Document:

FIFTH AMENDMENT TO CREDIT AGREEMENT

     THIS FIFTH AMENDMENT TO CREDIT  AGREEMENT (this  "Amendment"),  dated as of
September 28, 2000, is by and among COLUMBUS  MCKINNON  CORPORATION,  a New York
corporation  (the  "Borrower"),  the  banks,  financial  institutions  and other
institutional lenders which are parties to the Credit Agreement (as such term is
defined below) (the  "Lenders"),  FLEET  NATIONAL BANK, as Initial  Issuing Bank
(the "Initial  Issuing Bank"),  FLEET NATIONAL BANK, as the Swing Line Bank (the
"Swing Line Bank";  each of the Lenders,  the Initial Issuing Bank and the Swing
Line  Bank,  individually,  a "Lender  Party"  and,  collectively,  the  "Lender
Parties"),  and FLEET NATIONAL BANK, as administrative  agent (together with any
successor  appointed  pursuant  to  Article  VII of the  Credit  Agreement,  the
"Administrative Agent") for the Lender Parties.

                              W I T N E S S E T H :
                               -------------------

     WHEREAS, the Borrower,  Lenders,  Initial Issuing Bank, Swing Line Bank and
Administrative  Agent are party to that certain  Credit  Agreement,  dated as of
March 31, 1998, as amended by that certain First Amendment to Credit  Agreement,
dated as of  September  23,  1998,  that  certain  Second  Amendment  to  Credit
Agreement  and  Consent,  dated as of February  12,  1999,  that  certain  Third
Amendment to Credit  Agreement and Consent,  dated as of November 16, 1999,  and
that  certain  Fourth  Amendment  to Credit  Agreement  and Waiver,  dated as of
February  15, 2000 (as so amended and as it may  hereafter  be further  amended,
supplemented,  restated,  extended or otherwise  modified from time to time, the
"Credit Agreement");

     WHEREAS,  the  Borrower has  requested  that the  Administrative  Agent and
Lender Parties amend the Credit Agreement as and to the extent set forth in this
Amendment; and

     WHEREAS,  the Administrative  Agent and Lender Parties are agreeable to the
foregoing, in each instance as and to the extent set forth in this Amendment and
subject to each of the terms and conditions stated herein.

     NOW THEREFORE,  in  consideration  of the premises and the mutual covenants
set forth herein and of the loans or other extensions of credit heretofore,  now
or hereafter  made to, or for the benefit of, the Borrower and its  Subsidiaries
by the Lender Parties, the parties hereto hereby agree as follows:

1.   DEFINITIONS.  Except to the extent otherwise specified herein,  capitalized
terms used in this  Amendment  shall have the same meanings  ascribed to them in
the Credit Agreement.

2.   AMENDMENTS.

    2.1.  Section 1.01 of the Credit  Agreement is amended  by deleting from the
definition of "Applicable Margin" the entire pricing chart contained therein and
replacing it with the following chart:

<PAGE>

                         Applicable Margin  Applicable Margin  Applicable Margin
Ratio of Funded Debt to   for Prime Rate      for Eurodollar     for Commitment
EBITDA                       Advances         Rate Advances            Fee
------------------------ ------------------ -----------------  -----------------

Equal to or greater than
  4.00                        0.75%              2.250%               0.375%
Equal to or greater than
  3.50 less than 4.00         0.50%              2.000%               0.350%
Equal to or greater than
  3.00 less than 3.50         0.25%              1.750%               0.300%
Equal to or greater than
  2.50 less than 3.00         0.00%              1.500%               0.200%
Less than 2.50                0.00%              1.125%               0.150%

    2.2.  Section  5.04(a) of the Credit  Agreement is amended  by deleting from
the chart contained therein the dates from and including  September 30, 2000 and
the corresponding ratios for such dates and replacing them with the following:

           September 30, 2000                          4.25 to 1.0
           December 31, 2000                           4.25 to 1.0
           March 31, 2001                              4.00 to 1.0
           June 30, 2001                               3.75 to 1.0
           September 30, 2001                          3.75 to 1.0
           December 31, 2001                           3.50 to 1.0
           March 31, 2002 and each fiscal
                  quarter end thereafter               3.50 to 1.0.

    2.3.  Section  5.04(b) of the Credit  Agreement is amended  by deleting from
the chart contained therein the dates from and including  September 30, 2000 and
the corresponding ratios for such dates and replacing them with the following:

           Four Fiscal Quarters ending on:             Ratio

           September 30, 2000                          2.75 to 1.0
           December 31, 2000                           2.75 to 1.0
           March 31, 2001                              2.75 to 1.0
           June 30, 2001                               2.75 to 1.0
           September 30, 2001                          3.00 to 1.0
           December 31, 2001                           3.00 to 1.0
           March 31, 2002 and each fiscal
                  quarter end thereafter               3.00 to 1.0.

                                       2
<PAGE>

3.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  BORROWER.  The  Borrower  hereby
represents and warrants as follows:

    3.1.  Each of the  representations  and  warranties  set forth in the Credit
Agreement, including, without limitation, in Article IV of the Credit Agreement,
and in each other Loan Document,  is true, correct and complete on and as of the
date hereof as though made on the date hereof. In addition,  the Borrower hereby
represents, warrants and affirms that the Credit Agreement and each of the other
Loan Documents remains in full force and effect.

    3.2.  As of the date  hereof,  there  exists no  Default or Event of Default
under the Credit Agreement or any other Loan Document,  and no event which, with
the giving of notice or lapse of time,  or both,  would  constitute a Default or
Event of Default.

    3.3.  The execution,  delivery and performance by each applicable Loan Party
of this Amendment or the  reaffirmations  and confirmations  attached hereto and
each other Loan  Document are within such Loan Party's  corporate  powers,  have
been duly  authorized by all necessary  corporate  action,  and do not, and will
not, (i) contravene  such Loan Party's  charter or bylaws,  (ii) violate any law
(including,  without limitation,  the Securities Act of 1933, as amended, or the
Securities  Exchange Act of 1934,  as  amended),  rule,  regulation  (including,
without  limitation,  Regulation  T, U or X of the  Board  of  Governors  of the
Federal  Reserve   System),   order,   writ,   judgment,   injunction,   decree,
determination  or award,  (iii)  conflict  with or result in the  breach  of, or
constitute a default under, any material  contract,  loan agreement,  indenture,
mortgage, deed of trust, lease or other material instrument or agreement binding
on or  affecting  any  Loan  Party,  any of  its  Subsidiaries  or any of  their
respective  properties or (iv) except for the Liens created under the Collateral
Documents,  result in or require the creation or  imposition of any Lien upon or
with  respect  to  any  of  the  properties  of  any  Loan  Party  or any of its
Subsidiaries. Neither any Loan Party nor any of its Subsidiaries is in violation
of any such law, rule, regulation,  order, writ, judgment,  injunction,  decree,
determination  or  award or in  breach  of any such  contract,  loan  agreement,
indenture,  mortgage, deed of trust, lease or other instrument or agreement, the
violation  or breach of which  could  reasonably  be expected to have a Material
Adverse Effect.

    3.4.  Each of this  Amendment  and each  other Loan  Document  has been duly
executed and delivered by each Loan Party party thereto.  Each of this Amendment
and each other Loan Document is the legal,  valid and binding obligation of each
Loan Party party thereto, enforceable against such Loan Party in accordance with
its terms.

    3.5.  No  authorization  or approval or other action by, and no notice to or
filing with, any  governmental  authority or regulatory  body or any other third
party is required for (i) the due execution,  delivery,  recordation,  filing or
performance by any Loan Party of this Amendment,  any other Loan Document or any
other agreement or document related hereto or thereto or contemplated  hereby or
thereby to which it is or is to be a party or otherwise bound, (ii) the grant by
any Loan Party of the Liens granted by it pursuant to the Collateral  Documents,
(iii) the  perfection  or  maintenance  of the Liens  created by the  Collateral
Documents  (including the first priority nature thereof) or (iv) the exercise by
the  Administrative  Agent or any  Lender  Party of its  rights  under  the Loan
Documents or remedies in respect of the  Collateral  pursuant to the  Collateral
Documents.

                                       3
<PAGE>

4.   CONDITIONS PRECEDENT TO THIS AMENDMENT. The effectiveness of this Amendment
is  subject  to the  satisfaction,  in form and  substance  satisfactory  to the
Administrative Agent, of each of the following conditions precedent:

    4.1.  The  Borrower  and  Required  Lenders  shall  have duly  executed  and
delivered this Amendment.

    4.2.  No Default or Event of Default shall have occurred and be continuing.

    4.3.  The  representations  and  warranties  contained  in Section 3 of this
Amendment,  the Credit  Agreement  and each other Loan  Document  shall be true,
correct and complete on and as of the closing  date of this  Amendment as though
made on such date.

    4.4.  The Borrower  shall have paid an amendment  fee to the  Administrative
Agent,  for the account of each Lender which has  approved  this  Amendment,  as
evidenced  by such  Lender's  timely  execution  and  delivery of a  counterpart
signature page to this Amendment (each such Lender being an "Approving Lender"),
in an amount equal to 0.125% (i.e. 12.5 basis points) of such Approving Lender's
Revolving Credit Commitment.

    4.5.  The  Borrower and its  Subsidiaries  shall have  delivered  such other
documents  and  taken  such  other  actions  as  the  Administrative  Agent  may
reasonably request.

5.   EFFECTIVENESS  OF  AMENDMENT.  This  Amendment  shall not become  effective
unless and until each of the conditions  precedent set forth in Section 4 hereof
has been satisfied.

6.   RERERENCE TO AND EFFECT UPON THE CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS.

    6.1.  Except  as  specifically  amended  in  Section  2  above,  the  Credit
Agreement  and each of the other Loan  Documents  shall remain in full force and
effect and each is hereby ratified and confirmed.

    6.2.  The execution,  delivery and effect of this Amendment shall be limited
precisely  as written  and shall not be deemed to (a) be a consent to any waiver
of any term or condition  or to any  amendment  or  modification  of any term or
condition  of the  Credit  Agreement  or any  other  Loan  Document,  except  as
specifically  amended in Section 2 above,  or (b) prejudice any right,  power or
remedy which the Administrative Agent or any Lender Party now has or may have in
the future under or in  connection  with the Credit  Agreement or any other Loan
Document. Upon the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or any other word
or words of similar import shall mean and be a reference to the Credit Agreement
as amended  hereby,  and each reference in any other Loan Document to the Credit
Agreement  or any word or words of similar  import shall mean and be a reference
to the Credit Agreement as amended hereby.

