CREDIT AGREEMENT

                   U.S. $100,000,000 REVOLVING CREDIT FACILITY

                                      AMONG

                           SEAGULL ENERGY CANADA LTD.

                                       AND

                       THE CHASE MANHATTAN BANK OF CANADA,
             Individually and as Arranger and Administrative Agent,

                            THE BANK OF NOVA SCOTIA,
                 Individually and as Paying Agent and Co-Agent,

                       CANADIAN IMPERIAL BANK OF COMMERCE,
                          Individually and as Co-Agent,

                                       AND

                        THE OTHER BANKS SIGNATORY HERETO


                                  June 17, 1997




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                                TABLE OF CONTENTS

Section 1.       Definitions and Accounting Matters............................1
                  
        1.1      Certain Defined Terms.........................................1
                  
        1.2      Accounting Terms and Determinations..........................24
                  
        1.3      Types of Loans...............................................25
                  
        1.4      Miscellaneous................................................25
                 

Section 2.       Commitments; Designation of Maximum Outstanding Amount.......25
                   
        2.1      Loans and Bankers' Acceptances...............................25
                  
        2.2      Letters of Credit............................................26
                  
        2.3      Reductions and Changes of Commitments........................29
                 
        2.4      Fees.........................................................29
                  
        2.5      Affiliates; Lending Offices..................................29
                  
        2.6      Several Obligations..........................................30
                
        2.7      Notes........................................................30
                 
        2.8      Use of Proceeds..............................................30
                 

Section 3.       Borrowings, Prepayments and Selection of Interest Rates......31
                  
        3.1      Borrowings...................................................31
                  
        3.2      Prepayments..................................................31
                  
        3.3      Selection of Interest Rates..................................32
                 
        3.4      Conditions Applicable to Bankers' Acceptances................32
                 
        3.5      Paying Agent's Duties Re Bankers' Acceptances................34
                 
        3.6      Certain Provisions Relating to Bankers' Acceptances Forms....35
                 

Section 4.       Payments of Principal and Interest...........................36
                  
        4.1      Repayment of Loans and Reimbursement Obligations.............36
                  
        4.2      Interest.....................................................36
                  
        4.3      Acceptance Fees..............................................37
                  

Section 5.        Payments; Pro Rata Treatment; Computations, Etc.............37
                  
         5.1      Payments....................................................37
                 
         5.2      Pro Rata Treatment..........................................38
                  
         5.3      Computations................................................38
                  
         5.4      Minimum and Maximum Amounts.................................38
                  
         5.5      Certain Actions, Notices, Etc...............................39
                  
         5.6      Non-Receipt of Funds by the Paying Agent....................41
                  
         5.7      Sharing of Payments, Etc....................................41
                  





                                       (1)



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Section 6.       Yield Protection and Illegality..............................42
                  
        6.1      Additional Costs.............................................42
                  
        6.2      Limitations..................................................44
                  
        6.3      Illegality...................................................45
                  
        6.4      Substitute Alternate Base Rate Loans or Canadian Prime Rate
                 Loans........................................................45
                  
        6.5      Compensation.................................................46
                  
        6.6      Additional Costs in Respect of Letters of Credit.............46
                  
        6.7      Capital Adequacy.............................................47
                  
        6.8      Limitation on Additional Charges; Substitute Banks; 
                 Non-Discrimination...........................................47
                  

Section 7.       Conditions Precedent.........................................48
     
        7.1      Initial Loans and Acceptance and Purchase of Bankers' 
                 Acceptances..................................................48
     
        7.2      Initial and Subsequent Loans.................................50

Section 8.       Representations and Warranties...............................51
                  
        8.1      Corporate Existence..........................................51
                  
        8.2      Corporate Power and Authorization............................51
                  
        8.3      Binding Obligations..........................................52
                 
        8.4      No Legal Bar or Resultant Lien...............................52
                 
        8.5      No Consent...................................................52
                 
        8.6      Financial Condition..........................................52
                  
        8.7      Investments and Guaranties...................................53
                 
        8.8      Liabilities and Litigation...................................53
                 
        8.9      Taxes and Governmental Charges...............................53
                  
        8.10     Title to Properties..........................................53
                  
        8.11     Defaults.....................................................53
                
        8.12     Location of Businesses and Offices...........................54
                  
        8.13    Compliance with Law...........................................54
                  
        8.14    Margin Stock..................................................54
                  
        8.15    Subsidiaries..................................................55
                  
        8.16    ERISA.........................................................55
                  
        8.17    Investment Company Act........................................55
                  
        8.18    Public Utility Holding Company Act............................55
                 
        8.19    Environmental Matters.........................................56
                  
        8.20    Claims and Liabilities........................................57
                  
        8.21    Solvency......................................................57
                  

Section 9.       Affirmative Covenants........................................57
        
        9.1      Financial Statements and Reports.............................57
        
        9.2      Officers' Certificates.......................................59




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        9.3      Taxes and Other Liens........................................60
                  
        9.4      Maintenance..................................................60
                  
        9.5      Further Assurances...........................................61
                  
        9.6      Performance of Obligations...................................61
                  
        9.7      Reimbursement of Expenses....................................61
                  
        9.8      Insurance....................................................62
                  
        9.9      Accounts and Records.........................................63
                  
        9.10     Rights of Inspection.........................................63
                  
        9.11     Notice of Certain Events.....................................63
                  
        9.12     ERISA Information and Compliance.............................65
                  

Section 10.       Negative Covenants..........................................65
                  
        10.1     Debts, Guarantees and Other Obligations......................66
                
        10.2     Liens........................................................68
                  
        10.3     Investments, Loans and Advances..............................72
                  
        10.4     Dividend Payment Restrictions................................74
                  
        10.5     Mergers, Amalgamations and Sales of Assets...................74
                  
        10.6     Use of Proceeds..............................................74
                  
        10.7     ERISA Compliance.............................................74
                 
        10.8     Amendment of Certain Documents...............................75
                  
        10.9     Tangible Net Worth...........................................75
                  
        10.10    Parent Debt/Capitalization Ratio.............................75
                 
        10.11    EBITDAX/Interest Ratio.......................................75
                  
        10.12    Nature of Business...........................................75
                  
        10.13    Futures Contracts............................................76
                  
        10.14    Covenants in Other Agreements................................76
                  

Section 11.      Defaults.....................................................77
                  
        11.1     Events of Default............................................77
                 
        11.2     Collateral Account...........................................79
                  
        11.3     Preservation of Security for Unmatured Reimbursement 
                 Obligations..................................................80
                  
        11.4     Right of Setoff..............................................80
                  

Section 12.      The Agents...................................................81
                 
        12.1     Appointment, Powers and Immunities...........................81
                  
        12.2     Reliance by Agents...........................................82
                  
        12.3     Defaults.....................................................82
                  
        12.4     Rights as a Bank.............................................83
                  
        12.5     Indemnification..............................................83
                  
        12.6     Non-Reliance on Agents and Other Banks.......................84
                 



                                       (3)



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        12.7     Failure to Act...............................................84
                  
        12.8     Resignation or Removal of Agents.............................84
                  

Section 13.      Miscellaneous................................................85
                  
        13.1     Waiver.......................................................85
                  
        13.2     Notices......................................................85
                  
        13.3     Indemnification..............................................85
                  
        13.4     Amendments, Etc..............................................86
                  
        13.5     Successors and Assigns.......................................87
                  
        13.6     Limitation of Interest.......................................90
                  
        13.7     Interest Act (Canada); Interest Generally....................91
                  
        13.8     Certain Saskatchewan Legislation.............................92
                  
        13.9     Survival.....................................................92
                  
        13.10    Captions.....................................................92
                  
        13.11    Counterparts.................................................92
                  
        13.12    Governing Law................................................92
                 
        13.13    Severability.................................................93
                  
        13.14    Confidential Information.....................................93
                 
        13.15    Amendment and Restatement....................................94
               
        13.16    Intercreditor Agreement......................................94
                 
        13.17    Judgement Currency...........................................94
                  
        13.18    Withholding Tax Remittances..................................95
                  

Exhibit A         Oil and Gas Subsidiaries
Exhibit B         Form of Request for Extension of Credit
Exhibit C-1       Form of Revolving Credit Loan Note (U.S. Dollars)
Exhibit C-2       Form of Revolving Credit Loan Note (Canadian Dollars)
Exhibit D         Subsidiaries (with Addresses)
Exhibit E         Form of Compliance Certificate
Exhibit F         Assignment and Acceptance
Exhibit G         Form of Engineering Report Certificate
Exhibit H         Parameters Interest Rate Protection and Commodities Futures
                  Programs
Exhibit I         Form of Bankers' Acceptance




                                       (4)



<PAGE>



                                CREDIT AGREEMENT


         This  CREDIT  AGREEMENT,  dated as of June 17,  1997,  is by and  among
SEAGULL  ENERGY CANADA LTD. (the  "Company"),  a corporation  duly organized and
validly existing under the laws of the Province of Alberta,  Canada; each of the
banks  which  is or which  may  from  time to time  become  a  signatory  hereto
(individually,  a "Bank" and,  collectively,  the "Banks");  THE CHASE MANHATTAN
BANK OF CANADA ("Chase"), as arranger and administrative agent for the Banks (in
such   capacity,   together   with  its   successors  in  such   capacity,   the
"Administrative  Agent");  THE BANK OF NOVA SCOTIA ("BNS"),  as paying agent and
coagent for the Banks (in such  capacity,  together with its  successors in such
capacity,  the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"),
as co-agent for the Banks (in such  capacity,  together  with its  successors in
such capacity, the "Co-Agent").

         The parties hereto agree as follows:

         Section 1.        Definitions and Accounting Matters

         1.1 Certain  Defined Terms.  As used herein,  the following terms shall
have the  following  meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):

         "Additional  Costs"  shall have the  meaning  ascribed  to such term in
Section 6.1 hereof.

         "Affiliate"  shall  mean,  as to any  Person,  any other  Person  which
directly  or  indirectly  controls,  or is  under  common  control  with,  or is
controlled by, such Person and, if such Person is an  individual,  any member of
the  immediate  family   (including   parents,   siblings,   spouse,   children,
stepchildren,  grandchildren,  nephews  and nieces) of such  individual  and any
trust whose  principal  beneficiary is such individual or one or more members of
such  immediate  family and any Person who is  controlled  by any such member or
trust.  As used in  this  definition,  "control"  (including,  with  correlative
meanings,   "controlled   by"  and  "under  common  control  with")  shall  mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies  (whether through  ownership of securities or partnership
or other ownership interests, by contract or otherwise).

         "Agents" shall mean the Administrative Agent, the Paying Agent and  the
 Co-Agent, collectively.

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




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<PAGE>



         "Alternate  Base Rate" shall mean,  for any day, a rate per annum equal
to the higher of (a) the U.S.  Prime Rate in effect on such day or (b) 1/2 of 1%
plus  the  Federal  Funds  Rate in  effect  for such day  (rounded  upwards,  if
necessary,  to the nearest  1/16th of 1%). For purposes  hereof,  "Federal Funds
Rate" shall mean,  for any period,  a fluctuating  interest rate per annum equal
for  each day  during  such  period  to the  weighted  average  of the  rates on
overnight Federal funds  transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding  Business Day) by the Federal Reserve
Bank of New York,  or, if such rate is not so  published  for any day which is a
Business Day, the average of the  quotations  for such day on such  transactions
received by the Paying  Agent from three  Federal  funds  brokers of  recognized
standing  selected  by it. For  purposes  of this  Agreement,  any change in the
Alternate Base Rate due to a change in the Federal Funds Rate shall be effective
on the  effective  date of such  change in the Federal  Funds  Rate.  If for any
reason the Paying  Agent shall have  determined  (which  determination  shall be
conclusive and binding,  absent  manifest  error) that it is unable to ascertain
the  Federal  Funds Rate for any  reason,  including,  without  limitation,  the
inability  or  failure  of  the  Paying  Agent  to  obtain  sufficient  bids  or
publications in accordance with the terms hereof,  the Alternate Base Rate shall
be the U.S. Prime Rate until the circumstances  giving rise to such inability no
longer exist. For the purposes  hereof,  "U.S. Prime Rate" shall mean the annual
rate of interest  announced  from time to time by the Paying  Agent in Canada as
its U.S.  Base Rate for U.S.  Dollar  loans made by the Paying  Agent in Canada.
Without  notice to the Company or any other  Person,  the U.S.  Prime Rate shall
change automatically from time to time as and in the amount by which said annual
rate of interest  shall  fluctuate.  The U.S. Prime Rate is a reference rate and
does not necessarily  represent the lowest or best rate actually  charged to any
customer.  The Chase  Manhattan  Bank, any Agent or any Bank may make commercial
loans or other  loans at rates of  interest  at,  above or below the U.S.  Prime
Rate.  For purposes of this  Agreement any change in the Alternate Base Rate due
to a change in the U.S. Prime Rate shall be effective on the date such change in
the U.S. Prime Rate is announced.

         "Alternate  Base Rate Loans" shall mean Loans which bear  interest at a
rate based upon the Alternate Base Rate.

         "APC" shall mean Alaska  Pipeline  Company,  an Alaska  corporation,  a
Subsidiary of the Parent.

         "APC Long Term Financing  Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement  (together with the Notes,  as defined
therein),  each  dated  as of  May  14,  1992,  by and  among  the  Parent,  Aid
Association  for Lutherans,  The Equitable Life Assurance  Society of the United
States,  Equitable Variable Life Insurance Company,  Provident Life and Accident
Insurance Company and Teachers Insurance & Annuity  Association of America,  any
documentation   executed  in   connection   with  any   renewal,   extension  or
rearrangement  of  the  Indebtedness  that  is  the  subject  of  the  foregoing
documents,  the Gas Sales Contract, the Intercompany Mortgage, as defined in the
above-mentioned Note Agreement, and any documents



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executed in replacement of any of the foregoing  documents,  if any, and only if
the Administrative Agent has received notice thereof pursuant to Section 10.8.

         "Applicable Lending Office" shall mean, for each Bank and for each Type
of Loan and for each  Bankers'  Acceptance,  such  office of such Bank (or of an
affiliate of such Bank) as such Bank may from time to time specify to the Paying
Agent and the  Company  as the  office by which its Loans of such Type are to be
made and/or issued and maintained and at which  Bankers'  Acceptances  are to be
accepted  and  purchased;  provided,  however,  that each such  office  shall be
located in Canada.

         "Applicable  Margin" shall mean, on any day, (i) zero percent (0%) with
respect to any  Alternate  Base Rate Loan and Canadian  Prime Rate Loan and (ii)
with respect to any Eurodollar  Loan,  the  applicable per annum  percentage set
forth at the  appropriate  intersection  in the table shown below,  based on the
Rating as of the close of business on the preceding Business Day:

<TABLE>
<CAPTION>

                                                               Eurodollar
                                                                  Loan
                                                               Applicable
    Rating                                                       Margin
    <S>                                                        <C>

    BBB/Baa2 and higher                                            0.20

    BBB-/Baa3                                                      0.275

    BB+/Ba1                                                        0.40

    BB/Ba2 and lower                                               0.45

</TABLE>

Notwithstanding  the foregoing,  at all times that a Borrowing  Base  Deficiency
shall exist and is  continuing  for more than 30 days,  the  Applicable  Margins
provided for in this definition shall each be increased by adding 1.00%.

         "Applications"  shall mean all  applications and agreements for Letters
of Credit, or similar  instruments or agreements,  now or hereafter  executed by
any Person in connection with any Letter of Credit now or hereafter issued or to
be issued.

         "Bank Guarantee" shall mean that certain  Guarantee dated  concurrently
herewith executed by the Parent in favour of the Administrative Agent.

         "Bankers' Acceptances" means bankers' acceptances issued by the Company
and  denominated  in Canadian  Dollars,  which are accepted and purchased by the
Banks at the request of the Company pursuant to Section 2.1.



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<PAGE>




         "B.A.  Reference  Banks" shall  mean the Paying Agent and one (1) other
Bank selected by the Paying Agent (after consultation with the Company) which is
a "Schedule 1" accepting bank.

         "B/A  Stamping  Rate"  means,  with  respect  to  Bankers'  Acceptances
accepted by a Bank, the Applicable  Margin for Eurodollar Loans in effect on the
date of acceptance of the Bankers' Acceptance.

         "Bankruptcy  Code" shall mean (i) the United States Bankruptcy Code, as
amended,  and any successor  statute and (ii) the  Bankruptcy and Insolvency Act
(Canada), as amended, and any successor statute.

         "Beluga  Financing   Documents"  shall  mean  that  certain  Inducement
Agreement and that certain Note Agreement  (together with the Notes,  as defined
therein),  each dated June 17,  1985,  and amended as of June 15,  1990,  by and
among the Parent and The Equitable Life  Assurance  Society of the United States
and the Travelers  Insurance Company,  any documentation  executed in connection
with any renewal,  extension or rearrangement  of the  Indebtedness  that is the
subject of the foregoing  documents,  the Gas Sales Contract,  the  Intercompany
Mortgage,  as defined in the above-mentioned  Note Agreement,  and any documents
executed in  replacement of any of the foregoing  documents,  if and only if the
Administrative Agent has received notice thereof pursuant to Section 10.8.

         "Borrowing  Base" shall have the  meaning  ascribed to such term in the
U.S.   Facility  (without   amendment  except  as  permitted   pursuant  to  the
Intercreditor Agreement).

         "Borrowing  Base Debt" shall have the meaning  ascribed to such term in
the U.S.  Facility  (without  amendment  except  as  permitted  pursuant  to the
Intercreditor Agreement).

         "Borrowing  Base  Deficiency"  shall have the meaning  ascribed to such
term in the U.S. Facility (without amendment except as permitted pursuant to the
Intercreditor Agreement).

         "Business Day" shall mean any day other than a day on which  commercial
banks are  authorized  or required to close in Houston,  Texas,  United  States,
Calgary,  Alberta,  Canada, or Toronto,  Ontario, Canada, and where such term is
used in the  definition of  "Quarterly  Date" in this Section 1.1 or if such day
relates to a borrowing  of, a payment or  prepayment of principal of or interest
on, or an Interest Period for, a Eurodollar Loan or a notice by the Company with
respect to any such borrowing,  payment,  prepayment or Interest  Period,  a day
which is also a day on which dealings in U.S. Dollar deposits are carried out in
the relevant interbank market.

         "Canadian Bankers'  Acceptance  Discount Proceeds" means, in respect of
any  Bankers'  Acceptance  required  to be  accepted  and  purchased  by a  Bank
hereunder, an amount (rounded to



                                        4

<PAGE>



the nearest whole cent with one-half of one cent being rounded up) calculated on
the date of acceptance of the Bankers' Acceptance by multiplying:

         (a)        the face amount  of  such  Bankers'  Acceptance  divided  by
                    one hundred (100); by

         (b)        the  price, where  the  price is  determined by dividing one
                    hundred (100) by the sum of one plus the product of:

                    (i)    the  Canadian   Bankers'  Acceptance   Discount  Rate
                           (expressed as a decimal); and

                    (ii)   a  fraction,  the  numerator  of  which  is the  term
                           (expressed in days) of such Bankers'  Acceptance  and
                           the denominator of which is three hundred  sixty-five
                           (365);  with the price as so determined being rounded
                           up or down  to  the  fifth  decimal place and .000005
                           being  rounded  up;  "Canadian  Bankers'   Acceptance
                           Discount Rate" shall mean

          (i) with respect to each Bankers'  Acceptance  which is required to be
accepted and purchased by a Bank  hereunder and which has a term of more than 90
days, the percentage  discount rate (expressed to two decimal places) determined
by the Paying  Agent to be the  average of the  quoted  discount  rates at which
Canadian Dollar Bankers' Acceptances having a comparable issue and maturity date
are being bid for discount by the B.A.  Reference Banks at  approximately  11:00
a.m. Toronto,  Ontario time (or as soon thereafter as practicable) on the day of
the  issuance  and  acceptance  of the  Bankers'  Acceptances.  If  either  B.A.
Reference  Bank does not  furnish a timely  quotation,  the Paying  Agent  shall
determine the relevant discount rate on the basis of the quotation or quotations
furnished by the remaining B.A. Reference Bank; if neither of such quotations is
available on a timely  basis,  the  provisions  of Section 6.2 shall apply;  and


          (ii) with respect to each Bankers'  Acceptance which is required to be
accepted and  purchased by a Bank  hereunder  and which has a term of 90 days or
less,  the  percentage  discount  rate  (expressed  to two  decimal  places) for
Canadian Dollar Bankers' Acceptances having a comparable issue and maturity date
which is  quoted  on the  Reuter's  Canadian  Discount  Offer  Rate  Screen  for
"Schedule 1"  accepting  banks (or if such screen  shall not be  available,  any
successor  or similar  services  may be  selected  by the  Paying  Agent and the
Company)  as of 11:00  a.m.  Toronto,  Ontario  time (or as soon  thereafter  as
practicable)  on the day of acceptance of the Bankers'  Acceptances.  If none of
such screen nor any successor



                                        5

<PAGE>



or  similar  services  is  available  then  the  "Canadian   Bankers' Acceptance
Discount Rate" shall mean, with respect to each  Bankers'  Acceptance  which  is
required to be accepted and purchased by a Bank hereunder and which has  a  term
of 90 days or  less,  the  percentage  discount  rate  (expressed to two decimal
places)  determined by the Paying Agent to be the average of the quoted discount
rates at which Canadian  Dollar  Bankers' Acceptances  having a comparable issue
and  maturity  date  are being bid for discount by the B.A.  Reference  Banks at
approximately   11:00 a.m.  Toronto,  Ontario  time (or  as  soon  thereafter as
practicable)  on  the  day of  the  issuance  and  acceptance  of  the  Bankers'
Acceptances.  If either B.A. Reference Bank does not furnish a timely quotation,
the Paying Agent shall determine the relevant  discount rate on the basis of the
quotation or  quotations  furnished by the  remaining  B.A.  Reference  Bank; if
neither of such  quotations  is available on a timely basis,  the  provisions of
Section 6.2 shall apply.

          Each determination of the Canadian Bankers'  Acceptance  Discount Rate
shall be conclusive  and binding,  absent  manifest  error,  and may be computed
using any reasonable averaging and attribution method.

          "Canadian Dollars" and "Canadian $" shall mean lawful money of Canada.

          "Canadian Prime Rate" for any day shall mean the variable lending rate
of  interest  (expressed  as a rate per  annum)  established  on such day by the
Paying  Agent  from time to time as the  reference  rate of  interest  which the
Paying Agent  employs in order to determine the interest rate it will charge for
demand  loans  denominated  in Canadian  Dollars to its  customers in Canada and
which it  designates  as its prime  rate.  Without  notice to the Company or any
other Person,  the Canadian Prime Rate shall change  automatically  from time to
time as and in the amount by which said prime rate shall fluctuate. The Canadian
Prime Rate is a reference rate and does not necessarily  represent the lowest or
best  rate  actually  charged  to any  customer.  Any Agent or any Bank may make
commercial  loans or other  loans at rates of  interest  at,  above or below the
Canadian  Prime Rate.  For purposes of this Agreement any change in the Canadian
Prime Rate due to a change in the said prime rate shall be effective on the date
such change in said prime rate is announced.

          "Canadian  Prime Rate Loans" shall mean Loans which bear interest at a
rate based upon the Canadian Prime Rate.

          "Capital  Expenditures" shall mean expenditures in respect of fixed or
capital assets  (calculated in accordance with GAAP) excluding  expenditures for
the  restoration,  repair or replacement of any fixed or capital asset which was
destroyed  or  damaged,  in whole  or in part,  to the  extent  financed  by the
proceeds of an insurance  policy.  Expenditures in respect of  replacements  and
maintenance  consistent  with  the  business  practices  of the  Parent  and its
Subsidiaries in respect of plant facilities,  machinery, fixtures and other like
capital assets utilized



                                        6

<PAGE>



in the ordinary  course of business are not Capital  Expenditures  to the extent
such expenditures are not capitalized in preparing a balance sheet of the Parent
in accordance with GAAP.

         "Capital  Lease   Obligations"  shall  mean,  as  to  any  Person,  the
obligations  of such  Person to pay rent or other  amounts  under a lease of (or
other agreement  conveying the right to use) real and/or personal property which
obligations  are required to be classified  and accounted for as a capital lease
on a  balance  sheet  of such  Person  under  GAAP  and,  for  purposes  of this
Agreement,  the  amount  of such  obligations  shall be the  capitalized  amount
thereof, determined in accordance with GAAP.

         "Capitalization"  shall  mean an amount  equal to the sum of (a) Funded
Indebtedness of the Parent and its Subsidiaries on a consolidated basis plus (b)
Current  Maturities of the Parent and its  Subsidiaries on a consolidated  basis
plus (c) borrowed money  Indebtedness  of the Parent and its  Subsidiaries  on a
consolidated basis that is not Funded  Indebtedness plus (d) Indebtedness of the
Parent and its  Subsidiaries on a consolidated  basis  constituting  obligations
payable out of Hydrocarbons  (except such obligations payable solely by recourse
to  properties  not  included in the  Borrowing  Base) plus (e) the Tangible Net
Worth of the Parent and its Subsidiaries on a consolidated basis.

         "Change of Control"  shall mean a change  resulting  when any Unrelated
Person or any Unrelated  Persons acting together which would  constitute a Group
together  with any  Affiliates  or Related  Persons  thereof  (in each case also
constituting  Unrelated  Persons) shall at any time either (i)  Beneficially Own
more than 50% of the  aggregate  voting  power of all classes of Voting Stock of
the Parent or (ii) succeed in having sufficient of its or their nominees elected
to the Board of Directors of the Parent such that such  nominees,  when added to
any  existing  director  remaining on the Board of Directors of the Parent after
such election who is an Affiliate or Related Person of such Unrelated  Person or
Group,  shall constitute a majority of the Board of Directors of the Parent.  As
used herein (a) "Beneficially  Own" means  "beneficially own" as defined in Rule
13d-3 of the United States Securities  Exchange Act of 1934, as amended,  or any
successor  provision  thereto;  provided,  however,  that,  for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant  to a tender or  exchange  offer made by or on behalf of such Person or
any of such Person's  Affiliates until such tendered securities are accepted for
purchase or exchange;  (b) "Group" means a "group" for purposes of Section 13(d)
of the United States Securities Exchange Act of 1934, as amended; (c) "Unrelated
Person" means at any time any Person other than the Parent or any Subsidiary and
other  than  any  trust  for any  employee  benefit  plan of the  Parent  or any
Subsidiary  of the Parent;  (d)  "Related  Person" of any Person  shall mean any
other  Person  owning  (1) 5% or more of the  outstanding  common  stock of such
Person or (2) 5% or more of the Voting  Stock of such  Person;  and (e)  "Voting
Stock" of any Person  shall mean capital  stock of such Person which  ordinarily
has voting power for the election of directors  (or persons  performing  similar
functions)  of such  Person,  whether  at all times or only so long as no senior
class of securities has such voting power by reason of any contingency.




                                        7

<PAGE>



         "Code" shall mean,  as  applicable,  (i) the  Internal  Revenue Code of
1986, as amended,  or any  successor  statute,  together  with all  regulations,
rulings  and  interpretations  thereof or  thereunder  by the  Internal  Revenue
Service  or (ii) the Income  Tax Act  (Canada),  as  amended,  or any  successor
statute,  together with all regulations,  rulings and interpretations thereof or
thereunder.

         "Commitment  Percentage"  shall mean,  as to any Bank,  the  percentage
equivalent  of a fraction  the  numerator  of which is the amount of such Bank's
Commitment  and  the  denominator  of  which  is  the  aggregate  amount  of the
Commitments of all Banks.

         "Commitment"  shall mean, as to any Bank,  the  obligation,  if any, of
such Bank to make Loans,  accept and  purchase  Bankers'  Acceptances  and incur
Letter of Credit Liabilities in an aggregate principal amount (including therein
the full face amount of all Bankers'  Acceptances  then  outstanding) at any one
time outstanding up to but not exceeding the amount,  if any, set forth opposite
such Bank's name on the  signature  pages hereof under the caption  "Commitment"
(as the same may be reduced from time to time pursuant to Section 2.3).

         "Cover" for Letter of Credit Liabilities shall be effected by paying to
the Paying Agent immediately  available funds, to be held by the Paying Agent in
a  collateral  account  maintained  by Paying  Agent at its  Payment  Office and
collaterally  assigned as security  for the  financial  accommodations  extended
pursuant   to  this   Agreement   using   documentation   satisfactory   to  the
Administrative Agent, in an amount equal to any required prepayment. Such amount
shall be retained by the Paying Agent in such collateral account until such time
as (x) in the case of Cover  being  provided  pursuant  to Section  2.2(a),  the
applicable Letter of Credit shall have expired and Reimbursement Obligations, if
any, with respect  thereto shall have been fully satisfied or (y) in the case of
Cover being provided pursuant to Section  3.2(b)(1),  the outstanding  principal
amount of all  Revolving  Credit  Obligations  is not greater than the aggregate
amount of the Commitments.

         "Current Maturities" shall mean, on any day on which Current Maturities
are  calculated,   the  sum  of  (a)  scheduled  principal  payments  on  Funded
Indebtedness  which are payable  within one (1) year after such day plus (b) the
principal  component  of payments  required  to be made with  respect to Capital
Lease  Obligations  within one (1) year of said date plus (c), to the extent not
included  above,  all items which in accordance with GAAP would be classified as
current maturities of long term debt.

         "Debt/Capitalization  Ratio"  shall  mean  the  ratio of (a) the sum of
Funded  Indebtedness of the Parent and its Subsidiaries on a consolidated  basis
plus Current  Maturities of the Parent and its  Subsidiaries  on a  consolidated
basis plus borrowed money  Indebtedness of the Parent and its  Subsidiaries on a
consolidated  basis that is not Funded  Indebtedness  plus  Indebtedness  of the
Parent and its  Subsidiaries on a consolidated  basis  constituting  obligations
payable out of Hydrocarbons  (except such obligations payable solely by recourse
to properties not included in the Borrowing Base) to (b) Capitalization.



                                        8

<PAGE>



         "Default"  shall mean an Event of Default or an event which with notice
or lapse of time or both  would,  unless  cured or  waived,  become  an Event of
Default.

         "Disclosure  Statement"  shall  mean  the  Disclosure  Statement  dated
concurrently herewith delivered to the Administrative Agent by the Company.

         "Dividend  Payment" shall mean,  with respect to any Person,  dividends
(in cash,  property or obligations)  on, or other payments or  distributions  on
account of, or the redemption of, or the setting apart of money for a sinking or
other  analogous  fund  for  the  purchase,  redemption,   retirement  or  other
acquisition of, any shares of any class of capital stock of such Person,  or the
exchange  or  conversion  of any  shares of any class of  capital  stock of such
Person for or into any  obligations  of or shares of any other  class of capital
stock of such  Person or any other  property,  but  excluding  dividends  to the
extent  payable in, or exchanges or  conversions  for or into,  shares of common
stock of the Parent or options  or  warrants  to  purchase  common  stock of the
Parent.

         "EBITDAX" shall mean net earnings  (excluding gains and losses on sales
and  retirement  of  assets,   non-cash  write  downs,  charges  resulting  from
accounting  convention  changes and  deductions  for dry hole  expenses)  before
deduction for federal,  provincial,  municipal and state taxes, interest expense
(including  capitalized  interest),  operating  lease  rentals or  depreciation,
depletion and amortization expense, all determined in accordance with GAAP.

         "EBITDAX/Interest  Ratio"  shall  mean the ratio of (a)  EBITDAX of the
Parent and its  Subsidiaries  on a  consolidated  basis to (b)  operating  lease
rentals and interest  expense  (including  capitalized  interest  but  excluding
non-cash  amortization of deferred  financing  costs) on all Indebtedness of the
Parent and its Subsidiaries on a consolidated basis for any twelve-month  period
ending on the last day of every calendar  quarter during the period with respect
to which the EBITDAX/Interest Ratio is to be calculated.

         "Engineering   Report"  shall  mean  one  or  more  reports,   in  form
satisfactory to the Administrative Agent and the Majority Banks, prepared by one
or more independent  consulting firms acceptable to the Administrative Agent and
the Majority Banks in their reasonable  business judgment,  which shall evaluate
at least 85% of the present  value of the  Included  Reserves (as defined in the
U.S.  Facility,  without  amendment except as permitted under the  Intercreditor
Agreement) as of the immediately  preceding  January 1. Each Engineering  Report
shall set forth a projection of the future rate of  production,  Net Proceeds of
Production  and present  value of the Net Proceeds of  Production,  in each case
based upon  economic  assumptions  acceptable  to the  Administrative  Agent and
approved by the Majority Banks.

         "ENSTAR Alaska" shall collectively mean (i) the gas distribution system
in south-central  Alaska known as ENSTAR Natural Gas Company,  a division of the
Parent, and (ii) APC.




                                        9

<PAGE>



         "Environmental  Claim"  means any third party  (including  Governmental
Authorities  and  employees)  action,  lawsuit,  claim or proceeding  (including
claims or proceedings at common law or under the Occupational  Safety and Health
Act or similar  laws  relating  to safety of  employees)  which  seeks to impose
liability for (i) noise;  (ii) pollution or  contamination  of the air,  surface
water,  ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation,  handling,  treatment, storage,
disposal or  transportation;  (iv)  exposure to  Hazardous  Substances;  (v) the
safety or health of employees or (vi) the manufacture,  processing, distribution
in commerce or use of Hazardous  Substances.  An "Environmental Claim" includes,
but is not limited to, a common law action,  as well as a  proceeding  to issue,
modify or terminate an Environmental  Permit,  or to adopt or amend a regulation
to the  extent  that such a  proceeding  attempts  to redress  violations  of an
applicable  permit,  license,  or  regulation  as  alleged  by any  Governmental
Authority.

