Exhibit 4.2

                                                                  Execution Copy


                              AMENDED AND RESTATED
                             SENIOR CREDIT AGREEMENT

                                   DATED AS OF
                                FEBRUARY 7, 2006

                                      AMONG

                               QUEST CHEROKEE, LLC
                                       and
                           QUEST RESOURCE CORPORATION,
                                  AS BORROWERS,

                       GUGGENHEIM CORPORATE FUNDING, LLC,
                             AS ADMINISTRATIVE AGENT

                                       and


                              AS SYNDICATION AGENT,


                                       and


                            THE LENDERS PARTY HERETO



                     SOLE LEAD ARRANGER AND SOLE BOOKRUNNER

                        GUGGENHEIM CORPORATE FUNDING, LLC

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page

                                    ARTICLE I
                       Definitions and Accounting Matters
<S>                        <C>                                                                                   <C>
Section 1.01               Terms Defined Above                                                                    1
Section 1.02               Certain Defined Terms                                                                  1
Section 1.03               Types of Loans and Borrowings                                                         20
Section 1.04               Terms Generally; Rules of Construction                                                20
Section 1.05               Accounting Terms and Determinations; GAAP                                             21

                                   ARTICLE II
                                   The Credits

Section 2.01               Commitments.                                                                          21
Section 2.02               Loans and Borrowings.                                                                 22
Section 2.03               Requests for Borrowings                                                               23
Section 2.04               Interest Elections.                                                                   24
Section 2.05               Funding of Borrowings.                                                                25
Section 2.06               Termination and Reduction of Aggregate Maximum Revolving
                           Credit Amounts.                                                                       26
Section 2.07               Borrowing Base.                                                                       27
Section 2.08               Letters of Credit.                                                                    29

                                   ARTICLE III
              Payments of Principal and Interest; Prepayments; Fees

Section 3.01               Repayment of Loans                                                                    34
Section 3.02               Interest.                                                                             34
Section 3.03               Alternate Rate of Interest                                                            35
Section 3.04               Prepayments.                                                                          35
Section 3.05               Fees.                                                                                 36

                                   ARTICLE IV
                Payments; Pro Rata Treatment; Sharing of Set-offs

Section 4.01               Payments Generally; Pro Rata Treatment; Sharing of Set-offs.                          37
Section 4.02               Presumption of Payment by the Borrowers                                               39
Section 4.03               Certain Deductions by the Administrative Agent                                        39
Section 4.04               Disposition of Proceeds                                                               39

                                    ARTICLE V
           Increased Costs; Break Funding Payments; Taxes; Illegality
Section 5.01               Increased Costs.                                                                      40
Section 5.02               Break Funding Payments                                                                41
Section 5.03               Taxes.                                                                                41
Section 5.04               Mitigation Obligations; Replacement of Lenders.                                       42
Section 5.05               Illegality                                                                            43
</TABLE>


                                       i
<PAGE>

                                   ARTICLE VI
                              Conditions Precedent
<TABLE>
<CAPTION>
<S>                        <C>                                                                                   <C>
Section 6.01               Effective Date                                                                        43
Section 6.02               Each Credit Event                                                                     46

                                   ARTICLE VII
                         Representations and Warranties

Section 7.01               Organization; Powers                                                                  47
Section 7.02               Authority; Enforceability                                                             47
Section 7.03               Approvals; No Conflicts                                                               47
Section 7.04               Financial Condition: No Material Adverse Change.                                      48
Section 7.05               Litigation.                                                                           48
Section 7.06               Environmental Matters                                                                 49
Section 7.07               Compliance with the Laws and Agreements; No Defaults.                                 50
Section 7.08               Investment Company Act                                                                50
Section 7.09               Public Utility Holding Company Act                                                    50
Section 7.10               Taxes                                                                                 50
Section 7.11               ERISA.                                                                                51
Section 7.12               Disclosure; No Material Misstatements                                                 52
Section 7.13               Insurance                                                                             52
Section 7.14               Restriction on Liens                                                                  52
Section 7.15               Subsidiaries                                                                          52
Section 7.16               Location of Business and Offices                                                      53
Section 7.17               Properties; Titles, Etc.                                                              53
Section 7.18               Maintenance of Properties                                                             54
Section 7.19               Gas Imbalances, Prepayments                                                           54
Section 7.20               Marketing of Production                                                               54
Section 7.21               Swap Agreements                                                                       55
Section 7.22               Use of Loans and Letters of Credit                                                    55
Section 7.23               Solvency                                                                              55
Section 7.24               Operating Expenses                                                                    55

                                  ARTICLE VIII
                              Affirmative Covenants

Section 8.01               Financial Statements; Ratings Change; Other Information                               56
Section 8.02               Notices of Material Events                                                            59
Section 8.03               Existence; Conduct of Business                                                        59
Section 8.04               Payment of Obligations                                                                60
Section 8.05               Performance of Obligations under Loan Documents                                       60
Section 8.06               Operation and Maintenance of Properties                                               60
Section 8.07               Insurance                                                                             61
Section 8.08               Books and Records; Inspection Rights                                                  61
Section 8.09               Compliance with Laws                                                                  61
Section 8.10               Environmental Matters.                                                                61
Section 8.11               Further Assurances.                                                                   62
Section 8.12               Reserve Reports.                                                                      63
Section 8.13               Title Information.                                                                    64
Section 8.14               Additional Collateral; Additional Guarantors                                          65
Section 8.15               ERISA Compliance                                                                      65
Section 8.16               Swap Agreements                                                                       66
Section 8.17               Marketing Activities                                                                  66
</TABLE>

                                       ii
<PAGE>

                                   ARTICLE IX
                               Negative Covenants
<TABLE>
<CAPTION>
<S>                        <C>                                                                                   <C>
Section 9.01               Financial Covenants.                                                                  66
Section 9.02               Debt                                                                                  67
Section 9.03               Liens                                                                                 68
Section 9.04               Dividends, Distributions and Redemptions; Repayment of Senior Unsecured
                           Notes and Second Lien Term Loan Agreement.                                            69
Section 9.05               Investments, Loans and Advances                                                       69
Section 9.06               Nature of Business; International Operations                                          70
Section 9.07               Limitation on Leases                                                                  71
Section 9.08               Proceeds of Notes                                                                     71
Section 9.09               ERISA Compliance                                                                      71
Section 9.10               Sale or Discount of Receivables                                                       72
Section 9.11               Mergers, Etc                                                                          72
Section 9.12               Sale of Properties                                                                    73
Section 9.13               Environmental Matters                                                                 73
Section 9.14               Transactions with Affiliates                                                          73
Section 9.15               Subsidiaries                                                                          73
Section 9.16               Negative Pledge Agreements; Dividend Restrictions                                     74
Section 9.17               Gas Imbalances, Take-or-Pay or Other Prepayments                                      74
Section 9.18               Swap Agreements                                                                       74

                                    ARTICLE X
                           Events of Default; Remedies

Section 10.01              Events of Default                                                                     75
Section 10.02              Remedies.                                                                             77

                                   ARTICLE XI
                                   The Agents

Section 11.01              Appointment; Powers                                                                   77
Section 11.02              Duties and Obligations of Administrative Agent                                        78
Section 11.03              Action by Administrative Agent                                                        78
Section 11.04              Reliance by Administrative Agent                                                      79
Section 11.05              Subagents                                                                             79
Section 11.06              Resignation or Removal of Agents                                                      79
Section 11.07              Agents as Lenders                                                                     80
Section 11.08              No Reliance                                                                           80
Section 11.09              Authority of Administrative Agent to Release Collateral and Liens                     80
Section 11.10              The Arranger and the Syndication Agent                                                81
</TABLE>

                                       iii
<PAGE>

                                   ARTICLE XII
                                  Miscellaneous
<TABLE>
<CAPTION>
<S>                        <C>                                                                                   <C>
Section 12.01              Notices.                                                                              81
Section 12.02              Waivers; Amendments.                                                                  82
Section 12.03              Expenses, Indemnity; Damage Waiver.                                                   83
Section 12.04              Successors and Assigns.                                                               85
Section 12.05              Survival; Revival; Reinstatement.                                                     88
Section 12.06              Counterparts; Integration; Effectiveness.                                             89
Section 12.07              Severability                                                                          89
Section 12.08              Right of Setoff                                                                       89
Section 12.09              GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE
                           OF PROCESS.                                                                           90
Section 12.10              Headings                                                                              91
Section 12.11              Confidentiality                                                                       91
Section 12.12              Interest Rate Limitation                                                              92
Section 12.13              EXCULPATION PROVISIONS                                                                92
Section 12.14              Collateral Matters; Swap Agreements                                                   93
Section 12.15              No Third Party Beneficiaries                                                          93
Section 12.16              USA Patriot Act Notice                                                                93


                                  ARTICLE XIII
                   No Novation; References to this Agreement
                                in Loan Documents

Section 13.01              No Novation                                                                           93
Section 13.02              Reference to this Agreement in Loan Documents                                         94
</TABLE>


                                       iv
<PAGE>


                         ANNEXES, EXHIBITS AND SCHEDULES


Annex I         List of Maximum Revolving Credit Amounts

Exhibit A       Form of Revolving Loan Note
Exhibit A-l     Form of Term Loan Note
Exhibit B       Form of Borrowing Request
Exhibit C       Form of Interest Election Request
Exhibit D       Form of Compliance Certificate
Exhibit E-1     Form of Legal Opinion of Stinson Morrison Hecker LLP, special
                counsel to the Borrowers
Exhibit E-2     Form of Legal Opinion of Local Counsel
Exhibit F-1     Security Instruments
Exhibit F-2     Form of Guaranty Agreement
Exhibit F-3     Form of Security Agreement
Exhibit F-4     Form of Intercreditor Agreement
Exhibit G       Form of Assignment and Assumption


Schedule 7.03   Approvals
Schedule 7.05   Litigation
Schedule 7.14   Liens
Schedule 7.15   Subsidiaries
Schedule 7.19   Gas Imbalances
Schedule 7.20   Marketing Contracts
Schedule 7.21   Swap Agreements
Schedule 9.05   Investments


                                        v
<PAGE>

      THIS AMENDED AND RESTATED SENIOR CREDIT  AGREEMENT dated as of February 7,
2006,  is among:  Quest  Cherokee,  LLC ("Quest  Cherokee")  and Quest  Resource
Corporation ("QRC" and together with Quest Cherokee,  the "Borrowers");  each of
the Lenders from time to time party hereto (the "Lenders"); Guggenheim Corporate
Funding,  LLC (in its individual  capacity,  "GCF"), as administrative agent for
the Lenders (in such  capacity,  together with its  successors in such capacity,
the  "Administrative  Agent") and as syndication  agent for the Lenders (in such
capacity,  together  with its  successors  in such  capacity,  the  "Syndication
Agent").

                              W I T N E S S E T H:

      WHEREAS,  the  Borrowers,  the  Lenders and the  Administrative  Agent are
parties to that  certain  Credit  Agreement,  dated as of November  14, 2005 (as
amended, restated,  supplemented or otherwise modified prior to the date hereof,
the "Existing Credit Agreement"); and

      WHEREAS,  the  Borrowers,  the Lenders and the  Administrative  Agent have
agreed to amend and restate the Existing Credit Agreement in its entirety.

      NOW,  THEREFORE,  in consideration of the mutual covenants herein, as well
as other good and valuable  consideration,  the receipt and sufficiency of which
are hereby  acknowledged,  the parties  hereto  agree that the  Existing  Credit
Agreement  is hereby  amended and restated in its entirety as of the date hereof
as follows:

                                    ARTICLE I
                       Definitions and Accounting Matters

      Section 1.01 Terms Defined  Above.  As used in this  Agreement,  each term
defined above has the meaning indicated above.

      Section  1.02  Certain  Defined  Terms.  As used in  this  Agreement,  the
following terms have the meanings specified below:

      "ABR", when used in reference to any Loan or Borrowing,  refers to whether
such Loan, or the Loans  comprising  such Borrowing,  are bearing  interest at a
rate determined by reference to the Alternate Base Rate.

      "Adjusted LIBO Rate" means,  with respect to any Eurodollar  Borrowing for
any Interest Period, an interest rate per annum (rounded upwards,  if necessary,
to the next 1/100th of 1%) equal to (a) the LIBO Rate for such  Interest  Period
multiplied by (b) the Statutory Reserve Rate.

      "Administrative  Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.

      "Affected Loans" has the meaning assigned such term in Section 5.05.

      "Affiliate" means, with respect to a specified Person, another Person that
directly,  or  indirectly  through  one or more  intermediaries,  Controls or is
Controlled by or is under common Control with the Person specified.

<PAGE>

      "Agents" means, collectively, the Administrative Agent and the Syndication
Agent; and "Agent" shall mean either the Administrative Agent or the Syndication
Agent, as the context requires.

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

      "Aggregate  Pro  Rata  Share"  means,  with  respect  to any  Lender,  the
percentage  obtained by dividing  (a) the sum of the  Maximum  Revolving  Credit
Amount of such Lender or, if the Revolving Commitments have been terminated, the
outstanding  balance of the  Revolving  Credit  Exposure of such Lender plus the
outstanding  principal  balance of the Term Loans made by such Lender by (b) the
sum of the Aggregate  Revolving  Commitment or, if the Revolving  Commitment has
been terminated, the aggregate amount of the Revolving Credit Exposure of all of
the Lenders plus the aggregate  outstanding  principal balance of the Term Loans
made by all of the Lenders.

      "Aggregate  Revolving  Commitment"  means the  aggregate of the  Revolving
Commitments of all of the Lenders,  as the same may be increased Or reduced from
time to time  pursuant to the terms of this  Agreement.  The  initial  Aggregate
Revolving Commitment is Fifty Million and 00/100 Dollars ($50,000,000).

      "Aggregate  Term Loan  Commitment"  means the  aggregate  of the Term Loan
Commitments  of all the  Lenders,  as the same may be reduced  from time to time
pursuant  to the  terms of this  Agreement.  The  initial  Aggregate  Term  Loan
Commitment is Fifty Million and 00/100 Dollars ($50,000,000).

      "Agreement" means this Senior Credit Agreement,  as the same may from time
to time be amended, modified, supplemented or restated.

      "Alternate  Base Rate"  means,  for any day, a rate per annum equal to the
greater  of (a) the Prime Rate in effect on such day and (b) the  Federal  Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds  Effective Rate
shall be effective  from and including the effective  date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.

      "Applicable  Percentage" means, with respect to any Lender, the percentage
of the Aggregate Maximum  Revolving Credit Amounts  represented by such Lender's
Maximum  Revolving  Credit Amount as such  percentage is set forth on Annex I as
modified from time to time pursuant to any  assignment  permitted  under Section
12.04(b).

      "Approved  Counterparty" means (a) any Lender or any Affiliate of a Lender
or (b) any other Person whose long term senior  unsecured debt rating is A/A2 by
S&P or Moody's (or their  equivalent) or higher or (c) any other Person approved
by the Administrative Agent.

      "Approved  Fund" means any Person  (other than a natural  person)  that is
engaged in making,  purchasing,  holding or  investing in bank loans and similar
extensions  of  credit  in the  ordinary  course  of its  business  and  that is
administered or managed by (a) a Lender,  (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.

                                       2
<PAGE>

      "Approved Petroleum  Engineers" means Cawley Gillespie & Associates,  Inc.
or  any  other  independent   petroleum  engineers  selected  by  Borrowers  and
reasonably acceptable to the Administrative Agent.

      "ArcLight  Notes" means those certain  promissory notes of Quest Cherokee,
LLC in the  original  principal  amount of  $66,000,000  payable to the order of
Cherokee Energy Partners, LLC.

      "ArcLight Transaction" means the purchase by certain of QRC's Subsidiaries
of all of the outstanding Class A Units of Quest Cherokee, LLC owned by Cherokee
Energy  Partners LLC and the  repayment by Quest  Cherokee,  LLC of the ArcLight
Notes.

      "Arranger"  means  GCF,  in its  capacity  as the lead  arranger  and sole
bookrunner hereunder.

      "Assignment  and  Assumption"  means an assignment and assumption  entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section l2.04(b)) and accepted by the  Administrative  Agent, in the
form of Exhibit G or any other form approved by the Administrative Agent.

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

      "Board" means the Board of Governors of the Federal  Reserve System of the
United States of America or any successor Governmental Authority.

      "Board of  Directors"  shall mean,  with  respect to any Person (i) in the
case of any corporation, the board of directors of such Person, (ii) in the case
of any limited liability company. the board of managers of such Person, (iii) in
the case of any  partnership,  the Board of Directors of the general  partner of
such  Person  and (iv) in any  other  case,  the  functional  equivalent  of the
foregoing.

      "Borrowing" means Loans of the same Type, made,  converted or continued on
the  same  date  and,  in the  case of  Eurodollar  Loans,  as to which a single
Interest Period is in effect.

      "Borrowing  Base"  means  at any  time  an  amount  equal  to  the  amount
determined  in  accordance  with Section  2.07, as the same may be adjusted from
time to time pursuant to Section 8.13(c) or Section 9.12.

      "Borrowing  Request"  means a request by the  Borrowers for a Borrowing in
accordance with Section 2.03.

      "Business  Day" means any day that is not a Saturday,  Sunday or other day
on which  commercial banks in New York City are authorized or required by law to
remain  closed;  and if such day relates to a Borrowing  or  continuation  of, a
payment or  prepayment  of principal  of or interest  on, or a conversion  of or
into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrowers
with  respect  to any  such  Borrowing  or  continuation,  payment,  prepayment,
conversion or Interest Period,  any day which is also a day on which dealings in
dollar deposits are carried out in the London interbank market.

                                       3
<PAGE>

      "Capital  Leases" means, in respect of any Person,  all leases which shall
have been,  or should have been, in  accordance  with GAAP,  recorded as capital
leases  on the  balance  sheet  of the  Person  liable  (whether  contingent  or
otherwise) for the payment of rent thereunder.

      "Cash Equivalent" means cash held in US dollars and all Investments of the
type identified in Section 9.05(c) through 9.05(f).

      "Casualty  Event" means any loss,  casualty or other insured damage to, or
any nationalization,  taking under power of eminent domain or by condemnation or
similar   proceeding  of,  any  Property  of  the  Borrowers  or  any  of  their
Subsidiaries having a fair market value in excess of $1,000,000.00.

      "Change in Control" means (a) the  acquisition  of ownership,  directly or
indirectly,  beneficially  or of  record,  by any  Person or group  (within  the
meaning  of the  Securities  Exchange  Act of  1934  and  the  rules  of the SEC
thereunder as in effect on the date hereof),  of Equity  Interests  representing
more than 35% of the aggregate  ordinary voting power  represented by the issued
and  outstanding  Equity  Interests of either  Borrower or (b)  occupation  of a
majority of the seats  (other than vacant  seats) on the Board of  Directors  of
either  Borrower  by Persons  who were  neither  (i)  nominated  by the Board of
Directors of either Borrower nor (ii) appointed by the directors so nominated.

      "Change  in Law" means (a) the  adoption  of any law,  rule or  regulation
after the date of this Agreement,  (b) any change in any law, rule or regulation
or in the  interpretation or application  thereof by any Governmental  Authority
after the date of this  Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 5.01(b)), by any lending office of such Lender
or by such  Lender's or the Issuing  Bank's  holding  company,  if any) with any
request,  guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.

      "Code"  means the Internal  Revenue Code of 1986,  as amended from time to
time, and any successor statute.

      "Commitment"  means,  with respect to each Lender,  the commitment of such
Lender to make  Revolving  Loans,  Term Loans and to acquire  participations  in
Letters of Credit hereunder.

      "Consolidated  Net Income" means with respect to the  applicable  Borrower
and the  Consolidated  Subsidiaries,  for any period,  the  aggregate of the net
income  (or  loss) of such  Borrower  and the  Consolidated  Subsidiaries  after
allowances  for taxes for such  period  determined  on a  consolidated  basis in
accordance with GAAP; provided that there shall be excluded from such net income
(to the extent otherwise included therein) the following:  (a) the net income of
any  Person  in which  such  Borrower  or any  Consolidated  Subsidiary  have an
interest  (which  interest does not cause the net income of such other Person to
be  consolidated  with the net  income  of such  Borrower  and the  Consolidated
Subsidiaries  in  accordance  with GAAP),  except to the extent of the amount of
dividends  or  distributions  actually  paid in cash  during such period by such
other Person to such Borrower or to a Consolidated  Subsidiary,  as the case may
be; (b) the net income or loss during such period of any Consolidated Subsidiary
to  the  extent  that  the  declaration  or  payment  of  dividends  or  similar
distributions  or transfers or loans by that  Consolidated  Subsidiary is not at
the time  permitted by  operation of the terms of its charter or any  agreement,
instrument  or  Governmental   Requirement   applicable  to  such   Consolidated
Subsidiary or is otherwise restricted or prohibited,  in each case determined in
accordance with GAAP; (c) any extraordinary non-cash gains or losses during such
period;  and (d) any gains or losses  attributable  to writeups or writedowns of
assets;  and  provided  further  that  if  such  Borrower  or  any  Consolidated
Subsidiary  shall  acquire or dispose of any Property  during such period,  then
Consolidated  Net Income  shall be  calculated  after giving pro forma effect to
such  acquisition,  merger or  disposition,  as if such  acquisition,  merger or
disposition had occurred on the first day of such period.

                                       4
<PAGE>

      "Consolidated  Subsidiaries"  means  each  Subsidiary  of either  Borrower
(whether now existing or hereafter created or acquired) the financial statements
of  which  shall be (or  should  have  been)  consolidated  with  the  financial
statements of such Borrower in accordance with GAAP.

      "Control"  means the possession,  directly or indirectly,  of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes  of  this  definition,  and  without  limiting  the  generality  of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests  having  ordinary  voting power for the  election of the  directors or
other  governing body of a Person (other than as a limited partner of such other
Person)  will be  deemed to  "control"  such  other  Person.  "Controlling"  and
"Controlled" have meanings correlative thereto.

      "Debt"  means,  for  any  Person,   the  sum  of  the  following  (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances,  debentures, notes or other similar instruments;
(b) all obligations of such Person (whether  contingent or otherwise) in respect
of letters of credit,  surety or other  bonds and similar  instruments;  (c) all
accrued  expenses,  liabilities  or other  obligations of such Person to pay the
deferred  purchase  price of  Property  or services  (excluding  trade  accounts
payable and accrued  obligations  incurred in the ordinary course of business on
normal trade terms that are not past due by more than ninety (90) days); (d) the
principal  portion of all obligations  under Capital  Leases;  (e) the principal
portion of all obligations under Synthetic  Leases;  (f) all Debt (as defined in
the other  clauses of this  definition)  of others  secured by (or for which the
holder  of such Debt has an  existing  right,  contingent  or  otherwise,  to be
secured by) a Lien on any Property of such  Person,  whether or not such Debt is
assumed by such Person,  but limited to the fair market value of such  property;
(g) all Debt (as  defined  in the other  clauses of this  definition)  of others
guaranteed.  by such Person or in which such Person otherwise assures a creditor
against loss of the Debt  (howsoever such assurance shall be made) to the extent
of the lesser of the amount of such Debt and the maximum  stated  amount of such
guarantee or assurance against loss; (h) all obligations or undertakings of such
Person  to  maintain  or cause  to be  maintained.  the  financial  position  or
covenants of others or to purchase the Debt or Property  (excluding  obligations
to purchase  equipment  or  inventory  in the  ordinary  course of  business) of
others; (i) obligations to deliver  commodities,  goods or services,  including,
without  limitation,  Hydrocarbons,  in  consideration  of one or  more  advance
payments,  other  than gas  balancing  arrangements  in the  ordinary  course of
business; (j) obligations to pay for goods or services whether or not such goods
or services are actually  received or utilized by such Person  (excluding  trade
accounts  payable and accrued  obligations  incurred in the  ordinary  course of
business  on normal  trade  terms that are not past due by more than ninety (90)
days);  (k) any Debt of a partnership  for which such Person is liable either by
agreement, by operation of law or by a Governmental  Requirement but only to the
extent  of  such  liability;   (l)  Disqualified  Capital  Stock;  and  (m)  the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment.  The Debt
of any Person  shall  include all  obligations  of such Person of the  character
described  above to the extent such  Person  remains  legally  liable in respect
thereof  notwithstanding that any such obligation is not included as a liability
of such Person under GAAP.

                                       5
<PAGE>

      "Default"  means  any event or  condition  which  constitutes  an Event of
Default or which  upon  notice,  lapse of time or both  would,  unless  cured or
waived, become an Event of Default.

      "Disqualified  Capital Stock" means any Equity Interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable)  or upon the  happening  of any event,  matures or is  mandatorily
redeemable for any consideration  other than other Equity Interests (which would
not  constitute   Disqualified  Capital  Stock),  pursuant  to  a  sinking  fund
obligation  or  otherwise,  or  is  convertible  or  exchangeable  for  Debt  or
redeemable for any consideration  other than other Equity Interests (which would
not constitute  Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part,  on or prior to the date that is one year after the earlier
of ( a) the  Maturity  Date and (b) the date on which  there  are no  Loans,  LC
Exposure or other obligations  hereunder  outstanding and all of the Commitments
are terminated.

      "dollars" or "$" refers to lawful money of the United States of America.

      "EBITDA" means,  for any period,  the sum of  Consolidated  Net Income for
such period plus the following  expenses or charges to the extent  deducted from
Consolidated Net Income in such period:  interest,  income taxes,  depreciation,
depletion,  amortization and other noncash charges (including  unrealized losses
on Swap  Agreements),  plus costs and expenses  directly  incurred in connection
with the  Transactions  and  including  the  Equity  Offering  and the  Arclight
Transaction and any write-off of transaction  costs relating to Quest Cherokee's
prior credit facility with UBS AG,  Stamford  Branch and Arc light Notes,  minus
all noncash income (including  unrealized gains on Swap Agreements)  (other than
the accrual of revenues  upon  booking  receivables  in the  ordinary  course of
business) added to Consolidated Net Income.

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

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

      "Environmental   Laws"  means  any  and  all   Governmental   Requirements
pertaining in any way to health,  safety, the environment or the preservation or
reclamation  of natural  resources,  in effect in any and all  jurisdictions  in
which the Borrowers or any Subsidiary is conducting or at any time has conducted
business, or where any Property of either Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended,
the  Clean Air Act,  as  amended,  the  Comprehensive  Environmental,  Response,
Compensation,  and Liability  Act of 1980  ("CERCLA"),  as amended,  the Federal
Water Pollution Control Act, as amended,  the Occupational Safety and Health Act
of  1970,  as  amended,  the  Resource  Conservation  and  Recovery  Act of 1976
("RCRA"),  as  amended,  the Safe  Drinking  Water Act,  as  amended,  the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental  conservation or protection  Governmental  Requirements.
The term "oil" shall have the meaning  specified  in OPA,  the terms  "hazardous
substance" and "release" (or "threatened  release") have the meanings  specified
in CERCLA,  the terms "solid  waste" and  "disposal"  (or  "disposed")  have the
meanings  specified  in RCRA and the term  "oil and gas  waste"  shall  have the
meaning  specified  in  Section  91.1011  of the Texas  Natural  Resources  Code
("Section  91.1011");  provided,  however,  that (a) in the  event  either  OPA,
CERCLA,  RCRA or Section  91.1011 is amended so as to broaden the meaning of any
term  defined  thereby,  such  broader  meaning  shall apply  subsequent  to the
effective  date of such amendment and (b) to the extent the laws of the state or
other jurisdiction in which any Property of either Borrower or any Subsidiary is
located establish a meaning for "oil," "hazardous  substance," "release," "solid
waste,"  "disposal" or "oil and gas waste" which is broader than that  specified
in either OPA,  CERCLA,  RCRA or Section  91.1011,  such broader  meaning  shall
apply.

                                       6
<PAGE>

      "Equity Interests" means shares of capital stock,  partnership  interests,
membership  interests in a limited liability company,  beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other  rights  entitling  the holder  thereof to purchase or acquire any such
shares or interests.

      "Equity Offering" has the meaning assigned such term in Section 6.01(r).

      "ERISA"  means the Employee  Retirement  Income  Security Act of 1974,  as
amended, and any successor statute.

      "ERISA   Affiliate"   means  each  trade  or  business   (whether  or  not
incorporated)  which together with the Borrowers or a Subsidiary would be deemed
to be a "single  employer" within the meaning of section  4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.

      "ERISA Event" means (a) a "Reportable  Event" described in section 4043 of
ERISA  and  the  regulations  issued  thereunder,  (b)  the  withdrawal  of  the
Borrowers, a Subsidiary or any ERISA Affiliate from a Plan during a plan year in
which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA,
(c) the filing of a notice of intent to  terminate a Plan or the  treatment of a
Plan amendment as a termination under section 4041 of ERISA, (d) the institution
of  proceedings  to  terminate  a Plan by the PBGC,  ( e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition  which might  constitute  grounds  under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.

                                       7
<PAGE>

      "Eurodollar",  when used in reference to any Loan or Borrowing,  refers to
whether such Loan, or the Loans comprising such Borrowing,  are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.

      "Event of Default" has the meaning assigned such term in Section 10.01.

      "Excepted  Liens"  means:  (a)  Liens  for  Taxes,  assessments  or  other
governmental  charges  or  levies  which are not  delinquent  or which are being
contested in good faith by appropriate  action and for which  adequate  reserves
have been  maintained in  accordance  with GAAP;  (b) Liens in  connection  with
workers' compensation,  unemployment insurance or other social security, old age
pension or public  liability  obligations  which are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been maintained in accordance with GAAP; (c) statutory  landlord's
liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics',
suppliers', workers', materialmen's, construction or other like Liens arising by
operation  of law  in  the  ordinary  course  of  business  or  incident  to the
exploration,  development,  operation and  maintenance of Oil and Gas Properties
each of which is in respect of obligations  that are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been  maintained in accordance  with GAAP; (d)  contractual  Liens
which  arise  in the  ordinary  course  of  business  and  which  do not  secure
obligations  for  borrowed  money  under  operating  agreements,  joint  venture
agreements,  oil and gas partnership  agreements,  oil and gas leases,  farm-out
agreements,  division orders, contracts for the sale, transportation or exchange
of oil and natural gas,  unitization  and pooling  declarations  and agreements,
area of mutual  interest  agreements,  royalty  agreements,  overriding  royalty
agreements, marketing agreements, processing agreements, net profits agreements,
development  agreements,   gas  balancing  or  deferred  production  agreements,
injection,  repressuring and recycling agreements,  salt water or other disposal
agreements,  seismic  or other  geophysical  permits  or  agreements,  and other
agreements which are usual and customary in the oil and gas business and are for
claims which are not  delinquent  or which are being  contested in good faith by
appropriate  action and for which  adequate  reserves  have been  maintained  in
accordance  with GAAP,  provided  that any such Lien  referred to in this clause
does not materially  impair the use of the Property covered by such Lien for the
purposes  for which such  Property  is held by the  applicable  Borrower  or any
Subsidiary or materially impair the value of such Property subject thereto;  (e)
Liens arising solely by virtue of any statutory or common law provision relating
to  banker's  liens,  rights of  set-off  or similar  rights  and  remedies  and
burdening  only  deposit  accounts  or other  funds  maintained  with a creditor
depository  institution,  provided  that no such deposit  account is a dedicated
cash  collateral  account or is subject to  restrictions  against  access by the
depositor in excess of those set forth by  regulations  promulgated by the Board
and  no  such  deposit  account  is  intended  by  Borrowers  or  any  of  their
Subsidiaries to provide collateral to the depository institution and contractual
Liens in standard  deposit  account  agreements;  (f)  easements,  restrictions,
servitudes,  permits, conditions,  covenants,  exceptions or reservations in any
Property  of  either  Borrower  or any  Subsidiary  for the  purpose  of  roads,
pipelines,  transmission lines, transportation lines, distribution lines for the
removal of gas, oil, coal or other minerals or timber,  and other like purposes,
or for the joint or common use of real  estate,  rights of way,  facilities  and
equipment,  that  do not  secure  any  monetary  obligations  and  which  in the
aggregate do not materially  impair the use of such Property for the purposes of
which such Property is held by either  Borrower or any  Subsidiary or materially
impair  the  value  of such  Property  subject  thereto;  (g)  Liens  on cash or
securities  pledged to secure  performance of tenders,  surety and appeal bonds,
government  contracts,  performance  and  return  of money  bonds,  bids,  trade
contracts,  leases,  statutory obligations,  regulatory  obligations,  insurance
premiums and other  obligations of a like nature incurred in the ordinary course
of business and (h) judgment and attachment Liens not giving rise to an Event of
Default,  provided that any appropriate  legal  proceedings  which may have been
duly  initiated  for the  review of such  judgment  shall not have been  finally
terminated or the period within which such proceeding may be initiated shall not
have  expired and no action to enforce such Lien has been  commenced;  provided,
further that Liens  described in clauses (a) through (e) shall remain  "Excepted
Liens" only for so long as no action to enforce such Lien has been commenced and
no  intention to  subordinate  the first  priority  Lien granted in favor of the
Administrative Agent and the Lenders is to be hereby implied or expressed by the
permitted existence of such Excepted Liens.

