Exhibit 99.1
                               CREDIT AGREEMENT



                         Dated as of December 17, 1997


                                     Among

                         HOWELL PETROLEUM CORPORATION
                                 as Borrower,


                               BANK OF MONTREAL,
                                   as Agent,

                                      and

                         THE LENDERS SIGNATORY HERETO







                                     





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                               TABLE OF CONTENTS
                                                                                  Page
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ARTICLE I      Definitions and Accounting Matters
      Section 1.01  Terms Defined Above.........................................    1
      Section 1.02  Certain Defined Terms.......................................    1
      Section 1.03  Accounting Terms and Determinations.........................   16

ARTICLE II     Commitments
      Section 2.01  Loans and Letters of Credit.................................   16
      Section 2.02  Borrowings, Continuations and Conversions,Letters of Credit    17
      Section 2.03  Changes of Commitments......................................   19
      Section 2.04  Fees  ......................................................   19
      Section 2.05  Several Obligations.........................................   20
      Section 2.06  Notes ......................................................   21
      Section 2.07  Prepayments.................................................   21
      Section 2.08  Borrowing Base..............................................   22
      Section 2.09  Assumption of Risks.........................................   23
      Section 2.10  Obligation to Reimburse and to Prepay.......................   24
      Section 2.11  Lending Offices.............................................   26

ARTICLE III    Payments of Principal and Interest
      Section 3.01  Repayment of Loans..........................................   26
      Section 3.02  Interest....................................................   26

ARTICLE IV     Payments; Pro Rata Treatment; Computations; Etc.
      Section 4.01  Payments....................................................   27
      Section 4.02  Pro Rata Treatment..........................................   28
      Section 4.03  Computations................................................   28
      Section 4.04  Non-receipt of Funds by the Agent...........................   28
      Section 4.05  Set-off, Sharing of Payments, Etc...........................   29
      Section 4.06  Taxes ......................................................   29

ARTICLE V      Capital Adequacy
      Section 5.01  Additional Costs............................................   32
      Section 5.02  Limitation on Eurodollar Loans..............................   34
      Section 5.03  Illegality..................................................   35
      Section 5.04  Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03....   35
      Section 5.05  Compensation................................................   35
      Section 5.06  Replacement Lenders.........................................   35

ARTICLE VI     Conditions Precedent
      Section 6.01  Initial Funding.............................................   37
      Section 6.02  Initial and Subsequent Loans and Letters of Credit..........   38
      Section 6.03  Conditions Precedent for the Benefit of Lenders.............   39
      Section 6.04  No Waiver...................................................   39

ARTICLE VII    Representations and Warranties
      Section 7.01  Corporate Existence.........................................   39
      Section 7.02  Financial Condition.........................................   39
      Section 7.03  Litigation..................................................   40
      Section 7.04  No Breach...................................................   40
      Section 7.05  Authority...................................................   40
      Section 7.06  Approvals...................................................   40
      Section 7.07  Use of Loans................................................   41
      Section 7.08  ERISA ......................................................   41
      Section 7.09  Taxes ......................................................   42
      Section 7.10  Titles, etc.................................................   42
      Section 7.11  No Material Misstatements...................................   43
      Section 7.12  Investment Company Act......................................   43
      Section 7.13  Public Utility Holding Company Act..........................   43
      Section 7.14  Subsidiaries................................................   43
      Section 7.15  Location of Business and Offices............................   43
      Section 7.16  Defaults....................................................   43
      Section 7.17  Environmental Matters.......................................   44
      Section 7.18  Compliance with the Law.....................................   45
      Section 7.19  Insurance...................................................   45
      Section 7.20  Hedging Agreements..........................................   46
      Section 7.21  Restriction on Liens........................................   46
      Section 7.22  Material Agreements.........................................   46

ARTICLE VIII   Affirmative Covenants
      Section 8.01  Reporting Requirements......................................   46
      Section 8.02  Litigation..................................................   48
      Section 8.03  Maintenance, Etc............................................   48
      Section 8.04  Environmental Matters.......................................   49
      Section 8.05  Further Assurances..........................................   49
      Section 8.06  Performance of Obligations..................................   50
      Section 8.07 Reserve Reports..............................................   50
      Section 8.08  Title and Mortgage Information..............................   51
      Section 8.09   Mortgages..................................................   52
      Section 8.10  ERISA Information and Compliance............................   52
      Section 8.11  Minimum Capital.  ..........................................   53

ARTICLE IX     Negative Covenants
      Section 9.01  Debt  ......................................................   53
      Section 9.02  Liens ......................................................   54
      Section 9.03  Investments, Loans and Advances.............................   55
      Section 9.04  Dividends, Distributions and Redemptions....................   56
      Section 9.05  Sales and Leasebacks........................................   56
      Section 9.06  Nature of Business..........................................   56
      Section 9.07  Limitation on Leases........................................   56
      Section 9.08  Mergers, Etc................................................   56
      Section 9.09  Proceeds of Notes; Letters of Credit........................   56
      Section 9.10  ERISA Compliance............................................   57
      Section 9.11  Sale or Discount of Receivables.............................   58
      Section 9.12  Current Ratio...............................................   58
      Section 9.13  [Intentionally Omitted].....................................   58
      Section 9.14  Interest Coverage Ratio.....................................   58
      Section 9.15  Sale of Oil and Gas Properties..............................   58
      Section 9.16  Environmental Matters.......................................   59
      Section 9.17  Transactions with Affiliates................................   59
      Section 9.18  Subsidiaries................................................   59
      Section 9.19  Negative Pledge Agreements and Subsidiary Dividends.........   59
      Section 9.20  Payments on Certain Debt to Howell Corporation..............   59

ARTICLE X      Events of Default; Remedies
      Section 10.01  Events of Default..........................................   60
      Section 10.02  Remedies...................................................   62

ARTICLE XI     The Agent
      Section 11.01  Appointment, Powers and Immunities.........................   62
      Section 11.02  Reliance by Agent..........................................   63
      Section 11.03  Defaults...................................................   63
      Section 11.04  Rights as a Lender.........................................   63
      Section 11.05  Indemnification............................................   64
      Section 11.06  Non-Reliance on Agent and other Lenders....................   64
      Section 11.07  Action by Agent............................................   65
      Section 11.08  Resignation or Removal of Agent............................   65

ARTICLE XII    Miscellaneous
      Section 12.01  Waiver.....................................................   65
      Section 12.02  Notices....................................................   66
      Section 12.03  Payment of Expenses, Indemnities, etc......................   66
      Section 12.04  Amendments, Etc............................................   68
      Section 12.05  Successors and Assigns.....................................   69
      Section 12.06  Assignments and Participations.............................   69
      Section 12.07  Invalidity.................................................   70
      Section 12.08  Counterparts...............................................   70
      Section 12.09  References.................................................   70
      Section 12.10  Survival...................................................   71
      Section 12.11  Captions...................................................   71
      Section 12.12  No Oral Agreements.........................................   71
      Section 12.13  Governing Law; Submission to Jurisdiction..................   71
      Section 12.14  Interest...................................................   72
      Section 12.15  Confidentiality............................................   73
      Section 12.16  Effectiveness..............................................   74
      Section 12.17  Exculpation Provisions.....................................   74


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ANNEXES, EXHIBITS AND SCHEDULES

Annex I    - List of Facility A Maximum Credit Amounts and Facility B Loans

Exhibit A-1     - Form of Facility A Note
Exhibit A-2     - Form of Facility B Note
Exhibit B       - Form of Borrowing, Continuation and Conversion Request
Exhibit C       - Form of Compliance Certificate
Exhibit D       - List of Loan Documents
Exhibit E       - Form of Assignment Agreement
Exhibit F       - Form of Letter of Credit Agreement
 
Schedule 7.02   - Liabilities
Schedule 7.03   - Litigation
Schedule 7.09   - Taxes
Schedule 7.10   - Titles, etc.
Schedule 7.14   - Subsidiaries and Partnerships
Schedule 7.17   - Environmental Matters
Schedule 7.19   - Insurance
Schedule 7.20   - Hedging Agreements
Schedule 7.22   - Material Agreements
Schedule 9.01   - Debt
Schedule 9.02   - Liens
Schedule 9.03   - Investments, Loans and Advances




           THIS  CREDIT  AGREEMENT  dated  as of  December  17 1997  is  among:
HOWELL  PETROLEUM  CORPORATION,  a  corporation  formed  under  the laws of the
State of Delaware  (the  "Borrower");  each of the lenders  that is a signatory
hereto or which  becomes  a  signatory  hereto as  provided  in  Section  12.06
(individually,  together  with its  successors  and  assigns,  a "Lender"  and,
collectively,  the  "Lenders");  and BANK OF MONTREAL,  a Canadian bank (in its
individual  capacity,  "BMO"),  as agent  for the  Lenders  (in such  capacity,
together with its successors in such capacity, the "Agent").

                                R E C I T A L S

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

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

      C.   In  consideration  of the mutual  covenants  and  agreements  herein
contained and of the loans,  extensions of credit and  commitments  hereinafter
referred to, the parties hereto agree as follows:

                                   ARTICLE I

                      Definitions and Accounting Matters

           Section 1.01 Terms Defined  Above.  As used in this  Agreement,  the
terms  "Agent,"  "BMO,"  "Borrower,"  "Lender"  and  "Lenders"  shall  have the
meanings indicated above.

           Section 1.02 Certain  Defined Terms.  As used herein,  the following
terms shall have the  following  meanings  (all terms defined in this Article I
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  assigned such term in Section
5.01(a).

      "Affected   Loans"  shall  have  the  meaning   assigned   such  term  in
Section 5.04.

      "Affiliate"  of  any  Person  shall  mean  (i)  any  Person  directly  or
indirectly  controlled by,  controlling or under common control with such first
Person,  (ii) any  director  or officer  of such first  Person or of any Person
referred  to in clause  (i) above and (iii) if any  Person in clause  (i) above
is an  individual,  any  member of the  immediate  family  (including  parents,
spouse  and  children)  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.  For
purposes of this  definition,  any Person which owns directly or indirectly 10%
or more of the  securities  having  ordinary  voting  power for the election of
directors  or  other  governing  body  of a  corporation  or 10% or more of the
partnership or other  ownership  interests of any other Person (other than as a
limited  partner of such other Person) will be deemed to "control"  (including,
with its  correlative  meanings,  "controlled  by" and "under  common  control 
with") such corporation or other Person.

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

      "Aggregate  Commitments" at any time shall equal the sum of the Aggregate
Facility A Commitments and the Aggregate Facility B Commitments.

      "Aggregate  Facility A  Commitments"  at any time shall  equal the amount
calculated in accordance with Section 2.03.

      "Aggregate  Facility A Maximum  Credit  Amounts"  at any time shall equal
the sum of the  Facility  A  Maximum  Credit  Amounts  of the  Lenders  (not to
exceed $215,000,000), as the same may be reduced pursuant to Section 2.03(b).

      "Aggregate  Facility B  Commitments"  at any time shall  equal the sum of
the Facility B Commitments of the Lenders (not to exceed $105,000,000).

      "Amoco  Acquisition"  shall mean the acquisition of the Amoco  Properties
pursuant to the  Amoco Purchase and Sale Agreement.

      "Amoco  Properties" shall mean the Oil and Gas Properties  covered by the
appraisal report of DeGolyer and McNaughton,  dated December 1,  1997, intended
to be  acquired  by the  Borrower  pursuant  to the  Amoco  Purchase  and  Sale
Agreement.

      "Amoco Purchase and Sale  Agreement"shall  mean that certain Purchase and
Sale Agreement dated November 20,  1997, between Amoco Production  Company,  as
seller and the Borrower, as buyer.

      "Applicable  Lending  Office"  shall  mean,  for each Lender and for each
Type of Loan,  the  lending  office of such  Lender  (or an  Affiliate  of such
Lender)  designated  for such  Type of Loan on the  signature  pages  hereof or
such other  offices of such Lender (or of an  Affiliate of such Lender) as such
Lender  may from time to time  specify  to the Agent  and the  Borrower  as the
office by which its Loans of such Type are to be made and maintained.

      "Applicable  Margin" shall mean (i) after  Borrower  completes the Beaver
Creek  Acquisition,  if either Facility B is outstanding or the Minimum Capital
has not been  raised,  for the first six (6)  months  after  the  Borrower  has
completed  the Beaver  Creek  Acquisition,  0% per annum  with  respect to Base
Rate  Loans  and one and  one-half  percent (1 1/2%) per annum with  respect to
Eurodollar  Loans,   with  the  Applicable  Margin  thereafter   increasing  by
one-half of one percent (1/2%) for Base Rate Loans and Eurodollar Loans at each
of six and nine months after closing  Beaver Creek  Acquisition  and (ii) prior
to Borrower's  completion of the Beaver Creek  Acquisition  and after  Borrower
has completed  the Beaver Creek  Acquisition,  if the Minimum  Capital has been
raised and  Facility B has been repaid,  the  applicable  per annum  percentage
set forth at the appropriate  intersection  in the table shown below,  based on
the Borrowing Base Utilization Percentage as in effect from time to time:

      Borrowing Base Utilization Percentage    Eurodollar Rate      Base Rate
      _____________________________________    _______________      _________

      Less than or equal to 25%                   0.500%              0.000%

      Greater than 25%,
      but less than or equal to 50%               0.625%              0.000%

      Greater than 50%,
      but less than or equal to 75%               0.875%              0.000%

      Greater than 75%
      but less than or equal to 100%              1.125%              0.000%

      Greater than 100%                           1.375%              0.000%

Each change in the Applicable  Margin  resulting from a change in the Borrowing
Base  Utilization  Percentage  shall take  effect at the time of such change in
the Borrowing Base Utilization Percentage.

      "Assignment"   shall   have   the   meaning   assigned   such   term   in
Section 12.06(b).

      "Base Rate" shall mean,  with respect to any Base Rate Loan, for any day,
the  higher of (i) the  Federal  Funds  Rate for any such day plus 1/2 of 1% or
(ii) the Prime Rate for such day.  Each change in any  interest  rate  provided
for herein  based upon the Base Rate  resulting  from a change in the Base Rate
shall take effect at the time of such change in the Base Rate.

      "Base Rate  Loans"  shall mean Loans that bear  interest  at rates  based
upon the Base Rate.

      "Beaver Creek Acquisition" shall mean Borrower's  acquisition pursuant to
the Amoco  Purchase and Sale  Agreement of the portion of the Amoco  Properties
identified as the Beaver Creek Unit.

      "Beaver Creek Conversion Termination Date" shall mean December 16, 1998.

      "Borrowing  Base"  shall  mean at any time an amount  equal to the amount
determined in accordance with Section 2.08.

      "Borrower Base Letter" shall mean that certain  letter  agreement of even
date herewith between the Borrower and the Agent.

      "Borrowing Base  Utilization  Percentage"  shall mean, as of any day, the
fraction  expressed as a  percentage,  the numerator of which is the balance of
all Loans and the LC Exposure  outstanding on such day, and the  denominator of
which is the Borrowing Base in effect on such day.

      "Business  Day" shall  mean any day other than a day on which  commercial
banks are  authorized  or required to close in Houston,  Texas and,  where such
term is used in the  definition of  "Quarterly  Date" or if such day relates to
a borrowing  or  continuation  of, a payment or  prepayment  of principal of or
interest  on,  or a  conversion  of or into,  or the  Interest  Period  for,  a
Eurodollar  Loan  or a  notice  by  the  Borrower  with  respect  to  any  such
borrowing  or  continuation,   payment,  prepayment,   conversion  or  Interest
Period,  any day which is also a day on which  dealings in Dollar  deposits are
carried out in the London interbank market.

      "Closing Date" shall mean [December 15,] 1997.

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

      "Commitment"  shall mean for any Lender, its Facility A Commitment and/or
its Facility B Commitment, as applicable.

      "Consolidated  Net Income"  shall mean with  respect to the  Borrower and
its  Consolidated  Subsidiaries,  for  any  period,  the  aggregate  of the net
income (or loss) of the Borrower  and its  Consolidated  Subsidiaries  for such
period,  determined on a consolidated  basis in accordance with GAAP;  provided
that there shall be excluded  from the  calculation  of such net income (to the
extent  otherwise  included  therein) the following:  (i) the net income of any
Person in which the  Borrower or any  Consolidated  Subsidiary  has an interest
(which  interest  does not cause  the net  income  of such  other  Person to be
consolidated  with  the  net  income  of  the  Borrower  and  its  Consolidated
Subsidiaries  in accordance  with GAAP),  except to the extent of the amount of
dividends or  distributions  actually  paid in such period by such other Person
to the Borrower or to a Consolidated  Subsidiary,  as the case may be; (ii) the
net income  (but not loss) of any  Consolidated  Subsidiary  to the extent that
the declaration or payment of dividends or similar  distributions  or transfers
or loans  by that  Consolidated  Subsidiary  is not at the  time  permitted  by
operation  of  the  terms  of  its  charter  or any  agreement,  instrument  or
Governmental  Requirement  applicable to such  Consolidated  Subsidiary,  or is
otherwise  restricted or prohibited in each case  determined in accordance with
GAAP;   (iii)  the  net  income  (or  loss)  of  any  Person   acquired   in  a
pooling-of-interests  transaction  for any  period  prior  to the  date of such
transaction;  (iv)  any  extraordinary  gains  or  losses,  including  gains or
losses  attributable  to Property sales not in the ordinary course of business;
and (v) the  cumulative  effect of a change in  accounting  principles  and any
gains or losses attributable to writeups or write downs of assets.

      "Consolidated  Subsidiaries"  shall mean each  Subsidiary of the Borrower
(or for  purposes of the  definition  of  Tangible  Net Worth,  the  Guarantor)
(whether  now  existing  or  hereafter   created  or  acquired)  the  financial
statements  of which  shall be (or  should  have  been)  consolidated  with the
financial  statements of the Borrower (or, as  appropriate,  the  Guarantor) in
accordance with GAAP.

      "Debt"  shall  mean,  for any  Person the sum of the  following  (without
duplication):  (i) all  obligations  of  such  Person  for  borrowed  money  or
evidenced by bonds,  debentures,  notes or other similar instruments (including
principal,  interest,  fees and charges);  (ii) all  obligations of such Person
(whether contingent or otherwise) in respect of bankers'  acceptances,  letters
of  credit,   surety  or  other  bonds  and  similar  instruments;   (iii)  all
obligations  of such Person to pay the deferred  purchase  price of Property or
services (other than for borrowed  money);  (iv) all  obligations  under leases
which shall have been, or should have been, in accordance  with GAAP,  recorded
as  capital  leases  in  respect  of  which  such  Person  is  liable  (whether
contingent  or  otherwise);  (v) all Debt (as described in the other clauses of
this  definition)  and other  obligations  of others  secured by a Lien  (other
than a Lien  permitted by Section  9.02) on any asset of such  Person,  whether
or not such Debt is  assumed by such  Person;  (vi) all Debt (as  described  in
the  other  clauses  of  this  definition)  and  other  obligations  of  others
guaranteed  by  such  Person  or in  which  such  Person  otherwise  assures  a
creditor  against  loss  of the  Debt  or  obligations  of  others;  (vii)  all
obligations  or  undertakings  of  such  Person  to  maintain  or  cause  to be
maintained  the  financial  position or  covenants of others or to purchase the
Debt or Property of others;  (viii)  obligations  to deliver  goods or services
including  Hydrocarbons  in  consideration  of  advance  payments,   except  as
permitted by Section 9.20 and disclosed by Section  8.07(c);  (ix)  obligations
to pay for  goods or  services  whether  or not  such  goods  or  services  are
actually  received or utilized by such  Person;  (x) any capital  stock of such
Person in which such  Person has a mandatory  obligation  to redeem such stock;
and (xi) any Debt of a Special  Entity for which such  Person is liable  either
by agreement or because of a Governmental  Requirement;  (xii) the undischarged
balance of any  production  payment  created by such Person or for the creation
of which such Person directly or indirectly  received  payment;  and (xiii) all
obligations of such Person under Hedging Agreements.

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

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

      "EBITDA" shall mean, for any period,  the sum of Consolidated  Net Income
for such period plus the following  expenses or charges to the extent  deducted
in  determining  Consolidated  Net  Income  in such  period:  interest,  taxes,
depreciation, depletion, amortization and other non-cash charges.

      "Effective  Date"  shall have the meaning  assigned  such term in Section
12.16.

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

      "ERISA" shall mean the Employee  Retirement  Income Security Act of 1974,
as amended from time to time and any successor statute.

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

      "ERISA  Event" shall mean (i) a "Reportable  Event"  described in Section
4043 of ERISA and the  regulations  issued  thereunder,  (ii) the withdrawal of
the Borrower,  any Subsidiary or any ERISA  Affiliate from a Plan during a plan
year  in  which  it  was  a  "substantial   employer"  as  defined  in  Section
4001(a)(2)  of ERISA,  (iii) the  filing of a notice of intent to  terminate  a
Plan or the treatment of a Plan  amendment as a termination  under Section 4041
of ERISA,  (iv) the  institution of proceedings to terminate a Plan by the PBGC
or (v) any other  event or  condition  which  might  constitute  grounds  under
Section 4042 of ERISA for the  termination  of, or the appointment of a trustee
to administer, any Plan.

      "Eurodollar  Loans"  shall  mean  Loans the  interest  rates on which are
determined on the basis of rates  referred to in the  definition of "Eurodollar
Rate".

      "Eurodollar  Rate" shall mean,  with respect to any Eurodollar  Loan, the
rate per annum  (rounded  upwards,  if  necessary,  to the nearest  1/16 of 1%)
quoted  by the  Agent  at  approximately  11:00  a.m.  London  time (or as soon
thereafter  as  practicable)  two (2)  Business  Days prior to the first day of
the  Interest  Period  for such Loan for the  offering  by the Agent to leading
banks  in  the  London  interbank  market  of  Dollar  deposits  having  a term
comparable  to  such  Interest  Period  and  in an  amount  comparable  to  the
principal  amount of the  Eurodollar  Loan to be made by the  Lenders  for such
Interest Period.

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

      "Excepted  Liens" shall mean:  (i) Liens for taxes,  assessments or other
governmental  charges  or levies  not yet due or which are being  contested  in
good faith by  appropriate  action and for which  adequate  reserves  have been
maintained;   (ii)   Liens   in   connection   with   workmen's   compensation,
unemployment  insurance  or other  social  security,  old age pension or public
liability  obligations  not yet due or which are being  contested in good faith
by appropriate  action and for which adequate  reserves have been maintained in
accordance with GAAP; (iii) operators',  vendors',  carriers',  warehousemen's,
repairmen's,  mechanics', workmen's, materialmen's,  construction or other like
Liens  arising  by  operation  of law in the  ordinary  course of  business  or
incident to the  exploration,  development,  operation and  maintenance  of Oil
and Gas Properties or statutory  landlord's  liens, each of which is in respect
of obligations  that have not been  outstanding more than 120 days or which are
being  contested  in good  faith  by  appropriate  proceedings  and  for  which
adequate  reserves  have been  maintained  in  accordance  with GAAP;  (iv) any
Liens  reserved in leases or farmout  agreements  for rent or royalties and for
compliance  with the terms of the farmout  agreements  or leases in the case of
leasehold  estates,  to the  extent  that any  such  Lien  referred  to in this
clause  does not  materially  impair  the use of the  Property  covered by such
Lien for the  purposes  for which such  Property is held by the Borrower or any
Subsidiary or materially  impair the value of such  Property  subject  thereto;
(v)  encumbrances  (other than to secure the  payment of borrowed  money or the
deferred  purchase  price of Property or services),  encroachments,  easements,
restrictions,   servitudes,  permits,  conditions,   covenants,  exceptions  or
reservations  (collectively  called  "Encumbrances")  in any  rights  of way or
other  Property  of the  Borrower or any  Subsidiary  for the purpose of roads,
pipelines,  transmission lines,  transportation  lines,  distribution lines for
the  removal of gas,  oil,  coal or other  minerals  or timber,  and other like
purposes,  or for the  joint  or  common  use of real  estate,  rights  of way,
facilities and equipment,  and Encumbrances,  defects,  irregularities,  zoning
restrictions  and  other  title  exceptions  in title of any  rights  of way or
other  Property  which in the  aggregate  do not  materially  impair the use of
such rights of way or other  Property  for the purposes of which such rights of
way  and  other  Property  are  held  by  the  Borrower  or any  Subsidiary  or
materially  impair the value of such Property  subject  thereto;  (vi) deposits
of cash or  securities  to secure the  performance  of bids,  trade  contracts,
leases,   statutory   obligations  and  other  obligations  of  a  like  nature
(including,  without limitation,  deposits of royalty payments in Wyoming banks
as provided  by Wyoming  statutory  law)  incurred  in the  ordinary  course of
business; and (vii) Liens permitted by the Loan Documents.

     "Facility A" shall mean the facility pursuant to Sections 2.01(a) and (c).

     "Facility A Commitment"  shall mean, for any Lender,  its obligation to (i)
make Loans up to the lesser of such Lender's Facility A Maximum Credit Amount or
the Lender's  Percentage  Share of the then  effective  Borrowing  Base and (ii)
participate in the issuance of Letters of Credit as provided in Section 2.01(b).

      "Facility A Loans" shall mean Loans made pursuant to Section 2.01(a).

      "Facility B Maturity Date" shall mean December 15, 1998.

      "Facility A Maximum  Credit  Amount" shall mean,  as to each Lender,  the
amount  set forth  opposite  such  Lender's  name on Annex I under the  caption
"Facility A Maximum  Credit  Amounts"  (as the same may be reduced  pursuant to
Section  2.03(b) pro rata to each Lender  based on its  Percentage  Share),  as
modified  from time to time to reflect  any  assignments  permitted  by Section
12.06(b).

      "Facility A Notes" shall mean the  promissory  note or notes (whether one
or more) of the  Borrower  described  in Section  2.06 and being in the form of
Exhibit A-1.

      "Facility  A  Termination  Date"  shall mean the  earlier to occur of (i)
December 15, 2002 or (ii) the date that the Commitments  are sooner  terminated
pursuant to Sections 2.03(b) or 10.02.

      "Facility B" shall mean the facility pursuant to Section 2.01(b).

     "Facility B Commitment"  shall mean, as to each Lender,  its  obligation to
make a Facility B Loan in the amount set forth opposite such Lender's name under
"Facility B Loans" on Annex I, as the same may be modified  from time to time to
reflect any assignment  permitted by Section 12.06(b). 

     "Facility  B Loans"  shall  mean the term loans  made  pursuant  to Section
2.01(b).

      "Facility B Notes" shall mean the  promissory  note or notes (whether one
or more) of the  Borrower  described  in Section  2.06 and being in the form of
Exhibit A-2.

      "Federal  Funds  Rate"  shall  mean,  for any day,  the  rate  per  annum
(rounded  upwards,  if  necessary,  to the  nearest  1/100 of 1%)  equal to the
weighted average of the rates on overnight  federal funds  transactions  with a
member of the  Federal  Reserve  System  arranged by federal  funds  brokers on
such  day,  as  published  by the  Federal  Reserve  Bank  of New  York  on the
Business  Day  next  succeeding  such  day,  provided  that (i) if the date for
which such rate is to be  determined  is not a Business  Day, the Federal Funds
Rate  for  such  day  shall  be  such  rate on such  transactions  on the  next
preceding  Business Day as so published on the next  succeeding  Business  Day,
and (ii) if such rate is not so published  for any day, the Federal  Funds Rate
for such day  shall be the  average  rate  charged  to the Agent on such day on
such transactions as determined by the Agent.

      "Fee Letter" shall mean that certain  letter  agreement from the Agent to
the Borrower  dated of even date with this  Agreement  concerning  certain fees
in connection  with this Agreement and any  agreements or instruments  executed
in  connection  therewith,  as the same may be amended or replaced from time to
time.

      "Financial  Statements" shall mean the financial  statement or statements
of the Borrower and its Consolidated  Subsidiaries  described or referred to in
Section 7.02.

      "GAAP" shall mean generally accepted accounting  principles in the United
States of  America in effect  from time to time,  except  that,  in the case of
the  Borrower  and its  Subsidiaries,  the  effects  of income  taxes  shall be
excluded.

      "Governmental  Authority" shall include the country,  the state,  county,
city and political  subdivisions in which any Person or such Person's  Property
is located or which exercises valid  jurisdiction  over any such Person or such
Person's  Property,  and any  court,  agency,  department,  commission,  board,
bureau or instrumentality  of any of them including monetary  authorities which
exercise  valid  jurisdiction  over any such Person or such Person's  Property.
Unless  otherwise  specified,  all references to Governmental  Authority herein
shall  mean  a  Governmental   Authority   having   jurisdiction   over,  where
applicable,  the Borrower,  its  Subsidiaries  or any of their  Property or the
Agent, any Lender or any Applicable Lending Office.

      "Governmental  Requirement" shall mean any law, statute, code, ordinance,
order,   determination,   rule,  regulation,   judgment,   decree,  injunction,
franchise,  permit, certificate,  license,  authorization or other directive or
requirement  (whether  or not  having  the  force of law),  including,  without
limitation,  Environmental  Laws, energy  regulations and occupational,  safety
and health standards or controls, of any Governmental Authority.

      "Guarantor" shall mean Howell Corporation, a Delaware corporation.

      "Guaranty  Agreement"  shall mean an agreement  executed by the Guarantor
in form and substance  satisfactory to the Agent guarantying,  unconditionally,
payment  of  the  Indebtedness,  as  the  same  may  be  amended,  modified  or
supplemented from time to time.

      "Hedging Agreements" shall mean any commodity,  interest rate or currency
swap,  cap,  floor,  collar,  forward  agreement or other  similar  exchange or
protection agreements or any option with respect to any such transaction.

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

      "Howell   Corporation"   shall  mean  Howell   Corporation,   a  Delaware
corporation, and owner of 100% of all of the Borrower's capital stock.

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

      "Hydrocarbons"  shall  mean oil,  gas,  casinghead  gas,  drip  gasoline,
natural  gasoline,   condensate,   distillate,  liquid  hydrocarbons,   gaseous
hydrocarbons and all products refined or separated therefrom.

      "Indebtedness"  shall  mean any and all  amounts  owing or to be owing by
the Borrower to the Agent,  the Issuing  Bank and/or the Lenders in  connection
with the Loan  Documents and the Letter of Credit  Agreements,  and any Hedging
Agreements  now or  hereafter  arising  between the Borrower and any Lender and
permitted by the terms of this  Agreement and all renewals,  extensions  and/or
rearrangements of any of the foregoing.

      "Indemnified  Parties"  shall  have the  meaning  assigned  such  term in
Section 12.03(a)(ii).

      "Indemnity  Matters" shall mean any and all actions,  suits,  proceedings
(including any investigations,  litigation or inquiries),  claims,  demands and
causes  of  action  made or  threatened  against a Person  and,  in  connection
therewith,  all losses,  liabilities,  damages (including,  without limitation,
consequential  damages) or reasonable  costs and expenses of any kind or nature
whatsoever  incurred by such Person  whether  caused by the sole or  concurrent
negligence of such Person seeking indemnification.

      "Initial  Funding"  shall  mean  the  funding  of the  initial  Loans  or
issuance of the initial  Letters of Credit upon  satisfaction of the conditions
set forth in Sections 6.01 and 6.02.

      "Initial  Reserve  Reports"  shall  mean  (i)  the  appraisal  report  of
DeGolyer  and  McNaughton,  dated  December 1, 1997 with respect to the Oil and
Gas Properties  intended to be purchased by the Borrower  pursuant to the Amoco
Purchase  and Sale  Agreement,  and (ii) the  audit  report  of H. J.  Gruy and
Associates  dated as of  January 1,  1997,  copies  of each of which  have been
delivered to the Agent.

      "Interest  Period" shall mean,  with respect to any Eurodollar  Loan, the
period  commencing on the date such  Eurodollar  Loan is made and ending on the
numerically  corresponding  day in the first,  second,  third or sixth calendar
month  thereafter,  as the  Borrower may select as provided in Section 2.02 (or
such other  period as may be  requested  by the  Borrower  and agreed to by the
Lenders),  except  that  each  Interest  Period  which  commences  on the  last
Business  Day of a  calendar  month  (or 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.

      Notwithstanding  the  foregoing:  (i) no Interest  Period with respect to
Facility  A Loans  may  end  after  the  Facility  A  Termination  Date  and no
Interest  Period with  respect to Facility B Loans may end after the Facility B
Maturity Date;  (ii) no Interest  Period for any Eurodollar  Loan may end after
the due date of any  installment,  if any,  provided for in Section 3.01 to the
extent that such  Eurodollar  Loan would need to be prepaid prior to the end of
such Interest  Period in order for such  installment to be paid when due; (iii)
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, if such next
succeeding  Business Day falls in the next  succeeding  calendar  month, on the
next  preceding  Business  Day);  and  (iv) no  Interest  Period  shall  have a
duration of less than one month  (unless  otherwise  agreed to by the  Lenders)
and, if the Interest  Period for any Eurodollar  Loans would otherwise be for a
shorter period, such Loans shall not be available hereunder.