         "Environmental  Liabilities"  includes all liabilities arising from any
Environmental  Claim,  Environmental  Permit or Requirement of Environmental Law
under  any  theory  of  recovery,  at law or in  equity,  and  whether  based on
negligence,  strict  liability  or  otherwise,  including  but not  limited  to:
remedial,  removal, response,  abatement,  investigative,  monitoring,  personal
injury and damage to property or  injuries  to  persons,  and any other  related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs  and  expenses  necessary  to cause the  issuance,  reissuance  or
renewal of any  Environmental  Permit including  reasonable  attorneys' fees and
court costs.

         "Environmental  Permit"  means any permit,  license,  approval or other
authorization  under any applicable Legal  Requirement  relating to pollution or
protection of health or the  environment,  including laws,  regulations or other
requirements relating to emissions,  discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water,  ground water or land, or otherwise relating to
the manufacture,  processing,  distribution,  use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.

         "Equivalent  U.S. Dollar Amount" shall mean, with respect to any amount
of Canadian Dollars,  the equivalent amount of U.S. Dollars  determined by using
the Bank of Canada noon day rate at which it offers to provide  U.S.  Dollars in
exchange  for such  amount  of  Canadian  Dollars  on the date as of which  such
Equivalent U.S. Dollar Amount is to be determined.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules,  regulations and interpretations by
the Internal Revenue Service or the Department of Labor thereunder.

         "ERISA  Affiliate"  shall mean any trade or  business  (whether  or not
incorporated)  which is a member of a group of which the  Parent is a member and
which is under  common  control  within  the  meaning of the  regulations  under
Section 414 of the Code.



                                       10

<PAGE>



         "Eurodollar  Base Rate" shall mean, with respect to any Interest Period
for any Eurodollar Loan, the lesser of (A) the rate per annum (rounded  upwards,
if necessary,  to the nearest  1/16th of 1%) equal to the average of the offered
quotations  appearing on Telerate  Page 3750 (or if such Telerate Page shall not
be available,  any successor or similar service as may be selected by the Paying
Agent and the  Company)  as of 11:00  a.m.,  Toronto,  Ontario  time (or as soon
thereafter as  practicable)  on the day two Business Days prior to the first day
of such Interest  Period for U.S.  Dollar  deposits  having a term comparable to
such Interest Period and in an amount  comparable to the principal amount of the
Eurodollar  Loan to which such Interest Period relates or (B) the Highest Lawful
Rate. If none of such Telerate Page 3750 nor any successor or similar service is
available,  then the  "Eurodollar  Base Rate"  shall mean,  with  respect to any
Interest Period for any applicable  Eurodollar  Loan, the lesser of (A) the rate
per  annum  (rounded  upwards,  if  necessary,  to  the  nearest  1/16th  of 1%)
determined  by the Paying  Agent to be the  average  of the rates  quoted by the
Reference Banks at approximately 11:00 a.m.,  Toronto,  Ontario time (or as soon
thereafter as  practicable)  on the day two Business Days prior to the first day
of such  Interest  Period for the  offering by such  Reference  Banks to leading
banks in the  London  interbank  market of U.S.  Dollar  deposits  having a term
comparable to such Interest Period and in an amount  comparable to the principal
amount of the Eurodollar  Loan to which such Interest  Period relates or (B) the
Highest Lawful Rate. If any Reference Bank does not furnish a timely  quotation,
the Paying Agent shall determine the relevant  interest rate on the basis of the
quotation or quotations  furnished by the remaining  Reference Bank or Banks; if
none of such  quotations  is  available on a timely  basis,  the  provisions  of
Section 6.2 shall apply. Each determination of the Eurodollar Base Rate shall be
conclusive and binding,  absent  manifest  error,  and may be computed using any
reasonable averaging and attribution method.

         "Eurodollar Loans" shall mean Loans the interest on which is determined
on the basis of rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.1.

         "Eurodollar   Rate"  shall  mean,  for  any  Interest  Period  for  any
Eurodollar  Loan, a rate per annum determined by the Paying Agent to be equal to
the Eurodollar Base Rate for such Loan for such Interest Period.

         "Event of  Default"  shall have the  meaning  assigned  to such term in
Section 11 hereof.

         "Facility Fee  Percentage"  shall mean, on any date, the applicable per
annum  percentage set forth at the  appropriate  intersection in the table shown
below, based on the Rating as of the close of business on the preceding Business
Day:

                                       11
<PAGE>
  
<TABLE>
<CAPTION>

                                                                     Facility
                                                                       Fee
         Rating                                                     Percentage
         <S>                                                        <C>

         BBB/Baa2 and higher                                           0.125

         BBB-/Baa3                                                     0.150

         BB+/Ba1                                                       0.20

         BB/Ba2 and lower                                              0.30

</TABLE>


         "Financial   Statements"   shall  mean  the   financial   statement  or
statements, together with the notes and schedules thereto, described or referred
to in Sections 8.6 and 9.1.

         "Funded  Indebtedness"  shall mean all Indebtedness  which by its terms
matures  more  than one (1) year from the date as of which  any  calculation  of
Funded  Indebtedness is made, and any Indebtedness  maturing within one (1) year
from such date which is  renewable at the option of the obligor to a date beyond
one (1) year from such date (if Indebtedness provides for amortization, only the
amount of the principal payment required to be made within one (1) year from the
date as of  which  any  calculation  of  Funded  Indebtedness  is made  shall be
excluded from "Funded Indebtedness").

         "GAAP" shall mean as to a particular Person,  such accounting  practice
as, in the  opinion of KPMG Peat  Marwick or other  independent  accountants  of
recognized  national  standing  retained  by such Person and  acceptable  to the
Majority  Banks,   conforms  at  the  time  to  generally  accepted   accounting
principles, consistently applied. Generally accepted accounting principles means
those principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board, (b) which are applied for all periods after the date
hereof in a manner  consistent  with the  manner in which  such  principles  and
practices  were applied to the most recent audited  financial  statements of the
relevant  Person  furnished  to the  Banks,  except  only  for such  changes  in
principles  and  practices  with  which  the   applicable   independent   public
accountants  concur and which are  disclosed  to the Banks in  writing,  and (c)
which are  consistently  applied for all periods  after the date hereof so as to
reflect  properly the  financial  condition  and results of  operations  of such
Person.

         "Gas and Liquids Pipeline  Subsidiaries" shall mean each company (which
may include the Parent)  engaged in the Pipeline  Operations  (as defined in the
U.S.  Facility,  without  amendment except as permitted under the  Intercreditor
Agreement).

         "Gas Sale  Contract"  shall mean that certain Gas Sale  Contract  dated
January 1, 1984,  between APC, as Seller,  and ENSTAR  Natural Gas  Company,  as
Purchaser, as amended on June 17, 1985, and from time to time thereafter, if and
only if the Administrative Agent has received notice thereof pursuant to Section
10.8.

         "Governmental   Authority"   shall  mean  any  sovereign   governmental
authority,  Canada,  the United States of America,  any Province of Canada,  any
State  of  the  United  States  and  any  political  subdivision  of  any of the
foregoing, and any central bank, agency, instrumentality, department,


                                       12

<PAGE>



commission,   board,   bureau,   authority,   court   or   other   tribunal   or
quasi-governmental  authority  in  each  case  whether  executive,  legislative,
judicial, regulatory or administrative, having jurisdiction over the Parent, any
of its Subsidiaries, any of their respective property, any Agent or any Bank.

         "Guarantee"  by  any  Person  means  any   obligation,   contingent  or
otherwise,   of  any  such  Person  directly  or  indirectly   guaranteeing  any
Indebtedness  of any other Person and,  without  limiting the  generality of the
foregoing, any obligation,  direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or  advance or supply  funds for the  purchase or
payment  of)  such  Indebtedness  (whether  arising  by  virtue  of  partnership
arrangements,  by agreement to keep- well, to purchase assets, goods, securities
or services,  to take-or-pay,  or to maintain financial statement  conditions or
otherwise,  other than  agreements  to purchase  assets,  goods,  securities  or
services at an arm's length  price in the  ordinary  course of business) or (ii)
entered  into for the purpose of assuring in any other manner the holder of such
Indebtedness  of the payment  thereof or to protect such holder  against loss in
respect thereof (in whole or in part),  provided that the term "Guarantee" shall
not include  endorsements  for  collection or deposit in the ordinary  course of
business. The term "Guarantee" used as a verb has a corresponding meaning.

         "Hazardous Substance" shall mean petroleum products,  and any hazardous
or toxic waste or  substance  defined or  regulated as such from time to time by
any law, rule,  regulation or order described in the definition of "Requirements
of Environmental Law".

         "Highest  Lawful Rate" shall mean, on any day, the maximum  nonusurious
rate of interest  permitted for that day by whichever of applicable  Canadian or
provincial law permits the higher interest rate, stated as a rate per annum.

         "Hydrocarbons"  shall mean oil, gas,  casinghead  gas,  drip  gasoline,
natural  gasoline,  condensate and all other liquid or gaseous  hydrocarbons and
related minerals, in each case whether in a natural or a processed state.

         "Indebtedness"  shall mean, as to any Person:  (i) indebtedness of such
Person for  borrowed  money  (whether by loan or the  issuance  and sale of debt
securities)  or for the deferred  purchase or  acquisition  price of property or
services,  including,  without  limitation,  obligations  (excluding  volumetric
obligations  with  respect to  pre-sales of  Hydrocarbon  production  which have
already been accounted for in the calculation of the Borrowing Base) payable out
of Hydrocarbon  production;  (ii) obligations,  whether fixed or contingent,  of
such Person in respect of letters of credit,  acceptances or similar instruments
issued or accepted by banks and other financial  institutions for the account of
such Person or any other Person; (iii) Capital Lease Obligations of such Person;
(iv) Redemption  Obligations of such Person and other obligations of such Person
to redeem or  otherwise  retire  shares of capital  stock of such  Person or any
other Person,  in each case to the extent that the redemption  obligations  will
arise  prior to the stated  maturity of the  Obligations;  (v)  indebtedness  of
others of the type described in clause (i), (ii), (iii) or (iv) above secured by
a Lien on the property of such Person,  whether or not the respective obligation
so



                                       13

<PAGE>



secured has been assumed by such Person; and (vii) indebtedness of others of the
type  described  in clause (i),  (ii),  (iii) or (iv) above  Guaranteed  by such
Person.

         "Intercreditor   Agreement"  shall  mean  that  certain   Intercreditor
Agreement dated December 30, 1993 executed by and among the Company, the Parent,
the Administrative  Agent and the  "Administrative  Agent"(now known as "Agent")
under  the  U.S.  Facility,  as  amended  by that  certain  First  Amendment  to
Intercreditor  Agreement dated May 24, 1994 and by that certain Second Amendment
to  Intercreditor  Agreement  dated  December 23,  1996,  and as the same may be
further amended or modified from time to time.

         "Interest Period" shall mean:

              (a)     With respect to any Eurodollar Loan, the period commencing
on (i) the date such Loan is made or converted into or continued as a Eurodollar
Loan or (ii) in the case of a roll-over to a  successive  Interest  Period,  the
last  day of  the  immediately  preceding  Interest  Period  and  ending  on the
numerically  corresponding  day in the first,  second,  third or sixth  calendar
month  thereafter,  as the Company may select as provided in Section 3.3 hereof,
except that each such Interest Period which commences on any day for which there
is no numerically corresponding day in the appropriate subsequent calendar month
shall end on the last Business Day of the appropriate subsequent calendar month.

              (b)     With  respect  to  any  Alternate  Base  Rate Loan  or any
Canadian  Prime Rate Loan,  the period  commencing on the date such Loan is made
and ending on the next succeeding Quarterly Date.

Notwithstanding  the  foregoing:  (i)  no  Interest  Period  with  respect  to a
Eurodollar  Loan may  commence  before  and end after the date of any  scheduled
reduction in the  Commitments  if, after giving  effect  thereto,  the aggregate
principal amount of the Eurodollar Loans having Interest Periods which end after
such reduction date shall be greater than the aggregate  principal amount of the
Commitments  scheduled  to be in effect  after such  reduction  date;  (ii) each
Interest  Period which would  otherwise end on a day which is not a Business Day
shall end on the next  succeeding  Business  Day (or, in the case of an Interest
Period for Eurodollar  Loans, if such next succeeding  Business Day falls in the
next succeeding  calendar month, on the next preceding  Business Day);  (iii) no
Interest Period with respect to a Eurodollar Loan shall extend beyond the end of
the scheduled Revolving Credit Availability  Period; and (iv) no Interest Period
for any  Eurodollar  Loans  shall have a duration of less than one month and, if
the Interest Period  therefor would  otherwise be a shorter  period,  such Loans
shall not be available hereunder.

         "Investments"  shall have  the meaning assigned to such term in Section
10.3 hereof.

         "Investments  Tests" shall mean  compliance  with each of the following
restrictions  (both before and immediately after giving effect to the applicable
Investments):



                                       14

<PAGE>



                    (i)    there shall exist no Borrowing Base Deficiency;

                    (ii)   no  Default or Event  of Default shall  have occurred
                           and be continuing; and

                    (iii)  the applicable  Investment,  when aggregated with any
                           prior permitted Investments (exclusive of Investments
                           permitted under Sections 10.3(a) through (o) hereof),
                           shall not  exceed  10% of  Tangible  Net Worth of the
                           Parent and its Subsidiaries on a consolidated basis.

         "Issuer" shall mean each Bank issuing a Letter of Credit hereunder.

         "Legal  Requirement"  shall mean any law, statute,  ordinance,  decree,
requirement,  order, judgment, rule, regulation (or interpretation of any of the
foregoing)  of,  and  the  terms  of  any  license  or  permit  issued  by,  any
Governmental Authority, now or hereafter in effect.

         "Letter of  Credit"  shall have the  meaning  assigned  to such term in
Section 2.2 hereof.

         "Letter  of  Credit  Fee"  shall  mean a per  annum  rate  equal to the
Applicable Margin for Eurodollar Loans in effect from time to time.

         "Letter of Credit  Liabilities"  shall mean, at any time and in respect
of any Letter of Credit,  the sum of (i) the amount available for drawings under
such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations  at the time due and  payable in respect of previous  drawings  made
under such Letter of Credit.

         "Lien"  shall mean,  with  respect to any asset,  any  mortgage,  lien,
pledge, charge,  collateral assignment,  security interest or encumbrance of any
kind in respect of such  asset.  For the  purposes of this  Agreement,  a Person
shall be deemed to own  subject  to a Lien any asset  which it has  acquired  or
holds subject to the interest of a vendor or lessor under any  conditional  sale
agreement,  capital lease or other title  retention  agreement  relating to such
asset.

         "Liquid Investments" shall mean:

         (I) in the case of investments of U.S. Dollars

          (i)  securities   issued  or  directly,   fully  and   unconditionally
guaranteed  or  insured  by the  United  States  of  America  or any  agency  or
instrumentality  thereof  (provided that the full faith and credit of the United
States of America is pledged in support  thereof) having  maturities of not more
than one year from the date of issue;




                                       15

<PAGE>



          (ii) U.S. Dollar time deposits and  certificates of deposit (A) of any
Bank having  capital and surplus in excess of U.S.  $300,000,000,  or (B) of any
commercial  bank  incorporated  in the United  States,  of recognized  standing,
having  capital  and  surplus in excess of U.S.  $500,000,000  and which has (or
which is a  Subsidiary  of a holding  company  which has)  publicly  traded debt
securities rated, at the time of issuance of such time deposits, AA or higher by
Standard & Poor's Ratings Group or Aa-2 or higher by Moody's Investors  Service,
Inc. with maturities of not more than one year from the date of issue;

          (iii)  repurchase  obligations with a term of not more than seven days
for underlying  securities of the types described in clause (I)(i) above entered
into with any bank meeting the qualifications specified in clause (I)(ii) above,
provided that the terms of such agreements  comply with the guidelines set forth
in  the  Federal   Financial   Institution   Examination   Counsel   Supervisory
Policy--Repurchase Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985;

          (iv) commercial paper or other U.S. Dollar  obligations  issued by the
parent  corporation (A) of any Bank having capital and surplus in excess of U.S.
$300,000,000,   or  (B)  of  any  commercial  bank  (provided  that  the  parent
corporation  and the  bank  are  both  incorporated  in the  United  States)  of
recognized  standing  having capital and surplus in excess of U.S.  $500,000,000
and  commercial  paper or other  U.S.  Dollar  obligations  issued by any Person
incorporated in the United States,  which commercial paper is rated at least A-2
or the equivalent  thereof by Standard & Poor's Ratings Group or at least P-2 or
the  equivalent  thereof by Moody's  Investors  Service,  Inc.  and in each case
maturing not more than six months after the date of issue;

          (v) obligations of any state or political subdivision thereof rated at
least F-1 by Fitch  Investors  Service,  Inc. or AA by Standard & Poor's Ratings
Group with an original maturity of 180 days or less; and

          (vi) investments in money market funds substantially all the assets of
which are  comprised of  securities  of the types  described  in clauses  (I)(i)
through (v) above; and

         (II) in the case of investments of Canadian dollars




                                       16

<PAGE>



          (i) bonds or other evidences of indebtedness  of, or the principal and
interest  of which is fully  guaranteed  by,  the  Government  of  Canada or any
province  of  Canada,  payable  in  Canadian  dollars  and (in  the  case of any
provincial  obligations and any Government of Canada obligations that are rated)
rated AAA or AA (or the then  equivalent  grade) by Dominion Bond Rating Service
Limited,  or any other  nationally  recognized  bond  rating  service,  having a
maturity not in excess of one year,

          (ii)  certificates  of deposit issued or guaranteed by a bank or trust
company  organized  under the laws of Canada or any province  thereof,  provided
such bank or trust company has capital and retained earnings in the aggregate in
excess of  Canadian  $500,000,000  on its most  recent  balance  sheet  (whether
audited or unaudited), having a maturity not in excess of one year,

          (iii)   bankers'   acceptances  of  any  bank  or  trust  company  the
certificates of deposit of which would constitute Liquid Investments as provided
in clause (II)(ii)  above,  if outstanding  unsecured debt of such bank or trust
company is rated no less than AA (or the then equivalent grade) by Dominion Bond
Rating Service Limited, or any other nationally  recognized bond rating service;
and

          (iv)  commercial  paper rated no less than R-1 (or the then equivalent
grade) by Dominion Bond Rating  Service  Limited or A-1 (or the then  equivalent
grade) by CBRS Inc., having a maturity not in excess of one year;  excluding any
bonds or other evidences of indebtedness,  certificates of deposit or commercial
paper which a Canadian  chartered  bank may not hold as security  under the Bank
Act (Canada).

         "Loan  Documents"  shall  mean  this  Agreement,  the  Notes,  the Bank
Guarantee,   the  Intercreditor   Agreement,   the  Bankers'  Acceptances,   all
Applications,  all  instruments,  certificates  and  agreements now or hereafter
executed or delivered to any Agent or any Bank pursuant to any of the foregoing,
and  all  amendments,   modifications,   renewals,  extensions,   increases  and
rearrangements of, and substitutions for, any of the foregoing.

         "Loans" shall mean the loans provided for by Section 2.1 hereof.

         "Majority  Banks" shall mean Banks  having  greater than 66-2/3% of the
aggregate amount of Commitments.

         "Material  Adverse Effect" shall mean a material  adverse effect on the
business,   condition   (financial  or  otherwise),   operations  or  properties
(including proven oil and gas reserves) of the



                                       17

<PAGE>



Parent and its Subsidiaries, taken as a whole, or on the ability of any Relevant
Party to perform its material obligations under any Loan Document to which it is
a party.

         "Maximum  Outstanding  Amount" shall have the meaning  ascribed to such
term in Section 2.9 hereof.

         "Maximum Revolving Credit Available Amount" shall mean, at any date, an
amount equal to the lesser of (i) the aggregate of the  Commitments  or (ii) the
Maximum  Outstanding  Amount  designated  from  time to time by the  Company  in
accordance with the terms hereof.

         "Mesa  Contract"  shall mean that certain  Purchase and Sale  Agreement
dated  Febru ary 6, 1991  executed  by and among  Mesa  Limited  Partnership,  a
Delaware limited  partnership,  Mesa Operating Limited  Partnership,  a Delaware
limited  partnership,  and Mesa  Midcontinent  Limited  Partnership,  a Delaware
limited  partnership,  as Sellers,  and the Parent, as Buyer, as amended by that
certain First  Amendment to Purchase and Sale Agreement dated Febru ary 22, 1991
and as further  amended by that  certain  Second  Amendment to Purchase and Sale
Agreement dated March 8, 1991.

         "Net Proceeds of  Production"  shall mean,  with respect to any Person,
all revenue  received by or credited to the account of such Person from the sale
of Hydrocarbons  and other minerals in, under or produced from their  respective
oil, gas and mineral properties after deducting royalties, overriding royalties,
volumetric   production  payments  with  respect  to  pre-sales  of  Hydrocarbon
production, production payments pledged to secure non-recourse financing payable
solely out of such production payments,  net profits interests and other burdens
payable  out  of  production,  normal  and  reasonable  operating  expenses  and
severance, ad valorem, excise, freehold mineral and windfall profit taxes.

         "Notes" shall mean the promissory  notes of the Company  evidencing the
Loans, in the form of Exhibit C hereto, together with all renewals,  extensions,
modifications and replacements thereof and substitutions therefor.

         "Novalta" shall mean Novalta Resources Inc., a corporation incorporated
under the laws of the Province of Alberta.

         "Novalta  Contract"  shall  mean  that  certain  Sale  Agreement  dated
November  19, 1993  executed  by and between  Novacor  Petrochemicals  Ltd.,  as
Vendor, and the Parent, as Purchaser.

         "Obligations" shall mean, as at any date of determination  thereof, the
sum of the following:  (i) the aggregate  principal amount of Loans  outstanding
hereunder  plus  (ii) the  aggregate  face  amount of all  outstanding  Bankers'
Acceptances plus (iii) the aggregate amount of the Letter of Credit  Liabilities
hereunder plus (iv) all other  liabilities,  obligations and indebtedness of the
Parent or any Subsidiary of the Parent under any Loan Document.



                                       18

<PAGE>



         "Oil and Gas  Subsidiaries"  shall  mean any  Subsidiary  of the Parent
whose assets consist primarily of oil and gas properties. As of the date hereof,
the Oil and Gas Subsidiaries are listed as such on Exhibit A hereto.

         "Organizational  Documents"  shall mean, with respect to a corporation,
the certificate of  incorporation,  articles of incorporation and bylaws of such
corporation;   with  respect  to  a  partnership,   the  partnership   agreement
establishing  such  partnership;  with  respect  to a joint  venture,  the joint
venture agreement  establishing such joint venture, and with respect to a trust,
the  instrument  establishing  such trust;  in each case  including  any and all
modifications  thereof  as of the date of the Loan  Document  referring  to such
Organizational Document.

         "Parent" shall mean Seagull Energy Corporation, a Texas corporation.

         "Parent Report" shall mean one or more reports, in form satisfactory to
the Administrative Agent and the Majority Banks, prepared by petroleum engineers
employed by the Parent or its  Subsidiaries,  which shall  evaluate (i) at least
85% of the  present  value of the  Included  Reserves  (as  defined  in the U.S.
Facility,   without  amendment  except  as  permitted  under  the  Intercreditor
Agreement)  and (ii) any other  properties  as to which the Parent has conducted
successful  exploration  activities  subsequent  to the most recent  Engineering
Report,  in each case  effective as of the  immediately  preceding  July 1. Each
Parent Report shall set forth production,  drilling and acquisition  information
and other information  requested by the Administrative  Agent and shall be based
upon updated economic  assumptions  acceptable to the  Administrative  Agent and
approved by the Majority Banks at the beginning of the applicable year.

         "Payment  Office" shall mean the Toronto,  Ontario office of the Paying
Agent,  presently  located  at The Bank of Nova  Scotia,  International  Banking
Division-Loan  Accounting,  14th Floor, 44 King Street West,  Toronto,  Ontario,
Canada M5H 1H1.

         "PBGC"  shall mean the  Pension  Benefit  Guaranty  Corporation  or any
entity succeeding to any or all of its functions under ERISA.

         "Person" shall mean an individual, a corporation,  a company, a bank, a
voluntary association, a partnership,  a trust, an unincorporated  organization,
any Governmental Authority or any other entity.

         "Plan" shall mean an employee  pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding  standards under Section 412
of the Code and is either (a)  maintained  by the Parent or any ERISA  Affiliate
for employees of the Parent or any ERISA Affiliate or (b) maintained pursuant to
a collective bargaining agreement or any other arrangement under which more than
one employer makes  contributions and to which the Parent or any ERISA Affiliate
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.



                                       19

<PAGE>



         "Post-Default  Rate" shall  mean,  in respect of any  principal  of any
Loan, any Reimburse  ment  Obligation or any other amount payable by the Company
under  this  Agreement  or any other  Loan  Document  which is not paid when due
(whether at stated maturity,  by acceleration,  or otherwise),  a rate per annum
during the period  commencing  on the due date until such amount is paid in full
equal to the lesser of (a) the sum of (w) with respect to Eurodollar  Loans,  2%
per annum plus the applicable Eurodollar Rate then in effect plus the Applicable
Margin for  Eurodollar  Loans until the  expiration of the  applicable  Interest
Period,  (x) with  respect to Canadian  Prime Rate Loans,  2% per annum plus the
applicable  Canadian  Prime  Rate  as in  effect  from  time to  time  plus  the
Applicable  Margin  for  Canadian  Prime  Rate  Loans,  and (y) with  respect to
Alternate  Base Rate  Loans  and with  respect  to  Eurodollar  Loans  after the
expiration  of  the  applicable  Interest  Period  (and  also  with  respect  to
indebtedness  other than Loans),  2% plus the  Alternate  Base Rate as in effect
from time to time plus the  Applicable  Margin for Alternate  Base Rate Loans or
(b) the Highest Lawful Rate.

         "Quarterly  Dates"  shall  mean  the  last  day of  each  March,  June,
September and December,  provided  that, if any such date is not a Business Day,
then the relevant Quarterly Date shall be the next succeeding Business Day.

         "Quarterly  Equivalent"  shall mean, as of any date, the Bank of Canada
noon day rate at which it  offers  to  provide  U.S.  Dollars  in  exchange  for
Canadian Dollars on the later of (i) the last Business Day immediately preceding
the then current  calendar  quarter or (ii) the last  Business  Day  immediately
preceding the most recent revision of the Maximum Outstanding Amount pursuant to
Section 2.9.

         "Rating"  shall mean the  senior  debt  rating for the Parent  publicly
announced by Standard & Poor's Ratings Group or Moody's Investors Service,  Inc.
(in the event the ratings are not equivalent, the higher rating shall be treated
as the "Rating" hereunder);  provided,  that if such ratings differ by more than
one (1) level,  the Rating shall be the  average,  rounded  upwards,  of the two
ratings.

         "Redemption  Obligations"  shall  mean with  respect  to any Person all
mandatory redemption  obligations of such Person with respect to preferred stock
or other equity  securities issued by such Person or put rights in favour of the
holder of such preferred  stock or other equity  securities,  to the extent that
the  redemption  obligations  will  arise  prior to the stated  maturity  of the
Obligations.

         "Reference  Banks"  shall  mean The Bank of Nova  Scotia  and The Chase
Manhattan  Bank of Canada  and such  other  Banks  (up to a  maximum  of two (2)
additional  Banks) as the Company,  with the approval of the Paying Agent (which
approval shall not be unreasonably withheld), may from time to time designate.




                                       20

<PAGE>



         "Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time and any successor or other regulation relating to reserve requirements.

         "Regulatory Change" shall mean, with respect to any Bank, any change on
or after the date of this Agreement in Legal Requirements  (including Regulation
D) or the  adoption  or  making  on or after  such  date of any  interpretation,
directive or request  applying to a class of banks including such Bank under any
Legal Requirements  (whether or not having the force of law) by any Governmental
Authority.

         "Reimbursement Obligations" shall mean, as at any date, the obligations
of the  Company  then  outstanding  in respect  of Letters of Credit  under this
Agreement,  to  reimburse  the Paying  Agent for the  account of the  applicable
Issuer for the amount  paid by the  applicable  Issuer in respect of any drawing
under such Letter of Credit.

         "Relevant  Party"  shall  mean the  Company,  the Parent and each other
party to any of the Loan Documents other than (a) the Banks and (b) the Agents.

         "Request for Extension of Credit" shall mean a request for extension of
credit duly executed by any  Responsible  Officer of the Company,  appropriately
completed and substantially in the form of Exhibit B attached hereto.

         "Requirements of Environmental  Law" means all requirements  imposed by
any law (including for example and without limitation The Resource  Conservation
and  Recovery  Act  (U.S.)  and  The   Comprehensive   Environmental   Response,
Compensation,  and  Liability  Act  (U.S.),  the  Environmental  Protection  and
Enhancement Act (Alberta) and the Canadian Environmental  Protection Act), rule,
regulation,  or order of any  federal,  state,  provincial  or local  executive,
legislative,  judicial,  regulatory or administrative agency, board or authority
in effect at the  applicable  time which  relate to (i) noise;  (ii)  pollution,
protection or clean-up of the air,  surface water,  ground water or land;  (iii)
solid,  gaseous or liquid  waste  generation,  treatment,  storage,  disposal or
transportation;  (iv) exposure to Hazardous Substances; (v) the safety or health
of employees or (vi) regulation of the manufacture,  processing, distribution in
commerce, use, discharge or storage of Hazardous Substances.

         "Reserve  Requirement"  shall  mean,  for any  Eurodollar  Loan for any
Interest Period  therefor,  the stated maximum rate for all reserves  (including
any  marginal,  supplemental  or emergency  reserves)  required to be maintained
during such Interest  Period under  applicable  Legal  Requirements  by any Bank
against eurocurrency liabilities.  Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect and include any other reserves required to
be maintained  by any Bank by reason of any  Regulatory  Change  against (i) any
category  of  liabilities  which  includes  deposits by  reference  to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of extensions



                                       21

<PAGE>



of credit or other assets which include  Eurodollar  Loans. Any determination by
the Paying Agent of the Reserve  Requirement  shall be  conclusive  and binding,
absent  manifest  error,  and may be made  using any  reasonable  averaging  and
attribution method.

         "Responsible  Officer"  shall  mean  the  chairman  of the  board,  the
president,  any  executive  vice  president,  the vice  president of finance and
administration,  the chief executive  officer or the chief operating  officer or
any equivalent officer (regardless of title) and in the case of the Company, any
other vice president,  and in respect of financial or accounting matters,  shall
also include the chief  financial  officer,  the treasurer and the controller or
any equivalent officer (regardless of title).

         "Revolving Credit  Availability  Period" shall mean the period from and
including  the date  hereof to but not  including  May 31,  2004 or the date the
Commitments  are  terminated  pursuant to Section  11.1,  whichever  is first to
occur.

         "Revolving  Credit   Obligations"   shall  mean,  as  at  any  date  of
determination   thereof,   the  sum  of  the   following   (determined   without
duplication):  (i) the aggregate principal amount of Loans outstanding hereunder
plus  (ii)  the  aggregate  of the  face  amounts  of all  outstanding  Bankers'
Acceptances plus (iii) the aggregate amount of the Letter of Credit  Liabilities
hereunder.

         "Senior  Debt"  shall  mean  Indebtedness  having  a  weighted  average
maturity  at least  seven  (7) years  from the date of  issuance  and  having no
conditions precedent or covenants materially more onerous to the Parent than the
conditions  precedent  and  covenants  contained  herein  and in the other  Loan
Documents  with respect to the Loans.  The documents  evidencing any Senior Debt
shall  contain a provision  substantially  identical to Section  10.2(y)  hereof
permitting  Liens  securing the Notes and the other  Obligations on a pari passu
basis with such Senior Debt.

         "Subordinated  Debt"  shall mean  Indebtedness  of the Parent  having a
weighted average maturity at least seven (7) years from the date of issuance and
having no  conditions  precedent  or  covenants  materially  more onerous to the
Parent  than  the  conditions  precedent  and  covenants  contained  in the U.S.
Facility,  in this Agreement and in the other Loan Documents with respect to the
Loans and which is expressly made  subordinate and junior in right of payment to
the  Obligations  and in respect of any  collateral  or  security by the express
terms of the instruments  evidencing the  Subordinated  Debt or the indenture or
other  similar  instrument  under which the  Subordinated  Debt is issued (which
indenture  or  other   instrument  will  be  binding  on  all  holders  of  such
Subordinated  Debt),  by  provisions  not more  favourable to the holders of the
Subordinated Debt than the following:

         (a) in the event a Default  exists  and is  continuing,  no  payment of
principal or interest will be made on account of Subordinated Debt and no remedy
for default  shall be  exercised  until (i) such Default will have been cured or
waived or until the Obligations  will have been paid in full (or provisions made
therefor reasonably satisfactory to the Banks) or (ii) 179 days after the



                                       22

<PAGE>



occurrence of such Default (as to which the Banks have  knowledge as a result of
having received notice from the Company pursuant to this Agreement or otherwise)
and no action being taken by the Banks with respect to such  Default,  whichever
occurs earlier;

         (b) upon the occurrence of any of the events or  proceedings  specified
in Subsec tions  11.1(f) or (g) hereof (or, as to any  Subsidiary of the Parent,
Subsection 11.1(j) to the extent that it refers to Subsections  11.1(f) or (g)),
the holders of any  Obligations  will be entitled to receive  payment in full of
all  principal  or  interest  on  all  Obligations  before  the  holders  of the
Subordinated Debt are entitled to receive any payment on account of principal or
interest on the Subordinated  Debt, and to that end (but subject to the power of
a court of competent  jurisdiction  to make other  provision) the holders of the
Obligations will be entitled to receive  distributions of any kind or character,
whether in cash or property or  securities  (other  than equity  securities  and
other  securities   establishing   rights  in  the  holders  thereof  which  are
subordinate to the rights of the holders of the  Obligations in accordance  with
this  definition  of  Subordinated  Debt),  which may be or would  otherwise  be
payable or  deliverable in any such  proceedings in respect of the  Subordinated
Debt (provided that, the  Subordinated  Debt may provide that if the Obligations
have been paid in full or  provision  therefor  reasonably  satisfactory  to the
Banks has been made, the holders of the Subordinated  Debt will be subrogated to
the rights of the holders of the Obligations);

         (c) in the event that any Subordinated Debt is declared due and payable
before its expressed  maturity  because of the occurrence of an event of default
thereunder (under circumstances when the provisions of the foregoing clauses (a)
and (b) will not be applicable), the holders of the Obligations at the time such
Subordinated  Debt  becomes due and payable  because of such an event of default
will  be  entitled  to  receive  payment  in full of all  Obligations  (or  have
provision  therefor  satisfactory  to the Banks made)  before the holders of the
Subordinated  Debt are  entitled  to  receive  any  payment  on  account  of the
principal or interest on the Subordinated Debt; and

         (e) no  holder of the  Obligations  will be  prejudiced in its right to
enforce  subordination of the Subordinated  Debt by any act or failure to act on
the part of the Parent or the part of the holders of the  Obligations;  provided
that, the Subordinated Debt may provide that the foregoing provisions are solely
for  the  purpose  of  defining  the  relative  rights  of  the  holders  of the
Obligations  on the one hand,  and the holders of the  Subordinated  Debt on the
other hand, and that nothing therein will impair,  as between the Parent and the
holders of the  Subordinated  Debt, the  obligation of the Parent,  which may be
unconditional  and absolute,  to pay to the holders of the Subordinated Debt the
principal and interest  thereon in accordance with its terms,  nor will anything
herein prevent the holders of the Subordinated Debt from exercising all remedies
otherwise  permitted by applicable  law or thereunder  upon default  thereunder,
subject to the rights under clauses (a), (b) and (c) above of



                                       23

<PAGE>



the holders of the Obligations to receive cash, property or securities otherwise
payable or deliverable to the holders of the Subordinated Debt.