                                       8
<PAGE>

      "Excluded  Taxes" means,  with respect to the  Administrative  Agent,  any
Lender,  the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of either  Borrower or any Subsidiary  hereunder or
under any other Loan  Document,  (a) income or  franchise  taxes  imposed on (or
measured  by) its net  income by the  United  States of  America  or such  other
jurisdiction under the laws of which such recipient is organized or in which its
principal  office  is  located  or,  in the case of any  Lender,  in  which  its
applicable  lending  office is located,  (b) any branch profits taxes imposed by
the  United  States  of  America  or  any  similar  tax  imposed  by  any  other
jurisdiction  in which either  Borrower or any  Subsidiary is located and (c) in
the case of a Foreign  Lender  (other than an assignee  pursuant to a request by
either Borrower under Section  5.04(b)),  any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes a
party to this Agreement (or designates a new lending  office) or is attributable
to such Foreign Lender's  failure to comply with Section 5.03(e),  except to the
extent that such Foreign Lender (or its assignor,  if any) was entitled,  at the
time  of  designation  of a new  lending  office  (or  assignment),  to  receive
additional amounts with respect to such withholding tax pursuant to Section 5.03
or Section 5.03(c).

      "Federal Funds  Effective Rate" means,  for any day, the weighted  average
(rounded  upwards,  if  necessary,  to the  next  1/100  of 1%) of the  rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers,  as published on the next succeeding Business
Day by the  Federal  Reserve  Bank  of New  York,  or,  if  such  rate is not so
published for any day that is a Business Day, the average (rounded  upwards,  if
necessary,  to the  next  1/100 of 1%) of the  quotations  for such day for such
transactions  received  by the  Administrative  Agent from three  Federal  funds
brokers of recognized standing selected by it.

      "Financial  Officer" means, for any Person,  the chief financial  officer,
principal  accounting  officer,  treasurer or controller of such Person.  Unless
otherwise  specified,  all  references  herein to a  Financial  Officer  means a
Financial Officer of the Borrowers.

      "Financial  Statements" means the financial statement or statements of the
Borrowers and their Consolidated Subsidiaries referred to in Section 7.04(a).

      "Foreign  Lender"  means any Lender that is organized  under the laws of a
jurisdiction other than that in which the Borrowers are located. For purposes of
this  definition,  the United  States of  America,  each State  thereof  and the
District of Columbia shall be deemed to constitute a single jurisdiction.

                                       9
<PAGE>

      "GAAP" means generally accepted accounting principles in the United States
of America as in effect  from time to time  subject to the terms and  conditions
set forth in Section 1.05.

      "Gas Balancing  Obligations" means those obligations set forth on Schedule
7.19.

      "Governmental  Authority"  means the  government  of the United  States of
America, any other nation or any political subdivision thereof, whether state or
local,  and any agency,  authority,  instrumentality,  regulatory  body,  court,
central  bank or  other  entity  exercising  executive,  legislative,  judicial,
taxing,  regulatory  or  administrative  powers or functions of or pertaining to
government over the Borrowers,  any  Subsidiary,  any of their  Properties,  any
Agent, the Issuing Bank or any Lender.

      "Governmental Requirement" means any law, statute, code, ordinance, order,
determination,   rule,  regulation,  judgment,  decree,  injunction,  franchise,
permit, certificate,  license,  authorization or other directive or requirement,
whether  now  or  hereinafter   in  effect,   including,   without   limitation,
Environmental  Laws,  energy  regulations  and  occupational,  safety and health
standards or controls, of any Governmental Authority.

      "Guarantors"  means,  collectively  as of the Effective  Date, each of the
following:  STP  Cherokee,  Inc.,  Quest  Oil & Gas  Corporation,  Quest  Energy
Service,   Inc.,  Ponderosa  Gas  Pipeline  Company,  Inc.,  Producers  Service,
Incorporated,  J-W Gas  Gathering,  L.L.C.,  Bluestem  Pipeline,  LLC and  Quest
Cherokee Oilfield Service, LLC.

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

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

      "Hydrocarbon  Interests" means all rights,  titles,  interests and estates
now or  hereafter  acquired in and to oil and gas leases,  oil,  gas and mineral
leases, or other liquid or gaseous  Hydrocarbon  leases,  mineral fee interests,
overriding  royalty and royalty  interests,  net profit interests and production
payment  interests,  including  any  reserved or residual  interests of whatever
nature.

      "Hydrocarbons"  means oil, gas, coal bed methane gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.

                                       10
<PAGE>

      "Indebtedness"  means any and all  amounts  owing or to be owing by either
Borrower, any Subsidiary or any Guarantor:  (a) to the Administrative Agent, the
Issuing  Bank or any Lender  under any Loan  Document,  (b) to any Lender or any
Affiliate of a Lender under any Swap Agreement  between  either  Borrower or any
Subsidiary and such Lender or Affiliate of a Lender while such Person (or in the
case of its Affiliate,  the Person affiliated  therewith) is a Lender hereunder,
(c) to any  Approved  Counterparty  under  any Swap  Agreement  to which  either
Borrower or any Subsidiary is a party if such Swap Agreement by its terms states
that it is secured by the Security Instruments, and (d) all renewals, extensions
and/or rearrangements of any of the above.

      "Indemnified Taxes" means Taxes other than Excluded Taxes.

      "Initial  Reserve  Report"  means  the  report  prepared  by the  Approved
Petroleum  Engineers  with  respect to  certain  Oil and Gas  Properties  of the
Borrowers and the Subsidiaries as of July 1, 2005.

      "Intercreditor  Agreement"  means the Amended and  Restated  Intercreditor
Agreement  between  the  Administrative  Agent  and the  Second  Lien  Term Loan
Agreement  administrative  agent, in the form of Exhibit F-4 or an intercreditor
agreement  substantially  similar  entered  into in  connection  with  Permitted
Refinancing Debt.

      "Interest Election Request" means a request by the Borrowers to convert or
continue a Borrowing in accordance with Section 2.04.

      "Interest  Payment Date" means (a) with respect to any ABR Loan,  the last
day of each March,  June,  September  and  December  and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar  Borrowing with an
Interest Period of more than three months' duration,  each day prior to the last
day of such Interest  Period that occurs at intervals of three months'  duration
after the first day of such Interest Period.

      "Interest  Period"  means with respect to any  Eurodollar  Borrowing,  the
period  commencing on the date of such  Borrowing and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter,  as the
Borrowers may elect;  provided,  that (a) if any Interest  Period would end on a
day other than a Business  Day,  such  Interest  Period shall be extended to the
next succeeding Business Day unless such next succeeding Business Day would fall
in the next calendar  month, in which case such Interest Period shall end on the
next  preceding  Business  Day and  (b)  any  Interest  Period  pertaining  to a
Eurodollar Borrowing that commences on the last Business Day of a calendar month
(or on a day for which  there is no  numerically  corresponding  day in the last
calendar  month of such  Interest  Period) shall end on the last Business Day of
the last calendar month of such Interest Period.  For purposes hereof,  the date
of a Borrowing  initially  shall be the date on which such Borrowing is made and
thereafter  shall  be the  effective  date  of the  most  recent  conversion  or
continuation of such Borrowing.

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

                                       11
<PAGE>

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

      "Investment" means, for any Person: (a) the acquisition (whether for cash,
Property,  services or securities or otherwise) of Equity Interests of any other
Person  or any  agreement  to make  any  such  acquisition  (including,  without
limitation,  any "short sale" or any sale of any  securities at a time when such
securities are not owned by the Person  entering into such short sale);  (b) the
making of any deposit  with, or advance,  loan or other  extension of credit to,
any other Person (including the purchase of Property from another Person subject
to an  understanding  or  agreement,  contingent  or  otherwise,  to resell such
Property to such Person,  but excluding  any such advance,  loan or extension of
credit having a term not exceeding  ninety (90) days  representing  the purchase
price of  inventory or supplies  sold by such Person in the  ordinary  course of
business)  or (e) the entering  into of any  guarantee  of, or other  contingent
obligation  with respect to, Debt of any other Person and (without  duplication)
any amount committed to be advanced, lent or extended to such Person.

      "Issuing Bank" means one of the Lenders designated by GCF, in its capacity
as the  issuer  of  Letters  of Credit  hereunder,  and its  successors  in such
capacity  as  provided  in  Section  2.08(i).  The  Issuing  Bank  may,  in  its
discretion,  arrange  for one or more  Letters  of  Credit  to be  issued  by an
Underlying  Issuer by entering into a risk  participation  or other  arrangement
with such Underlying  Issuer to reimburse such  Underlying  Issuer in respect of
Letters of Credit.

      "Knowledge"  means,  with  respect  to an  individual,  his or her  actual
knowledge  and with  respect  to any  corporation,  limited  liability  company,
partnership  or other  business  entity,  the actual  knowledge of any executive
officer,  general  partner  or  individual  being  a  member  of  the  executive
management of such entity.

      "LC Commitment" means Twenty Million Dollars ($20,000,000).

      "Le  Disbursement"  means a payment made pursuant to a Letter of Credit by
the Issuing Bank or an Underlying Issuer.

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

      "Lenders"  means the  Persons  listed on Annex I and any Person that shall
have become a party hereto pursuant to an Assignment and Assumption,  other than
any such Person that ceases to be a party hereto  pursuant to an Assignment  and
Assumption.

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

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

                                       12
<PAGE>

      "LIBO  Rate"  means,  with  respect to any  Eurodollar  Borrowing  for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service,  or any successor to or
substitute  for such  Service,  providing  rate  quotations  comparable to those
currently  provided  on  such  page  of  such  Service,  as  determined  by  the
Administrative  Agent from time to time for purposes of providing  quotations of
interest rates applicable to dollar deposits in the London interbank  market) at
approximately   11:00  a.m.,  London  time,  two  Business  Days  prior  to  the
commencement  of such Interest  Period,  as the rate for dollar  deposits with a
maturity  comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar  Borrowing  for such  Interest  Period  shall  be the  rate  (rounded
upwards,  if necessary,  to the next 1/100th of 1%) at which dollar  deposits of
$5,000,000 and for a maturity  comparable to such Interest Period are offered by
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately  11:00 a.m.,  London time,
two Business Days prior to the commencement of such Interest Period.

      "Lien" means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the  Property,  whether such interest
is based on the common law, statute or contract,  and whether such obligation or
claim is fixed or  contingent,  and including but not limited to (a) the lien or
security  interest  arising  from  a  mortgage,  encumbrance,  pledge,  security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas  Properties.  The term "Lien"  shall  include  easements,  restrictions,
servitudes, permits, conditions,  covenants, exceptions or reservations. For the
purposes of this Agreement, either Borrower and its Subsidiaries shall be deemed
to be the owner of any  Property  which it has  acquired  or holds  subject to a
conditional  sale  agreement,  or  leases  under  a  financing  lease  or  other
arrangement  pursuant to which  title to the  Property  has been  retained by or
vested in some other Person in a transaction intended to create a financing.

      "Loan  Documents"  means this Agreement,  the Notes, if any, the Letter of
Credit  Agreements,  the Letters of Credit,  the  Security  Instruments  and the
Intercreditor Agreement.

      "Loans" means the loans made by the Lenders to the  Borrowers  pursuant to
this Agreement.

      "Majority   Borrowing  Base  Lenders"  for  purposes  of  determining  the
Borrowing  Base under  Section  2.07,  shall mean at any time while no Revolving
Loans or LC Exposure is outstanding,  Administrative Agent and Lenders having at
least  sixty-six  and  two-thirds  percent  (66-2/3%) of the  Aggregate  Maximum
Revolving  Credit  Amounts;  and at any time  while  any  Revolving  Loans or LC
Exposure  is  outstanding,  Administrative  Agent and  Lenders  holding at least
sixty-six  and  two-thirds  percent  (66-2/3%)  of  the  outstanding   aggregate
principal  amount of the Revolving Loans and LC Exposure  (without regard to any
sale by a Lender of a participation in any Loan under Section 12.04(c)).

                                       13
<PAGE>

      "Majority Lenders" shall mean at any time while no Loans or LC Exposure is
outstanding,  Administrative Agent and Lenders having at least a majority of the
Aggregate Maximum Revolving Credit Amounts and Term Loan Commitments; and at any
time while any Loans or LC Exposure  is  outstanding,  Administrative  Agent and
Lenders  holding  at least a majority  of the sum of the  unused  portion of the
Aggregate Maximum Revolving Credit Amounts and outstanding  aggregate  principal
amount of the Loans and LC Exposure (without regard to any sale by a Lender of a
participation in any Loan under Section 12.04(c)).

      "Material  Adverse  Effect"  means a  material  adverse  effect on (a) the
business, operations,  Property, condition (financial or otherwise) or prospects
of the Borrowers and the  Subsidiaries  taken as a whole, (b) the ability of the
Borrowers,  any  Subsidiary or any  Guarantor to perform any of its  obligations
under any Loan Document, (c) the validity or enforceability of any Loan Document
or (d) the rights and remedies of or benefits  available  to the  Administrative
Agent, any other Agent, the Issuing Bank or any Lender under any Loan Document.

      "Material  Indebtedness"  means Debt  (other than the Loans and Letters of
Credit), or obligations in respect of one or more Swap Agreements,  of anyone or
more of the Borrowers and their  Subsidiaries in an aggregate  principal  amount
exceeding  $2,500,000.  For purposes of determining Material  Indebtedness,  the
"principal  amount" of the  obligations  of the  Borrowers or any  Subsidiary in
respect of any Swap Agreement at any time shall be the maximum  aggregate amount
(giving  effect  to  any  netting  agreements)  that  either  Borrower  or  such
Subsidiary  would be required to pay if such Swap Agreement  were  terminated at
such time.

      "Maturity Date" means November 14, 2010.

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

      "Moody's" means Moody's Investors Service,  Inc. and any successor thereto
that is a nationally recognized rating agency.

      "Mortgaged  Property"  means any Property owned by either  Borrower or any
Guarantor  which is subject to or purported to be subject to the Liens  existing
and to exist under the terms of the Security Instruments.

      "Multiemployer Plan" means a Plan which is a multiemployer plan as defined
in section 3(37) or 4001 (a)(3) of ERISA.

      "Net Cash  Proceeds"  means in  connection  with any  issuance  or sale of
Equity  Interests or Debt  securities or instruments or the incurrence of loans,
the cash proceeds  received from such issuance or incurrence,  net of attorneys'
fees,  investment banking fees,  accountants' fees,  underwriting  discounts and
commissions  and  other  customary  fees  and  expenses   actually  incurred  in
connection therewith.

                                       14
<PAGE>

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

      "Notes"  means the  promissory  notes of the  Borrowers  as requested by a
Lender and described in Section 2.02(d) and being  substantially  in the form of
Exhibit A, together with all amendments, modifications, replacements, extensions
and rearrangements thereof.

      "Oil  and  Gas  Properties"  means  (a)  Hydrocarbon  Interests;  (b)  the
Properties now or hereafter pooled or unitized with Hydrocarbon  Interests;  (c)
all  presently   existing  or  future   unitization,   pooling   agreements  and
declarations  of pooled units and the units created thereby  (including  without
limitation  all  units  created  under  orders,  regulations  and  rules  of any
Governmental  Authority)  which may affect all or any portion of the Hydrocarbon
Interests;  (d)  all  operating  agreements,  contracts  and  other  agreements,
including  production  sharing contracts and agreements,  which relate to any of
the  Hydrocarbon  Interests  or the  production,  sale,  purchase,  exchange  or
processing of Hydrocarbons  from or attributable to such Hydrocarbon  Interests;
(e) all  Hydrocarbons  in and  under  and  which  may be  produced  and saved or
attributable to the Hydrocarbon  Interests,  including all oil in tanks, and all
rents, issues, profits, proceeds,  products,  revenues and other incomes from or
attributable to the  Hydrocarbon  Interests;  (f) all tenements,  hereditaments,
appurtenances and Properties in any manner appertaining,  belonging,  affixed or
incidental to the Hydrocarbon Interests and (g) all Properties,  rights, titles,
interests  and estates  described  or referred to above,  including  any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used,  held for use or useful  in  connection  with the  operating,  working  or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs,  automotive  equipment,  rental equipment or other personal Property which
may be on such  premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,  injection wells
or other  wells,  buildings,  structures,  fuel  separators,  liquid  extraction
plants, plant compressors,  pumps, pumping units, field gathering systems, tanks
and tank batteries,  fixtures,  valves, fittings,  machinery and parts, engines,
boilers, meters, apparatus,  equipment,  appliances, tools, implements,  cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and  servitudes  together  with  all  additions,  substitutions,   replacements,
accessions and attachments to any and all of the foregoing. The term Oil and Gas
Properties shall not include the Pipeline.

      "Other  Taxes"  means any and all present or future  stamp or  documentary
taxes or any other excise or Property  taxes,  charges or similar levies arising
from any payment made hereunder or from the  execution,  delivery or enforcement
of, or otherwise with respect to, this Agreement and any other Loan Document.

      "Participant" has the meaning set forth in Section 12.04(c)(i).

      "PBGC" means the Pension Benefit  Guaranty  Corporation,  or any successor
thereto.

      "Permitted  Refinancing Debt" means Debt (for purposes of this definition,
"new  Debt")  incurred  in  exchange  for,  or  proceeds  of  which  are used to
refinance, all of any other Debt (the "Refinanced Debt"); provided that (a) such
new Debt is in an aggregate principal amount not in excess of the sum of (i) the
aggregate  principal  amount then outstanding of the Refinanced Debt (or, if the
Refinanced  Debt is exchanged or acquired for an amount less than the  principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
such lesser  amount) and (ii) an amount  necessary to pay any fees and expenses,
including premiums,  related to such exchange or refinancing;  (b) such new Debt
has a stated maturity no earlier than the stated maturity of the Refinanced Debt
and an average life no shorter than the average life of the Refinanced Debt; (c)
such new Debt  does not have a stated  interest  rate in  excess  of the  stated
interest  rate of the  Refinanced  Debt;  (d) such new Debt does not contain any
covenants  which are more onerous to the  Borrowers  and its  Subsidiaries  than
those imposed by the  Refinanced  Debt and (e) such new Debt (and any guarantees
thereof)  is  subordinated  in right of  payment  to the  Indebtedness  (or,  if
applicable,  the Guaranty Agreement and Security Agreement) to at least the same
extent as the Refinanced Debt.

                                       15
<PAGE>

      "Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership,  Governmental Authority
or other entity.

      "Pipeline"  means the pipeline  owned and  operated by Bluestem  Pipeline,
LLC.

      "Plan" means any employee pension benefit plan, as defined in section 3(2)
of  ERISA,  which  (a)  is  currently  or  hereafter  sponsored,  maintained  or
contributed to by either Borrower, a Subsidiary or an ERISA Affiliate or (b) was
at any time during the six calendar years preceding the date hereof,  sponsored,
maintained  or  contributed  to by either  Borrower or a Subsidiary  or an ERISA
Affiliate.

      "Prime  Rate"  means  for any day the  prime  rate as  published  for each
Business Day (or if such a day is not a Business Day, the immediately  preceding
Business Day) in The Wall Street Journal under the caption  "Money Rates,  Prime
Rate".

      "Property"  means any  interest in any kind of property or asset,  whether
real,  personal  or  mixed,  or  tangible  or  intangible,   including,  without
limitation, cash, securities, accounts and contract rights.

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

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

      "Proved Mineral Interests" means,  collectively,  Proved Producing Mineral
Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral
Interests.

      "Proved  Nonproducing  Mineral Interests" means all Hydrocarbon  Interests
which  constitute  proved developed  nonproducing  reserves as classified by the
Society of Petroleum Engineers.

      "Proved Producing Mineral Interests" means all Hydrocarbon Interests which
constitute proved developed  producing  reserves as classified by the Society of
Petroleum Engineers.

      "Proved  Undeveloped  Mineral  Interests" means all Hydrocarbon  Interests
which  constitute  proved  undeveloped  reserves as classified by the Society of
Petroleum Engineers.

                                       16
<PAGE>

      "PV-10  Value" shall mean,  as of any date of  determination,  the present
value of future  cash flows from  Proved  Mineral  Interests  on the  Borrowers'
Hydrocarbon  Interests as set forth in the most recent Reserve Report  delivered
pursuant to Section 8.12,  utilizing the Three-Year  Strip Price for natural gas
(Henry Hub), quoted in the New York Mercantile  Exchange (or its successor),  as
of the date as of which  the  information  set forth in such  Reserve  Report is
provided  (as  adjusted for basis  differentials)  and  utilizing a 10% discount
rate.  PV-10 Value shall be  adjusted  to give effect to the  commodity  hedging
agreements of the Borrowers then in effect.

      "Redemption"  means with respect to any Debt, the repurchase,  redemption,
prepayment,  repayment,  defeasance or any other  acquisition  or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt. "Redeem" has the correlative meaning thereto.

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

      "Register" has the meaning assigned such term in Section l2.04(b)(iv).

      "Regulation  D"  means  Regulation  D of the  Board,  as the  same  may be
amended, supplemented or replaced from time to time.

      "Related  Parties"  means,  with  respect to any  specified  Person,  such
Person's Affiliates and the respective directors,  officers,  employees,  agents
and advisors (including  attorneys,  accountants and experts) of such Person and
such Person's Affiliates.

      "Remedial Work" has the meaning assigned such term in Section 8.10(a).

      "Reserve  Report"  means  a  report,  in  form  and  substance  reasonably
satisfactory to the Administrative  Agent, setting forth, as of each December 31
or June 30 (or such other date in the event of an Interim  Redetermination)  the
oil and gas reserves attributable to the Oil and Gas Properties of the Borrowers
and the  Subsidiaries,  together with a projection of the rate of production and
future net income,  taxes,  operating  expenses  and capital  expenditures  with
respect thereto as of such date, based upon the pricing  assumptions  consistent
with SEC reporting requirements at the time.

      "Responsible  Officer"  means,  as to  any  Person,  the  Chief  Executive
Officer,  the  President,  any Financial  Officer or any Vice  President of such
Person.  Unless  otherwise  specified,  all references to a Responsible  Officer
herein shall mean a Responsible Officer of either Borrower.

      "Restricted Payment" means any dividend or other distribution  (whether in
cash,  securities  or other  Property)  with respect to any Equity  Interests in
either Borrower, or any payment (whether in cash, securities or other Property),
including  any  sinking  fund or similar  deposit,  on account of the  purchase,
redemption,  retirement,  acquisition,  cancellation  or termination of any such
Equity  Interests  in either  Borrower or any option,  warrant or other right to
acquire any such Equity Interests in either Borrower.

                                       17
<PAGE>

      "Revolving Commitment" means, at the time of determination with respect to
each Lender, the lesser of (a) such Lender's Maximum Revolving Credit Amount and
(b) such Lender's Applicable Percentage of the then effective Borrowing Base.

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

      "Revolving Loan" means a Loan made pursuant to clause (a) of Section 2.01.

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

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

      "SEC"  means the  Securities  and  Exchange  Commission  or any  successor
Governmental Authority.

      "Second Lien Term Loan Agreement" means that certain Second Lien Term Loan
Credit  Agreement  among the Borrowers,  GCF, as the Second Lien  Administrative
Agent,  and the lenders  party  thereto,  and any "Loan  Documents"  (as defined
therein) executed in connection therewith, in each case, as hereafter amended or
supplemented.

      "Secured  Parties"  has the meaning  assigned to such term in the Security
Agreement.

      "Security  Agreement" means an agreement executed by the Borrowers and the
Guarantors in substantially the form of Exhibit F-3, as the same may be amended,
restated, modified or supplemented from time to time.

      "Security   Instruments"  means  the  Guaranty  Agreement,   the  Security
Agreement,  mortgages,  deeds of trust  and  other  agreements,  instruments  or
certificates  described  or  referred to in Exhibit  F-1,  and any and all other
agreements,  instruments or certificates now or hereafter executed and delivered
by the  Borrowers or any other Person (other than Swap  Agreements  constituting
Indebtedness or participation or similar  agreements  between any Lender and any
other  lender or  creditor  with  respect to any  Indebtedness  pursuant to this
Agreement) in connection  with, or as security for the payment or performance of
the Indebtedness, the Loans, the Notes, if any, this Agreement, or reimbursement
obligations  under the  Letters of Credit,  as such  agreements  may be amended,
modified, supplemented or restated from time to time.

      "S&P"  means  Standard  &  Poor's  Ratings  Services,  a  division  of The
McGraw-Hill  Companies,  Inc.,  and any  successor  thereto that is a nationally
recognized rating agency.

      "Statutory  Reserve Rate" means a fraction  (expressed as a decimal),  the
numerator of which is the number one and the  denominator of which is the number
one minus the  aggregate  of the  maximum  reserve  percentages  (including  any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established  by the  Board to which the  Administrative  Agent is  subject  with
respect to the LIBO Rate, for  eurocurrency  funding  (currently  referred to as
"Eurocurrency   Liabilities"  in  Regulation  D  of  the  Board).  Such  reserve
percentages   shall  include  those  imposed  pursuant  to  such  Regulation  D.
Eurodollar  Loans shall be deemed to constitute  eurocurrency  funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions  or  offsets  that may be  available  from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any such reserve percentage.

                                       18
<PAGE>

      "Subsidiary"  means:  (a) any Person of which at least a  majority  of the
outstanding  Equity  Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors,  managers or other governing body
of such Person  (irrespective  of whether or not at the time Equity Interests of
any other class or classes of such Person  shall have or might have voting power
by  reason of the  happening  of any  contingency)  is at the time  directly  or
indirectly  owned or  controlled  by one of the  Borrowers or one or more of its
Subsidiaries and (b) any partnership of which one of the Borrowers or any of its
Subsidiaries is a general  partner.  Unless  otherwise  indicated  herein,  each
reference  to  the  term  "Subsidiary"  shall  mean a  Subsidiary  of one of the
Borrowers.

      "Swap  Agreement"  means any agreement with respect to any swap,  forward,
future or derivative transaction, collar or option or similar agreement, whether
exchange  traded,  "over-the-counter"  or  otherwise,  involving,  or settled by
reference  to,  one or  more  rates,  currencies,  commodities,  equity  or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic,  financial or pricing risk or value or any similar  transaction  or
any combination of these transactions; provided that no phantom stock or similar
plan  providing for payments only on account of services  provided by current or
former  directors,  officers,  employees or  consultants of the Borrowers or the
Subsidiaries shall be a Swap Agreement.

      "Synthetic Leases" means, in respect of any Person, all leases which shall
have been, or should have been, in  accordance  with GAAP,  treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness  for borrowed money for purposes of U.S.  federal income taxes,  if
the lessee in respect  thereof is obligated to either  purchase for an amount in
excess  of, or pay upon  early  termination  an amount in excess  of, 80% of the
residual value of the Property  subject to such operating  lease upon expiration
or early termination of such lease.

      "Taxes"  means any and all  present  or  future  taxes,  levies,  imposts,
duties,  deductions,   charges  or  withholdings  imposed  by  any  Governmental
Authority.

      "Term Loan" means a Loan made pursuant to Section 2.01(b).

      "Term Loan Commitment" means, with respect to each Lender, the Commitment,
if any, of such Lender to make Term Loans  hereunder  on or within 90 days after
the Effective Date,  expressed as an amount  representing the maximum  principal
amount of the Term Loans to be made by such Lender hereunder. The amount of each
Lender's Term Loan  Commitment is set forth on Annex I, or in the Assignment and
Assumption  pursuant  to which  such  Lender  shall have  assumed  its Term Loan
Commitment, as applicable.

                                       19
<PAGE>

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

      "Three-Year Strip Price" shall mean, as of any date of determination,  (a)
for the 36-month  period  commencing  with the month  immediately  following the
month in which the date of  determination  occurs,  the monthly futures contract
prices for crude oil and natural gas for the 36  succeeding  months as quoted on
the  applicable   commodities  exchange  or  other  price  quotation  source  as
contemplated  in the  definition of "PV-10 Value" and (b) for periods after such
36-month  period,  the  average of such  quoted  prices for the period  from and
including the 25th month in such 36-month  period through the 36th month in such
period.

      "Total Net Debt" means,  at any date, all Debt  (exclusive of Debt related
to Swap  Agreements)  of the Borrowers and the  Consolidated  Subsidiaries  on a
consolidated basis less (i) Cash Equivalents,  (ii) letters of credit issued for
the account of one of the  Borrowers  and/or any of its  Subsidiaries  and (iii)
surety bonds permitted under Section 9.02(e).

      "Transactions"  means,  with respect to (a) the Borrowers,  the execution,
delivery and  performance  by the Borrowers of this  Agreement,  each other Loan
Document,  the  borrowing  of Loans,  the use of the  proceeds  thereof  and the
issuance of Letters of Credit hereunder, and the grant of Liens by the Borrowers
on  Mortgaged   Properties  and  other  Properties   pursuant  to  the  Security
Instruments and (b) each Guarantor,  the execution,  delivery and performance by
such Guarantor of each Loan Document to which it is a party, the guaranteeing of
the Indebtedness and the other obligations under the Guaranty  Agreement by such
Guarantor and such Guarantor's grant of the security  interests and provision of
collateral  under  the  Security  Agreement,  and the  grant  of  Liens  by such
Guarantor on Mortgaged  Properties and other Properties pursuant to the Security
Instruments.

      "Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

      "Underlying  Issuer"  means any  Affiliate  of the Issuing  Bank or a bank
designated by the Issuing Bank to issue one or more Letters of Credit.

      "Wholly-Owned  Subsidiary"  means  any  Subsidiary  of  which  all  of the
outstanding  Equity  Interests  (other  than any  directors'  qualifying  shares
mandated by applicable  law), on a fully-diluted  basis, are owned by one of the
Borrowers  or one or  more  of the  Wholly-Owned  Subsidiaries  or by one of the
Borrowers and one or more of the Wholly-Owned Subsidiaries.

      Section  1.03  Types  of  Loans  and  Borrowings.  For  purposes  of  this
Agreement, Loans and Borrowings, respectively, may be classified and referred to
by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing").

      Section 1.04 Terms Generally;  Rules of  Construction.  The definitions of
terms herein  shall apply  equally to the singular and plural forms of the terms
defined.  Whenever  the  context may  require,  any  pronoun  shall  include the
corresponding  masculine,  feminine  and  neuter  forms.  The  words  "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation".  The word "will"  shall be  construed  to have the same meaning and
effect as the word  "shall".  Unless  the  context  requires  otherwise  (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement,  instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference  herein to any law shall be construed as referring to such law
as amended, modified,  codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference  herein to any Person shall be construed to
include  such  Person's  successors  and assigns  (subject  to the  restrictions
contained herein), (d) the words "herein",  "hereof" and "hereunder",  and words
of similar import, shall be construed to refer to this Agreement in its entirety
and  not  to  any  particular   provision  hereof,   (e)  with  respect  to  the
determination of any time period, the word "from" means "from and including" and
the word "to" means "to and including" and (f) any reference herein to Articles,
Sections,  Annexes,  Exhibits  and  Schedules  shall  be  construed  to refer to
Articles  and  Sections  of,  and  Annexes,  Exhibits  and  Schedules  to,  this
Agreement.  No provision of this  Agreement or any other Loan Document  shall be
interpreted  or construed  against any Person solely  because such Person or its
legal representative drafted such provision.

                                       20
<PAGE>

      Section 1.05 Accounting Terms and  Determinations;  GAAP. Unless otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be furnished to the  Administrative  Agent or the Lenders  hereunder
shall be prepared,  in accordance with GAAP,  applied on a basis consistent with
the  Financial  Statements  except for changes in which  Borrowers'  independent
registered   public   accounting   firm  concur  and  which  are   disclosed  to
Administrative Agent on the next date on which financial statements are required
to be  delivered  to the Lenders  pursuant to Section  8.01(a);  provided  that,
unless the Borrowers and the Majority  Lenders shall otherwise agree in writing,
no such change  shall modify or affect the manner in which  compliance  with the
covenants  contained herein is computed such that all such computations shall be
conducted  utilizing  financial  information  presented  consistently with prior
periods.

                                   ARTICLE II
                                   The Credits

      Section 2.01 Commitments.

         (a)  Revolving  Loans.  Subject to the terms and  conditions  set forth
herein,  each Lender agrees to make Revolving Loans to the Borrowers at any time
during the  Availability  Period  after the Lenders  have made Term Loans in the
aggregate  principal amount of $50,000,000 in an aggregate principal amount that
will not result in (a) such Lender's  Revolving  Credit Exposure  exceeding such
Lender's  Revolving  Commitment  or (b) the  total  Revolving  Credit  Exposures
exceeding the Aggregate Revolving  Commitments.  Within the foregoing limits and
subject to the terms and conditions set forth herein,  the Borrowers may borrow,
repay and reborrow the Revolving Loans.

         (b) Term Loans.  Subject to the terms and  conditions set forth herein,
at the Borrower's request, each Lender agrees to make Term Loans to the Borrower
on or within 90 days after the Effective Date in an aggregate  principal  amount
not to exceed to its Term Loan Commitment.  Amounts repaid or prepaid in respect
of Term Loans may not be reborrowed.

                                       21
<PAGE>

      Section 2.02 Loans and Borrowings.

         (a) Borrowings; Several Obligations. Each Loan shall be made as part of
a Borrowing  consisting of Loans made by the Lenders  ratably in accordance with
their  respective  Commitments.  The  failure  of any  Lender  to make  any Loan
required to be made by it shall not relieve any other Lender of its  obligations
hereunder;  provided  that the  Commitments  are several and no Lender  shall be
responsible for any other Lender's failure to make Loans as required.

         (b) Types of Loans.  Subject to Section 3.03,  each Borrowing  shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrowers may request
in accordance  herewith.  Each Lender at its option may make any Eurodollar Loan
by causing any  domestic or foreign  branch or  Affiliate of such Lender to make
such  Loan;  provided  that any  exercise  of such  option  shall not affect the
obligation of the  Borrowers to repay such Loan in accordance  with the terms of
this Agreement.