      "Issuing  Bank"  shall mean BMO or any other  Lender  agreed to among the
Borrower and the Agent to issue Letters of Credit.

      "LC Commitment" at any time shall mean $5,000,000.

      "LC  Exposure"  at  any  time  shall  mean  the  difference  between  (i)
aggregate  face  amount of all undrawn  and  uncancelled  Letters of Credit and
the  aggregate  of all  amounts  drawn  under all Letters of Credit and not yet
reimbursed,  minus (ii) the aggregate  amount of all cash securing  outstanding
Letters of Credit pursuant to Section 2.10(b).

      "Letter of Credit  Agreements" shall mean the written agreements with the
Issuing  Bank,  as  issuing  lender  for any  Letter  of  Credit,  executed  in
connection  with the  issuance  by the  Issuing  Bank of the Letters of Credit,
such  agreements to be on the Issuing Bank's  customary form attached hereto as
Exhibit F or as otherwise agreed to by the Borrower and the Issuing Bank.

      "Letters of Credit" shall mean the letters of credit  issued  pursuant to
Section  2.01(c)  and all  reimbursement  obligations  pertaining  to any  such
letters of credit,  and  "Letter of Credit"  shall mean any one of the  Letters
of Credit and the reimbursement obligations pertaining thereto.

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

      "Loan  Documents"  shall mean this Agreement,  the Notes,  the Letters of
Credit,  the Letter of Credit  Agreements,  the Fee Letter,  the  agreements or
instruments  described  or  referred  to in  Exhibit  D, and any and all  other
agreements  or  instruments  now or  hereafter  executed  and  delivered by the
Borrower  or  any  other  Person  (other  than  assignments,  participation  or
similar  agreements  between any Lender and any other  lender or creditor  with
respect to any  Indebtedness  pursuant to this  Agreement) in connection  with,
or  as  security  for  the  payment  or  performance  of  the  Notes,  or  this
Agreement,  or reimbursement  obligations  under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to time.

      "Loans"  shall mean the loans as  provided  for by  Sections  2.01(a) and

(b).  "Loans" shall include the Facility A Loans and the Facility B Loans.

      "Majority   Lenders"   shall  mean,  at  any  time  while  no  Loans  are
outstanding,   Lenders  having  at  least  sixty-six  and  two-thirds   percent
(66-2/3%)  of the  Aggregate  Commitments  and,  at any time  while  Loans  are
outstanding,   Lenders  holding  at  least  sixty-six  and  two-thirds  percent
(66-2/3%) of the outstanding  aggregate  principal amount of the Loans (without
regard to any sale by a Lender of a  participation  in any Loan  under  Section
12.06(c)).

      "Material  Adverse  Effect" shall mean any material and adverse effect on
(i) the assets,  liabilities,  financial  condition,  business or operations of
the Borrower and its  Subsidiaries  taken as a whole or the  Guarantor  and its
Subsidiaries  taken as a whole  different from those reflected in the Financial
Statements  or from the facts  represented  or warranted in any Loan  Document,
or (ii) the ability of the  Borrower and its  Subsidiaries  taken as a whole or
the  Guarantor  and its  Subsidiaries  taken  as a whole  to  carry  out  their
business  in the  normal  course  or meet  their  obligations  under  the  Loan
Documents on a timely basis.

      "Minimum   Capital"  shall  mean  the  Subordinated  Debt  and/or  equity
required by Section 8.11.

      "Mortgages" shall have the meaning assigned such term in Section 8.09.

      "Mortgaged  Property"  shall mean the Property  owned by the Borrower and
which is  subject  to the Liens  existing  and to exist  under the terms of the
Loan Documents.

      "Multiemployer  Plan" shall mean a Plan defined as such in  Section 3(37)
or 4001(a)(3) of ERISA.

      "Notes" shall mean the Notes provided for by Section 2.06,  together with
any and all renewals,  extensions  for any period,  increases,  rearrangements,
substitutions  or  modifications   thereof.   The  "Notes"  shall  include  the
Facility A Notes and the Facility B Notes.

      "Oil  and  Gas  Properties"   shall  mean  Hydrocarbon   Interests;   the
Properties  now or hereafter  pooled or unitized  with  Hydrocarbon  Interests;
all  presently   existing  or  future   unitization,   pooling  agreements  and
declarations of pooled units and the units created thereby  (including  without
limitation  all  units  created  under  orders,  regulations  and  rules of any
Governmental   Authority)   which  may  affect  all  or  any   portion  of  the
Hydrocarbon   Interests;   all  operating   agreements,   contracts  and  other
agreements   which  relate  to  any  of  the   Hydrocarbon   Interests  or  the
production,  sale,  purchase,  exchange or processing of  Hydrocarbons  from or
attributable to such Hydrocarbon  Interests;  all Hydrocarbons in and under and
which may be produced and saved or attributable  to the Hydrocarbon  Interests,
including all oil in tanks,  the lands covered  thereby and all rents,  issues,
profits,  proceeds,  products,  revenues and other incomes from or attributable
to the Hydrocarbon Interests; all tenements,  hereditaments,  appurtenances and
Properties  in any manner  appertaining,  belonging,  affixed or  incidental to
the Hydrocarbon Interests;  and all Properties,  rights, titles,  interests and
estates  described or referred to above,  including any and all Property,  real
or personal,  now owned or hereinafter  acquired and situated upon,  used, held
for use or useful in connection  with the operating,  working or development of
any of  such  Hydrocarbon  Interests  or  Property  (excluding  drilling  rigs,
automotive  equipment or other personal  property which may be on such premises
for the purpose of  drilling a well or for other  similar  temporary  uses) and
including  any and all oil wells,  gas wells,  injection  wells or other wells,
buildings,   structures,  fuel  separators,  liquid  extraction  plants,  plant
compressors,  pumps,  pumping units,  field gathering  systems,  tanks and tank
batteries,  fixtures, valves, fittings,  machinery and parts, engines, boilers,
meters, apparatus,  equipment,  appliances,  tools, implements,  cables, wires,
towers, casing, tubing and rods, surface leases,  rights-of-way,  easements and
servitudes   together   with  all   additions,   substitutions,   replacements,
accessions and attachments to any and all of the foregoing.

      "Other  Taxes"  shall  have the  meaning  assigned  such term in  Section
4.06(b).

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

      "Percentage   Share"  shall  mean  the   percentage   of  the   Aggregate
Commitments  to be provided by a Lender  under this  Agreement  as indicated on
Annex I hereto,  as  modified  from  time to time to  reflect  any  assignments
permitted by Section 12.06(b).

      "Person"  shall  mean any  individual,  corporation,  company,  voluntary
association,  partnership,  joint venture, trust,  unincorporated  organization
or  government  or  any  agency,   instrumentality  or  political   subdivision
thereof, or any other form of entity.

      "Plan"  shall  mean any  employee  pension  benefit  plan,  as defined in
Section  3(2)  of  ERISA,  which  (i)  is  currently  or  hereafter  sponsored,
maintained  or  contributed  to by the  Borrower,  any  Subsidiary  or an ERISA
Affiliate  or (ii) was at any time  during the  preceding  six  calendar  years
sponsored,  maintained or  contributed  to, by the Borrower,  any Subsidiary or
an ERISA Affiliate.

      "Post-Default  Rate" shall mean,  in respect of any principal of any Loan
or any other amount  payable by the Borrower  under this Agreement or any other
Loan  Document , a rate per annum during the period  commencing  on the date of
occurrence  of an Event of  Default  until  such  amount is paid in full or all
Events of  Default  are cured or  waived  equal to 2% per annum  above the Base
Rate as in effect from time to time plus the  Applicable  Margin (if any),  but
in no  event to  exceed  the  Highest  Lawful  Rate;  provided  however,  for a
Eurodollar Loan, the  "Post-Default  Rate" for such principal shall be, for the
period  commencing  on the date of occurrence of an Event of Default and ending
on the  earlier to occur of the last day of the  Interest  Period  therefor  or
the date all Events of  Default  are cured or  waived,  2% per annum  above the
interest  rate for such Loan as  provided  in  Section  3.02(a)(ii),  but in no
event to exceed the Highest Lawful Rate.

      "Prime Rate" shall mean the rate of interest from time to time  announced
publicly by the Agent at the Principal Office as its prime  commercial  lending
rate.  Such rate is set by the Agent as a general  reference  rate of interest,
taking into account such  factors as the Agent may deem  appropriate,  it being
understood  that many of the  Agent's  commercial  or other loans are priced in
relation  to such  rate,  that it is not  necessarily  the  lowest or best rate
actually  charged  to  any  customer  and  that  the  Agent  may  make  various
commercial or other loans at rates of interest  having no  relationship to such
rate.

      "Principal  Office"  shall  mean  the  principal  office  of  the  Agent,
presently located at 115 South LaSalle Street, Chicago, Illinois  60603.

      "Property"  shall mean any  interest  in any kind of  property  or asset,
whether real, personal or mixed, or tangible or intangible.

      "Quarterly Dates" shall mean the last day of each March, June,  September
and  December,  in each year,  the first of which shall be  December 31,  1997;
provided,  however,  that if any such day is not a Business Day, such Quarterly
Date shall be the next succeeding Business Day.

      "Redetermination  Date"  shall  have the  meaning  assigned  such term in
Section 2.08(a).

      "Regulation  D" shall mean  Regulation D of the Board of Governors of the
Federal  Reserve  System  (or any  successor),  as the same may be  amended  or
supplemented from time to time.

      "Regulatory  Change" shall mean,  with respect to any Lender,  any change
after the Closing Date in any Governmental  Requirement  (including  Regulation
D)  or  the  adoption  or  making  after  such  date  of  any  interpretations,
directives or requests  applying to a class of lenders  (including  such Lender
or its  Applicable  Lending  Office) of or under any  Governmental  Requirement
(whether  or not  having  the  force  of  law)  by any  Governmental  Authority
charged with the interpretation or administration thereof.

      "Required   Lenders"   shall  mean,  at  any  time  while  no  Loans  are
outstanding,  Lenders  (one  of  which  must  be the  Agent)  having  at  least
seventy-five  percent  (75%)  of the  Aggregate  Commitments  and,  at any time
while Loans are  outstanding,  Lenders (one of which must be the Agent) holding
at least  seventy-five  percent (75%) of the  outstanding  aggregate  principal
amount  of  the  Loans   (without   regard  to  any  sale  by  a  Lender  of  a
participation in any Loan under Section 12.06(c)).

     "Required  Payment"  shall have the meaning  assigned  such term in Section
4.04.

     "Reserve Report" shall mean a report, in form and substance satisfactory to
the Agent,  setting forth, as of each January 1 (or such other date in the event
of an unscheduled  redetermination):  the oil and gas reserves  attributable  to
substantially all of the Borrower's proved Oil and Gas Properties  together with
a projection of the rate of production and future net income,  taxes,  operating
expenses and capital  expenditures  with respect thereto as of such date,  based
upon the pricing assumptions  consistent with SEC reporting  requirements at the
time.  Each  Reserve  Report  shall be  accompanied  by such  other  information
relating thereto as the Agent may reasonably request.  The term "Reserve Report"
shall also  include the  Initial  Reserve  Reports and the Reserve  Report to be
provided  by the  Borrower  by  September 1  of each year  pursuant  to  Section
8.07(a).

      "Responsible  Officer" shall mean, as to any Person,  the Chief Executive
Officer,  the President or any Vice  President of such Person and, with respect
to financial  matters,  the term "Responsible  Officer" shall include the Chief
Financial Officer of such Person.  Unless otherwise  specified,  all references
to a  Responsible  Officer  herein  shall  mean a  Responsible  Officer  of the
Borrower.

      "Scheduled  Redetermination  Date" shall have the meaning  assigned  such
term in Section 2.08(d).

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

      "Special Entity" shall mean any joint venture,  limited liability company
or  partnership,   general  or  limited   partnership  or  any  other  type  of
partnership  or company  other than a  corporation  in which a Person or one or
more of its other  Subsidiaries is a member,  owner,  partner or joint venturer
and owns,  directly  or  indirectly,  at least a majority of the equity of such
entity or controls such entity,  but excluding  any tax  partnerships  that are
not  classified  as  partnerships   under  state  law.  For  purposes  of  this
definition,  any Person which owns directly or indirectly an equity  investment
in another  Person which  allows the first  Person to manage or elect  managers
who  manage the  normal  activities  of such  second  Person  will be deemed to
"control"  such second Person (e.g. a sole general  partner  controls a limited
partnership).  Unless otherwise  indicated  herein,  each reference to the term
Special Entity shall mean a Special Entity of the Borrower.

      "Subordinated  Debt"  shall  mean  any  Debt  of the  Borrower  expressly
subordinated to the  Indebtedness  pursuant to agreements in form and substance
satisfactory to the Lenders.

      "Subsidiary"  shall mean (i) 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  by a  Person  or one or  more  of its  Subsidiaries  or by a
Person  and  one or more of its  Subsidiaries  and  (ii)  any  Special  Entity.
Unless  otherwise  indicated  herein,  each reference to the term  "Subsidiary"
shall mean a Subsidiary of the Borrower.

      "Tangible  Net  Worth"  shall  mean,  as at  any  date,  the  sum  of the
following  for the  Guarantor  and  its  Consolidated  Subsidiaries  determined
(without duplication) in accordance with GAAP:

      (i)  the  amount  of  preferred  stock and  common  stock at par plus the
amount of surplus of the Guarantor, plus

      (ii) the  retained  earnings  (or,  in  the  case  of  retained  earnings
deficit, minus the amount of such deficit), minus

      (iii)the sum of the  following:  cost of  treasury  shares  and the  book
value of all assets of the Guarantor and its  Consolidated  Subsidiaries  which
should  be  classified  as  intangibles   in  accordance   with  GAAP  (without
duplication  of deductions in respect of items already  deducted in arriving at
surplus and retained  earnings) but in any event including as such  intangibles
the following:  goodwill,  research and development  costs,  trademarks,  trade
names,  copyrights,  patents and  franchises,  unamortized  debt  discount  and
expense,  all  reserves  and any writeup in the book value of assets  resulting
from a  revaluation  thereof or resulting  from any changes in GAAP  subsequent
to  September 30,  1997;  but  excluding  any item  classified  as "oil and gas
properties"  utilizing  the full  cost  method  of  accounting  as shown on the
Guarantor's balance sheet.

      "Taxes" shall have the meaning assigned such term in Section 4.06(a).

      "Type"  shall  mean,  with  respect  to any  Loan,  a Base Rate Loan or a
Eurodollar Loan.

      "Wholly-Owned  Subsidiary" shall mean, as to the Borrower, any Subsidiary
of which  all of the  outstanding  shares  of  capital  stock  or other  equity
interests,  on a fully-diluted  basis, are owned by the Borrower or one or more
of the  Wholly-Owned  Subsidiaries  or by the  Borrower  and one or more of the
Wholly-Owned Subsidiaries.

           Section   1.03   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  furnished  to the Agent or the Lenders
hereunder  shall be  prepared,  in  accordance  with  GAAP,  applied on a basis
consistent with the audited  financial  statements of the Borrower  referred to
in  Section  7.02  (except  for  changes   concurred  with  by  the  Borrower's
independent public accountants).


                                  ARTICLE II

                                  Commitments

           Section 2.01  Loans and Letters of Credit.

           (a)  Facility A Loans.  Each Lender severally  agrees,  on the terms
      and conditions of this  Agreement,  to make loans to the Borrower  during
      the period from and  including  (i) the  Closing  Date or (ii) such later
      date that such Lender  becomes a party to this  Agreement  as provided in
      Section  12.06(b),   to  and  up  to,  but  excluding,   the  Facility  A
      Termination  Date  in an  aggregate  principal  amount  at any  one  time
      outstanding  up to,  but not  exceeding,  the  amount  of  such  Lender's
      Facility A  Commitment  as then in effect;  provided,  however,  that the
      aggregate  principal amount of all such Loans by all Lenders hereunder at
      any one time  outstanding  together with the LC Exposure shall not exceed
      the  Aggregate  Facility  A  Commitments.  Subject  to the  terms of this
      Agreement,  during the  period  from the  Closing  Date to and up to, but
      excluding,  the  Facility A  Termination  Date,  the Borrower may borrow,
      repay and reborrow the amount described in this Section 2.01(a).

           (b)  Facility B Loans.  Each  Lender  severally  agrees,  subject to
      the terms and  conditions of this  Agreement,  to make a term loan to the
      Borrower not to exceed its Facility B  Commitment.  Such  Facility B Loan
      shall be made by way of up to two (2)  advances  as  follows:  (i) on the
      Initial  Funding  date an  aggregate  Facility B  Loan  advance  of up to
      $20,000,000;  and  (ii) when  and if the Borrower  makes the Beaver Creek
      Acquisition,  provided  such event occurs on or prior to the Beaver Creek
      Conversion  Termination  Date, an additional  aggregate  Facility B  Loan
      advance of up to $85,000,000,  less the amount of long term  subordinated
      debt (to the extent the issuance of  subordinated  debt did not result in
      a  reduction  to the  Borrowing  Base  pursuant to a  redetermination  as
      provided in Section  2.08(d)) or equity  capital  raised by the  Borrower
      pursuant to Section 8.11;  provided, however, such reduction shall not be
      made to the extent that the proceeds of such  subordinated debt or equity
      is used to pay the Facility B Loan.

           Any portion of each Lender's  Facility B Commitment  not utilized by
      such  borrowings  on  such  dates  shall  be  permanently  canceled.  Any
      repayments of the Facility B Loans are not available to be redrawn.

           (c)  Letters of Credit.  During the period  from and  including  the
      Closing Date to, but  excluding,  the Facility A  Termination  Date,  the
      Issuing  Bank,  as issuing bank for the Lenders,  agrees to extend credit
      for the  account  of the  Borrower  at any time and from  time to time by
      issuing,  renewing,  extending or reissuing  Letters of Credit;  provided
      however,  the LC  Exposure at any one time  outstanding  shall not exceed
      the  lesser of (i) the LC  Commitment  or (ii) the  Aggregate  Facility A
      Commitments,  as then in effect,  minus the aggregate principal amount of
      all Facility A Loans then  outstanding.  The Lenders shall participate in
      such Letters of Credit according to their respective  Percentage  Shares.
      Each of the Letters of Credit  shall (i) be  issued by the Issuing  Bank,
      (ii) contain such terms and provisions as are reasonably  required by the
      Issuing  Bank,  (iii) be  for the account of the Borrower and (iv) expire
      not later than the earlier of (x)  fourteen  (14) months from the date of
      issuance and (y) the Facility A Termination Date.

           (d)  Limitation  on Types of Loans.  Subject to the other  terms and
      provisions of this  Agreement,  at the option of the Borrower,  the Loans
      may be Base Rate Loans or Eurodollar  Loans;  provided that,  without the
      prior  written  consent of the Majority  Lenders,  no more than eight (8)
      Eurodollar Loans may be outstanding at any time.

           Section 2.02 Borrowings,  Continuations and Conversions, Letters of 
Credit.

           (a)  Borrowings.  The  Borrower  shall give the Agent  (which  shall
      promptly  notify the Lenders)  advance notice as hereinafter  provided of
      each borrowing  hereunder,  which shall specify (i) the aggregate  amount
      of such  borrowing,  (ii) the Type and (iii) the date  (which  shall be a
      Business  Day) of the  Loans  to be  borrowed,  and  (iv) (in the case of
      Eurodollar Loans) the duration of the Interest Period therefor.

           (b)  Minimum  Amounts.  All Base  Rate Loan  borrowings  shall be in
      amounts of at least  $500,000 or the  remaining  balance of the Aggregate
      Facility A  Commitments,  if less,  or any whole  multiple of $500,000 in
      excess thereof,  and all Eurodollar Loans shall be in amounts of at least
      $1,000,000 or any whole multiple of $1,000,000 in excess thereof.

           (c)  Notices.  All borrowings,  continuations  and conversions shall
      require  advance written notice to the Agent (which shall promptly notify
      the  Lenders) in the form of Exhibit B  (or  telephonic  notice  promptly
      confirmed  by such a  written  notice),  which  in  each  case  shall  be
      irrevocable,  from the  Borrower  to be  received  by the Agent not later
      than  11:00 a.m.  Houston,  Texas time at least one Business Day prior to
      the date of each Base Rate Loan  borrowing and three  Business Days prior
      to  the  date  of  each  Eurodollar   Loan  borrowing,   continuation  or
      conversion ; provided,  however, for Base Rate Loans Borrower may request
      a same day  advance of up to  $10,000,000  if the  request is received by
      the Agent  not later  than  9:00  a.m.  on such day.  Without  in any way
      limiting the  Borrower's  obligation to confirm in writing any telephonic
      notice for a borrowing,  continuation  or  conversion,  the Agent may act
      without  liability  upon the basis of telephonic  notice  believed by the
      Agent in good faith to be from the  Borrower  prior to receipt of written
      confirmation.  In each such case,  the Borrower  hereby  waives the right
      to dispute  the  Agent's  record of the terms of such  telephonic  notice
      except  in the case of gross  negligence  or  willful  misconduct  by the
      Agent.

           (d)  Continuation  Options.  Subject to the provisions  made in this
      Section  2.02(d),  the  Borrower may elect to continue all or any part of
      any Eurodollar  Loan beyond the  expiration of the then current  Interest
      Period  relating  thereto by giving advance notice as provided in Section
      2.02(c) to the Agent  (which shall  promptly  notify the Lenders) of such
      election,  specifying  the  amount of such Loan to be  continued  and the
      Interest  Period  therefor.  In the  absence  of such a timely and proper
      election,  the  Borrower  shall be deemed to have elected to convert such
      Eurodollar Loan to a Base Rate Loan pursuant to Section  2.02(e).  All or
      any part of any  Eurodollar  Loan may be  continued  as provided  herein,
      provided that (i) any  continuation of any such Loan shall be (as to each
      Loan as continued  for an  applicable  Interest  Period) in amounts of at
      least  $1,000,000 or any whole  multiple of $1,000,000 in excess  thereof
      and (ii) no Event of Default  shall have occurred and be  continuing.  If
      an  Event  of  Default  shall  have  occurred  and  be  continuing,  each
      Eurodollar  Loan shall be  converted  to a Base Rate Loan on the last day
      of the Interest Period applicable thereto.

           (e)  Conversion  Options.  The  Borrower may elect to convert all or
      any part of any  Eurodollar  Loan on the  last  day of the  then  current
      Interest  Period  relating  thereto to a Base Rate Loan by giving advance
      notice to the Agent  (which  shall  promptly  notify the Lenders) of such
      election.  Subject to the provisions  made in this Section  2.02(e),  the
      Borrower  may elect to  convert  all or any part of any Base Rate Loan at
      any time and from time to time to a  Eurodollar  Loan by  giving  advance
      notice as provided in Section  2.02(c) to the Agent (which shall promptly
      notify  the  Lenders)  of  such   election.   All  or  any  part  of  any
      outstanding Loan may be converted as provided  herein,  provided that (i)
      any conversion of any Base Rate Loan into a Eurodollar  Loan shall be (as
      to each such Loan into  which  there is a  conversion  for an  applicable
      Interest  Period) in amounts of at least $1,000,000 or any whole multiple
      of $1,000,000  in excess  thereof and (ii) no Event of Default shall have
      occurred and be  continuing.  If an Event of Default  shall have occurred
      and be  continuing,  no Base Rate Loan may be converted into a Eurodollar
      Loan.

           (f)  Advances.  Not later  than 11:00  a.m.  Houston,  Texas time on
      the date specified for each borrowing  hereunder,  each Lender shall make
      available  the  amount  of the Loan to be made by it on such  date to the
      Agent,  to an  account  which the Agent  shall  specify,  in  immediately
      available  funds,  for  the  account  of the  Borrower.  The  amounts  so
      received by the Agent shall,  subject to the terms and conditions of this
      Agreement,  be made  available to the Borrower by depositing the same, in
      immediately  available  funds, in an account of the Borrower,  designated
      by the Borrower and maintained at the Principal Office.

           (g)  Letters of Credit.  The  Borrower  shall give the Issuing  Bank
      (which  shall  promptly  notify  the  Lenders of such  request  and their
      Percentage  Share of such Letter of Credit) advance notice to be received
      by the  Issuing  Bank not later than 11:00 a.m.  Houston,  Texas time not
      less than three (3) Business  Days prior  thereto of each request for the
      issuance,  and at least three (3) Business  Days prior to the date of the
      renewal  or  extension,  of a Letter of Credit  hereunder  which  request
      shall  specify  (i) the amount of such  Letter of  Credit,  (ii) the date
      (which  shall be a Business  Day) such  Letter of Credit is to be issued,
      renewed  or  extended,  (iii)  the  duration  thereof,  (iv) the name and
      address of the beneficiary  thereof,  (v) the form and type of the Letter
      of  Credit  and (vi)  such  other  information  as the  Issuing  Bank may
      reasonably request, all of which shall be reasonably  satisfactory to the
      Issuing Bank.  Subject to the terms and conditions of this Agreement,  on
      the date specified for the issuance,  renewal or extension of a Letter of
      Credit,  the  Issuing  Bank shall  issue,  renew or extend such Letter of
      Credit to the beneficiary thereof.

           In  conjunction  with the  issuance  of each  Letter of Credit,  the
      Borrower  shall  execute a Letter of  Credit  Agreement.  In the event of
      any conflict  between any  provision of a Letter of Credit  Agreement and
      this  Agreement,  the  Borrower,  the  Issuing  Bank,  the  Agent and the
      Lenders hereby agree that the provisions of this Agreement shall govern.

           The  Issuing  Bank  will  send  to the  Borrower  and  each  Lender,
      immediately  upon  issuance  of any  Letter of  Credit,  or an  amendment
      thereto,  a true and  complete  copy of such  Letter of  Credit,  or such
      amendment thereto.

           Section 2.03  Changes of Commitments.

           (a)  The  Aggregate  Facility  A  Commitments  shall at all times be
      equal to the  lesser of  (i) the  Aggregate  Facility  A  Maximum  Credit
      Amounts  after   adjustments   resulting  from  reductions   pursuant  to
      Section 2.03(b)  or (ii) the  Borrowing  Base as determined  from time to
      time.

           (b)  The  Borrower  shall have the right to  terminate  or to reduce
      the  amount of the  Aggregate  Facility A Maximum  Credit  Amounts at any
      time, or from time to time,  upon not less than three (3) Business  Days'
      prior notice to the Agent (which  shall  promptly  notify the Lenders) of
      each such  termination  or  reduction,  which  notice  shall  specify the
      effective date thereof and the amount of any such reduction  (which shall
      not be less  than  $1,000,000  or any whole  multiple  of  $1,000,000  in
      excess  thereof) and shall be irrevocable and effective only upon receipt
      by the Agent.

           (c)  The   Aggregate   Facility  A  Maximum   Credit   Amounts  once
      terminated or reduced may not be reinstated.

           Section 2.04  Fees.

           (a)  Commitment  Fee.  The  Borrower  shall pay to the Agent for the
      account  of each  Lender a  commitment  fee on the daily  average  unused
      amount of the Aggregate  Facility A  Commitments  for the period from and
      including  the Closing Date up to but  excluding  the earlier of the date
      the  Aggregate  Facility A Commitments  are  terminated or the Facility A
      Termination  Date  at a rate  per  annum  set  forth  at the  appropriate
      intersection  in the table  shown  below  based upon the  Borrowing  Base
      Utilization Percentage as in effect from time to time:

      Borrowing Base Utilization Percentage                   Commitment Fee
      _____________________________________                   ______________

      Less than or equal to 50%                                     .25%

      Greater than 50%                                              .30%

      Accrued  commitment  fees shall be payable  quarterly  in arrears on each
      Quarterly  Date and on the earlier of the date the  Aggregate  Facility A
      Commitments are terminated or the Facility A Termination Date.

           (b)  Letter of Credit Fees.

                (i)  The Borrower  agrees to pay the Agent,  for the account of
           the  Lenders,  commissions  for issuing the Letters of Credit on the
           daily average  outstanding  of the maximum  liability of the Issuing
           Bank  existing  from  time to  time  under  such  Letter  of  Credit
           (calculated  separately  for each  Letter of Credit) at the rate per
           annum equal to the  Applicable  Margin then in effect for Eurodollar
           Loans,  provided  that each  Letter of Credit  shall  bear a minimum
           commission  of $500.  Each  Letter of  Credit  shall be deemed to be
           outstanding  up to the full  face  amount  of the  Letter  of Credit
           until the Issuing Bank has  received  the canceled  Letter of Credit
           or  a  written  cancellation  of  the  Letter  of  Credit  from  the
           beneficiary   of  such  Letter  of  Credit  in  form  and  substance
           acceptable to the Issuing Bank, or for any  reductions in the amount
           of the  Letter  of  Credit  (other  than  from a  drawing),  written
           notification  from the  beneficiary  of such Letter of Credit.  Such
           commissions are payable  quarterly in arrears on each Quarterly Date
           and upon cancellation or expiration of each such Letter of Credit.

                (ii) The Borrower  agrees to pay the Issuing Bank,  for its own
           account,  an issuing fee for issuing  Letters of Credit on the daily
           average  outstanding  of the maximum  liability  of the Issuing Bank
           existing  from time to time under such Letter of Credit  (calculated
           separately  for  each  Letter  of  Credit)  at the  rate of .10% per
           annum,  payable quarterly in arrears on each Quarterly Date and upon
           cancellation or expiration of each such Letter of Credit.

           (c)  The Borrower  shall pay to the Agent for its account such other
      fees as are set forth in the Fee  Letter on the dates  specified  therein
      to the extent not paid prior to the Closing Date.

           Section  2.05  Several  Obligations.  The  failure  of any Lender to
make  any  Loan to be made  by it or to  provide  funds  for  disbursements  or
reimbursements  under Letters of Credit on the date  specified  therefor  shall
not  relieve  any other  Lender of its  obligation  to make its Loan or provide
funds on such date, but no Lender shall be  responsible  for the failure of any
other  Lender  to make a Loan to be made by such  other  Lender  or to  provide
funds to be provided by such other Lender.

           Section  2.06  Notes.  The  Facility  A Loans  made  by each  Lender
shall  be   evidenced  by  a  single   promissory   note  of  the  Borrower  in
substantially  the form of Exhibit A-1,  dated (i) the Closing Date or (ii) the
effective date of an Assignment  pursuant to Section  12.06(b),  payable to the
order of such  Lender in a  principal  amount  equal to its  Facility A Maximum
Credit Amount as originally  in effect and  otherwise  duly  completed and such
substitute  Notes as required by Section  12.06(b).  The  Facility B Loans made
by each Lender shall be evidenced by a single  promissory  note of the Borrower
in  substantially  the form of Exhibit A-2, dated as of (i) the Closing Date or
(ii)  the  effective  date  of an  Assignment  pursuant  to  Section  12.06(b),
payable to the order of such Lender and  otherwise  duly  completed.  The date,
amount,  Type,  interest  rate and  Interest  Period  of each Loan made by each
Lender,  and all payments  made on account of the principal  thereof,  shall be
recorded  by  such  Lender  on its  books  for its  Notes,  and,  prior  to any
transfer  may be  endorsed  by such  Lender on the  schedule  attached  to such
Notes or any  continuation  thereof or on any  separate  record  maintained  by
such Lender.  Failure to make any such  notation or to attach a schedule  shall
not affect any Lender's or the  Borrower's  rights or obligations in respect of
such Loans or affect the validity of such transfer by any Lender of its Note.

           Section 2.07  Prepayments.

           (a)  Voluntary  Prepayments.  The  Borrower may prepay the Base Rate
      Loans  upon not less  than one (1)  Business  Day's  prior  notice to the
      Agent  (which  shall  promptly  notify the  Lenders),  which notice shall
      specify  the  prepayment  date  (which  shall be a Business  Day) and the
      amount  of the  prepayment  (which  shall  be at  least  $500,000  or the
      remaining  aggregate  principal  balance  outstanding  on the  Notes) and
      shall be  irrevocable  and  effective  only upon  receipt  by the  Agent,
      provided  that  interest  on  the  principal  prepaid,   accrued  to  the
      prepayment  date,  shall be paid on the prepayment date. The Borrower may
      prepay  Eurodollar  Loans on the same  conditions  as for Base Rate Loans
      (except  that prior  notice to the Agent shall be not less than three (3)
      Business Days for Eurodollar  Loans) and in addition such  prepayments of
      Eurodollar  Loans shall be subject to the terms of Section 5.05 and shall
      be in an amount  equal to all of the  Eurodollar  Loans for the  Interest
      Period prepaid.

           (b)  Mandatory Prepayments.