          "Subsidiary"  shall mean,  with respect to any Person (the  "parent"),
(a) any  corporation of which at least a majority of the  outstanding  shares of
stock having by the terms thereof  ordinary  voting power to elect a majority of
the board of directors of such  corporation  (irrespective  of whether or not at
the time stock of any other class or classes of such  corporation  shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly  owned or controlled by the parent or one or more of
the  Subsidiaries  of the  parent  or by the  parent  and  one  or  more  of the
Subsidiaries of the parent, and (b) any partnership,  limited partnership, joint
venture  or other  form of  entity,  the  majority  of the  legal or  beneficial
ownership of which is at the time directly or indirectly  owned or controlled by
the parent or one or more of the Subsidiaries of the parent or by the parent and
one or more of the Subsidiaries of the parent.

         "Tangible  Net  Worth"  shall mean the sum of the  redemption  price of
preferred  stock,  par value of common stock,  capital in excess of par value of
common stock (additional  paid-in capital) and retained earnings,  less treasury
stock,  goodwill,  deferred development costs,  franchises,  licenses,  patents,
trademarks and copyrights and all other assets which are properly  classified as
intangible assets in accordance with GAAP less any Redemption Obligations.

         "Type"  shall have the  meaning  assigned  to such term in Section  1.3
hereof.

         "Unfunded  Liabilities"  shall mean,  with respect to any Plan,  at any
time,  the amount (if any) by which (a) the present value of all benefits  under
such Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits,  all determined as of the then most recent actuarial  valuation report
for such Plan,  but only to the extent that such excess  represents  a potential
liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.

         "U.S.  Dollars"  and "U.S.  $" shall  mean  lawful  money of the United
States of America.

         "U.S.   Facility"  shall  mean  that  certain  Credit  Agreement  dated
concurrently  herewith  executed  by and among the Parent,  The Chase  Manhattan
Bank, as Agent, and certain banks therein named, as amended by the Intercreditor
Agreement and as the same may be further amended or modified from time to time.

         1.2 Accounting Terms and  Determinations.  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 delivered  hereunder shall be prepared,  in accordance with GAAP.
To enable the ready  determination of compliance with the provisions hereof, the
Parent  will not  change  from  December  31 in each  year the date on which its
fiscal year ends, nor from March 31, June 30 and September 30 the dates on which
the first three fiscal quarters in each fiscal year end.



                                       24

<PAGE>



         1.3 Types of Loans.  Loans hereunder  are distinguished by "Type".  The
"Type" of a Loan refers to the  determination  whether such Loan is a Eurodollar
Loan, an Alternate Base Rate Loan or a Canadian Prime Rate Loan.

         1.4  Miscellaneous.  The words  "hereof",  "herein" and "hereunder" and
words  of  similar  import  when  used in this  Agreement  shall  refer  to this
Agreement as a whole and not to any particular provision of this Agreement.  Any
reference to Sections shall refer to Sections of this Agreement.  Whenever it is
necessary to convert an amount  denominated in Canadian Dollars to U.S. Dollars,
such as calculating the aggregate  outstanding principal amount of the Revolving
Credit Obligations,  such conversion shall be effected using the Equivalent U.S.
Dollar Amount or, where applicable,  the Quarterly  Equivalent.  Unless payments
are otherwise required by the terms of this Agreement or by any other applicable
Loan Document to be made in U.S. Dollars or Canadian Dollars, such payment shall
be made in U.S. Dollars or in Canadian Dollars converted by using the Equivalent
U.S. Dollar Amount as of the date of such payment calculated,  where applicable,
using the Quarterly Equivalent.

         Section 2.      Commitments; Designation of Maximum Outstanding Amount.

         2.1        Loans and Bankers' Acceptances.  From  time  to  time  on or
                    after  the  date  hereof  and  during  the  Revolving Credit
                    Availability Period, each Bank shall:

         (a)        make Loans  under  this Section  2.1, in Canadian Dollars or
                    U.S. Dollars, to the Company; and

         (b)        accept and  purchase  Bankers'  Acceptances  and deliver the
                    Canadian  Bankers'  Acceptance  Discount  Proceeds (less the
                    applicable  acceptance  fees  payable by the Company to such
                    Bank  pursuant to Sections  4.3) in respect  thereof for the
                    account  of the  Company  through  the  Paying  Agent at the
                    Payment Office,

in an aggregate principal amount (including therein the aggregate face amount of
any outstanding Bankers' Acceptances) at any one time outstanding (including its
Commitment  Percentage of all Letter of Credit  Liabilities  at such time) up to
but not exceeding  such Bank's  Commitment  Percentage of the Maximum  Revolving
Credit  Available  Amount.  Subject to the conditions  herein,  any such Loan or
Bankers' Acceptance repaid prior to the end of the Revolving Credit Availability
Period may be reborrowed or reissued,  as the case may be, pursuant to the terms
of this  Agreement;  provided,  that any and all such  Loans  and the full  face
amount of all outstanding  Bankers' Acceptances shall be due and payable in full
at the  end  of the  Revolving  Credit  Availability  Period.  For  purposes  of
determining  the  amount  available  for  borrowing  hereunder  (or the  maximum
availability for the issuance of Bankers' Acceptances or Letters of Credit), the
Equivalent U.S. Dollar Amount as of the Business Day preceding the Loan request,
Bankers'  Acceptance  Request  or  Letter  of  Credit  request  shall be used to
determine availability hereunder, rather than the Quarterly Equivalent.


                                       25

<PAGE>



         2.2        Letters of Credit.

         (a) Letters of Credit.  Subject to the terms and conditions hereof, and
on the condition that aggregate Letter of Credit  Liabilities shall never exceed
U.S.  $10,000,000,  the  Company  shall have the  right,  in  addition  to Loans
provided for in Section 2.1 hereof, to utilize the Commitments from time to time
from and after the date hereof  through the  expiration of the Revolving  Credit
Availability  Period by  obtaining  the  issuance  of  letters of credit for the
account of the Company and on behalf of the Company by the applicable  Issuer if
the  Company  shall so request in the notice  referred  to in Section  2.2(b)(i)
(such  letters of credit  being  collectively  referred  to as the  "Letters  of
Credit").  Letters  of Credit  may,  upon  written  request of the  Company,  be
denominated  in Canadian  Dollars and if so all  payments  and fees with respect
thereto  shall be paid in Canadian  Dollars.  Upon the date of the issuance of a
Letter of Credit, the applicable Issuer shall be deemed,  without further action
by any party hereto,  to have sold to each Bank,  and each Bank shall be deemed,
without  further  action  by any  party  hereto,  to  have  purchased  from  the
applicable  Issuer,  a  participation,  to the extent of such Bank's  Commitment
Percentage,  in  such  Letter  of  Credit  and  the  related  Letter  of  Credit
Liabilities.  Any  Letter of Credit  having an expiry  date after the end of the
Revolving Credit  Availability  Period shall have been fully Covered or shall be
backed by a letter of credit in form and  substance,  and  issued by an  issuer,
acceptable to the Administrative Agent in its reasonably  exercised  discretion.
Subject to the terms and conditions hereof,  upon the request of the Company, if
BNS is the designated  Issuer,  BNS shall issue the applicable  Letter of Credit
and if any other Bank is the designated Issuer,  such Bank may, but shall not be
obligated to, issue such Letter of Credit.

          (b) Additional  Provisions.  The following additional provisions shall
apply to each Letter of Credit:

                    (i) The Company shall give the Administrative  Agent and the
Paying Agent at least three (3)  Business  Days' prior  notice  (effective  upon
receipt) specifying the proposed Issuer and the date such Letter of Credit is to
be issued and  describing  the  proposed  terms of such Letter of Credit and the
nature of the transaction  proposed to be supported  thereby,  and shall furnish
such additional  information  regarding such  transaction as the  Administrative
Agent, the Paying Agent or the applicable  Issuer may reasonably  request.  Upon
receipt of such notice the Paying Agent shall  promptly  notify each Bank of the
contents thereof and of such Bank's Commitment  Percentage of the amount of such
proposed Letter of Credit.

                    (ii) No  Letter of  Credit  may be  issued  if after  giving
effect  thereto  the  Revolving  Credit  Obligations  would  exceed the  Maximum
Revolving Credit Available Amount. On each day during the period commencing with
the  issuance of any Letter of Credit and until such Letter of Credit shall have
expired or been  terminated,  the  Commitment of each Bank shall be deemed to be
utilized  for all purposes  hereof in an amount equal to such Bank's  Commitment
Percentage  of the amount  then  available  for  drawings  under such  Letter of
Credit.




                                       26

<PAGE>



                    (iii) Upon  receipt  from the  beneficiary  of any Letter of
Credit of any  demand  for  payment  thereunder,  the  applicable  Issuer  shall
promptly  notify  the  Company  and each  Bank as to the  amount to be paid as a
result of such demand and the payment date. If at any time the applicable Issuer
shall have made a payment to a beneficiary of a Letter of Credit in respect of a
drawing under such Letter of Credit, each Bank will pay to the applicable Issuer
immediately  upon demand by the applicable  Issuer at any time during the period
commencing  after  such  payment  until  reimbursement  thereof  in  full by the
Company,  an amount equal to such Bank's Commitment  Percentage of such payment,
together  with  interest on such amount for each day from the date of demand for
such payment (or, if such demand is made after 11:00 a.m. Toronto,  Ontario time
on such date, from the next  succeeding  Business Day) to the date of payment by
such Bank of such  amount  at a per annum  rate of  interest  determined  by the
Issuer (such rate to be conclusive and binding on the Banks) in accordance  with
the  Issuer's  usual  banking   practice  for  similar   advances  to  financial
institutions of like standing to the applicable Bank.

                    (iv) The Company shall be  irrevocably  and  unconditionally
obligated  forthwith to reimburse the  applicable  Issuer for any amount paid by
the  applicable  Issuer  upon any  drawing  under any Letter of Credit,  without
presentment,   demand,   protest  or  other   formalities  of  any  kind.   Such
reimbursement may, subject to satisfaction of the conditions in Sections 7.1 and
7.2 hereof and to the existence of the Maximum Revolving Credit Available Amount
(after  adjustment in the same to reflect the  elimination of the  corresponding
Letter of Credit Liability) be made by borrowing of Loans. In the event any such
reimbursement  is not made by  borrowing of Loans,  the Company  shall make such
reimbursement  in immediately  available funds within five (5) days after demand
therefor by the applicable  Issuer.  The applicable Issuer will pay to each Bank
such Bank's  Commitment  Percentage of all amounts received from the Company for
application in payment, in whole or in part, of the Reimbursement  Obligation in
respect  of any  Letter of  Credit,  but only to the  extent  such Bank has made
payment to the applicable Issuer in respect of such Letter of Credit pursuant to
clause (iii) above.

                    (v) The Company  will pay to the Paying Agent at the Payment
Office for the account of each Bank a fee on such Bank's  Commitment  Percentage
of the daily average amount  available for drawings under each Letter of Credit,
in each case for the period  from and  including  the date of  issuance  of such
Letter of Credit to and including the date of expiration or termination  thereof
at a rate per annum  equal to the  Letter of Credit  Fee in effect  from time to
time,  such fee to be paid in arrears on the Quarterly  Dates and on the date of
the expiration or termination  thereof.  The Paying Agent will pay to each Bank,
promptly  after  receiving  any  payment  in  respect  of letter of credit  fees
referred to in the  preceding  sentence  of this clause (v), an amount  equal to
such Bank's  Commitment  Percentage  of such fees.  The Company shall pay to the
applicable Issuer an  administration  and issuance fee in an amount equal to 1/8
of 1% per annum of the daily average  amount  available for drawings  under such
Letter of Credit,  in each case for the period  from and  including  the date of
issuance of such Letter of Credit to and  including  the date of  expiration  or
termination  thereof,  such fee to be paid in arrears on the Quarterly Dates and
on the



                                       27

<PAGE>



date of the expiration or termination thereof.  Such administration and issuance
fee shall be retained by the applicable Issuer.

                    (vi) The issuance by the applicable Issuer of each Letter of
Credit  shall,  in addition to the  conditions  precedent set forth in Section 7
hereof, be subject to the conditions  precedent that such Letter of Credit shall
be in such form and contain such terms as shall be  reasonably  satisfactory  to
the  applicable  Issuer and that the Company  shall have  executed and delivered
such other  instruments and agreements  relating to such Letter of Credit as the
applicable Issuer shall have reasonably  requested and are not inconsistent with
the terms of this Agreement including an Application therefor. In the event of a
conflict  between the terms of this Agreement and the terms of any  Application,
the terms of this Agreement  shall control.  Without  limiting the generality of
the  foregoing  sentence,  in the  event  any  such  Application  shall  include
requirements for Cover, it is agreed that there shall be no requirements for the
Company to provide Cover except as expressly required in this Agreement.

         (c) Indemnification.  The Company hereby indemnifies and holds harmless
each  Agent,  the  applicable  Issuer and each Bank from and against any and all
claims and damages, losses, liabilities,  costs or expenses which such Bank, the
applicable  Issuer or such Agent may incur (or which may be claimed against such
Bank,  the  applicable  Issuer  or  such  Agent  by any  Person  whatsoever)  in
connection  with the execution and delivery or transfer of or payment or failure
to pay under any Letter of Credit,  including,  without limitation,  any claims,
damages, losses, liabilities, costs or expenses which such Agent, the applicable
Issuer or such Bank, as the case may be, may incur (whether incurred as a result
of its own  negligence  or  otherwise)  by reason of or in  connection  with the
failure  of any  other  Bank  (whether  as a  result  of its own  negligence  or
otherwise)  to  fulfill  or  comply  with its  obligations  to such  Agent,  the
applicable  Issuer or such  Bank,  as the case may be,  hereunder  (but  nothing
herein  contained  shall  affect any rights the  Company may have  against  such
defaulting Bank);  provided that, the Company shall not be required to indemnify
any Bank, the applicable  Issuer or any Agent for any claims,  damages,  losses,
liabilities,  costs or expenses to the extent, but only to the extent, caused by
(i)  the  willful   misconduct   or  gross   negligence  of  the  party  seeking
indemnification,  or  (ii) by  such  Bank's,  the  applicable  Issuer's  or such
Agent's, as the case may be, failure to pay under any Letter of Credit after the
presentation  to it of a  request  required  to be paid  under  applicable  law.
Nothing in this  Section  2.2(c) is  intended  to limit the  obligations  of the
Company under any other provision of this Agreement.

         (d) Co-issuance or Separate Issuance of Letters of Credit.  The Company
may, at its option,  request that any  requested  Letter of Credit which exceeds
U.S. $1,000,000 be issued severally,  but not jointly, by any two or more of the
Banks or issued through  separate Letters of Credit issued by any two or more of
the Banks,  respectively,  each in an amount equal to a portion of the amount of
the applicable Letter of Credit requested by the Company.  In either such event,
the Banks  issuing such Letters of Credit shall each  constitute an "Issuer" and
the Letters of Credit so issued  shall each  constitute a "Letter of Credit" for
all purposes hereunder and under the Loan



                                       28

<PAGE>



Documents.  Notwithstanding the foregoing, no Bank other than BNS shall have any
obligation to issue any Letter of Credit, but may do so at its option.

         2.3        Reductions and Changes of Commitments.

         (a)  Mandatory.  On  May 31, 2004,  all Commitments shall be terminated
in their entirety unless terminated at an earlier date pursuant to Section 11.1.

         (b)  Optional.  The Company shall have the right to terminate or reduce
the unused portion of the Commitments at any time or from time to time, provided
that: (i) the Company shall give notice of each such termination or reduction to
the Administrative  Agent and the Paying Agent as provided in Section 5.5 hereof
and (ii) each such  partial  reduction  shall be  permanent  and in an aggregate
amount at least equal to U.S. $5,000,000.

         (c)  No  Reinstatement.   Any  reduction  in  or  termination   of  the
Commitments may not be  reinstated  without  the  approval of the Administrative
Agent and each of the Banks.

         2.4        Fees.

         (a) The Company  shall pay to the Paying  Agent for the account of each
Bank a facility  fee accruing  from the date hereof,  computed for each day at a
rate per annum equal to the Facility Fee  Percentage  times such Bank's pro rata
share  (based on its  respective  Commitment)  of the Maximum  Revolving  Credit
Available  Amount  on such day.  Such  facility  fees  shall be  payable  on the
Quarterly Dates and on the earlier of the date the Commitments are terminated or
the last day of the Revolving  Credit  Availability  Period.  Such fees shall be
calculated in U.S. Dollars,  but paid in Canadian Dollars converted by using the
Equivalent U.S. Dollar Amount as of the date of payment.

         (b) For purposes of determining  the amount of any payment  required to
be made under this Section 2.4, the  Quarterly  Equivalent  shall be used as the
conversion rate with respect to Canadian Dollars.

         2.5        Affiliates; Lending Offices.

         (a) Any Bank may,  if it so elects,  fulfill its  Commitment  as to any
Eurodollar Loan by causing a branch, foreign or otherwise,  or Affiliate of such
Bank to make such Loan and may  transfer  and carry  such Loan at, to or for the
account of any branch  office or  Affiliate  of such Bank which is a resident of
Canada under the Income Tax Act (Canada);  provided  that, in such event for the
purposes of this  Agreement  such Loan shall be deemed to have been made by such
Bank and the obligation of the Company to repay such Loan shall  nevertheless be
to such Bank and shall be deemed to be held by such Bank and,  to the  extent of
such Loan, to have been made for the account of such branch or Affiliate.


                                       29

<PAGE>



         (b)  Notwithstanding  any provision of this  Agreement to the contrary,
each Bank shall be entitled to fund and  maintain its funding of all or any part
of its Loans hereunder in any manner it sees fit, it being understood,  however,
that for the purposes of this Agreement all  determinations  hereunder  shall be
made as if such Bank had actually  funded and maintained  each  Eurodollar  Loan
during each Interest  Period through the purchase of deposits  having a maturity
corresponding  to such Interest Period and bearing an interest rate equal to the
Eurodollar  Rate, as the case may be, for such Interest Period for such Interest
Period.

         2.6 Several Obligations. The failure of any Bank to make any Loan to be
made by it or accept and purchase Bankers'  Acceptances to be purchased by it on
the date  specified  therefor shall not relieve any other Bank of its obligation
to make its Loan or accept and purchase such Bankers'  Acceptances on such date,
but neither any Agent nor any Bank shall be  responsible  for the failure of any
other  Bank  to make a Loan to be made  by  such  other  Bank or to  accept  and
purchase any  Bankers'  Acceptances  to be accepted and  purchased by such other
Bank.

         2.7 Notes.  The Loans made by each Bank shall be  evidenced by a single
Canadian Dollar denominated Note of the Company in the case of Loans denominated
in Canadian Dollars and by a single U.S. Dollar  denominated Note of the Company
in  the  case  of  Loans  denominated  in  U.S.  Dollars,  such  notes  to be in
substantially the forms of Exhibit C-1 and C-2, respectively,  hereto payable to
the order of such Bank in a principal  amount  equal to the  Commitment  of such
Bank,  and  otherwise  duly  completed.  Each Bank is hereby  authorized  by the
Company to endorse on the schedule (or a continuation  thereof)  attached to the
Note of such Bank, to the extent  applicable,  the date,  amount and Type of and
the  Interest  Period for each Loan made by such Bank to the Company  hereunder,
and the amount of each payment or  prepayment of principal of such Loan received
by such  Bank,  provided,  that  any  failure  by such  Bank  to make  any  such
endorsement  shall not affect the  obligations of the Company under such Note or
hereunder in respect of such Loan.

         2.8 Use of  Proceeds.  The  proceeds  of the  Loans  and  the  Canadian
Bankers'  Acceptance  Discount  Proceeds,  as the case may be, shall be used for
general corporate purposes.

         2.9 Designation of Maximum  Outstanding  Amount. The Company shall from
time to time designate a maximum principal amount,  denominated in U.S. Dollars,
permitted  to  be  outstanding  hereunder  for  the  period  during  which  such
designation  is  effective   (such  amount  being  herein  called  the  "Maximum
Outstanding Amount"). The initial Maximum Outstanding Amount, effective from the
date  hereof,  is U.S.  $95,000,000.  The Company  may, at any time,  by written
notice delivered to the Administrative  Agent and the Paying Agent no later than
two (2) Business  Days prior to the effective  date thereof,  revise the Maximum
Outstanding Amount upwards or downwards; provided, however, that (i) the Maximum
Outstanding  Amount  may not at any time  exceed  the  aggregate  amount  of the
Commitments,  as reduced  from time to time  pursuant  to Section 2.3 hereof and
(ii) the  Maximum  Outstanding  Amount may not at any time  exceed the amount by
which the Borrowing Base from time to time in effect exceeds the sum of


                                       30

<PAGE>



the aggregate  amount of all "Revolving  Credit  Obligations"  from time to time
outstanding  under  the U.S.  Facility  plus the  aggregate  amount of all other
Borrowing  Base  Debt of the  Parent  and  its  Subsidiaries  from  time to time
outstanding.

         Section 3.     Borrowings, Prepayments and Selection of Interest Rates.

         3.1 Borrowings. The Company shall give the Administrative Agent and the
Paying  Agent  notice  of  each  borrowing  or the  issuance  of  each  Bankers'
Acceptance  to be made  hereunder  as provided in Section 5.5 hereof.  Not later
than  2:00  p.m.  Toronto,  Ontario  time on the date  specified  for each  such
borrowing or the issuance of each such Bankers' Acceptance hereunder,  each Bank
shall make  available  the amount of the Loan,  if any, to be made by it on such
date or make available Canadian Bankers' Acceptance Discount Proceeds in respect
of Bankers'  Acceptances  to be accepted and  purchased by it on such date (less
the  applicable  acceptance  fees  payable  by the  Company  in  respect of such
Bankers' Acceptances),  in each case to the Paying Agent, at the Payment Office,
in immediately  available funds,  for the account of the Company.  The amount so
received by the Paying Agent shall,  subject to the terms and conditions of this
Agreement,  be  made  available  to the  Company  by  depositing  the  same,  in
immediately  available funds, in an account designated by the Company maintained
with the Paying Agent at the Payment Office.

         3.2        Prepayments.

         (a) Optional  Prepayments.  Subject to the  provisions of Sections 4, 5
and 6, the Company shall have the right to prepay, on any Business Day, in whole
or in part, without the payment of any penalty or fee, Loans at any time or from
time to time, provided that, the Company shall give the Administrative Agent and
the Paying  Agent  notice of each such  prepayment  as  provided  in Section 5.5
hereof.  Eurodollar  Loans may be prepaid on the last day of an Interest  Period
applicable  thereto  and  Bankers'  Acceptances  may be prepaid on their  stated
maturity date.  Eurodollar  Loans and Bankers'  Acceptances may not be otherwise
prepaid unless prepayment is accompanied by payment of all compensation required
by Section 6.

         (b)        Mandatory Prepayments and Cover.

                    (1) Reduction of Commitments. The Company shall from time to
time on demand by the  Administrative  Agent prepay the Loans (or provide  Cover
for Letter of Credit Liabilities and the face amount of Bankers' Acceptances) in
such  amounts  as  shall  be  necessary  so  that  at all  times  the  aggregate
outstanding   principal  amount  (including  therein  the  face  amount  of  all
outstanding Bankers'  Acceptances) of all Revolving Credit Obligations shall not
be in excess of the Maximum  Outstanding  Amount plus any Cover  provided  under
this Section 3.2(b)(1).

                    (2) Borrowing Base Deficiency. Any payments required to cure
any Borrowing Base  Deficiency  shall be made by Parent to the lenders under the
U.S. Facility and by the



                                       31

<PAGE>



Company to the Banks (with the Maximum  Outstanding  Amount to be reduced by the
amount  of  such  payments  by  the  Company)  in  the  manner  provided  in the
Intercreditor Agreement.

                    (3) Use of Quarterly Equivalent. For purposes of determining
whether  any  payment is required  to be made under this  Section  3.2,  and the
amount thereof,  when such  determination  requires a conversion of U.S. Dollars
into Canadian Dollars and vice versa, the Quarterly  Equivalent shall be used as
the conversion rate.

         3.3 Selection of Interest  Rates.  Subject to Section 5.1 and Section 6
hereof,  the  Company  shall have the  right,  by giving  written  notice to the
Administrative  Agent and the Paying  Agent as  provided  in Section 5.5 hereof,
either to convert any Bankers'  Acceptance (in whole or in part) into a Loan, to
convert  any Loan (in whole or in part) into a Bankers'  Acceptance,  to convert
any Loan (in whole or in part) into a Loan of  another  Type  (provided  that no
such  conversion of Eurodollar  Loans shall be permitted  other than on the last
day of an  Interest  Period  applicable  thereto and no  conversion  of Bankers'
Acceptances  shall be permitted  other than on the maturity  date  thereof),  to
continue any Bankers'  Acceptance  (in whole or in part) or to continue any Loan
(in whole or in part) as a Loan of the same Type.  Any such notice of conversion
of a  Bankers'  Acceptance  into a Loan  or of  conversion  of a Loan  into,  or
continuation  of a Loan as, a  Eurodollar  Loan or a Bankers'  Acceptance  shall
specify the new Interest  Period or maturity date, as  applicable.  In the event
the Company fails to so give such notice prior to the end of any Interest Period
for any Eurodollar  Loan,  such Loan shall become an Alternate Base Rate Loan on
the last day of such Interest Period.

         3.4        Conditions Applicable to Bankers' Acceptances.

         (a)  Acceptance  and Purchase of Bankers'  Acceptances.  Subject to the
terms  and  conditions  of this  Agreement,  each  Bank  agrees  to  accept  its
Commitment  Percentage  of  Bankers'  Acceptances  issued by the  Company and to
purchase same at the applicable  Canadian Bankers'  Acceptance Discount Rate and
to provide to the Paying  Agent for the  account  of the  Company  the  Canadian
Bankers'  Acceptance  Discount  Proceeds in respect  thereof less the applicable
acceptance  fees  payable by the Company to such Bank  pursuant to Section  4.3.
Each such Bank may at any time and from time to time hold,  sell,  rediscount or
otherwise dispose of any or all Bankers' Acceptances purchased by it.

         (b) Waiver of  Presentment  and Other  Conditions.  The Company  waives
presentment for payment and any other defence to payment of any amounts due to a
Bank in respect of a Bankers'  Acceptance  accepted and purchased by it pursuant
to this Agreement which might exist solely by reason of such Bankers' Acceptance
being  held,  at the  maturity  thereof,  by such  Bank in its own right and the
Company  agrees  not to claim any days of grace if such Bank as holder  sues the
Company on the  Bankers'  Acceptance  for  payment of the amount  payable by the
Company



                                       32

<PAGE>



thereunder.  On the specified  maturity date of a Bankers'  Acceptance,  or such
earlier date as may be required or permitted  pursuant to the provisions of this
Agreement,  the Company shall pay the Bank that has accepted and purchased  such
Bankers' Acceptance the full face amount of such Bankers' Acceptance.

          (c) Terms of Each Bankers' Acceptance: Each Bankers' Acceptance shall:

                    (1)    have  a  maturity  date which  shall be on a Business
                           Day;

                    (2)    have a term of not less than thirty (30) days and not
                           more  than  one   hundred   and  eighty   (180)  days
                           (excluding days of grace);

                    (3)    be in the form of Exhibit I  attached  hereto  or  in
                           such  other  form as the  Company  may  agree  to  in
                           writing;

                    (4)    be issued in face  amounts of  Canadian  $100,000  or
                           whole  multiples  thereof  (each of the Banks  agrees
                           that it will use its best  efforts  to  minimize  the
                           number of separate Bankers'  Acceptances  required to
                           be executed); and

                    (5)    not have a maturity date which extends beyond the end
                           of  the  scheduled   Revolving  Credit   Availability
                           Period.

         (d) Delivery of Blank Bankers' Acceptances. As a condition precedent to
each Banks'  obligation to accept and purchase Bankers'  Acceptances  hereunder,
the Company  shall have  delivered  to such Bank through the Paying Agent at the
Payment Office sufficient bankers'  acceptances  endorsed in blank in sufficient
time for such Bank to forward to and hold the same for  issuance  in  accordance
with a request from the Company.  Each Bank is hereby  authorized  to issue such
bankers' acceptances endorsed in blank in such face amounts as may be determined
by such  Bank;  provided  that  the  aggregate  amount  thereof  is equal to the
aggregate amount of Bankers'  Acceptances  required to be accepted and purchased
by such Bank  hereunder.  No Bank shall be liable for any damage,  loss or other
claim  arising by reason of any loss or improper use of any bankers'  acceptance
endorsed in blank except any loss arising by reason of the  negligence or wilful
misconduct of such Bank or its officers,  employees,  agents or representatives.
The Paying Agent shall  maintain a record with  respect to bankers'  acceptances
endorsed in blank that are received from the Company and that are delivered to a
Bank  hereunder.  Each Bank shall  maintain a record  with  respect to  bankers'
acceptances endorsed in blank that are:

                    (1)   received by such Bank from the Paying Agent hereunder;

                    (2)   voided by such Bank for any reason;



                                       33

<PAGE>



                    (3)   accepted and purchased by such Bank hereunder; and

                    (4)   cancelled by such Bank at the maturity thereof.

Each Bank  agrees to  provide  such  record to the  Paying  Agent  upon  request
therefor by the Paying  Agent as well as  concurrently  with any request by such
Bank to the Paying Agent for any  additional  bankers'  acceptances  endorsed in
blank required from the Company. The Paying Agent shall provide a report of such
records  received  by the Paying  Agent to the  Company  upon  request  from the
Company.

         (e) Failure to Give Notice of  Repayment.  If the Company fails to give
notice to the Paying Agent at the Payment Office of the method of repayment of a
Bankers' Acceptance prior to the date of maturity of such Bankers' Acceptance in
accordance with the same period of notice  required for the original  acceptance
of such  Bankers'  Acceptance  as set  forth  herein,  the face  amount  of such
Bankers'  Acceptance  shall,  on its maturity,  automatically  be converted to a
Canadian Prime Rate Loan.

         (f)  Execution of Bankers'  Acceptances.  Bankers'  acceptances  of the
Company  which  are  endorsed  in  blank  and  are to be  accepted  as  Bankers'
Acceptances  hereunder  shall be signed by a duly  authorized  signatory or duly
authorized signatories of the Company, and may, at the option of the Company, be
signed by way of affixing a reproduction  of the signature or signatures of such
duly authorized signatory or signatories.  Notwithstanding that any person whose
signature appears on any Bankers'  Acceptance as a signatory may no longer be an
authorized  signatory  of the  Company  at the date of  issuance  of a  Bankers'
Acceptance, and notwithstanding that the signature affixed may be a reproduction
only, such signature shall nevertheless be valid and sufficient for all purposes
as if such  authority  had remained in force at the time of such issuance and as
if such signature had been manually applied, and any such Bankers' Acceptance so
signed shall be binding on the Company.

         3.5        Paying Agent's Duties Re Bankers' Acceptances.

         (a) Advice to the Lenders. The Paying Agent, promptly following receipt
of a Request for  Extension  of Credit by way of Bankers'  Acceptance,  shall so
advise  the Banks  and shall  advise  each Bank of the  amount of each  issue of
Bankers'  Acceptances  to be accepted and  purchased by it and the term thereof,
which term shall be identical for all Banks.

         (b) Agent's Confirmation of Bankers' Acceptance  Issuance.  At or prior
to  11:00  a.m.  (Toronto,  Ontario  time) on the  date on  which  the  Bankers'
Acceptances are to be accepted and purchased  hereunder,  the Paying Agent shall
provide telephone advice to the Company and each Bank confirming the particulars
with respect to the issuance, acceptance and purchase of such



                                       34

<PAGE>



Bankers'  Acceptances.  Such advice shall be confirmed in writing at or prior to
4:30 p.m.  (Toronto,  Ontario  time) on such date by delivery to the Company and
each Bank of a written confirmation of such telephone advice with respect to the
issuance,  acceptance and purchase of such Bankers' Acceptances.  Each Bank will
forthwith advise the Paying Agent of the particulars of the Bankers' Acceptances
accepted and purchased by it.