         (c)  Minimum  Amounts;  Limitation  on  Number  of  Borrowings.  At the
commencement  of  each  Interest  Period  for  any  Eurodollar  Borrowing,  such
Borrowing  shall be in an  aggregate  amount  that is an  integral  multiple  of
$1,000,000 and not less than $1,000,000.  At the time that each ABR Borrowing is
made,  such  Borrowing  shall  be in an  aggregate  amount  that is an  integral
multiple  of  $1,000,000  and not less  than  $1,000,000;  provided  that an ABR
Borrowing  may be in an  aggregate  amount  that is equal to the  entire  unused
balance  of  the  total   Commitments   or  that  is  required  to  finance  the
reimbursement  of  an  LC  Disbursement  as  contemplated  by  Section  2.08(f).
Borrowings of more than one Type may be outstanding  at the same time,  provided
that there shall not at any time be more than a total of 6 Eurodollar Borrowings
outstanding.   Notwithstanding  any  other  provision  of  this  Agreement,  the
Borrowers shall not be entitled to request,  or to elect to convert or continue,
any Borrowing if the Interest  Period  requested with respect  thereto would end
after the Maturity Date.

         (d) Notes.  Each Lender  shall  maintain in  accordance  with its usual
practice an account or accounts  evidencing the indebtedness of the Borrowers to
such Lender resulting from each Loan made by such Lender,  including the amounts
of  principal  and  interest  payable  and paid to such Lender from time to time
hereunder.  The  Administrative  Agent shall maintain accounts in which it shall
record  (i) the amount of each Loan made  hereunder,  the Type  thereof  and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable  from the  Borrowers to each Lender
hereunder and (iii) the amount of any sum received by the  Administrative  Agent
hereunder for the account of the Lenders and each Lender's  share  thereof.  The
entries made in the accounts  maintained  pursuant to this Section 2.02(d) shall
be prima facie evidence of the existence and amounts of the obligations recorded
therein;  provided that the failure of any Lender or the Administrative Agent to
maintain  such  accounts or any error therein shall not in any manner affect the
obligation of the  Borrowers to repay the Loans in accordance  with the terms of
this  Agreement.  Any Lender may request that Loans made by it be evidenced by a
Note. In such event,  the Borrowers  shall prepare,  execute and deliver to such
Lender a Note payable to the order of such Lender and  substantially in the form
of Exhibit A or Exhibit A-1, as applicable, dated, in the case of (i) any Lender
party hereto as of the date of this Agreement,  as of the date of this Agreement
or (ii) any Lender that becomes a party  hereto  pursuant to an  Assignment  and
Assumption,  as of the effective date of the Assignment and Assumption,  payable
to the order of such Lender in a principal amount equal to its Maximum Revolving
Credit  Amount  as in  effect  on  such  date,  and  otherwise  duly  completed.
Thereafter,  the Loans evidenced by such Note and interest  thereon shall at all
times (including  after assignment  pursuant to Section 12.04) be represented by
one or more Notes in such form  payable to the order of the payee named  therein
(or,  if such  Note is a  registered  note,  to such  payee  and its  registered
assigns).  In the  event  that any  Lender's  Maximum  Revolving  Credit  Amount
increases or decreases for any reason (whether pursuant to Section 2.06, Section
12.04(b) or otherwise),  the Borrowers shall deliver or cause to be delivered on
the effective date of such increase or decrease, a new Note payable to the order
of such  Lender in a principal  amount  equal to its  Maximum  Revolving  Credit
Amount after giving  effect to such  increase or decrease,  and  otherwise  duly
completed.  The date, amount,  Type, interest rate and, if applicable,  Interest
Period of each Loan made by each Lender, and all payments made on account of the
principal  thereof,  shall be recorded by such Lender on its books for its Note,
and,  prior to any  transfer,  may be  endorsed  by such  Lender  on a  schedule
attached  to such Note or any  continuation  thereof or on any  separate  record
maintained  by such  Lender.  Failure to make any such  notation  or to attach a
schedule shall not affect any Lender's or the  Borrowers'  rights or obligations
in respect of such Loans or affect the  validity of such  transfer by any Lender
of its Note.

                                       22
<PAGE>

      Section  2.03  Requests  for  Borrowings.  To  request  a  Borrowing,  the
Borrowers  shall notify the  Administrative  Agent of such request by telephone,
fax (or transmit by electronic communication,  if arrangements for doing so have
been  approved  by the  Administrative  Agent)  (a) in the case of a  Eurodollar
Borrowing,  not later than 12:00 noon,  New York City time,  three Business Days
before  the  date  of the  proposed  Borrowing  or (b)  in  the  case  of an ABR
Borrowing,  not later than 12:00  noon,  New York City time,  one  Business  Day
before the date of the proposed Borrowing; provided that no such notice shall be
required for any deemed request of an ABR Borrowing to finance the reimbursement
of an LC Disbursement as provided in Section  2.08(f).  Each such telephonic (or
electronic  communication)  Borrowing  Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written  Borrowing  Request in substantially the form of Exhibit B and signed by
the  Borrowers.  Each such  telephonic,  electronic  communication,  and written
Borrowing  Request shall specify the following  information  in compliance  with
Section 2.02:

            (i) the aggregate amount of the requested Borrowing;

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

            (iii)  whether  such  Borrowing  is  to  be an  ABR  Borrowing  or a
Eurodollar Borrowing and a Term Loan or a Revolving Loan;

            (iv) in the case of a  Eurodollar  Borrowing,  the initial  Interest
Period to be applicable  thereto,  which shall be a period  contemplated  by the
definition of the term "Interest Period";

                                       23
<PAGE>

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

            (vi) the location and number of the applicable Borrower's account to
which funds are to be  disbursed,  which shall comply with the  requirements  of
Section 2.05.

If no election as to the Type of  Borrowing  is  specified,  then the  requested
Borrowing  shall be an ABR  Borrowing.  If no Interest  Period is specified with
respect to any  requested  Eurodollar  Borrowing,  then the  Borrowers  shall be
deemed to have  selected  an  Interest  Period  of one  month's  duration.  Each
Borrowing  Request  shall  constitute  a  representation  that the amount of the
requested  Borrowing  shall not cause the total  Revolving  Credit  Exposures to
exceed the Aggregate  Revolving  Commitments  (i.e., the lesser of the Aggregate
Maximum Revolving Credit Amounts and the then effective Borrowing Base).

Promptly  following  receipt  of a  Borrowing  Request in  accordance  with this
Section 2.03, the  Administrative  Agent shall advise each Lender of the details
thereof  and of the  amount  of  such  Lender's  Loan  to be made as part of the
requested Borrowing.

      Section 2.04 Interest Elections.

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

         (b) Interest  Election  Requests.  To make an election pursuant to this
Section  2.04,  the  Borrowers  shall  notify the  Administrative  Agent of such
election  by  telephone,  fax  (or  transmit  by  electronic  communication,  if
arrangements for doing so have been approved by the Administrative Agent) by the
time that a  Borrowing  Request  would be  required  under  Section  2.03 if the
Borrowers  were  requesting a Borrowing of the Type resulting from such election
to be made on the effective  date of such  election.  Each such  telephonic  (or
electronic  communication)  Interest  Election  Request shall be irrevocable and
shall be confirmed  promptly by hand delivery or telecopy to the  Administrative
Agent of a  written  Interest  Election  Request  in  substantially  the form of
Exhibit C and signed by the Borrowers.

         (c)  Information  in  Interest  Election  Requests.   Each  telephonic,
electronic communication and written Interest Election Request shall specify the
following information in compliance with Section 2.02:

            (i) the Borrowing to which such Interest  Election  Request  applies
and, if different  options are being elected with respect to different  portions
thereof,  the portions  thereof to be allocated to each resulting  Borrowing (in
which case the information to be specified pursuant to Section  2.04(c)(iii) and
(iv) shall be specified for each resulting Borrowing);

                                       24
<PAGE>

            (ii)  the  effective  date of the  election  made  pursuant  to such
Interest Election Request, which shall be a Business Day;

            (iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing and a Revolving Loan or a Term Loan; and

            (iv) if the  resulting  Borrowing  is a  Eurodollar  Borrowing,  the
Interest  Period to be applicable  thereto after giving effect to such election,
which shall be a period  contemplated  by the  definition of the term  "Interest
Period".

If any such Interest  Election Request requests a Eurodollar  Borrowing but does
not  specify an  Interest  Period,  then the  Borrowers  shall be deemed to have
selected an Interest Period of one month's duration.

         (d) Notice to Lenders by the Administrative  Agent.  Promptly following
receipt of an Interest Election Request,  the Administrative  Agent shall advise
each  Lender  of the  details  thereof  and of  such  Lender's  portion  of each
resulting Borrowing.

         (e) Effect of Failure to Deliver Timely Interest  Election  Request and
Events of Default  on  Interest  Election.  If the  Borrowers  fail to deliver a
timely Interest Election Request with respect to a Eurodollar Borrowing prior to
the end of the Interest Period applicable  thereto,  then, unless such Borrowing
is repaid as provided herein,  at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing.  Notwithstanding  any contrary provision
hereof,  if an  Event  of  Default  has  occurred  and  is  continuing:  (i)  no
outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing
(and any Interest Election Request that requests the conversion of any Borrowing
to,  or  continuation  of any  Borrowing  as, a  Eurodollar  Borrowing  shall be
ineffective)  and  (ii)  unless  repaid,  each  Eurodollar  Borrowing  shall  be
converted  to an ABR  Borrowing  at the end of the  Interest  Period  applicable
thereto.

      Section 2.05 Funding of Borrowings.

         (a) Funding by Lenders.  Each Lender shall make each Loan to be made by
it  hereunder  on the  proposed  date  thereof by wire  transfer of  immediately
available  funds by 1:00  p.m.,  New  York  City  time,  to the  account  of the
Administrative  Agent most recently  designated by it for such purpose by notice
to the Lenders.  The Administrative  Agent will make such Loans available to the
Borrowers by wire  transferring the amounts so received (on the same day if such
funds are received by the  Administrative  Agent by 1:00 p.m. New York City time
or on the next Business Day if received by the  Administrative  Agent after 1:00
p.m. New York City time),  in like funds,  to an account of one of the Borrowers
and designated by the Borrowers in the applicable  Borrowing  Request;  provided
that ABR Loans  made to  finance  the  reimbursement  of an LC  Disbursement  as
provided in Section 2.08(f) shall be remitted by the Administrative Agent to the
Issuing Bank (or the Underlying Issuer).

         (b)  Presumption of Funding by the Lenders.  Unless the  Administrative
Agent shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the  Administrative  Agent
such Lender's share of such Borrowing,  the Administrative Agent may assume that
such  Lender  has made such  share  available  on such date in  accordance  with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrowers a  corresponding  amount.  In such event,  if a Lender has not in fact
made its  share of the  applicable  Borrowing  available  to the  Administrative
Agent,  then the applicable  Lender and the Borrowers  severally agree to pay to
the  Administrative  Agent  forthwith on demand such  corresponding  amount with
interest  thereon,  for each day from and including the date such amount is made
available  to  the  Borrowers  to but  excluding  the  date  of  payment  to the
Administrative  Agent,  at (i) in the case of such  Lender,  the  greater of the
Federal Funds Effective Rate and a rate determined by the  Administrative  Agent
in accordance with banking  industry rules on interbank  compensation or (ii) in
the case of the Borrowers,  the interest rate  applicable to ABR Loans.  If such
Lender  pays such amount to the  Administrative  Agent,  then such amount  shall
constitute such Lender's Loan included in such Borrowing.

                                       25
<PAGE>

      Section 2.06  Termination  and  Reduction of Aggregate  Maximum  Revolving
Credit Amounts.

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

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

            (i) The  Borrowers may at any time  terminate,  or from time to time
reduce,  the Aggregate Maximum Revolving Credit Amounts;  provided that (A) each
reduction of the  Aggregate  Maximum  Revolving  Credit  Amounts  shall be in an
amount that is an integral multiple of $500,000 and not less than $1,000,000 and
(B) the Borrowers shall not terminate or reduce the Aggregate  Maximum Revolving
Credit  Amounts if,  after giving  effect to any  concurrent  prepayment  of the
Revolving Loans in accordance with Section  3.04(c),  the total Revolving Credit
Exposures would exceed the Aggregate Revolving Commitments.

            (ii) The  Borrowers  shall  notify the  Administrative  Agent of any
election to terminate or reduce the Aggregate  Maximum  Revolving Credit Amounts
under  Section  2.06(b)(i)  at least three  Business Days prior to the effective
date  of  such  termination  or  reduction,  specifying  such  election  and the
effective  date  thereof.   Promptly   following  receipt  of  any  notice,  the
Administrative  Agent shall  advise the Lenders of the  contents  thereof.  Each
notice delivered by the Borrowers pursuant to this Section  2.06(b)(ii) shall be
irrevocable;  provided that a notice of  termination  of the  Aggregate  Maximum
Revolving  Credit Amounts  delivered by the Borrowers may state that such notice
is conditioned upon the effectiveness of other credit facilities,  in which case
such  notice may be revoked by the  Borrowers  (by notice to the  Administrative
Agent on or prior to the  specified  effective  date) if such  condition  is not
satisfied.  Any  termination  or reduction of the  Aggregate  Maximum  Revolving
Credit Amounts shall be permanent and may not be  reinstated.  Each reduction of
the Aggregate  Maximum  Revolving Credit Amounts shall be made ratably among the
Lenders in accordance with each Lender's Applicable Percentage.

                                       26
<PAGE>

      Section 2.07 Borrowing Base.

         (a)  Initial  Borrowing  Base.  For the period from and  including  the
Effective  Date to but excluding the first  Redetermination  Date, the amount of
the Borrowing  Base shall be  $100,000,000.  The Borrowing  Base shall include a
reserve against availability in the amount of the outstanding  principal balance
of the Term Loans plus the undrawn face amount of letters of credit permitted by
Section  9.02(j)(ii).  Notwithstanding  the  foregoing,  the  Borrowing  Base is
subject to further  adjustments from time to time pursuant to Section 8.13(c) or
Section 9.12.

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

         (c) Scheduled and Interim Redetermination Procedure.

            (i) Each Scheduled  Redetermination and each Interim Redetermination
shall be effectuated as follows: Upon receipt by the Administrative Agent of (A)
the Reserve Report and the certificate required to be delivered by the Borrowers
to  the  Administrative  Agent,  in the  case  of a  Scheduled  Redetermination,
pursuant  to  Section   8.12(a)  and  (c),  and,  in  the  case  of  an  Interim
Redetermination,  pursuant  to  Section  8.  12(b) and (c),  and (B) such  other
reports, data and supplemental information,  including,  without limitation, the
information  provided pursuant to Section 8.12(c), as may, from time to time, be
reasonably requested by the Majority Borrowing Base Lenders (the Reserve Report,
such certificate and such other reports, data and supplemental information being
the  "Engineering  Reports"),   the  Administrative  Agent  shall  evaluate  the
information  contained  in the  Engineering  Reports  and  shall,  in  its  sole
discretion,  propose a new Borrowing Base (the "Proposed  Borrowing Base") based
upon such information and such other information (including, without limitation,
the status of title  information  with respect to the Oil and Gas  Properties as
described in the Engineering Reports and the existence of any other Debt) as the
Administrative  Agent deems  appropriate  and consistent with its normal oil and
gas lending  criteria as it exists at the particular time. In no event shall the
Proposed Borrowing Base exceed the Aggregate Maximum Revolving Credit Amounts.

            (ii) The  Administrative  Agent shall notify the  Borrowers  and the
Lenders of the Proposed Borrowing Base (the "Proposed Borrowing Base Notice"):

                                       27
<PAGE>

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

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

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

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

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

                                       28
<PAGE>

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

Such  amount  shall then  become  the  Borrowing  Base until the next  Scheduled
Redetermination  Date,  the  next  Interim  Redetermination  Date  or  the  next
adjustment  to the  Borrowing  Base  under  Section  8.13(c)  or  Section  9.12,
whichever   occurs   first.   Notwithstanding   the   foregoing,   no  Scheduled
Redetermination or Interim  Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrowers.

         Section 2.08      Letters of Credit.

         (a) General.  Subject to the terms and conditions set forth herein, the
Borrowers may request the issuance of dollar  denominated  Letters of Credit for
its  own  account  or for  the  account  of any of its  Subsidiaries,  in a form
reasonably  acceptable to the Administrative  Agent and the Issuing Bank, at any
time and from time to time during the Availability  Period.  In the event of any
inconsistency  between the terms and  conditions of this Agreement and the terms
and conditions of any form of letter of credit  application  or other  agreement
submitted by one or both of the  Borrowers to, or entered into by one or both of
the Borrowers  with,  the Issuing Bank (or  Underlying  Issuer)  relating to any
Letter of Credit,  the terms and  conditions of this  Agreement  shall  control.
Until the  Lenders  have made Term Loans in the  aggregate  principal  amount of
$50,000,000,  the Issuing Bank shall issue Letters of Credit or decline to issue
Letters of Credit in its discretion.

         (b)  Notice  of  Issuance,   Amendment,   Renewal,  Extension;  Certain
Conditions.  To request the  issuance  of a Letter of Credit (or the  amendment,
renewal or extension of an outstanding Letter of Credit), a Responsible  Officer
of one or both of the  Borrowers  shall hand deliver or telecopy (or transmit by
electronic communication, if arrangements for doing so have been approved by the
Issuing  Bank) to the Issuing Bank and the  Administrative  Agent (not less than
three (3) Business Days in advance of the requested date of issuance, amendment,
renewal or extension) a notice:

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

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

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

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

                                       29
<PAGE>

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

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

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

If  requested  by the Issuing Bank (or  Underlying  Issuer),  one or both of the
Borrowers also shall submit a letter of credit application on the Issuing Bank's
(or  Underlying  Issuer's)  standard form in  connection  with any request for a
Letter of Credit.

         (c) Expiration  Date. Each Letter of Credit shall expire at or prior to
the close of  business on the earlier of (i) the date one year after the date of
the  issuance  of such  Letter  of Credit  (or,  in the case of any  renewal  or
extension  thereof,  one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.

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

         (e)  Reimbursement.  If any LC Disbursement is made by the Issuing Bank
or an Underlying  Issuer in respect of a Letter of Credit,  the Borrowers agree,
jointly  and  severally,  to  reimburse  such LC  Disbursement  by paying to the
Administrative  Agent an amount  equal to such LC  Disbursement  not later  than
12:00 noon, New York City time, on the date that such LC  Disbursement  is made,
if the Borrowers  shall have received  notice of such LC  Disbursement  prior to
10:00 a.m.,  New York City time,  on such date,  or, if such notice has not been
received by the Borrowers  prior to such time on such date,  then not later than
12:00 noon,  New York City time, on the Business Day  immediately  following the
day  that  the  Borrowers  receive  such  notice;   provided  that  if  such  LC
Disbursement  is equal to or  greater  than  $1,000,000,  the  Borrowers  shall,
subject to the  conditions  to  Borrowing  set forth  herein,  be deemed to have
requested,  and the Borrowers do hereby request under such  circumstances,  that
such LC Disbursement  be financed with an ABR Borrowing in an equivalent  amount
and, to the extent so financed,  the Borrowers'  obligation to make such payment
shall  be  discharged  and  replaced  by the  resulting  ABR  Borrowing.  If the
Borrowers  fail to make such payment when due,  the  Administrative  Agent shall
notify each Lender of the applicable LC Disbursement,  the payment then due from
the Borrowers in respect thereof and such Lender's Applicable Percentage thereof
Promptly  following  receipt  of  such  notice,  each  Lender  shall  pay to the
Administrative Agent its Applicable  Percentage of the payment then due from the
Borrowers,  in the same manner as provided in Section 2.05 with respect to Loans
made by such Lender (and  Section  2.05 shall apply,  mutatis  mutandis,  to the
payment obligations of the Lenders), and the Administrative Agent shall promptly
pay to the Issuing Bank (or the Underlying Issuer) the amounts so received by it
from the Lenders.  Promptly following receipt by the Administrative Agent of any
payment from the Borrowers pursuant to this Section 2.08(e),  the Administrative
Agent  shall  distribute  such  payment to the Issuing  Bank (or the  Underlying
Issuer)  or, to the extent  that  Lenders  have made  payments  pursuant to this
Section 2.08(e) to reimburse the Issuing Bank (or the Underlying  Issuer),  then
to such  Lenders  and the  Issuing  Bank  (or the  Underlying  Issuer)  as their
interests  may appear.  Any payment  made by a Lender  pursuant to this  Section
2.08(e) to  reimburse  the Issuing  Bank (or the  Underlying  Issuer) for any LC
Disbursement  (other than the funding of ABR Loans as contemplated  above) shall
not constitute a Loan and shall not relieve the Borrowers of their obligation to
reimburse such LC Disbursement.

                                       30
<PAGE>

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

                                       31
<PAGE>

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

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

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

                                       32
<PAGE>

         (j) Cash Collateralization. If (i) any Event of Default shall occur and
be continuing and the Borrowers receive notice from the Administrative  Agent or
the Majority Lenders  demanding the deposit of cash collateral  pursuant to this
Section  2.08(j),  (ii) the  Revolving  Commitment is  terminated,  or (iii) the
Borrowers  are  required  to  pay  to  the   Administrative   Agent  the  excess
attributable  to an LC Exposure in connection  with any  prepayment  pursuant to
Section  3.04(c),  then the  Borrowers  shall  deposit,  in an account  with the
Administrative  Agent,  in the  name  of the  Administrative  Agent  and for the
benefit of the  Lenders,  an amount in cash equal to, in the case of an Event of
Default or termination of the Revolving Commitment, 105% of the LC Exposure, and
in the case of a payment required by Section 3.04(c),  the amount of such excess
as  provided  in Section  3.04(c),  as of such date plus any  accrued and unpaid
interest  thereon;  provided that the obligation to deposit such cash collateral
shall become effective  immediately,  and such deposit shall become  immediately
due and payable, without demand or other notice of any kind, upon the occurrence
of any  Event  of  Default  with  respect  to the  Borrowers  or any  Subsidiary
described in Section 10.0l(h) or Section 10.01(i). The Borrowers hereby grant to
the  Administrative  Agent,  for the benefit of the Issuing Bank (and Underlying
Issuer) and the Lenders,  an exclusive  first priority and continuing  perfected
security  interest  in and Lien on such  account and all cash,  checks,  drafts,
certificates  and  instruments,  if any, from time to time  deposited or held in
such  account,  all  deposits  or  wire  transfers  made  thereto,  any  and all
investments  purchased  with funds  deposited  in such  account,  all  interest,
dividends,  cash, instruments,  financial assets and other Property from time to
time  received,  receivable  or otherwise  payable in respect of, or in exchange
for, any or all of the foregoing, and all proceeds, products, accessions, rents,
profits,  income and benefits therefrom,  and any substitutions and replacements
therefor.  The Borrowers' obligation to deposit amounts pursuant to this Section
2.08(j)  shall be  absolute  and  unconditional,  without  regard to whether any
beneficiary  of any such  Letter of Credit has  attempted  to draw down all or a
portion  of such  amount  under  the terms of a Letter of  Credit,  and,  to the
fullest extent  permitted by applicable law, shall not be subject to any defense
or be affected  by a right of  set-off,  counterclaim  or  recoupment  which the
Borrowers or any of its  Subsidiaries may now or hereafter have against any such
beneficiary,  the Issuing Bank (or Underlying Issuer), the Administrative Agent,
the Lenders or any other Person for any reason whatsoever. Such deposit shall be
held as collateral  securing the payment and  performance  of the Borrowers' and
the Guarantor's  obligations  under this Agreement and the other Loan Documents.
The Administrative  Agent shall have exclusive  dominion and control,  including
the exclusive right of withdrawal,  over such account. Interest, if any, on such
deposit  shall  accumulate  in such  account.  Moneys in such  account  shall be
applied by the Administrative Agent to reimburse the Issuing Bank (or Underlying
Issuer)  for  fees,  expenses  and LC  Disbursements  for  which it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the  reimbursement  obligations  of the Borrowers for the LC Exposure at such
time or, if the  maturity  of the  Loans has been  accelerated,  be  applied  to
satisfy  other  obligations  of the  Borrowers  and the  Guarantors  under  this
Agreement or the other Loan Documents.  If the Borrowers are required to provide
an amount of cash collateral hereunder as a result of the occurrence of an Event
of  Default,  and  the  Borrowers  are  not  otherwise  required  to  pay to the
Administrative  Agent the excess  attributable  to an LC Exposure in  connection
with any prepayment pursuant to Section 3.04(c), then such amount (to the extent
not  applied as  aforesaid)  shall be  returned to the  Borrowers  within  three
Business Days after all Events of Default have been cured or waived.

                                       33
<PAGE>

                                   ARTICLE III
              Payments of Principal and Interest; Prepayments; Fees

      Section 3.01  Repayment of Loans.  The  Borrowers  hereby  unconditionally
promise to pay to the  Administrative  Agent for the  account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.

      Section 3.02 Interest.

         (a) ABR Loans.  The Revolving Loans comprising each ABR Borrowing shall
bear  interest at the  Alternate  Base Rate plus  three-quarters  of one percent
(0.75%) per annum,  but in no event to exceed the Highest  Lawful Rate. The Term
Loans  comprising  each ABR Borrowing  shall bear interest at the Alternate Base
Rate plus two and one-half of one percent (2.50%) per annum,  but in no event to
exceed the Highest Lawful Rate.

         (b) Eurodollar  Loans.  The Revolving Loans  comprising each Eurodollar
Borrowing  shall bear interest at the Adjusted LIBO Rate for the Interest Period
in effect for such Borrowing plus one and  three-quarters of one percent (1.75%)
per annum,  but in no event to exceed the Highest  Lawful  Rate.  The Term Loans
comprising  each  Eurodollar  Borrowing shall bear interest at the Adjusted LIBO
Rate for the  Interest  Period  in  effect  for such  Borrowing  plus  three and
one-quarter  of one  percent  (3.25%)  per annum,  but in no event to exceed the
Highest Lawful Rate.

         (c) Post-Default Rate.  Notwithstanding the foregoing, if any principal
of or interest on any Loan or any fee or other amount  payable by the  Borrowers
or any  Guarantor  hereunder  or under any other Loan  Document is not paid when
due,  whether  at  stated  maturity,   upon   acceleration  or  otherwise,   the
Indebtedness  shall bear interest,  after as well as before judgment,  at a rate
per annum equal to two and one-half  percent (2.5%) plus the rate  applicable to
ABR Loans as provided in Section 3.02(a),  but in no event to exceed the Highest
Lawful Rate.

         (d)  Interest  Payment  Dates.  Accrued  interest on each Loan shall be
payable  in  arrears  on each  Interest  Payment  Date for such  Loan and on the
Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c)
shall be payable on demand,  (ii) in the event of any repayment or prepayment of
any  Loan  (other  than an  optional  prepayment  of an ABR  Loan  prior  to the
Termination  Date),  accrued  interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or  prepayment,  and (iii) in the
event of any conversion of any  Eurodollar  Loan prior to the end of the current
Interest Period therefor,  accrued interest on such Loan shall be payable on the
effective date of such conversion.

         (e)  Interest  Rate  Computations.  All  interest  hereunder  shall  be
computed  on the  basis of a year of 360 days,  unless  such  computation  would
exceed the Highest  Lawful Rate, in which case interest shall be computed on the
basis of a year of 365 days (or 366 days in a leap year),  except that  interest
computed by reference  to the  Alternate  Base Rate at times when the  Alternate
Base Rate is based on the Prime Rate shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and in each case shall be payable for the
actual  number of days elapsed  (including  the first day but excluding the last
day). The applicable  Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall
be determined  by the  Administrative  Agent,  and such  determination  shall be
conclusive absent manifest error, and be binding upon the parties hereto.

                                       34
<PAGE>

      Section 3.03 Alternate Rate of Interest.  If prior to the  commencement of
any Interest Period for a Eurodollar Borrowing:

         (a) the Administrative  Agent determines (which  determination shall be
conclusive  absent  manifest  error) that adequate and  reasonable  means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest
Period; or

         (b) the  Administrative  Agent is advised by the Majority  Lenders that
the Adjusted LIBO Rate or LIBO Rate,  as  applicable,  for such Interest  Period
will not  adequately  and fairly  reflect the cost to such  Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrowers and the
Lenders by  telephone  or telecopy as promptly as  practicable  thereafter  and,
until the  Administrative  Agent notifies the Borrowers and the Lenders that the
circumstances  giving  rise to such  notice no longer  exist,  (i) any  Interest
Election   Request  that  requests  the  conversion  of  any  Borrowing  to,  or
continuation  of any Borrowing as, a Eurodollar  Borrowing shall be ineffective,
and  (ii)  if any  Borrowing  Request  requests  a  Eurodollar  Borrowing,  such
Borrowing shall be made as an ABR Borrowing.

      Section 3.04 Prepayments.

         (a) Optional Prepayments. The Borrowers shall have the right at anytime
and from time to time to prepay any  Borrowing  in whole or in part,  subject to
prior notice in accordance with Section 3.04(b).

         (b) Notice and Terms of Optional Prepayment. The Borrowers shall notify
the Administrative  Agent by telephone and/or fax (confirmed by telecopy) of any
prepayment  hereunder (i) in the case of  prepayment of a Eurodollar  Borrowing,
not later than 12:00 noon,  New York City time,  three  Business Days before the
date of prepayment,  or (ii) in the case of prepayment of an ABR Borrowing,  not
later than 12:00 noon, New York City time, on the date of prepayment.  Each such
notice  shall be  irrevocable  and shall  specify  the  prepayment  date and the
principal  amount of each Borrowing or portion  thereof to be prepaid.  Promptly
following receipt of any such notice relating to a Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof.  Each partial prepayment
of any Borrowing shall be in an amount that would be permitted in the case of an
advance  of a  Borrowing  of the same Type as  provided  in Section  2.02.  Each
prepayment of a Borrowing  shall be applied ratably to the Loans included in the
prepaid  Borrowing.  Prepayments shall be accompanied by accrued interest to the
extent required by Section 3.02.

         (c) Mandatory Prepayments.

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

                                       35
<PAGE>

            (ii) Upon any  redetermination of or adjustment to the amount of the
Borrowing Base in accordance with Section 2.07 or Section 8.13(c),  if the total
Revolving Credit Exposures exceeds the redetermined or adjusted  Borrowing Base,
then the Borrowers  shall (A) prepay the  Borrowings  in an aggregate  principal
amount equal to such excess,  and (B) if any excess remains after  prepaying all
of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent
on behalf of the Lenders and the Issuing Bank (and Underlying  Issuer) an amount
equal to such  excess  to be held as cash  collateral  as  provided  in  Section
2.08(j). The Borrowers shall be obligated to make such prepayment and/or deposit
of cash  collateral  within  ninety (90) days  following  its receipt of the New
Borrowing  Base  Notice  in  accordance  with  Section  2.07(d)  or the date the
adjustment  occurs;  provided that all payments  required to be made pursuant to
this Section 3.04(c)(ii) must be made on or prior to the Termination Date.

            (iii) Upon any adjustments to the Borrowing Base pursuant to Section
9.12, if the total  Revolving  Credit  Exposures  exceeds the Borrowing  Base as
adjusted,  then the  Borrowers  shall (A) prepay the  Borrowings in an aggregate
principal  amount  equal to such  excess,  and (B) if any excess  remains  after
prepaying  all of the  Borrowings  as a  result  of an LC  Exposure,  pay to the
Administrative  Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section  2.08(j).  The Borrowers shall
be obligated to make such  prepayment  and/or deposit of cash  collateral on the
date  it  or  any  Subsidiary  receives  cash  proceeds  as  a  result  of  such
disposition;  provided  that all payments  required to be made  pursuant to this
Section 3.04(c)(iii) must be made on or prior to the Termination Date.

            (iv) Each prepayment of Borrowings  pursuant to this Section 3.04(c)
shall be applied,  first,  ratably to any ABR Borrowings then outstanding,  and,
second,  to any Eurodollar  Borrowings  then  outstanding,  and if more than one
Eurodollar  Borrowing is then outstanding,  to each such Eurodollar Borrowing in
order of priority beginning with the Eurodollar  Borrowing with the least number
of days remaining in the Interest Period applicable  thereto and ending with the
Eurodollar  Borrowing  with the most number of days  remaining  in the  Interest
Period applicable thereto.

            (v) Each  prepayment of Borrowings  pursuant to this Section 3.04(c)
shall be  applied  ratably  to the Loans  included  in the  prepaid  Borrowings.
Prepayments  pursuant to this Section  3.04(c) shall be  accompanied  by accrued
interest to the extent required by Section 3.02.

         (d) No Premium or Penalty. Prepayments permitted or required under this
Section  3.04 shall be without  premium or  penalty,  except as  required  under
Section 5.02.

      Section 3.05 Fees.

                                       36
<PAGE>

         (a) Letter of Credit Fees. The Borrowers agree,  jointly and severally,
to pay  (i) to the  Administrative  Agent  for the  account  of  each  Lender  a
participation fee with respect to its participations in Letters of Credit, which
shall  accrue  at one  and  three-quarters  of one  percent  (1.75%)  per  annum
(excluding any portion thereof  attributable  to unreimbursed LC  Disbursements)
during the period from and including the date of this Agreement to but excluding
the later of the date on which such Lender's Commitment  terminates and the date
on which such Lender  ceases to have any LC  Exposure,  (ii) to the Issuing Bank
(or Underlying  Issuer) a fronting fee, which shall accrue at the rate of 0.125%
per annum on the average daily amount of the LC Exposure  (excluding any portion
thereof  attributable to unreimbursed LC  Disbursements)  during the period from
and including the date of this  Agreement to but excluding the later of the date
of termination of the  Commitments  and the date on which there ceases to be any
LC Exposure,  provided  that in no event shall such fee be less than $500 during
any quarter,  and (iii) to the Issuing Bank (or Underlying Issuer),  for its own
account, its standard fees with respect to the issuance,  amendment,  renewal or
extension  of any  Letter  of  Credit  or  processing  of  drawings  thereunder.
Participation  fees accrued  through and including the last day of March,  June,
September  and December of each year shall be payable on the third  Business Day
following  such last day,  commencing  on the first such date to occur after the
date of this  Agreement;  provided  that all such fees  shall be  payable on the
Termination  Date and any such fees accruing after the Termination Date shall be
payable on demand.  Fronting Fees and any other fees payable to the Issuing Bank
(or Underlying  Issuer) pursuant to this Section 3.05(a) shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days,  unless such  computation  would  exceed the
Highest  Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap  year),  and  shall be  payable  for the
actual  number of days elapsed  (including  the first day but excluding the last
day).

