stock. The
Indenture will provide that the Company (i) will not permit any Restricted
Subsidiary to issue any Preferred Stock (other than to the Company or a Wholly
Owned Restricted Subsidiary) and (ii) will not permit any Person (other than the
Company and/or one or more Wholly Owned Restricted Subsidiaries) to own any
Capital Stock of any Restricted Subsidiary; provided, however, that this
covenant shall not prohibit (1) the issuance and sale of all, but not less than
all, of the issued and outstanding Capital Stock of any Restricted Subsidiary
owned by the Company or any of its Restricted Subsidiaries in compliance with
the other provisions of the Indenture, or (2) the ownership by directors of
directors' qualifying shares or the ownership by foreign nationals of Capital
Stock of any Restricted Subsidiary, to the extent mandated by applicable law.

Limitation on Transactions with Affiliates. The Indenture will provide
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or the rendering of any services) with, or
for the benefit of, any Affiliate of the Company (each, other than a Restricted
Subsidiary, being an "Interested Person"), unless (i) such transaction or series
of transactions are on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that would be available in
a comparable arm's length transaction with unrelated third parties who are not
Interested Persons, (ii) with respect to any one transaction or series of
transactions involving aggregate payments in excess of $1,000,000, the Company
delivers an officer's certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (i) above and such
transaction or series of transactions have been approved by the Board of
Directors of the Company, and (iii) with respect to any one transaction or
series of transactions involving aggregate payments in excess of $10,000,000,
the officer's certificate referred to in clause (ii) above also certifies that
such transaction or series of transactions have been approved by a majority of
the Disinterested Directors (or, in the event there are no such Disinterested
Directors, that the Company has obtained a written opinion from an independent
nationally recognized investment banking firm or appraisal firm, in either case
specializing or having a specialty in the type and subject matter of the
transaction or series of transactions at issue, which opinions shall be to the
effect set forth in clause (i) above or shall state that such transaction or
series of transactions are fair from a financial point of view to the Company or
such Restricted Subsidiary); provided, however, that this covenant will not
restrict the Company from (1) paying reasonable and customary regular
compensation and fees to directors of the Company who are not employees of the
Company or any Restricted Subsidiary, (2) paying dividends on, or making
distributions with respect to, shares of Capital Stock of the Company on a pro
rata basis to the extent permitted by the "Limitation on Restricted Payments"
covenant or (3) consummating each of the Closing Transactions.

Limitation on Liens. The Indenture will provide that the Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume, affirm or suffer to exist or become effective any Lien of
any kind, except for Permitted Liens, on or with respect to any of its property
or assets

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(including any intercompany notes), whether owned at the date of the Indenture
or thereafter acquired, or any income, profits or proceeds therefrom, or assign
or otherwise convey any right to receive income thereon, unless (x) in the case
of any Lien securing Subordinated Indebtedness, the Notes are secured by a Lien
on such property, assets or proceeds that is senior in priority to such Lien and
(y) in the case of any other Lien, the Notes are directly secured equally and
ratably with the obligation or liability secured by such Lien. The incurrence of
additional secured Indebtedness by the Company or any Restricted Subsidiary is
subject to further limitations on the incurrence of Indebtedness as described
under "-- Limitation on Indebtedness."

Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase all of the then outstanding
Notes (a "Change of Control Offer"), and shall purchase, on a business day (the
"Change of Control Purchase Date") not more than 70 nor less than 30 days
following the Change of Control, all of the then outstanding Notes validly
tendered pursuant to such Change in Control Offer, at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of Control
Purchase Date.

In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each Noteholder a
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that Noteholders must follow to accept the Change of Control Offer.

If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Noteholders
seeking to accept the Change of Control Offer. If on a Change of Control
Purchase Date the Company does not have available funds sufficient to pay the
Change of Control Purchase Price or is prohibited from purchasing the Notes, an
Event of Default would occur under the Indenture. The definition of Change of
Control includes an event by which the Company sells, conveys, transfers or
leases all or substantially all of its properties to any Person; the phrase "all
or substantially all" is subject to applicable legal precedent and as a result
in the future there may be uncertainty as to whether a Change of Control has
occurred.

The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the same
purchase price, at the same times and otherwise in substantial compliance with
the requirements applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.

The Company intends to comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder, if applicable, in the
event that a Change of Control occurs and the Company is required to purchase
Notes as described above. The existence of a Holder's right to require, subject
to certain conditions, the Company to repurchase its Notes upon a Change of
Control may deter a third party from acquiring the Company in a transaction that
constitutes, or results in, a Change of Control.

Limitation on Disposition of Proceeds of Asset Sales. (a) The Indenture
will provide that the Company will not, and will not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets and
properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution) and (ii) at least 75% of the
consideration received by the Company or the Restricted Subsidiary, as the case
may be, in respect of such Asset Sale consists of cash, Cash Equivalents or the
assumption by the purchaser of liabilities of the Company (other than
liabilities of the Company that are by their terms subordinated to the Notes) or
any Restricted Subsidiary as a result of which the Company and its remaining
Restricted Subsidiaries are no longer liable.

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365 days after such Asset Sale, in properties and assets which replace the
properties and assets that were the subject of the Asset Sale or in properties
and assets that will be used in the business of the Company or its Restricted
Subsidiaries, as the case may be, existing on the date of the Indenture
("Replacement Assets"). The amount of such Net Cash Proceeds not applied or
invested as provided in this paragraph constitutes "Excess Proceeds."

(c) When the aggregate amount of Excess Proceeds equals or exceeds
$15,000,000, the Company shall make an offer to purchase, from all Holders of
the Notes and any then outstanding Pari Passu Indebtedness required to be
repurchased or repaid on a permanent basis in connection with an Asset Sale, an
aggregate principal amount of Notes and any then outstanding Pari Passu
Indebtedness equal to such Excess Proceeds as follows:

(i) (A) the Company shall make an offer to purchase (a "Net Proceeds
Offer") from all Holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds multiplied
by a fraction, the numerator of which is the outstanding principal amount
of the Notes and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness, if any
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Notes tendered), and (B) to the
extent required by such Pari Passu Indebtedness and provided there is a
permanent reduction in the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu
Indebtedness Amount") equal to the excess of the Excess Proceeds over the
Payment Amount.

(ii) The offer price for the Notes shall be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest, if any, to the
date such Net Proceeds Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent
that the aggregate Offered Price of the Notes tendered pursuant to a Net
Proceeds Offer is less than the Payment Amount relating thereto or the
aggregate amount of the Pari Passu Indebtedness that is purchased or repaid
pursuant to the Pari Passu Offer is less than the Pari Passu Indebtedness
Amount (such shortfall constituting a "Net Proceeds Deficiency"), the
Company may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitation
on Restricted Payments" covenant.

(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by Holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer and Pari Passu Offer, the amount of Excess Proceeds shall be
reset to zero.

The Company will not permit any Subsidiary to enter into or suffer to exist any
agreement that would place any restriction of any kind (other than pursuant to
law or regulation) on the ability of the Company to make a Net Proceeds Offer
following any Asset Sale. The Company intends to comply with Rule 14e-1 under
the Exchange Act, and any other securities laws and regulations thereunder, if
applicable, in the event that an Asset Sale occurs and the Company is required
to purchase Notes as described above.

Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. (a)
The Indenture will provide that the Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless (i)(A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for an Subsidiary Guarantee of the Notes by such Restricted Subsidiary
which Subsidiary Guarantee will be subordinated to Guarantor Senior Indebtedness
(but no other Indebtedness) to the same extent that the Notes are subordinated
to Senior Indebtedness and (B) with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee shall be
subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least to
the same extent as such Subordinated Indebtedness is subordinated to the Notes;
(ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of

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reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee until such time as the obligations
guaranteed thereby are paid in full; and (iii) such Restricted Subsidiary shall
deliver to the Trustee an Opinion of Counsel to the effect that such Subsidiary
Guarantee has been duly executed and authorized and constitutes a valid, binding
and enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity; provided that this paragraph (a) shall not be applicable to any
guarantee of any Restricted Subsidiary that (x) existed at the time such Person
became a Restricted Subsidiary of the Company and (y) was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company.

(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee incurred by a Restricted Subsidiary pursuant
to this covenant shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person that is not an Affiliate of the Company, of all of the Company's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture), (ii) the merger of such Restricted Subsidiary into the Company or
any other Restricted Subsidiary (provided the surviving Restricted Subsidiary
assumes the Subsidiary Guarantee) or the liquidation and dissolution of such
Restricted Subsidiary (in each case to the extent not prohibited by the
Indenture), or (iii) the release or discharge of the guarantee which resulted in
the creation of such Subsidiary Guarantee of the Notes, except a discharge or
release by or as a result of payment under such guarantee.

Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any other
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make an Investment in the Company or any other
Restricted Subsidiary or (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions (i) pursuant to an agreement in effect or entered into on the date
of the Indenture, (ii) any agreement or other instrument of a Person acquired by
the Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any other Person, or the properties or assets
of any other Person, other than the Person, or the property or assets of the
Person, so acquired or (iii) existing under any agreement that extends, renews,
refinances or places the agreements containing the restrictions in the foregoing
clauses (i) and (ii), provided that the terms and conditions of any such
restrictions are not materially less favorable to the Holders of the Notes than
those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced.

Limitation on Other Senior Subordinated Indebtedness. The Indenture will
provide that the Company will not incur, directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in any
respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Notes, or is expressly subordinated in right of
payment to the Notes.

Reports. The Indenture will require that the Company (and the Subsidiary
Guarantors, if applicable) file on a timely basis with the Commission, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company (and the Subsidiary Guarantors, if applicable) will also be required (a)
to file with the Trustee, and provide to each holder of Notes, without cost to
such holder, copies of such reports and documents within 15 days after the date
on which the Company files such reports and documents with the Commission or the
date on which the Company (and the Subsidiary Guarantors, if applicable) would
be required to file such reports and documents if the Company (and the
Subsidiary Guarantors, if applicable) were so required and (b) if filing such
reports and documents with the Commission

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is not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Company's cost copies of such reports and documents to any holder
of Notes promptly upon written request.

Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. Generally, a Restricted Subsidiary
includes any Subsidiary of the Company, whether existing on or after the date of
the Indenture, unless the Subsidiary of the Company is designated as an
Unrestricted Subsidiary pursuant to the terms of the Indenture. The definition
of "Unrestricted Subsidiary" set forth under the caption "-- Certain
Definitions" describes the circumstances under which a future Subsidiary of the
Company may be designated as an Unrestricted Subsidiary by the Board of
Directors of the Company.

MERGER, CONSOLIDATION AND SALE OF ASSETS, ETC.

The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of Affiliated Persons, and
the Company will not permit any of its Restricted Subsidiaries to enter into any
such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto (i) either (A) if the transaction or
transactions is a merger or consolidation, the Company shall be the surviving
Person of such merger or consolidation, or (B) the Person (if other than the
Company) formed by such consolidation or into which the Company or such
Restricted Subsidiary is merged or to which the properties and assets of the
Company or such Restricted Subsidiary, as the case may be, are sold, assigned,
conveyed, transferred, leased or otherwise disposed of (any such surviving
Person or transferee Person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case, expressly assume
by a supplemental indenture to the Indenture executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture, and, in each case, the Indenture shall remain
in full force and effect; (ii) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of Company or any of its
Restricted Subsidiaries in connection with or as a result of such transaction as
having been incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; (iii) except in the case of the
consolidation or merger of any Restricted Subsidiary with or into the Company,
immediately after giving effect to such transaction or transactions on a pro
forma basis, the Consolidated Net Worth of the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or transactions; (iv) except in the case of the consolidation or
merger of any Restricted Subsidiary with or into the Company or any Wholly Owned
Restricted Subsidiary, immediately before and immediately after giving effect to
such transaction or transactions on a pro forma basis (on the assumption that
the transaction or transactions occurred on the first day of the period of four
fiscal quarters ending immediately prior to the consummation of such transaction
or transactions, with the appropriate adjustments with respect to the
transaction or transactions being included in such pro forma calculation), the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) could incur $1.00 of additional Indebtedness (excluding
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant;
(v) each Subsidiary Guarantor, unless it is the other party to the transactions
described above, shall have by supplemental indenture to the Indenture confirmed
that its Subsidiary Guarantee of the Notes shall apply to such Person's
obligations under the Indenture and the Notes; and (vi) if any of the properties
or assets of the Company or any of its Restricted Subsidiaries would upon such
transaction or series of related transactions become subject to any Lien (other
than a Permitted Lien), the creation and imposition of such Lien shall have been
in compliance with the "Limitation on Liens" covenant.

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In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and the supplemental indenture in respect
thereto comply with the requirements under the Indenture and an Opinion of
Counsel stating that the requirements of clause (i) of the preceding paragraph
have been complied with.

Upon any consolidation or merger or any sale, assignment, transfer, lease
or other disposition of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named as the Company
therein, and thereafter the Company, except in the case of a lease. will be
discharged from all obligations and covenants under the Indenture and the Notes.

EVENTS OF DEFAULT

The following will be "Events of Default" under the Indenture:

(i) default in the payment of the principal of or premium, if any, on
any of the Notes, whether such payment is due at maturity, upon redemption,
upon repurchase pursuant to a Change of Control Offer or a Net Proceeds
Offer, upon acceleration or otherwise; or

(ii) default in the payment of any installment of interest on any of
the Notes, when it becomes due and payable, and the continuance of such
default for a period of 30 days; or

(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change in Control Offer in accordance with
the provisions of the "Change in Control" covenant or the failure to make
or consummate a Net Proceeds Offer in accordance with the provisions of the
"Limitation on Disposition of Proceeds of Asset Sales" covenant; or

(iv) the Company or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the Notes, any
Subsidiary Guarantee or the Indenture (other than a default specified in
(i), (ii) or (iii) above) for a period of 30 days after written notice of
such failure requiring the Company to remedy the same shall have been given
(x) to the Company by the Trustee or (y) to the Company and the Trustee by
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding; or

(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of (or premium, if any, on)
or interest on any Indebtedness of the Company (other than the Notes) or
any Subsidiary Guarantor or any other Restricted Subsidiary for money
borrowed when due, or any other default causing acceleration of any
Indebtedness of the Company or any Subsidiary Guarantor or any other
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $5,000,000; provided
further that if any such default is cured or waived or any such
acceleration rescinded, or such debt is repaid, within a period of 10 days
from the continuation of such default beyond the applicable grace period or
the occurrence of such acceleration, as the case may be, such Event of
Default under the Indenture and any consequential acceleration of the Notes
shall be automatically rescinded, so long as such rescission does not
conflict with any judgment or decree; or

(vi) the commencement of proceedings, or the taking of any enforcement
action (including by way of set-off), by any holder of at least $5,000,000
in aggregate principal amount of Indebtedness of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary, after a default
under such Indebtedness, to retain in satisfaction of such Indebtedness or
to collect or seize, dispose of or apply in satisfaction of such
Indebtedness, property or assets of the Company or any Subsidiary Guarantor
or any other Restricted Subsidiary having a fair market value (as
determined by the Board of Directors of the Company and evidenced by a
board resolution) in excess of $5,000,000 individually or in the aggregate,

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provided that if any such proceedings or actions are terminated or
rescinded, or such Indebtedness is repaid, such Event of Default under the
Indenture and any consequential acceleration of the Notes shall be
automatically rescinded, so long as (i) such rescission does not conflict
with any judgment or decree and (ii) the holder of such Indebtedness shall
not have applied any such property or assets in satisfaction of such
Indebtedness; or

(vii) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to
be, in full force and effect, enforceable accordance with its terms (except
pursuant to the release of any such Subsidiary Guarantee in accordance with
the Indenture); or

(viii) certain events giving rise to ERISA liability; or

(ix) final judgments or orders rendered against the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or
in an aggregate amount, that is more than $5,000,000 over the coverage
under applicable insurance policies and either (i) commencement by any
creditor of an enforcement proceeding upon such judgment (other than a
judgment that is stayed by reason of pending appeal or otherwise) or (ii)
the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect; or

(x) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) adjudging the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Restricted Subsidiary under
any applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary Guarantor or any other
Restricted Subsidiary or of a substantial part of their consolidated
assets, or ordering the winding up or liquidation of their affairs, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or

(xi) the commencement by the Company or any Subsidiary Guarantor or
any other Restricted Subsidiary of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding to be adjudicated a bankruptcy
or insolvent, or the consent by the Company or any Subsidiary Guarantor or
any other Restricted Subsidiary to the entry of a decree or order for
relief in respect thereof in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law,
or the consent by it under any such law to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of any of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary or of any substantial part of their consolidated assets, or the
making by it of an assignment for the benefit of creditors under any such
law, or the admission by it in writing of its inability to pay its debts
generally as they become due or taking of corporate action by the Company
or any Subsidiary Guarantor or any other Restricted Subsidiary in
furtherance of any such action.

If an Event of Default (other than as specified in clause (x) or (xi)
above) shall occur and be continuing, the Trustee, by written notice to the
Company, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee and the Company, may declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable. If
an

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Event of Default specified in clause (x) or (xi) above occurs and is continuing,
then the principal of, premium, if any, and accrued interest on all of the
outstanding Notes shall ipso facto become and be immediately due and payable
without any declaration. notice or other act on the part of the Trustee or any
holder of Notes.

After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced
by the Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Notes, (iii) the principal of and premium, if any, on
any Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate home by the Notes, and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes which has become due
otherwise than by such declaration of acceleration; (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the nonpayment of principal of, premium,
if any, and interest on the Notes that has become due solely by such declaration
of acceleration, have been cured or waived.

The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.

No holder of any of the Notes has any fight to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.

During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its fights or
powers under the Indenture at the request or direction of any of the Noteholders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.

If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 60 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of the Noteholders.

The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Subsidiary Guarantors of
their respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within ten days
of any Default.

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LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE

The Company may, at its option and at any time, terminate the obligations
of the Company and the Subsidiary Guarantors with respect to the outstanding
Notes ("legal defeasance"). Such legal defeasance means that the Company and the
Subsidiary Guarantors shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights of
holders of outstanding Notes to receive payment in respect of the principal of,
premium, if any, on and interest on such Notes when such payments are due, (ii)
the Company's obligations to issue temporary Notes, register the transfer or
exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of the Notes, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company and
any Subsidiary Guarantor with respect to certain covenants that are set forth in
the Indenture, some of which are described under "--Certain Covenants" above,
and any omission to comply with such obligations shall not constitute a Default
or an Event of Default with respect to the Notes ("covenant defeasance").

In order to exercise either legal defeasance or covenant defeasance, (i)
the Company or any Subsidiary Guarantor must irrevocably deposit, with the
Trustee, in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, on and interest on the outstanding Notes to
redemption or maturity; (ii) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance or covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance or covenant defeasance had not
occurred (in the case of legal defeasance, such opinion must refer to and be
based upon a published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws); (iii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit; (iv) such legal
defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act with respect
to any securities of the Company or any Subsidiary Guarantor, (v) such legal
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company or any Subsidiary Guarantor is a party or by which it is bound; and (vi)
the Company shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel satisfactory to the Trustee, which, taken together, state
that all conditions precedent under the Indenture to either legal defeasance or
covenant defeasance, as the case may be, have been complied with and that no
violations under agreements governing any other outstanding Indebtedness would
result therefrom.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable at their
Stated Maturity within one year, or are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amounts sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any, on) and interest on the Notes to the date of
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably

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directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be, (ii) the Company has paid all other sums payable
under the Indenture by the Company; and (iii) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the
Trustee, which, taken together, state that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have been
complied with.

AMENDMENTS AND WAIVERS

From time to time, the Company and the Trustee may, without the consent of
the Noteholders, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act of 1939, or making any change that does
not adversely affect the rights of any Noteholder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Subsidiary Guarantors and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on any Note,
(b) reduce the principal amount of (or the premium, if any, on) or interest on
any Note, (c) change the place, coin or currency of payment of principal of (or
the premium, if any, on) or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above-stated percentage of aggregate principal amount of
outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, or (h) amend, change or modify the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate the Net Proceeds Offer
with respect to any Asset Sale or modify any of the provisions or definitions
with respect thereto.

The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. The Holders of a majority in aggregate principal amount of the
outstanding Notes may waive any past default under the Indenture, except a
default in the payment of principal (or premium, if any, on) or interest on the
Notes.

THE TRUSTEE

The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.

The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined) it must eliminate such conflict
or resign.

GOVERNING LAW

The Indenture, the Notes and the Subsidiary Guarantees provide that they
will be governed by the laws of the State of New York, without regard to the
principles of conflicts of law.

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CERTAIN DEFINITIONS

"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (A) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced plus the amount of any premium required to
be paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refinancing, plus the amount of
expenses of the Company incurred in connection with such refinancing, and (B) in
the case of any refinancing of Subordinated Indebtedness, such new Indebtedness
is made subordinate to the Notes at least to the same extent as the Indebtedness
being refinanced and (C) such new Indebtedness has an Average Life longer than
the Average Life of the Notes and a final Stated Maturity later than the final
Stated Maturity of the Notes.

"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (a) the sum of (i) discounted future net revenues
from proved oil and gas reserves of the Company and its Restricted Subsidiaries
calculated in accordance with SEC guidelines before any state or federal income
taxes, as estimated by a nationally recognized firm of independent petroleum
engineers in a reserve report prepared as of the end of the Company's most
recently completed fiscal year, as increased by, as of the date of
determination, the estimated discounted future net revenues from (A) estimated
proved oil and gas reserves acquired since the date of such year-end reserve
report, and (B) estimated oil and gas reserves attributable to upward revisions
of estimates of proved oil and gas reserves since the date of such year-end
reserve report due to exploration, development or exploitation activities, in
each case calculated in accordance with SEC guidelines (utilizing the prices
utilized in such initial or year-end reserve report), and decreased by, as of
the date of determination, the estimated discounted future net revenues from (C)
estimated proved oil and gas reserves produced or disposed of since the date of
such year-end reserve report and (D) estimated oil and gas reserves attributable
to downward revisions of estimates of proved oil and gas reserves since the date
of such year-end reserve report due to changes in geological conditions or other
factors which would, in accordance with standard industry practice, cause such
revisions, in each case calculated in accordance with SEC guidelines (utilizing
the prices utilized in such year-end reserve report); provided that, in the case
of each of the determinations made pursuant to clauses (A) through (D), such
increases and decreases shall be as estimated by the Company's petroleum
engineers, unless in the event that there is a Material Change as a result of
such acquisitions, dispositions or revisions, then the discounted future net
revenues utilized for purposes of this clause (a)(i) shall be confirmed in
writing by a nationally recognized firm of independent petroleum engineers, (ii)
the capitalized costs that are attributable to oil and gas properties of the
Company and its Restricted Subsidiaries to which no proved oil and gas reserves
are attributable, based on the Company's books and records as of a date no
earlier than the date of the Company's latest annual or quarterly financial
statements, (iii) the Net Working Capital on a date no earlier than the date of
the Company's latest annual or quarterly financial statements and (iv) the
greater of (i) the net book value on a date no earlier than the date of the
Company's latest annual or quarterly financial statements or (ii) the appraised
value, as estimated by independent appraisers, of other tangible assets
(including, without duplication, Investments in unconsolidated Restricted
Subsidiaries) of the Company and its Restricted Subsidiaries, as of the date no
earlier than the date of the Company's latest audited financial statements,
minus (b) the sum of (i) minority interests, (ii) any gas balancing liabilities
of the Company and its Restricted Subsidiaries reflected in the Company's latest
audited financial statements, (iii) to the extent included in (a)(i) above, the
discounted future net revenues, calculated in accordance with SEC guidelines
(utilizing the prices utilized in the Company's year-end reserve report),
attributable to reserves which are required to be delivered to third parties to
fully satisfy the obligations of the Company and its Restricted Subsidiaries
with respect to Volumetric Production Payments on the schedules specified with
respect thereto and (iv) the discounted future net

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revenues, calculated in accordance with SEC guidelines, attributable to reserves
subject to Dollar-Denominated Production Payments which, based on the estimates
of production and price assumptions included in determining the discounted
future net revenues specified in (a)(i) above, would be necessary to fully
satisfy the payment obligations of the Company and its Restricted Subsidiaries
with respect to Dollar-Denominated Production Payments on the schedules
specified with respect thereto. If the Company changes its method of accounting
from the full cost method to the successful efforts method or a similar method
of accounting, "Adjusted Consolidated Net Tangible Assets" will continue to be
calculated as if the Company was still using the full cost method of accounting.

"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.

"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.

"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged with
or into the Company or any other Restricted Subsidiary or (b) the acquisition by
the Company or any Restricted Subsidiary of the assets of any Person which
constitute all or substantially all of the assets of such Person or any division
or line of business of such Person.

"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes of
this definition, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (a) any Capital Stock of any Restricted Subsidiary held
by the Company or any Restricted Subsidiary; (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries; or (c) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than a disposition of
hydrocarbons or other mineral products in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include (i) any
transfer of properties or assets that is governed by, and made in accordance
with, the provisions described under "Merger, Consolidation and Sale of Assets;"
(ii) any transfer of properties or assets to an Unrestricted Subsidiary, if
permitted under the "Limitation on Restricted Payments" Covenant; (iii) any
trade or exchange by the Company or any Restricted Subsidiary of oil and gas
properties (other than properties constituting all or substantially all of the
Original Properties) for other oil and gas properties owned or held by another
Person provided that (x) the fair market value of the properties traded or
exchanged by the Company or such Restricted Subsidiary (including any cash or
Cash Equivalents, not to exceed 15% of such fair market value, to be delivered
by the Company or such Restricted Subsidiary) is reasonably equivalent to the
fair market value of the properties (together with any cash or Cash Equivalents,
not to exceed 15% of such fair market value) to be received by the Company or
such Restricted Subsidiary as determined in good faith by (i) any officer of the
Company if such fair market value is less than $5 million and (ii) the Board of
Directors of the Company as certified by a certified resolution delivered to the
Trustee if such fair market value is equal to or in excess of $5 million;
provided that if such resolution indicates that such fair market value is equal
to or in excess of $10 million such resolution shall be accompanied by a written
appraisal by a nationally recognized investment banking firm or appraisal firm,
in each case specializing or having a speciality in oil and gas properties, and
(y) such exchange is

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approved by a majority of the Disinterested Directors of the Company; or (iv)
any transfer of Properties having a fair market value of less than $2,000,000.

"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date of determination
at the rate of interest per annum implicit in the terms of the lease. As used in
the preceding sentence, the "net amount of rent" under any lease for any such
period shall mean the sum of rental and other payments required to be paid with
respect to such period by the lessee thereunder, excluding any amounts required
to be paid by such lessee on account of maintenance and repairs, insurance,
taxes, assessments, water rates or similar charges. In the case of any lease
which is terminable by the lessee upon payment of a penalty, such net amount of
rent shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.

"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options exercisable
for, exchangeable for or convertible into such an equity interest in such
Person.

"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.

"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of 365 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's; (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause (ii)
above; and (v) overnight bank deposits and bankers' acceptances at any
commercial bank meeting the qualifications specified in clause (ii) above.

"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) other than the F&R Interests is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; (b) the
Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding Voting Stock of the surviving
or resulting Person is then "beneficially owned" (within the meaning of Rule
13d3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
with respect to such merger or consolidation, the stockholders of the Company as
of such record date and (B) any "person" or "group"

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(as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act, other than the
F&R Interests, has become the direct or indirect "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power
of the Voting Stock of the surviving or resulting Person; (c) the Company,
either individually or in conjunction with one or more Restricted Subsidiaries,
sells, conveys, transfers or leases, or the Restricted Subsidiaries sells,
convey, transfer or lease, all or substantially all of the assets of the Company
and the Restricted Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the Restricted
Subsidiaries, to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary); (d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (e) the
liquidation or dissolution of the Company.

"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.

"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of (a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-cash Charges deducted in
computing Consolidated Net Income, in each case, for such period, of the Company
and its Restricted Subsidiaries on a consolidated basis, all determined in
accordance with GAAP, decreased (to the extent included in determining
Consolidated Net Income) by the sum of (x) the amount of deferred revenues that
are amortized during such period and are attributable to reserves that are
subject to Volumetric Production Payments and (y) amounts recorded in accordance
with GAAP as repayments of principal and interest pursuant to Dollar-Denominated
Production Payments, to (b) the sum of such Consolidated Interest Expense for
such period; provided that (i) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness required to be
computed on a pro forma basis in accordance with clause (x) of the "Limitation
on Indebtedness" covenant and bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation had been the applicable rate
for the entire period, (ii) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in accordance with
clause (x) of the "Limitation on Indebtedness" covenant shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be reduced by the amount
of any repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility, (iii) notwithstanding
clauses (i) and (ii) of this proviso, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such agreements
and (iv) in making such calculation, Consolidated Interest Expense shall exclude
interest attributable to Dollar-Denominated Production Payments.

"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.

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Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (iii) the aggregate amount of
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iv) the aggregate amount of dividends paid or accrued on Redeemable Capital
Stock or Preferred Stock of the Company and its Restricted Subsidiaries, to the
extent such Redeemable Capital Stock or Preferred Stock is owned by Persons
other than Restricted Subsidiaries.

"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Company and its Restricted Subsidiaries for such period
as determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than the Company or any of its Restricted Subsidiaries), in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or its Restricted Subsidiaries in cash by such other Person during
such period (regardless of whether such cash dividends, distributions or
interest on indebtedness is attributable to net income (or net loss) of such
Person during such period or during any prior period), (d) net income (or net
loss) of any Person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, (e) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary is not at the date of determination permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (f)
income resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary and (g) any write-downs of
non-current assets, provided, however, that any ceding limitation write downs
under SEC guidelines shall be treated as capitalized costs, as if such write
downs had not occurred.

"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less the amount of such stockholders' equity attributable
to Redeemable Capital Stock or treasury stock of the Company and its Restricted
Subsidiaries, as determined in accordance with GAAP.

"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries reducing Consolidated Net Income for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such non-cash charge which requires an accrual of or reserve for cash
charges for any future period).

"Credit Agreement" means the Revolving Credit Facility Agreement dated as
of December 7, 1994 among the Company and Chase Manhattan Bank, N.A., as agent,
as such agreement may be amended, modified, supplemented, extended, restated,
replaced (including replacement after the termination of such agreement),
restructured, increased, renewed or refinanced from time to time in one or more
credit agreements, loan agreements, instruments or similar agreements, as such
may be further amended, modified, supplemented, extended, restated, replaced
(including replacement after the termination of such agreement), restructured,
increased, renewed or refinanced from time to time, in each case in accordance
with and as permitted by the Indenture.

"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to the
lenders or any agent under or in respect of the Credit Agreement.

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

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"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Credit Agreement Obligations (ii) all Senior Indebtedness under the Senior
Note Obligations and (iii) any other Senior Indebtedness which (a) at the time
of incurrence equals or exceeds $10,000,000 in aggregate principal amount and
(b) is specifically designated by the Company in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" for purpose of the
Indenture.

"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.

"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.

"Event of Default" has the meaning set forth above under the caption
"Events of Default."

"F&R Interests" means, collectively, William W. Rucks, IV and James C.
Flores, together with their respective spouses, lineal descendants and
ascendants, heirs, executors or other legal representatives and any trusts
established for the benefit of the foregoing, or any other Person in which the
Persons referred to in the foregoing are at the time of determination the direct
record and beneficial owners of all of the outstanding Capital Stock.

"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture. "guarantee" means, as applied to any
obligation, (i) a guarantee (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), direct or indirect, in any
manner, of any part or all of such obligation and (ii) an agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to assure in
any way the payment or performance (or payment of damages in the event of
nonperformance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
When used as a verb, "guarantee" shall have a corresponding meaning.

"Guarantor Senior Indebtedness" means all Indebtedness of a Subsidiary
Guarantor (present and future) created, incurred, assumed or guaranteed by such
Subsidiary Guarantor (and all renewals, substitutions, refinancings or
replacements thereof) (including the principal of, interest on and fees,
premiums, expenses (including costs of collection), indemnities and other
amounts payable in connection with such Indebtedness), unless the instrument
governing such Indebtedness expressly provides that such Indebtedness is not
senior in right of payment to its Subsidiary Guarantee. Notwithstanding the
foregoing, Guarantor Senior Indebtedness of a Subsidiary Guarantor will not
include (i) Indebtedness of such Subsidiary Guarantor evidenced by its
Subsidiary Guarantee, (ii) Indebtedness of such Subsidiary Guarantor that is
expressly subordinate or junior in right of payment to any Guarantor Senior
Indebtedness of such Subsidiary Guarantor or its Subsidiary Guarantee, (iii)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11 United States Code, is by its terms without recourse
to such Subsidiary Guarantor, (iv) any repurchase, redemption or other
obligation in respect of Redeemable Capital Stock of such Subsidiary Guarantor,
(v) to the extent it might constitute Indebtedness, any liability for federal,
state, local or other taxes owed or owing by such Subsidiary Guarantor, (vi)
Indebtedness of such Subsidiary Guarantor to the Company or any of the Company's
other Subsidiaries or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, and (vii) that portion of any Indebtedness of such
Subsidiary Guarantor which at the time of issuance is issued in violation of the
Indenture (but, as to any such Indebtedness, no such violation shall be deemed
to exist for purposes of this clause (vii) if the holder(s) of such Indebtedness
or their representative or such Subsidiary Guarantor shall have furnished to the
Trustee an opinion of counsel unqualified in all material respects of
independent legal counsel, addressed to the Trustee (which legal counsel may, as
to matters of fact, rely upon a certificate of such Subsidiary Guarantor) to the
effect that the

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incurrence of such Indebtedness does not violate the provisions of such
Indenture); provided that the foregoing exclusions shall not affect the
priorities of any Indebtedness arising solely by operation of law in any case or
proceeding or similar event described in clause (a), (b) or (c) of the second
paragraph of "--Subordination."

"Holder" means a Person in whose name a Note is registered in the Note
Register.

"Indebtedness" means, with respect to any Person, without duplication, (i)
all liabilities of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit, bankers' acceptance or other
similar credit transaction and in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock of
such Person, or any warrants, rights or options to acquire such Capital Stock,
now or hereafter outstanding, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) the Attributable Indebtedness (in excess of any
related Capitalized Lease Obligations) related to any Sale/Leaseback Transaction
of such Person, (f) all Indebtedness referred to in the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of the
value of such property or asset or the amount of the obligation so secured), (g)
all guarantees by such Person of Indebtedness referred to in this definition
(including, with respect to any Production Payment, any warranties or guaranties
of production or payment by such Person with respect to such Production Payment
but excluding other contractual obligations of such Person with respect to such
Production Payment), (h) all Redeemable Capital Stock of such Person valued at
the greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (i) all obligations of such Person under or in respect of
currency exchange contracts and Interest Rate Protection Obligations and (j) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of such Person of the types referred to in clauses (a) through
(i) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock, provided, however,
that if such Redeemable Capital Stock is not at the date of determination
permitted or required to be repurchased, the "maximum fixed repurchase price"
shall be the book value of such Redeemable Capital Stock. Subject to clause (g)
of the first sentence of this definition, neither Dollar-Denominated Production
Payments nor Volumetric Production Payments shall be deemed to be Indebtedness.

"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's and any of its Subsidiaries' exposure to
fluctuations in interest rates.

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"Investment" means, with respect to any Person, any direct or indirect
advance, loan guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices and (b)
Interest Rate Protection Obligations entered into in the ordinary course of
business or as required by any Permitted Indebtedness or any Indebtedness
incurred in compliance with the "Limitation on Indebtedness" covenant, but only
to the extent that the notional principal amount of such Interest Rate
Protection Obligations does not exceed 105% of the principal amount of such
Indebtedness to which such Interest Rate Protection Obligations relate and (c)
bonds, notes, debentures or other securities received in compliance with the
"Limitation on Disposition of Proceeds of Asset Sales" covenant.

"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.

"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than 10% during a fiscal quarter
in the estimated discounted future net cash flows from proved oil and gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a) (i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from the
calculation of Material Change: (i) any acquisitions during the quarter of oil
and gas reserves that have been estimated by a nationally recognized firm of
independent petroleum engineers and on which a report or reports exist and (ii)
any disposition of properties existing at the beginning of such quarter that
have been disposed of as provided in the "Limitation on Disposition of Proceeds
of Asset Sales" covenant.

"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or herein provided, whether at
the Stated Maturity with respect to such principal or by declaration of
acceleration, call for redemption or purchase or otherwise.

"Moody's" means Moody's Investors Service, Inc. and its successors.

"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment banks) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid to any Person (other than the Company or any Restricted Subsidiary) owning
a beneficial interest in the assets subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee; provided,
however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Cash Proceeds.

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"Net Working Capital" means (i) all current assets of the Company and its
Restricted Subsidiaries, minus (ii) all current liabilities of the Company and
its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.

"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company incurred in connection with the acquisition by the
Company of any property or assets and as to which (a) the holders of such
Indebtedness agree that they will look solely to the property or assets so
acquired and securing such Indebtedness for payment on or in respect of such
Indebtedness and (b) no default with respect to such Indebtedness would permit
(after notice or passage of time or both), according to the terms thereof, any
holder of any Indebtedness of the Company or a Restricted Subsidiary to declare
a default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.

"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and of
transfer of the Notes.

"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
refining, selling and transporting of any production from such interests or
properties, (iii) any business relating to or arising from exploration for or
development, production, treatment, processing, storage, refining,
transportation or marketing of oil, gas and other minerals and products produced
in association therewith, and (iv) any activity necessary, appropriate or
incidental to the activities described in the foregoing clauses (i) through
(iii) of this definition.

"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.

"Permitted Indebtedness" means any of the following:

(i) Indebtedness of the Company under one or more bank credit or
revolving credit facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (A) $100 million and (B) an
amount equal to the sum of (x) $30 million and (y) 20% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness (such greater amount being referred to as
the "Adjusted Maximum Credit Amount") (plus interest and fees under such
facilities), less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Indebtedness (and a permanent
reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Disposition of Proceeds of Asset Sales"
covenant (the "Maximum Credit Amount") (with the Maximum Credit Amount to
be an aggregate maximum amount for the Company and all Restricted
Subsidiaries, pursuant to clause (i) of the definition of "Permitted
Subsidiary Indebtedness"), and any renewals, amendments, extensions,
supplements, modifications, deferrals, refinancings or replacements (each,
for purposes of this clause, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company, so long as
the aggregate principal amount of any such new Indebtedness, together with
the aggregate principal amount of all other Indebtedness outstanding
pursuant to this clause (i) (and clause (i) of the definition of "Permitted
Subsidiary Indebtedness"), shall not at any one time exceed the Maximum
Credit Amount;

(ii) Indebtedness of the Company under the Notes;

(iii) Indebtedness of the Company outstanding on the date of the
Indenture (and not repaid or defeased with the proceeds of the offering of
the Notes and the concurrent offering of Common Stock by the Company);

(iv) obligations of the Company pursuant to Interest Rate Protection
Obligations, but only to the extent such obligations do not exceed the
aggregate principal amount of the Indebtedness covered by such Interest
Rate Protection Obligations; obligations under currency exchange contracts
entered into in the ordinary course of business; and hedging arrangements
that the Company enters into in the ordinary

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course of business for the purpose of protecting its production against
fluctuations in oil or natural gas prices;

(v) Indebtedness of the Company to any Restricted Subsidiaries;

(vi) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;

(vii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary in the
ordinary course of business, including guarantees and letters of credit
supporting such bid, performance, surety or other reimbursement obligations
(in each case other than for an obligation for money borrowed);

(viii) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company other than Indebtedness incurred
pursuant to clauses (iv), (vii) and (viii) of this definition, including
any successive refinancings by the Company, so long as (A) any such new
Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing, plus the amount
of expenses of the Company incurred in connection with such refinancing,
and (B) in the case of any refinancing of Subordinated Indebtedness, such
new Indebtedness is made subordinate to the Notes at least to the same
extent as the Indebtedness being refinanced and (C) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the
Indebtedness being refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being refinanced;

(ix) Non-Recourse Indebtedness; and

(x) other Indebtedness of the Company and the Restricted Subsidiaries
that are Subsidiary Guarantors in an aggregate principal amount not in
excess of $25,000,000 at any one time outstanding.

"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed $10,000,000 at any
one time outstanding; (iv) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (A) such other
Person becomes a Restricted Subsidiary of the Company; or (B) such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary, (v)
entry into operating agreements, joint ventures, partnership agreements, working
interests, royalty interests, mineral leases, processing agreements, farm-out
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into in
the ordinary course of the Oil and Gas Business, excluding, however, Investments
in corporations; or (vi) entry into any hedging arrangements in the ordinary
course of business for the purpose of protecting the Company's or any Restricted
Subsidiary's production against fluctuations in oil or natural gas prices.

"Permitted Liens" means the following types of Liens:

(a) Liens existing as of the date the Notes are first issued;

(b) Liens securing the Notes;

(d) Liens securing Senior Indebtedness or Guarantor Senior
Indebtedness;

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(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;

(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof,

(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, leases, government contracts and leases, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on state,
Federal or foreign lands or waters);

(h) judgment Liens not giving rise to an Event of Default so long as
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;

(i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Restricted
Subsidiaries;

(j) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;

(k) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of the
Company or any of the Subsidiaries;

(l) Liens securing obligations under hedging agreements that the
Company or any Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production against fluctuations
in oil or natural gas prices;

(m) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;

(n) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof,

(o) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets;

(p) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;

(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture;

(r) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof;

(s) Liens on pipeline or pipeline facilities which arise out of
operation of law;

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oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements and other agreements which are customary
in the Oil and Gas Business;

(u) Liens reserved in oil and gas mineral leases for bonus or rental
payments and for compliance with the terms of such leases;

(v) Liens constituting survey exceptions, encumbrances, casements, or
reservations of, or rights to others for, rights-of-way, zoning or other
restrictions as to the use of real properties, and minor defects of title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of
Property or services, and in the aggregate do not materially adversely
affect the value of Property of the Company and the Restricted
Subsidiaries, taken as a whole, or materially impair the use of such
Properties for the purposes for which such Properties are held by the
Company or any Restricted Subsidiaries; and

(w) Liens securing Non-Recourse Indebtedness; provided, however, that
the related Non-Recourse Indebtedness shall not be secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets acquired by the Company with the proceeds of such
Non-Recourse Indebtedness;

Notwithstanding anything in clauses (a) through (w) of this definition, the term
"Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the properties or assets that are subject thereto.

"Permitted Subsidiary Indebtedness" means any of the following:

(i) Indebtedness of any Restricted Subsidiary under one or more bank
credit or revolving credit facilities (and "refinancings" thereof) in an
amount at any one time outstanding not to exceed the Maximum Credit Amount
(in the aggregate for all Restricted Subsidiaries and the Company, pursuant
to clause (i) of the definition of "Permitted Indebtedness");

(ii) Indebtedness of any Restricted Subsidiary outstanding on the date
of the Indenture;

(iii) obligations of any Restricted Subsidiary pursuant to Interest
Rate Protection Obligations, but only to the extent such obligations do not
exceed the aggregate principal amount of the Indebtedness covered by such
Interest Rate Protection Obligations; and hedging arrangements that any
Restricted Subsidiary enters into in the ordinary course of business for
the purpose of protecting its production against fluctuations in oil or
natural gas prices;

(iv) the Subsidiary Guarantees of the Notes and Senior Notes (and any
assumption of the obligations guaranteed thereby);

(v) Indebtedness of any Restricted Subsidiary relating to guarantees
by such Restricted Subsidiary of Permitted Indebtedness pursuant to Clause
(i) of the definition of "Permitted Indebtedness;"

(vi) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business and consistent with past
practice;

(vii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of any Restricted Subsidiary in the ordinary course
of business, including guarantees and letters of credit supporting such
bid, performance, surety or other reimbursement obligations (in each case
other than for an obligation for money borrowed);

(viii) Indebtedness of any Restricted Subsidiary to any other
Restricted Subsidiary or to the Company;

(ix) Indebtedness relating to guarantees by any Restricted Subsidiary
permitted to be incurred pursuant to the "Limitation on Guarantees of
Indebtedness by Subsidiaries" covenant; and

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(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Restricted Subsidiary of any Indebtedness of such Restricted Subsidiary,
including any successive refinancings by such Restricted Subsidiary, so
long as (x) any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Restricted Subsidiary as necessary to
accomplish such refinancing, plus the amount of expenses of such Subsidiary
incurred in connection with such refinancing and (y) such new Indebtedness
has an Average Life equal to or longer than the Average Life of the
Indebtedness being refinanced and a final Stated Maturity equal to or later
than the final Stated Maturity of the Indebtedness being refinanced.

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

"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.

"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.

"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.

"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.

"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of the Indenture.

"S&P" means Standard and Poor's Corporation and its successors.

"Sale/Leaseback Transaction" means, with respect to any Person, any direct
or indirect arrangement pursuant to which properties or assets are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.

"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall also
include the Senior Note Obligations. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (a) Indebtedness evidenced by the Notes, (b)
Indebtedness that is expressly subordinate or junior in right of payment to any
Senior Indebtedness of the Company, (c) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11 United States
Code, is by its terms without recourse to the Company, (d) any repurchase,
redemption or other obligation in respect of Redeemable Capital Stock

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of the Company, (e) to the extent it might constitute Indebtedness, any
liability for federal, state, local or other taxes owed or owing by the Company,
(f) Indebtedness of the Company to a Subsidiary of the Company or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, and (g) that
portion of any Indebtedness of the Company which at the time of issuance is
issued in violation of the Indenture (but, as to any such Indebtedness, no such
violation shall be deemed to exist for purposes of this clause (g) if the
holder(s) of such Indebtedness or their representative or the Company shall have
furnished to the Trustee an opinion of counsel unqualified in all material
respects of independent legal counsel, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon a certificate of the Company) to
the effect that the incurrence of such Indebtedness does not violate the
provisions of such Indenture); provided that the foregoing exclusions shall not
affect the priorities of any Indebtedness arising solely by operation of law in
any case or proceeding or similar event described in clause (a), (b) or (c) of
the second paragraph of "--Subordination."

"Senior Notes" means the 13 1/2% Senior Notes due 2004 of the Company
issued pursuant to the Indenture, dated as of December 1, 1994, between the
Company, as issuer, FRI Louisiana, as subsidiary guarantor, and Shawmut Bank
Connecticut, National Association (now known as Fleet National Bank), as
trustee.

"Senior Note Obligations" means all monetary obligations of every nature of
the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, fees, expenses and indemnities, from
time to time owed to the holders or the trustee in respect of the Senior Notes.

"Senior Subordinated Note Obligations" means any principal of, premium, if
any, and interest on, and any other amounts (including, without limitation, any
payment obligations with respect to the Notes as a result of any Asset Sale,
Change of Control or redemption) owing in respect of, the Notes payable pursuant
to the terms of the Notes or the Indenture or upon acceleration of the Notes.

"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness or any
installment of interest thereon, means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.

"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.

"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).

"Subsidiary Guarantee" means any guarantee of the Notes by (i) any
Subsidiary Guarantor in accordance with the provisions set forth in "Subsidiary
Guarantees of Notes" and (ii) any Restricted Subsidiary in accordance with the
provisions set forth in the "Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries" covenant.

"Subsidiary Guarantor" means (i) FRI Louisiana, (ii) each of the Company's
Restricted Subsidiaries that becomes a guarantor of the Notes in compliance with
the provisions described under " -- Subsidiary Guarantees of the Notes" or the
provisions of the "Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" covenant and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture and to guarantee on an unsubordinated basis the payment of the
Notes pursuant to the provisions described under "--Subsidiary Guarantees of
Notes."

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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination will be designated an Unrestricted Subsidiary by the
Board of Directors of the Company as provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company as an Unrestricted Subsidiary so long as (a)
neither the Company nor any Restricted Subsidiary is directly or indirectly
liable pursuant to the terms of any Indebtedness of such Subsidiary; (b) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity-, (c) neither the Company nor any Restricted Subsidiary has
made an Investment in such Subsidiary unless such Investment was made pursuant
to, and in accordance with, the "Limitation on Restricted Payments" covenant
(other than Investments of the type described in clause (iv) of the definition
of Permitted Investments); and (d) such designation shall not result in the
creation or imposition of any Lien on any of the Properties of the Company or
any Restricted Subsidiary (other than any Permitted Lien or any Lien the
creation or imposition of which shall have been in compliance with the
"Limitation on Liens" covenant); provided, however, that with respect to clause
(a), the Company or a Restricted Subsidiary may be liable for Indebtedness of an
Unrestricted Subsidiary if (x) such liability constituted a Permitted Investment
or a Restricted Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence, or (y) the liability would be
a Permitted Investment at the time of designation of such Subsidiary as an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing a board resolution with the
Trustee giving effect to such designation. The Board of Directors of the Company
may designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation, (i) no Default or Event of
Default shall have occurred and be continuing, (ii) the Company could incur
$1.00 of additional Indebtedness (not including the incurrence of Permitted
Indebtedness) under the first paragraph of the "Limitation on Indebtedness"
covenant and (iii) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such designation become subject to any Lien
(other than a Permitted Lien), the creation or imposition of such Lien shall
have been in compliance with the "Limitation on Liens" covenant.

"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.

"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).

"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent all of the Capital Stock or other ownership interests in such Restricted
Subsidiary, other than any directors qualifying shares mandated by applicable
law, is owned directly or indirectly by the Company.

BOOK-ENTRY DELIVERY AND FORM

The Notes will be issued in the form of a fully registered Global
Certificate. The Global Certificate will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary") and registered
in the name of the Depositary's nominee.

Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.

The Depositary has advised the Company and the Underwriters as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the clearance
and settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either

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directly or indirectly ("indirect participants"). Persons who are not
Participants may beneficially own securities held by the Depositary only through
Participants or indirect participants.

The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with the principal
amount of the Notes purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the indirect participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.

So long as a nominee of the Depositary is the registered owner of the
Global Certificate, such nominee will be considered the sole owner or holder of
the Notes for all purposes under the Indenture. Except as provided below, owners
of beneficial interests in the Global Certificate will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.

Neither the Company, the Trustee, the paying agent nor the Notes registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Certificate, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.

Principal and interest payments on the Global Certificate registered in the
name of the Depositary's nominee will be made by the Company through the paying
agent to the Depositary's nominee as the registered owner of the Global
Certificate. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Notes are registered as the owners of such
Notes for the purpose of receiving payments of principal and interest on such
Notes and for all other purposes whatsoever. Therefore, neither the Company, the
Trustee nor the paying agent has any direct responsibility or liability for the
payment of principal or interest on the Notes to owners of beneficial interests
in the Global Certificate. The Depositary has advised the Company and the
Trustee that its present practice is, upon receipt of any payment of principal
or interest to credit immediately the accounts of the Participants with payment
in amounts proportionate to their respective holdings in principal amount of
beneficial interests in the Global Certificate as shown on the records of the
Depositary. Payments by Participants and indirect participants to owners of
beneficial interests in the Global Certificate will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name" and
will be the responsibility of such Participants or indirect participants.

As long as the Notes are represented by a Global Certificate, the
Depositary's nominee will be the holder of the Notes and therefore will be the
only entity that can exercise a right to repayment or repurchase of the Notes.
See "Certain Covenants -- Change of Control" and "--Limitation on Disposition of
Proceeds of Asset Sales." Notice by Participants or indirect participants or by
owners of beneficial interests in a Global Certificate held through such
Participants or indirect participants of the exercise of the option to elect
repayment of beneficial interests in Notes represented by a Global Certificate
must be transmitted to the Depositary in accordance with its procedures on a
form required by the Depositary and provided to Participants. In order to ensure
that the Depositary's nominee will timely exercise a right to repayment with
respect to a particular Note, the beneficial owner of such Note must instruct
the broker or other Participant or indirect participant through which it holds
an interest in such Note to notify the Note of its desire to exercise a right to
repayment. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other Participant or indirect participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery to the
Paying Agent of notices of the exercise of the option to elect repayment.

The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor

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<PAGE> 95

depositary is not appointed by the Company within 90 days, (2) an Event of
Default has occurred and is continuing and the Notes registrar has received a
request from the Depositary to issue Notes in definitive form in lieu of all or
a portion of the Global Certificate (in which case the Company shall deliver
Notes in definitive form within 30 days of such request), or (3) the Company
determines not to have the Notes represented by a Global Certificate. In either
instance, an owner of a beneficial interest in the Global Certificate will be
entitled to have Notes equal in principal amount to such beneficial interest
registered in its name and will be entitled to physical delivery of such Notes
in definitive form. Notes so issued in definitive form will be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form only, without coupons.

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<PAGE> 96

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Bear, Stearns & Co. Inc. and Salomon Brothers Inc (the
"Underwriters"), the Company has agreed to sell to each of the Underwriters, and
each of the Underwriters has severally agreed to purchase, the principal amount
of Notes set forth below opposite their respective names below. The Purchase
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the Notes if any are purchased.

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................... $
Bear, Stearns & Co. Inc.......................................................
Salomon Brothers Inc..........................................................
------------
Total............................................................ $150,000,000
============
</TABLE>

The Underwriters have advised the Company that the Underwriters propose
initially to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of % of the principal amount of the Notes.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of % of the principal amount of the Notes to certain other dealers.
After the initial public offering price, concession and discount may be changed.

The Notes are a new issue of securities for which there is currently no
public market. The Company does not intend to apply for listing of the Notes on
any securities exchange. The Company has been advised by the Underwriters that
subject to the applicable laws and regulations, the Underwriters presently
intend to make a market in the Notes, although the Underwriters are under no
obligation to do so and may discontinue any market-making activities with
respect to the Notes at any time without notice. No assurance, however, can be
given as to the liquidity of the trading market for the Notes or that an active
trading market for the Notes will develop. If an active public market does not
develop, the market price and liquidity of the Notes may be adversely affected.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

LEGAL MATTERS

Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston,
Texas and for the Underwriters by Baker & Botts, L.L.P., Dallas, Texas.

EXPERTS

The consolidated financial statements of the Company included and
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included or incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.

Information relating to the estimated proved reserves of oil and gas and
the related estimates of future net cash flows and present values of future net
revenues thereof at December 31, 1993, 1994 and 1995 included or incorporated
herein and in the notes to the financial statements of the Company have been
prepared by Netherland, Sewell & Associates, Inc., independent petroleum
engineers, and are included herein and

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<PAGE> 97

incorporated by reference herein in reliance upon the authority of such firm as
an expert in petroleum engineering.

The statements of combined oil and gas revenues and direct operating
expenses of certain oil and gas producing properties to be acquired from Mobil
Oil Exploration & Producing Southeast Inc. for each of the three years in the
period ended December 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington. D.C. 20549, as well as the following Regional Offices: 7 World Trade
Center, New York, New York 10048; and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 or may be obtained on
the Internet at http://www.sec.gov. Copies can be obtained by mail at prescribed
rates. Requests for copies should be directed to the Commission's Public
Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. The Company's Common Stock is traded on the New York Stock Exchange and,
as a result, the periodic reports, proxy statements and other information filed
by the Company with the Commission can be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 ("Registration Statement") under the Securities Act with respect to the
Notes offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the Notes being offered
hereby, reference is made to the Registration Statement and the exhibits
thereto. Although the Company believes that all the material terms of the
Company's material contracts and agreements have been summarized in the
Prospectus, statements contained in this Prospectus concerning the provisions of
documents filed with the Registration Statement as exhibits are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission. All these documents may be inspected without charge at the offices
of the Commission, the addresses of which are set forth above, and copies may be
obtained therefrom at prescribed rates.

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:

a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;

b. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996; and

c. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed March 8, 1996.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
REQUESTS SHOULD BE ADDRESSED TO INVESTOR RELATIONS, FLORES & RUCKS, INC., 8440
JEFFERSON HIGHWAY, SUITE 420, BATON ROUGE, LOUISIANA 70809, (504) 927-1450.