         (c)  Completion of Bankers'  Acceptance.  Upon receipt of the telephone
advice  referred to in Section  3.5(a),  each Bank is  thereupon  authorized  to
complete  bankers'  acceptances  held by it in  blank  in  accordance  with  the
particulars so advised by the Paying Agent.

         (d) Paying  Agent's  Discretion on  Allocation.  In the event it is not
practicable to allocate  Bankers'  Acceptances to each Lender in accordance with
Section 5.2 such that the aggregate amount of Bankers'  Acceptances  required to
be accepted  and  purchased  by such Bank  hereunder  is in a whole  multiple of
Canadian  $100,000,  the Paying Agent is authorized by the Company and each Bank
to  make  such  allocation  as the  Paying  Agent  determines  in its  sole  and
unfettered discretion may be equitable in the circumstances.

         3.6        Certain Provisions Relating to Bankers' Acceptances Forms.

         (a) The Company shall hold and use  prudently  the bankers'  acceptance
forms delivered to it in blank from time to time and shall return them from time
to time to the  Paying  Agent for onward  conveyance  to the  respective  Banks,
properly  pre-signed and pre-endorsed  and in sufficient  quantities to be dealt
with by each Bank in  conformity  with this  Agreement.  The Paying  Agent shall
provide to the Company written  acknowledgment of the receipt of such pre-signed
and pre-endorsed bankers' acceptance forms.

         (b) The  Paying  Agent  and each Bank  shall  deal  prudently  with any
bankers'  acceptance  forms  pre-signed  and  pre-endorsed  by the  Company  and
delivered from time to time by the Company and shall use them only in accordance
with the  instructions  of the Company given to the Paying Agent,  in conformity
with this Agreement.

         (c) In accordance with the instructions  given from time to time by the
Company, each Bank is hereby authorized to complete the aforementioned  bankers'
acceptance forms, to provide its acceptance  thereon and, at such Bank's option,
to put them into  circulation,  the whole as  provided  in and  subject  to this
Agreement.

         (d)  Neither  the  Paying  Agent nor any Bank shall be  responsible  or
liable for any failure to make credit  available by way of Bankers'  Acceptances
under the terms of the Credit Agreement if such failure is due to the failure of
the Company to return duly pre-signed and pre-endorsed bankers' acceptance forms
to the Paying Agent on a timely basis.


                                       35

<PAGE>



         (e) On request by the Paying Agent on behalf of the Banks,  the Company
shall return to the Paying Agent all bankers'  acceptance forms then held by the
Company,  provided  that all such  bankers'  acceptance  forms  which  have been
pre-signed or pre-endorsed by the Company may be cancelled prior to their return
and on request by the Company made to the Paying Agent,  a Bank shall cancel all
pre-signed or pre-endorsed  bankers'  acceptance forms held by such Bank and not
yet issued in accordance with the Company's  instructions and shall confirm such
cancellation to the Paying Agent who shall in turn inform the Company.

         Section 4.  Payments of Principal and Interest.

         4.1 Repayment of Loans and Reimbursement Obligations.  The Company will
pay to the Paying  Agent for the account of each Bank (a) the  principal of each
Loan made by such  Bank on the dates  provided  in the  respective  Notes and as
provided  hereunder,  (b) the face  amount of each  Bankers'  Acceptance  on its
maturity date and (c) the amount of each Reimbursement  Obligation promptly upon
its occurrence.  The face amount of any Bankers' Acceptance or the amount of any
Reimbursement  Obligation may, if the applicable  conditions precedent specified
in Section 7 hereof  have been  satisfied,  be paid with the  proceeds of Loans.
Repayments of Loans or Reimbursement Obligations denominated in Canadian Dollars
and  repayments of Bankers'  Acceptances  shall be made in Canadian  Dollars and
repayments of Loans or  Reimbursement  Obligations  denominated in U.S.  Dollars
shall be made in U.S. Dollars.

         4.2        Interest.

         (a) Subject to Section 13.6 hereof,  the Company will pay to the Paying
Agent for the account of each Bank  interest on the unpaid  principal  amount of
each Loan made by such Bank for the period  commencing  on the date of such Loan
to but  excluding  the date such Loan shall be paid in full,  in the currency in
which the Loan is  denominated,  at the  lesser of (I) the  following  rates per
annum:

          (i) if such Loan is an Alternate  Base Rate Loan,  the Alternate  Base
Rate plus the Applicable Margin, and

          (ii) if such Loan is a Canadian  Prime Rate Loan,  the Canadian  Prime
Rate plus the Applicable Margin, and

          (iii) if such Loan is a Eurodollar  Loan,  the  applicable  Eurodollar
Rate plus the Applicable Margin, or (II) the Highest Lawful Rate.




                                       36

<PAGE>



         (b)  Notwithstanding  any of the  foregoing but subject to Section 13.6
hereof,  the Company  will pay to the Paying  Agent for the account of each Bank
interest in the applicable  currency at the applicable  Post-Default Rate on any
principal of any Loan made by such Bank, on any Reimbursement  Obligation and on
any other amount payable by the Company  hereunder to or for the account of such
Bank (but,  if such amount is  interest,  only to the extent  legally  allowed),
which  shall  not be paid in full  when due  (whether  at  stated  maturity,  by
acceleration  or otherwise),  for the period  commencing on the due date thereof
until the same is paid in full.

         (c)  Accrued  interest on each Loan shall be payable on the last day of
each Interest  Period for such Loan (and, if such Interest  Period exceeds three
months' duration,  quarterly,  commencing on the first quarterly  anniversary of
the first day of such Interest Period), except that (i) accrued interest payable
at the Post-Default Rate shall be due and payable from time to time on demand of
the  Administrative  Agent or the Majority  Banks  (through  the  Administrative
Agent) and (ii) accrued interest on any amount prepaid or converted  pursuant to
Section 6 hereof shall be paid on the amount so prepaid or converted.

         4.3 Acceptance Fees. The Company shall pay to each Bank acceptance fees
in Canadian Dollars  forthwith upon the acceptance by such Bank of each Bankers'
Acceptance  issued by the Company at a rate per annum equal to the B/A  Stamping
Rate in  effect  at the  time of the  acceptance  of such  Bankers'  Acceptance,
calculated  on the face amount of such Bankers'  Acceptance  and on the basis of
the  number of days in the term of such  Bankers'  Acceptance  divided  by three
hundred sixty-five (365).  Acceptance fees payable to the Banks pursuant to this
Section 4.3 shall be paid in the manner specified in Section 3.4(a).

         Section 5.        Payments; Pro Rata Treatment; Computations, Etc.

         5.1        Payments.

         (a) Except to the extent  otherwise  provided  herein,  all payments of
principal, interest, the full face amount of Bankers' Acceptances, Reimbursement
Obligations and other amounts to be made by the Company  hereunder and under the
Notes and the other Loan  Documents  shall be made in U.S.  Dollars or  Canadian
Dollars, as the case may be, in immediately available funds, to the Paying Agent
at the  Payment  Office  (or in the case of a  successor  Paying  Agent,  at the
payment office  designated by such successor Paying Agent in Canada),  not later
than 11:00 a.m.  Toronto,  Ontario time on the date on which such payment  shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).

         (b) The Company shall, at the time of making each payment  hereunder or
under any Note or any other  Loan  Document,  specify  to the  Paying  Agent the
Loans, the Bankers'



                                       37

<PAGE>



Acceptances or other amounts  payable by the Company  hereunder or thereunder to
which such payment is to be applied.  Each payment  received by the Paying Agent
hereunder or under any Note,  Bankers' Acceptance or any other Loan Document for
the  account  of a Bank shall be paid  promptly  to such  Bank,  in  immediately
available funds for the account of such Bank's Applicable Lending Office.

         (c) If the due date of any payment  hereunder  or under any Note or any
other Loan Document falls on a day which is not a Business Day, the due date for
such payment (subject to the definition of Interest Period) shall be extended to
the next succeeding Business Day and interest shall be payable for any principal
so extended for the period of such extension.

         5.2 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Banks under Section 2.1 hereof shall be made ratably
from the Banks on the basis of their respective  Commitments and each payment of
commitment fees shall be made for the account of the Banks, and each termination
or reduction of the  Commitments  of the Banks under Section 2.3 hereof shall be
applied,  pro rata,  according to the Banks'  respective  Commitments;  (b) each
payment  by the  Company of the full face  amount of  Bankers'  Acceptances  and
principal  of or  interest  on Loans of a  particular  Type shall be made to the
Paying  Agent  for the  account  of the Banks  pro rata in  accordance  with the
respective full face amount of such Bankers' Acceptances or the unpaid principal
amounts  of such  Loans held by the  Banks;  and (c) the Banks  (other  than the
applicable  Issuer) shall purchase from the applicable Issuer  participations in
the Letters of Credit to the extent of their respective Commitment Percentages.

         5.3  Computations.  Subject  to  Section  13.7,  interest  based on the
Eurodollar  Base Rate or the Federal Funds Rate will be computed on the basis of
a year of 360  days  and  actual  days  elapsed  (including  the  first  day but
excluding the last day)  occurring in the period for which  payable,  unless the
effect of so  computing  shall be to cause the rate of  interest  to exceed  the
Highest  Lawful Rate, in which case interest shall be calculated on the basis of
the actual  number of days elapsed in a year composed of 365 or 366 days, as the
case may be. All other  interest  and fees shall be  computed  on the basis of a
year of 365 (or 366) days and actual days elapsed  (including  the first day but
excluding the last day) occurring in the period for which payable.

         5.4 Minimum and Maximum  Amounts.  Except for prepayments made pursuant
to Section  3.2(b)  hereof,  each borrowing and repayment of principal of Loans,
each  acceptance,  purchase  and  repayment  of  Bankers'  Acceptances  and each
termination  or reduction of  Commitments,  each  optional  prepayment  and each
conversion of Type shall be in an aggregate  principal  amount at least equal to
(a) in the case of Eurodollar Loans, U.S. $5,000,000,(b) in the case of Bankers'
Acceptances,  Canadian $5,000,000, (c) in the case of Canadian Prime Rate Loans,
Canadian  $1,000,000,  and (d) in the case of  Alternate  Base Rate Loans,  U.S.
$1,000,000  (borrowings or  prepayments  of Loans of different  Types or, in the
case of Eurodollar Loans,


                                       38

<PAGE>



having  different  Interest  Periods  at the same  time  hereunder  to be deemed
separate borrowings and prepayments for purposes of the foregoing,  one for each
Type or  Interest  Period).  Upon any  mandatory  prepayment  that would  reduce
Eurodollar  Loans having the same Interest  Period to less than U.S.  $5,000,000
such Loans shall  automatically  be converted  into Alternate Base Rate Loans on
the last day of the applicable Interest Period.  Notwithstanding anything to the
contrary contained in this Agreement,  there shall not be, at any one time, more
than eight (8) Interest Periods in effect with respect to Eurodollar Loans.

         5.5 Certain Actions,  Notices, Etc. Notices to the Administrative Agent
and the  Paying  Agent  of any  termination  or  reduction  of  Commitments,  of
borrowings  and  prepayments,  of issuance,  acceptance and purchase of Bankers'
Acceptances, of conversions and continuations of Loans and Bankers' Acceptances,
of the term of Bankers'  Acceptances  and of the  duration  of Interest  Periods
shall  be   irrevocable   and  shall  be  effective  only  if  received  by  the
Administrative  Agent and the Paying  Agent not later  than 11:00 a.m.  Toronto,
Ontario  time on the number of Business  Days prior to the date of the  relevant
termination,  reduction,  borrowing and/or repayment,  conversion or continuance
specified below:

<PAGE>

<TABLE>
<CAPTION>

                                                                   Number of
                                                                   Business
                       Notice                                     Days Prior
              <S>                                                 <C>

              Termination or
              Reduction of Commitments                                 2

              Borrowing or prepayment
              of or conversion into or
              continuance of
              Alternate Base Rate
              Loans or Canadian                                    same day
              Prime Rate Loans
              which are equal to or less
              than (in the aggregate with
              respect to all Loans
              requested on a given day)
              U.S. $20,000,000


              Borrowing or prepayment
              of or conversion into or
              continuance of
              Alternate Base Rate                                      1
              Loans or Canadian
              Prime Rate Loans
              which exceed
              (in the aggregate with
              respect to all Loans
              requested on a given day)
              U.S. $20,000,000


              Issuance of Bankers' Acceptances                         2


              Borrowing or
              prepayment of or conversion
              into or continuance of                                   3
              Eurodollar Loans

</TABLE>

                                       39
<PAGE>

Each such notice of  termination  or reduction  shall  specify the amount of the
Commitments  to be  terminated  or  reduced.  Each such notice of  borrowing  or
prepayment  shall specify the amount of Bankers'  Acceptances to be accepted and
purchased  or  prepaid  and the Type of the  Loans  to be  borrowed  or  prepaid
(subject to Sections 3.2(a) and 5.4 hereof),  the date of borrowing,  acceptance
and purchase or  prepayment  (which shall be a Business Day) and, in the case of
Eurodollar  Loans, the duration of the Interest Period therefor  (subject to the
definition of "Interest Period") and, in the case of Bankers'  Acceptances,  the
term and maturity date therefor (subject to Section 3.4(c)). Each such notice of
conversion of a Bankers'  Acceptance  into a Loan or conversion of a Loan into a
Loan of another  Type or a Bankers'  Acceptance  shall  identify  such  Bankers'
Acceptance or Loan (or portion  thereof) being converted and specify the Type of
Loan into which such Bankers'  Acceptance or Loan is being converted (subject to
Section 5.4 hereof) and the date for conversion  (which shall be a Business Day)
and,  unless  such  Bankers'  Acceptance  or Loan  is  being  converted  into an
Alternate Base Rate Loan or a Canadian Prime Rate Loan, the duration (subject to
the definition of "Interest Period") of the Interest Period therefor which is to
commence as of the last day of the then current Interest Period therefor (or the
date of conversion,  if such Loan is being converted from an Alternate Base Rate
Loan or a  Canadian  Prime  Rate  Loan).  In the case of any such  notice  for a
Bankers'  Acceptance,  the term and maturity  date of such  Bankers'  Acceptance
shall also be specified.  Each such notice of continuation of a Loan (or portion
thereof) as the same Type of Loan shall identify such Loan (or portion  thereof)
being continued (subject to Section 5.4

                                       40

<PAGE>



hereof) and, unless such Loan is an Alternate Base Rate Loan or a Canadian Prime
Rate Loan, the duration (subject to the definition of "Interest  Period") of the
Interest  Period  therefor  which is to  commence as of the last day of the then
current  Interest  Period  therefor.  The Paying Agent shall promptly notify the
affected  Banks of the  contents of each such notice.  Notice of any  prepayment
having been given, the principal amount specified in such notice,  together with
interest  thereon to the date of  prepayment,  shall be due and  payable on such
prepayment date.

         5.6  Non-Receipt of Funds by the Paying Agent.  Unless the Paying Agent
shall have been  notified by a Bank or the Company  (the  "Payor")  prior to the
date on which such Bank is to make  payment to the Paying  Agent of the Canadian
Bankers'  Acceptance Discount Proceeds in respect of a Bankers' Acceptance to be
purchased  by it or the  proceeds of a Loan to be made by it  hereunder  (or the
payment  of any amount by such Bank to  reimburse  the  applicable  Issuer for a
drawing  under any Letter of Credit) or the  Company is to make a payment to the
Paying  Agent for the  account of one or more of the  Banks,  as the case may be
(such payment being herein called the "Required Payment"), which notice shall be
effective  upon  receipt,  that the Payor does not  intend to make the  Required
Payment  to the Paying  Agent,  the Paying  Agent may assume  that the  Required
Payment has been made and may, in reliance upon such  assumption  (but shall not
be required to), make the amount thereof available to the intended  recipient on
such date and,  if the Payor has not in fact made the  Required  Payment  to the
Paying Agent on or before such date,  the recipient of such payment (or, if such
recipient  is the  beneficiary  of a Letter of Credit,  the Company  and, if the
Company  fails to pay the  amount  thereof to the Paying  Agent  forthwith  upon
demand,  the  Banks  ratably  in  proportion  to  their  respective   Commitment
Percentages) shall, on demand, pay to the Paying Agent the amount made available
to it together with interest thereon in respect of the period  commencing on the
date such amount was so made  available  by the Paying  Agent until the date the
Paying Agent recovers such amount at a per annum rate of interest  determined by
the  Paying  Agent  (such  rate to be  conclusive  and  binding on the Banks) in
accordance with the Paying Agent's usual banking  practice for similar  advances
to financial institutions of like standing to the applicable Bank.

         5.7 Sharing of  Payments,  Etc. If a Bank shall  obtain  payment of the
full face amount of an outstanding Bankers' Acceptance accepted and purchased by
it under this  Agreement or of any  principal of or interest on any Loan made by
it under this Agreement, or on any Reimbursement  Obligation or other obligation
then due to such Bank  hereunder,  through the exercise of any right of set-off,
banker's lien,  counterclaim or similar right,  or otherwise,  it shall promptly
purchase from the other Banks  participations in the Loans made, the outstanding
Bankers' Acceptances or Reimbursement  Obligations or other obligations held, by
the other Banks in such amounts,  and make such other  adjustments  from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such  payment  (net of any  expenses  which may be  incurred  by such Bank in
obtaining or preserving  such  benefit) pro rata in  accordance  with the unpaid
principal and interest on the Obligations  then due to each of them. To such end
all the


                                       41

<PAGE>



Banks shall make  appropriate  adjustments  among  themselves  (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.  The Company agrees, to the fullest extent it may effectively do so
under  applicable law, that any Bank so purchasing a participation  in the Loans
made, the outstanding Bankers' Acceptances or Reimbursement Obligations or other
obligations  held,  by other Banks may exercise all rights of set-off,  bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such  Bank  were a  direct  holder  of  Loans,  Bankers'  Acceptances  and
Reimbursement   Obligations   or  other   obligations  in  the  amount  of  such
participation.  Nothing  contained herein shall require any Bank to exercise any
such  right or shall  affect the right of any Bank to  exercise,  and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of the Company.

         Section 6.       Yield Protection and Illegality.

         6.1      Additional Costs.

         (a) Subject to Section 13.6, the Company shall pay to the Paying Agent,
on demand for the  account  of each Bank from time to time such  amounts as such
Bank may determine to be necessary to  compensate  it for any costs  incurred by
such  Bank  which  such  Bank  determines  are  attributable  to its  making  or
maintaining of any Eurodollar Loan or any Bankers'  Acceptance  hereunder or its
obligation  to make any such Loan  hereunder,  or any  reduction  in any  amount
receivable  by such  Bank  hereunder  in  respect  of any of such  Loans or such
obligation  (such increases in costs and reductions in amounts  receivable being
herein called  "Additional  Costs"),  in each case resulting from any Regulatory
Change which:

                  (i) subjects such Bank (or makes it apparent that such Bank is
subject) to any tax, levy, impost, duty, charge or fee (collectively,  "Taxes"),
or any  deduction  or  withholding  for any Taxes on or from the  payment due in
respect of any Bankers' Acceptance or under any Eurodollar Loan or other amounts
due hereunder,  other than income and franchise taxes of each  jurisdiction  (or
any  subdivision  thereof)  in which  such Bank has an office or its  Applicable
Lending Office; or

                  (ii)  changes the basis of taxation of any amounts  payable to
such Bank under this  Agreement  or its Notes in respect of any of such Loans or
in respect of  Bankers'  Acceptances  (other than  changes  which  affect  taxes
measured by or imposed on the overall net income or franchise taxes of such Bank
or of its Applicable  Lending Office for any of such Loans by each  jurisdiction
(or any subdivision thereof) in which such Bank has an office or such Applicable
Lending Office); or

                  (iii) imposes or modifies or increases or deems applicable any
reserve, special deposit or similar requirements (including, without limitation,
any such requirement imposed by



                                       42

<PAGE>



the Office of the Superintendent of Financial  Institutions  Canada) relating to
any  extensions  of credit or other  assets  of, or any  deposits  with or other
liabilities  of, such Bank or loans made by such Bank,  or Bankers'  Acceptances
accepted by such Bank or against any other funds,  obligations or other property
owned or held by such Bank  (including  any of such Loans or, where  applicable,
any deposits  referred to in the definition of "Eurodollar Base Rate" in Section
1.1 hereof or any  Bankers'  Acceptances)  and such Bank  actually  incurs  such
additional costs.

Each Bank (if so requested by the Company through the Administrative Agent) will
designate a different  available  Applicable  Lending  Office for the Eurodollar
Loans or the Bankers'  Acceptances of such Bank or take such other action as the
Company  may request if such  designation  or action will avoid the need for, or
reduce the amount of, such  compensation  and will not,  in the sole  opinion of
such Bank  exercised in good faith,  be  disadvantageous  to such Bank (provided
that such Bank shall have no obligation  so to designate an  Applicable  Lending
Office  for  Eurodollar  Loans  located  in the  United  States of America or to
designate an Applicable Lending Office for Bankers'  Acceptances  located in any
jurisdiction that is not located in Canada).  Each Bank will furnish the Company
with a statement setting forth the basis and amount of each request by such Bank
for  compensation  under this  Section  6.1(a);  subject to  Section  6.8,  such
certificate  shall be conclusive,  absent  manifest  error,  and may be prepared
using any reasonable averaging and attribution methods.

         (b) Without  limiting the effect of the  foregoing  provisions  of this
Section 6.1, in the event that,  by reason of any  Regulatory  Change,  any Bank
either (i) incurs  Additional  Costs based on or measured by the excess  above a
specified level of the amount of a category of deposits or other  liabilities of
such Bank which  includes  deposits by reference  to which the interest  rate on
Eurodollar  Loans is determined  as provided in this  Agreement or a category of
extensions  of credit or other  assets of such Bank  which  includes  Eurodollar
Loans or Bankers'  Acceptances or (ii) becomes  subject to  restrictions  on the
amount of such a category of liabilities  or assets which it may hold,  then, if
such Bank so elects by notice to the Company (with a copy to the  Administrative
Agent and the Paying  Agent),  the  obligation  of such Bank to make  Eurodollar
Loans or accept and purchase  Bankers'  Acceptances,  as  applicable,  hereunder
shall be suspended until the date such Regulatory  Change ceases to be in effect
(in which case the provisions of Section 6.4 hereof shall be applicable).

         (c) Good faith  determinations and allocations by any Bank for purposes
of this  Section  6.1 of the  effect  of any  Regulatory  Change on its costs of
maintaining  its  obligations  to make  Loans or accept  and  purchase  Bankers'
Acceptances  or of making  or  maintaining  Loans or  accepting  and  purchasing
Bankers' Acceptances on amounts receivable by it in respect of Loans or Bankers'
Acceptances,  and of the additional  amounts required to compensate such Bank in
respect of any Additional Costs, shall be conclusive, absent manifest error.




                                       43

<PAGE>



         (d) The Company's  obligation to pay Additional  Costs and compensation
with regard to each Eurodollar Loan and each Bankers'  Acceptance  shall survive
termination of this Agreement.

         6.2 Limitations.  Anything herein to the contrary notwithstanding,  if,
with respect to any Eurodollar Loans or Bankers' Acceptance:

         (a) the Paying  Agent  determines  in good faith  (which  determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the  definition of  "Eurodollar  Base Rate" in Section 1.1 hereof
are not being provided by the Reference Banks in the relevant amounts or for the
relevant  maturities for purposes of  determining  the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or

         (b) the Paying  Agent  determines  in good faith  (which  determination
shall be  conclusive)  that  quotations  of discount  rates for the  purchase of
Canadian Dollar bankers'  acceptances referred to in the definition of "Canadian
Bankers'  Acceptance  Discount  Rate" in Section 1.1 hereof are not available in
the relevant amounts or for the relevant  maturities for purposes of determining
the Canadian  Bankers'  Acceptance  Discount  Rate  therefor as provided in this
Agreement; or

         (c) the Majority  Banks  determine  in good faith (which  determination
shall  be  conclusive)  and  notify  the  Paying  Agent  (with  a  copy  to  the
Administrative  Agent) that the  relevant  rates of interest  referred to in the
definition  of  "Eurodollar  Base Rate" in Section  1.1 hereof upon the basis of
which  the  rates  of  interest  for such  Loans  (where  applicable)  are to be
determined  do not  accurately  reflect  the  cost to such  Banks of  making  or
maintaining such Loans for Interest Periods therefor; or

         (d) the  Paying Agent  determines  in good faith  (which  determination
shall be  conclusive)  that by reason of  circumstances  affecting the interbank
U.S. Dollar market generally,  deposits in United States dollars in the relevant
interbank U.S.  Dollar market are not being offered for the applicable  Interest
Period and in an amount equal to the amount of the Eurodollar  Loan requested by
the Company;  then the Paying Agent shall  promptly  notify the Company and each
Bank thereof,  and, so long as such condition remains in effect, the Banks shall
be under no obligation to make Eurodollar Loans or accept and purchase  Bankers'
Acceptances,  as the  case  may be  (but  shall  maintain  until  the end of the
Interest  Period  then in effect the  Eurodollar  Loans and until the  specified
maturity  date  of  the  Bankers'   Acceptances,   as  the  case  may  be,  then
outstanding).



                                       44

<PAGE>



         6.3 Illegality.  Notwithstanding  any other provision of this Agreement
to the  contrary,  if (x) by  reason of the  adoption  of any  applicable  Legal
Requirement  or  any  change  in  any  applicable  Legal  Requirement  or in the
interpretation  or  administration  thereof  by any  Governmental  Authority  or
compliance by any Bank with any request or directive  (whether or not having the
force of law) of any central  bank or other  Governmental  Authority or (y) with
respect to Eurodollar Loans, circumstances affecting the relevant interbank U.S.
Dollar  market or the position of a Bank therein or (z) with respect to Bankers'
Acceptances,  circumstances  affecting the market for Canadian  Dollar  bankers'
acceptance  or the position of a Bank therein shall at any time make it unlawful
or  impracticable  in the sole  discretion of a Bank exercised in good faith for
such Bank or its Applicable  Lending Office to (a) honour its obligation to make
Eurodollar Loans or accept and purchase  Bankers'  Acceptances,  as the case may
be, hereunder, or (b) maintain Eurodollar Loans or Bankers' Acceptances,  as the
case may be, hereunder, then such Bank shall promptly notify the Company thereof
through  the  Paying  Agent  and  such  Bank's  obligation  to make or  maintain
Eurodollar Loans or accept and purchase  Bankers'  Acceptances,  as the case may
be, hereunder shall be suspended until such time as such Bank may again make and
maintain  Eurodollar Loans or accept and purchase Bankers'  Acceptances,  as the
case may be (in  which  case the  provisions  of  Section  6.4  hereof  shall be
applicable). Before giving such notice pursuant to this Section 6.3 with respect
to  Eurodollar  Loans  only,  such Bank will  designate  a  different  available
Applicable  Lending  Office for the  Eurodollar  Loans of such Bank or take such
other action as the Company may request if such designation or action will avoid
the need to suspend such Bank's  obligation to make  Eurodollar  Loans hereunder
and will not,  in the sole  opinion of such Bank  exercised  in good  faith,  be
disadvantageous  to such Bank  (provided,  that such Bank may not  designate  an
Applicable Lending Office that is not located in Canada).

         6.4 Substitute  Alternate Base Rate Loans or Canadian Prime Rate Loans.
If the  obligation  of any Bank to make or  maintain  Eurodollar  Loans shall be
suspended  pursuant to Section  6.1,  6.2 or 6.3  hereof,  all Loans which would
otherwise  be made by such Bank as  Eurodollar  Loans  shall be made  instead as
Alternate Base Rate Loans (and, if an event referred to in Section 6.1(b) or 6.3
hereof has  occurred  and such Bank so requests by notice to the Company  with a
copy to the Paying Agent,  each  Eurodollar  Loan of such Bank then  outstanding
shall be  automatically  converted  into an Alternate Base Rate Loan on the date
specified by such Bank in such notice) and, to the extent that Eurodollar  Loans
are so made as (or converted  into)  Alternate Base Rate Loans,  all payments of
principal  which would  otherwise be applied to such  Eurodollar  Loans shall be
applied instead to such Alternate Base Rate Loans. If the obligation of any Bank
to accept and  purchase  Bankers'  Acceptances  shall be  suspended  pursuant to
Section 6.1, 6.2 or 6.3 hereof,  all advances  which would  otherwise be made by
such Bank by way of  acceptance  and purchase of Bankers'  Acceptances  shall be
made  instead as  Canadian  Prime Rate Loans  (and,  if an event  referred to in
Section 6.1(b) or 6.3 hereof has occurred and such Bank so requests by notice to
the Company with a copy to the Paying Agent, the face amount of each


                                       45

<PAGE>



Bankers'  Acceptance  of such  Bank  then  outstanding  shall  be  automatically
converted  into a Canadian Prime Rate Loan on the date specified by such Bank in
such notice).

         6.5 Compensation. Subject to Section 13.6 hereof, the Company shall pay
to the Paying Agent for the account of each Bank,  within four (4) Business Days
after demand therefor by such Bank through the Administrative Agent, such amount
or amounts as shall be sufficient  (in the  reasonable  opinion of such Bank) to
compensate it for any loss, cost or expense  actually  incurred by it (exclusive
of any lost profits or opportunity costs) as a result of:

         (a) any payment,  prepayment or conversion of a Eurodollar Loan made by
such Bank or a Bankers'  Acceptance  accepted  by such Bank on a date other than
the last day of an Interest  Period for such  Eurodollar  Loan or the  specified
maturity date for such Bankers' Acceptance, as the case may be; or

         (b) any failure by the Company to borrow a  Eurodollar  Loan to be made
by such Bank or to issue a Bankers'  Acceptance  to be accepted and purchased by
such  Bank on the date for such  borrowing  or such  issuance  specified  in the
relevant  notice under Section 5.5 hereof or to convert a Eurodollar Loan into a
Bankers' Acceptance after giving notice of such conversion;

such compensation to include,  without limitation,  any loss or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by the applicable  Bank to fund or maintain its share of any Loan or to fund the
acceptance and purchase of any Bankers' Acceptance. Compensation due pursuant to
this Section with respect to Bankers'  Acceptances shall be calculated using the
Canadian Bankers' Acceptance Discount Rate for bankers'  acceptances maturing on
(or as  close as  reasonably  possible)  to the  maturity  date of the  Bankers'
Acceptances  with respect to which such  compensation  arises (versus the actual
Canadian  Bankers'  Acceptance  Discount  Rate for such  Bankers'  Acceptances).
Subject to Section 6.8, each determination of the amount of such compensation by
a Bank shall be  conclusive  and  binding,  absent  manifest  error,  and may be
computed using any reasonable averaging and attribution method.

         6.6 Additional Costs in Respect of Letters of Credit. If as a result of
any Regulatory Change there shall be imposed,  modified or deemed applicable any
tax, reserve,  special deposit or similar requirement against or with respect to
or measured by reference to Letters of Credit  issued or to be issued  hereunder
or participations in such Letters of Credit, and the result shall be to increase
the cost to any Bank of  issuing  or  maintaining  any  Letter  of Credit or any
participation  therein, or reduce any amount receivable by any Bank hereunder in
respect of any Letter of Credit or any participation  therein (which increase in
cost,  or  reduction  in amount  receivable,  shall be the result of such Bank's
reasonable allocation of the aggregate of such increases or reductions resulting
from  such  event),  then  such  Bank  shall  notify  the  Company  through  the
Administrative



                                       46

<PAGE>



Agent, and upon demand therefor by such Bank through the  Administrative  Agent,
the Company  (subject to Section 13.6 hereof) shall pay to such Bank,  from time
to time  as  specified  by such  Bank,  such  additional  amounts  as  shall  be
sufficient to  compensate  such Bank for such  increased  costs or reductions in
amount.  Before making such demand  pursuant to this Section 6.6, such Bank will
designate  a different  available  Applicable  Lending  Office for the Letter of
Credit of such Bank or take such other  action as the  Company may  request,  if
such  designation  or action  will avoid the need for,  or reduce the amount of,
such  compensation  and will not, in the sole opinion of such Bank  exercised in
good faith,  be  disadvantageous  to such Bank. A statement as to such increased
costs or reductions in amount  incurred by such Bank,  submitted by such Bank to
the Company,  shall be  conclusive  as to the amount  thereof,  absent  manifest
error.

         6.7  Capital  Adequacy.  If  any  Bank  shall  have  determined  that a
Regulatory   Change   resulting  in  the  adoption  after  the  date  hereof  or
effectiveness after the date hereof (whether or not previously announced) of any
applicable law, rule,  regulation or treaty regarding capital  adequacy,  or any
change  therein after the date hereof,  or any change in the  interpretation  or
administration  thereof  after  the date  hereof by any  Governmental  Authority
charged with the interpretation or administration  thereof, or compliance by any
Bank (or its Applicable  Lending Office) with any request or directive after the
date hereof regarding  capital adequacy (whether or not having the force of law)
of any such Governmental  Authority has or would have the effect of reducing the
rate  of  return  on  such  Bank's  capital  as a  consequence  of  such  Bank's
obligations  hereunder,   under  the  Loans  made  by  it,  under  the  Bankers'
Acceptances  accepted and purchased by it, under the Letters of Credit and under
the Notes held by it to a level  below that which such Bank could have  achieved
but for such  adoption,  change or compliance  (taking into  consideration  such
Bank's  policies  with respect to capital  adequacy) by an amount deemed by such
Bank to be material, then from time to time, upon satisfaction of the conditions
precedent  set forth in this Section 6.7,  upon demand by such Bank (with a copy
to the  Administrative  Agent and the Paying  Agent),  the  Company  (subject to
Section 13.6 hereof) shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.  A certificate as to such amounts,
submitted  to the Company and the  Administrative  Agent and the Paying Agent by
such  Bank,  setting  forth  the  basis for such  Bank's  determination  of such
amounts,  shall constitute a demand therefor and shall be conclusive and binding
for all purposes,  absent manifest error. The Company shall pay the amount shown
as due on any such  certificate  within four (4) Business Days after delivery of
such certificate.  Subject to Section 6.8, in preparing such certificate, a Bank
may employ such assumptions and allocations of costs and expenses as it shall in
good faith deem reasonable and may use any reasonable  averaging and attribution
method.