         (b)  Administrative  Agent  Fees.  The  Borrowers  agree,  jointly  and
severally, to pay to the Administrative Agent, for its own account, fees payable
in the amounts and at the times separately agreed upon between the Borrowers and
the Administrative Agent.

         (c) Commitment Fee. The Borrowers shall pay to the Administrative Agent
for the account of the Lenders with  Revolving  Commitments a commitment  fee of
0.75% per annum on the  average  daily  amount  by which the  Aggregate  Maximum
Revolving  Credit Amounts  exceeds the total Revolving  Credit Exposure  payable
quarterly in arrears.

         (d)  Delayed  Draw  Facility  Fee.  Until  such  time as the Term  Loan
Commitment has expired,  the Borrowers shall pay to the Administrative Agent for
the account of the Lenders with Term Loan  Commitments  a delayed draw  facility
fee of 0.75% per annum on the average daily amount by which the  Aggregate  Term
Loan  Commitment  exceeds the  outstanding  principal  balance of the Term Loans
payable quarterly in arrears.

                                   ARTICLE IV
                Payments; Pro Rata Treatment; Sharing of Set-offs

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

                                       37
<PAGE>

         (a) Payments by the  Borrowers.  The Borrowers  shall make each payment
required to be made by it hereunder  (whether of  principal,  interest,  fees or
reimbursement  of LC  Disbursements,  or of amounts  payable under Section 5.01,
Section  5.02,  Section 5.03 or  otherwise)  prior to 12:00 noon,  New York City
time, on the date when due, in immediately  available  funds,  without  defense,
deduction,  recoupment,  set-off or counterclaim.  Fees, once paid, shall not be
refundable under any circumstances.  Any amounts received after such time on any
date may, in the discretion of the Administrative  Agent, be deemed to have been
received  on the  next  succeeding  Business  Day for  purposes  of  calculating
interest thereon, but shall be considered received on the date paid for purposes
of Section 10.01. All such payments shall be made to the Administrative Agent at
its offices  specified in Section 12.01,  except payments to be made directly to
the Issuing Bank (or Underlying  Issuer) as expressly provided herein and except
that payments pursuant to Section 5.01,  Section 5.02,  Section 5.03 and Section
12.03 shall be made directly to the Persons entitled thereto. The Administrative
Agent shall  distribute any such payments  received by it for the account of any
other Person to the appropriate  recipient promptly following receipt thereof as
provided in Section 4.01(d). If any payment hereunder shall be due on a day that
is not a  Business  Day,  the date for  payment  shall be  extended  to the next
succeeding  Business  Day,  and, in the case of any payment  accruing  interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

         (b) Application of Insufficient  Payments.  If at any time insufficient
funds are received by and available to the Administrative Agent to pay fully all
amounts of principal, unreimbursed LC Disbursements,  interest and fees then due
hereunder,  such funds shall, subject to Section 4.01 (d), be applied (i) first,
towards  payment of  interest  and fees then due  hereunder,  ratably  among the
parties  entitled  thereto in  accordance  with the amounts of interest and fees
then due to such  parties,  and (ii) second,  towards  payment of principal  and
unreimbursed  LC  Disbursements  then due  hereunder,  ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.

         (c) Sharing of Payments by Lenders.  If any Lender shall, by exercising
any right of set-off or counterclaim or otherwise,  obtain payment in respect of
any  principal  of or  interest  on any of its  Loans  or  participations  in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and  participations in LC Disbursements and
accrued  interest  thereon to which such Lender is entitled under this Agreement
than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the
Loans and  participations  in LC  Disbursements  of other  Lenders to the extent
necessary  so that the  benefit  of all such  payments  shall be  shared  by the
Lenders  ratably in  accordance  with the  aggregate  amount of principal of and
accrued   interest  on  their  respective   Loans  and   participations   in  LC
Disbursements;  provided that (i) if any such  participations  are purchased and
all or any  portion  of the  payment  giving  rise  thereto is  recovered,  such
participations  shall be rescinded and the purchase price restored to the extent
of such  recovery,  without  interest,  and (ii) the  provisions of this Section
4.01(c)  shall not be construed  to apply to any payment  made by the  Borrowers
pursuant to and in accordance  with the express  terms of this  Agreement or any
payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or  participations  in LC Disbursements to any
assignee  or  participant,  other than to the  Borrowers  or any  Subsidiary  or
Affiliate  thereof (as to which the  provisions  of this Section  4.01(c)  shall
apply).  The Borrowers  consent to the foregoing and agree, to the extent it may
effectively  do  so  under   applicable   law,  that  any  Lender   acquiring  a
participation pursuant to the foregoing arrangements may exercise against either
of the  Borrowers  rights of  set-off  and  counterclaim  with  respect  to such
participation as fully as if such Lender were a direct creditor of such Borrower
in the amount of such participation.

                                       38
<PAGE>

         (d)  Notwithstanding  anything  contained  herein to the contrary,  all
payments in respect of  Indebtedness  and all  proceeds of  Collateral  shall be
applied in the manner and order set forth in the Intercreditor Agreement.

      Section  4.02  Presumption  of  Payment  by  the  Borrowers.   Unless  the
Administrative  Agent shall have received notice from the Borrowers prior to the
date on which any payment is due to the Administrative  Agent for the account of
the Lenders or the Issuing Bank (or  Underlying  Issuer) that the Borrowers will
not make such payment,  the  Administrative  Agent may assume that the Borrowers
have made such payment on such date in accordance  herewith and may, in reliance
upon  such  assumption,  distribute  to the  Lenders  or the  Issuing  Bank  (or
Underlying  Issuer),  as the case may be, the amount due. In such event,  if the
Borrowers  have not in fact made such  payment,  then each of the Lenders or the
Issuing  Bank,  as  the  case  may  be,   severally   agrees  to  repay  to  the
Administrative  Agent  forthwith  on demand  the amount so  distributed  to such
Lender or Issuing Bank with  interest  thereon,  for each day from and including
the date such amount is  distributed  to it to but excluding the date of payment
to the Administrative  Agent, at the greater of the Federal Funds Effective Rate
and a rate  determined by the  Administrative  Agent in accordance  with banking
industry rules on interbank compensation.

      Section 4.03 Certain Deductions by the Administrative Agent. If any Lender
shall fail to make any  payment  required  to be made by it  pursuant to Section
2.05(a),   Section   2.08(d),   Section   2.08(e)  or  Section   4.02  then  the
Administrative  Agent  may,  in its  discretion  (notwithstanding  any  contrary
provision hereof),  apply any amounts thereafter  received by the Administrative
Agent for the account of such Lender to satisfy such Lender's  obligations under
such Sections until all such unsatisfied obligations are fully paid.

      Section 4.04 Disposition of Proceeds.  The Security Instruments contain an
assignment  by the  Borrowers  and/or  the  Guarantors  unto and in favor of the
Administrative  Agent for the benefit of the Lenders of all of the Borrowers' or
each  Guarantor's  interest in and to production  and all proceeds  attributable
thereto which may be produced from or allocated to the Mortgaged  Property.  The
Security  Instruments  further  provide in general for the  application  of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby.  Notwithstanding  the assignment  contained in such
Security Instruments, unless an Event of Default has occurred and is continuing,
(a) the Administrative Agent and the Lenders agree that they will neither notify
the  purchaser or  purchasers  of such  production  nor take any other action to
cause such proceeds to be remitted to the  Administrative  Agent or the Lenders,
but the Lenders will instead  permit such  proceeds to be paid to the  Borrowers
and their  Subsidiaries and (b) the Lenders hereby authorize the  Administrative
Agent to take such actions as may be necessary to cause such proceeds to be paid
to the Borrowers and/or such Subsidiaries.

                                       39
<PAGE>

                                    ARTICLE V
           Increased Costs; Break Funding Payments; Taxes; Illegality

      Section 5.01 Increased Costs.

         (a) Eurodollar Changes in Law. If any Change in Law shall:

            (i) impose,  modify or deem applicable any reserve,  special deposit
or similar  requirement  against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement reflected
in the Adjusted LIBO Rate); or

            (ii) impose on any Lender or the London  interbank  market any other
condition affecting this Agreement or Eurodollar Loans made by such Lender;

and the result of any of the  foregoing  shall be to  increase  the cost to such
Lender of making or  maintaining  any  Eurodollar  Loan (or of  maintaining  its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender  (whether of principal,  interest or otherwise),  then
the Borrowers will pay to such Lender such additional  amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

         (b) Capital Requirements.  If any Lender or the Issuing Bank determines
that any  Change in Law  regarding  capital  requirements  has or would have the
effect of reducing  the rate of return on such  Lender's  or the Issuing  Bank's
capital  or on the  capital  of such  Lender's  or the  Issuing  Bank's  holding
company,  if any, as a  consequence  of this  Agreement or the Loans made by, or
participations  in Letters of Credit  held by,  such  Lender,  or the Letters of
Credit  issued by the Issuing  Bank,  to a level below that which such Lender or
the Issuing Bank or such Lender's or the Issuing  Bank's  holding  company could
have  achieved  but for such  Change  in Law  (taking  into  consideration  such
Lender's or the Issuing Bank's policies and the policies of such Lender's or the
Issuing Bank's holding company with respect to capital adequacy), then from time
to time the  Borrowers  will pay to such Lender or the Issuing Bank, as the case
may be, such additional  amount or amounts as will compensate such Lender or the
Issuing Bank or such Lender's or the Issuing Bank's holding company for any such
reduction suffered.

         (c) Certificates. A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts  necessary to compensate  such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in Section 5.01(a)
or (b)  shall be  delivered  to the  Borrowers  and shall be  conclusive  absent
manifest error.  The Borrowers shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate  within 10 Business
Days after receipt thereof.

         (d) Effect of Failure or Delay in Requesting  Compensation.  Failure or
delay on the part of any  Lender  or the  Issuing  Bank to  demand  compensation
pursuant to this Section 5.01 shall not  constitute a waiver of such Lender's or
the  Issuing  Bank's  right  to  demand  such  compensation;  provided  that the
Borrowers  shall not be required  to  compensate  a Lender or the  Issuing  Bank
pursuant to this Section 5.01 for any  increased  costs or  reductions  incurred
more than 180 days prior to the date that such  Lender or the Issuing  Bank,  as
the case may be, notifies the Borrowers of the Change in Law giving rise to such
increased  costs  or  reductions  and of such  Lender's  or the  Issuing  Bank's
intention to claim compensation  therefor;  provided further that, if the Change
in Law giving rise to such increased  costs or reductions is  retroactive,  then
the 180- day period referred to above shall be extended to include the period of
retroactive effect thereof.

                                       40
<PAGE>

      Section 5.02 Break  Funding  Payments.  In the event of (a) the payment of
any principal of any  Eurodollar  Loan other than on the last day of an Interest
Period applicable  thereto  (including as a result of an Event of Default),  (b)
the  conversion of any  Eurodollar  Loan into an ABR Loan other than on the last
day of the Interest  Period  applicable  thereto,  or (c) the failure to borrow,
convert,  continue or prepay any  Eurodollar  Loan on the date  specified in any
notice delivered  pursuant hereto,  or (d) the assignment of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by the  Borrowers  pursuant to Section  5.04(b),  then, in any such
event, the Borrowers shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender  shall be deemed to include an amount  determined  by such
Lender to be the excess,  if any, of (i) the amount of interest which would have
accrued on the principal amount of such Loan had such event not occurred, at the
Adjusted LIBO Rate that would have been  applicable to such Loan, for the period
from the date of such event to the last day of the then current  Interest Period
therefor (or, in the case of a failure to borrow,  convert or continue,  for the
period that would have been the  Interest  Period for such Loan),  over (ii) the
amount of interest which would accrue on such  principal  amount for such period
at the  interest  rate  which  such  Lender  would  bid  were it to bid,  at the
commencement  of such period,  for dollar  deposits of a  comparable  amount and
period from other banks in the eurodollar market.

A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive  pursuant to this  Section 5.02 shall be delivered to the
Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay
such Lender the amount shown as due on any such  certificate  within 10 Business
Days after receipt thereof.

      Section 5.03 Taxes.

         (a)  Payments  Free of Taxes.  Any and all payments by or on account of
any  obligation  of  either of the  Borrowers  or any  Guarantor  under any Loan
Document  shall  be  made  free  and  clear  of and  without  deduction  for any
Indemnified  Taxes or Other Taxes;  provided  that if either of the Borrowers or
any Guarantor shall be required to deduct any  Indemnified  Taxes or Other Taxes
from such payments,  then (i) the sum payable shall be increased as necessary so
that after making all required deductions  (including  deductions  applicable to
additional  sums payable under this Section  5.03),  the  Administrative  Agent,
Lender or Issuing  Bank (as the case may be) receives an amount equal to the sum
it would have received had no such  deductions  been made, (ii) the Borrowers or
such  Guarantor  shall  make such  deductions  and (iii) the  Borrowers  or such
Guarantor  shall  pay the full  amount  deducted  to the  relevant  Governmental
Authority in accordance with applicable law.

         (b) Payment of Other Taxes by the  Borrowers.  The Borrowers  shall pay
any Other  Taxes to the  relevant  Governmental  Authority  in  accordance  with
applicable law.

         (c) Indemnification by the Borrowers. The Borrowers shall indemnify the
Administrative  Agent, each Lender and the Issuing Bank, within 10 Business Days
after written demand therefor,  for the full amount of any Indemnified  Taxes or
Other Taxes paid by the  Administrative  Agent, such Lender or the Issuing Bank,
as the case may be, on or with  respect  to any  payment by or on account of any
obligation  of the Borrowers  hereunder  (including  Indemnified  Taxes or Other
Taxes  imposed or  asserted on or  attributable  to amounts  payable  under this
Section  5.03) and any  penalties,  interest  and  reasonable  expenses  arising
therefrom  or with respect  thereto,  whether or not such  Indemnified  Taxes or
Other  Taxes were  correctly  or legally  imposed or  asserted  by the  relevant
Governmental  Authority.  A certificate of the Administrative Agent, a Lender or
the  Issuing  Bank as to the  amount of such  payment  or  liability  under this
Section 5.03 shall be delivered to the Borrowers and shall be conclusive  absent
manifest error.

         (d) Evidence of Payments.  As soon as practicable  after any payment of
Indemnified  Taxes  or  Other  Taxes  by  the  Borrowers  or  a  Guarantor  to a
Governmental Authority,  the Borrowers shall deliver to the Administrative Agent
the  original  or a  certified  copy of a receipt  issued  by such  Governmental
Authority  evidencing such payment,  a copy of the return reporting such payment
or other evidence of such payment reasonably  satisfactory to the Administrative
Agent.

                                       41
<PAGE>

         (e)  Foreign  Lenders.  Any  Foreign  Lender  that  is  entitled  to an
exemption from or reduction of withholding tax under the law of the jurisdiction
in which the Borrowers are located,  or any treaty to which such jurisdiction is
a party,  with  respect  to  payments  under  this  Agreement  or any other Loan
Document  shall  deliver  to the  Borrowers  (with a copy to the  Administrative
Agent),  at the  time or times  prescribed  by  applicable  law,  such  properly
completed and executed documentation  prescribed by applicable law or reasonably
requested  by the  Borrowers  as will  permit such  payments to be made  without
withholding or at a reduced rate.

      Section 5.04 Mitigation Obligations; Replacement of Lenders.

         (a)  Designation of Different  Lending  Office.  If any Lender requests
compensation  under  Section  5.01,  or if the Borrowers are required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender  pursuant  to Section  5.03,  then such Lender  shall use  reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder  or to assign its rights and  obligations  hereunder to another of its
offices,  branches  or  affiliates,  if, in the  judgment of such  Lender,  such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to  Section  5.01 or  Section  5.03,  as the case may be, in the future and (ii)
would not subject such Lender to any unreimbursed  cost or expense and would not
otherwise be  disadvantageous  to such Lender. The Borrowers hereby agree to pay
all reasonable costs and expenses  incurred by any Lender in connection with any
such designation or assignment.

         (b) Replacement of Lenders.  If any Lender requests  compensation under
Section 5.01, or if the Borrowers are required to pay any  additional  amount to
any Lender or any Governmental  Authority for the account of any Lender pursuant
to Section  5.03,  or if any Lender  defaults  in its  obligation  to fund Loans
hereunder,  or if any Lender is  prevented  from making  Eurodollar  Loans under
Section  5.05,  or if any  Lender  or  Lenders  decline  to vote in  favor of an
amendment, waiver or other modification recommended by the Administrative Agent,
then the  Borrowers  may, at their sole expense and effort,  upon notice to such
Lender and the  Administrative  Agent,  require such Lender or Lenders to assign
and  delegate,   without  recourse  (in  accordance  with  and  subject  to  the
restrictions contained in Section 12.04(b), all its (or their) interests, rights
and  obligations  under this Agreement to an assignee (or assignees)  that shall
assume such  obligations  (which  assignee  may be another  Lender,  if a Lender
accepts such  assignment);  provided that (i) the Borrowers  shall have received
the prior written consent of the  Administrative  Agent, which consent shall not
unreasonably  be  withheld,  (ii) such Lender (or Lenders)  shall have  received
payment  of an  amount  equal to the  outstanding  principal  of its  Loans  and
participations in LC Disbursements,  accrued interest thereon,  accrued fees and
all other amounts  payable to it hereunder,  from the assignee (to the extent of
such  outstanding  principal and accrued interest and fees) or the Borrowers (in
the case of all  other  amounts)  and  (iii) in the case of any such  assignment
resulting from a claim for compensation  under Section 5.01 or payments required
to be made pursuant to Section 5.03,  such assignment will result in a reduction
in such  compensation  or  payments.  A Lender shall not be required to make any
such  assignment and  delegation  if, prior thereto,  as a result of a waiver by
such Lender or otherwise,  the circumstances  entitling the Borrowers to require
such assignment and delegation cease to apply.

                                       42
<PAGE>

      Section  5.05  Illegality.  Notwithstanding  any other  provision  of this
Agreement,  in the  event  that  it  becomes  unlawful  for  any  Lender  or its
applicable lending office to honor its obligation to make or maintain Eurodollar
Loans either generally or having a particular  Interest Period  hereunder,  then
(a) such Lender shall promptly notify the Borrowers and the Administrative Agent
thereof and such  Lender's  obligation  to make such  Eurodollar  Loans shall be
suspended (the  "Affected  Loans") until such time as such Lender may again make
and  maintain  such  Eurodollar  Loans and (b) all  Affected  Loans  which would
otherwise  be made by such Lender  shall be made  instead as ABR Loans (and,  if
such Lender so requests by notice to the Borrowers and the Administrative Agent,
all  Affected  Loans of such  Lender  then  outstanding  shall be  automatically
converted  into ABR Loans on the date  specified  by such Lender in such notice)
and, to the extent that Affected  Loans are so made as (or  converted  into) ABR
Loans,  all  payments  of  principal  which would  otherwise  be applied to such
Lender's Affected Loans shall be applied instead to its ABR Loans.

                                   ARTICLE VI
                              Conditions Precedent

      Section 6.01 Effective  Date. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue  Letters of Credit  hereunder  shall not become
effective until the date on which each of the following  conditions is satisfied
(or waived in accordance with Section 12.02):

         (a) The  Administrative  Agent, the Arranger and the Lenders shall have
received all fees and other amounts due and payable on or prior to the Effective
Date,  including,  to the  extent  invoiced,  reimbursement  or  payment  of all
out-of-pocket  expenses  required  to be  reimbursed  or paid  by the  Borrowers
hereunder.

         (b) The  Administrative  Agent shall have received a certificate of the
Secretary or an Assistant  Secretary of each of the Borrowers and each Guarantor
setting  forth (i)  resolutions  of its Board of  Directors  with respect to the
authorization of the Borrowers or such Guarantor to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions contemplated
in those documents, (ii) the officers of the Borrowers or such Guarantor (y) who
are  authorized  to sign  the Loan  Documents  to which  the  Borrowers  or such
Guarantor  is a party and (z) who will,  until  replaced  by another  officer or
officers duly  authorized for that purpose,  act as its  representative  for the
purposes of signing  documents and giving  notices and other  communications  in
connection with this Agreement and the transactions  contemplated  hereby, (iii)
specimen  signatures  of such  authorized  officers,  and (iv) the  articles  or
certificate of incorporation and bylaws (or other  organizational  documents) of
the Borrowers  and such  Guarantor,  certified as being true and  complete.  The
Administrative  Agent and the Lenders may conclusively  rely on such certificate
until the Administrative  Agent receives notice in writing from the Borrowers or
any Guarantor to the contrary.

                                       43
<PAGE>

         (c) The  Administrative  Agent shall have received  certificates of the
appropriate State agencies with respect to the existence, qualification and good
standing of the Borrowers and each Guarantor.

         (d)  The   Administrative   Agent  shall  have  received  a  compliance
certificate  which  shall be  substantially  in the form of  Exhibit D, duly and
properly  executed by a Responsible  Officer and dated as of the Effective Date.
(e) The  Administrative  Agent  shall  have  received  from  each  party  hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party.

         (f) The  Administrative  Agent shall have received duly executed Notes,
if requested, payable to the order of each Lender in a principal amount equal to
its Maximum  Revolving  Credit Amount or Term Loan  Commitment,  if  applicable,
dated as of the date hereof.

         (g) The Administrative  Agent shall have received an aged trial balance
of trade payables acceptable in substance to the Administrative Agent.

         (h) The  Administrative  Agent  shall  have  received  from each  party
thereto duly  executed  counterparts  (in such number as may be requested by the
Administrative  Agent)  of the  Security  Instruments,  including  the  Guaranty
Agreement,  the Security Agreement and the other Security Instruments  described
on Exhibit F-l. In  connection  with the  execution and delivery of the Security
Instruments, the Administrative Agent shall:

            (i) be reasonably  satisfied  that the Security  Instruments  create
first priority,  perfected  Liens (subject only to Excepted Liens  identified in
clauses  (a) to (d)  and  (f) of the  definition  thereof,  but  subject  to the
provisos  at the end of such  definition)  on at least 80% of the total value of
the Oil and Gas Properties evaluated in the Initial Reserve Report; and

            (ii) be  reasonably  satisfied  that  it has a Lien on all  Property
constituting security for the Second Lien Term Loan Agreement.

         (i) The  Administrative  Agent shall have received a  certificate  of a
Responsible Officer of one of the Borrowers  certifying that the Borrowers shall
be  contemporaneously  closing the Second Lien Term Loan  Agreement  which shall
result in gross cash proceeds of $ 100,000,000.

                                       44
<PAGE>

         (j) The  Administrative  Agent  shall have  received  an opinion of (i)
Stinson Morrison Hecker LLP, counsel to the Borrowers, substantially in the form
of  Exhibit  E-1  hereto,  and (ii)  local  counsel  in  Oklahoma  and any other
jurisdictions  requested by the Administrative Agent,  substantially in the form
of Exhibit E-2.

         (k) The  Administrative  Agent  shall have  received a  certificate  of
insurance  coverage of the Borrowers  evidencing that the Borrowers are carrying
insurance in accordance  with Section 7.13  including  loss payable and standard
mortgagee  provisions or  endorsements on the Borrowers'  insurance  policies in
accordance with Section 8.07.

         (l) The  Administrative  Agent shall have  received  title  opinions or
other  evidence of title  acceptable to the  Administrative  Agent on Properties
representing  at least 80% of the total  proved value in the July 1, 2005 Cawley
Gillespie  Reserve Report and shall be satisfied with the status of title to the
Oil and Gas Properties evaluated in the Initial Reserve Report.

         (m) The  Administrative  Agent shall be reasonably  satisfied  with the
environmental condition of the Oil and Gas Properties of the Borrowers and their
Subsidiaries.

         (n) The  Administrative  Agent shall have received a  certificate  of a
Responsible  Officer of one of the Borrowers  certifying that the Borrowers have
received all consents and approvals required by Section 7.03.

         (o)  The  Administrative   Agent  shall  have  received  the  financial
statements  referred  to in  Section  7.04(a)  and the  Initial  Reserve  Report
accompanied by a certificate covering the matters described in Section 8.l2(c).

         (p) The Administrative Agent shall have received appropriate UCC search
certificates  reflecting  no  prior  Liens  encumbering  the  Properties  of the
Borrowers,  the Subsidiaries for Kansas and Oklahoma and any other  jurisdiction
requested  by the  Administrative  Agent;  other than those  being  assigned  or
released on or prior to the Effective Date or Liens permitted by Section 9.03.

         (q) The  Administrative  Agent shall have received  evidence that Quest
Cherokee,  LLC or one of its  Subsidiaries  has in place  one or more  commodity
price floors,  collars or price swaps with one or more Approved  Counterparties,
on terms which are satisfactory to the Administrative Agent and Borrowers.

         (r) The  Administrative  Agent shall have  received  evidence  that the
Borrowers  have  received  Net Cash  Proceeds of not less than  $175,000,000  in
connection with the issuance of Equity Interests simultaneously with the closing
of  the  facility  evidenced  by  this  Agreement  on  terms  acceptable  to the
Administrative Agent (the "Equity Offering").

         (s) The  Administrative  Agent shall have  received  evidence  that the
Borrowers  have after  borrowings  on the Closing Date at least  $25,000,000  of
cash, Cash Equivalents and availability  under Section 2.01(a) of this Agreement
on the Closing Date.

                                       45
<PAGE>

         (t) The Administrative  Agent shall have received evidence that (i) the
Credit Agreement dated as of July 22, 2004 by and among Quest Cherokee,  UBS AG,
Stamford Branch,  as  Administrative  Agent,  and the lenders party thereto,  as
amended,  has been, or will  simultaneously  be,  terminated and the obligations
thereunder  satisfied  and (ii)  the  ArcLight  Transaction  has  been,  or will
simultaneously be, closed.

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

      The Administrative Agent shall notify the Borrowers and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing,  the  obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing  conditions is satisfied (or waived  pursuant to Section 12.02)
at or prior to 2:00 p.m.,  New York City time, on November 14, 2005 (and, in the
event such  conditions  are not so satisfied or waived,  the  Commitments  shall
terminate at such time).

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

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

         (b)  At the  time  of and  immediately  after  giving  effect  to  such
Borrowing  or the  issuance,  amendment,  renewal or extension of such Letter of
Credit,  as applicable,  no event,  development or circumstance  has occurred or
shall then exist that has resulted in, or could  reasonably be expected to have,
a Material Adverse Effect.

         (c)  The  representations  and  warranties  of the  Borrowers  and  the
Guarantors set forth in this Agreement and in the other Loan Documents  shall be
true  and  correct  in all  material  respects  on and as of the  date  of  such
Borrowing  or the date of  issuance,  amendment,  renewal or  extension  of such
Letter of Credit, as applicable,  except to the extent any such  representations
and warranties  are expressly  limited to an earlier date, in which case, on and
as of the date of such Borrowing or the date of issuance,  amendment, renewal or
extension of such Letter of Credit,  as  applicable,  such  representations  and
warranties shall continue to be true and correct in all material  respects as of
such specified earlier date.

         (d) The  making of such Loan or the  issuance,  amendment,  renewal  or
extension of such Letter of Credit,  as applicable,  would not conflict with, or
cause any  Lender or the  Issuing  Bank (or  Underlying  Issuer)  to  violate or
exceed, any applicable Governmental Requirement, and no Change in Law shall have
occurred, and no litigation shall be pending or threatened,  which does or, with
respect to any threatened  litigation,  seeks to, enjoin,  prohibit or restrain,
the making or repayment of any Loan, the issuance, amendment, renewal, extension
or  repayment  of any  Letter  of Credit or any  participations  therein  or the
consummation  of the  transactions  contemplated  by this Agreement or any other
Loan Document.

                                       46
<PAGE>

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

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

                                   ARTICLE VII
                         Representations and Warranties

      The Borrowers represent and warrant to the Lenders that:

      Section  7.01  Organization;   Powers.  Each  of  the  Borrowers  and  the
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the  jurisdiction of its  organization,  has all requisite  corporate or
limited liability company power and authority, and has all material governmental
licenses,  authorizations,  consents and approvals necessary,  to own its assets
and to carry on its business as now  conducted,  and is qualified to do business
in, and is in good standing in, every  jurisdiction  where such qualification is
required,  except  where  failure  to  have  such  power,  authority,  licenses,
authorizations,  consents,  approvals and qualifications could not reasonably be
expected to have a Material Adverse Effect.

      Section 7.02 Authority;  Enforceability.  The  Transactions are within the
Borrowers' and each Guarantor's  corporate or limited  liability  company powers
and have been duly  authorized by all necessary  corporate or limited  liability
company and, if  required,  stockholder  or member  action  (including,  without
limitation,  any  action  required  to be taken by any  class  of  directors  or
managers of the  Borrowers,  whether  interested or  disinterested,  in order to
ensure the due authorization of the  Transactions).  Each Loan Document to which
the Borrowers and each Guarantor is a party has been duly executed and delivered
by the Borrowers and such Guarantor and  constitutes a legal,  valid and binding
obligation of the Borrowers and such  Guarantor,  as applicable,  enforceable in
accordance  with  its  terms,  subject  to  applicable  bankruptcy,  insolvency,
reorganization,  moratorium or other laws affecting  creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.

      Section  7.03  Approvals;  No  Conflicts.  Except as set forth on Schedule
7.03,  the  Transactions  (a)  do  not  require  any  consent  or  approval  of,
registration or filing with, or any other action by, any Governmental  Authority
or any other third  Person,  nor is any such  consent,  approval,  registration,
filing or other action necessary for the validity or  enforceability of any Loan
Document  or the  consummation  of the  Transactions,  except  such as have been
obtained or made and are in full force and effect  other than (i) the  recording
and filing of the Security  Instruments  as required by this  Agreement and (ii)
those third party approvals or consents  which,  if not made or obtained,  would
not cause a  Default  hereunder,  could not  reasonably  be  expected  to have a
Material  Adverse Effect or do not have an adverse effect on the  enforceability
of the Loan Documents,  (b) will not violate any applicable law or regulation or
the charter,  by-laws or other organizational  documents of the Borrowers or any
Subsidiary or any order of any Governmental  Authority,  except  violations that
could not reasonably be expected to have a Material Adverse Effect, (c) will not
violate  or  result  in a  default  under  any  indenture,  agreement  or  other
instrument  binding upon the Borrowers or any Subsidiary or its  Properties,  or
give  rise  to a right  thereunder  to  require  any  payment  to be made by the
Borrowers  or such  Subsidiary,  except any  violation or default that could not
reasonably be expected to have a Material Adverse Effect and (d) will not result
in the creation or  imposition  of any Lien on any Property of the  Borrowers or
any Subsidiary (other than the Liens created by the Loan Documents).

                                       47
<PAGE>

      Section 7.04 Financial Condition: No Material Adverse Change.

         (a)  The  Borrowers  have  heretofore  furnished  to  the  Lenders  the
consolidated  balance sheet and  statements of income,  stockholders  equity and
cash flows (x) as of and for the seven months  transition  period ended December
31, 2004 of Quest Resource Corporation, reported on by Murrell, Hall, McIntosh &
Co. PLLP, an independent  registered  public  accounting firm, and (y) as of and
for the fiscal  quarter and the portion of the fiscal year ended  September  30,
2005, reviewed by Murrell,  Hall, McIntosh & Co. PLLP. Such financial statements
present fairly, in all material respects,  the financial position and results of
operations and cash flows of the Borrowers and their  Consolidated  Subsidiaries
as of such  dates and for such  periods  in  accordance  with  GAAP,  subject to
year-end  audit  adjustments  and the  absence of  footnotes  in the case of the
unaudited quarterly financial statements.

         (b) Since December 31, 2004,  (i) there has been no event,  development
or circumstance  that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrowers and its  Subsidiaries  has
been  conducted  only in the  ordinary  course  consistent  with  past  business
practices, in each case other than as disclosed in the filings made with the SEC
as of October 31,2005 by Quest Resource Corporation.

         (c) Neither of the Borrowers nor any  Subsidiary has on the date hereof
any material  Debt  (including  Disqualified  Capital  Stock) or any  contingent
liabilities,  off-balance  sheet  liabilities or  partnerships,  liabilities for
taxes,  unusual  forward or long-term  commitments  or unrealized or anticipated
losses  from  any  unfavorable   commitments   (other  than  the  Gas  Balancing
Obligations  and the Swap  Agreements  listed on  Schedule  7.21)  which are not
referred to or reflected or provided for in the Financial Statements.

      Section 7.05 Litigation.

         (a) Except as set forth on Schedule 7.05, there are no actions,  suits,
investigations  or  proceedings  by or before  any  arbitrator  or  Governmental
Authority  pending  against or, to the  Knowledge of the  Borrowers,  threatened
against or affecting  the Borrowers or any  Subsidiary  (i) not fully covered by
insurance  (except for normal  deductibles)  as to which  there is a  reasonable
possibility of an adverse  determination  that, if adversely  determined,  could
reasonably  be  expected,  individually  or in the  aggregate,  to  result  in a
Material  Adverse  Effect  or  (ii)  that  involve  any  Loan  Document  or  the
Transactions.