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GLOSSARY OF CERTAIN OIL AND GAS TERMS

The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this Prospectus. Unless otherwise indicated in this
Prospectus, natural gas volumes are stated at the legal pressure base of the
state or area in which the reserves are located and at 60() Fahrenheit. BOEs are
determined using the ratio of six Mcf of natural gas to one Bbl of oil.

"Bbl" means a barrel of 42 U.S. gallons of oil.

"Bcf" means billion cubic feet of natural gas.

"BCFGE" means billion cubic feet of natural gas equivalent.

"BOE" means barrels of oil equivalent.

"BOPD" means barrels of oil per day.

"Btu" or "British Thermal Unit" means the quantity of heat required to
raise the temperature of one pound of water by one degree Fahrenheit.

"BBtu" means one billion British Thermal Units.

"Completion" means the installation of permanent equipment for the
production of oil or gas.

"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.

"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.

"Gross,"when used with respect to acres or wells, refers to the total acres
or wells in which the Company has a working interest.

"MBbls" means thousands of barrels of oil.

"Mcf" means thousand cubic feet of natural gas.

"MCFPD" means thousand cubic feet of natural gas per day.

"MMBbls" means millions of barrels of oil.

"MMBOE" means million barrels of oil equivalent.

"MMBtu" means one million British Thermal Units.

"MMcf" means million cubic feet of natural gas.

"Net" when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by the
Company.

"Net production" means production that is owned by the Company less
royalties and production due others.

"Oil" means crude oil or condensate.

"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.

"Present Value of Future Net Revenues" or "Present Value of Proved
Reserves" means the present value of estimated future revenues to be generated
from the production of proved reserves calculated in accordance with Commission
guidelines, net of estimated production and future development costs, using
prices and costs as of the date of estimation without future escalation, without
giving effect to non-property related expenses such as general and
administrative expenses, debt service, future income tax expense and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.

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"Project" means a proposal to add a producing completion of oil or gas. A
proposal may vary in range from work authorized to be performed to proposals
that are founded in geologic and engineering principles yet require further
research before funds are authorized.

"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.

"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.

i. Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.

ii. Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.

iii. Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids that may be recovered from oil shales, coal, gilsonite
and other such sources.

"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.

"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.

"Reserves" means proved reserves.

"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.

"Spud" means to start drilling a new well (or restart).

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"3-D seismic" means seismic data that are acquired and processed to yield a
three-dimensional picture of the subsurface.

"Waterflood" means the injection of water into a reservoir to fill pores
vacated by produced fluids, thus maintaining reservoir pressure and assisting
production.

"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.

"Workover" means operations on a producing well to restore or increase
production.

99
<PAGE> 102

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Financial Statements of Flores & Rucks, Inc.
Report of Independent Public Accountants........................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994....................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1994
and 1993........................................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994
and 1993........................................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
Consolidated Balance Sheet as of June 30, 1996..................................... F-23
Consolidated Statements of Operations for the six months ended June 30, 1996 and
1995............................................................................ F-24
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and
1995............................................................................ F-25
Notes to Consolidated Financial Statements......................................... F-26
Financial Statements of Mobil Properties
Report of Independent Auditors..................................................... F-27
Statements of Combined Oil and Gas Revenues and Direct Operating Expenses.......... F-28
Notes to Statements of Combined Oil and Gas Revenues and Direct Operating
Expenses........................................................................ F-29
</TABLE>

F-1
<PAGE> 103

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Flores & Rucks, Inc. and subsidiaries:

We have audited the accompanying consolidated balance sheets of Flores &
Rucks, Inc. (a Delaware corporation) and subsidiaries, as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flores & Rucks, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

New Orleans, Louisiana
February 16, 1996

F-2
<PAGE> 104

FLORES & RUCKS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 212,238 $ 568,690
Joint interest receivables................................... 390,275 300,580
Oil and gas sales receivables................................ 17,546,127 10,308,998
Accounts receivable -- stockholders.......................... 129,129 125,377
Prepaid expenses............................................. 390,412 516,518
Other current assets......................................... 424,824 72,718
------------ ------------
Total current assets................................. 19,093,005 11,892,881
Oil and gas properties -- full cost method:
Evaluated.................................................... 275,581,044 206,537,120
Less accumulated depreciation, depletion, and amortization... (114,040,044) (60,019,583)
------------ ------------
161,541,000 146,517,537
Unevaluated properties excluded from amortization............ 19,041,148 14,432,594
Other assets:
Furniture and equipment, less accumulated depreciation of
$1,258,225 and $527,257 in 1995 and 1994, respectively.... 2,340,641 983,718
Restricted deposits.......................................... 4,259,182 2,300,298
Deferred financing costs..................................... 5,127,974 5,579,161
Notes receivable............................................. -- 275,524
Deferred tax asset........................................... 4,692,263 --
------------ ------------
Total assets......................................... $216,095,213 $181,981,713
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................... $ 15,090,791 $13,133,447
Oil and gas sales payable.................................... 5,177,277 2,694,239
Accrued interest............................................. 2,651,097 1,106,176
------------ ------------
Total current liabilities............................ 22,919,165 16,933,862
Long-term debt................................................. 157,391,556 144,039,269
Notes payable to be refinanced under revolving line of
credit....................................................... 14,300,000 10,000,000
Other noncurrent liabilities................................... 638,609 638,609
Deferred hedge revenue......................................... 870,333 666,667
Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares, no shares issued or outstanding at December 31,
1995...................................................... -- --
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 15,044,125 shares and 15,000,000
shares at December 31, 1995 and 1994, respectively........ 150,441 150,000
Paid-in capital.............................................. 27,638,465 27,268,957
Retained earnings (deficit).................................. (7,813,356) (17,715,651)
------------ ------------
Total stockholders' equity........................... 19,975,550 9,703,306
------------ ------------
Total liabilities and stockholders' equity........... $216,095,213 $181,981,713
============ ============
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-3
<PAGE> 105

FLORES & RUCKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas sales................................. $127,406,084 $ 75,462,644 $ 47,355,579
Plant processing income (loss).................... 564,042 (67,532) 127,031
------------ ------------ ------------
Total revenues............................ 127,970,126 75,395,112 47,482,610
Operating expenses:
Lease operations.................................. 30,023,426 23,577,089 14,203,765
Severance taxes................................... 10,023,104 6,746,928 4,997,533
Depreciation, depletion and amortization.......... 54,083,782 36,459,029 20,140,253
------------ ------------ ------------
Total operating expenses.................. 94,130,312 66,783,046 39,341,551
General and administrative expenses................. 11,312,153 10,350,572 5,031,674
Interest expense.................................... 17,620,226 4,507,307 1,055,198
Interest income and other........................... (302,597) (748,479) (172,695)
Loss on production payment repurchase and
refinancing....................................... -- 16,681,211 --
------------ ------------ ------------
Net income (loss) before income taxes............... 5,210,032 (22,178,545) 2,226,882
Income tax benefit.................................. 4,692,263 -- --
------------ ------------ ------------
Net income (loss)................................... $ 9,902,295 $(22,178,545) $ 2,226,882
============ ============ ============
Weighted average common shares outstanding.......... 15,043,122 N.M. N.M.
Earnings per common share........................... $.66 N.M. N.M.
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-4
<PAGE> 106

FLORES & RUCKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............ $ 1,000 $ -- $ 347,816 $ 348,816
Net income............................ -- -- 2,226,882 2,226,882
Distributions......................... -- -- (3,400,400) (3,400,400)
-------- ----------- ------------ ------------
Balance at December 31, 1993............ 1,000 -- (825,702) (824,702)
Sale of stock......................... 149,000 52,657,553 -- 52,806,553
Repurchase of common stock............ -- (18,700,000) -- (18,700,000)
Net loss.............................. -- -- (22,178,545) (22,178,545)
Distributions......................... -- -- (1,400,000) (1,400,000)
Reclassification of accumulated
deficit at date of conversion to a
subchapter C corporation........... -- (6,688,596) 6,688,596 --
-------- ------------ ------------ ------------
Balance at December 31, 1994............ $150,000 $27,268,957 $(17,715,651) $ 9,703,306
Sale of stock......................... 441 369,508 -- 369,949
Net income............................ -- -- 9,902,295 9,902,295
-------- ------------ ------------ ------------
Balance at December 31, 1995............ $150,441 $27,638,465 $ (7,813,356) $ 19,975,550
======== =========== ============ ============
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-5
<PAGE> 107

FLORES & RUCKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................ $ 9,902,295 $ (22,178,545) $ 2,226,882
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation, depletion and
amortization............................ 54,751,429 36,845,015 20,271,237
Deferred hedge revenue.................... 203,666 (565,180) 1,147,125
Recognition of deferred revenue on sale of
production payment interest............. -- (23,857,212) (18,294,127)
Deferred tax benefit...................... (4,692,263) -- --
Sale of production payment interests......... -- -- 95,678,000
Prepayment of production payment interests... -- -- (947,484)
Repurchase of production payment interests... -- (107,951,703) --
Changes in operating assets and liabilities:
Accrued interest.......................... 1,555,132 1,947,489 448,475
Receivables............................... (7,055,051) (6,208,990) (2,461,224)
Prepaid expenses.......................... 126,106 -- 175,200
Other current assets...................... (352,106) (139,976) (50,008)
Accounts payable and accrued
liabilities............................. 1,957,344 5,155,926 4,635,564
Oil and gas sales payable................. 2,483,037 1,468,107 282,216
------------ ------------- -------------
Net cash provided by (used in)
operating activities............... 58,879,589 (115,485,069) 103,111,856
------------ ------------- -------------
Investing activities:
Additions to oil and gas properties and
furniture and equipment................... (75,740,369) (39,408,546) (113,113,620)
(Increase) decrease in restricted deposits... (1,958,884) (1,221,377) 288,356
Proceeds from sale of oil and gas
properties................................ -- -- 12,084,737
Purchase of minority interest................ -- (5,977,097) --
------------ ------------- -------------
Net cash used in investing
activities......................... (77,699,253) (46,607,020) (100,740,527)
------------ ------------- -------------
Financing activities:
Sale of stock................................ 369,949 52,806,553 --
Borrowings on notes payable.................. 99,000,020 181,014,776 --
Payments of notes payable.................... (81,357,944) (55,632,361) --
Deferred financing costs..................... 451,187 (5,626,787) --
Repurchase of common stock................... -- (8,700,000) --
Distributions to stockholders................ -- (1,400,000) (2,400,400)
------------ ------------- -------------
Net cash provided by (used in)
financing activities............... 18,463,212 162,462,181 (2,400,400)
------------ ------------- -------------
Increase (decrease) in cash and cash
equivalents.................................. (356,452) 370,092 (29,071)
Cash and cash equivalents, beginning of the
period....................................... 568,690 198,598 227,669
------------ ------------- -------------
Cash and cash equivalents, end of the period... $ 212,238 $ 568,690 $ 198,598
============ ============= =============
Interest paid during the period................ $ 18,288,156 $ 2,808,721 $ 606,723
============ ============= =============
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-6
<PAGE> 108

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Flores & Rucks, Inc., a Delaware corporation (the "Company"), is an
independent energy company engaged in the exploration, development, acquisition
and production of crude oil and natural gas, with operations primarily in the
shallow offshore regions of Louisiana. The Company was formed on September 22,
1994, to succeed to the business of Flores & Rucks, Inc., a Louisiana
corporation ("FRI Louisiana") and Flores & Rucks LLC (the "LLC"). Concurrent
with the closing of the Initial Offerings (See Note 2) on December 7, 1994, FRI
Louisiana was merged into a wholly owned subsidiary of the Company. Because the
transaction represented the reorganization of entities under common control, the
merger was treated in a manner similar to a pooling of interests.

Hereinafter, the "Company" refers to Flores & Rucks, Inc., a Delaware
corporation, its predecessors and their respective subsidiaries.

Effective January 1, 1993, FRI Louisiana issued 2,000 shares of common
stock to the two stockholders of an entity which held the rights under an
operating agreement to operate substantially all of FRI Louisiana's oil and gas
properties. These two stockholders were deemed co-promoters of FRI Louisiana
upon the exchange. As no tangible assets, or any assets with predecessor basis,
were acquired by FRI Louisiana in connection with the exchange, no value was
attributed to the stock issued. These shares were subsequently reacquired (See
Note 7).

On December 28, 1993, FRI Louisiana transferred its interests in
substantially all of its oil and gas properties to the LLC in return for an
87.5% ownership interest. The remaining 12.5% interest (the "Minority Interest")
was owned by an unrelated party, Franks Petroleum, Inc. ("Franks"). FRI
Louisiana proportionately consolidated its interest in LLC.

The Company is substantially leveraged. As such, a significant portion of
the Company's cash flow from operations will be dedicated to debt service. As
with other independent oil and gas producers, the Company is subject to numerous
uncertainties and commitments associated with its operations. For example, the
Company's results of operations are highly dependent upon the prices received
for oil and gas. In addition, the Company will be required to make substantial
future capital expenditures for the acquisition, exploration, development,
production and abandonment of its oil and gas properties.

Subsidiary Guaranty

All of the Company's operating income and cash flow is generated by FRI
Louisiana, a wholly owned subsidiary and the Subsidiary Guarantor of the
Company. The separate financial statements of FRI Louisiana are not included
herein because (i) FRI Louisiana is the only direct operating subsidiary of the
Company; (ii) FRI Louisiana has fully and unconditionally guaranteed the Senior
Notes (as defined in Note 2); (iii) the aggregate assets, liabilities, earnings,
and equity of FRI Louisiana are substantially equivalent to the assets,
liabilities, earnings and equity of the Company on a consolidated basis; and
(iv) the separate financial statements and other disclosures concerning FRI
Louisiana are not deemed material.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-7
<PAGE> 109

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Oil and Gas Properties

The Company's exploration and production activities are accounted for under
the full cost method. Under this method, all acquisition, exploration and
development costs, including certain related employee costs, incurred for the
purpose of finding oil and gas are capitalized. Such amounts include the cost of
drilling and equipping productive wells, dry hole costs, lease acquisition
costs, delay rentals, and costs related to such activities. Employee costs
associated with production operations and general corporate activities are
expensed in the period incurred. The Company capitalized $1,643,000 and $535,000
of employee related costs directly associated with the acquisition, development
or exploration of oil and gas properties during the years ended December 31,
1995 and 1994, respectively. No such costs were capitalized by the Company
during the year ended December 31, 1993. The Company's proportionate interests
in properties held through LLC (as of December 31, 1993) or under joint venture,
partnership or similar arrangements are included in oil and gas properties.
Transactions involving sales of reserves in place, unless unusually significant,
are recorded as adjustments to oil and gas properties. Capitalized costs are
limited to the sum of the present value of future net revenues discounted at 10%
related to estimated production of proved reserves (which includes deferred
hedge revenue) and the lower of cost or estimated fair value of unevaluated
properties.

Depreciation, depletion and amortization of oil and gas properties are
computed on a composite unit-of-production method based on estimated proved
reserves. All costs associated with oil and gas properties, including an
estimate of future development, restoration, dismantlement and abandonment costs
of proved properties, are included in the computation base, with the exception
of certain costs associated with unevaluated oil and gas properties. The oil and
gas reserves are estimated periodically by independent petroleum engineers. The
Company evaluates all unevaluated oil and gas properties on a quarterly basis to
determine if any impairment has occurred. Any impairment to unevaluated
properties will be reclassified as an evaluated oil and gas property, and thus
subject to amortization if there are proved reserves associated with the related
cost center. Otherwise, such impairment will be recognized in the period in
which it occurs.

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 (SFAS 121) regarding
accounting for the impairment of long-lived assets. The Company is required to
adopt SFAS 121 in 1996. The effect of adopting SFAS 121 will not be material.

Furniture and Equipment

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.

Oil and Gas Revenue

The Company records oil and gas revenue on the sales method. As a result of
this policy, the Company did not record revenues of $20,000 for the year ended
December 31, 1995, on gas volumes that the Company was entitled to, but which
were sold by a joint owner in order to reduce previous gas imbalances. The
Company recorded revenue of $376,000 and $519,000 during the years ended
December 31, 1994 and 1993, respectively, on gas volumes sold in excess of its
entitled share of production. In addition, in connection with an oil and gas
property acquisition, the Company assumed a liability for overdelivered gas of
556,994 Mcf, which has been recorded as a long-term liability of $638,609. As of
December 31, 1995, the Company is in a net overdelivered position of 1,080,726
Mcf, of which the first 523,732 Mcf will reduce future oil and gas revenue as
the underdelivered parties recoup their share of production.

The Company records as oil and gas revenue the payments received from (or
made to) a third party under contracts to hedge future oil and gas production
(See Note 13).

F-8
<PAGE> 110

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Statements of Cash Flows

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Earnings Per Common Share

For the year ended December 31, 1995, earnings per common share are based
on the weighted average number of shares of common stock outstanding for the
period. The Company had 1,495,500 stock options outstanding as of December 31,
1995. The options were not reflected as common stock equivalents for the 1995
period as the dilutive effect caused by the options on earnings per share was
less than 3%.

Earnings per common share has not been presented for the Company for the
years ended December 31, 1994 and 1993, as these amounts would not be meaningful
or indicative of the ongoing entity due to the Initial Offerings (See Note 2)
and related transactions.

Deferred Financing Costs

The Company has $5,127,974, net of accumulated amortization of $659,728,
recorded as deferred financing costs as of December 31, 1995, which is related
to the senior revolving bank credit facility (the "Revolving Credit Facility")
and the sale of the Senior Notes (See Note 2). In conjunction with the Initial
Offerings (See Note 2), a balance of $1,007,114, which represented deferred
financing costs associated with the term and development loans, discussed in
Note 9, was expensed in the fourth quarter of 1994. Deferred financing costs are
being amortized on a straight-line basis over the life of the related loans.

Fair Value of Financial Instruments

Fair value of cash, cash equivalents, accounts receivable and accounts
payable approximates book value at December 31, 1995. Fair value of debt is
determined based upon market value, if traded, or discounted at the estimated
rate the Company would incur currently on similar debt.

Reclassifications

Certain reclassifications have been made to conform financial statement
presentation between periods.

2. INITIAL PUBLIC OFFERINGS

On December 7, 1994, the Company closed initial public offerings (the
"Initial Offerings") issuing 5,750,000 shares of common stock at $10 per share
and $125 million of 13 1/2% Senior Notes due December 1, 2004 (the "Senior
Notes"), and concurrently exchanged the Enron Option (See Note 4) and $1,000 for
one million shares of common stock. Additionally, the Company acquired the
Franks interest (for $6.0 million cash) and LLC was merged into the Company. In
addition, concurrent with the closing of the Initial Offerings, the Company
acquired the production payment obligations for East Bay Complex and Main Pass
69 (See Notes 3 and 4), repaid the term loan and development loans (See Note 9)
and paid off notes to current and former stockholders (See Note 7).

In January 1995, the Company issued an additional 40,000 shares of common
stock relating to the exercise of the underwriters over-allotment option. Net
proceeds to the Company from the issuance of these shares was $372,000.

3. INVESTMENT IN OIL AND GAS PROPERTIES

On June 11, 1992, the Company acquired a producing oil and gas property
("Main Pass 69") from Shell Oil Company, its affiliates and subsidiaries
("Shell"), for $39.2 million. On June 10, 1993, the Company

F-9
<PAGE> 111

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquired a second producing property (the "East Bay Complex") from Shell for
$131.9 million. Concurrent with these acquisitions, the Company assigned
overriding royalty interests burdening one-eighth of the working interests to a
company owned by a stockholder for services rendered in connection with the
acquisitions. In addition, the Company sold to Franks the one-eighth working
interests subject to the override in return for the assumption of one-eighth of
the volumetric production payment liabilities related thereto (See Note 4) and,
for the East Bay Complex, one-eighth of the note payable to Shell (Note 9). In
addition, see Note 4 for a discussion of the sale of an option to Enron
Financial Corporation related to the East Bay Complex.

On December 7, 1994, the Company acquired Franks' interest in the LLC for
$6 million and recorded the acquisition using the purchase method. Included in
the purchase the Company acquired cash totaling $23,000, other current assets
totaling $56,000, Franks' share of a plug and abandonment escrow totaling
$269,000, and other assets totaling $124,000. In addition, the Company assumed
accrued interest payable of $53,000, a gas balancing liability of $80,000, notes
payable on JEDI (as defined in Note 9) loans of approximately $4.4 million,
deferred hedge revenue of $85,000, an approximate $1.8 million liability owed to
the Company and deferred production payment revenues of approximately $15.5
million, as well as the assumption of a $710,000 liability owed to the LLC. The
Company recorded an increase in the full cost pool of $28.1 million. The Company
allocated the purchase price between evaluated and unevaluated properties based
on estimated relative fair market value.

The following table discloses certain financial data relative to the
Company's oil and gas producing activities, substantially all of which are
located in the offshore waters of the continental United States.

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Costs incurred during period:
Capitalized
Purchase of producing properties...... $ 624,097 $ 25,441,295 $115,490,554
Purchase of unevaluated properties.... 2,381,227 14,736,334 --
Exploration costs..................... 18,106,000 9,829,000 --
Development costs including
capitalized workovers............... 47,829,175 23,083,108 7,052,337
Plugging and abandonment costs........ 236,000 727,370 1,057,194
Capitalized interest on unevaluated
properties and capitalized general
and administrative expenses......... 4,475,979 659,552 --
------------ ------------ ------------
$ 73,652,478 $ 74,476,659 $123,600,085
============ ============ ============
Charged to expense
Operating costs:
Recurring lease operating
expenses......................... $ 28,648,019 $ 22,709,507 $ 13,612,882
Major maintenance expenses.......... 1,375,407 867,582 590,883
------------ ------------ ------------
Total operating costs............ $ 30,023,426 $ 23,577,089 $ 14,203,765
============ ============ ============
Severance taxes..................... $10,023,104 $ 6,746,928 $ 4,997,533
============ ============ ============
Oil and gas properties:
Balance, beginning of period............. $220,969,714 $146,493,055 $34,977,707
Additions................................ 73,652,478 74,476,659 123,600,085
Sales.................................... -- -- (12,084,737)
------------ ------------ ------------
Balance, end of period................... $294,622,192 $220,969,714 $146,493,055
============ ============ ============
</TABLE>

F-10
<PAGE> 112

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accumulated depreciation, depletion and
amortization:
Balance, beginning of period............. $ 60,019,583 $ 23,560,554 $ 3,420,301
Provision for depreciation, depletion and
amortization.......................... 54,020,461 36,459,029 20,140,253
------------ ------------ ------------
Balance, end of period................... 114,040,044 60,019,583 23,560,554
Net capitalized costs............ $180,582,148 $160,950,131 $122,932,501
============ ============ ============
</TABLE>

The following tables discloses financial data associated with capitalized
unevaluated costs as of December 31, 1995.

<TABLE>
<CAPTION>
COSTS INCURRED DURING
THE YEAR ENDED
BALANCE AT DECEMBER 31,
DECEMBER 31, ----------------------
1995 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Acquisition costs............................... $10,400,558 $1,164,781 $9,235,777
Exploration costs............................... 5,060,227 5,060,227 --
Development costs............................... 1,819,398 1,819,398 --
Capitalized interest............................ 1,760,965 1,682,030 78,935
----------- ---------- ----------
$19,041,148 $9,726,436 $9,314,712
=========== ========== ==========
</TABLE>

4. PRODUCTION PAYMENTS

Concurrent with the Main Pass 69 and East Bay Complex acquisitions, the
Company sold to Enron Reserve Acquisition Corp. ("ERAC") nonrecourse volumetric
production payment interests of approximately $36.7 million and $95.7 million,
respectively, net of the amounts assumed by Franks.

The Company deferred the revenue associated with the sale of these
production payment interests because a substantial obligation for future
performance existed. Under the terms of the sales, the Company was obligated to
deliver the production payment volumes free and clear of lease operating
expenses, production taxes, plugging and abandonment and other capital costs.
The deferred revenue was amortized on the unit-of-production method and
recognized as oil and gas revenues as the associated hydrocarbons were
delivered. In addition, under separate agreements, the Company was required to
sell all excess production over production payment volumes from the subject
properties to an affiliate of ERAC during the same periods. Sales from the East
Bay Complex were made at market prices, whereas sales from Main Pass 69 were
made at the affiliate's posted price, which during the eleven months ended
November 30, 1994 was approximately $1.29 per barrel below other buyers'
postings for similar crude oil. Sales from Main Pass 69 for December 1994 were
made to the affiliate at market prices.

In connection with the East Bay Complex production payment, Enron Finance
Corp. ("Enron") obtained from the Company the right to acquire during a ten-year
period commencing January 1, 1996 (or upon a registration of securities), at a
nominal cost, a one-eighth working interest in the East Bay Complex or a 9%
interest in LLC (the "Enron Option"). If the working interest was acquired, it
would have been burdened by its share of the production payment. For accounting
purposes, the total proceeds received by the Company from ERAC related to the
East Bay Complex production payment were allocated between deferred revenue from
the sale of the production payment interest ($95.7 million) and a reduction in
the full cost pool resulting from the sale of a portion of the Company's
interest in East Bay Complex ($7.5 million) based upon the relationship of
one-eighth of post-January 1, 1996 reserves to total reserves, as determined at
the date of acquisition. The production payment volumes attributed to this
interest were 401 MBbls and 1,369 MMcf. Reserve information for 1993 presented
in Note 15 and production payment volumes reflected above are presented net of
this one-eighth interest. In December 1994 Enron contributed its Enron Option
and $1,000 in

F-11
<PAGE> 113

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exchange for one million shares of the Company's common stock. As a result of
the exchange, the Company recorded a $7.5 million increase to oil and gas
properties as well as an increase of $7.5 million for the related production
payment obligation, which were originally reduced from the respective accounts.

Concurrent with the Initial Offerings, the Company repurchased the
production payment interests. The cost to acquire the production payment
liability exceeded its book value by approximately $15.7 million. This excess
represented the difference between the amount paid and the book value of the
production payment liability as of December 7, 1994. This excess was recorded as
an expense in the period acquired.

5. RESTRICTED DEPOSITS

The Company, as the operator of the acquired oil and gas properties, is a
party to two escrow agreements. The first, related to East Bay, requires monthly
deposits of $100,000 through June 30, 1998, and $350,000 thereafter until the
balance in the escrow account equals $40 million unless the Company commits to
the plug and abandonment of a certain number of wells in which case the increase
will be deferred. The second agreement, related to Main Pass, required an
initial deposit of $250,000 and monthly deposits thereafter of $50,000 until the
balance in the escrow account equals $7,500,000. These deposits are to provide
for the future plugging and abandonment costs associated with the oil and gas
properties. Such funds are restricted as to withdrawal by the agreements. With
respect to any specifically planned plugging and abandoning operation, funds are
partially released when the Company presents to the escrow agent the planned
plugging and abandoning operations approved by the applicable governmental
agency, with the balance released upon the presentation by the Company to the
escrow agent of evidence from the governmental agency that the operation was
conducted in compliance with applicable laws and regulations. The escrow agent
for both agreements is an unrelated financial institution. As of December 31,
1995 and 1994, the escrow balances were approximately $4.3 million and $2.3
million, respectively.

6. INCOME TAXES

The Company was formed as a subchapter S corporation under the Internal
Revenue Code and, as such, all income taxes were the obligation of the Company's
stockholders. Therefore, through December 7, 1994, no historical federal or
state income tax expense has been provided for in the financial statements. In
conjunction with the Initial Offerings, the Company converted to a subchapter C
corporation under the Internal Revenue Code.

The Company has a deferred tax asset (offset by a valuation allowance in
1994) at December 31, 1995 and 1994, as follows:

<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Net operating loss carryforward.................................... $3,849,463 $ 6,019,935
Temporary differences:
Oil and gas properties........................................... 1,734,991 (1,598,426)
Other............................................................ (892,191) 1,882,490
---------- -----------
Total deferred tax asset........................................... 4,692,263 6,303,999
Valuation allowance................................................ -- (6,303,999)
---------- -----------
Net deferred tax asset............................................. $4,692,263 $ --
========== ===========
</TABLE>

At December 31, 1995, the Company had, for federal income tax reporting
purposes, operating loss carryforwards of approximately $10 million, which
expire in 2009.

A valuation allowance is provided for that portion of the asset for which
it is deemed more likely than not that it will not be realized. Due to the
Company's losses in 1994 and the substantial volatility in oil and gas

F-12
<PAGE> 114

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prices, management provided a valuation allowance for the entire deferred tax
asset at December 31, 1994. During the second half of 1995, due to drilling
successes and increases in oil and gas prices, the Company generated income from
operations. Based upon current estimates, management believes it is more likely
than not that the deferred tax asset as of December 31, 1995, will be realized.

The principal reasons for the differences between income taxes computed at
the statutory federal income tax rate and the income tax benefit are as follows:

<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
PERCENT OF NET PERCENT OF NET
INCOME BEFORE INCOME BEFORE
AMOUNT INCOME TAXES AMOUNT INCOME TAXES
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) computed at
the statutory federal income tax rate.... $ 1,823,511 35 $(7,762,491) (35)
Increase (decrease) attributable to:
Nontaxable period........................ -- -- 1,622,168 8
Cumulative temporary differences upon
conversion to a "C" corporation.......... -- -- (729,312) (3)
Change in valuation allowance.............. (6,303,999) (121) 6,303,999 28
Other...................................... (211,775) (4) 565,636 2
------------ --------- ----------- ----
Income tax benefit......................... $(4,692,263) (90) $ -- --
=========== ========= =========== ====
</TABLE>

7. STOCKHOLDERS' EQUITY

In February 1994, the Company agreed to re-acquire 1,000 shares of stock
from a former stockholder discussed in Note 1, for a total of $10 million (two
notes in the amount of $5 million each). The notes bore interest at 8% and were
paid on March 1, 1995. In March 1994, the other former stockholder discussed in
Note 1 (the plaintiff) filed suit against the Company to exercise his right to a
valuation of his 1,000 shares of stock as of December 27, 1993. This right was
triggered in a corporate transaction as allowed under Louisiana Corporation law.
The plaintiff claimed a valuation of $12.5 million, made certain other
allegations and also requested payment of attorneys' fees. The Company settled
this suit on June 30, 1994 whereby the former stockholder transferred his shares
of stock to the Company and released any claims, in exchange for $8.7 million.
In June 1994, the Company paid the former stockholder $5 million and reflected
the remainder as current notes payable until December 7, 1994 when the balance
was paid in full with a portion of the proceeds of the Initial Offerings.

As discussed in Note 6, concurrent with the closing of the Initial
Offerings, the Company converted from a subchapter S corporation to a subchapter
C corporation under the Internal Revenue Code. Effective as of that date, the
accumulated deficit of $6,688,596 has been reclassified to additional paid-in
capital. This amount had previously been reflected as a component of retained
earnings (deficit) in the December 31, 1994 financial statements.

The Company anticipates offering four million common shares to the public
in March 1996 (the "Offering"). The proceeds are expected to be used to fund
exploration and exploitation drilling activities and for possible future
acquisitions, as well as for other general corporate purposes. The Company also
intends to use approximately $15.5 million to repay the Shell Note. Pending such
application of the net proceeds, the Company intends to repay all outstanding
indebtedness under the Revolving Credit Facility with any excess proceeds to be
invested in short-term interest-bearing instruments.

F-13
<PAGE> 115

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED PARTY TRANSACTIONS

Effective July 1, 1994, the Company acquired indirectly from stockholders,
various overriding royalty interests for $1.2 million.

During 1993, the Company loaned a total of $1,250,000 to three
stockholders. The loans were represented by promissory notes which bore interest
at 8% per annum and were due upon demand, and if no demand, then by December 31,
1994. During 1994, the Company forgave $500,000 due from each of two
stockholders. On March 1, 1995, $250,000 due from a former stockholder was
received.

In July 1994, the Company purchased a portion of the overriding royalty
interests previously assigned to an affiliate of a stockholder for $3 million
(See Note 3). At that time, two stockholders loaned the Company $5 million to
make a payment to a former stockholder (See Note 7). In September 1994, the
stockholder affiliate exercised its right to repurchase the overriding royalty
interest from the Company for $3 million and the Company repaid $3 million of
the loans by the stockholders. The Company utilized a portion of the net
proceeds of the Initial Offerings to repay the remaining $2 million in loans to
stockholders.

During 1995, 1994 and 1993 the Company paid $1,041,088, $635,960, and
$499,737, respectively, to an affiliate of a stockholder associated with an
overriding royalty interest owned by it. In addition, during 1995 and 1994, the
Company paid $4,753 and $124,376, respectively, with respect to oil and gas
properties previously operated by the affiliate. These amounts are included in
accounts receivable from stockholders at December 31, 1995 and 1994.

During 1993 and 1994, the Company contracted with oilfield service
companies previously owned by current and former stockholders. The total amounts
paid for these services were $339,514 during 1993 and $1,091,152 during the
first six months of 1994 (at June 30, 1994, the stockholders assigned their
interest in such companies to a former stockholder). The Company believes that
the cost of such services would have been substantially similar to costs that
would have been charged by unaffiliated third parties for such services.

Prior to joining the Company in 1993, an officer of the Company and an
entity affiliated with him (collectively the "officer"), provided geological
consulting services for the Company. The Company paid approximately $106,000 to
the officer for services rendered in 1993 in connection with the acquisition of
the East Bay Complex. During 1994, the Company was assigned an oil and gas
prospect from the officer, who retained an overriding royalty interest. In
addition, the Company paid the officer $50,000 for services rendered in
connection therewith as well as $108,000 to a third party for acquisition of the
leases.

During 1994, the Company obtained a loan from Union Planters Bank in
connection with the purchase of a seaplane. During 1995, Mr. Flores was named a
member of the Board of Directors of that bank. The loan was made to the Company
for the amount of $132,500, bearing interest at the Wall Street Prime rate.
Principal and interest payments are payable monthly, with the balance due on
January 10, 1997. The outstanding principal balance plus accrued interest at
December 31, 1995, was $106,478. In addition, Union Planters Bank is a member of
the syndicate under the Revolving Credit Facility.

Effective November 1, 1995, the Company entered into a consulting agreement
for geological services with a party related to an officer of the Company. The
term of this agreement expires on October 31, 1996. In 1995, the Company paid
$5,200 pursuant to the agreement as well as $5,000 for other miscellaneous
geological consulting services received. In addition, in 1995 the Company paid
$50,000 for services rendered in connection with an oil and gas prospect
assigned to it by such party.

F-14
<PAGE> 116

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. LONG-TERM DEBT

Long-term loans consisted of the following at:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Note payable to Shell, including accrued interest of $2,183,735
and $1,289,789 in 1995 and 1994, respectively, with interest
payable at a rate of 6% per annum principal and interest due
June 10, 1996, collateralized by the vendor's lien and
privilege retained by Shell which is subordinate to the
Revolving Credit Facility (management intends to refinance a
substantial portion of this note under the Revolving Credit
Facility)..................................................... $ 15,183,735 $ 14,289,789
$50,000,000 revolving line of credit with a bank, bearing
interest at a weighted average interest rate of 7.3% and 7.6%
at December 31, 1995 and 1994, respectively, as further
described below, collateralized by first mortgage on the Main
Pass and East Bay properties.................................. 32,200,000 4,500,000
Senior unsecured notes bearing interest at 13 1/2% payable
semi-annually on June 1 and December 1 of each year,
commencing June 1, 1995, due December 1, 2004................. 125,000,000 125,000,000
Promissory note to Union Planters Bank bearing interest at Wall
Street Prime due January 10, 1997, collateralized by a Company
owned seaplane................................................ 106,478 119,670
Capital lease from Finova Manufacturer Services due August 1997,
collateralized by certain computer equipment.................. 85,078 129,810
------------ ------------
Total loans........................................... 172,575,291 144,039,269
Less: Current portion -- interest payable............. 883,735 --
------------ ------------
Total long-term loans................................. $171,691,556 $144,039,269
============ ============
</TABLE>

The Revolving Credit Facility is committed for a five-year period expiring
December 31, 2000. The Revolving Credit Facility had an initial borrowing base
of $50 million. Chase Manhattan Bank, N.A. (the "Agent"), with the concurrence
of majority lenders (as defined in the $50,000,000 Credit Agreement among Flores
& Rucks, Inc. and Chase Manhattan Bank, N.A.) (the "Credit Agreement"), can
redetermine the borrowing base at its option once within any 12-month period as
well as on scheduled redetermination dates as outlined in the Credit Agreement.
The borrowing base automatically reduces by an amount equal to one-sixteenth
( 1/16) of the borrowing base in effect on each quarter beginning March 31,
1997. In addition, the borrowing base may be reduced if the Company sells a
portion of its oil and gas properties. As of December 31, 1995, the borrowing
base under the Revolving Credit Facility remained at $50 million.

The Company's ability to draw additional amounts on the Revolving Credit
Facility is limited to the extent that adjusted consolidated net tangible assets
(as defined in the Credit Agreement) minus certain net production revenue (as
defined in the Credit Agreement) exceeds 100% (110% after June 1, 1996) of all
indenture indebtedness (as defined in the Credit Agreement). Adjusted
consolidated net tangible assets is determined quarterly, utilizing certain
financial information, and is primarily based on a quarterly estimate of the
present value of future net revenues of the Company's proved oil and gas
reserves. Such quarterly estimates utilize the most recent year end oil and gas
prices and vary based on additions to proved reserves and net production. As of
December 31, 1995, the Company's outstanding balance (including letters of
credit of $3.5 million) was $35.7 million and the Company had remaining
availability of $14.3 million under the Revolving Credit Facility.

F-15
<PAGE> 117

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On March 1, 1995, the Company repaid with borrowings under the Revolving
Credit Facility the two $5 million loans discussed in Note 7.

At the Company's option, borrowings under the Revolving Credit Facility
bear interest either at the base rate (the higher of the federal funds rate plus
0.5% per annum or the Agent's prime commercial lending rate) or the London
Interbank Offered Rate ("LIBOR"), in each case plus the applicable margin. The
applicable margin will be from 125 to 175 basis points for LIBOR loans and from
zero to 50 basis points for the base rate loans. Such basis points increase as
the Company increases the percentage usage of the borrowing base. As of December
31, 1995, the Company had a total balance outstanding of $32.2 million, $30.0
million of which bore interest at a LIBOR rate (including the applicable margin
based on the outstanding balance) of 7.2% and $2.2 million of which bore
interest at a base rate (including the applicable margin based on the
outstanding balance) of 8.8%, resulting in a weighted average interest rate of
7.3%. As of December 31, 1994, the Company had a balance of $4.5 million
outstanding, all of which bore interest at a LIBOR rate (including the
applicable margin based on the outstanding balance) of 7.6%.

The loan agreement for the Revolving Credit Facility contains restrictive
covenants substantially similar to those for the Senior Notes. The Revolving
Credit Facility also includes certain additional covenants and restrictions
relating to the activities of the Company which are customary for similar credit
facilities and are not expected to have a material adverse effect on the conduct
of the Company's business.

The Indenture relating to the Senior Notes contains certain covenants,
including, with limitation, covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) maintenance of adjusted consolidated net
tangible assets, as defined; (iii) limitation on restricted payments; (iv)
limitation on issuances and sales of restricted subsidiary stock; (v) limitation
on sale/leaseback transactions; (vi) limitation on transactions with affiliates;
(vii) limitation on liens; (viii) disposition of proceeds of asset sales; (ix)
limitation on dividends and other payment restrictions affecting subsidiaries;
and (x) limitation of mergers, consolidations and transfers of assets.

Aggregate minimum principal payments for debt and the capital lease at
December 31, 1995, for the next five years are as follows:

On June 11, 1994, LLC entered into two loan agreements with Joint Energy
Development Investments Limited Partnership ("JEDI"), a venture between
California Public Employees Retirement System and Enron Capital Corp. The first
was a $20 million term loan, bearing interest at 12.5% payable monthly, maturing
on June 11, 1997. The second loan, the development loan, provided for draws up
to a maximum of $40 million, bearing interest at 15% payable monthly. In
connection with this loan, LLC conveyed to JEDI a 20% overriding royalty
interest (defined to be net of production costs) on certain unevaluated
interests (computed prior to the one-eighth override conveyed to a related party
discussed in Note 3) which commenced upon payment in full of the development
loan. This interest was purchased from JEDI in December 1994, for $4.25 million.
Proceeds from the Initial Offerings were used to repay these loans in December
1994.

F-16
<PAGE> 118

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFIT PLANS

The Company has a 401(K) plan which covers all employees. The Company's
contributions to the plan during 1995, 1994 and 1993 were $513,690, $432,202 and
$69,000, respectively.

Prior to consummation of the Initial Offerings, the Board of Directors
adopted and the stockholders approved a long-term incentive plan. The plan
provides for not more than 1,500,000 shares of common stock to be issued to
employees and directors of the Company. Upon consummation of the Initial
Offerings, the Company issued 645,000 stock options with an exercise price of
$10.00 per share, the fair value at the date of grant. The options vest equally
over a three-year period and terminate ten years from date of grant. On August
9, 1995 the Company's Board of Directors adopted a long-term incentive plan for
non-executive employees. The non-executive plan provides for not more than
300,000 shares of common stock to be issued to non-executive employees of the
Company during any calendar year. A summary of the stock options outstanding
under both plans follows:

<TABLE>
<CAPTION>
NUMBER OF AVERAGE
OPTIONS OPTION PRICE
--------- ------------
<S> <C> <C>
Balance at January 1, 1995................................... 645,000 $10.00
Granted...................................................... 856,500 11.97
Cancelled.................................................... (6,000) 9.38
Exercised.................................................... -- --
Expired...................................................... -- --
--------- ------
Balance at December 31, 1995................................. 1,495,500 $11.13
========= ======
</TABLE>

At December 31, 1995, stock options representing 261,667 shares were
exercisable at an average option price of $10.31 per share.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation,"
effective for the Company for 1996. Under SFAS 123, companies can either record
expense based on the fair value of stock-based compensation upon issuance or
elect to remain under the current Accounting Principles Board ("APB") Opinion
No. 25 method whereby no compensation cost is recognized upon grant if certain
requirements are met. The Company intends to continue to account for its
stock-based compensation plans under APB Opinion No. 25.

In addition, in 1995, the Company issued 4,125 shares of stock which are
considered bonus shares.

The Company is self-insured for employee medical benefits up to certain
stop-loss limits.

The Company has no other significant formal benefit plans.

11. MAJOR CUSTOMERS

The Company sold the majority of its oil and gas to a few customers based
on long-term contracts in 1995 and prior years. Sales to the following customers
exceeded 10% of revenues during the years indicated (expressed in thousands):

<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Enron Corp., its subsidiaries and affiliates.......... $17,431 $73,658 $46,126
Shell Oil Company..................................... 79,927 -- --
Murphy Oil USA, Inc................................... 24,193 -- --
</TABLE>

Enron Finance Corp., a subsidiary of Enron Corp., owned 1,000,000 shares or
6.6% of the Company's common stock as of December 31, 1995.

F-17
<PAGE> 119

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES

While the Company is a defendant in various lawsuits in the ordinary course
of business, management believes the potential liability in such lawsuits is not
material. The Company maintains liability and other insurance customary in its
business. The Company is also subject to contingencies as a result of
environmental laws and regulations. The related future cost is indeterminable
due to such factors as the unknown timing and extent of the corrective actions
that may be required and the application of joint and several liability.
However, the Company believes that such costs will not have a material adverse
effect on its operations or financial position.

The Company, as operator, is responsible for payment of plugging and
abandonment costs on its properties. As of December 31, 1995, the total estimate
of these costs on the East Bay Complex and Main Pass 69 was approximately $55
million, estimated to be incurred through the year 2007. The provision for such
costs is recorded through depreciation, depletion and amortization expense. The
estimates of plugging and abandonment costs and their timing may change due to
many factors including, among others, actual production results, inflation
rates, and changes in environmental laws and regulations.

In August 1993, the Minerals Management Service ("MMS") provided notice to
lessees of Outer Continental Shelf ("OCS") leases that new levels of lease and
area wide bonds would be required effective November 26, 1993, in connection
with the plugging and abandoning of wells located offshore and the removal of
all production facilities. The coverage is designed to reflect an appropriate
balance between encouraging the maximum economic recovery of oil and natural gas
from federal offshore leases while providing the federal government an adequate
level of protection in the event the lessee defaults on its obligations to
properly abandon lease wells and remove platforms and other structures from the
property.

The MMS requires lessees of OCS properties to post bonds in connection with
the plugging and abandonment of wells located offshore and the removal of all
production facilities. Operators in the OCS waters of the Gulf of Mexico are
currently required to post area wide bonds of $3 million or $500,000 per
producing lease and supplemental bonds at the discretion of the MMS. On January
17, 1995, the Company entered into an agreement with Planet Indemnity Company
("Planet") whereby Planet agreed to issue $11.7 million of MMS surety bonds for
the Company and the Company agreed to post collateral for same in favor of
Planet. The collateral includes a mortgage on the Company's federal OCS leases
in the amount of $8.2 million, a letter of credit for $3.5 million and a pledge
of certain rights to escrowed funds. The Company has posted a total of
$13,275,000 of bonds with the MMS and has satisfied all requirements for bonds
imposed to date by the MMS. Pursuant to a schedule imposed by the MMS, the
Company will be required to post additional bonds up to a total bonding level of
$24.6 million by January 1999, unless the Company is determined by the MMS to be
exempt from such requirement due to certain financial tests. The Company does
not anticipate that the cost of any such bonding requirements will materially
affect the Company's financial position. Under certain circumstances, the MMS
may require any Company operations on federal leases to be suspended or
terminated. Any such suspensions or terminations could have a material adverse
effect on the Company's financial condition and operations. The MMS also intends
to adopt financial responsibility regulations under the Oil Pollution Act of
1990 (the "OPA").

The OPA regulations impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills in United States waters. A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of an area in which an offshore facility is located. The OPA assigns
liability to each responsible party for oil removal costs and a variety of
public and private damages. While liability limits apply in some circumstances,
a party cannot take advantage of liability limits if the spill was caused by
gross negligence or willful misconduct or resulted from violation of a federal
safety, construction or operating regulation. If the party fails to report a
spill or to cooperate fully in the cleanup, liability limits likewise do not
apply. Few defenses exist to the liability imposed by the OPA.

F-18
<PAGE> 120

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. On August 25, 1993, the MMS published an advance notice of its intention
to adopt regulations under the Oil Pollution Act of 1990 ("OPA 90") that would
require owners and operators of offshore oil and natural gas facilities to
establish $150 million in financial responsibility in case of a potential spill.
In May 1995, the U.S. House of Representatives approved a bill that would amend
OPA 90 to reduce the level of financial responsibility to $35 million. The U.S.
Senate passed a related measure on November 17, 1995, that would also amend OPA
90 to reduce the level of financial responsibility to $35 million. The Clinton
Administration has expressed its support for this legislation, but has not yet
taken any action on the bills approved by the U.S. House of Representatives and
the U.S. Senate. The MMS has indicated that it would not move forward with the
adoption of the rule until the United States Congress has had an opportunity to
act on the pending amendments to OPA 90. Based on the passage of these bills and
the support of the Clinton Administration, it appears that the level of
financial responsibility required under OPA 90 will be reduced and the MMS will
probably not move forward with the adoption of its rule as it was proposed.
Under the proposed rule, financial responsibility could be established through
insurance, guaranty, indemnity, surety bond, letter of credit qualifications as
a self-insurer or a combination thereof. There is substantial uncertainty as to
whether insurance companies or underwriters will be willing to provide coverage
under the OPA because the statute provides for direct lawsuits against insurers
who provide financial responsibility coverage, and most insurers have strongly
protested this requirement. The financial tests or other criteria that will be
used to judge self-insurance are also uncertain. The Company cannot predict the
final form of the financial responsibility rule that will be adopted by the MMS,
but such rule has the potential to result in the imposition of substantial
additional annual costs on the Company or otherwise materially adversely affect
the Company. The impact of the rule should not be any more adverse to the
Company than it will be to other similarly situated owners or operators in the
Gulf of Mexico region.

The Company's minimum annual contractual charges as of December 31, 1995,
under noncancellable operating leases were as follows:

Total rental expenses under operating leases amounted to approximately
$527,000, $297,000 and $166,000 in 1995, 1994 and 1993, respectively.

In connection with the Initial Offerings, the Company entered into a
Registration Rights Agreement whereby Enron is entitled to require the Company
to register common stock of the Company owned by Enron with the Securities and
Exchange Commission (the "SEC") for sale to the public in a public offering, at
no cost to Enron except for discounts and commissions, if any.

13. HEDGING ACTIVITIES

The Company hedges certain of its production through a master swap
agreement ("Swap Agreement") with Enron Capital & Trade Resources Corp. ("ECT").
The Swap Agreement provides for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. During 1995 and 1993, the Company
unwound certain contracts entered into under the Swap Agreement for barrels
hedged. The gain realized upon unwinding these transactions has been deferred
and is being amortized over the original determination period on a
units-of-production basis. No contracts were unwound during 1994. The Swap
Agreement is settled monthly based on the differences between contract prices
and the average NYMEX prices for that month applied to the related contract
volumes. To the extent the NYMEX price exceeds the contract price the Company
pays the spread to ECT, and to the extent the contract price exceeds the NYMEX
price ECT pays the spread to the Company. Under the terms of the Swap Agreement,
if the

F-19
<PAGE> 121

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's exposure (i.e., the cost to buyout all of the contracts covered by the
Swap Agreement) exceeds $5 million, ECT can require the Company to establish and
maintain a letter of credit for the amount of such excess, rounded up to the
next multiple of $500,000. As of December 31, 1995, the Company's exposure under
all contracts covered by the Swap Agreement was approximately $1.5 million.

As of February 16, 1996, the Company's open forward position with ECT was
as follows:

<TABLE>
<CAPTION>
OIL GAS
----------------- ------------------
AVERAGE AVERAGE
YEAR MBBLS PRICE (BBTU) PRICE
------------------------ ----- ------- ------ -------
<S> <C> <C> <C> <C>
1996.................... 1,100 $ 18.43 8,200 $1.90
1997.................... 300 18.55 -- --
1998.................... 300 18.55 -- --
1999.................... 300 18.55 -- --
2000.................... 300 18.55 -- --
----- ------- ----- -----
Total......... 2,300 $ 18.49 8,200 $1.90
===== ======= ===== =====
</TABLE>

The above table assumes extendible contracts have not been exercised by
ECT. However, included in the 1996 swap agreements are two three-month term
hedges with a nine-month option exercisable by ECT. If ECT exercises its option
to extend, total barrels would increase to 2,900 MBbls in 1996. The average
price for the year ending December 31, 1996, assuming all extendible contracts
are exercised is $18.33.

Revenue was increased (decreased) under the Swap Agreements by
approximately $(0.5) million, $1.7 million and $1.2 million, respectively, for
the years ended December 31, 1995, 1994 and 1993.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value as of December 31, 1995 and 1994, of financial
instruments other than current assets and liabilities is presented in the
following table:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
ESTIMATED ESTIMATED
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
------------- ------------- ------------- -------------
ASSET (LIABILITY)
<S> <C> <C> <C> <C>
Debt
Senior Notes.......... $(125,000,000) $(141,875,000) $(125,000,000) $(125,312,500)
Shell Note............ (15,183,735) (15,094,232) (14,289,789) (13,737,218)
Revolving Credit
Facility........... (32,200,000) (32,200,000) (4,500,000) (4,500,000)
------------- ------------- ------------- -------------
$(172,383,735) $(189,169,232) $(143,789,789) $ 143,549,718)
============= ============= ============= =============
Hedges
Gas................... $ -- $ (2,423,240) $ -- $ 162,300
Oil................... -- 950,750 -- (2,233,200)
------------- ------------- ------------- -------------
$ -- $ (1,472,490) $ -- $ (2,070,900
============= ============= ============= =============
</TABLE>

15. OIL AND GAS RESERVE INFORMATION -- UNAUDITED

The Company's net proved oil and gas reserves at December 31, 1995, 1994
and 1993, have been determined by independent petroleum consultants in
accordance with guidelines established by the SEC and the FASB. Accordingly, the
following reserve estimates are based upon existing economic and operating
conditions at the respective dates. Future cash flows from oil and natural gas
reserves were computed on the basis of prices being received at year end for oil
and natural gas, adjusted for hedges in place at that date. The 1993 estimates
have been adjusted to exclude (i) volumes (approximately 9.7 million equivalent
barrels of oil as of December 31, 1993) and (ii) future revenues associated with
the production payments discussed in Note 4 and approximately 3.1 million
equivalent barrels of oil (net of the related production payment of 0.8 million
equivalent barrels) and approximately $1.0 million of standardized measure of
discounted future net cash flows associated with the Enron Option.

F-20
<PAGE> 122

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There are many uncertainties inherent in estimating quantities of proved
reserves and in providing the future rates of production and timing of
development expenditures. The following reserve data represent estimates only
and should not be construed as being exact. In addition, the present values
should not be construed as the current market value of the Company's oil and gas
properties or the cost that would be incurred to obtain equivalent reserves.

The following tables set forth an analysis of the Company's estimated
quantities of net proved and proved developed oil (includes condensate) and gas,
all located offshore in the continental United States:

<TABLE>
<CAPTION>
OIL NATURAL GAS
(MBBL) (MMCF)
------ -----------
<S> <C> <C>
Proved reserves as of December 31, 1992......................... 7,270 9,090
Revisions of previous estimates............................... (2,817) 314
Purchase of producing properties.............................. 27,505 37,997
Sale of production payment.................................... (5,950) (14,486)
Sale of producing properties.................................. (3,378) (5,149)
Production.................................................... (1,537) (1,705)
------ -------
Proved reserves as of December 31, 1993......................... 21,093 26,061
Revisions of previous estimates............................... 1,979 (4,667)
Extensions, discoveries, and other additions.................. 688 2,775
Repurchase of production payment.............................. 6,111 19,523
Purchase of producing properties.............................. 5,944 7,708
Production.................................................... (2,771) (3,456)
------ -------
Proved reserves as of December 31, 1994......................... 33,044 47,944
Revisions of previous estimates............................... 4,857 4,293
Extensions, discoveries, and other additions.................. 1,640 10,647
Purchase of producing properties.............................. 345 85
Production.................................................... (6,057) (12,393)
------ -------
Proved reserves as of December 31, 1995......................... 33,829 50,576
====== =======
Proved developed reserves:
As of December 31, 1993....................................... 17,999 20,764
As of December 31, 1994....................................... 30,088 42,668
As of December 31, 1995....................................... 31,702 48,635
</TABLE>

F-21
<PAGE> 123

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the standardized measure of future net cash
flows related to proved oil and gas reserves together with changes therein, as
defined by the FASB. The oil, condensate and gas price structure utilized to
project future net cash flows reflects current prices at each year end adjusted
for hedges in place at that date and have been escalated only where known and
determinable price changes are provided by contracts and law. Future production
and development costs are based on current costs with no escalations. Estimated
future cash flows have been discounted to their present values based on a 10%
annual discount rate.