          6.8   Limitation   on   Additional    Charges;    Substitute    Banks;
Non-Discrimination. Anything in this Section 6 notwithstanding:




                                       47

<PAGE>



         (a) the Company shall not be required to pay to any Bank  reimbursement
with regard to any costs or expenses,  unless such Bank  notifies the Company of
such costs or expenses within 90 days after the date paid or incurred;

         (b) none of the Banks shall be permitted to pass through to the Company
charges and costs under this Section 6 on a  discriminatory  basis (i.e.,  which
are not also  passed  through  by such  Bank to  other  customers  of such  Bank
similarly  situated  where such  customer is subject to documents  providing for
such pass through); and

         (c) if any Bank  elects to pass  through to the  Company  any  material
charge or cost under this Section 6 or elects to terminate the  availability  of
Eurodollar  Loans or Bankers'  Acceptances  for any material period of time, the
Company  may,  within  60 days  after  the date of such  event and so long as no
Default shall have occurred and be continuing, elect to terminate such Bank as a
party to this Agreement;  provided that,  concurrently with such termination the
Company shall (i) if the Administrative  Agent and each of the other Banks shall
consent,  pay that Bank all principal,  interest and fees and other amounts owed
to such Bank through such date of  termination or (ii) have arranged for another
financial institution approved by the Administrative Agent (such approval not to
be  unreasonably  withheld) as of such date, to become a substitute Bank for all
purposes under this Agreement in the manner  provided in Section 13.5;  provided
further that,  prior to substitution  for any Bank, the Company shall have given
written  notice  to the  Administrative  Agent  and  the  Paying  Agent  of such
intention and the Banks shall have the option,  but no obligation,  for a period
of 60 days after receipt of such notice,  to increase their Commitments in order
to replace the affected Bank in lieu of such substitution.

         Section 7.       Conditions Precedent.

         7.1 Initial Loans and Acceptance and Purchase of Bankers'  Acceptances.
The obligation of each Bank or any  applicable  Issuer to make its initial Loans
after the date hereof or to accept and purchase the initial Bankers'  Acceptance
after the date hereof or issue or  participate  in a Letter of Credit  after the
date hereof  (whichever shall first occur) hereunder is subject to the following
conditions  precedent,  each of which shall have been fulfilled or waived to the
satisfaction of the Majority Banks:

         (a) Corporate Action and Status.  The  Administrative  Agent shall have
received from the appropriate  Governmental  Authorities certified copies of the
Organizational  Documents  (other  than  bylaws)  of the  Parent and each of its
Subsidiaries,  and  evidence  satisfactory  to the  Administrative  Agent of all
corporate action taken by the Parent or any of its Subsidiaries  authorizing the
execution,  delivery  and  performance  of the  Loan  Documents  and  all  other
documents related to this Agreement to which it is a party  (including,  without
limitation,  a certificate of the secretary of each such party setting forth the
resolutions of its Board of Directors



                                       48

<PAGE>



authorizing the  transactions  contemplated  thereby and attaching a copy of its
bylaws),  together with such  certificates  as may be appropriate to demonstrate
the  qualification  and good  standing of and payment of taxes by the Parent and
each of its  Subsidiaries in each state or province in which such  qualification
is necessary.

         (b) Incumbency. The Parent and each Relevant Party shall have delivered
to the  Administrative  Agent a certificate in respect of the name and signature
of each  of the  officers  (i) who is  authorized  to  sign  on its  behalf  the
applicable  Loan Documents  related to any Loan or the issuance of any Letter of
Credit and (ii) 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
any Loan or the  issuance of any Letter of Credit.  The Agents and each Bank may
conclusively rely on such certificates until they receive notice in writing from
the Parent or the appropriate Relevant Party to the contrary.

         (c)  Notes.   The   Administrative   Agent  shall   have  received  the
appropriate Notes of the Company for each Bank, duly completed and executed.

         (d) Loan  Documents.  The Company and each other  Relevant  Party shall
have duly executed and delivered the other Loan Documents to which it is a party
(in such number of copies as the Administrative  Agent shall have requested) and
each such Loan Document shall be in form satisfactory to  Administrative  Agent.
Each such Loan  Document  shall be in  substantially  the form  furnished to the
Banks prior to their  execution of this  Agreement,  together  with such changes
therein as the Administrative Agent may approve.

         (e) Fees and Expenses.  The Company shall have paid to the Paying Agent
for the account of each Bank all accrued  and unpaid  commitment  fees and other
fees in the amounts  previously agreed upon in writing among the Company and the
respective  Agents;  and shall have in  addition  paid to the  Paying  Agent all
amounts  payable  under  Section  9.7  hereof,  on or  before  the  date of this
Agreement.

         (f) Opinions of Counsel.  The Administrative  Agent shall have received
(1) an  opinion  of  Vinson &  Elkins  L.L.P.,  counsel  to the  Parent  and its
Subsidiaries,   in  form   and   substance   reasonably   satisfactory   to  the
Administrative  Agent and (2) an  opinion of Bennett  Jones  Verchere,  Canadian
counsel to the Parent and its  Subsidiaries,  in form and  substance  reasonably
satisfactory to the Administrative Agent.

         (g) Execution by Banks.  The  Administrative  Agent shall have received
counterparts of this Agreement executed and delivered by or on behalf of each of
the Banks or the Administrative Agent shall have received evidence  satisfactory
to it of the  execution  and  delivery  by each of the  Banks  of a  counterpart
hereof.


                                       49

<PAGE>



         (h) Consents.  The  Administrative  Agent shall have received  evidence
satisfactory to it that,  except as disclosed in the Disclosure  Statement,  all
material  consents of each  Governmental  Authority and of each other Person, if
any,  reasonably  required  in  connection  with  (a) the  Loans,  the  Bankers'
Acceptances  and the  Letters  of Credit  and (b) the  execution,  delivery  and
performance   of  this   Agreement  and  the  other  Loan  Documents  have  been
satisfactorily obtained.

         (i) Amendment to  Intercreditor  Agreement.  The  Administrative  Agent
shall have  received  counterparts  of the  Second  Amendment  to  Intercreditor
Agreement referred to in the definition of "Intercreditor  Agreement" in Section
1.1 hereof  executed and delivered by or on behalf of each of the Company and by
the  "Agent"  under the U.S.  Facility  or the  Administrative  Agent shall have
received evidence  satisfactory to it of the execution and delivery by each such
Person of a counterpart of such Second Amendment to Intercreditor Agreement.

         (j)  U.S.  Facility.  The  Administrative  Agent  shall  have  received
counterparts  of the Credit  Agreement  referred to in the  definition  of "U.S.
Facility" in Section 1.1 hereof  executed and  delivered by or on behalf of each
of Parent, The Chase Manhattan Bank, as Agent, and certain banks parties thereto
or Administrative  Agent shall have received evidence  satisfactory to it of the
execution  and  delivery  by each such  Person of a  counterpart  of such Credit
Agreement.

         (k) Other Documents.  The Administrative Agent shall have received such
other documents  consistent with the terms of this Agreement and relating to the
transactions  contemplated  hereby as the  Administrative  Agent may  reasonably
request.

         All provisions and payments required by this Section 7.1 are subject to
the provisions of Section 13.6.

         7.2 Initial and  Subsequent  Loans.  The obligation of each Bank or any
applicable Issuer to make any Loan (including,  without limitation,  its initial
Loan) to be made by it hereunder or to accept and purchase Bankers'  Acceptances
or to issue or  participate in any Letter of Credit is subject to the additional
conditions  precedent  that (i) the  Administrative  Agent and the Paying  Agent
shall  have   received  a  Request  for  Extension  of  Credit  and  such  other
certifications as the Administrative Agent may reasonably require and (ii) as of
the date of such Loan or such  acceptance  and  purchase or such  issuance,  and
after giving effect thereto:

         (a) no Default shall have occurred and be continuing;

         (b) except for facts timely disclosed to the Administrative  Agent from
time to time in writing,  which facts (i) are not materially more adverse to the
Parent and its Subsidiaries,  (ii) do not materially decrease the ability of the
Banks to collect  the  Obligations  as and when due and payable and (iii) do not
materially increase the liability of any of the Agent or any of the Banks,



                                       50

<PAGE>



in each  case  compared  to those  facts  existing  on the date  hereof  and the
material  details  of which  have  been set  forth in the  Financial  Statements
delivered  to the  Administrative  Agent  prior  to the  date  hereof  or in the
Disclosure  Statement,  and except for the representations set forth in the Loan
Documents which, by their terms, are expressly (or by means of similar phrasing)
made as of the date hereof only, the representations and warranties made in each
Loan  Document  shall be true and correct in all material  respects on and as of
the date of the  making of such Loan or such  acceptance  and  purchase  or such
issuance, with the same force and effect as if made on and as of such date;

         (c) the  making of such Loan or the  acceptance  and  purchase  of such
Bankers'  Acceptance  or the issuance of such Letter of Credit shall not violate
any Legal Requirement applicable to any Bank.

         Each  Request  for  Extension  of Credit by the  Company  hereunder  or
request for issuance of a Letter of Credit shall  include a  representation  and
warranty  by the Company to the effect set forth in  Subsections  7.2(a) and (b)
(both as of the date of such notice and, unless the Company  otherwise  notifies
the Administrative Agent prior to the date of such borrowing or issuance,  as of
the date of such borrowing or issuance).

         Section 8. Representations and Warranties. To induce the Banks to enter
into  this  Agreement  and to make  the  Loans,  accept  and  purchase  Bankers'
Acceptances and issue or participate in the Letters of Credit,  the Company (or,
where applicable,  the Parent) represents and warrants (such representations and
warranties  to  survive  any  investigation  and the  making of the  Loans,  the
acceptance and purchase Bankers'  Acceptances and the issuance of the Letters of
Credit) to the Banks and the Agents as follows:

         8.1 Corporate  Existence.  The Parent and each Subsidiary of the Parent
are corporations duly  incorporated and organized,  legally existing and in good
standing  under  the laws of the  respective  jurisdictions  in  which  they are
incorporated,   and  are  duly   qualified  as  foreign   corporations   in  all
jurisdictions  wherein the  property  owned or the business  transacted  by them
makes  such  qualification  necessary  and  the  failure  to  so  qualify  could
reasonably be expected to result in a Material Adverse Effect.

         8.2  Corporate  Power and  Authorization.  Each of the  Company and the
other Relevant Parties is duly authorized and empowered to execute, deliver, and
perform the Loan Documents to which it is a party;  and all corporate  action on
the part of the Company and the other  Relevant  Parties  requisite  for the due
creation  and  issuance of the Notes and for the due  execution,  delivery,  and
performance  of this Agreement and the other Loan Documents to which each of the
Company and the other Relevant  Parties is a party has been duly and effectively
taken.




                                       51

<PAGE>



         8.3 Binding Obligations.  This Agreement,  the Notes and the other Loan
Documents constitute legal, valid and binding obligations of the Company and the
other  Relevant  Parties,  to the extent  each is a party  thereto,  enforceable
against  the  Company and the other  Relevant  Parties,  to the extent each is a
party  thereto,  in accordance  with their  respective  terms,  except as may be
limited  by (i) any  applicable  bankruptcy,  insolvency,  fraudulent  transfer,
winding  up,  arrangement,  liquidation,  reorganization,  moratorium  or  other
similar laws affecting creditors' rights generally,  (ii) equitable  limitations
on the  availability of remedies,  (iii) the statutory power of a court to grant
relief from forfeiture,  (iv) applicable laws regarding  limitations of actions,
(v) general  principles of equity which may apply to any proceeding in equity or
at law, and (vi) the powers of a court to stay proceedings before it and to stay
the execution of judgments.

         8.4 No Legal Bar or Resultant Lien. The Company's and each of the other
Relevant Parties'  creation,  issuance,  execution,  delivery and performance of
this Agreement,  the Notes and the other Loan Documents,  to the extent they are
parties   thereto,   do  not  and  will  not  violate  any   provisions  of  the
Organizational  Documents  of the  Company  or any other  Relevant  Party or any
Subsidiary of the Parent,  or any Legal  Requirement to which the Company or any
other  Relevant Party or any Subsidiary of the Parent is subject or by which its
property  may be  presently  bound or  encumbered,  or result in the creation or
imposition of any Lien upon any  properties of the Company or any other Relevant
Party or any  Subsidiary  of the  Parent,  other  than those  permitted  by this
Agreement.

         8.5 No Consent.  Except as set forth in the Disclosure  Statement,  the
Company's  creation and issuance of the Notes and the  Company's and each of the
other Relevant Parties' execution,  delivery, and performance of this Agreement,
the Notes and the other Loan Documents to which they are parties do not and will
not  require the  consent or  approval  of any Person  other than such  consents
and/or approvals  obtained  contemporaneously  with or prior to the execution of
this Agreement,  including,  without limitation,  any Governmental  Authorities,
other than those  consents the failure to obtain  which could not be  reasonably
expected to have a Material Adverse Effect.

         8.6 Financial  Condition.  The audited  consolidated  annual  financial
statements of the Parent and its  Subsidiaries  for the year ended  December 31,
1996 and the unaudited  consolidated  interim financial statements of the Parent
and its  Subsidiaries  for the quarter and  three-month  period  ended March 31,
1997,  which have been delivered to the Banks,  have been prepared in accordance
with  GAAP,  and  present  fairly the  financial  condition  and  results of the
operations of the Parent and its  Subsidiaries  for the period or periods stated
(subject only to normal year-end audit adjustments with respect to the unaudited
interim  statements).  No material adverse change,  either in any case or in the
aggregate,  has  occurred  since  March  31,  1997 in the  assets,  liabilities,
financial  condition,  business,  operations,  affairs or  circumstances  of the
Parent and its Subsidiaries  taken as a whole,  except as disclosed to the Banks
in the Disclosure Statement. Each Engineering



                                       52

<PAGE>



Report and Parent Report fairly presents the values and prospective performances
of the property  described  therein and there are no statements  or  conclusions
therein which were based upon or included materially  misleading  information or
fail to take into account material information.

         8.7  Investments  and  Guaranties.  As of the date hereof,  neither the
Parent nor any Subsidiary of the Parent had made Investments in, advances to, or
Guarantees  of, the  obligations  of any Person,  except as (a) disclosed to the
Banks in the Disclosure Statement or (b) not prohibited by applicable provisions
of Section 10.

         8.8 Liabilities  and Litigation.  Neither the Parent nor any Subsidiary
of the Parent has any material  (individually or in the aggregate)  liabilities,
direct or  contingent,  except as (a)  disclosed or referred to in the Financial
Statements,  (b)  disclosed  to the  Banks  in  the  Disclosure  Statement,  (c)
disclosed in a notice to the Administrative  Agent pursuant to Section 9.11 with
respect to such as could  reasonably  be  expected  to have a  Material  Adverse
Effect or (d) not  prohibited by applicable  provisions of Section 10. Except as
(a) described in the Financial Statements,  (b) otherwise disclosed to the Banks
in the  Disclosure  Statement,  (c) disclosed in a notice to the  Administrative
Agent  pursuant  to Section  9.11 with  respect to such as could  reasonably  be
expected to have a Material  Adverse  Effect or (d) not prohibited by applicable
provisions  of Section  10, no  litigation,  legal,  administrative  or arbitral
proceeding,  investigation,  or other  action  of any  nature  exists or (to the
knowledge of the Parent or the Company) is  threatened  against or affecting the
Parent or any  Subsidiary  of the Parent which could  reasonably  be expected to
result in any  judgment  which could  reasonably  be expected to have a Material
Adverse Effect,  or which in any manner challenges or may challenge or draw into
question the validity of this  Agreement,  the Notes or any other Loan Document,
or enjoins or threatens to enjoin or otherwise  restrain any of the transactions
contemplated by any of them.

         8.9 Taxes and  Governmental  Charges.  The Parent and its  Subsidiaries
have filed,  or obtained  extensions with respect to the filing of, all material
tax returns and reports  required to be filed and have paid all material  taxes,
assessments, fees and other governmental charges levied upon any of them or upon
any of  their  respective  properties  or  income  which  are due  and  payable,
including  interest and penalties,  or have provided  adequate  reserves for the
payment thereof.

         8.10 Title to Properties. The Parent and its Subsidiaries have good and
defensible title to their respective  properties  included in the Borrowing Base
(including, without limitation, all fee and leasehold interests), free and clear
of all Liens except (a) those  referred to in the Financial  Statements,  (b) as
disclosed  to the  Banks in the  Disclosure  Statement  or (c) as  permitted  by
Section 10.2.

         8.11 Defaults.  Neither  the Parent nor any Subsidiary of the Parent is
in  default,  which  default  could  reasonably  be  expected to have a Material
Adverse Effect, under any indenture,



                                       53

<PAGE>



mortgage,  deed of trust,  agreement or other  instrument to which the Parent or
any Subsidiary of the Parent is a party or by which the Parent or any Subsidiary
of the Parent or the property of the Parent or any  Subsidiary  of the Parent is
bound,  except as (a) disclosed to the Banks in the  Disclosure  Statement,  (b)
disclosed in a notice to the Administrative  Agent pursuant to Section 9.11 with
respect to such as could  reasonably  be  expected  to have a  Material  Adverse
Effect or (c) specifically  permitted by applicable provisions of Section 10. No
Default under this Agreement,  the Notes or any other Loan Document has occurred
and is continuing.

         8.12 Location of Businesses and Offices.  Except to the extent that the
Administrative  Agent has been  furnished  written  notice to the contrary or of
additional locations, pursuant to Section 9.11, the Company's principal place of
business and chief  executive  offices are located at the address  stated on the
signature page hereof and the principal  places of business and chief  executive
offices of each Subsidiary of the Parent are described on Exhibit D hereto.  The
Parent's  principal  place of  business  and chief  executive  office is at 1001
Fannin, Suite 1700, Houston, Texas 77002.

         8.13 Compliance with Law.  Neither the Parent nor any Subsidiary of the
Parent  (except as (a) disclosed to the Banks in the Disclosure  Statement,  (b)
disclosed in a notice to the Administrative  Agent pursuant to Section 9.11 with
respect to such as could  reasonably  be  expected  to have a  Material  Adverse
Effect or (c) not prohibited by applicable provisions of Section 10):

         (a) is in violation of any Legal Requirement; or

         (b) has  failed to  obtain  any  license,  permit,  franchise  or other
governmental authorization necessary to the ownership of any of their respective
properties or the conduct of their  respective  business;  which  violation   or
failure  could  reasonably  be  expected to have a Material Adverse Effect.

         8.14 Margin  Stock.  None of the proceeds of the Loans will be used for
the  purpose  of, and  neither  the Parent nor any  Subsidiary  of the Parent is
engaged in the business of extending credit for the purpose of (a) purchasing or
carrying any "margin stock" as defined in Regulation U of the Board of Governors
of the Federal  Reserve System (12 C.F.R.  Part 221) or (b) reducing or retiring
any  indebtedness  which was  originally  incurred to  purchase or carry  margin
stock,  if such  purpose  under  either (a) or (b) above would  constitute  this
transaction a "purpose  credit" within the meaning of said  Regulation U, or for
any other purpose which would  constitute this  transaction a "purpose  credit".
Neither the Parent nor any Subsidiary of the Parent is engaged  principally,  or
as one of its important activities,  in the business of extending credit for the
purpose of  purchasing  or carrying  margin  stocks.  Neither the Parent nor any
Subsidiary of the Parent nor



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any Person  acting on behalf of the Parent or any  Subsidiary  of the Parent has
taken or will take any  action  which  might  cause the Notes or any of the Loan
Documents,  including  this  Agreement,  to  violate  Regulation  U or any other
regulation  of the Board of  Governors  of the  Federal  Reserve  System,  or to
violate any similar provision of the Securities Exchange Act of 1934 or any rule
or regulation under any such provision thereof.

         8.15  Subsidiaries.  The  Parent  has no Subsidiaries as of the date of
this Agreement except those shown in Exhibit D hereto.

         8.16  ERISA.  With  respect  to each  Plan,  the  Parent and each ERISA
Affiliate have fulfilled  their  obligations,  including  obligations  under the
minimum  funding  standards of ERISA and the Code,  and are in compliance in all
material  respects with the  provisions of ERISA and the Code. The Parent has no
knowledge  of any event which could  result in a liability  of the Parent or any
ERISA Affiliate to the PBGC or a Plan (other than to make  contributions  in the
ordinary course).  Since the effective date of Title IV of ERISA, there have not
been any nor are there now  existing any events or  conditions  that would cause
the Lien  provided  under Section 4068 of ERISA to attach to any property of the
Parent or any ERISA Affiliate. There are no Unfunded Liabilities with respect to
any Plan other than those specifically described in the certificate delivered in
accordance with Section 7.1(i).  No "prohibited  transaction"  has occurred with
respect to any Plan.

         8.17  Investment  Company  Act.  Neither  the  Parent  nor  any  of its
Subsidiaries  is an  investment  company  within the  meaning of the  Investment
Company Act of 1940, as amended,  or,  directly or indirectly,  controlled by or
acting  on behalf of any  Person  which is an  investment  company,  within  the
meaning of said Act.

         8.18 Public Utility Holding Company Act.  Neither the Parent nor any of
its  Subsidiaries  (i) is subject to regulation under the Public Utility Holding
Company Act of 1935, as amended (the "PUHC Act"),  except as to Section  9(a)(2)
thereof (15  U.S.C.A.  ss.79(i)(a)(2)),  or (ii) is in  violation  of any of the
provisions, rules, regulations or orders of or under the PUHC Act. Further, none
of  the  transactions  contemplated  under  this  Agreement,  including  without
limitation,  the making of the Loans,  the issuance of the Letters of Credit and
the  creation  of any  Liens  pursuant  to the Loan  Documents,  shall  cause or
constitute a violation of any of the provisions, rules, regulations or orders of
or under  the PUHC Act and the  PUHC  Act  does  not in any  manner  impair  the
legality,  validity or enforceability of the Notes or any Liens created pursuant
to the Loan  Documents.  The  Parent  has duly  filed  with the  Securities  and
Exchange  Commission  good  faith  applications  (each an  "Application")  under
Section 2(a)(8) of the PUHC Act (15 U.S.C.A.  ss.79(b)(a)(8))  for a declaration
of  non-subsidiary  status pursuant to such Section 2(a)(8) with respect to each
Person (each a "Specified Shareholder") which owns, controls or holds with power
to vote, directly or indirectly,  a sufficient quantity of the voting securities
of the Parent to be construed as a "holding company", as such term is defined in
the PUHC Act, in respect of the



                                       55

<PAGE>



Parent. All of the information  contained in such Applications,  as amended, was
true as of the most recent filing date with respect  thereto  (provided that the
Parent may, unless it has actual current knowledge to the contrary,  rely solely
upon written information  furnished by any Specified Shareholder with respect to
background  information  about the Specified  Shareholder  and the nature of the
ownership  by  such  Specified  Shareholder  or its  Affiliates  of  the  voting
securities  of the  Parent),  and the  Parent  knows of no reason  why each such
Application, if acted upon by the Securities and Exchange Commission,  would not
be approved. True and correct copies of each such Application and any amendments
thereto,  as filed, have been furnished to the Administrative  Agent. The Parent
has not received any written notice from the Securities and Exchange  Commission
with respect to any such  Application  other than as disclosed in writing to the
Administrative Agent.

         8.19  Environmental  Matters.  Except as  disclosed  in the  Disclosure
Statement,  (i) the Parent and it  Subsidiaries  have obtained and maintained in
effect all  Environmental  Permits  (or has  initiated  the  necessary  steps to
transfer the  Environmental  Permits into its name), the failure to obtain which
could reasonably be expected to have a Material Adverse Effect,  (ii) the Parent
and its Subsidiaries and their properties,  assets, business and operations have
been and are in compliance with all applicable Requirements of Environmental Law
and  Environmental  Permits  failure to comply  with which could  reasonably  be
expected  to  have  a  Material  Adverse  Effect,   (iii)  the  Parent  and  its
Subsidiaries  and their  properties,  assets,  business and  operations  are not
subject to any (A)  Environmental  Claims or (B) Environmental  Liabilities,  in
either case direct or contingent,  and whether known or unknown, arising from or
based upon any act,  omission,  event,  condition or  circumstance  occurring or
existing on or prior to the date hereof  which could  reasonably  be expected to
have a Material Adverse Effect, and (iv) no Responsible Officer of the Parent or
any of its  Subsidiaries  has  received  any notice of any  violation or alleged
violation of any  Requirements of Environmental  Law or Environmental  Permit or
any Environmental Claim in connection with its assets,  properties,  business or
operations which could reasonably be expected to have a Material Adverse Effect.
The liability (including without limitation any Environmental  Liability and any
other damage to persons or property), if any, of the Parent and its Subsidiaries
and with respect to their properties,  assets,  business and operations which is
reasonably  expected to arise in connection with  Requirements of  Environmental
Laws currently in effect and other  environmental  matters  presently known by a
Responsible  Officer of the Parent will not have a Material  Adverse Effect.  No
Responsible  Officer of the Parent knows of any event or condition  with respect
to Environmental Matters with respect to any of its properties or the properties
of any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect. For purposes of this Section 8.19, "Environmental Matters" shall
mean matters relating to pollution or protection of the environment,  including,
without limitation,  emissions,  discharges,  releases or threatened releases of
Hazardous  Substances  into  the  environment  (including,  without  limitation,
ambient air, surface water or ground water, or land surface or sub surface),  or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.

         8.20  Claims  and  Liabilities.  Except  as  disclosed  to the Banks in
writing,  neither  the  Parent  nor  any of its  Subsidiaries  has  accrued  any
liabilities under gas purchase  contracts for gas not taken, but for which it is
liable to pay if not made up and  which,  if not  paid,  would  have a  Material
Adverse  Effect.  Except as disclosed  to the Banks in writing,  no claims exist
against  the  Parent or its  Subsidiaries  for gas  imbalances  which  claims if
adversely  determined  would have a Material  Adverse  Effect.  No  purchaser of
product  supplied by the Parent or any of its Subsidiaries has any claim against
the  Parent or any of its  Subsidiaries  for  product  paid  for,  but for which
delivery was not taken as and when paid for, which claim if adversely determined
would have a Material Adverse Effect.

         8.21 Solvency.  Neither the Parent nor the Parent and its Subsidiaries,
on a  consolidated  basis,  is  "insolvent",  as such term is used  (and,  where
applicable,  defined)  in (i)  the  Bankruptcy  Code  and  (ii)  the  Companies'
Creditors Arrangement Act (Canada).

         Section 9.  Affirmative  Covenants.  A deviation from the provisions of
this  Section 9 will not  constitute  a Default  under  this  Agreement  if such
deviation is consented  to in writing by the Majority  Banks.  Without the prior
written consent of the Majority Banks,  the Company (or, where  applicable,  the
Parent)  agrees  with  the  Banks  and the  Agents  that,  so long as any of the
Commitments is in effect and until payment in full of all Loans  hereunder,  the
repayment  in  full  of  the  full  face  amount  of  all  outstanding  Bankers'
Acceptances,  the  termination or expiry of all Letters of Credit and payment in
full of Letter of Credit Liabilities, all interest thereon and all other amounts
payable by the Company hereunder:

         9.1 Financial  Statements and Reports. The Parent will promptly furnish
to any Bank  from time to time  upon  request  such  information  regarding  the
business and affairs and financial  condition of the Parent and its Subsidiaries
as such Bank may  reasonably  request,  and will  furnish to the  Administrative
Agent and each of the Banks:

         (a) Annual Reports - promptly after becoming available and in any event
within 100 days after the close of each fiscal year of the Parent:

          (i) the  audited  consolidated  balance  sheet of the  Parent  and its
Subsidiaries as of the end of such year;

          (ii) the audited consolidated  statement of earnings of the Parent and
its Subsidiaries for such year;




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<PAGE>



          (iii) the audited  consolidated  statement of cash flows of the Parent
and its Subsidiaries for such year;

          (iv) the unaudited  consolidated balance sheet,  statement of earnings
and  statement  of cash  flows and  unaudited  consolidating  balance  sheet and
statement of earnings of the Company and its Subsidiaries, each for such year or
as of the end of such year, as the case may be;

          (v) a report prepared by a petroleum engineer,  who may be an employee
of  the  Parent  or its  Subsidiaries,  setting  forth  the  historical  monthly
production  data  for  Hydrocarbons  produced  and  sold by the  Parent  and its
Subsidiaries  for such year;  setting forth in each case in comparative form the
corresponding  figures for the  preceding  fiscal year,  and, in the case of the
audited Financial Statements,  audited and accompanied by the related opinion of
KPMG  Peat  Marwick  or  other  independent   certified  public  accountants  of
recognized  national  standing  acceptable to the Majority Banks,  which opinion
shall state that such audited  balance sheets and statements  have been prepared
in accordance with GAAP  consistently  followed  throughout the period indicated
and  fairly  present  the  consolidated   financial  condition  and  results  of
operations  of the  applicable  Persons as at the end of, and for,  such  fiscal
year; and

         (b) Quarterly Reports - as soon as available and in any event within 50
days after the end of each of the first three  quarterly  periods in each fiscal
year of the Parent:

          (i) the  unaudited  consolidated  balance  sheet of the Parent and its
Subsidiaries as of the end of such quarter;

          (ii) the  unaudited  consolidated  statement of earnings of the Parent
and its  Subsidiaries  for such quarter and for the period from the beginning of
the fiscal year to the close of such quarter;

          (iii) the unaudited consolidated statement of cash flows of the Parent
and its  Subsidiaries  for such quarter and for the period from the beginning of
the fiscal year to the close of such quarter;

          (iv) the unaudited  consolidated balance sheet,  statement of earnings
and  statement  of cash  flows and  unaudited  consolidating  balance  sheet and
statement of earnings of the Company and its Subsidiaries, each for such quarter
and for the period  from the  beginning  of the fiscal year to the close of such
quarter;



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<PAGE>



          (v) a report prepared by a petroleum engineer,  who may be an employee
of  the  Parent  or its  Subsidiaries,  setting  forth  the  historical  monthly
production  data  for  Hydrocarbons  produced  and  sold by the  Parent  and its
Subsidiaries  for such quarter;  all of items (i) through (iv) above prepared on
substantially  the same  accounting  basis as the annual  reports  described  in
Subsection   9.1(a),   subject  to  normal   changes   resulting  from  year-end
adjustments; and

         (c) Parent  Report - promptly after becoming available and in any event
on or before September 1 of each year, a Parent Report; and

         (d) Other Bank  Requirements - at such time as the same are required to
be furnished to other lenders under other  financing  arrangements  to which the
Parent or any of its  Subsidiaries may be a party or be bound from time to time,
a copy of any report, certificate, affidavit or other information required to be
furnished to any such lender; and

         (e) SEC and Other  Reports -  promptly  upon  their  becoming  publicly
available,  one copy of each financial statement,  report,  notice or definitive
proxy  statement sent by the Parent or any of its  Subsidiaries  to shareholders
generally,  and  of  each  regular  or  periodic  report  and  any  registration
statement,  prospectus or written communication (other than transmittal letters)
in respect  thereof  filed by the  Parent or any of its  Subsidiaries  with,  or
received by the Parent or any of its Subsidiaries in connection  therewith from,
any  securities  exchange  or the  Securities  and  Exchange  Commission  or any
successor agency; and

         (f) Engineering  Report - promptly after becoming  available and in any
event on or before March 15 of each year,  commencing  with March 15,  1998,  an
Engineering Report.

         All of the balance sheets and other financial statements referred to in
this Section 9.1 will be in such detail as any Bank may  reasonably  request and
will conform to GAAP applied on a basis  consistent  with those of the Financial
Statements  as of December  31,  1996.  In  addition,  if GAAP shall change with
respect  to any  matter  relative  to  determination  of  compliance  with  this
Agreement,  the Parent will also provide financial information necessary for the
Banks to determine compliance with this Agreement.

         9.2      Officers' Certificates.

          (a)   Concurrently   with  the  furnishing  of  the  annual  financial
statements  pursuant to Subsection 9.1(a),  commencing with the annual financial
statements required to be delivered in



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<PAGE>



1998,  the Parent will furnish or cause to be  furnished  to the  Administrative
Agent certificates of compliance, as follows:

          (i) a  certificate  signed by the principal  financial  officer of the
Parent and the principal financial officer of the Company in the form of Exhibit
E; and

          (ii) a certificate  from the independent  public  accountants  stating
that  their  audit  has not  disclosed  the  existence  of any  condition  which
constitutes a Default, or if their audit has disclosed the existence of any such
condition, specifying the nature and period of existence.

         (b)  Concurrently  with  the  furnishing  of  the  quarterly  financial
statements  pursuant  to  Subsection  9.1(b),  the  Parent  will  furnish to the
Administrative  Agent a certificate signed by the principal financial officer of
the Parent and the  principal  financial  officer of the  Company in the form of
Exhibit E.

         (c)  Concurrently  with the delivery of any Borrowing Base  Certificate
under the U.S. Facility, the Parent will furnish to the Administrative Agent and
the Paying Agent a true, correct and complete copy thereof.

         (d)  Concurrently  with the  furnishing  of any  Engineering  Report or
Parent  Report,  the  Company  will  furnish  to  the  Administrative   Agent  a
certificate  signed  by an  appropriate  officer  of the  Parent  and any  other
applicable Relevant Party in the form of Exhibit G.