                                       48
<PAGE>

         (b) Since the date of this  Agreement,  there has been no change in the
status of the matters  disclosed in Schedule 7.05 that,  individually  or in the
aggregate,  has  resulted  in, or  materially  increased  the  likelihood  of, a
Material Adverse Effect.

      Section  7.06  Environmental  Matters.  Except as could not be  reasonably
expected to have a Material  Adverse Effect (or with respect to (c), (d) and (e)
below,  where the failure to take such actions could not be reasonably  expected
to have a Material Adverse Effect):

         (a) neither any Property of either of the  Borrowers or any  Subsidiary
nor the  operations  conducted  thereon  violate any order or requirement of any
court or Governmental Authority or any Environmental Laws.

         (b) no Property of either of the  Borrowers or any  Subsidiary  nor the
operations currently conducted thereon or, to the Knowledge of the Borrowers, by
any prior owner or operator of such Property or  operation,  are in violation of
or subject to any existing,  pending or threatened action, suit,  investigation,
inquiry or proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws.

         (c) all notices, permits,  licenses,  exemptions,  approvals or similar
authorizations,  if any, required to be obtained or filed in connection with the
operation  or use of any and all  Property of either of the  Borrowers  and each
Subsidiary,  including, without limitation, past or present treatment,  storage,
disposal or release of a hazardous  substance,  oil and gas waste or solid waste
into the  environment,  have been duly obtained or filed,  and the Borrowers and
each  Subsidiary  are in  compliance  with the terms and  conditions of all such
notices, permits, licenses and similar authorizations.

         (d) all  hazardous  substances,  solid waste and oil and gas waste,  if
any, generated by the Borrowers or any Subsidiary at any and all Property of the
Borrowers  or any  Subsidiary  have in the past been  transported,  treated  and
disposed  of in  accordance  with  Environmental  Laws  and so as not to pose an
imminent  and  substantial  endangerment  to  public  health or  welfare  or the
environment, and, to the Knowledge of the Borrowers, all such transport carriers
and treatment and disposal  facilities have been and are operating in compliance
with  Environmental  Laws  and so as not to pose  an  imminent  and  substantial
endangerment  to public  health or welfare or the  environment,  and are not the
subject of any existing, pending or threatened action,  investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws.

         (e)  the  Borrowers  have  taken  all  steps  reasonably  necessary  to
determine and have determined that no oil, hazardous substances,  solid waste or
oil and gas waste,  have been  disposed of or  otherwise  released and there has
been no threatened release of any oil, hazardous substances,  solid waste or oil
and gas waste on or to any Property of the Borrowers or any Subsidiary except in
compliance  with  Environmental  Laws  and so as not to  pose  an  imminent  and
substantial endangerment to public health or welfare or the environment.

         (f) to the extent  applicable,  all Property of the  Borrowers and each
Subsidiary currently satisfies all design, operation, and equipment requirements
imposed by the OPA,  and the  Borrowers  do not have any reason to believe  that
such  Property,  to the extent  subject to the OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement.

                                       49
<PAGE>

         (g) neither the Borrowers nor any Subsidiary  has any known  contingent
liability or Remedial Work in connection with any release or threatened  release
of any oil,  hazardous  substance,  solid  waste or oil and gas  waste  into the
environment.

      Section 7.07 Compliance with the Laws and Agreements; No Defaults.

         (a) Each of the Borrowers and each Subsidiary is in compliance with all
Governmental  Requirements  applicable to it or its Property and all  agreements
and  other  instruments  binding  upon it or its  Property,  and  possesses  all
licenses,  permits,  franchises,  exemptions,  approvals and other  governmental
authorizations  necessary  for the  ownership of its Property and the conduct of
its  business,  except  where  the  failure  to do  so,  individually  or in the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.

         (b) Neither of the Borrowers  nor any  Subsidiary is in default nor has
any  event  or  circumstance  occurred  which,  but  for the  expiration  of any
applicable  grace period or the giving of notice,  or both,  would  constitute a
default or would  require the  Borrowers or a  Subsidiary  to Redeem or make any
offer to Redeem  under any  indenture,  note,  credit  agreement  or  instrument
pursuant  to which any  Material  Indebtedness  is  outstanding  or by which the
Borrowers or any Subsidiary or any of their Properties is bound.

         (c) No Default has occurred and is continuing.

      Section 7.08  Investment  Company Act.  Neither of the  Borrowers  nor any
Subsidiary  is an  "investment  company"  within the  meaning  of, or subject to
regulation under, the Investment Company Act of 1940, as amended.

      Section 7.09 Public Utility Holding Company Act.  Neither of the Borrowers
nor any  Subsidiary  is a "holding  company,"  or a  "subsidiary  company"  of a
"holding  company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of, or
subject to regulation  under, the Public Utility Holding Company Act of 1935, as
amended.

      Section 7.10 Taxes.  Each of the Borrowers and its Subsidiaries has timely
filed or caused to be filed all Tax returns  and  reports  required to have been
filed and has paid or caused to be paid all Taxes  required to have been paid by
it,  except (a) Taxes  that are being  contested  in good  faith by  appropriate
proceedings and for which the Borrowers or such Subsidiary,  as applicable,  has
set aside on its books adequate  reserves in accordance  with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect. The charges,  accruals and reserves on the books of the
Borrowers  and their  Subsidiaries  in respect  of Taxes and other  governmental
charges are, in the reasonable opinion of the Borrowers,  adequate.  No Tax Lien
has  been  filed  and,  to the  Knowledge  of the  Borrowers,  no claim is being
asserted with respect to any such Tax or other such governmental charge.

                                       50
<PAGE>

      Section 7.11 ERISA.

         (a) The  Borrowers,  the  Subsidiaries  and each ERISA  Affiliate  have
complied in all material  respects with ERISA and,  where  applicable,  the Code
regarding each Plan.

         (b) Each Plan is, and has been,  maintained in  substantial  compliance
with ERISA and, where applicable, the Code.

         (c) No act,  omission or transaction has occurred which could result in
imposition on the  Borrowers,  any  Subsidiary or any ERISA  Affiliate  (whether
directly or indirectly) of (i) either a material civil penalty assessed pursuant
to subsections (c), (i) or (l) of section 502 of ERISA or a material tax imposed
pursuant  to Chapter 43 of  Subtitle D of the Code or (ii)  breach of  fiduciary
duty liability damages under section 409 of ERISA.

         (d) No Plan  (other  than a  defined  contribution  plan) or any  trust
created  under any such Plan has been  terminated  since  September 2, 1974.  No
material  liability to the PBGC (other than for the payment of current  premiums
which are not past due) by the Borrowers,  any Subsidiary or any ERISA Affiliate
has been or is expected by the Borrowers,  any Subsidiary or any ERISA Affiliate
to be incurred with respect to any Plan. No ERISA Event with respect to any Plan
has occurred.

         (e) Full payment when due has been made of all amounts  which either of
the Borrowers,  the  Subsidiaries  or any ERISA  Affiliate is required under the
terms of each Plan or applicable law to have paid as  contributions to such Plan
as of the date hereof,  and no  accumulated  funding  deficiency  (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan.

         (f) The actuarial  present value of the benefit  liabilities under each
Plan  which is  subject  to Title IV of  ERISA  does  not,  as of the end of the
Borrowers'  most  recently  ended fiscal year,  exceed the current  value of the
assets  (computed on a plan  termination  basis in  accordance  with Title IV of
ERISA) of such Plan allocable to such benefit  liabilities.  The term "actuarial
present value of the benefit  liabilities"  shall have the meaning  specified in
section 4041 of ERISA.

         (g) Neither the Borrowers,  the  Subsidiaries  nor any ERISA  Affiliate
sponsors,  maintains,  or  contributes to an employee  welfare  benefit plan, as
defined in section 3(l) of ERISA, including,  without limitation,  any such plan
maintained to provide  benefits to former  employees of such entities,  that may
not be terminated by the Borrowers,  a Subsidiary or any ERISA  Affiliate in its
sole discretion at any time without any material liability.

         (h) Neither the Borrowers,  the  Subsidiaries  nor any ERISA  Affiliate
sponsors, maintains or contributes to, or has at any time in the six-year period
preceding  the  date  hereof  sponsored,   maintained  or  contributed  to,  any
Multiemployer Plan.

         (i) Neither the Borrowers,  the Subsidiaries nor any ERISA Affiliate is
required to provide security under section  401(a)(29) of the Code due to a Plan
amendment that results in an increase in current liability for the Plan.

                                       51
<PAGE>

      Section 7.12  Disclosure;  No Material  Misstatements.  The Borrowers have
disclosed  to  the   Administrative   Agent  and  the  Lenders  all  agreements,
instruments  and corporate or other  restrictions  to which they or any of their
Subsidiaries is subject as of the date of this Agreement,  and all other matters
known  to it as of the  date of this  Agreement,  that,  individually  or in the
aggregate,  could reasonably be expected to result in a Material Adverse Effect.
None of the reports,  financial  statements,  certificates or other  information
furnished  by  or  on  behalf  of  the  Borrowers  or  any   Subsidiary  to  the
Administrative Agent or any Lender or any of their Affiliates in connection with
the  negotiation  of this  Agreement  or any other Loan  Document  or  delivered
hereunder or under any other Loan Document (as modified or supplemented by other
information  so  furnished)   when  taken  as  a  whole  contains  any  material
misstatement  of fact or omits to state any material fact  necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading;  provided  that,  with  respect to  projected  financial
information,  the Borrowers represent only that such information was prepared in
good faith based upon  assumptions  believed to be reasonable at the time. There
is no fact peculiar to the Borrowers or any Subsidiary which could reasonably be
expected to have a Material Adverse Effect or in the future is reasonably likely
to have a  Material  Adverse  Effect  and  which  has not been set forth in this
Agreement  or the  Loan  Documents  or the  other  documents,  certificates  and
statements  furnished to the Administrative Agent or the Lenders by or on behalf
of the  Borrowers  or any  Subsidiary  prior  to,  or on,  the  date  hereof  in
connection  with  the  transactions   contemplated   hereby.  No  statements  or
conclusions  exist  in any  Reserve  Report  which  are  based  upon or  include
misleading  information or which fail to take into account material  information
regarding  the  matters  reported  therein  to  the  extent  such  misstatement,
misleading  information  or  failure  could  reasonably  be  expected  to have a
Material Adverse Effect.

      Section 7.13  Insurance.  The  Borrowers  have,  and have caused all their
Subsidiaries to have, (a) all insurance  policies  sufficient for the compliance
by each of them with all  material  Governmental  Requirements  and all material
agreements and (b) insurance  coverage in at least amounts and against such risk
(including,  without  limitation,  public  liability)  that are usually  insured
against by  companies  similarly  situated  and engaged in the same or a similar
business for the assets and operations of the Borrowers and their  Subsidiaries.
The Administrative  Agent and the Lenders have been named as additional insureds
in respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to Property loss insurance.

      Section  7.14  Restriction  on Liens.  Other than as set forth in Schedule
7.14,  neither of the  Borrowers nor any of the  Subsidiaries  is a party to any
material  agreement or  arrangement  (other than secured  debt  permitted  under
Section 9.03), or subject to any order,  judgment,  writ or decree, which either
restricts   or  purports  to  restrict   its  ability  to  grant  Liens  to  the
Administrative  Agent and the  Lenders on or in respect of their  Properties  to
secure the Indebtedness and the Loan Documents.

      Section  7.15  Subsidiaries.  Except as set forth on  Schedule  7.15 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the  Lenders),  which  shall  be a  supplement  to  Schedule  7.15,  the
Borrowers have no Subsidiaries.

                                       52
<PAGE>

      Section  7.16  Location of  Business  and  Offices.  The  jurisdiction  of
organization of Quest Resource  Corporation is Nevada; its name as listed in the
public  records  of  its   jurisdiction   of   organization  is  Quest  Resource
Corporation; and its organizational identification number in its jurisdiction of
organization is C4082-1982;  the jurisdiction of organization of Quest Cherokee,
LLC is Delaware; its name as listed in the public records of its jurisdiction of
organization  is Quest  Cherokee,  LLC;  and its  organizational  identification
number is 3739332 (or, in each case,  as set forth in a notice  delivered to the
Administrative  Agent  pursuant to Section  8.01(m) in  accordance  with Section
12.01).  The Borrowers'  principal place of business and chief executive offices
are  located at the  address  specified  in Section  12.01 (or as set forth in a
notice  delivered  pursuant  to Section  8.01(m)  and  Section  12.01(c)).  Each
Subsidiary's jurisdiction of organization,  name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction  of  organization,  and the  location  of its  principal  place  of
business and chief executive  office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01(m)).

      Section 7.17 Properties; Titles, Etc.

         (a) Each of the Borrowers and the  Subsidiaries has good and defensible
title to, or valid  and  enforceable  leasehold  interests  in,  the Oil and Gas
Properties  evaluated in the most  recently  delivered  Reserve  Report and good
title to all its personal Properties,  in each case, free and clear of all Liens
except Liens permitted by Section 9.03. After giving full effect to the Excepted
Liens, the Borrowers or the Subsidiary specified as the owner or lessee owns the
net  interests  in  production  attributable  to the  Hydrocarbon  Interests  as
reflected in the most  recently  delivered  Reserve  Report and the ownership or
lease  of  such  Properties  shall  not in any  material  respect  obligate  the
Borrowers  or such  Subsidiary  to bear the costs and  expenses  relating to the
maintenance,  development  and  operations of each such Property in an amount in
excess of the working  interest of each  Property set forth in the most recently
delivered  Reserve  Report that is not offset by a  corresponding  proportionate
increase in the  Borrowers' or such  Subsidiary's  net revenue  interest in such
Property.

         (b) All material leases and agreements necessary for the conduct of the
business of the Borrowers and the Subsidiaries are valid and subsisting. in full
force and effect,  and there  exists no default or event or  circumstance  which
with the  giving of notice or the  passage  of time or both would give rise to a
default  under any such lease or leases,  which could  reasonably be expected to
have a Material Adverse Effect.

         (c) The rights and Properties  presently  owned,  leased or licensed by
the Borrowers and the Subsidiaries including,  without limitation. all easements
and rights of way,  include all rights and  Properties  necessary  to permit the
Borrowers  and the  Subsidiaries  to  conduct  their  business  in all  material
respects in the same manner as its business has been conducted prior to the date
hereof.

         (d) All of the Properties of the Borrowers and the  Subsidiaries  which
are  reasonably  necessary  for the  operation of their  businesses  are in good
working  condition  (ordinary  wear and tear  excepted)  and are  maintained  in
accordance with prudent business standards.

                                       53
<PAGE>

         (e) Each of the Borrowers and each  Subsidiary  own, or are licensed to
use, all  trademarks,  tradenames,  copyrights,  patents and other  intellectual
Property material to its business, and the use thereof by the Borrowers and such
Subsidiary does not infringe upon the rights of any other Person, except for any
such infringements that, individually or in the aggregate,  could not reasonably
be  expected  to result in a Material  Adverse  Effect.  The  Borrowers  and its
Subsidiaries  either  own or have  valid  licenses  or other  rights  to use all
databases,  geological data,  geophysical data,  engineering data, seismic data,
maps,  interpretations and other technical  information used in their businesses
as presently conducted,  subject to the limitations  contained in the agreements
governing  the use of the same,  which  limitations  are customary for companies
engaged in the business of the exploration and production of Hydrocarbons,  with
such  exceptions as could not reasonably be expected to have a Material  Adverse
Effect.

      Section 7.18  Maintenance of Properties.  Except for such acts or failures
to act as could not be reasonably  expected to have a Material  Adverse  Effect,
the Oil and Gas Properties (and Properties  unitized therewith) of the Borrowers
and their  Subsidiaries  have been maintained,  operated and developed in a good
and workmanlike manner and in conformity with all Government Requirements and in
conformity  with the  provisions  of all leases,  subleases  or other  contracts
comprising  a  part  of  the  Hydrocarbon  Interests  and  other  contracts  and
agreements  forming a part of the Oil and Gas  Properties  of the  Borrowers and
their  Subsidiaries.  Specifically in connection with the foregoing,  except for
those as could not be reasonably expected to have a Material Adverse Effect, (i)
no Oil and Gas Property of the Borrowers or any  Subsidiary is subject to having
allowable production reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not the
same was  permissible at the time) and (ii) none of the wells  comprising a part
of the  Oil  and  Gas  Properties  (or  Properties  unitized  therewith)  of the
Borrowers or any  Subsidiary is deviated from the vertical more than the maximum
permitted  by  Government  Requirements,  and such wells are, in fact,  bottomed
under and are producing from, and the well bores are wholly within,  the Oil and
Gas  Properties  (or in  the  case  of  wells  located  on  Properties  unitized
therewith,  such unitized  Properties) of the Borrowers or such Subsidiary.  All
pipelines,   wells,  gas  processing   plants,   platforms  and  other  material
improvements,  fixtures and equipment owned in whole or in part by the Borrowers
or any of their  Subsidiaries  that are  reasonably  necessary to conduct normal
operations  are  being   maintained  in  a  state  adequate  to  conduct  normal
operations,  and with respect to such of the foregoing which are operated by the
Borrowers  or any  of  their  Subsidiaries,  in a  manner  consistent  with  the
Borrowers' or their  Subsidiaries'  past practices (other than those the failure
of which to maintain in accordance  with this Section 7.18 could not  reasonably
be expected to have a Material Adverse Effect).

      Section 7.19 Gas Imbalances,  Prepayments. Except as set forth on Schedule
7.19 or on the most recent certificate delivered pursuant to Section 8.12(c), on
a net basis there are no gas imbalances,  take or pay or other prepayments which
would require  either of the Borrowers or any of their  Subsidiaries  to deliver
Hydrocarbons  produced  from  the Oil and Gas  Properties  at some  future  time
without then or thereafter  receiving full payment therefor exceeding 1.0 bcf of
gas (on an mcf equivalent basis) in the aggregate.

      Section 7.20 Marketing of Production.  Except for contracts  listed and in
effect on the date hereof on Schedule 7.20, and thereafter  either  disclosed in
writing to the  Administrative  Agent or included in the most recently delivered
Reserve Report (with respect to all of which  contracts the Borrowers  represent
that they or their  Subsidiaries  are receiving a price for all production  sold
thereunder  which is computed  substantially in accordance with the terms of the
relevant contract and are not having deliveries  curtailed  substantially  below
the subject Property's  delivery  capacity),  no material agreements exist which
are not  cancelable  on 60 days notice or less without  penalty or detriment for
the sale of production from the Borrowers' or their  Subsidiaries'  Hydrocarbons
(including, without limitation, calls on or other rights to purchase production,
whether or not the same are currently  being  exercised) that (a) pertain to the
sale of  production  at a fixed  price and (b) have a maturity or expiry date of
longer than six (6) months from the date hereof.

                                       54
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      Section 7.21 Swap  Agreements.  Schedule 7.21, as of the date hereof,  and
after the date  hereof,  each report  required to be  delivered by either of the
Borrowers  pursuant to Section 8.01(e),  sets forth, a true and complete list of
all Swap  Agreements  of the  Borrowers  and each  Subsidiary,  the type,  term,
effective date,  termination date and notional amounts or volumes,  the net mark
to market value thereof as of the most recent date available, all credit support
agreements  relating thereto (including any margin required or supplied) and the
counterparty to each such agreement.

      Section 7.22 Use of Loans and Letters of Credit. The proceeds of the Loans
and the Letters of Credit shall be used to refinance existing  indebtedness,  to
provide  working capital for  exploration  and production  operations,  pipeline
construction,  oil and gas lease acquisitions,  permitted acquisitions,  and for
general  business  purposes,  including  the issuance of letters of credit.  The
Borrowers and their Subsidiaries are not engaged principally, or as one of their
important  activities,  in the  business of  extending  credit for the  purpose,
whether  immediate,  incidental or ultimate,  of buying or carrying margin stock
(within  the  meaning  of  Regulation  T, U or X of the  Board).  No part of the
proceeds  of any Loan or  Letter of Credit  will be used for any  purpose  which
violates the provisions of Regulations T, U or X of the Board.

      Section  7.23   Solvency.   After  giving   effect  to  the   transactions
contemplated  hereby,  (a) the aggregate  assets (after giving effect to amounts
that could reasonably be received by reason of indemnity,  offset,  insurance or
any  similar  arrangement),  at a fair  valuation,  of  the  Borrowers  and  the
Guarantors,  taken as a whole,  will exceed the aggregate  Debt of the Borrowers
and the Guarantors on a  consolidated  basis,  as the Debt becomes  absolute and
matures,  (b) each of the Borrowers and the Guarantors will not have incurred or
intended  to incur,  and will not believe  that it will  incur,  Debt beyond its
ability to pay such Debt (after  taking  into  account the timing and amounts of
cash to be received by each of the Borrowers and the  Guarantors and the amounts
to be payable on or in respect of its liabilities,  and giving effect to amounts
that could reasonably be received by reason of indemnity,  offset,  insurance or
any similar  arrangement) as such Debt becomes absolute and matures and (c) each
of the  Borrowers and the  Guarantors  will not have (and will have no reason to
believe that it will have thereafter) unreasonably small capital for the conduct
of its business.

      Section 7.24 Operating Expenses. As of the date of this Agreement:

                                       55
<PAGE>

         (a)  Borrowers  have no unpaid  bills with an invoice date earlier than
August 1, 2005 for  improvements to their Oil and Gas Properties that could give
rise to mechanics', materialmen's or other similar liens arising by operation of
applicable law.

         (b)  with  respect  to  the  joint  operating  agreements  relating  to
Borrowers' interests in the Properties:

            (i) there are no  outstanding  cans for payments under any Authority
for  Expenditure  or  payments  which  are due or  which  Borrowers  or,  to the
Borrowers'  Knowledge,   any  predecessor  or  predecessors  of  Borrowers  have
committed  to make which  have not been or are not being  paid  within the terms
required; and

            (ii)  there  are no  operations  under  any of the  joint  operating
agreements  with respect to which Borrowers have become a  non-consenting  party
nor are there any  non-consenting  penalties binding or that will become binding
upon  Borrowers that are not reflected in the interest as set forth on Exhibit A
to the Mortgage.

                                  ARTICLE VIII
                              Affirmative Covenants

      Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable  hereunder  and all other amounts
payable under the Loan Documents (other than contingent  indemnity  obligations)
shall  have been paid in full and all  Letters of Credit  shall have  expired or
terminated or been fully cash  collateralized as provided in Section 2.08(j) and
all LC  Disbursements  shall have been  reimbursed,  the Borrowers  covenant and
agree with the Lenders that:

      Section 8.01 Financial Statements;  Ratings Change; Other Information. The
Borrowers will furnish to the Administrative Agent and each Lender:

         (a) Annual Financial Statements. As soon as available, but in any event
not later  than 90 days  after  the end of each  fiscal  year of Quest  Resource
Corporation,  its audited  consolidated  balance sheet and related statements of
operations,  stockholders'  equity  and cash flows as of the end of and for such
year,  setting  forth  in each  case in  comparative  form the  figures  for the
previous fiscal year, all reported on by Murrell,  Hall,  McIntosh & Co. PLLP or
another independent registered public accounting firm (without a "going concern"
or like qualification or exception and without any qualification or exception as
to the scope of such  audit) to the  effect  that  such  consolidated  financial
statements  present fairly in all material respects the financial  condition and
results  of  operations  of  Quest  Resource  Corporation  and its  Consolidated
Subsidiaries  on a  consolidated  basis in  accordance  with  GAAP  consistently
applied.

         (b) Quarterly Financial  Statements.  As soon as available,  but in any
event not later  than 45 days  after the end of each of the first  three  fiscal
quarters of each fiscal year of Quest  Resource  Corporation,  its  consolidated
balance sheet and related  statements of  operations,  stockholders'  equity and
cash flows as of the end of and for such  fiscal  quarter  and the then  elapsed
portion of the fiscal year,  setting forth in each case in comparative  form the
figures  for the  corresponding  period or  periods  of (or,  in the case of the
balance sheet,  as of the end of) the previous fiscal year, all certified by one
of its  Financial  Officers as  presenting  fairly in all material  respects the
financial condition and results of operations of Quest Resource  Corporation and
its  Consolidated  Subsidiaries on a consolidated  basis in accordance with GAAP
consistently  applied,  subject to normal  year-end  audit  adjustments  and the
absence of footnotes.

                                       56
<PAGE>

         (c) Certificate of Financial  Officer - Compliance.  Concurrently  with
any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i)  certifying  as to whether a Default  has  occurred  and,  if a Default  has
occurred,  specifying the details thereof and any action taken or proposed to be
taken with respect thereto,  (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.l3(b) and Section 9.01 and (iii) stating
whether any change in GAAP or in the application  thereof has occurred since the
date of the most  recent  audited  financial  statements  delivered  pursuant to
Section  8.01(a) and, if any such change has occurred,  specifying the effect of
such change on the financial statements accompanying such certificate.

         (d) Certificate of Financial Officer - Consolidating  Information.  If,
at any time,  all of the  Subsidiaries  of the  Borrowers  are not  Consolidated
Subsidiaries,  then concurrently with any delivery of financial statements under
Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer setting
forth consolidating  spreadsheets that show all Subsidiaries and the eliminating
entries, in such form as would be presentable to the auditors of the Borrowers.

         (e) Certificate of Financial  Officer - Swap  Agreements.  Concurrently
with any  delivery of financial  statements  under  Section  8.01(a) and Section
8.0l(b),  a  certificate  of  a  Financial   Officer,   in  form  and  substance
satisfactory to the Administrative  Agent, setting forth as of the last Business
Day of such fiscal  quarter or fiscal year, a true and complete list of all Swap
Agreements of each of the Borrowers and each Subsidiary, listing the type, term,
effective  date,  termination  date and notional  amounts or  volumes),  the net
mark-to-market  value therefor to the extent  available,  any new credit support
agreements  relating thereto not listed on Schedule 7.21, any margin required or
supplied under any credit support  document,  and the  counterparty to each such
agreement.

         (f) Certificate of Insurer - Insurance Coverage.  Concurrently with any
delivery of  financial  statements  under  Section  8.0l(a),  a  certificate  of
insurance  coverage from each insurer with respect to the insurance  required by
Section 8.07, in form and substance  satisfactory to the  Administrative  Agent,
and, if requested by the  Administrative  Agent or any Lender, all copies of the
applicable policies.

         (g) Other Accounting Reports.  Promptly upon receipt thereof, a copy of
each other report or letter  submitted to either of the  Borrowers or any of its
Subsidiaries by independent  accountants in connection with any annual,  interim
or  special  audit  made by them  of the  books  of the  Borrowers  or any  such
Subsidiary,  and a copy of any response by the Borrowers or any such Subsidiary,
or the Board of  Directors  of the  Borrowers  or any such  Subsidiary,  to such
letter or report.

                                       57
<PAGE>

         (h) SEC and Other Filings; Reports to Shareholders.  Promptly after the
same become publicly available,  and upon the request of the Lenders,  copies of
all periodic and other reports,  proxy  statements and other  materials filed by
either of the  Borrowers  or any  Subsidiary  with the SEC, or with any national
securities   exchange  and  distributed  by  either  of  the  Borrowers  to  its
shareholders.

         (i) Notices Under Material  Instruments.  Promptly after the furnishing
thereof,  copies of any  financial  statement  or report  furnished to or by any
Person or notices  furnished by the Borrowers to any other  Person,  pursuant to
the terms of any preferred stock designation, indenture, loan or credit or other
similar  agreement,  other than this Agreement and not otherwise  required to be
furnished to the Lenders pursuant to any other provision of this Section 8.01.

         (j) Lists of Purchasers.  Concurrently with the delivery of any Reserve
Report to the  Administrative  Agent pursuant to Section 8.12, a list of Persons
who  purchase  (or did  purchase  in the last six  months)  at least  80% of the
Hydrocarbons from the Borrowers and the Subsidiaries, taken as a whole.

         (k)  Notice  of  Sales  of Oil and Gas  Properties.  In the  event  the
Borrowers  or any  Subsidiary  intend to sell,  transfer,  assign  or  otherwise
dispose of at least  $500,000  worth of any Oil or Gas  Properties or any Equity
Interests in any  Subsidiary  in  accordance  with Section  9.13,  prior written
notice  of such  disposition,  the price  thereof  and the  anticipated  date of
closing.

         (l) Notice of Casualty Events.  Prompt written notice, and in any event
within three  Business  Days,  of the  occurrence  of any Casualty  Event or the
commencement  of any action or proceeding  that could  reasonably be expected to
result in a Casualty Event.

         (m)  Information  Regarding  Borrowers and  Guarantors.  Prompt written
notice (and in any event  within  thirty (30) days prior  thereto) of any change
(i) in the  Borrowers' or any  Guarantor's  corporate  name or in any trade name
used to identify  such Person in the conduct of its business or in the ownership
of its  Properties,  (ii) in the location of the  Borrowers  or any  Guarantor's
chief executive  office or principal place of business if either Borrower or any
Guarantor is not a registered  organization  under the Uniform  Commercial Code,
(iii) in the Borrowers' or any Guarantor's identity or corporate structure, (iv)
in the  Borrowers'  or any  Guarantor's  jurisdiction  of  organization  or such
Person's   organizational   identification   number  in  such   jurisdiction  of
organization,  and (v) in the  Borrowers' or any  Guarantor's  federal  taxpayer
identification number.

         (n) Production Report and Lease Operating Statements. With the delivery
of quarterly financial  statements under Section 8.01(b) a report setting forth,
for each  calendar  month  during  the  then  current  fiscal  year to date on a
production  date  basis,  the volume of  production  and sales  attributable  to
production  (and the  prices at which  such  sales  were  made and the  revenues
derived  from such  sales)  for each such  calendar  month  from the Oil and Gas
Properties,  and setting forth the related ad valorem,  severance and production
taxes and lease operating  expenses  attributable  thereto and incurred for each
such calendar month.

                                       58
<PAGE>

         (o) Notices of Certain Changes.  Promptly, but in any event within five
(5)  Business  Days  after  the  execution  thereof,  copies  of any  amendment,
modification  or supplement to the  certificate  of  formation,  certificate  or
articles of incorporation,  operating  agreement,  by-laws,  any preferred stock
designation  or any other organic  document of the Borrowers or any  Subsidiary,
that could  reasonably  be  expected  to have a material  adverse  effect on the
Administrative Agent or Lenders.

         (p)  Other  Requested  Information.   Promptly  following  any  request
therefor, such other information regarding the operations,  business affairs and
financial  condition of the  Borrowers  or any  Subsidiary  (including,  without
limitation,  any Plan or Multiemployer Plan and any reports or other information
required  to be  filed  under  ERISA),  or  compliance  with  the  terms of this
Agreement or any other Loan Document,  as the Administrative Agent or any Lender
may reasonably request.

         (q)   Delivery   of   Information   Electronically.   Notices   to  the
Administrative Agent and the Lenders under this Section 8.01 may be delivered or
furnished by electronic  communications  pursuant to procedures  approved by the
Administrative Agent.

      Section 8.02 Notices of Material Events. The Borrowers will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

         (a) the occurrence of any Default;

         (b) the filing or  commencement  of, or the  threat in writing  of, any
action,  suit,  proceeding,  investigation  or  arbitration  by  or  before  any
arbitrator or Governmental  Authority  against or affecting the Borrowers or any
Affiliate  thereof  not  previously  disclosed  in writing to the Lenders or any
material adverse development in any action, suit,  proceeding,  investigation or
arbitration  previously disclosed to the Lenders that, if adversely  determined,
could  reasonably be expected to result in liability in excess of $1,000,000 not
fully covered by insurance, subject to normal deductibles;

         (c) the occurrence of any ERISA Event that,  alone or together with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of either of the Borrowers and its Subsidiaries in an aggregate amount
exceeding $1,000,000; and

         (d) any other  development  that  results  in, or could  reasonably  be
expected to result in, a Material Adverse Effect.

Each  notice  delivered  under  this  Section  8.02  shall be  accompanied  by a
statement of a  Responsible  Officer  setting  forth the details of the event or
development  requiring  such notice and any action taken or proposed to be taken
with respect thereto.

      Section 8.03 Existence;  Conduct of Business. The Borrowers will, and will
cause  each  Subsidiary  to,  do or  cause to be done all  things  necessary  to
preserve,  renew and keep in full force and effect its legal  existence  and the
rights, licenses,  permits, privileges and franchises material to the conduct of
its business and maintain,  if necessary,  its  qualification  to do business in
each other  jurisdiction  in which its Oil and Gas Properties are located or the
ownership  of its  Properties  requires  such  qualification,  except  where the
failure  to so  qualify  could not  reasonably  be  expected  to have a Material
Adverse  Effect;  provided  that the  foregoing  shall not  prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.

                                       59
<PAGE>

      Section 8.04 Payment of  Obligations.  The Borrowers  will, and will cause
each  Subsidiary  to, pay its  obligations,  including  Tax  liabilities  of the
Borrowers and all of their Subsidiaries  before the same shall become delinquent
or in default (provided,  that Borrowers and their Subsidiaries shall have up to
60 days after due date to pay trade payables  arising in the ordinary  course of
business), except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrowers or such Subsidiary have
set aside on its books adequate reserves with respect thereto in accordance with
GAAP  and (c) the  failure  to make  payment  pending  such  contest  could  not
reasonably be expected to result in a Material  Adverse  Effect or result in the
seizure or levy of any Property of the Borrowers or any Subsidiary.

      Section  8.05  Performance  of  Obligations  under  Loan  Documents.   The
Borrowers agree, jointly and severally,  to pay the Loans according to the terms
thereof,  and the  Borrowers  will,  and will cause each  Subsidiary  to, do and
perform  every act and  discharge  all of the  obligations  to be performed  and
discharged by them under the Loan Documents, including, without limitation, this
Agreement, at the time or times and in the manner specified.

