Exhibit 10.1

EXECUTION VERSION

Published CUSIP Number:  86164DAA0

$500,000,000.00
 
CREDIT AGREEMENT
 
among
 
STONE ENERGY CORPORATION
 
as Borrower,
 
THE FINANCIAL INSTITUTIONS
NAMED IN THIS CREDIT AGREEMENT
 
as Banks,
 
BANK OF AMERICA, N.A.
as Administrative Agent,
 
BANK ONE, NA (MAIN OFFICE CHICAGO)
as Syndication Agent
 
HARRIS NESBITT FINANCING, INC.,
UNION BANK OF CALIFORNIA, N.A., and
U.S. BANK NATIONAL ASSOCIATION
as Co-Documentation Agents,
 
BNP PARIBAS and
THE ROYAL BANK OF SCOTLAND PLC
as Managing Agents, and
 
BANC OF AMERICA SECURITIES LLC
as Lead Arranger and Book Manager
 
 
April 30, 2004
 
 
 

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   ARTICLE I           DEFINITIONS AND ACCOUNTING TERMS 1 Section 1.1. Certain
Defined Terms 1 Section 1.2. Computation of Time Periods 12 Section 1.3.
Accounting Terms; Change in GAAP 12 Section 1.4. Types of Advances 12 Section
1.5. Miscellaneous
  13    ARTICLE II           CREDIT FACILITIES 13 Section 2.1. Commitment for
Advances 13 Section 2.2. Borrowing Base 13 Section 2.3. Method of Borrowing 15
Section 2.4. Prepayment of Advances 17 Section 2.5. Repayment of Advances 19
Section 2.6. Letters of Credit 19 Section 2.7. Fees 23 Section 2.8. Interest 24
Section 2.9. Payments and Computations 26  Section 2.10. Sharing of Payments,
Etc 27  Section 2.11. Breakage Costs 27  Section 2.12. Increased Costs 27
 Section 2.13. Taxes
  28    ARTICLE III         CONDITIONS OF LENDING 30 Section 3.1. Initial
Conditions Precedent to Borrowings 30 Section 3.2. Conditions Precedent to All
Borrowings
  32    ARTICLE IV         REPRESENTATIONS AND WARRANTIES 32 Section 4.1.
Corporate Existence; Subsidiaries 32 Section 4.2. Corporate Power 33 Section
4.3. Authorization and Approvals 33 Section 4.4. Enforceable Obligations 33
Section 4.5. Financial Statements 33 Section 4.6. True and Complete Disclosure
34 Section 4.7. Litigation 34 Section 4.8. Use of Proceeds 34 Section 4.9.
Investment Company Act 34

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 Section 4.10. Public Utility Holding Company Act 34  Section 4.11. Taxes 34
 Section 4.12. Pension Plans 35  Section 4.13. Condition of Property; Casualties
35  Section 4.14. No Burdensome Restrictions; No Defaults 35  Section 4.15.
Environmental Condition 36  Section 4.16. Permits, Licenses, Etc 36  Section
4.17. Gas Contracts 37  Section 4.18. Non-Set Off Accounts
  37    ARTICLE V          AFFIRMATIVE COVENANTS 37 Section 5.1. Compliance with
Laws, Etc 37 Section 5.2. Maintenance of Insurance 37 Section 5.3. Preservation
of Corporate Existence, Etc 38 Section 5.4. Payment of Taxes, Etc 38 Section
5.5. Visitation Rights 38 Section 5.6. Reporting Requirements 38 Section 5.7.
Maintenance of Property 41 Section 5.8. New Subsidiaries 41 Section 5.9.
Maintenance of Books and Records 41  Section 5.10. Use of Proceeds
  41    ARTICLE VI         NEGATIVE COVENANTS 42 Section 6.1. Liens, Etc 42
Section 6.2. Debts, Guaranties, and Other Obligations 43 Section 6.3. Agreements
Restricting Liens and Distributions 43 Section 6.4. Merger or Consolidation;
Asset Sales 43 Section 6.5. Restricted Payments 44 Section 6.6. Investments 44
Section 6.7. Limitation on Speculative Hedging 45 Section 6.8. Affiliate
Transactions 45 Section 6.9. Compliance with ERISA 45  Section 6.10. Maintenance
of Ownership of Subsidiaries 45  Section 6.11. Sale-and-Leaseback 45  Section
6.12. Change of Business 46

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 Section 6.13. Debt to EBITDA Ratio 46  Section 6.14. Tangible Net Worth 46
 Section 6.15. Subordinated Debt
  46    ARTICLE VII        REMEDIES 46 Section 7.1. Events of Default 46 Section
7.2. Optional Acceleration of Maturity 48 Section 7.3. Automatic Acceleration of
Maturity 49 Section 7.4. Right of Set-off 49 Section 7.5. Actions Under Credit
Documents 49 Section 7.6. Non-exclusivity of Remedies
  49    ARTICLE VIII        THE AGENT AND THE ISSUING BANK 50 Section 8.1.
Appointment and Authorization of Agent 50 Section 8.2. Delegation of Duties 50
Section 8.3. Liability of Agent 50 Section 8.4. Reliance By Agent 51 Section
8.5. Notice of Default 51 Section 8.6. Credit Decision; Disclosure of
Information by Agent 51 Section 8.7. Indemnification of Agent 52 Section 8.8.
Agent in its Individual Capacity 53 Section 8.9. Successor Agent and Issuing
Bank 53  Section 8.10. Agent May File Proofs of Claim 54  Section 8.11. Guaranty
Matters 54  Section 8.12. Other Agents; Arrangers and Managers
  54    ARTICLE IX         MISCELLANEOUS 55 Section 9.1. Amendments, Etc 55
Section 9.2. Notices, Etc 55 Section 9.3. No Waiver; Remedies 55 Section 9.4.
Costs and Expenses 56 Section 9.5. Binding Effect 56 Section 9.6. Bank
Assignments and Participations 56 Section 9.7. Indemnification 58 Section 9.8.
USA Patriot Act Notice 59 Section 9.9. Execution in Counterparts 59

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 Section 9.10. Survival of Representations, Etc 59  Section 9.11. Severability
60  Section 9.12. Business Loans 60  Section 9.13. Governing Law
  60

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  Annex 1 - Commitments; Borrower, Agent, and Bank Notice Information; Lending
Offices
  EXHIBITS:
    Exhibit A - Form of Assignment and Acceptance   Exhibit B - Form of
Compliance Certificate   Exhibit C - Form of Guaranty   Exhibit D - Form of Note
  Exhibit E - Form of Notice of Borrowing   Exhibit F - Form of Notice of
Conversion or Continuation   Exhibit G - Form of Letter of Credit Application  
Exhibit H-1 - Form of Borrower's General Counsel Opinion   Exhibit H-2 - Form of
Agent's Counsel Opinion
  SCHEDULES:
    Schedule 1.1 - Non-Set Off Accounts   Schedule 2.6(h) - Existing Letters of
Credit   Schedule 4.7 - Existing Litigation   Schedule 4.15(a) - Existing
Environmental Concerns   Schedule 4.15(b) - Designated Environmental Sites  
Schedule 6.1 - Permitted Existing Liens   Schedule 6.2 - Permitted Existing Debt
  Schedule 6.8 - Affiliate Transactions

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CREDIT AGREEMENT

        This Credit Agreement dated as of April 30, 2004 is among Stone Energy
Corporation, a Delaware corporation, the Banks (as defined below), and Bank of
America, N.A., as administrative agent for the Banks.

        The Borrower, the Banks, and the Agent agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

         Section 1.1.  Certain Defined Terms.  As used in this Agreement, the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

        “Adjusted Base Rate” means, for any day, the fluctuating rate per annum
of interest equal to the greater of (a) the Base Rate in effect on such day and
(b) the Federal Funds Rate in effect on such day plus 1.00%.

        “Advance” means any advance by a Bank to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.

        “Affiliate” means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term “control” (including the terms “controlled by” or “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of Voting Securities, by contract, or otherwise.

        “Agent” means Bank of America, N.A., in its capacity as an
administrative agent pursuant to Article VIII, and any successor administrative
agent pursuant to Section 8.9.

        “Agent-Related Persons” means the Agent, together with its Affiliates
(including, in the case of Bank of America, N.A. in its capacity as the Agent,
Banc of America Securities LLC), and the officers, directors, employees, agents
and attorneys-in-fact of such Persons and Affiliates.

        “Agent’s Fee Letter” has the meaning specified in Section 2.7(b).

        “Agreement” means this Credit Agreement, as the same may be amended,
supplemented, and otherwise modified from time to time.

        “Applicable Lending Office” means, with respect to each Bank, such
Bank’s Domestic Lending Office in the case of a Base Rate Advance and such
Bank’s Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

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        “Applicable Margin” means, for any day, the following percentages based
upon the ratio of (a) the aggregate outstanding amount of Advances plus the
Letter of Credit Exposure to (b) the Borrowing Base as of such day:

Ratio of (Advances + Letter of
Credit Exposure) to (Borrowing Base) Applicable Margin for
Base Rate Advances Applicable Margin for
Eurodollar Rate Advances Applicable Margin for
Commitment Fees Less than .30
   0.000%  1.250%  0.375% Greater than or equal to .30 but less than .60  0.000%
 1.375%  0.375% Greater than or equal to .60 but less than .90  0.000%  1.500%
 0.500% Greater than or equal to .90
   0.000%  1.750%  0.500%

        “Assignment and Acceptance” means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of the attached Exhibit A.

        “Banks” means the lenders listed on the signature pages of this
Agreement and each Eligible Assignee that shall become a party to this Agreement
pursuant to Section 9.6.

        “Base Rate” means a fluctuating interest rate per annum as shall be in
effect from time to time equal to the rate of interest publicly announced by
Bank of America, N.A., as its base rate, whether or not the Borrower has notice
thereof.

        “Base Rate Advance” means an Advance which bears interest as provided in
Section 2.8(a).

        “Borrower” means Stone Energy Corporation, a Delaware corporation.

        “Borrowing” means, subject to Sections 2.3(c)(ii) and 2.4(e), a
borrowing consisting of simultaneous Advances of the same Type made by each Bank
pursuant to Section 2.3(a), continued by each Bank pursuant to Section 2.3(b),
or Converted by each Bank to Advances of a different Type pursuant to
Section 2.3(b).

        “Borrowing Base” means, for any date of its determination by the
Majority Banks or all of the Banks, as the case may be, in accordance with
Section 2.2.

        “Borrowing Base Assets” means, at any time, any assets that are given
value in the most recently determined Borrowing Base.

        “Business Day” means a day of the year on which banks are not required
or authorized to close in Dallas, Texas and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on by
banks in the London interbank market.

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        “Capital Leases” means, as applied to any Person, any lease of any
Property by such Person as lessee which would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on the balance
sheet of such Person.

        “Cash Collateral Account” means a special interest bearing cash
collateral account pledged to the Agent for the ratable benefit of the Banks
containing cash deposited pursuant to Sections 2.4(b) or (c), 7.2(b), or 7.3(b)
to be maintained at the Agent’s office in accordance with Section 2.6(g) and
bear interest or be invested in the Agent’s reasonable discretion.

        “CERCLA” means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, state and local analogs, and all rules
and regulations and requirements thereunder in each case as now or hereafter in
effect.

        “Code” means the Internal Revenue Code of 1986, as amended, and any
successor statute.

        “Commitment” means, for any Bank, the amount set opposite such Bank’s
name on Annex 1 as its Commitment, or if such Bank has entered into any
Assignment and Acceptance, as set forth for such Bank as its Commitment in the
Register maintained by the Agent pursuant to Section 9.6(c), as such amount may
be reduced or terminated pursuant to Article VII.

        “Compliance Certificate” means a compliance certificate in the form of
the attached Exhibit B signed by a Responsible Officer of the Borrower.

        “Controlled Group” means all members of a controlled group of
corporations and all trades (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.

        “Convert,” “Conversion,” and “Converted” each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 2.3(b).

        “Credit Documents” means this Agreement, the Notes, the Letter of Credit
Documents, the Guaranties, and each other agreement, instrument, or document
executed at any time in connection with this Agreement.

        “Debt,” for any Person, means without duplication:

         (a)     indebtedness of such Person for borrowed money, including,
without limitation, obligations under letters of credit and agreements relating
to the issuance of letters of credit or acceptance financing;

         (b)     obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;

         (c)     obligations of such Person to pay the deferred purchase price
of property or services;

         (d)     obligations of such Person as lessee under Capital Leases;

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         (e)     obligations of such Person under direct or indirect guaranties
in respect of, and obligations (contingent or otherwise) of such Person to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds referred to in
clauses (a) through (d) above;

         (f)     indebtedness or obligations of others of the kinds referred to
in clauses (a) through (e) secured by any Lien on or in respect of any Property
of such Person; and

         (g)     all liabilities of such Person in respect of unfunded vested
benefits under any Plan.

        “Default” means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time or both would, unless cured or waived, become
an Event of Default.

        “Defaulting Bank” means any Bank that (a) has failed to fund any portion
of the Advances, participations in Letter of Credit Obligations required to be
funded by it hereunder within one Business Day of the date required to be funded
by it hereunder, (b) has otherwise failed to pay over to the Agent or any other
Bank any other amount required to be paid by it hereunder within one Business
Day of the date when due, unless the subject of a good faith dispute, or (c) has
been deemed insolvent or become the subject of a bankruptcy or insolvency
proceeding.

        “Dollar Equivalent” means for all purposes of this Agreement, the
equivalent in another currency of an amount in Dollars to be determined by
reference to the rate of exchange quoted by Bank of America, N.A., at 10:00 a.m.
(Dallas, Texas time) on the date of determination, for the spot purchase in the
foreign exchange market of such amount of Dollars with such other currency.

        “Dollars” and “$” means lawful money of the United States of America.

        “Domestic Lending Office” means, with respect to any Bank, the office of
such Bank specified as its “Domestic Lending Office” opposite its name on
Annex 1 or such other office of such Bank as such Bank may from time to time
specify to the Borrower and the Agent.

        “EBITDA” means, with respect to any Person and for any period of its
determination, the consolidated Net Income, excluding extraordinary items and
non-cash accretion expense (in accordance with SFAS No. 143), of such Person for
such period, plus the consolidated interest expense, income taxes, depreciation,
depletion, and amortization of such Person for such period.

        “Effective Date” means the date on which each of the conditions
precedent in Section 3.1 have been met or waived.

        “Eligible Assignee” means any commercial bank organized under the laws
of any country which is a member of the Organization for Economic Cooperation
and Development and having primary capital (or its equivalent) of not less than
$250,000,000.00 (or its Dollar Equivalent) and approved by (a) the Agent in its
sole discretion and (b) if no Default or Event of Default exists, the Borrower,
which approval by the Borrower will not be unreasonably withheld.

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        “Environment” or “Environmental” shall have the meanings set forth in 43
U.S.C. § 9601(8) (1988).

        “Environmental Claim” means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) which seeks to impose liability under any
Environmental Law.

        “Environmental Law” means all Legal Requirements arising from, relating
to, or in connection with the Environment, health, or safety, including without
limitation CERCLA, relating to (a) pollution, contamination, injury,
destruction, loss, protection, cleanup, reclamation or restoration of the air,
surface water, groundwater, land surface or subsurface strata, or other natural
resources; (b) solid, gaseous or liquid waste generation, treatment, processing,
recycling, reclamation, cleanup, storage, disposal or transportation;
(c) exposure to pollutants, contaminants, hazardous, or toxic substances,
materials or wastes; (d) the safety or health of employees; or (e) the
manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, or toxic substances, materials or wastes.

        “Environmental Permit” means any permit, license, order, approval or
other authorization under Environmental Law.

        “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

        “Eurocurrency Liabilities” has the meaning assigned to that term in
Regulation D of the Federal Reserve Board (or any successor), as in effect from
time to time.

        “Eurodollar Lending Office” means, with respect to any Bank, the office
of such Bank specified as its “Eurodollar Lending Office” opposite its name on
Annex 1 (or, if no such office is specified, its Domestic Lending Office) or
such other office of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.

        “Eurodollar Rate” means, for the Interest Period for each Eurodollar
Rate Advance, the interest rate per annum (rounded upward to the nearest 1/100
of 1% per annum) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days before the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the term “Eurodollar Rate” shall mean, for the Interest
Period for each Eurodollar Rate Advance, the interest rate per annum (rounded
upward to the nearest 1/100 of 1% per annum) appearing on Reuters Screen LIBO
page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days before the first day of
such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO page, the
applicable rate shall be the arithmetic mean of all such rates.

        “Eurodollar Rate Advance” means an Advance which bears interest as
provided in Section 2.8(b).

        “Eurodollar Rate Reserve Percentage” of any Bank for the Interest Period
for any Eurodollar Rate Advance means the reserve percentage applicable during
such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such Bank
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.

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        “Event of Default” has the meaning specified in Section 7.1.

        “Existing Credit Agreement” means the Fourth Amended and Restated Credit
Agreement dated as of December 20, 2001 among the Borrower, the lenders party
thereto, and Bank of America, N.A., as administrative agent.

        “Existing Letters of Credit” means the letters of credit outstanding on
the date of this Agreement, issued by the Issuing Bank for the account of the
Borrower or its Subsidiaries, which are described on Schedule 2.6(h).

        “Expiration Date” means, with respect to any Letter of Credit, the date
on which such Letter of Credit will expire or terminate in accordance with its
terms.

        “Federal Funds Rate” means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for any such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

        “Federal Reserve Board” means the Board of Governors of the Federal
Reserve System or any of its successors.

        “Financial Statements” means the balance sheet and statements of
operations, stockholders’ equity and cash flow dated December 31, 2003 referred
to in Section 4.5, copies of which have been delivered to the Agent and the
Banks.

        “GAAP” means United States generally accepted accounting principles as
in effect from time to time, applied on a basis consistent with the requirements
of Section 1.3.

        “Governmental Authority” means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority or instrumentality, bureau or court having jurisdiction over
any Bank, the Borrower, or the Borrower’s Subsidiaries or any of their
respective Properties.

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        “Guaranties” means each Guaranty in favor of the Agent for the ratable
benefit of the Banks in the form of the attached Exhibit C executed on the date
hereof or as required by Section 5.8, as the same may be amended, supplemented,
or otherwise modified from time to time.

        “Guarantors” means each Material Subsidiary of the Borrower which has
executed a Guaranty on the date hereof or as required by Section 5.8.

        “Hazardous Substance” means the substances identified as such pursuant
to CERCLA and those regulated under any other Environmental Law, including
without limitation pollutants, contaminants, petroleum, petroleum products,
radionuclides, radioactive materials, and medical and infectious waste.

        “Hazardous Waste” means the substances regulated as such pursuant to any
Environmental Law.

        “Indemnified Liabilities” has the meaning set forth in Section 9.7.