                (i)  If, after giving  effect to any  termination  or reduction
      of  the  Aggregate   Facility  A  Maximum  Credit  Amounts   pursuant  to
      Section 2.03(b),  the  outstanding  aggregate  principal  amount  of  the
      Facility A Loans plus the LC Exposure  exceeds the  Aggregate  Facility A
      Maximum  Credit  Amounts,  the  Borrower  shall (i) prepay the Facility A
      Loans  on the  date of such  termination  or  reduction  in an  aggregate
      principal  amount  equal to the  excess,  together  with  interest on the
      principal  amount paid accrued to the date of such prepayment and (ii) if
      any excess  remains  after  prepaying all of the Facility A Loans because
      of LC  Exposure,  pay to the  Agent on behalf  of the  Lenders  an amount
      equal to the excess to be held as cash  collateral as provided in Section
      2.10(b) hereof.

                (ii) Upon any  redetermination  of the amount of the  Borrowing
      Base in accordance with Section 2.08, if the redetermined  Borrowing Base
      is less than the aggregate  outstanding  principal amount of the Facility
      A Loans plus the LC Exposure,  then the Borrower shall within thirty (30)
      days of receipt  of written  notice  thereof:  (i) prepay the  Facility A
      Loans in an aggregate  principal  amount  equal to such excess,  together
      with  interest on the  principal  amount paid accrued to the date of such
      prepayment  and  (ii)  if  a  Borrowing  Base  deficiency  remains  after
      prepaying  all of the  Facility  A  Loans  because  of LC  Exposure,  the
      Borrower  shall pay to the Agent on behalf of the Lenders an amount equal
      to such  Borrowing  Base  deficiency  to be held  as cash  collateral  as
      provided in Section 2.10(b).

                (iii)Upon  receipt by the  Borrower of any  adjustment  payment
      from Amoco Production  Company  ("Amoco")  pursuant to Section 4.2 or 5.2
      of the Amoco  Purchase  and Sale  Agreement,  Borrower  will give written
      notice  thereof to the Agent and the  Facility A  Borrowing  Base will be
      automatically reduced by the amount of such adjustment.

           (c)  Generally.   Prepayments   permitted  or  required  under  this
      Section  2.07 shall be without  premium or  penalty,  except as  required
      under Section 5.05 for prepayment of Eurodollar  Loans.  Any  prepayments
      on the Facility A Loans may be reborrowed  subject to the then  effective
      Aggregate  Facility A  Commitments.  Any  prepayments  on the  Facility B
      Loans may not be reborrowed and shall be applied to  installments  on the
      Facility B Notes in the inverse order of maturity.

           Section 2.08  Borrowing Base.

           (a)  During the  period  from and after the  Closing  Date until the
      first redetermination  pursuant to Section 2.08(d) or adjustment pursuant
      to Section 8.08(d),  the amount of the Borrowing Base shall be as defined
      in Borrowing  Base Letter.  The Borrowing Base shall be  redetermined  in
      accordance  with Section 2.08(b) by the Agent with the concurrence of the
      Required  Lenders and is subject to  redetermination  in accordance  with
      Section  2.08(d).  Upon any  redetermination  of the Borrowing Base, such
      redetermination   shall  remain  in  effect  until  the  next  successive
      Redetermination  Date,  except as provided in the  Borrowing  Base Letter
      with  respect to the Beaver  Creek  Acquisition.  "Redetermination  Date"
      shall  mean  the  date  that  the  redetermined  Borrowing  Base  becomes
      effective  subject  to  the  notice  requirements  specified  in  Section
      2.08(e)   both   for   scheduled    redeterminations    and   unscheduled
      redeterminations.  So long as any of the  Commitments  are in  effect  or
      any LC  Exposure  or  Facility A Loans are  outstanding  hereunder,  this
      facility shall be governed by the then effective Borrowing Base.

           (b)  Upon  receipt of the reports  required by Section 8.07 and such
      other  reports,  data and  supplemental  information  as may from time to
      time be  reasonably  requested by the Agent,  the Agent will  redetermine
      the Borrowing Base. Such  redetermination  will be in accordance with its
      normal and customary  procedures  for evaluating oil and gas reserves and
      other related  assets as such exist at that  particular  time. The Agent,
      in its sole discretion,  may make  adjustments to the rates,  volumes and
      prices and other  assumptions  set forth therein in  accordance  with its
      normal and customary  procedures  for evaluating oil and gas reserves and
      other related assets as such exist at that  particular  time. The oil and
      gas reserves and related assets shall include proved developed  producing
      reserves,  proved developed  non-producing  reserves,  proved undeveloped
      reserves and related  processing  and gathering  assets.  The Agent shall
      propose to the Lenders a new  Borrowing  Base no less than 20 days before
      the  Scheduled  Redetermination  Date.  After having  received  notice of
      such proposal by the Agent,  the Required  Lenders shall have 10 Business
      Days to agree or  disagree  with such  proposal.  If at the end of the 10
      Business  Days,  any  Lender  has  not   communicated   its  approval  or
      disapproval,  such  silence  shall be  deemed to be an  approval.  If the
      Required  Lenders have not approved within 10 Business Days, the Required
      Lenders  shall,  within  a  reasonable  period  of  time,  agree on a new
      Borrowing Base.

           (c)  The Agent may  exclude  any Oil and Gas  Property or portion of
      production  therefrom  or any  income  from any other  Property  from the
      Borrowing Base, at any time,  because title information is not reasonably
      satisfactory,  such Property is not  assignable,  or such Property is not
      Mortgaged  Property (if required pursuant to Section 8.09).  Although the
      Agent may  exclude any  Property  from the  Borrowing  Base to the extent
      title thereto is not reasonably  satisfactory,  it is understood that the
      Borrower is only  required to furnish title  information  with respect to
      80% of the value of its Oil and Gas  Properties  covered  by the  subject
      Reserve Report(s).

           (d)  So long  as any of the  Commitments  are in  effect  and  until
      payment in full of all Facility A Loans  hereunder and termination of all
      outstanding  Letters of Credit,  on or around the first  Business  Day of
      each  May 1 and  November  1,  commencing  May  1,  1998  (each  being  a
      "Scheduled  Redetermination  Date"),  the Lenders shall  redetermine  the
      amount of the  Borrowing  Base in  accordance  with Section  2.08(b).  In
      addition,  each of the Required Lenders and the Borrower may initiate one
      additional  redetermination  of  the  Borrowing  Base  by  specifying  in
      writing  the  date  on  which  such  redetermination  is to  occur  while
      Facility B is  outstanding.  Upon the  repayment  of Facility B, one such
      unscheduled  redetermination may occur during any consecutive twelve (12)
      month period  thereafter.  In  addition,  upon  issuance of  Subordinated
      Debt  permitted  pursuant to Section  9.01(g)  hereof the Borrowing  Base
      shall  be  redetermined  to give  weight  to the  interest  carry on such
      Subordinated Debt as provided in the Borrowing Base Letter.

           (e)  The Agent shall  promptly  notify in writing the  Borrower  and
      the  Lenders  of the  new  Borrowing  Base.  Any  redetermination  of the
      Borrowing  Base shall not be in effect until  written  notice is received
      by the Borrower.

           Section 2.09  Assumption  of Risks.  The Borrower  assumes all risks
of the acts or  omissions  of any  beneficiary  of any  Letter of Credit or any
transferee  thereof with  respect to its use of such Letter of Credit.  Neither
the  Issuing  Bank  (except  in  the  case  of  gross   negligence  or  willful
misconduct  on the  part  of the  Issuing  Bank or any of its  employees),  its
correspondents   nor  any  Lender  shall  be  responsible   for  the  validity,
sufficiency  or  genuineness  of   certificates   or  other  documents  or  any
endorsements  thereon,  even if such  certificates or other documents should in
fact prove to be  invalid,  insufficient,  fraudulent  or forged;  for  errors,
omissions,  interruptions  or  delays  in  transmissions  or  delivery  of  any
messages by mail,  telex,  or  otherwise,  whether or not they be in code;  for
errors in translation or for errors in  interpretation  of technical terms; the
validity  or  sufficiency  of  any  instrument  transferring  or  assigning  or
purporting  to  transfer  or assign  any  Letter  of  Credit  or the  rights or
benefits  thereunder or proceeds thereof,  in whole or in part, which may prove
to be invalid or  ineffective  for any reason;  the failure of any  beneficiary
or any  transferee  of any  Letter of Credit to comply  fully  with  conditions
required  in  order  to draw  upon  any  Letter  of  Credit;  or for any  other
consequences  arising  from  causes  beyond the Issuing  Bank's  control or the
control  of  the  Issuing  Bank's  correspondents.  In  addition,  neither  the
Issuing  Bank,  the Agent nor any Lender  shall be  responsible  for any error,
neglect,  or default of any of the Issuing Bank's  correspondents;  and none of
the above  shall  affect,  impair or prevent  the vesting of any of the Issuing
Bank's,  the Agent's or any  Lender's  rights or powers  hereunder or under the
Letter of Credit  Agreements,  all of which  rights  shall be  cumulative.  The
Issuing  Bank  and  its  correspondents   may  accept   certificates  or  other
documents  that  appear on their  face to be in order,  without  responsibility
for further  investigation  of any matter contained  therein  regardless of any
notice or  information to the contrary.  In  furtherance  and not in limitation
of the foregoing provisions,  the Borrower agrees that any action,  inaction or
omission  taken or not taken by the Issuing  Bank or by any  correspondent  for
the  Issuing  Bank in good faith in  connection  with any Letter of Credit,  or
any related drafts,  certificates,  documents or instruments,  shall be binding
on the  Borrower  and  shall  not put the  Issuing  Bank or its  correspondents
under any resulting liability to the Borrower.

           Section 2.10  Obligation to Reimburse and to Prepay.

           (a)  If a disbursement  by the Issuing Bank is made under any Letter
      of Credit,  the  Borrower  shall pay to the Agent within two (2) Business
      Days after notice of any such  disbursement  is received by the Borrower,
      the amount of each such  disbursement  made by the Issuing Bank under the
      Letter  of Credit  (if such  payment  is not  sooner  effected  as may be
      required under this Section 2.10 or under other  provisions of the Letter
      of  Credit),  together  with  interest on the amount  disbursed  from and
      including  the  date  of  disbursement  until  payment  in  full  of such
      disbursed  amount  at a  varying  rate  per  annum  equal to (i) the then
      applicable  interest rate for Base Rate Loans through the second Business
      Day after  notice of such  disbursement  is received by the  Borrower and
      (ii)  thereafter,  the  Post-Default  Rate for Base Rate Loans (but in no
      event  to  exceed  the  Highest  Lawful  Rate)  for the  period  from and
      including the third Business Day following the date of such  disbursement
      to and  including  the  date of  repayment  in  full  of  such  disbursed
      amount.  The  obligations  of the  Borrower  under  this  Agreement  with
      respect to each Letter of Credit  shall be  absolute,  unconditional  and
      irrevocable  and shall be paid or performed  strictly in accordance  with
      the  terms  of  this  Agreement  under  all   circumstances   whatsoever,
      including,  without limitation,  but only to the fullest extent permitted
      by applicable law, the following circumstances:  (i) any lack of validity
      or enforceability  of this Agreement,  any Letter of Credit or any of the
      Loan Documents;  (ii) any amendment or waiver of (including any default),
      or any consent to  departure  from this  Agreement  (except to the extent
      permitted  by any  amendment  or waiver),  any Letter of Credit or any of
      the Loan Documents;  (iii) the existence of any claim,  set-off,  defense
      or other  rights  which the  Borrower  may have at any time  against  the
      beneficiary  of any Letter of Credit or any  transferee  of any Letter of
      Credit  (or any  Persons  for  whom  any  such  beneficiary  or any  such
      transferee  may be acting),  the Issuing Bank,  the Agent,  any Lender or
      any other Person,  whether in connection with this Agreement,  any Letter
      of Credit, the Loan Documents,  the transactions  contemplated  hereby or
      any  unrelated  transaction;  (iv)  any  statement,  certificate,  draft,
      notice or any other document  presented under any Letter of Credit proves
      to have been forged,  fraudulent,  insufficient or invalid in any respect
      or any statement  therein proves to have been untrue or inaccurate in any
      respect  whatsoever;  (v) payment by the Issuing Bank under any Letter of
      Credit against  presentation  of a draft or certificate  which appears on
      its face to comply,  but does not  comply,  with the terms of such Letter
      of  Credit;  and (vi) any other  circumstance  or  happening  whatsoever,
      whether or not similar to any of the foregoing.

      Notwithstanding  anything in this Agreement to the contrary, the Borrower
      will not be liable  for  payment or  performance  that  results  from the
      gross  negligence or willful  misconduct of the Issuing Bank,  except (i)
      where the Borrower or any Subsidiary  actually  recovers the proceeds for
      itself or the  Issuing  Bank of any payment  made by the Issuing  Bank in
      connection  with such gross  negligence or willful  misconduct or (ii) in
      cases where the Agent makes payment to the named  beneficiary of a Letter
      of Credit in accordance with the terms thereof.

           (b)  In the event the principal  amount then  outstanding on and the
      accrued  interest on the Loans has been  accelerated  pursuant to Section
      10.02 or in the event of a payment  or  prepayment  pursuant  to  Section
      2.07(b),  an amount  equal to the LC Exposure  (or the excess in the case
      of Section  2.07(b)),  shall be deemed to be  forthwith  due and owing by
      the  Borrower  to the Issuing  Bank,  the Agent and the Lenders as of the
      date of any such  occurrence;  and the Borrower's  obligation to pay such
      amount shall be absolute  and  unconditional,  without  regard to whether
      any  beneficiary  of any such Letter of Credit has attempted to draw down
      all or a portion  of such  amount  under the terms of a Letter of Credit,
      and, to the fullest  extent  permitted by  applicable  law,  shall not be
      subject  to  any   defense  or  be   affected  by  a  right  of  set-off,
      counterclaim  or recoupment  which the Borrower may now or hereafter have
      against any such  beneficiary,  the Issuing Bank, the Agent,  the Lenders
      or any other Person for any reason  whatsoever.  Such  payments  shall be
      held by the  Issuing  Bank on behalf of the  Lenders  as cash  collateral
      securing  the LC  Exposure  in an account or  accounts  at the  Principal
      Office;  and the  Borrower  hereby  grants to and by its deposit with the
      Agent  grants to the Agent a security  interest in such cash  collateral.
      In the event of any such payment by the Borrower of amounts  contingently
      owing  under  outstanding  Letters  of  Credit  and  in  the  event  that
      thereafter  drafts or other demands for payment  complying with the terms
      of  such  Letters  of  Credit  are  not  made  prior  to  the  respective
      expiration  dates thereof,  the Agent agrees,  if no Event of Default has
      occurred and is continuing or if no other amounts are  outstanding  under
      this  Agreement,  the  Notes  or the  Loan  Documents,  to  remit  to the
      Borrower  amounts for which the contingent  obligations  evidenced by the
      Letters of Credit have ceased.

           (c)  Each Lender severally and unconditionally  agrees that it shall
      promptly  reimburse  the Issuing  Bank an amount  equal to such  Lender's
      Percentage Share of any  disbursement  made by the Issuing Bank under any
      Letter of Credit that is not reimbursed according to this Section 2.10.

           (d) Notwithstanding anything to the contrary contained herein, if no
      Event  of  Default   has  occurred  and  is  continuing  and  subject  to
      availability  under  Section  2.01(a), to the extent the Borrower has not
      reimbursed the  Issuing Bank  for  any drawn upon Letter of Credit within
      one (1)  Business  Days  after  notice  of  such   disbursement  has been
      received  by  the  Borrower,  the   amount  of   such  Letter  of  Credit
      reimbursement  obligation shall automatically be funded by the Lenders as
      a Facility A Loan hereunder and used by the Lenders to pay such Letter of
      Credit reimbursement  obligation. If an Event of Default has occurred and
      is continuing, or if the  funding of such  Letter of Credit reimbursement
      obligation  as  a Facility A Loan would cause the aggregate amount of all
      Facility  A  Loans  outstanding  to  exceed  the  Aggregate  Facility   A 
      Commitments  (after  reduction for LC Exposure), such  Letter  of  Credit 
      reimbursement  obligation  shall not be funded as a Facility A Loan,  but
      instead  shall accrue  interest as provided in Section 2.10(a).

      Section  2.11  Lending  Offices.  The  Loans  of each  Type  made by each
Lender  shall  be made  and  maintained  at such  Lender's  Applicable  Lending
Office for Loans of such Type.


                                  ARTICLE III

                      Payments of Principal and Interest

           Section 3.01  Repayment of Loans.

      (a)  Facility  A  Loans.   In  addition  to  any  Mandatory   Prepayments
required by Section  2.07,  on the  Facility A  Termination  Date the  Borrower
shall  repay  the  outstanding  aggregate  principal  and  accrued  and  unpaid
interest under the Facility A Notes.
 
      (b)  Facility  B Loans.  On the  Facility B  Maturity  Date the  Borrower
shall  repay  the  outstanding  aggregate  principal  and  accrued  and  unpaid
interest under the Facility B Notes.

      (c)  Generally.  The Borrower  will pay to the Agent,  for the account of
each Lender, the principal payments required by this Section 3.01.

           Section 3.02  Interest.

           (a)  Interest  Rates.  The Borrower  will pay to the Agent,  for the
      account of each Lender,  interest on the unpaid  principal amount of each
      Loan made by such Lender for the period  commencing on the date such Loan
      is made to, but  excluding,  the date such Loan shall be paid in full, at
      the following rates per annum:

                (i)  if such a Loan is a Base  Rate  Loan,  the Base  Rate
      (as in effect from time to time) plus the Applicable  Margin, but in
      no event to exceed the Highest Lawful Rate; and

                (ii) if  such  a  Loan  is a  Eurodollar  Loan,  for  each
      Interest Period relating thereto,  the Eurodollar Rate for such Loan
      plus the Applicable  Margin (as in effect from time to time), but in
      no event to exceed the Highest Lawful Rate.

           (b)  Post-Default   Rate.   Notwithstanding   the   foregoing,   the
      Borrower will pay to the Agent,  for the account of each Lender  interest
      at the applicable  Post-Default Rate on any principal of any Loan made by
      such Lender,  and (to the fullest  extent  permitted by law) on any other
      amount  payable by the  Borrower  hereunder,  under any Loan  Document or
      under any Note held by such Lender to or for account of such Lender,  for
      the period  commencing  on the date of an Event of Default until the same
      is paid in full or all Events of Default are cured or waived.

           (c)  Due  Dates.  Accrued  interest  on Base  Rate  Loans  shall  be
      payable on each  Quarterly Date and accrued  interest on each  Eurodollar
      Loan  shall be payable on the last day of the  Interest  Period  therefor
      and, if such Interest  Period is longer than three months at  three-month
      intervals  following the first day of such Interest  Period,  except that
      interest payable at the  Post-Default  Rate shall be payable from time to
      time on demand and  interest  on any  Eurodollar  Loan that is  converted
      into a Base Rate Loan (pursuant to Section 5.04)  shall be payable on the
      date of conversion (but only to the extent so converted).
           (d)  Determination  of Rates.  Promptly after the  determination  of
      any interest  rate provided for herein or any change  therein,  the Agent
      shall  notify  the  Lenders  to which such  interest  is payable  and the
      Borrower  thereof.  Each  determination  by the Agent of an interest rate
      or fee  hereunder  shall,  except in cases of manifest  error,  be final,
      conclusive and binding on the parties.


                                  ARTICLE IV

               Payments; Pro Rata Treatment; Computations; Etc.

           Section  4.01  Payments.  Except to the  extent  otherwise  provided
herein,  all payments of  principal,  interest and other  amounts to be made by
the  Borrower  under  this  Agreement,  the  Notes  and the  Letter  of  Credit
Agreements  shall be made in Dollars,  in immediately  available  funds, to the
Agent at such  account as the Agent  shall  specify  by notice to the  Borrower
from time to time,  not later than 11:00 a.m.  Houston,  Texas time on the date
on which such  payments  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).  Such  payments  shall be made  without (to the fullest  extent
permitted by applicable  law) defense,  set-off or  counterclaim.  Each payment
received  by the  Agent  under  this  Agreement  or any Note for  account  of a
Lender shall be paid promptly to such Lender in  immediately  available  funds.
Except as otherwise  provided in the  definition of "Interest  Period",  if the
due date of any payment under this  Agreement or any Note would  otherwise fall
on a day which is not a Business  Day such date 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.  At the time of each  payment  to
the Agent of any  principal  of or  interest  on any  borrowing,  the  Borrower
shall  notify  the Agent of the Loans to which such  payment  shall  apply.  In
the  absence  of such  notice  the Agent may  specify  the Loans to which  such
payment  shall apply,  but to the extent  possible  such payment or  prepayment
will be applied first to the Loans comprised of Base Rate Loans.

           Section  4.02 Pro Rata  Treatment.  Except to the  extent  otherwise
provided  herein each Lender agrees that:  (i) each  borrowing from the Lenders
under  Section 2.01  and each  continuation  and conversion  under Section 2.02
shall be made from the Lenders  pro rata in  accordance  with their  Percentage
Share, each payment of commitment fee or other fees under  Section 2.04(a)  and
Section  2.04(b)  shall  be  made  for  account  of the  Lenders  pro  rata  in
accordance with their  Percentage  Share,  and each termination or reduction of
the  amount  of  the  Aggregate   Facility  A  Maximum   Credit  Amounts  under
Section 2.03(b)  shall be applied to the  Commitment  of each Lender,  pro rata
according to the amounts of its  respective  Commitment;  (ii) each  payment of
principal  of Loans by the  Borrower  shall be made for  account of the Lenders
pro rata in  accordance  with the  respective  unpaid  principal  amount of the
Loans held by the Lenders;  and (iii) each  payment of interest on Loans by the
Borrower  shall be made for account of the Lenders pro rata in accordance  with
the amounts of interest  due and payable to the  respective  Lenders;  and (iv)
each  reimbursement  by the Borrower of  disbursements  under Letters of Credit
shall be made for  account of the  Issuing  Bank or, if funded by the  Lenders,
pro rata for the  account of the  Lenders,  in  accordance  with the amounts of
reimbursement obligations due and payable to each respective Lender.

           Section 4.03  Computations.  Interest on  Eurodollar  Loans and fees
shall 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 such interest is payable,  unless such  calculation  would exceed the
Highest  Lawful Rate,  in which case  interest  shall be  calculated on the per
annum  basis of a year of 365 or 366  days,  as the case  may be.  Interest  on
Base Rate Loans  shall be  computed  on the basis of a year of 365 or 366 days,
as the case may be,  and  actual  days  elapsed  (including  the  first day but
excluding  the last day)  occurring  in the period for which such  interest  is
payable.

           Section  4.04  Non-receipt  of Funds by the Agent.  Unless the Agent
shall  have  been  notified  by a Lender or the  Borrower  prior to the date on
which such  notifying  party is  scheduled to make payment to the Agent (in the
case of a Lender)  of the  proceeds  of a Loan or a  payment  under a Letter of
Credit to be made by it  hereunder  or (in the case of the  Borrower) a payment
to the  Agent  for  account  of one or  more  of the  Lenders  hereunder  (such
payment  being herein  called the  "Required  Payment"),  which notice shall be
effective  upon receipt,  that it does not intend to make the Required  Payment
to the Agent,  the 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(s)  on such date
and, if such Lender or the  Borrower  (as the case may be) has not in fact made
the Required  Payment to the Agent,  the recipient(s) of such payment shall, on
demand,  repay  to the  Agent  the  amount  so  made  available  together  with
interest  thereon in respect  of each day during the period  commencing  on the
date such amount was so made available by the Agent until,  but excluding,  the
date the Agent  recovers such amount at a rate per annum which,  for any Lender
as  recipient,  will be equal to the Federal  Funds Rate,  and for the Borrower
as recipient, will be equal to the Base Rate plus the Applicable Margin.

           Section 4.05  Set-off, Sharing of Payments, Etc.

           (a)  The  Borrower   agrees  that,   in  addition  to  (and  without
      limitation  of) any right of set-off,  bankers'  lien or  counterclaim  a
      Lender  may  otherwise  have,  each  Lender  shall  have the right and be
      entitled (after  consultation  with the Agent),  at its option, to offset
      balances  held  by it or by any  of its  Affiliates  for  account  of the
      Borrower  at any of its  offices,  in Dollars  or in any other  currency,
      against any  principal of or interest on any of such Lender's  Loans,  or
      any other  amount  payable to such  Lender  hereunder,  which is not paid
      when  due  (regardless  of  whether  such  balances  are  then due to the
      Borrower),  in which case it shall  promptly  notify the Borrower and the
      Agent  thereof,  provided that such Lender's  failure to give such notice
      shall not affect the validity thereof.

           (b)  If any  Lender  shall  obtain  payment of any  principal  of or
      interest on any Loan made by it to the Borrower  under this Agreement (or
      reimbursement  as to any Letter of Credit)  through  the  exercise of any
      right of  set-off,  banker's  lien or  counterclaim  or similar  right or
      otherwise,  and,  as a result of such  payment,  such  Lender  shall have
      received  a  greater   percentage   of  the  principal  or  interest  (or
      reimbursement)  then due  hereunder  by the  Borrower to such Lender than
      the  percentage  received by any other  Lenders,  it shall  promptly  (i)
      notify the Agent and each other  Lender  thereof and (ii)  purchase  from
      such other Lenders  participations in (or, if and to the extent specified
      by such Lender,  direct  interests  in) the Loans (or  participations  in
      Letters  of  Credit)  made by such  other  Lenders  (or in  interest  due
      thereon,  as the  case  may be) in such  amounts,  and  make  such  other
      adjustments from time to time as shall be equitable,  to the end that all
      the Lenders  shall share the benefit of such excess  payment  (net of any
      expenses  which may be incurred by such Lender in obtaining or preserving
      such excess  payment)  pro rata in accordance  with the unpaid  principal
      and/or   interest   on  the  Loans  held  by  each  of  the  Lenders  (or
      reimbursements  of Letters of Credit).  To such end all the Lenders 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  Borrower   agrees  that  any  Lender  so
      purchasing  a  participation  (or direct  interest)  in the Loans made by
      other  Lenders  (or in  interest  due  thereon,  as the  case may be) may
      exercise all rights of set-off,  banker's lien,  counterclaim  or similar
      rights  with  respect to such  participation  as fully as if such  Lender
      were a direct  holder of Loans (or  Letters  of  Credit) in the amount of
      such  participation.  Nothing  contained  herein shall require any Lender
      to  exercise  any such  right or shall  affect the right of any Lender to
      exercise,  and retain the  benefits  of  exercising,  any such right with
      respect to any other  indebtedness  or  obligation  of the  Borrower.  If
      under any  applicable  bankruptcy,  insolvency  or other similar law, any
      Lender  receives  a  secured  claim in lieu of a  set-off  to which  this
      Section 4.05  applies,  such  Lender  shall,  to the extent  practicable,
      exercise  its  rights  in  respect  of such  secured  claim  in a  manner
      consistent   with  the  rights  of  the  Lenders   entitled   under  this
      Section 4.05 to share the benefits of any recovery on such secured claim.

           Section 4.06  Taxes.

           (a)  Payments  Free and Clear.  Any and all payments by the Borrower
      hereunder shall be made, in accordance with Section 4.01,  free and clear
      of and  without  deduction  for any  and all  present  or  future  taxes,
      levies,   imposts,   deductions,   charges  or   withholdings,   and  all
      liabilities with respect thereto,  excluding, in the case of each Lender,
      the  Issuing  Bank  and the  Agent,  taxes  imposed  on its  income,  and
      franchise or similar  taxes  imposed on it, by (i) any  jurisdiction  (or
      political  subdivision  thereof) of which the Agent,  the Issuing Bank or
      such  Lender,  as the case may be, is a citizen or  resident  or in which
      such Lender has an Applicable  Lending Office,  (ii) the jurisdiction (or
      any political  subdivision  thereof) in which the Agent, the Issuing Bank
      or such Lender is  organized,  or (iii) any  jurisdiction  (or  political
      subdivision  thereof) in which such Lender, the Issuing Bank or the Agent
      is presently  doing  business  which taxes are imposed solely as a result
      of doing  business in such  jurisdiction  (all such  non-excluded  taxes,
      levies, imposts, deductions,  charges, withholdings and liabilities being
      hereinafter  referred to as "Taxes").  If the Borrower  shall be required
      by law to  deduct  any  Taxes  from  or in  respect  of any  sum  payable
      hereunder  to the  Lenders,  the  Issuing  Bank or the Agent  (i) the sum
      payable  shall be increased by the amount  necessary so that after making
      all required deductions  (including  deductions  applicable to additional
      sums payable under this  Section 4.06)  such Lender,  the Issuing Bank or
      the Agent (as the case may be) shall  receive an amount  equal to the sum
      it  would  have  received  had no such  deductions  been  made,  (ii) the
      Borrower shall make such deductions and (iii) the  Borrower shall pay the
      full  amount  deducted  to  the  relevant   taxing   authority  or  other
      Governmental Authority in accordance with applicable law.

           (b)  Other Taxes.  In addition,  to the fullest extent  permitted by
      applicable  law, the  Borrower  agrees to pay any present or future stamp
      or documentary  taxes or any other excise or property  taxes,  charges or
      similar  levies that arise from any payment  made  hereunder  or from the
      execution,  delivery or  registration  of, or otherwise  with respect to,
      this Agreement or any Loan Documents  (hereinafter referred to as "Other 
      Taxes").

           (c)  Indemnification.   To   the   fullest   extent   permitted   by
      applicable  law, the Borrower will  indemnify each Lender and the Issuing
      Bank  and the  Agent  for the  full  amount  of  Taxes  and  Other  Taxes
      (including,  but not limited to, any Taxes or Other Taxes  imposed by any
      Governmental  Authority on amounts  payable under this section 4.06) paid
      by such  Lender,  the  Issuing  Bank or the Agent (on their  behalf or on
      behalf of any Lender),  as the case may be, and any liability  (including
      penalties,  interest  and  expenses)  arising  therefrom  or with respect
      thereto,  whether or not such  Taxes or Other  Taxes  were  correctly  or
      legally  asserted  unless the payment of such Taxes was not  correctly or
      legally  asserted and such Lender's  payment of such Taxes or Other Taxes
      was the  result  of its  gross  negligence  or  willful  misconduct.  Any
      payment  pursuant to such  indemnification  shall be made  within  thirty
      (30) days after the date any Lender,  the Issuing  Bank or the Agent,  as
      the case may be,  makes  written  demand  therefor.  If any Lender or the
      Agent  receives a refund or credit in respect of any Taxes or Other Taxes
      for which such Lender,  Issuing  Bank or the Agent has  received  payment
      from the  Borrower it shall  promptly  notify the Borrower of such refund
      or credit  and shall,  if no  default  has  occurred  and is  continuing,
      within  thirty (30) days after  receipt of a request by the  Borrower (or
      promptly upon  receipt,  if the Borrower has  requested  application  for
      such  refund  or credit  pursuant  hereto),  pay an amount  equal to such
      refund or credit to the Borrower  without interest (but with any interest
      so refunded or credited),  provided  that the Borrower,  upon the request
      of such  Lender,  the  Issuing  Bank or the Agent,  agrees to return such
      refund or credit  (plus  penalties,  interest  or other  charges) to such
      Lender or the Agent in the event such  Lender or the Agent is required to
      repay such refund or credit.

           (d)  Lender Representations.