                                       4
<PAGE>

7.   COUNTERPARTS. This Amendment may be executed in any number of counterparts,
each of  which  when so  executed  shall be  deemed  an  original,  but all such
counterparts  shall  constitute  one and the  same  instrument.  Delivery  of an
executed  counterpart to this  Amendment by telecopier  shall be as effective as
delivery of a manually executed counterpart of this Amendment.

8.   COSTS AND EXPENSES.  The Borrower shall pay on demand all reasonable  fees,
costs  and  expenses  incurred  by  Administrative  Agent  (including,   without
limitation,  all reasonable attorneys' fees) in connection with the preparation,
execution  and delivery of this  Amendment  and the taking of any actions by any
Person in connection herewith.

9.   GOVERNING  LAW.  THIS  AMENDMENT  SHALL BE  GOVERNED  BY AND  CONSTRUED  IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF
THE STATE OF NEW YORK.

10.  HEADINGS.  Article  headings  in this  Amendment  are  included  herein for
convenience  of reference only and shall not constitute a part of this Amendment
for any other purpose.

                            [Signature Pages Follow]

                                       5
<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
executed by their  respective  officers  thereunto  duly  authorized on the date
first above written.

                                    COLUMBUS MCKINNON CORPORATION

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Executive Vice President

<PAGE>

         The undersigned  hereby  acknowledge  and agree to this Amendment,  and
agree that the Guaranty,  the Security Agreement,  and the Intellectual Property
Security  Agreement,  and each other Loan Document  executed by the  undersigned
shall remain in full force and effect and each is hereby  ratified and confirmed
by and on behalf of the undersigned, this 28th day of September, 2000.

                                    AUTOMATIC SYSTEMS, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    LICO STEEL, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    ABELL-HOWE CRANE, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    G.L. INTERNATIONAL INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    GAFFEY, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer
<PAGE>

                                    HANDLING SYSTEMS AND CONVEYORS, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    YALE INDUSTRIAL PRODUCTS, INC.

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

                                    WASHINGTON EQUIPMENT COMPANY

                                    By:    /S/ Robert L. Montgomery
                                           --------------------------------
                                           Robert L. Montgomery
                                           Title: Treasurer

<PAGE>

                                    FLEET NATIONAL BANK, as Administrative Agent

                                    By:    /S/ John G. Tierney
                                           --------------------------------
                                           John G. Tierney
                                           Title: Vice President

                                    FLEET NATIONAL BANK, as Initial Issuing Bank

                                    By:    /S/ John G. Tierney
                                           --------------------------------
                                           John G. Tierney
                                           Title: Vice President

                                    FLEET NATIONAL BANK, as Swing Line Bank

                                    By:    /S/ John G. Tierney
                                           --------------------------------
                                           John G. Tierney
                                           Title: Vice President

                                    Lenders

                                    FLEET NATIONAL BANK

                                    By:    /S/ John G. Tierney
                                           --------------------------------
                                           John G. Tierney
                                           Title: Vice President

<PAGE>

                                    Lenders

                                    ABN-AMRO BANK N.V. NEW YORK
                                    BRANCH, as a Co-Agent and Lender

                                    By:    /S/ Juliette Mound
                                           --------------------------------
                                    Title: Assistant Vice President
                                           --------------------------------

                                    By:    /S/ Lisa Megeaski
                                           --------------------------------
                                    Title: Group Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

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

                                    By:    /S/ Todd S. Meller
                                           --------------------------------
                                    Title: Managing Director
                                           --------------------------------

<PAGE>

                                    Lenders

                                    MANUFACTURERS AND TRADERS TRUST COMPANY, as
                                    a Co-Agent and Lender

                                    By:    /S/ Stephen J. Wydysh
                                           --------------------------------
                                    Title: Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

                                    HSBC BANK USA (formerly known as Marine
                                    Midland Bank), as a Co-Agent and Lender

                                    By:    /S/ Desmond C. English
                                           --------------------------------
                                    Title: Authorized Signatory
                                           --------------------------------

<PAGE>

                                    Lenders

                                    COMERICA BANK

                                    By:    /S/ Joel S. Gordon
                                           --------------------------------
                                    Title: Account Officer
                                           --------------------------------

<PAGE>

                                    Lenders

                                    FIRST UNION NATIONAL BANK

                                    By:    /S/ Mark B. Felker
                                           --------------------------------
                                    Title: Senior Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

                                    KEYBANK NATIONAL ASSOCIATION

                                    By:    /S/ Francis W. Lutz, Jr.
                                           --------------------------------
                                    Title: Portfolio Officer
                                           --------------------------------

<PAGE>

                                    Lenders

                                    MELLON BANK, N.A.

                                    By:    /S/ Edward J. Kloecker
                                           --------------------------------
                                    Title: Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

                                    BANKERS TRUST COMPANY

                                    By:    /S/ Gina S. Thompson
                                           --------------------------------
                                    Title: Director
                                           --------------------------------

<PAGE>

                                    Lenders

                                    THE BANK OF NEW YORK

                                    By:    /S/ Mark D. Wrigley
                                           --------------------------------
                                    Title: Assistant Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

                                    NATIONAL BANK OF CANADA

                                    By:    /S/ Michael S. Woodard
                                           --------------------------------
                                    Title: Vice President
                                           --------------------------------

                                    By:    /S/ Jon W. Patterson
                                           --------------------------------
                                    Title: Vice President
                                           --------------------------------

<PAGE>

                                    Lenders

                                    NATIONAL CITY BANK OF PENNSYLVANIA

                                    By:    /S/ William A. Feldmann
                                           --------------------------------
                                    Title: Vice President
                                           --------------------------------CREDIT AGREEMENT

                THIS CREDIT AGREEMENT, dated as of September 22, 2000, is by and
between BONNEVILLE FUELS CORPORATION,  a Colorado corporation ("Borrower"),  and
WELLS FARGO BANK WEST,  NATIONAL  ASSOCIATION,  a national  banking  association
("WFBW").

                                     RECITAL

                Borrower  and WFBW wish to enter into this Credit  Agreement  in
order to provide  for the terms upon which WFBW will make  advances  to Borrower
and issue  letters  of credit  upon the  request of  Borrower  and by which such
advances and letters of credit will be governed and repaid.

                                    AGREEMENT

                NOW, THEREFORE,  in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:

                                    ARTICLE I

                           Definitions and References

Section 1.1.  Defined Terms.  As used in this  Agreement,  each of the following
terms  has the  meaning  given  it in  this Section 1.1 or in the  sections  and
subsections referred to below:

                "Advance"  means  an  advance  of  funds  by  WFBW to or for the
account of Borrower pursuant to Article II below.

                "Affiliate"  means, as to any Person,  each Person that directly
or indirectly  (through one or more  intermediaries or otherwise)  controls,  is
controlled by, or is under common control with, such Person;  provided that, for
the purposes of this  definition,  a Person  shall be deemed to control  another
entity if the controlling Person possesses, directly or indirectly, the power to
direct or control the direction of the  management  and policies of such entity,
whether  through  the  ownership  of  membership  interests  or other  interests
therein,  by contract or otherwise,  and shall include  without  limitation  any
controlling member or owner thereof.

                "Agreement" means this Credit Agreement.

                  "Borrower"  means  Bonneville  Fuels  Corporation,  a Colorado
                  corporation.

                "Borrowing Base" means, at any time, the lesser of the Borrowing
Base (Determined) and the Borrowing Base (Elected).

                                       1
<PAGE>

         "Borrowing Base (Determined)"  means, at any time prior to the Maturity
Date, the aggregate loan value of all Borrowing Base  Properties,  as determined
by WFBW in its  sole and  absolute  discretion,  using  such  assumptions  as to
pricing,  discount factors,  discount rates,  expenses and other factors as WFBW
customarily  uses as to  borrowing-base  oil  and gas  loans  at the  time  such
determination is made;  provided that the Borrowing Base  (Determined) in effect
from time to time during the time period from the date of this Agreement through
the first  re-determination  of the Borrowing Base (Determined)  shall be as set
forth on Exhibit F attached  hereto and made a part hereof,  unless Borrower and
WFBW hereafter  mutually  agree upon a different  amount or unless the Borrowing
Base  (Determined) is  re-determined  prior to any such date pursuant to Section
2.8 below.

                "Borrowing  Base  (Elected)"  means,  at any  time,  the  amount
elected  by  Borrower  for the  then-current  Quarterly  Borrowing  Base  Period
pursuant to Section 2.8 below;  provided  that the Borrowing  Base  (Elected) in
effect from time to time  during the  Quarterly  Borrowing  Base Period from the
date of this Agreement  through  December 31, 2000 shall be $16,850,000,  unless
Borrower and WFBW hereafter mutually agree upon a different amount.

                "Borrowing  Base Notice" means a written notice sent to Borrower
by WFBW  notifying  Borrower  of  WFBW's  determination  of the  Borrowing  Base
(Determined) for the upcoming Borrowing Base Period or other period.

                "Borrowing Base Period" means: (a) the time period from the date
of this  Agreement  through  May 1,  2001;  (b)  thereafter,  until the May 1 or
November 1 most nearly  preceding the Maturity Date,  each six-month time period
beginning on May 1 or November 1 of each year;  and (c) the time period from the
May 1 or November 1 most nearly preceding the Maturity Date through the Maturity
Date.

                "Borrowing  Base  Properties"  means  any and all  interests  of
Borrower  (or, to the extent  agreed to by WFBW,  any  Affiliate  of  Borrower),
whether  now  owned or  hereafter  acquired,  in any and all oil and gas  wells,
leases and other related rights and assets to which WFBW now or hereafter  gives
value in determining the Borrowing Base (Determined).