         9.3  Taxes  and  Other  Liens.  The  Parent  will and will  cause  each
Subsidiary  of the Parent to pay and discharge  promptly all taxes,  assessments
and  governmental  charges or levies imposed upon the Parent or such Subsidiary,
or upon the income or any property of the Parent or such Subsidiary,  as well as
all claims of any kind (including claims for labor,  materials,  supplies,  rent
and  payment of proceeds  attributable  to  Hydrocarbon  production)  which,  if
unpaid,  might result in or become a Lien upon any or all of the property of the
Parent or such Subsidiary;  provided,  however, that neither the Parent nor such
Subsidiary  will be required to pay any such tax,  assessment,  charge,  levy or
claims if the  amount,  applicability  or validity  thereof  will  currently  be
contested in good faith by appropriate  proceedings  diligently conducted and if
the Parent or such Subsidiary will have set up reserves  therefor adequate under
GAAP.

         9.4  Maintenance.  Except as referred  to in Sections  8.1 and 8.13 and
except as  permitted  under  Section  10.5,  the Parent will and will cause each
Subsidiary of the Parent to: (i) maintain its corporate existence; (ii) maintain
its rights and franchises,  except for any mergers or  consolidations  otherwise
permitted by this  Agreement and except to the extent failure to so maintain the
same would not have a Material Adverse Effect; (iii) observe and comply (to the



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extent that any failure  would have a Material  Adverse  Effect)  with all valid
Legal Requirements  (including without limitation  Requirements of Environmental
Law);  and (iv) maintain  (except to the extent  failure to so maintain the same
would not have a Material  Adverse  Effect) its  properties  (and any properties
leased by or consigned to it or held under title retention or conditional  sales
contracts) consistent with the standards of a reasonably prudent operator at all
times  and  make  all  repairs,   replacements,   additions,   betterments   and
improvements  to its  properties  consistent  with the standards of a reasonably
prudent operator.

         9.5 Further Assurances.  The Parent will and will cause each Subsidiary
of the Parent to cure  promptly  any defects in the creation and issuance of the
Notes and the  execution  and  delivery of the Loan  Documents,  including  this
Agreement.  The Parent at its expense will  promptly  execute and deliver to the
Administrative  Agent  upon  request  all  such  other  and  further  documents,
agreements  and  instruments  (or  cause  any of its  Subsidiaries  to take such
action) in compliance with or  accomplishment of the covenants and agreements of
the Parent or any of its  Subsidiaries  in the Loan  Documents,  including  this
Agreement,  or to correct any  omissions in the Loan  Documents,  or to make any
recordings, to file any notices, or obtain any consents, all as may be necessary
or appropriate in connection therewith.

         9.6  Performance  of  Obligations.  The  Company  will  pay  the  Notes
according to the reading,  tenor and effect thereof; and the Company will do and
perform every act and discharge all of the obligations  provided to be performed
and  discharged by the Company under this Agreement and the other Loan Documents
at the  time  or  times  and in the  manner  specified,  and  cause  each of its
Subsidiaries  to take  such  action  with  respect  to their  obligations  to be
performed and discharged under the Loan Documents to which they respectively are
parties.

         9.7 Reimbursement of Expenses.  Whether or not any Loan is ever made or
any Letter of Credit is ever issued,  the Company agrees to pay or reimburse the
Administrative  Agent for paying the  reasonable  fees and  expenses of Liddell,
Sapp,  Zivley,  Hill & LaBoon,  L.L.P.,  special  counsel to the  Administrative
Agent,  together with the reasonable  fees and expenses of local counsel engaged
by the Administrative Agent, in connection with the negotiation of the terms and
structure of the Obligations,  the  preparation,  execution and delivery of this
Agreement  and the  other  Loan  Documents  and the  making of the Loans and the
issuance of Letters of Credit hereunder, as well as any modification, supplement
or waiver of any of the terms of this  Agreement  and the other Loan  Documents.
The Company will  promptly upon request and in any event within 30 days from the
date of receipt by the Company of a copy of a bill for such  amounts,  reimburse
any Bank or any Agent for all amounts reasonably expended,  advanced or incurred
by such Bank or such Agent to satisfy any obligation of the Company or any other
Relevant Party under this  Agreement or any other Loan Document,  to protect the
properties or business of the Parent or any Subsidiary of the Parent, to collect
the Obligations,  or to enforce the rights of such Bank or such Agent under this
Agreement or any other Loan Document, which amounts will



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include without  limitation all court costs,  attorneys' fees (but not including
allocated costs of in-house counsel), any engineering fees and expenses, fees of
auditors,  accountants and  appraisers,  investigation  expenses,  all transfer,
stamp,  documentary  or similar  taxes,  assessments  or  charges  levied by any
governmental or revenue authority in respect of any of the Loan Documents or any
other document referred to therein, all costs, expenses,  taxes, assessments and
other charges incurred in connection with any filing, registration, recording or
perfection of any Lien contemplated by any of the Loan Documents or any document
referred to therein,  fees and expenses  incurred in connection with such Bank's
participation  as a member of a creditors'  committee in a case commenced  under
the  Bankruptcy  Code or other  similar  law of the  United  States or any state
thereof or of Canada or any  province  thereof,  fees and  expenses  incurred in
connection  with lifting the automatic stay prescribed in ss.362 Title 11 of the
United States Code or in connection with any similar  proceeding  under the laws
of Canada or any province thereof,  and fees and expenses incurred in connection
with any action  pursuant  to ss.1129  Title 11 of the United  States Code or in
connection with any similar  proceeding under the laws of Canada or any province
thereof, and all other customary out-of-pocket expenses incurred by such Bank or
such Agent in  connection  with such matters,  together with interest  after the
expiration  of the 30-day  period  stated  above in this  Section if no Event of
Default has occurred and is  continuing,  or from the date of the request to the
Company if an Event of Default has occurred and is continuing, at either (i) the
Post-Default  Rate on each such amount until the date of  reimbursement  to such
Bank or such Agent,  or (ii) if no Event of Default  will have  occurred  and be
continuing,  the  Alternate  Base Rate plus the  highest  Applicable  Margin for
Alternate  Base Rate Loans (not to exceed the Highest  Lawful Rate) on each such
amount until the date of the Company's  receipt of written  demand or request by
such Bank or such Agent for the  reimbursement  of same,  and  thereafter at the
applicable  Post-Default  Rate until the date of  reimbursement  to such Bank or
such Agent.  The obligations of the Company under this Section are  compensatory
in nature,  shall be deemed  liquidated as to amount upon receipt by the Company
of a copy of any invoice therefor,  and will survive the  non-assumption of this
Agreement in a case commenced  under the Bankruptcy Code or other similar law of
the United States or any state thereof or of Canada or any province thereof, and
will remain binding on the Company and any trustee,  receiver,  or liquidator of
the Company appointed in any such case.

         9.8 Insurance.  The Parent and its  Subsidiaries  will  maintain,  with
financially  sound and  reputable  insurers,  insurance  with  respect  to their
respective properties and business against such liabilities,  casualties,  risks
and  contingencies  and in such types and amounts as is customary in the case of
corporations  engaged in the same or similar businesses and similarly  situated.
Upon the request of the  Administrative  Agent acting at the  instruction of the
Majority  Banks,  the  Parent  will  furnish  or  cause to be  furnished  to the
Administrative  Agent from time to time a summary of the  insurance  coverage of
the  Parent  and its  Subsidiaries  in form and  substance  satisfactory  to the
Majority Banks in their reasonable  judgment,  and if requested will furnish the
Administrative Agent copies of the applicable policies.  Subject to the terms of
Section 3 hereof, in the case of



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any fire, accident or other casualty causing loss or damage to any properties of
the Parent or any of its  Subsidiaries,  the proceeds of such  policies  will be
used (i) to  repair or  replace  the  damaged  property  or (ii) to  prepay  the
Obligations, at the election of the Company.

         9.9  Accounts  and  Records.  The Parent  will keep and will cause each
Subsidiary  of the  Parent to keep  books of record  and  account  which  fairly
reflect all dealings or transactions in relation to their respective  businesses
and activities,  in accordance with GAAP, which books of record and account will
be maintained,  to the extent necessary to enable compliance with all provisions
of this  Agreement,  separately  for each such  Subsidiary,  the  Parent and any
division of the Parent.

         9.10 Rights of  Inspection.  The Parent will permit and will cause each
of its  Subsidiaries to permit any officer,  employee,  or agent of any Agent or
any Bank to meet with the  consultants  who prepared any applicable  Engineering
Report and to review such Engineering  Report with such consultants and to visit
and inspect any of the properties of the Parent or such Subsidiary,  examine the
Parent's  or such  Subsidiary's  books of record and  accounts,  take copies and
extracts therefrom,  and discuss the affairs,  finances and accounts of the Bank
or such Subsidiary with the Parent's or such Subsidiary's officers,  accountants
and auditors,  all at such reasonable  times during normal business hours and as
often as such Agent or such Bank may reasonably  desire,  and will assist in all
such matters.

         9.11  Notice of Certain  Events.  The Parent will  promptly  notify the
Administrative  Agent (and the Administrative  Agent will then notify all of the
Banks) if a Responsible Officer of the Parent learns of the occurrence of, or if
the Parent causes or intends to cause, as the case may be:

          (i) any event which  constitutes  a Default,  together with a detailed
statement  by a  Responsible  Officer of the Parent of the steps  being taken to
cure the effect of such Default; or

          (ii) the receipt of any notice from, or the taking of any other action
by,  the  holder  of  any  promissory  note,  debenture  or  other  evidence  of
indebtedness  of the Parent or any  Subsidiary  of the Parent or of any security
(as  defined in the  Securities  Act of 1933,  as  amended) of the Parent or any
Subsidiary  of the Parent with  respect to a claimed  default,  together  with a
detailed statement by a Responsible  Officer of the Parent specifying the notice
given or other action taken by such holder and the nature of the claimed default
and what action the Parent or such Subsidiary is taking or proposes to take with
respect thereto; or

          (iii) any legal,  judicial or  regulatory  proceedings  affecting  the
Parent or any Subsidiary of the Parent or any of the properties of the Parent or
any Subsidiary of the Parent in which the amount involved is materially  adverse
to the Parent and its Subsidiaries taken as a



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whole,  and is not covered by insurance or which, if adversely determined, would
have a Material Adverse Effect; or

          (iv) any dispute  between the Parent or any  Subsidiary  of the Parent
and  any  Governmental  Authority  or  any  other  Person  which,  if  adversely
determined, could reasonably be expected to have a Material Adverse Effect; or

          (v) the  occurrence  of a default or event of default by the Parent or
any  Subsidiary of the Parent under any other  agreement to which it is a party,
which  default  or event of  default  could  reasonably  be  expected  to have a
Material Adverse Effect; or

          (vi) any change in the accuracy of the  representations and warranties
of the Parent or any  Subsidiary  contained in this  Agreement or any other Loan
Document; or

          (vii) any  material  violation  or alleged  material  violation of any
Requirements of Environmental  Law or Environmental  Permit or any Environmental
Claim or any Environmental Liability; or

          (viii) any tariff and rate cases and other  material  reports filed by
the Parent or any of its Subsidiaries  with any  Governmental  Authority and any
notice to the Parent or any of its Subsidiaries from any Governmental  Authority
concerning noncompliance with any applicable Legal Requirement; or

          (ix) the existence of any Borrowing Base Deficiency; or

          (x)  within 10 days after the date on which a  Responsible  Officer of
the Parent has actual knowledge thereof, the receipt of any notice by the Parent
or any of its  Subsidiaries  of any claim of  nonpayment  of, or any  attempt to
collect or enforce,  accounts  payable of the Parent or any of its  Subsidiaries
exceeding, in the case of any one account payable at one time outstanding,  U.S.
$1,000,000  and in the case of all accounts  payable in the aggregate at any one
time outstanding, U.S. $3,000,000; or

          (xi) any  requirement  for the  payment  of all or any  portion of any
Indebtedness  of the  Parent  or any of its  Subsidiaries  prior  to the  stated
maturity  thereof (whether by acceleration or otherwise) or as the result of any
failure to maintain  or the  reaching of any  threshold  amount  provided in any
promissory note, bond, debenture, or other evidence of Indebtedness or under any
credit agreement,  loan agreement,  indenture or similar  agreement  executed in
connection with any of the foregoing; or




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<PAGE>



          (xii) any notice from the  Securities  and  Exchange  Commission  with
respect to any Application (as defined in Section 8.18 hereof).

         9.12 ERISA Information and Compliance. The Parent will promptly furnish
to the  Administrative  Agent (i) immediately upon receipt, a copy of any notice
of  complete  or partial  withdrawal  liability  under Title IV of ERISA and any
notice  from the PBGC  under  Title IV of ERISA of an  intent  to  terminate  or
appoint  a  trustee  to   administer   any  Plan,   (ii)  if  requested  by  the
Administrative  Agent, acting on the instruction of the Majority Banks, promptly
after the filing  thereof with the United States  Secretary of Labor or the PBGC
or the  Internal  Revenue  Service,  copies of each annual and other report with
respect to each Plan or any trust created  thereunder,  (iii)  immediately  upon
becoming  aware of the  occurrence of any  "reportable  event",  as such term is
defined in  Section  4043 of ERISA,  for which the  disclosure  requirements  of
Regulation  Section 2615.3  promulgated by the PBGC have not been waived,  or of
any  "prohibited  transaction",  as such term is defined 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 Parent
or the applicable ERISA Affiliate specifying the nature thereof, what action the
Parent or the  applicable  ERISA  Affiliate  is taking or  proposes to take with
respect  thereto,  and, when known,  any action taken by the PBGC,  the Internal
Revenue Service or the Department of Labor with respect  thereto,  (iv) promptly
after the filing or  receiving  thereof by the Parent or any ERISA  Affiliate of
any notice of the  institution  of any  proceedings  or other  actions which may
result in the  termination  of any Plan,  and (v) each request for waiver of the
funding standards or extension of the amortization  periods required by Sections
303 and 304 of ERISA or Section  412 of the Code  promptly  after the request is
submitted by the Parent or any ERISA Affiliate to the Secretary of the Treasury,
the Department of Labor or the Internal Revenue Service,  as the case may be. To
the extent required under applicable statutory funding requirements,  the Parent
will fund,  or will cause each ERISA  Affiliate  to fund,  all  current  service
pension  liabilities as they are incurred under the provisions of all Plans from
time to time in effect,  and comply  with all  applicable  provisions  of ERISA,
except to the extent that any such  failure to comply  could not  reasonably  be
expected to have a Material  Adverse Effect.  The Parent covenants that it shall
and shall cause each ERISA Affiliate to (1) make contributions to each Plan in a
timely  manner  and in an  amount  sufficient  to comply  with the  contribution
obligations  under such Plan and the minimum funding  standards  requirements of
ERISA;  (2) prepare and file in a timely manner all notices and reports required
under the terms of ERISA  including but not limited to annual  reports;  and (3)
pay in a timely manner all required PBGC  premiums,  in each case, to the extent
failure to do so would have a Material Adverse Effect.

         Section 10. Negative Covenants. A deviation from the provisions of this
Section 10 will not  constitute a Default under this Agreement if such deviation
is  consented  to in writing by the  Majority  Banks.  The  Company  (or,  where
applicable,  the Parent)  agrees with the Banks and the Agents that,  so long as
any of the Commitments is in effect and until payment in full of all Loans



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hereunder,  the  payment  in full of the full  face  amount  of all  outstanding
Bankers'  Acceptances,  the  termination  or expiry of all Letters of Credit and
payment in full of Letter of Credit  Liabilities,  all interest  thereon and all
amounts payable by the Company hereunder:

         10.1 Debts,  Guarantees and Other Obligations.  The Parent will not and
will not  permit  any of its  Subsidiaries  (other  than APC) to incur,  create,
assume or in any  manner  become or be liable  in  respect  of any  Indebtedness
(including  obligations for the payment of rentals); and the Parent will not and
will not  permit  any of its  Subsidiaries  (other  than  APC) to  Guarantee  or
otherwise  in any way  become or be  responsible  for  obligations  of any other
Person, whether by agreement to purchase the Indebtedness of any other Person or
agreement for the  furnishing of funds to any other Person  through the purchase
or lease of goods,  supplies or services (or by way of stock  purchase,  capital
contribution,  advance  or loan) for the  purpose of paying or  discharging  the
Indebtedness  of any other  Person,  or  otherwise,  except  that the  foregoing
restrictions will not apply to:

          (a) the Notes, the Bankers'  Acceptances or other  Indebtedness  under
the Loan Documents;

          (b) liabilities, direct or contingent, of the Parent or any Subsidiary
of the Parent  existing on the date of this Agreement which are reflected in the
Financial Statements or the Disclosure  Statement and all renewals,  extensions,
refinancings and rearrangements, but not increases, thereof;

          (c)  endorsements of negotiable or similar  instruments for collection
or deposit in the ordinary course of business;

          (d)  trade  payables,   lease   acquisition   and  lease   maintenance
obligations,  extensions of credit from  suppliers or  contractors,  liabilities
incurred in exploration, development and operation of the Parent's or any of its
Subsidiaries'  oil and gas properties or similar  obligations  from time to time
incurred in the  ordinary  course of business,  other than for  borrowed  money,
which are paid within 90 days after the invoice date  (inclusive  of  applicable
grace  periods) or (i) are being  contested  in good faith,  if such  reserve as
required by GAAP has been made  therefor or (ii) trade  accounts  payable of the
Parent  and its  Subsidiaries  (with  respect  to which no legal  proceeding  to
enforce  collection has been  commenced or, to the knowledge of any  Responsible
Officer of the Parent,  threatened) not exceeding,  in the aggregate at any time
outstanding, U.S. $25,000,000;

          (e) taxes,  assessments or other government  charges which are not yet
due or are  being  contested  in  good  faith  by  appropriate  action  promptly
initiated and diligently conducted,  if such reserve as will be required by GAAP
will have been made therefor;




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<PAGE>



          (f) Borrowing Base Debt of the Parent;  provided that the aggregate of
all  Indebtedness  permitted under this Subsection  10.1(f) shall not exceed the
amount  by which  the then  current  Borrowing  Base  exceeds  the then  current
"Revolving Credit Obligations" under the U.S. Facility;

          (g) to the extent,  if any, not covered by Subsection (b) hereinabove,
the  Indebtedness  of the  Parent to APC  evidenced  solely by the  Intercompany
Notes,  as  defined  in the  Beluga  Financing  Documents  and the APC Long Term
Financing  Documents,  together  with  any  renewals,  extensions,   amendments,
refinancings,  rearrangements,  modifications,  restatements or supplements, but
not increases  (other than increases which are permitted under the present terms
of the Beluga  Financing  Documents and the APC Long Term  Financing  Documents)
thereof from time to time;

          (h) intercompany  Indebtedness owed to the Parent by any Subsidiary of
the Parent and intercompany Indebtedness owed to any Subsidiary of the Parent by
the Parent or any other Subsidiary of the Parent which is fully  subordinated to
the Obligations;

          (i)  loans,  advances  or  extensions  of credit to the Parent for the
purpose of financing no more than 75% of the purchase  price of any fixed assets
which are not included in the property  taken into  account in  determining  the
Borrowing Base and which are considered in the categories of property,  plant or
equipment according to GAAP applied on a consistent basis;

          (j) obligations of the Parent under the Gas Sales  Contract,  together
with  any  renewals,  extensions,  amendments,   refinancings,   rearrangements,
modifications, restatements or supplements, but not increases, thereof from time
to time;

          (k) the  Guarantee  by the Parent or any  Subsidiary  of the Parent of
payment or  performance  by any  Subsidiary of the Parent under any agreement so
long as the obligation guaranteed does not constitute  Indebtedness for borrowed
money;

          (l)  obligations  of the Parent and Wacker Oil Inc.  pursuant  to that
certain Agreement  Regarding  Contingent  Payments For Well No. 3 and Well No. 9
dated as of June 18, 1990, by and among Costain  Holdings Inc.,  Wacker Oil Inc.
and the Parent;

          (m)  obligations  of the Parent or any of its  Subsidiaries  under gas
purchase  contracts for gas not taken,  as to which the Parent or its respective
Subsidiary is liable to pay if not made up;

          (n)  obligations  of the Parent or any of its  Subsidiaries  under any
contract for sale for future  delivery of oil or gas (whether or not the subject
oil  or  gas is to be  delivered),  hedging  contract,  forward  contract,  swap
agreement, futures contract or other similar agreement;




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<PAGE>



          (o)  obligations  of the Parent or any of its  Subsidiaries  under any
interest rate swap  agreement,  or any contract  implementing  any interest rate
cap, collar or floor, or any similar interest hedging contract;

          (p)  obligations  in  connection  with gas  imbalances  arising in the
ordinary course of business;

          (q)  Indebtedness  not  exceeding  U.S.  $1,000,000  in the  aggregate
borrowed  from  the  Amarillo  Economic   Development   Commission  and  related
Guarantees and related obligations of the Parent and its Subsidiaries;

          (r) liabilities  under leases and lease  agreements which do not cover
oil and gas  properties  to the  extent the  incurrence  and  existence  of such
liabilities  will still enable the Parent and each Subsidiary to comply with all
other  requirements of this Agreement and the other Loan Documents to which they
respectively are parties;

          (s) Subordinated Debt;

          (t)  Indebtedness  of any Oil and Gas  Subsidiary  for borrowed  money
payable  solely by recourse to properties not included in the Borrowing Base and
Indebtedness  incurred by any Gas and Liquids Pipeline  Subsidiary in connection
with the  construction  or  acquisition  of new  assets in  connection  with the
Pipeline  Operations (as defined in the U.S. Facility,  without amendment except
as  permitted  under the  Intercreditor  Agreement)  which is payable  solely by
recourse  to the  assets so  constructed  or  acquired,  each to the  extent not
otherwise expressly permitted by this Section 10.1;

          (u)  the  note  payable  which  is to be  assumed  by the  Company  in
connection with the consummation of the Novalta Contract and is to be fully paid
and satisfied out of the initial  proceeds  available  under this Agreement from
the making of Loans or the acceptance and purchase of Bankers' Acceptances; and

          (v) the U.S. Facility;

          (w)  Indebtedness of the Company having a maturity of 364 days or less
from the date of its incurrence in an aggregate  principal  amount not exceeding
Canadian $10,000,000 at any one time outstanding.

         10.2  Liens.  The  Parent  will  not and  will  not  permit  any of its
Subsidiaries to create,  incur, assume or permit to exist any Lien on any of its
or their properties (now owned or hereafter acquired), except:



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          (a) Liens securing the Indebtedness described in Subsection 10.1(a) or
10.1(v);

          (b) Liens for  taxes,  assessments  or other  governmental  charges or
levies not yet due or which are being  contested  in good  faith by  appropriate
action promptly initiated and diligently  conducted,  if such reserve as will be
required by GAAP will have been made therefor;

          (c)  Liens  of  landlords,   vendors,   contractors,   subcontractors,
carriers,  warehousemen,  mechanics, laborers or materialmen or other like Liens
arising by law in the ordinary  course of business for sums not yet due or being
contested in good faith by appropriate  action promptly initiated and diligently
conducted,  if such  reserve  as will be  required  by GAAP  will have been made
therefor;

          (d)  Liens  existing  on  property  owned by the  Parent or any of its
Subsidiaries  on the date of this  Agreement  which have been  disclosed  to the
Banks in the  Disclosure  Statement,  together  with any  renewals,  extensions,
amendments,  refinancings,   rearrangements,   modifications,   restatements  or
supplements, but not increases, thereof from time to time;

          (e) pledges or  deposits  made in the  ordinary  course of business in
connection with worker's compensation,  unemployment insurance,  social security
and other like laws;

          (f)  inchoate  liens  arising  under  ERISA to secure  the  contingent
liability of the Parent permitted by Section 9.12;

          (g) Liens in the  ordinary  course of  business,  not to exceed in the
aggregate U.S.  $10,000,000 as to the Parent and its Subsidiaries at any time in
effect,  regarding (i) the performance of bids,  tenders,  contracts (other than
for the repayment of borrowed  money or the deferred  purchase price of property
or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or
(iv) Liens to secure  progress or partial  payments made to the Parent or any of
its Subsidiaries and other Liens of like nature;

          (h)   covenants,   restrictions,   easements,   servitudes,   permits,
conditions,  exceptions,  reservations,  minor rights, minor encumbrances, minor
irregularities  in  title  or  conventional  rights  of  reassignment  prior  to
abandonment  which do not  materially  interfere  with the  occupation,  use and
enjoyment by the Parent or any Subsidiary of the Parent of its respective assets
in the normal course of business as presently  conducted,  or materially  impair
the value thereof for the purpose of such business;

          (i) Liens of operators  under joint  operating  agreements  or similar
contractual  arrangements  with respect to the relevant  entity's  proportionate
share of the expense of  exploration,  development and operation of oil, gas and
mineral leasehold or fee interests owned



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<PAGE>



jointly with others, to the extent that same relate to sums not yet due or which
are being contested in good faith by appropriate  action promptly  initiated and
diligently conducted, if such reserve as will be required by GAAP will have been
made therefor;

          (j)  Liens  created  pursuant  to the  creation  of  trusts  or  other
arrangements  funded  solely with cash,  cash  equivalents  or other  marketable
investments or securities of the type customarily  subject to such  arrangements
in  customary  financial  practice  with  respect to  long-term  or  medium-term
indebtedness  for borrowed money, the sole purpose of which is to make provision
for the retirement or defeasance,  without prepayment, of Indebtedness permitted
under Section 10.1;

          (k) Liens on the assets or properties of ENSTAR Alaska;

          (l)  the  Vendor  Financing  Arrangements  (as  defined  in  the  Mesa
Contract),  to the extent that the same shall have been deducted in  calculating
the Borrowing Base;

          (m) purchase money Liens for the  acquisition of fixed assets pursuant
to Subsec tion 10.1(i),  so long as such Liens exist solely against the relevant
fixed asset acquired and secure only the purchase money debt; provided, that the
aggregate  amount of  Indebtedness  which is secured by Liens  described in this
subsection (other than  Indebtedness  which is payable solely by recourse to the
applicable  property)  shall  not  exceed  U.S.  $10,000,000  at  any  one  time
outstanding;

          (n)  any  Lien  existing  on any  real  or  personal  property  of any
corporation  or partnership at the time it becomes a Subsidiary of the Parent or
of any  other  Subsidiary  of the  Parent,  or  existing  prior  to the  time of
acquisition upon any real or personal  property acquired by the Parent or any of
its  Subsidiaries;  provided,  that such Liens may at all times be  deducted  in
calculating the Borrowing Base from time to time in effect;

          (o) legal or equitable  encumbrances  deemed to exist by reason of the
existence  of any  litigation  or other  legal  proceeding  or arising  out of a
judgment or award with  respect to which an appeal is being  prosecuted  in good
faith by appropriate action promptly initiated and diligently conducted, if such
reserve as will be required by GAAP will have been made therefor;

          (p) any Liens securing  Indebtedness neither assumed nor guaranteed by
the Parent or any of its Subsidiaries nor on which it customarily pays interest,
existing  upon real estate or rights in or  relating to real estate  acquired by
the Parent or any of its Subsidiaries  for substation,  metering  station,  pump
station,  storage,  gathering  line,  transmission  line,  transportation  line,
distribution line or right-of-way purposes, and any Liens reserved in leases for
rent and full  compliance  with the terms of the leases in the case of leasehold
estates,  to the extent that any such Lien  referred to in this clause arises in
the normal course of business as presently conducted and



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<PAGE>



does not materially  impair the use of the property covered by such Lien for the
purposes  for  which  such  property  is held by the  Parent  or its  applicable
Subsidiary;

          (q) rights reserved to or vested in any  municipality or governmental,
statutory  or public  authority  by the terms of any  right,  power,  franchise,
grant,  license or permit,  or by any provision of law, to terminate such right,
power, franchise, grant, license or permit or to purchase, condemn,  expropriate
or recapture or to designate a purchaser of any of the property of the Parent or
any of its Subsidiaries;

          (r) rights reserved to or vested in any  municipality or governmental,
statutory or public  authority to control or regulate any property of the Parent
or any of its  Subsidiaries,  or to use such property in a manner which does not
materially impair the use of such property for the purposes for which it is held
by the Parent or its applicable Subsidiary;

          (s) any obligations or duties  affecting the property of the Parent or
any of its Subsidiaries to any municipality,  governmental,  statutory or public
authority with respect to any franchise, grant, license or permit;

          (t)  rights  of a  common  owner  of  any  interest  in  real  estate,
rights-of-way  or easements  held by the Parent or any of its  Subsidiaries  and
such common owner as tenants in common or through other common ownership;

          (u) any Liens  arising from the matters  described in Schedule 3.19 of
the Mesa Contract;

          (v) Liens securing Indebtedness permitted under Section 10.1(t) hereof
(to the extent such Liens are permitted under such Section 10.1(t));

          (w) reservations, limitations, provisos and conditions in any original
grant from the Crown or freehold  lessor of any of the properties of the Company
or its Subsidiaries;

          (x) other Liens securing Indebtedness not exceeding, in the aggregate,
U.S. $3,000,000 at any one time outstanding;

          (y) other Liens  securing  Senior Debt, but only so long as such Liens
shall  also  secure  the  Obligations  on a pari  passu  basis,  in a manner and
pursuant to documentation acceptable to the Majority Banks;

          (z) Liens (i)  granted  to or  existing  in favor of third  parties on
margin  accounts of the Parent or any of its  Subsidiaries  relating to exchange
traded contracts for the delivery of natural gas pursuant to which the Parent or
any such Subsidiary intends to take actual delivery of such


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natural gas within  forty (40) days from the then  current  date in the ordinary
course of business and not for speculative purposes, and (ii) on margin accounts
of the Parent or any of its  Subsidiaries  relating to exchange traded contracts
for the delivery of natural gas, provided, however, the aggregate balance of the
margin  accounts  subject to the Liens  permitted  by this clause (ii) shall not
exceed from time to time $10,000,000.

         10.3 Investments,  Loans and Advances. The Parent will not and will not
permit its  Subsidiaries  to make or permit to remain  outstanding any advances,
loans or other extensions of credit or capital contributions (other than prepaid
expenses  in the  ordinary  course of  business)  to (by means of  transfers  of
property or assets or otherwise),  or purchase or own any stocks,  bonds, notes,
debentures or other securities of, or incur contingent liability with respect to
(except for the  endorsement  of checks in the  ordinary  course of business and
except for the Indebtedness and Liens permitted under this Agreement) any Person
(all such  transactions  being  herein  called  "Investments"),  except that the
foregoing restriction will not apply to:

          (a) Investments (all prior to the date hereof) the material details of
which  have  been  set  forth  in  the  Financial  Statements  delivered  to the
Administrative Agent prior to the date hereof or the Disclosure Statement;

          (b) Liquid Investments;

          (c)  advances  or  extensions  of  credit  in  the  form  of  accounts
receivable incurred in the ordinary course of business;

          (d) the  acquisition  of all of the  capital  stock  of  wholly  owned
Subsidiaries incorporated or acquired subsequent to the date of this Agreement;

          (e) investments where the  consideration  paid is capital stock of the
Parent,  plus cash paid in lieu of  issuing  fractional  shares and cash paid in
settlement of claims of dissenters, such cash not to exceed 10% of the aggregate
purchase price in any such transaction;

          (f)  Investments  in any Person which after giving effect thereto will
be a Subsidiary of the Parent,  so long as the  Investment in such Person,  when
consummated,  would not result in a breach of the covenants set forth in Section
10.1;

          (g) intercompany loans, advances or investments by the Parent to or in
any  Subsidiary of the Parent (other than a Subsidiary  that is obligated to pay
Funded  Indebtedness for borrowed money payable solely by recourse to properties
not included in the Borrowing  Base) or, to the extent  permitted  under Section
10.1(h) hereof,  by any Subsidiary of the Parent to or in the Parent or to or in
any other Subsidiary of the Parent, provided, however, that APC may not make any



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intercompany loans, advances or investments  in  any  Subsidiary  of  the Parent
pursuant to this clause (g);

          (h) intercompany loans,  advances or investments by the Parent, solely
from  income  or  cash  flow  of the  Parent  subject  to the  Beluga  Financing
Documents,  to APC as required under the Beluga Financing  Documents and the APC
Long Term Financing Documents;

          (i) to the extent,  if any, not covered by Subsection (a) hereinabove,
the  Indebtedness  of the  Parent to APC  evidenced  solely by the  Intercompany
Notes,  as  defined  in the  Beluga  Financing  Documents  and the APC Long Term
Financing  Documents,  together  with  any  renewals,  extensions,   amendments,
refinancings,  rearrangements,  modifications,  restatements or supplements, but
not increases  (other than increases which are permitted under the present terms
of the Beluga  Financing  Documents and the APC Long Term  Financing  Documents)
thereof from time to time;

          (j) loans or  advances to  employees  made in the  ordinary  course of
business,  up to the aggregate  principal  amount at any one time outstanding of
U.S. $5,000,000;

          (k)  Investments  in reasonable  amounts of securities for purposes of
funding employee benefit plans maintained by the Parent;

          (l) advances or  extensions  of credit made in the ordinary  course of
business  to  third  parties  under  applicable   contracts  and  agreements  in
connection  with (i) oil,  gas or other  mineral  exploration,  development  and
production  activities or (ii)  Hydrocarbon  or chemical  pipeline  gathering or
transportation activities;

          (m) Investments where the  consideration  paid is assets of the Parent
or its Subsidiaries other than capital stock, cash or oil and gas reserves;

          (n)  Investments  in EBOC  Energy  Ltd.  made in  connection  with and
pursuant to the Novalta Contract;

          (o) any payment, prepayment, purchase or retirement of Indebtedness of
the Parent  (other  than  payments,  prepayments,  purchases  or  retirement  of
Subordinated Debt prohibited under the definition of "Subordinated Debt"); and

          (p) any  other  Investments  which in the  aggregate  do not cause the
Parent to be in violation of the Investments Tests.