        “Interest Period” means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Advance or
the date of the Conversion of any Base Rate Advance into such an Advance and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below or by Section 2.3 and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below or by Section 2.3. The duration of each such Interest Period
shall be one, two, three, or six months, or such longer period approved by the
Agent and the Banks, in each case as the Borrower may, upon notice received by
the Agent not later than 10:00 a.m. (Dallas, Texas time) on, the third Business
Day prior to the first day of such Interest Period select; provided, however,
that:

        (a)     the Borrower may not select any Interest Period for any Advance
which ends after the Maturity Date;

        (b)     Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;

        (c)     whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, provided that if
such extension would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest Period shall occur
on the next preceding Business Day; and

        (d)     any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month.

        “Issuing Bank” means Bank of America, N.A., and any successor issuing
bank pursuant to Section 8.9.

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        “Legal Requirement” means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulations T, U, and X.

        “Letter of Credit” means, individually, any letter of credit issued by
the Issuing Bank which is subject to this Agreement, including the Existing
Letters of Credit, and “Letters of Credit” means all such letters of credit
collectively.

        “Letter of Credit Application” means the Issuing Bank’s standard form
letter of credit application for either a commercial or standby letter of
credit, as the case may be, which has been executed by the Borrower and accepted
by the Issuing Bank in connection with the issuance of a Letter of Credit, which
form or forms as of the date of this Agreement are in the form of the attached
Exhibit G, as the same may be amended, supplemented, and otherwise modified from
time to time.

        “Letter of Credit Documents” means all Letters of Credit, Letter of
Credit Applications, and agreements, documents, and instruments entered into in
connection with or relating thereto.

        “Letter of Credit Exposure” means, at any time, the sum of (a) the
aggregate undrawn maximum face amount of each Letter of Credit at such time,
plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such
time.

        “Letter of Credit Obligations” means any obligations of the Borrower
under this Agreement in connection with the Letters of Credit, including the
Reimbursement Obligations.

        “Lien” means any mortgage, lien, pledge, charge, deed of trust, security
interest, or encumbrance to secure or provide for the payment of any obligation
of any Person, whether arising by contract, operation of law, or otherwise
(including, without limitation, the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease, or other title retention agreement).

      “Liquid Investments” means:

        (a)     debt securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality
thereof, with maturities of no more than two years from the date of acquisition;

        (b)     commercial paper of a domestic issuer rated at the date of
acquisition not less than P1 by Moody’s Investor Service, Inc., or A1 by
Standard & Poor’s Corporation;

        (c)     certificates of deposit, demand deposits, Eurodollar time
deposits, overnight bank deposits, and bankers’ acceptances, with maturities of
no more than two years from the date of acquisition, issued by any Bank or any
bank or trust company organized under the laws of the United States or any state
thereof whose deposits are insured by the Federal Deposit Insurance Corporation,
and having capital and surplus aggregating at least $100,000,000.00;

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        (d)     corporate bonds, mortgaged-backed securities, and municipal
bonds of a domestic issuer rated at the date of acquisition Aaa by Moody’s
Investor Service, Inc., or AAA by Standard & Poor’s Corporation, with maturities
of no more than two years from the date of acquisition;

        (e)     repurchase agreements secured by debt securities of the type
described in part (a) above, the market value of which, including accrued
interest, is not less than 100% of the amount of the repurchase agreement, with
maturities of no more than two years from the date of acquisition, issued by or
acquired from or through any Bank or any bank or trust company organized under
the laws of the United States or any state thereof and having capital and
surplus aggregating at least $100,000,000.00; and

        (f)     money market funds;

provided that (i) investments in any one issuer, excluding the United States
government or any agency or instrumentality thereof, shall not exceed 20% of
total fixed-income Liquid Investments based on market value at the time of
acquisition, (ii) fixed-income holdings shall not exceed 5% of all Investments
at any time, and (iii) certificates of deposit, commercial paper, corporate
bonds, mortgaged-backed securities, or municipal bonds issued by any one issuer
shall not exceed 5% of all Liquid Investments at any time.

        “Majority Banks” means, at any time and except as provided in the last
sentence of this definition, Banks holding at least 66-2/3% of the then
aggregate unpaid principal amount of the Notes held by the Banks and the Letter
of Credit Exposure of the Banks at such time, but in no event less than two
Banks at any time when there are three or more Banks; provided that if no such
principal amount or Letter of Credit Exposure is then outstanding, “Majority
Banks” shall mean Banks having at least 66-2/3% of the aggregate amount of the
Commitments at such time, but in no event less than two Banks at any time when
there are three or more Banks; and provided further that the Commitment of, and
the portion of the aggregate unpaid principal amount of the Notes and Letter of
Credit Exposure held or deemed held by, any Defaulting Bank shall be excluded
for purposes of making a determination of Majority Banks. For any determination
under Section 2.2, “66-2/3%” in the foregoing sentence shall be “75%.”

        “Material Adverse Change” means (a) a material adverse change in the
business, financial condition, or results of operations of the Borrower or any
of its Subsidiaries, or (b) the occurrence and continuance of any event or
circumstance which could reasonably be expected (i) to have a material adverse
effect on the Borrower’s or any Guarantor’s ability to perform its obligations
under this Agreement, any Note, any Guaranty, or any other Credit Document or
(ii) to cause a Default.

        “Material Subsidiary” means, as of any date of its determination, a
Subsidiary of the Borrower (a) with assets constituting 5% or more of the
Borrower’s consolidated assets on such date, (b) that contributed more than 5%
of the Borrower’s consolidated EBITDA for the four-quarter period ending on or
before such date, or (c) the Borrower has designated to be Material Subsidiary.

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        “Maturity Date” means the earlier of (a) April 30, 2008 and (b) the
earlier termination in whole of the Commitments pursuant to Section 2.1(b) or
Article VII.

        “Maximum Rate” means the maximum nonusurious interest rate under
applicable law.

        “Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA.

        “Net Income” means, for any Person and for any period of its
determination, the net income of such Person determined in accordance with GAAP
consistently applied.

        “Net Worth” means, for any Person that is a corporation and as of any
date of its determination, the consolidated total assets of such Person less the
total liabilities of such Person, determined in accordance with GAAP
consistently applied.

        “Non-Set Off Account” means each of the deposit accounts listed on
Schedule 1.1, so long as the funds in such account represent only unpaid amounts
due to royalty and working interest holders (including limited partnerships
sponsored by the Borrower and its Subsidiaries) and other segregated funds of
the Borrower and its Subsidiaries (but not any general corporate funds of the
Borrower or its Subsidiaries).

        “Note” means a promissory note of the Borrower payable to the order of
any Bank, in substantially the form of the attached Exhibit D, evidencing
indebtedness of the Borrower to such Bank resulting from Advances owing to such
Bank.

        “Notice of Borrowing” means a notice of borrowing in the form of the
attached Exhibit E signed by a Responsible Officer of the Borrower.

        “Notice of Conversion or Continuation” means a notice of conversion or
continuation in the form of the attached Exhibit F signed by a Responsible
Officer of the Borrower.

        “Obligations” means all principal, interest, fees, reimbursements,
indemnifications, and other amounts payable by the Borrower to the Agent or the
Banks under the Credit Documents.

        “Oil and Gas Properties” means fee, leasehold or other interests in or
under mineral estates or oil, gas, and other liquid or gaseous hydrocarbon
leases with respect to Properties situated in the United States or offshore from
any state of the United States, including overriding royalty and royalty
interests, leasehold estate interests, net profits interests, production payment
interests and mineral fee interests, together with contracts executed in
connection therewith and incidental rights belonging thereto.

        “Oil and Gas Reserve Report” means each engineering report covering the
Borrower’s consolidated Oil and Gas Properties provided to the Agent pursuant to
Section 5.6(c).

        “PBGC” means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

        “Permitted Liens” means the Liens permitted to exist pursuant to
Section 6.1.

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        “Person” means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability corporation or company,
limited liability partnership, trust, unincorporated association, joint venture
or other entity, or a government or any political subdivision or agency thereof
or any trustee, receiver, custodian or similar official.

        “Plan” means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower or any member of the Controlled Group
and covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.

        “Property” of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.

        “Pro Rata Share” means, with respect to any Bank, either (a) the ratio
(expressed as a percentage) of such Bank’s Commitments at such time to the
aggregate Commitments at such time or (b) if the Commitments have been
terminated, the ratio (expressed as a percentage) of such Bank’s aggregate
outstanding Advances and Letter of Credit Exposure at such time to the aggregate
outstanding Advances and Letter of Credit Exposure of all the Banks at such
time.

        “Register” has the meaning set forth in paragraph (c) of Section 9.6.

        “Regulations T, U, and X” mean Regulations T, U, and X of the Federal
Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.

        “Reimbursement Obligations” means all of the obligations of the Borrower
to reimburse the Issuing Bank for amounts paid by the Issuing Bank under Letters
of Credit as established by the Letter of Credit Applications and
Section 2.6(d).

        “Release” shall have the meaning set forth in CERCLA or under any other
Environmental Law.

        “Response” shall have the meaning set forth in CERCLA or under any other
Environmental Law.

        “Responsible Officer” means, with respect to any Person, such Person’s
Chief Executive Officer, President, Chief Financial Officer, Chief Accounting
Officer, and Vice Presidents.

        “Restricted Payment” means, with respect to any Person, any dividends or
other distributions (in cash, property, or otherwise) on, or any payment for the
purchase, redemption, or other acquisition of, any shares of any capital stock
of such Person, other than dividends payable in such Person’s stock.

        “Subsidiary” of a Person means any corporation or other entity of which
more than 50% of the outstanding capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
similar governing body of such corporation or other entity (irrespective of
whether at such time capital stock or other ownership interests of any other
class or classes of such corporation or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person, by such Person and one or more Subsidiaries of
such Person or by one or more Subsidiaries of such Person.

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        “Tangible Net Worth” means, for any Person that is a corporation and as
of the date of its determination, the consolidated Net Worth of such Person,
excluding all consolidated intangible assets of such Person, as determined in
accordance with GAAP consistently applied.

        “Termination Event” means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a
Plan during a plan year in which it was a “substantial employer” as defined in
Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or
(e) any other event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.

        “Type” has the meaning set forth in Section 1.4.

        “Voting Securities” means with respect to any corporation, capital stock
of the corporation having general voting power under ordinary circumstances to
elect directors of such corporation (irrespective of whether at the time stock
of any other class or classes shall have or might have special voting power or
rights by reason of the happening of any contingency).

        Section 1.2.   Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word “from” means “from and including” and the words “to” and “until” each
means “to but excluding”.

        Section 1.3.    Accounting Terms; Changes in GAAP.

        (a)     All accounting terms not specifically defined in this Agreement
shall be construed in accordance with GAAP applied on a consistent basis with
those applied in the preparation of the Financial Statements.

        (b)     Unless otherwise indicated, all financial statements of the
Borrower, all calculations for compliance with covenants in this Agreement and
all calculations of any amounts to be calculated under the definitions in
Section 1.1 shall be based upon the consolidated accounts of the Borrower and
its Subsidiaries in accordance with GAAP (or in compliance with the regulations
promulgated by the United States Securities and Exchange Commission regarding
financial reporting) and consistent with the principles applied in preparing the
Financial Statements.

        Section 1.4.   Types of Advances. Advances are distinguished by “Type.”
The “Type” of an Advance refers to the determination whether such Advance is a
Eurodollar Rate Advance or Base Rate Advance.

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        Section 1.5.    Miscellaneous. Article, Section, Schedule, and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.

ARTICLE II

CREDIT FACILITIES

        Section 2.1.     Commitment for Advances.

        (a)     Advances. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make Advances to the Borrower from
time to time on any Business Day during the period from the date of this
Agreement until the Maturity Date in an aggregate outstanding amount up to but
not to exceed an amount equal to (i) the lesser of such Bank’s Commitment or
such Bank’s Pro Rata Share of the Borrowing Base less (ii) such Bank’s Pro Rata
Share of the Letter of Credit Exposure; provided that the sum of the outstanding
amount of all Advances made by such Bank and such Bank’s Pro Rata Share of the
Letter of Credit Exposure shall not exceed such Bank’s Commitment. Each
Borrowing shall, in the case of Borrowings consisting of Base Rate Advances, be
in an aggregate amount not less than $500,000.00 and in integral multiples of
$100,000.00 in excess thereof, and in the case of Borrowings consisting of
Eurodollar Rate Advances, be in an aggregate amount not less than $2,000,000.00
or in integral multiples of $1,000,000.00 in excess thereof, and in each case
shall consist of Advances of the same Type made on the same day by the Banks
ratably according to their respective Commitments. Within the limits of each
Bank’s Commitment, and subject to the terms of this Agreement, the Borrower may
from time to time borrow, prepay, and reborrow Advances.

        (b)     Optional Reduction of Commitment. The Borrower shall have the
right, upon at least three Business Days’ irrevocable notice to the Agent, to
terminate in whole or reduce ratably in part the unused portion of the
Commitments; provided that each partial reduction of the Commitments shall be in
the aggregate amount of $5,000,000.00 or in integral multiples of $1,000,000.00
in excess thereof. Any reduction or termination of the Commitments pursuant to
this Section 2.1(b) shall be permanent, with no obligation of the Banks to
reinstate such Commitments and the commitment fees provided for in
Section 2.7(a) shall thereafter be computed on the basis of the Commitments, as
so reduced.

        (c)     Notes. The indebtedness of the Borrower to each Bank resulting
from the Advances owing to such Bank shall be evidenced by a Note of the
Borrower in the maximum principal amount of such Bank’s Commitment.

        Section 2.2.   Borrowing Base.

        (a)     The Borrowing Base has been set by the Majority Banks and
acknowledged by the Borrower as $425,000,000.00, as of the date hereof.

        (b)     From the date hereof through the Maturity Date and subject to
the further provisions of this Section 2.2, the Borrowing Base shall be
redetermined by the Majority Banks each May 1 and November 1 in accordance with
Section 2.2(d) on the basis of information, including the Oil and Gas Reserve
Reports required to be delivered before each such date supplied by Borrower in
compliance with the provisions of this Agreement, such additional data
concerning pricing, quantities of production, purchasers of production, and
other information and engineering and geological data with respect thereto as
the Agent or any Bank may reasonably request, together with all other
information then available to the Agent and the Banks. Notwithstanding the
foregoing, the Majority Banks may, in the exercise of their good faith
discretion, make additional redeterminations of the Borrowing Base in accordance
with Section 2.2(d) (i) by providing written notice to the Borrower, but only
two such requests may be made during any calendar year, (ii) from time to time
on the basis of information then available to the Agent and the Banks regarding
the Borrower’s and the Guarantors’ Oil and Gas Properties, and (iii) from time
to time upon the occurrence of any Material Adverse Change.

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        (c)     The Borrower may request that the Majority Banks redetermine the
Borrowing Base (i) by providing a written request to the Agent, but only two
such requests may be made during any calendar year or (ii) in connection with
the Borrower’s or any Guarantor’s acquisition of Oil and Gas Properties with a
purchase price of $20,000,000 or more. In connection with any such request, the
Borrower shall provide the Agent and the Banks with an interim reserve report
prepared by the Borrower together with such other information, including
additional data concerning pricing, quantities of production, purchasers of
production, and other information and engineering and geological data, as the
Agent or any Bank may reasonably request. Within 30 days following the receipt
of such interim reserve report and other information, the Majority Banks shall
make a redetermination of the Borrowing Base in accordance with Section 2.2(d).

        (d)     Upon a redetermination of the Borrowing Base, the Agent shall
propose a Borrowing Base to the Banks, and the Banks shall vote to approve or
disapprove such proposed Borrowing Base. If the Majority Banks do not approve
the proposed Borrowing Base, the Agent shall propose, and the Banks shall vote
to approve or disapprove, another Borrowing Base, until the Majority Banks
approve a Borrowing Base proposed by the Agent. Once the Majority Banks approve
the proposed Borrowing Base, the Agent shall notify the Borrower of such
redetermination. Until the Borrower receives such notification from the Agent,
the Borrowing Base most recently established shall remain in effect, and
thereafter the new Borrowing Base as set forth in such notification shall be in
effect.

        (e)     (i) Upon any sale, whether or not such sale is made in the
ordinary course of business, by the Borrower or any of its Subsidiaries of
Borrowing Base Assets that either (A) have a fair market value in excess of 5%
of the amount of the most recently determined Borrowing Base or (B) were given
value in the most recently determined Borrowing Base in excess of 5% of the
amount of such Borrowing Base, the Borrowing Base shall automatically be reduced
by the value given to such assets in the most recently determined Borrowing
Base, as determined by the Agent and approved by the Majority Banks, and (ii)
upon the issuance of any Debt permitted under Section 6.2(f), the Borrowing Base
shall automatically reduce by 50% of the principal amount of such Debt.

        (f)     The Borrowing Base shall represent the determination by the
Majority Banks of the loan value of the Borrower’s and the Guarantors’
unencumbered Oil and Gas Properties, but the Agent and the Majority Banks shall
make their determination and vote their approval, respectively, in accordance
with the applicable definitions and provisions herein contained, each such
Bank’s standard policies regarding energy lending, industry lending practices,
consultation with the Agent and the other Banks (but without requiring the
approval of any such Bank), and consideration for the nature of the facilities
established hereunder. The Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by Borrower to be essential for the adequate
protection of the Agent and the Banks.

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        (g)     The Borrower shall also have the right to reduce the Borrowing
Base once during the period from October 1 to March 31 and once during the
period from April 1 to September 30 during each year by providing the Agent 30
days advance written notice of such reduction. The Agent shall promptly send to
each Bank a copy of such notice and such reduction shall be effective on the
date of the Agent’s receipt of such notice.

        (h)     As of the date of this Agreement, the Agent has provided the
Borrower with the Agent’s standard policies regarding energy lending. The Agent,
but not any other Bank, agrees to provide the Borrower with written notice of
any changes to such policies.

        Section 2.3.   Method of Borrowing.

        (a)    Notice. Each Borrowing shall be made pursuant to a Notice of
Borrowing (or by telephone notice promptly confirmed in writing by a Notice of
Borrowing), given not later than 10:00 a.m. (Dallas, Texas time) (i) on the
third Business Day before the date of the proposed Borrowing, in the case of a
Eurodollar Rate Borrowing or (ii) on the Business Day of the proposed Borrowing,
in the case of a Base Rate Borrowing, by the Borrower to the Agent, which shall
in turn give to each Bank prompt notice of such proposed Borrowing by telecopier
or telex. Each Notice of a Borrowing shall be given by telecopier or telex,
confirmed immediately in writing specifying the information required therein. In
the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the
Agent shall promptly notify each Bank of the applicable interest rate under
Section 2.8(b). Each Bank shall (A) in the case of a Eurodollar Rate Borrowing,
before 10:00 a.m. (Dallas, Texas time) on the date of such Borrowing and (B) in
the case of a Base Rate Borrowing, before 3:00 p.m. (Dallas, Texas time) on the
date of such Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its address referred to in Section 9.2, or such other
location as the Agent may specify by notice to the Banks, in same day funds,
such Bank’s Pro Rata Share of such Borrowing. After the Agent’s receipt of such
funds and upon fulfillment of the applicable conditions set forth in
Article III, the Agent shall make such funds available to the Borrower at its
account with the Agent.