                "Business Day" means: (a) with respect to the making, prepaying,
repaying or issuance of, or otherwise  relating to, any LIBOR  Tranche,  any day
which is not a Saturday,  a Sunday or a legal holiday on which  commercial banks
are authorized or required to be closed in Denver,  Colorado and which is also a
day on which  dealings  are  carried  on in the  London  interbank  eurocurrency
market,  and (b) for all other purposes hereof, any day which is not a Saturday,
a Sunday or a legal holiday on which commercial banks are authorized or required
to be closed in Denver, Colorado.

                                       2
<PAGE>

                "Capital  Additions"  means: (a) the net proceeds of any sale by
or on behalf of Borrower  or any  subsidiary  of  Borrower of any common  stock,
preferred stock, notes, debentures or other securities issued by Borrower or any
subsidiary  of Borrower,  net of  reasonable  brokerage,  printing,  accounting,
engineering,  legal and other costs actually paid to third parties in connection
therewith;  plus (b) any and all  capital  contributions  to  Borrower  or other
capital additions to Borrower.

                "Collateral"  means all tangible or intangible  real or personal
property which, under the terms of any Security Document,  is or is purported to
be covered thereby or subject thereto.

                "Commitment"  means the  agreement  of WFBW to make  Advances to
Borrower  and to issue  Letters  of Credit at the  request  of  Borrower,  in an
aggregate  amount up to the Commitment  Amount,  on the terms and subject to the
conditions hereof.

         "Commitment  Amount" means, at any time, the lesser of: (a) the Maximum
Loan Amount, or (b) the Borrowing Base at that time.

                "Commitment Fee Calculation Base" means, at any time, the lesser
of:  (a) the  Maximum  Loan  Amount,  or (b) the  Borrowing  Base at that  time;
provided that, if the Borrowing Base is increased at any time during a Borrowing
Base Period as a result of Borrower's  election to increase the  Borrowing  Base
(Elected),  the applicable  "Commitment Fee Calculation Base" for such Borrowing
Base Period shall be  re-calculated  as though such increase had occurred on the
first day of the applicable  Borrowing  Base Period and any related  adjustments
shall be made to the amount of any commitment fees previously paid hereunder for
such Borrowing Base Period.

                "Consolidated"  means, as to any Person,  the combined financial
statements,   financial  position,  financial  condition,  net  income,  assets,
liabilities  and  other  financial  data  of  such  Person  and of any  and  all
Affiliates of such Person that would be considered consolidated Affiliates under
GAAP.

                "Conversion  Date" means the Business Day immediately  after the
earlier  of: (a) the last day of the  Revolving  Period,  or (b) the date of any
termination of the Commitment.

                "Cumulative Net Income" means, with respect to Borrower, the sum
of Borrower's  net income,  determined  in accordance  with GAAP or with another
accounting system approved in writing by WFBW, for each completed Fiscal Quarter
after the date from which  such  calculation  is being  made;  provided  that if
Borrower's  net income is negative  for any such Fiscal  Quarter,  in  computing
Cumulative Net Income, Borrower's net income shall be deemed to be zero for that
Fiscal Quarter.

                                       3
<PAGE>

                "Current  Ratio" means,  at any time and from time to time,  the
ratio of: (a) the sum of:  (1)  Borrower's  current  assets  (excluding  Hedging
Assets),  plus (2) the excess, if any, of: (A) the Commitment  Amount,  over (B)
the  unpaid  balance of all  outstanding  Advances  plus the face  amount of all
outstanding Letters of Credit; to (b) Borrower's current liabilities  (excluding
current  maturities  of the Loan and Hedging  Obligations),  all  determined  in
accordance  with GAAP or with another  accounting  system approved in writing by
WFBW.

                "Debt" means, as to any Person,  all  indebtedness,  liabilities
and  obligations  of such  Person,  whether  primary  or  secondary,  direct  or
indirect, absolute or contingent, including without limitation obligations under
any and all capital leases.

                "Default"  means any Event of Default and any default,  event or
condition  which  would,  with the  giving of any  requisite  notice  and/or the
passage of time, constitute an Event of Default.

                "Distribution"   means  any  distribution  payable  in  cash  or
property  to any  shareholder  of  Borrower,  or  any  purchase,  redemption  or
retirement of, or other payment with respect to, any stock in Borrower.

                "ERISA"  means the Employee  Retirement  Income  Security Act of
1974,  as amended  from time to time,  together  with all rules and  regulations
promulgated with respect thereto.

                "ERISA Plan" means any pension  benefit plan subject to Title IV
of ERISA  maintained by Borrower or any Affiliate of Borrower to which  Borrower
is required to contribute.

                "Event of Default"  has the  meaning  given such term in Section
7.1 below.

                "Fiscal  Quarter" means a three-month  period ending on the last
day of March, June, September or December of any year.

                "Fiscal Year" means a twelve-month  period ending on December 31
of any year.

                "GAAP" means those generally accepted accounting  principles and
practices  which are  recognized as such by the Financial  Accounting  Standards
Board  (or  any  generally  recognized  successor)  and  which,  in the  case of
Borrower:  (a) are applied for all periods in a consistent  manner,  and (b) are
consistently  applied  for all  periods  after the date hereof so as to properly
reflect the financial  condition,  and the results of operations  and changes in
financial position, of Borrower.

                                       4
<PAGE>

                "Gas-Marketing Letter of Credit" means a Letter of Credit issued
for the  purpose of backing up a  gas-marketing  obligation  of  Borrower or any
Affiliate of Borrower;  provided that the  determination  of whether a Letter of
Credit  qualifies  as a "Gas  Marketing  Letter of Credit"  shall be at the sole
discretion of WFBW.

                "Guarantor"  means  Carbon  Energy  Corporation,  a  Colorado
corporation.

                "Guaranty"   means  the  Guaranty   executed  and  delivered  by
Guarantor to WFBW to guaranty the Obligations.

                "Hedging Assets" means,  with respect to any Person,  all assets
of such Person  under:  (a) interest  rate swap  agreements,  interest  rate cap
agreements,  interest  rate  collar  agreements  and all  other  agreements  and
arrangements  designed to protect such Person against  fluctuations  in interest
rates,  or  (b)  commodity  hedge,  commodity  swap,  exchange,  collar  or  cap
agreements,  fixed price  agreements and all other  agreements and  arrangements
designed to protect such Person against fluctuations in the price of oil, gas or
other hydrocarbons.

                "Hedging  Obligations"  means,  with respect to any Person,  all
liabilities of such Person under:  (a) interest rate swap  agreements,  interest
rate cap agreements,  interest rate collar  agreements and all other  agreements
and  arrangements  designed  to protect  such  Person  against  fluctuations  in
interest rates, or (b) commodity hedge, commodity swap, exchange,  collar or cap
agreements,  fixed price  agreements and all other  agreements and  arrangements
designed to protect such Person against fluctuations in the price of oil, gas or
other hydrocarbons.

                "Initial  Advance"  means the first  Advance on the Loan, in the
amount  requested  by  Borrower,  up to, but not in excess  of,  the  Commitment
Amount.

                "Initial   Engineering  Report"  means  the  report  or  reports
covering the Borrowing Base Properties,  prepared by Ryder Scott Company,  dated
as of January 1, 2000,  a true and correct  copy of which has been  furnished by
Borrower to WFBW.

                "Initial   Financial   Statements"   means  the  audited  annual
financial  statements  of  Guarantor  dated as of  December  31,  1999,  and the
unaudited quarterly financial statements of Guarantor dated as of March 31, 2000
and June 30,  2000,  copies of all of which have  heretofore  been  delivered by
Guarantor to WFBW.

                                       5
<PAGE>

                "Interest Rate Election" means an election delivered by Borrower
to WFBW from time to time in the form of  Exhibit D  attached  hereto and made a
part hereof.

                "Letter of Credit"  means a standby  letter of credit  issued by
WFBW pursuant to Article II below.

                "LIBOR (Adjusted)" means, with respect to each LIBOR Tranche and
the related LIBOR  Interest  Period,  the rate of interest per annum  determined
pursuant to the following formula:

                                    LIBOR (Unadjusted)
                            --------------------------------
        LIBOR (Adjusted) =  1.00  - LIBOR Reserve Percentage

                "LIBOR  Interest  Period"  means,  with  respect  to each  LIBOR
Tranche, a period of one, two, three or six months, as specified in the Interest
Rate  Election  submitted  by  Borrower  pursuant to Section  2.2(b)  below with
respect thereto,  beginning on and including the date specified in such Interest
Rate Election  (which must be a Business Day) and ending on (but not  including,
for the purpose of computing  the number of days in the LIBOR  Interest  Period)
the date which corresponds numerically to such beginning date one, two, three or
six months thereafter (or if such month has no numerically  corresponding  date,
on the last  Business  Day of such  month);  provided  that each LIBOR  Interest
Period which would  otherwise end on a day which is not a Business Day shall end
on the next succeeding  Business Day unless such next succeeding Business Day is
the first  Business Day of a calendar  month,  in which case such LIBOR Interest
Period  shall  end  on  the  Business  Day  next  preceding   such   numerically
corresponding day. No LIBOR Interest Period may be elected which would end after
the Maturity Date.

                "LIBOR  Reserve  Percentage"  means,  with  respect to any LIBOR
Interest Period,  the reserve  percentage  (expressed as a decimal) equal to the
maximum  aggregate  reserve  requirements   (including  all  basic,   emergency,
supplemental,   marginal  and  other   reserves  and  taking  into  account  any
transitional  adjustments or other  scheduled  changes in reserve  requirements)
specified under  regulations  issued from time to time by the Board of Governors
of the  Federal  Reserve  System and then  applicable  to assets or  liabilities
consisting of and including "Eurocurrency Liabilities",  as currently defined in
Regulation D of the Board of Governors of the Federal Reserve  System,  having a
term approximately equal or comparable to such LIBOR Interest Period.

                "LIBOR  Spread" means,  with respect to any LIBOR Tranche,  1.75
percentage points per annum.

                                       6
<PAGE>

                "LIBOR  Tranche" means a portion of the Loan  outstanding  for a
specific LIBOR Interest  Period and bearing  interest at a fixed rate based upon
LIBOR (Adjusted).