<TABLE>
<CAPTION>
STANDARDIZED MEASURE AS OF DECEMBER
31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash flows....................................... $ 762,488 $ 645,091 $ 349,112
Future production, development and abandonment costs.... (482,658) (433,193) (343,427)
Income tax provision.................................... (36,712) (11,530) --
--------- --------- ---------
Future net cash flows................................... 243,118 200,368 5,685
10% annual discount..................................... (39,178) (35,390) 7,490
--------- --------- ---------
Standardized measure of discounted future net cash
flows................................................. $ 203,940 $ 164,978 $ 13,175
========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
CHANGES IN STANDARDIZED MEASURE
PERIODS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure at beginning of period................. $164,978 $ 13,175 $ 24,611
Sales and transfers of oil and gas produced, net of
production costs.......................................... (87,924) (21,214) (9,851)
Changes in price, net of future production costs............ 61,865 34,412 (52,191)
Extensions and discoveries, net of future production and
development costs......................................... 46,429 14,397 --
Repurchase of production payment............................ -- 106,572 --
Sale of production payment.................................. -- -- (103,616)
Sale of reserves............................................ -- -- (17,919)
Previously estimated development and abandonment costs
incurred during the period................................ 19,132 8,606 8,110
Revisions of quantity estimates............................. 46,761 8,184 (7,435)
Accretion of discount....................................... 17,474 2,352 5,965
Net change in income taxes.................................. (21,034) (9,762) --
Purchase of reserves in place............................... 3,193 17,564 181,661
Changes in production rates (timing), estimated development
and abandonment costs, and other.......................... (46,934) (9,308) (16,160)
-------- -------- ---------
Standardized measure at end of year......................... $203,940 $164,978 $ 13,175
======== ======== =========
</TABLE>

F-22
<PAGE> 124

FLORES & RUCKS, INC.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
1996
-------------
<S> <C>
Current assets:
Cash and cash equivalents................................................... $ 819,468
Joint interest receivables.................................................. 1,229,810
Oil and gas sales receivables............................................... 16,112,617
Notes and accounts receivable -- stockholders............................... --
Accounts receivable -- other................................................ 3,700,000
Prepaid expenses............................................................ 1,019,583
Other current assets........................................................ 1,370,150
-------------
Total current assets................................................ 24,251,628
Oil and gas properties -- full cost method:
Evaluated................................................................... 332,287,198
Less accumulated depreciation, depletion, and amortization.................. (143,013,084)
-------------
189,274,114
Unevaluated properties excluded from amortization........................... 27,106,066
Other assets:
Furniture and equipment, less accumulated depreciation of $1,891,211........ 2,793,110
Restricted deposits......................................................... 5,269,835
Deferred financing costs.................................................... 4,823,582
Deferred tax asset.......................................................... 3,202,863
-------------
Total assets........................................................ $ 256,721,198
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable accrued liabilities........................................ $ 37,240,733
Oil and gas sales payable................................................... 4,548,963
Accrued interest............................................................ 1,447,287
-------------
Total current liabilities........................................... 43,236,983
Long-term debt................................................................ 128,160,111
Notes payable to be refinanced under revolving line of credit................. --
Other noncurrent liabilities.................................................. 638,609
Deferred hedge revenue........................................................ 233,167
Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares
no shares issued or outstanding at June 30, 1996......................... --
Common stock, $.01 par value; authorized 100,000,000 shares;
issued and outstanding 19,555,223 shares................................. 195,552
Paid-in capital............................................................. 89,734,455
Retained earnings (deficit)................................................. (5,477,679)
-------------
Total stockholders' equity.......................................... 84,452,328
-------------
Total liabilities and stockholders' equity.......................... $ 256,721,198
=============
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-23
<PAGE> 125

FLORES & RUCKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas sales............................................... $69,115,492 $55,421,460
Plant processing income (loss).................................. (33,473) 450,459
----------- -----------
Total revenues.......................................... 69,082,019 55,871,919
Operating expenses:
Lease operations................................................ 16,522,030 14,225,302
Severance taxes................................................. 5,521,763 4,744,919
Depreciation, depletion and amortization........................ 28,973,040 23,166,908
----------- -----------
Total operating expenses................................ 51,016,833 42,137,129
General and administrative expenses............................... 6,025,000 5,613,381
Interest expense.................................................. 8,188,026 8,492,613
Other expense (income)............................................ 1,779 (120,616)
----------- -----------
Net income (loss) before income taxes............................. 3,850,381 (250,588)
Income tax expense................................................ 1,514,704 --
----------- -----------
Net income (loss)................................................. $ 2,335,677 $ (250,588)
=========== ===========
Weighted average common shares outstanding........................ 17,620,538 15,042,102
Earnings (loss) per common share.................................. $ .13 $ (.02)
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-24
<PAGE> 126

FLORES & RUCKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss)............................................. $ 2,335,677 $ (250,588)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization................... 29,606,026 23,441,656
Deferred hedge revenue..................................... (637,166) (66,667)
Deferred tax asset......................................... 1,489,400 --
Changes in operating assets and liabilities:
Accrued interest........................................... (2,503,810) 889,788
Receivables................................................ (2,976,896) (2,291,865)
Prepaid expenses........................................... (629,171) (133,145)
Other current assets....................................... (945,326) (17,100)
Accounts payable and accrued liabilities................... 22,149,942 18,676,705
Oil and gas sales payable.................................. (628,316) 393,319
------------ ------------
Net cash provided by operating activities....................... 47,260,360 40,642,103
------------ ------------
Investing activities:
Additions to oil and gas properties and furniture and
equipment.................................................. (65,856,527) (45,608,012)
Increase in restricted deposits............................... (1,010,653) (958,011)
------------ ------------
Net cash used in investing activities........................... (66,867,180) (46,566,023)
------------ ------------
Financing activities:
Sale of stock................................................. 62,141,101 369,949
Borrowings on notes payable................................... 30,000,000 42,500,020
Payments of notes payable..................................... (72,231,443) (37,528,259)
Deferred financing costs...................................... 304,392 120,801
------------ ------------
Net cash provided by financing activities....................... 20,214,050 5,462,511
------------ ------------
Increase (decrease) in cash and cash equivalents................ 607,230 (461,409)
Cash and cash equivalents, beginning of the period.............. 212,238 568,690
------------ ------------
Cash and cash equivalents, end of the period.................... $ 819,468 $ 107,281
============ ============
Interest paid during the period................................. $ 11,917,620 $ 8,781,824
============ ============
</TABLE>

The accompanying notes to financial statements are an integral part of these
statements.

F-25
<PAGE> 127

FLORES & RUCKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL INFORMATION

The consolidated financial statements included herein have been prepared by
Flores & Rucks, Inc. (the "Company") without audit and include all adjustments
(of a normal and recurring nature) which are, in the opinion of management,
necessary for the fair presentation of interim results which are not necessarily
indicative of results for the entire year. The financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report.

2. EARNINGS PER SHARE

Earnings per common share are based on the weighted average number of
shares of common stock outstanding for the periods. The Company had 1,865,735
stock options outstanding as of June 30, 1996. The options were not reflected as
common stock equivalents for the six months ended June 30, 1996, as the dilutive
effect caused by the options on earnings per share was less than three percent.

The Company had 760,500 options outstanding as of June 30, 1995, which were
not reflected as common stock equivalents for the six months ended June 30,
1995, as they were anti-dilutive.

3. HEDGING ACTIVITIES

The Company hedges certain of its production through a master swap
agreement ("Swap Agreement") with Enron Capital & Trade Resources Corp. ("ECT").
The Swap Agreement provides for separate contracts tied to the NYMEX light sweet
crude oil and natural gas futures contracts. The Swap Agreement is settled
monthly based on the differences between contract prices and the average NYMEX
prices for that month applied to the related contract volumes. To the extent the
NYMEX price exceeds the contract price, the Company pays the spread to ECT, and
to the extent the contract price exceeds the NYMEX price, ECT pays the spread to
the Company. Under the terms of the Swap Agreement, if the Company's exposure
(i.e., the cost to buyout all of the contracts covered by the Swap Agreement)
exceeds $5 million, ECT can require the Company to establish and maintain a
letter of credit in the amount of such excess, rounded up to the next multiple
of $500,000. As of August 2, 1996, the Company's exposure under all contracts
covered by the Swap Agreement was approximately $2.9 million.

As of June 30, 1996, the Company's open forward position with ECT was as
follows:

<TABLE>
<CAPTION>
OIL GAS
---------------- ----------------
AVERAGE AVERAGE
YEAR MBBLS PRICE BBTU PRICE
----------------------------------------------------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
1996................................................. 1,550 $ 18.25 1,230 $1.97
1997................................................. 300 $ 18.55 -- --
1998................................................. 300 $ 18.55 -- --
1999................................................. 300 $ 18.55 -- --
2000................................................. 300 $ 18.55 -- --
----- ------- ----- -----
Total...................................... 2,750 $ 18.38 1,230 $1.97
===== ======= ===== =====
</TABLE>

4. COMMON STOCK OFFERING

On March 19, 1996, the Company completed a public offering of 4,500,000
shares of common stock at a price of $14.75 per share (the "Offering"). Net
proceeds of the Offering were approximately $62.2 million, of which $15.4
million was used to repay a note payable to Shell Offshore, Inc. and
approximately $33.0 million was used to repay indebtedness under the Company's
$50 million borrowing based senior revolving bank credit facility.

F-26
<PAGE> 128

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Flores & Rucks, Inc.

We have audited the accompanying statements of combined oil and gas
revenues and direct operating expenses for certain oil and gas producing
properties to be acquired from Mobil Oil Exploration & Producing Southeast Inc.
by Flores & Rucks, Inc. (the "Company") for the years ended December 31, 1995,
1994 and 1993. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the accompanying statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the accompanying statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

The accompanying statements were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete presentation of the revenues and expenses of certain
oil and gas producing properties to be acquired from Mobil Oil Exploration &
Producing Southeast Inc.

In our opinion, the statements referred to above present fairly, in all
material respects, the operating revenues and direct operating expenses of
certain oil and gas producing properties to be acquired from Mobil Oil
Exploration & Producing Southeast Inc. by the Company for the years ended
December 31, 1995, 1994 and 1993 in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Fort Worth, Texas
August 8, 1996

F-27
<PAGE> 129

CERTAIN OIL AND GAS PRODUCING PROPERTIES
TO BE ACQUIRED FROM MOBIL OIL EXPLORATION & PRODUCING SOUTHEAST INC.

STATEMENTS OF COMBINED OIL AND GAS REVENUES
AND DIRECT OPERATING EXPENSES

SIX MONTHS
ENDED JUNE YEAR ENDED DECEMBER 31,
30, -----------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Crude and condensate sales............. $16,192,920 $29,801,308 $26,433,668 $29,104,677
Natural gas sales...................... 14,281,160 17,665,381 25,600,873 30,043,343
----------- ----------- ----------- -----------
30,474,080 47,466,689 52,034,541 59,148,020
Direct operating expenses:
Lease operating expenses............... 5,429,438 13,224,835 14,288,055 14,086,693
----------- ----------- ----------- -----------
Oil and gas revenues in excess of direct
operating expenses..................... $25,044,642 $34,241,854 $37,746,486 $45,061,327
=========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-28
<PAGE> 130

CERTAIN OIL AND GAS PRODUCING PROPERTIES
TO BE ACQUIRED FROM MOBIL OIL EXPLORATION & PRODUCING SOUTHEAST INC.

NOTES TO STATEMENTS OF COMBINED OIL AND GAS REVENUES
AND DIRECT OPERATING EXPENSES

NOTE A -- BASIS OF PRESENTATION

Pursuant to the terms of a Purchase and Sale Agreement dated as of July 10,
1996, Flores & Rucks, Inc. (the "Company") will acquire certain oil and gas
producing properties situated in the Gulf of Mexico, offshore Louisiana (the
"Mobil Interest") from Mobil Oil Exploration & Producing Southeast Inc.
("Mobil") effective August 1, 1996.

The oil and gas revenues and direct operating expenses presented herein
relate only to the interests in the certain oil and gas producing properties
acquired and do not represent all of the costs of oil and gas operations of
Mobil. Direct operating expenses include the actual costs of maintaining the
producing properties and their production, but do not include charges for
depletion, depreciation, amortization and abandonment; federal and state income
taxes; interest; or general and administrative expenses. The oil and gas
revenues and direct operating expenses for the periods presented may not be
indicative of the results of future operations of the properties acquired.

Mobil accounts for gas revenues on the sales method. Generally, Mobil sells
its oil and gas production to other affiliates of Mobil Corporation. Crude oil
prices are based on Mobil's posted field prices for crude oil purchases in the
area. Gas prices are based on Inside FERC published prices.

NOTE B -- SUPPLEMENTAL OIL AND GAS RESERVE AND STANDARDIZED MEASURE INFORMATION
(UNAUDITED)

The Company's internal reserve engineers prepared an estimate of the future
net oil and gas reserves of the Mobil Interest as of August 1, 1996. The reserve
quantity information has been derived from this estimate.

Estimated quantities of proved net reserves include only those quantities
that can be expected to be commercially recoverable at prices and costs in
effect at the effective date of the acquisition, under existing regulatory
practices and with conventional equipment and operating methods. Proved
developed reserves represent only those reserves expected to be recovered
through existing wells with existing equipment and operating methods. Proved
undeveloped reserves include those reserves expected to be recovered from new
wells on undrilled acreage or from existing wells on which a relatively major
expenditure is required for recompletion.

ESTIMATED QUANTITIES OF PROVED RESERVES

<TABLE>
<CAPTION>
MOBIL INTEREST
-----------------------
OIL GAS
(MBBL) (MMCF)
--------- ---------
<S> <C> <C>
January 1, 1993................................................ 20,324 101,560
Production................................................... 1,816 12,905
December 31, 1993.............................................. 18,508 88,655
Production................................................... 1,761 12,229
December 31, 1994.............................................. 16,747 76,426
Production................................................... 1,833 10,700
------ ------
December 31, 1995.............................................. 14,914 65,726
====== ======
Proved developed reserves as of December 31, 1995.............. 10,290 45,997
====== ======
</TABLE>

F-29
<PAGE> 131

The following is a summary of a standardized measure of discounted future
net cash flows related to the proved oil and gas reserves of the Mobil Interest.
For these calculations, estimated future cash flows from estimated future
production or proved reserves were computed using oil and gas prices as of the
end of each period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic life of the properties, and costs
were not escalated for the future. The Mobil Interest is not a separate tax
paying entity. Accordingly, the standardized measure of discounted future net
cash flows from proved reserves is presented before deduction of federal income
taxes. The information presented below should not be viewed as an estimate of
the fair value of the Mobil Interest, nor should it be considered indicative of
any future trends.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

MOBIL INTEREST

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Future cash inflows............................... $ 417,503 $ 398,643 $ 452,419
Future production and development costs........... (204,363) (220,436) (239,832)
Discount of future net cash flows at 10% per
annum........................................... (54,190) (45,565) (56,242)
--------- --------- ---------
Standardized measure of discounted future net
cash flows...................................... $ 158,950 $ 132,642 $ 156,345
========= ========= =========
</TABLE>

The weighted average prices of oil and gas at December 31, 1995, 1994 and
1993 used in the above table were $18.23, $16.58 and $13.18 per barrel,
respectively, and $2.22, $1.60 and $2.36 per Mcf, respectively.

The following are the principal sources of change in the standardized
measure of discounted future net cash flows of the Mobil Interest.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales and transfers of oil and gas produced, net of
production costs................................. $(34,242) $(37,746) $(45,061)
Net changes in prices and production costs......... 55,117 (3,704) (49,285)
Accretion of discount.............................. 13,264 15,635 20,912
Changes in production rates, future development
costs
and other........................................ (7,831) 2,112 20,660
-------- -------- --------
Net change......................................... $ 26,308 $(23,703) $(52,774)
======== ======== ========
</TABLE>

F-30
<PAGE> 132

================================================================================

NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN, AND, IF GIVEN AND MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
SPECIFICALLY OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.........................
Risk Factors...............................
The Company................................
Common Stock Offering......................
Use of Proceeds............................
Capitalization.............................
Selected Historical Financial and Operating
Data.....................................
Unaudited Pro Forma Consolidated Financial
Statements...............................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................
Business and Properties....................
Management.................................
Description of the Notes...................
Underwriting...............................
Legal Matters..............................
Experts....................................
Available Information......................
Incorporation of Certain Documents by
Reference................................
Glossary of Certain Oil and Gas Terms......
Index to Financial Statements.............. F-1
</TABLE>

================================================================================

$150,000,000

[FLORES & RUCKS, INC. LOGO]

FLORES & RUCKS, INC.

% SENIOR SUBORDINATED
NOTES DUE 2006

---------------------------
PROSPECTUS
---------------------------

MERRILL LYNCH & CO.

BEAR, STEARNS & CO. INC.

SALOMON BROTHERS INC

, 1996

================================================================================
<PAGE> 133

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 16, 1996

PROSPECTUS

1,550,000 SHARES

FLORES & RUCKS, INC.
[FLORES AND RUCKS, INC. LOGO]
COMMON STOCK

------------------------

All shares of Common Stock, par value $0.01 ("Common Stock") of Flores &
Rucks, Inc., a Delaware corporation ("F&R" or the "Company") offered hereby (the
"Common Stock Offering") are being offered by the selling stockholder named
herein (the "Selling Stockholder"). The Company will not receive any of the
proceeds from the sale of the shares offered by the Selling Stockholder. See
"Selling Stockholder."

Concurrent with the Common Stock Offering, the Company is offering $150
million of % Senior Subordinated Notes due 2006 (the "Notes") for sale to the
public (the "Notes Offering") in a separate offering. See "Notes Offering."
Consummation of the Common Stock Offering and the Notes Offering are not
contingent upon each other. There can be no assurance that the Notes Offering
will be consummated or, if so, on what terms.

The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "FNR." On August 15, 1996, the last reported sales price of the
Common Stock on the NYSE was $29 7/8 per share. See "Price Range of Common Stock
and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDER(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $65,000.

(3) The Selling Stockholder has granted to the several Underwriters an option
for 30 days to purchase up to an additional 200,000 shares of Common Stock
at the Price to Public, less Underwriting Discount, solely to cover
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discount, and Proceeds to Selling Stockholder will be
$ , $ , and $ , respectively. See
"Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.
------------------------
MERRILL LYNCH & CO.
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED

PETRIE PARKMAN & CO.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 134

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

THE COMMON STOCK OFFERING

Common Stock offered by the
Selling Stockholder.............. 1,550,000 shares(1)

Common Stock to be outstanding
after the Offering............... 19,555,223 shares(2)

Use of Proceeds.................. The Company will not receive any proceeds
from the sale of Common Stock by the
Selling Stockholder in the Common Stock
Offering.

NYSE Symbol...................... FNR

Notes Offering................... Concurrent with the Common Stock Offering,
the Company is offering $150 million of
% Senior Subordinated Notes due 2006
for sale to the public in order to finance
the Central Gulf Acquisition. The Common
Stock Offering is not contingent upon
consummation of the Notes Offering, nor is
the Notes Offering contingent upon
consummation of the Common Stock Offering.
There can be no assurance that the Notes
Offering will be consummated or, if so, on
what terms.
- ---------------

(1) Excludes 200,000 shares of Common Stock subject to purchase upon the
exercise by the Underwriters of their over-allotment option.

(2) Does not include 1,864,735 shares subject to employee stock options, 293,734
of which are presently exercisable.

RISK FACTORS

An investment in the Common Stock involves certain risks that a potential
investor should carefully evaluate prior to making such an investment. See "Risk
Factors."
<PAGE> 135

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

RISK FACTORS

FUTURE SALES OF COMMON STOCK

Future sales of shares of Common Stock by the Company or its existing
stockholders could adversely affect the market price of the Common Stock. Upon
completion of the Common Stock Offering, the Company will have 19,555,223 shares
outstanding of which 13,105,223 shares (13,305,223 if the over allotment option
is fully exercised) will be freely tradeable without restrictions or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). In addition, 6,450,000 shares (6,250,000 if the over allotment option is
fully exercised) may be sold pursuant to the requirements of Rule 144 under the
Securities Act or, in the case of 4,200,000 of such shares, pursuant to the
terms of registration rights agreements. Under the terms of such registration
rights agreements, Merrill Lynch Capital Markets plc, James C. Flores and
William W. Rucks, IV each have two demand registration rights, and each of such
stockholders, as well as Enron Finance Corp., have an unlimited number of
piggyback registration rights. The piggyback registration rights have been
waived in connection with the Common Stock Offering and the demand registration
rights have been waived for 90 days from the date of this Prospectus. In
addition, the Company, Mr. Flores, Mr. Rucks and the Company's other directors
have agreed that they will not, without the prior written consent of Merrill
Lynch & Co., offer, sell or otherwise dispose of any shares of Common Stock or
any securities convertible into Common Stock, except for or upon the exercise of
currently outstanding options (and except upon the exercise of the overallotment
option granted to the Underwriters in the Common Stock Offering), for a period
of 90 days from the date of this Prospectus. Sales of a substantial amount of
Common Stock, or a perception that such sales could occur, could adversely
affect the prevailing market price of the Common Stock. In addition, factors
such as variations in the Company's operating results or oil and gas prices,
announcements by the Company or others and developments affecting the Company,
the oil and gas industry or general market conditions could cause the market
price of the Common Stock to fluctuate significantly.

RESTRICTIONS ON PAYMENT OF DIVIDENDS AND DIVIDEND POLICY

The Company does not currently intend to pay regular cash dividends on the
Common Stock. This policy will be reviewed by the Board of Directors of the
Company from time to time in light of, among other things, the Company's
earnings and financial position and limitations imposed by the Company's debt
instruments.

ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK

The Company's Certificate of Incorporation, Bylaws, Senior Notes and
employee benefit plans contain provisions which may have the effect of delaying,
deferring or preventing a change in control of the Company. For example, the
Company's Certificate of Incorporation and Bylaws provide for, among other
things, a classified Board of Directors, the prohibition of stockholder action
by written consent and the affirmative vote of at least 66 2/3% of all
outstanding shares of Common Stock to approve the removal of directors from
office. The Company's Board of Directors has the authority to issue shares of
Preferred Stock in one or more series and to fix the rights and preferences of
the shares of any such series without stockholder approval. In addition, the
Board of Directors may issue certain rights ("Rights") pursuant to the rights
plan authorized by the Certificate of Incorporation. Any series of Preferred
Stock is likely to be senior to the Common Stock with respect to dividends,
liquidation rights and, possibly, voting. The ability to issue Preferred Stock
or Rights could have the effect of discouraging unsolicited acquisition
proposals. In addition, upon a Change of Control (as defined in the indentures),
each holder of Notes or Senior Notes may require the Company to purchase all or
a portion of such holder's Notes or Senior Notes at a purchase price equal to
101% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of purchase. The Company's employee stock option plans
contain provisions that allow for, among others, the acceleration of vesting or
payment of awards granted under such plan in the event of a "change of control,"
as defined in such plan. In addition, the Company has entered into employment
agreements with its Executive Vice President and two of its Senior Vice
Presidents allowing for cash payments under certain circumstances following a
change in control, as defined, of the Company.
<PAGE> 136

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

THE COMPANY

NOTES OFFERING

Concurrent with the Common Stock Offering, the Company is offering $150
million of % Senior Subordinated Notes due 2006 for sale to the public. The
consummation of the Common Stock Offering and the Notes Offering are not
contingent upon each other and there can be no assurance that the Notes Offering
will be consummated.

USE OF PROCEEDS

The Company will not receive any of the net proceeds from the sale of the
Common Stock offered hereby.
<PAGE> 137

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

CAPITALIZATION

The consolidated capitalization of the Company will not be affected by the
Common Stock Offering. The following table sets forth the consolidated
capitalization of the Company as of June 30, 1996, and as adjusted to give
effect to the Notes Offering and the application of the net proceeds therefrom
(assuming net proceeds of $ million) as described in "Notes Offering." The
information presented below should be read in conjunction with the consolidated
financial statements of the Company and notes thereto, "Selected Historical
Financial and Operating Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in or
incorporated by reference into this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving Credit Facility.......................................... $ 3,000 $ --
Senior Notes....................................................... 125,000 125,000
Notes.............................................................. -- 150,000
Other long-term debt............................................... 160 160
-------- --------
Total long-term debt....................................... 128,160 275,160
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding................................ -- --
Common stock, $.01 par value, 100,000,000 shares authorized,
19,555,223 shares issued and outstanding........................ 196 196
Additional paid-in capital......................................... 89,734 89,734
Retained earnings (deficit)........................................ (5,478) (5,478)
-------- --------
Total stockholders' equity................................. 84,452 84,452
-------- --------
Total capitalization....................................... $212,612 $359,612
======== ========
</TABLE>
<PAGE> 138

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Since March 25, 1996, the Company's Common Stock has traded on the NYSE
under the symbol "FNR." The following table represents the quarterly high and
low sales prices for the Common Stock on the NYSE since March 25, 1996 and,
during the prior periods indicated, the high and low bid quotations in the
over-the-counter market as quoted by the Nasdaq National Market since the shares
became publicly traded (which quotations reflect the inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions).

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1994
Fourth Quarter (beginning December 7, 1994).............................. $10 1/2 $8 3/4
1995
First Quarter............................................................ 12 3/8 9 1/4
Second Quarter........................................................... 13 3/4 11 1/4
Third Quarter............................................................ 12 3/4 10 1/2
Fourth Quarter........................................................... 14 1/2 11 1/4
1996
First Quarter............................................................ 18 7/8 13 3/4
Second Quarter........................................................... 33 3/4 18 1/8
Third Quarter (through August 15, 1996).................................. 37 1/2 29 3/4
</TABLE>

The last reported sale price of the Common Stock as reported on the
composite tape for issues listed on the NYSE on August 15, 1996, was $29 7/8 per
share. As of August 14, 1996, there were approximately 174 holders of record of
the Common Stock.

The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company expects that it will retain all available
earnings generated by the Company's operations for the development and growth of
its business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will depend
upon the Company's operating results, financial condition, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant. The Company's debt instruments include certain restrictions on
the payment of cash dividends on the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
<PAGE> 139

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

SELLING STOCKHOLDER

The shares of Common Stock being offered hereby are owned by William W.
Rucks, IV. (the "Selling Stockholder"). Mr. Rucks is Vice Chairman of the Board
of Directors and President of the Company. Mr. Rucks currently owns 3,463,010
shares of Common Stock and will sell 1,550,000 shares of Common Stock in the
Common Stock Offering (1,750,000 shares if the Underwriters' over-allotment
option is exercised in full). Upon completion of the Common Stock Offering, Mr.
Rucks will own 1,913,010 shares of Common Stock, representing approximately 9.8%
of the outstanding shares of Common Stock (1,713,010 shares, representing
approximately 8.8% of the outstanding shares of Common Stock if the
Underwriters' over-allotment option is exercised in full). Mr. Rucks has granted
to James C. Flores, the Chairman and Chief Executive Officer of the Company, (i)
the option to purchase 1,600,000 of Mr. Rucks' remaining shares for a period of
two years after the closing of the Common Stock Offering (which option may be
extended for an additional year upon payment of an extension fee), and (ii) an
irrevocable proxy to vote such 1,600,000 shares for the term of the
aforementioned option. Mr. Rucks will resign as President and Vice-Chairman of
the Board of Directors of the Company upon consummation of the Common Stock
Offering, but will continue to serve as a member of the Board of Directors.

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company, the Selling Stockholder and each
of the underwriters named below (the "Underwriters"), the Selling Stockholder
has agreed to sell to each of the Underwriters, and each of the Underwriters,
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Howard, Weil,
Labouisse, Friedrichs Incorporated and Petrie Parkman & Co., Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase, the
number of shares of Common Stock set forth below opposite their respective
names. The Underwriters are committed to purchase all of such shares if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Howard, Weil, Labouisse, Friedrichs Incorporated..................................
Petrie Parkman & Co., Inc.........................................................

---------
Total................................................................ 1,550,000
=========
</TABLE>

The Representatives have advised the Selling Stockholder that the
Underwriters propose to offer the shares of Common Stock to the public initially
at the public offering price set forth on the cover page of this Prospectus, and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share on sales to certain other dealers. After the public
offering, the public offering price, concession and discount may be changed.
<PAGE> 140

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

The Selling Stockholder has granted the Underwriters an option, exercisable
by the Representatives, to purchase up to 200,000 additional shares of Common
Stock initially at the public offering price, less the underwriting discount.
Such option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the
Representatives exercise such option, each of the Underwriters will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of the option shares that the number of shares to be purchased
initially by that Underwriter bears to the total number of shares to be
purchased initially by the Underwriters.

An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
Representative of the Underwriters in the Common Stock Offering, beneficially
owns an aggregate of 850,000 shares of Common Stock of the Company, constituting
approximately 4.3% of the outstanding shares of Common Stock. Some or all of the
market risk on such shares of Common Stock has been and may continue to be
hedged by offsetting contracts for the delivery of shares of Common Stock in the
future.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments the Underwriters may be required to
make in respect thereof.

The Company, Mr. Flores, Mr. Rucks and the Company's other directors have
agreed that they will not, without the prior written consent of Merrill Lynch &
Co., offer, sell or otherwise dispose of, any shares of Common Stock or any
securities convertible into shares of Common Stock, except for or upon the
exercise of currently outstanding options (except for the Common Stock Offering
and except for the over-allotment option granted to the Underwriters in the
Common Stock Offering) for a period of 90 days from the date of this Prospectus.
<PAGE> 141

[ALTERNATE PAGE FOR COMMON STOCK PROSPECTUS]

================================================================================

NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..........................
Risk Factors................................
The Company.................................
Notes Offering..............................
Use of Proceeds.............................
Capitalization..............................
Price Range of Common Stock and Dividend
Policy....................................
Selected Historical Financial and Operating
Data......................................
Unaudited Pro Forma Consolidated Financial
Statements................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................
Business and Properties.....................
Management..................................
Selling Stockholder.........................
Underwriting................................
Legal Matters...............................
Experts.....................................
Available Information.......................
Incorporation of Certain Documents by
Reference.................................
Glossary of Certain Oil and Gas Terms.......
Index to Financial Statements............... F-1
</TABLE>

================================================================================

1,550,000 SHARES

[FLORES & RUCKS, INC. LOGO]

FLORES & RUCKS, INC.

COMMON STOCK

---------------------------
PROSPECTUS
---------------------------

MERRILL LYNCH & CO.

HOWARD, WEIL,
LABOUISSE, FRIEDRICHS
INCORPORATED

PETRIE PARKMAN & CO.

, 1996

================================================================================
<PAGE> 142

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the NASD filing fee, the
amounts set forth below are estimates.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 69,829
NASD filing fee........................................................... 20,750
Printing and engraving costs.............................................. 225,000
Legal fees and expenses................................................... 150,000
Accounting fees and expenses.............................................. 35,000
Transfer Agent and Trustee fees and expenses.............................. 7,000
Blue Sky fees and expenses................................................ 20,000
Miscellaneous expenses.................................................... 222,421
--------
Total........................................................... $750,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith an in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.

Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding inferred to in subsections (a) and (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys; fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators; and empowers the
corporation to

II-1
<PAGE> 143

purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.

Section 7(d) of the Company's Certificate of Incorporation states that:

"A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended. Any repeal
or modification of this Section by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director of the Corporation existing at the
time of such repeal or modification.

Section 7(c) of the Company's Certificate of Incorporation and Article IX
of the Company's Bylaws further provides that the Company shall indemnify its
officers and directors to the fullest extent permitted by the General
Corporation Law of the State of Delaware. Pursuant to such provision, the
Company has entered into agreements with its officers and directors which
provide for indemnification of such persons.

Pursuant to the Purchase Agreement filed as Exhibit 1.1 hereto, the
Underwriters agree to indemnify, under certain conditions, the Company, its
officers and directors and persons who control the Company within the meaning of
the Securities Act against certain liabilities.

The Company maintains $15.0 million in insurance coverage providing
directors and officers with indemnification, subject to certain exclusions and
to the extent not otherwise indemnified by the Company, against loss (including
expenses incurred in the defense of actions, suits or proceeds in connection
therewith) arising from any negligent act, error, omission or breach of duty
while acting in their capacity as directors and officers of the Company. The
policies also reimburse the Company for liability incurred in the
indemnification of its directors and officers.

The Company has entered into indemnification agreements with its directors
and certain executive officers which provide for indemnification of such persons
to the fullest extent allowed by Delaware law.

II-2
<PAGE> 144

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. Exhibits

<TABLE>
<S> <C>
*1.1 -- Form of Notes Offering Purchase Agreement
*1.2 -- Form of Common Stock Offering Purchase Agreement
4.1 -- Form of Indenture among the Company, FRI Louisiana and Fleet National
Bank, as Trustee, relating to the % Senior Subordinated Notes
due 2006
*5.1 -- Opinion of Andrews & Kurth L.L.P., as to the legality of the
securities being registered
10.1 -- Purchase and Sale Agreement, dated July 10, 1996, between the Company
and Mobil Oil Exploration and Producing Southeast Inc.
12.1 -- Computation of Ratio of Earnings to Fixed Charges
12.2 -- Computation of Ratio of EBITDA to Interest Expense
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Netherland, Sewell & Associates, Inc.
23.4 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on signature page)
25.1 -- Statement of Eligibility of Trustee (filed under separate cover)
</TABLE>

- ---------------

* To be filed by amendment

All financial statements schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by its is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Act shall be deemed to be a part of the Registration
Statement as of the time it was declared effective.

(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE> 145

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BATON ROUGE, STATE OF LOUISIANA, ON THE 16TH DAY OF
AUGUST, 1996.

FLORES & RUCKS, INC., a Delaware
corporation

By: /s/ JAMES C. FLORES
------------------------------------
James C. Flores
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below appoints James C. Flores and
Robert K. Reeves and each of them, any of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents or any of them or their or
his substitute and substitutes, may lawfully do or cause to be done by virtue
hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND THE DATES INDICATED.

<TABLE>
<S> <C> <C>
/s/ JAMES C. FLORES Chairman of the Board of August 16, 1996
- --------------------------------------------- Directors and Chief Executive
James C. Flores Officer (Principal Executive
Officer)

/s/ WILLIAM W. RUCKS, IV Vice Chairman of the Board of August 16, 1996
- --------------------------------------------- Directors and President
William W. Rucks, IV

/s/ ROBERT L. BELK Senior Vice President, Chief August 16, 1996
- --------------------------------------------- Financial Officer and Director
Robert L. Belk (Principal Financial and
Accounting Officer)

/s/ RICHARD G. ZEPERNICK, JR. Executive Vice President, August 16, 1996
- --------------------------------------------- Chief Operating Officer and
Richard G. Zepernick, Jr. Director

/s/ DONALD W. CLAYTON Director August 16, 1996
- ---------------------------------------------
Donald W. Clayton

/s/ MILTON J. WOMACK Director August 16, 1996
- ---------------------------------------------
Milton J. Womack

/s/ CHARLES F. MITCHELL Director August 16, 1996
- ---------------------------------------------
Charles F. Mitchell
</TABLE>

II-4
<PAGE> 146

SIGNATURES

FLORES & RUCKS, INC., a Louisiana
corporation

By: /s/ JAMES C. FLORES
---------------------------------
James C. Flores
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND THE DATES INDICATED.

/s/ WILLIAM W. RUCKS, IV Vice Chairman of the Board of August 16, 1996
- --------------------------------------------- Directors and President
William W. Rucks, IV

/s/ ROBERT L. BELK Senior Vice President, Chief August 16, 1996
- --------------------------------------------- Financial Officer (Principal
Robert L. Belk Financial and Accounting
Officer)
</TABLE>

II-5
<PAGE> 147

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------- ------------
<S> <C> <C>
*1.1 -- Form of Notes Offering Purchase Agreement
*1.2 -- Form of Common Stock Offering Purchase Agreement
4.1 -- Form of Indenture among the Company, FRI Louisiana and Fleet National
Bank, as Trustee, relating to the % Senior Subordinated Notes
due 2006
*5.1 -- Opinion of Andrews & Kurth L.L.P., as to the legality of the
securities being registered
10.1 -- Purchase and Sale Agreement, dated July 10, 1996, between the Company
and Mobil Oil Exploration and Producing Southeast Inc.
12.1 -- Computation of Ratio of Earnings to Fixed Charges
12.2 -- Computation of Ratio of EBITDA to Interest Expense
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Netherland, Sewell & Associates, Inc.
23.4 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on signature page)
25.1 -- Statement of Eligibility of Trustee (filed under separate cover)
</TABLE>

- ---------------

* To be filed by amendment

<PAGE> 1
EXHIBIT 4.1

Draft of August 15, 1996

- --------------------------------------------------------------------------------

FLORES & RUCKS, INC.

SUBSIDIARY GUARANTORS

Named Herein

AND

FLEET NATIONAL BANK

Trustee

______________________

Indenture

Dated as of __________, 1996

______________________

$150,000,000

____% Senior Subordinated Notes due 2006

- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 1.3 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 29
Section 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE II - SECURITY FORMS
Section 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.2 Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.3 Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.4 Form of Notation Relating to Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . 37
Section 2.5 Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE III - THE SECURITIES
Section 3.1 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.3 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . 39
Section 3.4 Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.5 Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . 41
Section 3.6 Book-Entry Provisions for Global Security . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.7 Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . 43
Section 3.8 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . 44
Section 3.9 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.11 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

ARTICLE IV - SATISFACTION AND DISCHARGE
Section 4.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

ARTICLE V - REMEDIES
Section 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 5.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . 49
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . 51
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 5.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.5 Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . 52
Section 5.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.9 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.10 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.11 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.12 Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.13 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.14 Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . 54

ARTICLE VI - THE TRUSTEE
Section 6.1 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.2 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 6.3 Trustee Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . 56
Section 6.4 May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.5 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 6.6 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.7 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.8 Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.9 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . 57
Section 6.10 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.11 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . 59
Section 6.12 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . 59

ARTICLE VII - HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1 Disclosure of Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.2 Reports By Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 7.3 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

ARTICLE VIII - CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1 Company May Consolidate, etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . 61
Section 8.2 Successor Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

ARTICLE IX - SUPPLEMENTAL INDENTURES
Section 9.1 Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . 63
Section 9.2 Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 9.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 9.5 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 9.6 Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . 65
Section 9.7 Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

ARTICLE X - COVENANTS
Section 10.1 Payment of Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . 65
Section 10.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 10.3 Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . 66
Section 10.4 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.8 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.9 Provision of Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.10 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.11 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 10.12 Limitation on Guarantees of Indebtedness by Subsidiaries . . . . . . . . . . . . . . . . 72
Section 10.13 Limitation on Issuances and Sale of Capital Stock by
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.14 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.15 Purchase of Securities Upon Change of Control . . . . . . . . . . . . . . . . . . . . . . 73
Section 10.16 Disposition of Proceeds of Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 10.17 Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 78
Section 10.18 Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 10.19 Limitation on Other Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . 79
Section 10.20 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

ARTICLE XI - REDEMPTION OF SECURITIES
Section 11.1 Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.2 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.3 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 11.4 Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . 79
Section 11.5 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.6 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 11.7 Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 11.8 Securities Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>

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<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XII - DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1 Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . 81
Section 12.2 Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 12.3 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 12.4 Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . 82
Section 12.5 Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

ARTICLE XIII - GUARANTEES
Section 13.1 Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 13.2 Subsidiary Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . 86
Section 13.3 Release of a Subsidiary Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 13.4 Limitation of Subsidiary Guarantor's Liability . . . . . . . . . . . . . . . . . . . . . 87
Section 13.5 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 13.6 Execution and Delivery of Notation of Subsidiary Guarantee . . . . . . . . . . . . . . . 87
Section 13.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 13.8 Subsidiary Guarantees Subordinated to Guarantor Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 13.9 Subsidiary Guarantors Not to Make Payments with Respect to
Subsidiary Guarantees in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . 88
Section 13.10 Subsidiary Guarantees Subordinated to Prior Payment of All
Guarantor Senior Indebtedness upon Dissolution, etc . . . . . . . . . . . . . . . . . . . 89
Section 13.11 Holders to be Subrogated to Rights of Holders of Guarantor
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 13.12 Obligations of the Subsidiary Guarantors Unconditional . . . . . . . . . . . . . . . . . 91
Section 13.13 Trustee Entitled to Assume Payments Not Prohibited in Absence of
Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 13.14 Application by Trustee of Money Deposited with it . . . . . . . . . . . . . . . . . . . . 92
Section 13.15 Subordination Rights Not Impaired by Acts or Omissions of
Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness . . . . . . . . . . . . 92
Section 13.16 Holders Authorize Trustee to Effectuate Subordination of
Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 13.17 Right of Trustee to Hold Guarantor Senior Indebtedness . . . . . . . . . . . . . . . . . 93
Section 13.18 Article XIII Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . 93
Section 13.19 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

ARTICLE XIV - SUBORDINATION OF SECURITIES
Section 14.1 Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 93
Section 14.2 Payment Over of Proceeds upon Dissolution, etc. . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>

-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
Section 14.3 Suspension of Payment When Senior Indebtedness in Default. . . . . . . . . . . . . . . . 95
Section 14.4 Trustee's Relation to Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 96
Section 14.5 Subrogation to Rights of Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . 96
Section 14.6 Provisions Solely To Define Relative Rights. . . . . . . . . . . . . . . . . . . . . . . 97
Section 14.7 Trustee To Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 14.8 No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 14.9 Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . 99
Section 14.11 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 14.12 Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 14.13 No Suspension of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

ARTICLE XV - MISCELLANEOUS
Section 15.1 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 15.2 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 15.3 Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 15.4 Notices, etc. to Trustee, Company and Subsidiary Guarantors . . . . . . . . . . . . . . . 102
Section 15.5 Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.6 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.7 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.8 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.9 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.10 Governing Law; Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.11 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 15.12 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 15.13 Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 15.14 No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . 104
</TABLE>

NOTE: THIS TABLE OF CONTENTS SHALL NOT, FOR ANY PURPOSE, BE
DEEMED TO BE A PART OF THE INDENTURE.

-v-
<PAGE> 7
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of __________, 1996

<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7, 6.8
Section 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
Section 313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8(a)
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1
Section 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Section 316(a) (last
sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 ("Outstanding")
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2, 5.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3(d)
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10(b)
</TABLE>

Note: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture.

-vi-
<PAGE> 8
INDENTURE, dated as of ______________, 1996 between FLORES & RUCKS,
INC., a Delaware corporation (hereinafter called the "Company"), the SUBSIDIARY
GUARANTORS (as defined hereinafter) and FLEET NATIONAL BANK, trustee
(hereinafter called the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of ______%
Senior Subordinated Notes due 2006 (herein, as amended or supplemented from
time to time in accordance with the terms hereof, called the "Securities"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.

The Company owns beneficially and of record all of the equity
ownership of the outstanding Voting Stock of the initial Subsidiary Guarantor,
and the initial Subsidiary Guarantor is a member of the Company's consolidated
group of companies that are engaged in related businesses. The initial
Subsidiary Guarantor will derive direct and indirect benefit from the issuance
of the Securities; accordingly, the initial Subsidiary Guarantor has authorized
its guarantee of the Company's obligations under this Indenture and the
Securities, and to provide therefor the initial Subsidiary Guarantor has duly
authorized the execution and delivery of this Indenture.

This Indenture is subject to the provisions of the Trust Indenture Act
of 1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.

All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, to make the
Subsidiary Guarantee, when executed by the Subsidiary Guarantor, the valid
obligation of the Subsidiary Guarantor and to make this Indenture a valid
agreement of the Company, the Subsidiary Guarantor and the Trustee, in
accordance with their and its terms.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the
Securities (together with the related Subsidiary Guarantee) by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Securities (together with the related Subsidiary
Guarantee), as follows:

-1-
<PAGE> 9
ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 1.1 Definitions.

"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Asset Acquisition from such Person, (b) outstanding at the
time such Person becomes a Subsidiary of any other Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such Person becoming such a Subsidiary) or (c) any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this clause, a "refinancing") by the Company of any Indebtedness described in
clause (a) or (b) of this definition, including any successive refinancings, so
long as (i) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of
the date of determination) so refinanced plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus the
amount of expenses of the Company incurred in connection with such refinancing,
and (ii) in the case of any refinancing of Subordinated Indebtedness, such new
Indebtedness is made subordinate to the Securities at least to the same extent
as the Indebtedness being refinanced and (iii) such new Indebtedness has an
Average Life longer than the Average Life of the Securities and a final Stated
Maturity later than the final Stated Maturity of the Securities.

"Act," when used with respect to any Holder, has the meaning specified
in Section 15.3.

-2-
<PAGE> 10
revisions, in each case calculated in accordance with SEC guidelines (utilizing
the prices utilized in such year-end reserve report); provided that, in the
case of each of the determinations made pursuant to clauses (A) through (D),
such increases and decreases shall be as estimated by the Company's petroleum
engineers, unless in the event that there is a Material Change as a result of
such acquisitions, dispositions or revisions, then the discounted future net
revenues utilized for purposes of this clause (a)(i) shall be confirmed in
writing by a nationally recognized firm of independent petroleum engineers,
(ii) the capitalized costs that are attributable to oil and gas properties of
the Company and its Restricted Subsidiaries to which no proved oil and gas
reserves are attributable, based on the Company's books and records as of a
date no earlier than the date of the Company's latest annual or quarterly
financial statements, (iii) the Net Working Capital on a date no earlier than
the date of the Company's latest annual or quarterly financial statements and
(iv) the greater of (I) the net book value on a date no earlier than the date
of the Company's latest annual or quarterly financial statements or (II) the
appraised value, as estimated by independent appraisers, of other tangible
assets (including, without duplication, Investments in unconsolidated
Restricted Subsidiaries) of the Company and its Restricted Subsidiaries, as of
the date no earlier than the date of the Company's latest audited financial
statements, minus (b) the sum of (i) minority interests, (ii) any gas balancing
liabilities of the Company and its Restricted Subsidiaries reflected in the
Company's latest audited financial statements, (iii) to the extent included in
(a)(i) above, the discounted future net revenues, calculated in accordance with
SEC guidelines (utilizing the prices utilized in the Company's year-end reserve
report), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments on the schedules
specified with respect thereto and (iv) the discounted future net revenues,
calculated in accordance with SEC guidelines, attributable to reserves subject
to Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted future
net revenues specified in (a)(i) above, would be necessary to fully satisfy the
payment obligations of the Company and its Restricted Subsidiaries with respect
to Dollar-Denominated Production Payments on the schedules specified with
respect thereto. If the Company changes its method of accounting from the full
cost method to the successful efforts method or a similar method of accounting,
"Adjusted Consolidated Net Tangible Assets" will continue to be calculated as
if the Company was still using the full cost method of accounting.

"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean
the amount by which the fair value of the Properties of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Subsidiary Guarantee, of such Subsidiary Guarantor at
such date.

-3-
<PAGE> 11
"controlled" have meanings correlative to the foregoing. For purposes of this
definition, beneficial ownership of 10% or more of the voting common equity (on
a fully diluted basis) or options or warrants to purchase such equity (but only
if exercisable at the date of determination or within 60 days thereof) of a
Person shall be deemed to constitute control of such Person.

"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or any Restricted Subsidiary shall be merged
with or into the Company or any other Restricted Subsidiary or (b) the
acquisition by the Company or any Restricted Subsidiary of the Properties of
any Person which constitute all or substantially all of the Properties of such
Person or any division or line of business of such Person.

"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a Sale/Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes
of this definition, a "transfer"), directly or indirectly, in one or a series
of related transactions, of (a) any Capital Stock of any Restricted Subsidiary
held by the Company or any Restricted Subsidiary; (b) all or substantially all
of the Properties of any division or line of business of the Company or any of
its Restricted Subsidiaries; or (c) any other Properties of the Company or any
of its Restricted Subsidiaries other than a disposition of hydrocarbons or
other mineral products in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include (i) any transfer of
Properties which is governed by, and made in accordance with, the provisions of
Article VIII hereof; (ii) any transfer of Properties to an Unrestricted
Subsidiary, if permitted under Section 10.10 hereof; (iii) any trade or
exchange by the Company or any Restricted Subsidiary of oil and gas Properties
(other than Properties constituting all or substantially all of the Original
Properties) for other oil and gas Properties owned or held by another Person,
provided that (x) the Fair Market Value of the Properties traded or exchanged
by the Company or such Restricted Subsidiary (including any cash or Cash
Equivalents, not to exceed 15% of such Fair Market Value, to be delivered by
the Company or such Restricted Subsidiary) is reasonably equivalent to the Fair
Market Value of the Properties (together with any cash or Cash Equivalents, not
to exceed 15% of such Fair Market Value) to be received by the Company or such
Restricted Subsidiary as determined in good faith by (i) any officer of the
Company if such fair market value is less than $5 million and (ii) the Board of
Directors of the Company as certified by a certified resolution delivered to
the Trustee if such fair market value is equal to or in excess of $5 million;
provided that if such resolution indicates that such fair market value is equal
to or in excess of $10 million such resolution shall be accompanied by a
written appraisal by a nationally recognized investment banking firm or
appraisal firm, in each case specializing or having a specialty in oil and gas
Properties, and (y) such exchange is approved by a majority of the
Disinterested Directors of the Company; or (iv) any transfer of Properties
having a Fair Market Value of less than $2,000,000.

-4-
<PAGE> 12
during the primary term thereof, without giving effect to any renewals at the
option of the lessee, discounted from the respective due dates thereof to such
date of determination at the rate of interest per annum implicit in the terms
of the lease. As used in the preceding sentence, the "net amount of rent"
under any lease for any such period shall mean the sum of rental and other
payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease which is terminable by the lessee
upon payment of a penalty, such net amount of rent shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.

"Average Life" means, with respect to any Indebtedness, as at any date
of determination, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years (and any portion thereof) from the date of
determination to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.

"Bank Agent" means _______________________________ or any successor or
replacement agent under the Credit Agreement.

"Board of Directors" means, with respect to the Company, either the
board of directors of the Company or any duly authorized committee of such
board of directors, and, with respect to any Restricted Subsidiary, either the
board of directors of such Restricted Subsidiary or any duly authorized
committee of that board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
its Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee, and with respect to a Restricted
Subsidiary, a copy of a resolution certified by the Secretary or an Assistant
Secretary of such Restricted Subsidiary to have been duly adopted by its Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, The City of New York, New York are authorized or obligated by law or
executive order to close.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents in the equity
interests (however designated) in such Person, and any rights (other than debt
securities convertible into an equity interest), warrants or options
exercisable for, exchangeable for or convertible into such an equity interest
in such Person.

-5-
<PAGE> 13
"Capitalized Lease Obligation" means any obligation to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
any Property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP, and, for
the purpose of this Indenture, the amount of such obligation at any date shall
be the capitalized amount thereof at such date, determined in accordance with
GAAP.

"Cash Equivalents" means (i) any evidence of Indebtedness with a
maturity of 365 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 365 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
that is not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and rated at least A-1
by S&P or at least P-1 by Moody's; (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; and (v) overnight bank deposits and
bankers' acceptances at any commercial bank meeting the qualifications
specified in clause (ii) above.

"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the F&R Interests, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total Voting Stock of the Company; (b)
the Company is merged with or into or consolidated with another Person and,
immediately after giving effect to the merger or consolidation, (A) less than
50% of the total voting power of the outstanding Voting Stock of the surviving
or resulting Person is then "beneficially owned" (within the meaning of Rule
13d-3 under the Exchange Act) in the aggregate by (x) the stockholders of the
Company immediately prior to such merger or consolidation, or (y) if a record
date has been set to determine the stockholders of the Company entitled to vote
on such merger or consolidation, the stockholders of the Company as of such
record date and (B) any "person" or "group" (as defined in Section 13(d)(3) or
14(d)(2) of the Exchange Act), other than the F&R Interests, has become the
direct or indirect "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the total voting power of the Voting Stock of
the surviving or resulting Person; (c) the Company, either individually or in
conjunction with one or more Restricted Subsidiaries, sells, conveys, transfers
or leases, or the Restricted Subsidiaries sell, convey, transfer or lease, all
or substantially all of the Properties of the Company and the Restricted
Subsidiaries, taken as a whole (either in one transaction or a series of
related transactions), including Capital Stock of the Restricted Subsidiaries,
to any Person (other than the Company or a Wholly Owned Restricted Subsidiary);
(d) during any consecutive two-year period, individuals who at the beginning of
such

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<PAGE> 14
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3%
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (e) the liquidation or
dissolution of the Company.

"Code" shall mean the Internal Revenue Code of 1986, as amended, as
now or hereafter in effect, together with all regulations, rulings and
interpretations thereof or thereunder issued by the Internal Revenue Service.

"Commission" or "SEC" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.

"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.

"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.

-7-
<PAGE> 15
by the amount of any repayment of Indebtedness under a revolving credit
facility during the applicable period, which repayment permanently reduced the
commitments or amounts available to be reborrowed under such facility, (iii)
notwithstanding clauses (i) and (ii) of this proviso, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, shall be deemed to
have accrued at the rate per annum resulting after giving effect to the
operation of such agreements and (iv) in making such calculation, Consolidated
Interest Expense shall exclude interest attributable to Dollar-Denominated
Production Payments.

"Consolidated Income Tax Expense" means, for any period, the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP.

"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (i) the interest expense of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis
in accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, in each case to the extent attributable
to such period, (ii) to the extent any Indebtedness of any Person (other than
the Company or a Restricted Subsidiary) is guaranteed by the Company or any
Restricted Subsidiary, the aggregate amount of interest paid or accrued by such
other Person during such period attributable to any such Indebtedness, in each
case to the extent attributable to that period, (iii) the aggregate amount of
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with
GAAP and (iv) the aggregate amount of dividends paid or accrued on Redeemable
Capital Stock or Preferred Stock of the Company and its Restricted
Subsidiaries, to the extent such Redeemable Capital Stock or Preferred Stock is
owned by Persons other than Restricted Subsidiaries.

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<PAGE> 16
net income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary is
not at the date of determination permitted, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (f) income resulting from transfers
of assets received by the Company or any Restricted Subsidiary from an
Unrestricted Subsidiary and (g) any writedowns of non-current assets, provided,
however, that any ceiling limitation writedowns under SEC guidelines shall be
treated as capitalized costs, as if such writedowns had not occurred.

"Consolidated Net Worth" means, at any date, the consolidated
stockholders' equity of the Company less the amount of such stockholders'
equity attributable to Redeemable Capital Stock or treasury stock of the
Company and its Restricted Subsidiaries, as determined in accordance with GAAP.

"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the
Company and its Restricted Subsidiaries reducing Consolidated Net Income for
such period, determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge which requires an accrual of or reserve for
cash charges for any future period).

"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 777 Main Street, Hartford, CT 06115, Attention: Corporate Trust
Administration, except that with respect to presentation of Securities for
payment or for registration of transfer or exchange, such term shall mean the
office or agency of the Trustee at which, at any particular time, its corporate
agency business shall be conducted.

"Credit Agreement" means the Credit Agreement dated as of December 7,
1994 among the Company and The Chase Manhattan Bank, N.A., as Agent, as such
agreement may be amended, modified, supplemented, extended, restated, replaced
(including replacement after the termination of such agreement), restructured,
increased, renewed or refinanced from time to time in one or more credit
agreements, loan agreements, instruments or similar agreements, as such may be
further amended, modified, supplemented, extended, restated, replaced
(including replacement after the termination of such agreement), restructured,
increased, renewed or refinanced from time to time, in each case in accordance
with and as permitted by the Indenture.

"Credit Agreement Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, from time to time owed to
the lenders or any agent under or in respect of the Credit Agreement.

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

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<PAGE> 17
"Defaulted Interest" has the meaning specified in Section 3.8 hereof.

"Depository" means The Depository Trust Company, its nominees and
their respective successors.

"Designated Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, (i) all Guarantor Senior Indebtedness of such Subsidiary
Guarantor under the Credit Agreement Obligations, (ii) all Guarantor Senior
Indebtedness of such Subsidiary Guarantor under the Senior Note Obligations and
(iii) any other Guarantor Senior Indebtedness which (a) at the time of
incurrence equals or exceeds $10,000,000 in aggregate principal amount and (b)
is specifically designated by such Subsidiary Guarantor in the instrument
evidencing such Guarantor Senior Indebtedness as "Designated Guarantor Senior
Indebtedness" for purposes of this Indenture.

"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Credit Agreement Obligations (ii) all Senior Indebtedness under the
Senior Note Obligations and (iii) any other Senior Indebtedness which (a) at
the time of incurrence equals or exceeds $10,000,000 in aggregate principal
amount and (b) is specifically designated by the Company in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" for
purpose of this Indenture.