        (b)   Conversions and Continuations. The Borrower may elect to Convert
or continue any Borrowing under this Section 2.3 by delivering an irrevocable
Notice of Conversion or Continuation to the Agent at the Agent’s office no later
than 10:00 a.m. (Dallas, Texas time) (i) on the date which is at least three
Business Days in advance of the proposed Conversion or continuation date in the
case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar
Rate Advances and (ii) on the Business Day of the proposed conversion date in
the case of a Conversion to a Borrowing comprised of Base Rate Advances. Each
such Notice of Conversion or Continuation shall be in writing or by telex or
telecopier confirmed immediately in writing specifying the information required
therein. Promptly after receipt of a Notice of Conversion or Continuation under
this Section, the Agent shall provide each Bank with a copy thereof and, in the
case of a Conversion to or a Continuation of a Borrowing comprised of Eurodollar
Rate Advances, notify each Bank of the applicable interest rate under
Section 2.8(b).

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        (c)   Certain Limitations. Notwithstanding anything in paragraphs (a)
and (b) above:

          (i)  at no time shall there be more than twelve Interest Periods
applicable to outstanding Eurodollar Rate Advances;

          (ii)  if any Bank shall, at least one Business Day before the date of
any requested Borrowing, Conversion, or continuation, notify the Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other Governmental
Authority asserts that it is unlawful, for such Bank or its Eurodollar Lending
Office to perform its obligations under this Agreement to make Eurodollar Rate
Advances or to fund or maintain Eurodollar Rate Advances, the right of the
Borrower to select Eurodollar Rate Advances from such Bank shall be suspended
until such Bank shall notify the Agent that the circumstances causing such
suspension no longer exist, and the Advance made by such Bank in respect of such
Borrowing, Conversion, or continuation shall be a Base Rate Advance;

          (iii)  if the Agent is unable to determine the Eurodollar Rate for
Eurodollar Rate Advances comprising any requested Borrowing, the right of the
Borrower to select Eurodollar Rate Advances for such Borrowing or for any
subsequent Borrowing shall be suspended until the Agent shall notify the
Borrower and the Banks that the circumstances causing such suspension no longer
exist, and each Advance comprising such Borrowing shall be a Base Rate Advance;

          (iv)  if the Majority Banks shall, at least one Business Day before
the date of any requested Borrowing, notify the Agent that the Eurodollar Rate
for Eurodollar Rate Advances comprising such Borrowing will not adequately
reflect the cost to such Banks of making or funding their respective Eurodollar
Rate Advances, as the case may be, for such Borrowing, the right of the Borrower
to select Eurodollar Rate Advances for such Borrowing or for any subsequent
Borrowing shall be suspended until the Agent shall notify the Borrower and the
Banks that the circumstances causing such suspension no longer exist, and each
Advance comprising such Borrowing shall be a Base Rate Advance; and

          (v)  if the Borrower shall fail to select the duration or continuation
of any Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of “Interest Period” in Section 1.1 and
paragraph (b) above, the Agent shall forthwith so notify the Borrower and the
Banks and such Advances shall be made available to the Borrower on the date of
such Borrowing as Base Rate Advances or, if an existing Advance, Convert into
Base Rate Advances.

        (d)   Notices Irrevocable. Each Notice of Borrowing and Notice of
Conversion or Continuation shall be irrevocable and binding on the Borrower. In
the case of any Borrowing which the related Notice of Borrowing specifies is to
be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Bank
against any loss, out-of-pocket cost, or expense incurred by such Bank as a
result of any failure by the Borrower to fulfill on or before the date specified
in such Notice of Borrowing for such Borrowing the applicable conditions set
forth in Article III including, without limitation, any loss (including any loss
of anticipated profits), cost, or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Bank to fund the
Advance to be made by such Bank as part of such Borrowing when such Advance, as
a result of such failure, is not made on such date.

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        (e)     Agent Reliance. Unless the Agent shall have received notice from
a Bank before the date of any Borrowing that such Bank shall not make available
to the Agent such Bank’s Pro Rata Share of such Borrowing, the Agent may assume
that such Bank has made its Pro Rata Share of such Borrowing available to the
Agent on the date of such Borrowing in accordance with paragraph (a) of this
Section 2.3 and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Bank shall not have so made its Pro Rata Share of such Borrowing available
to the Agent, such Bank and the Borrower severally agree to immediately repay to
the Agent on demand such corresponding amount, together with interest on such
amount, for each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Agent, at (i) in the case of the
Borrower, the interest rate applicable on such day to Advances comprising such
Borrowing and (ii) in the case of such Bank, the Federal Funds Rate for such
day. If such Bank shall repay to the Agent such corresponding amount and
interest as provided above, such corresponding amount so repaid shall constitute
such Bank’s Advance as part of such Borrowing for purposes of this Agreement
even though not made on the same day as the other Advances comprising such
Borrowing.

        (f) Bank Obligations Several. The failure of any Bank to make the
Advance to be made by it as part of any Borrowing shall not relieve any other
Bank of its obligation, if any, to make its Advance on the date of such
Borrowing. No Bank shall be responsible for the failure of any other Bank to
make the Advance to be made by such other Bank on the date of any Borrowing.

        Section 2.4.    Prepayment of Advances.

        (a) Optional. The Borrower may prepay Advances, after giving by
10:00 a.m. (Dallas, Texas time) (i) in the case of Eurodollar Rate Advances, at
least two Business Days’ or (ii) in case of Base Rate Advances, same Business
Day’s, irrevocable prior written notice to the Agent stating the proposed date
and aggregate principal amount of such prepayment. If any such notice is given,
the Borrower shall prepay Advances comprising part of the same Borrowing in
whole or ratably in part in an aggregate principal amount equal to the amount
specified in such notice, together with accrued interest to the date of such
prepayment on the principal amount prepaid and amounts, if any, required to be
paid pursuant to Section 2.11 as a result of such prepayment being made on such
date; provided, however, that each partial prepayment with respect to: (A) any
Borrowing comprised of Base Rate Advances shall be made in $100,000.00 multiples
and in an aggregate principal amount such that after giving effect thereto such
Borrowing shall have a principal amount outstanding of at least $500,000.00 and
(B) any Borrowing comprised of Eurodollar Rate Advances shall be made in
$1,000,000.00 multiples and in an aggregate principal amount such that after
giving effect thereto such Borrowing shall have a principal amount outstanding
of at least $2,000,000.00. Full prepayments of any Borrowing are permitted
without restriction of amounts.

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        (b) Borrowing Base Deficiency.    Subject to Section 2.4.(d) below, if
the aggregate outstanding amount of Advances plus the Letter of Credit Exposure
ever exceeds the Borrowing Base, the Borrower shall, within ten days after
receipt of written notice of such condition from the Agent elect by written
notice to the Agent to take one or more of the following actions to remedy the
Borrowing Base deficiency:

          (i)  prepay Advances and, if the Advances have been repaid in full,
make deposits into the Cash Collateral Account to provide cash collateral for
the Letter of Credit Exposure, such that the Borrowing Base deficiency is cured
within ten days after the Borrower’s written election;

          (ii)  add additional Oil and Gas Properties acceptable to the Majority
Banks to the Borrowing Base such that the Borrowing Base deficiency is cured
within 30 days after the Borrower’s written election; or

          (iii)  pay the deficiency in monthly installments in amounts not
greater than one-half of the deficiency in any one monthly payment or such
lesser amounts satisfactory to the Majority Banks for the prepayment of Advances
and, if the Advances have been repaid in full, make deposits into the Cash
Collateral Account to provide cash collateral for the Letter of Credit Exposure
such that the Borrowing Base deficiency is eliminated in a period of 90 days or
such longer period satisfactory to the Majority Banks, but in no event to exceed
six months, by irrevocably dedicating an amount of the monthly cash flow from
the Borrower’s and its Subsidiaries’ Oil and Gas Properties to the prepayment of
Advances and cash collateralization of the Letter of Credit Exposure;

Each prepayment pursuant to this Section 2.4(b) shall be accompanied by accrued
interest on the amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.11 as a result of such prepayment
being made on such date.

        (c)    Reduction of Commitments. On the date of each reduction of the
aggregate Commitments pursuant to Section 2.1(b), the Borrower agrees to make a
prepayment in respect of the outstanding amount of the Advances and the Letter
of Credit Exposure to the extent, if any, that the aggregate unpaid principal
amount of all Advances plus the Letter of Credit Exposure exceeds the
Commitments, as so reduced. Any amount paid under the preceding sentence in
respect of Letter of Credit Exposure shall be held as cash collateral under
Section 2.6(g). Each prepayment pursuant to this Section 2.4(c) shall be
accompanied by accrued interest on the amount prepaid to the date of such
prepayment and amounts, if any, required to be paid pursuant to Section 2.11 as
a result of such prepayment being made on such date.

        (d)    Asset Sales; Debt Issuances. (i) If, after giving effect to the
sale, transfer or other disposition of any of the Borrower’s or any of its
Subsidiaries’ Oil and Gas Properties, the aggregate outstanding amount of
Advances plus the Letter of Credit Exposure exceeds the Borrowing Base, the
Borrower shall repay the Advances by an amount equal to such Borrowing Base
deficiency, upon receipt of the proceeds of such sale, transfer, or other
disposition, whether at closing of such sale, transfer, or other disposition or
thereafter and (ii) upon the issuance of any Debt permitted under Section
6.2(f), the Borrower shall prepay the Advances by an amount equal to the net
cash proceeds received from such Debt issuance. Each prepayment pursuant to this
Section 2.4(d) shall be accompanied by accrued interest on the amount prepaid to
the date of such prepayment and amounts, if any, required to be paid pursuant to
Section 2.11 as a result of such prepayment being made on such date.

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        (e)    Illegality. If any Bank shall notify the Agent and the Borrower
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful for such Bank or its Eurodollar Lending
Office to perform its obligations under this Agreement to maintain any
Eurodollar Rate Advances of such Bank then outstanding hereunder, (i) the
Borrower shall, no later than 10:00 a.m. (Dallas, Texas time) (A) if not
prohibited by law, on the last day of the Interest Period for each outstanding
Eurodollar Rate Advance made by such Bank or (B) if required by such notice, on
the second Business Day following its receipt of such notice prepay all of the
Eurodollar Rate Advances made by such Bank then outstanding, together with
accrued interest on the principal amount prepaid to the date of such prepayment
and amounts, if any, required to be paid pursuant to Section 2.11 as a result of
such prepayment being made on such date, (ii) such Bank shall simultaneously
make a Base Rate Advance to the Borrower on such date in an amount equal to the
aggregate principal amount of the Eurodollar Rate Advances prepaid to such Bank,
and (iii) the right of the Borrower to select Eurodollar Rate Advances from such
Bank for any subsequent Borrowing shall be suspended until such Bank gives
notice referred to above shall notify the Agent that the circumstances causing
such suspension no longer exist.

        (f)    No Additional Right; Ratable Prepayment. The Borrower shall have
no right to prepay any principal amount of any Advance except as provided in
this Section 2.4, and all notices given pursuant to this Section 2.4 shall be
irrevocable and binding upon the Borrower. Each payment of any Advance pursuant
to this Section 2.4 shall be made in a manner such that all Advances comprising
part of the same Borrowing are paid in whole or ratably in part.

        Section 2.5.    Repayment of Advances. The Borrower shall repay to the
Agent for the ratable benefit of the Banks the outstanding principal amount of
each Advance on the Maturity Date.

        Section 2.6.    Letters of Credit.

        (a)    Commitment. From time to time from the date of this Agreement
until the Maturity Date, at the request of the Borrower, the Issuing Bank shall,
on the terms and conditions hereinafter set forth, issue, increase, or extend
the expiration date of Letters of Credit for the account of the Borrower on any
Business Day;

  (i)   provided that no Letter of Credit shall be issued, increased, or
extended:

    (A) unless such issuance, increase, extension or conversion would not cause
the Letter of Credit Exposure to exceed the lesser of (1) $50,000,000.00 or
(2) the lesser of (x) the aggregate Commitments less the aggregate outstanding
principal amount of all Advances or (y) the Borrowing Base less the aggregate
outstanding principal amount of all Advances;

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    (B) unless such Letter of Credit has an Expiration Date not later than the
earlier of (1) 12 months after the date of issuance thereof (or, if extendable
beyond such period, unless such Letter of Credit is cancelable upon at least 30
days’ notice given by the Issuing Bank to the beneficiary of such Letter of
Credit) or (2) the Maturity Date;

    (C) unless such Letter of Credit Documents are in form and substance
acceptable to the Issuing Bank in its sole discretion;

    (D) unless such Letter of Credit is a standby letter of credit not
supporting the repayment of indebtedness for borrowed money of any Person; and

    (E) unless the Borrower has delivered to the Issuing Bank a completed and
executed Letter of Credit Application; and

        (ii)    providedfurther that the Issuing Bank shall not be under any
obligation to issue any Letter of Credit if:

    (A) any order, judgment or decree of any Governmental Authority or
arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank
from issuing such Letter of Credit, or any Legal Requirement applicable to the
Issuing Bank or any request or directive (whether or not having the force of
law) from any Governmental Authority with jurisdiction over the Issuing Bank
shall prohibit, or request that the Issuing Bank refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Issuing Bank with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the Effective Date, or shall
impose upon the Issuing Bank any unreimbursed loss, cost, or expense which was
not applicable on the Effective Date and which the Issuing Bank in good faith
deems material to it;

    (B) the issuance of such Letter of Credit would violate one or more policies
of the Issuing Bank; or

    (C) a default of any Bank’s obligations to fund under Section 2.6(d) exists
or any Bank is at such time a Defaulting Bank hereunder, unless the Issuing Bank
has entered into satisfactory arrangements with the Borrower or such Bank to
eliminate the Issuing Bank’s risk with respect to such Bank.

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As of the Effective Date, the Existing Letters of Credit shall be deemed
“Letters of Credit” hereunder and shall be subject to the terms and provisions
set forth herein.

        (b)     Participations. Upon the date of the issuance or increase of a
Letter of Credit or the conversion of an Existing Letter of Credit to a Letter
of Credit, the Issuing Bank shall be deemed to have sold to each other Bank and
each other Bank shall have been deemed to have purchased from the Issuing Bank a
participation in the related Letter of Credit Obligations equal to such Bank’s
Pro Rata Share at such date and such sale and purchase shall otherwise be in
accordance with the terms of this Agreement. The Issuing Bank shall promptly
notify each such participant Bank by telex, telephone, or telecopy of each
Letter of Credit issued, increased, or extended or converted and the actual
dollar amount of such Bank’s participation in such Letter of Credit.

        (c)     Issuing. Each Letter of Credit shall be issued, increased, or
extended pursuant to a Letter of Credit Application (or by telephone notice
promptly confirmed in writing by a Letter of Credit Application), given not
later than 10:00 a.m. (Dallas, Texas time) on the fifth Business Day before the
date of the proposed issuance, increase, or extension of the Letter of Credit,
and the Agent shall give to each Bank prompt notice of thereof by telex,
telephone, or telecopy. Each Letter of Credit Application shall be given by
telecopier or telex, confirmed immediately in writing, specifying the
information required therein. After the Agent’s receipt of such Letter of Credit
Application and upon fulfillment of the applicable conditions set forth in
Article III, the Agent shall issue, increase, or extend such Letter of Credit
for the account of the Borrower. Each Letter of Credit Application shall be
irrevocable and binding on the Borrower.

        (d)     Reimbursement. The Borrower hereby agrees to pay on demand to
the Issuing Bank an amount equal to any amount paid by the Issuing Bank under
any Letter of Credit. In the event the Issuing Bank makes a payment pursuant to
a request for draw presented under a Letter of Credit and such payment is not
promptly reimbursed by the Borrower upon demand, the Issuing Bank shall give the
Agent notice of the Borrower’s failure to make such reimbursement and the Agent
shall promptly notify each Bank of the amount necessary to reimburse the Issuing
Bank. Upon such notice from the Agent, each Bank shall promptly reimburse the
Issuing Bank for such Bank’s Pro Rata Share of such amount, and such
reimbursement shall be deemed for all purposes of this Agreement to be a Advance
to the Borrower transferred at the Borrower’s request to the Issuing Bank. If
such reimbursement is not made by any Bank to the Issuing Bank on the same day
on which the Agent notifies such Bank to make reimbursement to the Issuing Bank
hereunder, such Bank shall pay interest on its Pro Rata Share thereof to the
Issuing Bank at a rate per annum equal to the Federal Funds Rate. The Borrower
hereby unconditionally and irrevocably authorizes, empowers, and directs the
Agent and the Banks to record and otherwise treat such reimbursements to the
Issuing Bank as Base Rate Advances under a Borrowing requested by the Borrower
to reimburse the Issuing Bank which have been transferred to the Issuing Bank at
the Borrower’s request.

        (e)     Obligations Unconditional. The obligations of the Borrower under
this Agreement in respect of each Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:

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          (i)     any lack of validity or enforceability of any Letter of Credit
Documents;

          (ii)     any amendment or waiver of, or any consent to, departure from
any Letter of Credit Documents;

          (iii)     the existence of any claim, set-off, defense, or other right
which the Borrower may have at any time against any beneficiary or transferee of
such Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank, or any other person or entity,
whether in connection with this Agreement, the transactions contemplated in this
Agreement or in any Letter of Credit Documents, or any unrelated transaction;

          (iv)     any statement or any other document presented under such
Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
to the extent the Issuing Bank would not be liable therefor pursuant to the
following paragraph (f); or

          (v)     payment by the Issuing Bank under such Letter of Credit
against presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit;

provided, however, that nothing contained in this paragraph (e) shall be deemed
to constitute a waiver of any remedies of the Borrower in connection with the
Letters of Credit or the Borrower’s rights under Section 2.6(f) below.

        (f)     Liability of Issuing Bank. The Borrower assumes all risks of the
acts or omissions of any beneficiary or transferee of any Letter of Credit with
respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of
its officers or directors shall be liable or responsible for:

          (i)     the use which may be made of any Letter of Credit or any acts
or omissions of any beneficiary or transferee in connection therewith;

          (ii)     the validity, sufficiency, or genuineness of documents, or of
any endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent, or forged;

          (iii)     payment by the Issuing Bank against presentation of
documents which do not comply with the terms of a Letter of Credit, including
failure of any documents to bear any reference or adequate reference to the
relevant Letter of Credit; or

          (iv)     any other circumstances whatsoever in making or failing to
make payment under any Letter of Credit (INCLUDING THE ISSUING BANK’S OWN
NEGLIGENCE),

except that the Borrower shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to the Borrower, to the extent of any direct, as
opposed to consequential, damages suffered by the Borrower which the Borrower
proves were caused by (A) the Issuing Bank’s willful misconduct or gross
negligence in determining whether documents presented under a Letter of Credit
comply with the terms of such Letter of Credit or (B) the Issuing Bank’s willful
failure to make lawful payment under any Letter of Credit after the presentation
to it of a draft and certificate strictly complying with the terms and
conditions of such Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.