                "LIBOR  (Unadjusted)"  means, with respect to each LIBOR Tranche
and the related LIBOR Interest Period, the rate of interest per annum (expressed
as a decimal) determined by WFBW, in accordance with its customary practices, to
be  representative  of the rates at which  deposits  of U.S.  dollars  are being
offered in the London  interbank  eurocurrency  market for delivery on the first
day of such LIBOR Interest Period in an amount equal or comparable to the amount
of such LIBOR Tranche and for a period of time equal or comparable to the length
of such LIBOR Interest Period.  LIBOR  (Unadjusted),  as determined by WFBW with
respect  to a  particular  LIBOR  Tranche,  shall be fixed at such  rate for the
duration  of the  associated  LIBOR  Interest  Period.  If WFBW is  unable so to
determine LIBOR  (Unadjusted) for any LIBOR Tranche,  or if the associated LIBOR
(Adjusted) would exceed the maximum rate of interest,  if any, then permitted to
be charged on the Note under  applicable  law,  Borrower shall be deemed to have
elected to have  included in the Prime Rate Portion the portion of the Loan that
would otherwise have been included in such LIBOR Tranche.

                "Lien" means, with respect to any property or assets,  any right
or  interest  therein  of a  creditor  to  secure  Debt owed to him or any other
arrangement  with such creditor  which provides for the payment of such Debt out
of such  property or assets or which allows him to have such Debt  satisfied out
of such property or assets prior to the general  creditors of any owner thereof,
including without  limitation any lien,  mortgage,  security  interest,  pledge,
deposit,  production  payment,  rights of a vendor under any title  retention or
conditional sale agreement or lease  substantially  equivalent  thereto,  or any
other charge or encumbrance  for security  purposes,  whether  arising by law or
agreement or otherwise,  but excluding any right of offset which arises  without
agreement in the ordinary course of business.

                "Loan" has the meaning given such term in Section 2.1 below.

                "Loan  Documents" means this Agreement,  the Security  Documents
(including without limitation the Guaranty),  the Note, applications for Letters
of  Credit,  Advance  requests  and all other  agreements,  certificates,  legal
opinions and other documents,  instruments and writings  heretofore or hereafter
delivered in connection herewith or therewith, as the same may be in effect from
time to time, including any amendments thereto.

                "Maturity  Date" means the earliest of: (a) the first day of the
forty-eighth  month after the month in which the  Conversion  Date occurs (i.e.,
October 1, 2006, if the  Conversion  Date is October 1, 2002),  (b) such date as
may be established  pursuant to the amortization  schedule determined by WFBW as
described in the definition "Principal Payment Amount" set forth in this Section
1.1,  or (c) such date on which the Loan is due and payable in full by reason of
the occurrence of an Event of Default,  as  established  pursuant to Section 7.1
below.

                                       7
<PAGE>

                "Maximum Loan Amount" means $20,000,000.

                "Minimum  Principal  Payment"  means  the  product  of:  (a) the
greater of: (1) 0.01666667,  or (2) the  decimal-equivalent  of a fraction,  the
numerator of which is one and the denominator of which is the Revenue  Half-Life
of the  Borrowing  Base  Properties,  as  determined by WFBW as of the then most
recent  redetermination  of the Borrowing Base (Determined)  pursuant to Section
2.8 below, and (b) the outstanding principal balance of the Loan as of the close
of business on the last day of the Revolving  Period (or, if the last day of the
Revolving  Period is not a Business Day, the Business Day immediately  preceding
the last day of the Revolving Period).

                "Note" means a Promissory Note in the form of Exhibit A attached
hereto and made a part hereof, duly executed and delivered by Borrower.

                "Obligated Person" means Borrower, Guarantor or any other Person
that hereafter  guaranties or otherwise becomes responsible for repayment of all
or any portion of the Loan.

                "Obligations" means all Debt from time to time owing by Borrower
to WFBW under or pursuant to any of the Loan Documents.  "Obligation"  means any
part of the Obligations.

                "Oil and Gas Interests" means any and all oil or gas properties,
gas gathering systems,  and other related personal property and interests now or
hereafter owned by Borrower (or any Affiliate of Borrower).

                "Payment Date"  means  the  first  Business Day of each calendar
month, commencing November 1, 2000, through the Maturity Date.

                "Person"   means  an   individual,   corporation,   partnership,
association,  joint-stock company, trust or trustee thereof,  estate or executor
thereof,  limited  liability  company,   unincorporated  organization  or  joint
venture, court or governmental unit or any agency or subdivision thereof, or any
other legally recognizable entity.

                                       8
<PAGE>

                "Prime  Rate"  means  the  fluctuating  interest  rate per annum
announced  from  time to time by WFBW as its  prime  rate,  which may not be the
lowest interest rate charged by WFBW.

                "Prime  Rate  Portion"  means the  portion  of the Loan  bearing
interest based upon the Prime Rate.

                "Principal  Payment  Amount"  means:  (a)  the  amount,  if any,
provided  for in an  amortization  schedule  established  by  WFBW  in its  sole
discretion,  as of the end of the Revolving Period (and thereafter adjusted,  at
WFBW's  sole  discretion,  at the time of any  subsequent  determination  of the
Borrowing Base (Determined)),  in accordance with WFBW's then-current  practices
as to oil and gas loans and in accordance with the most recent  engineering data
and  other  information  then  available  with  respect  to the  Borrowing  Base
Properties,  including  without  limitation  any  appropriate  revision  of  the
Maturity Date, or (b) if no amortization  schedule has been  established by WFBW
pursuant to clause (a) above, the Minimum Principal Payment.

                "Quarterly  Borrowing  Base Period"  means:  (a) the time period
from the date of this Agreement through December 31, 2000; (b) thereafter,  each
three-month  time period beginning on January 1, April 1, July 1 or October 1 of
each  year,  and (c) the time  period  from the  January  1,  April 1, July 1 or
October 1 most nearly preceding the Maturity Date through the Maturity Date.

                "Revenue  Half-Life"  means,  at any time  after the  Conversion
Date,  the number of months  (rounded to the nearest whole number) from the date
of  measurement  to the  point  in  time  when  one-half  of the  then-remaining
undiscounted oil and gas sales from the Borrowing Base Properties will have been
produced,  as most recently  determined by WFBW pursuant to the  procedures  set
forth in Section 2.8 below.

                "Revolving  Period"  means the time period from the date of this
Agreement through September 30, 2002.

                "Security  Documents"  means all security  agreements,  deeds of
trust,  mortgages,  chattel mortgages,  pledges,  guaranties  (including without
limitation  the  Guaranty),   financing  statements,   continuation  statements,
extension  agreements and other  agreements or instruments now,  heretofore,  or
hereafter  delivered by any or all of the Obligated  Persons or any other Person
to WFBW in  connection  with  this  Agreement  or any  transaction  contemplated
hereby,  to secure or guaranty the payment of any part of the Obligations or the
performance  of any other duties and  obligations of any or all of the Obligated
Persons under the Loan Documents, whenever made or delivered.

                "Subordinated  Debt" means any indebtedness or other obligations
of Borrower, to the extent that the rights of the holders thereof to enforce the
indebtedness and other obligations of Borrower thereunder have been subordinated
to the rights of WFBW  hereunder  or in  connection  herewith  by  subordination

                                       9
<PAGE>

agreements  executed by the holders of the Subordinated Debt and satisfactory in
form and substance to WFBW,  the terms of which  subordination  agreements  will
typically  permit  Borrower  to  pay  interest  at  a  reasonable  rate  on  the
Subordinated Debt so long as no Default has occurred and is continuing.

                "Tangible Net Worth" means, as to any Person:  (a) the equity in
such Person owned by the shareholders, partners, members or other owners of such
Person,  determined in accordance  with GAAP or with another  accounting  system
approved  in  writing  by  WFBW  (but  excluding   Hedging  Assets  and  Hedging
Obligations),  less (b) goodwill and any and all other intangible assets of such
Person,  determined in accordance  with GAAP or with another  accounting  system
approved in writing by WFBW.

                "Taxes" has the meaning given such term in Section 3.7 below.

                "Termination  Event" means:  (a) the occurrence  with respect to
any ERISA Plan of (1) a  reportable  event  described in Section  4043(b)(5)  of
ERISA or (2) any other reportable event described in Section 4043 of ERISA other
than a reportable  event not subject to the  provision  for 30-day notice to the
Pension  Benefit  Guaranty  Corporation  under  such  regulations,  or  (b)  the
withdrawal of Borrower or of any Affiliate of Borrower from an ERISA Plan during
a plan year in which it was a  "substantial  employer"  as  defined  in  Section
4001(a)(2)  of ERISA,  or (c) the filing of a notice of intent to terminate  any
ERISA Plan or the treatment of any ERISA Plan  amendment as a termination  under
Section 4041 of ERISA,  or (d) the  institution  of proceedings to terminate any
ERISA Plan by the Pension  Benefit  Guaranty  Corporation  under Section 4042 of
ERISA, or (e) 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 ERISA Plan.

                Section 1.2.  Incorporation of  Exhibits.  All Exhibits attached
to this Agreement are a part hereof for all purposes.

                Section  1.3.  Amendment  of  Defined  Instruments.  Unless  the
context  otherwise  requires  or unless  otherwise  provided  herein,  the terms
defined in this Agreement which refer to a particular  agreement,  instrument or
document also refer to and include all renewals, extensions and modifications of
such agreement,  instrument or document, provided that nothing contained in this
section  shall  be  construed  to  authorize  any  such  renewal,  extension  or
modification.

                                       10
<PAGE>

                Section  1.4.  References  and Titles.  All  references  in this
Agreement to Exhibits,  Schedules,  articles,  sections,  subsections  and other
subdivisions refer to the Exhibits, Schedules,  articles, sections,  subsections
and other  subdivisions of this Agreement unless expressly  provided  otherwise.
Titles  appearing at the beginning of any  subdivisions are for convenience only
and do not constitute any part of such  subdivisions and shall be disregarded in
construing  the  language  contained  in  such  subdivisions.  The  words  "this
Agreement", "this instrument",  "herein",  "hereof",  "hereby",  "hereunder" and
words of  similar  import  refer  to this  Agreement  as a whole  and not to any
particular  subdivision unless expressly so limited.  The phrases "this section"
and  "this  subsection"  and  similar  phrases  refer  only to the  sections  or
subsections hereof in which such phrases occur. Unless set off with asterisks in
this Agreement (i.e.,  *or*), the word "or" has the inclusive meaning frequently
identified by the phrase  "and/or".  Pronouns in masculine,  feminine and neuter
genders  shall be  construed  to  include  any  other  gender,  and words in the
singular  form shall be construed  to include the plural and vice versa,  unless
the context otherwise requires.