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<PAGE>



         10.4 Dividend Payment Restrictions. The Parent will not declare or make
any Dividend  Payment  if  any  Default  or Event of Default has occurred and is
continuing or if there exists any Borrowing Base Deficiency.

         10.5 Mergers,  Amalgamations  and Sales of Assets.  The Parent will not
(a) merge,  amalgamate or consolidate with, or sell, assign,  lease or otherwise
dispose of, whether in one transaction or in a series of transactions, more than
ten  percent  (10%)  in the  aggregate  of the  Parent's  and its  Subsidiaries'
consolidated  total  assets  (whether  now owned or  hereafter  acquired) to any
Person or Persons  during  the  period  since the most  recent  "Borrowing  Base
Determination"  (as defined in the U.S.  Facility,  without  amendment except as
permitted under the  Intercreditor  Agreement),  or permit any Subsidiary of the
Parent to do so (other than to the Parent or another Subsidiary of the Parent or
the  issuance  by any  Subsidiary  of the  Parent of any stock to the  Parent or
another  Subsidiary  of the  Parent),  or (b) sell,  assign,  lease or otherwise
dispose of, whether in one transaction or in a series of transactions, any other
properties  if  receiving  therefor  consideration  other  than  cash  or  other
consideration  readily convertible to cash or which is less than the fair market
value of the relevant  properties,  or permit any Subsidiary of the Parent to do
so;  provided  that the  Parent  or any  Subsidiary  of the  Parent  may  merge,
amalgamate or consolidate with any other Person and any Subsidiary of the Parent
may transfer  properties to any other  Subsidiary of the Parent or to the Parent
so long as, in each case, (i) immediately  thereafter and giving effect thereto,
no event will occur and be continuing which  constitutes a Default,  (ii) in the
case of any such merger,  amalgamation or consolidation to which the Parent is a
party, the Parent is the surviving Person, (iii) in the case of any such merger,
amalgamation or  consolidation  to which any Subsidiary of the Parent is a party
(but  not  the  Parent),   after  giving  effect  to  all  transactions  closing
concurrently relating to such merger or consolidation, the surviving Person is a
Subsidiary of the Parent and (iv) the surviving  Person ratifies each applicable
Loan Document and provided  further that any  Subsidiary of the Parent may merge
or consolidate  with any other Subsidiary of the Parent so long as, in each case
(i) immediately thereafter and giving effect thereto, no event will occur and be
continuing  which  constitutes a Default and (ii) the surviving  Person ratifies
each applicable Loan Document.

         10.6 Use of  Proceeds.  The Company will not permit the proceeds of the
Loans or the Canadian Bankers'  Acceptance  Discount Proceeds to be used for any
purpose other than those permitted by this Agreement.

         10.7 ERISA Compliance.  The Parent will not at any time permit any Plan
maintained by it or any Subsidiary of the Parent to:

          (a) engage in any "prohibited  transaction" as such term is defined in
Section 4975 of the Code;



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          (b) incur any "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA; or

          (c)  terminate or be  terminated in a manner which could result in the
imposition  of a Lien on the  property  of the Parent or any  Subsidiary  of the
Parent  pursuant  to Section  4068 of ERISA,  in each case,  to the extent  that
permitting the Plan to do so would have a Material Adverse Effect.

         10.8 Amendment of Certain Documents.  The Parent will not amend, modify
or  obtain or grant a waiver  of  (except  for  waivers  only of  cross-defaults
created  by a Default  under  this  Agreement),  or allow APC to enter  into any
amendment or  modification  or obtain or grant any waiver of (except for waivers
only of cross-defaults created by a Default under this Agreement), any provision
of those documents relating to or constituting the Beluga Financing Documents or
the APC Long Term Financing Documents, without prior written notification to the
Administrative Agent.

         10.9  Tangible  Net Worth.  The Parent will not permit the Tangible Net
Worth of the Parent and its Subsidiaries,  on a consolidated  basis, at any time
to be less than U.S.  $465,000,000  plus 50% of net income of the Parent and its
Subsidiaries  on a consolidated  basis,  if positive,  beginning with the fiscal
year ended  December  31, 1997 and  calculated  annually  thereafter  based upon
positive  net  income of the  Parent and its  Subsidiaries  for each  applicable
fiscal year taken cumulatively.

         10.10 Parent  Debt/Capitalization Ratio. The Parent will not permit the
Debt/Capitalization Ratio to be, at any time, more than 65%.

         10.11   EBITDAX/Interest   Ratio.   The  Parent  will  not  permit  the
EBITDAX/Interest  Ratio to be, at any time,  less than  3.50:1.00 for any twelve
month period ending on the last day of any calendar quarter.

         10.12 Nature of  Business.  The Parent will not engage in, and will not
permit any Subsidiary of the Parent to engage in,  businesses other than oil and
gas  exploration and production,  gas  processing,  transmission,  distribution,
marketing and storage and gas and liquids  pipeline  operations  and  activities
related or ancillary thereto;  provided, that if the Parent acquires one or more
Subsidiaries in transactions  otherwise  permitted by the terms hereof, any such
Subsidiary may be engaged in businesses  other than those listed in this Section
so long as the assets of such Subsidiaries which are used in the conduct of such
other  businesses  do  not  constitute  more  than  five  percent  (5%)  of  the
consolidated  total  assets  of  the  Parent  (inclusive  of the  assets  of the
Subsidiary so acquired).


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         10.13 Futures  Contracts.  The Parent will not, and will not permit any
Subsidiary  of the Parent to, enter into or be obligated  under any contract for
sale for future delivery of oil or gas (whether or not the subject oil or gas is
to be delivered),  hedging contract,  forward contract, swap agreement,  futures
contract or other similar agreement except for (i) such contracts (x) which fall
within the parameters set forth on Exhibit H hereto or are otherwise approved in
writing by the Majority Banks and (y) which in the aggregate do not cover at any
time a volume of oil  and/or  gas  equal to or  greater  than 50% of the  proved
producing reserves  attributable to the oil and gas properties of the Parent and
its Subsidiaries, taken as a whole, as evidenced by the most current Engineering
and Parent  Reports and (ii)  production  sales  contracts  entered  into in the
ordinary course of the Parent's or the applicable Subsidiary's business.

         10.14 Covenants  in Other Agreements.  The Parent will not and will not
permit any of its Subsidiaries to become a party to or to agree that  it  or any
of its property is bound by any agreement, indenture, mortgage, deed of trust or
any other instrument directly or indirectly

          (i) restricting any loans,  advances or any other Investments to or in
the Parent by any of its Subsidiaries;

          (ii)  restricting  the ability of any Subsidiary of the Parent to make
tax payments or management fee payments;

          (iii)  restricting the  capitalization  structure of any Subsidiary of
the Parent; or

          (iv)  restricting  the ability or capacity  of any  Subsidiary  of the
Parent to make Dividend  Payments;  provided,  however,  nothing in this Section
10.14 shall restrict the existence of negative covenants otherwise prohibited by
this Section in documentation evidencing or related to Indebtedness permitted by
Subsection  10.1(v) and, to the extent that the applicable  Subsidiary  does not
own any property included in the Borrowing Base,  Subsections  10.1(n),  (o) and
(p). Notwithstanding the foregoing,  either of ENSTAR Alaska or APC may become a
party to,  or grant a Lien in any of its  property  by way of, or agree  that it
will be bound by, any  indenture,  mortgage,  deed of trust or other  instrument
containing provisions of the types described above in this Section 10.14 so long
as the terms and provisions thereof are not materially more restrictive than the
terms or  provisions  which were legally  binding on ENSTAR Alaska or APC on the
date hereof.




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         Section 11.      Defaults.

         11.1  Events of Default. If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:

         (a)  Payments - (i) the  Company or any other  Relevant  Party fails to
make any payment or prepayment of any  installment  of principal on the Loans or
any  Reimbursement  Obligation  payable under the Notes,  this  Agreement or the
other  Loan  Documents  or the full  face  amount  of any  outstanding  Bankers'
Acceptances  when due or (ii) the Company or any other  Relevant  Party fails to
make any  payment or  prepayment  of  interest  with  respect to the Loans,  any
Reimbursement  Obligation  or any  other  fee or amount  under  the  Notes,  the
Bankers'  Acceptances,  this  Agreement  or the other  Loan  Documents  and such
failure to pay continues unremedied for a period of five (5) Business Days; or

         (b)  Representations  and Warranties - any  representation  or warranty
made by the  Company or any other  Relevant  Party in this  Agreement  or in any
other Loan  Document or in any  instrument  executed in  connection  herewith or
therewith  proves to have been incorrect in any material  respect as of the date
thereof;  or any representation,  statement  (including  Financial  Statements),
certificate or data furnished or made by the Company or any other Relevant Party
(or any  officer  of the  Company  or any  other  Relevant  Party)  under  or in
connection  with this  Agreement or any other Loan Document,  including  without
limitation  in the  Disclosure  Statement,  proves  to have  been  untrue in any
material  respect,  as of the date as of which the facts  therein set forth were
stated or certified; or

         (c)  Affirmative  Covenants  - (i)  default  shall  be  made in the due
observance or  performance  of any of the  covenants or agreements  contained in
Sections  9.11 (or in Section 9.6 to the extent such  default is  considered  an
Event of  Default  under the other  Subsections  of this Sec tion  11.1) or (ii)
default  is  made in the  due  observance  or  performance  of any of the  other
covenants or  agreements  contained in Section 9 of this  Agreement or any other
affirmative  covenant of the Company or any other  Relevant  Party  contained in
this Agreement or any other Loan Document and such default continues  unremedied
for a period of 30 days after (x) notice thereof is given by the  Administrative
Agent to the Company or (y) such default otherwise becomes known to the Company,
whichever is earlier; or

         (d) Negative Covenants - (i) default shall be made in the observance or
performance of any of the covenants or agreements  contained in Section 10.8 and
such default  continues  unremedied for a period of five (5) Business Days after
(x) notice  thereof is given by the  Administrative  Agent to the Company or (y)
such default  otherwise  becomes known to the Parent,  whichever is earlier,  or
(ii) default is made in the due  observance or performance by the Company or the
Parent,  as the  case  may  be,  of any of the  other  covenants  or  agreements
contained in



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Section 10 of this Agreement or of any other negative covenant of the Company or
any other Relevant Party contained in this Agreement or any other Loan Document;
or

         (e)  Other  Obligations  -  default  is made in the due  observance  or
performance by the Parent or any of its  Subsidiaries (as principal or guarantor
or other surety) of any of the  covenants or  agreements  contained in any bond,
debenture,  note or other evidence of Indebtedness in excess of U.S. $25,000,000
(singly or aggregating several such bonds,  debentures,  notes or other evidence
of  Indebtedness)  which default  gives the holder the right to  accelerate  the
maturity  of such  Indebtedness,  other  than the Loan  Documents,  or under any
credit  agreement,  loan  agreement,   indenture,  promissory  note  or  similar
agreement or instrument  executed in connection  with any of the  foregoing,  to
which it  (respectively)  is a party and such  default is unwaived or  continues
unremedied  beyond the  expiration of any  applicable  grace period which may be
expressly allowed under such instrument or agreement; or

         (f) Involuntary  Bankruptcy or  Receivership  Proceedings - a receiver,
conservator,  liquidator  or trustee of the Parent or of any of its  property is
appointed by the order or decree of any court or agency or supervisory authority
having jurisdiction, and such decree or order remains in effect for more than 60
days; or the Parent is adjudicated bankrupt or insolvent; or any of its property
is  sequestered by court order and such order remains in effect for more than 60
days; or a petition is filed against the Parent under any  provincial,  state or
federal bankruptcy,  reorganization,  arrangement,  insolvency,  readjustment of
debt, dissolution,  liquidation or receivership law of any jurisdiction, whether
now or  hereafter  in  effect,  and is not  dismissed  within 60 days after such
filing; or

         (g) Voluntary  Petitions or Consents - the Parent commences a voluntary
case or  other  proceeding  seeking  liquidation,  reorganization,  arrangement,
insolvency, readjustment of debt, dissolution,  liquidation or other relief with
respect  to  itself  or its  debt or other  liabilities  under  any  bankruptcy,
insolvency  or other  similar  law now or  hereafter  in effect or  seeking  the
appointment  of a trustee,  receiver,  liquidator,  custodian  or other  similar
official of it or any substantial part of its property,  or consents to any such
relief or to the appointment of or taking  possession by any such official in an
involuntary  case or other proceeding  commenced  against it, or fails generally
to, or cannot, pay its debts generally as they become due or takes any corporate
action  to  authorize  or  effect  any of the  foregoing,  or files a notice  of
intention to make a proposal under the Bankruptcy Code; or

         (h)  Assignments for Benefit of Creditors or Admissions of Insolvency -
the Parent makes an assignment  for the benefit of its  creditors,  or admits in
writing its inability to pay its debts generally as they become due, or consents
to the appointment of a receiver, trustee, or liquidator of the Parent or of all
or any part of its property; or



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         (i)  Undischarged  Judgments  -  judgments   (individually  or  in  the
aggregate) for the payment of money in excess of U.S. $10,000,000 is rendered by
any  court  or  other  governmental  body  against  the  Parent  or  any  of its
Subsidiaries  and the Parent or such  Subsidiary  does not discharge the same or
provide for its  discharge in  accordance  with its terms,  or procure a stay of
execution thereof within 60 days from the date of entry thereof, and within said
period of 60 days from the date of entry  thereof or such longer  period  during
which  execution  of such  judgment  will have been  stayed,  the Parent or such
Subsidiary  fails to appeal  therefrom  and cause the  execution  thereof  to be
stayed  during such appeal  while  providing  such  reserves  therefor as may be
required under GAAP; or

          (j) Subsidiary Defaults - any Subsidiary of the Parent takes, suffers,
or permits to exist any of the events or conditions  referred to in  Subsections
11.1(f), (g) or (h); or

          (k) Change in Control - there should occur any Change of Control.

THEREUPON: the Administrative Agent may (and, if directed by the Majority Banks,
shall) (a) declare the Commitments  terminated  (whereupon the Commitments shall
be  terminated)  and/or (b)  terminate  any Letter of Credit  providing for such
termination  by sending a notice of ter mination as provided  therein and/or (c)
declare the principal amount then outstanding of and the accrued interest on the
Loans and  Reimbursement  Obligations and all fees and all other amounts payable
hereunder and under the Notes to be forthwith due and payable and/or (d) declare
the full face amount of all outstanding Bankers' Acceptances to be forthwith due
and payable,  whereupon  such amounts  shall be and become  immediately  due and
payable, without notice (including without limitation notice of acceleration and
notice  of  intent  to  accelerate),   presentment,  demand,  protest  or  other
formalities  of any  kind,  all of which  are  hereby  expressly  waived  by the
Company; provided that in the case of the occurrence of an Event of Default with
respect to the Parent  referred to in clause (f) or (g) of this  Section 11.1 or
in clause (j) of this  Section  11.1 to the  extent it refers to clauses  (f) or
(g), the Commitments shall be automatically  terminated and the principal amount
then  outstanding  of and the accrued  interest  on the Loans and  Reimbursement
Obligations and all fees and all other amounts  payable  hereunder and under the
Notes and the full face amount of all outstanding  Bankers' Acceptances shall be
and  become  automatically  and  immediately  due and  payable,  without  notice
(including  but not  limited  to notice of intent to  accelerate  and  notice of
acceleration) and without presentment,  demand,  protest or other formalities of
any kind,  all of which are hereby  expressly  waived by the Company  and/or (d)
exercise any and all other rights  available to it under the Loan Documents,  at
law or in equity.

         11.2 Collateral Account.  The Company hereby agrees, in addition to the
provisions  of Section  11.1  hereof,  that upon the  occurrence  and during the
continuance   of  any  Event  of  Default,   it  shall,   if  requested  by  the
Administrative  Agent or the Majority Banks (through the Administrative  Agent),
pay to the Paying Agent an amount in immediately available funds equal



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to the then aggregate  amount available for drawings under all Letters of Credit
issued for the account of the  Company,  which funds shall be held by the Paying
Agent as Cover.

         11.3 Preservation of Security for Unmatured Reimbursement  Obligations.
In the event that,  following (i) the  occurrence of an Event of Default and the
exercise of any rights available to any Agent under the Loan Documents, and (ii)
payment in full of the  principal  amount  then  outstanding  of and the accrued
interest  on the  Loans  and  Reimbursement  Obligations  and fees and all other
amounts  payable  hereunder  and under  the  Notes  and  under  the  other  Loan
Documents,  and (iii) payment in full of the full face amount of all outstanding
Bankers' Acceptances, any Letters of Credit shall remain outstanding and undrawn
upon,  the each Agent shall be entitled to hold (and the Company  hereby  grants
and  conveys  to each  Agent a  security  interest  in and to) all cash or other
property  ("Proceeds  of  Remedies")  realized or arising out of the exercise by
such Agent of any rights available to it under the Loan Documents,  at law or in
equity,  including,  without  limitation,  the proceeds of any  foreclosure,  as
collateral  for the  payment  of any  amounts  due or to become  due under or in
respect of such Letters of Credit.  Such Proceeds of Remedies  shall be held for
the ratable benefit of the applicable  Issuers.  The rights,  titles,  benefits,
privileges, duties and obligations of each applicable Agent with respect thereto
shall be governed by the terms and provisions of this Agreement.  The applicable
Agent may, but shall have no obligation to, invest any such Proceeds of Remedies
in such manner as such Agent,  in the  exercise  of its sole  discretion,  deems
appropriate.  Such  Proceeds  of  Remedies  shall be  applied  to  Reimbursement
Obligations  arising in respect of any such Letters of Credit and/or the payment
of any Issuer's  obligations under any such Letter of Credit when such Letter of
Credit is drawn upon.  The Company  hereby  agrees to execute and deliver to the
Administrative  Agent and the Banks such security  agreements,  pledges or other
documents  as the  Administrative  Agent or any of the Banks  may,  from time to
time,  require to perfect the pledge,  lien and security  interest in and to any
such Proceeds of Remedies provided for in this Section 11.3.

         11.4  Right  of  Setoff.   Upon  (i)  the  occurrence  and  during  the
continuance  of any Event of Default  referred to in clauses  (f), (g) or (h) of
Section  11.1,  or in  clause  (j) of  Section  11.1 to the  extent it refers to
clauses  (f), (g) or (h), or upon (ii) the  occurrence  and  continuance  of any
other  Event of Default and upon the making of the notice  specified  in Section
11.1 to  authorize  the  Administrative  Agent to declare the Notes and the full
face amount of all Bankers' Acceptances  outstanding due and payable pursuant to
the  provisions  thereof,  or if (iii)  the  Parent  or any of its  Subsidiaries
becomes  insolvent,  however  evidenced,  the Banks are hereby authorized at any
time  and  from  time  to  time,  without  notice  to the  Parent  or any of its
Subsidiaries  (any such  notice  being  expressly  waived by the  Parent and its
Subsidiaries),  to setoff and apply any and all  deposits  (general  or special,
time or demand,  provisional or final, whether or not such setoff results in any
loss of  interest  or  other  penalty,  and  including  without  limitation  all
certificates  of deposit)  at any time held,  and any other funds or property at
any time held,  and other  Indebtedness  at any time owing by any Bank to or for
the credit or the account of the Company against any and all of the


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Obligations  irrespective  of whether or not such Bank will have made any demand
under this  Agreement,  any Bankers'  Acceptances or the Notes and although such
obligations  may be unmatured.  Should the right of any Bank to realize funds in
any manner set forth hereinabove be challenged and any application of such funds
be  reversed,  whether  by court  order  or  otherwise,  the  Banks  shall  make
restitution  or  refund  to the  Company  pro  rata  in  accordance  with  their
Commitments.   The  Banks   agree   promptly  to  notify  the  Company  and  the
Administrative Agent and the Paying Agent after any such setoff and application,
provided  that the failure to give such  notice will not affect the  validity of
such setoff and  application.  The rights of the Agents and the Banks under this
Section  are in  addition  to  other  rights  and  remedies  (including  without
limitation other rights of setoff) which the Agents or the Banks may have.

         Section 12.      The Agents.

         12.1 Appointment,  Powers and Immunities.  Each Bank hereby irrevocably
appoints  and  authorizes  the  Administrative  Agent  to  act as  arranger  and
administrative  agent  hereunder  and under the  Letters of Credit and the other
Loan  Documents  with  such  powers  as  are   specifically   delegated  to  the
Administrative  Agent by the terms hereof and thereof,  together with such other
powers  as are  reasonably  incidental  thereto.  Each Bank  hereby  irrevocably
appoints  and  authorizes  the Paying  Agent to act as co-agent and paying agent
hereunder  and under the  Bankers'  Acceptances,  the  Letters of Credit and the
other Loan  Documents  with such  powers as are  specifically  delegated  to the
Paying Agent by the terms hereof and thereof, together with such other powers as
are reasonably  incidental  thereto.  Each Bank hereby irrevocably  appoints and
authorizes  the Co-Agent to act as co-agent  hereunder  and under the Letters of
Credit  and the  other  Loan  Documents  with such  powers  as are  specifically
delegated to the Co-Agent by the terms  hereof and thereof,  together  with such
other powers as are  reasonably  incidental  thereto.  None of the Agents (which
term as used in this Section 12 shall include  reference to their affiliates and
their own and their affiliates' officers,  directors,  employees and agents) (a)
shall have any duties or  responsibilities  except those  expressly set forth in
this Agreement,  the Bankers' Acceptances,  the Letters of Credit, and the other
Loan Documents,  or shall by reason of this Agreement or any other Loan Document
be a trustee or fiduciary for any Bank; (b) shall be responsible to any Bank for
any  recitals,  statements,  representations  or  warranties  contained  in this
Agreement,  the  Bankers'  Acceptances,  the Letters of Credit or any other Loan
Document,  or in any  certificate or other document  referred to or provided for
in, or received by any of them under, this Agreement,  the Bankers' Acceptances,
the Letters of Credit or any other Loan  Document,  or for the value,  validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Bankers'  Acceptances,  the Letters of Credit, or any other Loan Document or any
other  document  referred to or provided  for herein or therein or any  property
covered  thereby or for any failure by any Relevant Party or any other Person to
perform any of its obligations hereunder or thereunder; (c) shall be required to
initiate or conduct any litigation or collection  proceedings hereunder or under
the  Bankers'  Acceptances,  the  Letters of Credit or any other  Loan  Document
except to the extent



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requested by the Majority  Banks,  and (d) shall be  responsible  for any action
taken  or  omitted  to  be  taken  by  them  hereunder  or  under  the  Bankers'
Acceptances,  the  Letters  of Credit or any other  Loan  Document  or any other
document  or  instrument  referred  to or  provided  for herein or therein or in
connection herewith or therewith,  including,  without  limitation,  pursuant to
their  own  negligence,   except  for  their  own  gross  negligence  or  wilful
misconduct.  The Agents may employ agents and attorneys-in-fact and shall not be
responsible   for  the   negligence   or   misconduct  of  any  such  agents  or
attorneys-in-fact  selected  by them with  reasonable  care.  Without in any way
limiting any of the foregoing, each Bank acknowledges that neither any Agent nor
any Issuer shall have any greater responsibility in the operation of the Letters
of Credit than is specified in the Uniform  Customs and Practice for Documentary
Credits (1993 Revision,  International Chamber of Commerce Publication No. 500).
In any  foreclosure  proceeding  concerning any collateral for the  Obligations,
each  holder of an  Obligation  if  bidding  for its own  account or for its own
account and the  accounts of other Banks is  prohibited  from  including  in the
amount of its bid an amount to be applied as a credit  against its Obligation or
Obligations or the Obligations of the other Banks; instead, such holder must bid
in cash only; provided that this provision is for the sole benefit of the Agents
and the Banks and shall  not inure to the  benefit  of the  Parent or any of its
Subsidiaries.  However, in any such foreclosure  proceeding,  the Administrative
Agent may (but shall not be obligated to) submit a bid for all Banks  (including
itself) in the form of a credit  against the Notes of all of the Banks,  and the
Administrative  Agent or its designee may (but shall not be obligated to) accept
title to such collateral for and on behalf of all Banks.

         12.2  Reliance by Agents.  Each of the Agents shall be entitled to rely
upon any certification,  notice or other communication (including any thereof by
telephone,  telex, telegram or cable) believed by them to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and  statements of legal  counsel  (which may be counsel for the
Company  and/or the Parent  and/or any  Subsidiary  of the Parent),  independent
accountants  and other  experts  selected  by any Agent.  As to any  matters not
expressly provided for by this Agreement, the Bankers' Acceptances,  the Letters
of Credit,  or any other Loan  Document,  the Agents shall in all cases be fully
protected in acting,  or in refraining from acting,  hereunder and thereunder in
accordance with  instructions of the Majority Banks (or, where unanimous consent
is  required  by the terms  hereof or of the other  Loan  Documents,  all of the
Banks), and any action taken or failure to act pursuant thereto shall be binding
on all of the Banks.  Pursuant to  instructions of the Majority Banks (except as
otherwise provided in Section 13.4 hereof),  the Administrative Agent shall have
the authority to execute  releases of any Liens created by the Loan Documents on
behalf of the Banks without the joinder of any Bank.

         12.3 Defaults.  The Agents shall not be deemed to have knowledge of the
occurrence  of a Default  unless  they have  received  notice from a Bank or the
Company  specifying  such  Default and stating  that such notice is a "Notice of
Default";  provided,  however,  that the  Paying  Agent  shall be deemed to have
knowledge of the non-payment of principal of or interest on Loans or the



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full  face  amount  of  outstanding   Bankers'   Acceptances  or   Reimbursement
Obligations   at  the  time  of  such   non-payment.   In  the  event  that  the
Administrative  Agent receives such a notice of the occurrence of a Default, the
Administrative  Agent shall give prompt notice thereof to the Banks.  The Paying
Agent shall give each Bank  prompt  notice to the Banks of each  non-payment  of
principal of or interest on Loans, the full face amount of outstanding  Bankers'
Acceptances  or  Reimbursement  Obligations.   The  Administrative  Agent  shall
(subject to Section  12.7  hereof) take such action with respect to such Default
as shall be directed by the Majority  Banks and within its rights under the Loan
Documents  and at  law  or in  equity,  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,  permitted  hereby with respect to such Default as it shall
deem  advisable  in the best  interests of the Banks and within its rights under
the Loan Documents, at law or in equity.

         12.4 Rights as a Bank. With respect to their  Commitments and the Loans
made,  Bankers'   Acceptances  accepted  and  purchased  and  Letter  of  Credit
Liabilities,  the Agents in their  capacities as Banks  hereunder shall have the
same rights and powers  hereunder as any other Bank and may exercise the same as
though  they were not acting as Agents,  and the term  "Bank" or "Banks"  shall,
unless the context otherwise  indicates,  include the Agents in their individual
capacities.  The Agents may  (without  having to account  therefor  to any Bank)
accept deposits from, lend money to and generally engage in any kind of banking,
trust,  letter  of  credit,  agency  or other  business  with the  Parent or its
Subsidiaries (and any of their Affiliates) as if they were not acting as Agents,
and the Agents may accept  fees and other  consideration  from the Parent or its
Subsidiaries (and any of their  Affiliates),  in addition to the fees heretofore
agreed to between the Company and the Agents,  for services in  connection  with
this Agreement or otherwise without having to account for the same to the Banks.

         12.5  Indemnification.  The Banks agree to indemnify the Agents (to the
extent not reimbursed under Section 2.2(c),  Section 9.7 or Section 13.3 hereof,
but without  limiting the obligations of the Company under said Sections 2.2(c),
9.7 and 13.3), ratably in accordance with their respective Commitments,  for any
and  all  liabilities,   obligations,   losses,  damages,  penalties,   actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any kind and  nature
whatsoever  (including but not limited to, the consequences of the negligence of
the Agents) which may be imposed on, incurred by or asserted  against the Agents
in  any  way  relating  to or  arising  out  of  this  Agreement,  the  Bankers'
Acceptances,  the  Letters  of Credit or any other  Loan  Document  or any other
documents  contemplated by or referred to herein or therein or the  transactions
contemplated  hereby or thereby (including,  without  limitation,  the costs and
expenses  which the Company is obligated to pay under Sections  2.2(c),  9.8 and
13.3 hereof but  excluding,  unless a Default has  occurred  and is  continuing,
normal  administrative  costs and expenses  incident to the performance of their
agency  duties  hereunder)  or the  enforcement  of any of the  terms  hereof or
thereof  or of any  such  other  documents,  including  but not  limited  to the
negligence of the Agents, provided that



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no Bank shall be liable for any of the  foregoing  to the extent they arise from
the gross  negligence or wilful  misconduct of the party to be indemnified.  The
obligations  of the Banks under this Section 12.5 shall survive the  termination
of this Agreement and the repayment of the Obligations.

         12.6  Non-Reliance on Agents and Other Banks.  Each Bank agrees that it
has received  current  financial  information with respect to the Parent and its
Subsidiaries and that it has,  independently  and without reliance on the Agents
or any other Bank and based on such  documents and  information as it has deemed
appropriate, made its own credit analysis of the Parent and its Subsidiaries and
decision  to enter  into  this  Agreement  and that it will,  independently  and
without  reliance upon the Agents or any other Bank, and based on such documents
and information as it shall deem  appropriate at the time,  continue to make its
own analysis and decisions in taking or not taking  action under this  Agreement
or any of the other Loan  Documents.  The Agents  shall not be  required to keep
themselves informed as to the performance or observance by any Relevant Party of
this Agreement,  the Bankers'  Acceptances,  the Letters of Credit or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Parent or its Subsidiaries.
Except for  notices,  reports  and other  documents  and  information  expressly
required  to be  furnished  to the  Banks by the  Agents  hereunder,  under  the
Bankers'  Acceptances,  under the Letters of Credit or the other Loan Documents,
the Agents  shall not have any duty or  responsibility  to provide any Bank with
any credit or other information  concerning the affairs,  financial condition or
business of the Parent or its  Subsidiaries (or any of their  Affiliates)  which
may come into the possession of the Agents.

         12.7 Failure to Act. Except for action expressly required of the Agents
hereunder, under the Bankers' Acceptances, under the Letters of Credit and under
the other Loan  Documents,  the Agents shall in all cases be fully  justified in
failing or refusing to act  hereunder and  thereunder  unless they shall receive
further assurances to their  satisfaction by the Banks of their  indemnification
obligations  under Section 12.5 hereof against any and all liability and expense
which may be incurred by them by reason of taking or continuing to take any such
action.

         12.8  Resignation or Removal of Agents.  Subject to the appointment and
acceptance of a successor Agent as provided  below,  any Agent may resign at any
time by giving notice thereof to the Banks and the Company, and any Agent may be
removed at any time with or without cause by the Majority  Banks.  Upon any such
resignation  or removal,  the  Majority  Banks shall have the right to appoint a
successor Agent, provided deposits with such successor Agent shall be insured by
the Canada Deposit Insurance Corporation or its successor. If no successor Agent
shall have been so appointed by the Majority  Banks and shall have accepted such
appointment  within  30 days  after  the  retiring  Agent's  giving of notice of
resignation  or the  Majority  Banks'  removal of the retiring  Agent,  then the
retiring  Agent may,  on behalf of the Banks,  appoint a  successor  Agent.  Any
successor  Agent  shall be a bank  which has an office in Canada  and a combined
capital and surplus of at least U.S.  $250,000,000.  Upon the  acceptance of any
appointment as Agent



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hereunder by a successor Agent,  such successor Agent shall thereupon 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.  Any successor  Paying Agent shall  promptly  specify by
notice to the Company its Payment  Office  referred to in Sections  3.1 and 5.1.
After any  retiring  Agent's  resignation  or removal  hereunder  as Agent,  the
provisions  of this  Section  12 shall  continue  in effect  for its  benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.

         Section 13.      Miscellaneous.

         13.1  Waiver.  No waiver of any Default  shall be a waiver of any other
Default.  No  failure  on the part of any Agent or any Bank to  exercise  and no
delay in exercising,  and no course of dealing with respect to, any right, power
or privilege  under any Loan  Document  shall operate as a waiver  thereof,  nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or  privilege.  The remedies  provided in the Loan  Documents  are
cumulative and not exclusive of any remedies provided by law or in equity.

         13.2 Notices. All notices and other communications  provided for herein
(including,  without  limitation,  any  modifications of, or waivers or consents
under,  this  Agreement)  shall be given or made by telex,  telegraph,  telecopy
(confirmed  by mail),  cable,  mail or other  writing and  telexed,  telecopied,
telegraphed,  cabled,  mailed or  delivered  to the  intended  recipient  at the
"Address for Notices"  specified  below its name on the signature  pages hereof;
or, as to any party,  at such other address as shall be designated by such party
in a notice to the Company and the Administrative Agent given in accordance with
this Section  13.2.  Except as otherwise  provided in this  Agreement,  all such
communications  shall be deemed to have been duly received when  transmitted  by
telex or telecopier during regular business hours, delivered to the telegraph or
cable office or personally  delivered or, in the case of a mailed notice,  three
(3) days after deposit in the Canadian mails,  postage prepaid,  registered mail
with return receipt requested (or upon actual receipt, if earlier), in each case
given or addressed as aforesaid.