"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors of the
Company is required to deliver a Board Resolution hereunder, a member of the
Board of Directors of the Company who does not have any material direct or
indirect financial interest (other than an interest arising solely from the
beneficial ownership of Capital Stock of the Company) in or with respect to
such transaction or series of transactions.

"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules, regulations, rulings and
interpretations thereof issued by the Internal Revenue Service or the
Department of Labor thereunder.

"ERISA Affiliate" shall mean any subsidiary or trade or business
(whether or not incorporated) which is a member of a group of which the Company
is a member and which is under common control within the meaning of Section 414
of the Code (such rules and regulations shall also be deemed to apply to
foreign corporations and entities).

"Event of Default" has the meaning specified in Section 5.1 hereof.

"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor act thereto.

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<PAGE> 18
"Fair Market Value" means the fair market value of a Property
(including shares of Capital Stock) or Redeemable Capital Stock as determined
by a Board Resolution of the Company adopted in good faith, which determination
shall be conclusive for purposes of this Indenture; provided, however, that
unless otherwise specified herein, the Board of Directors shall be under no
obligation to obtain any valuation or assessment from any investment banker,
appraiser or other third party.

"Federal Bankruptcy Code" means the United States Bankruptcy Code of
Title 11 of the United States Code, as amended from time to time.

"F&R Interests" means, collectively, William W. Rucks, IV and James C.
Flores, together with their respective spouses, lineal descendants and
ascendents, heirs, executors or other legal representatives and any trusts
established for the benefit of the foregoing, or any other Person in which the
Persons referred to in the foregoing are at the time of determination the
direct record and beneficial owners of all of the outstanding Capital Stock.

"Guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. When used as a verb,
"guarantee" shall have a corresponding meaning.

"Guarantor" means any Restricted Subsidiary that incurs a Subsidiary
Guarantee.

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<PAGE> 19
Title 11 United States Code, is by its terms without recourse to such
Subsidiary Guarantor, (iv) any repurchase, redemption or other obligation in
respect of Redeemable Capital Stock of such Subsidiary Guarantor, (v) to the
extent it might constitute Indebtedness, any liability for federal, state,
local or other taxes owed or owing by such Subsidiary Guarantor, (vi)
Indebtedness of such Subsidiary Guarantor to the Company or any of the
Company's other Subsidiaries or any other Affiliate of the Company or any of
such Affiliate's Subsidiaries, and (vii) that portion of any Indebtedness of
such Subsidiary Guarantor which at the time of issuance is issued in violation
of the Indenture (but, as to any such Indebtedness, no such violation shall be
deemed to exist for purposes of this clause (vii) if the holder(s) of such
Indebtedness or their representative or such Subsidiary Guarantor shall have
furnished to the Trustee an opinion of counsel unqualified in all material
respects of independent legal counsel, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon a certificate of such Subsidiary
Guarantor) to the effect that the incurrence of such Indebtedness does not
violate the provisions of such Indenture); provided that the foregoing
exclusions shall not affect the priorities of any Indebtedness arising solely
by operation of law in any case or proceeding or similar event described in
clause (a), (b) or (c) of the first paragraph of Section 14.2 hereof.

"Holder" means a Person in whose name a Security is registered in the
Security Register.

"Indebtedness" means, with respect to any Person, without duplication,
(i) all liabilities of such Person for borrowed money or for the deferred
purchase price of Property or services, excluding any trade accounts payable
and other accrued current liabilities incurred in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit, bankers'
acceptance or other similar credit transaction and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (b) all obligations of such Person evidenced
by bonds, notes, debentures or other similar instruments, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (c) all Indebtedness of such
Person created or arising under any conditional sale or other title retention
agreement with respect to Property acquired by such Person (even if the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such Property), but excluding
trade accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such Person, (e) the Attributable Indebtedness
(in excess of any related Capitalized Lease Obligations) related to any
Sale/Leaseback Transaction of such Person, (f) all Indebtedness referred to in
the preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien upon
Property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such Property or the amount of the obligation so
secured), (g) all guarantees by such Person of

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<PAGE> 20
Indebtedness referred to in this definition (including, with respect to any
Production Payment, any warranties or guaranties of production or payment by
such Person with respect to such Production Payment but excluding other
contractual obligations of such Person with respect to such Production
Payment), (h) all Redeemable Capital Stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
dividends, (i) all obligations of such Person under or in respect of currency
exchange contracts and Interest Rate Protection Obligations and (j) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of such Person of the types referred to in clauses (a) through
(i) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such
price is based upon, or measured by, the Fair Market Value of such Redeemable
Capital Stock, such Fair Market Value shall be determined in good faith by the
board of directors of the issuer of such Redeemable Capital Stock, provided,
however, that if such Redeemable Capital Stock is not at the date of
determination permitted or required to be repurchased, the "maximum fixed
repurchase price" shall be the book value of such Redeemable Capital Stock.
Subject to clause (g) of the first sentence of this definition, neither
Dollar-Denominated Production Payments nor Volumetric Production Payments shall
be deemed to be Indebtedness.

"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.

"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.

"Interest Rate Protection Obligations" means the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
Person calculated by applying a fixed or a floating rate of interest on the
same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements or arrangements designed to
protect against or manage such Person's and any of its Subsidiaries' exposure
to fluctuations in interest rates.

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<PAGE> 21
an "Investment" made by the Company in such Unrestricted Subsidiary at such
time. "Investments" shall exclude (a) extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices, (b)
Interest Rate Protection Obligations entered into in the ordinary course of
business or as required by any Permitted Indebtedness or any Indebtedness
incurred in compliance with Section 10.11 hereof, but only to the extent that
the notional principal amount of such Interest Rate Protection Obligations does
not exceed 105% of the principal amount of such Indebtedness to which such
Interest Rate Protection Obligations relate and (c) bonds, notes, debentures or
other securities received as a result of Asset Sales permitted under Section
10.16 hereof.

"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (a) an insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization proceeding or other similar case or
proceeding, relative to such Person or to its creditors, as such, or its
assets, or (b) any liquidation, dissolution or reorganization proceeding of
such Person, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any general assignment for the benefit of
creditors or any other marshalling of assets and liabilities of such Person.

"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing) upon or with respect to any Property of any kind. A Person
shall be deemed to own subject to a Lien any Property which such Person has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.

"Material Change" means an increase or decrease (excluding changes
that result solely from changes in prices) of more than 10% during a fiscal
quarter in the estimated discounted future net cash flows from proved oil and
gas reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (a)(i) of the definition of Adjusted Consolidated Net
Tangible Assets; provided, however, that the following will be excluded from
the calculation of Material Change: (i) any acquisitions during the quarter of
oil and gas reserves that have been estimated by a nationally recognized firm
of independent petroleum engineers and on which a report or reports exist and
(ii) any disposition of Properties existing at the beginning of such quarter
that have been disposed of as provided in Section 10.16 hereof.

"Maturity" means, with respect to any Security, the date on which any
principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.

"Moody's" means Moody's Investors Service, Inc. and its successors.

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<PAGE> 22
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37) of ERISA
(or any similar type of plan established or regulated under the laws of any
foreign country) to which the Company or any ERISA Affiliate is making or
accruing or has made or accrued an obligation to make contributions.

"Multiple Employer Plan" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan, subject
to Title IV of ERISA, to which the Company or any ERISA Affiliate and an
employer other than an ERISA Affiliate or the Company contribute and which is
subject to Section 4064 of ERISA.

"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the Property subject to the Asset
Sale and (iv) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP consistently applied against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.

"Net Working Capital" means (i) all current assets of the Company and
its Restricted Subsidiaries, minus (ii) all current liabilities of the Company
and its Restricted Subsidiaries, except current liabilities included in
Indebtedness, in each case as set forth in financial statements of the Company
prepared in accordance with GAAP.

"Non-payment Default" means, for purposes of Article XIV hereof, any
event (other than a Payment Default) the occurrence of which entitles one or
more persons to act to accelerate the maturity of any Designated Senior
Indebtedness.

"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of the Company incurred in connection with the acquisition by the
Company of any Property and as to which (a) the holders of such Indebtedness
agree that they will look solely to the Property so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness and (b) no
default with respect to such Indebtedness would permit (after notice or passage
of time or both), according to the terms thereof, any holder of any
Indebtedness of the Company or a Restricted

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<PAGE> 23
Subsidiary to declare a default on such Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity.

"Officer" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer or the
Treasurer of such Person.

"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.

"Oil and Gas Business" means (i) the acquisition, exploration,
development, operation and disposition of interests in oil, gas and other
hydrocarbon Properties, (ii) the gathering, marketing, treating, processing,
storage, refining, selling and transporting of any production from such
interests or Properties, (iii) any business relating to or arising from
exploration for or development, production, treatment, processing, storage,
refining, transportation or marketing of oil, gas and other minerals and
products produced in association therewith, and (iv) any activity necessary,
appropriate or incidental to the activities described in the foregoing clauses
(i) through (iii) of this definition.

"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company (or any Subsidiary Guarantor, if applicable), including
an employee of the Company (or any Subsidiary Guarantor, if applicable), and
who shall be reasonably acceptable to the Trustee.

"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:

(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;

(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Securities; provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been
made;

(iii) Securities, except to the extent provided in Sections
12.2 and 12.3 hereof, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article XII
hereof; and

(iv) Securities which have been paid pursuant to Section
3.7 hereof or in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture,
other than any such Securities in respect of which there shall have
been presented

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<PAGE> 24
to the Trustee proof satisfactory to it that such Securities are held
by a bona fide purchaser in whose hands the Securities are valid
obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities
owned by the Company, any Subsidiary Guarantor, or any other obligor upon the
Securities or any Affiliate of the Company, any Subsidiary Guarantor, or such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, consent, notice or waiver, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect
to such Securities and that the pledgee is not the Company, any Subsidiary
Guarantor, or any other obligor upon the Securities or any Affiliate of the
Company, any Subsidiary Guarantor, or such other obligor.

"Pari Passu Indebtedness" means any Indebtedness of the Company that
is pari passu in right of payment to the Securities.

"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium,
if any, on) or interest on any Securities on behalf of the Company.

"Payment Default" means any default in the payment when due (whether
at Stated Maturity, upon scheduled repayment, upon acceleration or otherwise)
of principal of or premium, if any, or interest on, or of unreimbursed amounts
under drawn letter of credit or fees relating to letter of credit constituting,
any Designated Senior Indebtedness.

"PBGC" shall mean the Pension Benefit Guaranty Corporation.

"PBGC Plan" shall mean any employee pension benefit plan as defined in
Section 3(2) of ERISA sponsored by the Company or an ERISA Affiliate (excluding
any Multiemployer Plan and any Multiple Employer Plan) and which is subject to
Title IV of ERISA or Section 412 of the Code.

"Permitted Guarantor Junior Securities" means with respect to any
Subsidiary Guarantor, so long as the effect of any exclusion employing this
definition is not to cause such Subsidiary Guarantee to be treated in any case
or proceeding or similar event described in clause (a), (b) or (c) of Section
14.2 hereof as part of the same class of claims as Guarantor Senior
Indebtedness of such Subsidiary Guarantor or any class of claims pari passu
with, or senior to, Guarantor Senior Indebtedness of such Subsidiary Guarantor,
for any payment or distribution, debt or equity securities of such Subsidiary
Guarantor or any successor corporation provided for or by a plan of
reorganization or readjustment that are subordinated at least to the same
extent that such Subsidiary

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<PAGE> 25
Guarantee is subordinated to the payment of all Guarantor Senior Indebtedness
of such Subsidiary Guarantor when outstanding; provided that (i) if a new
corporation results from such reorganization or readjustment, such corporation
assumes any Guarantor Senior Indebtedness of such Subsidiary Guarantor not paid
in full in cash or cash equivalents in connection with such reorganization or
readjustment and (ii) the rights of the holders of such Guarantor Senior
Indebtedness are not, without the consent of such holders, altered by such
reorganization or readjustment.

"Permitted Indebtedness" means any of the following:

(i) Indebtedness of the Company under one or more bank
credit or revolving credit facilities in an aggregate principal amount
at any one time outstanding not to exceed the greater of (A) $100
million and (B) an amount equal to the sum of (x) $30 million and (y)
20% of Adjusted Consolidated Net Tangible Assets determined as of the
date of the incurrence of such Indebtedness (such greater amount being
referred to as the "Adjusted Maximum Credit Amount") (plus interest
and fees payable under such facilities), less any amounts derived from
Asset Sales and applied to the required permanent reduction of Senior
Indebtedness (and a permanent reduction of the related commitment to
lend in the case of a revolving credit facility) under such credit
facilities as contemplated by Section 10.17(b)(i) hereof (the "Maximum
Credit Amount") (with the Maximum Credit Amount to be an aggregate
maximum amount for the Company and all Restricted Subsidiaries,
pursuant to clause (i) of the definition of "Permitted Subsidiary
Indebtedness"), and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancings or replacements (each, for
purposes of this clause, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company, so long
as the aggregate principal amount of any such new Indebtedness,
together with the aggregate principal amount of all other Indebtedness
outstanding pursuant to this clause (i) (and clause (i) of the
definition of "Permitted Subsidiary Indebtedness") shall not at any
one time exceed the Maximum Credit Amount;

(ii) Indebtedness of the Company under the Securities;

(iii) Indebtedness of the Company outstanding on the date
of this Indenture (and not repaid or defeased with the proceeds of the
offering of the Securities and the concurrent offering of Common Stock
by the Company);

(iv) obligations of the Company pursuant to Interest Rate
Protection Obligations, but only to the extent such obligations do not
exceed the aggregate principal amount of the Indebtedness covered by
such Interest Rate Protection Obligations; obligations under currency
exchange contracts entered into in the ordinary course of business;
and hedging arrangements that the Company enters into in the ordinary
course of business for the purpose of protecting its production
against fluctuations in oil or natural gas prices;

(v) Indebtedness of the Company to any Restricted
Subsidiaries;

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<PAGE> 26
(vi) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;

(vii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including guarantees
and letters of credit supporting such bid, performance, surety or
other reimbursement obligations (in each case other than for an
obligation for money borrowed);

(viii) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing")
by the Company of any Indebtedness of the Company other than
Indebtedness incurred pursuant to clauses (iv), (vii) and (viii) of
this definition, including any successive refinancings by the Company,
so long as (A) any such new Indebtedness shall be in a principal
amount that does not exceed the principal amount (or, if such
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus the amount of expenses of the Company incurred in connection with
such refinancing, (B) in the case of any refinancing of Subordinated
Indebtedness, such new Indebtedness is made subordinate to the
Securities at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life equal to
or longer than the Average Life of the Indebtedness being refinanced
and a final Stated Maturity equal to or later than the final Stated
Maturity of the Indebtedness being refinanced;

(ix) Non-Recourse Indebtedness; and

(x) other Indebtedness of the Company and the Restricted
Subsidiaries that are Subsidiary Guarantors in an aggregate principal
amount not in excess of $25,000,000 at any one time outstanding.

"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its Restricted
Subsidiaries; (iii) Investments in an amount not to exceed $10,000,000 at any
one time outstanding; (iv) Investments by the Company or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (A) such
other Person becomes a Restricted Subsidiary of the Company; or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or a Restricted Subsidiary; (v)
entry into operating agreements, joint ventures, partnership agreements,
working interests, royalty interests, mineral leases, processing agreements,
farm-out agreements, contracts for the sale, transportation or exchange of oil
and natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures

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<PAGE> 27
in connection therewith or pursuant thereto, in each case made or entered into
in the ordinary course of the Oil and Gas Business, excluding, however,
Investments in corporations; or (vi) entry into any hedging arrangements in the
ordinary course of business for the purpose of protecting the Company's or any
Restricted Subsidiary's production against fluctuations in oil or natural gas
prices.

"Permitted Junior Securities" means, so long as the effect of any
exclusion employing this definition is not to cause the Securities to be
treated in any case or proceeding or similar event described in clause (a), (b)
or (c) of Section 14.2 hereof as part of the same class of claims as Senior
Indebtedness or any class of claims pari passu with, or senior to, Senior
Indebtedness, for any payment or distribution, debt or equity securities of the
Company or any successor corporation provided for or by a plan of
reorganization or readjustment that are subordinated at least to the same
extent that the Securities are subordinated to the payment of all Senior
Indebtedness when outstanding; provided that (i) if a new corporation results
from such reorganization or readjustment, such corporation assumes any Senior
Indebtedness not paid in full in cash or cash equivalents in connection with
such reorganization or readjustment and (ii) the rights of the holders of such
Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment.

"Permitted Liens" means the following types of Liens:

(a) Liens existing as of the date the Securities are
first issued;

(b) Liens securing the Securities;

(d) Liens securing Senior Indebtedness or Guarantor
Senior Indebtedness;

(e) Liens for taxes, assessments and governmental charges
or claims either (i) not delinquent or (ii) contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;

(f) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made in respect thereof;

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<PAGE> 28
obligations, surety and appeal bonds, bids, leases, government
contracts and leases, performance and return of money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money but including lessee or operator obligations under
statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on
state, Federal or foreign lands or waters);

(h) judgment Liens not giving rise to an Event of Default
so long as 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;

(i) easements, rights-of-way, restrictions and other
similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;

(j) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease;

(k) Liens resulting from the deposit of funds or
evidences of Indebtedness in trust for the purpose of defeasing
Indebtedness of the Company or any of the Subsidiaries;

(l) Liens securing obligations under hedging agreements
that the Company or any Restricted Subsidiary enters into in the
ordinary course of business for the purpose of protecting its
production against fluctuations in oil or natural gas prices;

(m) Liens upon specific items of inventory or other goods
and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;

(n) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and other
Property relating to such letters of credit and products and proceeds
thereof;

(o) Liens encumbering Property under construction arising
from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such Property;

(p) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries,
including rights of offset and set-off;

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<PAGE> 29
(q) Liens securing Interest Rate Protection Obligations
which Interest Rate Protection Obligations relate to Indebtedness that
is secured by Liens otherwise permitted under this Indenture;

(r) Liens on, or related to, Properties to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof;

(s) Liens on pipeline or pipeline facilities which arise
out of operation of law;

(t) Liens arising under operating agreements, joint
venture agreements, 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 and other agreements which are customary in the Oil and Gas
Business;

(u) Liens reserved in oil and gas mineral leases for
bonus or rental payments and for compliance with the terms of such
leases;

(v) Liens constituting survey exceptions, encumbrances,
easements or reservations of, or rights to others for, rights-of-way,
zoning or other restrictions as to the use of real properties, and
minor defects of title which, in the case of any of the foregoing,
were not incurred or created to secure the payment of borrowed money
or the deferred purchase price of Property or services, and in the
aggregate do not materially adversely affect the value of Property of
the Company and the Restricted Subsidiaries, taken as a whole, or
materially impair the use of such Properties for the purposes of which
such Properties are held by the Company or any Restricted
Subsidiaries; and

(w) Liens securing Non-Recourse Indebtedness; provided,
however, that the related Non-Recourse Indebtedness shall not be
secured by any Property of the Company or any Restricted Subsidiary
other than the Property acquired by the Company with the proceeds of
such Non-Recourse Indebtedness;

Notwithstanding anything in clauses (a) through (w) of this definition, the
term "Permitted Liens" does not include any Liens resulting from the creation,
incurrence, issuance, assumption or guarantee of any Production Payments other
than Production Payments that are created, incurred, issued, assumed or
guaranteed in connection with the financing of, and within 30 days after, the
acquisition of the Properties that are subject thereto.

"Permitted Subsidiary Indebtedness" means any of the following:

(i) Indebtedness of any Restricted Subsidiary under one
or more bank credit or revolving credit facilities (and "refinancings"
thereof) in an amount at any one time

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<PAGE> 30
outstanding not to exceed the Maximum Credit Amount (in the aggregate
for all Restricted Subsidiaries and the Company, pursuant to clause
(i) of the definition of "Permitted Indebtedness");

(ii) Indebtedness of any Restricted Subsidiary outstanding
on the date of this Indenture;

(iii) obligations of any Restricted Subsidiary pursuant to
Interest Rate Protection Obligations, but only to the extent such
obligations do not exceed the aggregate principal amount of the
Indebtedness covered by such Interest Rate Protection Obligations; and
hedging arrangements that any Restricted Subsidiary enters into in the
ordinary course of business for the purpose of protecting its
production against fluctuations in oil or natural gas prices;

(iv) the Subsidiary Guarantees of the Securities and
Senior Notes (and any assumptions of the obligations guaranteed
thereby);

(v) Indebtedness of any Restricted Subsidiary relating to
guarantees by such Restricted Subsidiary of the Indebtedness of the
Company under any bank credit facility that constitutes Permitted
Indebtedness pursuant to clause (i) of the definition of "Permitted
Indebtedness;"

(vi) in-kind obligations relating to net gas balancing
positions arising in the ordinary course of business and consistent
with past practice;

(vii) Indebtedness in respect of bid, performance or surety
bonds issued for the account of any Restricted Subsidiary in the
ordinary course of business, including guarantees and letters of
credit supporting such bid, performance, surety or other reimbursement
obligations (in each case other than for an obligation for money
borrowed);

(viii) Indebtedness of any Restricted Subsidiary to any
other Restricted Subsidiary or to the Company;

(ix) Indebtedness relating to guarantees of any Restricted
Subsidiary permitted to be incurred pursuant to Section 10.12 hereof;
and

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<PAGE> 31
the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or
the amount of any premium reasonably determined by such Restricted
Subsidiary as necessary to accomplish such refinancing, plus the
amount of expenses of such Subsidiary incurred in connection with such
refinancing and (y) such new Indebtedness has an Average Life equal to
or longer than the Average Life of the Indebtedness being refinanced
and a final Stated Maturity equal to or later than the final Stated
Maturity of the Indebtedness being refinanced.

"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.7 hereof in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.

"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the date of this Indenture, including, without limitation, all classes
and series or preferred or preference stock of such Person.

"Production Payments" means, collectively, Dollar-Denominated
Production Payments and Volumetric Production Payments.

"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person.

"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.

"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final Stated Maturity of the Securities or is redeemable at the
option of the holder thereof at any time prior to such final Stated Maturity,
or is convertible into or exchangeable for debt securities at any time prior to
such final Stated Maturity.

"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.

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<PAGE> 32
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.

"Regular Record Date" for the interest payable on any Interest Payment
Date means the _________________ or ____________________ (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.

"Reportable Event" shall mean any event described in Section 4043
(excluding subsections (b)(7) and (b)(9)) of ERISA and the regulations issued
thereunder (other than a Reportable Event not subject to the provision for
thirty-day notice to the PBGC under such regulations).

"Responsible Officer," when used with respect to the Trustee, means
any officer in the Corporate Trust Administration Department of the Trustee,
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.

"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of this Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as an Unrestricted
Subsidiary pursuant to the terms of this Indenture.

"S&P" means Standard and Poor's Corporation and its successors.

"Sale/Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Properties are sold or
transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.

"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and
delivered under this Indenture.

"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5 hereof.

"Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Senior Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is by its terms
without recourse to the Company, (d) any repurchase, redemption or other
obligation in respect of Redeemable Capital Stock of the Company,

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<PAGE> 33
(e) to the extent it might constitute Indebtedness, any liability for federal,
state, local or other taxes owed or owing by the Company, (f) Indebtedness of
the Company to a Subsidiary of the Company or any other Affiliate of the
Company or any of such Affiliate's Subsidiaries, and (g) that portion of any
Indebtedness of the Company which at the time of issuance is issued in
violation of the Indenture (but, as to any such Indebtedness, no such violation
shall be deemed to exist for purposes of this clause (g) if the holder(s) of
such Indebtedness or their representative or the Company shall have furnished
to the Trustee an opinion of counsel unqualified in all material respects of
independent legal counsel, addressed to the Trustee (which legal counsel may,
as to matters of fact, rely upon a certificate of the Company) to the effect
that the incurrence of such Indebtedness does not violate the provisions of
such Indenture); provided that the foregoing exclusions shall not affect the
priorities of any Indebtedness arising solely by operation of law in any case
or proceeding or similar event described in clause (a), (b) or (c) of the first
paragraph of Section 14.2 hereof.

"Senior Note Obligations" means all monetary obligations of every
nature of the Company or a Restricted Subsidiary, including without limitation,
obligations to pay principal and interest, fees, expenses and indemnities, from
time to time owed to the holders or the trustee in respect of the Senior Notes.

"Senior Representative" means the Bank Agent or any other
representatives designated in writing to the Trustee of the holders of any
class or issue of Designated Senior Indebtedness; provided that, in the absence
of a representative of the type described above, any holder or holders of a
majority of the principal amount outstanding of any class or issue of
Designated Senior Indebtedness may collectively act as Senior Representative
for such class or issue, subject to the provisions of any agreements relating
to such Designated Senior Indebtedness.

"Senior Subordinated Note Obligations" means any principal of,
premium, if any, and interest on, and any other amounts (including, without
limitation, any payment obligations with respect to the Securities as a result
of any Asset Sale, Change of Control or redemption) owing in respect of, the
Securities payable pursuant to the terms of the Securities or the Indenture or
upon acceleration of the Securities.

"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.8 hereof.

"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable, and, when used with respect to any other
Indebtedness or any installment of interest thereon, means the date specified
in the instrument

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<PAGE> 34
evidencing or governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest is due and
payable.

"Subordinated Indebtedness" means Indebtedness of the Company which is
expressly subordinated in right of payment to the Securities.

"Subsidiary Guarantee" has the meaning specified in Section 13.1
hereof.

"Subsidiary Guarantor" means (i) Flores & Rucks, Inc., a Louisiana
corporation, (ii) each of the Company's Restricted Subsidiaries that becomes a
guarantor of the Securities in compliance with the provisions of Section 10.12
or Section 13.1 hereof and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of this Indenture and to guarantee on an unsubordinated basis the payment of
the Securities pursuant to the provisions of Article XIII hereof.

"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and in force at the date as of which this Indenture was executed,
except as provided in Section 9.5 hereof.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.

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<PAGE> 35
Lien on any of the Properties of the Company or any Restricted Subsidiary
(other than any Permitted Lien or any Lien the creation or imposition of which
shall have been in compliance with Section 10.14 hereof); provided, however,
that with respect to clause (a), the Company or a Restricted Subsidiary may be
liable for Indebtedness of an Unrestricted Subsidiary if (x) such liability
constituted a Permitted Investment or a Restricted Payment permitted by Section
10.10 hereof, in each case at the time of incurrence, or (y) the liability
would be a Permitted Investment at the time of designation of such Subsidiary
as an Unrestricted Subsidiary. Any such designation by the Board of Directors
of the Company shall be evidenced to the Trustee by filing a Board Resolution
with the Trustee giving effect to such designation. The Board of Directors of
the Company may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if, immediately after giving effect to such designation, (i) no
Default or Event of Default shall have occurred and be continuing, (ii) the
Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under Section 10.11(a) hereof and (iii)
if any of the Properties of the Company or any of its Restricted Subsidiaries
would upon such designation become subject to any Lien (other than a Permitted
Lien), the creation or imposition of such Lien shall have been in compliance
with Section 10.14 hereof.

"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".

"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.

"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock
of any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).

"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
to the extent all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company.

Section 1.2 Other Definitions.

<TABLE>
<CAPTION>
Defined
Term in Section
<S> <C>
"Agent Members . . . . . . . . . . . . . 3.6
"Change of Control Notice" . . . . . . . 10.15(c)
"Change of Control Offer" . . . . . . . . 10.15(a)
</TABLE>

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<PAGE> 36
<TABLE>
<S> <C>
"Change of Control Purchase Date" . . . . 10.15(c)
"Change of Control Purchase Price" . . . 10.15(a)
"Defaulted Interest" . . . . . . . . . . 3.8
"Global Security" . . . . . . . . . . . . 2.1
"Funding Guarantor" . . . . . . . . . . . 13.5
"Excess Proceeds" . . . . . . . . . . . . 10.16(b)
"Net Proceeds Deficiency" . . . . . . . . 10.16(c)
"Net Proceeds Offer" . . . . . . . . . . 10.16(c)
"Net Proceeds Payment Date" . . . . . . . 10.16(c)
"Offered Price" . . . . . . . . . . . . . 10.16(c)
"Pari Passu Indebtedness Amount" . . . . 10.16(c)
"Pari Passu Offer" . . . . . . . . . . . 10.16(c)
"Payment Amount" . . . . . . . . . . . . 10.16(b)
"Payment Blockage Period" . . . . . . . 14.3(b)
"Physical Securities" . . . . . . . . . . 2.1
"Permitted Payments" . . . . . . . . . . 10.10(b)
"Purchase Notice" . . . . . . . . . . . . 10.16(c)
"Restricted Payment" . . . . . . . . . . 10.10(a)
"Subsidiary Guarantor Non-payment Default" 13.9(b)
"Subsidiary Guarantor Payment Default" . 13.9(a)
"Subsidiary Guarantor Payment Notice" . . 13.9(b)
"Surviving Entity" . . . . . . . . . . . 8.1(a)
"Trigger Date" . . . . . . . . . . . . . 10.16(c)
"U.S. Government Obligations" . . . . . . 12.4(a)
</TABLE>

Section 1.3 Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:

"indenture securities" means the Securities,

"indenture security holder" means a Holder,

"indenture to be qualified" means this Indenture,

"indenture trustee" or "institutional trustee" means the
Trustee, and

"obligor" on the indenture securities means the Company or any
other obligor on the Securities.

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<PAGE> 37
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.

Section 1.4 Rules of Construction. For all purposes of
this Indenture, except as otherwise expressly provided or unless the context
otherwise requires:

(a) The terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;

(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;

(c) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;

(d) unless the context otherwise requires, the word "or"
is not exclusive;

(e) provisions apply to successive events and
transactions; and

(f) references to agreements and other instruments
include subsequent amendments and waivers but only to the extent not prohibited
by this Indenture.

ARTICLE II

SECURITY FORMS

Section 2.1 Forms Generally. The definitive Securities
shall be printed, lithographed or engraved on steel-engraved borders or may be
produced in any other manner, all as determined by the officers executing such
Securities or notations of Subsidiary Guarantees, as the case may be, as
evidenced by their execution of such Securities or notations of Subsidiary
Guarantees, as the case may be.

Securities (including the notations thereon relating to the
Subsidiary Guarantees and the Trustees certificate of authentication) bought
and sold shall be issued initially in the form of one or more permanent global
Securities substantially in the form set forth in Sections 2.2 through 2.5
hereof (the "Global Security") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. Subject to the limitation set forth in Section 3.1, the
principal amount of the Global Securities may be increased or decreased from
time to time by adjustments made on the records of the Trustee as custodian for
the Depository, as hereinafter provided.

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<PAGE> 38
Securities (including the notations thereon relating to the
Subsidiary Guarantees and the Trustees certificate of authentication) offered
and sold other than as described in the preceding paragraph shall be issued in
the form of permanent certificated Securities in registered form in
substantially the for set forth in Sections 2.2 through 2.5 hereto ("Physical
Securities").

The Securities, the notations thereon relating to the
Subsidiary Guarantees and the Trustee's certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities
or notations of Subsidiary Guarantees, as the case may be, as evidenced by
their execution of the Securities or notations of Subsidiary Guarantees, as the
case may be. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security. In addition to the requirements of Section 2.3, the Securities may
also have set forth on the reverse side thereof a form of assignment and forms
to elect purchase by the Company pursuant to Sections 10.15 and 10.16 hereof.

Section 2.2 Form of Face of Security.

FLORES & RUCKS, INC.

_____% Senior Subordinated Note due 2006

No. _____ $__________
CUSIP No. 34039C AA 5

Flores & Rucks, Inc., a Delaware corporation (herein called
the "Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________________ or registered assigns the principal sum of
_______________ Dollars on ________________, 2006, at the office or agency of
the Company referred to below, and to pay interest thereon, commencing on
_____________, 1997 and continuing semiannually thereafter, on ___________ and
_____________ in each year, from _____________, 1996, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of ____% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand interest on any
overdue interest at the rate borne by the Securities from the date on which
such overdue interest becomes payable to the date payment of such interest has
been made or duly provided for. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will, as provided in such
Indenture, be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the __________ or _________
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for shall forthwith cease

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<PAGE> 39
to be payable to the Holder on such Regular Record Date, and such defaulted
interest, and (to the extent lawful) interest on such defaulted interest at the
rate borne by the Securities, may be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in said
Indenture.

Payment of the principal of (and premium, if any, on) and
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided however, that payment
of interest may be made at the option of the Company (i) by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Security Register or (ii) with respect to any Holder owning Securities in the
principal amount of $500,000 or more, by wire transfer to an account maintained
by the Holder located in the United States, as specified in a written notice to
the Trustee by any such Holder requesting payment by wire transfer and
specifying the account to which transfer is requested.

Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.

FLORES & RUCKS, INC.

By:
-----------------------------------
Chairman of the Board

Attest:

- ------------------------
Secretary

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<PAGE> 40
Section 2.3 Form of Reverse of Security. This Security
is one of a duly authorized issue of securities of the Company designated as
its _____% Senior Notes due 2006 (herein called the "Securities"), limited
(except as otherwise provided in the Indenture referred to below) in aggregate
principal amount to $150,000,000, which may be issued under an indenture
(herein called the "Indenture") dated as of ____________, 1996 between the
Company, the Subsidiary Guarantors and Fleet National Bank, as trustee (herein
called the "Trustee," which term includes any successor trustee under the
Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Subsidiary Guarantors, the Trustee and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be, authenticated and
delivered.

The Indebtedness evidenced by the Securities is, to the extent
and in the manner provided in the Indenture, subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture) and this Security is issued subject to such provisions. Each
Holder of this Security, by accepting the same, (i) agrees to and shall be
bound by such provisions, (ii) authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (iii) appoints the Trustee as
his attorney-in-fact for such purpose.

The Securities are subject to redemption, at the option of the
Company, in whole or in part, at any time on or after __________, 2001, upon
not less than 30 or more than 60 days' notice at the following Redemption
Prices (expressed as percentages of principal amount) set forth below if
redeemed during the 12-month period beginning _________ of the years indicated
below:

<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . ______%
2002 . . . . . . . . . . . . . . . . . . ______%
2003 . . . . . . . . . . . . . . . . . . ______%
2004 and thereafter . . . . . . . . . . ______%
</TABLE>

together in the case of any such redemption with accrued and unpaid interest,
if any, to the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), all as provided in the
Indenture.

In the case of any redemption of Securities, interest
installments whose Stated Maturity is on or prior to the Redemption Date will
be payable to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant Record Date
referred to on the face hereof. Securities (or portions thereof) for whose
redemption and payment provision is made in accordance with the Indenture shall
cease to bear interest from and after the Redemption Date. In the event of
redemption or purchase of this Security in part only, a new

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<PAGE> 41
Security or Securities for the unredeemed or unpurchased portion hereof shall
be issued in the name of the Holder hereof upon the cancellation hereof.

The Securities do not have the benefit of any sinking fund
obligations.

In the event of a Change of Control of the Company, and
subject to certain conditions and limitations provided in the Indenture, the
Company will be obligated to make an offer to purchase, on a Business Day not
more than 70 or less than 30 days following the occurrence of a Change of
Control of the Company, all of the then outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest to the Change of Control Purchase Date, all as provided in the
Indenture.

In the event of Asset Sales, under certain circumstances, the
Company will be obligated to make a Net Proceeds Offer to purchase all or a
specified portion of each Holder's Securities at a purchase price equal to 100%
of the principal amount of the Securities, together with accrued and unpaid
interest to the Net Proceeds Payment Date.

As set forth in the Indenture, an Event of Default is
generally (i) failure to pay principal upon maturity, redemption or otherwise
(including pursuant to a Change of Control Offer or a Net Proceeds Offer; (ii)
default for 30 days in payment of interest on any of the Securities; (iii)
default in the performance of agreements relating to mergers, consolidations
and sales of all or substantially all assets or the failure to make or
consummate a Change of Control Offer or a Net Proceeds Offer; (iv) failure for
30 days after notice to comply with any other covenants in the Indenture or the
Securities; (v) certain payment defaults under, the acceleration prior to the
maturity of, and the exercise of certain enforcement rights with respect to,
certain Indebtedness of the Company or any Subsidiary Guarantor in an aggregate
principal amount in excess of $5,000,000; (vi) the failure of any Subsidiary
Guarantee to be in full force and effect or otherwise to be enforceable (except
as permitted by the Indenture); (vii) certain events giving rise to ERISA
liability; (viii) certain final judgments against any Subsidiary Guarantor or
other Restricted Subsidiary in an aggregate amount of $5,000,000 or more which
remain unsatisfied and either become subject to commencement or enforcement
proceedings or remain unstayed for a period of 60 days; and (ix) certain events
of bankruptcy, insolvency or reorganization of the Company, any Subsidiary
Guarantor or any other Restricted Subsidiary. If any Event of Default occurs
and is continuing, the Trustee or the holders of at least 25% in aggregate
principal amount of the Outstanding Securities may declare the principal amount
of all the Securities to be due and payable immediately, except that (i) in the
case of an Event of Default arising from certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary, the
principal amount of the Securities will become due and payable immediately
without further action or notice, and (ii) in the case of an Event of Default
which relates to certain payment defaults, acceleration or the exercise of
certain enforcement rights with respect to certain Indebtedness, any
acceleration of the Securities will be automatically rescinded if any such
Indebtedness is repaid or if the default relating to such Indebtedness is cured
or waived and if the holders thereof have accelerated such Indebtedness then
such holders have rescinded their declaration of acceleration or if in certain
circumstances the

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proceedings or enforcement action with respect to the Indebtedness that is the
subject of such Event of Default is terminated or rescinded. No Holder may
pursue any remedy under the Indenture unless the Trustee shall have failed to
act after notice of an Event of Default and written request by Holders of at
least 25% in principal amount of the Outstanding Securities, and the offer to
the Trustee of indemnity reasonably satisfactory to it; however, such provision
does not affect the right to sue for enforcement of any overdue payment on a
Security by the Holder thereof. Subject to certain limitations, Holders of a
majority in principal amount of the Outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except default in payment of
principal, premium or interest) if it determines in good faith that withholding
the notice is in the interest of the Holders. The Company is required to file
quarterly reports with the Trustee as to the absence or existence of defaults.

The Indenture contains provisions for defeasance at any time
of (i) the entire indebtedness of the Company on this Security and (ii) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Security.

The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the Subsidiary Guarantors and the rights of the
Holders under the Indenture at any time by the Company, the Subsidiary
Guarantors and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by or on behalf of the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent or waiver is
made upon this Security. Without the consent of any Holder, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated Securities
and to make certain other specified changes and other changes that do not
adversely affect the rights of any Holder.

No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any, on) and interest on this Security at the times, place, and
rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registerable on
the Security Register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose in The City of New York, duly endorsed by, or accompanied by a
written instrument of

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transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.

The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
the Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.

No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

A director, officer, incorporator, or stockholder of the
Company or any Subsidiary Guarantor, as such, shall not have any personal
liability under this Security or the Indenture by reason of his or its status
as such director, officer, incorporator or stockholder. Each Holder, by
accepting this Security with the notation of Subsidiary Guarantee endorsed
hereon, waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of this Security with the notation
of Subsidiary Guarantee endorsed hereon.

Prior to the time of due presentment of this Security for
registration of transfer, the Company, the Subsidiary Guarantors, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
this Security is registered as the owner hereof for all purposes, whether or
not this Security is overdue, and neither the Company, the Subsidiary
Guarantors, the Trustee nor any agent shall be affected by notice to the
contrary.

All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. The
Company will furnish to any Holder upon written request and without charge a
copy of the Indenture. Requests may be made to the Company at 8440 Jefferson
Highway., Suite 420, Baton Rouge, Louisiana 70809.

Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities as a convenience to the Holders
thereof. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identifying information printed hereon.

This Security shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts of law
principles.

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Section 2.4 Form of Notation Relating to Subsidiary
Guarantees. The form of notation to be set forth on each Security relating to
the Subsidiary Guarantees shall be in substantially the following form:

SUBSIDIARY GUARANTEE

Subject to the limitations set forth in the Indenture, the
Subsidiary Guarantors (as defined in the Indenture referred to in the Security
upon which this notation is endorsed and each hereinafter referred to as a
"Subsidiary Guarantor," which term includes any successor or additional
Subsidiary Guarantor under the Indenture) have, jointly and severally,
unconditionally guaranteed (a) the due and punctual payment of the principal
(and premium, if any) of and interest on the Securities, whether at maturity,
acceleration, redemption or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest on the Securities, if any, to
the extent lawful, (c) the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee, all in accordance
with the terms set forth in the Indenture, and (d) in case of any extension of
time of payment or renewal of any Securities or any of such other obligations,
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at Stated Maturity, by
acceleration or otherwise. Capitalized terms used herein shall have the
meanings assigned to them in the Indenture unless otherwise indicated.

The obligations of each Subsidiary Guarantor are limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities and after giving effect to any collections from or payments
made by or on behalf of any other Subsidiary Guarantor in respect of the
obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee
or pursuant to its contribution obligations under the Indenture, result in the
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution
under a Subsidiary Guarantee shall be entitled to a contribution from each
other Subsidiary Guarantor in a pro rata amount based on the Adjusted Net
Assets of each Subsidiary Guarantor.

The obligations of the Subsidiary Guarantors to the Holders or
the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly subordinate to all Guarantor Senior Indebtedness to the extent set
forth in Article XIII of the Indenture and reference is made to such Indenture
for the precise terms of such subordination.

No stockholder, officer, director or incorporator, as such,
past, present or future, of the Subsidiary Guarantors shall have any personal
liability under the Subsidiary Guarantee by reason of his or its status as such
stockholder, officer, director or incorporator.

Any Subsidiary Guarantor may be released from its Subsidiary
Guarantee upon the terms and subject to the conditions provided in the
Indenture.

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All terms used in this notation of Subsidiary Guarantee which
are defined in the Indenture referred to in this Security upon which this
notation of Subsidiary Guarantee is endorsed shall have the meanings assigned
to them in such Indenture.

The Subsidiary Guarantee shall be binding upon each Subsidiary
Guarantor and its successors and assigns and shall inure to the benefit of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof and in the
Indenture.

The Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Security upon which
this Subsidiary Guarantee is noted shall have been executed by the Trustee
under the Indenture by the manual signature of one of its authorized officers.

FLORES & RUCKS, INC.

Attest: By:
------------------------- -----------------------------------
Secretary President

Section 2.5 Form of Trustee's Certificate of
Authentication. The Trustee's certificate of authentication shall be in
substantially the following form:

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the ____% Senior Subordinated Notes due 2006
referred to in the within-mentioned Indenture.

Authenticated:

Dated:
---------------------- ---------------------------------------
Trustee

By:
-----------------------------------
Authorized Officer

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<PAGE> 46
ARTICLE III

THE SECURITIES

Section 3.1 Title and Terms. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is limited to $______________ except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 3.4, 3.5, 3.6, 3.7, 9.6, 10.15, 10.16 or
11.8 hereof.

The Securities shall be known and designated as the "____%
Senior Subordinated Notes Due 2006" of the Company. Their Stated Maturity
shall be __________, 2006, and they shall bear interest at the rate of ____%
per annum from ____________, 1996, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, payable semiannually
on ________ and _________ in each year, commencing ________, 1997, and at said
Stated Maturity, until the principal thereof is paid or duly provided for.

The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose; provided, however, that, at
the option of the Company, interest may be paid (i) by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Security Register, or (ii) with respect to any Holder owning Securities in the
principal amount of $500,000 or more, by wire transfer to an account maintained
by the Holder located in the United States, as specified in a written notice to
the Trustee by any such Holder requesting payment by wire transfer and
specifying the account to which transfer is requested.

The Securities shall be redeemable as provided in Article XI
hereof.

The Securities shall be subject to defeasance at the option of
the Company as provided in Article XII hereof.

The Securities shall be guaranteed by the Subsidiary
Guarantors as provided in Article XIII hereof.

The Securities shall be subordinated in right of payment to
Senior Indebtedness as provided in Article XIV hereof.

Section 3.2 Denominations. The Securities shall be
issuable only in registered form without coupons and only in denominations of
$1,000 and any integral multiple thereof.

Section 3.3 Execution, Authentication, Delivery and
Dating. The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President of the Company, under its corporate
seal reproduced thereon and attested by its Secretary or an Assistant Secretary
of the Company. The signature of any of these officers on the Securities may
be manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities.

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Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company and having the notation of Subsidiary Guarantees executed by the
Subsidiary Guarantors to the Trustee for authentication, together with a
Company Order for the authentication and delivery of such Securities, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities with the notation of Subsidiary Guarantees thereon as provided
in this Indenture.

Each Security shall be dated the date of its authentication.

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

In case the Company, pursuant to and in compliance with
Article VIII hereof, shall be consolidated or merged with or into any other
Person or shall convey, transfer, lease or otherwise dispose of its Properties
substantially as an entirety to any Person, and the successor Person resulting
from such consolidation, or surviving such merger, or into which the Company
shall have been merged, or the Person which shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article VIII hereof,
any of the Securities authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to
time, at the request of the successor Person, be exchanged for other Securities
executed in the name of the successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in substance of like tenor as the
Securities surrendered for such exchange and of like principal amount; and the
Trustee, upon Company Request of the successor Person, shall authenticate and
deliver Securities as specified in such request for the purpose of such
exchange. If Securities shall at any time be authenticated and delivered in
any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Securities, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Securities at the time Outstanding for
Securities authenticated and delivered in such new name.

Section 3.4 Temporary Securities. Pending the
preparation of definitive Securities, the Company may execute, and upon Company
Order the Trustee shall authenticate and deliver, temporary Securities which
are printed, lithographed, typewritten, mimeographed or otherwise produced, in
any authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and having the notations of
Subsidiary Guarantees thereon and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities
and notations of Subsidiary Guarantees may determine, as conclusively evidenced
by their execution of such Securities and notations of Subsidiary Guarantees.

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If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.2 hereof, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Securities of authorized denominations
having notations of Subsidiary Guarantees thereon. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.

Section 3.5 Registration, Registration of Transfer and
Exchange. The Company shall cause to be kept at the Corporate Trust Office a
register (the register maintained in such office and in any other office or
agency designated pursuant to Section 10.2 hereof being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be
in written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times and during normal business
hours, the Security Register shall be open to inspection by the Trustee. The
Trustee is hereby initially appointed as security registrar (the "Security
Registrar") for the purpose of registering Securities and transfers of
Securities as herein provided.

Upon surrender for registration of transfer of any Security at
the office or agency of the Company designated pursuant to Section 10.2 hereof,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Securities of any authorized denomination or denominations of a like aggregate
principal amount, each such Security having notation of the Subsidiary
Guarantees thereon.

Furthermore, any Holder of the Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interest
in such Global Security may be effected only through a book-entry system
maintained by the Holder of such Global Security (or its agent), and that
ownership of a beneficial interest in the Security shall be required to be
reflected in a book entry.

At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denomination and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, the Subsidiary Guarantors shall execute notations of
Subsidiary Guarantees on, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.

All Securities and the Subsidiary Guarantees noted thereon
issued upon any registration of transfer or exchange of Securities shall be the
valid obligations of the Company and the respective Subsidiary Guarantors,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.

Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied

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by a written instrument of transfer, in form satisfactory to the Company and
the Security Registrar, duly executed by the Holder thereof or his attorney
duly authorized in writing.

No service charge shall be made for any registration of
transfer or exchange or redemption of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 3.4, 9.6 or 11.8 hereof
not involving any transfer.

Neither the Trustee, the Security Registrar nor the Company
shall be required (i) to issue, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days before
the mailing of a notice of redemption of Securities selected for redemption
under Section 11.4 hereof and ending at the close of business on the day of
such mailing of the relevant notice of redemption, or (ii) to register the
transfer of or exchange any Security so selected for redemption in whole or in
part, except the unredeemed portion of any Security being redeemed in part.

Section 3.6 Book-Entry Provisions for Global Security.

(a) The Global Security initially shall be registered in
the name of the Depository for such Global Security or the nominee of such
Depository and be delivered to the Trustee as custodian for such Depository.

Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository, or the Trustee as its
custodian, or under the Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or shall impair, as between the Depository and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.

(b) Transfers of the Global Security shall be limited to
transfers of such Global Security in whole, but not in part, to the Depository,
its successors or their respective nominees. Interests of beneficial owners in
the Global Security may be transferred in accordance with the rules and
procedures of the Depository. Physical Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in the Global
Security if, and only if, either (1) the Depository notifies the Company that
it is unwilling or unable to continue as Depository for the Global Security and
a successor Depository is not appointed by the Company within 90 days of such
notice, (2) an Event of Default has occurred and is continuing and the Security
Registrar has received a request from the Depository to issue Physical
Securities in lieu of all or a portion of the Global Security (in which case
the Company shall deliver Physical Securities within 30 days of such request)
or (3) the Company determines not to have the Securities represented by a
Global Security.

(c) In connection with any transfer of a portion of the
beneficial interest in the Global Security to beneficial owners pursuant to
subsection (b) of this Section, the Registrar shall

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reflect on its books and records the date and a decrease in the principal
amount of the Global Security in an amount equal to the principal amount of the
beneficial interest in the Global Security to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Physical Securities of like tenor and amount.

(d) In connection with the transfer of the entire Global
Security to beneficial owners pursuant to subsection (b) of this Section, the
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depository in exchange
for its beneficial interest in the Global Security, an equal aggregate
principal amount of Physical Securities of authorized denominations.

(e) The registered holder of the Global Security may
grant proxies and otherwise authorize any person, including Agent Members and
persons that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Securities.

Section 3.7 Mutilated, Destroyed, Lost and Stolen
Securities. If (i) any mutilated Security is surrendered to the Trustee or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Company or
the Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute, the Subsidiary Guarantors shall execute the notations of
Subsidiary Guarantees, and upon Company Order the Trustee shall authenticate
and deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, having the notations of Subsidiary Guarantees thereon bearing a number
not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

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

The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.

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Section 3.8 Payment of Interest; Interest Rights
Preserved. Interest on any Security which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest at the office or agency of the Company maintained for such purpose
pursuant to Section 10.2 hereof.

Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by
virtue of having been such Holder, and such defaulted interest and (to the
extent lawful) interest on such defaulted interest at the rate borne by the
Securities (such defaulted interest and interest thereon herein collectively
called "Defaulted Interest") may be paid by the Company, at its election in
each case, as provided in clause (a) or (b) below:

(a) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited shall be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date, and
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given in the manner provided for in Section 15.5 hereof, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been so given, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following clause (b).

(b) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

Section 3.9 Persons Deemed Owners. Prior to the due
presentment of a Security for registration of transfer, the Company, the
Subsidiary Guarantors, the Security Registrar, the

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Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and
premium, if any, on) and (subject to Section 3.8 hereof) interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and none of the Company, the Subsidiary Guarantors, the Security
Registrar, the Trustee or any agent of the Company, the Subsidiary Guarantors
or the Trustee shall be affected by notice to the contrary.

Section 3.10 Cancellation. All Securities surrendered for
payment, redemption, registration of transfer or exchange shall, if surrendered
to any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be destroyed and
a certificate of their destruction delivered to the Company unless by a Company
Order the Company shall direct that cancelled Securities be returned to it.

Section 3.11 Computation of Interest. Interest on the
Securities shall be computed on the basis of a 360-day year comprised of twelve
30-day months.

ARTICLE IV

SATISFACTION AND DISCHARGE

Section 4.1 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect (except
as to surviving rights of registration of transfer or exchange of Securities,
as expressly provided for in this Indenture) as to all outstanding Securities,
and the Trustee, at the expense of the Company, shall, upon payment of all
amounts due the Trustee under Section 6.6 hereof, execute proper instruments
acknowledging satisfaction and discharge of this Indenture when

(a) either

(1) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
mutilated, destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.7 hereof and (ii)
Securities for whose payment money or United States
governmental obligations of the type described in clause (i)
of the definition of Cash Equivalents has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 10.3 hereof) have been delivered to the
Trustee for cancellation, or

(2) all such Securities not theretofore delivered
to the Trustee for cancellation

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(i) have become due and payable, or

(ii) will become due and payable at their
Stated Maturity within one year, or

(iii) are to be called for redemption
within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the
Company,

and the Company, in the case of (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, together with
instructions from the Company irrevocably directing the
Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; and

(b) the Company has paid or caused to be paid all
other sums payable hereunder by the Company.

(c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each
satisfactory in form to the Trustee, which, taken together,
state that all conditions precedent herein relating to the
satisfaction and discharge of this Indenture have been
complied with.

Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 6.6
hereof and, if money shall have been deposited with the Trustee pursuant to
subclause (ii) of clause (1) of this Section, the obligations of the Trustee
under Section 4.2 hereof and the last paragraph of Section 10.3 hereof shall
survive.

Section 4.2 Application of Trust Money. Subject to the
provisions of the last paragraph of Section 10.3 hereof, all money deposited
with the Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.