                Section 1.5.  Calculations and Determinations.  All interest and
fees  accruing  under the Loan  Documents  shall be  calculated  on the basis of
actual days elapsed  (including the first day but excluding the last) and a year
of 365  days,  except  that a year of 360 days  shall  be used for  calculations
relating to interest on any LIBOR Tranche.  Unless otherwise  expressly provided
herein or unless WFBW otherwise consents,  all financial  statements and reports
furnished to WFBW hereunder shall be prepared and all financial computations and
determinations  pursuant  hereto shall be made in  accordance  with GAAP or with
another accounting system approved in writing by WFBW.

                                   ARTICLE II

                                    The Loan

                Section  2.1.  The Loan.  (a)  Subject  to the  other  terms and
conditions of this Agreement, WFBW agrees to: (1) make Advances to Borrower from
time to time  requested  upon written notice to WFBW from Borrower no later than
noon, Denver time, at least one Business Day prior to any Advance, and (2) issue
Letters of Credit from time to time  requested  upon written notice to WFBW from
Borrower no later than five  Business  Days prior to the date of issuance of any
such Letter of Credit.

         (b) Each  request by  Borrower  for an Advance  shall be in the form of
Exhibit B attached  hereto and made a part hereof.  Each request by Borrower for
the  issuance  of a Letter of Credit  shall be in the form of Exhibit C attached
hereto and made a part hereof,  and shall be accompanied  by an application  for
issuance of a letter of credit on WFBW's  then-standard  form,  duly executed by
Borrower.

                                       11
<PAGE>

         (c) WFBW shall not have any  obligation to: (1) make any Advance (other
than an Advance  arising from the making of a payment  under a Letter of Credit)
on or after the  Conversion  Date,  (2) issue or renew a Letter of Credit  which
does not expire  prior to the  Maturity  Date,  (3) issue a LIBOR  Tranche as to
which the LIBOR Interest  Period does not expire prior to the Maturity Date, (4)
issue a LIBOR Tranche at any time when four or more prior LIBOR Tranches  remain
outstanding,  (5) make an Advance in an amount  less than  $10,000,  (6) issue a
LIBOR Tranche in an amount less than  $500,000,  (7) issue a LIBOR Tranche in an
amount which is not an integral multiple of $100,000,  or (8) make an Advance or
issue a Letter of Credit if, after such Advance is made or such Letter of Credit
is issued, the aggregate amount of all Advances  outstanding  hereunder plus the
face  amounts of all Letters of Credit  outstanding  hereunder  would exceed the
Commitment Amount.

         (d) Each payment by WFBW under a Letter of Credit shall be deemed to be
an Advance included in the Prime Rate Portion, bearing interest from the date of
such  payment,  shall be entitled to all benefits of the Security  Documents and
shall be subject to all terms of this Agreement and any and all other applicable
Loan Documents.

         (e) Within the limitation of the  Commitment  Amount and subject to the
other terms and  provisions  hereof,  Borrower  may borrow,  repay and  reborrow
hereunder.  The Advances and Letters of Credit  described  above shall be herein
collectively  referred to as the "Loan".  Borrower hereby expressly requests and
irrevocably authorizes WFBW to make the Loan.

         Section 2.2. The Note; Interest. (a) Borrower's obligation to repay the
Loan,  with interest  thereon,  shall be evidenced by the Note. In the event any
provision  contained in the Note  conflicts  with a provision  contained in this
Agreement, the provisions of this Agreement shall control.

         (b) At any time and from time to time hereafter, if Borrower desires to
include in a LIBOR Tranche all or any portion of the Loan which will not already
be  included  in a LIBOR  Tranche as of the  beginning  of the  requested  LIBOR
Interest  Period,  Borrower  shall  deliver an Interest Rate Election to WFBW at
least three Business Days prior to the first day of the requested LIBOR Interest
Period,  specifying  the dollar  amount it desires to have included in the LIBOR
Tranche,  the first day of the LIBOR  Interest  Period and the  duration  of the
LIBOR Interest Period. As soon as reasonably possible after LIBOR (Adjusted) can
be determined  for the requested  LIBOR Interest  Period,  WFBW shall provide to
Borrower  a quote of LIBOR  (Adjusted)  for the dollar  amount  and time  period
requested by Borrower.  If the inclusion of the requested portion of the Loan in
the  requested  LIBOR  Tranche  is in  conformity  with  all  of the  terms  and
provisions of this Agreement,  the LIBOR Tranche shall become  effective for the
requested  dollar amount and the applicable LIBOR Interest Period based upon the
rate quoted by WFBW.  Any  portion of the Loan which is not  included in a LIBOR
Tranche shall be included in the Prime Rate Portion.

                                       12
<PAGE>

         (c)(1)  Except as  otherwise  provided  in (3) below,  interest on each
LIBOR Tranche shall accrue at a fixed annual rate equal to LIBOR (Adjusted) with
respect to such LIBOR  Tranche  plus the LIBOR  Spread.  (2) Except as otherwise
provided in (3) below,  interest  on the Prime Rate  Portion  shall  accrue at a
fluctuating  annual  rate  equal to the  Prime  Rate  minus  one-quarter  of one
percentage  point per annum.  (3) From and after the occurrence,  and during the
continuance, of any Event of Default hereunder (including without limitation any
failure by Borrower to pay the entire outstanding principal balance of the Loan,
together with all accrued interest, fees and other amounts payable in connection
therewith on or before the Maturity  Date),  interest on the Loan shall  accrue,
from the date of  occurrence of the Event of Default until the date the Event of
Default  is cured,  at a  fluctuating  annual  rate equal to the Prime Rate plus
three percentage points per annum.

         (d) Interest accrued on the Prime Rate Portion shall be due and payable
on each Payment  Date.  Interest  accrued on each LIBOR Tranche shall be due and
payable on the last day of the LIBOR Interest Period for such LIBOR Tranche and,
as to any LIBOR Tranche  having a LIBOR  Interest  Period of six months,  on the
ninetieth day of such LIBOR  Interest  Period.  All accrued and unpaid  interest
shall be due and payable not later than the Maturity  Date.  Approximately  five
days prior to the due date of each interest payment,  WFBW shall notify Borrower
of the amount due (or an estimate of such amount).

                Section 2.3. Mandatory  Principal  Payments.  (a) Borrower shall
make a principal payment on each Payment Date,  commencing with the Payment Date
in the  calendar  month  immediately  after  the  calendar  month in  which  the
Conversion  Date  occurs,  each such  payment  to be in an  amount  equal to the
Principal  Payment Amount;  provided that any such payments shall be in addition
to any amounts due and payable by Borrower  pursuant to the other  provisions of
this Section 2.3 and any interest  payments due and payable  pursuant to Section
2.2 above.

                                       13
<PAGE>

         (b) If for any reason the aggregate  outstanding  principal  balance of
all Advances plus the aggregate face amount of all outstanding Letters of Credit
shall exceed the Commitment Amount, Borrower shall, not later than 30 days after
written notice thereof from WFBW: (1) pay the excess to WFBW in a lump sum; *or*
(2) commence (and  thereafter  continue) an  amortization  schedule  under which
Borrower makes payments on the Loan in an amount at least equal to the excess in
six equal  monthly  principal  installments  on the first  Business  Day of each
calendar  month,  which  amounts  shall be in addition  to the monthly  interest
payments and any other  principal  payments  otherwise due, such that the entire
excess  is paid  within  six  months;  *or*  (3)  execute  and  deliver  to WFBW
additional mortgages, supplements to mortgages or other instruments satisfactory
in form and substance satisfactory to WFBW, by which Borrower mortgages, pledges
or  hypothecates  to WFBW, or creates a security  interest in for the benefit of
WFBW,  sufficient  additional  Oil and Gas  Interests  to induce  WFBW to make a
redetermination  of the Borrowing  Base  (Determined)  such that the  Commitment
Amount  is  increased  to an  amount  no less  than  the  aggregate  outstanding
principal  balance  of all  Advances  plus  the  aggregate  face  amount  of all
outstanding Letters of Credit.  Failure by Borrower to comply with the foregoing
shall be deemed an Event of Default hereunder.

         (c) The outstanding  principal  balance of all Advances,  together with
all  unpaid  fees and  expenses,  shall be due and  payable  not later  than the
Maturity Date.

                Section  2.4.  Voluntary  Prepayments.  Borrower  shall have the
right to prepay any or all  Advances at any time,  in whole or in part,  without
penalty or premium  (except  as  otherwise  described  in  Section  3.5  below);
provided that, prior to the Maturity Date, Borrower shall not at any time reduce
the aggregate  outstanding  principal amount of all Advances to less than $1,000
unless,  contemporaneously  therewith,  Borrower is  terminating  this Agreement
pursuant to Section 2.5 below.

                Section 2.5.  Termination of Agreement.  Borrower shall have the
right at any time and from time to time, upon not less than three Business Days'
prior written notice to WFBW, to terminate this Agreement.  Upon any termination
of this Agreement,  Borrower shall, at the time of such termination,  prepay the
Note in full and cause all  outstanding  Letters of Credit to be  cancelled  and
released.  Any such  prepayment  shall be without  penalty or premium (except as
otherwise described in Section 3.5 below).

                Section 2.6.  Payments to WFBW.  Borrower  will pay to WFBW each
payment which  Borrower owes under the Loan Documents not later than 12:00 noon,
Denver time,  on the due date,  in lawful money of the United  States of America
and in immediately available funds. Any payment received after such time will be

                                       14
<PAGE>

deemed to have been made on the next following Business Day. Except as otherwise
provided in this Agreement as to LIBOR Tranches,  should any such payment become
due and payable on a day other than a Business Day, the maturity of such payment
shall be extended to the next  succeeding  Business  Day,  and, in the case of a
payment of principal or past due interest,  interest shall accrue and be due and
payable  thereon for the period of such  extension.  Each  payment  under a Loan
Document  shall be due and  payable  at the  place  provided  therein  or, if no
specific place of payment is provided,  shall be due and payable at the place of
payment of the Note.