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        (g)     Cash Collateral Account.

          (i)     If the Borrower is required to deposit funds in the Cash
Collateral Account pursuant to Sections 2.4(b) or (c), 7.2(b), or 7.3(b), then
the Borrower and the Agent shall establish the Cash Collateral Account and the
Borrower shall execute any documents and agreements, including the Agent’s
standard form assignment of deposit accounts, that the Agent requests in
connection therewith to establish the Cash Collateral Account and grant the
Agent a first priority security interest in such account and the funds therein.
The Borrower hereby pledges to the Agent and grants the Agent a security
interest in the Cash Collateral Account, whenever established, all funds held in
the Cash Collateral Account from time to time, and all proceeds thereof as
security for the payment of the Obligations.

          (ii)     So long as no Event of Default exists, (A) the Agent may
apply the funds held in the Cash Collateral Account only to the reimbursement of
any Letter of Credit Obligations, and (B) the Agent shall release to the
Borrower at the Borrower’s written request any funds held in the Cash Collateral
Account in an amount up to but not exceeding the excess, if any (immediately
prior to the release of any such funds), of the total amount of funds held in
the Cash Collateral Account over the Letter of Credit Exposure. During the
existence of any Event of Default, the Agent may apply any funds held in the
Cash Collateral Account to the Obligations in any order determined by the Agent,
regardless of any Letter of Credit Exposure which may remain outstanding. The
Agent may in its sole discretion at any time release to the Borrower any funds
held in the Cash Collateral Account.

          (iii)     The Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Agent accords its own property, it
being understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any such
funds.

        Section 2.7.    Fees.

        (a)     Commitment Fees.

          (i)     The Borrower agrees to pay to the Agent for the account of
each Bank a commitment fee per annum equal to the Applicable Margin for
commitment fees in effect from time to time on the average daily amount by which
such Bank’s Pro Rata Share of the Borrowing Base exceeds the sum of such Bank’s
outstanding Advances and such Bank’s Pro Rata Share of the Letter of Credit
Exposure, from the Effective Date until the Maturity Date.

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          (ii)     The commitment fees shall be due and payable quarterly in
arrears on the last day of each March, June, September, and December during the
term of this Agreement and on the Maturity Date.

        (b)     Agent Fees. The Borrower agrees to pay to the Agent for the
benefit of the Agent the fees described in the letter dated March 17, 2004, from
the Agent to the Borrower (the “Agent’s Fee Letter”).

        (c)     Bank Fees. The Borrower agrees to pay to the Agent for the
ratable benefit of the Banks on the Effective Date, the fees agreed to between
the Borrower and the Banks.

        (d)     Letter of Credit Fees.

          (i)     The Borrower agrees to pay (i) to the Agent for the pro rata
benefit of the Banks a per annum fee for each Letter of Credit issued hereunder
equal to the Applicable Margin for Eurodollar Advances on the face amount of
such Letter of Credit, but with a minimum annual fee of $500.00 on each Letter
of Credit, and (ii) to the Agent for the benefit of the Issuing Bank a fronting
fee for each Letter of Credit equal to 0.125% per annum of the face amount of
such Letter of Credit, but with a minimum annual fee of $500.00 on each Letter
of Credit. Each such fee with respect to a Letter of Credit shall be payable
quarterly in arrears for the period such Letter of Credit is outstanding, and on
the Maturity Date.

          (ii)     The Borrower agrees to pay to the Issuing Bank for its own
account the customary issuance, presentation, amendment, and other processing
fees, and other standard costs and charges, of the Issuing Bank relating to
letters of credit as from time to time in effect. Such customary fees and
standard costs and charges are due and payable on demand and are nonrefundable.

        Section 2.8.    Interest. The Borrower shall pay interest on the unpaid
principal amount of each Advance made by each Bank from the date of such Advance
until such principal amount shall be paid in full, at the following rates per
annum:

        (a)     Base Rate Advances. If such Advance is a Base Rate Advance, a
rate per annum equal at all times to the Adjusted Base Rate in effect from time
to time plus the Applicable Margin in effect from time to time, payable in
arrears on the last day of March, June, September, and December and on the date
such Base Rate Advance shall be paid in full, provided that any amount of
principal which is not paid when due (whether at stated maturity, by
acceleration, or otherwise) shall bear interest from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the Adjusted Base Rate in effect from time to
time plus the Applicable Margin plus 2.00% per annum.

        (b)     Eurodollar Rate Advances. If such Advance is a Eurodollar Rate
Advance, a rate per annum equal at all times during the Interest Period for such
Advance to the Eurodollar Rate for such Interest Period plus the Applicable
Margin in effect from time to time, payable on the last day of such Interest
Period, and, in the case of Interest Periods that are longer than three months,
every three months and on the last day of such Interest Period, provided that
any amount of principal which is not paid when due (whether at stated maturity,
by acceleration, or otherwise) shall bear interest from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the Adjusted Base Rate in effect from time to
time plus the Applicable Margin plus 2.00% per annum.

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        (c)     Additional Interest on Eurodollar Rate Advances. The Borrower
shall pay to each Bank, so long as any such Bank shall be required under
regulations of the Federal Reserve Board to maintain reserves with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities,
additional interest on the unpaid principal amount of each Eurodollar Rate
Advance of such Bank, from the effective date of such Advance until such
principal amount is paid in full, at an interest rate per annum equal at all
times to the remainder obtained by subtracting (A) the Eurodollar Rate for the
Interest Period for such Advance from (B) the rate obtained by dividing such
Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage of such Bank for such Interest Period, payable on each date on which
interest is payable on such Advance. Such additional interest payable to any
Bank shall be determined by such Bank and notified to the Borrower through the
Agent (such notice to include the calculation of such additional interest, which
calculation shall be conclusive in the absence of manifest error).

        (d)     Usury.

          (i)     If, with respect to any Bank, the effective rate of interest
contracted for under the Credit Documents, including the stated rates of
interest and fees contracted for hereunder and any other amounts contracted for
under the Credit Documents which are deemed to be interest, at any time exceeds
the Maximum Rate, then the outstanding principal amount of the loans made by
such Bank hereunder shall bear interest at a rate which would make the effective
rate of interest for such Bank under the Credit Documents equal the Maximum Rate
until the difference between the amounts which would have been due at the stated
rates and the amounts which were due at the Maximum Rate (the “Lost Interest”)
has been recaptured by such Bank.

          (ii)     If, when the loans made hereunder are repaid in full, the
Lost Interest has not been fully recaptured by such Bank pursuant to the
preceding paragraph, then, to the extent permitted by law, for the loans made
hereunder by such Bank the interest rates charged under Section 2.8 hereunder
shall be retroactively increased such that the effective rate of interest under
the Credit Documents was at the Maximum Rate since the effectiveness of this
Agreement to the extent necessary to recapture the Lost Interest not recaptured
pursuant to the preceding sentence and, to the extent allowed by law, the
Borrower shall pay to such Bank the amount of the Lost Interest remaining to be
recaptured by such Bank.

          (iii)     In calculating all sums paid or agreed to be paid to any
Bank by the Borrower for the use, forbearance, or detention of money under the
Credit Documents, such amounts shall, to the extent permitted by applicable law,
be amortized, prorated, allocated, and spread in equal parts throughout the term
of the Credit Documents.

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          (iv)     NOTWITHSTANDING the foregoing or any other term in this
Agreement and the Credit Documents to the contrary, it is the intention of each
Bank and the Borrower to conform strictly to any applicable usury laws.
Accordingly, if any Bank contracts for, charges, or receives any consideration
which constitutes interest in excess of the Maximum Rate, then (A) the
provisions of this Section 2.8, together with the second sentence of Section
9.13 shall control, and (B) any such excess shall be canceled automatically and,
if previously paid, shall at such Bank’s option be applied to the outstanding
amount of the loans made hereunder by such Bank or be refunded to the Borrower.
For purposes of Chapter 303 of the Texas Finance Code, as amended, to the extent
applicable, the Borrower agrees that the Maximum Rate shall be the “indicated
(weekly) rate ceiling” as defined in said Chapter, provided that such Bank may
also rely, to the extent permitted by applicable laws, on alternative maximum
rates of interest under other laws applicable to such Bank, if greater.

        Section 2.9.    Payments and Computations.

        (a)    Payment Procedures. The Borrower shall make each payment under
this Agreement and under the Notes not later than 10:00 a.m. (Dallas, Texas
time) on the day when due in Dollars to the Agent at 901 Main Street, 14th
Floor, Dallas, Texas 75202 (or such other location as the Agent shall designate
in writing to the Borrower), in same day funds. The Agent shall promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest or fees ratably (other than amounts payable solely to the
Agent, the Issuing Bank, or a specific Bank pursuant to Section 2.7(b), 2.8(c),
2.11, 2.12, 2.13, 8.7, or 9.7, but after taking into account payments effected
pursuant to Section 9.4) to the Banks for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Bank or the Issuing Bank to such Bank for the account of
its Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement.

        (b)    Computations. All computations of interest based on the Base Rate
shall be made by the Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurodollar Rate and
the Federal Funds Rate and of fees shall be made by the Agent, on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day, but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Agent of an interest
rate or fee shall be conclusive and binding for all purposes, absent manifest
error.

        (c)    Non-Business Day Payments. Whenever any payment shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.

        (d)    Agent Reliance. Unless the Agent shall have received written
notice from the Borrower prior to the date on which any payment is due to the
Banks that the Borrower shall not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such date
and the Agent may, in reliance upon such assumption, cause to be distributed to
each Bank on such date an amount equal to the amount then due such Bank. If and
to the extent the Borrower shall not have so made such payment in full to the
Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank, together with interest, for each day from the date
such amount is distributed to such Bank until the date such Bank repays such
amount to the Agent, at the Federal Funds Rate for such day.

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        Section 2.10.    Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances or Letter of Credit
Obligations made by it in excess of its Pro Rata Share of payments on account of
the Advances or Letter of Credit Obligations obtained by all the Banks, such
Bank shall notify the Agent and forthwith purchase from the other Banks such
participations in the Advances made by them or Letter of Credit Obligations held
by them as shall be necessary to cause such purchasing Bank to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing Bank, such
purchase from each Bank shall be rescinded and such Bank shall repay to the
purchasing Bank the purchase price to the extent of such Bank’s ratable share
(according to the proportion of (a) the amount of the participation sold by such
Bank to the purchasing Bank as a result of such excess payment to (b) the total
amount of such excess payment) of such recovery, together with an amount equal
to such Bank’s ratable share (according to the proportion of (a) the amount of
such Bank’s required repayment to the purchasing Bank to (b) the total amount of
all such required repayments to the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.10 may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct creditor
of the Borrower in the amount of such participation.

        Section 2.11.    Breakage Costs. If (a) any payment of principal of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, whether as a result of any payment pursuant to
Section 2.4, the acceleration of the maturity of the Notes pursuant to
Article VII, or otherwise, or (b) the Borrower fails to make a principal or
interest payment with respect to any Eurodollar Rate Advance on the date such
payment is due and payable, the Borrower shall, within 10 days of any written
demand sent by any Bank to the Borrower through the Agent, pay to the Agent for
the account of such Bank any amounts required to compensate such Bank for any
additional losses, out-of-pocket costs or expenses which it may reasonably incur
as a result of such payment or nonpayment, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Bank to fund or maintain such Advance.

        Section 2.12.    Increased Costs.

        (a)    Eurodollar Rate Advances. If, due to either (i) the introduction
of or any change (other than any change by way of imposition or increase of
reserve requirements included in the Eurodollar Rate Reserve Percentage) in or
in the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Bank of agreeing to make or making, funding, or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand
by such Bank (with a copy of such demand to the Agent), immediately pay to the
Agent for the account of such Bank additional amounts sufficient to compensate
such Bank for such increased cost. A certificate as to the amount of such
increased cost and detailing the calculation of such cost submitted to the
Borrower and the Agent by such Bank shall be conclusive and binding for all
purposes, absent manifest error.

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        (b)    Capital Adequacy. If any Bank or the Issuing Bank determines in
good faith that compliance with any law or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Bank or the Issuing Bank or any corporation
controlling such Bank or the Issuing Bank and that the amount of such capital is
increased by or based upon the existence of such Bank’s commitment to lend or
the Issuing Bank’s commitment to issue the Letters of Credit and other
commitments of this type, then, upon 30 days’ prior written notice by such Bank
or the Issuing Bank (with a copy of any such demand to the Agent), the Borrower
shall immediately pay to the Agent for the account of such Bank or to the
Issuing Bank, as the case may be, from time to time as specified by such Bank or
the Issuing Bank, additional amounts sufficient to compensate such Bank or the
Issuing Bank, in light of such circumstances, (i) with respect to such Bank, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank’s commitment to lend under this
Agreement and (ii) with respect to the Issuing Bank, to the extent that the
Issuing Bank reasonably determines such increase in capital to be allocable to
the issuance or maintenance of the Letters of Credit for such increased cost. A
certificate as to such amounts and detailing the calculation of such amounts
submitted to the Borrower by such Bank or the Issuing Bank shall be conclusive
and binding for all purposes, absent manifest error.

        (c)    Letters of Credit. If any change in any law or regulation or in
the interpretation thereof by any court or administrative or Governmental
Authority charged with the administration thereof shall either (i) impose,
modify, or deem applicable any reserve, special deposit, or similar requirement
against letters of credit issued by, or assets held by, or deposits in or for
the account of, the Issuing Bank or (ii) impose on the Issuing Bank any other
condition regarding the provisions of this Agreement relating to the Letters of
Credit or any Letter of Credit Obligations, and the result of any event referred
to in the preceding clause (i) or (ii) shall be to increase the cost to the
Issuing Bank of issuing or maintaining any Letter of Credit (which increase in
cost shall be determined by the Issuing Bank’s reasonable allocation of the
aggregate of such cost increases resulting from such event), then, upon demand
by the Issuing Bank, the Borrower shall pay to the Issuing Bank, from time to
time as specified by the Issuing Bank, additional amounts which shall be
sufficient to compensate the Issuing Bank for such increased cost. A certificate
as to such increased cost incurred by the Issuing Bank, as a result of any event
mentioned in clause (i) or (ii) above, and detailing the calculation of such
increased costs submitted by the Issuing Bank to the Borrower, shall be
conclusive and binding for all purposes, absent manifest error.

        Section 2.13.    Taxes.

        (a)    No Deduction for Certain Taxes. Any and all payments by the
Borrower shall be made, in accordance with Section 2.9, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Bank, the Issuing Bank, and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank, the Issuing Bank, or the Agent (as the case
may be) is organized or any political subdivision of the jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as “Taxes”) and, in the case of each
Bank and the Issuing Bank, Taxes by the jurisdiction of such Bank’s Applicable
Lending Office or any political subdivision of such jurisdiction. If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable to any Bank, the Issuing Bank, or the Agent, (i) the sum payable
shall be increased as may be necessary so that, after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.13), such Bank, the Issuing Bank, or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made; provided, however, that if the Borrower’s obligation to
deduct or withhold Taxes is caused solely by such Bank’s, the Issuing Bank’s, or
the Agent’s failure to provide the forms described in paragraph (d) of this
Section 2.13 and such Bank, the Issuing Bank, or the Agent could have provided
such forms, no such increase shall be required; (ii) the Borrower shall make
such deductions; and (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.

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        (b)    Other Taxes. In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Notes, or the other Credit Documents (hereinafter referred to as
“Other Taxes”).

        (c)    Indemnification. THE BORROWER INDEMNIFIES EACH BANK, THE ISSUING
BANK, AND THE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING,
WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON
AMOUNTS PAYABLE UNDER THIS SECTION 2.13) PAID BY SUCH BANK, THE ISSUING BANK, OR
THE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES
OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE
MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE
AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS
FROM THE DATE THE BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE AGENT ON
BEHALF OF ITSELF AS AGENT, THE ISSUING BANK, OR ANY SUCH BANK. IF ANY BANK, THE
AGENT, OR THE ISSUING BANK RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE
BORROWER UNDER THIS PARAGRAPH (C), SUCH BANK, THE AGENT, OR THE ISSUING BANK, AS
THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER’S SHARE OF SUCH
REFUND.

        (d)    Foreign Bank Withholding Exemption. Each Bank and Issuing Bank
that is not incorporated under the laws of the United States of America or a
state thereof agrees that it will deliver to the Borrower and the Agent on the
date of this Agreement or upon the effectiveness of any Assignment and
Acceptance and from time to time thereafter if requested in writing by the
Borrower (i) Internal Revenue Service Form W-8ECI, W-8BEN, W-8EXP, or W-8IMY as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts such Bank from withholding tax
on payments of interest or certifying that the income receivable pursuant to
this Agreement is effectively connected with the conduct of a trade or business
in the United States, (ii) Internal Revenue Service Form W-9, as appropriate, or
any successor form prescribed by the Internal Revenue Service, and (iii) any
other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal Revenue
Code), certifying that such Bank is entitled to an exemption from tax on
payments pursuant to this Agreement or any of the other Credit Documents. If an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any delivery required by the preceding
sentence would otherwise be required which renders all such forms inapplicable
or which would prevent any Bank from duly completing and delivering any such
letter or form with respect to it and such Bank advises the Borrower and the
Agent that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and, in the case of a Form W-9,
establishing an exemption from United States backup withholding tax, such Bank
shall not be required to deliver such letter or forms.

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ARTICLE III

CONDITIONS OF LENDING

        Section 3.1.    Initial Conditions Precedent to Borrowings. This
Agreement shall become effective on the date the following conditions precedent
are met:

        (a)     Documentation. On or before the day on which the initial
Borrowing is made or the initial Letters of Credit are issued, the Agent shall
have received the following duly executed by all the parties thereto, in form
and substance satisfactory to the Agent and the Banks, and, where applicable, in
sufficient copies for each Bank:

          (i)     This Agreement and the Notes;

          (ii)     A favorable opinion of the Borrower’s general counsel, dated
as of the Effective Date, and substantially in the form of the attached
Exhibit H-1 covering the matters discussed in such Exhibit and such other
matters as any Bank through the Agent may reasonably request;

          (iii)     A favorable opinion of Bracewell & Patterson, L.L.P.,
counsel to the Agent, dated as of the Effective Date, and substantially in the
form of the attached Exhibit H-2;

          (iv)     A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the existence of the Borrower, a certificate of good
standing for the Borrower, the certificate of incorporation of the Borrower, the
bylaws of the Borrower, the resolutions of the Board of Directors of the
Borrower authorizing this Agreement and related transactions, and the incumbency
and signatures of the officers of the Borrower authorized to execute this
Agreement and related documents;

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          (v)     A certificate of the Secretary or an Assistant Secretary of
each Guarantor certifying the existence of such Guarantor, a certificate of good
standing for such Guarantor, if applicable, the certificate of incorporation,
limited liability company agreement, limited partnership agreement, or other
charter document of the Borrower, the bylaws, if any, of the Borrower, the
resolutions of the Board of Directors, management committee or general partner
of such Guarantor authorizing this Agreement and related transactions, and the
incumbency and signatures of the officers of such Guarantor authorized to
execute its Guaranty and related documents; and

          (vi)     Such other documents, governmental certificates, agreements,
and lien searches as the Agent or any Bank may reasonably request.