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ARTICLE V

REMEDIES

Section 5.1 Events of Default. "Event of Default,"
wherever used herein, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

(a) default in the payment of the principal of or
premium, if any, on any of the Securities, whether such payment is due at
maturity, upon redemption, upon repurchase pursuant to a Change of Control
Offer or a Net Proceeds Offer, upon acceleration or otherwise; or

(b) default in the payment of any installment of interest
on any of the Securities, when it becomes due and payable, and the continuance
of such default for a period of 30 days; or

(c) default in the performance or breach of the
provisions of Article VIII hereof, the failure to make or consummate a Change
in Control Offer in accordance with the provisions of Section 10.15 or the
failure to make or consummate a Net Proceeds Offer in accordance with the
provisions of Section 10.16; or

(d) the Company or any Subsidiary Guarantor in this
Indenture shall fail to perform or observe any other term, covenant or
agreement contained in the Securities, any Subsidiary Guarantee or this
Indenture (other than a default specified in (a), (b) or (c) above) for a
period of 30 days after written notice of such failure requiring the Company to
remedy the same shall have been given (x) to the Company by the Trustee or (y)
to the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Securities then Outstanding; or

(e) the occurrence and continuation beyond any applicable
grace period of any default in the payment of the principal of (or premium, if
any, on) or interest on any Indebtedness of the Company (other than the
Securities) or any Subsidiary Guarantor or any other Restricted Subsidiary for
money borrowed when due, or any other default causing acceleration of any
Indebtedness of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary for money borrowed, provided, that the aggregate principal amount of
such Indebtedness shall exceed $5,000,000; or

(f) the commencement of proceedings, or the taking of any
enforcement action (including by way of set-off), by any holder of at least
$5,000,000 in aggregate principal amount of Indebtedness of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary, after a default under
such Indebtedness, to retain in satisfaction of such Indebtedness or to collect
or seize, dispose of or apply in satisfaction of such Indebtedness, Property or
assets of the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary having a Fair Market Value in excess of $5,000,000 individually or
in the aggregate; or

(g) any Subsidiary Guarantee shall for any reason cease
to be, or be asserted by the Company or any Subsidiary Guarantor, as
applicable, not to be, in full force and effect,

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enforceable in accordance with its terms (except pursuant to the release of any
such Subsidiary Guarantee in accordance with this Indenture); or

(h) if (i) any material "accumulated funding deficiency"
(as defined in Section 302 of ERISA or Section 412 of the Code), shall exist
with respect to any PBGC Plan or Multiple Employer Plan (unless a waiver or
extension is obtained under Section 412(d) or (e) of the Code and Sections 303
and 304 of ERISA), if such accumulated funding deficiency would give rise to a
material liability of the Company, (ii) a Reportable Event shall occur with
respect to any PBGC Plan or Multiple Employer Plan, which Reportable Event is
likely to result in the termination of such PBGC Plan or Multiple Employer Plan
for purposes of Title IV of ERISA and to give rise to a material liability of
the Company, (iii) proceedings to have a trustee appointed, or proceedings to
have a trustee appointed shall commence, or a trustee shall be appointed to
terminate or administer a PBGC Plan or Multiple Employer Plan which proceeding
is likely to result in the termination of such PBGC Plan or Multiple Employer
Plan and to give rise to a material liability of the Company with respect to
such termination, (iv) a notice of intent to terminate a PBGC Plan or Multiple
Employer Plan in a distress termination under Section 4041(c) of ERISA is
furnished to participants, (v) any Multiemployer Plan is in reorganization or
is insolvent and the circumstances are such that such reorganization or
insolvency will likely result in a material liability to the Company, (vi)
there is a complete or partial withdrawal from a Multiemployer Plan under
circumstances that would likely subject the Company to material liability, or
(vii) any event or condition described in (i) through (vi) above (determined
without regard to whether the event or condition taken alone would or could
result in a material liability) shall occur or exist with respect to a PBGC
Plan, Multiple Employer Plan or Multiemployer Plan which in combination with
one or more of any events described in (i) through (vi) above (determined
without regard to whether the event or condition taken alone would or could
result in a material liability) that has occurred or exists, would likely
subject the Company, any Subsidiary Guarantor or any other Restricted
Subsidiary to any material tax, penalty or other liability (for purposes of
this paragraph (i) the term "material" and "material liability" shall mean any
tax, penalty or liability in excess of $5,000,000); or

(i) final judgments or orders rendered against the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or in an
aggregate amount, that is more than $5,000,000 over the coverage under
applicable insurance policies and either (i) commencement by any creditor of an
enforcement proceeding upon such judgment (other than a judgment that is stayed
by reason of pending appeal or otherwise) or (ii) the occurrence of a 60-day
period during which a stay of such judgment or order, by reason of pending
appeal or otherwise, was not in effect; or

(j) the entry of a decree or order by a court having
jurisdiction in the premises (i) for relief in respect of the Company or any
Subsidiary Guarantor or any other Restricted Subsidiary in an involuntary case
or proceeding under the Federal Bankruptcy Code or any other applicable federal
or state bankruptcy, insolvency, reorganization or other similar law or (ii)
adjudging the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of the Company or a
Restricted Subsidiary under the Federal Bankruptcy Code or any applicable
federal or state law, or appointing under any such law a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary or of a
substantial part of their consolidated assets, or ordering the

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winding up or liquidation of their affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days; or

(k) the commencement by the Company or any Subsidiary
Guarantor or any other Restricted Subsidiary of a voluntary case or proceeding
under the Federal Bankruptcy Code or any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the
Company or any Subsidiary Guarantor or any other Restricted Subsidiary to the
entry of a decree or order for relief in respect thereof in an involuntary case
or proceeding under the Federal Bankruptcy Code or any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing by the Company or any Subsidiary Guarantor or any other Restricted
Subsidiary of a petition or consent seeking reorganization or relief under any
applicable federal or state law, or the consent by it under any such law to the
filing of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or other
similar official) of any of the Company or any Subsidiary Guarantor or any
other Restricted Subsidiary or of any substantial part of their consolidated
assets, or the making by it of an assignment for the benefit of creditors under
any such law, or the admission by it in writing of its inability to pay its
debts generally as they become due or taking of corporate action by the Company
or any Subsidiary Guarantor or any other Restricted Subsidiary in furtherance
of any such action.

Section 5.2 Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified in
Section 5.1(j) or (k) hereof) occurs and is continuing, the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Securities
then Outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the Holders), may, and the Trustee upon the request of the
Holders of not less than 25% in principal amount of the Outstanding Securities
shall, by a notice in writing to the Company (and to the Trustee if given by
the Holders), declare all unpaid principal of, premium, if any, and accrued
interest on all the Securities to be due and payable immediately, upon which
declaration all amounts payable in respect of the Securities shall be
immediately due and payable. If an Event of Default specified in Section
5.1(j) or (k) hereof occurs and is continuing, the amounts described above
shall ipso facto become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder.

At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in principal amount of the Securities Outstanding, by written notice
to the Company, the Subsidiary Guarantors and the Trustee, may rescind and
annul such declaration and its consequences if

(a) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay,

(1) all overdue interest on all Outstanding
Securities,

(2) all unpaid principal of (and premium, if any,
on) any Outstanding Securities which has become due otherwise
than by such declaration of acceleration

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including any Securities required to have been purchased on a
Change of Control Date or a Net Proceeds Payment Date pursuant
to a Change of Control Offer or a Net Proceeds Offer, as
applicable, and interest on such unpaid principal at the rate
borne by the Securities,

(3) to the extent that payment of such interest
is lawful, interest on overdue interest and overdue principal
at the rate borne by the Securities (without duplication of
any amount paid or deposited pursuant to clauses (1) and (2)
above), and

(4) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;

(b) the rescission would not conflict with any judgement
or decree of a court of competent jurisdiction as certified to the Trustee by
the Company; and

(c) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Securities
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13 hereof.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

Notwithstanding the foregoing, in the event of a declaration
of acceleration in respect of the Securities because of an Event of Default
specified in (i) Section 5.1(e) hereof shall have occurred and be continuing,
such declaration of acceleration and any consequential acceleration shall be
automatically rescinded if the Indebtedness that is the subject of such Event
of Default has been repaid, or if the default relating to such Indebtedness is
waived or cured and if such Indebtedness has been accelerated, then the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness (provided, in each case, that such repayment, waiver, cure or
rescission is effected within a period of 10 days from the continuation of such
default beyond the applicable grace period or the occurrence of such
acceleration), or (ii) Section 5.1(f) hereof shall have occurred and be
continuing, such declaration and any consequential acceleration shall be
automatically rescinded if the proceedings or enforcement action with respect
to the Indebtedness that is the subject of such Event of Default are terminated
or rescinded, or such Indebtedness has been repaid and only so long as the
Holder of such Indebtedness shall not have applied any Property referenced in
such Section 5.1(f) hereof in satisfaction of such Indebtedness, and, in the
case of both (i) and (ii) above, written notice of such repayment, or cure or
waiver and rescission, as the case may be, shall have been given to the Trustee
by the Company and countersigned by the holders of such Indebtedness or a
trustee, fiduciary or agent for such holders or other evidence satisfactory to
the Trustee of such events is provided to the Trustee, within 30 days after
such declaration of acceleration in respect of the Securities, and no other
Event of Default has occurred during such 30-day period which has not been
cured or waived during such period, and so long as such recision of the
declaration of acceleration of the Securities does not conflict with any
judgement or decree as certified to the Trustee by the Company.

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Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee. The Company covenants that if

(a) default is made in the payment of any installment of
interest on any Security when such interest becomes due and payable and such
default continues for a period of 30 days, or

(b) default is made in the payment of the principal of
(or premium, if any, on) any Security at the Maturity thereof or with respect
to any Security required to have been purchased by the Company on the Change of
Control Purchase Date or the Net Proceeds Payment Date pursuant to a Change of
Control Offer or a Net Proceeds Offer, as applicable, the Company will, upon
demand of the Trustee, pay to the Trustee for the benefit of the Holders of
such Securities, the whole amount then due and payable on such Securities for
principal (and premium, if any) and interest, and interest on any overdue
principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of
interest, at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.

If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the Property of the Company or any other obligor upon the
Securities, wherever situated.

If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.

Section 5.4 Trustee May File Proofs of Claim. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company, the Subsidiary Guarantors or any other
obligor upon the Securities or the Property of the Company, the Subsidiary
Guarantors or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company, the Subsidiary
Guarantors or such other obligor for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise,

(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents and take any other
actions including participation as a full member of any creditor or other
committee as may be necessary or advisable in order to have the claims of the
Trustee

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(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and of the Holders allowed
in such judicial proceeding, and

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

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 6.6 hereof.

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

Section 5.5 Trustee May Enforce Claims Without Possession
of Securities. All rights of action and claims under this Indenture or the
Securities or the Subsidiary Guarantees may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name and as trustee of an express
trust, and any recovery of judgment shall, after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.

Section 5.6 Application of Money Collected. Any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in the case of
the distribution of such money on account of principal (or premium, if any) or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee under
Section 6.6 hereof;

SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any, on,) and interest on the Securities
in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and

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

Section 5.7 Limitation on Suits. No Holder of any
Securities shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless

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(a) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;

(b) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;

(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;

(d) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and

(e) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.

Section 5.8 Unconditional Right of Holders to Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment, as provided herein (including, if
applicable, Article XII hereof) and in such Security of the principal of (and
premium, if any, on) and (subject to Section 3.8 hereof) interest on, such
Security on the respective Stated Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.

Section 5.9 Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, subject to any determination in such
proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereunder and all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.

Section 5.10 Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities in the last paragraph of Section 3.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion

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or employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.

Section 5.11 Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security to exercise any right
or remedy accruing upon any Event of Default shall impair any such right or
remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 5.12 Control by Holders. The Holders of not less
than a majority in principal amount of the Outstanding Securities shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee, provided that

(a) such direction shall not be in conflict with any rule
of law or with this Indenture,

(b) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction, and

(c) the Trustee need not take any action which might
involve it in personal liability or be unduly prejudicial to the Holders not
joining therein.

Section 5.13 Waiver of Past Defaults. The Holders of not
less than a majority in principal amount of the Outstanding Securities may on
behalf of the Holders of all the Securities waive any existing Default or Event
of Default hereunder and its consequences, except a Default or Event of Default

(a) in respect of the payment of the principal of (or
premium, if any, on) or interest on any Security, or

(b) in respect of a covenant or provision hereof which
under Article IX hereof cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected.

Upon any such waiver, such Default or Event of Default shall
cease to exist for every purpose under this Indenture, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.

Section 5.14 Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Subsidiary Guarantors covenants (to the extent that
each may lawfully do so) that it will not at any time insist upon, plead or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension, or usury law or other law, which would prohibit or forgive the
Company or any Subsidiary Guarantor from paying all or any portion of the
principal of (premium, if any, on) and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that

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it may lawfully do so) each of the Company and the Subsidiary Guarantors hereby
expressly waives all benefit or advantage of any such law, and covenant that
they will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.

ARTICLE VI

THE TRUSTEE

Section 6.1 Notice of Defaults. Within 60 days after the
occurrence of any Default hereunder, the Trustee shall transmit in the manner
and to the extent provided in TIA Section 313(c), notice of such Default
hereunder known to the Trustee, unless such Default shall have been cured or
waived; provided, however, that, except in the case of a Default in the payment
of the principal of (or premium, if any, on) or interest on any Security, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders; and provided,
further, that in the case of any Default of the character specified in Section
5.1(e) hereof, no such notice to Holders shall be given until at least 60 days
after the occurrence thereof.

Section 6.2 Certain Rights of Trustee. Subject to the
provisions of TIA Sections 315(a) through 315(d):

(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;

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

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

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

(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;

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(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;

(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder; and

(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Indenture.

The Trustee shall not be required to advance, expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.

Section 6.3 Trustee Not Responsible for Recitals or
Issuance of Securities. The recitals contained herein and in the Securities
and the notations of Subsidiary Guarantees thereon, except for the Trustee's
certificates of authentication, shall be taken as the statements of the Company
or the Subsidiary Guarantors, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities, except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder, and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1 supplied to the Company are true and accurate,
subject to the qualifications set forth herein. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.

Section 6.4 May Hold Securities. The Trustee, any Paying
Agent, any Security Register or any other agent of the Company, any Subsidiary
Guarantor or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company and the subsidiary Guarantors with
the same rights it would have if it were not the Trustee, Paying Agent,
Security Registrar or such other agent.

Section 6.5 Money Held in Trust. Money held by the
Trustee in trust hereunder need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed with
the Company or any Subsidiary Guarantor.

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Section 6.6 Compensation and Reimbursement. The Company
agrees:

(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);

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

(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, (i) arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or (ii) in connection with
enforcing this indemnification provision.

The obligations of the Company under this Section 6.6 to
compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify and hold harmless the Trustee shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture or any other termination under any Insolvency
or Liquidation Proceeding. As security for the performance of such obligations
of the Company, the Trustee shall have a claim and lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for payment of principal of (and premium, if any, on) or
interest on particular Securities. Such lien shall survive the satisfaction
and discharge of this Indenture or any other termination under any Insolvency
or Liquidation Proceeding.

When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in paragraphs (j) or (k) of Section
5.1 of this Indenture, such expenses and the compensation for such services are
intended to constitute expenses of administration under any Insolvency or
Liquidation Proceeding.

Section 6.7 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to act
as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of federal,
state, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section 6.7, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.

Section 6.8 Conflicting Interests. The Trustee shall
comply with the provisions of Section 310(b) of the Trust Indenture Act.

Section 6.9 Resignation and Removal; Appointment of
Successor.

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(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 6.10 hereof.

(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 6.10 hereof shall not have been delivered to the
Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.

(d) If at any time:

(1) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request
therefor by the Company or by any Holder who has been a bona
fide Holder of a Security for at least six months, or

(2) the Trustee shall cease to be eligible under
Section 6.7 hereof and shall fail to resign after written
request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or

(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,

then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee. The evidence of such successorship may, but need not be,
evidenced by a supplemental indenture.

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(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 14.5 hereof. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.

Section 6.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all amounts due it under
Section 6.6 hereof, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.

No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.

Section 6.11 Merger, Conversion, Consolidation or
Succession to Business. Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall
have been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities; and in case at that time any of the Securities shall not have been
authenticated, any successor Trustee may authenticate such Securities either in
the name of any predecessor hereunder or in the name of the successor Trustee;
and in all such cases such certificates shall have the full force which it is
anywhere in the Securities or in this Indenture; provided, however, that the
right to adopt the certificate of authentication of any predecessor Trustee or
to authenticate Securities in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.

Section 6.12 Preferential Collection of Claims Against
Company. If and when the Trustee shall be or become a creditor of the Company
(or any other obligor under the Securities), the Trustee shall be subject to
the provisions of the Trust Indenture Act regarding the collection of claims
against the Company or any such other obligor.

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ARTICLE VII

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

Section 7.1 Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees with the
Company, the Subsidiary Guarantors, the Security Registrar and the Trustee that
none of the Company, the Subsidiary Guarantors, the Security Registrar or the
Trustee, or any agent of either of them, shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Holders in accordance with TIA Section 312, regardless of the source from which
such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).

Section 7.2 Reports By Trustee. Within 60 days after May
15 of each year commencing with May 15, 1995, the Trustee shall transmit by
mail to the Holders, as their names and addresses appear in the Security
Register, a brief report dated as of such May 15 in accordance with and to the
extent required under TIA Section 313(a). The Trustee shall also comply with
TIA Sections 313(b) and 313(c).

The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or automatic quotation
system.

A copy of each Trustee's report, at the time of its mailing to
Holders of Securities, shall be mailed to the Company and filed with the
Commission and each stock exchange, if any, on which the Securities are listed.

Section 7.3 Reports by Company. The Company (and the
Subsidiary Guarantors, if applicable) shall:

(a) file with the Trustee, within 15 days after the
Company (and the Subsidiary Guarantors, if applicable) is required to file the
same with the Commission, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and regulations prescribe)
which the Company (and the Subsidiary Guarantors, if applicable) may be
required to file with the Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act; or, if the Company (and the Subsidiary Guarantors, if
applicable) is not required to file information, documents or reports pursuant
to either of said Sections, then it shall file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations;

(b) file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Company (and the Subsidiary Guarantors, if applicable) with
the conditions and covenants of this Indenture as may be required from time to
time by such rules and regulations; and

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(c) transmit by mail to all Holders, in the manner and to
the extent provided in TIA Section 313(c), within 30 days after the filing
thereof with Trustee, such summaries of any information, documents and reports
required to be filed by the Company (and the Subsidiary Guarantors, if
applicable) pursuant to paragraphs (a) and (b) of this Section as may be
required by rules and regulations prescribed from time to time by the
Commission.

ARTICLE VIII

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Section 8.1 Company May Consolidate, etc., Only on
Certain Terms. The Company shall not, in any single transaction or a series of
related transactions, merge or consolidate with or into any other Person, or
sell, assign, convey, transfer or lease or otherwise dispose of all or
substantially all its Properties to any Person or group of Affiliated Persons,
and the Company shall not permit any of its Restricted Subsidiaries to enter
into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the Properties of the Company and its Restricted Subsidiaries on a consolidated
basis to any other Person or group of Affiliated Persons, unless at the time
and after giving affect thereto:

(a) either (i) if the transaction or transactions is a
merger or consolidation, the Company shall be the surviving Person of such
merger or consolidation, or (ii) the Person (if other than the Company) formed
by such consolidation or into which the Company or such Restricted Subsidiary
is merged or to which the Properties of the Company or such Restricted
Subsidiary, as the case may be, are sold, assigned, conveyed, transferred,
leased or otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to this Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company for the
due and punctual payment of the principal of (and premium, if any, on) and
interest on all the Securities and the performance and observance of every
covenant of this Indenture on the part of the Company to be performed or
observed, and this Indenture shall remain in full force and effect;

(b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any of
its Restricted Subsidiaries which becomes the obligation of the Company or any
of its Restricted Subsidiaries in connection with or as a result of such
transaction or transactions as having been incurred at the time of such
transaction or transactions), no Default or Event of Default shall have
occurred and be continuing;

(c) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company, immediately after giving
effect to such transaction or transactions on a pro forma basis, the
Consolidated Net Worth of the Company (or the Surviving Entity if the Company
is not the continuing obligor under this Indenture) is at least equal to the
Consolidated Net

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Worth of the Company immediately before such transaction or transactions
(calculated in each case, in accordance with GAAP);

(d) except in the case of the consolidation or merger of
any Restricted Subsidiary with or into the Company or any Wholly Owned
Restricted Subsidiary, immediately before and after giving effect to such
transaction or transactions on a pro forma basis (on the assumption that the
transaction or transactions occurred on the first day of the period of four
full fiscal quarters ending immediately prior to the consummation of such
transaction or transactions with the appropriate adjustments with respect to
the transaction or transactions being included in such pro forma calculation)
the Company (or the Surviving Entity if the Company is not the continuing
obligor under this Indenture) could incur $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) under Section 10.12(a) hereof;

(e) each Subsidiary Guarantor unless it is the party to
the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to such Person's
obligations under this Indenture and the Securities;

(f) if any of the Properties of the Company or any of its
Restricted Subsidiaries would upon such transaction or series of related
transactions become subject to any Lien (other than a Permitted Lien), the
creation or imposition of such Lien shall have been in compliance with Section
10.14 hereof; and

(g) the Company or such Person shall have delivered to
the Trustee an Officers' Certificate and an Opinion of Counsel in form and
substance reasonably acceptable to the Trustee, each stating that such
consolidation, merger, conveyance, transfer, lease or other disposition and, if
a supplemental indenture is required in connection with such transaction, such
supplemental indenture, complies with this Indenture and that all conditions
precedent herein relating to such transaction or transactions have been
satisfied.

Section 8.2 Successor Substituted. Upon any
consolidation of the Company with or merger of the Company with or into any
other corporation or any sale, assignment, lease, conveyance, transfer or other
disposition of all or substantially all of the Properties of the Company to any
Person in accordance with Section 8.1 hereof, the successor Person formed by
such consolidation or into which the Company is merged or to which such sale,
assignment, conveyance, transfer or other disposition (other than by lease) is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and in the event of any
such sale, assignment, lease, conveyance, transfer or other disposition, the
Company (which term shall for this purpose mean the Person named as the
"Company" in the first paragraph of this Indenture or any successor Person
which shall theretofore become such in the manner described in Section 8.1
hereof), except in the case of a lease, shall be discharged of all obligations
and covenants under this Indenture and the Securities and the Company may be
dissolved and liquidated and such dissolution and liquidation shall not cause a
Change of Control under clause (e) of the definition thereof to occur unless
the merger, or the sale, assignment, lease, conveyance, transfer or other
disposition of all or substantially all of the Properties of the Company to any
Person otherwise results in a Change of Control.

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ARTICLE IX

SUPPLEMENTAL INDENTURES

Section 9.1 Supplemental Indentures Without Consent of
Holders. Without the consent of any Holders, the Company, when authorized by a
Board Resolution, the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company contained herein and in the Securities; or

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

(d) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee pursuant to the requirements of
Sections 6.9 and 6.10 hereof; or

(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other
provision herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; provided that such action shall not
adversely affect the interests of the Holders in any material respect; or

(f) to secure the Securities pursuant to the requirements
of Section 10.14 hereof or otherwise; or

(g) to add any Person as a Subsidiary Guarantor as
provided in Section 13.1 hereof or as contemplated by the definition of
"Permitted Subsidiary Indebtedness" to evidence the succession of another
Person to any Guarantor and the assumption by any such successor of the
covenants and agreements of such Subsidiary Guarantor contained herein, in the
Securities and in the Subsidiary Guarantee; or

(h) to release a Subsidiary Guarantor from its Guarantee
pursuant to Section 10.12 hereof; or

(i) to provide for uncertificated Securities in addition
to or in place of certificated Securities.

Section 9.2 Supplemental Indentures with Consent of
Holders. With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, the Subsidiary Guarantors, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any

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provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders under
this Indenture; provided, however, that no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Security affected
thereby:

(a) change the Stated Maturity of the principal of, or
any installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); or

(b) reduce the percentage of aggregate principal amount
of the Outstanding Securities, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture; or

(c) modify any of the provisions of this Section or
Sections 5.13 and 10.20 hereof, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security affected
thereby;

(d) modify Section 10.12 hereof or any provisions of this
Indenture relating to the Subsidiary Guarantees in a manner adverse to the
Holders thereof; or

(e) amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control, or to make and consummate a Net Proceeds Offer with respect to any
Asset Sale or modify any of the provisions or definitions with respect thereto.

It shall not be necessary for any Act of the Holders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

Section 9.3 Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

Section 9.4 Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.

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Section 9.5 Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.

Section 9.6 Reference in Securities to Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company, with the notations of Subsidiary Guarantees thereon
executed by the Subsidiary Guarantors, and authenticated and delivered by the
Trustee in exchange for Outstanding Securities.

Section 9.7 Notice of Supplemental Indentures. Promptly
after the execution by the Company and the Trustee of any supplemental
indenture pursuant to the provisions of Section 9.2 hereof, the Company shall
give notice thereof to the Holders of each Outstanding Security affected, in
the manner provided for in Section 15.5 hereof, setting forth in general terms
the substance of such supplemental indenture.

ARTICLE X

COVENANTS

Section 10.1 Payment of Principal, Premium, if any, and
Interest. The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.

Section 10.2 Maintenance of Office or Agency. The Company
shall maintain in the Borough of Manhattan, The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Company in respect of the Securities,
the Subsidiary Guarantees and this Indenture may be served. The office of
____________________, located at __________________________ shall be such
office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the aforementioned office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.

The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all such purposes and may
from time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company

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of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and any change in
the location of any such other office or agency.

Section 10.3 Money for Security Payments to Be Held in
Trust. If the Company shall at any time act as its own Paying Agent, it shall,
on or before each due date of the principal of (and premium, if any, on) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents for
the Securities, it will, on or before 12:00 noon on each due date of the
principal of (and premium, if any, on), or interest on, any Securities, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such principal, premium or interest, and (unless such
Paying Agent is the Trustee) the Company shall promptly notify the Trustee of
such action or any failure so to act.

The Company shall cause each Paying Agent (other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:

(a) hold all sums held by it for the payment of the
principal of (and premium, if any, on) or interest on Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;

(b) give the Trustee notice of any default by the Company
(or any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and

(c) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.

Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any, on) or interest on any Security and remaining unclaimed for
two years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent,

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before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the Borough of Manhattan, The City of New York, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining will be repaid to the Company.

Section 10.4 Corporate Existence. Except as expressly
permitted by Article VIII hereof, Section 10.16 hereof or other provisions of
this Indenture, the Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each Restricted
Subsidiary; provided, however, that the Company shall not be required to
preserve any such existence of its Restricted Subsidiaries, right or franchise,
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Restricted Subsidiaries, taken as a whole and that the loss thereof is not
disadvantageous in any material respect to the Holders.

Section 10.5 Payment of Taxes and Other Claims. The
Company shall pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Restricted Subsidiary or upon
the income, profits or Property of the Company or any Restricted Subsidiary and
(b) all lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a Lien upon the Property of the Company or any Restricted
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made in
accordance with GAAP.

Section 10.6 Maintenance of Properties. The Company shall
cause all material Properties owned by the Company or any Restricted Subsidiary
and used or held for use in the conduct of its business or the business of any
Restricted Subsidiary to be maintained and kept in good condition, repair and
working order (ordinary wear and tear excepted), all as in the judgment of the
Company may be necessary so that its business may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such Properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Restricted
Subsidiary and not disadvantageous in any material respect to the Holders.
Notwithstanding the foregoing, nothing contained in this Section 10.6 shall
limit or impair in any way the right of the Company and its Restricted
Subsidiaries to sell, divest and otherwise to engage in transactions that are
otherwise permitted by this Indenture.

Section 10.7 Insurance. The Company shall at all times
keep all of its and its Restricted Subsidiaries' Properties which are of an
insurable nature insured with insurers, believed by the Company to be
responsible, against loss or damage to the extent that property of similar
character is usually so insured by corporations similarly situated and owning
like properties.

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The Company may adopt such other plan or method of protection,
in lieu of or supplemental to insurance with insurers, whether by the
establishment of an insurance fund or reserve to be held and applied to make
good losses from casualties, or otherwise, conforming to the systems of
self-insurance maintained by corporations similarly situated and owning like
properties, as may be determined by the Board of Directors.

Section 10.8 Statement by Officers as to Default.

(a) The Company shall deliver to the Trustee, within 90
days after the end of each fiscal year of the Company and within 45 days of the
end of each of the first, second and third quarters of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of
the Company and its Subsidiaries during the preceding fiscal quarter or fiscal
year, as applicable, has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which such Officer may
have knowledge and what action the Company is taking or proposes to take with
respect thereto). Such Officers' Certificate shall comply with TIA Section
314(a)(4). For purposes of this Section 10.8(a), such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.

(b) The Company and the Subsidiary Guarantors shall, so
long as any of the Securities are outstanding, deliver to the Trustee forthwith
upon any Officer becoming aware of any Default or Event of Default or default
in the performance of any covenant, agreement or condition contained in this
Indenture, an Officers' Certificate specifying such Default or Event of Default
and what action the Company or any Subsidiary Guarantor proposes to take with
respect thereto within 10 days of its occurrence.

Section 10.9 Provision of Financial Information. The
Company and the Subsidiary Guarantors shall file with the Trustee (with
exhibits) and deliver to each Holder (without exhibits), within 15 days after
it files them with the Commission, copies of the annual and quarterly reports
and of the information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may by rules and regulations
prescribe) which each of the Company and the Subsidiary Guarantors is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act. If the Company is not subject to the requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall nonetheless file with the Commission and
the Trustee copies of such annual reports and such information, documents and
other reports as it would file if it were subject to the requirements of
Section 13 or 15(d) of the Exchange Act. If filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under
the Exchange Act, the Company shall supply at the Company's cost copies of such
reports and documents to any holder of Securities promptly upon written
request. The Company and each Subsidiary Guarantor also shall comply with the
other provisions of TIA Section 314(a).

Section 10.10 Limitation on Restricted Payments.

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(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, take the following actions:

(i) declare or pay any dividend on, or make any
distribution to holders of, any shares of the Company's Capital Stock
(other than dividends or distributions payable solely in shares of
Qualified Capital Stock of the Company or in options, warrants or
other rights to purchase Qualified Capital Stock of the Company);

(ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any Affiliate thereof (other
than any Wholly Owned Restricted Subsidiary of the Company) or any
options, warrants or other rights to acquire such Capital Stock;

(iii) make any principal payment on or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to any
scheduled principal payment, scheduled sinking fund payment or
maturity, any Subordinated Indebtedness;

(iv) declare or pay any dividend on, or make any
distribution to the holders of, any shares of Capital Stock of any
Restricted Subsidiary of the Company (other than to the Company or any
of its Wholly Owned Restricted Subsidiaries) or purchase, redeem or
otherwise acquire or retire for value any Capital Stock of any
Restricted Subsidiary or any options, warrants or other rights to
acquire any such Capital Stock (other than with respect to any such
Capital Stock held by the Company or any Wholly Owned Restricted
Subsidiary of the Company);

(v) make any Investment (other than any Permitted
Investment);

(vi) in connection with the acquisition of any Property by
the Company or its Restricted Subsidiaries after the date of this
Indenture, which Property would secure or be subject to any Production
Payment obligations of the Company or its Restricted Subsidiaries,
make any investment (of cash, Property or other assets) in such
Property so acquired in addition to the amount of Indebtedness
(including Production Payment obligations) incurred by the Company or
its Restricted Subsidiaries in connection with such acquisition; or

(vii) incur, create, assume or suffer to exist any
guarantee of Indebtedness of any Affiliate (other than (a) guarantees
of Indebtedness of any Restricted Subsidiary by the Company or (b)
guarantees of Indebtedness of the Company by any Restricted
Subsidiary, in each case in accordance with the terms of this
Indenture);

(such payments or other actions described in (but not excluded from) clauses
(i) through (vii) are collectively referred to as "Restricted Payments"),
unless at the time of and after giving effect to the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, shall
be the amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (A) no
Default or Event of Default shall have occurred and be continuing, (B) the
Company could incur $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) in accordance with Section 10.11 hereof and (C) the aggregate

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amount of all Restricted Payments declared or made after the date of this
Indenture shall not exceed the sum (without duplication) of the following:

(1) 50% of the aggregate cumulative Consolidated Net
Income of the Company accrued on a cumulative basis during the period
beginning on January 1, 1995 and ending on the last day of the
Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss),
plus

(2) the aggregate net cash proceeds received after the
date of this Indenture by the Company as capital contributions to the
Company (other than from any Restricted Subsidiary), plus

(3) the aggregate net cash proceeds received after the
date of this Indenture by the Company from the issuance or sale (other
than to any of its Restricted Subsidiaries) of shares of Qualified
Capital Stock of the Company or any option, warrants or rights to
purchase such shares of Qualified Capital Stock of the Company, plus

(4) the aggregate net cash proceeds received after the
date of this Indenture by the Company (other than from any of its
Restricted Subsidiaries) upon the exercise of any options, warrants or
rights to purchase shares of Qualified Capital Stock of the Company,
plus

(5) the aggregate net cash proceeds received after the
date of this Indenture by the Company from the issuance or sale (other
than to any of its Restricted Subsidiaries) of debt securities or
shares of Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company to the extent
such debt securities were originally sold for cash, together with the
aggregate cash received by the Company at the time of such conversion
or exchange, plus

(6) To the extent not otherwise included in the Company's
Consolidated Net Income, the net reduction in Investments in
Unrestricted Subsidiaries resulting from the payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of Properties, in each case to the Company or a Restricted
Subsidiary after the date of this Indenture from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary (valued in each case as provided in the
definition of Investment), not to exceed in the case of any
Unrestricted Subsidiary the total amount of Investments (other than
Permitted Investments) in such Unrestricted Subsidiary made by the
Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary after the date of this Indenture, plus

(7) $15,000,000.

(b) Notwithstanding paragraph (a) above, the Company and
its Restricted Subsidiaries may take the following actions so long as (in the
case of clauses (ii), (iii) and (iv) below) no Default or Event of Default
shall have occurred and be continuing:

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(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such declaration date such
declaration complied with the provisions of paragraph (a) above (and
such payment shall be deemed to have been paid on such date of
declaration for purposes of any calculation required by the provisions
of paragraph (a) above);

(ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
or any Restricted Subsidiary, in exchange for, or out of the aggregate
net cash proceeds of, a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock
of the Company;

(iii) the purchase, redemption, repayment, defeasance or
other acquisition or retirement for value of any Subordinated
Indebtedness (other than Redeemable Capital Stock) in exchange for or
out of the aggregate net cash proceeds of a substantially concurrent
issue and sale (other than to a Restricted Subsidiary) of shares of
Qualified Capital Stock of the Company; and

(iv) the purchase, redemption, repayment, defeasance or
other acquisition or retirement for value of Subordinated Indebtedness
(other than Redeemable Capital Stock) in exchange for, or out of the
aggregate net cash proceeds of a substantially concurrent incurrence
(other than to a Restricted Subsidiary) of, Subordinated Indebtedness
of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount (or, if such
Subordinated Indebtedness being refinanced provides for an amount less
than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date
of determination) of the Subordinated Indebtedness being so purchased,
redeemed, repaid, defeased, acquired or retired, plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Subordinated Indebtedness refinanced or
the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus the amount of expenses
of the Company incurred in connection with such refinancing, (B) such
new Subordinated Indebtedness is subordinated to the Securities at
least to the same extent as such Subordinated Indebtedness so
purchased, redeemed, repaid, defeased, acquired or retired, (C) such
new Subordinated Indebtedness has an Average Life to Stated Maturity
that is longer than the Average Life to Stated Maturity of the
Securities and such new Subordinated Indebtedness has a Stated
Maturity for its final scheduled principal payment that is at least 91
days later than the Stated Maturity for the final scheduled principal
payment of the Securities.

The actions described in clauses (i), (ii) and (iii) of this paragraph (b)
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a) (provided
that any dividend paid pursuant to clause (i) of this paragraph (b) shall
reduce the amount that would otherwise be available under clause (C) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clause (iv) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be taken in
accordance with this paragraph and shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of paragraph
(a).

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(c) In computing Consolidated Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be deemed to have been made in compliance with this
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Net Income of the Company
for any period.

Section 10.11 Limitation on Indebtedness.

(a) The Company shall not, and shall not permit any
Restricted Subsidiary to, create, incur, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of (collectively
"incur") any Indebtedness (including any Acquired Indebtedness), other than
Permitted Indebtedness and Permitted Subsidiary Indebtedness, as the case may
be; provided, however, that the Company and its Restricted Subsidiaries that
are Subsidiary Guarantors may incur Indebtedness if (x) the Company's
Consolidated Fixed Charge Coverage Ratio for the four full fiscal quarters
immediately preceding the incurrence of such Indebtedness, taken as one period
(at the time of such incurrence and after giving pro forma effect to: (i) the
incurrence of such Indebtedness and (if applicable) the application of the net
proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred and the application of such proceeds occurred at the
beginning of such four-quarter period; (ii) the incurrence, repayment or
retirement of any other Indebtedness (including Permitted Indebtedness) by the
Company or its Restricted Subsidiaries since the first day of such four-quarter
period (including any other Indebtedness to be incurred concurrent with the
incurrence of such Indebtedness) as if such Indebtedness was incurred, repaid
or retired at the beginning of such four-quarter period; and (iii)
notwithstanding clause (d) of the definition of Consolidated Net Income, the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any Person acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first day
of such four-quarter period, as if such acquisition or disposition occurred at
the beginning of such four-quarter period), would have been equal to at least
2.5 to 1.0.

Section 10.12 Limitation on Guarantees of Indebtedness by
Subsidiaries.

(a) The Company shall not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor to guarantee the payment of any
Indebtedness of the Company unless (i) (A) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of the Securities by such Restricted
Subsidiary which Subsidiary Guarantee shall be subordinated to Guarantor Senior
Indebtedness (but no other indebtedness) to the same extent that the Notes are
subordinated to Senior Indebtedness and (B) with respect to any guarantee of
Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee shall
be subordinated to such Restricted Subsidiary's Subsidiary Guarantee at least
to the same extent as such Subordinated Indebtedness is subordinated to the
Securities; (ii) such Restricted

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Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee until such time as the obligations guaranteed thereby are paid in
full; and (iii) such Restricted Subsidiary shall deliver to the Trustee an
Opinion of Counsel to the effect that such Subsidiary Guarantee has been duly
executed and authorized and constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary of the Company and (y) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.

(b) Notwithstanding the foregoing and the other
provisions of this Indenture, any Subsidiary Guarantee incurred by a Restricted
Subsidiary pursuant to this Section 10.12 shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person that is not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the Property of, such Restricted Subsidiary (which sale, exchange or transfer
is not prohibited by this Indenture), (ii) the merger of such Restricted
Subsidiary into the Company or any other Restricted Subsidiary (provided the
surviving Restricted Subsidiary assumes the Subsidiary Guarantee) or the
liquidation and dissolution of such Restricted Subsidiary (in each case to the
extent not prohibited by this Indenture), or (iii) the release or discharge of
the guarantee which resulted in the creation of such Subsidiary Guarantee of
the Securities, except a discharge or release by or as a result of payment
under such guarantee.

Section 10.13 Limitation on Issuances and Sale of Capital
Stock by Restricted Subsidiaries. The Company (a) shall not permit any
Restricted Subsidiary to issue any Preferred Stock (other than to the Company
and/or one or more Wholly Owned Restricted Subsidiaries) and (b) shall not
permit any Person (other than the Company and/or one or more Wholly Owned
Restricted Subsidiaries) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this Section 10.13 shall not prohibit (1) the issuance
and sale of all, but not less than all, of the issued and outstanding Capital
Stock of any Restricted Subsidiary owned by the Company or any of its
Restricted Subsidiaries in compliance with the other provisions of this
Indenture, or (2) the ownership by directors of director's qualifying shares or
the ownership by foreign nationals of Capital Stock of any Restricted
Subsidiary, to the extent mandated by applicable law.

Section 10.14 Limitation on Liens. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume, affirm or suffer to exist or become effective any Lien
of any kind, except for Permitted Liens, on any of its or their respective
Properties (including any intercompany notes), whether now owned or hereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, unless (x) in the case of any Lien
securing Subordinated Indebtedness, the Securities are secured by a Lien on
such Property or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Securities are directly secured equally and
ratably with the obligation or liability secured by such Lien.

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Section 10.15 Purchase of Securities Upon Change of
Control.

(a) Upon the occurrence of a Change of Control, the
Company shall be obligated to make an offer to purchase (a "Change of Control
Offer") all of the then outstanding Securities, in whole or in part, from the
Holders of such Securities in integral multiples of $1,000, at a purchase price
(the "Change of Control Purchase Price") equal to 101% of the aggregate
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the Change of Control Purchase Date (as defined below), in accordance with
the procedures set forth in paragraphs (b), (c) and (d) of this Section. The
Company shall, subject to the provisions described below, be required to
purchase all Securities properly tendered into the Change of Control Offer and
not withdrawn. The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer at the same purchase price, at the same times and otherwise in
substantial compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Securities validly tendered and not
withdrawn under such Change of Control Offer.

(b) The Change of Control Offer is required to remain
open for at least 20 Business Days and until the close of business on the fifth
Business Day prior to the Change of Control Purchase Date (as defined below).

(c) Not later than the 30th day following any Change of
Control, the Company shall give to the Trustee in the manner provided in
Section 15.4 and each Holder of the Securities in the manner provided in
Section 15.5, a notice (the "Change of Control Notice") stating:

(1) that a Change in Control has occurred and
that such Holder has the right to require the Company to
repurchase such Holder's Securities, or portion thereof, at
the Change of Control Purchase Price;

(2) any information regarding such Change of
Control required to be furnished pursuant to Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder;

(3) a purchase date (the "Change of Control
Purchase Date") which shall be on a Business Day and no
earlier than 30 days nor later than 70 days from the date the
Change of Control occurred;

(4) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue
interest;

(5) that unless the Company defaults in
depositing money with the Paying Agent in accordance with the
last paragraph of clause (d) of this Section 10.15, or payment
is otherwise prevented, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date; and

(6) the instructions a Holder must follow in
order to have its Securities repurchased in accordance with
paragraph (d) of this Section.

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(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Change of Control Notice at least five Business Days prior to the Change
of Control Purchase Date. Holders will be entitled to withdraw their election
if the Company receives, not later than three Business Days prior to the Change
of Control Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the certificate number(s) and principal
amount of the Securities delivered for purchase by the Holder as to which his
election is to be withdrawn and a statement that such Holder is withdrawing his
election to have such Securities purchased. Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.

On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to a Change
of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Securities or portions thereof so tendered, and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted.
The Paying Agent shall promptly mail or deliver to Holders of the Securities so
tendered payment in an amount equal to the purchase price for the Securities,
and the Company will promptly execute and the Trustee will promptly
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such Holder did not surrender for purchase. The Company shall
announce the results of a Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date. For purposes of this Section 10.15,
the Trustee will act as the Paying Agent.

(e) The Company shall comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that a Change of
Control occurs and the Company is required to purchase Securities as described
above.

Section 10.16 Disposition of Proceeds of Asset Sales.

(a) The Company shall not, and will not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the
Properties sold or otherwise disposed of pursuant to the Asset Sale and (ii) at
least 75% of the consideration received by the Company or the Restricted
Subsidiary, as the case may be, in respect of such Asset Sale consists of cash,
Cash Equivalents or the assumption by the purchaser of liabilities of the
Company (other than liabilities of the Company that are by their terms
subordinated to the Securities) or any Restricted Subsidiary as a result of
which the Company and its remaining Restricted Subsidiaries are no longer
liable.

(b) If the Company or any Restricted Subsidiary engages
in an Asset Sale, the Company may either (x) apply the Net Cash Proceeds
thereof to permanently reduce Senior Indebtedness or to permanently reduce
Guarantor Senior Indebtedness or (y) invest all or any part of the Net Cash
Proceeds thereof, within 365 days after such Asset Sale, in Properties which
replace the Properties that were the subject of the Asset Sale or in Properties
that will be used in the business of the Company or its Restricted
Subsidiaries, as the case may be, existing on the date hereof

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("Replacement Assets"). The amount of such Net Cash Proceeds not applied or
invested as provided in this paragraph shall constitute "Excess Proceeds"
subject to disposition as provided below.

(c) When the aggregate amount of Excess Proceeds equals
or exceeds $15,000,000 (the "Trigger Date"), the Company shall make an offer to
purchase, from all Holders of the Securities and holders of any then
outstanding Pari Passu Indebtedness required to be repurchased or repaid on a
permanent basis in connection with an Asset Sale, an aggregate principal amount
of Securities and any then outstanding Pari Passu Indebtedness equal to such
Excess Proceeds as follows:

(1) Not later than the 30th day following the
Trigger Date, the Company shall (i) give to the Trustee in the
manner provided in Section 15.4 hereof and each Holder of the
Securities in the manner provided in Section 15.5 hereof, a
notice (a "Purchase Notice") offering to purchase (a "Net
Proceeds Offer") from all Holders of the Securities the
maximum principal amount (expressed as a multiple of $1000) of
Securities that may be purchased out of an amount (the
"Payment Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Securities and the
denominator of which is the sum of the outstanding principal
amount of the Securities and any then outstanding Pari Passu
Indebtedness (subject to proration in the event such amount is
less than the aggregate Offered Price (as hereinafter defined)
of all Securities tendered), and (ii) to the extent required
by any then outstanding Pari Passu Indebtedness and provided
there is a permanent reduction in the principal amount of such
Pari Passu Indebtedness, the Company shall make an offer to
purchase such Pari Passu Indebtedness (a "Pari Passu Offer")
in an amount (the "Pari Passu Indebtedness Amount") equal to
the excess of the Excess Proceeds over the Payment Amount.

(2) The offer price for the Securities shall be
payable in cash in an amount equal to 100% of the principal
amount of the Securities tendered pursuant to a Net Proceeds
Offer, plus accrued and unpaid interest, if any, to the date
such Net Proceeds Offer is consummated (the "Offered Price"),
in accordance with paragraph (d) of this Section. To the
extent that the aggregate Offered Price of the Securities
tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto or the aggregate amount of the
Pari Passu Indebtedness that is purchased or repaid pursuant
to the Pari Passu Offer is less than the Pari Passu
Indebtedness Amount (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds
Deficiency, or a portion thereof, for general corporate
purposes, subject to the limitations of Section 10.10 hereof.

(3) If the aggregate Offered Price of Securities
validly tendered and not withdrawn by Holders thereof exceeds
the Payment Amount, Securities to be purchased will be
selected on a pro rata basis by the Trustee based on the
principal amount of Securities so tendered. Upon completion
of a Net Proceeds Offer and a Pari Passu Offer, the amount of
Excess Proceeds shall be reset to zero.

(4) The Purchase Notice shall set forth a
purchase date (the "Net Proceeds Payment Date"), which shall
be on a Business Day no earlier than 60 days nor later

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than 70 days from the Trigger Date. The Purchase Notice shall
also state (i) that a Trigger Date with respect to one or more
Asset Sales has occurred and that such Holder has the right to
require the Company to repurchase such Holders Securities at
the Offered Price, subject to the limitations described in the
forgoing paragraph (3), (ii) any information regarding such
Net Proceeds Offer required to be furnished pursuant to Rule
14e-1 under the Exchange Act and any other securities laws and
regulations thereunder, (iii) that any Security, or portion
thereof, not tendered or accepted for payment will continue to
accrue interest, (iv) that, unless the Company defaults in
depositing money with the Paying Agent in accordance with the
last paragraph of clause (d) of this Section 10.16, or payment
is otherwise prevented, any Security, or portion thereof,
accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Payment Date,
and (v) the instructions a Holder must follow in order to have
its Securities repurchased in accordance with paragraph (d) of
this Section.

(d) Holders electing to have Securities purchased will be
required to surrender such Securities to the Company at the address specified
in the Purchase Notice at least five Business Days prior to the Net Proceeds
Payment Date. Holders will be entitled to withdraw their election if the
Company receives, not later than three Business Days prior to the Net Proceeds
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the certificate number(s) and principal amount of the
Securities delivered for purchase by the Holder as to which his election is to
be withdrawn and a statement that such Holder is withdrawing his election to
have such Securities purchased. Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.

On the Net Proceeds Payment Date, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to a Net Proceeds
Offer in an aggregate principal amount equal to the Payment Amount or such
lesser amount of Securities as has been tendered, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Securities or portions
thereof so tendered in an aggregate principal amount equal to the Payment
Amount or such lesser amount and (iii) deliver or cause to be delivered to the
Trustee the Securities so accepted. The Paying Agent shall promptly mail or
deliver to Holders of the Securities so accepted payment in an amount equal to
the purchase price, and the Company shall execute and the Trustee will promptly
authenticate and mail or make available for delivery to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
which any such Holder did not surrender for purchase. Any Securities not so
accepted will be promptly mailed or delivered to the Holder thereof. The
Company shall announce the results of a Net Proceeds Offer on or as soon as
practicable after the Net Proceeds Payment Date. For purposes of this Section
10.16, the Trustee will act as the Paying Agent.

(e) The Company shall not permit any Subsidiary to enter
into or suffer to exist any agreement that would place any restriction of any
kind (other than pursuant to law or regulation) on the ability of the Company
to make a Net Proceeds Offer following any Asset Sale. The Company intends to
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder if applicable, in the event that an Asset Sale occurs
and the Company is required to purchase Securities as described above.

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Section 10.17 Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of any Property or the rendering of any service) with or for
the benefit of, any Affiliate of the Company (each, other than a Restricted
Subsidiary, being an "Interested Person"), unless (i) such transaction or
series of transactions are on terms that are no less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that would be
available in a comparable arm's length transaction with unrelated third parties
who are not Interested Persons, (ii) with respect to any one transaction or
series of transactions involving aggregate payments in excess of $1,000,000,
the Company delivers an Officer's Certificate to the Trustee certifying that
such transaction or series of transactions complies with clause (i) above and
such transaction or series of transactions have been approved by a Board
Resolution of the Board of Directors of the Company, and (iii) with respect to
any one transaction or series of transactions involving aggregate payments in
excess of $10,000,000, the Officer's Certificate referred to in clause (ii)
above also certifies that such transaction or series of transactions have been
approved by a majority of the Disinterested Directors (or, in the event there
are no such Disinterested Directors, that the Company has obtained a written
opinion from an independent nationally recognized investment banking firm or
appraisal firm, in either case specializing or having a specialty in the type
and subject matter of the transaction or series of transactions at issue, which
opinion shall be to the effect set forth in clause (i) above or shall state
that such transaction or series of transactions are fair from a financial point
of view to the Company or such Restricted Subsidiary); provided, however, that
this Section 10.17 will not restrict the Company from (1) paying reasonable and
customary regular compensation and fees to directors of the Company who are not
employees of the Company or any Restricted Subsidiary, (2) paying dividends on,
or making distributions with respect to, shares of Capital Stock of the Company
on a pro rata basis to the extent permitted by Section 10.10 hereof or (3)
consummating each of the Closing Transactions.

Section 10.18 Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock to the Company or any other
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (c) make an Investment in the Company or any other
Restricted Subsidiary or (d) transfer any of its Properties to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
(i) pursuant to an agreement in effect or entered into on the date of this
Indenture, (ii) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any other Person, or the Properties of any
other Person, other than the Person, or the Property of the Person, so acquired
or (iii) existing under any agreement that extends, renews, refinances or
places the agreements containing the restrictions in the foregoing clauses (i)
and (ii), provided that the terms and conditions of any such restrictions are
not materially less favorable to the Holders of the Securities than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced.

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Section 10.19 Limitation on Other Senior Subordinated
Indebtedness. The Company will not incurr directly or indirectly, any
Indebtedness which is expressly subordinate or junior in right of payment in
respect to Senior Indebtedness unless such Indebtedness ranks pari passu in
right of payment with the Securities, or is expressly subordinate in right of
payment to the Securities.

Section 10.20 Waiver of Certain Covenants. The Company may
omit in any particular instance to comply with any term, provision or condition
set forth in Sections 10.05 through 10.11, Sections 10.13 and 10.14 and
Sections 10.17 through 10.19 hereof if, before or after the time for such
compliance, the Holders of at least a majority in principal amount of the
Outstanding Securities and the Subsidiary Guarantors, by Act of such Holders
and written agreement of the Subsidiary Guarantors, waive such compliance in
such instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.

ARTICLE XI

REDEMPTION OF SECURITIES

Section 11.1 Right of Redemption. The Securities may be
redeemed, at the election of the Company, as a whole or from time to time in
part, at any time on or after _____________, 2001, upon not less than 30 or
more than 60 days' notice to each Holder of Securities to be redeemed, subject
to the conditions and at the Redemption Prices (expressed as percentages of
principal amount) specified in the form of Security, together with accrued and
unpaid interest, if any, to the Redemption Date.

Section 11.2 Applicability of Article. Redemption of
Securities at the election of the Company or otherwise, as permitted or
required by any provision of this Indenture, shall be made in accordance with
such provision and this Article.

Section 11.3 Election to Redeem; Notice to Trustee. The
election of the Company to redeem any Securities pursuant to Section 11.1
hereof shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select
the Securities to be redeemed pursuant to Section 11.4 hereof. Any election to
redeem Securities shall be revocable until the Company gives a notice of
redemption pursuant to Section 11.5 hereof to the Holders of Securities to be
redeemed.

Section 11.4 Selection by Trustee of Securities to Be
Redeemed. If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not less than 30 days nor more than
60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities not previously called for redemption, pro rata, by lot or by any
other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions

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of the principal of Securities; provided, however, that any such partial
redemption shall be in integral multiples of $1000.

The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.

Section 11.5 Notice of Redemption. Notice of redemption
shall be given in the manner provided for in Section 15.5 hereof not less than
30 nor more than 60 days prior to the Redemption Date, to each Holder of
Securities to be redeemed.

All notices of redemption shall state:

(a) the Redemption Date;

(b) the Redemption Price;

(c) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption, the
principal amounts) of the particular Securities to be redeemed;

(d) that on the Redemption Date the Redemption Price
(together with accrued interest, if any, to the Redemption Date payable as
provided in Section 11.7 hereof) will become due and payable upon each such
Security, or the portion thereof, to be redeemed, and that, unless the Company
shall default in the payment of the Redemption Price and any applicable accrued
interest, interest thereon will cease to accrue on and after said date; and

(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.

Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. Failure
to give such notice by mailing to any Holder of Securities or any defect
therein shall not affect the validity of any proceedings for the redemption of
other Securities.

Section 11.6 Deposit of Redemption Price. On or before
12:00 noon on any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 10.3 hereof) an amount of
money sufficient to pay the Redemption Price of, and accrued and unpaid
interest on, all the Securities which are to be redeemed on such Redemption
Date.

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Section 11.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued and unpaid interest,
if any, to the Redemption Date), and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued and
unpaid interest) such Securities shall cease to bear interest. Upon surrender
of any such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price, together with
accrued and unpaid interest, if any, to the Redemption Date; provided, however,
that installments of interest whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.8 hereof.

If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate borne by
the Securities.

Section 11.8 Securities Redeemed in Part. Any Security
which is to be redeemed only in part shall be surrendered at the office or
agency of the Company maintained for such purpose pursuant to Section 10.2
hereof (with, if the Company or the Trustee so requires, due endorsement by, or
a written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal amount of the Security so surrendered.

ARTICLE XII

DEFEASANCE AND COVENANT DEFEASANCE

Section 12.1 Company's Option to Effect Defeasance or
Covenant Defeasance. The Company may, at its option by Board Resolution, at
any time, with respect to the Securities, elect to have either Section 12.2 or
Section 12.3 hereof be applied to all Outstanding Securities upon compliance
with the conditions set forth below in this Article XII.

Section 12.2 Defeasance and Discharge. Upon the Company's
exercise under Section 12.1 hereof of the option applicable to this Section
12.2, the Company shall be deemed to have been discharged from its obligations
with respect to all Outstanding Securities on the date the conditions set forth
in Section 12.4 hereof are satisfied (hereinafter, "legal defeasance"). For
this purpose, such legal defeasance means that the Company and the Subsidiary
Guarantors shall be deemed (i) to have paid and discharged their respective
obligations under the Outstanding Securities; provided, however that the
Securities shall continue to be deemed to be "Outstanding" for purposes of
Section 12.5 hereof and the other Sections of this Indenture referred to in
clauses (A) and (B) below, and (ii) to have satisfied all their other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which
shall survive

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until otherwise terminated or discharged hereunder: (A) the rights of Holders
of Outstanding Securities to receive, solely from the trust fund described in
Section 12.4 hereof and as more fully set forth in such Section, payments in
respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due (or at such time as the Securities would
be subject to redemption at the option of the Company in accordance with this
Indenture), (B) the respective obligations of the Company and the Subsidiary
Guarantors under Sections 3.3, 3.4, 3.5, 3.6, 3.7, 5.8, 5.14, 6.6, 6.9, 6.10,
10.1, 10.2, 10.3, 10.4, 13.1 (to the extent it relates to the Foregoing
Sections and Article XII hereof), 13.4 and 13.5 hereof, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, and (D) the obligations
of the Company and the Subsidiary Guarantors under this Article XII. Subject
to compliance with this Article XII, the Company may exercise its option under
this Section 12.2 notwithstanding the prior exercise of its option under
Section 12.3 hereof with respect to the Securities.

Section 12.3 Covenant Defeasance. Upon the Company's
exercise under Section 12.1 hereof of the option applicable to this Section
12.3, the Company shall be released from its obligations under any covenant
contained in Article VIII and in Sections 10.6 through 10.19 hereof with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the
Securities shall thereafter be deemed not to be "Outstanding" for the purposes
of any direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Sections 5.1(c) or
5.1(d) hereof, but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby.

Section 12.4 Conditions to Defeasance or Covenant
Defeasance. The following shall be the conditions to application of either
Section 12.2 or Section 12.3 hereof to the Outstanding Securities:

(a) The Company or any Subsidiary Guarantor shall
irrevocably have deposited or caused to be deposited with the Trustee (or
another trustee satisfying the requirements of Section 6.7 hereof who shall
agree to comply with the provisions of this Article XII applicable to it) as
trust funds in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of such Securities, (A) cash in U.S. Dollars in an amount, or (B)
U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, money in an amount,
or (C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of (and premium, if any, on) and interest on the
Outstanding Securities on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of interest;
provided that the Trustee shall have been irrevocably instructed in writing by
the Company to apply such money or the proceeds

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of such U.S. Government Obligations to said payments with respect to the
Securities. Before such a deposit, the Company may give to the Trustee, in
accordance with Section 11.03 hereof, a notice of its election to redeem all of
the Outstanding Securities at a future date in accordance with Article XI
hereof, which notice shall be irrevocable. Such irrevocable redemption notice,
if given, shall be given effect in applying the foregoing. For this purpose,
"U.S. Government Obligations" means securities that are (x) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (y) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended), as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest
on any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.