                Section  2.7.  Use of  Proceeds.  In no  event  shall  the  Loan
proceeds be used  directly or  indirectly  for the purpose,  whether  immediate,
incidental or ultimate, of purchasing,  acquiring or carrying any "margin stock"
(as such term is defined in Regulation U  promulgated  by the Board of Governors
of the  Federal  Reserve  System)  or to extend  credit to  others  directly  or
indirectly  for the purpose of  purchasing  or carrying any such margin stock or
margin securities. Borrower represents and warrants to WFBW that Borrower is not
engaged principally,  or as one of its important activities,  in the business of
extending credit to others for the purpose of purchasing or carrying such margin
stock.  Borrower will use the Loan proceeds  solely for the repayment of certain
existing  indebtedness  of  Borrower,  the  funding of capital  expenditures  by
Borrower  relating to oil and gas properties,  acquisitions by Borrower of other
oil and gas properties,  general working capital  purposes of Borrower and other
uses in the ordinary course of Borrower's business.

                Section 2.8.  Borrowing  Base  Procedures.  The  Borrowing  Base
(Determined) will be re-determined  semi-annually by WFBW, effective as of May 1
and November 1 of each year,  commencing May 1, 2001, based upon the engineering
reports  submitted  by  Borrower  pursuant  to Section  6.1 below,  the  monthly
production  information  submitted by Borrower pursuant to Section 6.1 below and
such other information and data as WFBW deems relevant; provided that, after the
Conversion Date, WFBW will also determine or re-determine the Revenue  Half-Life
of the  Borrowing  Base  Properties  as of such  dates.  WFBW  may,  in its sole
discretion,  re-determine the Borrowing Base  (Determined)  (and, if applicable,
the  Revenue  Half-Life  of the  Borrowing  Base  Properties)  not more than one
additional time during each calendar year prior to the Maturity Date. WFBW shall
advise  Borrower of each  re-determination  of the Borrowing  Base  (Determined)
(and, if applicable,  the Revenue Half-Life of the Borrowing Base Properties) by
WFBW by providing to Borrower a Borrowing Base Notice by  approximately  10 days
prior to the effective date of any such re-determination;  provided that if, due
to any failure by Borrower to submit in a timely manner any  engineering  report

                                       15
<PAGE>

or other  information  required to be  submitted  by Borrower  hereunder  or, if
requested  in writing by WFBW,  any  additional  information  or data  needed in
connection with a re-determination  of the Borrowing Base (Determined) or due to
any other reason  beyond the control of WFBW,  WFBW does not provide a Borrowing
Base Notice at the time described  above,  then: (a) unless WFBW gives notice to
the contrary to Borrower,  the Borrowing Base (Determined)  (and, if applicable,
the Revenue Half-Life of the Borrowing Base Properties) from the previous period
shall be carried over into the new period until a Borrowing  Base Notice is sent
to  Borrower  by WFBW and the  remainder  of the  procedures  described  in this
Section 2.8 have been  completed,  and (b) unless  Borrower  gives notice to the
contrary to WFBW, the Borrowing Base (Elected) from the previous period shall be
carried  over  into the new  period  until a  Borrowing  Base  Notice is sent to
Borrower by WFBW and the remainder of the  procedures  described in this Section
2.8 have been completed. Borrower shall have the right, by giving notice to WFBW
not later than five days prior to the  commencement  of any Quarterly  Borrowing
Base Period (or,  if a  Borrowing  Base Notice is due,  not later than five days
after the  effective  date of such  Borrowing  Base  Notice),  to elect a lesser
amount (the  "Borrowing  Base  (Elected)");  provided that, if Borrower fails to
make such an election,  the Borrowing Base (Elected) shall be deemed to be equal
to the Borrowing Base (Determined).

                                   ARTICLE III

         Security; Fees; LIBOR Provisions; Taxes; Increased Capital

         Section  3.1.  The  Security.  The  Obligations  will be secured by the
Security Documents and any additional  Security Documents hereafter delivered by
Borrower, Guarantor or any other Person and accepted by WFBW.

                Section 3.2. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver to WFBW any amendments, financing
statements,  continuation statements,  extension agreements and other documents,
properly  completed and executed (and acknowledged when required) by Borrower in
form and substance  reasonably  satisfactory to WFBW, which WFBW may request for
the purpose of  perfecting,  confirming  or  protecting  WFBW's  Liens and other
rights in the Collateral.

                Section 3.3. Bank  Accounts and Offset.  To secure the repayment
of the Obligations,  Borrower hereby grants to WFBW a security interest, a lien,
and a right of offset, each of which shall be upon and against:  (a) any and all
moneys,  securities or other  property (and the proceeds  therefrom) of Borrower
now or  hereafter  held or  received  by or in  transit  to WFBW from or for the
account of Borrower,  whether for safekeeping,  custody,  pledge,  transmission,
collection or otherwise,  (b) any and all deposits (general or special,  time or

                                       16
<PAGE>

demand,  provisional  or final) of Borrower with WFBW, and (c) any other credits
and claims of Borrower at any time  existing  against  WFBW,  including  without
limitation claims under certificates of deposit;  provided that accounts held in
Borrower's  name as a trustee  or in  another  fiduciary  capacity  shall not be
subject to the rights  granted to WFBW in this Section 3.3. Upon the  occurrence
of any Event of Default,  WFBW is hereby  authorized to foreclose upon,  offset,
appropriate,  and apply,  at any time and from time to time,  without  notice to
Borrower,  any  and all  items  referred  to in this  Section  3.3  against  the
Obligations  (whether or not such  Obligations  are then due and payable).  WFBW
shall give prompt notice to Borrower of any exercise of the rights of WFBW under
this Section 3.3, but such notice shall not be required to be given prior to the
exercise of such rights.

                Section 3.4.  Fees.  (a) Borrower  shall pay to WFBW,  within 15
days after the end of each calendar quarter, for the time period commencing with
the date of the  Initial  Advance  and  ending on the last day of the  Revolving
Period,  a commitment fee in an amount equal to: (1)  one-quarter of one percent
per annum,  times (2) the excess of the Commitment Fee Calculation Base over the
sum of the aggregate outstanding principal balance of all Advances plus the face
amount of all outstanding Letters of Credit,  computed on a daily basis for such
calendar quarter or other period.

         (b) Borrower  shall pay to WFBW with respect to each Letter of Credit a
fee in an amount  equal to the greater of: (1)  $500.00,  or (2) one percent per
annum (or, as to any Gas-Marketing Letter of Credit, one-half of one percent per
annum)  times the face amount of such  Letter of Credit,  which fee shall be due
and  payable at the time of issuance  (and again at the time of any  renewal) of
such Letter of Credit.

                Section  3.5.  Special  LIBOR  Provisions.  (a)  If  WFBW  shall
reasonably   determine  (which  determination  shall,  upon  notice  thereof  to
Borrower,  be conclusive and binding on Borrower and WFBW) that the introduction
of or any change in or in the  interpretation  of any law makes it unlawful,  or
any central bank or other  governmental  authority having  jurisdiction  asserts
that it is unlawful,  for WFBW to fund,  continue or maintain any LIBOR Tranche,
the  obligation  of WFBW to fund,  continue or maintain  any such LIBOR  Tranche
shall, upon such  determination,  forthwith be suspended until WFBW shall notify
Borrower that the circumstances causing such suspension no longer exist, and all
LIBOR Tranches shall  automatically  be converted into the Prime Rate Portion at
the end of the  then-current  LIBOR  Interest  Periods with  respect  thereto or
sooner, if required by such law or assertion.

         (b) If WFBW shall reasonably determine that:

                                       17
<PAGE>

         (1) U.S.  Dollar  deposits in the relevant  amount and for the relevant
LIBOR Interest Period are not available to WFBW in its relevant market; or

         (2) By  reason  of  circumstances  affecting  WFBW's  relevant  market,
adequate  means do not exist  for  ascertaining  the  interest  rate  applicable
hereunder to LIBOR Tranches;

then,  upon notice from WFBW to Borrower,  the obligation of WFBW to include any
portion of the Loan in a LIBOR Tranche shall  forthwith be suspended until three
Business Days after the circumstances causing such suspension no longer exist.

         (c) Borrower  agrees to reimburse  WFBW for any increase in the cost to
WFBW of, or any reduction in the amount of any sum receivable by WFBW in respect
of, funding,  continuing or maintaining (or of its obligation to fund,  continue
or maintain) any LIBOR Tranche;  provided that the foregoing  shall not apply to
increases  resulting  from  general  increases  in  interest  rates  or  general
increases  in WFBW's  administrative  expenses  or  overhead  costs.  WFBW shall
promptly  notify  Borrower in writing of the occurrence of any such event,  such
notice to state, in reasonable  detail,  the reasons therefor and the additional
amount  required  fully to compensate  WFBW for such  increased  cost or reduced
amount.  Such  additional  amount  shall be due and  payable by Borrower to WFBW
within fifteen days of Borrower's receipt of such notice, and such notice shall,
in the absence of clear error, be conclusive and binding on Borrower.

         (d) In the event WFBW shall  incur any loss or expense  (including  any
loss or  expense  incurred  by  reason of the  liquidation  or  reemployment  of
deposits or other  funds  acquired  by WFBW to fund,  continue  or maintain  any
portion of the principal amount of any LIBOR Tranche) as a result of:

         (1) Any  conversion,  repayment  or  prepayment  (whether  voluntary or
mandatory) of the principal amount of any LIBOR Tranche on a date other than the
scheduled last day of the LIBOR Interest Period applicable thereto;

         (2) Any requested  LIBOR Tranche not being funded as a LIBOR Tranche in
accordance  with the  provisions of this Agreement or the Interest Rate Election
therefor; or

         (3) Any  LIBOR  Tranche  not  being  continued  as a LIBOR  Tranche  in
accordance  with the  provisions of this Agreement or the Interest Rate Election
therefor;

                                       18
<PAGE>

then,  upon the  written  notice by WFBW to  Borrower,  Borrower  shall,  within
fifteen days of receipt thereof, pay WFBW such amount as will (in the reasonable
determination  of WFBW)  reimburse  WFBW for such loss or expense.  Such written
notice (which shall include  calculations  in reasonable  detail) shall,  in the
absence of clear error, be conclusive and binding on Borrower.