                (i)  Each Lender  represents  that it is either  (1) a  banking
           association  or corporation  organized  under the laws of the United
           States of America  or any state  thereof  or (2) it is  entitled  to
           complete  exemption from United States withholding tax imposed on or
           with  respect  to any  payments,  including  fees,  to be made to it
           pursuant to this  Agreement (A) under an  applicable  provision of a
           tax  convention  to which the United States of America is a party or
           (B) because it is acting  through a branch,  agency or office in the
           United  States of  America  and any  payment  to be  received  by it
           hereunder is  effectively  connected with a trade or business in the
           United  States  of  America.  Each  Lender  that  is  not a  banking
           association  or corporation  organized  under the laws of the United
           States of  America  or any state  thereof  agrees to  provide to the
           Borrower  and the Agent on the Closing  Date,  or on the date of its
           delivery  of the  Assignment  pursuant to which it becomes a Lender,
           and at such other times as  required by United  States law or as the
           Borrower or the Agent shall  reasonably  request,  two  accurate and
           complete  original  signed  copies  of either  (A) Internal  Revenue
           Service Form 4224 (or successor  form)  certifying that all payments
           to be  made  to it  hereunder  will be  effectively  connected  to a
           United States trade or business (the "Form 4224  Certification")  or
           (B)  Internal   Revenue   Service   Form 1001  (or  successor  form)
           certifying  that it is entitled  to the benefit of a provision  of a
           tax  convention  to which the  United  States of  America is a party
           which  completely  exempts from United  States  withholding  tax all
           payments   to  be   made  to  it   hereunder   (the   "Form   1001  
           Certification").   In  addition,  each  Lender  agrees  that  if  it
           previously filed a Form 4224  Certification,  it will deliver to the
           Borrower  and the Agent a new Form 4224  Certification  prior to the
           first  payment  date  occurring  in each of its  subsequent  taxable
           years;  and if it  previously  filed a Form 1001  Certification,  it
           will  deliver  to the  Borrower  and the  Agent a new  certification
           prior to the first payment date falling in the third year  following
           the previous filing of such  certification.  Each Lender also agrees
           to deliver to the Borrower and the Agent such other or  supplemental
           forms  as may at any time be  required  as a result  of  changes  in
           applicable  law or  regulation  in order to confirm or  maintain  in
           effect its  entitlement to exemption from United States  withholding
           tax on any payments  hereunder,  provided that the  circumstances of
           such Lender at the relevant  time and  applicable  laws permit it to
           do so. If a Lender  determines,  as a result of any change in either
           (i) a Governmental  Requirement or (ii) its  circumstances,  that it
           is unable to submit any form or certificate  that it is obligated to
           submit  pursuant  to this  Section  4.06,  or that it is required to
           withdraw  or  cancel  any  such  form  or   certificate   previously
           submitted,  it shall  promptly  notify the Borrower and the Agent of
           such  fact.   If  a  Lender  is  organized   under  the  laws  of  a
           jurisdiction  outside  the  United  States of  America,  unless  the
           Borrower and the Agent have  received a Form 1001  Certification  or
           Form 4224  Certification  satisfactory  to them  indicating that all
           payments  to be made to such  Lender  hereunder  are not  subject to
           United States  withholding  tax, the Borrower  shall  withhold taxes
           from such payments at the  applicable  statutory  rate.  Each Lender
           agrees to indemnify  and hold  harmless  the  Borrower or Agent,  as
           applicable,  from any United States taxes,  penalties,  interest and
           other  expenses,  costs and  losses  incurred  or payable by (i) the
           Agent as a result of such  Lender's  failure  to submit  any form or
           certificate  that it is required to provide pursuant to this Section
           4.06  or  (ii) the  Borrower  or the  Agent  as a  result  of  their
           reliance  on any such form or  certificate  which  such  Lender  has
           provided to them pursuant to this Section 4.06.

                (ii) For any period  with  respect to which a Lender has failed
           to provide  the  Borrower  with the form  required  pursuant to this
           Section  4.06,  if any,  (other  than if  such  failure  is due to a
           change in a  Governmental  Requirement  occurring  subsequent to the
           date on which a form  originally was required to be provided),  such
           Lender shall not be entitled to  indemnification  under Section 4.06
           with  respect  to taxes  imposed by the United  States  which  taxes
           would not have been  imposed  but for such  failure to provide  such
           forms;  provided,  however,  that if a  Lender,  which is  otherwise
           exempt  from  or  subject  to a  reduced  rate of  withholding  tax,
           becomes  subject to taxes  because of its  failure to deliver a form
           required  hereunder,  the  Borrower  shall  take such  steps as such
           Lender  shall  reasonably  request to assist  such Lender to recover
           such taxes.

                (iii)Any  Lender   claiming  any  additional   amounts  payable
           pursuant  to  this   Section 4.06   shall  use  reasonable   efforts
           (consistent  with  legal and  regulatory  restrictions)  to file any
           certificate  or document  requested  by the Borrower or the Agent or
           to change the  jurisdiction  of its Applicable  Lending Office or to
           contest  any tax imposed if the making of such a filing or change or
           contesting  such tax would  avoid the need for or reduce  the amount
           of any such additional  amounts that may thereafter accrue and would
           not,  in  the  sole  determination  of  such  Lender,  be  otherwise
           disadvantageous to such Lender.


                                   ARTICLE V

                               Capital Adequacy

           Section 5.01  Additional Costs.

           (a)  Eurodollar  Regulations,  etc. The Borrower  shall pay directly
      to each  Lender  from  time to  time  such  amounts  as such  Lender  may
      determine to be necessary to  compensate  such Lender for any costs which
      it  determines  are  attributable  to its  making or  maintaining  of any
      Eurodollar  Loans or  issuing  or  participating  in  Letters  of  Credit
      hereunder  or its  obligation  to make any  Eurodollar  Loans or issue or
      participate in any Letters of Credit  hereunder,  or any reduction in any
      amount  receivable  by such  Lender  hereunder  in respect of any of such
      Eurodollar  Loans,  Letters of Credit or such obligation  (such increases
      in costs  and  reductions  in  amounts  receivable  being  herein  called
      "Additional   Costs"),   resulting  from  any  Regulatory  Change  which:
      (i) changes  the basis of taxation of any amounts  payable to such Lender
      under this  Agreement  or any Note in  respect of any of such  Eurodollar
      Loans or Letters of Credit  (other than taxes  imposed on the overall net
      income of such  Lender or of its  Applicable  Lending  Office  for any of
      such  Eurodollar  Loans by the  jurisdiction in which such Lender has its
      principal  office or  Applicable  Lending  Office);  or  (ii) imposes  or
      modifies any reserve,  special deposit, minimum capital, capital ratio or
      similar  requirements  relating  to any  extensions  of  credit  or other
      assets of, or any deposits with or other  liabilities of such Lender,  or
      the  Commitment  or  Loans of such  Lender  or the  Eurodollar  interbank
      market; or (iii) imposes any other condition  affecting this Agreement or
      any Note (or any of such  extensions  of credit or  liabilities)  or such
      Lender's  Commitment or Loans.  Each Lender will notify the Agent and the
      Borrower  of any  event  occurring  after the  Closing  Date  which  will
      entitle such Lender to compensation  pursuant to this  Section 5.01(a) as
      promptly  as  practicable   after  it  obtains   knowledge   thereof  and
      determines to request such  compensation,  and will designate a different
      Applicable  Lending Office for the Loans of such Lender  affected by such
      event if such  designation  will avoid the need for, or reduce the amount
      of, such  compensation  and will not, in the sole opinion of such Lender,
      be disadvantageous  to such Lender,  provided that such Lender shall have
      no  obligation to so designate an Applicable  Lending  Office  located in
      the  United  States.  If  any  Lender  requests   compensation  from  the
      Borrower under this Section 5.01(a),  the Borrower may, by notice to such
      Lender,  suspend the obligation of such Lender to make  additional  Loans
      of the Type with respect to which such  compensation  is requested  until
      the Regulatory  Change giving rise to such request ceases to be in effect
      (in which case the provisions of Section 5.04 shall be applicable).

           (b)  Regulatory   Change.   Without   limiting  the  effect  of  the
      provisions of  Section 5.01(a),  in the event that at any time (by reason
      of any  Regulatory  Change  arising  after  the  Closing  Date  affecting
      (A) any Lender,  (B) the Eurodollar interbank market or (C) such Lender's
      position in such  market),  the  Eurodollar  Rate,  as determined in good
      faith by such Lender,  will not adequately and fairly reflect the cost to
      such  Lender of funding its  Eurodollar  Loans,  then,  if such Lender so
      elects,  by notice to the Borrower and the Agent,  the obligation of such
      Lender to make additional  Eurodollar Loans shall be suspended until such
      Regulatory  Change or other  circumstances  ceases  to be in  effect  (in
      which case the provisions of Section 5.04 shall be applicable).

           (c)  Capital   Adequacy.   Without   limiting   the  effect  of  the
      foregoing provisions of this Section 5.01 (but without duplication),  the
      Borrower  shall pay  directly  to any Lender from time to time on request
      such amounts as such Lender may  reasonably  determine to be necessary to
      compensate  such  Lender or its parent or holding  company  for any costs
      which it determines are  attributable  to the  maintenance by such Lender
      or its parent or holding  company  (or any  Applicable  Lending  Office),
      pursuant  to  any  Regulatory  Change,  of  capital  in  respect  of  its
      Commitment,  its  Note,  or its Loans or any  interest  held by it in any
      Letter of Credit, such compensation to include,  without  limitation,  an
      amount  equal to any  reduction of the rate of return on assets or equity
      of such  Lender  or its  parent or  holding  company  (or any  Applicable
      Lending  Office) to a level below that which such Lender or its parent or
      holding  company (or any Applicable  Lending  Office) could have achieved
      but for such  Regulatory  Change.  Such Lender  will notify the  Borrower
      that it is entitled to  compensation  pursuant to this Section 5.01(c) as
      promptly as practicable after it determines to request such compensation.

           (d)  Compensation  Procedure.  Any Lender  notifying the Borrower of
      the incurrence of additional  costs under this Section 5.01 shall in such
      notice to the Borrower and the Agent set forth in  reasonable  detail the
      basis and amount of its  request  for  compensation.  Determinations  and
      allocations  by each  Lender for  purposes  of this  Section 5.01  of the
      effect of any Regulatory  Change  pursuant to Section  5.01(a) or (b), or
      of the effect of capital maintained pursuant to  Section 5.01(c),  on its
      costs or rate of return of  maintaining  Loans or its  obligation to make
      Loans or issue  Letters of  Credit,  or on  amounts  receivable  by it in
      respect of Loans or Letters of Credit,  and of the  amounts  required  to
      compensate such Lender under this  Section 5.01,  shall be conclusive and
      binding  for  all  purposes,   provided  that  such   determinations  and
      allocations   are  made  on  a  reasonable   basis  and   provided   such
      compensation  procedure  is on a basis  similar  to the basis  upon which
      such Lender is charging other similarly situated  borrowers.  Any request
      for additional  compensation under this Section 5.01 shall be paid by the
      Borrower  within  thirty (30) days of the receipt by the  Borrower of the
      notice  described  in this Section  5.01(d).  No Lender shall be entitled
      to recover  costs under this Section  5.01  incurred or accrued more than
      180 days prior to the notice described in this Section 5.01(d).

           Section 5.02  Limitation on  Eurodollar  Loans.  Anything  herein to
the  contrary  notwithstanding,  if,  on or prior to the  determination  of any
Eurodollar Rate for any Interest Period:

           (i)  the  Agent  determines  (which   determination   shall  be
      conclusive,  absent  manifest  error)  that  quotations  of interest
      rates for the relevant  deposits  referred to in the  definition  of
      "Eurodollar  Rate" in  Section 1.02  are not being  provided  in the
      relevant  amounts or for the  relevant  maturities  for  purposes of
      determining  rates of  interest  for  Eurodollar  Loans as  provided
      herein; or

           (ii) the Majority Lenders determine (which  determination shall
      be  conclusive,  absent  manifest  error) that the relevant rates of
      interest  referred  to in the  definition  of  "Eurodollar  Rate" in
      Section 1.02  upon  the  basis of which  the  rate of  interest  for
      Eurodollar  Loans for such Interest  Period is to be determined  are
      not  sufficient  to  adequately  cover  the cost to the  Lenders  of
      making or maintaining Eurodollar Loans;

then the Agent shall give the Borrower  prompt notice  thereof,  and so long as
such condition  remains in effect,  the Lenders shall be under no obligation to
make additional Eurodollar Loans.

           Section  5.03  Illegality.  Notwithstanding  any other  provision of
this  Agreement,  in the event that it becomes  unlawful  for any Lender or its
Applicable  Lending  Office  to  honor  its  obligation  to  make  or  maintain
Eurodollar  Loans  hereunder,  then  such  Lender  shall  promptly  notify  the
Borrower  thereof and such Lender's  obligation to make Eurodollar  Loans shall
be  suspended  until  such  time as such  Lender  may again  make and  maintain
Eurodollar  Loans  (in  which  case the  provisions  of  Section 5.04  shall be
applicable).

           Section 5.04 Base Rate Loans  Pursuant to Sections  5.01,  5.02 and 
5.03.  If the  obligation  of any  Lender  to make  Eurodollar  Loans  shall be
suspended  pursuant to Sections  5.01,  5.02 or 5.03  ("Affected  Loans"),  all
Affected  Loans which  would  otherwise  be made by such  Lender  shall be made
instead as Base Rate Loans (and,  if an event  referred  to in Section  5.01(b)
or  Section 5.03  has  occurred  and such  Lender so  requests by notice to the
Borrower,  all  Affected  Loans  of  such  Lender  then  outstanding  shall  be
automatically  converted  into Base Rate  Loans on the date  specified  by such
Lender in such  notice) and, to the extent that  Affected  Loans are so made as
(or  converted  into) Base Rate Loans,  all payments of  principal  which would
otherwise be applied to such Lender's  Affected Loans shall be applied  instead
to its Base Rate Loans.

           Section 5.05  Compensation.  The  Borrower  shall pay to each Lender
within  thirty (30) days of receipt of written  request of such  Lender  (which
request shall set forth,  in reasonable  detail,  the basis for requesting such
amounts and which shall be  conclusive  and binding for all  purposes  provided
that  such  determinations  are made on a  reasonable  basis),  such  amount or
amounts as shall  compensate  it for any loss  (excluding  loss of  anticipated
profits),   cost,  expense  or  liability  which  such  Lender  determines  are
attributable to:

           (i)  any  payment,  prepayment  or  conversion  of a Eurodollar
      Loan  properly  made by such Lender or the  Borrower  for any reason
      (including,  without  limitation,  the  acceleration  of  the  Loans
      pursuant to Section  10.01) on a date other than the last day of the
      Interest Period for such Loan; or

           (ii) any failure by the Borrower for any reason  (including but
      not  limited  to,  the  failure of any of the  conditions  precedent
      specified  in Article VI to be  satisfied)  to borrow,  continue  or
      convert a  Eurodollar  Loan  from  such  Lender on the date for such
      borrowing,  continuation  or  conversion  specified  in the relevant
      notice given pursuant to Section 2.02(c).

           Section 5.06  Replacement Lenders.

           (a)  If any Lender has  notified  the  Borrower and the Agent of its
      incurring  additional  costs  under  Section  5.01  or has  required  the
      Borrower  to make  payments  for  Taxes  under  Section  4.06,  then  the
      Borrower may,  unless such Lender has notified the Borrower and the Agent
      that the  circumstances  giving  rise to such  notice  no  longer  apply,
      terminate,  in whole but not in part, the Commitment of any Lender (other
      than the  Agent)  (the  "Terminated  Lender")  at any time  upon five (5)
      Business  Days' prior  written  notice to the  Terminated  Lender and the
      Agent (such notice referred to herein as a "Notice of Termination").

           (b)  In order to effect the  termination  of the  Commitment  of the
      Terminated  Lender,  the Borrower shall: (i) obtain an agreement with one
      or more Lenders to increase their  Commitment or Commitments  and/or (ii)
      request any one or more other banking  institutions  to become parties to
      this Agreement in place and instead of such  Terminated  Lender and agree
      to accept a Commitment or Commitments;  provided,  however, that such one
      or more other  banking  institutions  are  reasonably  acceptable  to the
      Agent and become  parties by  executing  an  Assignment  (the  Lenders or
      other banking  institutions  that agree to accept in whole or in part the
      Commitment  of the  Terminated  Lender  being  referred  to herein as the
      "Replacement   Lenders"),   such  that  the  aggregate  increased  and/or
      accepted  Commitments  of the  Replacement  Lenders under clauses (i) and
      (ii) above equal the Commitment of the Terminated Lender.

           (c)  The  Notice  of  Termination  shall  include  the  name  of the
      Terminated  Lender,  the date the  termination  will occur (the  "Lender 
      Termination  Date"), and the Replacement Lender or Replacement Lenders to
      which the  Terminated  Lender  will assign its  Commitment  and, if there
      will be more than one Replacement  Lender,  the portion of the Terminated
      Lender's Commitment to be assigned to each Replacement Lender.

           (d)  On the  Lender  Termination  Date,  (i) the  Terminated  Lender
      shall by execution  and delivery of an Assignment  assign its  Commitment
      to the Replacement  Lender or Replacement  Lenders (pro rata, if there is
      more than one  Replacement  Lender,  in  proportion to the portion of the
      Terminated  Lender's  Commitment  to  be  assigned  to  each  Replacement
      Lender)  indicated in the Notice of  Termination  and shall assign to the
      Replacement  Lender  or  Replacement  Lenders  each of its Loans (if any)
      then  outstanding  and  participation  interests in Letters of Credit (if
      any) then outstanding pro rata as aforesaid),  (ii) the Terminated Lender
      shall endorse its Notes,  payable  without  recourse,  representation  or
      warranty to the order of the  Replacement  Lender or Replacement  Lenders
      (pro rata as  aforesaid),  (iii) the  Replacement  Lender or  Replacement
      Lenders shall purchase the Notes held by the Terminated  Lender (pro rata
      as aforesaid)  at a price equal to the unpaid  principal  amount  thereof
      plus  interest  and  facility  and other fees  accrued  and unpaid to the
      Lender  Termination Date, and (iv) the Replacement  Lender or Replacement
      Lenders  will  thereupon  (pro  rata  as  aforesaid)  succeed  to  and be
      substituted  in all respects for the  Terminated  Lender with like effect
      as if becoming a Lender  pursuant to the terms of Section  12.06(b),  and
      the  Terminated  Lender will have the rights and  benefits of an assignor
      under  Section  12.06(b).  To the  extent not in  conflict,  the terms of
      Section   12.06(b)  shall  supplement  the  provisions  of  this  Section
      5.06(d).   For  each   assignment  made  under  this  Section  5.06,  the
      Replacement  Lender  shall pay to the Agent the  processing  fee provided
      for in  Section  12.06(b).  The  Borrower  will  be  responsible  for the
      payment  of  any  breakage  costs   associated   with   termination   and
      Replacement Lenders, as set forth in Section 5.05.


                                  ARTICLE VI

                             Conditions Precedent

           Section 6.01  Initial Funding.

           The  obligation  of the  Lenders  to make  the  Initial  Funding  is
subject  to the  receipt  by the  Agent  and the  Lenders  of all fees  payable
pursuant to Section  2.04 on or before the Closing  Date and the receipt by the
Agent of the  following  documents  and  satisfaction  of the other  conditions
provided  in this  Section 6.01,  each of which  shall be  satisfactory  to the
Agent in form and substance:

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

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

           (c)  Certificates of the appropriate  state agencies with respect to
      the  existence,  qualification  and good  standing  of the  Borrower  and
      Guarantor.

           (d)  A compliance  certificate  which shall be  substantially in the
      form of Exhibit C,  duly and properly  executed by a Responsible  Officer
      and dated as of the Closing Date.

           (e)  The Notes, duly completed and executed.

           (f)  The other Loan Documents, including those described on Exhibit 
      D, duly completed and executed in sufficient  number of counterparts  for
      recording, if necessary.

           (g)  Opinions of (i) Bracewell & Patterson,  L.L.P.,  counsel to the
      Borrower and Guarantor and  (ii) Borrower's  and the Guarantor's  General
      Counsel,  in form and  substance  satisfactory  to the Agent,  as to such
      matters  incident to the  transactions  herein  contemplated as the Agent
      may reasonably request.

           (h)  A certificate of insurance coverage of the Borrower  evidencing
      that the Borrower is carrying insurance in accordance with Section 7.19.

           (i)  Concurrent  with the Initial  Funding,  the Borrower shall have
      acquired from Amoco  Production  Company the Amoco  Properties other than
      the Beaver Creek Unit (except for the Beaver Creek gas plant).

           (j)  Such  other  documents  as the Agent or any  Lender or  special
      counsel to the Agent may reasonably request.

           (k)  All indebtedness and other  obligations of the Borrower and its
      Subsidiaries  under that certain  Credit  Agreement  among the  Borrower,
      Bank  One,  Texas,  N.A.,  Bank of  Montreal,  Compass  Bank-Houston  and
      DenNorske Bank AS, dated as of March 31,  1995,  shall have been paid and
      satisfied in full.

           Section  6.02  Initial and  Subsequent  Loans and Letters of Credit.
The  obligation  of the Lenders to make Loans to the Borrower upon the occasion
of each borrowing  hereunder and to issue,  renew, extend or reissue Letters of
Credit for the  account of the  Borrower  (including  the  Initial  Funding) is
subject  to the  further  conditions  precedent  that,  as of the  date of such
Loans and after giving effect thereto:

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

      (b) no Material Adverse Effect shall have occurred and be continuing; and

      (c) the  representations  and warranties  made by the Borrower in Article
VII and in the Loan  Documents  shall be true in all  material  respects on and
as of the date of the making of such Loans or issuance,  renewal,  extension or
reissuance  of a Letter of Credit  with the same force and effect as if made on
and as of such date and  following  such new  borrowing,  except to the  extent
such  representations  and warranties are expressly  limited to an earlier date
or the Majority Lenders may expressly consent in writing to the contrary.

      Each  request  for  a  borrowing  or  issuance,   renewal,  extension  or
reissuance of a Letter of Credit by the Borrower  hereunder shall  constitute a
certification  by the  Borrower  to the  effect  set forth in  Section  6.02(c)
(both  as of the  date  of such  notice  and,  unless  the  Borrower  otherwise
notifies  the  Agent  prior  to the  date  of and  immediately  following  such
borrowing or issuance,  renewal,  extension or reissuance of a Letter of Credit
as of the date thereof).

      In addition to the  foregoing for any advances or issuances of Letters of
Credit  following  the time  for  performance  of  Borrower's  covenants  under
Section  8.08(a)  and Section  8.12,  the Lenders  must be  satisfied  with the
Borrower's  title to and the  environmental  condition of the Amoco  Properties
acquired by the Borrower.

           Section 6.03  Conditions  Precedent for the Benefit of Lenders.  All
conditions  precedent  to the  obligations  of the Lenders to make any Loan are
imposed  hereby solely for the benefit of the Lenders,  and no other Person may
require  satisfaction of any such condition  precedent or be entitled to assume
that  the  Lenders  will  refuse  to make  any Loan in the  absence  of  strict
compliance with such conditions precedent.

           Section  6.04  No  Waiver.  No  waiver  of any  condition  precedent
shall  preclude the Agent or the Lenders from  requiring  such  condition to be
met  prior  to  making  any  subsequent  Loan  or  preclude  the  Lenders  from
thereafter  declaring  that  the  failure  of  the  Borrower  to  satisfy  such
condition precedent constitutes a Default.


                                  ARTICLE VII

                        Representations and Warranties

      The  Borrower  represents  and warrants to the Agent and the Lenders that
(each  representation  and warranty  herein is given as of the Closing Date and
shall be deemed  repeated and  reaffirmed  on the dates of each  borrowing  and
issuance,  renewal,  extension or  reissuance of a Letter of Credit as provided
in Section 6.02):

           Section  7.01  Corporate  Existence.  Each of the  Borrower and each
Subsidiary:  (i) is a  corporation  duly  organized,  legally  existing  and in
good standing under the laws of the  jurisdiction of its  incorporation  if, in
the case of  Subsidiaries,  the  failure to be so  organized,  existing  and in
good  standing  would have a Material  Adverse  Effect;  (ii) has all requisite
corporate power, and has all material  governmental  licenses,  authorizations,
consents and  approvals  necessary  in all material  respects to own its assets
and carry on its  business  as now being or as proposed  to be  conducted;  and
(iii) is  qualified to do business in all  jurisdictions in which the nature of
the  business  conducted  by it makes such  qualification  necessary  and where
failure so to qualify would have a Material Adverse Effect.

           Section  7.02  Financial  Condition.   The  unaudited   consolidated
balance  sheet  of  the  Borrower  and  its  Consolidated  Subsidiaries  as  at
December  31, 1996 and the related  consolidated  statement  of income,  of the
Borrower and its  Consolidated  Subsidiaries  for the fiscal year ended on said
date and the  unaudited  consolidated  balance  sheet of the  Borrower  and its
Consolidated   Subsidiaries   as  at   September   30,  1997  and  the  related
consolidated  statement  of  income,  of  the  Borrower  and  its  Consolidated
Subsidiaries   for  the  nine  month  period  ended  on  such  date  heretofore
furnished  to the Agent,  are  complete  and  correct  and fairly  present  the
consolidated   financial   condition  of  the  Borrower  and  its  Consolidated
Subsidiaries  as at  said  dates  and the  results  of its  operations  for the
fiscal year and the nine month  period on said dates,  all in  accordance  with
GAAP (except that the  financial  statements  of the Borrower  need not contain
footnotes or provisions  for income  taxes),  as applied on a consistent  basis
(subject, in the case of the interim financial  statements,  to normal year-end
adjustments).  Neither  the  Borrower  nor any  Subsidiary  has on the  Closing
Date any material Debt, material contingent  liabilities,  material liabilities
for taxes,  material  unusual  forward or  long-term  commitments  or  material
unrealized or anticipated  losses from any unfavorable  commitments,  except as
referred to or  reflected  or provided for in the  Financial  Statements  or in
Schedule  7.02.  Since  December  31,  1996,  there has been no change or event
having  a  Material   Adverse   Effect.   Since  the  date  of  the   Financial
Statements,  neither the  business  nor the  Properties  of the Borrower or any
material  Subsidiary  have been  materially and adversely  affected as a result
of any  fire,  explosion,  earthquake,  flood,  drought,  windstorm,  accident,
strike or other labor disturbance,  embargo,  requisition or taking of Property
or  cancellation  of  contracts,  permits or  concessions  by any  Governmental
Authority,  riot,  activities  of armed  forces or acts of God or of any public
enemy.

           Section  7.03  Litigation.  Except as  disclosed  to the  Lenders in
Schedule  7.03  hereto,  at the Closing  Date there is no material  litigation,
legal,  administrative  or arbitral  proceeding,  investigation or other action
of any nature pending or, to the knowledge of the Borrower  threatened  against
the Borrower or any Subsidiary  which  involves the  reasonable  possibility of
any judgment or  liability  against the  Borrower or any  Subsidiary  not fully
covered by insurance (except for normal deductibles).

           Section 7.04 No Breach.  Neither the  execution  and delivery of the
Loan  Documents,  nor  compliance  with the terms and  provisions  hereof  will
conflict  with or result in a breach of, or require any  consent  which has not
been obtained as of the Closing Date under,  the respective  charter or by-laws
of the  Borrower or any  Subsidiary,  or any  Governmental  Requirement  or any
agreement or instrument  to which the Borrower or any  Subsidiary is a party or
by  which  it is  bound  or to  which  it or its  Properties  are  subject,  or
constitute a default under any such agreement or  instrument,  or result in the
creation or  imposition  of any Lien upon any of the  revenues or assets of the
Borrower  or any  Subsidiary  pursuant  to the terms of any such  agreement  or
instrument other than the Liens created by the Loan Documents.

           Section 7.05  Authority.  The Borrower has all  necessary  corporate
power and authority to execute,  deliver and perform its obligations  under the
Loan  Documents  to  which  it is a  party;  and the  execution,  delivery  and
performance by the Borrower of the Loan  Documents to which it is a party,  has
been duly  authorized by all necessary  corporate  action on its part;  and the
Loan  Documents  constitute  the legal,  valid and binding  obligations  of the
Borrower,  enforceable  in  accordance  with their terms,  except as limited by
bankruptcy,  insolvency,  reorganization,  moratorium  or other similar laws of
general  application  relating to or  affecting  creditor's  rights and general
principals of equity.

           Section 7.06  Approvals.  No  authorizations,  approvals or consents
of,  and no filings or  registrations  with,  any  Governmental  Authority  are
necessary for the  execution,  delivery or  performance  by the Borrower of the
Loan Documents or for the validity or  enforceability  thereof,  except for the
recording  and filing of the Loan  Documents as required by this  Agreement and
except in the case of  performance  (i) those  matters  customarily  done after
execution and (ii) those matters required in raising the Minimum Capital.

           Section  7.07 Use of  Loans.  The  proceeds  of the  Loans  shall be
used to finance the Amoco  Acquisition,  refinance  existing  bank debt and for
working  capital and general  corporate  purposes.  The Borrower is not engaged
principally,  or as  one of  its  important  activities,  in  the  business  of
extending credit for the purpose,  whether  immediate,  incidental or ultimate,
of buying or carrying  margin stock (within the meaning of  Regulation G,  T, U
or X of the Board of  Governors of the Federal  Reserve  System) and no part of
the  proceeds  of any Loan  hereunder  will be used to buy or carry any  margin
stock.

           Section 7.08  ERISA.

           (a)  No act,  omission or  transaction  has occurred with respect to
      any Plan which would have a Material Adverse Effect.

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

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

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

           (e)  None of the Borrower,  any  Subsidiary  or any ERISA  Affiliate
      sponsors,  maintains, or contributes to an employee welfare benefit plan,
      as defined in section 3(1) of ERISA, including,  without limitation,  any
      such plan  maintained  to provide  benefits to former  employees  of such
      entities,  that may not be terminated  by the  Borrower,  a Subsidiary or
      any  ERISA  Affiliate  in its sole  discretion  at any time  without  any
      material liability.

           (f)  None of the Borrower,  any  Subsidiary  or any ERISA  Affiliate
      sponsors,  maintains  or  contributes  to,  or  has at  any  time  in the
      preceding six calendar  years,  sponsored,  maintained or contributed to,
      any Multiemployer Plan.

           (g)  None of the Borrower,  any Subsidiary or any ERISA Affiliate is
      required to provide security under section  401(a)(29) of the Code due to
      a Plan  amendment  that results in an increase in current  liability  for
      the Plan.

           Section  7.09  Taxes.  Except as set out in  Schedule 7.09,  each of
the Borrower and its  Subsidiaries  has filed all United States  Federal income
tax returns and all other  material tax returns  which are required to be filed
by them and have  paid all  material  taxes due  pursuant  to such  returns  or
pursuant to any  assessment  received by the  Borrower or any  Subsidiary.  The
charges,   accruals  and  reserves  on  the  books  of  the  Borrower  and  its
Subsidiaries  in respect of taxes and other  governmental  charges  are, in the
opinion  of the  Borrower,  adequate.  No  material  tax lien  (other  than any
Excepted  Lien) has been  filed  and,  to the  knowledge  of the  Borrower,  no
material  claim is being  asserted  with  respect to any such tax, fee or other
charge.

           Section 7.10  Titles, etc.

           (a)  Except as set out in  Schedule 7.10,  each of the  Borrower and
      its material  Subsidiaries  has good and defensible title to its material
      (individually  or in the  aggregate)  Properties,  free and  clear of all
      Liens,  except Liens  permitted by Section  9.02.  Except as set forth in
      Schedule 7.10,  after  giving  full  effect to the  Excepted  Liens,  the
      Borrower (i) owns the net  interests in  production  attributable  to the
      Hydrocarbon  Interests  reflected in the most recently  delivered Reserve
      Report (except, until the Beaver Creek Acquisition,  the Properties to be
      acquired  thereby) and the ownership of such Properties  shall not in any
      material  respect  obligate  the  Borrower to bear the costs and expenses
      relating to the  maintenance,  development  and  operations  of each such
      Property in an amount in excess of the working  interest of each Property
      set forth in the most recently  delivered Reserve Report and (ii) subject
      to  determination  of any Alleged Title Defects  within the 90 day period
      provided in Section 4.2 of the Amoco  Purchase  and Sale  Agreement,  the
      Borrower owns the net  interests in  production  in the Amoco  Properties
      set forth in the Initial Reserve Reports (except,  until the Beaver Creek
      Acquisition,  the Properties to be acquired  thereby) and such Properties
      shall not in any  material  respect  obligate  the  Borrower  to bear the
      costs  and  expenses   relating  to  the  maintenance,   development  and
      operations  of each such  Property  in an amount in excess of the working
      interest of each Property  reflected in the Initial Reserve Reports.  All
      information  contained  in the  Initial  Reserve  Reports  and  the  most
      recently  delivered  Reserve  Report is true and correct in all  material
      respects as of the date thereof.

           (b)  All material leases and material  agreements  necessary for the
      conduct of the business of the Borrower  and its  Subsidiaries  are valid
      and  subsisting,  in full force and effect and there exists no default or
      event or  circumstance  which with the giving of notice or the passage of
      time or both  would  give  rise to a  default  under  any  such  lease or
      leases,  which would  affect in any  material  respect the conduct of the
      business of the Borrower and its Subsidiaries.

           (c)  The  rights,  Properties  and  other  assets  presently  owned,
      leased  or  licensed  by the  Borrower  and its  Subsidiaries  including,
      without limitation,  all easements and rights of way, include all rights,
      Properties  and other  assets  necessary  to permit the  Borrower and its
      Subsidiaries  to  conduct  their  business  with  respect  to  the  Amoco
      Properties  acquired by the Borrower in all material respects in the same
      manner as its business has been conducted prior to the Closing Date.

           (d)  All of the  assets  and  Properties  of the  Borrower  and  its
      material  Subsidiaries  which are reasonably  necessary for the operation
      of its business are in good  working  condition in all material  respects
      and are  maintained in all material  respects in accordance  with prudent
      business standards.