      Section 8.06 Operation and  Maintenance of Properties.  The Borrowers,  at
their own expense, will, and will cause each Subsidiary to:

         (a) operate its Oil and Gas Properties and other material Properties or
cause such Oil and Gas Properties  and other material  Properties to be operated
in a careful  and  efficient  manner in  accordance  with the  practices  of the
industry and in compliance  with all applicable  contracts and agreements and in
compliance with all Governmental  Requirements,  including,  without limitation,
applicable pro ration  requirements and  Environmental  Laws, and all applicable
laws, rules and regulations of every other  Governmental  Authority from time to
time  constituted to regulate the  development  and operation of its Oil and Gas
Properties  and the  production  and sale of  Hydrocarbons  and  other  minerals
therefrom,  except,  in each  case,  where  the  failure  to  comply  could  not
reasonably be expected to have a Material Adverse Effect.

         (b) keep and  maintain  all  Property  material  to the  conduct of its
business in good working order and condition  (ordinary wear and tear excepted),
preserve,  maintain  and  keep in good  repair,  working  order  and  efficiency
(ordinary  wear and tear  excepted) all of its Oil and Gas  Properties and other
Properties,   including,  without  limitation,  all  equipment,   machinery  and
facilities except, in each case, where the failure to do so could not reasonably
be expected to have a Material Adverse Effect.

         (c)  promptly  pay and  discharge,  or make  reasonable  and  customary
efforts  to cause to be paid  and  discharged,  all  delay  rentals,  royalties,
expenses  and  indebtedness  accruing  under  the  leases  or  other  agreements
affecting  or  pertaining  to its Oil and Gas  Properties  and will do all other
things  necessary  to keep  unimpaired  their  rights with  respect  thereto and
prevent any forfeiture thereof or default thereunder except, in each case, where
the failure to do so could not reasonably be expected to have a Material Adverse
Effect.

                                       60
<PAGE>

         (d) promptly perform or make reasonable and customary  efforts to cause
to be performed, in accordance with industry standards, the obligations required
by each and all of the assignments,  deeds,  leases,  sub-leases,  contracts and
agreements  affecting  its  interests  in its Oil and Gas  Properties  and other
material  Properties  except, in each case, where the failure to do so could not
reasonably be expected to have a Material adverse Effect.

         (e) to the  extent  one of the  Borrowers  is not the  operator  of any
Property,  the Borrowers  shall use reasonable  efforts to cause the operator to
comply with this Section 8.06.

      Section 8.07 Insurance. The Borrowers will, and will cause each Subsidiary
to,  maintain,   with  financially  sound  and  reputable  insurance  companies,
insurance in such amounts and against such risks as are  customarily  maintained
by companies engaged in the same or similar businesses  operating in the same or
similar  locations.  The loss payable  clauses or provisions  in said  insurance
policy  or  policies  insuring  any of the  collateral  for the  Loans  shall be
endorsed  in  favor  of and  made  payable  to the  Administrative  Agent as its
interests may appear,  shall include a standard  mortgagee  provision,  and such
policies  shall name the  Administrative  Agent and the  Lenders as  "additional
insureds"  and provide that the insurer  will  endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.

      Section 8.08 Books and Records; Inspection Rights. The Borrowers will, and
will cause each  Subsidiary to, keep proper books of record and account in which
full,  true and correct  entries are made of all  dealings and  transactions  in
relation to its business and activities. The Borrowers will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or  any  Lender,  upon  reasonable  prior  notice,  to  visit  and  inspect  its
Properties,  to examine and make  extracts  from its books and  records,  and to
discuss its affairs,  finances and condition  with its officers and  independent
accountants, all at such reasonable times and as often as reasonably requested.

      Section 8.09 Compliance with Laws. The Borrowers will, and will cause each
Subsidiary  to,  comply  with all laws,  rules,  regulations  and  orders of any
Governmental  Authority  applicable  to it or its  Property,  except  where  the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

      Section 8.10 Environmental Matters.

         (a) The Borrowers  shall at their sole expense:  (i) comply,  and shall
cause its Properties and  operations and each  Subsidiary and each  Subsidiary's
Properties and operations to comply, with all applicable Environmental Laws, the
breach of which could be reasonably  expected to have a Material Adverse Effect;
(ii) not dispose of or otherwise release, and shall cause each Subsidiary not to
dispose  of or  otherwise  release,  any  oil,  oil  and  gas  waste,  hazardous
substance,  or solid waste on,  under,  about or from any of the  Borrowers'  or
their Subsidiaries' Properties or any other Property to the extent caused by the
Borrowers' or any of their  Subsidiaries'  operations  except in compliance with
applicable Environmental Laws, the disposal or release of which could reasonably
be expected to have a Material Adverse Effect;  (iii) timely obtain or file, and
shall cause each  Subsidiary  to timely  obtain or file,  all notices,  permits,
licenses, exemptions, approvals,  registrations or other authorizations, if any,
required  under  applicable  Environmental  Laws  to be  obtained  or  filed  in
connection  with the operation or use of the  Borrowers' or their  Subsidiaries'
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect;  (iv) promptly  commence and diligently  prosecute to
completion,  and shall cause each Subsidiary to promptly commence and diligently
prosecute to completion, any assessment, evaluation, investigation,  monitoring,
containment,  cleanup,  removal,  repair,  restoration,   remediation  or  other
remedial  obligations  (collectively,  the  "Remedial  Work")  in the  event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws because of or in connection with the actual or suspected  past,  present or
future  disposal  or other  release  of any oil,  oil and gas  waste,  hazardous
substance or solid waste on, under, about or from any of the Borrowers' or their
Subsidiaries' Properties,  which failure to commence and diligently prosecute to
completion could  reasonably be expected to have a Material Adverse Effect;  and
(v) establish and  implement,  and shall cause each  Subsidiary to establish and
implement,  such  procedures as may be necessary to  continuously  determine and
assure  that the  Borrowers'  and their  Subsidiaries'  obligations  under  this
Section 8.l0(a) are timely and fully  satisfied,  which failure to establish and
implement could reasonably be expected to have a Material Adverse Effect.

                                       61
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         (b) The Borrowers will  promptly,  but in no event later than five days
of the occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any  threatened  action,  investigation  or inquiry by any
Governmental  Authority or any threatened  demand or lawsuit by any landowner or
other third party against the Borrowers or its  Subsidiaries or their Properties
of which the Borrowers have Knowledge in connection with any Environmental  Laws
(excluding  routine testing and corrective  action) if the Borrowers  reasonably
anticipate that such action will result in liability (whether individually or in
the aggregate) in excess of $1,000,000, not fully covered by insurance,  subject
to normal deductibles.

         (c) The Borrowers  will,  and will cause each  Subsidiary  to,  provide
environmental  audits and tests in accordance  with American  Society of Testing
Materials  standards (i) upon the occurrence and during the  continuation  of an
Event of Default if requested by the Administrative  Agent, (ii) upon request by
the  Administrative  Agent and the  Lenders if  required  to be  obtained by the
Administrative  Agent or the Lenders by any  Governmental  Authority or (iii) in
connection with any future  acquisitions of Oil and Gas Properties or other real
estate  Properties  with a fair  market  value in excess of  $2,000,000,  unless
waived by the Administrative Agent.

      Section 8.11 Further Assurances.

         (a) The Borrowers at their expense will, and will cause each Subsidiary
to,  promptly  execute  and deliver to the  Administrative  Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with,  cure any defects or accomplish the conditions  precedent,
covenants and agreements of the Borrowers or any Subsidiary, as the case may be,
in the Loan Documents, including the Notes, if requested, or to further evidence
and  more  fully   describe  the   collateral   intended  as  security  for  the
Indebtedness,  or to correct any  omissions  in this  Agreement  or the Security
Instruments,  or to perfect,  protect or preserve any Liens created  pursuant to
this Agreement or any of the Security Instruments or the priority thereof, or to
make any  recordings,  file any  notices or obtain any  consents,  all as may be
reasonably   necessary  or   appropriate,   In  the  sole   discretion   of  the
Administrative Agent, in connection therewith.

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<PAGE>

         (b) The Borrowers hereby authorize the Administrative Agent to file one
or more financing or continuation statements,  and amendments thereto,  relative
to all or any part of the  Mortgaged  Property  without the  signature of either
Borrowers or any Guarantor  where  permitted by law. A carbon,  photographic  or
other  reproduction  of the  Security  Instruments  or any  financing  statement
covering the  Mortgaged  Property or any part thereof  shall be  sufficient as a
financing statement where permitted by law.

      Section 8.12 Reserve Reports.

         (a) On or before March 1st and September  1st of each year,  commencing
March 1, 2006, the Borrowers shall furnish to the  Administrative  Agent and the
Lenders a Reserve Report. The Reserve Report as of December 31 (and delivered on
or  before  March 1) of each  year  shall be  prepared  by one or more  Approved
Petroleum  Engineers,  and the June 30 Reserve  Report  (delivered  on or before
September 1) of each year shall be prepared  either by or under the  supervision
of the chief  engineer of the Borrowers who shall certify such Reserve Report to
be true and accurate and to have been prepared in accordance with the procedures
used in the  immediately  preceding  January 1 Reserve  Report or by one or more
Approved Petroleum Engineers.

         (b) In the event of an Interim  Redetermination,  the  Borrowers  shall
furnish to the  Administrative  Agent and the Lenders a Reserve Report  prepared
either by or under the  supervision  of the chief  engineer of the Borrowers who
shall  certify  such  Reserve  Report to be true and  accurate  and to have been
prepared in accordance  with the procedures  used in the  immediately  preceding
January 1 Reserve Report or by one or more Approved Petroleum Engineers. For any
Interim  Redetermination  requested by the Administrative Agent or the Borrowers
pursuant to Section  2.07(b),  the Borrowers  shall provide such Reserve  Report
with  an "as of  date"  as  required  by the  Administrative  Agent  as  soon as
possible,  but in any event no later than sixty (60) days  following the receipt
of such request.

         (c) With the  delivery of each  Reserve  Report,  the  Borrowers  shall
provide to the  Administrative  Agent and the Lenders (1) a  certificate  from a
Responsible   Officer  certifying  that  in  all  material  respects:   (i)  the
information  contained in the Reserve Report and any other information delivered
in connection  therewith is true and correct and no  statements  or  conclusions
exist  in such  Reserve  Report  which  are  based  upon or  include  misleading
information or which fail to take into account  material  information  regarding
the  matters  reported  therein  to the  extent  such  misstatement,  misleading
information or failure could  reasonably be expected to have a Material  Adverse
Effect, (ii) the Borrowers or the Subsidiaries own good and defensible title to,
or valid and  enforceable  leasehold  interests  in, the Oil and Gas  Properties
evaluated  in such  Reserve  Report  and such  Properties  are free of all Liens
except for Liens  permitted  by Section  9.03,  (iii)  except as set forth on an
exhibit to the certificate,  on a net basis there are no gas imbalances, take or
payor other  prepayments in excess of the volume  specified in Section 7.19 with
respect to its Oil and Gas  Properties  evaluated in such  Reserve  Report which
would require the Borrowers or any  Subsidiary  to deliver  Hydrocarbons  either
generally  or  produced  from such Oil and Gas  Properties  at some  future time
without then or thereafter  receiving full payment therefor,  (iv) none of their
Oil and Gas Properties  have been sold since the date of the last Borrowing Base
determination  except  as set  forth on an  exhibit  to the  certificate,  which
certificate sha11 list all of its Oil and Gas Properties sold and in such detail
as  reasonably  required  by the  Administrative  Agent and (v)  attached to the
certificate is a list of all marketing agreements entered into subsequent to the
later of the date hereof or the most recently delivered Reserve Report which the
Borrowers  could  reasonably  be  expected  to have  been  obligated  to list on
Schedule  7.20 had such  agreement  been in  effect on the date  hereof  and (2)
electronically,  a  schedule  of the Oil and Gas  Properties  evaluated  by such
Reserve Report that are Mortgaged Properties and demonstrating the percentage of
the  Borrowing  Base that the value of such  Mortgaged  Properties  represent in
compliance with Section 8.14.

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<PAGE>

      Section 8.13 Title Information.

         (a) On or  before  the  delivery  to the  Administrative  Agent and the
Lenders of each Reserve Report required by Section  8.12(a),  the Borrowers will
deliver title information in form and substance acceptable to the Administrative
Agent covering  enough of the Oil and Gas  Properties  evaluated by such Reserve
Report that were not included in the immediately  preceding  Reserve Report,  so
that the Administrative  Agent shall be reasonably  satisfied with the status of
title to or leasehold  interests in the Oil and Gas  Properties  (excluding  the
Pipeline) evaluated by such Reserve Report representing not less than 80% of the
total value of such  Properties,  provided the Borrowers will not be required to
deliver any title opinions on Oil and Gas Properties that are not Proved Mineral
Interests.

         (b) If the Borrowers  have provided  title  information  for additional
Properties under Section 8.13(a),  the Borrowers shall, within 90 days of notice
from the  Administrative  Agent that  title  defects  or  exceptions  exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions  (including  defects  or  exceptions  as to  priority)  which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable
Mortgaged  Properties  with no title defects or  exceptions  except for Excepted
Liens (other than Excepted  Liens  described in clauses (e), (g) and (h) of such
definition)  having an equivalent  value or (iii) deliver title  information  in
form  and  substance   acceptable  to  the  Administrative  Agent  so  that  the
Administrative  Agent shall be reasonably  satisfied with the status of title to
the Oil and Gas Properties evaluated by such Reserve Report.

         (c) If the Borrowers  are unable to cure any title defect  requested by
the Administrative  Agent or the Lenders to be cured within the 90-day period or
the Borrowers do not comply with the  requirements to provide  acceptable  title
information on the Oil and Gas  Properties  evaluated in the most recent Reserve
Report,  such  default  shall not be a Default,  but instead the  Administrative
Agent and/or the Majority Lenders shall have the right to exercise the following
remedy  in their  sole  discretion  from  time to time,  and any  failure  to so
exercise this remedy at any time shall not be a waiver as to future  exercise of
the remedy by the  Administrative  Agent or the Lenders.  To the extent that the
Administrative Agent or the Majority Lenders are not satisfied with title to any
Mortgaged Property after the 90-day period has elapsed, the Administrative Agent
may send a notice to the  Borrowers  and the Lenders  that the then  outstanding
Borrowing  Base  shall be  reduced by an amount as  determined  by the  Majority
Lenders to cause the  Borrowers  to be in  compliance  with the  requirement  to
provide  acceptable  title  information to the Oil and Gas Properties.  This new
Borrowing Base shall become effective immediately after receipt of such notice.

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<PAGE>

      Section   8.14   Additional   Collateral.    In   connection   with   each
redetermination  of the Borrowing  Base, the Borrowers  shall review the Reserve
Report and the list of current  Mortgaged  Properties  (as  described in Section
8.12(c)(vi)) to ascertain  whether the Mortgaged  Properties  represent at least
80% of the total value of the Oil and Gas  Properties  (excluding  the Pipeline)
evaluated in the most recently  completed  Reserve Report after giving effect to
exploration   and  production   activities,   acquisitions,   dispositions   and
production. In the event that the Mortgaged Properties do not represent at least
80% of such  total  value,  then the  Borrowers  shall,  and shall  cause  their
Subsidiaries  to, grant,  within thirty (30) days of delivery of the certificate
required under Section 8.12(c), to the Administrative  Agent as security for the
Indebtedness a first-priority  Lien interest  (subject only to Excepted Liens of
the type described in clauses (a) to (d) and (f) of the definition thereof,  but
subject to the provisos at the end of such definition) on additional Oil and Gas
Properties  (excluding  the  Pipeline)  not  already  subject  to a Lien  of the
Security  Instruments  such that after  giving  effect  thereto,  the  Mortgaged
Properties will represent at least 80% of such total value.  All such Liens will
be created and perfected by and in accordance  with the provisions of mortgages,
deeds of trust,  security agreements and financing  statements or other Security
Instruments,   all  in  form  and  substance  reasonably   satisfactory  to  the
Administrative   Agent  and  in  sufficient  executed  (and  acknowledged  where
necessary or appropriate)  counterparts  for recording  purposes.  The Borrowers
agree that they will not, and will not permit any Subsidiary to, grant a Lien on
any  Property to secure the Second Lien Term Loan  Agreement  without (i) giving
prior  written  notice  to the  Administrative  Agent and (ii)  granting  to the
Administrative  Agent to secure the Indebtedness a  first-priority  Lien on this
same Property.

      Section 8.15 ERISA  Compliance.  The Borrowers  will promptly  furnish and
will cause the  Subsidiaries  and any ERISA Affiliate to promptly furnish to the
Administrative  Agent (i)  promptly  after the  filing  thereof  with the United
States Secretary of Labor,  the Internal Revenue Service or the PBGC,  copies of
each  annual and other  report  with  respect to each Plan or any trust  created
thereunder,  (ii) promptly upon  becoming  aware of the  occurrence of any ERISA
Event or of any "prohibited  transaction,"  as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder,  a written notice signed by the President or the principal Financial
Officer of the applicable  Borrower,  the Subsidiary or the ERISA Affiliate,  as
the case may be,  specifying  the nature  thereof,  what  action the  applicable
Borrower,  the  Subsidiary or the ERISA  Affiliate is taking or proposes to take
with  respect  thereto,  and,  when known,  any action  taken or proposed by the
Internal  Revenue  Service,  the  Department  of Labor or the PBGC with  respect
thereto,  and (iii) promptly upon receipt  thereof,  copies of any notice of the
PBGC's  intention to terminate or to have a trustee  appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrowers
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely  manner,  without  incurring  any late  payment or  underpayment
charge or penalty and without giving rise to any Lien,  all of the  contribution
and funding  requirements of section 412 of the Code (determined  without regard
to  subsections  (d),  (e),  (f) and (k)  thereof)  and of section  302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner,  without incurring any late
payment or underpayment  charge or penalty,  all premiums  required  pursuant to
sections 4006 and 4007 of ERISA.

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<PAGE>

      Section 8.16 Swap  Agreements.  The Borrowers  shall or shall cause one or
more of its Subsidiaries to maintain the hedged position established by the Swap
Agreements  required under Section 6.01(q) during the period  specified  therein
and shall neither assign,  terminate or unwind any such Swap Agreements nor sell
any Swap  Agreements if the effect of such action (when taken  together with any
other Swap Agreements executed contemporaneously with the taking of such action)
would have the effect of  canceling  its  positions  under such Swap  Agreements
required hereby.

      Section 8.17  Marketing  Activities.  The Borrowers will not, and will not
permit any of their  Subsidiaries  to,  engage in marketing  activities  for any
Hydrocarbons  or  enter  into  any  contracts  related  thereto  other  than (i)
contracts for the sale of Hydrocarbons  scheduled or reasonably  estimated to be
produced  from  their  proved Oil and Gas  Properties  during the period of such
contract,  (ii) contracts for the sale of  Hydrocarbons  scheduled or reasonably
estimated to be produced  from proved Oil and Gas  Properties  of third  parties
during the period of such contract associated with the Oil and Gas Properties of
the  Borrowers  and their  Subsidiaries  that either  Borrowers  or one of their
Subsidiaries  has the right to market  pursuant to joint  operating  agreements,
unitization  agreements or other similar  contracts that are usual and customary
in the oil and gas business and (iii) other  contracts  for the purchase  and/or
sale of  Hydrocarbons  of third  parties  (A) which  have  generally  offsetting
provisions (i.e. corresponding pricing mechanics,  delivery dates and points and
volumes) such that no "position" is taken and (B) for which  appropriate  credit
support  has  been  taken  to  alleviate  the  material   credit  risks  of  the
counterparty thereto.

                                   ARTICLE IX
                               Negative Covenants

      Until the Commitments  have expired or terminated and the principal of and
interest  on each Loan and all fees  payable  hereunder  and all  other  amounts
payable  under  the  Loan  Documents  (other  than  contingent   indemnification
obligations)  have been paid in full and all Letters of Credit  have  expired or
terminated  or  cash  collateralized  pursuant  to  Section  2.08(j)  and all LC
Disbursements shall have been reimbursed,  the Borrowers covenant and agree with
the Lenders that:

      Section 9.01 Financial Covenants.

         (a) The  Borrowers  will have net sales of  natural  gas on  commercial
terms  customary in the local market of not less than 1,890 mmcf for the quarter
ending March 31, 2006;  2,380 mmcf for the quarter  ending June 30, 2006;  3,080
mmcf for the quarter  ending  September 30, 2006; and 3,430 mmcf for the quarter
ending December 31, 2006.

         (b) For each quarter set forth below,  EBITDA shall be calculated using
EBITDA for such quarter multiplied by four. The Borrowers shall maintain a ratio
of Total  Net Debt to  EBITDA of not more  than the  following  ratios  for each
quarter ending on the dates indicated below:

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<PAGE>

      Ratio            Period

      4.5 to 1.0       for the quarter ending March 31, 2007,

      4.25 to 1.0      for the quarter ending June 30, 2007,

      4.00 to 1.0      for the quarter ending September 30, 2007,

      3.75 to 1.0      for the quarter ending December 31, 2007,

      3.50 to 1.0      for the quarter ending March 31, 2008,

      3.25 to 1.0      for the quarter ending June 30, 2008, and

      3.0 to 1.0       for each quarter ending on or after September 30, 2008


         (c) The Borrowers  shall maintain a ratio of (i) the PV-10 Value as set
forth on the most recent  Reserve Report  delivered  pursuant to Section 8.12 to
(ii) the principal amount of Indebtedness  (excluding any obligations under Swap
Agreements) of not less than 2.00 to 1.00.

      Section  9.02  Debt.  The  Borrowers  will not,  and will not  permit  any
Subsidiary to, incur, create, assume or suffer to exist any Debt, except:

         (a) the Loans, any Notes or other  Indebtedness  arising under the Loan
Documents or any guaranty of or suretyship  arrangement for the Loans, any Notes
or other Indebtedness arising under the Loan Documents.

         (b) Debt of the Borrowers and their  Subsidiaries  existing on the date
hereof that is reflected in the Financial Statements.

         (c)  accounts  payable  and  accrued  expenses,  liabilities  or  other
obligations  to pay the deferred  purchase  price of Property or services,  from
time to time incurred in the ordinary  course of business  which are not greater
than  sixty  (60) days past the due date or which  are being  contested  in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP.

         (d) Debt (including guarantees) under Capital Leases and purchase money
obligations not to exceed $2.500,000.

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

         (f)  intercompany  Debt between the  Borrowers  and any  Subsidiary  or
between  Subsidiaries to the extent permitted by Section 9.05(g);  provided that
such Debt is not held,  assigned,  transferred,  negotiated  or  pledged  to any
Person  other  than  either  of  the  Borrowers  or  one  of  its   Wholly-Owned
Subsidiaries,  and,  provided  further,  that any such Debt  owed by either  the
Borrowers or a Subsidiary shall be subordinated to the Indebtedness on terms set
forth in the Security Agreement.

                                       67
<PAGE>

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

         (h) Debt under the Second Lien Term Loan  Agreement and any  guarantees
thereof,  the principal amount of which Debt does not exceed $100,000,000 in the
aggregate.

         (i) Debt in connection with Swap Agreements and permitted in accordance
with Section 9.18.

         (j) reimbursement  obligations under (i) letters of credit  outstanding
on the date of this  Agreement  and (ii) other  letters of credit  provided  the
aggregate  undrawn  face amount of such other  letters of credit does not exceed
$20,000,000.

         (k) guarantees of Debt otherwise permitted under Section 9.02.

         (l) Permitted Refinancing Debt.

         (m) other Debt, not otherwise permitted above, not to exceed $2,000,000
in the aggregate at anyone time outstanding.

      Section  9.03  Liens.  The  Borrowers  will not,  and will not  permit any
Subsidiary to, create,  incur,  assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:

         (a) Liens securing the payment of any Indebtedness.

         (b) Excepted Liens.

         (c) Liens  securing  Capital  Leases  and  purchase  money  obligations
permitted by Section 9.02(d) but only on the Property under lease or purchased.

         (d) Liens to secure  obligations under any Swap Agreement  permitted by
Section 9.18.

         (e)  Liens in  existence  on the date of this  Agreement  and  shown on
Schedule 7.14.

         (f) Liens securing reimbursement obligations in connection with letters
of credit  outstanding on the date of this Agreement and other letters of credit
provided the aggregate  undrawn face amount of such other letters of credit does
not exceed $20,000,000.

         (g) Liens securing Permitted Refinancing Debt.

         (h) Liens on  Property  securing  the Second  Lien Term Loan  Agreement
permitted by Section 9.02(h),  provided;  however,  that (i) such Liens securing
the Second Lien Term Loan Agreement and any guarantees  thereof are subordinated
pursuant to the Intercreditor  Agreement,  (ii) each and every Lien securing the
Second Lien Term Loan  Agreement  shall be subordinate to the Liens securing the
Indebtedness,  this  Agreement  and the other Loan  Documents  and (iii) no Lien
shall be granted on any  Property to secure the Second Lien Term Loan  Agreement
unless the Lien is also being granted to secure the Indebtedness, this Agreement
and the other Loan Documents.

                                       68
<PAGE>

         (i) Liens on Property not constituting  collateral for the Indebtedness
and not  otherwise  permitted by the  foregoing  clauses of this  Section  9.03;
provided that the  aggregate  principal or face amount of all Debt secured under
this Section 9.03(i) shall not exceed $2,000,000 at any time.

      Section 9.04 Dividends,  Distributions  and  Redemptions;  and Second Lien
Term Loan Agreement.

         (a) Restricted Payments.  Neither of the Borrowers will, or will permit
any of their Subsidiaries to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, return any capital to its stockholders or
make any distribution of its Property to its Equity Interest holders, except (i)
QRC may declare and pay dividends with respect to its Equity  Interests  payable
solely in additional  shares of its Equity  Interests  (other than  Disqualified
Capital Stock), (ii) Subsidiaries (including Quest Cherokee) may declare and pay
dividends  ratably with respect to their Equity  Interests,  (iii) the Borrowers
may make  Restricted  Payments  pursuant to and in accordance  with stock option
plans or other benefit plans for management or employees of either  Borrower and
its Subsidiaries,  and (iv) the Borrowers may terminate directors' or employees'
option  agreements  or  restricted  stock  agreements  under  any of  Borrowers'
incentive  stock plans  provided;  however,  that the aggregate  amounts paid in
respect thereof do not exceed $1,000,000.

         (b) Redemption of Second Lien Term Loan Agreement;  Amendment of Second
Lien Term Loan  Documents.  The  Borrowers  will not,  and will not  permit  any
Subsidiary to, prior to the date that is ninety-one (91) days after the Maturity
Date:  call,  make or offer to make any optional or voluntary  Redemption  of or
otherwise  optionally or  voluntarily  Redeem  (whether in whole or in part) the
Second  Lien  Term  Loan  Agreement  except  in  connection  with any  Permitted
Refinancing Debt in respect thereof.

      Section 9.05 Investments,  Loans and Advances. The Borrowers will not, and
will not permit any  Subsidiary  to,  make or permit to remain  outstanding  any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:

         (a)  Investments  reflected in the  Financial  Statements  or which are
disclosed to the Lenders in Schedule 9.05.

         (b) accounts receivable arising in the ordinary course of business.

         (c) direct  obligations of the United States or any agency thereof,  or
obligations  guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of acquisition thereof.

                                       69
<PAGE>

         (d)  commercial  paper  maturing  within  one  year  from  the  date of
acquisition thereof rated in the highest grade by S&P or Moody's.

         (e) demand deposits or deposits  maturing within one year from the date
of acquisition  thereof with,  including  certificates of deposit issued by, any
Lender or any office  located  in the  United  States of any other bank or trust
company  which is  organized  under the laws of the  United  States or any state
thereof,  has  capital,  surplus  and  undivided  profits  aggregating  at least
$100,000,000  (as of the  date  of such  bank or  trust  company's  most  recent
financial  reports) and has a short term  deposit  rating of no lower than A2 or
P2,  as  such  rating  is set  forth  from  time  to  time,  by S&P or  Moody's,
respectively.

         (f) deposits in money market funds investing exclusively in Investments
described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).

         (g) Investments (i) made by either Borrower in or to the  Subsidiaries,
(ii) made by any  Subsidiary in or to either  Borrower or any  Subsidiary or any
entity that upon the making of such Investment would become a Subsidiary.

         (h)  subject  to the  limits in  Section  9.07,  Investments  in direct
ownership  interests in  additional  Oil and Gas  Properties  and gas  gathering
systems related thereto or related to farm-out,  farm-in, joint operating, joint
venture or area of mutual interest agreements,  gathering systems,  pipelines or
other  similar  arrangements  which are usual and  customary  in the oil and gas
exploration and production business located within the geographic  boundaries of
the United States of America.

         (i) loans or  advances  to  employees,  officers  or  directors  in the
ordinary  course of business of either Borrower or any of its  Subsidiaries,  in
each case only as  permitted by  applicable  law,  including  Section 402 of the
Sarbanes  Oxley Act of 2002,  but in any event  not to  exceed  $100,000  in the
aggregate at any time.

         (j)  Investments  in  stock,  obligations  or  securities  received  in
settlement of debts arising from  Investments  permitted under this Section 9.05
owing to either  Borrower or any Subsidiary as a result of a bankruptcy or other
insolvency  proceeding  of the  obligor  in  respect  of such  debts or upon the
enforcement of any Lien in favor of either Borrower or any of its  Subsidiaries;
provided that such Borrower shall give the  Administrative  Agent prompt written
notice in the event that the aggregate  amount of all Investments held at anyone
time under this Section 9.05(j) exceeds $1,000,000.

         (k) consideration received in connection with permitted asset sales.

         (l) lease,  utility and  similar  deposits  in the  ordinary  course of
business.

         (m) Investments in permitted Swap Agreements.

      Section 9.06 Nature of Business;  International Operations. Neither of the
Borrowers nor any  Subsidiary  will allow any material  change to be made in the
character of its business as an independent oil and gas exploration,  production
and  gathering  company,  and will not  acquire  or make any  other  expenditure
(whether such expenditure is capital,  operating or otherwise) in or related to,
any Oil and Gas Properties not located within the geographical boundaries of the
United States.

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      Section 9.07  Limitation on Leases.  Neither  Borrower nor any  Subsidiary
will create,  incur, assume or suffer to exist any obligation for the payment of
rent or hire of Property of any kind whatsoever  (real or personal but excluding
Capital  Leases and leases of  Hydrocarbon  Interests,  pipelines or  compressor
leases), under leases or lease agreements which would cause the aggregate amount
of all payments made by the Borrowers and the Subsidiaries  pursuant to all such
leases or lease agreements, including, without limitation, any residual payments
at the  end of  any  lease,  to  exceed  $5,000,000  in  any  period  of  twelve
consecutive calendar months during the life of such leases.

      Section 9.08 Proceeds of Notes. The Borrowers will not permit the proceeds
of the Loans to be used for any purpose  other than those  permitted  by Section
7.22.  Neither  Borrower nor any Person acting on behalf of either  Borrower has
taken or will take any action  which  might cause any of the Loan  Documents  to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section  7 of the  Securities  Exchange  Act of 1934 or any  rule or  regulation
thereunder,  in each case as now in effect or as the same may  hereinafter be in
effect. If requested by the Administrative  Agent, the Borrowers will furnish to
the Administrative  Agent and each Lender a statement to the foregoing effect in
conformity  with the  requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

      Section 9.09 ERISA Compliance. The Borrowers and the Subsidiaries will not
at any time:

         (a)  engage  in,  or permit  any ERISA  Affiliate  to  engage  in,  any
transaction in connection with which either Borrower,  a Subsidiary or any ERISA
Affiliate  could be  subjected  to  either a  material  civil  penalty  assessed
pursuant to  subsections  (c),  (i) or (l) of section 502 of ERISA or a material
tax imposed by Chapter 43 of Subtitle D of the Code.

         (b) terminate, or permit any ERISA Affiliate to terminate,  any Plan in
a manner,  or take any other action with respect to any Plan, which could result
in any  material  liability  of  either  Borrower,  a  Subsidiary  or any  ERISA
Affiliate to the PBGC.

         (c) fail to make, or permit any ERISA  Affiliate to fail to make,  full
payment  when due of all  amounts  which,  under  the  provisions  of any  Plan,
agreement  relating thereto or applicable law, either Borrower,  a Subsidiary or
any ERISA Affiliate are required to pay as contributions thereto.

         (d) permit to exist,  or allow any ERISA  Affiliate to permit to exist,
any accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan.

         (e)  permit,  or allow any ERISA  Affiliate  to permit,  the  actuarial
present  value of the benefit  liabilities  under any Plan  maintained by either
Borrower,  a Subsidiary or any ERISA Affiliate which is regulated under Title IV
of  ERISA  to  exceed  the  current  value  of the  assets  (computed  on a plan
termination  basis in accordance  with Title IV of ERISA) of such Plan allocable
to such benefit  liabilities.  The term "actuarial  present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA.

                                       71
<PAGE>

         (f)  contribute to or assume an obligation to contribute  to, or permit
any ERISA  Affiliate to contribute to or assume an obligation to contribute  to,
any Multiemployer Plan.

         (g) acquire,  or permit any ERISA Affiliate to acquire,  an interest in
any Person that causes such Person to become an ERISA  Affiliate with respect to
either Borrower or a Subsidiary or with respect to any ERISA Affiliate of either
Borrower or a Subsidiary if such Person  sponsors,  maintains or contributes to,
or at any time in the six-year period  preceding such acquisition has sponsored,
maintained,  or contributed  to, (i) any  Multiemployer  Plan, or (ii) any other
Plan that is  subject to Title IV of ERISA  under  which the  actuarial  present
value of the benefit  liabilities  under such Plan exceeds the current  value of
the assets (computed on a plan termination  basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities.