                Section 3.6.  Increased  Capital Costs. If any change in, or the
introduction,  adoption,  effectiveness,  interpretation,   reinterpretation  or
phase-in of, any law or regulation,  directive,  guideline,  decision or request
(whether or not having the force of law) of any court,  central bank,  regulator
or other  governmental  authority  affects or would affect the amount of capital
required or expected to be  maintained  by WFBW or any Person  controlling  WFBW
with respect to any portion of the Loan  included in a LIBOR  Tranche,  and WFBW
reasonably  determines  that  the  rate of  return  on its or  such  controlling
Person's  capital as a  consequence  of such portion of the Loan is reduced to a
level below that which WFBW or such  controlling  Person could have achieved but
for the occurrence of any such circumstance,  then, in any such case upon notice
from time to time by WFBW to Borrower,  Borrower  hereby  agrees to pay to WFBW,
within fifteen days of the effective date of such notice, such additional amount
(as may be reasonably  determined by WFBW) sufficient to compensate WFBW or such
controlling Person for such reduction in rate of return. A statement to Borrower
by WFBW as to any such  additional  amount or  amounts  (including  calculations
thereof  in  reasonable  detail)  shall,  in the  absence  of  clear  error,  be
conclusive and binding on Borrower.

                Section 3.7.  Taxes.  All payments by Borrower of principal  of,
and interest on, the Loan and all other amounts payable  hereunder shall be made
free and clear of and  without  deduction  for any  present  or  future  income,
excise, stamp or franchise taxes and other taxes, fees, duties,  withholdings or
other  charges of any nature  whatsoever  imposed by any taxing  authority,  but
excluding  franchise taxes and taxes imposed on or measured by WFBW's net income
or receipts (such  non-excluded  items being called "Taxes").  In the event that
any  withholding or deduction from any payment to be made by Borrower  hereunder
is required  in respect of any Taxes  pursuant to any  applicable  law,  rule or
regulation, Borrower will:

         (a) Pay directly to the relevant  authority the full amount required to
be so withheld or deducted;

         (b) Promptly forward to WFBW an official receipt or other documentation
evidencing such payment to such authority; and

                                       19
<PAGE>

         (c) Pay WFBW such  additional  amount or amounts as may be necessary to
ensure that the net amount actually  received by WFBW will equal the full amount
WFBW would have received had no such withholding or deduction been required.

Moreover,  if any Taxes are directly  asserted  against WFBW with respect to any
payment  received by WFBW  hereunder,  WFBW may pay such Taxes and Borrower will
promptly pay such  additional  amounts  (including  any  penalties,  interest or
expenses,  except any of the foregoing which arise as a result of WFBW's failure
to  notify  Borrower  promptly  of its  obligation  to pay the  same)  as may be
necessary  in order that the net amount  received  by WFBW after the  payment of
such Taxes  (including  any Taxes on such  additional  amount)  shall  equal the
amount WFBW would have received had not such Taxes been asserted.

                If Borrower  fails to pay any Taxes when due to the  appropriate
taxing  authority  or fails to remit  to WFBW  the  required  receipts  or other
required  documentary  evidence,  then Borrower shall  indemnify,  save and hold
harmless WFBW from and against any incremental Taxes, interest or penalties that
may become payable by WFBW as a result of any such failure.

                Section 3.8. Obligations Absolute. The obligation of Borrower to
repay any amount drawn on WFBW pursuant to the terms of a Letter of Credit shall
be absolute,  unconditional and irrevocable,  and shall be performed strictly in
accordance with the terms of this Agreement, under all circumstances whatsoever,
including without limitation the following circumstances:

         (a) The existence of any claim,  set-off,  defense or other right which
Borrower may have at any time against any  beneficiary of a Letter of Credit (or
any Person  for whom any such  beneficiary  may be acting) or any other  Person,
whether in connection with this Agreement, the transactions  contemplated hereby
or any unrelated transactions;

         (b) Any statement or any other document  presented  under any Letter of
Credit proving to be forged, fraudulent,  invalid or insufficient in any respect
or any statement  therein being untrue or inaccurate in any respect  whatsoever;
or

         (c) Payment by WFBW under any Letter of Credit against  presentation of
a draft or certificate  which does not comply in all material  respects with the
terms of such Letter of Credit.

Payment by Borrower of a reimbursement obligation in connection with a Letter of
Credit  issued  pursuant to this  Agreement  shall not be deemed a waiver of any
rights of Borrower against WFBW under Section 3.10(d) below.

                                       20
<PAGE>

                Section 3.9.  Indemnification.  Borrower hereby  indemnifies and
holds  harmless  WFBW from and  against  any and all  claims,  damages,  losses,
liabilities,  costs or expenses whatsoever which WFBW may incur (or which may be
claimed  against  WFBW by any  Person)  by reason of or in  connection  with the
execution  and  delivery  or  transfer of or payment or failure to pay under any
Letter of Credit;  provided,  however,  that  Borrower  shall not be required to
indemnify WFBW for any claims, damages, losses,  liabilities,  costs or expenses
to the extent,  but only to the extent,  caused by the willful  misconduct,  bad
faith or gross  negligence of WFBW in connection  with paying a draft  presented
under a Letter of Credit.  Nothing in this  Section 3.9 is intended to limit the
obligation  of Borrower to repay any amount drawn on WFBW  pursuant to the terms
of a Letter of Credit.

                Section 3.10.  Liability of WFBW.  Borrower assumes all risks of
the acts or omissions of any  beneficiary or permitted  transferee of any Letter
of Credit with respect to its use of such Letter of Credit. Neither WFBW nor any
of its employees, officers or directors shall be liable or responsible for:

         (a) The use which  may be made of any  Letter of Credit or for any acts
or omissions of any beneficiary or transferee thereof in connection therewith;

         (b) The validity,  sufficiency or  genuineness of documents,  or of any
endorsements  thereon,  even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged;

         (c) Payment by WFBW  against  presentation  of  documents  which do not
comply with the terms of the applicable  Letter of Credit,  including failure of
any  documents  to bear any  reference or adequate  reference to the  applicable
Letter of Credit,  unless  such  payment by WFBW  results  from  WFBW's  willful
misconduct, bad faith or gross negligence in connection therewith; or

         (d) Any other  circumstance  whatsoever  in making or  failing  to make
payment under the Letter of Credit, except only that Borrower shall have a claim
against WFBW, and WFBW shall be liable to Borrower,  to the extent,  but only to
the extent,  of any direct (as  opposed to  consequential)  damages  suffered by
Borrower which were caused by:

         (1)  WFBW's  willful  misconduct,  bad  faith  or gross  negligence  in
connection with the Letter of Credit; or

         (2)  WFBW's  bad-faith  or grossly  negligent  failure to pay under any
Letter of Credit after the  presentation to it by the beneficiary of a draft and
certificate  strictly  complying with the terms and conditions of such Letter of
Credit.

                                       21
<PAGE>

                                   ARTICLE IV

                          Conditions Precedent to Loan

                Section 4.1. Conditions Precedent to Initial Advance. WFBW shall
have no obligation to make the Initial  Advance or to issue any Letter of Credit
unless WFBW shall have  received  all of the  following at its office in Denver,
Colorado,   duly  executed  and  delivered  and  in  form,  substance  and  date
satisfactory to WFBW:

                (a)      The Note.

                (b)      An  "Omnibus  Certificate"  of an  officer  of  each of
                         Borrower and  Guarantor,  which shall contain the names
                         and   signatures   of  the  officers  of  Borrower  and
                         Guarantor  authorized  to execute  Loan  Documents  and
                         which  shall  certify  to the  truth,  correctness  and
                         completeness   of  the  following   exhibits   attached
                         thereto: (1) a copy of the articles of incorporation of
                         Borrower and of Guarantor and all  amendments  thereto,
                         (2) a copy of the bylaws of Borrower  and of  Guarantor
                         and  all  amendments  thereto,  and  (3) a copy  of the
                         resolutions  of the Board of  Directors of Borrower and
                         Guarantor authorizing this Agreement,  the Guaranty and
                         the transactions contemplated hereby.

                (c)      A  "Compliance  Certificate"  of an officer of Borrower
                         and of Guarantor in which each such person certifies to
                         the   satisfaction   of  the   conditions  set  out  in
                         subsections (a), (b), and (c) of Section 4.2 below.

                (d)      The Security Documents.

                (e)      Such title opinions,  supplemental title opinions,  UCC
                         searches   and  other  title   information   concerning
                         Borrower's  title to the Borrowing  Base  Properties or
                         any portions thereof as may be satisfactory to WFBW.

                (f)      Any and all other Loan Documents.

                Section 4.2. Additional Conditions Precedent. WFBW shall have no
obligation to make the Initial Advance or any subsequent Advance or to issue any
Letter of Credit unless the following conditions precedent have been satisfied:

                                       22
<PAGE>

                (a)      All   representations   and  warranties   made  by  any
                         Obligated  Person in any Loan Document shall be true on
                         and as of  the  date  of the  Advance  or the  date  of
                         issuance   of  the   Letter   of   Credit  as  if  such
                         representations  and warranties had been made as of the
                         date hereof.

                (b)      No  Default  shall  exist and be  continuing  as of the
                         date  of  the  Advance or the date of  issuance  of the
                         Letter of Credit.

                (c)      Each Obligated Person shall have performed and complied
                         with all agreements and conditions  herein  required to
                         be performed or complied  with by it on or prior to the
                         date of the  Advance  or the  date of  issuance  of the
                         Letter of Credit.

                (d)      The making of the Advance or the issuance of the Letter
                         of  Credit  shall not be  prohibited  by any law or any
                         regulation or order of any court or governmental agency
                         or authority  and shall not subject WFBW to any penalty
                         or other  onerous  condition  under or  pursuant to any
                         such law, regulation or order.