           Section  7.11 No  Material  Misstatements.  No written  information,
statement,  exhibit,  certificate,  document or report  furnished  to the Agent
and  the  Lenders  (or  any of  them)  by the  Borrower  or any  Subsidiary  in
connection  with the  negotiation  of this  Agreement  contained  any  material
misstatement  of  fact  or  omitted  to  state  a  material  fact  or any  fact
necessary to make the statement  contained  therein not  materially  misleading
in the  light of the  circumstances  in which  made  and  with  respect  to the
Borrower  and its  Subsidiaries  taken as a whole.  It is  understood  that any
financial  or other future  projections  included in any such  information  are
based upon  Borrower's best available  information  and reasonable  opinion and
no  warranty  is hereby  given with  respect to such  projections.  There is no
fact peculiar to the Borrower or any  Subsidiary  which has a Material  Adverse
Effect or in the future is  reasonably  likely to have (so far as the  Borrower
can  reasonably  foresee as of the date hereof) a Material  Adverse  Effect and
which  has not  been  set  forth  in this  Agreement  or the  other  documents,
certificates  and  statements  furnished  to the  Agent by or on  behalf of the
Borrower  or any  Subsidiary  prior to, or on, the Closing  Date in  connection
with the transactions contemplated hereby.

           Section 7.12  Investment  Company Act.  Neither the Borrower nor any
Subsidiary  is  an  "investment  company"  or  a  company  "controlled"  by  an
"investment  company,"  within the  meaning of the  Investment  Company  Act of
1940, as amended.

           Section  7.13  Public  Utility  Holding  Company  Act.  Neither  the
Borrower nor any Subsidiary is a "holding  company," or a "subsidiary  company"
of a  "holding  company,"  or an  "affiliate"  of a "holding  company"  or of a
"subsidiary  company" of a "holding  company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.

           Section  7.14  Subsidiaries.  Except as set forth on  Schedule 7.14,
the Borrower has no Subsidiaries.

           Section  7.15  Location  of Business  and  Offices.  The  Borrower's
principal  place of  business  and chief  executive  offices are located at the
address stated on the signature  page of this  Agreement.  The principal  place
of business and chief  executive  office of each  Subsidiary are located at the
addresses stated on Schedule 7.14.

           Section 7.16  Defaults.  Neither the Borrower nor any  Subsidiary is
in  default  nor has any  event or  circumstance  occurred  which,  but for the
expiration  of any  applicable  grace period or the giving of notice,  or both,
would  constitute a default  under any  material  agreement  or  instrument  to
which the  Borrower or any  Subsidiary  is a party or by which the  Borrower or
any  Subsidiary is bound which default  would have a Material  Adverse  Effect.
No Default hereunder has occurred and is continuing.

           Section  7.17  Environmental  Matters.  Except  (i) as  provided  in
Schedule  7.17 or (ii) as would not have a  Material  Adverse  Effect  (or with
respect to (c),  (d) and (e)  below,  where the  failure  to take such  actions
would not have a Material Adverse Effect):

           (a)  Neither any Property of the Borrower or any  Subsidiary nor the
      operations  conducted  thereon  violate any order or  requirement  of any
      court or Governmental Authority or any Environmental Laws;

           (b)  Without  limitation  of clause (a) above,  no  Property  of the
      Borrower  or  any  Subsidiary  nor  the  operations  currently  conducted
      thereon or, to the best knowledge of the Borrower,  by any prior owner or
      operator of such  Property or  operation,  are in violation of or subject
      to any  existing,  pending or  threatened  action,  suit,  investigation,
      inquiry or  proceeding by or before any court or  Governmental  Authority
      or to any remedial obligations under Environmental Laws;

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

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

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

           (f)  To the extent  applicable,  all  Property of the  Borrower  and
      each Subsidiary currently satisfies all design,  operation, and equipment
      requirements  imposed by the OPA or  scheduled  as of the Closing Date to
      be imposed by OPA during  the term of this  Agreement,  and the  Borrower
      does not have any reason to  believe  that such  Property,  to the extent
      subject  to OPA,  will not be able to  maintain  compliance  with the OPA
      requirements during the term of this Agreement; and

           (g)  Neither  the  Borrower  nor  any   Subsidiary   has  any  known
      contingent  liability  in  connection  with  any  release  or  threatened
      release  of  any  oil,  hazardous  substance  or  solid  waste  into  the
      environment.

           Section  7.18  Compliance  with the Law.  Neither the  Borrower  nor
any  Subsidiary has violated any  Governmental  Requirement or failed to obtain
any license,  permit,  franchise or other governmental  authorization necessary
for the  ownership  of any of its  Properties  or the conduct of its  business,
which  violation or failure would have (in the event such  violation or failure
were  asserted by any Person  through  appropriate  action) a Material  Adverse
Effect.  Except for such acts or  failures  to act as would not have a Material
Adverse  Effect,   the  Borrower's  Oil  and  Gas  Properties  (and  properties
unitized  therewith)  have been  maintained,  operated and  developed in a good
and  workmanlike  manner and in  conformity  with all  applicable  laws and all
rules,  regulations  and  orders  of all duly  constituted  authorities  having
jurisdiction  and in conformity  with the  provisions of all leases,  subleases
or other  contracts  comprising a part of the  Hydrocarbon  Interests and other
contracts  and  agreements  forming  a  part  of the  Borrower's  Oil  and  Gas
Properties;  specifically  in this  connection,  (i) after the Closing Date, no
Oil  and  Gas  Property  of  the  Borrower  is  subject  to  having   allowable
production  materially reduced below the full and regular allowable  (including
the maximum  permissible  tolerance) because of any overproduction  (whether or
not the same was  permissible  at the time) prior to the Closing  Date and (ii)
none of the wells  comprising a part of the  Borrower's  Oil and Gas Properties
(or  properties  unitized  therewith)  are deviated from the vertical more than
the maximum permitted by applicable laws,  regulations,  rules and orders,  and
such wells are, in fact,  bottomed  under and are producing  from, and the well
bores are wholly  within,  the  Borrower's  Oil and Gas  Properties  (or in the
case  of  wells  located  on  properties  unitized  therewith,   such  unitized
properties).

           Section 7.19  Insurance.  Schedule 7.19 attached  hereto contains an
accurate  and  complete   description   of  all  material   policies  of  fire,
liability,  workmen's  compensation  and other forms of insurance owned or held
by the Borrower and each  Subsidiary.  All such  policies are in full force and
effect,  all premiums  that are due with respect  thereto  covering all periods
up to and  including  the  Closing  Date  have  been  paid,  and no  notice  of
cancellation  or  termination  has  been  received  with  respect  to any  such
policy.   Such  policies  are  sufficient,   in  all  material  respects,   for
compliance  with all  requirements  of law and of all  agreements  to which the
Borrower or any Subsidiary is a party;  are valid,  outstanding and enforceable
policies;  provide  adequate  insurance  coverage in at least such  amounts and
against at least such risks (but  including in any event public  liability)  as
are usually  insured  against in the same general area by companies  engaged in
the same or a similar  business for the assets and  operations  of the Borrower
and  each  Subsidiary;  will  remain  in full  force  and  effect  through  the
respective  dates set forth in Schedule  7.19 without the payment of additional
premiums  except  those  which  are not yet  due;  and  will  not in any way be
affected   by,  or   terminate   or  lapse  by  reason  of,  the   transactions
contemplated  by this  Agreement.  Schedule 7.19 identifies all material risks,
if any, which the Borrower and its  Subsidiaries  and their respective Board of
Directors  or  officers  have  designated  as being self  insured.  Neither the
Borrower  nor any  Subsidiary  has been refused any  insurance  with respect to
its assets or  operations,  nor has its coverage  been limited  below usual and
customary  policy limits,  by an insurance  carrier to which it has applied for
any such  insurance  or with  which it has  carried  insurance  during the last
three years.

           Section 7.20 Hedging  Agreements.  Schedule  7.20 sets forth,  as of
the Closing  Date, a true and complete  list of all Hedging  Agreements  of the
Borrower and each Subsidiary,  the material terms thereof  (including the type,
term,  effective date,  termination date and notional amounts or volumes),  the
net mark to market  value  thereof,  all  credit  support  agreements  relating
thereto  (including any margin required or supplied),  and the counter party to
each such agreement.

           Section  7.21  Restriction  on Liens.  Neither the  Borrower nor any
of its  Subsidiaries  is a party to any  agreement or  arrangement  (other than
this  Agreement  and the  other  Loan  Documents),  or  subject  to any  order,
judgment,  writ or decree,  which either  restricts or purports to restrict its
ability to grant  Liens to other  Persons on or in respect of their  respective
assets or Properties other than those permitted by Section 9.19 hereof.

           Section  7.22  Material  Agreements.  Set  forth  on  Schedule  7.22
hereto is a complete  and  correct  list of all  material  agreements,  leases,
indentures,  purchase agreements,  obligations in respect of letters of credit,
guarantees,  joint venture  agreements,  and other  instruments in effect or to
be in effect as of the Closing Date (other than Hedging  Agreements)  providing
for,  evidencing,  securing  or  otherwise  relating  to any Debt as defined in
clauses (i), (ii), (iv), (v), (vi),  (vii) and (xii) of the definition  thereof
of the Borrower or any of its  Subsidiaries,  and all  obligations in effect on
the  Closing  Date of the  Borrower  or any of its  Subsidiaries  to issuers of
surety  or  appeal  bonds  issued  for  account  of the  Borrower  or any  such
Subsidiary,  and such list  correctly  sets  forth  the names of the  debtor or
lessee and  creditor  or lessor with  respect to the Debt or lease  obligations
outstanding  or  to be  outstanding  and  the  Property  subject  to  any  Lien
securing such Debt or lease obligation.


                                 ARTICLE VIII

                             Affirmative Covenants

      The  Borrower   covenants  and  agrees  that,  so  long  as  any  of  the
Commitments  are in  effect  and  until  payment  in full of all  Loans  and LC
Exposure hereunder and all interest thereon:

           Section 8.01  Reporting  Requirements.  The Borrower  shall deliver,
or shall cause to be  delivered,  to the Agent with  sufficient  copies of each
for the Lenders:

           (a)  Annual  Financial  Statements.  As soon as available and in any
      event  within 95 days after the end of each fiscal year of the  Borrower,
      the  audited  consolidated  and  unaudited  consolidating  statements  of
      income,  stockholders'  equity,  changes in  financial  position and cash
      flow of the Guarantor and its  Consolidated  Subsidiaries for such fiscal
      year, and the related  consolidated and  consolidating  balance sheets of
      the Guarantor  and its  Consolidated  Subsidiaries  as at the end of such
      fiscal  year,  and  setting  forth in each case in  comparative  form the
      corresponding  figures for the preceding  fiscal year, and accompanied by
      the related  opinion of  independent  public  accountants  of  recognized
      national   standing   which  opinion  shall  state  that  said  financial
      statements  fairly present the consolidated and  consolidating  financial
      condition   and  results  of   operations   of  the   Guarantor  and  its
      Consolidated  Subsidiaries  as at the end of, and for,  such  fiscal year
      and that such financial  statements have been prepared in accordance with
      GAAP,  except  for  such  changes  in  such  principles  with  which  the
      independent  public  accountants  shall have  concurred  and such opinion
      shall not contain a "going concern" or like qualification or exception.

           (b)  Quarterly  Financial  Statements.  As soon as available  and in
      any event  within 60 days after the end of each of the first three fiscal
      quarterly periods of each fiscal year of the Guarantor,  consolidated and
      consolidating  statements  of income,  stockholders'  equity,  changes in
      financial  position and cash flow of the Guarantor  and its  Consolidated
      Subsidiaries  for such  period and for the period from the  beginning  of
      the  respective  fiscal year to the end of such  period,  and the related
      consolidated  and  consolidating  balance  sheets  as at the  end of such
      period,   and  setting  forth  in  each  case  in  comparative  form  the
      corresponding  figures  for the  corresponding  period  in the  preceding
      fiscal year,  accompanied by the  certificate  of a Responsible  Officer,
      which  certificate  shall  state that said  financial  statements  fairly
      present  the  consolidated  and  consolidating  financial  condition  and
      results of operations of the Guarantor and its Consolidated  Subsidiaries
      in accordance  with GAAP, as at the end of, and for, such period (subject
      to normal year-end audit adjustments).

           (c)  Notice of  Default,  Etc.  Promptly  after the  Borrower  knows
      that any  Default  (other  than  with  respect  to  Section  8.01) or any
      Material  Adverse  Effect  has  occurred,  a notice  of such  Default  or
      Material  Adverse  Effect,  describing the same in reasonable  detail and
      the action the Borrower proposes to take with respect thereto.

           (d)  Other  Accounting  Reports.  Promptly upon receipt  thereof,  a
      copy of  each  interim  or  special  audit  made  by  Guarantor's  or the
      Borrower's  independent  accountants  of  the  books  of  the  Guarantor,
      Borrower and their Subsidiaries.

           (e)  SEC Filings,  Etc. Promptly upon its becoming  available,  each
      financial  statement,  report,  notice or proxy  statement sent by Howell
      Corporation  to  stockholders  generally  and each  regular  or  periodic
      report  and any  final  registration  statement,  prospectus  or  written
      communication  (other than transmittal  letters) in respect thereof filed
      by Howell  Corporation  with or received by the  Guarantor in  connection
      therewith  from  any  securities  exchange  or the  SEC or any  successor
      agency.

           (f)  Notices  Under  Other  Loan  Agreements.   Promptly  after  the
      furnishing thereof,  copies of any statement,  report or notice furnished
      to any Person  pursuant to the terms of any indenture,  loan or credit or
      other  similar  agreement,  other than this  Agreement  and not otherwise
      required to be furnished to the Lenders  pursuant to any other  provision
      of this Section 8.01.

           (g)  Other  Matters.  From  time  to  time  such  other  information
      regarding  the  business,  affairs or  financial  condition of the Howell
      Corporation,   the  Borrower  or  any  Subsidiary   (including,   without
      limitation,  any Plan or  Multiemployer  Plan) as any Lender or the Agent
      may reasonably request.

The Borrower  will furnish to the Agent,  at the time it furnishes  each set of
financial  statements  pursuant to paragraph  (a) or (b) above,  a  certificate
substantially  in the form of Exhibit C executed by a  Responsible  Officer (i)
certifying  as to the  matters set forth  therein  and stating  that no Default
has  occurred  and is  continuing  (or,  if any  Default  has  occurred  and is
continuing,  describing the same in reasonable detail),  and (ii) setting forth
in  reasonable  detail the  computations  necessary  to  determine  whether the
Borrower is in compliance  with  Sections 9.12,  9.13 and 9.14 as of the end of
the respective fiscal quarter or fiscal year.

           Section 8.02  Litigation.  The Borrower  shall  promptly give to the
Agent  notice  of:  (i)  all  legal  or  arbitral   proceedings,   and  of  all
proceedings  before any  Governmental  Authority  involving the Borrower or any
Subsidiary,  except proceedings which, if adversely determined,  would not have
a Material  Adverse  Effect,  and (ii) of any material  litigation  or material
proceeding  against  the  Borrower  or  any  Subsidiary  in  which  the  amount
involved is not covered in full by insurance  (subject to normal and  customary
deductibles),  or  in  which  injunctive  or  similar  relief  is  sought.  The
Borrower  will, and will cause each of its  Subsidiaries  to,  promptly  notify
the  Agent  and  each of the  Lenders  of any  claim,  judgment,  Lien or other
encumbrance  affecting  any Property of the Borrower or any  Subsidiary  if the
value of the  claim,  judgment,  Lien,  or  other  encumbrance  affecting  such
Property shall exceed $2,000,000.

           Section 8.03  Maintenance, Etc.

           (a)  Generally.   The  Borrower  shall  preserve  and  maintain  its
      corporate  existence  and  all of its  material  rights,  privileges  and
      franchises;  keep books of record and  account  in which  full,  true and
      correct  entries will be made in accordance  with GAAP of all dealings or
      transactions in relation to its business and activities;  comply with all
      Governmental  Requirements  if failure to comply  with such  requirements
      will have a Material  Adverse  Effect;  pay and  discharge  all  material
      taxes,  assessments and  governmental  charges or levies imposed on it or
      on its income or profits or on any of its  Property  prior to the date on
      which  penalties  attach  thereto,  except for any such tax,  assessment,
      charge or levy the payment of which is being  contested in good faith and
      by proper  proceedings  and against  which  adequate  reserves  are being
      maintained;  upon reasonable notice, permit  representatives of the Agent
      or any Lender,  during normal business  hours, to examine,  copy and make
      extracts from its books and records,  to inspect its  Properties,  and to
      discuss its  business and affairs  with its  officers,  all to the extent
      reasonably  requested  by such  Lender or the Agent (as the case may be);
      and  keep,  or  cause  to be  kept,  insured  by  financially  sound  and
      reputable  insurers  all  Property  of a  character  usually  insured  by
      Persons  engaged  in the  same or  similar  business  similarly  situated
      against  loss or  damage  of the  kinds  and in the  amounts  customarily
      insured  against by such  Persons  and carry such other  insurance  as is
      usually   carried  by  such  Persons   including,   without   limitation,
      environmental risk insurance to the extent reasonably available.

           (b)  Proof of  Insurance.  Contemporaneously  with the  delivery  of
      the financial  statements required by Section 8.01(a) to be delivered for
      each year,  the  Borrower  will  furnish or cause to be  furnished to the
      Agent and the  Lenders  a  certificate  of  insurance  coverage  from the
      insurer  in  form  and  substance  satisfactory  to  the  Agent  and,  if
      requested,  will  furnish  the  Agent  and  the  Lenders  copies  of  the
      applicable policies.

           (c)  Operation  of  Properties.  The  Borrower  will and will  cause
      each Subsidiary to operate,  in all material respects,  its Properties or
      cause such  Properties  to be operated,  in all material  respects,  in a
      careful and  efficient  manner in  accordance  with the  practices of the
      industry  and  in  compliance,   in  all  material  respects,   with  all
      applicable  contracts  and  agreements  and in compliance in all material
      respects with all Governmental Requirements.

           (d)  Oil and Gas  Properties.  The Borrower will and will cause each
      Subsidiary to, at its own expense,  maintain,  preserve, protect and keep
      all its material Oil and Gas  Properties  in good repair,  working  order
      and  condition in all material  respects,  and make  necessary and proper
      repairs,  renewals and  replacements  so that its business  carried on in
      connection  therewith  may be  properly  conducted  at all  times  in all
      material  respects,  all in accordance with approved practices of prudent
      operators  and  standards  prevailing  in the oil and  gas  industry  and
      within limits imposed by joint operating agreements.

           Section 8.04  Environmental Matters.

           (a)  Establishment  of Procedures.  The Borrower will and will cause
      each  Subsidiary  to establish and  implement  such  procedures as may be
      reasonably  necessary  to  continuously  determine  and  assure  that any
      failure of the following  does not have a Material  Adverse  Effect:  (i)
      all  Property of the  Borrower and its  Subsidiaries  and the  operations
      conducted   thereon  and  other   activities  of  the  Borrower  and  its
      Subsidiaries  are in compliance with and do not violate the  requirements
      of any Environmental  Laws,  (ii) no oil,  hazardous  substances or solid
      wastes are disposed of or otherwise  released on or to any Property owned
      by any such party except in compliance with Environmental  Laws, (iii) no
      hazardous  substance  will be  released  on or to any such  Property in a
      quantity equal to or exceeding  that quantity  which  requires  reporting
      pursuant  to  Section  103 of  CERCLA,  and  (iv)  no  oil,  oil  and gas
      exploration and production  wastes or hazardous  substance is released on
      or to any  such  Property  so as to  pose  an  imminent  and  substantial
      endangerment to public health or welfare or the environment.

           (b)  Notice of Action.  The Borrower will promptly  notify the Agent
      and  the  Lenders  in  writing  of  any   material   threatened   action,
      investigation  or  inquiry  by any  Governmental  Authority  of which the
      Borrower  has  knowledge  in  connection  with  any  Environmental  Laws,
      excluding routine testing and corrective action.

           Section 8.05 Further  Assurances.  The Borrower  will and will cause
each  Subsidiary  to cure  promptly any defects in the creation and issuance of
the Notes and the  execution  and  delivery  of the other Loan  Documents.  The
Borrower  at its  expense  will and will  cause  each  Subsidiary  to  promptly
execute  and  deliver  to the Agent  upon  request  all such  other  documents,
agreements  and  instruments  to comply with or  accomplish  the  covenants and
agreements of the Borrower or any  Subsidiary,  as the case may be, in the Loan
Documents,  or to further  evidence  and more  fully  describe  the  collateral
intended as security  for the Notes,  or to correct any  omissions  in the Loan
Documents,  or to state more fully the security  obligations  set out herein or
in any of the Loan  Documents,  or to perfect,  protect or  preserve  any Liens
created  pursuant to any of 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.

           Section 8.06  Performance  of  Obligations.  The  Borrower  will pay
the  Notes  according  to the  reading,  tenor  and  effect  thereof;  and  the
Borrower  will and will cause each  Subsidiary  to do and perform every act and
discharge all of the  obligations  to be performed and discharged by them under
the Loan Documents, at the time or times and in the manner specified.

           Section 8.07 Reserve Reports.

           (a)  Not less than 60 days prior to each  Scheduled  Redetermination
      Date, commencing with the Scheduled  Redetermination Date to occur on May
      1,  1998 the  Borrower  shall  furnish  to the  Agent  and the  Lenders a
      Reserve Report.  The March 1 Reserve Report of each year,  other than the
      Report as of January 1,  1998,  shall be as of January 1 of such year and
      prepared  by H. J. Gruy and  Associates  or other  certified  independent
      petroleum  engineers  acceptable  to  the  Agent.  The  January 1,   1998
      Reserve  Report  shall  be  audited  by H. J.  Gruy or Ryder  Scott.  The
      September 1  Reserve  Report of each  year  shall be as of July 1 of such
      year and prepared by or under the  supervision  of the chief  engineer of
      the  Borrower  who  shall  certify  such  Reserve  Report  to be true and
      accurate (in accordance with customary  prudent  industry  standards) and
      to have been prepared,  in all material respects,  in accordance with the
      procedures used in the immediately proceeding March 1 Reserve Report.

           (b)  In the event of an  unscheduled  redetermination,  the Borrower
      shall furnish to the Agent and the Lenders a Reserve  Report  prepared by
      or under the  supervision of the chief engineer of the Borrower who shall
      certify  such  Reserve  Report to be true and  accurate  and to have been
      prepared,  in all material  respects,  in accordance  with the procedures
      used in the immediately  preceding  Reserve  Report.  For any unscheduled
      redetermination  requested  by  the  Required  Lenders  or  the  Borrower
      pursuant to Section  2.08(d),  the  Borrower  shall  provide such Reserve
      Report with an "as of" date as required by the  Required  Lenders as soon
      as  possible,  but in any  event  no  later  than 30 days  following  the
      receipt of the request by the Agent.

           (c)  With the delivery of each Reserve  Report,  the Borrower  shall
      provide to the Agent and the Lenders,  a  certificate  from a Responsible
      Officer  certifying  that,  to  the  best  of  his  knowledge  and in all
      material  respects:  (i) the information  contained in the Reserve Report
      and any other information  delivered in connection  therewith is true and
      correct  in all  material  respects,  (ii) the  Borrower  owns  good  and
      defensible title to the Oil and Gas Properties  evaluated in such Reserve
      Report  and  such  Properties  are free of all  Liens  except  for  Liens
      permitted  by Section  9.02,  (iii)  except as set forth on an exhibit to
      the certificate,  on a net basis there are no gas imbalances, take or pay
      or  other  prepayments  with  respect  to  its  Oil  and  Gas  Properties
      evaluated  in such  Reserve  Report  which would  require the Borrower to
      deliver  Hydrocarbons  produced from such Oil and Gas  Properties at some
      future time without then or thereafter  receiving full payment  therefor,
      (iv) none of its Oil and Gas Properties  have been sold since the date of
      the last Borrowing Base  determination  except as set forth on an exhibit
      to the certificate,  which  certificate shall list all of its Oil and Gas
      Properties  sold  and  in  such  detail  as  reasonably  required  by the
      Majority  Lenders,  (v) attached  to the certificate is a list of its Oil
      and Gas  Properties  added  to and  deleted  from the  immediately  prior
      Reserve  Report and a list showing any change in working  interest or net
      revenue  interest in its Oil and Gas Properties  occurring and the reason
      for  such  change,  (vi) attached  to the  certificate  is a list  of all
      Persons  disbursing  proceeds  to the  Borrower  from  its  Oil  and  Gas
      Properties and (vii)  following  delivery of the Mortgages  called for in
      Section 8.09 below,  80% of all of the Oil and Gas  Properties  evaluated
      by such Reserve Report will be Mortgaged  Property  unless such Mortgages
      are not required pursuant to Section 8.09.

           Section 8.08  Title and Mortgage Information.

           (a)  Title Re Amoco Properties.  As soon as reasonably  practicable,
      but in no event  later  than  the end of the 90 day  period  provided  in
      Section 4.2 of the Amoco Purchase and Sale  Agreement,  the Borrower will
      conduct  reasonable title review of the Amoco Properties  acquired by the
      Borrower to determine any "Alleged  Title Defects" as provided in Section
      4.2 of the Amoco  Purchase and Sale Agreement and shall make such demands
      for  price  adjustment  as it  may be  entitled  pursuant  to  the  Amoco
      Purchase and Sale Agreement.

           (b)  Delivery.  On or  before  the  delivery  to the  Agent  and the
      Lenders of each Reserve Report required by Section 8.07(a),  the Borrower
      will deliver title  information  and,  unless  mortgages are not required
      pursuant to Section 8.09, mortgages,  deeds of trust, security agreements
      and  financing  statements,   as  appropriate,   in  form  and  substance
      acceptable  to the Agent  covering  enough of the Oil and Gas  Properties
      evaluated  by  such  Reserve   Report  that  were  not  included  in  the
      immediately  preceding  Reserve  Report,  so that the  Agent  shall  have
      received together with title  information and Liens previously  delivered
      to the Agent,  satisfactory title information and, if required,  Liens on
      at least eighty  percent (80%) of the value of the Oil and Gas Properties
      evaluated by such Reserve Report.

           (c)  Cure of Title  Defects.  The  Borrower  shall  cure  any  title
      defects  or  exceptions  which  are  not  Excepted  Liens  raised  by the
      information  required by Section  8.08(b)  above,  or, if  mortgages  are
      required  pursuant  to  Section  8.09,  substitute  acceptable  Mortgaged
      Properties with no title defects or exceptions  except for Excepted Liens
      covering  Mortgaged  Properties  of an equivalent  value,  within 45 days
      after a request  by the Agent or the  Lenders  to cure  such  defects  or
      exceptions.

           (d)  Failure to Cure Title  Defects.  If the  Borrower  is unable to
      cure any title  defect  requested by the Agent or the Lenders to be cured
      or  the  Borrower  does  not  comply  with  the  requirement  to  provide
      acceptable title  information  covering eighty percent (80%) of the value
      of the  Oil and Gas  Properties  evaluated  in the  most  recent  Reserve
      Report,  such default shall not be a Default or an Event of Default,  but
      instead  the Agent and the Lenders  shall have the right to exercise  the
      following  remedy in their  sole  discretion  from time to time,  and any
      failure to so  exercise  this remedy at any time shall not be a waiver as
      to future  exercise  of the  remedy by the Agent or the  Lenders.  To the
      extent that the Agent or the Lenders are not satisfied  with title to any
      Oil and Gas  Property  after  the time  period  in  Section  8.08(c)  has
      elapsed,  such  unacceptable Oil and Gas Property shall not count towards
      the eighty percent (80%) requirement,  and the Agent may send a notice to
      the  Borrower and the Lenders that the then  outstanding  Borrowing  Base
      shall be  reduced  by an amount as  determined  by all of the  Lenders to
      cause the Borrower to be in compliance  with the  requirement  to provide
      acceptable title  information on eighty percent (80%) of the value of the
      Oil and Gas  Properties.  This new Borrowing Base shall become  effective
      immediately after receipt of such notice.

           Section 8.09   Mortgages.  Within  fifty  six (56)  days  after  the
Borrower's  completion  of the Beaver  Creek  Acquisition,  the  Borrower  will
grant to the Agent as  security  for the  Indebtedness  a  first-priority  Lien
interest  (subject  only to Excepted  Liens) on the  Borrower's  interest on at
least  eighty  percent  (80%)  of the  value  of the  Oil  and  Gas  Properties
evaluated by the Initial  Reserve  Reports,  which Liens will be created by and
in  accordance  with the  provisions  of  mortgages,  deeds of trust,  security
agreements   and   financing   statements,   or  other  Loan   Documents   (the
"Mortgages"),  all in form and substance  satisfactory to the Agent in its sole
discretion  and in sufficient  executed (and  acknowledged  where  necessary or
appropriate)  counterparts  for recording  purposes.  The Mortgages will not be
filed by the  Lenders  until  the  first to occur of  (1) the  occurrence  of a
Default and (2) six (6) months  after the  Borrower  has  completed  the Beaver
Creek  Acquisition.  If Facility B has been repaid and the Minimum  Capital has
been raised  within six (6) months after the Borrower has  completed the Beaver
Creek  Acquisition  and no Default has  occurred  and is then  continuing,  the
Mortgages  will  not be  recorded  and will be  returned  to the  Borrower.  In
connection  with the delivery of  Mortgages,  as  aforesaid,  the Borrower will
furnish (i) title  information  to the Agent which  establishes  to the Agent's
satisfaction  that  Borrower has good and  defensible  title to the Oil and Gas
Properties  covered by the  Mortgage  and the  Mortgage  is first and prior and
(ii) opinions  of  counsel  satisfactory  to  the  Agent  with  respect  to the
enforceability  of the Mortgage and such other matters in connection  therewith
as the Agent may reasonably request.

           Section 8.10 ERISA  Information  and  Compliance.  The Borrower will
promptly  furnish and will cause the  Subsidiaries  and any ERISA  Affiliate to
promptly  furnish  to the  Agent  with  sufficient  copies to the  Lenders  (i)
immediately  upon  becoming  aware  of the  occurrence  of any  ERISA  Event or
breach or violation of or default by the Borrower or any  Subsidiary  under any
Plan which,  individually  or in the aggregate,  would have a Material  Adverse
Effect,  a  written  notice  signed by a  Responsible  Officer  specifying  the
nature  thereof,  what  action  the  Borrower,  the  Subsidiary  or  the  ERISA
Affiliate  is taking  or  proposes  to take with  respect  thereto,  and,  when
known,  any action  taken or  proposed by the  Internal  Revenue  Service,  the
Department  of Labor or the PBGC with  respect  thereto,  and (ii)  immediately
upon  receipt  thereof,  copies  of any  notice  of  the  PBGC's  intention  to
terminate  or to  have  a  trustee  appointed  to  administer  any  Plan.  With
respect to each Plan (other than a  Multiemployer  Plan),  the  Borrower  will,
and will cause each  Subsidiary  and ERISA  Affiliate  to, (i)  satisfy in full
and in a timely  manner,  without  incurring  any late payment or  underpayment
charge  or  penalty  and  without   giving  rise  to  any  lien,   all  of  the
contribution  and funding  requirements of section 412 of the Code  (determined
without  regard to  subsections  (d),  (e), (f) and (k) thereof) and of section
302 of  ERISA  (determined  without  regard  to  sections  303,  304 and 306 of
ERISA),  and (ii)  pay,  or cause to be paid,  to the PBGC in a timely  manner,
without  incurring  any late  payment or  underpayment  charge or penalty,  all
premiums required pursuant to sections 4006 and 4007 of ERISA.

           Section  8.11  Minimum  Capital.  Within  twelve  (12) months of the
Closing Date,  the Borrower shall raise  (i) unless the Borrower  completes the
Beaver Creek  Acquisition,  Subordinated  Debt or equity in a principal  amount
of not less than  $50,000,000;  (ii) if the Beaver Creek  Acquisition  has been
completed  a minimum  of  $175,000,000  additional  new long term  Subordinated
Debt or equity capital including at least $75,000,000 of equity.

           Section 8.12   Environmental.  As  soon as  reasonably  practicable,
but in no  event  later  than  the end of the two  hundred  seventy  (270)  day
period  provided in Section 5.2 of the Amoco Purchase and Sale  Agreement,  the
Borrower will conduct  reasonable  environmental  due diligence with respect to
the  Amoco  Properties  acquired  by  it  to  determine  any  "Alleged  Adverse
Conditions"  as  provided  for in Section  5.2 of the Amoco  Purchase  and Sale
Agreement  and make such  demands  for price  adjustment  as it may be entitled
pursuant to said Amoco Purchase and Sale Agreement.