         (h) incur, or permit any ERISA Affiliate to incur, a liability to or on
account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA.

         (i)  contribute to or assume an obligation to contribute  to, or permit
any ERISA  Affiliate to contribute to or assume an obligation to contribute  to,
any  employee  welfare  benefit  plan,  as  defined  in  section  3(1) of ERISA,
including,  without limitation,  any such plan maintained to provide benefits to
former  employees of such entities.  that may not be terminated by such entities
in their sole discretion at any time without any material liability.

         (j) amend,  or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current liability such that either Borrower,  a Subsidiary or any
ERISA  Affiliate  are  required to provide  security to such Plan under  section
401(a)(29) of the Code.

      Section  9.10 Sale or  Discount  of  Receivables.  Except for  receivables
obtained by either  Borrower or any  Subsidiary  out of the  ordinary  course of
business or the  settlement of joint interest  billing  accounts in the ordinary
course of  business  or  discounts  granted  to settle  collection  of  accounts
receivable or the sale of defaulted  accounts  arising in the ordinary course of
business in connection  with the  compromise  or  collection  thereof and not in
connection with any financing  transaction,  neither Borrower nor any Subsidiary
will discount or sell (with or without  recourse) any of its notes receivable or
accounts receivable.

      Section 9.11  Mergers,  Etc.  Neither  Borrower  will,  or will permit any
Subsidiary  to, merge into or consolidate  with any other Person,  or permit any
other Person to merge into or consolidate with it, or sell,  transfer,  lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially  all of its Property to any other Person (whether now owned
or hereafter acquired) (any such transaction,  a "consolidation"),  or liquidate
or dissolve;  provided that any  Subsidiary may  participate in a  consolidation
with either  Borrower  (provided  that such Borrower  shall be the continuing or
surviving  entity) or any other Subsidiary and if one of such  Subsidiaries is a
Wholly-Owned  Subsidiary,  then the  surviving  Person  shall be a  Wholly-Owned
Subsidiary.

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      Section  9.12 Sale of  Properties.  The  Borrowers  will not, and will not
permit any Subsidiary to, sell, assign,  farm-out,  convey or otherwise transfer
any Property  except for (a) the sale of  Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in connection with
such farmouts; (c) the sale or transfer of equipment that is no longer necessary
for the business of the Borrowers or such Subsidiary or is replaced by equipment
of at  least  comparable  value  and  use;  (d) the  sale or  other  disposition
(including  Casualty Events) of any Oil and Gas Property or any interest therein
or any Subsidiary  owning Oil and Gas Properties;  provided that (i) 100% of the
consideration  received  in respect of such sale or other  disposition  shall be
cash,  (ii)  the  consideration  received  in  respect  of such  sale  or  other
disposition  shall be equal to or greater  than the fair market value of the Oil
and Gas Property  interest  therein or Subsidiary  subject of such sale or other
disposition  (as  reasonably  determined  by the  Board of  Directors  of either
Borrower and, if requested by the  Administrative  Agent,  the  Borrowers  shall
deliver a certificate of a Responsible  Officer of either Borrower certifying to
that effect), (iii) if such sale or other disposition of Oil and Gas Property or
Subsidiary owning Oil and Gas Properties included in the most recently delivered
Reserve   Report   during   any  period   between   two   successive   Scheduled
Redetermination  Dates is sold for a price in excess of 5% of the Borrowing Base
then in effect,  individually or in the aggregate, then the Borrowing Base shall
be reduced,  effective  immediately upon such sale or disposition,  by an amount
equal  to the  value,  if any,  assigned  such  Property  in the  most  recently
delivered  Reserve Report and (iv) if any such sale or other disposition is of a
Subsidiary  owning Oil and Gas Properties,  such sale or other disposition shall
include all the Equity  Interests  of such  Subsidiary;  and (e) sales and other
dispositions of Properties not regulated by Section 9.12(a) to (d) having a fair
market value not to exceed $1,000,000 during any 12-month period.

      Section 9.13 Environmental  Matters.  The Borrowers will not, and will not
permit any Subsidiary to, cause or permit any of its Property to be in violation
of, or do  anything or permit  anything  to be done which will  subject any such
Property to any Remedial Work under any Environmental  Laws, assuming disclosure
to the applicable  Governmental Authority of all relevant facts,  conditions and
circumstances,  if any,  pertaining  to such Property  where such  violations or
remedial  obligations  could  reasonably be expected to have a Material  Adverse
Effect.

      Section 9.14  Transactions  with  Affiliates.  The Borrowers will not, and
will not permit  any  Subsidiary  to,  enter  into any  transaction,  including,
without  limitation,  any purchase,  sale,  lease or exchange of Property or the
rendering  of any  service,  with any  Affiliate  (other than  between and among
Borrowers and the  Wholly-Owned  Subsidiaries  of either  Borrower)  unless such
transactions are otherwise  permitted under this Agreement and are upon fair and
reasonable  terms no less  favorable  to it than it would obtain in a comparable
arm's  length  transaction  with  a  Person  not an  Affiliate  other  than  (a)
Investments  under Section  9.05(i);  (b)  reasonable  and  customary  director,
officer  and  employee  compensation  (including  bonuses)  and  other  benefits
(including  retirement,  health,  stock  option  and other  benefit  plans)  and
indemnification  arrangements,  in each case approved by the Board of Directors,
and (c) any transaction with an Affiliate where the only  consideration  paid is
capital stock that is not Disqualified Capital Stock.

      Section 9.15 Subsidiaries. The Borrowers will not, and will not permit any
Subsidiary to, create or acquire any additional  Subsidiary unless the Borrowers
give written notice to the Administrative  Agent of such creation or acquisition
and complies  with Section 8.14.  The Borrowers  shall not, and shall not permit
any Subsidiary to, sell,  assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.12(d).

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<PAGE>

      Section  9.16  Negative  Pledge  Agreements;  Dividend  Restrictions.  The
Borrowers will not, and will not permit any Subsidiary to, create, incur, assume
or suffer to exist any  contract,  agreement or  understanding  (other than this
Agreement,  the Security  Instruments,  Liens permitted by Section 9.03(c),  the
Intercreditor  Agreement,  the  Second  Lien  Term Loan  Agreement  or listed on
Schedule 7.14) which in any way prohibits or restricts the granting,  conveying,
creation  or  imposition  of any  Lien on any of its  Property  in  favor of the
Administrative  Agent and the Lenders or restricts  any  Subsidiary  from paying
dividends or making distributions, or which requires the consent of or notice to
other Persons in connection therewith.

      Section  9.17  Gas  Imbalances,  Take-or-Pay  or  Other  Prepayments.  The
Borrowers will not allow gas imbalances,  take-or-pay or other  prepayments with
respect to the Oil and Gas Properties of either  Borrower or any Subsidiary that
would require such Borrower or such  Subsidiary to deliver  Hydrocarbons at some
future time without then or thereafter receiving full payment therefor to exceed
1.5 bcf of gas (on an mcf equivalent basis) in the aggregate.

      Section 9.18 Swap Agreements.  The Borrowers will not, and will not permit
any Subsidiary to, enter into any Swap Agreements with any Person other than (a)
Swap Agreements in respect of commodities (i) with an Approved  Counterparty and
(ii) the notional  volumes for which (when  aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already
hedged  pursuant to other Swap  Agreements)  do not exceed,  as of the date such
Swap  Agreement  is  executed,  85%  of  the  reasonably  anticipated  projected
production  (as shown in the  Borrowers'  most recent  Engineering  Report) from
proved,  developed,  producing Oil and Gas  Properties for each month during the
period  during which such Swap  Agreement is in effect for each of crude oil and
natural gas, calculated  separately,  (b) Swap Agreements in respect of interest
rates with an Approved Counterparty, as follows: (i) Swap Agreements effectively
converting interest rates from fixed to floating,  the notional amounts of which
(when  aggregated  with all other Swap  Agreements  of the  Borrowers  and their
Subsidiaries then in effect effectively  converting interest rates from fixed to
floating)  do not exceed  50% of the then  outstanding  principal  amount of the
Borrowers' Debt for borrowed money which bears interest at a fixed rate and (ii)
Swap Agreements  effectively  converting  interest rates from floating to fixed,
the notional amounts of which (when aggregated with all other Swap Agreements of
the  Borrowers  and their  Subsidiaries  then in effect  effectively  converting
interest rates from floating to fixed) do not exceed 75% of the then outstanding
principal  amount of the Borrowers' Debt for borrowed money which bears interest
at a floating rate, and (c) Swap Agreements required under Section 6.01(q) or as
provided in the Swap  Agreements  listed on Schedule 7.21. In no event shall any
Swap Agreement contain any requirement,  agreement or covenant for the Borrowers
or any Subsidiary to post collateral to secure their obligations under such Swap
Agreement or to cover market exposures except to the extent permitted by Section
9.03(d).

                                    ARTICLE X
                           Events of Default; Remedies

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<PAGE>

      Section 10.01 Events of Default. One or more of the following events shall
constitute an "Event of Default":

         (a) the  Borrowers  shall fail to pay any  principal of any Loan or any
reimbursement  obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or otherwise.

         (b) the Borrowers shall fail to pay any interest on any Loan or any fee
or any other  amount  (other  than an amount  referred  to in Section  10.01(a))
payable  under any Loan  Document,  when and as the same  shall  become  due and
payable,  and such  failure  shall  continue  unremedied  for a period  of three
Business Days.

         (c) any  representation or warranty made or deemed made by or on behalf
of the Borrowers or any Subsidiary in or in connection with any Loan Document or
any  amendment or  modification  of any Loan  Document or waiver under such Loan
Document, or in any report,  certificate,  financial statement or other document
furnished  pursuant to or in connection  with any Loan Document or any amendment
or modification thereof or waiver thereunder, shall prove to have been incorrect
in any material respect when made or deemed made.

         (d) the  Borrowers or any  Subsidiary  shall fail to observe or perform
any  covenant,  condition or agreement  contained  in Section  8.0l(i),  Section
8.0l(m), Section 8.02, Section 8.03, Section 8.15 or in ARTICLE IX.

         (e) the  Borrowers or any  Subsidiary  shall fail to observe or perform
any covenant,  condition or agreement  contained in this  Agreement  (other than
those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d) or any
other Loan Document,  and such failure shall continue unremedied for a period of
30 days after the earlier to occur of (A) notice thereof from the Administrative
Agent to the Borrowers (which notice will be given at the request of any Lender)
or (B) a Responsible Officer of either Borrower or such Subsidiary has Knowledge
of such default.

         (f) the  Borrowers  or any  Subsidiary  shall fail to make any  payment
(whether of principal or interest  and  regardless  of amount) in respect of any
Material  Indebtedness  prior to the longer of (i) three (3) Business Days after
the same shall become due and payable or (ii) the  expiration of any  applicable
grace or notice and cure  period,  except that with  respect to trade  payables,
Borrowers  and  their  Subsidiaries  shall  have 60 days  after due date to make
payment.

         (g)  any  event  or  condition  occurs  that  results  in any  Material
Indebtedness  becoming  due prior to its  scheduled  maturity or that enables or
permits  (with or without  the giving of notice,  the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
Redemption  thereof or any offer to Redeem to be made in respect thereof,  prior
to its scheduled  maturity or require either  Borrower or any Subsidiary to make
an offer in  respect  thereof,  except  that  with  respect  to trade  payables,
Borrowers  and  their  Subsidiaries  shall  have 60 days  after due date to make
payment.

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<PAGE>

         (h) an  involuntary  proceeding  shall be commenced  or an  involuntary
petition shall be filed seeking (i) liquidation,  reorganization or other relief
in  respect  of  either  Borrower  or  any  Subsidiary  or  its  debts,  or of a
substantial part of its assets, under any Federal,  state or foreign bankruptcy,
insolvency,  receivership  or similar law now or hereafter in effect or (ii) the
appointment  of a receiver,  trustee,  custodian,  sequestrator,  conservator or
similar official for either Borrower or any Subsidiary or for a substantial part
of its assets, and, in any such case, such proceeding or petition shall continue
undismissed  for 60 days or an order or decree  approving or ordering any of the
foregoing shall be entered.

         (i) either Borrower or any Subsidiary  shall (i)  voluntarily  commence
any proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency,  receivership
or similar law now or hereafter in effect,  (ii) consent to the  institution of,
or fail to  contest  in a timely  and  appropriate  manner,  any  proceeding  or
petition  described  in  Section  10.01(h),  (iii)  apply for or  consent to the
appointment  of a receiver,  trustee,  custodian,  sequestrator,  conservator or
similar official for either Borrower or any Subsidiary or for a substantial part
of its assets,  (iv) file an answer  admitting  the  material  allegations  of a
petition filed against it in any such proceeding,  (v) make a general assignment
for the  benefit  of  creditors  or (vi)  take any  action  for the  purpose  of
effecting any of the foregoing.

         (j) either  Borrower or any Subsidiary  shall become  unable,  admit in
writing its inability or fail generally to pay its debts as they become due.

         (k) one or more  judgments  for the  payment  of money in an  aggregate
amount in excess of $2,250,000 (to the extent not covered by  independent  third
party  insurance  provided by insurers as to which the insurer  does not dispute
coverage  and is not  subject to an  insolvency  proceeding)  shall be  rendered
against either Borrower,  any Subsidiary or any combination thereof and the same
shall  remain  undischarged  for a period of 30  consecutive  days during  which
execution shall not be effectively  stayed, or any action shall be legally taken
by a judgment  creditor to attach or levy upon any assets of either  Borrower or
any Subsidiary to enforce any such judgment.

         (l) the Loan  Documents  after  delivery  thereof shall for any reason,
except to the extent  permitted by the terms thereof,  cease to be in full force
and effect and valid,  binding and  enforceable  in accordance  with their terms
against either Borrower or a Subsidiary  party thereto or shall be repudiated by
any of them,  or cease to  create a valid  and  perfected  Lien of the  priority
required  thereby on any of the  collateral  purported  to be  covered  thereby,
except  to the  extent  permitted  by the  terms of this  Agreement,  or  either
Borrower or any Subsidiary or any of their Affiliates shall so state in writing.

         (m) an  Intercreditor  Agreement,  after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in full
force and effect and valid, binding and enforceable in accordance with its terms
against the Borrowers,  any party thereto or holder of the Debt governed thereby
or shall be repudiated by any of them.

         (n) an ERISA  Event  shall have  occurred  that,  in the opinion of the
Majority  Lenders,  when taken  together  with all other ERISA  Events that have
occurred, could reasonably be expected to result in liability of either Borrower
and any Subsidiary in an aggregate amount exceeding $1,750,000.

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<PAGE>

         (o) a Change in Control shall occur.

      Section 10.02 Remedies.

         (a) In the case of an Event of  Default  other  than one  described  in
Section 10.01(h),  Section 10.01(i) or Section 10.01(j),  at any time thereafter
during the continuance of such Event of Default,  the  Administrative  Agent, at
the direction of the Majority Lenders,  shall, by notice to the Borrowers,  take
either or both of the following  actions,  at the same or different  times:  (i)
terminate  the  Commitments,  and  thereupon  the  Commitments  shall  terminate
immediately,  and (ii) declare the Notes, if any, and the Loans then outstanding
to be due and payable in whole (or in part,  in which case any  principal not so
declared  to be due  and  payable  may  thereafter  be  declared  to be due  and
payable),  and  thereupon  the  principal of the Loans so declared to be due and
payable,  together  with  accrued  interest  thereon  and  all  fees  and  other
obligations of the Borrowers and the  Subsidiaries  accrued  hereunder and under
the Loans, the Notes, if any, and the other Loan Documents  (including,  without
limitation, the payment of cash collateral to secure the LC Exposure as provided
in  Section  2.08(j),   shall  become  due  and  payable  immediately,   without
presentment,  demand,  protest,  notice  of  intent  to  accelerate,  notice  of
acceleration  or other notice of any kind, all of which are hereby waived by the
Borrowers and each Subsidiary;  and in case of an Event of Default  described in
Section 10.01(h),  Section 10.01(i) or Section  10.01(j),  the Commitments shall
automatically  terminate  and the Notes,  if any, and the principal of the Loans
then  outstanding,  together with accrued  interest thereon and all fees and the
other  obligations of the Borrowers and the Subsidiaries  accrued  hereunder and
under the Loans,  the Notes,  if any, and the other Loan  Documents  (including,
without limitation,  the payment of cash collateral to secure the LC Exposure as
provided  in Section  2.08(j)),  shall  automatically  become  due and  payable,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby waived by the Borrowers and each Subsidiary.

         (b)  In  the  case  of the  occurrence  of an  Event  of  Default,  the
Administrative  Agent and the Lenders  will have all other  rights and  remedies
available at law and equity.

         (c) All proceeds  realized from the liquidation or other disposition of
collateral  or  otherwise  received  after  maturity  of the  Loans,  whether by
acceleration or otherwise, shall be applied as provided in Section 4.01(d).

                                   ARTICLE XI
                                   The Agents

      Section  11.01  Appointment;  Powers.  Each of the Lenders and the Issuing
Bank  hereby  irrevocably  appoints  the  Administrative  Agent as its agent and
authorizes the Administrative Agent to enter into the Intercreditor Agreement on
behalf of such Lender and the  Issuing  Bank (each  Lender and the Issuing  Bank
hereby agreeing to be bound by the terms of the Intercreditor Agreement as if it
were a party  thereto)  and to take such  other  actions  on its  behalf  and to
exercise such powers as are delegated to the  Administrative  Agent by the terms
hereof and the other Loan  Documents,  together  with such actions and powers as
are reasonably incidental thereto.

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<PAGE>

      Section  11.02  Duties  ando  Obligations  of  Administrative  Agent.  The
Administrative  Agent  shall not have any  duties or  obligations  except  those
expressly set forth in the Loan  Documents.  Without  limiting the generality of
the  foregoing,  (a)  the  Administrative  Agent  shall  not be  subject  to any
fiduciary or other implied duties,  regardless of whether a Default has occurred
and is continuing,  (b) the Administrative Agent shall not have any duty to take
any  discretionary  action  or  exercise  any  discretionary  powers,  except as
provided in Section  11.03,  and (c) except as expressly set forth  herein,  the
Administrative  Agent  shall  not have any duty to  disclose,  and  shall not be
liable for the failure to disclose, any information relating to the Borrowers or
any of  their  Subsidiaries  that is  communicated  to or  obtained  by the bank
serving as  Administrative  Agent or any of its Affiliates in any capacity.  The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative  Agent by either
Borrower  or a  Lender,  and shall  not be  responsible  for or have any duty to
ascertain or inquire into (i) any statement,  warranty or representation made in
or in  connection  with this  Agreement  or any other  Loan  Document,  (ii) the
contents of any  certificate,  report or other document  delivered  hereunder or
under any other Loan Document or in connection herewith or therewith,  (iii) the
performance or observance of any of the covenants,  agreements or other terms or
conditions  set forth herein or in any other Loan  Document,  (iv) the validity,
enforceability,  effectiveness or genuineness of this Agreement,  any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction of
any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative  Agent
or  as  to  those  conditions   precedent   expressly  required  to  be  to  the
Administrative Agent's satisfaction,  (vi) the existence,  value,  perfection or
priority of any collateral  security or the financial or other  condition of the
Borrowers and their Subsidiaries or any other obligor or guarantor, or (vii) any
failure by either  Borrower or any other  Person  (other than itself) to perform
any of its  obligations  hereunder  or under  any  other  Loan  Document  or the
performance  or  observance  of any  covenants,  agreements  or  other  terms or
conditions set forth herein or therein.

      Section 11.03 Action by  Administrative  Agent. The  Administrative  Agent
shall  not have  any  duty to take any  discretionary  action  or  exercise  any
discretionary   powers,   except   discretionary  rights  and  powers  expressly
contemplated  hereby  that the  Administrative  Agent is required to exercise in
writing as directed by the Majority  Lenders (or such other number or percentage
of the  Lenders as shall be  necessary  under the  circumstances  as provided in
Section  12.02)  and in all  cases  the  Administrative  Agent  shall  be  fully
justified  in  failing  or  refusing  to act  hereunder  or under any other Loan
Documents  unless it shall (a) receive  written  instructions  from the Majority
Lenders or the Lenders, as applicable (or such other number or percentage of the
Lenders as shall be  necessary  under the  circumstances  as provided in Section
12.02)  specifying  the  action  to be  taken  and  (b)  be  indemnified  to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions  as  aforesaid  and any action  taken or  failure  to act  pursuant
thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, then the Administrative Agent shall take
such action with respect to such  Default as shall be directed by the  requisite
Lenders in the written instructions (with indemnities) described in this Section
11.03,  provided  that,  unless and until the  Administrative  Agent  shall have
received  such  directions,  the  Administrative  Agent  may (but  shall  not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event,  however,  shall the  Administrative  Agent be required to take any
action which exposes the Administrative  Agent to  personal1iability or which is
contrary to this  Agreement,  the Loan Documents or applicable law. If a Default
has  occurred  and is  continuing,  the  Syndication  Agent  shall  not have any
obligation to perform any act in respect  thereof.  No Agent shall be liable for
any action  taken or not taken by it with the  consent or at the  request of the
Majority  Lenders or the  Lenders  (or such other  number or  percentage  of the
Lenders as shall be  necessary  under the  circumstances  as provided in Section
12.02), and otherwise no Agent shall be liable for any action taken or not taken
by it hereunder or under any other Loan Document or under any other  document or
instrument  referred  to or  provided  for herein or  therein  or in  connection
herewith  or  therewith,   except  for  its  own  gross  negligence  or  willful
misconduct.

                                       78
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      Section 11.04 Reliance by Administrative  Agent. The Administrative  Agent
shall be entitled to rely upon,  and shall not incur any  liability  for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper  Person.  The  Administrative  Agent also may rely upon any statement
made to it orally or by  telephone  and  believed by it to be made by the proper
Person,  and shall not incur any liability  for relying  thereon and each of the
Borrowers,  the Lenders and the Issuing Bank hereby  waives the right to dispute
the Administrative Agent's record of such statement, except in the case of gross
negligence or willful misconduct by the Administrative Agent. The Administrative
Agent may consult  with legal  counsel  (who may be counsel for the  Borrowers),
independent  accountants  and other  experts  selected  by it,  and shall not be
liable for any action taken or not taken by it in accordance  with the advice of
any such  counsel,  accountants  or  experts.  The Agents may deem and treat the
payee of the Note, if any, as the holder thereof for all purposes  hereof unless
and until a written  notice of the  assignment  or  transfer  thereof  permitted
hereunder shall have been filed with the Administrative Agent.

      Section 11.05 Subagents.  The Administrative Agent may perform any and all
its duties  and  exercise  its  rights  and powers by or through  anyone or more
sub-agents  appointed by the Administrative  Agent. The Administrative Agent and
any such  sub-agent  may perform any and all its duties and  exercise its rights
and powers through their respective Related Parties. The exculpatory  provisions
of the preceding  Sections of this ARTICLE XI shall apply to any such  sub-agent
and to the Related Parties of the  Administrative  Agent and any such sub-agent,
and  shall  apply  to  their  respective   activities  in  connection  with  the
syndication of the credit  facilities  provided for herein as well as activities
as Administrative Agent.

      Section 11.06 Resignation or Removal of Agents. Subject to the appointment
and acceptance of a successor Agent as provided in this Section 11.06, any Agent
may  resign at any time by  notifying  the  Lenders,  the  Issuing  Bank and the
Borrowers, and any Agent may be removed at any time with or without cause by the
Majority  Lenders.  Upon any such  resignation or removal,  the Majority Lenders
shall have the right, with the consent of the Borrowers, which consent shall not
be  unreasonably  withheld or delayed,  to appoint a successor.  If no successor
shall have been so appointed and shall have accepted such appointment  within 30
days after the retiring Agent gives notice of its  resignation or removal of the
retiring  Agent,  then the retiring  Agent may, on behalf of the Lenders and the
Issuing Bank,  appoint a successor Agent, or an Affiliate of any such bank. Upon
the  acceptance  of its  appointment  as Agent  hereunder by a  successor,  such
successor  shall  succeed  to and become  vested  with all the  rights,  powers,
privileges  and duties of the retiring  Agent,  and the retiring  Agent shall be
discharged  from its duties and obligations  hereunder.  The fees payable by the
Borrowers  to a  successor  Agent  shall  be the same as  those  payable  to its
predecessor  unless  otherwise  agreed between the Borrowers and such successor.
After the Agent's resignation  hereunder,  the provisions of this ARTICLE XI and
Section 12.03 shall  continue in effect for the benefit of such retiring  Agent,
its sub-agents and their  respective  Related  Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as Agent.

                                       79
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      Section 11.07 Agents as Lenders.  Each bank serving as an Agent  hereunder
shall have the same  rights and powers in its  capacity as a Lender as any other
Lender and may exercise  the same as though it were not an Agent,  and such bank
and its Affiliates may accept deposits from, lend money to and generally  engage
in any kind of business with the Borrowers or any Subsidiary or other  Affiliate
thereof as if it were not an Agent hereunder.

      Section  11.08  No  Reliance.   Each  Lender  acknowledges  that  it  has,
independently  and without  reliance upon the  Administrative  Agent,  any other
Agent or any other Lender and based on such documents and  information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party.  Each Lender also
acknowledges  that  it  will,   independently  and  without  reliance  upon  the
Administrative  Agent,  any other  Agent or any other  Lender  and based on such
documents  and  information  as it shall  from  time to time  deem  appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this  Agreement,  any other Loan  Document,  any related  agreement  or any
document furnished hereunder or thereunder.  The Agents shall not be required to
keep themselves informed as to the performance or observance by the Borrowers or
any of their  Subsidiaries  of this  Agreement,  the Loan Documents or any other
document  referred to or provided  for herein or to inspect  the  Properties  or
books of either Borrower or its  Subsidiaries.  Except for notices,  reports and
other  documents  and  information  expressly  required to be  furnished  to the
Lenders by the  Administrative  Agent hereunder,  no Agent or the Arranger shall
have any duty or  responsibility  to provide any Lender with any credit or other
information  concerning  the  affairs,  financial  condition  or business of the
Borrowers (or any of its Affiliates)  which may come into the possession of such
Agent or any of its Affiliates.  In this regard,  each Lender  acknowledges that
Sidley Austin Brown & Wood LLP and Haynes and Boone,  LLP is each acting in this
transaction as special counsel to the  Administrative  Agent only, except to the
extent  otherwise  expressly  stated in any legal opinion or any Loan  Document.
Each other party hereto will  consult  with its own legal  counsel to the extent
that it deems  necessary in connection  with the Loan  Documents and the matters
contemplated therein.

      Section 11.09 Authority of Administrative  Agent to Release Collateral and
Liens.  Each Lender and the Issuing Bank hereby  authorizes  the  Administrative
Agent  to  release  any  collateral  that is  permitted  to be sold or  released
pursuant to the terms of the Loan  Documents.  Each Lender and the Issuing  Bank
hereby  authorizes  the  Administrative  Agent to  execute  and  deliver  to the
Borrowers,  at the  Borrowers'  sole cost and  expense,  any and all releases of
Liens,  termination  statements,   assignments  or  other  documents  reasonably
requested by the Borrowers in connection  with any sale or other  disposition of
Property to the extent such sale or other  disposition is permitted by the terms
of Section 9.12 or is otherwise  authorized by the terms of the Loan  Documents.
The Lenders hereby authorize the Administrative  Agent, at its option and in its
discretion,  to release any Lien granted to or held by the Administrative  Agent
upon any Mortgaged  Property (i) upon termination of the Commitments and payment
and  satisfaction of all of the  Indebtedness  (other than contingent  indemnity
obligations and  Indebtedness in respect of Swap Agreements) at any time arising
under or in respect of this Agreement or the Loan Documents or the  transactions
contemplated  hereby or thereby;  (ii) as permitted  by, but only in  accordance
with,  the  terms  of the  applicable  Loan  Document;  or  (iii)  if  approved,
authorized or ratified in writing by the Majority  Lenders,  unless such release
is required to be approved by all of the Lenders hereunder.

                                       80
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      Section 11.10 The Arranger and the Syndication Agent. The Arranger and the
Syndication  Agent shall have no duties,  responsibilities  or liabilities under
this Agreement and the other Loan Documents.

                                   ARTICLE XII
                                  Miscellaneous

      Section 12.01 Notices.

         (a) Except in the case of notices  and other  communications  expressly
permitted  to be given by  telephone  (and  subject to Section  12.01 (b)),  all
notices and other  communications  provided  for herein  shall be in writing and
shall be delivered by hand or overnight courier service,  mailed by certified or
registered mail or sent by telecopy, as follows:

            (i) if to the Borrowers,  to it at Quest Resource Corporation,  9520
North May Avenue,  Suite 300, Oklahoma City,  Oklahoma 73120,  Attention:  David
Grose (Telecopy No. (405) 488-1156); with a copy to Stinson Morrison Hecker LLP,
1201 Walnut,  Kansas City,  Missouri  64106,  Attention:  Patrick J.  Respeliers
(Telecopy No. (888) 215-6170);

            (ii) if to the  Administrative  Agent or the Issuing  Bank, to it at
Guggenheim Partners,  135 East 57th Street, 7th Floor, New York, New York 10022,
Attention: Tony Minella (Telecopy No. (212) 644-8396); and

            (iii) if to any other  Lender,  to it at its  address  (or  telecopy
number) set forth in its Administrative Questionnaire.

         (b) Notices and other  communications  to the Lenders  hereunder may be
delivered or  furnished  by  electronic  communications  pursuant to  procedures
approved by the  Administrative  Agent;  provided that the  foregoing  shall not
apply to notices  pursuant to ARTICLE II, ARTICLE III,  ARTICLE IV and ARTICLE V
unless otherwise agreed by the  Administrative  Agent and the applicable Lender.
The  Administrative  Agent or the Borrowers may, in their  discretion,  agree to
accept  notices  and  other   communications   to  it  hereunder  by  electronic
communications  pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.

         (c) Any party  hereto  may change its  address or  telecopy  number for
notices  and other  communications  hereunder  by  notice  to the other  parties
hereto.  All  notices  and other  communications  given to any  party  hereto in
accordance  with the provisions of this  Agreement  shall be deemed to have been
given on the date of receipt.

                                       81
<PAGE>

      Section 12.02 Waivers; Amendments.

         (a) No failure on the part of the  Administrative  Agent,  the  Issuing
Bank or any  Lender to  exercise  and no delay in  exercising,  and no course of
dealing with respect to, any right,  power or privilege,  or any  abandonment or
discontinuance of steps to enforce such right, power or privilege,  under any of
the Loan Documents  shall operate as a waiver  thereof,  nor shall any single or
partial  exercise  of any  right,  power  or  privilege  under  any of the  Loan
Documents  preclude any other or further exercise thereof or the exercise of any
other right,  power or privilege.  The rights and remedies of the Administrative
Agent,  the  Issuing  Bank and the  Lenders  hereunder  and under the other Loan
Documents  are  cumulative  and are not exclusive of any rights or remedies that
they would  otherwise  have. No waiver of any provision of this Agreement or any
other Loan Document or consent to any departure by the Borrowers therefrom shall
in any  event be  effective  unless  the  same  shall be  permitted  by  Section
12.02(b),  and then  such  waiver  or  consent  shall be  effective  only in the
specific  instance  and for the purpose for which  given.  Without  limiting the
generality  of the  foregoing,  the making of a Loan or  issuance of a Letter of
Credit shall not be construed as a waiver of any Default,  regardless of whether
the Administrative  Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.

         (b) Neither this  Agreement nor any  provision  hereof nor any Security
Instrument nor any provision  thereof may be waived,  amended or modified except
pursuant to an agreement or agreements in writing  entered into by the Borrowers
and the Majority Lenders or by the Borrowers and the  Administrative  Agent with
the consent of the Majority  Lenders;  provided that no such agreement shall (i)
increase the Commitment or the Maximum  Revolving Credit Amount or the Term Loan
Commitment  of any Lender  without  the  written  consent of such  Lender,  (ii)
increase the Borrowing  Base without the written  consent of all of the Lenders,
decrease or maintain  the  Borrowing  Base  without the consent of the  Majority
Lenders, or modify Section 2.07 without the consent of each Lender, (iii) reduce
the  principal  amount  of the Loan or LC  Disbursement  or  reduce  the rate of
interest  thereon,  or reduce any fees  payable  hereunder,  or reduce any other
Indebtedness  hereunder  or under any other Loan  Document,  without the written
consent of each Lender  affected  thereby,  (iv) postpone the scheduled  date of
payment or prepayment of the principal amount of the Loan or LC Disbursement, or
any interest thereon,  or any fees payable hereunder,  or any other Indebtedness
hereunder  or under any other Loan  Document,  or reduce the amount of, waive or
excuse any such payment,  or postpone or extend the Termination Date without the
written consent of each Lender affected  thereby,  (v) change Section 4.01(b) or
Section  4.01(c) in a manner that would  alter the pro rata  sharing of payments
required  thereby,  without the written  consent of each  Lender,  (vi) waive or
amend Section 3.04(c),  Section 6.01,  Section 8.14, Section 10.02(c) or Section
12.14 or change the  definition  of the term  "Subsidiary",  without the written
consent of each Lender,  (vii) release any Guarantor (except as set forth in the
Guaranty Agreement), release a substantial portion of the collateral (other than
as provided in Section  11.09),  or reduce the  percentage  set forth in Section
8.14 to less than 80%,  without  the  written  consent of each  Lender or (viii)
change any of the  provisions  of this  Section  12.02(b) or the  definition  of
"Majority  Lenders"  or any other  provision  hereof  specifying  the  number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
under any other Loan  Documents or make any  determination  or grant any consent
hereunder  or any other Loan  Documents,  without  the  written  consent of each
Lender; provided further that no such agreement shall amend, modify or otherwise
affect  the rights or duties of the  Administrative  Agent or the  Issuing  Bank
hereunder or under any other Loan Document  without the prior written consent of
the   Administrative   Agent  or  the  Issuing   Bank,   as  the  case  may  be.
Notwithstanding  the foregoing,  any supplement to Schedule 7.15  (Subsidiaries)
shall  be  effective  simply  by  delivering  to  the  Administrative   Agent  a
supplemental   schedule   clearly   marked  as  such  and,  upon  receipt,   the
Administrative Agent will promptly deliver a copy thereof to the Lenders.