        (b)     Payment of Fees. On the date of this Agreement, the Borrower
shall have paid the fees required by Section 2.7(b) and (c) and all costs and
expenses which have been invoiced and are payable pursuant to Section 9.4.

        (c)     Financial Statements. The Agent shall have reviewed and be
satisfied with the consolidated financial statements of the Borrower and its
Subsidiaries for the fiscal years ended 2001, 2002, and 2003, including balance
sheets, income and cash flow statements audited by independent public
accountants and prepared in conformity with GAAP and such other financial
information as the Agent may request.

        (d)     No Material Adverse Change. There shall not have occurred a
Material Adverse Change since December 31, 2003.

        (e)     No Material Litigation. The absence of any action, suit,
investigation or proceeding pending or threatened in any court or before any
arbitrator or governmental authority that purports (i) to materially and
adversely affect the Borrower or its Subsidiaries taken as a whole, or (ii) to
adversely affect any transaction contemplated hereby or the ability of the
Borrower and the Guarantors to perform their respective obligations under the
Credit Documents.

        (f)     Due Diligence. Receipt and review, with results satisfactory to
the Agent and its counsel, of information regarding litigation, tax, capital
budgets, accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements, property
ownership, environmental matters, contingent liabilities and management of the
Borrower and its Subsidiaries.

        (g)     Engineering Reports. The Agent shall have received Oil and Gas
Reserve Reports for the Oil and Gas Properties included in the Borrowing Base.

        (h)     Environmental Condition. The Agent shall be satisfied with the
environmental condition of the Borrower and its Subsidiaries’ Oil and Gas
Properties.

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        (i)    Termination of Existing Credit Agreement. The Agent shall be
satisfied that the Existing Credit Agreement and all commitments to lend or
issue letters of credit thereunder have been terminated, that all amounts
outstanding under the Existing Credit Agreement have been paid in full, and that
all of the Existing Letters of Credit shall constitute Letters of Credit
hereunder upon the Effective Date.

        Section 3.2.    Conditions Precedent to All Borrowings. The obligation
of each Bank to make an Advance on the occasion of each Borrowing and of the
Issuing Bank to issue, increase, or extend any Letter of Credit shall be subject
to the further conditions precedent that on the date of such Borrowing or the
issuance, increase, or extension of such Letter of Credit:

        (a)     the following statements shall be true (and each of the giving
of the applicable Notice of Borrowing or Letter of Credit Application and the
acceptance by the Borrower of the proceeds of such Borrowing or the issuance,
increase, or extension of such Letter of Credit shall constitute a
representation and warranty by the Borrower that, on the date of such Borrowing,
or the issuance, increase, or extension of such Letter of Credit, such
statements are true):

          (i)     the representations and warranties contained in Article IV and
the Guaranties are correct in all material respects on and as of the date of
such Borrowing or the date of the issuance, increase, or extension of such
Letter of Credit, before and after giving effect to such Borrowing or to the
issuance, increase, or extension of such Letter of Credit and to the application
of the proceeds from such Borrowing, as though made on and as of such date and

          (ii)     no Default has occurred and is continuing or would result
from such Borrowing or from the application of the proceeds therefrom or from
the issuance, increase, or extension of such Letter of Credit; and

        (b)     the Agent shall have received such other approvals, opinions, or
documents reasonably deemed necessary or desirable by any Bank as a result of
circumstances occurring after the date of this Agreement, as any Bank through
the Agent may reasonably request.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

        The Borrower represents and warrants as follows:

        Section 4.1.    Corporate Existence; Subsidiaries. The Borrower is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware and in good standing and qualified to do business in each
jurisdiction where its ownership or lease of property or conduct of its business
requires such qualification and where a failure to be qualified could reasonably
be expected to cause a Material Adverse Change. Each Guarantor is a corporation
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation and in good standing and qualified to do business
in each jurisdiction where its ownership or lease of property or conduct of its
business requires such qualification and where a failure to be qualified could
reasonably be expected to cause a Material Adverse Change. Each Material
Subsidiary of the Borrower has executed a Guaranty except as specified in the
exception to Section 5.8.

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        Section 4.2.    Corporate Power. The execution, delivery, and
performance by the Borrower of this Agreement, the Notes, and the other Credit
Documents to which it is a party and by the Guarantors of the Guaranties and the
consummation of the transactions contemplated hereby and thereby (a) are within
the Borrower’s and the Guarantor’s corporate powers, (b) have been duly
authorized by all necessary corporate action, (c) do not contravene (i) the
Borrower’s or any Guarantor’s certificate or articles, as the case may be, of
incorporation or by-laws or (ii) any law or any contractual restriction binding
on or affecting the Borrower or any Guarantor, and (d) will not result in or
require the creation or imposition of any Lien prohibited by this Agreement. At
the time of each Borrowing, such Borrowing and the use of the proceeds of such
Borrowing will be within the Borrower’s corporate powers, will have been duly
authorized by all necessary corporate action, (a) will not contravene (i) the
Borrower’s certificate of incorporation or by-laws or (ii) any law or any
contractual restriction binding on or affecting the Borrower and (b) will not
result in or require the creation or imposition of any Lien prohibited by this
Agreement.

        Section 4.3.    Authorization and Approvals. No authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority is required for the due execution, delivery, and performance by the
Borrower of this Agreement, the Notes, or the other Credit Documents to which
the Borrower is a party or by each Guarantor of its Guaranty or the consummation
of the transactions contemplated thereby. At the time of each Borrowing, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required for such Borrowing or the use of the
proceeds of such Borrowing.

        Section 4.4.    Enforceable Obligations. This Agreement, the Notes, and
the other Credit Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower and the Guaranties have been duly
executed and delivered by the Guarantors. Each Credit Document is the legal,
valid, and binding obligation of the Borrower and each Guarantor which is a
party to it enforceable against the Borrower and each such Guarantor in
accordance with its terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium, or similar law
affecting creditors’ rights generally and by general principles of equity.

        Section 4.5.    Financial Statements. The audited consolidated balance
sheet of the Borrower and its Subsidiaries as at December 31, 2003 and the
related audited consolidated statements of operations, cash flow, and
stockholders’ equity of the Borrower and its Subsidiaries for the fiscal year
then ended, copies of which have been furnished to each Bank, fairly present the
consolidated financial condition of the Borrower and its Subsidiaries as at such
date and the consolidated results of the operations of the Borrower and its
Subsidiaries for the fiscal year ended on such date, and such consolidated
balance sheets and consolidated statements of operations, cash flow, and
stockholders’ equity were prepared in accordance with GAAP (or in compliance
with the regulations promulgated by the United States Securities and Exchange
Commission). Since the date of the Financial Statements, no Material Adverse
Change has occurred.

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        Section 4.6.    True and Complete Disclosure. All factual information
(excluding estimates) heretofore or contemporaneously furnished by or on behalf
of the Borrower or any of its Subsidiaries in writing to any Bank or the Agent
for purposes of or in connection with this Agreement, any other Credit Document
or any transaction contemplated hereby or thereby is (taken as a whole) true and
accurate in all material respects on the date as of which such information is
dated or certified and does not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements contained
therein not misleading as of the date of this Agreement. All projections,
estimates, and pro forma financial information furnished by the Borrower were
prepared on the basis of assumptions, data, information, tests, or conditions
believed to be reasonable at the time such projections, estimates, and pro forma
financial information were furnished.

        Section 4.7.    Litigation. Set forth on Schedule 4.7 is an accurate
description of all of the Borrower’s and its Subsidiaries’ pending litigation
existing on the date of this Agreement which could reasonably be expected to
cause a Material Adverse Change. There is no pending or, to the best knowledge
of the Borrower, threatened action or proceeding affecting the Borrower or any
of its Subsidiaries before any court, Governmental Agency or arbitrator, which
could reasonably be expected to cause a Material Adverse Change or which
purports to affect the legality, validity, binding effect, or enforceability of
this Agreement, any Note, or any other Credit Document.

        Section 4.8.    Use of Proceeds. All Advances and Letters of Credit
shall be used for working capital and general corporate purposes of the Borrower
and its Subsidiaries (including without limitation to finance the acquisition of
Oil and Gas Properties), but in no event for the payment of dividends or other
distributions or advances to the shareholders of the Borrower. The Borrower is
not engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U). No proceeds of any
Advance will be used to purchase or carry any margin stock in violation of
Regulation T, U or X.

        Section 4.9.    Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an “investment company” or a company “controlled” by an
“investment company”within the meaning of the Investment Company Act of 1940, as
amended.

        Section 4.10.    Public Utility Holding Company Act. Neither the
Borrower nor any of its Subsidiaries is a “holding company,” or a “subsidiary
company” of a “holding company,” or an “affiliate” of a “holding company” or of
a “subsidiary company” of a “holding company,” within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

        Section 4.11.    Taxes. Proper and accurate (in all material respects)
federal, state, local, and foreign tax returns, reports and statements required
to be filed (after giving effect to any extension granted in the time of filing)
by or on behalf of the Borrower, its Subsidiaries, or any member of the
Controlled Group (hereafter collectively called the “Tax Group”) have been duly
filed on a timely basis or appropriate extensions have been obtained with
appropriate governmental agencies in all jurisdictions in which such returns,
reports, and statements are required to be filed, except where the failure to so
file would not be reasonably expected to cause a Material Adverse Change; and
all taxes (which are material in amount) and other impositions due and payable
have been timely paid prior to the date on which any fine, penalty, interest,
late charge, or loss may be added thereto for non-payment thereof, except where
contested in good faith by appropriate proceedings. The reserves for accrued
taxes reflected in the financial statements delivered to the Banks under this
Agreement are adequate in the aggregate for the payment of all unpaid taxes,
whether or not disputed, for the period ended as of the date thereof and for any
period prior thereto, and for which the Tax Group may be liable in its own
right, as withholding agent or as a transferee of the assets of, or successor
to, any Person, except for such taxes or reserves therefor, the failure to pay
or provide for which does not and could not cause a Material Adverse Change.
Timely payment of all material sales and use taxes required by applicable law
has been made by the Borrower and all other members of the Tax Group.

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        Section 4.12.    Pension Plans. All Plans are in compliance in all
material respects with all applicable provisions of ERISA. No Termination Event
has occurred with respect to any Plan, and each Plan has complied with and been
administered in all material respects with applicable provisions of ERISA and
the Code. No “accumulated funding deficiency” (as defined in Section 302 of
ERISA) has occurred and there has been no excise tax imposed under Section 4971
of the Code. No Reportable Event has occurred with respect to any Multiemployer
Plan, and each Multiemployer Plan has complied with and been administered in all
material respects with applicable provisions of ERISA and the Code. The present
value of all benefits vested under each Plan (based on the assumptions used to
fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed the value of the assets of such Plan allocable to such vested
benefits. Neither the Borrower nor any member of the Controlled Group has had a
complete or partial withdrawal from any Multiemployer Plan for which there is
any withdrawal liability. As of the most recent valuation date applicable
thereto, neither the Borrower nor any member of the Controlled Group would
become subject to any liability under ERISA if the Borrower or any member of the
Controlled Group has received notice that any Multiemployer Plan is insolvent or
in reorganization. Based upon GAAP existing as of the date of this Agreement and
current factual circumstances, the Borrower has no reason to believe that the
annual cost during the term of this Agreement to the Borrower or any member of
the Controlled Group for post-retirement benefits to be provided to the current
and former employees of the Borrower or any member of the Controlled Group under
Plans that are welfare benefit plans (as defined in Section 3(a) of ERISA)
could, in the aggregate, reasonably be expected to cause a Material Adverse
Change.

        Section 4.13.    Condition of Property; Casualties. The Borrower and
each of the Guarantors has good and indefeasible title to all of its Properties
as is customary in the oil and gas industry in all material respects, free and
clear of all Liens except for Permitted Liens. The material Properties used or
to be used in the continuing operations of the Borrower and each of its
Subsidiaries are in good repair, working order and condition. Since the date of
the Financial Statements, neither the business nor the material properties of
the Borrower and each of its Subsidiaries, taken as a whole, has been materially
and adversely affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits, or
concessions by a Governmental Authority, riot, activities of armed forces, or
acts of God or of any public enemy.

        Section 4.14.    No Burdensome Restrictions; No Defaults. Neither the
Borrower nor any of its Subsidiaries is a party to any indenture, loan, or
credit agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction or provision of applicable law or governmental
regulation which could reasonably be expected to cause a Material Adverse
Change. The Borrower and the Guarantors are not in default under or with respect
to any contract, agreement, lease, or other instrument to which the Borrower or
any Guarantor is a party and which could reasonably be expected to cause a
Material Adverse Change. Neither the Borrower nor any Guarantor has received any
notice of default under any material contract, agreement, lease, or other
instrument to which the Borrower or such Guarantor is a party. No Default has
occurred and is continuing.

        Section 4.15.    Environmental Condition.

        (a)    Permits, Etc. Except as set forth on Schedule 4.15(a), the
Borrower and its Subsidiaries (i) have obtained all Environmental Permits
necessary for the ownership and operation of their respective Properties and the
conduct of their respective businesses; (ii) have been and are in material
compliance with all terms and conditions of such Environmental Permits and with
all other material requirements of applicable Environmental Laws; (iii) have not
received notice of any material violation or alleged violation of any
Environmental Law or Environmental Permit; and (iv) are not subject to any
actual or contingent Environmental Claim, which could reasonably be expected to
cause a Material Adverse Change.

        (b)    Certain Liabilities. Except as set forth on Schedule 4.15(b), to
the Borrower’s actual knowledge, none of the present or previously owned or
operated Property of the Borrower or of any of its present or former
Subsidiaries, wherever located, (i) has been placed on or proposed to be placed
on the National Priorities List, the Comprehensive Environmental Response
Compensation Liability Information System list, or their state or local analogs,
or have been otherwise investigated, designated, listed, or identified as a
potential site for removal, remediation, cleanup, closure, restoration,
reclamation, or other response activity under any Environmental Laws; (ii) is
subject to a Lien, arising under or in connection with any Environmental Laws,
that attaches to any revenues or to any Property owned or operated by the
Borrower or any of its Subsidiaries, wherever located, which could reasonably be
expected to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past
operations which has caused at the site or at any third-party site any condition
that has resulted in or could reasonably be expected to result in the need for
Response that would cause a Material Adverse Change.

        (c)    Certain Actions. Without limiting the foregoing, (i) all
necessary notices have been properly filed, and no further action is required
under current Environmental Law as to each Response or other restoration or
remedial project undertaken by the Borrower, or its present or former
Subsidiaries on any of their presently or formerly owned or operated Property
and (ii) the present and, to the Borrower’s best knowledge, future liability, if
any, of the Borrower and its Subsidiaries which could reasonably be expected to
arise in connection with requirements under Environmental Laws will not result
in a Material Adverse Change.

        Section 4.16.    Permits, Licenses, Etc. The Borrower and its
Subsidiaries possess all permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade names rights and copyrights which are
material to the conduct of its business. The Borrower and its Subsidiaries
manage and operate their business in all material respects in accordance with
all applicable Legal Requirements and good industry practices.

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        Section 4.17.    Gas Contracts. Neither the Borrower nor any of its
Subsidiaries, as of the date hereof, (a) is obligated in any material respect by
virtue of any prepayment made under any contract containing a “take-or-pay” or
“prepayment” provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Borrower’s consolidated Oil and Gas
Properties at some future date without receiving full payment therefor at the
time of delivery, or (b) has produced gas, in any material amount, subject to,
and none of the Borrower’s consolidated Oil and Gas Properties is subject to,
balancing rights of third parties or subject to balancing duties under
governmental requirements, except as to such matters for which the Borrower or
its relevant Subsidiary has established monetary reserves adequate in amount in
accordance with GAAP to satisfy such obligations.

        Section 4.18.    Non-Set Off Accounts. Each Non-Set Off Account contains
only unpaid amounts due to royalty and working interest holders (including
limited partnerships sponsored by the Borrower and its Subsidiaries) and other
segregated funds of the Borrower and its Subsidiaries (but not any general
corporate funds of the Borrower or its Subsidiaries).

ARTICLE V

AFFIRMATIVE COVENANTS

        So long as any Note or any amount under any Credit Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have
any Commitment hereunder, the Borrower agrees, unless the Majority Banks shall
otherwise consent in writing, to comply with the following covenants.

        Section 5.1.    Compliance with Laws, Etc. The Borrower shall comply,
and cause each of its Subsidiaries to comply, in all material respects with all
Legal Requirements. Without limiting the generality and coverage of the
foregoing, the Borrower shall comply, and shall cause each of its Subsidiaries
to comply, in all material respects, with all Environmental Laws and all laws,
regulations, or directives with respect to equal employment opportunity and
employee safety in all jurisdictions in which the Borrower, or any of its
Subsidiaries do business; provided, however, that this Section 5.1 shall not
prevent the Borrower, or any of its Subsidiaries from, in good faith and with
reasonable diligence, contesting the validity or application of any such laws or
regulations by appropriate legal proceedings.

        Section 5.2.    Maintenance of Insurance. The Borrower shall maintain,
and cause each of its Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Borrower or
such Subsidiary operates, provided that the Borrower or such Subsidiary may
self-insure to the extent and in the manner normal for similarly situated
companies of like size, type and financial condition that are part of a group of
companies under common control.

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        Section 5.3.    Preservation of Corporate Existence, Etc. The Borrower
shall preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights, franchises, and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified, and cause
each such Subsidiary to qualify and remain qualified, as a foreign corporation
in each jurisdiction in which qualification is necessary or desirable in view of
its business and operations or the ownership of its properties, and, in each
case, where failure to qualify or preserve and maintain its rights and
franchises could reasonably be expected to cause a Material Adverse Change;
provided, however, that nothing herein contained shall prevent any transaction
permitted by Section 6.4.

        Section 5.4.    Payment of Taxes, Etc. The Borrower shall pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent, (a) all taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits or Property that
are material in amount, prior to the date on which penalties attach thereto and
(b) all lawful claims that are material in amount which, if unpaid, might by law
become a Lien upon its Property; provided, however, that neither the Borrower
nor any such Subsidiary shall be required to pay or discharge any such tax,
assessment, charge, levy, or claim which is being contested in good faith and by
appropriate proceedings, and with respect to which reserves in conformity with
GAAP have been provided.