                                  ARTICLE IX

                              Negative Covenants

      The  Borrower   covenants  and  agrees  that,  so  long  as  any  of  the
Commitments  are in effect and until  payment in full of Loans and LC  Exposure
hereunder and all interest  thereon  without the prior  written  consent of the
Majority Lenders:

           Section  9.01 Debt.  Neither the Borrower  nor any  Subsidiary  will
incur,  create,  assume  or permit to exist  any  Debt,  except  the  following
(including the interest, fees and charges in connection therewith):

           (a)  the  Notes  or  other   Indebtedness  or  any  guaranty  of  or
      suretyship arrangement for the Notes or other Indebtedness;

           (b)  Debt of the  Borrower  existing  on the  Closing  Date which is
      reflected in the Financial  Statements or is disclosed in Schedule  9.01,
      and any renewals or extensions (but not increases) thereof;

           (c)  accounts  payable (for the deferred  purchase price of Property
      or  services)  from  time to time  incurred  in the  ordinary  course  of
      business  which,  if  greater  than 120 days past the  invoice or billing
      date,  are being  contested in good faith by  appropriate  proceedings if
      reserves adequate under GAAP shall have been established therefor;

           (d)  Debt under  capital  leases (as  required to be reported on the
      financial  statements  of the  Borrower  pursuant  to GAAP) not to exceed
      $5,000,000;

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

           (f)  Debt of the  Borrower  under  Hedging  Agreements  the notional
      amounts on which do not exceed 95% of Borrower's  anticipated  oil and/or
      gas production to be produced during the term of such Hedging  Agreements
      and which are entered  into as a part of its normal  business  operations
      as a risk  management  strategy  and/or hedge against  changes  resulting
      from market conditions related to the Borrower's operations;

           (g)  the Subordinated  Debt not to exceed  $150,000,000 of principal
      outstanding at any time;

           (h)  to the  extent  Subordinated  Debt  permitted  by (g)  above is
      evidenced by Borrower's  guarantee of indebtedness of Howell Corporation,
      intercompany  Subordinated  Debt of the  Borrower  to Howell  Corporation
      pursuant to which the  proceeds of such Howell  Corporation  indebtedness
      have been advanced to the Borrower;

           (i)  Debt permitted by Section 9.03(g);

           (j)  Debt  evidenced  by interest  rate Hedging  Agreements  entered
      into  by the  Borrower  in the  normal  course  of  business  and not for
      speculative purposes; and

           (k)  intercompany  Subordinated  Debt  evidenced  by  advances  from
      Howell  Corporation  to the  Borrower  from  time to  time in the  normal
      course of business; and

           (l)  Debt not included  within  clauses (a) through (k) above not to
      exceed $5,000,000 at any time outstanding.

           Section 9.02 Liens.  Neither the Borrower  nor any  Subsidiary  will
create,  incur,  assume or  permit  to exist any Lien on any of its  Properties
(now owned or hereafter acquired), except:

           (a)  Liens securing the payment of any Indebtedness;

           (b)  Excepted Liens;

           (c)  Liens securing leases allowed under Section  9.01(d),  but only
      on the Property under lease;

           (d)  Liens arising under leases permitted under Section 9.07.

           (e)  Liens disclosed on Schedule 9.02;

           (f)  Liens on cash or securities  of the Borrower  securing the Debt
      described in Section 9.01(e); and

           (g)  Liens  not  included  within  clauses  (a)  through  (f)  above
      securing Debt permitted under Section 9.01 not to exceed $2,500,000.

           Section  9.03   Investments,   Loans  and   Advances.   Neither  the
Borrower  nor any  Subsidiary  will make or permit  to remain  outstanding  any
loans or advances to or  investments  in any Person,  except that the foregoing
restriction shall not apply to:
           (a)  investments,  loans  or  advances  reflected  in the  Financial
      Statements or which are disclosed to the Lenders in Schedule 9.03;

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

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

           (d)  commercial  paper  maturing  within  one year  from the date of
      creation  thereof  rated  in  investment   grade  by  Standard &   Poor's
      Corporation or Moody's Investors Service, Inc.;

           (e)  deposits  maturing  within  one year from the date of  creation
      thereof with, including  certificates of deposit issued by, any Lender or
      any  office  located  in the  United  States of any  other  bank or trust
      company  which is  organized  under the laws of the United  States or any
      state thereof, has capital,  surplus and undivided profits aggregating at
      least  $100,000,000.00  (as of the date of such Lender's or bank or trust
      company's  most recent  financial  reports)  and has a short term deposit
      rating of no lower  than A2 or P2, as such  rating is set forth from time
      to time, by Standard & Poor's  Corporation or Moody's Investors  Service,
      Inc., respectively;

           (f)  deposits  in  money  market  funds  investing   exclusively  in
      investments described in Section 9.03(c), 9.03(d) or 9.03(e);

           (g)  investments,  loans or advances  made by the  Borrower in or to
      the Guarantor or any of its  Subsidiaries,  not to exceed at any one time
      outstanding $1,000,000 in the aggregate;

           (h)  other  investments,  loans or advances not to exceed $1,000,000
      in the aggregate at any time;

           (i)  sums  required in the normal course of business to be placed in
      escrow for the payment of royalties on Borrowers or Subsidiaries  oil and
      gas production; and

           (j)  loans  to  Howell  Corporation  in lieu  of and  for  the  same
      purposes as dividends and other  distributions to the extent permitted by
      Section 9.04 below.

           Section  9.04  Dividends,   Distributions   and   Redemptions.   The
Borrower  will not declare or pay any dividend,  purchase,  redeem or otherwise
acquire  for value any of its stock now or  hereafter  outstanding,  return any
capital  to its  stockholders  or make any  distribution  of its  assets to its
stockholders  except (so long as no Default has occurred and is  continuing) as
follows:

           (a)  cash  dividends to the extent  necessary  (i) to  permit Howell
      Corporation  to pay regular  installments  of interest  from time to time
      owing  on  Subordinated  Debt not to  exceed  $150,000,000  in  principal
      amount to the extent the net proceeds  thereof have been  advanced to the
      Borrower  and (ii) to  cover  Howell  Corporation's  reasonable  on-going
      operating expenses as a holding company; and

           (b)  cash dividends (to the extent necessary for Howell  Corporation
      to continue to pay regular  dividends on its  preferred  and common stock
      at historical levels.

           Section  9.05 Sales and  Leasebacks.  Neither the  Borrower  nor any
Subsidiary will enter into any  arrangement,  directly or indirectly,  with any
Person  whereby the  Borrower or any  Subsidiary  shall sell or transfer any of
its  Property,  whether  now  owned or  hereafter  acquired,  and  whereby  the
Borrower or any  Subsidiary  shall then or  thereafter  rent or lease as lessee
such Property or any part thereof or other  Property  which the Borrower or any
Subsidiary  intends to use for  substantially  the same  purpose or purposes as
the Property sold or transferred.

           Section  9.06  Nature of  Business.  Neither  the  Borrower  nor any
Subsidiary  will allow any material  change to be made in the  character of its
business as an independent oil and gas exploration and production company.

           Section  9.07  Limitation  on Leases.  Neither the  Borrower nor any
Subsidiary  will create,  incur,  assume or permit to exist any  obligation for
the  payment  of rent or hire of  Property  of any  kind  whatsoever  (real  or
personal   including  capital  leases,  but  excluding  leases  of  Hydrocarbon
Interests),  under leases or lease  agreements  which would cause the aggregate
amount of all payments  made by the Borrower and its  Subsidiaries  pursuant to
all such leases or lease  agreements  to exceed  [$2,000,000]  in any period of
twelve consecutive calendar months during the life of such leases.

           Section 9.08 Mergers,  Etc.  Neither the Borrower nor any Subsidiary
will merge into or with or consolidate  with any other Person,  or sell,  lease
or  otherwise  dispose  of  (whether  in  one  transaction  or in a  series  of
transactions)  all or substantially  all of its Property or assets to any other
Person,  provided,  however,  any Subsidiary of the Borrower may merge into the
Borrower  provided the Borrower is the surviving  entity and no Default  exists
or will be created thereby.

           Section  9.09  Proceeds of Notes;  Letters of Credit.  The  Borrower
will not permit the  proceeds  of the Notes or Letters of Credit to be used for
any purpose other than those  permitted by Section  7.07.  Neither the Borrower
nor any  Person  acting on behalf  of the  Borrower  has taken or will take any
action  which might cause any of the Loan  Documents to violate  Regulation  G,
T, U or X or any other  regulation  of the Board of  Governors  of the  Federal
Reserve System or to violate  Section 7 of the Securities  Exchange Act of 1934
or any rule or regulation  thereunder,  in each case as now in effect or as the
same may hereinafter be in effect.

           Section 9.10  ERISA Compliance.  The Borrower will not at any time:

           (a)  Engage  in, or permit  any  Subsidiary  or ERISA  Affiliate  to
      engage in, any  transaction  in connection  with which the Borrower,  any
      Subsidiary  or any ERISA  Affiliate  could be subjected to either a civil
      penalty  assessed  pursuant to section  502(c),  (i) or (l) of ERISA or a
      tax  imposed by Chapter 43 of  Subtitle D of the Code which  individually
      or in the aggregate could reasonably have a Material Adverse Effect;

           (b)  Terminate,  or permit  any  Subsidiary  or ERISA  Affiliate  to
      terminate,  any Plan in a manner,  or take any other  action with respect
      to any Plan,  which could result in any  liability to the  Borrower,  any
      Subsidiary or any ERISA  Affiliate to the PBGC which  individually  or in
      the aggregate could reasonably have a Material Adverse Effect;

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

           (d)  Permit to exist,  or allow any Subsidiary or ERISA Affiliate to
      permit to exist, any accumulated  funding  deficiency  within the meaning
      of  Section  302 of ERISA or  section  412 of the  Code,  whether  or not
      waived,  with respect to any Plan which  individually or in the aggregate
      could reasonably have a Material Adverse Effect;

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

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

           (g)  Acquire,  or  permit  any  Subsidiary  or  ERISA  Affiliate  to
      acquire,  an  interest in any Person that causes such Person to become an
      ERISA  Affiliate  with respect to the  Borrower,  any  Subsidiary  or any
      ERISA Affiliate if such Person sponsors,  maintains or contributes to, or
      at any  time  in the  six-year  period  preceding  such  acquisition  has
      sponsored,  maintained, or contributed to, (1) any Multiemployer Plan, or
      (2) any other Plan that is subject to  Title IV  of ERISA under which the
      actuarial  present  value of the  benefit  liabilities  under  such  Plan
      exceeds the current value of the assets  (computed on a plan  termination
      basis in  accordance  with  Title IV of ERISA) of such Plan  allocable to
      such benefit liabilities;

           (h)  Incur,  or permit any Subsidiary or ERISA Affiliate to incur, a
      liability  to or on account of a Plan under  sections  515,  4062,  4063,
      4064, 4201 or 4204 of ERISA which  individually or in the aggregate could
      reasonably have a Material Adverse Effect;

           (i)  Contribute  to or assume an  obligation  to  contribute  to, or
      permit any  Subsidiary  or ERISA  Affiliate to contribute to or assume an
      obligation  to  contribute  to, any employee  welfare  benefit  plan,  as
      defined in section  3(1) of ERISA,  including,  without  limitation,  any
      such plan  maintained  to provide  benefits to former  employees  of such
      entities,  that may not be  terminated  by such  entities  in their  sole
      discretion at any time without any material liability; or
           (j)  Amend or permit any  Subsidiary or ERISA  Affiliate to amend, a
      Plan  resulting  in an  increase  in  current  liability  such  that  the
      Borrower,  any  Subsidiary or any ERISA  Affiliate is required to provide
      security to such Plan under section 401(a)(29) of the Code.

           Section   9.11  Sale  or  Discount  of   Receivables.   Neither  the
Borrower nor any  Subsidiary  will discount or sell (with or without  recourse)
any of its notes receivable or accounts receivable.

           Section  9.12  Current  Ratio.  The  Borrower  will not  permit  its
ratio of (i)  consolidated  current assets plus  availability  under Facility A
to (ii) consolidated  current liabilities  (excluding current maturities of the
Notes) to be less than 1.0 to 1.0 at any time.

           Section 9.13  [Intentionally Omitted].

           Section  9.14  Interest   Coverage  Ratio.  The  Borrower  will  not
permit  its  Interest  Coverage  Ratio  as of the end of any  calendar  quarter
(calculated  quarterly  at the end of each  calendar  quarter)  to be less than
2.0 to 1.00 for each  calendar  quarter in  calendar  year 1998 and 2.5 to 1.00
for the earlier of (a) each calendar  quarter  thereafter,  or (b) such earlier
calendar  quarter  during  which the  Borrower  has raised the Minimum  Capital
required  by  Section  8.11(ii).   For  the  purposes  of  this  Section  9.14,
"Interest  Coverage  Ratio"  shall  mean the ratio of (i)  EBITDA  for the four
fiscal  quarters  ending on such date to (ii) cash  interest  payments made for
such four fiscal quarters of the Borrower and its Consolidated Subsidiaries.

           Section  9.15  Sale of Oil and Gas  Properties.  The  Borrower  will
not, and will not permit any Subsidiary to, sell, assign,  farm-out,  convey or
otherwise  transfer  any Oil and Gas  Property  or any  interest in any Oil and
Gas Property  except for (i) the sale of  Hydrocarbons  in the ordinary  course
of  business;  (ii)  farmouts of  undeveloped  acreage  (including  undeveloped
horizons) and assignments in connection  with such farmouts;  (iii) the sale or
transfer  of  equipment  that is no longer  necessary  for the  business of the
Borrower  or  such   Subsidiary  or  is  replaced  by  equipment  of  at  least
comparable  value and use and (iv) between any two Scheduled  Redeterminations,
sales in the  ordinary  course  of  business  of Oil and Gas  Properties  which
shall not exceed  $15,000,000  in the  aggregate,  provided that so long as (1)
the  Facility  B  Loans  are  outstanding,  or  (2) a  Default  exists  and  is
continuing,  (a) the net cash  proceeds  received in such sale pursuant to this
clause (iv) are  applied as a  prepayment  on the  Facility A Notes and (b) the
Borrowing  Base is  automatically  reduced  by the  amount of the value of such
Property as reflected in the most current Reserve Report.
           Section  9.16  Environmental  Matters.  Neither the Borrower nor any
Subsidiary  will cause or permit any of its Property to be in violation  of, or
do  anything  or  permit  anything  to be done  which  will  subject  any  such
Property to any remedial  obligations  under any Environmental  Laws,  assuming
disclosure  to the  applicable  Governmental  Authority of all relevant  facts,
conditions and  circumstances,  if any,  pertaining to such Property where such
violations or remedial obligations would have a Material Adverse Effect.

           Section  9.17  Transactions  with  Affiliates.  Neither the Borrower
nor  any  Subsidiary  will  enter  into  any  transaction,  including,  without
limitation,   any  purchase,  sale,  lease  or  exchange  of  Property  or  the
rendering of any  service,  with any  Affiliate  unless such  transactions  are
otherwise not prohibited  under this  Agreement,  are in the ordinary course of
its business  and are upon fair and  reasonable  terms no less  favorable to it
than it would obtain in a comparable  arm's  length  transaction  with a Person
not an Affiliate.

           Section 9.18  Subsidiaries.  The  Borrower  shall not, and shall not
permit any  Subsidiary  to, create any  additional  Subsidiaries.  The Borrower
shall not and shall not  permit  any  Subsidiary  to sell or to issue any stock
or  ownership  interest  of  a  Subsidiary,  except  to  the  Borrower  or  the
Guarantor and except in compliance with Section 9.03.

           Section 9.19 Negative  Pledge  Agreements and Subsidiary  Dividends.
Neither the Borrower nor any Subsidiary  will create,  incur,  assume or permit
to exist any contract,  agreement or understanding  (other than Loan Documents)
which in any way prohibits or restricts the  granting,  conveying,  creation or
imposition  of any  Lien on any of its  Property  or  otherwise  restricts  any
Subsidiary  from  paying  dividends  to the  Borrower,  or which  requires  the
consent of or notice to other  Persons in  connection  therewith.  Restrictions
in a  partnership,  joint  venture  or other  contract  prohibiting  Liens on a
Person's  interest  therein and  restrictions  in  contracts  (including  Liens
permitted  under Section  9.02)  covering  Property of deminimus  value are not
prohibited by this Section 9.19.

           Section  9.20  Payments on Certain Debt to Howell  Corporation.  The
Borrower  will not make any payments on the  $64,296,029  indebtedness  payable
to Howell  Corporation  described in Schedule  9.01 hereof  except for payments
thereon  which are in lieu of and for the same  purposes as dividends and other
distributions to the extent permitted by Section 9.04 above.


                                   ARTICLE X

                          Events of Default; Remedies

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

           (a)  the Borrower  shall default in the payment or  prepayment  when
      due of any  principal  of or interest on any Loan,  or any  reimbursement
      obligation  for a  disbursement  made under any Letter of Credit,  or any
      fees or other amount  payable by it hereunder or under any Loan Documents
      and such  default,  other than a default of a payment  or  prepayment  of
      principal  (which shall have no cure period),  shall continue  unremedied
      for a period of three (3) Business Days; or

           (b)  the  Borrower or any  Subsidiary  or Howell  Corporation  shall
      default in the payment  when due of any  principal  of or interest on any
      of its other Debt aggregating  $5,000,000 or more, or any event specified
      in any  note,  agreement,  indenture  or  other  document  evidencing  or
      relating  to any such Debt shall  occur if the effect of such event is to
      cause,  or (with the  giving of any  notice or the lapse of time or both)
      to permit  the  holder or  holders of such Debt (or a trustee or agent on
      behalf of such  holder or  holders)  to  cause,  such Debt to become  due
      prior to its stated maturity; or

           (c)  any  representation,  warranty or certification  made or deemed
      made herein or in any Loan  Documents by the  Borrower or any  Subsidiary
      or the  Guarantor,  or any  certificate  furnished  to any  Lender or the
      Agent  pursuant to the  provisions  hereof or any Loan  Documents,  shall
      prove to have been false or  misleading  as of the time made or furnished
      in any material respect; or

           (d)  the Borrower  shall  default in the  performance  of any of its
      obligations  under  Article  IX or any other  Article  of this  Agreement
      other than all Sections under Article VIII except Sections 8.08(a),  8.09
      and 8.12; or the Borrower shall default in the  performance of any of its
      obligations under Article VIII except Sections 8.08(a),  8.09 and 8.12 or
      any Loan Documents  (other than the payment of amounts due which shall be
      governed by Section 10.01(a)) and such default shall continue  unremedied
      for a period  of  thirty  (30) days  after  the  earlier  to occur of (i)
      notice  thereof to the  Borrower by the Agent or any Lender  (through the
      Agent), or (ii) the Borrower otherwise becoming aware of such default; or

           (e)  the  Borrower  shall admit in writing its  inability  to, or be
      generally unable to, pay its debts as such debts become due; or

           (f)  the Borrower shall  (i) apply for or consent to the appointment
      of, or the taking of  possession  by, a receiver,  custodian,  trustee or
      liquidator  of itself or of all or a  substantial  part of its  property,
      (ii) make  a  general  assignment  for  the  benefit  of  its  creditors,
      (iii) commence  a voluntary  case under the Federal  Bankruptcy  Code (as
      now or  hereafter  in  effect),  (iv) file  a  petition  seeking  to take
      advantage   of  any  other  law  relating  to   bankruptcy,   insolvency,
      reorganization,  winding-up,  liquidation or composition or  readjustment
      of debts, (v) fail to controvert in a timely and appropriate  manner,  or
      acquiesce in writing to, any petition  filed against it in an involuntary
      case under the  Federal  Bankruptcy  Code,  or  (vi) take  any  corporate
      action for the purpose of effecting any of the foregoing; or

           (g)  a  proceeding   or  case  shall  be   commenced,   without  the
      application  or  consent  of the  Borrower,  in any  court  of  competent
      jurisdiction,  seeking (i) its liquidation,  reorganization,  dissolution
      or winding-up,  or the composition or readjustment of its debts, (ii) the
      appointment of a trustee, receiver, custodian,  liquidator or the like of
      the  Borrower  of all or any  substantial  part of its  assets,  or (iii)
      similar  relief in  respect of the  Borrower  under any law  relating  to
      bankruptcy,  insolvency,  reorganization,  winding-up,  or composition or
      adjustment  of  debts,   and  such  proceeding  or  case  shall  continue
      undismissed,  or an order,  judgment or decree  approving or ordering any
      of the  foregoing  shall be entered and continue  unstayed and in effect,
      for a period of 60 days or (iv) an order for relief  against the Borrower
      shall be entered in an  involuntary  case  under the  Federal  Bankruptcy
      Code; or

           (h)  a judgment or  judgments  for the payment of money in excess of
      $5,000,000  in the  aggregate  shall be rendered  by a court  against the
      Borrower  or any  Subsidiary  and the same  shall not be  discharged  (or
      provision shall not be made for such  discharge),  or a stay of execution
      thereof  shall not be procured,  within thirty (30) days from the date of
      entry thereof and the Borrower or such Subsidiary  shall not, within said
      period of 30 days, or such longer  period  during which  execution of the
      same shall have been stayed,  appeal  therefrom  and cause the  execution
      thereof to be stayed during such appeal; or
           (i)  the  Loan  Documents  after  delivery  thereof  shall  for  any
      reason, except to the extent permitted by the terms thereof,  cease to be
      in  full  force  and  effect  and  valid,   binding  and  enforceable  in
      accordance  with their  terms,  or cease to create a valid and  perfected
      Lien of the priority required thereby on any of the collateral  purported
      to be covered  thereby,  except to the extent  permitted  by the terms of
      this Agreement, or the Borrower shall so state in writing; or

           (j)  the  Borrower  discontinues  its usual  business  or suffers to
      exist any material change in its ownership, control or management; or

           (k)  Guarantor takes,  suffers or permits to exist any of the events
      or conditions  referred to in  paragraphs  (e), (f), (g) or (h) or if any
      provision  of the  Guaranty  Agreement  shall for any reason  cease to be
      valid and binding on Guarantor or if Guarantor  shall so state in writing
      or if the  Guarantor  defaults in any  covenant  or term of the  Guaranty
      Agreement; or

           (l)  any  Subsidiary  takes,  suffers or permits to exist any of the
      events or conditions referred to in paragraphs (e), (f), (g) or (h); or

           (m)  the  Guarantor's  Tangible  Net Worth shall at any time be less
      than $76,408,000, plus 75% of the proceeds received by the Guarantor from
      equity  capital  offerings  after  the  Closing  Date,  plus  75%  of the
      Guarantor's  consolidated  net income for each  fiscal year for which net
      income  is  positive  beginning  with the fiscal year ending December 31,
      1997.  Such  test shall be measured at the end of each fiscal quarter and
      at fiscal year end.

           Section 10.02  Remedies.

           (a)  In the case of an Event of Default  other than one  referred to
      in clauses (e),  (f) or (g) of Section  10.01 or in clauses (k) or (l) to
      the  extent  they  relate to clauses  (e),  (f) or (g),  the Agent,  upon
      request  of the  Majority  Lenders,  shall,  by notice  to the  Borrower,
      cancel  the  Commitments   and/or  declare  the  principal   amount  then
      outstanding  of,  and the  accrued  interest  on, the Loans and all other
      amounts payable by the Borrower  hereunder and under the Notes (including
      without  limitation  the  payment  of cash  collateral  to secure  the LC
      Exposure  as  provided  in  Section  2.10(b))  to be  forthwith  due  and
      payable,  whereupon  such amounts  shall be  immediately  due and payable
      without  presentment,  demand,  protest,  notice of intent to accelerate,
      notice of  acceleration  or other  formalities  of any kind, all of which
      are hereby expressly waived by the Borrower.

           (b)  In the case of the  occurrence of an Event of Default  referred
      to in clauses (e),  (f) or (g) of Section  10.01 or in clauses (k) or (l)
      to the extent they relate to clauses  (e),  (f) or (g),  the  Commitments
      shall  be   automatically   canceled  and  the   principal   amount  then
      outstanding  of,  and the  accrued  interest  on, the Loans and all other
      amounts payable by the Borrower  hereunder and under the Notes (including
      without  limitation  the  payment  of cash  collateral  to secure  the LC
      Exposure as  provided  in Section  2.10(b))  shall  become  automatically
      immediately due and payable without presentment,  demand, protest, notice
      of intent to accelerate,  notice of acceleration or other  formalities of
      any kind, all of which are hereby expressly waived by the Borrower.

           (c)  All proceeds  received after maturity of the Notes,  whether by
      acceleration  or otherwise  shall be applied  first to  reimbursement  of
      expenses and  indemnities  provided for in this  Agreement  and the other
      Loan Documents;  second to accrued interest on the Notes;  third to fees;
      fourth  pro  rata  to  principal  outstanding  on  the  Notes  and  other
      Indebtedness;  fifth to serve as cash  collateral to be held by the Agent
      to secure the LC  Exposure;  and any excess shall be paid to the Borrower
      or as otherwise required by any Governmental Requirement.


                                  ARTICLE XI

                                   The Agent

           Section  11.01  Appointment,  Powers  and  Immunities.  Each  Lender
hereby  irrevocably  appoints  and  authorizes  the  Agent to act as its  agent
hereunder  and  under  the  other  Loan  Documents  with  such  powers  as  are
specifically  delegated  to the  Agent  by the  terms  of the  Loan  Documents,
together  with such other  powers as are  reasonably  incidental  thereto.  The
Agent (which term as used in this  sentence and in Section  11.05 and the first
sentence of Section 11.06 shall  include  reference to its  Affiliates  and its
and its Affiliates' officers,  directors,  employees,  attorneys,  accountants,
experts  and  agents):  (i) shall  have no duties  or  responsibilities  except
those  expressly  set forth in the Loan  Documents,  and shall not by reason of
the Loan  Documents be a trustee or  fiduciary  for any Lender;  (ii) makes  no
representation  or warranty to any Lender and shall not be  responsible  to the
Lenders for any recitals,  statements,  representations or warranties contained
in this  Agreement,  or in any  certificate  or other  document  referred to or
provided for in, or received by any of them under,  this Agreement,  or for the
value,  validity,   effectiveness,   genuineness,   execution,   effectiveness,
legality,  enforceability  or  sufficiency of this  Agreement,  any Note or any
other  document  referred to or  provided  for herein or for any failure by the
Borrower  or any other  Person  (other  than the Agent) to  perform  any of its
obligations  hereunder or thereunder or for the  existence,  value,  perfection
or priority of any collateral  security or the financial or other  condition of
the  Borrower,  its  Subsidiaries  or any other  obligor  or  guarantor;  (iii)
except  pursuant to Section  11.07 shall not be required to initiate or conduct
any  litigation  or  collection  proceedings  hereunder;  and (iv) shall not be
responsible  for any action  taken or omitted  to be taken by it  hereunder  or
under any other  document or  instrument  referred to or provided for herein or
in connection  herewith including its own ordinary  negligence,  except for its
own gross  negligence  or  willful  misconduct.  The Agent may  employ  agents,
accountants,  attorneys  and  experts  and  shall  not be  responsible  for the
negligence  or  misconduct  of  any  such  agents,  accountants,  attorneys  or
experts  selected  by it in good  faith or any  action  taken or  omitted to be
taken  in good  faith  by it in  accordance  with the  advice  of such  agents,
accountants,  attorneys  or experts.  The Agent may deem and treat the payee of
any Note as the  holder  thereof  for all  purposes  hereof  unless and until a
written  notice of the  assignment  or  transfer  thereof  permitted  hereunder
shall have been filed with the Agent.  The Agent is  authorized  to release any
collateral  that is permitted  to be sold or released  pursuant to the terms of
the Loan Documents.

           Section  11.02  Reliance  by Agent.  The Agent  shall be entitled to
rely upon any  certification,  notice  or other  communication  (including  any
thereof by telephone,  telex, telecopier,  telegram or cable) believed by it 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,
independent accountants and other experts selected by the Agent.

           Section  11.03  Defaults.  The  Agent  shall  not be  deemed to have
knowledge  of the  occurrence  of a  Default  (other  than the  non-payment  of
principal  of or  interest  on Loans or of fees or  failure  to  reimburse  for
Letter of Credit  drawings)  unless the Agent has received notice from a Lender
or the  Borrower  specifying  such  Default and  stating  that such notice is a
"Notice  of  Default."  In the event that the Agent  receives  such a notice of
the  occurrence  of a Default,  the Agent shall give prompt  notice  thereof to
the  Lenders.  In the event of a payment  Default,  the Agent  shall  give each
Lender prompt notice of each such payment Default.

           Section  11.04 Rights as a Lender.  With respect to its  Commitments
and the Loans made by it and its  participation  in the  issuance of Letters of
Credit,  BMO (and any  successor  acting as Agent) in its  capacity as a Lender
hereunder  shall have the same rights and powers  hereunder as any other Lender
and may  exercise  the same as though it were not acting as the Agent,  and the
term  "Lender" or  "Lenders"  shall,  unless the context  otherwise  indicates,
include the Agent in its  individual  capacity.  BMO (and any successor  acting
as Agent) and its  Affiliates  may (without  having to account  therefor to any
Lender) accept  deposits from,  lend money to and generally  engage in any kind
of  banking,  trust  or  other  business  with  the  Borrower  (and  any of its
Affiliates)  as if it were not acting as the Agent,  and BMO and its Affiliates
may accept  fees and other  consideration  from the  Borrower  for  services in
connection  with this Agreement or otherwise  without having to account for the
same to the Lenders.

           Section  11.05  Indemnification.  The Lenders agree to indemnify the
Agent and the Issuing Bank ratably in accordance with their  Percentage  Shares
for the  Indemnity  Matters as  described  in  section  12.03 to the extent not
indemnified  or reimbursed by the Borrower  under  section  12.03,  but without
limiting the  obligations  of the Borrower under said section 12.03 and for any
and all other liabilities,  obligations,  losses, damages, penalties,  actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any kind and nature
whatsoever  which may be imposed on, incurred by or asserted  against the Agent
or the  Issuing  Bank in any way  relating  to or  arising  out  of:  (i)  this
Agreement,  the other Loan Documents or any other documents  contemplated by or
referred to herein or the  transactions  contemplated  hereby,  but  excluding,
unless a Default has occurred and is continuing,  normal  administrative  costs
and expenses  incident to the  performance  of its agency  duties  hereunder or
(ii) the  enforcement  of any of the terms of this  Agreement,  any other  Loan
Documents or of any such other  documents;  whether or not any of the foregoing
specified in this section 11.05 arises from the sole or  concurrent  negligence
of the Agent or the Issuing  Bank,  provided that no Lender shall be liable for
any of the  foregoing  to the extent  they arise from the gross  negligence  or
willful misconduct of the Agent.

           Section  11.06  Non-Reliance  on  Agent  and  other  Lenders.   Each
Lender  acknowledges  and  agrees  that  it  has,   independently  and  without
reliance  on the Agent or any other  Lender,  and based on such  documents  and
information as it has deemed  appropriate,  made its own credit analysis of the
Borrower  and its  decision  to enter  into this  Agreement,  and that it will,
independently  and without  reliance  upon the Agent or any other  Lender,  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.  The Agent  shall not be required to keep itself
informed  as  to  the  performance  or  observance  by  the  Borrower  of  this
Agreement,  the Notes, the other Loan Documents or any other document  referred
to or  provided  for  herein  or to  inspect  the  properties  or  books of the
Borrower.  Except for  notices,  reports and other  documents  and  information
expressly  required to be furnished to the Lenders by the Agent hereunder,  the
Agent  shall not have any duty or  responsibility  to provide  any Lender  with
any credit or other  information  concerning the affairs,  financial  condition
or  business of the  Borrower  (or any of its  Affiliates)  which may come into
the  possession  of the Agent or any of its  Affiliates.  In this regard,  each
Lender  acknowledges  that Vinson & Elkins L.L.P. is acting in this transaction
as  special  counsel  to  the  Agent  only,  except  to  the  extent  otherwise
expressly  stated in any legal opinion or any Loan  Document.  Each Lender will
consult  with its own legal  counsel to the extent that it deems  necessary  in
connection with the Loan Documents and the matters contemplated therein.

           Section  11.07 Action by Agent.  Except for action or other  matters
expressly  required  of the Agent  hereunder,  the Agent  shall in all cases be
fully  justified  in failing or refusing to act  hereunder  unless it shall (i)
receive written  instructions  from the Majority Lenders (or all of the Lenders
as  expressly  required by Section  12.04)  specifying  the action to be taken,
and (ii) be  indemnified  to its  satisfaction  by the Lenders  against any and
all liability  and expenses  which may be incurred by it by reason of taking or
continuing to take any such action.  The  instructions of the Majority  Lenders
(or all of the Lenders as expressly  required by Section  12.04) and any action
taken or failure to act  pursuant  thereto by the Agent shall be binding on all
of the Lenders.  If a Default has occurred and is  continuing,  the Agent shall
take such  action  with  respect to such  Default as shall be  directed  by the
Majority  Lenders (or all of the  Lenders as required by Section  12.04) in the
written  instructions  (with  indemnities)  described  in this  Section  11.07,
provided   that,   unless  and  until  the  Agent  shall  have   received  such
directions,  the Agent may (but shall not be  obligated  to) take such  action,
or refrain  from taking such  action,  with respect to such Default as it shall
deem  advisable in the best  interests of the  Lenders.  In no event,  however,
shall the Agent be  required  to take any  action  which  exposes  the Agent to
personal  liability or which is contrary to this  Agreement  and the other Loan
Documents or applicable law.