                                       82
<PAGE>

      Section 12.03 Expenses, Indemnity; Damage Waiver.

         (a) The Borrowers jointly and severally agree to pay (i) all reasonable
out-of-pocket  expenses incurred by the Administrative Agent and its Affiliates,
including, without limitation, the reasonable fees, charges and disbursements of
counsel  and  other  outside  consultants  for  the  Administrative  Agent,  the
reasonable  travel,  photocopy,  mailing,  courier,  telephone and other similar
expenses,  including  all  Intralinks  expenses,  and the cost of  environmental
audits and surveys and  appraisals,  in connection  with the  syndication of the
credit facilities provided for herein, the preparation,  negotiation, execution,
delivery  and  administration  (both before and after the  execution  hereof and
including  advice of  counsel to the  Administrative  Agent as to the rights and
duties of the Administrative Agent and the Lenders with respect thereto) of this
Agreement and the other Loan  Documents  and any  amendments,  modifications  or
waivers of or consents  related to the provisions  hereof or thereof (whether or
not the transactions contemplated hereby or thereby shall be consummated),  (ii)
all costs, expenses,  Taxes, assessments and other charges incurred by any Agent
or any  Lender  in  connection  with  any  filing,  registration,  recording  or
perfection  of any  security  interest  contemplated  by this  Agreement  or any
Security  Instrument  or any  other  document  referred  to  therein,  (iii) all
reasonable  out-of-pocket  expenses  incurred by the Issuing Bank in  connection
with the  issuance,  amendment,  renewal or extension of any Letter of Credit or
any demand for payment thereunder,  (iv) all reasonable  out-of-pocket  expenses
incurred by any Agent, the Issuing Bank or any Lender,  including the reasonable
fees,  charges and  disbursements of any counsel for any Agent, the Issuing Bank
or any Lender, in connection with the enforcement or protection of its rights in
connection with this Agreement or any other Loan Document,  including its rights
under this Section  12.03,  or in  connection  with the Loans made or Letters of
Credit issued  hereunder,  including,  without  limitation,  all such reasonable
out-of-pocket   expenses   incurred   during  any  workout,   restructuring   or
negotiations in respect of such Loans or Letters of Credit.
                                       83
<PAGE>

         (b) THE BORROWERS  SHALL  INDEMNIFY  EACH AGENT,  THE ISSUING BANK, THE
ARRANGER AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS
(EACH  SUCH  PERSON  BEING  CALLED  AN  "INDEMNITEE")  AGAINST,  AND  HOLD  EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,  DAMAGES,  LIABILITIES AND
RELATED EXPENSES,  INCLUDING THE FEES,  CHARGES AND DISBURSEMENTS OF ANY COUNSEL
FOR ANY INDEMNITEE,  INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE  ARISING OUT
OF, IN CONNECTION  WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY,  THE  PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY
OTHER LOAN DOCUMENT OF THEIR RESPECTIVE  OBLIGATIONS  HEREUNDER OR THEREUNDER OR
THE  CONSUMMATION OF THE TRANSACTIONS  CONTEMPLATED  HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWERS OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT,  INCLUDING THIS AGREEMENT,  OR WITH ANY GOVERNMENTAL
REQUIREMENT,  (iii) ANY  INACCURACY OF ANY  REPRESENTATION  OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE BORROWERS OR ANY  SUBSIDIARY SET FORTH IN ANY OF THE
LOAN  DOCUMENTS OR ANY  INSTRUMENTS,  DOCUMENTS OR  CERTIFICATIONS  DELIVERED IN
CONNECTION  THEREWITH,  (iv)  ANY LOAN OR  LETTER  OF  CREDIT  OR THE USE OF THE
PROCEEDS  THEREFROM,  INCLUDING,  WITHOUT  LIMITATION,  (A) ANY  REFUSAL  BY THE
ISSUING  BANK TO HONOR A DEMAND  FOR  PAYMENT  UNDER A LETTER  OF  CREDIT IF THE
DOCUMENTS  PRESENTED IN CONNECTION  WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH
THE TERMS OF SUCH LETTER OF CREDIT,  OR (B) THE  PAYMENT OF A DRAWING  UNDER ANY
LETTER  OF  CREDIT  NOTWITHSTANDING  THE  NONCOMPLIANCE,  NON-DELIVERY  OR OTHER
IMPROPER  PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION  THEREWITH,  (v)
ANY OTHER ASPECT OF THE LOAN  DOCUMENTS,  (vi) THE OPERATIONS OF THE BUSINESS OF
THE BORROWERS AND THEIR  SUBSIDIARIES  BY THE BORROWERS AND THEIR  SUBSIDIARIES,
(vii) ANY  ASSERTION  THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED  PURSUANT TO THE SECURITY  INSTRUMENTS,  (viii) ANY  ENVIRONMENTAL  LAW
APPLICABLE  TO THE  BORROWERS  OR ANY  SUBSIDIARY  OR ANY OF  THEIR  PROPERTIES,
INCLUDING  WITHOUT  LIMITATION,  THE  PRESENCE,  GENERATION,  STORAGE,  RELEASE,
THREATENED  RELEASE,  USE,  TRANSPORT,  DISPOSAL,  ARRANGEMENT  OF  DISPOSAL  OR
TREATMENT OF OIL, OIL AND GAS WASTES,  SOLID WASTES OR HAZARDOUS  SUBSTANCES  ON
ANY OF THEIR  PROPERTIES,  (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWERS OR
ANY  SUBSIDIARY  WITH ANY  ENVIRONMENTAL  LAW APPLICABLE TO THE BORROWERS OR ANY
SUBSIDIARY,  (x) THE PAST OWNERSHIP BY EITHER  BORROWER OR ANY SUBSIDIARY OF ANY
OF THEIR  PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES  WHICH,  THOUGH
LAWFUL AND FULLY  PERMISSIBLE  AT THE TIME,  COULD RESULT IN PRESENT  LIABILITY,
(xi) THE PRESENCE,  USE,  RELEASE,  STORAGE,  TREATMENT,  DISPOSAL,  GENERATION,
THREATENED  RELEASE,  TRANSPORT,  ARRANGEMENT  FOR TRANSPORT OR ARRANGEMENT  FOR
DISPOSAL OF OIL, OIL AND GAS WASTES,  SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR
AT ANY OF THE PROPERTIES  OWNED OR OPERATED BY EITHER BORROWER OR ANY SUBSIDIARY
OR ANY ACTUAL OR ALLEGED  PRESENCE OR RELEASE OF HAZARDOUS  MATERIALS ON OR FROM
ANY PROPERTY OWNED OR OPERA TED BY EITHER  BORROWER OR ANY OF ITS  SUBSIDIARIES,
(xii) ANY  ENVIRONMENTAL  LIABILITY RELATED IN ANY WAY TO EITHER BORROWER OR ANY
OF ITS  SUBSIDIARIES,  OR  (xiii)  ANY  OTHER  ENVIRONMENTAL,  HEALTH  OR SAFETY
CONDITION  IN  CONNECTION  WITH  THE LOAN  DOCUMENTS,  OR (xiv)  ANY  ACTUAL  OR
PROSPECTIVE CLAIM,  LITIGATION,  INVESTIGATION OR PROCEEDING  RELATING TO ANY OF
THE  FOREGOING,  WHETHER  BASED  ON  CONTRACT,  TORT  OR ANY  OTHER  THEORY  AND
REGARDLESS OF WHETHER ANY  INDEMNITEE  IS A PARTY  THERETO,  AND SUCH  INDEMNITY
SHALL  EXTEND  TO  EACH  INDEMNITEE   NOTWITHSTANDING  THE  SOLE  OR  CONCURRENT
NEGLIGENCE  OF EVERY KIND OR CHARACTER  WHATSOEVER,  WHETHER  ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION,  INCLUDING  WITHOUT  LIMITATION,  ALL
TYPES OF NEGLIGENT  CONDUCT  IDENTIFIED IN THE RESTATEMENT  (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY  IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNITEES;  PROVIDED THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE,  BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES,  LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

                                       84
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         (c) To the extent that the Borrowers fail to pay any amount required to
be paid by it to any Agent or the Issuing  Bank under  Section  12.03(a) or (b),
each Lender  severally  agrees to pay to such Agent or the Issuing  Bank, as the
case may be, such Lender's  Aggregate Pro Rata Share  (determined as of the time
that the applicable unreimbursed expense or indemnity payment is sought) of such
unpaid  amount;  provided that the  unreimbursed  expense or  indemnified  loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against such Agent or the Issuing Bank in its capacity as such.

         (d) To the extent  permitted by applicable law, the Borrowers shall not
assert,  and hereby waive,  any claim against any  Indemnitee,  on any theory of
liability, for special, indirect,  consequential or punitive damages (as opposed
to direct or actual damages)  arising out of, in connection with, or as a result
of, this  Agreement,  any other Loan  Document or any  agreement  or  instrument
contemplated hereby or thereby,  the Transactions,  any Loan or Letter of Credit
or the use of the proceeds thereof.

         (e) All amounts due under this Section 12.03 shall be payable not later
than 10 Business Days after written demand therefor.

      Section 12.04 Successors and Assigns.

         (a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties  hereto and their  respective  successors and assigns
permitted  hereby  (including  any Affiliate of the Issuing Bank that issues any
Letter of Credit),  except that (i) the  Borrowers  may not assign or  otherwise
transfer any of their rights or obligations  hereunder without the prior written
consent  of each  Lender  (and  any  attempted  assignment  or  transfer  by the
Borrowers  without such  consent  shall be null and void) and (ii) no Lender may
assign or  otherwise  transfer  its rights or  obligations  hereunder  except in
accordance  with this Section  12.04.  Nothing in this  Agreement,  expressed or
implied,  shall be construed  to confer upon any Person  (other than the parties
hereto, their respective  successors and assigns permitted hereby (including any
Affiliate  of the Issuing  Bank that issues any Letter of Credit),  Participants
(to the  extent  provided  in Section  12.04(c))  and,  to the extent  expressly
contemplated  hereby, the Related Parties of each of the  Administrative  Agent,
the Issuing Bank and the Lenders) any legal or equitable right,  remedy or claim
under or by reason of this Agreement.

                                       85
<PAGE>

         (b) Subject to the  conditions set forth in Section  12.04(b)(ii),  any
Lender  may assign to one or more  assignees  all or a portion of its rights and
obligations  under this Agreement  (including all or a portion of its Commitment
and the Loans at the time  owing to it) with the  prior  written  consent  (such
consent not to be unreasonably withheld) of:

               (A) the  Borrowers,  provided  that no consent  of the  Borrowers
shall be required for an  assignment to a Lender,  an Affiliate of a Lender,  an
Approved  Fund or, if an Event of Default has  occurred and is  continuing,  any
other assignee; and

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

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

               (A)  except  in the  case  of an  assignment  to a  Lender  or an
Affiliate of a Lender or an  assignment  of the entire  remaining  amount of the
assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of
the assigning Lender subject to each such assignment  (determined as of the date
the Assignment and  Assumption  with respect to such  assignment is delivered to
the  Administrative  Agent) shall not be less than $5,000,000 unless each of the
Borrowers and the Administrative Agent otherwise consent,  provided that no such
consent of the  Borrowers  shall be required if an Event of Default has occurred
and is continuing;

               (B) each partial  assignment  shall be made as an assignment of a
proportionate  part of all the assigning  Lender's rights and obligations  under
this   Agreement   (provided,   that  the   assigning   Lender   may   assign  a
disproportionate amount of its Revolving Commitment and Term Loan Commitment);

               (C) the parties to each  assignment  shall execute and deliver to
the  Administrative  Agent  an  Assignment  and  Assumption,   together  with  a
processing and recordation fee of $3,500; and

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

            (iii)  Subject  to  Section  12.04(b)(iv)  and  the  acceptance  and
recording  thereof,  from  and  after  the  effective  date  specified  in  each
Assignment and Assumption the assignee  thereunder  shall be a party hereto and,
to the extent of the interest  assigned by such Assignment and Assumption,  have
the rights and obligations of a Lender under this  Agreement,  and the assigning
Lender  thereunder  shall,  to the  extent  of the  interest  assigned  by  such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption  covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party  hereto but shall  continue to be entitled to the benefits of Section
5.01,  Section  5.02,  Section  5.03  and  Section  12.03  and  subject  to  the
obligations  under  Section  5.04).  Any  assignment  or transfer by a Lender of
rights or  obligations  under  this  Agreement  that does not  comply  with this
Section 12.04 shall be treated for purposes of this  Agreement as a sale by such
Lender of a  participation  in such rights and  obligations  in accordance  with
Section 12.04(c).

                                       86
<PAGE>

            (iv) The Administrative  Agent,  acting for this purpose as an agent
of the Borrowers, shall maintain at one of its offices a copy of each Assignment
and Assumption  delivered to it and a register for the  recordation of the names
and addresses of the Lenders,  and the Maximum  Revolving  Credit Amount of, and
principal  amount of the  Loans  and LC  Disbursements  owing  to,  each  Lender
pursuant to the terms hereof from time to time (the "Register").  The entries in
the Register shall be conclusive,  and the Borrowers,  the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrowers,  the Issuing Bank and any Lender,  at
any  reasonable  time and from time to time upon  reasonable  prior  notice.  In
connection with any changes to the Register,  if necessary,  the  Administrative
Agent will  reflect the  revisions on Annex I and forward a copy of such revised
Annex I to the Borrowers, the Issuing Bank and each Lender.

            (v) Upon its receipt of a duly  completed  Assignment and Assumption
executed  by an  assigning  Lender and an  assignee,  the  assignee's  completed
Administrative  Questionnaire  (unless the  assignee  shall  already be a Lender
hereunder),  the processing and recordation fee referred to in Section  12.04(b)
and any written consent to such  assignment  required by Section  12.04(b),  the
Administrative  Agent shall accept such Assignment and Assumption and record the
information  contained therein in the Register. No assignment shall be effective
for purposes of this  Agreement  unless it has been  recorded in the Register as
provided in this Section 12.04(b).

         (c)  Any  Lender  may,  without  the  consent  of  the  Borrowers,  the
Administrative  Agent or the Issuing Bank,  sell  participations  to one or more
banks or other entities (a  "Participant")  in all or a portion of such Lender's
rights and obligations  under this Agreement  (including all or a portion of its
Commitment  and the  Loans  owing  to  it);  provided  that  (A)  such  Lender's
obligations under this Agreement shall remain  unchanged,  (B) such Lender shall
remain solely  responsible  to the other parties  hereto for the  performance of
such obligations and (C) the Borrowers,  the  Administrative  Agent, the Issuing
Bank and the other Lenders shall  continue to deal solely and directly with such
Lender in  connection  with such  Lender's  rights  and  obligations  under this
Agreement.  Any agreement or instrument  pursuant to which a Lender sells such a
participation  shall  provide  that such Lender  shall  retain the sole right to
enforce this Agreement and to approve any amendment,  modification  or waiver of
any provision of this Agreement;  provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any  amendment,  modification  or waiver  described in the proviso to Section
12.02 that affects such  Participant.  In addition such  agreement  must provide
that the  Participant be bound by the  provisions of Section  12.03.  Subject to
Section  12.04(c)(ii),  the  Borrowers  agree  that  each  Participant  shall be
entitled to the benefits of Section  5.01,  Section 5.02 and Section 5.03 to the
same extent as if it were a Lender and had acquired  its interest by  assignment
pursuant to Section  12.04(b).  To the extent permitted by law, each Participant
also shall be  entitled  to the  benefits  of Section  12.08 as though it were a
Lender,  provided such  Participant  agrees to be subject to Section  4.01(c) as
though it were a Lender.

                                       87
<PAGE>

            (ii) A  Participant  shall not be  entitled  to receive  any greater
payment under Section 5.01 or Section 5.03 than the applicable Lender would have
been  entitled  to  receive  with  respect  to the  participation  sold  to such
Participant,  unless the sale of the  participation  to such Participant is made
with the Borrowers' prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 5.03
unless the Borrowers are notified of the participation  sold to such Participant
and such Participant  agrees,  for the benefit of the Borrowers,  to comply with
Section 5.03(e) as though it were a Lender.

         (d) Any Lender may at any time pledge or assign a security  interest in
all or any portion of its rights under this  Agreement to secure  obligations of
such Lender, including,  without limitation.  any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security  interest;  provided that no such
pledge or assignment of a security  interest  shall release a Lender from any of
its  obligations  hereunder or substitute  any such pledgee or assignee for such
Lender as a party hereto.

         (e)  Notwithstanding  any other  provisions of this Section  12.04,  no
transfer or  assignment  of the  interests or  obligations  of any Lender or any
grant of participations therein shall be permitted if such transfer,  assignment
or grant would require the Borrowers to file a  registration  statement with the
SEC or to qualify the Loans under the "Blue Sky" laws of any state.

      Section 12.05 Survival; Revival; Reinstatement.

         (a) All covenants.  agreements,  representations and warranties made by
the Borrowers herein and in the certificates or other  instruments  delivered in
connection  with or pursuant to this  Agreement or any other Loan Document shall
be  considered  to have been relied upon by the other  parties  hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
and issuance of any Letters of Credit,  regardless of any investigation  made by
any  such  other   party  or  on  its  behalf  and   notwithstanding   that  the
Administrative  Agent,  the  Issuing  Bank or any  Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is  extended  hereunder,  and shall  continue in full force and effect as
long as the  principal of or any accrued  interest on any Loan or any fee or any
other  amount  payable  under this  Agreement is  outstanding  and unpaid or any
Letter of Credit is outstanding and so long as the Commitments  have not expired
or terminated.  The provisions of Section 5.01,  Section 5.02,  Section 5.03 and
Section  12.03 and ARTICLE XI shall  survive and remain in full force and effect
regardless of the  consummation of the  transactions  contemplated  hereby,  the
repayment of the Loans,  the  expiration or termination of the Letters of Credit
and the  Commitments  or the  termination  of this  Agreement,  any  other  Loan
Document or any provision hereof or thereof.

                                       88
<PAGE>

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

      Section 12.06 Counterparts; Integration; Effectiveness.

         (a) This  Agreement may be executed in  counterparts  (and by different
parties  hereto on different  counterparts),  each of which shall  constitute an
original,  but all of  which  when  taken  together  shall  constitute  a single
contract.

         (b) This  Agreement,  the other Loan Documents and any separate  letter
agreements with respect to fees payable to the  Administrative  Agent constitute
the entire contract among the parties  relating to the subject matter hereof and
thereof and supersede any and all previous agreements and  understandings,  oral
or written,  relating to the subject  matter hereof and thereof.  THIS AGREEMENT
AND THE OTHER LOAN  DOCUMENTS  REPRESENT THE FINAL  AGREEMENT  AMONG THE PARTIES
HERETO  AND  THERETO  AND  MAY  NOT  BE   CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

         (c) Except as provided in Section  6.01,  this  Agreement  shall become
effective when it shall have been executed by the Administrative  Agent and when
the  Administrative  Agent shall have received  counterparts  hereof which, when
taken  together,  bear the signatures of each of the other parties  hereto,  and
thereafter  shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.

      Section 12.07  Severability.  Any provision of this Agreement or any other
Loan Document held to be invalid,  illegal or  unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or  unenforceability  without  affecting  the validity,  legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

      Section 12.08 Right of Setoff.  If an Event of Default shall have occurred
and be continuing,  each Lender and each of its Affiliates is hereby  authorized
at any time and from time to time,  to the fullest  extent  permitted by law, to
set off and apply any and all  deposits  (general  or  special,  time or demand,
provisional  or final) at any time held and  other  obligations  (of  whatsoever
kind, including,  without limitations  obligations under Swap Agreements) at any
time owing by such  Lender or  Affiliate  to or for the credit or the account of
the Borrowers or any  Subsidiary  against any of and all the  obligations of the
Borrowers or any Subsidiary owed to such Lender now or hereafter  existing under
this Agreement or any other Loan Document,  irrespective  of whether or not such
Lender  shall  have made any  demand  under  this  Agreement  or any other  Loan
Document and although  such  obligations  may be  unmatured.  The rights of each
Lender  under this  Section  12.08 are in addition to other  rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.

                                       89
<PAGE>

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

         (a) THIS  AGREEMENT  AND THE NOTES,  IF ANY,  SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

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

         (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF
THE  AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR  PROCEEDING  BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE  PREPAID,  TO IT AT THE
ADDRESS  SPECIFIED  IN  SECTION  12.01 OR SUCH  OTHER  ADDRESS  AS IS  SPECIFIED
PURSUANT TO SECTION 12.01 (OR ITS  ASSIGNMENT AND  ASSUMPTION),  SUCH SERVICE TO
BECOME  EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT
THE  RIGHT OF A PARTY OR ANY  HOLDER OF ANY NOTE TO SERVE  PROCESS  IN ANY OTHER
MANNER  PERMITTED BY LAW OR TO COMMENCE LEGAL  PROCEEDINGS OR OTHERWISE  PROCEED
AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

         (d) EACH PARTY HEREBY (i) IRREVOCABLY AND  UNCONDITIONALLY  WAIVES,  TO
THE  FULLEST  EXTENT  PERMITTED  BY LAW,  TRIAL BY JURY IN ANY  LEGAL  ACTION OR
PROCEEDING  RELATING TO THIS  AGREEMENT  OR ANY OTHER LOAN  DOCUMENT AND FOR ANY
COUNTERCLAIM  THEREIN;  (ii)  IRREVOCABLY  WAIVES,  TO THE  MAXIMUM  EXTENT  NOT
PROHIBITED  BY LAW,  ANY  RIGHT  IT MAY HAVE TO  CLAIM  OR  RECOVER  IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL  DAMAGES;  (iii)  CERTIFIES  THAT NO PARTY
HERETO  NOR ANY  REPRESENTATIVE  OR AGENT OF  COUNSEL  FOR ANY PARTY  HERETO HAS
REPRESENTED,  EXPRESSLY OR  OTHERWISE,  OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE  EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE  FOREGOING  WAIVERS,  AND (iv)
ACKNOWLEDGES  THAT IT HAS BEEN  INDUCED TO ENTER INTO THIS  AGREEMENT,  THE LOAN
DOCUMENTS AND THE TRANSACTIONS  CONTEMPLATED  HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

                                       90
<PAGE>

      Section  12.10  Headings.  Article and Section  headings  and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and  shall  not  affect  the   construction  of,  or  be  taken  into
consideration in interpreting, this Agreement.

      Section  12.11  Confidentiality.  Each of the  Administrative  Agent,  the
Issuing  Bank and the Lenders  agrees to  maintain  the  confidentiality  of the
Information (as defined below),  except that Information may be disclosed (a) to
its and its Affiliates'  directors,  officers,  employees and agents,  including
accountants,  legal  counsel and other  advisors (it being  understood  that the
Persons to whom such  disclosure  is made will be informed  of the  confidential
nature  of  such   Information   and   instructed   to  keep  such   Information
confidential),  (b) to the extent requested by any regulatory authority,  (c) to
the extent  required by  applicable  laws or  regulations  or by any subpoena or
similar  legal  process,  (d) to any other party to this  Agreement or any other
Loan Document,  (e) in connection with the exercise of any remedies hereunder or
under any other Loan Document or any suit, action or proceeding relating to this
Agreement or any other Loan Document or the  enforcement of rights  hereunder or
thereunder,  (f) subject to an agreement containing provisions substantially the
same as those of this Section 12.11,  to (i) any assignee of or Participant  in,
or  any  prospective  assignee  of or  Participant  in,  any of  its  rights  or
obligations  under this Agreement (it being  understood that the Persons to whom
such  disclosure  is made will be  informed of the  confidential  nature of such
Information and instructed to keep such  Information  confidential)  or (ii) any
actual or  prospective  counterparty  (or its  advisors)  to any Swap  Agreement
relating to the Borrowers and their  obligations  (it being  understood that the
Persons to whom such  disclosure  is made will be informed  of the  confidential
nature  of  such   Information   and   instructed   to  keep  such   Information
confidential),  (g) with the consent of the  Borrowers or (h) to the extent such
Information (i) becomes publicly available other than as a result of a breach of
this Section 12.11 or (ii) becomes  available to the  Administrative  Agent, the
Issuing Bank or any Lender on a  nonconfidential  basis from a source other than
the Borrowers.  For the purposes of this Section 12.11,  "Information" means all
information  received  from the  Borrowers  or any  Subsidiary  relating  to the
Borrowers  or  any  Subsidiary  and  their  businesses,   other  than  any  such
information that is available to the  Administrative  Agent, the Issuing Bank or
any Lender on a nonconfidential  basis prior to disclosure by the Borrowers or a
Subsidiary;  Any Person required to maintain the  confidentiality of Information
as provided in this Section  12.11 shall be considered to have complied with its
obligation  to do so if such  Person has  exercised  the same  degree of care to
maintain the  confidentiality of such Information as such Person would accord to
its own confidential information.

                                       91
<PAGE>

      Section 12.12 Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform  strictly to usury laws  applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws  applicable to it (including  the laws of the United States of
America  and the State of New York or any other  jurisdiction  whose laws may be
mandatorily  applicable to such Lender  notwithstanding  the other provisions of
this Agreement),  then, in that event,  notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security  for the Loans,  it is agreed as follows:  (i) the  aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan  Documents or agreements  or otherwise in connection  with the Loans
shall  under  no  circumstances  exceed  the  maximum  amount  allowed  by  such
applicable  law,  and  any  excess  shall  be  canceled   automatically  and  if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness  (or, to the extent that the principal  amount of the  Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrowers);  and (ii) in the event that the maturity of the Loans is accelerated
by reason of an  election  of the  holder  thereof  resulting  from any Event of
Default under this  Agreement or  otherwise,  or in the event of any required or
permitted  prepayment,  then such consideration that constitutes  interest under
law  applicable  to any Lender may never  include  more than the maximum  amount
allowed by such applicable  law, and excess  interest,  if any,  provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such  acceleration or prepayment and, if theretofore  paid, shall be
credited by such Lender on the principal amount of the Indebtedness  (or, to the
extent that the principal  amount of the  Indebtedness  shall have been or would
thereby be paid in full,  refunded  by such Lender to the  Borrowers).  All sums
paid or agreed to be paid to any Lender for the use, forbearance or detention of
sums due  hereunder  shall,  to the extent  permitted by law  applicable to such
Lender, be amortized,  prorated, allocated and spread throughout the stated term
of the Loans,  until  payment in full so that the rate or amount of  interest on
account of any Loans  hereunder  does not exceed the maximum  amount  allowed by
such  applicable  law.  If at any time and from  time to time (i) the  amount of
interest  payable  to any Lender on any date shall be  computed  at the  Highest
Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (ii) in
respect of any  subsequent  interest  computation  period the amount of interest
otherwise  payable  to such  Lender  would be less than the  amount of  interest
payable to such Lender  computed at the Highest  Lawful Rate  applicable to such
Lender,  then the amount of  interest  payable to such Lender in respect of such
subsequent  interest  computation  period  shall  continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total  amount of interest  had been  computed
without giving effect to this Section 12.12.

      Section  12.13  EXCULPATION   PROVISIONS.   EACH  OF  THE  PARTIES  HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS  AND AGREES THAT IT IS CHARGED WITH NOTICE AND  KNOWLEDGE OF THE TERMS
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY  INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS  AND  EFFECTS  OF THIS  AGREEMENT;  THAT IT HAS BEEN  REPRESENTED  BY
INDEPENDENT  LEGAL COUNSEL OF ITS CHOICE  THROUGHOUT THE NEGOTIATIONS  PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING  INTO THIS  AGREEMENT  AND THE OTHER LOAN
DOCUMENTS;  AND THAT IT RECOGNIZES  THAT CERTAIN OF THE TERMS OF THIS  AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME  ASPECTS  OF THE  TRANSACTION  AND  RELIEVING  THE  OTHER  PARTY  OF ITS
RESPONSIBILITY  FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY  PROVISION
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO  NOTICE  OR  KNOWLEDGE  OF  SUCH  PROVISION  OR  THAT  THE  PROVISION  IS NOT
"CONSPICUOUS."

                                       92
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      Section 12.14  Collateral  Matters;  Swap  Agreements.  The benefit of the
Security  Instruments  and of the provisions of this  Agreement  relating to any
collateral  securing the  Indebtedness  shall also extend to and be available to
those Lenders or their Affiliates and other Persons which are  counterparties to
any Swap Agreement with either Borrower or any of its Subsidiaries on a pro rata
basis  in  respect  of  any  obligations  of  the  Borrowers  or  any  of  their
Subsidiaries  which arise under any such Swap Agreement  entered into while such
Person or its Affiliate is a Lender,  including any Swap Agreements between such
Persons in existence  prior to the date hereof.  No Lender or any Affiliate of a
Lender shall have any voting  rights under any Loan  Document as a result of the
existence of obligations owed to it under any such Swap Agreements.

      Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan
Documents,  and the  agreement of the Lenders to make Loans and the Issuing Bank
to issue,  amend, renew or extend Letters of Credit hereunder are solely for the
benefit of the Borrowers,  and no other Person (including,  without  limitation,
any   Subsidiary,   any   obligor,   contractor,   subcontractor,   supplier  or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent, any other Agent,
the  Issuing  Bank or any Lender for any reason  whatsoever.  There are no third
party beneficiaries.

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

                                  ARTICLE XIII
                    NO NOVATION; REFERENCES TO THIS AGREEMENT
                                IN LOAN DOCUMENTS

      Section 13.01 No Novation.  It is the express intent of the parties hereto
that this Agreement (i) shall re-evidence the Borrowers'  indebtedness under the
Existing Credit Agreement,  (ii) is entered into in substitution for, and not in
payment  of,  the  obligations  of  the  Borrowers  under  the  Existing  Credit
Agreement,  and (iii) is in no way  intended to  constitute a novation of any of
the Borrowers' indebtedness which was evidenced by the Existing Credit Agreement
or any of the other Loan Documents.

                                       93
<PAGE>

      Section 13.02  References to This  Agreement In Loan  Documents.  Upon the
effectiveness of this Agreement, on and after the date hereof, each reference in
any  other  Loan  Document  to the  Existing  Credit  Agreement  (including  any
reference therein to "the Credit Agreement,"  "thereunder," "thereof," "therein"
or words of like import referring thereto) shall mean and be a reference to this
Agreement.

                           SIGNATURES BEGIN NEXT PAGE


                                       94
<PAGE>

      The parties  hereto have caused this  Agreement to be duly  executed as of
the day and year first above written.

BORROWERS:                            QUEST CHEROKEE, LLC


                                      By: /s/ David Grose
                                          ---------------
                                          David Grose
                                          CFO


                                      QUEST RESOURCE CORPORATION


                                      By: /s/ David Grose
                                          ---------------
                                          David Grose
                                          CFO


                                     1
<PAGE>


ADMINISTRATIVE AGENT:                 GUGGENHEIM  CORPORATE  FUNDING,  LLC, as
                                      Administrative Agent, Syndication Agent,
                                      Sole Lead Arranger and Sole Bookrunner


                                      By:  /s/ Stephen Sautel
                                           ------------------
                                      Name:  Stephen Sautel
                                      Title: Managing Director


                                       2
<PAGE>


LENDERS:                              MIDLAND NATIONAL LIFE INSURANCE COMPANY
                                      By:  Midland Advisors Company as its Agent


                                      By: /s/ Michael Damaso
                                          ------------------
                                      Name:  Michael Damaso
                                      Title: Managing Director


                                       3
<PAGE>


LENDERS:                              NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
                                      INSURANCE
                                      By:  Midland Advisors Company as its Agent


                                      By: /s/ Michael Damaso
                                          ------------------
                                      Name:   Michael Damaso
                                      Title:  Managing Director


                                       4
<PAGE>


LENDERS:                              ORPHEUS HOLDINGS LLC
                                      By:  Guggenheim Investment Management, LLC
                                      as its Manager


                                      By: /s/ Michael Damaso
                                          ------------------
                                      Name:   Michael Damaso
                                      Title:  Managing Director


                                       5
<PAGE>

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                                     ANNEX I
                    LIST OF MAXIMUM REVOLVING CREDIT AMOUNTS
                            AND TERM LOAN COMMITMENTS

Aggregate Maximum Revolving Credit Amounts and Term Loan Commitments

--------------------------------------------------------------------------------
                              Applicable    Maximum Revolving      Term Loan
        Name of Lender        Percentage      Credit Amount       Commitment
--------------------------------------------------------------------------------
Midland National                  70%          $35,000,000        $15,000,000
Life Insurance
Company
--------------------------------------------------------------------------------
North American Company for        30%          $15,000,000        $10,000,000
Life
and Health Insurance
--------------------------------------------------------------------------------
Orpheus Holdings LLC              0%                0             $25,000,000
--------------------------------------------------------------------------------
TOTAL                           100.00%      $50,000,000.00     $50,000,000.00
--------------------------------------------------------------------------------