        Section 5.5.    Visitation Rights. At any reasonable time and from time
to time, upon reasonable notice, the Borrower shall, and shall cause its
Subsidiaries to, permit the Agent and any Bank or any of its agents or
representatives thereof, to (a) examine and make copies of and abstracts from
the records and books of account of, and visit and inspect at its reasonable
discretion the properties of, the Borrower and any such Subsidiary, and
(b) discuss the affairs, finances and accounts of the Borrower and any such
Subsidiary with any of their respective officers or directors; provided however,
the Agent or the Bank for whose benefit such inspection and visitation is made
assumes sole responsibility for the condition of any property of the Borrower or
its Subsidiaries so visited and inspected, the access and egress thereto
(including, but not limited to wharves, docks, and helicopter landing areas),
and any vice or defect therein or thereon, and assumes all responsibility for
and hereby releases and indemnifies the Borrower, its Affiliates, and their
officers, directors, employees, and agents against any claim for damage or
injury to or by the Agent or such Bank (or the representatives thereof) or to
the Borrower’s or its Subsidiaries’ property which may be occasioned by such
inspection and visitation of the Borrower’s or its Subsidiaries’ property.

        Section 5.6.    Reporting Requirements. The Borrower shall furnish to
the Agent and each Bank:

        (a)     Annual Financials. As soon as available and in any event not
later than 120 days after the end of each fiscal year of the Borrower, (i) a
copy of the annual audit report for such year for the Borrower and its
Subsidiaries, including therein consolidated balance sheet of the Borrower and
its Subsidiaries as of the end of such fiscal year and consolidated statements
of operations, cash flows, and stockholders’ equity of the Borrower and its
Subsidiaries for such fiscal year, in each case certified by Ernst & Young LLP
or other independent certified public accountants of national standing and
including any management letters delivered by such accountants to the Borrower
in connection with such audit, and (ii) a Compliance Certificate executed by the
Chief Financial Officer or Chief Accounting Officer of the Borrower;

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        (b)     Quarterly Financials. As soon as available and in any event not
later than 90 days after the end of each of the first three quarters of each
fiscal year of the Borrower, (i) the unaudited consolidated balance sheet of
Borrower and its Subsidiaries as of the end of such quarter and the consolidated
statements of operations and cash flows of the Borrower and its Subsidiaries for
the period commencing at the end of the previous year and ending with the end of
such quarter, all in reasonable detail and duly certified with respect to such
consolidated statements (subject to year-end audit adjustments) by the Chief
Financial Officer or Chief Accounting Officer of the Borrower as having been
prepared in accordance with GAAP (or in compliance with the regulations
promulgated by the United States Securities and Exchange Commission), and (ii) a
Compliance Certificate executed by the Chief Financial Officer or Chief
Accounting Officer of the Borrower;

        (c)     Oil and Gas Reserve Reports.

          (i)     As soon as available but in any event on or before March 31 of
each year, an engineering report in form and substance meeting the requirements
of the Securities and Exchange Commission for financial reporting purposes,
certified by a firm or firms of independent consulting petroleum engineers
approved by the Agent as fairly setting forth (A) the proved and producing, shut
in, behind pipe, and undeveloped oil and gas reserves (separately classified as
such) attributable to the Borrower’s consolidated Oil and Gas Properties as of
December 31 of the previous year, (B) the aggregate present value, determined on
the basis of stated pricing assumptions, of the future net income with respect
to such Oil and Gas Properties, discounted at a stated per annum discount rate,
and (C) projections of the annual rate of production, gross income, and net
income with respect to such Oil and Gas Properties.

          (ii)     As soon as available but in any event on or before September
30 of each year, an internal engineering report in form and substance
satisfactory to the Agent setting forth (A) the proved and producing, shut in,
behind pipe, and undeveloped oil and gas reserves (separately classified as
such) attributable to the Borrower’s consolidated Oil and Gas Properties as of
June 30 of such year, (B) the aggregate present value, determined on the basis
of stated pricing assumptions, of the future net income with respect to such Oil
and Gas Properties, discounted at a stated per annum discount rate, and (C)
projections of the annual rate of production, gross income, and net income with
respect to such Oil and Gas Properties.

          (iii)     The Agent and the Banks acknowledge that the Oil and Gas
Reserve Reports contain certain proprietary information including geological and
geophysical data, maps, models, and interpretations necessary for determining
the Borrowing Base and the creditworthiness of the Borrower and the Guarantors.
The Agent and the Banks agree to maintain the confidentiality of such
information except as required by law. The Agent and the Banks may share such
information with potential transferees of their interests under this Agreement
if such transferees agree to maintain the confidentiality of such information.

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        (d)     Defaults. As soon as possible and in any event within five days
after the occurrence of each Default known to a Responsible Officer of the
Borrower or any of its Subsidiaries which is continuing on the date of such
statement, a statement of the Chief Financial Officer of the Borrower setting
forth the details of such Default and the actions which the Borrower has taken
and proposes to take with respect thereto;

        (e)     Securities Law Filings. Except as provided in paragraphs (a) and
(b) above, promptly and in any event within 15 days after the sending or filing
thereof, copies of all proxy material, reports and other information which the
Borrower or any of its Subsidiary sends to or files with the United States
Securities and Exchange Commission or sends to any shareholder of the Borrower;

        (f)     Termination Events. As soon as possible and in any event (i)
within 30 days after the Borrower or any member of the Controlled Group knows or
has reason to know that any Termination Event described in clause (a) of the
definition of Termination Event with respect to any Plan has occurred, and
(ii) within 10 days after the Borrower or any of its Affiliates knows or has
reason to know that any other Termination Event with respect to any Plan has
occurred, a statement of the Chief Financial Officer of the Borrower describing
such Termination Event and the action, if any, which the Borrower or such
Affiliate proposes to take with respect thereto;

        (g)     Termination of Plans. Promptly and in any event within two
Business Days after receipt thereof by the Borrower or any member of the
Controlled Group from the PBGC, copies of each notice received by the Borrower
or any such member of the Controlled Group of the PBGC’s intention to terminate
any Plan or to have a trustee appointed to administer any Plan;

        (h)     Other ERISA Notices. Promptly and in any event within five
Business Days after receipt thereof by the Borrower or any member of the
Controlled Group from a Multiemployer Plan sponsor, a copy of each notice
received by the Borrower or any member of the Controlled Group concerning the
imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

        (i)     Environmental Notices. Promptly upon the receipt thereof by the
Borrower or any of its Subsidiaries, a copy of any form of notice, summons or
citation received from the EPA, or any other Governmental Authority, concerning
(i) violations or alleged violations of Environmental Laws, which seeks to
impose liability therefor, (ii) any action or omission on the part of the
Borrower or any of its present or former Subsidiaries in connection with
Hazardous Waste or Hazardous Substances which could reasonably result in the
imposition of liability therefor, including without limitation any notice of
potential responsibility under CERCLA, or (iii) concerning the filing of a Lien
upon, against or in connection with the Borrower, its present or former
Subsidiaries, or any of their leased or owned Property, wherever located;

        (j)     Other Governmental Notices. Promptly and in any event within
five Business Days after receipt thereof by the Borrower or any Subsidiary, a
copy of any notice, summons, citation, or proceeding seeking to modify in any
material respect, revoke, or suspend any material contract, license, or
Agreement with any Governmental Authority;

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        (k)     Material Changes. Prompt written notice of any condition or
event of which the Borrower has knowledge, which condition or event has resulted
or may reasonably be expected to result in (i) a Material Adverse Change or (ii)
a breach of or noncompliance with any material term, condition, or covenant of
any material contract to which the Borrower or any of its Subsidiaries is a
party or by which they or their properties may be bound;

        (l)     Disputes, Etc. Prompt written notice of any claims, proceedings,
or disputes, or to the knowledge of the Borrower threatened, or affecting the
Borrower, or any of its Subsidiaries which, if adversely determined, could
reasonably be expected to cause a Material Adverse Change, or any material labor
controversy of which the Borrower or any of its Subsidiaries has knowledge
resulting in or reasonably considered to be likely to result in a strike against
the Borrower or any of its Subsidiaries; and

        (m)     Other Information. Such other information respecting the
business or Properties, or the condition or operations, financial or otherwise,
of the Borrower, or any of its Subsidiaries, as any Bank through the Agent may
from time to time reasonably request. The Agent agrees to provide the Banks with
copies of any material notices and information delivered solely to the Agent
pursuant to the terms of this Agreement.

        Section 5.7.    Maintenance of Property. Borrower shall, and shall cause
each of its Subsidiaries to, maintain their owned, leased, or operated property,
equipment, buildings, and fixtures in good condition and repair; and shall
abstain, and cause each of its Subsidiaries to abstain from, and not knowingly
or willfully permit the commission of waste or other injury, destruction, or
loss of natural resources, or the occurrence of pollution, contamination, or any
other condition in, on or about the owned or operated property involving the
Environment that could reasonably be expected to result in Response activities
the costs of which would exceed the accrual established by Borrower or by any of
its Subsidiaries for those purposes.

        Section 5.8.    New Subsidiaries. Upon the creation or acquisition of
any Material Subsidiary after the date of this Agreement or if an existing
Subsidiary becomes a Material Subsidiary after the date of this Agreement, the
Borrower shall cause such Subsidiary to execute and deliver to the Agent (a) a
Guaranty with such changes as the Agent may reasonably request and (b) evidence
of corporate authority to enter into such Guaranty as the Agent may reasonably
request, including, without limitation, a legal opinion regarding the
enforceability of such Guaranty.

        Section 5.9.    Maintenance of Books and Records. The Borrower shall,
and shall cause its Material Subsidiaries to, (a) maintain proper books of
record and account, in which full, true, and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of the Borrower or such Subsidiary, as
the case may be, and (b) maintain such books of record and account in material
conformity with all applicable requirements of any Governmental Authority having
regulatory jurisdiction over the Borrower or such Subsidiary, as the case may
be.

        Section 5.10.    Use of Proceeds. The Borrower shall, and shall cause
its Subsidiaries to, use all Advances and Letters of Credit for working capital
and general corporate purposes of the Borrower and its Subsidiaries (including
without limitation to finance the acquisition of Oil and Gas Properties), but in
no event for the payment of dividends or other distributions or advances to the
shareholders of the Borrower.

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ARTICLE VI

NEGATIVE COVENANTS

        So long as any Note or any amount under any Credit Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have
any Commitment, the Borrower agrees, unless the Majority Banks otherwise consent
in writing, to comply with the following covenants.

        Section 6.1.    Liens, Etc. The Borrower shall not create, assume,
incur, or suffer to exist, or permit any of its Subsidiaries to create, assume,
incur, or suffer to exist, any Lien on or in respect of any of its Property
whether now owned or hereafter acquired, or assign any right to receive income,
except that the Borrower and its Subsidiaries may create, incur, assume, or
suffer to exist:

        (a)     Liens securing the Obligations;

        (b)     Liens specified in the attached Schedule 6.1 on the Property
owned by the Borrower and its Subsidiaries which is specified therein securing
only the Debt disclosed to be secured by such Liens therein;

        (c)     Liens securing purchase money indebtedness permitted under
Section 6.2(c), provided that each such Lien encumbers only the property
acquired in connection with the creation of any such purchase money
indebtedness;

        (d)     Liens for taxes, assessments, or other governmental charges or
levies not yet due or that (provided foreclosure, distraint, sale, or other
similar proceedings shall not have been initiated) are being contested in good
faith by appropriate proceedings, and such reserve as may be required by GAAP
shall have been made therefor;

        (e)     Liens in favor of vendors, carriers, warehousemen, repairmen,
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of obligations
that are not yet due or that are being contested in good faith by appropriate
proceedings, provided such reserve as may be required by GAAP shall have been
made therefor;

        (f)     Liens to operators and non-operators under joint operating
agreements arising in the ordinary course of the business of the Borrower or the
relevant Subsidiary to secure amounts owing, which amounts are not yet due or
are being contested in good faith by appropriate proceedings, if such reserve as
may be required by GAAP shall have been made therefor;

        (g)     easements, rights-of-way, restrictions, and other similar
encumbrances, and minor defects in the chain of title that are customarily
accepted in the oil and gas financing industry, none of which interfere with the
ordinary conduct of the business of Borrower or the relevant Subsidiary or
materially detract from the value or use of the Property to which they apply;

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        (h)     Liens of record under terms and provisions of the leases, unit
agreements, assignments, and other transfer of title documents in the chain of
title under which the Borrower or the relevant Subsidiary acquired the Property,
which have been disclosed to the Agent;

        (i)     Liens to secure plugging and abandonment obligations; and

        (j)     Liens to secure surety bonds in an aggregate amount not to
exceed $10,000,000.

        Section 6.2.    Debts, Guaranties, and Other Obligations. The Borrower
shall not, and shall not permit any of its Subsidiaries to, create, assume,
suffer to exist, or in any manner become or be liable in respect of, any Debt
except:

        (a)     Debt of the Borrower and its Subsidiaries under the Credit
Documents;

        (b)     Debt of the Borrower existing on the date hereof and disclosed
in the attached Schedule 6.2 and any extensions, rearrangements, and
modifications thereof which do not increase the principal amount thereof or the
interest rate charged thereon above a market rate of interest;

        (c)     Debt existing in connection with Property or assets acquired by
the Borrower after date of this Agreement not to exceed $15,000,000.00 in
outstanding principal amount (excluding gas balancing liabilities assumed in the
acquisition of Oil and Gas Properties);

        (d)     Debt for borrowed money owed by any Subsidiary of the Borrower
to the Borrower;

        (e)     Debt in the form of obligations for the deferred purchase price
of property or services incurred in the ordinary course of business which are
not yet due and payable or are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
established; and

        (f)     in addition to any Debt permitted under paragraph (b) of this
Section 6.2, up to $100,000,000.00 of unsecured senior subordinated notes with
terms satisfactory to the Agent and the Majority Banks.

        Section 6.3.    Agreements Restricting Liens and Distributions. The
Borrower shall not, nor shall it permit any of its Subsidiaries to, enter into
any agreement (other than a Credit Document) which (a) except with respect to
specific Property encumbered to secure payment of Debt related to such Property,
imposes restrictions upon the creation or assumption of any Lien upon its
Properties, revenues or assets, whether now owned or hereafter acquired or
(b) limits Restricted Payments to or any advance by any of the Borrower’s
Subsidiaries to the Borrower.

        Section 6.4.    Merger or Consolidation; Asset Sales. The Borrower shall
not, and shall not permit any of its Subsidiaries to:

        (a)     merge or consolidate with or into any other Person, except that
(i) the Borrower may merge with any of its wholly-owned Subsidiaries and any of
the Borrower’s wholly-owned Subsidiaries may merge with another of the
Borrower’s wholly-owned Subsidiaries, and (ii) in connection with a sale
permitted pursuant to Section 6.4(b)(i) of a Subsidiary of Borrower that (A) is
not a Material Subsidiary and (B) does not own Borrowing Base Assets, such
Subsidiary may merge with a Person that is not a wholly-owned Subsidiary of
Borrower; provided, in each case, that immediately after giving effect to any
such proposed transaction no Default would exist and, in the case of any such
merger to which the Borrower is a party, the Borrower is the surviving
corporation; or

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        (b)     sell, lease, transfer, or otherwise dispose of any of its
Property outside of the ordinary course of business, except for (i) sales
outside the ordinary course of business of assets that are not Borrowing Base
Assets, in an aggregate amount for any fiscal year not to exceed $15,000,000.00,
and (ii) sales outside the ordinary course of business of Borrowing Base Assets,
of which the Borrower has provided the Agent and the Banks 10 days’ advance
notice, provided that such proposed sales will not in the judgment of the
Majority Banks cause the aggregate outstanding amount of the Advances plus the
Letter of Credit Exposure to exceed the Borrowing Base, after giving effect to
any reduction of the Borrowing Base that would be required under Section 2.2(e)
in connection with such sale.

        Section 6.5.    Restricted Payments. The Borrower shall not, and shall
not permit any of its Subsidiaries to, make or pay any Restricted Payment or
make any prepayment, redemption, or defeasance of Debt (other than Debt under
the Credit Documents) other than the following:

        (a)     Restricted Payments from a Subsidiary of the Borrower to the
Borrower;

        (b)     if no Default exists at the time of such Restricted Payment or
would be caused thereby, Restricted Payments in an aggregate amount not to
exceed $10,000,000 in any fiscal year of the Borrower; and

        (c)     any prepayment, redemption, or defeasance of Debt, so long as
(i) at the time of such prepayment, redemption, or defeasance, and immediately
after giving effect thereto, the sum of the outstanding principal amount of the
Advances plus the Letter of Credit Exposure does not exceed 90% of the Borrowing
Base in effect at such time and (ii) no Default exists at the time of such
prepayment, redemption, or defeasance or would be caused thereby.

        Section 6.6.    Investments. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make or permit to exist any loans, advances,
or capital contributions to, or make any investment in, or purchase or commit to
purchase any stock or other securities or evidences of indebtedness of or
interests in any Person, except:

        (a)     Liquid Investments;

        (b)     trade and customer accounts receivable which are for goods
furnished or services rendered in the ordinary course of business and are
payable in accordance with customary trade terms;

        (c)     ordinary course of business contributions, loans, or advances
to, or investments in, (i) a directly or indirectly wholly-owned Subsidiary of
the Borrower, or (ii) the Borrower;

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        (d)     oil and gas farm-ins, oil and gas development joint ventures and
limited partnerships, and similar transactions, in each case in the ordinary
course of business; and

        (e)     investments not covered by clauses (a) through (d) above in an
aggregate outstanding amount not to exceed $2,000,000.00.

        Section 6.7.    Limitation on Speculative Hedging. The Borrower shall
not, and shall not permit any of its Subsidiaries to, purchase, assume, or hold
a speculative position in any commodities market or futures market. Borrower may
continue its current production hedging program policy, including swaps, puts,
and collars, to reduce price risk on quantities less than its total production.

        Section 6.8.    Affiliate Transactions. Except as expressly permitted
elsewhere in this Agreement or otherwise approved in writing by the Agent, and
except as described in Schedule 6.8, the Borrower shall not, and shall not
permit any of its Subsidiaries to, make, directly or indirectly: (a) any
investment in any Affiliate (other than a wholly-owned Subsidiary of the
Borrower); (b) any transfer, sale, lease, assignment, or other disposal of any
assets to any such Affiliate or any purchase or acquisition of assets from any
such Affiliate; or (c) any arrangement or other transaction directly or
indirectly with or for the benefit of any such Affiliate (including without
limitation, guaranties and assumptions of obligations of an Affiliate); provided
that the Borrower and its Subsidiaries may enter into any arrangement or other
transaction with any such Affiliate providing for the leasing of property, the
rendering or receipt of services or the purchase or sale of inventory and other
assets in the ordinary course of business if the monetary or business
consideration arising therefrom would be substantially as advantageous to the
Borrower and its Subsidiaries as the monetary or business consideration which it
would obtain in a comparable arm’s length transaction with a Person not such an
Affiliate.

        Section 6.9.    Compliance with ERISA. The Borrower shall not, and shall
not permit any of its Subsidiaries to, (a) terminate, or permit any Affiliate to
terminate, any Plan so as to result in any material (in the opinion of the
Majority Banks) liability of the Borrower or any of its Affiliates to the PBGC
or (b) permit to exist any occurrence of any Reportable Event (as defined in
Title IV of ERISA), or any other event or condition, which presents a material
(in the opinion of the Majority Banks) risk of such a termination by the PBGC of
any Plan. Section 6.10. Maintenance of Ownership of Subsidiaries. Except as
permitted by Section 6.4, the Borrower shall not, and shall not permit any of
its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of
any of the Borrower’s Subsidiaries or permit any Subsidiary to issue, sell, or
otherwise dispose of any shares of its capital stock or the capital stock of any
of the Borrower’s Subsidiaries.