(b) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit.

(c) Such legal defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest under this Indenture or
the Trust Indenture Act with respect to any securities of the Company.

(d) Such legal defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a default under any other
material agreement or instrument to which the Company or any Subsidiary
Guarantor is a party or by which it is bound, as evidenced to the Trustee in an
Officer's Certificate delivered to the Trustee concurrently with such deposit.

(e) In the case of an election under Section 12.2 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel stating
that (i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this Indenture
there has been a change in the applicable Federal income tax laws; in either
case providing that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such legal defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such legal defeasance had not occurred (it being understood that (x) such
Opinion of Counsel shall also state that such ruling or applicable law is
consistent with the conclusions reached in such Opinion of Counsel and (y) the
Trustee shall be under no obligation to investigate the basis of correctness of
such ruling).

(f) In the case of an election under Section 12.3 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same

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manner and at the same times as would have been the case if such covenant
defeasance had not occurred.

(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal defeasance under
Section 12.2 hereof or the covenant defeasance under Section 12.3 (as the case
may be) have been complied with.

Section 12.5 Deposited Money and U.S. Government
Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to
the provisions of the last paragraph of Section 10.3 hereof, all money and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee-- collectively for purposes of this
Section 12.5, the "Trustee") pursuant to Section 12.4 hereof in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.

The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 12.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.

Anything in this Article XII to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 12.4 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or
covenant defeasance, as applicable, in accordance with this Article.

Section 12.6 Reinstatement. If the Trustee or any Paying
Agent is unable to apply any money in accordance with Section 12.5 hereof by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's and the Subsidiary Guarantors' obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had
occurred pursuant to Section 12.2 or 12.3 hereof, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such money
in accordance with Section 12.5 hereof; provided, however, that if the Company
or any Subsidiary Guarantor makes any payment of principal of (or premium, if
any, on) or interest on any Security following the reinstatement of its
obligations, the Company or such Subsidiary Guarantor shall be subrogated to
the rights of the Holders of such Securities to receive such payment from the
money held by the Trustee or Paying Agent.

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ARTICLE XIII

GUARANTEES

Section 13.1 Unconditional Guarantee. Each Subsidiary
Guarantor hereby unconditionally, jointly and severally, guarantees (each such
guarantee to be referred to herein as a "Subsidiary Guarantee", with all such
guarantees being referred to herein as the "Subsidiary Guarantees") to each
Holder of Securities authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, the full and prompt performance of the
Company's obligations under this Indenture and the Securities and that:

(a) the principal of (premium, if any, on) and interest
on the Securities will be promptly paid in full when due, whether at maturity,
by acceleration, redemption or otherwise, and interest on the overdue principal
of and interest on the Securities, if any, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and

(b) in case of any extension of time of payment or
renewal of any Securities or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration or otherwise;

subject, however, in the case of clauses (a) and (b) above, to the limitations
set forth in Section 13.4 hereof.

Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Subsidiary Guarantors will
be jointly and severally obligated to pay the same immediately. Each
Subsidiary Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Securities or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Securities with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each
Subsidiary Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary Guarantee
will not be discharged except by complete performance of the obligations
contained in the Securities, this Indenture and in this Subsidiary Guarantee.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company, any Subsidiary Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or any Subsidiary Guarantor to the
Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Subsidiary
Guarantor agrees it shall not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. Each Subsidiary
Guarantor further agrees that, as between each Subsidiary Guarantor, on the one
hand, and the Holders and the Trustee, on the other hand, (x) the maturity of
the obligations guaranteed hereby may be accelerated as provided in

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Article V hereof for the purposes of this Subsidiary Guarantee, notwithstanding
any stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
acceleration of such obligations as provided in Article V hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Subsidiary Guarantor for the purpose of this Subsidiary
Guarantee.

Section 13.2 Subsidiary Guarantors May Consolidate, etc.,
on Certain Terms.

(a) Except as set forth in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into the Company
or another Subsidiary Guarantor or shall prevent any sale or conveyance of the
assets of a Subsidiary Guarantor as an entirety or substantially as an
entirety, to the Company or another Subsidiary Guarantor.

(b) Except as set forth in Articles VIII and X hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into a
corporation or corporations other than the Company or a Subsidiary Guarantor
(whether or not affiliated with the Subsidiary Guarantor), or successive
consolidations or mergers in which a Subsidiary Guarantor or its successor or
successors shall be a party or parties, or shall prevent any sale or conveyance
of the Properties of a Subsidiary Guarantor as an entirety or substantially as
an entirety, to a corporation other than the Company or another Subsidiary
Guarantor (whether or not Affiliated with the Subsidiary Guarantor) authorized
to acquire and operate the same; provided, however, that, subject to Sections
13.2(a) and 13.3 hereof, (i) immediately after such transaction, and giving
effect thereto, no Default or Event of Default shall have occurred as a result
of such transaction and be continuing, (ii) such transaction shall not violate
any of the covenants in Sections 10.1 through 10.19 hereof, and (iii) each
Subsidiary Guarantor hereby covenants and agrees that, upon any such
consolidation, merger, sale or conveyance, such Subsidiary Guarantor's
Subsidiary Guarantee set forth in this Article XIII and in a notation to the
Securities, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by such Subsidiary
Guarantor, shall be expressly assumed (in the event that the Subsidiary
Guarantor is not the surviving corporation in the merger), by supplemental
indenture satisfactory in form to the Trustee, executed and delivered to the
Trustee, by such corporation formed by such consolidation, or into which the
Subsidiary Guarantor shall have merged, or by the corporation that shall have
acquired such Property (except to the extent the following Section 13.3 would
result in the release of such Subsidiary Guarantee in which case such surviving
corporation does not have to execute any such supplemental indenture). In the
case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor corporation, by supplemental indenture executed and
delivered to the Trustee and satisfactory in form to the Trustee of the due and
punctual performance of all of the covenants and conditions of this Indenture
to be performed by the Subsidiary Guarantor, such successor corporation shall
succeed to and be substituted for the Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary Guarantor.

Section 13.3 Release of a Subsidiary Guarantor. Upon the
sale or disposition (by merger or otherwise) of a Subsidiary Guarantor (or all
or substantially all of its Properties) to a Person other than the Company or
another Subsidiary Guarantor and pursuant to a transaction that is otherwise in
compliance with the terms of this Indenture, including but not limited to the
provisions of Section 13.2 hereof, such Subsidiary Guarantor shall be deemed
released from all of

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its Subsidiary Guarantee and related obligations in this Indenture; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its Guarantees of, and
under all of its pledges of assets or other security interests which secure,
other Indebtedness of the Company or any Restricted Subsidiary shall also
terminate upon such sale or other disposition. Each Subsidiary Guarantor that
is designated as an Unrestricted Subsidiary in accordance with the provisions
of this Indenture shall be released from all of its Subsidiary Guarantee and
related obligations set forth in this Indenture for so long as it remains an
Unrestricted Subsidiary. The Trustee shall deliver an appropriate instrument
evidencing such release upon receipt of a Company Request accompanied by an
Officers' Certificate and an Opinion of Counsel certifying that such sale or
other disposition was made by the Company in accordance with the provisions of
this Indenture. Any Subsidiary Guarantor not so released remains liable for
the full amount of principal of (and premium, if any, on) and interest on the
Securities as provided in this Article XIII.

Section 13.4 Limitation of Subsidiary Guarantor's
Liability. Each Subsidiary Guarantor, and by its acceptance hereof each
Holder, hereby confirms that it is the intention of all such parties that the
Guarantee by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any federal or
state law. To effectuate the foregoing intention, the Holders and each
Subsidiary Guarantor hereby irrevocably agree that the obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities (including, but not limited to, Guarantor Senior Indebtedness) of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to Section 13.5 hereof, result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. This
Section 13.4 is for the benefit of the creditors of each Subsidiary Guarantor.

Section 13.5 Contribution. In order to provide for just
and equitable contribution among the Subsidiary Guarantors, the Subsidiary
Guarantors agree, inter se, that in the event any payment or distribution is
made by any Subsidiary Guarantor (a "Funding Guarantor") under its Subsidiary
Guarantee, such Funding Guarantor shall be entitled to a contribution from each
other Subsidiary Guarantor (if any) in a pro rata amount based on the Adjusted
Net Assets of each Subsidiary Guarantor (including the Funding Guarantor) for
all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Securities or any
other Subsidiary Guarantor's obligations with respect to its Subsidiary
Guarantee.

Section 13.6 Execution and Delivery of Notation of
Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in
Section 13.1 hereof, each Subsidiary Guarantor hereby agrees to execute the
notation of Subsidiary Guarantee in substantially the form set forth in Section
2.4 hereof to be endorsed on each Security ordered to be authenticated and
delivered by the Trustee, and each Subsidiary Guarantor agrees that this
Indenture shall be executed on behalf of each Subsidiary Guarantor by its
President or one of its Vice Presidents and attested to by one of its
Secretaries or Assistant Secretaries. Each Subsidiary Guarantor hereby agrees
that its Subsidiary Guarantee set forth in Section 13.1 hereof shall remain in
full force and effect notwithstanding any failure to endorse on each Security a
notation of such Subsidiary Guarantee. Each such notation of Subsidiary
Guarantee shall be signed on behalf of each Subsidiary Guarantor by two
Officers, or an

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Officer and an Assistant Secretary or one Officer shall sign and one Officer or
an Assistant Secretary (each of whom shall, in each case, have been duly
authorized by all requisite corporate actions) shall attest to such notation of
Subsidiary Guarantee prior to the authentication of the Security on which it is
endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary
Guarantors. Such signatures upon the notation of Subsidiary Guarantee may be
by manual or facsimile signature of such officers and may be imprinted or
otherwise reproduced on the Subsidiary Guarantee, and in case any such officer
who shall have signed the notation of Subsidiary Guarantee shall cease to be
such officer before the Security on which such notation of Subsidiary Guarantee
is endorsed shall have been authenticated and delivered by the Trustee or
disposed of by the Company, such Security nevertheless may be authenticated and
delivered or disposed of as though the person who signed the notation of
Subsidiary Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.

Section 13.7 Severability. In case any provision of this
Subsidiary Guarantee shall be invalid, illegal or unenforceable, that portion
of such provision that is not invalid, illegal or unenforceable shall remain in
effect, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

Section 13.8 Subsidiary Guarantees Subordinated to
Guarantor Senior Indebtedness. Each Subsidiary Guarantor covenants and agrees,
and each Holder of a Security, by his acceptance of the Subsidiary Guarantees,
likewise covenants and agrees, for the benefit of the holders, from time to
time, of Guarantor Senior Indebtedness, that the payments by such Subsidiary
Guarantor in respect of its Subsidiary Guarantee are subordinated and subject
in right of payment, to the extent and in the manner provided in this Article
XIII, to the prior payment in full of all Guarantor Senior Indebtedness of such
Subsidiary Guarantor, whether outstanding on the date of this Indenture or
thereafter created, incurred, assumed or guaranteed; provided, however, that
the Subsidiary Guarantee of such Subsidiary Guarantor, the Indebtedness
represented thereby and the payment of the principal of (and premium, if any,
on) and the interest on the Securities pursuant to such Subsidiary Guarantee in
all respects shall rank pari passu with, or prior to, all existing and future
unsecured indebtedness (including, without limitation, Indebtedness) of such
Subsidiary Guarantor that is subordinated to its Guarantor Senior Indebtedness.

This Article XIII shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue
to hold, Guarantor Senior Indebtedness, and such provisions are made for the
benefit of the holders of Guarantor Senior Indebtedness, and such holders are
made obligees hereunder and any of them may enforce such provisions.

Section 13.9 Subsidiary Guarantors Not to Make Payments
with Respect to Subsidiary Guarantees in Certain Circumstances.

(a) No payment or distribution of any Property of any
Subsidiary Guarantor of any kind or character (other than Permitted Guarantor
Junior Securities) may be made by such Subsidiary Guarantor in respect of its
Subsidiary Guarantee upon the happening of any default in respect of the
payment or required prepayment of any of its Guarantor Senior Indebtedness when
the same becomes due and payable (a "Subsidiary Guarantor Payment Default"),
unless and until such Subsidiary Guarantor Payment Default shall have been
cured or waived in writing or shall have

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ceased to exist or such Guarantor Senior Indebtedness shall have been paid in
full or otherwise discharged, after which such Subsidiary Guarantor shall
resume making any and all required payments in respect of its Subsidiary
Guarantee, including any missed payments.

(b) Upon the happening of any event (other than a
Subsidiary Guarantor Payment Default) the occurrence of which entitles one or
more Persons to accelerate the maturity of any Specified Guarantor Senior
Indebtedness (a "Subsidiary Guarantor Non-payment Default"), and receipt by the
applicable Subsidiary Guarantor and the Trustee of written notice thereof from
one or more of the holders of such Specified Guarantor Senior Indebtedness or
their representative (a "Subsidiary Guarantor Payment Notice"), then, unless
and until such Subsidiary Guarantor Non-payment Default shall have been cured
or waived in writing or shall have ceased to exist or such Specified Guarantor
Senior Indebtedness is paid in full or otherwise discharged or the holders (or
a representative of the holders) of such Specified Guarantor Senior
Indebtedness give their written approval, no payment or distribution shall be
made by such Subsidiary Guarantor in respect of its Subsidiary Guarantee (other
than Permitted Guarantor Junior Securities); provided, however, that these
provisions will not prevent the making of any payment for more than 179 days
after a Subsidiary Guarantor Payment Notice shall have been given after which
such Subsidiary Guarantor will resume making any and all required payments in
respect of its Subsidiary Guarantee, including any missed payments.
Notwithstanding the foregoing, (1) not more than one Subsidiary Guarantor
Payment Notice shall be given with respect to any Subsidiary Guarantee within a
period of 360 consecutive days and (2) there shall be a period of at least 181
consecutive days in each period of 360 consecutive days when no Subsidiary
Guarantor Payment Notice is in effect with respect to such Subsidiary
Guarantee. No Subsidiary Guarantor Non-payment Default that existed or was
continuing on the date of any Subsidiary Guarantor Payment Notice with respect
to the Designated Guarantor Senior Indebtedness initiating such Subsidiary
Guarantor Payment Notice will be, or can be, made the basis for the
commencement of a subsequent Subsidiary Guarantor Payment Notice with respect
to such Subsidiary Guarantee, unless such default has been cured or waived for
a period of not less than 90 consecutive days.

(c) In the event that, notwithstanding the foregoing, a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section 13.9, then and in such event such payment
shall be paid over and delivered forthwith to the Company. In the event that a
Subsidiary Guarantor shall make any payment in respect of its Subsidiary
Guarantee to the Trustee and the Trustee shall receive written notice of a
Subsidiary Guarantor Payment Default or a Subsidiary Guarantor Nonpayment
Default from one or more of the Holders of Guarantor Senior Indebtedness (or
their representative) prior to making any payment to Holders in respect of the
Subsidiary Guarantee and prior to 11:00 a.m. Eastern Time on the date which is
two Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose, such payments shall be paid over by the
Trustee and delivered forthwith to the Company. Each Subsidiary Guarantor
shall give prompt written notice to the Trustee of any default under any of its
Guarantor Senior Indebtedness or under any agreement pursuant to which its
Guarantor Senior Indebtedness may have been issued.

Section 13.10 Subsidiary Guarantees Subordinated to Prior
Payment of All Guarantor Senior Indebtedness upon Dissolution, etc. Upon any
distribution of Properties of any Subsidiary

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Guarantor or payment on behalf of a Subsidiary Guarantor in the event of any
Insolvency or Liquidation Proceeding with respect to such Subsidiary Guarantor:

(a) the holders of such Subsidiary Guarantor's Guarantor
Senior Indebtedness shall be entitled to receive payment in full of such
Guarantor Senior Indebtedness, or provision must be made for such payment,
before the Holders are entitled to receive any direct or indirect payment or
distribution of any kind or character, whether in cash, property or securities
(other than Permitted Guarantor Junior Securities), on account of any payment
in respect of such Subsidiary Guarantor's Subsidiary Guarantee;

(b) any direct or indirect payment or distribution of
Properties of such Subsidiary Guarantor of any kind or character, whether in
cash, property or securities (other than a payment or distribution in the form
of Permitted Guarantor Junior Securities), by set-off or otherwise, to which
the Holders or the Trustee, on behalf of the Holders, would be entitled except
for the provisions of this Article XIII, shall be paid by the Subsidiary
Guarantor or by any liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of such Guarantor
Senior Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Guarantor Indebtedness may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of such
Guarantor Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all such Guarantor Senior Indebtedness,
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Indebtedness; and

(c) in the event that, notwithstanding the foregoing
provisions of this Section 13.10, any direct or indirect payment or
distribution of Properties of such Subsidiary Guarantor of any kind or
character, whether in cash, property or securities (other than a payment or
distribution in the form of Permitted Guarantor Junior Securities), shall be
received by the Trustee or the Holders before all such Guarantor Senior
Indebtedness is paid in full or otherwise discharged, such Properties shall be
received and held in trust for and shall be paid over to the holders of such
Guarantor Senior Indebtedness remaining unpaid or their representatives, for
application to the payment of such Guarantor Senior Indebtedness until all such
Guarantor Senior Indebtedness shall have been paid or provided for in full,
after giving effect to any concurrent payment or distribution to the holders of
such Guarantor Senior Indebtedness.

The Company or a Subsidiary Guarantor shall give prompt
written notice to the Trustee of the occurrence of any Insolvency or
Liquidation Proceeding with respect to such Subsidiary Guarantor.

Section 13.11 Holders to be Subrogated to Rights of Holders
of Guarantor Senior Indebtedness. After the payment in full of all Guarantor
Senior Indebtedness of a Subsidiary Guarantor, the Holders shall be subrogated
(equally and ratably with the holders of all other Indebtedness of such
Subsidiary Guarantor which by its express terms is subordinated to such
Guarantor Senior Indebtedness to substantially the same extent as such
Subsidiary Guarantee is so subordinated and which is entitled to like rights of
subrogation as a result of payments made to the holders of such Guarantor
Senior Indebtedness) to the rights of the holders of such Guarantor Senior
Indebtedness to receive payments or distributions of cash, property and
securities of such Subsidiary

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Guarantor applicable to such Guarantor Senior Indebtedness until all amounts
owing on the Securities shall be paid in full, and for the purpose of such
subrogation no payments or distributions to the holders of such Guarantor
Senior Indebtedness by or on behalf of such Subsidiary Guarantor or by or on
behalf of the Holders by virtue of this Article XIII which otherwise would have
been made to the Holders shall, as between such Subsidiary Guarantor, its
creditors other than the holders of Guarantor Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by such
Subsidiary Guarantor to or on account of such Guarantor Senior Indebtedness, it
being understood that the subordination provisions of this Article XIII are,
and are intended solely for, the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Guarantor Senior Indebtedness, on
the other hand.

Section 13.12 Obligations of the Subsidiary Guarantors
Unconditional. Nothing contained in this Article XIII or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between
Subsidiary Guarantors and the Holders, the obligation of the Subsidiary
Guarantors under the Subsidiary Guarantees, or is intended to or shall affect
the relative rights of the Holders and creditors of the Subsidiary Guarantors,
nor shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon Default
under this Indenture subject to the rights, if any, under this Article XIII of
the holders of Guarantor Senior Indebtedness in respect of cash, property or
securities of any Subsidiary Guarantor received upon the exercise of any such
remedy. Upon any distribution of Properties of a Subsidiary Guarantor referred
to in this Article XIII, the Trustee, subject to the provisions of Section 6.2
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of a trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, or agent or other person
making any distribution to the Trustee or to the Holders of the Securities, for
the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the related Guarantor Senior Indebtedness and
other indebtedness of such Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article XIII.

Section 13.13 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice. The Trustee shall not at any time be charged
with knowledge of the existence of any facts that would prohibit the making of
any payment to or by the Trustee, unless it shall have received at its
Corporate Trust Office written notice thereof from a Subsidiary Guarantor or
from one or more holders of Guarantor Senior Indebtedness or Designated
Guarantor Senior Indebtedness, in the case of a Subsidiary Guarantor
Non-payment Default, or from any representative thereof; and, prior to the
receipt of any such written notice, the Trustee, subject to TIA Sections 315(a)
through 315(d), shall be entitled to assume conclusively that no such facts
exist. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Guarantor
Senior Indebtedness or Designated Guarantor Senior Indebtedness, in the case of
a Subsidiary Guarantor Non-payment Default (or a representative on behalf of
such holder), to establish that such notice has been given by a holder of
Guarantor Senior Indebtedness or Designated Guarantor Senior Indebtedness, in
the case of a Subsidiary Guarantor Non-payment Default, or a representative on
behalf of any such holder or holders.

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Section 13.14 Application by Trustee of Money Deposited
with it. Except as provided in Article XIV, any deposit of money by a
Subsidiary Guarantor with the Trustee or any Paying Agent (whether or not in
trust) for any payment in respect of the related Subsidiary Guarantee shall be
subject to the provisions of Sections 13.8, 13.9, 13.10 and 13.11 hereof except
that, if prior to 11:00 a.m. Eastern time on the date which is two Business
Days prior to the date on which by the terms of this Indenture any such money
may become payable for any purpose, the Trustee or, in the case of any such
deposit of money with a Paying Agent, the Paying Agent shall not have received
with respect to such money the notice provided for in Section 13.13 hereof,
then the Trustee or such Paying Agent, as the case may be, shall have full
power and authority to receive such money and to apply the same to the purpose
for which it was received, and shall not be affected by any notice to the
contrary which may be received by it on or after 11:00 a.m., Eastern time, two
Business Days prior to such payment date. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person as a holder of Guarantor Senior Indebtedness to participate
in any payment or distribution pursuant to this Article XIII, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Guarantor Senior Indebtedness held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article XIII, and if such evidence is not furnished, the Trustee may defer
any payment to such Person pending judicial determination as to the right of
such Person to receive such payment.

The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Guarantor Senior Indebtedness but shall have only such
obligations to such holders as are expressly set forth in this Article XIII.

Section 13.15 Subordination Rights Not Impaired by Acts or
Omissions of Subsidiary Guarantors or Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor Senior Indebtedness
of a Subsidiary Guarantor to enforce subordination as provided herein shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of such Subsidiary Guarantor or by any act or failure to act by any
such holder, or by any noncompliance by such Subsidiary Guarantor with the
terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with.

Without in any way limiting the generality of the preceding
paragraph of this Section, the holders of Guarantor Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Trustee
or the Holders of the Securities, without incurring responsibility to the
Holders of the Securities and without impairing or releasing the subordination
or other benefits provided in this Article, or the obligations hereunder of the
Holders of the Securities to the holders of Guarantor Senior Indebtedness, do
any one or more of the following: (1) change the manner, place or terms of
payment or extend the time of payment of, or renew, exchange, amend, increase
or alter, Guarantor Senior Indebtedness or the term of any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding or any liability of any obligor thereon (unless such change,
extension or alteration results in such Indebtedness no longer being Guarantor
Senior Indebtedness as defined in this Indenture); (2) sell, exchange, release
or otherwise deal with any Property pledged, mortgaged or otherwise securing
Guarantor Senior Indebtedness; (3) settle or compromise any Guarantor Senior
Indebtedness or any liability of any obligor thereon

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or release any Person liable in any manner for the collection of Guarantor
Senior Indebtedness; and (4) exercise or refrain from exercising any rights
against the Company and any other Person.

Section 13.16 Holders Authorize Trustee to Effectuate
Subordination of Subsidiary Guarantees. Each Holder, by his acceptance
thereof, authorizes and expressly directs the Trustee on his behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article XIII and appoints the Trustee as his attorney-in-fact
for such purpose, including, in the event of any Insolvency or Liquidation
Proceeding with respect to any Subsidiary Guarantor, the immediate filing of a
claim for the unpaid balance of his Securities pursuant to the related
Subsidiary Guarantee in the form required in said proceedings and the causing
of said claim to be approved.

Section 13.17 Right of Trustee to Hold Guarantor Senior
Indebtedness. The Trustee shall be entitled to all of the rights set forth in
this Article XIII in respect of any Guarantor Senior Indebtedness at any time
held by it to the same extent as any other holder of Guarantor Senior
Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.

Section 13.18 Article XIII Not to Prevent Events of
Default. The failure to make a payment on account of the Subsidiary Guarantees
by reason of any provision in this Article XIII shall not be construed as
preventing the occurrence of an Event of Default under this Indenture.

Section 13.19 Payment. For purposes of this Article XIII,
a payment with respect to any Subsidiary Guarantee or with respect to principal
of or interest on any Security or any Subsidiary Guarantee shall include,
without limitation, payment of principal of and interest on any Security, any
depositing of funds under Article IV hereof, any payment on account of any
repurchase or redemption of any Security and any payment or recovery on any
claim (whether for rescission or damages and whether based on contract, tort,
duty imposed by law, or any other theory of liability) relating to or arising
out of the offer, sale or purchase of any Security.

ARTICLE XIV

SUBORDINATION OF SECURITIES

Section 14.1 Securities Subordinate to Senior
Indebtedness. The Company covenants and agrees, and each Holder of a Security,
by his acceptance thereof, likewise covenants and agrees for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article XIV, the Indebtedness
represented by the Securities and the payment of and distributions of or with
respect to the Senior Subordinated Note Obligations are hereby expressly made
subordinate and subject in right of payment as provided in this Article to the
prior payment in full in cash or cash equivalents of all amounts payable under
all existing and future Senior Indebtedness.

This Article XIV shall constitute a continuing offer to all
persons who, in reliance upon such provisions, become holders of, or continue
to hold Senior Indebtedness; and such

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provisions are made for the benefit of the holders of Senior Indebtedness; and
such holder are made obligees hereunder and they or each of them may enforce
such provisions.

Section 14.2 Payment Over of Proceeds upon Dissolution,
etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or
any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Company (or its creditors,
as such) or its assets, or (b) any liquidation, dissolution or other winding-up
of the Company, whether voluntary or involuntary, or (c) any assignment for the
benefit of creditors or other marshalling of assets or liabilities of the
Company, then and in any such event:

(1) the holders of all Senior Indebtedness shall
be entitled to receive payment in full in cash or cash
equivalents of all Senior Indebtedness before the Holders of
the Securities are entitled to receive any direct or indirect
payment or distribution of any kind or character (excluding
Permitted Junior Securities of the Company) on account of
Senior Subordinated Note Obligations; and

(2) any direct or indirect payment or
distribution of assets of the Company of any kind or
character, whether in cash, property or securities (excluding
Permitted Junior Securities of the Company), by set-off or
otherwise, to which the Holders or the Trustee would be
entitled but for the provisions of this Article shall be paid
by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of the
Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full in cash or cash equivalents
of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and

(3) in the event that, notwithstanding the
foregoing provisions of this Section 14.2, the Trustee or the
Holder of any Note shall have received any payment or
distribution of properties or assets of the Company of any
kind or character, whether in cash, property or securities, by
set off or otherwise, in respect of any Senior Subordinated
Note Obligations before all Senior Indebtedness is paid or
provided for in full, then and in such event such payment or
distribution (excluding Permitted Junior Securities of the
Company) shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or
distribution of assets of the Company for application to the
payment of all Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness in full, after
giving effect to any concurrent payment or distribution to or
for the holders of Senior Indebtedness.

The consolidation of the Company with, or the merger of the
Company with or into, another person or the liquidation or dissolution of the
Company following the conveyance, transfer or lease of its properties and
assets substantially as an entirety to another person upon the terms and

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conditions set forth in Article VIII hereof shall not be deemed a dissolution,
winding-up, liquidation, reorganization, assignment for the benefit of
creditors or marshalling of assets and liabilities of the Company for the
purposes of this Article if the person formed by such consolidation or the
surviving entity of such merger or the person which acquires by conveyance,
transfer or lease such properties and assets substantially as an entirety, as
the case may be, shall, as a part of such consolidation, merger, conveyance,
transfer or lease, comply with the conditions set forth in such Article VIII
hereof to the extent applicable.

Section 14.3 Suspension of Payment When Senior
Indebtedness in Default.

(a) Unless Section 14.2 hereof shall be applicable, upon
the occurrence of a payment Default, no direct or indirect payment or
distribution of any assets of the Company of any kind or character shall be
made by or on behalf of the Company on account of the Senior Subordinated Note
Obligations or on account of the purchase or redemption or other acquisition of
any Senior Subordinated Note Obligations unless and until such Payment Default
shall have been cured or waived or shall have ceased to exist or such Senior
Indebtedness shall have been discharged or paid in full in cash in cash
equivalents, after which, subject to Section 14.2 hereof (if applicable), the
Company shall resume making any and all required payments in respect of the
Notes and the other Senior Subordinated Note Obligations, including any missed
payments.

(b) Unless Section 14.2 hereof shall be applicable, upon
(1) the occurrence of a Non-payment Default and (2) receipt by the Trustee from
a Senior Representative of written notice of such occurrence stating that such
notice is a Payment Blockage Notice pursuant to Section 14.3(b) of this
Indenture, no payment or distribution of any assets of the Company of any kind
or character shall be made by or on behalf of the Company on account of any
Senior Subordinated Note Obligations or on account of the purchase or
redemption or other acquisition of Senior Subordinated Note Obligations for a
period ("Payment Blockage Period") commencing on the date of receipt by the
Trustee of such notice unless and until the earlier to occur of the following
events (subject to any blockage of payments that may then be in effect under
Section 14.2 hereof or subsection (a) of this Section 14.3 hereof) (w) 179 days
shall have elapsed since receipt of such written notice by the Trustee, (x) the
date, as set forth in a written notice to the Company or the Trustee from the
Senior Representative initiating such Payment Blockage Period, on which such
Non-payment Default shall have been cured or waived or shall have ceased to
exist (provided that no other Payment Default or Non-Payment Default has
occurred and is then continuing after giving effect to such cure or waiver),
(y) such Designated Senior Indebtedness shall have been discharged or paid in
full in cash or cash equivalents or (z) such Payment Blockage Period shall have
been terminated by written notice to the Company or the Trustee from the Senior
Representative initiating such Payment Blockage Period, after which, subject to
Section 14.2 hereof (if applicable), the Company shall promptly resume making
any and all required payments in respect of the Senior Subordinated Note
Obligations, including any missed payments. Notwithstanding any other
provision of this Indenture, only one Payment Blockage Period may be commenced
within any 360 consecutive day period. No Non-payment Default with respect to
Designated Senior Indebtedness that existed or was continuing on the date of
the commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or can be
made, the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 360 consecutive days, unless such default
shall have been cured or waived for a period of not less than 90 consecutive
days (it being acknowledged that any subsequent action, or any breach of any

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financial covenant for a period commencing after the date of commencement of
such Payment Blockage Period, that, in either case, would give rise to a
Non-payment Default previously existed or was continuing shall constitute a new
Non- payment Default for this purpose; provided that, in the case of a breach
of a particular financial covenant, the Company shall have been in compliance
for at least one full 90 consecutive day period commencing after the date of
commencement of such Payment Blockage Period). In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice referred to in clause (2) hereof and there must be a 181 consecutive day
period in any 360 consecutive day period during which no Payment Blockage
Period is in effect pursuant to this Section 14.3(b).

(c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Security shall have received any payment or
distribution prohibited by the foregoing provisions of this Section 14.3, then
and in such event such payment or distribution shall be paid over and delivered
forthwith to the Senior Representatives or as a court of competent jurisdiction
shall direct for application to the payment of any due and unpaid Senior
Indebtedness, to the extent necessary to pay all such due and unpaid Senior
Indebtedness in cash or cash equivalents, after giving effect to any concurrent
payment to or for the holders of Senior Indebtedness.

Section 14.4 Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, notwithstanding any other
provisions of the Indenture, the Trustee undertakes to perform or to observe
only such of its covenants and obligations as are specifically set forth in
this Article XIV, and no implied covenants or obligations with respect to the
holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and the Trustee shall not be liable to any
holder of Senior Indebtedness if it shall mistakenly pay over or deliver to
Holders, the Company or any other person moneys or assets to which any holder
of Senior Indebtedness shall be entitled by virtue of this Article XIV or
otherwise.

Section 14.5 Subrogation to Rights of Holders of Senior
Indebtedness. Upon the payment in full of cash or cash equivalents of all
Senior Indebtedness, the Holders of the Securities shall be subrogated (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to Senior Indebtedness to substantially the same
extent as the Securities are so subordinated and which is entitled to like
rights of subrogation as a result of the payments made to the holders of Senior
Indebtedness) to the rights of the holders of such Senior Indebtedness to
receive payments and distributions of cash, property and securities applicable
to the Senior Indebtedness until the principal of, premium, if any, and
interest on the Securities shall be paid in full in cash or cash equivalents.
For purposes of such subrogation, no payments or distributions to the holders
of Senior Indebtedness of any cash, property or securities to which the Holders
of the Securities or the Trustee would be entitled except for the provisions of
this Article XIV, and no payments over pursuant to the provisions of this
Article XIV to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee shall, as among the Company, its creditors other than holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be payment
or distribution by the Company to or on account of the Senior Indebtedness.

If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article XIV shall
have been applied, pursuant to the provisions of this Article XIV, to the
payment of all amounts payable under the Senior Indebtedness of the

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Company and such payments or distributions received by such holders of such
Senior Indebtedness shall be in excess of the amount sufficient to pay all
amounts payable under or in respect of such Senior Indebtedness in full in cash
or cash equivalents, then and in such case the Holders shall be entitled to
receive the amount of such excess from the Company upon and to the extent of
any return of such excess by the holders of such Senior Indebtedness.

Section 14.6 Provisions Solely To Define Relative Rights.
The provisions of this Article XIV are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article XIV or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other
than the holders of the Senior Indebtedness; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon a Default or an Event of Default under this Indenture,
subject to the rights, if any, under this Article XIV of the holders of Senior
Indebtedness.

The failure to make a payment on account of any Senior
Subordinated Note Obligations by reason of any provision of this Article XIV
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.

Section 14.7 Trustee To Effectuate Subordination. Each
Holder of a Security by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article XIV and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company whether in bankruptcy, insolvency, receivership proceedings, or
otherwise, the timely filing of a claim for the unpaid balance of the
Indebtedness of the Company owing to such Holder in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file such a claim prior to 30 days before the expiration of the time to
file such a claim, the holders of Senior Indebtedness, or any Senior
Representative, may file such a claim on behalf of Holders of the Securities.

Section 14.8 No Waiver of Subordination Provisions.

(a) No right of any present or future holder of any
Senior Indebtedness to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.

(b) Without limiting the generality of subsection (a) of
this Section 14.8, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or

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notice to the Trustee or the Holders of the Securities, without incurring
responsibility to the Holders of the Securities and without impairing or
releasing the subordination provided in this Article XIV or the obligations
hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (1) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or any liability of any obligor thereon; (2)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Indebtedness; (3) settle or compromise any Senior
Indebtedness or any liability of any obligor thereon or release any person
liable in any manner for the collection or payment of Senior Indebtedness; and
(4) exercise or refrain from exercising any rights against the Company and any
other person; provided, however, that in no event shall any such actions limit
the right of the Holders of the Securities to take any action to accelerate the
maturity of the Notes pursuant to Article V hereof or to pursue any rights or
remedies hereunder or under applicable laws if the taking of such action does
not otherwise violate the terms of this Indenture.

Section 14.9 Notice to Trustee.

(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article XIV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from the Company or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of this Section 14.9,
shall be entitled in all respects to assume that no such facts exist; provided,
however, that if the Trustee shall not have received the notice provided for in
this Section 14.9 at least two Business days prior to the date upon which by
the terms hereof any money may become payable for any purpose under this
Indenture (including, without limitation, the payment of the principal of,
premium, if any, or interest on any Security), then, anything herein contained
to the contrary notwithstanding but without limiting the rights and remedies of
the holders of Senior Indebtedness or any trustee, fiduciary or agent thereof,
the Trustee shall have full power and authority to receive such money and to
apply the same to the purpose for which such money was received and shall not
be affected by any notice to the contrary which may be received by it within
two Business Days prior to such date; nor shall the Trustee be charged with
knowledge of the curing of any such default or the elimination of the act or
condition preventing any such payment unless and until the Trustee shall have
received an Officers' Certificate to such effect.

(b) Subject to TIA Sections 315(a) through 315(d), the
Trustee shall be entitled to rely on the delivery to it of a written notice to
the Trustee by a person representing himself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor). In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any person
as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XIV, the Trustee may request such person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any

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other facts pertinent to the rights of such person under this Article XIV, and
if such evidence is not furnished, the Trustee may defer any payment to such
person pending judicial determination as to the right of such person to receive
such payment.

Section 14.10 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article XIV, the Trustee, subject to TIA Sections 315(a)
through 315(d), and the Holders, shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof
or payable thereof, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XIV; provided that the
foregoing shall apply only if such court has been fully apprised of the
provisions of this Article XIV.

Section 14.11 Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual
capacity shall be entitled to all the rights set forth in this Article XIV with
respect to any Senior Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article XIV shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.6 hereof.

Section 14.12 Article Applicable to Paying Agents. In case
at any time any Paying Agent other than the Trustee shall have been appointed
by the Company and be then acting hereunder, the term "Trustee" as used in this
Article XIV shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within its meaning as
fully for all intents and purposes as if such Paying Agent were named in this
Article XIV in addition to or in place of the Trustee; provided, however, that
Section 14.11 hereof shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.

Section 14.13 No Suspension of Remedies. Nothing contained
in this Article XIV shall limit the right of the Trustee or the Holders of
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article V hereof or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article XIV of
the holders, from time to time, of Senior Indebtedness.

ARTICLE XV

MISCELLANEOUS

Section 15.1 Compliance Certificates and Opinions. Upon
any application or request by the Company and/or any Subsidiary Guarantor to
the Trustee to take any action under any provision of this Indenture, the
Company and/or such Subsidiary Guarantor, as the case may be, shall furnish to
the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or this Indenture. Each such certificate and each such opinion
shall be in the form of an Officers'

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Certificate or an Opinion of Counsel, as applicable, and shall comply with the
requirements of this Indenture.

Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;

(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;

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

(4) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been
complied with.

The certificates and opinions provided pursuant to this Section 15.1 and the
statements required by this Section 15.1 shall comply in all respects with TIA
Sections 314(c) and (e).

Section 15.2 Form of Documents Delivered to Trustee. In
any case where several matters are required to be certified by, or covered by
an opinion of, any specified Person, it is not necessary that all such matters
be certified by, or covered by the opinion of, only one such Person, or that
they be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.

Any certificate or opinion of an Officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel may be based,
insofar as it relates to factual matters, upon an Officers' Certificate of an
Officer or Officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
with respect to such matters is erroneous.

Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.

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Section 15.3 Acts of Holders.

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

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

(c) The ownership, principal amount and serial numbers of
Securities held by any Person, and the date of holding the same, shall be
proved by the Security Register.

(d) If the Company shall solicit from the Holders of
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do
so. Notwithstanding TIA Section 316(c), such record date shall be the record
date specified in or pursuant to such Board Resolution, which shall be a date
not earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on such record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, wavier or other Act, and for that
purpose the Outstanding Securities shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.

(e) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu

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thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.

Section 15.4 Notices, etc. to Trustee, Company and
Subsidiary Guarantors. Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder or by the Company
or any Subsidiary Guarantor shall be sufficient for every
purpose hereunder if made, given, furnished or filed in
writing and delivered in person or mailed by certified or
registered mail (return receipt requested) to the Trustee at
its Corporate Trust Office; or

(2) the Company or any Subsidiary Guarantor by
the Trustee or by any Holder shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided)
if in writing and delivered in person or mailed by certified
or registered mail (return receipt requested) to the Company
addressed to it or a Subsidiary Guarantor, as applicable, at
the Company's principal office located at 8440 Jefferson
Highway, Suite 420, Baton Rouge, Louisiana 70809, or at any
other address otherwise furnished in writing to the Trustee by
the Company.

Section 15.5 Notice to Holders; Waiver. Where this
Indenture provides for notice of any event to Holders by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.

In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.

Section 15.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

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Section 15.7 Successors and Assigns. All covenants and
agreements in this Indenture by the Company and the Subsidiary Guarantors shall
bind their respective successors and assigns, whether so expressed or not. All
agreements of the Trustee in this Indenture shall bind its successor.

Section 15.8 Separability Clause. In case any provision
in this Indenture or in the Securities or the Subsidiary Guarantees shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefore against any party hereto.

Section 15.9 Benefits of Indenture. Nothing in this
Indenture or in the Securities, express or implied, shall give to any Person
(other than the parties hereto, any Paying Agent, any Securities Registrar and
their successors hereunder and the Holders and, to the extent set forth in
Section 13.4 hereof, creditors of Subsidiary Guarantors) any benefit or any
legal or equitable right, remedy or claim under this Indenture.

Section 15.10 Governing Law; Trust Indenture Act Controls.

(a) THIS INDENTURE, THE SUBSIDIARY GUARANTEES AND THE
SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. THE
COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN, THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR A SUBSIDIARY
GUARANTEE, AND THE COMPANY AND EACH SUBSIDIARY GUARANTOR IRREVOCABLY AGREE THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
BY ANY SUCH COURT.

(b) This Indenture is subject to the provisions of the
Trust Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by Sections 310 and 318, inclusive, of the
Trust Indenture Act, or conflicts with any provision (an "incorporated
provision") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act sections, such imposed duties or incorporated
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.

Section 15.11 Legal Holidays. In any case where any
Interest Payment Date, Redemption Date, or Stated Maturity or Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Securities or the Subsidiary Guarantees) payment of
interest or principal (and premium, if any) need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date, Redemption Date or at the Stated
Maturity or Maturity; provided that no

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<PAGE> 111
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date, Stated Maturity or Maturity, as the case may be.

Section 15.12 No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company shall not have any
liability for any obligations of the Company under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder, by accepting any of the Securities,
waives and releases all such liability to the extent permitted by applicable
law.

Section 15.13 Duplicate Originals. The parties may sign
any number of copies or counterparts of this Indenture. Each signed copy shall
be an original, but all of them together represent the same agreement.

Section 15.14 No Adverse Interpretation of Other
Agreements. This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.

IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.

ISSUER:

FLORES & RUCKS, INC.,
a Delaware corporation

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

SUBSIDIARY GUARANTOR:

FLORES & RUCKS, INC.,
a Louisiana corporation

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

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<PAGE> 112

TRUSTEE:

FLEET NATIONAL BANK,
as Trustee

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

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<PAGE> 1

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT is made as of this 10th day
of July, 1996 ("AGREEMENT"), between MOBIL OIL EXPLORATION & PRODUCING
SOUTHEAST INC., a Delaware corporation ("SELLER"), with a place of business at
12450 Greenspoint Drive, Houston, Texas 77060-1991, and FLORES & RUCKS, INC., a
Louisiana corporation ("PURCHASER"), with a place of business at 500 Dover
Boulevard, Suite 300, Lafayette, Louisiana 70503.

WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, on the terms and conditions set forth in this
Agreement, all of Seller's interests and rights in certain oil and gas
lease(s), agreement(s), contract(s), immovable property, movable property, and
equipment; and

WHEREAS, at Purchaser's request or otherwise, and in the
interest of full disclosure without any representation as to its meaning or
validity, Seller may desire to provide Purchaser and/or has heretofore provided
Purchaser with proprietary, subjective, confidential, or interpretative data,
reports, information or projections concerning the past or present production
of hydrocarbons or the quality and quantity, if any, of the hydrocarbon
reserves or the environmental condition of the Interests defined in Article 2
(collectively, referred to as "PROPRIETARY DATA"); and

WHEREAS, Seller disclaims all responsibility for the accuracy
or completeness of the Proprietary Data; and

WHEREAS, Purchaser specifically acknowledges and agrees that
the Proprietary Data is proprietary, subjective, confidential and
interpretative; that Purchaser will not and/or has not heretofore relied on the
Proprietary Data for any purpose whatsoever, including, but not limited to, the
calculation of its own projections concerning the quality and quantity, if any,
of hydrocarbon reserves contained in the Interests or its decision to purchase
the Interests AND THAT PURCHASER SHALL NOT USE THE PROPRIETARY DATA AS THE
BASIS OF ANY CLAIM, DEMAND, LIABILITY OR CAUSE OF ACTION FOR MISREPRESENTATION,
BREACH OF WARRANTY, BREACH OF CONTRACT OR OTHERWISE.

NOW, THEREFORE, for good and valuable consideration and for
the mutual covenants herein contained, Seller and Purchaser agree as follows:

ARTICLE 1. EFFECTIVE TIME

The ("EFFECTIVE TIME") of the sale and purchase provided for in this
Agreement shall be August 1, 1996, as of 7:00 a.m., local time.

ARTICLE 2. PURCHASE AND SALE

2.01 THE INTERESTS: Subject to the terms and conditions of this Agreement,
including Seller's and Purchaser's receipt of the requisite approvals
as specified in Section 2.04, and the exceptions listed in Section
2.02, at Closing (as hereinafter defined), Seller shall sell and
Purchaser shall purchase as of the Effective Time all of Seller's
right, title and interest in and to the following assets described in
Subsections 2.01(a) through 2.01(e) (collectively called the
"INTERESTS"):

(a) The oil and gas leases described in Exhibit "A", attached
hereto and made a part hereof, (hereinafter called the
"LEASES") together with all of Seller's right, title and
interest in any pooled, communitized, or unitized acreage
derived by virtue of Seller's ownership of the Leases as
described in Exhibits "A-1" through "A-13" attached hereto and
made a part hereof;

(b) The wells, equipment and facilities located on the Leases and
used directly and exclusively in the operation of the Leases
(collectively called the "EQUIPMENT"), including, but not
limited to, pumps, platforms, well equipment (surface and
subsurface), saltwater disposal wells, water wells, lines and
facilities, sulfur recovery facilities, compressors,
compressor stations,

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<PAGE> 2
dehydration facilities, treating facilities, pipeline
gathering lines, flow lines, and transportation lines (to the
extent they are not owned or operated by any affiliate of
Seller), valves, meters, separators, tanks, tank batteries
and other fixtures;

(c) Oil, condensate, natural gas, and natural gas liquids produced
after the Effective Time, and "line fill" and inventory below
the pipeline connection in tanks at the Effective Time,
attributable to the Leases;

(d) To the extent transferable, all contracts and agreements
concerning the Interests, including, but not limited to, unit
agreements, pooling agreements, areas of mutual interest,
farmout agreements, farmin agreements, saltwater disposal
agreements, water injection agreements, line well injection
agreements, road use agreements, operating agreements and gas
balancing agreements; and

(e) To the extent transferable, all surface use agreements,
easements, rights-of-way, licenses, authorizations, permits,
and similar rights and interests applicable to, or used or
useful in connection with, any or all of the Interests.

2.02 EXCLUDED ASSETS: The following are expressly excluded from the
Agreement:

(a) Tools, vehicles or other rolling stock, boats, communication
equipment, leased equipment, office equipment, computer
equipment and software;

(b) Spot sales contracts, storage or warehouse agreements,
supplier contracts, service contracts, insurance contracts,
and construction agreements; and

2.03 RESERVATION OF RIGHTS: Intentionally Omitted

2.04 MANAGEMENT/BOARD APPROVAL: THE PARTIES UNDERSTAND AND AGREE THAT THIS
AGREEMENT REQUIRES THE APPROVAL OF SEVERAL MEMBERS OF SELLER'S AND
PURCHASER'S MANAGEMENT AND BOARD OF DIRECTORS OR EXECUTIVE COMMITTEE.
IF ANY MEMBER OF SELLER'S OR PURCHASER'S MANAGEMENT FAILS TO APPROVE
THIS AGREEMENT, NEITHER SELLER NOR PURCHASER SHALL HAVE ANY OBLIGATION
TO SUBMIT THIS AGREEMENT TO ANY OTHER MEMBER OF ITS MANAGEMENT, BOARD
OF DIRECTORS OR EXECUTIVE COMMITTEE. SELLER'S AND PURCHASER'S
MANAGEMENT DECISION OR BOARD OF DIRECTORS' OR EXECUTIVE COMMITTEE'S
DECISION WHETHER OR NOT TO APPROVE THIS AGREEMENT SHALL BE IN THE SOLE
AND ABSOLUTE DISCRETION OF THE APPLICABLE MANAGER, BOARD OF DIRECTORS
OR EXECUTIVE COMMITTEE, NONE OF WHICH SHALL HAVE ANY OBLIGATION TO BE
REASONABLE OR NOT BE ARBITRARY.

2.05 EXCLUDED DATA AND INTERPRETATIONS: ANY AND ALL GEOPHYSICAL, SEISMIC
AND OTHER SIMILAR TECHNICAL DATA AND INTERPRETATIONS THEREOF AND ANY
CONFIDENTIAL OR PROPRIETARY DATA SHALL BE EXCLUDED FROM THIS PURCHASE
AND SALE TRANSACTION.

2.06 EXCLUSION OF PRIOR EXISTING RIGHTS OR CLAIMS: THERE IS ALSO
SPECIFICALLY EXCEPTED, EXCLUDED AND RESERVED FROM THE TRANSACTION
CONTEMPLATED HEREBY, ALL RIGHTS AND CLAIMS ARISING, OCCURRING, OR
EXISTING IN SELLER PRIOR TO THE EFFECTIVE TIME, ATTRIBUTABLE TO THE
PERIOD OF TIME PRIOR TO THE EFFECTIVE TIME, INCLUDING, BUT NOT LIMITED
TO, ANY AND ALL CONTRACT RIGHTS, CLAIMS, PENALTIES, RECEIVABLES,
REVENUES, RECOUPMENT RIGHTS, RECOVERY RIGHTS (EXCEPTING GAS
IMBALANCES), ACCOUNTING ADJUSTMENTS, MISPAYMENTS, ERRONEOUS PAYMENTS
OR OTHER CLAIMS OF ANY NATURE RELATING TO ANY TIME PERIOD PRIOR TO THE
EFFECTIVE TIME. ANY SUCH RIGHTS AND CLAIMS ATTRIBUTABLE TO THE PERIOD
OF TIME AFTER THE EFFECTIVE TIME SHALL BE ASSIGNED TO PURCHASER AS A
PART OF THE INTERESTS.

2
<PAGE> 3
ARTICLE 3. SALE PRICE

3.01 MANNER OF PAYMENT: The sale price for the Interests shall be ONE
HUNDRED THIRTY-NINE MILLION, TWO HUNDRED FIFTY THOUSAND DOLLARS
($139,250,000.00), hereinafter called the "SALE PRICE," and shall be
paid as follows:

(a) Upon the execution of this Agreement, Purchaser shall pay or
cause to be paid to Seller the sum of FIVE MILLION DOLLARS
($5,000,000.00), as a performance deposit, hereinafter called
the "PERFORMANCE DEPOSIT", which shall be credited against the
Sale Price at Closing (as hereinafter defined) and held by
Seller or, at Seller's option, Seller's designee as
hereinafter provided. Payment of the Performance Deposit
shall be via wire transfer as provided in Subsection 3.01(d)
or at Seller's option, by certified funds or cashier's check.

(b) At the Closing (as defined in Article 4), Purchaser shall pay
Seller or Seller's designee the balance of the Sale Price, ONE
HUNDRED THIRTY-FOUR MILLION, TWO HUNDRED FIFTY THOUSAND
DOLLARS ($134,250,000.00), plus or minus any adjustments as
hereinafter provided in this Agreement (the "ADJUSTED SALE
PRICE").

(c) Except as provided in Article 8, Seller shall not be obligated
to segregate the Performance Deposit in a separate account,
but may commingle the Performance Deposit with other funds in
Seller's accounts and the Performance Deposit shall not accrue
interest for the benefit of Purchaser. Likewise, in the event
the Performance Deposit is refunded to Purchaser pursuant to
this Agreement, Purchaser shall not be entitled to any
interest on the Performance Deposit.

(d) The Adjusted Sale Price shall be paid to Seller by wire
transfer of immediately available funds to Seller's account at
Citibank N.A., 111 Wall Street, New York, N.Y. ABA 021000089,
Acct. Name Mobil Oil Corporation, Acct. No. 4064-0942, unless
Seller shall deliver written notice to Purchaser not less than
five (5) business days prior to the Closing that it prefers
payment of the Adjusted Sale Price to be made to another
account or payee, in which cases such payment shall be made as
directed therein.

(e) Any applicable sales and gross receipts taxes on the tangible
personal property shall be the responsibility of Purchaser.

3.02 ALLOCATION OF SALE PRICE: Purchaser shall allocate the Sale Price
among the Interests. Said allocation shall be incorporated in this
Agreement as Exhibit "B". References herein to a "PROPERTY" or
"PROPERTIES" refer to the wells, units and other subdivisions of the
Interests on Exhibits "A-1" through "A-13" which have an allocation of
the Sale Price.

ARTICLE 4. THE CLOSING

The sale and purchase described in Article 2 shall take place at a
Closing (the "CLOSING"), at which the Purchaser shall pay or cause to
be paid to Seller the Adjusted Sale Price and any applicable closing
charges and Seller shall deliver, or cause to be delivered, the
conveyancing instruments referred to in Article 13 to Purchaser. The
Closing shall occur at Seller's office located at 12450 Greenspoint
Drive, Houston, Texas 77060-1991 at 10:00 a.m., local time on
September 30, 1996, or at such other time and place to which the
parties may agree in writing (the "CLOSING DATE"). If the Closing
does not occur by the Closing Date because the Management and Board of
Directors or Executive Committee of Seller or Purchaser have failed or
declined to approve this Agreement in the manner described in Section
2.04 above, then Seller and Purchaser shall each have the right and
option to terminate this Agreement upon written notice to the other
party. The Performance Deposit will be promptly returned to
Purchaser, without interest, after such termination.

ARTICLE 5. TERMINATION

5.01 PURCHASER'S BREACH OR DEFAULT: IF THE PURCHASE AND SALE OF THE
INTERESTS IS NOT COMPLETED AS CONTEMPLATED HEREIN BY REASON OF ANY
BREACH OR DEFAULT BY PURCHASER, THEN SELLER SHALL, IN CONSIDERATION OF
HAVING HELD THE INTERESTS

3
<PAGE> 4
OFF THE MARKET AND HAVING REFRAINED FROM DEALING WITH OTHERS
CONCERNING THE INTERESTS AND AS LIQUIDATED DAMAGES IN LIEU OF ALL
OTHER DAMAGES (AND AS SELLER'S SOLE REMEDY), RETAIN THE PERFORMANCE
DEPOSIT. THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO
SELLER OCCASIONED BY SUCH BREACH OR DEFAULT BY PURCHASER WOULD BE
IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF
THE PERFORMANCE DEPOSIT IS A FAIR AND REASONABLE ESTIMATE OF SUCH
DAMAGES UNDER THE CIRCUMSTANCES.

5.02 OTHER TERMINATION: IF THE PURCHASE AND SALE OF THE INTERESTS IS NOT
COMPLETED BECAUSE OF A DEFAULT OR BREACH BY SELLER OR BECAUSE SELLER
OR PURCHASER FAILED TO OBTAIN THE REQUISITE APPROVALS AS REQUIRED IN
SECTION 2.04 ABOVE, PURCHASER SHALL BE ENTITLED TO THE PROMPT RETURN
OF THE PERFORMANCE DEPOSIT WITHOUT INTEREST, IN WHICH EVENT, THE
RETURN OF THE DEPOSIT SHALL BE SELLER'S SOLE OBLIGATION TO PURCHASER
AND THE RECOVERY OF WHICH SHALL BE PURCHASER'S SOLE REMEDY AGAINST
SELLER.