           Section  11.08  Resignation  or  Removal  of Agent.  Subject  to the
appointment and acceptance of a successor  Agent as provided  below,  the Agent
may  resign  at any  time by  giving  notice  thereof  to the  Lenders  and the
Borrower,  and the Agent may be removed  at any time with or  without  cause by
the  Majority  Lenders.  Upon any such  resignation  or removal,  the  Majority
Lenders  shall  have the right to  appoint a  successor  Agent  subject  to the
approval of the  Borrower,  which  approval may not be  unreasonably  withheld.
If no successor  Agent shall have been so  appointed  by the  Majority  Lenders
and shall have  accepted  such  appointment  within  thirty (30) days after the
retiring  Agent's  giving of notice of  resignation  or the  Majority  Lenders'
removal of the retiring  Agent,  then the retiring  Agent may, on behalf of the
Lenders,  appoint a successor  Agent.  Upon the acceptance of such  appointment
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.  After any retiring  Agent's  resignation or
removal  hereunder  as Agent,  the  provisions  of this  Article XI and Section
12.03  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.


                                  ARTICLE XII

                                 Miscellaneous

           Section  12.01  Waiver.  No  failure on the part of the Agent or any
Lender to exercise  and no delay in  exercising,  and no course of dealing with
respect  to,  any right,  power or  privilege  under any of the Loan  Documents
shall  operate as a waiver  thereof,  nor shall any single or partial  exercise
of any right,  power or privilege under any of the Loan Documents  preclude any
other or further  exercise  thereof or the exercise of any other  right,  power
or privilege.  The remedies  provided  herein are  cumulative and not exclusive
of any remedies provided by law.

           Section  12.02  Notices.   All  notices  and  other   communications
provided  for  herein  and in the  other  Loan  Documents  (including,  without
limitation,   any   modifications  of,  or  waivers  or  consents  under,  this
Agreement  or the  other  Loan  Documents)  shall be  given  or made by  telex,
telecopy,  courier or U.S. Mail or in writing and telexed,  telecopied,  mailed
or delivered to the intended  recipient at the "Address for Notices"  specified
below its name on the  signature  pages hereof or in the Loan  Documents or, as
to any party,  at such other  address as shall be designated by such party in a
notice to each other  party.  Except as  otherwise  provided in this  Agreement
or in the other  Loan  Documents,  all such  communications  shall be deemed to
have been duly given when  transmitted,  if transmitted  before 1:00 p.m. local
time on a Business  Day  (otherwise  on the next  succeeding  Business  Day) by
telex or telecopier  and evidence or  confirmation  of receipt is obtained,  or
personally  delivered  or, in the case of a mailed  notice,  three (3) Business
Days after the date  deposited  in the  mails,  postage  prepaid,  in each case
given or addressed as aforesaid.

           Section 12.03  Payment of Expenses, Indemnities, etc.

           (a)  The Borrower agrees:

           (i)  whether  or  not  the  transactions   hereby  contemplated  are
      consummated,  to  pay  all  reasonable  expenses  of  the  Agent  in  the
      administration  (both before and after the execution hereof and including
      advice  of  counsel  as to the  rights  and  duties  of the Agent and the
      Lenders  with  respect   thereto)   of,  and  in   connection   with  the
      negotiation,  syndication,  investigation,   preparation,  execution  and
      delivery  of,  recording  or filing  of,  preservation  of rights  under,
      enforcement of, and refinancing,  renegotiation or restructuring  of, the
      Loan  Documents and any  amendment,  waiver or consent  relating  thereto
      (including,  without limitation,  travel,  photocopy,  mailing,  courier,
      telephone and other similar  expenses of the Agent,  the reasonable  fees
      and disbursements of counsel and other outside  consultants for the Agent
      and, in the case of enforcement,  the reasonable  fees and  disbursements
      of counsel for the Agent and any of the Lenders);  and promptly reimburse
      the Agent for all amounts expended,  advanced or incurred by the Agent or
      the  Lenders  to  satisfy  any  obligation  of the  Borrower  under  this
      Agreement or any other Loan Documents,  including without limitation, all
      costs and expenses of foreclosure;

           (ii) to  indemnify  the  Agent  and  each  Lender  and each of their
      Affiliates   and   each  of   their   officers,   directors,   employees,
      representatives,    agents,    attorneys,    accountants    and   experts
      ("Indemnified  Parties")  from,  hold each of them  harmless  against and
      promptly  upon demand pay or reimburse  each of them for,  the  Indemnity
      Matters  which may be incurred  by or asserted  against or involve any of
      them  (whether  or not any of them is  designated  a party  thereto) as a
      result  of,  arising  out of or in any way  related  to (i) any actual or
      proposed  use by the  Borrower  of the  proceeds  of any of the  Loans or
      Letters of Credit,  (ii) the execution,  delivery and  performance of the
      Loan Documents,  (iii) the operations of the business of the Borrower and
      its  Subsidiaries,  (iv) the failure of the Borrower or any Subsidiary to
      comply with the terms of any Loan  Documents or this  Agreement,  or with
      any Governmental  Requirement,  (v) any inaccuracy of any  representation
      or any breach of any  warranty of the  Borrower  [or any  Guarantor]  set
      forth in any of the Loan  Documents,  (vi) the  issuance,  execution  and
      delivery  or transfer of or payment or failure to pay under any Letter of
      Credit,  (vii)  the  payment  of a  drawing  under  any  Letter of Credit
      notwithstanding  the  non-compliance,   non-delivery  or  other  improper
      presentation  of the manually  executed  draft(s)  and  certification(s),
      (viii) any  assertion  that the Lenders  were not entitled to receive the
      proceeds  received  pursuant  to the Loan  Documents  or (ix)  any  other
      aspect  of  the  Loan  Documents,   including,  without  limitation,  the
      reasonable  fees and  disbursements  of  counsel  and all other  expenses
      incurred in  connection  with  investigating,  defending  or preparing to
      defend any such action, suit,  proceeding  (including any investigations,
      litigation or  inquiries)  or claim and  including all Indemnity  Matters
      arising by reason of the ordinary  negligence of any  Indemnified  Party,
      but excluding all  Indemnity  Matters to the extent  arising by reason of
      claims  between  the  Lenders  or any  Lender and the Agent or a Lender's
      shareholders  against  the  Agent or  Lender  or by  reason  of the gross
      negligence or willful  misconduct on the part of the  Indemnified  Party;
      and

           (iii) to  indemnify   and  hold   harmless  from  time  to  time  the
      Indemnified  Parties  from and against any and all losses,  claims,  cost
      recovery  actions,  administrative  orders or  proceedings,  damages  and
      liabilities  to which any such  Person may become  subject  (i) under any
      Environmental  Law applicable to the Borrower or any Subsidiary or any of
      their  Properties,   including  without  limitation,   the  treatment  or
      disposal of hazardous  substances on any of their  Properties,  (ii) as a
      result of the breach or  non-compliance by the Borrower or any Subsidiary
      with any  Environmental Law applicable to the Borrower or any Subsidiary,
      (iii) due to past  ownership by the Borrower or any  Subsidiary of any of
      their  Properties  or past  activity  on any of their  Properties  which,
      though lawful and fully  permissible at the time, could result in present
      liability,  (iv)  the  presence,  use,  release,  storage,  treatment  or
      disposal of hazardous  substances on or at any of the Properties owned or
      operated  by  the   Borrower  or  any   Subsidiary,   or  (v)  any  other
      environmental,  health or safety  condition in  connection  with the Loan
      Documents;  provided,  however, no indemnity shall be afforded under this
      section  12.03(a)(iii)  in respect  of any  Property  for any  occurrence
      arising from the acts or omissions of the Agent or any Lender  during the
      period  after which such Person,  its  successors  or assigns  shall have
      obtained  possession of such Property  (whether by foreclosure or deed in
      lieu of foreclosure, as mortgagee-in-possession or otherwise).

           (b)  No  Indemnified  Party may settle  any claim to be  indemnified
      without  the  consent  of  the   indemnitor,   such  consent  not  to  be
      unreasonably withheld;  provided,  that the indemnitor may not reasonably
      withhold  consent to any settlement  that an Indemnified  Party proposes,
      if the  indemnitor  does not have the  financial  ability  to pay all its
      obligations  outstanding  and  asserted  against the  indemnitor  at that
      time,  including the maximum  potential  claims  against the  Indemnified
      Party to be indemnified pursuant to this Section 12.03.

           (c)  In the  case of any  indemnification  hereunder,  the  Agent or
      Lender,  as  appropriate  shall give  notice to the  Borrower of any such
      claim  or  demand  being  made  against  the  Indemnified  Party  and the
      Borrower  shall  have  the  non-exclusive  right  to join in the  defense
      against any such claim or demand  provided that if the Borrower  provides
      a  defense,  the  Indemnified  Party  shall  bear its own cost of defense
      unless  there is a conflict  between the  Borrower  and such  Indemnified
      Party.

           (d)  The  foregoing  indemnities  shall  extend  to the  Indemnified
      Parties  notwithstanding the sole or concurrent  negligence of every kind
      or  character   whatsoever,   whether  active  or  passive,   whether  an
      affirmative act or an omission,  including without limitation,  all types
      of negligent conduct  identified in the restatement  (second) of torts of
      one or more of the Indemnified  Parties or by reason of strict  liability
      imposed without fault on any one or more of the Indemnified  Parties.  to
      the extent that an  Indemnified  Party is found to have  committed an act
      of gross negligence or willful  misconduct,  this contractual  obligation
      of  indemnification  shall  continue but shall only extend to the portion
      of the claim that has  occurred by reason of events  other than the gross
      negligence or willful misconduct of the Indemnified Party.

           (e)  The  Borrower's  obligations  under  this  Section 12.03  shall
      survive any  termination  of this  Agreement and the payment of the Notes
      and shall continue thereafter in full force and effect.

           (f)  The  Borrower  shall pay any  amounts  due under  this  Section
      12.03  within  thirty (30) days of the receipt by the  Borrower of notice
      of the amount due.

           Section 12.04  Amendments,  Etc. Any provision of this  Agreement or
any  other  Loan  Documents  may  be  amended,  modified  or  waived  with  the
Borrower's and the Majority  Lenders' prior written consent;  provided that (i)
no amendment,  modification  or waiver which extends the final  maturity of the
Loans,  increases the Aggregate  Facility A Maximum  Credit  Amounts,  modifies
the  Borrowing  Base,   forgives  the  principal  amount  of  any  Indebtedness
outstanding  under this Agreement,  releases any guarantor of the  Indebtedness
or releases all or  substantially  all of the collateral,  reduces the interest
rate  applicable  to the Loans or the fees  payable to the  Lenders  generally,
affects  Section  2.03(a),  this Section 12.04 or Section  12.06(a) or modifies
the  definition of "Majority  Lenders"  shall be effective  without  consent of
all Lenders;  (ii) no  amendment,  modification  or waiver which  increases the
Facility A Maximum  Credit  Amount or the Facility B  Commitment  of any Lender
shall  be  effective  without  the  consent  of  such  Lender;   and  (iii)  no
amendment,  modification  or  waiver  which  modifies  the  rights,  duties  or
obligations of the Agent shall be effective without the consent of the Agent.

           Section  12.05  Successors  and  Assigns.  This  Agreement  shall be
binding  upon  and  inure  to the  benefit  of the  parties  hereto  and  their
respective successors and permitted assigns.

           Section 12.06  Assignments and Participations.

           (a)  The  Borrower   may  not  assign  its  rights  or   obligations
      hereunder  or under the Notes or any Letters of Credit  without the prior
      consent of all of the Lenders and the Agent.

           (b)  Any Lender may,  upon the written  consent of the Agent and, if
      no Event of Default has occurred and is continuing,  the Borrower  (which
      consent  will  not be  unreasonably  withheld),  assign  to  one or  more
      assignees  all or a portion  of its  rights  and  obligations  under this
      Agreement pursuant to an Assignment  Agreement  substantially in the form
      of Exhibit E (an  "Assignment");  provided,  however,  that  (i) any such
      assignment shall be in the amount of at least  $10,000,000 or such lesser
      amount to which the  Borrower  has  consented  and (ii) the  assignee  or
      assignor  shall  pay to the Agent a  processing  and  recordation  fee of
      $3,500 for each  assignment.  Any such assignment  will become  effective
      upon the  execution and delivery to the Agent of the  Assignment  and the
      consent of the Agent.  Promptly after receipt of an executed  Assignment,
      the  Agent  shall  send  to  the   Borrower  a  copy  of  such   executed
      Assignment.  Upon  receipt of such  executed  Assignment,  the  Borrower,
      will,  at its own expense,  execute and deliver new Notes to the assignor
      and/or  assignee,  as appropriate,  in accordance  with their  respective
      interests  as they  appear.  Upon  the  effectiveness  of any  assignment
      pursuant to this Section  12.06(b),  the assignee will become a "Lender,"
      if not already a "Lender,"  for all  purposes of this  Agreement  and the
      other Loan  Documents.  The assignor shall be relieved of its obligations
      hereunder to the extent of such assignment  (and if the assigning  Lender
      no longer  holds any rights or  obligations  under this  Agreement,  such
      assigning  Lender shall cease to be a "Lender"  hereunder except that its
      rights  under  Sections  4.06,   5.01,   5.05  and  12.03  shall  not  be
      affected).  The  Agent  will  prepare  on the last  Business  Day of each
      month during which an assignment  has become  effective  pursuant to this
      Section  12.06(b),  a new Annex I giving  effect to all such  assignments
      effected  during such month,  and will  promptly  provide the same to the
      Borrower and each of the Lenders.

           (c)  Each Lender may  transfer,  grant or assign  participations  in
      all or any part of such  Lender's  interests  hereunder  pursuant to this
      Section  12.06(c) to any Person,  provided  that:  (i) such  Lender shall
      remain a "Lender" for all purposes of this  Agreement and the  transferee
      of such  participation  shall not  constitute a "Lender"  hereunder;  and
      (ii) no  participant  under any such  participation  shall have rights to
      approve any  amendment to or waiver of any of the Loan  Documents  except
      to the extent such  amendment or waiver would  (x) forgive  any principal
      owing on any  Indebtedness  or extend  the final  maturity  of the Loans,
      (y) reduce  the  interest  rate  (other  than as a result of waiving  the
      applicability  of any  post-default  increases in interest rates) or fees
      applicable  to any of the  Commitments  or Loans or  Letters of Credit in
      which such participant is  participating,  or postpone the payment of any
      thereof,  or (z) release any guarantor of the Indebtedness or release all
      or  substantially  all of the collateral  (except as provided in the Loan
      Documents)  supporting  any of the  Commitments  or Loans or  Letters  of
      Credit in which such  participant  is  participating.  In the case of any
      such participation,  the participant shall not have any rights under this
      Agreement or any of the Loan Documents (the participant's  rights against
      the  granting  Lender in  respect of such  participation  to be those set
      forth in the agreement  with such Lender  creating  such  participation),
      and all amounts payable by the Borrower  hereunder shall be determined as
      if such  Lender  had not sold  such  participation,  provided  that  such
      participant  shall  be  entitled  to  receive  additional  amounts  under
      Article  V on the same  basis as if it were a Lender  and be  indemnified
      under Section 12.03 as if it were a Lender.  In addition,  each agreement
      creating any  participation  must include an agreement by the participant
      to be bound by the provisions of Section 12.15.

           (d)  The  Lenders  may  furnish  any   information   concerning  the
      Borrower in the  possession of the Lenders from time to time to assignees
      and  participants  (including  prospective  assignees and  participants);
      provided  that,  such  Persons  agree to be bound  by the  provisions  of
      Section 12.15.

           (e)  Notwithstanding   anything  in  this   Section   12.06  to  the
      contrary,  any  Lender  may  assign and pledge all or any of its Notes to
      any Federal Reserve Bank as collateral  security pursuant to Regulation A
      of the  Board  of  Governors  of  the  Federal  Reserve  System  and  any
      operating  circular  issued by such Federal  Reserve  System  and/or such
      Federal  Reserve  Bank.  No such  assignment  and/or pledge shall release
      the assigning and/or pledging Lender from its obligations hereunder.

           (f)  Notwithstanding  any other provisions of this Section 12.06, no
      transfer or assignment of the interests or  obligations  of any Lender or
      any grant of participations  therein shall be permitted if such transfer,
      assignment  or grant would  require the  Borrower to file a  registration
      statement  with the SEC or to qualify the Loans under the "Blue Sky" laws
      of any state.

           Section  12.07  Invalidity.  In the  event  that  any one or more of
the  provisions  contained  in any of the  Loan  Documents  or the  Letters  of
Credit,  the  Letter  of  Credit  Agreements  shall,  for any  reason,  be held
invalid,  illegal or unenforceable in any respect, such invalidity,  illegality
or  unenforceability  shall not affect any other  provision of the Notes,  this
Agreement or any other Loan Documents.

           Section 12.08  Counterparts.  This  Agreement may be executed in any
number of  counterparts,  all of which taken together shall  constitute one and
the same  instrument  and any of the parties  hereto may execute this Agreement
by signing any such counterpart.

           Section   12.09   References.    The   words   "herein,"   "hereof,"
"hereunder"  and other  words of  similar  import  when used in this  Agreement
refer  to  this  Agreement  as a  whole,  and  not to any  particular  article,
section or  subsection.  Any  reference  herein to a Section shall be deemed to
refer to the  applicable  Section of this  Agreement  unless  otherwise  stated
herein.  Any  reference  herein to an  exhibit or  schedule  shall be deemed to
refer to the applicable  exhibit or schedule  attached hereto unless  otherwise
stated herein.

           Section  12.10  Survival.  The  obligations  of  the  parties  under
Section  4.06,  Article  V, and  Sections  11.05 and 12.03  shall  survive  the
repayment of the Loans and the  termination of the  Commitments.  To the extent
that any  payments  on the  Indebtedness  or  proceeds  of any  collateral  are
subsequently  invalidated,  declared  to be  fraudulent  or  preferential,  set
aside or required  to be repaid to a trustee,  debtor in  possession,  receiver
or other Person under any bankruptcy law, common law or equitable  cause,  then
to such extent,  the  Indebtedness  so satisfied  shall be revived and continue
as if such  payment or proceeds  had not been  received and the Agent's and the
Lenders'  Liens,  security  interests,  rights,  powers and remedies under this
Agreement  and each  other  Loan  Document  shall  continue  in full  force and
effect.  In such event,  each Loan Document shall be  automatically  reinstated
and the Borrower  shall take such action as may be reasonably  requested by the
Agent and the Lenders to effect such reinstatement.

           Section  12.11  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.

           Section 12.12 No Oral  Agreements.  The Loan  Documents  embody the 
entire  agreement  and  understanding  between the parties and  supersede  all 
other  agreements  and  understandings  between such  parties  relating to the 
subject  matter  hereof and thereof.  The Loan  Documents  represent the final 
agreement  between  the  parties  and may not be  contradicted  by evidence of 
prior,  contemporaneous  or subsequent oral  agreements of the parties.  There 
are no unwritten oral agreements between the parties.

           Section 12.13  Governing Law; Submission to Jurisdiction.

           (a)  This  Agreement  and  the  Notes  shall  be  governed  by,  and
      construed in  accordance  with,  the laws of the State of Texas except to
      the extent  that United  States  federal law permits any Lender to charge
      interest  at the rate  allowed by the laws of the state where such Lender
      is  located.  Tex.  Rev.  Civ.  Stat.  Ann.  Art.  5069,  Ch.  15  (which
      regulates certain revolving credit loan accounts and revolving  tri-party
      accounts) shall not apply to this Agreement or the Notes.

           (b)  Any  legal  action  or  proceeding  with  respect  to the  Loan
      Documents  shall be brought in the courts of the State of Texas or of the
      United  States of America for the  Southern  District  of Texas,  and, by
      execution and delivery of this  Agreement,  the Borrower  hereby  accepts
      for  itself  and (to the  extent  permitted  by  law) in  respect  of its
      Property,   generally  and  unconditionally,   the  jurisdiction  of  the
      aforesaid courts.  The Borrower hereby  irrevocably waives any objection,
      including,  without  limitation,  any objection to the laying of venue or
      based  on the  grounds  of  forum  non  conveniens,  which  it may now or
      hereafter  have to the bringing of any such action or  proceeding in such
      respective   jurisdictions.    this   submission   to   jurisdiction   is
      non-exclusive  and  does  not  preclude  the  Agent  or any  Lender  from
      obtaining  jurisdiction  over the Borrower in any court otherwise  having
      jurisdiction.

           (c)  Nothing  herein  shall  affect  the  right of the  Agent or any
      Lender or any  holder  of a Note to serve  process  in any  other  manner
      permitted by law or to commence legal  proceedings  or otherwise  proceed
      against the Borrower in any other jurisdiction.

           (d)  The  Borrower  and  each  Lender  hereby  (i)  irrevocably  and
      unconditionally  waive, to the fullest extent  permitted by law, trial by
      jury in any legal action or proceeding  relating to this Agreement or any
      Loan Documents and for any counterclaim  therein; (ii) irrevocably waive,
      to the maximum  extent not  prohibited  by law,  any right it may have to
      claim or recover in any such litigation any special, exemplary,  punitive
      or  consequential  damages,  or damages  other than,  or in addition  to,
      actual   damages;   (iii)   certify   that  no  party   hereto   nor  any
      representative  or agent of counsel for any party hereto has represented,
      expressly  or  otherwise,  or implied  that such party  would not, in the
      event of  litigation,  seek to enforce the  foregoing  waivers,  and (iv)
      acknowledge  that it has been induced to enter into this  Agreement,  the
      Loan Documents and the transactions  contemplated  hereby and thereby by,
      among other things,  the mutual waivers and  certifications  contained in
      this section 12.13.

           Section 12.14  Interest.  It is the intention of the parties  hereto
that each  Lender  shall  conform  strictly  to usury  laws  applicable  to it.
Accordingly,  if the transactions  contemplated  hereby would be usurious as to
any  Lender  under  laws  applicable  to it  (including  the laws of the United
States of America and the State of Texas or any other  jurisdiction  whose laws
may  be  mandatorily  applicable  to  such  Lender  notwithstanding  the  other
provisions of this Agreement),  then, in that event,  notwithstanding  anything
to the contrary in any of the Loan  Documents or any agreement  entered into in
connection  with or as  security  for  the  Notes,  it is  agreed  as  follows:
(i) the  aggregate of all consideration  which  constitutes  interest under law
applicable to any Lender that is contracted  for, taken,  reserved,  charged or
received  by such  Lender  under any of the Loan  Documents  or  agreements  or
otherwise  in  connection  with the Notes shall under no  circumstances  exceed
the maximum  amount  allowed by such  applicable  law,  and any excess shall be
canceled  automatically  and if  theretofore  paid  shall be  credited  by such
Lender on the  principal  amount of the  Indebtedness  (or,  to the extent that
the principal  amount of the  Indebtedness  shall have been or would thereby be
paid in full,  refunded by such Lender to the Borrower);  and (ii) in the event
that the maturity of the Notes is  accelerated  by reason of an election of the
holder  thereof  resulting  from any Event of Default  under this  Agreement or
otherwise,  or in the event of any required or permitted prepayment,  then such
consideration  that  constitutes  interest  under law  applicable to any Lender
may never  include  more than the  maximum  amount  allowed by such  applicable
law, and excess interest,  if any,  provided for in this Agreement or otherwise
shall  be  canceled  automatically  by  such  Lender  as of the  date  of  such
acceleration  or  prepayment  and, if  theretofore  paid,  shall be credited by
such  Lender on the  principal  amount of the  Indebtedness  (or, to the extent
that  the  principal  amount  of the  Indebtedness  shall  have  been or  would
thereby be paid in full,  refunded  by such Lender to the  Borrower).  All sums
paid or agreed to be paid to any Lender for the use,  forbearance  or detention
of sums due  hereunder  shall,  to the extent  permitted by law  applicable  to
such Lender, be amortized,  prorated,  allocated and spread throughout the full
term of the Loans  evidenced  by the Notes  until  payment  in full so that the
rate or amount of  interest on account of any Loans  hereunder  does not exceed
the  maximum  amount  allowed by such  applicable  law. If at any time and from
time to time  (i) the  amount of  interest  payable  to any  Lender on any date
shall  be  computed  at the  Highest  Lawful  Rate  applicable  to such  Lender
pursuant to this  Section 12.14 and (ii) in respect of any subsequent  interest
computation  period the amount of  interest  otherwise  payable to such  Lender
would be less than the amount of interest  payable to such  Lender  computed at
the  Highest  Lawful  Rate  applicable  to such  Lender,  then  the  amount  of
interest  payable  to  such  Lender  in  respect  of such  subsequent  interest
computation  period  shall  continue to be computed at the Highest  Lawful Rate
applicable  to such Lender until the total  amount of interest  payable to such
Lender shall equal the total  amount of interest  which would have been payable
to such  Lender  if the total  amount of  interest  had been  computed  without
giving effect to this Section  12.14.  To the extent that Article  5069-1.04 of
the Texas  Revised  Civil  Statutes is relevant for the purpose of  determining
the Highest Lawful Rate,  such Lender elects to determine the  applicable  rate
ceiling  under such Article by the  indicated  weekly rate ceiling from time to
time in effect.

           Section  12.15  Confidentiality.  In the  event  that  the  Borrower
provides  to  the  Agent  or  the  Lenders  written  confidential   information
belonging  to the  Borrower or Howell  Corporation  or any  Subsidiary  thereof
(hereinafter  called the "Subject  Entities"),  the Agent and the Lenders shall
thereafter  maintain such  information  in  confidence  in accordance  with the
standards  of care and  diligence  that each  utilizes in  maintaining  its own
confidential  information.  This  obligation of  confidence  shall not apply to
such  portions  of the  information  which (i) are in the public  domain,  (ii)
hereafter  become  part of the public  domain  without the Agent or the Lenders
breaching  their  obligation  of confidence  to any Subject  Entity,  (iii) are
previously  known by the Agent or the Lenders  from some source  other than any
Subject  Entity,  (iv) are  hereafter  developed  by the  Agent or the  Lenders
without using the Subject  Entities'  information,  (v) are hereafter  obtained
by or  available  to the Agent or the  Lenders  from a third  party who owes no
obligation  of  confidence  to  the  Subject  Entities  with  respect  to  such
information  or through any other means other than  through  disclosure  by the
Subject Entities,  (vi) are disclosed with the Borrower's  consent,  (vii) must
be disclosed  either  pursuant to any  Governmental  Requirement  or to Persons
regulating  the  activities  of the Agent or the  Lenders,  or (viii) as may be
required by law or  regulation  or order of any  Governmental  Authority in any
judicial,  arbitration  or  governmental  proceeding.  Further,  the Agent or a
Lender may in  connection  with its duties and rights under the Loan  Documents
disclose any such  information to any other Lender,  any independent  petroleum
engineers or consultants,  any independent  certified public  accountants,  any
legal  counsel  employed by such Person in  connection  with this  Agreement or
any other Loan  Document,  including  without  limitation,  the  enforcement or
exercise  of  all  rights  and   remedies   thereunder,   or  any  assignee  or
participant  (including  prospective  assignees and participants) in the Loans;
provided,   however,   that  the  Agent  or  the   Lenders   shall   receive  a
confidentiality   agreement  from  the  Person  to  whom  such  information  is
disclosed  such that said  Person  shall have the same  obligation  to maintain
the  confidentiality  of such  information  as is imposed upon the Agent or the
Lenders  hereunder.  Notwithstanding  anything to the contrary provided herein,
this  obligation  of  confidence  shall cease three (3) years from the date the
information  was  furnished,  unless the Borrower  requests in writing at least
thirty  (30)  days  prior to the  expiration  of such  three  year  period,  to
maintain the  confidentiality  of such information for an additional three year
period.

           Section 12.16  Effectiveness.  This Agreement  shall be effective on
the Closing Date (the "Effective Date").

           Section 12.17  Exculpation  Provisions.  Each of the parties  hereto
specifically  agrees  that it has a duty to read this  Agreement  and the other
Loan  Documents  and agrees that it is charged with notice and knowledge of the
terms of this  Agreement  and the  other  Loan  Documents;  that it has in fact
read this  Agreement  and is fully  informed and has full notice and  knowledge
of the  terms,  conditions  and  effects  of this  Agreement;  that it has been
represented  by  independent   legal  counsel  of  its  choice  throughout  the
negotiations  preceding  its  execution  of this  Agreement  and the other Loan
Documents;  and has received  the advice of its attorney in entering  into this
Agreement and the other Loan  Documents;  and that it  recognizes  that certain
of the terms of this  Agreement  and the  other  Loan  Documents  result in one
party assuming the liability  inherent in some aspects of the  transaction  and
relieving  the  other  party of its  responsibility  for such  liability.  Each
party  hereto  agrees and  covenants  that it will not contest the  validity or
enforceability  of any  exculpatory  provision  of this  Agreement or the other
Loan  Documents  on the basis that the party had no notice or knowledge of such
provision or that the provision is not "conspicuous."

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


BORROWER:                           HOWELL PETROLEUM CORPORATION


                                    By:_____________________________
                                    Name:
                                    Title:
 
                                    Address for Notices:

                                    1500 Howell Building
                                    1111 Fannin
                                    Houston, Texas  77002-6923
                                    Telecopier No.: (713) 658-4007
                                    Telephone No.:  (713) 658-4008
                                    Attention:__________________


LENDER AND AGENT:                   BANK OF MONTREAL



                                    By:_____________________________
                                    Name:  Robert L. Roberts
                                    Title: Director, U.S. Corporate Banking


                                    Lending Office for Base Rate Loans and
                                    LIBOR Loans:

                                    115 South LaSalle
                                    Chicago, Illinois  60603

                                    Address for Notices:

                                    115 South LaSalle
                                    Chicago, Illinois  60603
 
                                    Telecopier No.:  312/750-6061
                                    Telephone No.:  312/750-4326
                                    Attention:  Farid Ali

                                    With copy to:

                                    Robert L. Roberts
                                    Director, U.S. Corporate Banking
                                    Bank of Montreal
                                    700 Louisiana, Suite 4400
                                    Houston, Texas 77002
                                    Telecopier:  (713) 546-4007
                                    Telephone:  (713) 546-9754



                                    ANNEX 1

                   LIST OF FACILITY A MAXIMUM CREDIT AMOUNTS

                                                            Facility A
 Name of Lender           Percentage Share            Maximum Credit Amount

                                     A.  Prior to Beaver Creek Acquisition

Bank of Montreal                    100%                      $130,000,000
                                                              ------------   
      Aggregate Facility A Maximum Credit Amounts             $130,000,000
      until the Beaver Creek Acquisition closes               ============

                                     B.  Available for Beaver Creek Acquisition

Bank of Montreal                    100%                      $ 85,000,000
                                                              ------------

      Aggregate Facility A Maximum Credit Amounts             $215,000,000
      upon closing of the Beaver Creek Acquisition            ============


                        LIST OF FACILITY B COMMITMENTS

                                                          Facility B
 Name of Lender           Percentage Share               Commitments

                                     A.  Prior to Beaver Creek Acquisition

Bank of Montreal                    100%                      $  20,000,000
                                                              -------------
      Aggregate Facility B Commitments until                  $  20,000,000
      the Beaver Creek Acquisition closes                     =============

                                     B.  Available for Beaver Creek Acquisition

Bank of Montreal                    100%                      $ 85,000,000
                                                              ------------   
      Aggregate Facility B Commitments upon                   $105,000,000
      the closing of the Beaver Creek Acquisition             ============





                                      A-1



                                  EXHIBIT A-1

                            FORM OF FACILITY A NOTE

$_____________________________ ___________________, 199__


     FOR VALUE RECEIVED,  HOWELL PETROLEUM CORPORATION,  a Delaware corporation
(the    "Borrower")    hereby    promises    to   pay   to   the    order    of
______________________________  (the  "Lender"),  at the  Principal  Office  of
BANK OF MONTREAL  (the  "Agent"),  at 115  LaSalle  Street,  Chicago,  Illinois
60603,  the principal sum of  _____________  Dollars  ($____________)  (or such
lesser  amount as shall  equal the  aggregate  unpaid  principal  amount of the
Loans  made by the  Lender to the  Borrower  under  the  Credit  Agreement,  as
hereinafter  defined),  in lawful money of the United  States of America and in
immediately  available  funds,  on  the  dates  and in  the  principal  amounts
provided in the Credit  Agreement,  and to pay interest on the unpaid principal
amount of each such Loan,  at such  office,  in like  money and funds,  for the
period  commencing  on the date of such Loan  until  such Loan shall be paid in
full,  at the  rates  per  annum  and  on  the  dates  provided  in the  Credit
Agreement.

     The date,  amount,  Type,  interest rate,  Interest Period and maturity of
each  Loan  made by the  Lender  to the  Borrower,  and  each  payment  made on
account  of the  principal  thereof,  shall be  recorded  by the  Lender on its
books and,  prior to any  transfer of this  Facility A Note,  shall be endorsed
by the Lender on the schedules  attached hereto or any continuation  thereof or
on any separate record maintained by the Lender.