        Section 6.10.    Maintenance of Ownership of Subsidiaries. Except as
permitted by Section 6.4, the Borrower shall not, and shall not permit any of
its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of
any of the Borrower’s Subsidiaries or permit any Subsidiary to issue, sell, or
otherwise dispose of any shares of its capital stock or the capital stock of any
of the Borrower’s Subsidiaries.

        Section 6.11.    Sale-and-Leaseback. The Borrower shall not, nor shall
it permit any of its Subsidiaries to, sell or transfer to a Person (other than
the Borrower or a Subsidiary of the Borrower) any property, whether now owned or
hereafter acquired, if at the time or thereafter the Borrower or a Subsidiary of
the Borrower shall lease as lessee such property or any part thereof or other
property which the Borrower or a Subsidiary of the Borrower intends to use for
substantially the same purpose as the property sold or transferred except such
transactions (a) incident to transactions permitted by Section 6.4(b), and (b)
from which arise lease obligations and other rental obligations not exceeding
$3,000,000.00 during any fiscal year of the Borrower.

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        Section 6.12.    Change of Business. The Borrower shall not, nor shall
it permit any of its Subsidiaries to, materially change the character of their
business as presently and normally conducted or engage in any type of business
not related to their business as presently and normally conducted.

        Section 6.13.    Debt to EBITDA Ratio. The Borrower shall not permit the
ratio of the Borrower’s (a) consolidated Debt at any time to (b) consolidated
EBITDA for the four-quarter-period ending on or immediately preceding such time
to be greater than 3.25 to 1.00.

        Section 6.14.    Tangible Net Worth. The Borrower shall not permit the
consolidated Tangible Net Worth of the Borrower to be less than the sum of (a)
$599,000,000, plus (b) an amount equal to 50% of the cumulative consolidated
quarterly Net Income of the Borrower from January 1, 2004, through the end of
the Borrower’s most recently ended fiscal quarter, but excluding consolidated
Net Income for any fiscal quarter in which consolidated Net Income is not
positive, plus (c) an amount equal to 100% of the net cash proceeds from any
sale of stock or other equity interests in the Borrower since January 1, 2004.

        Section 6.15.    Subordinated Debt. The Borrower (a) shall not violate
the subordination terms governing any Debt which is by its terms subordinated to
the Obligations and (b) shall not amend the subordination terms governing any
such Debt without prior written consent of the Majority Banks.

ARTICLE VII

REMEDIES

        Section 7.1.    Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default" under any Credit
Document:

        (a)    Payment. The Borrower shall fail to pay when due (i) any interest
or fees payable hereunder or under the Notes within five days after the same
becomes due and payable or (ii) any principal, reimbursements, indemnifications,
or other amounts (other than interest and fees described in clause (i)) payable
hereunder or under any other Credit Document;

        (b)    Representation and Warranties. Any representation or warranty
made or deemed to be made (i) by the Borrower in this Agreement or in any other
Credit Document, (ii) by the Borrower (or any of its officers) in connection
with this Agreement or any other Credit Document, or (iii) by any Subsidiary of
the Borrower in any Credit Document shall prove to have been incorrect in any
material respect when made or deemed to be made;

        (c)    Covenant Breaches. (i)The Borrower shall (A) fail to perform or
observe any covenant contained in Section 5.1, 5.2, 5.5, 5.6, 5.7, or 5.8 or
Article VI of this Agreement or (B) fail to perform or observe any other term or
covenant set forth in this Agreement or in any other Credit Document which is
not covered by clause (i)(A) above or any other provision of this Section 7.1 if
such failure shall remain unremedied for 30 days after the earlier of written
notice of such default shall have been given to such Person by the Agent or any
Bank or such Person’s actual knowledge of such default or (ii) any Guarantor
shall fail to perform or observe any covenant contained in its Guaranty;

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        (d)    Cross-Defaults. (i) The Borrower or any its Subsidiaries shall
fail to pay any principal of or premium or interest on its Debt or pay any net
hedging obligation which is outstanding in a principal amount of at least
$2,500,000.00 individually or when aggregated with all such Debt or net hedging
obligations of the Borrower or its Subsidiaries so in default (but excluding
Debt evidenced by the Notes) when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt or such hedging
obligations; (ii) any other event shall occur or condition shall exist under any
agreement or instrument relating to Debt which is outstanding in a principal
amount of at least $2,500,000.00 individually or when aggregated with all such
Debt of the Borrower and its Subsidiaries so in default, and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or (iii) any such Debt
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof;

        (e)    Insolvency. The Borrower or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against the Borrower
or any such Subsidiary, either such proceeding shall remain undismissed for a
period of 30 days or any of the actions sought in such proceeding shall occur;
or the Borrower or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this paragraph (e);

        (f)    Judgments. Any judgment or order for the payment of money in
excess of $2,500,000.00 shall be rendered against the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;

        (g)    Termination Events. Any Termination Event with respect to a Plan
shall have occurred, and, 30 days after notice thereof shall have been given to
the Borrower by the Agent, (i) such Termination Event shall not have been
corrected and (ii) the then present value of such Plan’s vested benefits exceeds
the then current value of assets accumulated in such Plan by more than the
amount of $2,500,000.00 (or in the case of a Termination Event involving the
withdrawal of a “substantial employer” (as defined in Section 4001(a)(2) of
ERISA), the withdrawing employer’s proportionate share of such excess shall
exceed such amount);

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        (h)    Plan Withdrawals. The Borrower or any member of the Controlled
Group as employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$2,500,000.00;

        (i)    Borrowing Base. Any failure to cure any Borrowing Base deficiency
in accordance with Section 2.4, including any failure of the dedicated cash flow
from the production of the Borrower’s and its Subsidiaries’ Oil and Gas
Properties to cure the Borrowing Base deficiency within the time period
specified by and in accordance with Section 2.4(b);

        (j)    Guaranties. Any provision of any Guaranty shall for any reason
cease to be valid and binding on the applicable Guarantor or the applicable
Guarantor shall so state in writing; or

        (k)    Change of Control. (i) As a result of one or more transactions
after the date of this Agreement, any “person” or “group” of persons shall have
“beneficial ownership” of more than 20% of the outstanding common stock of the
Borrower (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, and the applicable rules and regulations
thereunder), provided that the relationships among the officers and directors of
the Borrower and among the respective shareholders of the Borrower on the date
of this Agreement shall not be deemed to constitute all or any combination of
them as a “group” or (ii) during any period of 12 consecutive months, beginning
with and after the date of this Agreement, individuals who at the beginning of
such 12-month period were directors of the Borrower shall cease for any reason
to constitute a majority of the board of directors of the Borrower at any time
during such period.

        Section 7.2.    Optional Acceleration of Maturity. If any Event of
Default (other than an Event of Default pursuant to paragraph (e) of
Section 7.1) shall have occurred and be continuing, then, and in any such event,

        (a)     the Agent (i) shall at the request, or may with the consent, of
the Majority Banks, by notice to the Borrower, declare the obligation of each
Bank and the Issuing Bank to make extensions of credit hereunder, including
making Advances and issuing Letters of Credit, to be terminated, whereupon the
same shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare all
principal, interest, fees, reimbursements, indemnifications, and all other
amounts payable under this Agreement, the Notes, and the other Credit Documents
to be forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable in full, without notice of intent to demand, demand,
presentment for payment, notice of nonpayment, protest, notice of protest,
grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and all other notices, all of which are hereby expressly waived by
the Borrower;

        (b)     the Borrower shall, on demand of the Agent at the request or
with the consent of the Majority Banks, deposit with the Agent into the Cash
Collateral Account an amount of cash equal to the Letter of Credit Exposure as
security for the Obligations; and

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        (c)     the Agent shall at the request of, or may with the consent of,
the Majority Banks proceed to enforce its rights and remedies under the
Guaranties and any other Credit Document for the ratable benefit of the Banks by
appropriate proceedings.

        Section 7.3.    Automatic Acceleration of Maturity. If any Event of
Default pursuant to paragraph (e) of Section 7.1 shall occur,

        (a)     (i) the obligation of each Bank and the Issuing Bank to make
extensions of credit hereunder, including making Advances and issuing Letters of
Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements,
indemnifications, and all other amounts payable under this Agreement, the Notes,
and the other Credit Documents shall become and be forthwith due and payable in
full, without notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices,
all of which are hereby expressly waived by the Borrower;

        (b)     the Borrower shall deposit with the Agent into the Cash
Collateral Account an amount of cash equal to the outstanding Letter of Credit
Exposure as security for the Obligations; and

        (c)     the Agent shall at the request of, or may with the consent of,
the Majority Banks proceed to enforce its rights and remedies under the
Guaranties and any other Credit Document for the ratable benefit of the Banks by
appropriate proceedings.

        Section 7.4.    Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Agent and each Bank is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Agent or such Bank to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or hereafter
existing under this Agreement, the Notes held by the Agent or such Bank, and the
other Credit Documents, irrespective of whether or not the Agent or such Bank
shall have made any demand under this Agreement, such Notes, or such other
Credit Documents, and although such obligations may be unmatured. The Agent and
each Bank agrees to promptly notify the Borrower after any such set-off and
application made by the Agent or such Bank, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Agent and each Bank under this Section 7.4 are in addition to any
other rights and remedies (including, without limitation, other rights of
set-off) which the Agent or such Bank may have. Notwithstanding the foregoing,
no Bank may exercise a right of set-off it has by virtue of this Agreement
against a Non-Set Off Account held by such Bank or any Affiliate of such Bank.

        Section 7.5.    Actions Under Credit Documents. Following an Event of
Default, the Agent shall at the request, or may with the consent, of the
Majority Banks, take any and all actions permitted under the other Credit
Documents, including enforcing it rights under the Guaranties for the ratable
benefit of the Banks.

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        Section 7.6.    Non-exclusivity of Remedies. No remedy conferred upon
the Agent is intended to be exclusive of any other remedy, and each remedy shall
be cumulative of all other remedies existing by contract, at law, in equity, by
statute or otherwise.

ARTICLE VIII

THE AGENT AND THE ISSUING BANK

        Section 8.1.    Appointment and Authorization of Agent.

        (a)     Each Bank hereby irrevocably appoints, designates and authorizes
the Agent to take such action on its behalf under the provisions of this
Agreement and each other Credit Document and to exercise such powers and perform
such duties as are expressly delegated to it by the terms of this Agreement or
any other Credit Document, together with such powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary contained
elsewhere herein or in any other Credit Document, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
the Agent have or be deemed to have any fiduciary relationship with any Bank or
participant, and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Agreement or any other
Credit Document or otherwise exist against the Agent. Without limiting the
generality of the foregoing sentence, the use of the term “agent” herein and in
the other Credit Documents with reference to the Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.

        (b)     The Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit issued by it and the documents associated therewith,
and the Issuing Bank shall have all of the benefits and immunities (i) provided
to the Agent in this Article VIII with respect to any acts taken or omissions
suffered by the Issuing Bank in connection with Letters of Credit issued by it
or proposed to be issued by it and the applications and agreements for letters
of credit pertaining to such Letters of Credit as fully as if the term “Agent”
as used in this Article VIII and in the definition of “Agent-Related Person”
included the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided herein with respect to the Issuing Bank .

        Section 8.2.    Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Credit Document by or through agents,
employees, or attorneys-in-fact and shall be entitled to advice of counsel and
other consultants or experts concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any agent
or attorney-in-fact that it selects in the absence of gross negligence or
willful misconduct.

        Section 8.3.    Liability of Agent. No Agent-Related Person shall (a) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Credit Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct
in connection with its duties expressly set forth herein), or (b) be responsible
in any manner to any Bank or participant for any recital, statement,
representation or warranty made by Borrower or any Guarantor or any officer
thereof, contained herein or in any other Credit Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Credit Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Credit Document, or
for any failure of Borrower or any Guarantor or any other party to any Credit
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Bank or participant to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Credit Document, or
to inspect the properties, books or records of Borrower or any Guarantor or any
Affiliate thereof.

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        Section 8.4.    Reliance By Agent.

        (a)     The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, electronic mail message, statement, or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent, or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to Borrower or any
Guarantor), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
any Credit Document unless it shall first receive such advice or concurrence of
the Majority Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Credit Document in accordance with a request or consent of the Majority
Banks (or such greater number of Banks as may be expressly required hereby in
any instance) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Banks.

        (b)     For purposes of determining compliance with the conditions
specified in Section 3.1, each Bank that has signed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter required thereunder to be consented to or approved by
or acceptable or satisfactory to a Bank unless the Agent shall have received
notice from such Bank prior to the proposed Effective Date specifying its
objection thereto.

        Section 8.5.    Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default, except with respect to
defaults in the payment of principal, interest, and fees required to be paid to
the Agent for the account of the Banks, unless the Agent shall have received
written notice from a Bank or the Borrower referring to this Agreement,
describing such Default and stating that such notice is a “notice of
default.”The Agent will notify the Banks of its receipt of any such notice. The
Agent shall take such action with respect to such Default as may be directed by
the Majority Banks in accordance with Article VII; provided, however, that
unless and until the Agent has received any such direction, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default as it shall deem advisable or in the best interest
of the Banks.

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        Section 8.6.    Credit Decision; Disclosure of Information by Agent.
Each Bank acknowledges that no Agent-Related Person has made any representation
or warranty to it, and that no act by the Agent hereafter taken, including any
consent to and acceptance of any assignment or review of the affairs of Borrower
or any Guarantor or any Affiliate thereof, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Bank as to any
matter, including whether Agent-Related Persons have disclosed material
information in their possession. Each Bank represents to the Agent that it has,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition, and creditworthiness of the Borrower
and the Guarantors and their respective Subsidiaries, and all applicable bank or
other regulatory laws relating to the transactions contemplated hereby, and made
its own decision to enter into this Agreement and to extend credit to the
Borrower hereunder. Each Bank also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents, and to make such investigations
as it deems necessary to inform itself as to the business, prospects,
operations, property, financial and other condition, and creditworthiness of the
Borrower and the Guarantors. Except for notices, reports, and other documents
expressly required to be furnished to the Banks by the Agent herein, the Agent
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of any of the Loan Parties or
any of their respective Affiliates which may come into the possession of any
Agent-Related Person.

        Section 8.7.    Indemnification of Agent. WHETHER OR NOT THE
TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED, THE BANKS SHALL INDEMNIFY UPON
DEMAND EACH AGENT-RELATED PERSON (TO THE EXTENT NOT REIMBURSED BY OR ON BEHALF
OF BORROWER AND WITHOUT LIMITING THE OBLIGATION OF BORROWER TO DO SO), PRO RATA
(AS DETERMINED AT THE TIME INDEMNIFICATION IS SOUGHT HEREUNDER), AND HOLD
HARMLESS EACH AGENT-RELATED PERSON FROM AND AGAINST ANY AND ALL INDEMNIFIED
LIABILITIES INCURRED BY IT; PROVIDED, HOWEVER, THAT NO BANK SHALL BE LIABLE FOR
THE PAYMENT TO ANY AGENT-RELATED PERSON OF ANY PORTION OF SUCH INDEMNIFIED
LIABILITIES TO THE EXTENT DETERMINED IN A FINAL, NONAPPEALABLE JUDGMENT BY A
COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH AGENT-RELATED
PERSON’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; PROVIDED, HOWEVER, THAT NO
ACTION TAKEN IN ACCORDANCE WITH THE DIRECTIONS OF THE MAJORITY BANKS SHALL BE
DEEMED TO CONSTITUTE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT FOR PURPOSES OF THIS
SECTION. WITHOUT LIMITATION OF THE FOREGOING, EACH BANK SHALL REIMBURSE THE
AGENT UPON DEMAND FOR ITS RATABLE SHARE (AS DETERMINED AT THE TIME
INDEMNIFICATION IS SOUGHT HEREUNDER) OF ANY COSTS OR OUT-OF-POCKET EXPENSES
(INCLUDING ALL FEES, EXPENSES, AND DISBURSEMENTS OF ANY LAW FIRM OR OTHER
EXTERNAL COUNSEL AND, WITHOUT DUPLICATION, THE ALLOCATED COST OF INTERNAL LEGAL
SERVICES AND ALL EXPENSES AND DISBURSEMENTS OF INTERNAL COUNSEL) INCURRED BY THE
AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER, THIS AGREEMENT, ANY OTHER CREDIT DOCUMENT, OR ANY
DOCUMENT CONTEMPLATED BY OR REFERRED TO HEREIN, TO THE EXTENT THAT THE AGENT IS
NOT REIMBURSED FOR SUCH EXPENSES BY OR ON BEHALF OF THE BORROWER. THE
UNDERTAKING IN THIS SECTION SHALL SURVIVE TERMINATION OF THE COMMITMENTS, THE
PAYMENT OF ALL OTHER OBLIGATIONS, AND THE RESIGNATION OF THE AGENT.

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        Section 8.8.    Agent in its Individual Capacity. Bank of America, N.A.
and its Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with each of the Borrower, the Guarantors, and their respective Affiliates as
though Bank of America, N.A. were not the Agent or the Issuing Bank hereunder
and without notice to or consent of the Banks. The Banks acknowledge that,
pursuant to such activities, Bank of America, N.A. or its Affiliates may receive
information regarding Borrower, any Guarantor, or their Affiliates (including
information that may be subject to confidentiality obligations in favor of
Borrower, such Guarantor, or such Affiliate) and acknowledge that the Agent
shall be under no obligation to provide such information to them. With respect
to its Advances, Bank of America, N.A. shall have the same rights and powers
under this Agreement as any other Bank and may exercise such rights and powers
as though it were not the Agent or the Issuing Bank, and the terms “Bank” and
“Banks” include Bank of America, N.A. in its individual capacity

        Section 8.9.    Successor Agent and Issuing Bank. The Agent may resign
as Agent upon 30 days’ notice to the Banks; provided that any such resignation
by Bank of America, N.A. shall also constitute its resignation as Issuing Bank.
If the Agent resigns under this Agreement, the Majority Banks shall appoint from
among the Banks a successor administrative agent for the Banks, which successor
administrative agent shall be consented to by the Borrower at all times other
than during the existence of an Event of Default (which consent of the Borrower
shall not be unreasonably withheld or delayed). If no successor administrative
agent is appointed prior to the effective date of the resignation of the Agent,
the Agent may appoint, after consulting with the Banks and the Borrower, a
successor administrative agent from among the Banks. Upon the acceptance of its
appointment as successor administrative agent hereunder, the Person acting as
such successor administrative agent shall succeed to all the rights, powers, and
duties of the retiring Agent and Issuing Bank and the respective terms “Agent”
and “Issuing Bank” shall mean such successor administrative agent and Letter of
Credit issuer, the retiring Agent’s appointment, powers, and duties as Agent
shall be terminated, and the retiring Issuing Bank’s rights, powers, and duties
as such shall be terminated, without any other or further act or deed on the
part of such retiring Issuing Bank or any other Bank, other than the obligation
of the successor Issuing Bank to issue letters of credit in substitution for the
Letters of Credit, if any, outstanding at the time of such succession or to make
other arrangements satisfactory to the retiring Issuing Bank to effectively
assume the obligations of the retiring Issuing Bank with respect to such Letters
of Credit. After any retiring Agent’s resignation hereunder as Agent, the
provisions of this Article VIII and Sections 9.4 and 9.7 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor administrative agent has accepted
appointment as Agent by the date which is 30 days following a retiring Agent’s
notice of resignation, the retiring Agent’s resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the duties of the
Agent hereunder until such time, if any, as the Majority Banks appoint a
successor agent as provided for above.