ARTICLE 6. DUE DILIGENCE AND TITLE AND CASUALTY DEFECTS

6.01 ACCESS TO SELLER'S NON-PROPRIETARY INFORMATION: Subject to
Purchaser's confidentiality obligations described in Section 27.15
below and in addition to the Proprietary Data which Seller has
provided to Purchaser as described in the recitals above, and which
Seller will hereafter provide to Purchaser, subject to existing
Agreements with third parties, Seller shall make available to
Purchaser during normal business hours at Seller's offices in Houston
or Dallas, Texas all material non-proprietary files, records,
documents and non- interpretive data of Seller in Seller's possession
or under Seller's control relating to the Interests, including but not
limited to, lease, land, title and division order files (including any
available abstracts of title, title opinions and title curative
documents), contracts, accounting records, correspondence, permitting
files, engineering, production and well files and well logs, along
with access to Seller's 2-D and 3-D proprietary seismic surveys.
Seller shall not be obligated to perform any additional title work and
Seller shall not be obligated to make any existing abstracts and title
opinions current. NO WARRANTY OF ANY KIND IS MADE BY SELLER AS TO THE
INFORMATION SO SUPPLIED OR WITH RESPECT TO INTERESTS TO WHICH THE
INFORMATION RELATES, AND PURCHASER EXPRESSLY AGREES THAT ANY
CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN INDEPENDENT
REVIEW AND JUDGMENT.

6.02 ACCESS TO SELLER'S PROPERTY: Seller shall make a good faith effort to
give Purchaser or Purchaser's authorized representatives, at any
reasonable time(s) before the Closing and upon adequate notice to
Seller, physical access to the acreage described in the Leases and the
Equipment, for the purpose of inspecting and testing (specifically
excluding the shutting-in of any well) same. Such access shall be at
Purchaser's sole risk, cost and expense and Purchaser shall indemnify,
defend, save, discharge, release and hold harmless Seller from, and
pay or reimburse Seller on a current basis for, any and all losses,
liabilities, liens or encumbrances for labor or materials, claims and
causes of action arising out of or in any way connected with or
related to any personal injury to or death of any persons or damage to
property occurring to or on the Interests as a result of Purchaser's
exercise of its rights under this Section 6.02, whether latent or
patent or whether or not such personal injury, death or property
damage is caused by SELLER'S (OR ITS AGENTS, EMPLOYEES OR CONTRACTORS)
(I) ACTIVE NEGLIGENCE, PASSIVE NEGLIGENCE, JOINT NEGLIGENCE,
CONCURRENT NEGLIGENCE OR GROSS NEGLIGENCE; OR (II) STRICT LIABILITY;
OR (III) WILLFUL MISCONDUCT. Purchaser agrees to comply fully with
the rules, regulations and instructions issued by Seller regarding the
actions of Purchaser while upon, entering or leaving the lands
described in the Leases. Seller shall have the right at all times to
participate in the preparation for and conducting of any hearing or
trial related to the indemnity set forth in this Section, as well as
the right to appear on its own behalf or to retain separate counsel at
its expense to represent it at any such hearing or trial.

6.03 TITLE DEFECT: For the purpose of this Agreement, a "TITLE DEFECT"
shall mean a material deficiency in one or more of the following
respects, provided that the non-transferability requirement in any
license, permit, right-of-way, pipeline franchise or easement
affecting the Interests or a requirement that it be renegotiated upon
a transfer of ownership, shall not constitute a Title Defect:

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<PAGE> 5
(a) Seller's title at the Effective Time and at Closing, as to one
or more of the Interests, is subject to an outstanding
mortgage, deed of trust, lien or encumbrance or other adverse
claim not shown on Exhibits "A-1" through "A-13";

(b) Seller's net revenue interest in any of the Properties is less
than the net revenue interest which is set forth in Exhibit
"B" for such Property, or Seller's working interest in any of
the Properties is greater than the working interest shown in
Exhibit "B" for such Property without a corresponding
proportionate increase in the net revenue interest for such
Property;

(c) Seller is in default under some material provision of a lease,
agreement or other contract affecting the Interests; or

(d) Seller's rights and interests set forth on Exhibit "B" are
subject to being reduced by virtue of the exercise by a third
party of a reversionary, back-in or similar right not
reflected or provided for in any of the agreements or other
materials set forth in Exhibits "A-1" through "A-13".

6.04 NOTICE OF TITLE DEFECT: Upon discovery of a Title Defect, Purchaser
shall immediately notify Seller in writing of the nature of the Title
Defect and furnish Seller Purchaser's basis for the assertion of such
Title Defect and data in support thereof. Seller may request an
increase in the Sale Price by delivery to Purchaser of written notice
that the net revenue interest actually owned by Seller in any of the
Interests is greater than that shown on Exhibit "B". Subject to
Seller's limited special warranty of title as provided in Section
11.01 and Exhibit "C", which shall not be diminished by this Section
6.04, any Title Defect which is not disclosed to Seller within fifteen
(15) days prior to the Closing shall conclusively be deemed waived by
Purchaser for all purposes.

6.05 REMEDIES FOR TITLE DEFECTS: Upon timely delivery of notice, either by
Purchaser of a Title Defect or by Seller of an increase in net revenue
interest, Purchaser and Seller shall meet and use their best efforts
to agree on the validity of the claim and the amount of any required
adjustment to the Sale Price, provided that in no event shall any Sale
Price reduction for an affected Property exceed the amount allocated
to the affected Property on Exhibit "B". If Purchaser and Seller
cannot agree on the amount of such a Sale Price adjustment, said
amount shall be determined in accordance with the following
guidelines:

(a) If the Title Defect is based upon Purchaser's notice that
Seller owns a lesser net revenue interest, or the notice is
from Seller to the effect that Seller owns a greater net
revenue interest than that shown on Exhibit "B", then the
portion of the Sale Price allocated on Exhibit "B" to the
affected Property shall be reduced or increased (as the case
may be) in the same proportion that the actual net revenue
interest bears to the net revenue interest shown on Exhibit
"B" for such Property.

(b) If the Title Defect is a lien, encumbrance or other charge
upon a Property which is liquidated in amount, then the
adjustment shall be the sum necessary to be paid to the
obligee to remove the Title Defect from the affected Property.
If the Title Defect represents an obligation or burden upon
the affected Property for which the economic detriment to
Seller is not liquidated but can be estimated with reasonable
certainty as agreed to by the parties, the adjustment shall be
the sum necessary to compensate Purchaser at the Closing for
the adverse economic effect which the Title Defect will have
on the affected Property. If there is a lien or encumbrance
in the form of a judgment secured by a supersedeas bond or
other security approved by the Court issuing such order, it
shall not be considered a Title Defect under this Agreement.

(c) Subject to Subsection 6.05(e), if the Title Defect cannot be
accommodated pursuant to Subsections 6.05(a) or 6.05(b) and
the parties cannot otherwise agree on the amount of such an
adjustment to the Sale Price or Seller cannot cure the Title
Defect to the reasonable satisfaction of Purchaser prior to
the Closing, then, at the option of Purchaser, the Property
affected by the Title Defect shall be excluded from the
Interests conveyed to Purchaser at the Closing and the Sale
Price shall be reduced by the amount allocated by Purchaser to
the affected Property on Exhibit "B".

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<PAGE> 6
(d) Purchaser may only adjust the Sale Price for Title Defects at
the Closing if the cumulative amount of such adjustments in
its favor exceeds $250,000.00. Similarly, Seller may only
adjust the Sale Price by reason of it owning a greater net
revenue interest at the Closing if the cumulative amount of
such adjustments in its favor exceeds $250,000.00. In the
event the net amount of the Sale Price adjustments downward or
upward pursuant to the foregoing exceeds $2,000,000.00, then
Seller or Purchaser may, upon written notice to the other
party, cancel this Agreement and the same shall be of no
further force and effect, save and except that Seller shall
return the Performance Deposit to Purchaser without interest.

(e) If Purchaser shall receive an adjustment at the Closing on
account of a Title Defect, Seller shall have until a date that
is ninety (90) days after the Closing Date to cure the Title
Defect at its cost. If by such date Seller can demonstrate to
Purchaser's reasonable satisfaction that the Title Defect has
been cured, then Seller shall be entitled to reimbursement by
Purchaser for the amount of the adjustment received by
Purchaser at the Closing as a result of the Title Defect.
Purchaser shall pay such amount to Seller within ten (10)
business days from the date that the parties agree the Title
Defect has been cured.

6.06 CASUALTY DEFECT: If prior to the Closing any of the Interests are
substantially damaged or destroyed by fire or other casualty
("CASUALTY DEFECT"), Seller shall notify Purchaser promptly after
Seller learns of such event. Seller shall have the right, but not the
obligation, to cure the Casualty Defect by repairing such damage or,
in the case of personal property or fixtures, replacing them with
equivalent items, no later than the Closing Date, all to Purchaser's
reasonable satisfaction. If any uncured Casualty Defects exist at the
Closing, Purchaser shall proceed to purchase the Interests affected
thereby, and the Sale Price shall be reduced by the aggregate
reduction in the value of the Interests on account of such Casualty
Defects, as determined by the mutual agreement of the parties. If the
parties fail for any reason to agree prior to the Closing on the
amount of any Sale Price adjustments on account of Casualty Defects,
Purchaser shall accept the affected Interests and the Sale Price shall
be reduced by an amount equal to the value of all Casualty Defects not
accounted for at the Closing, as determined by a mutually acceptable
independent appraiser.

ARTICLE 7. THIRD PARTY RIGHTS AND CONSENTS

It is understood by Purchaser that certain of the Interests are or
may be subject to (1) preferential purchase rights, rights of first refusal and
similar option rights in third parties to purchase a part of the Interests
(collectively, "PREFERENTIAL RIGHTS") or (2) lessors' approvals or other
consents to transfer any material part of the Interests (other than
governmental approvals and other consents routinely acquired after a transfer
including the non- transferability requirement of any license, permit,
right-of-way, pipeline franchise or easement, or a requirement for
renegotiation upon transfer of ownership) (collectively, "CONSENTS TO ASSIGN").
Seller shall use its best efforts to notify the holders of such Preferential
Rights of the proposed transfer of the affected Properties and the amount of
the Sale Price allocated to such Properties. If any third party exercises a
valid Preferential Right, the affected Properties shall be excluded from the
Interests and the Sale Price reduced by the amount allocated to the affected
Properties. Seller shall promptly notify Purchaser of the exercise of any
Preferential Right and of the lapse of any applicable period of time within
which a Preferential Right must be exercised. If the time period for the
exercise of any Preferential Rights has not expired on or before Closing and
such Preferential Right has not been exercised or waived on or before the
Closing, and the parties cannot otherwise agree on a procedure to accommodate
the outstanding Preferential Right(s) to the reasonable satisfaction of Seller
and Purchaser, then prior to Closing Seller shall have the option to defer the
Closing on the affected Interests for a period of thirty (30) days following
the expiration of the time period for the exercise of such outstanding
Preferential Rights, and if such option is not exercised, then either party
shall have the right to exclude the affected Interests and the Sale Price shall
be reduced by the amount allocated thereto. Seller shall attempt to satisfy
all Consents to Assign prior to the Closing Date. If a Consent to Assign is
not obtained, then the affected Properties shall be excluded from the Interests
and the Sale Price reduced by (i) the amount allocated to the affected
Properties, if the Consent to Assign prohibits the transfer of an oil and gas
lease, interest in a unit, or other Property, or (ii) in any other case, an
amount mutually agreed to by Purchaser and Seller required to replace any
material part of the Interests necessary for the continued production and sale
of hydrocarbons from the Interests, or in the event the parties cannot agree to
such amount, then the affected Properties shall be excluded from the Interests
and the Sale Price reduced by the amount allocated to the affected Properties.

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ARTICLE 8. TAX-DEFERRED EXCHANGE ELECTION

Seller may, at or before the Closing, designate in writing one or more
Properties which Purchaser will acquire and trade to Seller for the Interests
(herein collectively called the "EXCHANGE PROPERTY"). In the event Seller has
not found a suitable Exchange Property prior to the Closing, Seller may elect,
by notice to Purchaser delivered on or before the Closing Date, to have the
Adjusted Sale Price paid to a trustee until Seller has designated the Exchange
Property. The Exchange Property shall be designated by Seller and acquired by
the trustee within the time periods prescribed in Section 1031 (a)(3) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and shall thereupon be
conveyed to Seller. In the event Seller fails to designate and the agent or
trustee fails to acquire the Exchange Property within such time periods, the
agency or trust shall terminate and the proceeds then held by the trustee shall
be paid immediately to Seller. The rights and responsibilities of Seller,
Purchaser and the trustee shall be documented with such agreements containing
such terms and provisions as shall be determined by Seller to be necessary to
accomplish a tax free exchange under Section 1031 of the Code, subject,
however, to the limitations on costs and liabilities of Purchaser set forth
hereinafter. If Seller makes a tax deferred exchange election, Purchaser shall
not be obligated to pay any additional costs or incur any additional
obligations in the acquisition of the Interests and Seller shall indemnify,
defend, save, discharge, release and hold Purchaser and its affiliates harmless
from and against all claims, expense (including reasonable attorneys' fees),
loss and liability resulting from Purchaser's participation in such an
exchange.

ARTICLE 9. HART-SCOTT-RODINO ACT

This Agreement is subject in all respects to and conditioned upon
compliance by the parties with the Hart- Scott-Rodino Antitrust Improvements
Act of 1976, and rules and regulations promulgated pursuant thereto, to the
extent that said Act, rules and regulations are applicable to the transactions
contemplated by this Agreement. The parties shall make such filings with and
provide such information to the Federal Trade Commission as are required in
connection with the Act as soon as practicable after the date hereof, and the
Closing shall take place as soon as practicable after the expiration of any
applicable waiting period under the Act.

ARTICLE 10. REPRESENTATIONS

10.01 EXCLUSIVITY OF REPRESENTATIONS: THE EXPRESS REPRESENTATIONS OF SELLER
CONTAINED IN THIS ARTICLE 10 OR OTHERWISE STATED IN THIS AGREEMENT ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS, EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE. FURTHERMORE, THE REPRESENTATIONS
CONTAINED IN SECTIONS 10.01, 10.02 AND 10.03 SHALL SURVIVE THE
CLOSING, BUT ALL OTHER REPRESENTATIONS IN THIS AGREEMENT SHALL
TERMINATE AT, AND SHALL NOT SURVIVE, THE CLOSING.

10.02 MUTUAL REPRESENTATIONS: Each party represents to the other that:

(a) it is a corporation duly organized, validly existing and in
good standing under the laws of the State of its
incorporation, and is duly qualified to do business in the
States in which the Interests are located and in the Outer
Continental Shelf of the Gulf of Mexico;

(b) it has all authority necessary to enter into this Agreement
and to perform all its obligations hereunder, subject to the
approvals sited in Section 2.04 herein;

(c) its execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its Certificate of
Incorporation, By-Laws or other governing documents; (ii)
result in the breach of any term or condition of, or
constitute a default or cause the acceleration of any
obligation under, any agreement or instrument to which it is a
party or by which it is bound; or (iii) violate or conflict
with any applicable judgment, decree, order, permit, law, rule
or regulation;

(d) this Agreement has been duly executed and delivered on its
behalf, and at the Closing all documents and instruments
required hereunder will have been duly executed and delivered.
This Agreement, and all such documents and instruments shall
constitute legal, valid and

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binding obligations enforceable in accordance with their
respective terms, except to the extent enforceability may be
affected by bankruptcy, reorganization, insolvency or similar
laws affecting creditors' rights generally; and

(e) it has been represented by legal counsel of its own selection
who has reviewed this Agreement.

10.03 BROKERS: Neither party has incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in connection
with this Agreement in respect of which the other party may have any
responsibility; and any such obligation or liability that might exist
shall be the sole obligation of the party whose action gave rise
thereto.

10.04 FURTHER DISTRIBUTION: Purchaser is acquiring the Interests for its
own account and not with the intent to make a distribution thereof
within the meaning of the Securities Act of 1933, as amended, and the
rules and regulations thereunder or distribution thereof in violation
of any other applicable securities laws.

10.05 SELLER'S REPRESENTATIONS: Except as expressly disclaimed in Article
11 hereof, Seller represents the following to the best of its
knowledge and belief. For the purpose of this Agreement, references
to the "best of its knowledge and belief" of Seller means the actual
and current knowledge of Seller's officers and employees, without any
duty of investigation by such officers and employees.

(a) Seller owns the Interests and has the full power and right to
sell and convey the same, subject to any Preferential Rights
or Consents to Assign that may exist with respect thereto; and

(b) Seller has complied in all material respects with the
provisions and requirements of all orders, regulations and
rules issued or promulgated by governmental authorities having
jurisdiction with respect to the Interests operated by Seller
and has filed for and obtained all governmental certificates,
permits and other authorizations necessary for Seller's
current operation of the Interests other than governmental
permits, consents and authorizations required for the sale and
transfer of the Interests to Purchaser which shall be the
responsibility of Purchaser.

(c) Seller has not defaulted or violated any agreement to which
Seller is a party or any obligation to which Seller is bound
affecting or pertaining to the Interests other than as
expressly disclosed herein or on any Exhibit attached hereto.

(d) There are no suits, actions, claims, investigations or any
legal, administrative or arbitration proceedings pending,
affecting or pertaining to the Interests, other than as
disclosed hereunder or on any Exhibit attached hereto.

(e) The Leases included within the Interests are in full force
and effect according to their respective terms and Seller has
complied with all governmental orders and directives naming
Seller or applicable to the Leases.

(f) Seller has not agreed to any provision or obligation affecting
the Interests in any contract or agreement disclosed in the
records which is not customary to generally accepted oil and
gas standards at the time executed and which would require a
material extraordinary expenditure in connection with the
acquisition, exploration, development or operation of the
Interest.

ARTICLE 11. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES

11.01 SPECIAL LIMITED WARRANTY OF TITLE TO IMMOVABLES: ANY ASSIGNMENT,
DEED, LEASE OR OTHER CONVEYANCE OF IMMOVABLES EXECUTED PURSUANT HERETO
SHALL BE EXECUTED WITH A LIMITED SPECIAL WARRANTY WHEREBY SELLER
WARRANTS TITLE BY, THROUGH AND UNDER SELLER UP TO THE ALLOCATED VALUE
FOR EACH PROPERTY BEING ASSIGNED AND SOLD, BUT NOT OTHERWISE, AND WITH
FULL SUBSTITUTION AND SUBROGATION OF PURCHASER AS TO ALL CLAIMS SELLER
HAS OR MAY HAVE AGAINST ALL PRECEDING OWNERS OF THE IMMOVABLES. THIS
LIMITED SPECIAL WARRANTY OF TITLE TO THE

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IMMOVABLES SHALL SURVIVE FOR A PERIOD OF TWENTY-FOUR (24) MONTHS FROM
THE CLOSING DATE. WITHOUT LIMITING THE FOREGOING, THE TRANSACTION
CONTEMPLATED HEREBY SHALL BE WITHOUT ANY WARRANTY OR REPRESENTATION OF
TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITHOUT ANY
EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION AS TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE,
FREEDOM FROM REDHIBITORY VICES OR DEFECTS, CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY OF THE EQUIPMENT OR ITS
FITNESS FOR ANY PURPOSE AND WITHOUT ANY OTHER EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. PURCHASER
SHALL HAVE INSPECTED OR WAIVED ITS RIGHT TO INSPECT THE INTERESTS FOR
ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING, BUT
NOT LIMITED TO, CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE,
RELEASE OR DISPOSAL OF HAZARDOUS SUBSTANCES, AND THE CONDITION OF ANY
WELL CASING, TUBING OR DOWNHOLE EQUIPMENT. PURCHASER IS RELYING
SOLELY UPON ITS OWN INSPECTION OF THE INTERESTS, AND PURCHASER SHALL
ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS" CONDITION. EXCEPT
FOR THE LIMITED SPECIAL WARRANTY OF TITLE INCLUDED IN THE ASSIGNMENT
TO BE DELIVERED PURSUANT TO THIS AGREEMENT, THERE ARE NO WARRANTIES
THAT EXTEND BEYOND THE FACE OF THIS AGREEMENT. IN ADDITION, SELLER
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS,
RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO PURCHASER IN CONNECTION WITH
THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE
INTERESTS, PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON
RESERVES (IF ANY) ATTRIBUTABLE TO THE INTERESTS OR THE ABILITY OR
POTENTIAL OF THE INTERESTS TO PRODUCE HYDROCARBONS OR THE
ENVIRONMENTAL CONDITION OF THE INTERESTS OR ANY OTHER MATTERS
CONTAINED IN THE PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR
MADE AVAILABLE TO PURCHASER BY SELLER OR BY SELLER'S AGENTS OR
REPRESENTATIVES. ANY AND ALL SUCH DATA, RECORDS, REPORTS,
PROJECTIONS, INFORMATION AND OTHER MATERIALS FURNISHED BY SELLER OR
OTHERWISE MADE AVAILABLE TO PURCHASER ARE PROVIDED PURCHASER AS A
CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR
AGAINST SELLER. ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
PURCHASER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

11.02 EXPRESS DISCLAIMERS OF REPRESENTATIONS AND WARRANTIES: THE
ASSIGNMENTS AND BILLS OF SALE, LEASES, DEEDS OR OTHER CONVEYANCES TO
BE DELIVERED BY SELLER AT CLOSING SHALL EXPRESSLY SET FORTH THE
SPECIAL LIMITED WARRANTY OF TITLE AND THE DISCLAIMERS OF
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE 11. ALSO,
ALL SUCH ASSIGNMENTS, LEASES, DEEDS AND OTHER CONVEYANCE DOCUMENTS
SHALL EXPRESSLY STATE THAT THE INTERESTS HAVE BEEN USED FOR OIL AND
GAS DRILLING AND PRODUCING OPERATIONS, RELATED OIL FIELD OPERATIONS,
AND THE STORAGE OF OIL, GAS AND OTHER HAZARDOUS SUBSTANCES.

ARTICLE 12. CONDITIONS OF CLOSING

Each party's obligation to consummate the transaction provided for
herein is subject to the satisfaction or waiver by the other party of the
following conditions:

12.01 REPRESENTATIONS: The representations contained in Article 10 and
Article 12 hereof shall be true and correct in all material respects
on the Closing Date (irrespective of the knowledge and belief of
Seller) as though made on and as of the Closing Date.

12.02 PERFORMANCE: Each party shall have performed in all material respects
the obligations, covenants and agreements hereunder to be performed by
it at or prior to the Closing Date.

12.03 PENDING MATTERS: Except as provided in Exhibits "A-1" through "A-13",
no suit, action or other

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proceeding by a third party or a governmental authority shall be
pending which seeks substantial damages, fines or other penalties from
either party in connection with the Interests, or seeks to restrain,
enjoin or otherwise prohibit the consummation of the transactions
contemplated by this Agreement.

12.04 GOVERNMENTAL BONDS: Upon written request by Seller, Purchaser shall
deliver or cause to be delivered to Seller proof of bonds, in form and
substance and issued by corporate sureties satisfactory to Seller,
covering the Interests required under any laws, rules or regulations
of any federal, Indian tribe, state or local government agencies
having jurisdiction over the Interests, or a commitment by a surety
company, satisfactory to Seller, to issue such bonds after Closing.

12.05 FINANCIAL CONDITION: No material adverse change has occurred in the
financial condition of either party.

12.06 EXPIRATION OF HSR WAITING PERIOD: The parties shall have filed
Notification and Report Forms to the extent required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and received all
necessary waivers and approvals, and there shall be no legal
impediment under such Act to the Closing.

12.07 MANAGEMENT APPROVAL: Seller and Purchaser shall have obtained
management and Board of Directors or Executive Committee approval of
this Agreement and the transactions contemplated hereby have been duly
and validly authorized by all necessary action, corporate or
otherwise, on the part of each party and the transactions contemplated
hereby as required by Section 2.04 herein and each party shall have
notified the other party in writing that the appropriate level of
management and Board of Directors or Executive Committee approval has
been obtained.

12.08 MATERIAL ADVERSE CHANGE: No material adverse change shall have
occurred or arisen with respect to the Interests from January 1, 1996
until the Closing.

12.09 DUE DILIGENCE REVIEW: Prior to Closing, Purchaser shall have reviewed
the files, leases, agreements and documents listed or referenced in
the exhibits to this agreement, and any other agreements or documents
furnished to Purchaser, and satisfied itself as to their content and
substance in all material respects.

ARTICLE 13. TRANSACTIONS ON AND AFTER CLOSING

At the Closing, the following shall occur:

13.01 ASSIGNMENT AND BILL OF SALE: Seller shall execute, acknowledge and
deliver an Assignment and Bill of Sale substantially in the form
attached hereto as Exhibit "C", appropriate Letters in Lieu of
Transfer Orders to be furnished by Purchaser, and such other necessary
conveyance instruments in forms that are mutually acceptable to the
parties in accordance with the obligations outlined in this Agreement,
covering all of the Interests to be sold pursuant hereto.

13.02 OIL AND GAS LEASE: Any unleased mineral interests of Seller included
in this transaction shall not be conveyed to Purchaser but shall, upon
and subject to the provisions hereof, be leased to Purchaser by oil
and gas lease.

13.03 ADJUSTED SALE PRICE: Purchaser shall deliver to Seller or Seller's
designee the Adjusted Sale Price and any applicable closing charges.

13.04 REGULATORY FILINGS: Purchaser shall deliver to Seller evidence of
filing showing compliance with the appropriate regulatory authority
dealing with plugging of any dry or inactive well(s) included in the
Interests, along with evidence of the appropriate bond, surety letter
or letter of credit in a form acceptable to such authority.

13.05 CHANGE OF OPERATOR: Seller shall provide Purchaser with executed
change of operator forms on all wells (active or inactive) operated by
Seller, as required by the applicable regulatory body, to effect a
change of operator for the Interests to Purchaser, and, if necessary,
Seller shall vote for Purchaser for

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successor operator, subject to any applicable operating agreement, but
only to the extent allowed or permitted by such operating agreement.

13.06 POSSESSION OF THE INTERESTS: Seller shall (subject to the terms of
applicable operating agreements and other provisions hereof) deliver
to Purchaser exclusive possession of the Interests upon the Closing.

13.07 NOTICE OF SALE: Immediately after the Closing, Purchaser shall notify
all operators, non-operators, oil and gas purchasers, government
agencies and royalty owners that it has purchased the Interests.

13.08 RECORDS AND DOCUMENTS: Seller shall, at or as promptly as reasonably
possible after the Closing, provide Purchaser, to the extent they are
in Seller's possession and control, and at Purchaser's expense, with
all original records and documents relating to the Interests,
including, but not limited to, land and lease files, division of
interest computer printouts, contract files, well files and well logs.
If originals of such materials are not available, copies thereof shall
be provided to Purchaser. Seller may, at its sole cost and expense,
reproduce or cause to be reproduced all of such materials and retain
copies of same, provided, however, said materials shall become the
property of Purchaser and shall remain confidential and shall not be
disclosed by Seller in any respect to any other party, without the
prior written consent of Purchaser, except to the extent required by
any applicable law or administrative or judicial order.
NOTWITHSTANDING THE FOREGOING, SELLER SHALL HAVE NO OBLIGATION TO
FURNISH PURCHASER ANY DATA OR INFORMATION WHICH SELLER CONSIDERS
PROPRIETARY OR CONFIDENTIAL OR WHICH SELLER CANNOT PROVIDE PURCHASER
BECAUSE OF THIRD-PARTY RESTRICTIONS ON SELLER. Purchaser agrees that
the original file materials and data delivered to it by Seller shall
be open for inspection by Seller and its representatives under
Purchaser's reasonable conditions, at reasonable times and upon
reasonable notice, during regular business hours for a period of seven
(7) years after the Closing (or such longer period as may be required
or allowed by law or governmental regulation), and that Seller may,
during such period, at its cost and expense, make such copies thereof
as it desires.

ARTICLE 14. ALLOCATION OF PRODUCTION AND PROCEEDS

All production of oil, gas and other minerals from the Interests prior
to the Effective Time, and all proceeds from the sale of such production, shall
be the property of Seller. All such production upon and after the Effective
Time, and all proceeds from the sale thereof, shall be the property of
Purchaser. Production shall be allocated to the parties based upon the most
reliable measurement method or allocation calculation information available and
mutually acceptable to the parties. Purchaser shall purchase from Seller and
account to Seller at final accounting for oil in inventory at Mobil Oil
Corporation's posted field price for oil of like grade and gravity in the field
at the Effective Time. Purchaser shall assume all rights and/or liabilities of
Seller arising from any gas imbalances affecting the Interests as of the
Effective Time and thereafter. Purchaser shall indemnify, defend, save,
discharge, release and hold Seller harmless from any claims for gas imbalances
which have accrued prior to the Effective Time.

Further, as part of the final accounting provided in Article 19, Seller shall
revise the gas imbalances indicated in Exhibit "D" to reflect the actual
imbalance volumes as of the Effective Time. The difference between the gas
imbalances indicated on Exhibit "D" and the actual gas imbalances as of the
Effective Time shall be multiplied by $1.95 per MCF and the aggregate
adjustment amount shall be appropriately accounted for in the final settlement.

ARTICLE 15. RESPONSIBILITY FOR PAYMENTS AND OBLIGATIONS

Seller shall be responsible for (i) all lease rentals,
shut-in-royalties, minimum royalties, payments in lieu of production,
production royalties (including royalties paid in kind), overriding royalties,
production payments and net profits payments, and (ii) all operating costs,
vendor and contractor invoices and other liquidated monetary obligations of
Seller that in each case accrued prior to the Effective Time and are
attributable to the ownership, operation, use or maintenance of or otherwise
relate to the Interests. Purchaser shall be responsible for all of the
above-described payments and obligations that have accrued or may accrue on
and after the Effective Time, and shall reimburse Seller for any such payments
or obligations paid by Seller

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on or after the Effective Time.

Additionally, Seller shall be responsible for the settlement of all
joint billing audits which relate to accounting periods prior to the Effective
Time. Purchaser shall be responsible for the settlement of all joint billing
audits which relate to accounting periods on and after the Effective Time. Any
credits received by Purchaser after the Effective Time attributable to expenses
paid prior to the Effective Time shall be paid to Seller by Purchaser within
fifteen (15) days of Purchaser's receipt thereof.

Subject to reimbursement by Purchaser to Seller in the final
accounting as provided in Article 19, Seller will, for the account of
Purchaser, pay all costs and expenses, royalties and taxes associated with the
Interests attributable to the period of time from the Effective Date through
Closing, and for a period not to exceed sixty (60) days after Closing, such
additional accounting services as may be reasonably requested on or prior to
Closing in writing by Purchaser to Seller.

ARTICLE 16. TAXES AND PREPAID ITEMS

16.01 APPORTIONMENT OF AD VALOREM AND PROPERTY TAXES: All ad valorem taxes,
real property taxes, personal property taxes and similar obligations
with respect to the Interests for the tax period in which the
Effective Time occurs shall be apportioned as of the Effective Time
between Seller and Purchaser. The portion of such apportioned tax
liability which is attributable to Seller shall be credited to
Purchaser's account. Purchaser shall file or cause to be filed all
required reports and returns incident to such taxes and shall pay or
cause to be paid to the taxing authorities all such taxes relating to
the tax period in which the Effective Time occurs. Purchaser shall
supply Seller with copies of the filed reports and proof of payment
promptly after filing and paying same.

16.02 PRORATION OF TAXES, ETC.: All taxes, including, but not limited to,
excise taxes, state severance taxes, ad valorem taxes, and any other
local, state, and/or federal taxes or assessments attributable to the
Interests or any part thereof prior to the Effective Time, remain
Seller's responsibility and all deductions, credits and refunds
pertaining to the aforementioned taxes, attributable to the Interests
or any part thereof prior to the Effective Time (no matter when
received), belong to Seller. All such taxes attributable to the
Interests or any part thereof on and after the Effective Time are
Purchaser's responsibility, and Purchaser shall reimburse Seller for
any such taxes previously paid by Seller, and all deductions, credits,
and refunds pertaining thereto on and after the Effective Time (no
matter when received) belong to Purchaser.

16.03 APPORTIONMENT OF PREPAIDS: Unearned insurance premiums, paid utility
charges applicable to periods following the Effective Time, prepaid
rentals, prepaid joint interest stock accounts and any other prepaids
or accrued payables, if any, attributable to the Interests shall be
prorated as of the Effective Time and amounts owing from such
proration shall be settled with a final accounting, which shall be
made at such time as complete records are available.

ARTICLE 17. OPERATIONS

Seller, as to the portion of the Interests to be conveyed which it now
operates, shall, from the date of execution of this Agreement, continue to
operate the same in a good and workmanlike manner until the Closing, when such
operations shall be turned over to and become the responsibility of Purchaser,
unless an applicable unit, pooling, communitization or operating agreement
requires otherwise, in which case (unless Purchaser and Seller otherwise agree)
Seller shall continue the physical operation of such portion of the Interests
pursuant to and under the terms of such applicable agreement, until such time
after the Closing as such applicable agreement may require; provided, however,
that Seller shall have no liability as operator to Purchaser for losses or
damages sustained, or liabilities incurred, WHETHER OR NOT THE LOSSES, COSTS,
EXPENSES AND DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE,
PASSIVE, CONCURRENT, SIMPLE OR SOLE NEGLIGENCE, OR STRICT LIABILITY OR OTHER
FAULT OF SELLER OR ANY OTHER THEORY OF LIABILITY OR FAULT, WHETHER IN LAW
(WHETHER COMMON OR STATUTORY) OR EQUITY, except as may result directly from
Seller's gross negligence or willful misconduct. Any operations from and after
the Effective Time shall be conducted by Seller for and on behalf of Purchaser,
and Seller shall make appropriate charges to the Purchaser for such services as
operator of the Interests (or any portions thereof) performed by Seller from
and after the Effective Time. If any of the Properties that Seller

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continues to operate on behalf of the Purchaser are subject to an operating
agreement, Seller shall make appropriate charges to the Purchaser in accordance
with such operating agreement which will include overhead charges attributable
to Seller's gross working interest. Purchaser shall reimburse Seller for all
reasonable and necessary expenses incurred by Seller in such operation, or in
the protection or maintenance of the Interests. Any such charges and expenses
shall be recovered by Seller as part of the final accounting described in
Article 19.

ARTICLE 18. SUBSEQUENT DRILLING OPERATIONS

After full execution of this Agreement and prior to delivery of
possession of the Interests to Purchaser under the applicable provisions of
this Agreement, Seller shall not, without Purchaser's prior written consent,
propose or conduct any operation for the drilling, testing, completing,
reworking, re-completing, sidetracking, deepening, plugging back or plugging
and abandoning a well with respect to the Interests (a "DRILLING OPERATION")
under the terms of any operating agreement or other contract (except repairs or
operations made necessary by emergency conditions, after which Seller shall
promptly give Purchaser notice with full details of the work done and the costs
thereof). If any present party (other than Seller) to an operating agreement
or compulsory pooling order proposes a Drilling Operation prior to such
delivery of possession of the Interests involving an expenditure of more than
$10,000.00, Seller shall promptly notify Purchaser of such proposal and will
promptly provide Purchaser with all information, data or other material in
Seller's possession that may be relevant to a decision whether or not to
participate in such Drilling Operation. Seller shall accept or reject
participation in the proposed Drilling Operation based upon Purchaser's
election with respect thereto given in writing by Purchaser to Seller within
the period allowed in such proposal. Failure by Purchaser to make an election
within such period shall be deemed an election by Purchaser not to participate.
Any election by Purchaser hereunder, regardless of whether actually made or
deemed to be made, shall not result in any adjustment in the amount allocated
to the Property affected thereby; however, all costs and expenses on account of
Purchaser's decision to participate in any such Drilling Operation shall be
borne by Purchaser, notwithstanding any termination of this Agreement or
anything else herein to the contrary.

ARTICLE 19. FINAL ACCOUNTING

In the event a final settlement statement subsequent to the Closing is
necessary, Seller will include in its review, without limitation, all revenue
received along with royalties paid, and any operating expenses, taxes, and
overhead as provided for in Articles 14, 15, 16, 17 and 18 herein. Seller
shall issue the final settlement statement for the Interests conveyed within
one hundred eighty (180) days or such earlier date as is practicable under the
circumstances after the Closing. This statement will net revenues received
against royalties, operating expenses, taxes, and overhead (if applicable).
Purchaser, after having access to the applicable accounting records for
reasonable audit verification, shall respond with objections and proposed
corrections within ninety (90) days of the issuance of the final settlement
statement. In the event Purchaser does not respond to the final settlement
statement by signing or objecting within ninety (90) days of the issuance of
the final settlement statement, said statement shall be deemed approved by
Purchaser. After approval by both parties, the final settlement statement for
the Interests conveyed will be summarized and a net check or invoice will be
sent to the Purchaser. Purchaser agrees to promptly pay any such invoice
within thirty (30) days after receipt by Purchaser and shall not offset such
amounts against any other obligation or claim made by Purchaser against Seller
or its affiliates. Seller will accept only written inquiries regarding the
final settlement statement.

ARTICLE 20. ADVERSE ENVIRONMENTAL CONDITIONS

20.01 OPERATED INTERESTS: Purchaser shall advise Seller of any Adverse
Environmental Condition (as defined herein) related to the Interests
which are operated by Seller and provide evidence thereof not later
than ten (10) days prior to the Closing. Except as provided below,
Seller, after the Closing, at its sole cost, shall remedy such Adverse
Environmental Condition(s), individually or in the aggregate, to the
reasonable satisfaction of Purchaser and Seller and in accordance with
applicable Environmental Laws (as defined herein) in effect as of the
Effective Time. In the event Seller reasonably determines in good
faith that the cost of remediating Adverse Environmental Condition(s)
as to any Property exceeds the lesser of $500,000.00 or the allocated
value in Exhibit "B", or that the cost of remediating Adverse
Environmental Conditions as to all affected Properties exceeds
$1,500,000.00, Seller may elect, by written notice to Purchaser not
later than five (5) days prior to the Closing not to remedy such

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Adverse Environmental Condition(s) under this Agreement. If Seller
declines to remediate any Adverse Environmental Condition(s), or if
Purchaser reasonably believes that the liabilities associated with
such Adverse Environmental Conditions are such that the affected
Property should be excluded from the sale, Purchaser shall have the
option to: (1) exclude the affected Property and adjust the Sale Price
by the value allocated thereto in Exhibit "B", or (2) terminate this
Agreement without liability, in which event the Performance Deposit
shall be returned to Purchaser, in accordance with Section 5.02. If
Purchaser elects to exclude affected Properties or Interests
aggregating more than ten percent (10%) of the Sale Price, then Seller
shall have the option to terminate the Agreement without liability, in
which event the Performance Deposit shall be returned to Purchaser in
accordance with Section 5.02. As for Interests containing Adverse
Environmental Condition(s) that are conveyed to and accepted by
Purchaser that Seller undertakes to remedy, Seller shall indemnify,
save, discharge, release and hold Purchaser harmless against all
penalties, fines, cleanup or remediation liabilities, claims, demands
and causes of action, resulting from the remediation of, or the
failure to, fully and completely perform the remediation of the
Adverse Environmental Condition(s) in accordance with applicable
Environmental Laws. Seller agrees that it will exercise all
reasonable efforts and diligence to complete any required
environmental cleanup and remediation within two (2) years of the
Closing; however, any failure to complete such efforts by such time
shall not relieve Seller of its duty to fully and completely satisfy
its obligations hereunder. Purchaser shall grant Seller and its
representatives such access to the Interests as may be reasonably
necessary to satisfy its obligations under this Article, provided such
access does not unreasonably interfere with Purchaser's operations.

20.02 NON-OPERATED INTERESTS: Purchaser shall advise Seller of any Adverse
Environmental Condition(s) (as defined herein) on the Interests which
are not operated by Seller and provide evidence thereof not later than
ten (10) days prior to the Closing. After receipt of such notice,
Seller and Purchaser shall agree, not later than five (5) days prior
to the Closing, to adjust the Sale Price in an amount mutually
agreeable to the parties. In the event the parties cannot agree to an
adjustment amount, Purchaser shall have the option to: (1) exclude the
affected Interests and adjust the Sale Price by the value allocated
thereto in Exhibit "B", or (2) terminate this Agreement, without
liability, in which event the Performance Deposit shall be returned to
Purchaser, in accordance with Section 5.02. If Purchaser elects to
exclude affected Interests aggregating more than ten percent (10%) of
the Sale Price, then Seller shall have the option to terminate this
Agreement, without liability, in which event the Performance Deposit
shall be returned to Purchaser in accordance with Section 5.02.

As used herein, "ADVERSE ENVIRONMENTAL CONDITIONS" shall mean any
contamination or condition that is the result of any discharge,
release, disposal, production, storage or treatment on, in or below
the Interests or migration to or from the Interests to any other land
or body of water, wherever located, prior to the Effective Time, of
any wastes, pollutants, contaminants, hazardous materials or other
materials or substances for which and to the extent that remediation
is required by any laws, rules, orders, regulations, permits or
judgments in effect as of the Effective Time relating to the
protection of the environment ("ENVIRONMENTAL LAWS").

ARTICLE 21. INDEMNIFICATIONS

21.01 INDEMNIFICATION: As used in this Article 21 and the Sections and
Subsections hereunder, "CLAIMS" shall include claims, demands, causes
of action, liabilities, damages, fines, penalties and judgments of any
kind or character, whether matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated or known
or unknown, and whether or not resulting from third party claims, and
all costs and fees (including, without limitation, interest,
reasonable attorneys' fees, reasonable costs of experts, court costs
and reasonable costs of investigation, including those incurred in
enforcing the indemnification provisions contained in this Agreement)
in connection therewith. Also, as used in Subsection 21.01(d) herein,
"RETAINED ENVIRONMENTAL LIABILITIES" shall mean any contamination or
condition that is the result of any offsite disposal (including any
discharge resulting from such disposal) by Seller of any wastes,
pollutants, contaminants, hazardous materials or other materials or
substances on, in or below any Properties not included in the
Interests, wherever located, prior to the Effective Time, for which
and to the extent that remediation is required by any Environmental
Laws.

In addition to any other indemnification or reservation provisions
contained in this Agreement:

14
<PAGE> 15
(a) Purchaser shall (i) as of the Effective Time assume, be
responsible for and comply with all duties and obligations of
Seller (except liquidated monetary obligations of Seller that
accrued prior to the Effective Time as described in Article
15), express or implied, with respect to the Interests,
including, without limitation, those arising under or by
virtue of any lease, contract, agreement, document, permit,
applicable law, statute or rule, regulation or order of any
governmental authority (specifically including, without
limitation, any governmental request or requirement to plug,
re-plug or abandon any well of whatsoever type, status or
classification, or take any clean-up, remedial or other action
with respect to the Interests) and (ii) defend, indemnify,
save, discharge, release and hold Seller harmless from and pay
or reimburse Seller on a current basis for any and all Claims
in connection therewith, except (a) to the extent any such
Claim has been asserted in writing against Seller prior to the
Closing Date, (b) as otherwise set forth in this Agreement,
(c) any Claim expressly retained by Seller pursuant to Section
20.01 of this Agreement, and (d) any brokers' or finders' fees
or commissions arising with respect to brokers or finders
retained or engaged by Seller and resulting from or relating
to the transactions contemplated in this Agreement. With
respect to any Claim for cleanup or remediation of the
Interests, such Claim shall be deemed asserted against Seller
at the time the Order requiring cleanup or remediation has
been issued in writing by the appropriate regulatory agency,
or Seller has been notified in writing that Seller is a
potentially responsible party by a regulatory agency.

(b) Except as provided for in Section 6.02, Seller shall defend,
indemnify, save, discharge, release and hold Purchaser
harmless from any and all Claims for personal injury, death or
damage to personal property arising directly or indirectly
from or incident to, the use, occupation, operation,
maintenance, condition (whether latent or patent) or
abandonment of any of the Interests prior to the Effective
Time, and asserted against Purchaser and/or Seller within
three (3) years of the Closing.

(c) Except as provided in Subsection 21.01(b), Purchaser shall
defend, indemnify, save, discharge, release and hold Seller
harmless from and pay or reimburse Seller on a current basis
for any and all Claims for personal injury, death or damage to
personal property arising directly or indirectly from or
incident to, the use, occupation, operation, maintenance,
condition (whether latent or patent) or abandonment of any of
the Interests, prior to, on or after the Effective Time.

(d) Except as provided in Article 20 and except for Retained
Environmental Liabilities, Purchaser shall defend, indemnify,
save, discharge, release and hold Seller harmless from and pay
or reimburse Seller on a current basis for any and all Claims
for damage to the environment, environmental cleanup,
remediation, or compliance, or for any other relief, arising
directly or indirectly from or incident to, the use,
occupation, operation, maintenance, condition (whether latent
or patent) or abandonment of any of the Interests, including
without limitation, contamination of the property or premises
with Naturally Occurring Radioactive Materials (NORM), whether
or not any such Claims result from conditions, actions or
inactions present or existing on or before the Closing except
to the extent any such claim has been asserted against Seller
in writing prior to the Closing Date by appropriate regulatory
agency. With respect to any Claim for cleanup or remediation
of the Interests, such Claim shall be deemed asserted against
Seller at the time the Order requiring cleanup or remediation
has been issued in writing by the appropriate regulatory
agency, or Seller has been notified that Seller is a
potentially responsible party by a regulatory agency.

(e) Except as provided in Subsections 21.01(c) and 21.01(d) above,
Seller shall (i) be responsible for any and all Claims arising
out of the production or sale of hydrocarbons from the
Interests (except gas imbalances) or the proper accounting or
payment to parties for their interests therein, insofar as
such Claims relate to periods of time prior to the Effective
Time and (ii) defend, indemnify, save, discharge, release and
hold Purchaser harmless from any and all such Claims. These
Claims include but are not limited to any and all valid
overriding royalty, royalty or net profit interest payments.
Purchaser shall be responsible for all Claims of these types
insofar as they relate to periods of time from and after the
Effective Time and Purchaser

15
<PAGE> 16
shall defend, indemnify, save, discharge, release and hold
Seller harmless therefrom.

(f) Any claim for indemnity under Subsections 21.01(a) through
21.01(e) above or under any other provision of this Agreement
shall be made by written notice from the party seeking
indemnification (the "INDEMNIFIED PARTY") to the party
required to provide same (the "INDEMNIFYING PARTY"), together
with a written description of any third-party Claim against
the Indemnified Party, stating the nature and basis of such
Claim and, if ascertainable, the amount thereof. The
Indemnifying Party shall have a period of thirty (30) days
after receipt of such notice within which to respond thereto
or, in the case of a third-party Claim which requires a
shorter time for response, then within such shorter period as
specified by the Indemnified Party in such notice (the "NOTICE
PERIOD"). If the Indemnifying Party denies liability or fails
to respond to the notice within the Notice Period, the
Indemnified Party may defend or compromise the Claim as it
deems appropriate without prejudice to any of the Indemnified
Party's rights hereunder, with no further obligation to inform
the Indemnifying Party of the status of the Claim and no right
of the Indemnifying Party to approve or disapprove any actions
taken in connection therewith by the Indemnified Party. If
the Indemnifying Party accepts liability, it shall so notify
the Indemnified Party within the Notice Period and elect
either (a) to undertake the defense or compromise of such
third-party Claim with counsel selected by the Indemnifying
Party and reasonably approved by the Indemnified Party or (b)
to instruct the Indemnified Party to defend or compromise such
Claim. If the Indemnifying Party undertakes the defense or
compromise of such third-party Claim, the Indemnified Party
shall be entitled, at its own expense, to participate in such
defense. No compromise or settlement of any third-party Claim
shall be made without reasonable notice to the Indemnified
Party and, unless such compromise or settlement includes a
general release of the Indemnified Party in respect of the
matter with no admission of liability on the part of the
Indemnified Party and no constraints on the future conduct of
its business, without the prior written approval of the
Indemnified Party.

21.02 EXTENSION AND APPLICATION OF INDEMNITIES: Each party's indemnity
obligations in this Agreement shall extend to the other and to the
other's parent, subsidiaries and affiliates and their present and
former directors, officers, employees, contractors and agents, and to
each of their heirs, executors, successors and assigns.

21.03 LIMITATION OF SELLER'S INDEMNITY: Seller shall not be required to
indemnify Purchaser or pay any other amount in connection with or with
respect to the transactions contemplated in this Agreement in any
amount exceeding, in the aggregate, the Sale Price.

21.04 SOLE AND EXCLUSIVE REMEDY: If the Closing occurs, the sole and
exclusive remedy of each of the Indemnified Parties with respect to
the purchase and sale of the Interests shall be pursuant to the
express provisions of this Agreement. If the Closing occurs, each of
Purchaser and Seller shall be deemed to have waived, to the fullest
extent permitted under applicable law, any right of contribution
against Seller or any of its affiliates or Purchaser or any of its
affiliates, respectively, and any and all rights, claims and causes of
action it may have against Seller or any of its affiliates or
Purchaser or any of its affiliates, respectively, arising under or
based on any federal, state or local statue, law, ordinance, rule or
regulation or common law or otherwise.

21.05 EXPRESS NEGLIGENCE APPLICABILITY: THE INDEMNIFICATION, RELEASE AND
ASSUMPTION PROVISIONS PROVIDED FOR IN THIS AGREEMENT SHALL BE
APPLICABLE WHETHER OR NOT THE LOSSES, COSTS, EXPENSES AND DAMAGES IN
QUESTION AROSE SOLELY OR IN PART FROM THE GROSS, ACTIVE, PASSIVE,
CONCURRENT, SIMPLE OR SOLE NEGLIGENCE, OR STRICT LIABILITY OR OTHER
FAULT OF ANY INDEMNIFIED PARTY OR ANY OTHER THEORY OF LIABILITY OR
FAULT, WHETHER IN LAW (WHETHER COMMON OR STATUTORY) OR EQUITY,
INCLUDING WILLFUL MISCONDUCT OF THE PARTY'S AGENTS, EMPLOYEES OR
CONTRACTORS. PURCHASER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT
COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS CONSPICUOUS.

21.06 NO LIABILITY FOR KNOWN BREACHES AND FACTS: Neither Seller nor
Purchaser shall have any obligation or liability under this Agreement
or in connection with or with respect to the transactions contemplated

16
<PAGE> 17
in this Agreement for (i) any breach, misrepresentation or
noncompliance with respect to any representation, warranty, covenant
or obligation, if such breach, misrepresentation or noncompliance
shall have been known by the other party at or before the Closing, or
(ii) any misrepresentation or breach of warranty if such other party
had knowledge of the relevant facts at or before the Closing.

ARTICLE 22. PHYSICAL CONDITION OF THE INTERESTS:

22.01 USE OF THE INTERESTS: THE INTERESTS HAVE BEEN USED FOR OIL AND GAS
DRILLING AND PRODUCING OPERATIONS, RELATED OIL FIELD OPERATIONS AND
POSSIBLY FOR THE STORAGE AND DISPOSAL OF WASTE MATERIALS OR HAZARDOUS
SUBSTANCES. PHYSICAL CHANGES IN THE LAND MAY HAVE OCCURRED AS A
RESULT OF SUCH USES. THE INTERESTS ALSO MAY CONTAIN BURIED PIPELINES
AND OTHER EQUIPMENT, WHETHER OR NOT OF A SIMILAR NATURE, THE LOCATIONS
OF WHICH MAY NOT NOW BE KNOWN BY SELLER OR BE READILY APPARENT BY A
PHYSICAL INSPECTION OF THE PROPERTY. PURCHASER UNDERSTANDS THAT
SELLER DOES NOT HAVE THE REQUISITE INFORMATION WITH WHICH TO DETERMINE
THE EXACT NATURE OR CONDITION OF THE INTERESTS OR THE EFFECT ANY SUCH
USE HAS HAD ON THE PHYSICAL CONDITION OF THE INTERESTS.

22.02 PURCHASER'S INVESTIGATION AND LIABILITY: UPON CLOSING, PURCHASER WILL
BE DEEMED TO HAVE ACKNOWLEDGED THAT (i) IT HAS BEEN AFFORDED AN
OPPORTUNITY TO (A) EXAMINE THE PROPERTIES AND SUCH MATERIALS AS IT HAS
REQUESTED TO BE PROVIDED TO IT BY SELLER, (B) DISCUSS WITH
REPRESENTATIVES OF SELLER SUCH MATERIALS AND THE NATURE AND OPERATION
OF THE INTERESTS AND (C) INVESTIGATE THE CONDITION, INCLUDING
SUBSURFACE CONDITION, OF THE LEASES AND THE CONDITION OF THE
EQUIPMENT, (ii) IT HAS ENTERED INTO THIS AGREEMENT ON THE BASIS OF ITS
OWN INVESTIGATION OF THE PHYSICAL CONDITION OF THE INTERESTS INCLUDING
SUBSURFACE CONDITION AND (iii) THE INTERESTS HAVE BEEN USED IN THE
MANNER AND FOR THE PURPOSES SET FORTH ABOVE AND THAT PHYSICAL CHANGES
TO THE INTERESTS MAY HAVE OCCURRED AS A RESULT OF SUCH USES AND (iv)
IN ENTERING INTO THIS AGREEMENT, PURCHASER HAS RELIED SOLELY ON THE
EXPRESS REPRESENTATIONS (SOME OF WHICH REPRESENTATIONS TERMINATE AT
THE CLOSING) AND COVENANTS OF SELLER IN THIS AGREEMENT, ITS
INDEPENDENT INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE
EQUIPMENT AND THE OTHER INTERESTS AND THE ADVICE OF ITS OWN LEGAL,
TAX, ECONOMIC, ENVIRONMENTAL, ENGINEERING, GEOLOGICAL AND GEOPHYSICAL
ADVISORS AND NOT ON ANY COMMENTS OR STATEMENTS OF ANY REPRESENTATIVES
OF, OR CONSULTANTS OR ADVISORS ENGAGED BY SELLER AND (v) LOW LEVELS OF
NATURALLY OCCURRING RADIOACTIVE MATERIAL (NORM) AND MAN-MADE MATERIAL
FIBERS (MMMF) MAY BE PRESENT AT SOME LOCATIONS. PURCHASER
ACKNOWLEDGES THAT NORM IS A NATURAL PHENOMENON ASSOCIATED WITH MANY
OIL FIELDS IN THE U.S. AND THROUGHOUT THE WORLD. PURCHASER SHOULD
MAKE ITS OWN DETERMINATION OF THIS PHENOMENON AND OTHER CONDITIONS.
SELLER DISCLAIMS ANY LIABILITY ARISING OUT OF OR IN CONNECTION WITH
ANY PRESENCE OF NORM OR MMMF ON THE PROPERTY AND ON THE CLOSING DATE,
PURCHASER SHALL ASSUME THE RISK THAT THE INTERESTS MAY CONTAIN WASTES
OR CONTAMINANTS AND THAT ADVERSE PHYSICAL CONDITIONS, INCLUDING THE
PRESENCE OF WASTES OR CONTAMINANTS, MAY NOT HAVE BEEN REVEALED BY
PURCHASER'S INVESTIGATION. EXCEPT AS PROVIDED IN ARTICLES 20 AND 21,
ON THE CLOSING DATE, ALL RESPONSIBILITY AND LIABILITY RELATED TO
DISPOSAL, SPILLS, WASTE, OR CONTAMINATION ON AND BELOW THE INTERESTS
SHALL BE TRANSFERRED FROM SELLER TO PURCHASER AND, PURCHASER SHALL
INDEMNIFY, DEFEND, SAVE, DISCHARGE, RELEASE AND HOLD SELLER HARMLESS
THEREFROM IN ACCORDANCE WITH THE PROVISIONS OF 21.01(d) HEREOF.
SELLER AND PURCHASER AGREE THAT THE PROVISIONS OF THIS ARTICLE 22
SHALL SURVIVE THE CLOSING.