         13.3  Indemnification.  The Company  shall  indemnify  the Agents,  the
Banks,  and each Affiliate  thereof and their  respective  directors,  officers,
employees and agents from, and hold each of them harmless  against,  any and all
losses,  liabilities,  claims or damages to which any of them may become subject
(except as provided in clause (c) of this Section  13.3,  regardless  of whether
caused  in whole or in part by the  simple  (but not  gross)  negligence  of the
Person  indemnified),  insofar as such  losses,  liabilities,  claims or damages
arise out of or result from any (i) actual or proposed use by the Company of the
proceeds of any extension of credit  (whether a Loan,  Bankers'  Acceptance or a
Letter of Credit) by any Bank hereunder, (ii) breach by the Company or any other
Relevant Party of this Agreement or any other Loan Document,  (iii) violation by
the



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Parent or any of its  Subsidiaries of any Legal  Requirement,  including but not
limited to those  relating  to  Hazardous  Substances,  (iv)  Liens or  security
interests  previously or hereafter granted on any real or personal property,  to
the extent  resulting from any Hazardous  Substance  located in, on or under any
such property,  (v) ownership by the Banks or the Agents of any real or personal
property following foreclosure, to the extent such losses,  liabilities,  claims
or damages arise out of or result from any Hazardous Substance located in, on or
under such property, including, without limitation, losses, liabilities,  claims
or damages  which are imposed upon Persons  under laws relating to or regulating
Hazardous Substances solely by virtue of ownership, (vi) Banks' or Agents' being
deemed an  operator  of any such real or  personal  property by a court or other
regulatory  or  administrative  agency or  tribunal  in  circumstances  in which
neither  any of the  Agents  nor any of the  Banks  is  generally  operating  or
generally  exercising  control  over such  property,  to the extent such losses,
liabilities,  claims  or  damages  arise  out of or  result  from any  Hazardous
Substance located in, on or under such property, (vii) investigation, litigation
or other  proceeding  (including  any  threatened  investigation  or proceeding)
relating to any of the  foregoing,  and the Company shall  reimburse each Agent,
each Bank, and each Affiliate thereof and their respective directors,  officers,
employees  and agents,  upon  demand,  for any expenses  (including  legal fees)
incurred in connection with any such investigation or proceeding or (viii) taxes
(excluding  income taxes and  franchise  taxes)  payable or ruled payable by any
Governmental  Authority in respect of the  principal  and interest of the Loans,
the Bankers' Acceptances or any other Loan Document,  together with interest and
penalties,  if any;  provided,  however,  that the  Company  shall  not have any
obligations   pursuant  to  this  Section  13.3  with  respect  to  any  losses,
liabilities,  claims, damages or expenses (a) arising from or relating solely to
events,  conditions or  circumstances  which,  as to clauses  (iv),  (v) or (vi)
above, first came into existence or which first occurred after the date on which
the Parent or any of its  Subsidiaries  conveyed to an unrelated third party all
of the Parent's or the applicable  Subsidiary's rights,  titles and interests to
the  applicable  real or  personal  property  (whether  by  deed,  deed-in-lieu,
foreclosure or otherwise)  other than a conveyance made in violation of any Loan
Document,  (b) incurred by the Person seeking  indemnification  by reason of the
gross  negligence  or  wilful  misconduct  of such  Person,  (c) in the  case of
liability arising with respect to Bankers'  Acceptances,  incurred by the Person
seeking indemnification by reason of the negligence or wilful misconduct of such
Person or (d) resulting from  withholding  tax liability  incurred in connection
with  payments  made by the  Company  to any  Agent,  any Bank or any  Affiliate
thereof.  If the Company  ever  disputes a good faith claim for  indemnification
under this Section  13.3 on the basis of the proviso set forth in the  preceding
sentence,  the full amount of indemnification  provided for shall nonetheless be
paid,  subject to later  adjustment or  reimbursement at such time (if any) as a
court of competent  jurisdiction enters a final judgment as to the applicability
of any such exceptions.

          13.4 Amendments,  Etc. No amendment or waiver of any provision of this
Agreement,  the  Notes  or any  other  Loan  Document,  nor any  consent  to any
departure by the Company or any other  Relevant  Party  therefrom,  shall in any
event be effective unless the same shall be agreed or



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consented  to by the  Majority  Banks and the  Company,  and each such waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which given; provided,  that no amendment,  waiver or consent shall,
unless  in  writing  and  signed by each Bank  affected  thereby,  do any of the
following:  (a) increase the Commitment of such Bank (it being  understood  that
the waiver of any reduction in the Commitments or any mandatory  repayment other
than  (x)  the  repayment  of all  Loans  at the  end  of the  Revolving  Credit
Availability Period and (y) the mandatory reductions of the Commitments provided
for in Section 2.3(a) and (z) the mandatory prepayments required by the terms of
Section  3.2(b),  shall not be deemed to be an  increase in any  Commitment)  or
subject the Banks to any additional obligation;  (b) reduce the principal of, or
interest on, any Loan,  Reimbursement  Obligation  or fee  hereunder or the face
amount of any outstanding Bankers' Acceptances;  (c) postpone any scheduled date
fixed for any payment or mandatory  prepayment  of principal of, or interest on,
any Loan,  Reimbursement  Obligation,  fee or the face amount of any outstanding
Bankers'  Acceptances  or  other  sum  to be  paid  hereunder;  (d)  change  the
percentage of any of the Commitments or of the aggregate unpaid principal amount
of any of the Loans or the face amount of any outstanding  Bankers'  Acceptances
and  Letter of Credit  Liabilities,  or the  number  of  Banks,  which  shall be
required for the Banks or any of them to take any action  under this  Agreement;
(e) change any  provision  contained in Sections  2.2(c),  9.7 or 13.3 hereof or
this Section 13.4 or Section 6.7 hereof, or (f) release all or substantially all
of any security for the  obligations  of the Company under this Agreement or any
Note  or all or  substantially  all of the  personal  liability  of any  obligor
created  under any of the Loan  Documents.  Anything in this Section 13.4 to the
contrary, no amendment,  waiver or consent shall be made with respect to Section
12 without the consent of the applicable Agent or Agents affected thereby.

         13.5     Successors and Assigns.

         (a) This  Agreement  shall be binding  upon and inure to the benefit of
the  Company,  the  Agents  and the Banks and their  respective  successors  and
assigns. The Company may not assign or transfer any of its rights or obligations
hereunder  without the prior written consent of all of the Banks.  Each Bank may
sell participations to any Person which is a resident of Canada under the Income
Tax Act (Canada) in all or part of any Loan,  Bankers'  Acceptance  or Letter of
Credit,  or all or part of its Notes or  Commitments,  in which  event,  without
limiting the  foregoing,  the provisions of Section 6 shall inure to the benefit
of each purchaser of a participation and the pro rata treatment of payments,  as
described in Section 5.2,  shall be determined as if such Bank had not sold such
participation.  In the event any Bank  shall sell any  participation,  such Bank
shall retain the sole right and responsibility to enforce the obligations of the
Company or any other Relevant Party relating to the Loans,  Bankers' Acceptances
or Letters of Credit,  including,  without limitation,  the right to approve any
amendment,  modification or waiver of any provision of this Agreement other than
amendments,  modifications  or  waivers  with  respect  to (i) any fees  payable
hereunder  to the Banks and (ii) the amount of principal or the rate of interest
payable on, or the dates fixed for the scheduled  repayment of principal of, the
Loans.



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         (b) Each Bank may assign to one or more Banks or any other  Person,  in
each case which is a resident of Canada under the Income Tax Act  (Canada),  all
or a portion of its  interests,  rights and  obligations  under this  Agreement,
provided,  however,  that (i) other than in the case of an assignment to another
Bank that is, at the time of such assignment,  a party hereto or an Affiliate of
such Bank which is a resident of Canada under the Income Tax Act  (Canada),  the
Company  must  give  its  prior  written  consent,  which  consent  will  not be
unreasonably withheld, (ii) the aggregate amount of the Commitment and/or Loans,
the face amount of all outstanding  Bankers' Acceptances or Letters of Credit of
the assigning  Bank subject to each such  assignment  (determined as of the date
the Assignment and Acceptance (as defined below) with respect to such assignment
is  delivered to the  Administrative  Agent) shall in no event be less than U.S.
$10,000,000 (or U.S.  $5,000,000 in the case of an assignment to an Affiliate of
a Bank or between Banks),  (iii) no assignment shall have the effect of reducing
the pro rata share of the Loans,  the face  amount of all  outstanding  Bankers'
Acceptances  or Letters of Credit and the  Commitments  held by the assignor and
its Affiliates below U.S.  $10,000,000,  (iv)  notwithstanding any other term or
provision of this Agreement,  unless the Company shall have otherwise  consented
in writing (such consent not to be unreasonably withheld),  each such assignment
shall be pro rata with  respect  to the Loans,  the  Bankers'  Acceptances,  the
Letters of Credit and the  Commitment  of the  assignor,  and (v) the parties to
each such assignment shall execute and deliver to the Administrative  Agent, for
its acceptance and recording in the Register (as defined  below),  an Assignment
and  Acceptance  in the form of  Exhibit  F  hereto  (each  an  "Assignment  and
Acceptance")  with blanks  appropriately  completed,  together  with any Note or
Notes subject to such  assignment and a processing and  recordation  fee of U.S.
$2,500 paid by the  assignee  (for which the Company  shall have no  liability).
Upon such  execution,  delivery,  acceptance and  recording,  from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least  five  Business  Days  after the  execution  thereof,  (A) the
assignee  thereunder shall be a party hereto and, to the extent provided in such
Assignment and  Acceptance,  have the rights and obligations of a Bank hereunder
and (B) the Bank thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement.

         (c) By executing and delivering an Assignment and Acceptance,  the Bank
assignor  thereunder and the assignee  thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty  that it is the legal and  beneficial  owner of the interest  being
assigned  thereby free and clear of any adverse claim,  such Bank assignor makes
no representation or warranty and assumes no responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement  or  any of the  other  Loan  Documents  or the  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan  Documents or any other  instrument or document  furnished
pursuant  thereto;  (ii) such Bank assignor makes no  representation or warranty
and assumes no responsibility with respect to the financial condition



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of the Parent or any of its Subsidiaries or the performance or observance by the
Company  or any  other  Relevant  Party  of any of its  obligations  under  this
Agreement or any of the other Loan Documents or any other instrument or document
furnished  pursuant hereto;  (iii) such assignee confirms that it has received a
copy of  this  Agreement,  together  with  copies  of the  financial  statements
referred to in Section 8.6 and such other  documents and  information  as it has
deemed  appropriate  to make its own credit  analysis and decision to enter into
such  Assignment  and  Acceptance;  (iv) such assignee will,  independently  and
without reliance upon any Agent,  such Bank assignor or any other Bank and based
on such  documents and  information  as it shall deem  appropriate  at the time,
continue to make its own credit  decisions in taking or not taking  action under
this  Agreement and the other Loan  Documents;  (v) such  assignee  appoints and
authorizes the Agents to take such action as agent on its behalf and to exercise
such powers under this  Agreement and the other Loan  Documents as are delegated
to the Agents by the terms hereof,  together with such powers as are  reasonably
incidental  thereto;  and (vi) such  assignee  agrees  that it will  perform  in
accordance with their terms all obligations  that by the terms of this Agreement
and the other Loan Documents are required to be performed by it as a Bank.

         (d) The  Administrative  Agent  shall  maintain at its office a copy of
each  Assignment  and  Acceptance  delivered  to  it  and  a  register  for  the
recordation of the names and addresses of the Banks and the  Commitments of, and
principal  amount of the Loans  owing to,  and the face  amount of all  Bankers'
Acceptances  accepted  and  purchased  by,  each  Bank  from  time to time  (the
"Register").  The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company,  the Agents and the Banks may treat each person
the  name of which is  recorded  in the  Register  as a Bank  hereunder  for all
purposes of this Agreement and the other Loan  Documents.  The Register shall be
available for inspection by the Company or any Bank at any  reasonable  time and
from time to time upon reasonable prior notice.

         (e) Upon its receipt of an  Assignment  and  Acceptance  executed by an
assigning  Bank  and the  assignee  thereunder  together  with any Note or Notes
subject to such assignment,  the written consent to such assignment  executed by
the Company and the fee payable in respect  thereto,  the  Administrative  Agent
shall,  if such  Assignment  and  Acceptance  has  been  completed  with  blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information  contained  therein in the  Register  and (iii) give  prompt  notice
thereof to the Company.  Within five Business Days after receipt of notice,  the
Company,  at its own expense,  shall  execute and deliver to the  Administrative
Agent in  exchange  for the  surrendered  Notes  new  Notes to the order of such
assignee in an amount equal to the  Commitments  and/or Loans or the face amount
of outstanding  Bankers' Acceptances or Letters of Credit assumed by it pursuant
to such  Assignment  and  Acceptance  and, if the  assigning  Bank has  retained
Commitments and/or Loans hereunder, new Notes to the order of the assigning Bank
in an amount equal to the Commitment and/or Loans retained by it hereunder. Such
new Notes  shall be in an  aggregate  principal  amount  equal to the  aggregate
principal amount of such surrendered Notes, shall be dated the effective date



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of such  Assignment and Acceptance and shall otherwise be in  substantially  the
form of the respective Note. Thereafter,  such surrendered Notes shall be marked
renewed and substituted and the originals delivered to the Company (with copies,
certified by the Company as true,  correct and  complete,  to be retained by the
Administrative Agent).

         (f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation  pursuant to this Section 13.5, disclose to
the assignee or participant or proposed assignee or participant, any information
relating  to the  Parent  or its  Subsidiaries  furnished  to such Bank by or on
behalf of the Parent or its Subsidiaries;  provided, however, that, prior to any
such disclosure,  the Parent shall have consented  thereto,  which consent shall
not be unreasonably withheld, and each such assignee or participant, or proposed
assignee or  participant,  shall  execute an agreement  whereby such assignee or
participant  shall agree to preserve  the  confidentiality  of any  Confidential
Information  (defined in Section 13.12) on terms substantially the same as those
provided in Section 13.12.

         (g) The  Company  will  have  the  right  to  consent  to any  material
intercreditor  arrangements  in connection with an assignment by any Bank of any
interest,  right or obligation  under this Agreement  which is not pro rata with
respect to the Loans,  or the face amount of outstanding  Bankers'  Acceptances,
the Letters of Credit and the  Commitment  of the  assignor  and the Company may
deny its consent to any such arrangements which, in the reasonable  judgement of
the Company, would adversely affect the Company in a material respect.

         13.6  Limitation  of  Interest.  The  Company  and the Banks  intend to
strictly  comply with all  applicable  laws,  including  applicable  usury laws.
Accordingly,  the  provisions of this Section 13.6 shall govern and control over
every  other  provision  of this  Agreement  or any other  Loan  Document  which
conflicts or is inconsistent with this Section,  even if such provision declares
that it controls.  As used in this  Section,  the term  "interest"  includes the
aggregate of all charges,  fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable  law, (a) any  non-principal  payment  shall be character  ized as an
expense or as  compensation  for something  other than the use,  forbearance  or
detention  of  money  and not as  interest,  and (b) all  interest  at any  time
contracted  for,  reserved,  charged or received  shall be amortized,  prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Company or any other  Person be obligated to pay, or any Bank
have any right or privilege to reserve,  receive or retain,  (a) any interest in
excess of the maximum amount of nonusurious interest permitted under the laws of
the  Province  of  Alberta or the  applicable  laws (if any) of Canada or of any
other  applicable  jurisdiction,  or (b) total  interest in excess of the amount
which such Bank could lawfully have contracted for, reserved, received, retained
or charged had the interest been calculated for the full term of the Obligations
at the Highest  Lawful Rate.  On each day, if any,  that the interest  rate (the
"Stated  Rate")  called for under  this  Agreement  or any other  Loan  Document
exceeds the Highest Lawful Rate, the rate at



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which  interest shall accrue shall  automatically  be fixed by operation of this
sentence at the Highest  Lawful Rate for that day, and shall remain fixed at the
Highest Lawful Rate for each day  thereafter  until the total amount of interest
accrued  equals the total  amount of interest  which would have accrued if there
were no such ceiling rate as is imposed by this sentence.  Thereafter,  interest
shall  accrue at the Stated Rate unless and until the Stated Rate again  exceeds
the  Highest  Lawful  Rate  when the  provisions  of the  immediately  preceding
sentence shall again  automatically  operate to limit the interest accrual rate.
The daily  interest  rates to be used in  calculating  interest  at the  Highest
Lawful Rate shall be determined by dividing the  applicable  Highest Lawful Rate
per annum by the number of days in the calendar year for which such  calculation
is being made.  None of the terms and provisions  contained in this Agreement or
in any other Loan Document which directly or indirectly relate to interest shall
ever be construed  without  reference to this Section  13.6,  or be construed to
create a contract to pay for the use,  forbearance  or  detention of money at an
interest  rate  in  excess  of the  Highest  Lawful  Rate.  If the  term  of any
Obligation is shortened by reason of acceleration of maturity as a result of any
Default  or by any  other  cause,  or by  reason of any  required  or  permitted
prepayment,  and if for  that  (or any  other)  reason  any  Bank  at any  time,
including but not limited to, the stated  maturity,  is owed or receives (and/or
has received)  interest in excess of interest  calculated at the Highest  Lawful
Rate,  then  and in any such  event  all of any such  excess  interest  shall be
canceled automatically as of the date of such acceleration,  prepayment or other
event which produces the excess,  and, if such excess  interest has been paid to
such Bank, it shall be credited pro tanto against the then-outstanding principal
balance of the Company's  obligations to such Bank,  effective as of the date or
dates when the event occurs which  causes it to be excess  interest,  until such
excess is exhausted or all of such  principal has been fully paid and satisfied,
whichever  occurs  first,  and any  remaining  balance of such  excess  shall be
promptly refunded to its payor.

         13.7 Interest Act  (Canada);  Interest  Generally.  For the purposes of
this  Agreement,  the Notes and the other Loan Documents,  whenever  interest or
fees to be paid  hereunder are to be calculated on the basis of a year of 365 or
360 days, the yearly rate of interest to which the rate  determined  pursuant to
such  calculation  is  equivalent  is the rate so  determined  multiplied by the
actual number of days in the 12 month period  commencing on the first day of the
period  for  which  such  calculation  is made  and  divided  by 365 or 360,  as
applicable. The theory of deemed reinvestment shall not apply to the calculation
of interest or payment of fees or other amounts  hereunder or under the Notes or
under the other  Loan  Documents,  notwithstanding  anything  contained  in this
Agreement  or in the  Notes or in the  other  Loan  Documents,  or in any  other
instrument  referred  to herein or in the Notes or in the other Loan  Documents,
and all  interest  and fees  payable by the  Borrower to the Lender shall accrue
from day to day and be  computed as  described  herein or in the Notes or in the
other Loan  Documents in accordance  with the "nominal  rate" method of interest
calculation.  To the extent  permitted  by law,  any  provision  of the Judgment
Interest Act (Alberta) and the Interest Act (Canada) which restricts the rate of
interest


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on any judgment  debt  shall  be inapplicable to  this  Agreement  and is hereby
waived by the Borrower.

         13.8 Certain Saskatchewan Legislation. The Land Contracts (Actions) Act
of the Province of  Saskatchewan  shall have no  application  to any action,  as
defined  in the  said  Land  Contracts  (Actions)  Act,  with  respect  to  this
Agreement;   and  the  Limitation  of  Civil  Rights  Act  in  the  Province  of
Saskatchewan  shall have no  application to this  Agreement.  The Company agrees
that the provisions of both the Land Contracts  (Actions) Act and the Limitation
of Civil Rights Act are hereby waived.

         13.9 Survival. The obligations of the Company under Sections 2.2(c), 6,
9.7 and 13.3 hereof and the  obligations  of the Banks under Section 13.6 hereof
shall survive the repayment of the Loans and  Reimbursement  Obligations and the
termination of the Commitments and the Letters of Credit.

         13.10  Captions.  Captions and section  headings  appearing  herein are
included  solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

         13.11  Counterparts.  This  Agreement  may be executed in any number of
counterparts,  all of which taken  together  shall  constitute  one and the same
agreement  and any of the parties  hereto may execute this  Agreement by signing
any such counterpart.

         13.12  Governing  Law.  This  Agreement  and the Notes and the Bankers'
Acceptances  and  (except as therein  provided)  the other  Loan  Documents  are
performable in Calgary,  Alberta, Canada, which shall be a proper place of venue
for suit on or in respect thereof. The Company irrevocably agrees that any legal
proceeding  in respect of this  Agreement or the other Loan  Documents  shall be
brought  in the  courts of the  Province  of  Alberta  and the  courts of appeal
therefrom (collectively, the "Specified Courts"). The Company hereby irrevocably
submits to the  nonexclusive  jurisdiction  of such courts.  The Company  hereby
irrevocably  waives, to the fullest extent permitted by law, any objection which
it may now or  hereafter  have to the  laying  of venue of any  suit,  action or
proceeding  arising  out of or  relating  to any Loan  Document  brought  in any
Specified Court, and hereby further  irrevocably waives any claims that any such
suit,  action or  proceeding  brought in any such  court has been  brought in an
inconvenient  forum. The Company further (1) agrees to designate and maintain an
agent for service of process in Calgary,  Alberta, Canada in connection with any
such suit,  action or  proceeding  and to deliver  to the  Administrative  Agent
evidence  thereof and (2) irrevocably  consents to the service of process out of
any of the  aforementioned  courts in any such suit, action or proceeding by the
mailing of copies thereof by registered mail, return receipt requested,  postage
prepaid,  to the  Company at its address as  provided  in this  Agreement  or as
otherwise provided by governing law. Nothing herein shall



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affect  the  right of any Agent or any Bank to  commence  legal  proceedings  or
otherwise proceed against the Company in any jurisdiction or to serve process in
any manner permitted by applicable law. The Company agrees that a final judgment
in any such  action or  proceeding  shall be  conclusive  and may be enforced in
other  jurisdictions  by suit on the judgment or in any other manner provided by
law. THIS  AGREEMENT AND (EXCEPT AS THEREIN  PROVIDED) THE OTHER LOAN  DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER
THAN THE  CONFLICT OF LAWS RULES) OF THE  PROVINCE OF ALBERTA AND OF CANADA FROM
TIME TO TIME IN EFFECT.

         13.13  Severability.  Whenever  possible,  each  provision  of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid,  illegal
or unenforceable in any respect under any applicable law, the validity, legality
and  enforceability of the remaining  provisions of such Loan Document shall not
be affected or impaired thereby.

         13.14    Confidential Information.  Each Agent and each Bank separately
agrees that:

         (a) As used herein, the term  "Confidential  Information" means written
information   about  the  Parent  or  its   Subsidiaries  or  the   transactions
contemplated  herein  furnished by the Parent or its  Subsidiaries to the Agents
and/or the Banks which is specifically designated as confidential by the Parent;
Confidential  Information,  however, shall not include information which (i) was
publicly known or available,  or otherwise available on a non-confidential basis
to any Bank,  at the time of  disclosure  from a source other than the Parent or
its  Subsidiaries,  (ii)  subsequently  becomes publicly known through no act or
omission by such Bank, (iii) otherwise becomes  available on a  non-confidential
basis  to  any  Bank  other  than  through  disclosure  by  the  Parent  or  its
Subsidiaries or (iv) has been in the possession of any Bank for a period of more
than two years from the date on which such information  originally was furnished
to such Bank by the Parent or its  Subsidiaries,  unless  the Parent  shall have
requested the Agents and the Banks in writing, at least 30 days prior to the end
of such two-year period, to maintain the confidentiality of such information for
another two (2) year period (or for successive  two (2) year periods);  provided
that the Parent  shall not  unreasonably  withhold its consent to a request made
after  the  initial  two  (2)  year  period  to   eliminate   information   from
"Confidential Information".

         (b) Each  Agent  and each Bank  agrees  that it will  take  normal  and
reasonable  precautions  to maintain  the  confidentiality  of any  Confidential
Information  furnished to such Person;  provided,  however, that such Person may
disclose  Confidential  Information (i) upon the Parent's  consent;  (ii) to its
auditors; (iii) when required by any Legal Requirement;  (iv) as may be required
or  appropriate  in  any  report,   statement  or  testimony  submitted  to  any
Governmental  Authority having or claiming to have  jurisdiction over it; (v) to
such Person's and its Subsidiaries'

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<PAGE>



or Affiliates'  officers,  directors,  employees,  agents,  representatives  and
professional  consultants in connection with this Agreement or administration of
the Loans and Letters of Credit; (vi) as may be required or appropriate,  should
such Bank elect to assign or grant  participations  in any of the Obligations in
connection  with (1) the enforcement of the Obligations to any such Person under
any of the Loan Documents or related  agreements,  or (2) any potential transfer
pursuant to this  Agreement of any  Obligation  owned by any Bank  (provided any
potential  transferee  has been  approved  by the  Company if  required  by this
Agreement,  which approval shall not be unreasonably withheld, and has agreed in
writing to be bound by substantially the same provisions regarding  Confidential
Information contained in this Section);  (vii) as may be required or appropriate
in response to any summons or subpoena or in connection  with any  litigation or
administrative  proceeding;  (viii)  to any  other  Bank;  (ix)  to  the  extent
reasonably  required in connection with the exercise of any remedy  hereunder or
under  the other  Loan  Documents;  or (x) to  correct  any false or  misleading
information which may become public concerning such Person's relationship to the
Parent or its Subsidiaries.

         13.15 Amendment and Restatement.  This Agreement amends and restates in
its  entirety  that  certain  Credit  Agreement  dated as of  December  23, 1996
executed by and among the Company, the Banks and the Agents, as amended.

         13.16  Intercreditor  Agreement.   Reference  is  hereby  made  to  the
Intercreditor Agreement, which provides for certain matters relating to both the
Obligations  and the U.S.  Facility.  To the extent of any conflict  between the
terms hereof and the terms of the  Intercreditor  Agreement,  the  Intercreditor
Agreement shall control.  The execution and delivery by the Administrative Agent
of the  Intercreditor  Agreement  on behalf of the Banks is hereby  ratified and
confirmed by each of the Banks.  Any Bank that becomes a party to this Agreement
after the date  hereof  agrees to be bound by the  terms and  provisions  of the
Intercreditor Agreement.

         13.17  Judgement  Currency.  Notwithstanding  that  this  Agreement  is
governed by the laws of the Province of Alberta,  Canada,  monies outstanding in
connection  herewith  may be  stipulated  in terms of lawful money of the United
States of America  (which  stipulation  or  expression  is of the  essence)  and
payments to be made in regard thereto pursuant to this Agreement,  or otherwise,
are and are  intended  to be  payable in lawful  money of the  United  States of
America;  and to the extent permitted by law any judgment in respect of any such
monies  outstanding as aforesaid or any obligation  pertaining  thereto  arising
under this  Agreement may be obtained or enforced  either in lawful money of the
United  States of America or the  equivalent  in lawful money of Canada,  as the
Administrative Agent may elect, and the Administrative Agent shall to the extent
permitted by law be entitled to such  election and the benefit (if any) from the
consequent  conversion of currency at the date of payment or  enforcement of the
judgment. Any such payment obligation stipulated or expressed in lawful money of
the United States of America shall not be discharged by an amount paid in lawful
money of Canada, whether pursuant to a judgment or otherwise, to the



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extent that the amount so paid on prompt  conversion  into  lawful  money of the
United  States of America  does not,  after  deduction  of any and all  premiums
and/or  costs  of  exchange  paid or  payable  by the  Administrative  Agent  in
connection with such conversion,  yield the required amount of payment expressed
in terms of lawful money of the United States of America.  In the event that any
payment in lawful  money of Canada in  respect  of a payment in lawful  money of
Canada in respect of a payment  obligation  stipulated  or expressed in terms of
lawful money of the United States of America as aforesaid, whether pursuant to a
judgment or otherwise, upon conversion as aforesaid does not, after deduction of
any and all premiums  and/or  costs of exchange  paid or payable by any Agent or
any Bank in connection with such conversion, yield the required amount expressed
in terms of lawful  money of the United  States of America,  the  Administrative
Agent  shall,  on behalf of and for the benefit of the affected  Person,  have a
separate  cause of  action  for the  additional  amount  required  to yield  the
required  amount  expressed  in terms of lawful  money of the  United  States of
America.

         13.18  Withholding  Tax  Remittances.  If any  withholding  for,  or on
account of, any present or future tax,  duty or charge of  whatsoever  nature is
imposed  or  levied  by or on behalf of any  taxing  jurisdiction  or  authority
(together  with any interest and  penalties  thereon and  additions  thereto) in
respect of any payments to be made pursuant to this Agreement or the Notes,  the
Company  shall be entitled to withhold and remit such payment to the  applicable
taxing authority whereupon such payment,  for the purposes of this Agreement and
the Notes,  shall be deemed to have been made as required hereunder or under the
Notes,  notwithstanding anything contained elsewhere in this Agreement or in the
Notes.




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<PAGE>



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

                                                   SEAGULL ENERGY CANADA LTD.


                                                   By: /s/ William L. Transier
                                                   Name:   William L. Transier
                                                   Title:  Vice Chairman & Chief
                                                           Financial Officer

                                                   Address for Notices:

                                                   1001 Fannin, Suite 1700
                                                   Houston, Texas  77002
                                                   Attention: Steve Thorington

                                                   with a copy to:

                                                   2900 Western Canadian Place
                                                   707 8th Avenue S.W.
                                                   Calgary, Alberta  T2P 2M7
                                                   Attention:  Mr. Lorne Martin




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<PAGE>



                              THE CHASE MANHATTAN BANK OF CANADA,
                              as Arranger, as Administrative Agent and as a Bank


                              By: /s/ D. McGorman
                              Name:   D. McGorman
Commitment:                   Title:  Vice President

U.S. $25,000,000
                              By:  /s/ Alvin Bery
                              Name:    Alvin Bery
                              Title:   Vice President


                              Address for Notices:

                              First Canadian Place
                              100 King Street West, Suite 6900
                              Toronto, Ontario M5X 1A4
                              Attention: Mr. David McGorman

                                 with copies to:

                            The Chase Manhattan Bank
                       1 Chase Manhattan Plaza, 8th Floor
                            New York, New York 10081
                            Attention: Agent Services

                                       and

                    Texas Commerce Bank National Association
                                 712 Main Street
                              Houston, Texas 77002
                       Attention: Manager, Energy Division





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<PAGE>



                                  THE BANK OF NOVA SCOTIA, as Paying Agent,
                                  as Co-Agent and as a Bank


                                  By:  /s/ R. D. Lee
Commitment:                       Name:    R. D. Lee
                                  Title:   Sr. Relationship Manager
U.S. $22,500,000

                                  By:  /s/ J. T. Cebryk
                                  Name:    J. T. Cebryk
                                  Title:   Account Officer



                                  Address for Notices:

                                  International Banking Division-Loan Accounting
                                  14th Floor
                                  44 King Street West
                                  Toronto, Ontario CANADA M5H 1H1
                                  Attention:  Assistant Manager

                                with a copies to:

                             The Bank of Nova Scotia
                            Corporate Banking Calgary
                        Suite #3820, 700-2nd Street S.W.
                         Calgary, Alberta CANADA T2P 2N7
                            Attention: Vice President

                                     and to:

                             The Bank of Nova Scotia
                           Suite 3000, 1100 Louisiana
                              Houston, Texas 77002
                         Attention: Mr. Mark A. Ammerman





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<PAGE>



                                             CANADIAN IMPERIAL BANK OF COMMERCE,
                                             as Co-Agent and as a Bank


                                             By: /s/ David J. Swain
Commitment:                                  Name:   David J. Swain
                                             Title:  Vice President
U.S. $22,5000,000
                                             Address for Notices:

                                             Oil and Gas Group
                                             10th Floor, 855 2nd Street, S.W.
                                             Calgary, Alberta CANADA  T2P 2P2
                                             Attention: Director

                                 with a copy to:

                       Canadian Imperial Bank of Commerce
                         Two Houston Center, Suite 1200
                                909 Fannin Street
                              Houston, Texas 77010
                             Attention: Brian Myers






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                                                  ABN AMRO BANK CANADA



                                                  By: /s/ Robert Duffield
Commitment:                                       Name:   Robert Duffield
                                                  Title:  Vice President
U.S. $10,000,000

                                                  By: /s/ P. K. Chan
                                                  Name:   P. K. Chan
                                                  Title:  Vice President, Credit


                                                  Address for Notices:

                                                  2500-650 West Georgia Street
                                                  Vancouver, British Columbia
                                                  CANADA  V6B 4N8
                                                  Attention: Jane Taylor

                                 with a copy to:

                       ABN AMRO Bank N.V., Houston Agency
                           Three Riverway, Suite 1700
                              Houston, Texas 77056
                         Attention: Ms. Cheryl Lipshutz






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<PAGE>



                                                  FIRST CHICAGO NBD BANK, CANADA



                                                   By: /s/ Dennis E. Petito
Commitment:                                        Name:   Dennis E. Petito
                                                   Title:  Attorney-In-Fact
U.S. $5,000,000
                              Address for Notices:

                                    BCE Place
                                 161 Bay Street
                                  P.O. Box 613
                         Toronto, Ontario CANADA M5J 2S1
                           Attention: Ms. Janet Beadle

                                 with a copy to:

                       The First National Bank of Chicago
                           1100 Louisiana, Suite 3200
                              Houston, Texas 77002
                          Attention: Ms. Dixon Schultz








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<PAGE>



                                                 BANK OF MONTREAL



                                                 By: /s/ Michael Gardner
Commitment:                                      Name:   Michael Gardner
                                                 Title:  Director
U.S. $10,000,000
                                                 Address for Notices:

                                                 360-7th Avenue S.W.
                                                 24th Floor
                                                 Calgary, Alberta CANADA T29 3N9
                                                 Attention: Ms. Marge Wassenaar






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                                                 MELLON BANK
 


                                                 By:
Commitment:                                      Name:
                                                 Title:
U.S. $5,000,000
                                                 Address for Notices:

                                                 Suite 3200
                                                 Royal Trust Tower
                                                 T-D Centre
                                                 Toronto, Ontario CANADA M5K 1K2
                                                 Attention: Mr. Joseph Cavanaugh





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