     This  Facility  A  Note  is one of the  Notes  referred  to in the  Credit
Agreement  dated as of December 17, 1997 among the Borrower,  the Lenders which
are or become  parties  thereto  (including  the  Lender)  and the  Agent,  and
evidences  Loans made by the Lender  thereunder  (such Credit  Agreement as the
same  may  be  amended  or  supplemented  from  time  to  time,  the  "Credit  
Agreement").   Capitalized  terms  used  in  this  Facility  A  Note  have  the
respective meanings assigned to them in the Credit Agreement.

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

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

                               HOWELL PETROLEUM CORPORATION



                               By: 
                               Name:
                               Title:




                                 EXHIBIT A-2

                            FORM OF FACILITY B NOTE

$_____________________________ ___________________, 199__


     FOR VALUE RECEIVED,  HOWELL PETROLEUM CORPORATION,  a Delaware corporation
(the    "Borrower")    hereby    promises    to   pay   to   the    order    of
__________________________  (the "Lender"),  at the Principal Office of BANK OF
MONTREAL (the "Agent"),  at 115 LaSalle Street,  Chicago,  Illinois 60603,  the
principal sum of _____________  Dollars  ($____________) (or such lesser amount
as shall equal the aggregate  unpaid  principal  amount of the Facility B Loans
made by the Lender to the Borrower under the Credit  Agreement,  as hereinafter
defined),  in lawful money of the United  States of America and in  immediately
available  funds,  on the dates and in the  principal  amounts  provided in the
Credit  Agreement,  and to pay interest on the unpaid  principal amount of each
such Loan, at such office,  in like money and funds, for the period  commencing
on the date of such Loan until  such Loan  shall be paid in full,  at the rates
per annum and on the dates provided in the Credit Agreement.

     The date,  amount,  Type,  interest rate,  Interest Period and maturity of
each  Loan  made by the  Lender  to the  Borrower,  and  each  payment  made on
account  of the  principal  thereof,  shall be  recorded  by the  Lender on its
books and,  prior to any transfer of this  Facility B  Note,  shall be endorsed
by the Lender on the schedules  attached hereto or any continuation  thereof or
on any separate record maintained by the Lender.

     This  Facility B  Note  is one  of the  Notes  referred  to in the  Credit
Agreement dated as of December 17,  1997 among the Borrower,  the Lenders which
are or become  parties  thereto  (including  the  Lender)  and the  Agent,  and
evidences   Facility B  Loans  made  by  the  Lender  thereunder  (such  Credit
Agreement  as the same may be amended or  supplemented  from time to time,  the
"Credit  Agreement").  Capitalized  terms used in this Facility B Note have the
respective meanings assigned to them in the Credit Agreement.

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

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

                               HOWELL PETROLEUM CORPORATION



                               By:                              
                               Name:____________________________  
                               Title:___________________________


                                      A-2

                                   EXHIBIT B

            FORM OF BORROWING, CONTINUATION AND CONVERSION REQUEST


                         _____________________, 199__

     HOWELL PETROLEUM CORPORATION,  a ___________ corporation (the "Borrower"),
pursuant to the Credit  Agreement  dated as of December 17, 1997 (together with
all  amendments  or  supplements  thereto,  the "Credit  Agreement")  among the
Borrower,  BANK OF  MONTREAL,  as Agent and the lenders (the  "Lenders")  which
are or become  parties  thereto,  and such  Lenders,  hereby makes the requests
indicated  below  (unless  otherwise  defined  herein,  capitalized  terms  are
defined in the Credit Agreement):




/__/ 1.    Facility A Loans:

     (a)   Aggregate    amount    of   new    Facility    A    Loans    to   be
           $______________________;

     (b)   Requested funding date is _________________, 199__;

     (c)   $_____________________  of  such  borrowings  are  to be  Eurodollar
           Loans;

           $_____________________  of  such  borrowings  are  to be  Base  Rate
           Loans; and

     (d)   Length of Interest Period for Eurodollar Loans is:

           _________________________.


/__/ 2.    Facility B Loans:

     (a)   Aggregate    amount    of   new    Facility    B    Loans    to   be
           $______________________;

     (b)   Requested funding date is _________________, 199__;

     (c)   $_____________________  of  such  borrowings  are  to be  Eurodollar
           Loans;

           $_____________________  of  such  borrowings  are  to be  Base  Rate
           Loans; and

     (d)   Length of Interest Period for Eurodollar Loans is:

           _________________________.


/__/ 3.    Eurodollar  Loan  Continuation  for  Eurodollar  Loans  maturing  on
           _____________________:

     (a)   Aggregate   amount  to  be   continued   as   Eurodollar   Loans  is
           $____________________;

     (b)   Aggregate   amount  to  be   converted   to  Base   Rate   Loans  is
           $____________________;

     (c)   Length  of  Interest  Period  for  continued   Eurodollar  Loans  is
           ________________________.


/__/ 4.    Conversion of Outstanding Base Rate Loans to Eurodollar Loans:

           Convert  $__________________  of the outstanding  Base Rate Loans to
           Eurodollar Loans on ____________________  with an Interest Period of
           ______________________.


/__/ 5.    Conversion of outstanding Eurodollar Loans to Base Rate Loans:

           Convert  $__________________  of the  outstanding  Eurodollar  Loans
           with Interest  Period maturing on  ______________________,  199_, to
           Base Rate Loans.

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

                               HOWELL PETROLEUM CORPORATION


                               By:_________________________________
                               Name:
                               Title:


                                      B-2

                                   EXHIBIT C

                        FORM OF COMPLIANCE CERTIFICATE


     The  undersigned  hereby  certifies  that  he is the  ________________  of
HOWELL PETROLEUM CORPORATION,  a ____________  corporation (the "Borrower") and
that as such he is  authorized  to execute  this  certificate  on behalf of the
Borrower.  With  reference  to the Credit  Agreement  dated as of December  17,
1997  (together   with  all   amendments  or  supplements   thereto  being  the
"Agreement")  among the  Borrower,  BANK OF MONTREAL,  as Agent for the lenders
(the  "Lenders")  which are or become a party  thereto,  and such Lenders,  the
undersigned  represents  and warrants as follows  (each  capitalized  term used
herein having the same meaning given to it in the  Agreement  unless  otherwise
specified):

           (a)  Except as  expressly  stated  in  Schedule  1  hereto,  the
     representations  and  warranties of the Borrower  contained in Article
     VII of the  Agreement  and in the other Loan  Documents  and otherwise
     made in  writing  by or on  behalf  of the  Borrower  pursuant  to the
     Agreement  and  the  Loan  Documents  were  true  and  correct  in all
     material  respects  when made,  and are repeated at and as of the time
     of delivery  hereof and are true and correct in all material  respects
     at and as of the time of  delivery  hereof,  except to the extent such
     representations  and  warranties  are expressly  limited to an earlier
     date or the Majority  Lenders have  expressly  consented in writing to
     the contrary.

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

           (c)  Since  __________________,  no change has occurred,  either
     in any  case  or in the  aggregate,  in the  condition,  financial  or
     otherwise,  of the  Borrower  or any  Subsidiary  which  would  have a
     Material Adverse Effect.

           (d)  Except as  expressly  stated in  Schedule  1 hereto,  there
     exists,  and,  after  giving  effect to the loan or loans with respect
     to which this certificate is being  delivered,  will exist, no Default
     under the Agreement or any event or  circumstance  which  constitutes,
     or with notice or lapse of time (or both) would  constitute,  an event
     of default  under any material  loan or credit  agreement,  indenture,
     deed of trust,  security  agreement or other  agreement or  instrument
     evidencing   or  pertaining  to  any  Debt  of  the  Borrower  or  any
     Subsidiary,  or under any other  material  agreement or  instrument to
     which  the  Borrower  or any  Subsidiary  is a party or by  which  the
     Borrower or any Subsidiary is bound.

           (e)  Attached  hereto are the  detailed  computations  necessary
     to  determine  whether the  Borrower is in  compliance  with  Sections
     9.12,  9.13  and  9.14  as of the end of the  [fiscal  quarter][fiscal
     year] ending                        .

     EXECUTED AND DELIVERED this ____ day of ______________.

                               HOWELL PETROLEUM CORPORATION


                               By:                                
                               Name:
                               Title:




                                      D-1


                                   EXHIBIT D

                            LIST OF LOAN DOCUMENTS


1.   Guaranty Agreement executed by Howell Corporation.

                                     E-1


                                   EXHIBIT E

                                    FORM OF

                             ASSIGNMENT AGREEMENT

      THIS ASSIGNMENT  AGREEMENT  ("Agreement")  dated as of  ________________,
199___  is  between:  _________________________________  (the  "Assignor")  and
__________________________  (the "Assignee").

                                   RECITALS

      A.   The  Assignor  is a  party  to  the  Credit  Agreement  dated  as of
December  17,  1997 (as  amended  and  supplemented  and in effect from time to
time,  the  "Credit   Agreement")   among  HOWELL  PETROLEUM   CORPORATION,   a
                          corporation  (the  "Borrower"),  each of the  lenders
that is or becomes a party thereto as provided in  Section 12.06  of the Credit
Agreement   (individually,   together  with  its  successors  and  assigns,   a
"Lender",  and  collectively,  together with their successors and assigns,  the
"Lenders"),  and BANK OF MONTREAL,  in its individual capacity,  ("BMO") and as
agent for the Lenders (in such  capacity,  together with its successors in such
capacity, the "Agent").

      B.   The Assignor  proposes to sell, assign and transfer to the Assignee,
and the  Assignee  proposes to purchase and assume from the  Assignor,  [all][a
portion] of the  Assignor's  Maximum  Facility A Credit  Amount and  Facility B
Commitment,  outstanding  Loans and its Percentage  Share of the outstanding LC
Exposure, all on the terms and conditions of this Agreement.

      C.   In  consideration  of  the  foregoing  and  the  mutual   agreements
contained herein,  and for other good and valuable  consideration,  the receipt
and sufficiency of which are hereby  acknowledged,  the parties hereto agree as
follows:


                                   ARTICLE I

                                 Definitions.

     Section 1.0 1Definitions. All capitalized terms used but not defined herein
have the respective meanings given to such terms in the Credit Agreement.

     Section 1.02 Other  Definitions.  As used herein,  the following terms have
the following respective meanings:

           "Assigned  Interest"  shall mean all of Assignor's  (in its capacity
      as a "Lender")  rights and obligations (i) under the Credit Agreement and
      the other Loan  Documents  in respect  of the  Maximum  Facility A Credit
      Amount   of   the   Assignor   in   the   principal   amount   equal   to
      $____________________,  including,  without limitation, any obligation to
      participate  pro rata in any LC Exposure,  and  Facility B Commitment  of
      the Assignor in the principal amount equal to $________________  and (ii)
      to make Loans under the Maximum  Facility A Credit  Amount and Facility B
      Commitment  and any right to receive  payments for the Loans  outstanding
      under the  Maximum  Facility A Credit  Amount and  Facility B  Commitment
      assigned hereby of the following amounts:

                  Loans                     Amount

                  Facility  A          $__________________

                  Facility B           $__________________

      (the "Loan  Balance"),  plus the interest and fees which will accrue from
      and after the Assignment Date.

           "Assignment Date" shall mean _____________________, 199___.


                                  ARTICLE II

                             Sale and Assignment.

     Section 2.01 Sale and  Assignment.  On the terms and  conditions  set forth
herein,  effective on and as of the Assignment  Date, the Assignor hereby sells,
assigns and transfers to the  Assignee,  and the Assignee  hereby  purchases and
assumes from the Assignor,  all of the right, title and interest of the Assignor
in and to,  and all of the  obligations  of the  Assignor  in  respect  of,  the
Assigned Interest.  Such sale,  assignment and transfer is without recourse and,
except as  expressly  provided  in this  Agreement,  without  representation  or
warranty.

     Section  2.02  Assumption  of  Obligations.  The  Assignee  agrees with the
Assignor  (for the express  benefit of the Assignor and the  Borrower)  that the
Assignee  will,  from  and  after  the  Assignment  Date,  perform  all  of  the
obligations of the Assignor in respect of the Assigned Interest.  From and after
the  Assignment  Date:  (a) the Assignor  shall be released from the  Assignor's
obligations in respect of the Assigned  Interest,  and (b) the Assignee shall be
entitled to all of the Assignor's rights, powers and privileges under the Credit
Agreement and the other Loan Documents in respect of the Assigned Interest.

     Section 2.03  Consent by Agent.  By  executing  this  Agreement as provided
below, in accordance with Section  12.06(b) of the Credit  Agreement,  the Agent
hereby  acknowledges  notice of the transactions  contemplated by this Agreement
and consents to such transactions.


                                  ARTICLE III

                                   Payments.

      Section 3.01  Payments.  As  consideration  for the sale,  assignment and
transfer  contemplated  by  Section 2.01  hereof,  the Assignee  shall,  on the
Assignment  Date,  assume  Assignor's  obligations  in respect of the  Assigned
Interest  and pay to the  Assignor  an  amount  equal to the Loan  Balance,  if
any.  An amount  equal to all  accrued  and unpaid  interest  and fees shall be
paid to the  Assignor  as  provided  in  Section  3.02 (iii)  below.  Except as
otherwise  provided in this Agreement,  all payments hereunder shall be made in
Dollars and in  immediately  available  funds,  without  setoff,  deduction  or
counterclaim.

      Section 3.02  Allocation  of  Payments. The  Assignor  and  the  Assignee
agree that  (i) the  Assignor  shall be entitled to any  payments of  principal
with  respect  to the  Assigned  Interest  made prior to the  Assignment  Date,
together  with any  interest  and fees with  respect to the  Assigned  Interest
accrued prior to the Assignment  Date,  (ii) the  Assignee shall be entitled to
any payments of principal  with respect to the Assigned  Interest made from and
after the  Assignment  Date,  together  with any and all interest and fees with
respect to the Assigned  Interest  accruing from and after the Assignment Date,
and  (iii) the  Agent  is  authorized  and  instructed  to  allocate   payments
received  by it for  account of the  Assignor  and the  Assignee as provided in
the  foregoing  clauses.  Each  party  hereto  agrees  that  it will  hold  any
interest,  fees or other  amounts  that it may receive to which the other party
hereto  shall be entitled  pursuant to the  preceding  sentence  for account of
such other party and pay,  in like money and funds,  any such  amounts  that it
may receive to such other party promptly upon receipt.

      Section 3.03  Delivery  of Notes.   Promptly following the receipt by the
Assignor of the consideration  required to be paid under  Section 3.01  hereof,
the Assignor  shall,  in the manner  contemplated  by  Section 12.06(b)  of the
Credit  Agreement,  (i) deliver to the Agent (or its counsel) the Notes held by
the Assignor  and (ii) notify the Agent to request  that the  Borrower  execute
and deliver new Notes to the  Assignor,  if Assignor  continues to be a Lender,
and the  Assignee,  dated the date of this  Agreement in  respective  principal
amounts  equal  to  the  respective  Maximum  Facility  A  Credit  Amounts  and
Facility B  Commitments  of the  Assignor  (if  appropriate)  and the  Assignee
after giving effect to the sale, assignment and transfer contemplated hereby.

      Section 3.04  Further  Assurances.  The Assignor and the Assignee  hereby
agree to  execute  and  deliver  such  other  instruments,  and take such other
actions,  as  either  party  may  reasonably  request  in  connection  with the
transactions contemplated by this Agreement.


                                  ARTICLE IV

                             Conditions Precedent.

      Section 4.01 Conditions   Precedent.   The   effectiveness  of  the  sale,
assignment and transfer  contemplated  hereby is subject to the satisfaction of
each of the following conditions precedent:

           (a)    the  execution   and  delivery  of  this   Agreement  by  the
      Assignor and the Assignee;

           (b)    the receipt by the  Assignor  of the  payment  required to be
      made by the Assignee under Section 3.01 hereof; and

           (c)    the  acknowledgment  and consent by the Agent contemplated by
      Section 2.03 hereof.


                                   ARTICLE V

                        Representations and Warranties.

     Section 5.01  Representations and Warranties of the Assignor.  The Assignor
represents and warrants to the Assignee as follows:

           (a)    it has all requisite  power and authority,  and has taken all
      action  necessary  to execute and deliver this  Agreement  and to fulfill
      its obligations  under, and consummate the transactions  contemplated by,
      this Agreement;

           (b)    the  execution,   delivery  and  compliance  with  the  terms
      hereof by Assignor  and the  delivery of all  instruments  required to be
      delivered by it  hereunder  do not and will not violate any  Governmental
      Requirement applicable to it;

           (c)    this  Agreement  has been duly  executed and  delivered by it
      and constitutes the legal,  valid and binding obligation of the Assignor,
      enforceable against it in accordance with its terms;

           (d)    all  approvals  and  authorizations  of, all filings with and
      all actions by any Governmental  Authority  necessary for the validity or
      enforceability   of  its  obligations  under  this  Agreement  have  been
      obtained;

           (e)    the  Assignor  has good  title to,  and is the sole legal and
      beneficial owner of, the Assigned Interest,  free and clear of all Liens,
      claims, participations or other charges of any nature whatsoever; and
           (f)    the   transactions   contemplated   by  this   Agreement  are
      commercial  banking  transactions  entered into in the ordinary course of
      the banking business of the Assignor.

      Section 5.02  Disclaimer.  Except as expressly  provided  in Section 5.01
hereof,  the Assignor does not make any  representation or warranty,  nor shall
it have any  responsibility  to the  Assignee,  with respect to the accuracy of
any  recitals,  statements,  representations  or  warranties  contained  in the
Credit  Agreement  or in any  certificate  or  other  document  referred  to or
provided  for in, or received by any Lender  under,  the Credit  Agreement,  or
for   the   value,    validity,    effectiveness,    genuineness,    execution,
effectiveness,   legality,   enforceability   or   sufficiency  of  the  Credit
Agreement,  the  Notes  or any  other  document  referred  to or  provided  for
therein or for any  failure by the  Borrower  or any other  Person  (other than
Assignor) to perform any of its  obligations  thereunder or for the  existence,
value,  perfection or priority of any  collateral  security or the financial or
other  condition of the Borrower or the  Subsidiaries  [or any other obligor or
guarantor],  or any other matter relating to the Credit  Agreement or any other
Loan Documents or any extension of credit thereunder.

      Section 5.03  Representations   and   Warranties  of  the  Assignee.  The
Assignee represents and warrants to the Assignor as follows:

           (a)    it has all requisite  power and authority,  and has taken all
      action  necessary  to execute and deliver this  Agreement  and to fulfill
      its obligations  under, and consummate the transactions  contemplated by,
      this Agreement;

           (b)    the  execution,   delivery  and  compliance  with  the  terms
      hereof by Assignee  and the  delivery of all  instruments  required to be
      delivered by it  hereunder  do not and will not violate any  Governmental
      Requirement applicable to it;

           (c)    this  Agreement  has been duly  executed and  delivered by it
      and constitutes the legal,  valid and binding obligation of the Assignee,
      enforceable against it in accordance with its terms;

           (d)    all  approvals  and  authorizations  of, all filings with and
      all actions by any Governmental  Authority  necessary for the validity or
      enforceability   of  its  obligations  under  this  Agreement  have  been
      obtained;

           (e)    the  Assignee  has fully  reviewed  the  terms of the  Credit
      Agreement and the other Loan Documents and has  independently and without
      reliance  upon  the  Assignor,  and  based  on  such  information  as the
      Assignee  has  deemed  appropriate,  made  its own  credit  analysis  and
      decision to enter into this Agreement;

           (f)    the  Assignee   hereby   affirms  that  the   representations
      contained in Section  4.06(d)(i)(1)  of the Credit Agreement are true and
      accurate as to Assignee.  If Section  4.06(d)(i)(2)  is applicable to the
      Assignee,  Assignee shall promptly  deliver to the Agent and the Borrower
      such  certifications  as are  required  thereby to avoid the  withholding
      taxes referred to in Section 4.06; and

           (g)    the   transactions   contemplated   by  this   Agreement  are
      commercial  banking  transactions  entered into in the ordinary course of
      the banking business of the Assignee.


                                  ARTICLE VI

                                Miscellaneous.

     Section 6.01  Notices.  All notices and other  communications  provided for
herein  (including,  without  limitation,  any  modifications  of,  or  waivers,
requests or consents under,  this  Agreement)  shall be given or made in writing
(including,  without limitation, by telex or telecopy) to the intended recipient
at its "Address for Notices"  specified  below its name on the  signature  pages
hereof or, as to either  party,  at such other address as shall be designated by
such party in a notice to the other party.

     Section  6.02  Amendment,  Modification  or Waiver.  No  provision  of this
Agreement may be amended,  modified or waived except by an instrument in writing
signed by the Assignor and the Assignee, and consented to by the Agent.

     Section 6.03  Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their  respective  successors
and permitted  assigns.  The  representations  and warranties made herein by the
Assignee  are also made for the benefit of the Agent and the  Borrower,  and the
Assignee  agrees that the Agent and the  Borrower are entitled to rely upon such
representations and warranties.

     Section 6.04 Assignments. Neither party hereto may assign any of its rights
or  obligations  hereunder  except in  accordance  with the terms of the  Credit
Agreement.

     Section 6.05 Captions.  The 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.

     Section 6.06 Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.

      Section 6.07 Governing  Law.  This  Agreement  shall be  governed  by, and
construed in accordance with, the law of the State of Texas.

     Section 6.08 Expenses.  To the extent not paid by the Borrower  pursuant to
the terms of the Credit Agreement, each party hereto shall bear its own expenses
in connection with the execution, delivery and performance of this Agreement.

     Section  6.09  Waiver of Jury  Trial.  EACH OF THE  PARTIES  HERETO  HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL  BY  JURY IN ANY  LEGAL  PROCEEDING  ARISING  OUT OF OR  RELATING  TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

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

                                  ASSIGNOR

                                   


                                  By:   
                                  Name:
                                  Title:

                                  Address for Notices:

                                  __________________________________
                                                                                
                                  __________________________________

                                  __________________________________ 

                                  Telecopier No.: __________________
                                  Telephone No.:  __________________           
                                  Attention:      __________________           


                                      E-7



                                  ASSIGNEE

                                  ___________________________________ 

                                  By: _______________________________          
                                  Name:
                                  Title:

                                  Address for Notices:
                                   
                                  ___________________________________          
                                  ___________________________________
                                  ___________________________________ 

                                  Telecopier No.: __________________           
                                  Telephone No.:  __________________           
                                  Attention:      __________________           


ACKNOWLEDGED AND CONSENTED TO:

______________________________________,
as Agent



By:    _______________________________                             
Name:
Title:






                                     F-4




                                   EXHIBIT F

                    APPLICATION AND REIMBURSEMENT AGREEMENT
                    FOR IRREVOCABLE STANDBY LETTER OF CREDIT


Bank of Montreal                                    Date: _________________
Letter  of Credit Processing Center                      SLDC 3896/_____________
311 West Monroe Street
Chicago, Illinois 60606

Gentlemen:

We request you to open and transmit by  cable/airmail/courier  your Irrevocable
Letter of Credit in favor of:

available by their drafts, drawn at sight on: Bank of Montreal, _______________
or not exceeding a total of: ______________________________
accompanied by the following document(s):









Drafts drawn under this Letter of Credit must be drawn and  presented  together
with accompanying  documentation at your principal office in Chicago,  Illinois
not later than:

In  consideration  of your  issuing at our request your  Irrevocable  Letter of
Credit (hereinafter called "Credit") on the terms mentioned above:

1.    We  hereby  agree  to  pay  you  in  immediately   available  and  freely
transferable  funds the  amount of each draft or  acceptance  drawn  under,  or
purporting  to be drawn  under,  the  Credit,  such  payment  to be made at the
maturity of each  respective  draft or acceptance or, if so demanded by you, on
demand in advance of any drawing or maturity.

2.    Payment  shall  be made by us at your  office  in  Chicago,  Illinois  in
lawful money of the United  States,  provided that, if a draft or other request
for payment  under the Credit is drawn in a currency  other than United  States
currency,  we shall pay the equivalent in United States  currency,  at the rate
of  exchange  then  current  in  Chicago  for cable  transfers  to the place of
payment in the currency in which such drawing was made,  as  determined  by you
and  notified to us, or, if you so request of us at your  option,  we shall pay
you the amount of such  drawing in the  currency  in which the drawing was made
in a place, form and manner acceptable to you.

3.    We also agree to pay you, on demand, a commission at the rate of:
of the Credit or such other rate as you and we may agree,  and all  charges and
expenses legal and/or otherwise  (including  court costs and attorneys'  fees),
paid or incurred  by you in  connection  therewith  or in your  endeavoring  to
collect any liability of us or any one or more of us  hereunder,  including all
costs  and  expenses  arising  out  of any  reserve  requirements  for,  or any
assessment  of deposit  insurance  premiums  on, the Credit and  including  all
expenses,  legal or otherwise  (including  without  limitation  court costs and
attorneys'  fees  and  expenses)  paid  or  incurred  by you  or  any  of  your
correspondents  in  connection  with  endeavoring  to collect any  liability of
ours  hereunder or in  connection  with any other legal  proceeding  brought or
threatened  in  connection  with the  Credit,  including  any  attempt by us or
anyone  to  enjoin  payment  under  the  Credit.  In  addition,  if  you  shall
determine that any law, rule or regulation  regarding capital adequacy,  or any
change therein,  or any change in the interpretation or administration  thereof
by any governmental  authority,  central bank or comparable agency charged with
the interpretation or administration  thereof,  or compliance by you (or any of
your  branches)  with any  request  or  directive  regarding  capital  adequacy
(whether or not having the force of law) of any such  authority,  central  bank
or  comparable  agency,  has or  would  have the  effect  of  requiring  you to
maintain  additional  capital to support  your  obligations  hereunder or under
the  Credit,  then from time to time,  within 15 days after  demand by you,  we
shall pay to you such  additional  amount or amounts  reasonably  determined by
you as will compensate you for such requirement.

4.     Any amounts not paid when due hereunder  shall bear  interest  (computed
on the  basis of a 360 day  year and  actual  days  elapsed)  from the due date
thereof  until paid in full at a rate per annum  determined by adding 2 1/2% to
the rate from time to time  announced  by you as your  prime  commercial  rate,
with any change in such  interest  rate  resulting  from a change in such prime
commercial  rate  to be and  become  effective  as of  and  on  the  day of the
relevant  change in such prime  commercial  rate,  payable  on demand.  You are
hereby  authorized to charge any  depository or other account of ours or any of
us  maintained  with you for the full amount of any  drawing  paid by you under
the Credit and for  payment of any other  amount  payable by us  hereunder  not
paid to you on demand.  If by charging  such account you create an overdraft in
one of our accounts,  we shall pay interest to you on such overdrawn  amount at
the rate specified in our agreement with you  establishing  such account or, if
no such rate is  specified,  at the rate of interest  provided for in the first
sentence of this paragraph.

5.    We agree that in the event of any  extension  of the maturity or time for
presentation  of drafts,  acceptances or documents,  or any other  modification
of the  terms of the  Credit,  at the  request  of any of us,  with or  without
notification  to the others,  or in the event of any  increase in the amount of
the  Credit  at our  request,  this  agreement  shall be  binding  upon us with
regard to the credit  extended,  increased  or otherwise  modified,  to drafts,
documents and property covered  thereby,  and to any action taken by you or any
of your  correspondents,  in accordance with such extension,  increase or other
modification.

6.    The users of the  Credit  shall be deemed  our  agents  and we assume all
risks of their acts,  omissions,  or  misrepresentations.  Neither you nor your
correspondents   shall   be   responsible   for  the   validity,   sufficiency,
truthfulness,  or genuineness  of any documents  even if such documents  should
in fact prove to be in any or all respects  invalid,  insufficient,  fraudulent
or  forged;  for  failure  of any  draft  to bear  any  reference  or  adequate
reference  to the  Credit,  or  failure of any person to note the amount of any
draft on the reverse of the Credit,  or to  surrender  or to take up the Credit
as  required  by  the  terms  of the  Credit;  each  of  which  provisions,  if
contained  in the  Credit  itself,  it is agreed  may be waived by you,  or for
errors,  omissions,  interruptions or delays in transmission or delivery of any
message,  by mail, cable,  telegraph,  wireless,  or otherwise,  whether or not
they be in  cipher;  nor shall you be  responsible  for any  error,  neglect or
default  of any of your  correspondents;  and none of the above  shall  affect,
impair or prevent  the vesting of any of your  rights or powers  hereunder.  In
furtherance  and extension  and not in  limitation  of the specific  provisions
hereinbefore  set  forth,  we  agree  that  any  action  taken by you or by any
correspondent  of yours under or in connection  with the Credit or the relative
drafts,  documents or property,  if taken in good faith, shall be binding on us
and shall not put you or your  correspondent  under any resulting  liability to
us;  and we make like  agreement  as to any  inaction  or  omission,  unless in
breach of good faith.

7.    We agree,  to the extent  required  by the Credit  Agreement  dated as of
December 17, 1997 among us,  other  lenders  signatory  thereto and the Bank of
Montreal,  as Agent  (the  "Credit  Agreement")  at any  time and from  time to
time,  on demand,  to deliver,  convey,  transfer or assign to you, as security
for any  and all  obligations  and  liabilities  of us or any one or more of us
hereunder,  and  also  for any  and  all  other  obligations  and  liabilities,
absolute or contingent  due or to become due,  which are now or may at any time
hereafter be owing by us or any one or more of us to you,  additional  security
of a value and  character  satisfactory  to you, or to make such payment as you
may require.

8.    You  shall not be deemed to have  waived  any of your  rights  hereunder,
unless you or your  authorized  agent shall have signed such waiver in writing.
No such waiver,  unless  expressly as stated therein,  shall be effective as to
any transaction  which occurs  subsequent to the date of such waiver,  or as to
any continuance of a breach after such waiver.

9.    The  word  "property",  as  used  in  this  agreement,   includes  goods,
merchandise,  securities,  funds, choses in action, and any and all other forms
of  property,  whether  real,  personal  or mixed,  and any  right or  interest
therein.

10.   Without  limiting  the  foregoing  and in addition to the  provisions  of
paragraph numbered 6 hereof,  you are hereby expressly  authorized and directed
to honor any  request for payment  which is made under and in  compliance  with
the terms of said Credit  without  regard to, and without any duty on your part
to inquire  into,  the existence of any disputes or  controversies  between any
of the  undersigned,  the  beneficiary of the Credit or any other person,  firm
or  corporation,  or the  respective  rights,  duties or  liabilities of any of
them or whether any facts or  occurrences  represented  in any of the documents
presented  under  the  Credit  are  true  or  correct.  Furthermore,  we  fully
understand  and agree  that  your sole  obligation  to us shall be  limited  to
honoring  requests for payment made under and in  compliance  with the terms of
the Credit and this  application  and your  obligation  remains so limited even
if you may have  assisted  us in the  preparation  of the wording of the Credit
or any  documents  required to be presented  thereunder or you may otherwise be
aware  of the  underlying  transaction  giving  rise  to the  Credit  and  this
application.  In addition,  and without  limiting  any of the other  provisions
hereof,  you and your  correspondents  may (a) act in  reliance  upon any oral,
telephonic,  telegraphic,  electronic or written  request or notice believed by
you or your  relevant  correspondent  in good faith to have been  authorized by
us or any one of us,  whether or not given or signed by an  authorized  person,
and (b) receive,  accept or pay as  complying  with the terms of the Credit any
drafts  or other  document,  otherwise  in  order,  that may be  signed  by, or
issued to, the  administrator  or executor of, or the trustee in bankruptcy of,
or the  receiver  for any of the  property  of, or any  other  person or entity
acting  as the  representative  of,  in the  place  of or as the  successor  in
interest  to, the party in whose name the  Credit  provides  that any drafts or
other documents should be drawn or issued.

11.   If this  agreement  is signed by one party,  the terms "we," "our," "us,"
shall be read  throughout  as "I,"  "my,"  "me,"  as the  case may be.  If this
agreement is signed by two or more parties,  it shall  constitute the joint and
several  agreement of such parties.  This agreement  shall be deemed to be made
under  and  shall  in all  respects  be  governed  by the law of the  State  of
Illinois.  The Credit and, to the extent not inconsistent  with the laws of the
State of Illinois,  this agreement  will be subject to the Uniform  Customs and
Practice  for   Documentary   Credits  as  most   recently   published  by  the
International  Chamber of Commerce  (the "UCP"),  except that Article 41 and 43
of the UCP (1993 Revision)  published by the International  Chamber of Commerce
as Publication  No. 500 shall not apply nor shall any  equivalent  provision in
any future version of the UCP.


                                Very truly yours,
 
                  ___________________________________________




                                (Firm's name, if applicable)
                       For Bank Use Only By     ___________________
                    _______      _____   Title_____________________
                       Approved by Date By ________________________
                                Title______________________________
 
                                             C60092 N7/94