ARTICLE 23. CALL ON PRODUCTION

Intentionally Omitted.

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<PAGE> 18
ARTICLE 24. FURTHER ASSURANCES:

24.01 PERFORMANCE OF OBLIGATIONS: Except as provided in Section 2.04
hereof, Seller and Purchaser shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to carry out all of their
respective obligations under this Agreement and to consummate and make
effective the purchase and sale of the Interests pursuant to this
Agreement and rights of the Parties shall not be diminished under
Section 2.04 by this Section 24.01.

24.02 FURTHER CONVEYANCES AND ASSUMPTIONS: After the Closing Date, Seller
and Purchaser shall execute, acknowledge and deliver all such further
conveyances, transfer orders, notices, assumptions and releases and
such other instruments, and shall take such further actions, as may be
necessary or appropriate to assure fully to Purchaser and its
successors or assigns all of the Interests and to assure fully to
Seller and its successors and assigns the assumptions of liabilities
and obligations of Purchaser.

ARTICLE 25. NOTICES

All notices and consents to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally; faxed (i.e.,
sent by facsimile) with receipt acknowledged; mailed by registered mail, return
receipt requested, postage prepaid; or delivered by a recognized commercial
courier to the party at the address set forth below or such other address as
any party shall have designated for itself by ten (10) days' prior notice to
the other party.

Notice is deemed to have been duly received on the day personally
delivered; on the day after it is sent by fax, four (4) days after mailing by
certified or registered mail and the day after it is received from a recognized
commercial courier.

Seller:
------

Mobil Exploration & Producing U.S. Inc.
Attn: H. L. Hickey
12450 Greenspoint Drive
Houston, Texas 77060-1991
Phone: (713) 775-2800
FAX No. (713) 775-4061

Purchaser:
---------

Flores & Rucks, Inc.
Attn: Mr. Robert K. Reeves, General Counsel
500 Dover Boulevard
Suite 300
Lafayette, Louisiana 70503
Phone: (318) 989-5900
FAX No. (318) 989-5919

ARTICLE 26. WAIVER OF DTPA

26.01 WAIVER OF TEXAS DTPA: SELLER AND PURCHASER CERTIFY THAT THEY ARE NOT
"CONSUMERS" WITHIN THE MEANING OF THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SUBCHAPTER E OF CHAPTER 17,
SECTIONS 17.41, ET SEQ., OF VERNON'S TEXAS CODE ANNOTATED, BUSINESS
AND COMMERCE CODE, AS AMENDED (THE "DTPA"). PURCHASER HEREBY WAIVES
ITS RIGHTS UNDER THE DTPA, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS
AND PROTECTIONS. AFTER CONSULTATION WITH AN

18
<PAGE> 19
ATTORNEY OF ITS OWN SELECTION, PURCHASER VOLUNTARILY CONSENTS TO THIS
WAIVER. TO EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER, PURCHASER
REPRESENTS TO SELLER THAT (I) IT IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION; (II) IT IS REPRESENTED BY LEGAL COUNSEL IN
ENTERING INTO THIS AGREEMENT; AND (III) SUCH LEGAL COUNSEL WAS NOT
DIRECTLY OR INDIRECTLY IDENTIFIED, SUGGESTED, OR SELECTED BY SELLER OR
AN AGENT OF SELLER.

26.02 WAIVER OF LOUISIANA RIGHTS IN REDHIBITION: THE PURCHASER EXPRESSLY
WAIVES THE WARRANTY OF FITNESS FOR INTENDED PURPOSES OR GUARANTEE
AGAINST HIDDEN OR LATENT REDHIBITORY VICES UNDER LOUISIANA LAW,
INCLUDING LOUISIANA CIVIL CODE ARTICLES 2520 (1870) THROUGH 2548
(1870), AND THE WARRANTY IMPOSED BY LOUISIANA CIVIL CODE ARTICLES
2476; WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA CIVIL
CODE ARTICLE 2520, ET SEQ.; ACKNOWLEDGES THAT THIS EXPRESS WAIVER
SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE
CONSIDERATION THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN
BROUGHT TO THE ATTENTION OF PURCHASER AND EXPLAINED IN DETAIL AND THAT
PURCHASER HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER OF
WARRANTY OF FITNESS AND/OR WARRANTY AGAINST REDHIBITORY VICES AND
DEFECTS FOR THE INTERESTS.

26.03 WAIVER OF COMPARABLE RIGHTS: PURCHASER WAIVES ANY COMPARABLE
PROVISION OF THE LAW OF THE STATE WHERE THE INTERESTS ARE LOCATED.

26.04 PURCHASER'S ACKNOWLEDGMENT: PURCHASER ACKNOWLEDGES THAT THE WAIVERS
IN THIS ARTICLE 26 ARE CONSPICUOUS.

ARTICLE 27. MISCELLANEOUS

27.01 ENTIRE AGREEMENT: This Agreement, together with any confidentiality
agreements relating to the Interests previously executed by Purchaser,
constitute the entire agreement between the parties and supersede all
prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, amendment,
alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by the parties hereto
after the execution of this Agreement. The provisions of Section 6.02
and Articles 18, 26 and this Article 27 shall survive any termination
of this Agreement.

27.02 SEVERABILITY: In the event any covenant, condition, or provision
contained herein is held to be invalid by a court of competent
jurisdiction, the invalidity of any such covenant, condition or
provision shall in no way affect any other covenant, condition or
provision contained herein; provided, however, that any such
invalidity does not materially prejudice either Purchaser or Seller in
its respective rights and obligations contained in the valid
covenants, conditions, and provisions of this Agreement.

27.03 WAIVER: No waiver of any of the provisions of this Agreement shall
constitute a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.

27.04 CONSTRUCTION OF AMBIGUITY: In the event of any ambiguity in any of
the terms or conditions of this Agreement, including any exhibits
thereto and whether or not placed of record, such ambiguity shall not
be construed for or against any party hereto on the basis that such
party did or did not author the same.

27.05 CAPTIONS: The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction or
interpretation of any provisions of this Agreement.

27.06 GOVERNING LAW: This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas, without reference to
the conflict of laws or principles applied by the courts of the State
of Texas. All assignments and instruments of conveyance executed in
accordance with this Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the state where the
Interests conveyed thereby are located.

19
<PAGE> 20
27.07 WAIVER OF JURY TRIAL: SELLER AND PURCHASER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED
UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

27.08 LIMITATION OF LIABILITY: Seller and Purchaser do hereby covenant and
agree that the recovery by either party hereto of any damages suffered
or incurred by it as a result of any breach by the other party of any
provision of this Agreement shall be limited to the actual damages
suffered or incurred by the non-breaching party as a result of the
breach by the breaching party and in no event shall the breaching
party be liable to the non- breaching party for any indirect,
consequential, exemplary or punitive damages suffered or incurred by
the non- breaching party as a result of the breach by the breaching
party. This Section shall not limit Seller's right to retain the
Performance Deposit as liquidated damages under Section 5.01.

27.09 PUBLIC ANNOUNCEMENTS: The parties hereto agree that prior to making
any public announcement or statement with respect to the transaction
contemplated by this Agreement, the party desiring to make such public
announcement or statement shall consult with the other party hereto
and exercise its best efforts to (i) agree upon the text of the joint
public announcement or statement to be made by both of such parties or
(ii) obtain approval of the other party thereto to the text of a
public announcement or statement to be made solely by Seller or
Purchaser, as the case may be. Nothing contained in this paragraph
shall be construed to require either party to obtain approval of the
other party hereto to disclose information with respect to the
transaction contemplated by this Agreement to any state or federal
governmental authority or agency to the extent required by applicable
law or by any applicable rules, regulations or orders of any
governmental authority or agency having jurisdiction or necessary to
comply with disclosure requirements of the New York Stock Exchange
and applicable securities laws.

27.10 USE OF SELLER'S NAME: As soon as practicable after the Closing,
Purchaser shall remove or cause to be removed the names and marks used
by Seller and all variations and derivations thereof and logos
relating thereto from the Interests and shall not thereafter make any
use whatsoever of those names, marks and logos.

27.11 COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

27.12 ASSIGNMENT: This Agreement may not be assigned by Purchaser without
the prior written consent of Seller, which consent may be withheld in
its sole discretion; provided however, Seller hereby consents to an
assignment of this Agreement by Purchaser to Flores & Rucks, Inc., a
Delaware corporation, or its affiliate or subsidiary. This Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns. All future
conveyances of all or any portion of the Interests shall expressly
recognize and perpetuate the rights and obligations set out in this
Agreement.

27.13 COSTS AND EXPENSES: Except as otherwise expressly provided herein,
each party shall bear and pay its own costs and expenses, including,
but not limited to attorneys fees, incurred in connection with this
transaction.

27.14 JOINT VENTURE, PARTNERSHIP AND AGENCY: Nothing contained in this
Agreement shall be deemed to create a joint venture, partnership, tax
partnership or agency relationship between the parties.

27.15 CONFIDENTIALITY: Prior to the Closing, Seller and Purchaser to the
extent permitted by law, shall keep confidential all information
received from the other unless such information is readily
ascertainable from public or published information or trade sources or
is received from a third-party having no obligation of confidentiality
with respect to such information. In the event of the termination of
this Agreement, Seller and Purchaser shall return to the other or
destroy all information received from the other and, to the extent
permitted by law, keep confidential and not use any confidential
information obtained pursuant to this Agreement.

20
<PAGE> 21
27.16 SALE OF INTERESTS LOCATED ON INDIAN OR FEDERAL LANDS: If the
Interests are located on Indian or Federal Lands, Purchaser agrees to
obtain approval from the appropriate federal and/or state agencies as
soon as practicable after the Closing and to provide Seller with a
copy thereof. Purchaser shall indemnify, defend, save, discharge,
release and hold Seller harmless from and against any liability
resulting from Purchaser's failure to abide by this provision.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above set forth.

SELLER:

ATTEST: MOBIL OIL EXPLORATION &
PRODUCING SOUTHEAST INC.

By: [ILLEGIBLE] By: /s/ H.L. HICKEY
------------------------------ ------------------------------
Assistant Secretary H. L. Hickey
Attorney-in-fact

By: /s/ B.D. MARTINY
-------------------------------
B. D. Martiny
Attorney-in-fact

PURCHASER:

FLORES & RUCKS, INC.

By: /s/ ROBERT K. REEVES
-------------------------------
Robert K. Reeves

Title: Senior Vice President and
General Counsel

<PAGE> 1

EXHIBIT 12.1

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -----------------
1992 1993 1994 1995 1995 1996
------ ------ -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income before taxes............... $2,584 $2,227 $(22,179) $ 5,210 $ (251) $ 3,850
Add:
Interest............................ 241 1,055 4,507 17,620 8,493 8,188
Interest portion of rentals......... 14 55 127 176 81 102
------ ------ -------- ------- ------ -------
Earnings.................... $2,839 $3,337 $(17,545) $23,006 $8,323 $12,140
Fixed Charges
Interest............................ $ 241 $1,055 $ 4,507 $17,620 $8,493 $ 8,188
Interest portion of rentals......... 14 55 238 176 81 102
------ ------ -------- ------- ------ -------
Fixed Charges............... $ 255 $1,110 $ 4,745 $17,796 $8,574 $ 8,290
Ratio of Earnings to Fixed
Charges................... 11.1x 3.0x N.M.(1) 1.3x 1.0x 1.5x
</TABLE>

- ---------------
(1) The ratio is not meaningful because earnings were inadequate to cover fixed
charges by $22.3 million for the year ended December 31, 1994.

<PAGE> 1

EXHIBIT 12.2

COMPUTATION OF RATIO OF EBITDA TO INTEREST EXPENSE
(IN THOUSANDS, EXCEPT RATIOS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, PRO FORMA ------------------- PRO FORMA
1995 1995 1995 1996 1996
------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA
Net income (loss)..................... $ 9,902 $ 12,805 $ (251) $ 2,336 $ 8,967
Interest.............................. 17,620 24,961 8,493 8,188 12,358
Taxes................................. (4,692) (2,875) -- 1,514 5,666
DD&A.................................. 54,815 79,442 23,442 29,607 41,651
Amortization of deferred hedge
revenue............................ -- -- -- 1,823 1,824
------- -------- ------- ------- -------
EBITDA........................... $77,645 $114,333 $31,684 $43,468 $70,466
======= ======== ======= ======= =======
Interest expense........................ $17,620 $ 24,961 $ 8,493 $ 8,188 $12,358
Ratio of EBITDA to interest
expense....................... 4.4x 4.6x 3.7x 5.3x 5.7x
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

August 16, 1996

<PAGE> 1

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 8, 1996, with respect to the statements of
combined oil and gas revenues and direct operating expenses of certain oil and
gas producing properties to be acquired from Mobil Oil Exploration & Producing
Southeast Inc. included in the Registration Statement (Form S-3) and related
Prospectuses of Flores & Rucks, Inc. for the registration of $150 million of
Senior Subordinated Notes due 2006 and 1,550,000 shares of its common stock.

Ernst & Young LLP

Fort Worth, Texas
August 16, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the filing of this Consent as an exhibit to the
Registration Statement on Form S-3 of Flores & Rucks, Inc. to be filed with the
Securities and Exchange Commission on or about August 16, 1996. We also consent
to the use of our name therein and the inclusion of or reference to our reports
effective January 1, 1994; December 31, 1994; and December 31, 1995, in the
Registration Statement, and to the reference to our firm under the heading
"Experts" in the prospectus.

NETHERLAND, SEWELL & ASSOCIATES, INC.

By: /s/ CLARENCE M. NETHERLAND
----------------------------------
Clarence M. Netherland
Chairman

Dallas, Texas
August 16, 1996

<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

----------

FORM T-1

----------

STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE

----------

/ / CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)

FLEET NATIONAL BANK
---------------------------------------------------------
(Exact name of trustee as specified in its charter)

<TABLE>
<S> <C>
Not applicable 04-317415
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)

One Monarch Place, Springfield, MA 01102
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Pat Beaudry, 777 Main Street, Hartford, CT 06115 (203) 728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)

Flores & Rucks, Inc.
---------------------------------------------------
(Exact name of obligor as specified in its charter)

Delaware 72-1277752
Louisiana 72-1210660
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

8440 Jefferson Highway, Suite 420
Baton Rouge, Louisiana 70809
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Senior Subordinated Notes due 2006
------------------------------------------------------------------
(Title of the indenture securities)

<PAGE> 2

Item 1. General Information.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to
which it is subject,

The Comptroller of the Currency,
Washington, D.C.

Federal Reserve Bank of Boston
Boston, Massachusetts

Federal Deposit Insurance Corporation
Washington, D.C.

(b) Whether it is authorized to exercise
corporate trust powers:

The trustee is so authorized.

Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.

None with respect to the trustee.

Item 16. List of exhibits.

List below all exhibits filed as a part of this statement of
eligibility and qualification.

(1) A copy of the Articles of Association of the trustee as
now in effect.

(2) A copy of the Certificate of Authority of the trustee
to do business.

(3) A copy of the Certification of Fiduciary Powers of the
trustee.

(4) A copy of the By-Laws of the trustee as now in effect.

(5) Consent of the trustee required by Section 321(b)
of the Act.

(6) A copy of the latest Consolidated Reports of Condition
and Income of the trustee published pursuant to law or
the requirements of its supervising or examining authority.

NOTES

In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.

<PAGE> 3

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank, a national banking association organized and
existing under the laws of the United States, has duly caused this statement of
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Hartford, and State of
Connecticut, on the 15th day of August, 1996.

FLEET NATIONAL BANK,
AS TRUSTEE

By: /s/
-------------------------
Elizabeth C. Hammer
Its Vice President

<PAGE> 4

EXHIBIT 1

ARTICLES OF ASSOCIATION
OF
FLEET NATIONAL BANK

FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Fleet National Bank."

SECOND. The main office of the Association shall be in Springfield, Hampden
County Commonwealth of Massachusetts. The general business of the Association
shall be conducted at its main office and its branches.

THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.

FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.

FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three million
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.

No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.

<PAGE> 5

The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:

a. The number of shares constituting that series and the distinctive
designation of that series;

b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and whether they shall be
payable in preference to, or in another relation to, the dividends payable
to any other class or classes or series of stock;

c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;

d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;

e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;

f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;

g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;

h. The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Association and
whether such rights shall be in preference to, or in another relation to,
the comparable rights of any other class or classes or series of stock; and

i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.

Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of preferred
stock and by the provisions of any applicable law.

Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.

Except as otherwise provided by the resolution or resolutions providing for the
issue of any series of preferred stock, after payment shall have been made to
the holders of preferred stock of the full amount of dividends to which they
shall be entitled pursuant to the resolution or resolutions providing for the
issue of any other series of preferred stock, the holders of common stock shall
be entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.

Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.

The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.

<PAGE> 6

SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.

The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.

SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.

EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.

NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.

TENTH. (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust, or other enterprise, including service with respect
to an employee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. Such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors, and administrators, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.

(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the Association.
With respect to proceedings to enforce a claimant's rights to indemnification,
the Association shall indemnify any such claimant in connection with such a
proceeding only as provided in subsection (d) hereof.

(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.

(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association, the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in
which the Association's ultimate parent company is incorporated.

(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.

(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.

ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.

I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.

Secretary/Assistant Secretary
- --------------------------------------------------

Dated at , as of .
--------------------------------------- --------------------

Revision of February 15, 1996

<PAGE> 7

EXHIBIT 2

[LOGO]

- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------

Washington, D.C. 20219

CERTIFICATE

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:

(1) The Comptroller of the Currency, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all National Banking Associations.

(2) "Fleet National Bank of Connecticut", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the
business of banking on the date of this Certificate.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency

<PAGE> 8
EXHIBIT 2

[LOGO]

Washington, D.C. 20219

Certification of Fiduciary Powers

I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
the records in this Office evidence "Fleet National Bank of Connecticut",
Hartford, Connecticut, (Charter No. 1338), was granted, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of The Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the
authority so granted remains in full force and effect.

IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
4th day of April, 1996.

/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency

<PAGE> 9

EXHIBIT 4

AMENDED AND RESTATED BY-LAWS OF

FLEET NATIONAL BANK

ARTICLE I

MEETINGS OF SHAREHOLDERS

Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.

If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
which special notice shall be given in accordance with the provisions of law,
and of these bylaws.

Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.

Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the
shareholders shall be mailed, postage prepaid, at least ten (10) days before
the date of the meeting to each shareholder of record entitled to vote thereat
at his address as shown upon the books of the Association; but any failure to
mail such notice to any shareholder or any irregularity therein, shall not
affect the validity of such meeting or of any of the proceedings thereat.
Notice of a special meeting shall also state the purpose of the meeting.

Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.

Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cashier, but no officer, clerk, teller or bookeeper of the Association may act
as a proxy.

<PAGE> 10

Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names of more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.

Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meeting by written consent of the shareholders.

ARTICLE II

DIRECTORS

Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.

Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attanined the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.

-2-

<PAGE> 11

Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its
property and affairs.

Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.

Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.

Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.

Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time, and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.

Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.

Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such a meeting shall constitute presence in person
at such a meeting.

Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.

Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.

Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.

ARTICLE III

COMMITTEES OF THE BOARD

Section 1. Executive Committee. The Board of Directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee, with full voting powers, not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member of the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee or, in his absence, a member of the Committee chosen by
a majority of the members present shall preside at meetings of the Executive
Committee.

-3-

<PAGE> 12
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts.

All acts done and powers and authority conferred by the Executive Committee,
from time to time, within the scope of its authority, shall be deemed to be,
and may be certified as being, the acts of and under the authority of the
Board.

Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liablity
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time
to time; (b) assure the formulation and adoption of policies approved by the
Risk Management Committee or Board governing lending activities, management of
the loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail
sale of non-deposit investment products, new products and services and such
additional activities or functions as the Board may determine from time to time
(c) assure that a comprehensive independent loan review program is in place for
the early detection of problem loans and review significant reports of the loan
review department, management's responses to those reports and the risk
attributed to unresolved issues; (d) subject to control of the Board, exercise
general supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.

Section 3. Audit Committee. The Board shall appoint from its memebers and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Commitee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.

The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls, including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in liew thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.

The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.

-4-

<PAGE> 13

Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Commmunity Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.

Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.

Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.

Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.

Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.

Section 9. Quorum. A majority of a Committee of the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place and stead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.

Section 10. Record. The committes of the Board of Directors shall keep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.

Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.

Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.

ARTICLE IV

WAIVER OF NOTICE OF MEETINGS

Section 1. Waiver. Whenever notice is required to be given to any shareholder,
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.

-5-

<PAGE> 14

ARTICLE V

OFFICERS AND AGENTS

Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, an Auditor, a Controller, one or more Trust Officers and-
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.

Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.

Section 3. President. The President shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.

-6-

<PAGE> 15

Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.

Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.

Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.

Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.

Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.

ARTICLE VI

TRUST DEPARTMENT

Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.

-7-

<PAGE> 16

ARTICLE VII

BRANCH OFFICES

Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.

Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.

ARTICLE VIII

SIGNATURE POWERS

Section 1. Authorization. The power of officers, employees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.

-8-

<PAGE> 17

ARTICLE IX

STOCK CERTIFICATES AND TRANSFERS

Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.

Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to time by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.

Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.

Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.

Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders
entitled to notice of and to vote at such meetings or entitled to such dividend
or to such allotment of rights or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, shall be determined, and
only such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.

ARTICLE X

THE CORPORATE SEAL

Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.

ARTICLE XI

BUSINESS HOURS

Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business on such days, and for such
hours as the Chairman, or the President, or any Executive Vice President, or
such other officer as the Board of Directors shall from time to time
designate, may determine as to each office to conform to local custom and
convenience, provided that any one or more of the main and branch offices or
certain departments thereof may be open for such hours as the President, or
such other officer as the Board of Directors shall from time to time designate,
may determine as to each office or department on any legal holiday on which
work is not prohibited by law, and provided further that any one or more of
the main and branch offices or certain departments thereof may be ordered
closed or open on any day for such hours as to each office or department as
the President, or such other officer as the Board of Directors shall from time
to time designate, subject to applicable laws regulations, may determine when
such action may be required by reason of disaster or other emergency condition.

ARTICLE IX

CHANGES IN BY-LAWS

Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.

A true copy

Attest:

Secretary/Assistant Secretary
- ---------------------------------------

Dated at , as of .
--------------------------------------- ----------------------

Revision of January 11, 1993

-9-

<PAGE> 18
EXHIBIT 5

CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939

The undersigned, as Trustee under the Indenture to be entered into between
Flores & Rucks, Inc. and Fleet National Bank, as Trustee,
does hereby consent that, pursuant to Section 321(b) of the Trust Indenture
Act of 1939, reports of examinations with respect to the undersigned by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.

FLEET NATIONAL BANK,
AS TRUSTEE

By /s/ Elizabeth C. Hammer
-------------------------------
Elizabeth C. Hammer
Its: Vice President

Dated:

<PAGE> 19

EXHIBIT 6

<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036

Federal Deposit Insurance Corporation
OMB Number: 3064-0052

Office of the Comptroller of the Currency
OMB Number: 1557-0081

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------

Please refer to page i, / 1 /
[LOGO] Table of Contents, for
the required disclosure
of estimated burden.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 20
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
(960331)
REPORT AT THE CLOSE OF BUSINESS March 31, 1996 -----------
(RCRI 9999)

This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).

This report form is to be filed by banks with branches and consolidation
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.

- --------------------------------------------------------------------------------

NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.

I, Giro S. DeRosa, Vice President and Controller
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report

of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.

/s/ GIRO DEROSA
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report

April 25, 1996
- --------------------------------------------------------------------------------
Date of Signature

The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.

We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.

/s/ Eileen S. Krauss
- --------------------------------------------------------------------------------
Director (Trustee)

/s/ Richard Higginbotham
- --------------------------------------------------------------------------------
Director (Trustee)

/s/ V. Duncan Johnson
- --------------------------------------------------------------------------------
Director (Trustee)

- --------------------------------------------------------------------------------

<PAGE> 21

FOR BANKS SUBMITTING HARD COPY REPORT FORMS:

STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Feserve District Bank.

STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
___
FDIC Certificate Number | 1 | 0 | 5 | 8 | 2 | |
______________________ CALL NO. 190 31 03-31-96
(RCRI 9050)
CERT: 02499 10582 STBK 09-0590

FLEET NATIONAL BANK OF CONNECTICUT
777 MAIN STREET
HARTFORD, CT 06115
| |
___ ___
<FN>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>

<PAGE> 22
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
________________________________________________________________________________

TABLE OF CONTENTS

SIGNATURE PAGE Cover

REPORT OF INCOME

Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8

REPORT OF CONDITION

Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities...............................................RC-3,4,5
Schedule RC-C--Loans and Lease Fianancing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities....................................RC-9,10,11
Schedule RC-F--Only Assets.................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBF's.................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items...............................RC-14,15,16
Schedule RC-M--Memoranda................................................RC-17,18
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-19,20
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-21,22
Schedule RC-R--Risk-Based Captial.......................................RC-23,24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Conditions and Income....................................................RC-25
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)

<PAGE> 23

DISCLOSURE OF ESTIMATED BURDEN

The estimated average burden associated with this information collection is
32.2 hours per respondent and is estimated to vary from 15 to 230 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs. Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:

Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551

Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219

Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429

For information or assistance, national and state nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800)688-FDIC (3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<TABLE>
<S> <C>
___________
</TABLE>

<PAGE> 24

<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Consolidated Report of Income
for the period January 1, 1996 - March 31, 1996

All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
file
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Income Statement ________
| I480 |
Dollar Amounts in Thousands RIAD Bil Mil Thou__|
_______________________________________________________________________________________________ ___________|________|
<S> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate ................................................... | 4011 68,007 | 1.a.(1)(a)
(b) Loans to depository institutions ............................................... | 4019 0 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ | 4024 42 | 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ | 4012 119,467 | 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... | 4026 22 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................. | 4054 1,870 | 1.a.(1)(f)(1)
(2) Other ...................................................................... | 4055 11,553 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ........................................................ | 4503 0 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... | 4504 469 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ | 4058 14,004 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4059 0 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases ..................................................................... | 4505 192 | 1.b.(1)
(2) Tax-exempt leases .................................................................. | 4307 0 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ................................................................ | 4105 0 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4106 26 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... | 4027 33,725 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................. | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... | 4507 1 | 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... | 3657 7,306 | 1.d.(3)
(4) Foreign debt securities ............................................................ | 3658 49 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... | 3659 1,888 | 1.d.(5)
e. Interest income from trading assets..................................................... | 4069 0 | 1.e.
______________________
</TABLE>
[FN]
____________
(1) Includes interest income on time certificates of deposit not held for
trading.

<PAGE> 25

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
Dollar Amounts in Thousands | Year-to-date |
___________________________________________________________________________________ ______________
<S> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on federal funds sold and securities purchased | ////////////////// |
under agreements to resell in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4020 292 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 258,913 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 519 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 6,345 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 11,368 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 21,500 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 31,522 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 4,742 | 2.a.(2)
b. Expense of federal funds purchased and securities sold under | ////////////////// |
agreements to repurchase in domestic offices of the bank and of | ////////////////// |
its Edge and Agreement subsidiaries, and in IBFs .................... | 4180 35,405 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other money borrowed ............................... | 4185 29,123 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 106 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 2,993 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 143,623 | 2.f.
___________________________
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 115,290 | 3.
___________________________
4. Provisions: | ////////////////// |
___________________________
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 1,911 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
___________________________
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 21,652 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 15,687 | 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum | ////////////////// |
items 8.a through 8.d)............................................... A220 78 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 6 | 5.d.
e. Not applicable....................................................... | ////////////////// |
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 13,425 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 43,419 | 5.f.(2)
___________________________
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 94,267 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | 1 | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 11,352 | 6.b.
| ////////////////// |___________________________
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 36,676 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 14,846 | 7.b.
c. Other noninterest expense* .......................................... | 4092 57,219 | 7.c.
___________________________
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 108,741 | 7.d.
___________________________
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
___________________________
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 110,258 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 51,617 | 9.
___________________________
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
___________________________
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 58,641 | 10.
_________________________________________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</TABLE>

<PAGE> 26
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________ ______________
<S> <C> <C>
11. Extraordinary items and other adjustments: | ////////////////// |
a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a.
b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b.
c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |
___________________________
(item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 58,641 | 12.
_________________________________________________
</TABLE>
<TABLE>
<CAPTION> __________
______|__I481__|
Memoranda | Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 0 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 0 | M.2.
3.-4. Not applicable | ////////////////// |
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 1,831 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): | //// Bil Mil Thou |
a. Interest rate exposures ...................................................................... | 8757 11 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 67 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (2,618)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (2,834)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 0 | M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions).................................| A251 0 | M.10.
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.

<PAGE> 27
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital

Indicate decreases and losses in parentheses. _________
| I483 |
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,342,473 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,342,473 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 58,641 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 0 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 0 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 0 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 10,922 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 (10,978)| 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 0 | 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 1,379,214 | 14.
______________________
</TABLE>
[FN]
____________
*Describe on Schedule RI-E--Explanations.

<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses

Part I. Charge-offs and Recoveries on Loans and Leases

Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
__________
| I486 | <-
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 6,328 | 4661 3,137 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 2 | 4665 21 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 5,700 | 4617 1,564 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 0 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 290 | 4666 10 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 2,187 | 4667 702 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 0 | 4628 298 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 0 | 4668 0 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 14,507 | 4605 5,732 | 9.
___________________________________________
</TABLE>

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Continued

Part I. Continued

Memoranda

_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 71 | 5410 667 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 102 | 3583 142 | M.5.a.
b. Secured by farmLand ................................................... | 3584 75 | 3585 4 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 963 | 5412 0 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 2,574 | 5414 642 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 78 | 3589 211 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 2,536 | 3591 2,138 | M.5.e.
|_________________________________________|

Part II. Changes in Allowance for Loan and Lease Losses
_____________________

Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income.......... | 3124 266,943 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 5,732 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 14,507 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 1,911 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 0 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 260,079 | 6.
|____________________|
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
<TABLE>
<CAPTION>

Schedule RI-C--Applicable Income Taxes by Taxing Authority

Schedule RI-C is to be reported with the December Report of Income.
| I489 | <-
____________ ________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Federal ....................................................................................... | 4780 N/A | 1.
2. State and local................................................................................ | 4790 N/A | 2.
3. Foreign ....................................................................................... | 4795 N/A | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 N/A | 4.
____________________________| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | N/A | ////////////////// | 5.
__________________________________________________

</TABLE>

<PAGE> 28

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-D--Income from International Operations

For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations
account for more than 10 percent of total revenues, total assets, or net income.

Part I. Estimated Income from International Operations

__________
| I492 | <-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
______________________
<CAPTION>
Memoranda ______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
______________________
</TABLE>
<TABLE>
<CAPTION>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
______________________
</TABLE>

<PAGE> 29

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Explanations

Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.

Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
__________
| I495 | <-
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
_____________
d. | TEXT 4461 |______________________________________________________________________________| |
___________ Gain on Sale of Branches 4461 27,961 1.d.
e. | TEXT 4462 |______________________________________________________________________________| 4462 | 1.e.
___________ 4463 1.f.
f. | TEXT 4463 |______________________________________________________________________________| |
_____________
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 5,424 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |
_____________
e. | TEXT 4464 |______________________________________________________________________________| |
___________ Intercompany Data Processing & Programming Charges 4464 19,616 2.e.
f. | TEXT 4467 |______________________________________________________________________________| 4467 11,457 | 2.f.
___________ Intercompany Corporate Support Function Charges 4468 2.g.
g. | TEXT 4468 |______________________________________________________________________________| |
_____________
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |
_____________
a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1)
_____________
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
_____________ ____________________________
b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1)
_____________
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
_____________ ____________________________
c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1)
_____________
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
____________________________
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a.
___________
b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b.
_____________
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |
_____________
a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a.
___________
b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b.
_____________
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |
_____________
a. | TEXT 4496 |______________________________________________________________________________| 4496 | 6.a.
___________
b. | TEXT 4497 |______________________________________________________________________________| 4497 | 6.b.
_____________
______________________
</TABLE>

<PAGE> 30

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// |
(itemize and describe all such transactions): | ////////////////// |
_____________
a. | TEXT 4498 |______________________________________________________________________________| 4498 | 7.a.
___________
b. | TEXT 4499 |______________________________________________________________________________| 4499 | 7.b.
_____________
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4521 |
|______________________________________________________________________________| 4521 | 8.a.
_____________
b. | TEXT 4522 |______________________________________________________________________________| 4522 | 8.b.
_____________
____________________
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 | <-
______________________
at its option, any other significant items affecting the Report of Income):
___
No comment |X| (RIAD 4769)
___
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>

<PAGE> 31

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for March 31, 1996

All schedules are to be reported in thousands of dollars. Unless otherwise indicated,
report the amount outstanding as of the last business day of the quarter.

Schedule RC--Balance Sheet
__________
| C400 | <-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 644,422 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 175 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 3,192 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 1,806,430 | 2.b.
3. Federal funds sold and securities purchased under agreements to resell in domestic offices | ////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 0 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 10,679,728 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 260,079 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 3128 | 0 | ////////////////// | 4.c.
____________________________
d. Loans and leases, net of unearned income, | ////////////////// |
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... | 2125 10,419,649 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 484 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 146,450 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 871 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 6,513 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 283,894 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 615,485 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 13,927,565 | 12.
______________________
<FN>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>

<PAGE> 32

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... | RCON 2200 8,134,739 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 2,366,568 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 5,768,171 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 261,352 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 0 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 261,352 | /////////////////////// | 13.b.(2)
____________________________
14. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 2,009,304 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 55,853 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 170,257 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 460 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With a remaining maturity of one year or less.......................................... | RCFD 2332 954,145 | 16.a.
b. With a remaining maturity of more than one year........................................ | RCFD 2333 143,887 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 8,762 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 6,513 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 440,000 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 363,079 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 12,548,351 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 955,984 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 286,513 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 (7,770)| 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 1,379,214 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 13,927,565 | 29.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1995 ............................................................... | RCFD 6724 2 | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
<FN>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</TABLE>

<PAGE> 33

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 | <-
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 553,818 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 418,841 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 134,977 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 89,741 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 89,741 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 1,038 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 0 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 1,038 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 0 | 0090 0 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 644,597 | 0010 644,597 | 5.
___________________________________________
<CAPTION>
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 89,566 | M.1.
______________________
</TABLE>

Schedule RC-B--Securities
Exclude assets held in trading accounts.
<TABLE>
_______
| C410 |

___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 843,487 | 1287 829,503 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 0 | 1298 0 | 2.b.
_____________________________________________________________________________________
<FN>
_____________
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>

<PAGE> 34

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued

_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ////////// ////// |
a. General obligations ......... | 1676 0 |1677 0 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 42 |1686 45 | 1690 0 | 1691 0 | 3.b.
c. Industrial development ...... | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations ........| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 849 | 1702 849 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 0 |1705 0 | 1706 847,095 | 1707 849,756 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 0 |1710 0 | 1711 0 | 1713 0 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 0 | 1717 0 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 0 | 1736 0 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities | 1737 0 |1738 0 | 1739 478 | 1741 475 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 2,900 |1743 2,900 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 9,427 | 1748 9,427 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 116,420 | 1753 116,420 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 3,192 | 1771 3,195 | 1772 1,817,756 | 1773 1,806,430 | 7.
____________ |__________________________________________________________________________________|
1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.

</TABLE>
14

<PAGE> 35

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued

<CAPTION>
___________
Memoranda | C412 | <-
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 934,681 | M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status):| ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 5,621 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 0 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 1,548,431 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 27,232 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 1,581,284 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 99,741 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 2,750 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 102,491 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 1,683,775 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2)(4) (included in | ////////////////// |
Memorandum items 2.b(1) through 2.b.(4) above)................................................. | 5519 1,000 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale. | ////////////////// |
or transfer ................................................................................... | 1778 0 | m.7.
8. High-Risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items.2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
____________
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.

</TABLE>

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State Zip: HARTFORD, CT 06115 Page RC-6

<CAPTION>
Schedule RC-C--Loans and Lease Financing Receivables

Part I. Loans and Leases

Do not deduct the allowance for loan and lease losses from amounts __________
reported in this schedule. Report total loans and leases, net of unearned _________________________________| C415 | <-
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 3,574,653 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 51,282 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 307 | 1.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 325,605 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 2,073,517 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 172,054 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 65,430 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 886,458 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 204,042 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 204,042 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 0 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 0 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 1,568 | 1590 1,568 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 5,397,715 | 1763 5,397,715 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 0 | 1764 0 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 1,538 | 1756 1,538 | 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 548,048 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 25,114 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans) . | 2011 522,934 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 27,864 | 2107 27,864 | 8.
9. Other loans ............................................................ | 1563 934,616 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 155,278 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 779,338 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 7,297 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 7,297 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 17,613 | 2123 17,613 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a) . | 2122 10,679,728 | 2122 10,679,728 | 12.
___________________________________________
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<PAGE> 37

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC031
Address: 777 MAIN STREET Page: RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-C--Continued

Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 19,431 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 4,174,641 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 85,961 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 965,740 | M.3.a.(3)
(4) Over five years ................................................. | 0357 1,877,648 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 7,103,990 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 2,937,472 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 547,425 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 20,958 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 0 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 3,505,855 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 10,609,845 | M.3.c.
d. Floating rate loans with a remaining maturity of one year or less | ////////////////// |
(included in Memorandum items 3.b.(1) through 3.b.(4) above)......... | A246 277,721 | M.3.d.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 47,652 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// |_____________________
residential properties (included in Schedule RC-C, part I, item | ////////////////// | RCON Bil Mil Thou |
| ////////////////// |____________________
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 425,358 | M.6.
___________________________________________
<FN>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.

Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________

Schedule RC-D--Trading Assets and Liabilities _________

Schedule RC-D is to be completed only by banks with $1 billion or more intotal assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).

| C420 |
Dollar Amounts in Thousands ////////// Bil Mil Thou
__________________________________________________________________________________________________ _______________|________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices ........................................ | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 484 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 0 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 484 | 12.
<CAPTION>
___________________________
___________________________
| ///////// Bil Mil Thou |
LIABILITIES _________________________
<S> <C> <C>
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 460 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 460 | 15.
___________________________
</TABLE>

<PAGE> 38

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities

Part I. Deposits in Domestic Offices
__________
| C425 | <-
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 1,870,879 | 2240 1,790,783 | 2346 5,557,638 | 1.
2. U.S. Government ...................................... | 2202 32,574 | 2280 32,277 | 2520 0 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 150,578 | 2290 127,109 | 2530 106,071 | 3.
4. Commercial banks in the U.S. ......................... | 2206 202,546 | 2310 202,546 | 2550 100 | 4.
5. Other depository institutions in the U.S. ............ | 2207 174,699 | 2312 174,699 | 2349 500 | 5.
6. Banks in foreign countries ........................... | 2213 318 | 2320 318 | 2236 0 | 6.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 0 | 2300 0 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 38,836 | 2330 38,836 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 2,470,430 | 2210 2,366,568 | 2385 5,664,309 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 698,350 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 974,688 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 60 | M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 974,628 | M.1.c.(2)
d. Maturity data for brokered deposits: | ////////////////// |
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining | ////////////////// |
maturity of one year or less (included in Memorandum item 1.c.(1) above)................. | A243 40 | M.1.d.(1)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining | ////////////////// |
maturity of one year or less (included in memorandum item 1.b above)..................... | A244 348,862 | M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 250,556 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 2,070,204 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 607,255 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 1,723,479 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 1,263,371 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 103,862 | M.3.
4. Not applicable.
______________________
</TABLE>

<PAGE> 39

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
<CAPTION>
Schedule RC-E--Continued

Part I. Continued

Memoranda (continued)
_________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of | ////////////////// |
Memorandum items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above):(1) | ////////////////// |
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: | ////////////////// |
(1) Three months or less.................................................................... | A225 606,686 | M.5.a.(1)
(2) Over three months through 12 months..................................................... | A226 797,678 | M.5.a.(2)
(3) Over one year........................................................................... | A227 271,853 | M.5.a.(3)
b. Floating rate time deposits of less than $100,000 with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently............................................................ | A228 47,262 | M.5.b.(1)
(2) Annually or more frequently, but less frequently than quarterly......................... | A229 0 | M.5.b.(2)
(3) Less frequently than annually........................................................... | A230 0 | M.5.b.(3)
c. Floating rate time deposits of less than $100,000 with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)............... | A231 28,168 | M.5.c.
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time certificates | ////////////////// |
of deposits of $100,000 or more and open-account time deposits of $100,000 or more) | ////////////////// |
(sum of Memorandum items 6.a.(1) through 6.b.(4) must equal the sum of Memorandum | ////////////////// |
items 2.c and 2.d above):(1) | ////////////////// |
a. Fixed rate time deposits of $100,000 or more wiht a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | A232 270,543 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | A233 297.457 | M.6.a.(2)
(3) Over one year through five years ....................................................... | A234 695,371 | M.6.a.(3)
(4) Over five years ........................................................................ | A235 0 | M.6.a.(4)
b. Floating rate time deposits of $100,000 or more with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | A236 0 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | A237 0 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | A238 0 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | A239 0 | M.6.b.(4)
c. Floating rate time deposits of $100,000 or more with a remaining maturity of | ////////////////// |
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)............... | A240 0 | M.6.c.
______________________
<FN>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</TABLE>

<PAGE> 40

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued

Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)

______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 256,352 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 0 | 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs).... | 2625 5,000 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 0 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 261,352 | 7.

Memorandum
Dollar Amounts in Thousands |RCFN Bil Mil Thou |
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) |A245 261,352 | M.1.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 | <-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 51,988 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 166,839 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 17,484 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2168 379,174 | 4.
_____________ ___________________________
a. | TEXT 3549 |____________________________________________________| RCFD 3549 | | /////////////////////// | 4.a.
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 615,485 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 | <-
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 24,670 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 305,857 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize and describe amounts that exceed 25% of this item)............................. | RCFD 2938 32,552 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 363,079 | 5.
___________________________
<FN>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</TABLE>

<PAGE> 41

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 | <-
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 6,513 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 6,513 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 0 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 2,065,157 | 4.
5. Other borrowed money ............................................................................ | 3190 1,098,032 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 261,771 | 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 13,927,565 | 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 12,286,580 | 9.
______________________

</TABLE>
<TABLE>
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 829,753 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 0 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 42 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 850,605 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 0 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 0 | 13.b.(1)
(2) All other mortgage-backed securities..................................................... | 2253 0 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 475 | 14.
15. Foreign debt securities ........................................................................ | 3160 2,900 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 9,427 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 116,420 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 1,809,622 | 17.
______________________

</TABLE>
<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)

______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>

<PAGE> 42

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-I--Selected Assets and Liabilities of IBFs

To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 | <-
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. | 2133 N/A | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ...................................................................................... | 2076 N/A | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... | 2077 N/A | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... | 2898 N/A | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ........................................................................ | 2379 N/A | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... | 2381 N/A | 6.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 | <-
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 1,841 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 2,327,287 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 42 | 3.
4. a. Other debt securities(2) .............................................................. | RCFD 3647 537,639 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 124,253 | 4.b.
5. Federal funds sold and securities purchased under agreements to resell in domestic offices | /////////////////////// |
of the bank and of its Edge and Agreement subsidiaries, and in IBFs ...................... | RCFD 3365 24,049 | 5.
6. Loans: | /////////////////////// |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ....................................................................... | RCON 3360 11,036,031 | 6.a.(1)
(2) Loans secured by real estate ...................................................... | RCON 3385 3,924,553 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 1,787 | 6.a.(3)
(4) Commercial and industrial loans ................................................... | RCON 3387 5,456,987 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 620,136 | 6.a.(5)
| /////////////////////// |
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 0 | 6.b.
7. Trading assets ........................................................................... | RCFD 3401 658 | 7.
8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 9,155 | 8.
9. Total assets (4) ......................................................................... | RCFD 3368 15,745,746 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 145,491 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 1,367,351 | 11.a.
b. Other savings deposits ................................................................ | RCON 3487 1,715,719 | 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... | RCON 3345 1,290,422 | 11.c.
d. All other time deposits ............................................................... | RCON 3469 2,270,162 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 357,799 | 12.
13. Federal funds purchased and securities sold under agreements to repurchase in domestic | /////////////////////// |
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs .............. | RCFD 3353 2,634,782 | 13.
14. Other borrowed money ..................................................................... | RCFD 3355 1,058,218 | 14.
___________________________
<FN>
_____________
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</TABLE>

<PAGE> 43

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-14
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items

Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 | <-
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 404,731 | 1.a.
b. Credit card lines .......................................................................... | 3815 0 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 112,242 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 4,610 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 5,996,651 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,038,270 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 1,075 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 48,181 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 0 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 129,940 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 0 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 0 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated as sold for | ////////////////// |
Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 60,259 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 54,182 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
d. Small business obligations transferred with recourse under Section 208 of the | ////////////////// |
Riegle Community Development and Regulatory Improvement Act of 1994: | ////////////////// |
(1) Outstanding principal balance of small business obligations transferred | ////////////////// |
as of the report date................................................................... | A249 0 | 9.d.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. | A250 0 | 9.d.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 0 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives ) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.

b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________

Dollar Amounts in Thousands RCFD Bil Mil Thou
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital") | 5591 0 | 13.

_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________

</TABLE>

<PAGE> 44

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-L -- Continued

_____________
| C461 | <-
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Future contracts .............. | 0 | 0 | 0 | 0 | 14.a.
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
b. Forward contracts ............. | 0 | 0 | 0 | 0 | 14.b.
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
c. Exchange-traded option contracts| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
| RCFD 8701 | RCFD 8702 | RCFD 8703 | RCFD 8704 |
(2) Purchased options ........ | 0 | 0 | 0 | 0 | 14.c.(2)
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 68,500 | 0 | 0 | 0 | 14.d.(1)
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
(2) Purchased options ........ | 368,500 | 0 | 0 | 0 | 14.d.(2)
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
e. Swaps ............................ | 4,553,328 | 0 | 0 | 0 | 14.e.
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 160,000 | 0 | 0 | 0 | 15.
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
a. Contracts marked to market ... | 0 | 0 | 0 | 0 | 16.a.
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
b. Contracts not marked to market | 4,830,328 | 0 | 0 | 0 | 16.b.
| RCFD 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
___________________________________________________________________________________|
</TABLE>

25
<PAGE> 45

<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-L -- Continued
</TABLE>
<TABLE>
<CAPTION>
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in thousands |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 484 | 8734 0 | 8735 0 | 8736 0 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 460 | 8738 0 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 0 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 0 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 5,594 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 44,514 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|

______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
_________________________________________________________________________________________________________________________
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 4,493,867 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 93,830 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above .............. | 3377 317,126 | M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles (to be completed for the | ////////////////// |
September report only)....................................................................... | 2741 N/A | M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)................................... | 2742 0 | M.5.b.
c. All other consumer installment credit (including mobile home loans)(to be completed for the | ////////////////// |
September report only........................................................................ | 2743 N/A | M.5.c
</TABLE>

26
<PAGE> 46

<TABLE>
<CAPTION>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
</TABLE>
<TABLE>
<CAPTION>
_____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal | ////////////////// |
shareholders and their related interests ..................................................... | 6164 159,583 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 7 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 20,866 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 11,305 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 1,163,045 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 48,954 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 2,112,518 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 3,306,908 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 6,513 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 28,816 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 0 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 255,078 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 283,894 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 0 | 7.
______________________

- ------------
(1) Do not report federal funds sold and securities purchased under agreements to resell with other
commercial banks in the U.S. in this item.
</TABLE>
27

<PAGE> 47

<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATINAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 74 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 596 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 192 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 9 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 871 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 0 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 0 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 0 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 0 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in itmes 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 0 | 10.f.
_________________________
</TABLE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 N/A | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 N/A | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>

<PAGE> 48

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets

The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 | <-
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 | 1246 18,232 | 1247 53,840 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// |
acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// |
institutions ................................. | 5377 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 | 1597 0 | 1583 100 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 | 1252 1,756 | 1253 31,162 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// |
other personal expenditures: | ////////////////// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 | 5384 183 | 5385 184 | 5.a.
b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 | 5387 1,542 | 5388 2,138 | 5.b.
6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// |
institutions .................................... | 5389 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 | 5460 253 | 5461 72 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 | 1258 0 | 1259 0 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 | 3506 0 | 3507 0 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================

Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.

________________________________________________________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
10. Loans and leases reported in items 1 | | | |
through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 | 5613 324 | 5614 317 | 10.
a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 | 5616 256 | 5617 263 | 10.a.
________________________________________________________________
</TABLE>

<PAGE> 49

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 | <-
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ////////////////// | /////////////////// | ///////////////// |
reported in Schedule RC-C, part I, Memorandum | ////////////////// | /////////////////// | ///////////////// |
item 2) ......................................... | 1658 | | | M.1.
2. Loans to finance commercial real estate, | ////////////////// | /////////////////// | ///////////////// |
construction, and land development activities | ////////////////// | /////////////////// | ///////////////// |
(not secured by real estate) included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 | 6559 593 | 6560 26 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 | 2769 0 | 3492 1,108 | M.3.a.
b. Secured by farmland .......................... | 3493 | 3494 0 | 3495 0 | M.3.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// |
1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 | 5399 1,772 | 5400 2,746 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// |
residential properties ................... | 5401 | 5402 12,822 | 5403 13,798 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 | 3500 1,426 | 3501 1,352 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 | 3503 2,212 | 3504 34,836 | M.3.e.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// |
commodity and equity contracts: | ////////////////// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ////////////////// | ////////////////// |
positive replacement cost .................... | 3529 | 3530 0 | M.4.b.
___________________________________________
</TABLE>

<PAGE> 50

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION> ______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 0 | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 N/A | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 N/A | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 0 | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 N/A | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 N/A | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 28,655 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 3,266 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 5,000 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 2 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, item 4 or 5, column B)..... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, | ////////////////// |
item 4 or 5, column A or C, but not column B).............................................. | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 0 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________

_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 864,186 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
<FN>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</TABLE>

<PAGE> 51

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-O--Continued

Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collections were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 0 | 11.c.
____________________

Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
________________________________________________________________________________________________|____________________|
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less .................................... | 2702 4,389,311 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) ..........................|RCON 3779________N/A | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 .................................. | 2710 3,745,428 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 .............|RCON 2722______6,366 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.

Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits that the ____________YES_______NO__
estimated described above ............................................................... |RCON 6861| |///| x | M.2.a.

____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.

_____________________________________________________________________________________________________________________________
| C477 | <-
Person to whom questions about the Reports of Condition and Income should be directed: __________

PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
</TABLE>

<PAGE> 52

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Regulatory Capital

This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1995, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than
$1 billion must complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
____________
| C480 | <-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed _____|__________|
only by banks with total assets of less than $1 billion. Indicate in the appropriate | YES NO |
box at the right whether the bank has total capital greater than or equal to eight percent___________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
| and Intermediate | Limited- |
Items 2 and 3 are to be completed by all banks. | Term Preferred | Life Capital |
| Stock | Instruments |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// |
weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// |
maturity of: | ////////////////// | ////////////////// |
a. One year or less ...................................................... | 3780 0 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 0 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 0 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 440,000 | 3791 0 | 2.f.
3. Amounts used in calculating regulatory capital ratios (report amounts | ////////////////// | ////////////////// |
determined by the bank for its own internal regulatory capital analyses): | ////////////////// | RCFD Bil Mil Thou |
a. Tier 1 capital......................................................... | ////////////////// | 8274 1,131,906 | 3.a.
b. Tier 2 capital......................................................... | ////////////////// | 8275 614,539 | 3.b.
c. Total risk-based capital............................................... | ////////////////// | 3792 1,746,445 | 3.c.
d. Excess allowance for loan and lease losses............................. | ////////////////// | A222 85,540 | 3.d.
e. Risk-weighted assets................................................... | ////////////////// | A223 13,877,543 | 3.e.
f. "Average total assets"................................................. | ////////////////// | A224 15,490,668 | 3.f.
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memoranda items 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Assets and credit equivalent amounts of off-balance sheet items assigned | | |
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 848,861 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 168,507 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 0 | 4.b.
___________________________________________
<FN>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in column A.
</TABLE>

<PAGE> 53

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-24
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 21,083 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 1,567,242 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 67,114 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 2,037,765 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 116,963 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 9,551,472 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 3,288,367 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 (7,286)| ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 14,187,644 | ////////////////// | 9.
___________________________________________

Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards ...................................................................| 8764 6,077| M.1.
|___________________|

________________________________________________________________
| With a remaining maturity of |
|______________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________________________________________________|
|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|RCFD Tril Bil Mil Th|
|____________________|____________________|____________________|
2. Notional principal amounts of <C> <C> <C> <C>
off-balance sheet derivative contracts(3):| | | |
a. Interest rate contracts ................. | 3809 1,308,203 | 8766 3,328,625 | 8767 0 | M.2.a.
b. Foreign exchange contracts .............. | 3812 0 | 8769 0 | 8770 0 | M.2.b.
c. Gold contracts .......................... | 8771 0 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... | 8774 0 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f.
|______________________________________________________________|

_________________
1) Do not report in column B the risk-weighted amount of assets reported in column A.
2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as
any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital.
3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.

</TABLE>

34
<PAGE> 54

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 03/31/96 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|

THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- -------------------------------------------------------------------------------------------------------------------------------
| OMB No. For OCC: 1557-0081
Name and address of Bank | OMB No. For FDIC: 3064-0052
| OMB No. For Federal Reserve: 7100-0036
| Expiration Date: 3/31/96
|
PLACE LABEL HERE |
| SPECIAL REPORT
| (Dollar Amounts in Thousands)
|
|___________________________________________________________________
| CLOSE OF BUSINESS| FDIC Certificate Number | |
| DATE | | C-700 | <-
| 12/31/95 | |0|2|4|9|9 | |
__________________________________________________________________________________________________________________________________
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition.
With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to
their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none"
against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See
Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation 0) for the definitions
of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and
principal shareholders who are not executive officers.
________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________
SIGNATURE OF TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year)
|
|
________________________________________________________________________________________________________________________________
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION
| (TEXT 8904)
|
ROBERT P. DUFF VICE PRESIDENT | (203) 986-2474
|
________________________________________________________________________________________________________________________________
FDIC 8040/53 (6-95)

</TABLE>

35
<PAGE> 55

<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET Call Date: 3/31/96 ST-BK: 09-0590 FFIEC 031
City, State, Zip: HARTFORD, CT 06115 Page RC-25
FDIC Certificate No.: 02499

</TABLE>

Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on March 31, 1996

FLEET NATIONAL BANK OF CONNECTICUT HARTFORD , CONNECTICUT
Legal Title of Bank City State

The management of the reporting bank may, if it wishes, submit a brief
narrative statement on the amounts reported in the Reports of Condition and
Income. This optional statement will be made available to the public, along
with the publicly available data in the Reports of Condition and Income, in
response to any request for individual bank report data. However, the
information reported in column A and in all of Memorandum item 1 of Schedule
RC-N is regarded as confidential and will not be released to the public.
BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE
STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL
BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS
IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE
MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks
choosing not to make a statement may check the "No comment" box below and
should make no entries of any kind in the space provided for the narrative
statement; i.e., DO NOT enter in this space such phrases as "No statement,"
"Not applicable," "N/A," "No comment," and "None."

The optional statement must be entered on this sheet. The statement should
not exceed 100 words. Further, regardless of the number of words, the
statement must not exceed 750 characters, including punctuation, indentation,
and standard spacing between words and sentences. If any submission should
exceed 750 characters, as defined, it will be truncated at 750 characters with
no notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.

All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.

If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.

The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
_____________________________________________________________________________
No comment |X| )RCON 6979) | c471 | C472 |

BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)

__Gero DeRosa_______________________________ ___4/25/96________
Signature of Executive Officer of Bank Date of Signature