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        Section 8.10.    Agent May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
Borrower or any Guarantor, the Agent (irrespective of whether the principal of
any Advance or Letter of Credit Obligation shall then be due and payable as
herein expressed or by declaration or otherwise and irrespective of whether the
Agent shall have made any demand on the Borrower) shall be entitled and
empowered, by intervention in such proceeding or otherwise:

        (a)     to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Advances, Letter of Credit
Obligations and all other Obligations that are owing and unpaid and to file such
other documents as may be necessary or advisable in order to have the claims of
the Banks and the Agent (including any claim for the reasonable compensation,
expenses, disbursements, and advances of the Banks and the Agent and their
respective agents and counsel and all other amounts due the Banks and the Agent
under Sections 2.7 and 9.4) allowed in such judicial proceeding; and

        (b)     to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or
other similar official in any such judicial proceeding is hereby authorized by
each Bank to make such payments to the Agent and, in the event that the Agent
shall consent to the making of such payments directly to the Banks, to pay to
the Agent any amount due for the reasonable compensation, expenses,
disbursements, and advances of the Agent and its agents and counsel, and any
other amounts due the Agent under Sections 2.7 and 9.4. Nothing contained herein
shall be deemed to authorize the Agent to authorize or consent to or accept or
adopt on behalf of any Bank any plan of reorganization, arrangement, adjustment,
or composition affecting the Obligations or the rights of any Bank or to
authorize the Agent to vote in respect of the claim of any Bank in any such
proceeding.

        Section 8.11.    Guaranty Matters. The Banks irrevocably authorize the
Agent, at its option and in its discretion, to release any Guarantor from its
obligations under any Guaranty if such Person ceases to be a Subsidiary as a
result of a transaction permitted hereunder. Upon request by the Agent at any
time, the Majority Banks will confirm in writing the Agent’s authority to
release any Guarantor from its obligations under any Guaranty pursuant to this
Section 8.11.

        Section 8.12.    Other Agents; Arrangers and Managers. None of the Banks
or other Persons identified on the facing page or signature pages of this
Agreement as a “syndication agent,”“documentation agent,” “co-agent,” “book
manager,”“lead manager,” “arranger,” “lead arranger” or “co-arranger” shall have
any right, power, obligation, liability, responsibility, or duty under this
Agreement other than, in the case of such Banks, those applicable to all Banks
as such. Without limiting the foregoing, none of the Banks or other Persons so
identified shall have or be deemed to have any fiduciary relationship with any
Bank. Each Bank acknowledges that it has not relied, and will not rely, on any
of the Bank or other Persons so identified in deciding to enter into this
Agreement or in taking or not taking action hereunder.

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ARTICLE IX

MISCELLANEOUS

        Section 9.1.    Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Majority Banks
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver, or consent shall, unless in writing and
signed by all the Banks, do any of the following: (a) waive any of the
conditions specified in Section 3.1 or 3.2, (b) increase the Commitment of the
Banks, (c) reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder or under any other Credit Document, (d) postpone
any date fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder or extend the Maturity Date, (e) change
the percentage of Banks which shall be required for the Banks or any of them to
take any action hereunder or under any other Credit Document, (f) amend Section
2.10 or this Section 9.1, (g) amend the definition of “Majority Banks,” (h)
release any Guarantor from its obligations under any Guaranty, (i) release any
collateral securing the Obligations, or (j) except with respect to a Defaulting
Lender, change any provision which provides for payment to be distributed to the
Banks in accordance with their Pro Rata Shares; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the Agent or
the Issuing Bank in addition to the Banks required above to take such action,
affect the rights or duties of the Agent or the Issuing Bank, as the case may
be, under this Agreement or any other Credit Document. Notwithstanding anything
to the contrary herein, no Defaulting Bank shall have any right to approve or
disapprove any amendment, waiver, or consent hereunder, except that the
Commitment of such Bank may not be increased or extended without the consent of
such Bank.

        Section 9.2.    Notices, Etc. All notices and other communications shall
be in writing (including, without limitation, telecopy or telex) and mailed by
certified mail, return receipt requested, telecopied, telexed, hand delivered,
or delivered by a nationally recognized overnight courier, at the address for
the appropriate party specified in Annex 1 or at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, when so mailed, telecopied, telexed, or hand
delivered or delivered by a nationally recognized overnight courier, be
effective when received if mailed, when telecopy transmission is completed, when
confirmed by telex answer-back, or when delivered by such messenger or courier,
respectively, except that notices and communications to the Agent pursuant to
Article II or VIII shall not be effective until received by the Agent.

        Section 9.3.    No Waiver; Remedies. No failure on the part of any Bank,
the Agent, or the Issuing Bank to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

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        Section 9.4    Costs and Expenses. The Borrower agrees to pay on demand
(a) all reasonable out-of-pocket costs and expenses of the Agent in connection
with the preparation, execution, delivery, administration, modification, and
amendment of this Agreement, the Notes, the Guaranties, and the other Credit
Documents including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect to advising the Agent as to its
rights and responsibilities under this Agreement, and (b) all out-of-pocket
costs and expenses, if any, of the Agent, the Issuing Bank, and each Bank
(including, without limitation, reasonable counsel fees and expenses of the
Agent, the Issuing Bank, and each Bank) in connection with the enforcement
(whether through negotiations, legal proceedings, or otherwise) of this
Agreement, the Notes, the Guaranties, and the other Credit Documents.

        Section 9.5.    Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agent, and when the
Agent shall have, as to each Bank, either received a counterpart hereof executed
by such Bank or been notified by such Bank that such Bank has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent, the Issuing Bank, and each Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
or delegate its duties under this Agreement or any interest in this Agreement
without the prior written consent of each Bank.

        Section 9.6.    Bank Assignments and Participations.

        (a)    Assignments. Any Bank may assign to one or more banks or other
entities all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Advances owing to it, the Notes held by it, and the participation interest in
the Letter of Credit Obligations held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all of
such Bank’s rights and obligations under this Agreement, (ii) the amount of the
Commitments and Advances of such Bank being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall be, if to an entity other than a Bank, not
less than $5,000,000.00 and shall be an integral multiple of $1,000,000.00,
(iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register, an Assignment and Acceptance, together with the
Notes subject to such assignment, and (v) each Eligible Assignee (other than the
Eligible Assignee of the Agent) shall pay to the Agent a $3,500.00
administrative fee. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least three Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto for all purposes
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Bank hereunder and (B) such Bank thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of such Bank’s rights and
obligations under this Agreement, such Bank shall cease to be a party hereto).

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        (b)    Term of Assignments. By executing and delivering an Assignment
and Acceptance, the Bank thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency of
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
Guarantors or the performance or observance by the Borrower or the Guarantors of
any of their obligations under this Agreement or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.5 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Bank or any other Bank
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Bank.

        (c)    The Register. The Agent shall maintain at its address referred to
in Section 9.2 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitments of, and principal amount of the Advances owing to,
each Bank from time to time (the “Register”). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent, the Issuing Bank, and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Bank at any reasonable time and from time to time upon reasonable prior notice.

        (d)    Procedures. Upon its receipt of an Assignment and Acceptance
executed by a Bank and an Eligible Assignee, together with the Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of the attached Exhibit A, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register, and (iii) give prompt notice thereof to the Borrower. Within five
Business Days after its receipt of such notice, the Borrower shall execute and
deliver to the Agent in exchange for the surrendered Notes (A) a new Note to the
order of such Eligible Assignee in an amount equal to the Commitment assumed by
it pursuant to such Assignment and Acceptance and (B) if such Bank has retained
any Commitment hereunder, a new Note to the order of such Bank in an amount
equal to the Commitment retained by it hereunder. Such new Notes shall be dated
the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the attached Exhibit D.

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        (e)    Participations. Each Bank may sell participations to one or more
banks or other entities in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitments, the Advances owing to it, its participation interest in the Letter
of Credit Obligations, and the Notes held by it); provided, however, that
(i) such Bank’s obligations under this Agreement (including, without limitation,
its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such
Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Bank shall remain the holder of any
such Notes for all purposes of this Agreement, (iv) the Borrower, the Agent, and
the Issuing Bank and the other Banks shall continue to deal solely and directly
with such Bank in connection with such Bank’s rights and obligations under this
Agreement, and (v) such Bank shall not require the participant’s consent to any
matter under this Agreement, except for change in the principal amount of the
Notes, reductions in fees or interest, releasing any collateral, or extending
the Maturity Date. The Borrower hereby agrees that participants shall have the
same rights under Sections 2.11, 2.12, 2.13(c), and 9.7 as a Bank to the extent
of their respective participations.

        Section 9.7.    Indemnification. WHETHER OR NOT THE TRANSACTIONS
CONTEMPLATED HEREBY ARE CONSUMMATED, THE BORROWER SHALL INDEMNIFY AND HOLD
HARMLESS EACH AGENT-RELATED PERSON, EACH BANK AND THEIR RESPECTIVE AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL, AGENTS AND ATTORNEYS-IN-FACT
(COLLECTIVELY THE “INDEMNITEES”) FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES, AND DISBURSEMENTS (INCLUDING ALL FEES, EXPENSES, AND
DISBURSEMENTS OF ANY LAW FIRM OR OTHER EXTERNAL COUNSEL AND, WITHOUT
DUPLICATION, THE ALLOCATED COST OF INTERNAL LEGAL SERVICES AND ALL EXPENSES AND
DISBURSEMENTS OF INTERNAL COUNSEL) OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT
ANY TIME BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY SUCH INDEMNITEE IN
ANY WAY RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH (A) THE EXECUTION,
DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF ANY CREDIT DOCUMENT OR
ANY OTHER AGREEMENT, LETTER, OR INSTRUMENT DELIVERED IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, (B) ANY COMMITMENT, ADVANCE, OR LETTER OF CREDIT OR THE
USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE
ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE
DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH
THE TERMS OF SUCH LETTER OF CREDIT), OR (C) ANY ACTUAL OR ALLEGED PRESENCE OR
RELEASE OF HAZARDOUS WASTE OR HAZARDOUS SUBSTANCES ON OR FROM ANY PROPERTY
CURRENTLY OR FORMERLY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR ANY LIABILITY UNDER ENVIRONMENTAL LAW RELATED IN ANY WAY TO

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THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (D) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY (INCLUDING ANY INVESTIGATION
OF, PREPARATION FOR, OR DEFENSE OF ANY PENDING OR THREATENED CLAIM,
INVESTIGATION, LITIGATION OR PROCEEDING) AND REGARDLESS OF WHETHER ANY
INDEMNITEE IS A PARTY THERETO (ALL THE FOREGOING, COLLECTIVELY, THE “INDEMNIFIED
LIABILITIES”), IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN
PART, OUT OF THE NEGLIGENCE OF THE INDEMNITEE; PROVIDEDTHAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, DEMANDS, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES OR DISBURSEMENTS ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. NO INDEMNITEE SHALL BE
LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY OTHERS OF ANY INFORMATION OR
OTHER MATERIALS OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION
TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, NOR SHALL ANY INDEMNITEE
HAVE ANY LIABILITY FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES RELATING TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR ARISING OUT OF ITS ACTIVITIES IN
CONNECTION HEREWITH OR THEREWITH (WHETHER BEFORE OR AFTER THE EFFECTIVE DATE).
ALL AMOUNTS DUE UNDER THIS SECTION 9.7 SHALL BE PAYABLE WITHIN TEN BUSINESS DAYS
AFTER DEMAND THEREFOR. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE
RESIGNATION OF THE AGENT, THE REPLACEMENT OF ANY BANK, THE TERMINATION OF THE
COMMITMENTS, AND THE REPAYMENT, SATISFACTION OR DISCHARGE OF ALL THE OTHER
OBLIGATIONS.

        Section 9.8.    USA Patriot Act Notice. Each Bank and the Agent (for
itself and not on behalf of any Bank) hereby notifies the Borrower that pursuant
to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed
into law October 26, 2001)) (the “Act”), it is required to obtain, verify, and
record information that identifies the Borrower, which information includes the
name and address of the Borrower and other information that will allow such Bank
or the Agent, as applicable, to identify the Borrower in accordance with the
Act.

        Section 9.9.    Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.

        Section 9.10.    Survival of Representations, Etc. All representations
and warranties contained in this Agreement or made in writing by or on behalf of
the Borrower in connection herewith shall survive the execution and delivery of
this Agreement and the Credit Documents, the making of the Advances and any
investigation made by or on behalf of the Banks, none of which investigations
shall diminish any Bank’s right to rely on such representations and warranties.
All obligations of the Borrower provided for in Sections 2.11, 2.12, 2.13(c),
9.4, and 9.7 and all of the obligations of the Banks in Section 8.7 shall
survive any termination of this Agreement and repayment in full of the
Obligations.

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        Section 9.11.    Severability. In case one or more provisions of this
Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality,
and enforceability of the remaining provisions contained herein or therein shall
not be affected or impaired thereby.

        Section 9.12.    Business Loans. The Borrower warrants and represents
that the Loans evidenced by the Notes are and shall be for business, commercial,
investment, or other similar purposes and not primarily for personal, family,
household, or agricultural use, as such terms are used in Chapter One (“Chapter
One”) of the Texas Credit Code. At all such times, if any, as Chapter One shall
establish a Maximum Rate, the Maximum Rate shall be the “indicated rate ceiling”
(as such term is defined in Chapter One) from time to time in effect.

        Section 9.13.    Governing Law. This Agreement, the Notes and the other
Credit Documents shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas. Without limiting the intent of the parties
set forth above, Chapter 346 the Texas Finance Code, as amended, shall not apply
to this Agreement, the Notes, or the transactions contemplated hereby. Each
Letter of Credit shall be governed by the Uniform Customs and Practice for
Documentary Credits, International Chamber of Commerce Publication No. 500 (1993
version).

        THE BORROWER, THE BANKS, THE ISSUING BANK AND THE AGENT HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER CREDIT
DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND IRREVOCABLY SUBMIT
TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF HARRIS COUNTY, TEXAS, AND THE
SOUTHERN DISTRICT OF TEXAS FOR THE RESOLUTION OF ANY DISPUTES UNDER THIS
AGREEMENT AND THE CREDIT DOCUMENTS, AND HEREBY IRREVOCABLY WAIVE ANY CLAIM THAT
SUCH JURISDICTION IS IMPRACTICAL OR INCONVENIENT.

        THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

      THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

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        EXECUTED as of the date first above written.

BORROWER:
 
STONE ENERGY CORPORATION     By:        /s/ James H. Prince          Name: James
H. Prince Title: Executive Vice President and
Chief Financial Officer     By:        /s/ J. Kent Pierret            Name: J.
Kent Pierret Title: Senior Vice President, Chief Accounting
Officer and Treasurer AGENT:
  BANK OF AMERICA, N.A.     By:         /s/ Richard L. Stein          Name:
Richard L. Stein Title: Principal
  BANKS:
  BANK OF AMERICA, N.A.     By:        /s/ Richard L. Stein          Name:
Richard L. Stein Title: Principal
      BANK ONE, N.A. (MAIN OFFICE CHICAGO)     By:        /s/ Jo Linda
Papadakis          Name: Jo Linda Papadakis Title: Associate Director
      HARRIS NESBITT FINANCING, INC.     By:         /s/ James V. Ducote     
    Name: James V. Ducote Title: Vice President
      UNION BANK OF CALIFORNIA, N.A.     By:         /s/ Ali Ahmed         
Name: Ali Ahmed Title: Vice President
      By:         /s/ Randall Osterberg          Name: Randall Osterberg Title:
Senior Vice President
      U.S. BANK NATIONAL ASSOCIATION     By:         /s/ Katheryn A. Gaiter     
    Name: Katheryn A. Gaiter Title: Vice President
      BNP PARIBAS     By:         /s/ Brian M. Malone          Name: Brian M.
Malone Title: Managing Director
          By:         /s/ Polly Schott          Name: Polly Schott Title: Vice
President
      THE ROYAL BANK OF SCOTLAND PLC     By:         /s/ Chris Clarke         
Name: Chris Clarke Title: Senior Vice President
      UFJ BANK LIMITED     By:         /s/ Clyde L. Redford          Name: Clyde
L. Redford Title: Senior Vice President
      WHITNEY NATIONAL BANK     By:         /s/ Trudy W. Nelson          Name:
Trudy W. Nelson Title: Vice President
      WASHINGTON MUTUAL BANK, FA     By:         /s/ Mark Isensee          Name:
Mark Isensee Title: Vice President
      COMERICA BANK     By:         /s/ Huma Vadgama          Name: Huma Vadgama
Title: Assistant Vice President
      MIZUHO CORPORATION BANK, LTD.     By:         /s/ Masatoshi Abe         
Name: Masatoshi Abe Title: Senior Vice President
      BANK OF SCOTLAND     By:         /s/ Joseph Fratus          Name: Joseph
Fratus Title: First Vice President
      HIBERNIA NATIONAL BANK     By:         /s/ David R. Reid          Name:
David R. Reid Title: Senior Vice President
      NATEXIS BANQUES POPULAIRES     By:         /s/ Donovan C. Broussard     
    Name: Donovan C. Broussard Title: Vice President
          By:         /s/ Philippe Robin          Name: Philippe Robin Title:
Senior Vice President
     

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Annex 1

COMMITMENTS;
BORROWER, AGENT, AND BANK NOTICE INFORMATION;
LENDING OFFICES

I.      COMMITMENTS

Bank of America, N.A. $44,000,000 Bank One, NA (Main Office Chicago) $43,500,000
Harris Nesbitt Financing, Inc. $43,500,000 Union Bank of California, N.A.
$43,500,000 U.S. Bank National Association $43,500,000 BNP Paribas $43,500,000
The Royal Bank of Scotland plc $43,500,000 UFJ Bank Limited $30,000,000 Whitney
National Bank $30,000,000 Washington Mutual Bank, FA $30,000,000 Comerica Bank
$25,000,000 Mizuho Corporate Bank, Ltd. $25,000,000 Bank of Scotland $20,000,000
Hibernia National Bank $20,000,000 Natexis Banques Populaires $15,000,000    
Total Commitments $500,000,000