                                    ARTICLE V

                         Representations and Warranties

                Section 5.1.  Borrower's  and  Guarantor's  Representations  and
Warranties.  To induce WFBW to enter into this  Agreement  and to make the Loan,
each  of  Borrower  and  Guarantor   represents  and  warrants  to  WFBW  (which
representations  and warranties shall survive the delivery of the Note and shall
be deemed to be continuing  representations  and warranties  until  repayment in
full of the Note) as follows;  provided  that those  portions  of the  following
representations  and warranties relating to Borrower shall be deemed made solely
by Borrower and those portions of the following  representations  and warranties
relating to Guarantor shall be deemed made solely by Guarantor:

         (a)      No Default.  Neither  Borrower nor  Guarantor is in default in
                  any  material  respect  in  the  performance  of  any  of  the
                  covenants  and  agreements  contained  herein.  No  event  has
                  occurred and is continuing which constitutes a Default.

                                       23
<PAGE>

         (b)      Organization and Good Standing. Borrower is a corporation duly
                  organized,  validly  existing and in good  standing  under the
                  laws of the State of Colorado,  having all powers  required to
                  carry  on its  business  and  enter  into  and  carry  out the
                  transactions  contemplated hereby.  Guarantor is a corporation
                  duly  organized,  validly  existing and in good standing under
                  the laws of the State of Colorado,  having all powers required
                  to carry on its  business  and  enter  into and  carry out the
                  transactions   contemplated   hereby.  Each  of  Borrower  and
                  Guarantor is duly qualified,  in good standing, and authorized
                  to  do  business  in  all  other  jurisdictions   wherein  the
                  character of the properties  owned or held by it or the nature
                  of the  business  transacted  by it makes  such  qualification
                  necessary.

         (c)      Authorization.  Each of Borrower and  Guarantor has duly taken
                  all action  necessary to authorize  the execution and delivery
                  by it of the Loan Documents and to authorize the  consummation
                  of the transactions  contemplated  thereby and the performance
                  of its obligations thereunder.

         (d)      No Conflicts or Consents.  The  execution and delivery by each
                  of Borrower and Guarantor of the Loan  Documents to which each
                  is a party,  the performance by each of its obligations  under
                  such Loan Documents,  and the consummation of the transactions
                  contemplated  by the various Loan  Documents,  do not and will
                  not (1)  conflict  with any  provision  of (A) any domestic or
                  foreign law,  statute,  rule or regulation,  (B) the governing
                  documents  of Borrower  or  Guarantor,  or (C) any  agreement,
                  judgment,  license,  order or permit  applicable to or binding
                  upon any Borrower or Guarantor, (2) result in the acceleration
                  of any Debt owed by Borrower or Guarantor, or (3) result in or
                  require the creation of any Lien upon any assets or properties
                  of Borrower or Guarantor  except as expressly  contemplated in
                  the Loan  Documents.  Except as expressly  contemplated in the
                  Loan Documents, no consent,  approval,  authorization or order
                  of, and no notice to or filing with, any court or governmental
                  authority  or third party is required in  connection  with the
                  execution, delivery or performance by Borrower or Guarantor of
                  any  Loan   Document  or  to   consummate   any   transactions
                  contemplated by the Loan Documents.

                                       24
<PAGE>

         (e)      Enforceable Obligations. This Agreement is, and the other Loan
                  Documents,  when duly executed and  delivered,  will be, legal
                  and  binding  obligations  of each of Borrower  and  Guarantor
                  which is a party hereto or thereto,  enforceable in accordance
                  with their respective terms,  except as limited by bankruptcy,
                  insolvency or similar laws of general application  relating to
                  the enforcement of creditors' rights and as limited by general
                  equitable principles.

         (f)      Initial Financial Statements. The Initial Financial Statements
                  fairly  present  Guarantor's  financial  position at the dates
                  thereof.  Since the dates of the Initial Financial Statements,
                  no  material  adverse  change has  occurred in  Borrower's  or
                  Guarantor's  financial  condition  or  business.  All  Initial
                  Financial  Statements were prepared in accordance with GAAP or
                  with another accounting system approved in writing by WFBW.

         (g)      Other  Obligations.  Neither  Borrower nor  Guarantor  has any
                  outstanding   Debt   of   any   kind   (including   contingent
                  obligations, tax assessments, and unusual forward or long-term
                  commitments)  which  is not  shown  in the  Initial  Financial
                  Statements  or the notes  thereto,  except that  Borrower  has
                  unsecured  indebtedness in the outstanding principal amount of
                  not  more  than  $260,000  owed  to  Guarantor  and  unsecured
                  obligations  in an aggregate  amount not in excess of $250,000
                  owed to various Affiliates of Borrower.

         (h)      Full   Disclosure.   No   certificate,   statement   or  other
                  information  delivered  herewith or  heretofore by Borrower or
                  Guarantor to WFBW in connection  with the  negotiation of this
                  Agreement or in connection with any  transaction  contemplated
                  hereby  contains any untrue  statement  of a material  fact or
                  omits  to  state  any  material  fact  known  to  Borrower  or
                  Guarantor necessary to make the statements contained herein or
                  therein not misleading in any material  respect as of the date
                  made  or  deemed  to  have  been  made.  At the  date  of this
                  Agreement,  neither  Borrower  nor  Guarantor  is aware of any
                  material  fact that has not been  disclosed to WFBW in writing
                  which could  materially and adversely  affect the  properties,
                  businesses, prospects or condition (financial or otherwise) of
                  Borrower or Guarantor.  To the best  knowledge of Borrower and
                  Guarantor,  the  Initial  Engineering  Report  is  based  upon
                  complete  and  accurate  factual  information  in all material
                  respects,  it being  understood  that the Initial  Engineering
                  Report  is  necessarily  based  upon  professional   opinions,
                  estimates and  projections  and that Borrower and Guarantor do
                  not warrant that such opinions, estimates and projections will
                  ultimately prove to have been accurate.

                                       25
<PAGE>

         (i)      Litigation.  Except  as  disclosed  in the  Initial  Financial
                  Statements or as otherwise  disclosed in writing to WFBW:  (1)
                  there are no actions, suits or legal,  equitable,  arbitrative
                  or administrative  proceedings pending, or to the knowledge of
                  Borrower  or  Guarantor,   threatened,   against  Borrower  or
                  Guarantor before any federal, state, municipal or other court,
                  department,   commission,  body,  board,  bureau,  agency,  or
                  instrumentality,   domestic  or  foreign,   which  do  or  may
                  materially  and adversely  affect  Borrower or Guarantor,  any
                  Affiliate   controlled  by  Borrower  or  Guarantor,   any  of
                  Borrower's  or  Guarantor's  ownership  or  use  of any of its
                  assets or properties,  its business or financial  condition or
                  prospects, or the right or ability of Borrower or Guarantor to
                  enter  into the Loan  Documents  or  perform  its  obligations
                  thereunder,  and  (2)  there  are  no  outstanding  judgments,
                  injunctions, writs, rulings or orders by any such governmental
                  entity  against  Borrower or Guarantor  which have or may have
                  any such effect.

         (j)      Title to Properties. Borrower has good and defensible title to
                  the Borrowing  Base  Properties,  free and clear of all liens,
                  encumbrances  and  defects  of title,  except  for  covenants,
                  restrictions, rights, easements, liens, encumbrances and minor
                  irregularities in title which do not materially interfere with
                  the  occupation,  use and  enjoyment  of such  Borrowing  Base
                  Properties  in the  normal  course of  business  as  presently
                  conducted  or  materially  impair the value  thereof  for such
                  business.  Borrower enjoys peaceful and undisturbed possession
                  under all material  leases  under which it  operates,  and all
                  such leases are valid and subsisting, with no material default
                  existing thereunder.

                                       26
<PAGE>

         (k)      Place of Business.  The chief  executive  office and principal
                  place of business  of  Borrower  are located at the address of
                  Borrower set out in Section 8.3 below.

         (l)      Taxes.  All tax  returns  required  to be filed by Borrower or
                  Guarantor  in any  jurisdiction  prior to the date hereof have
                  been   filed;   all   taxes,   assessments,   fees  and  other
                  governmental charges upon Borrower or Guarantor or upon any of
                  their respective properties,  income or franchises,  which are
                  due and payable have been paid, or adequate reserves have been
                  provided for payment thereof.

         (m)      Use of Proceeds.  Neither  Borrower  nor  Guarantor is engaged
                  principally,  or as one of its  important  activities,  in the
                  business of extending  credit for the purpose of purchasing or
                  carrying margin stock (within the meaning of Regulation U or X
                  of the Board of Governors of the Federal Reserve System),  and
                  no part of the  proceeds  of the Loan will be used to purchase
                  or carry  any such  margin  stock or to  extend  credit to any
                  Person for the  purpose of  purchasing  or  carrying  any such
                  margin stock. None of Borrower, Guarantor or any Person acting
                  on Borrower's or Guarantor's behalf has taken or will take any
                  action  which  might cause this  Agreement  or the Note or the
                  application  of the proceeds of the Loan to violate  either of
                  said  Regulations U or X or any other  regulation of the Board
                  of Governors of the Federal  Reserve  System or to violate the
                  Securities Exchange Act of 1934, in each case as now in effect
                  or as the same may hereafter be in effect.

         (n)      Investment  Company Act Not Applicable.  Neither  Borrower nor
                  Guarantor is an "investment  company" or a person "controlled"
                  by  an  "investment   company"   within  the  meaning  of  the
                  Investment Company Act of 1940, as amended.

         (o)      Public Utility  Holding  Company Act Not  Applicable.  Neither
                  Borrower  nor   Guarantor   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"  as such  terms are  defined  in the Public
                  Utility Holding Company Act of 1935, as amended.

                                       27
<PAGE>

         (p)      ERISA   Liabilities.   Except  as  disclosed  in  the  Initial
                  Financial  Statements,  no Termination Event has occurred with
                  respect to any ERISA Plan,  and each of Borrower and Guarantor
                  is in compliance with ERISA in all material respects.  Neither
                  Borrower nor  Guarantor is required to  contribute  to, or has
                  any other absolute or contingent  liability in respect of, any
                  "multiemployer plan" as defined in Section 4001 of ERISA.

                Section 5.2.  Representations  by WFBW.  WFBW hereby  represents
that it will acquire the Note for its own account in the ordinary  course of its
commercial banking business;  however,  the disposition of WFBW's property shall
at all times be and remain within its control and this section does not prohibit
WFBW's  sale  of the  Note or of any  participation  in the  Note  to any  bank,
financial institution, investor or other purchaser.

                                   ARTICLE VI

                       Covenants of Borrower and Guarantor

                Section  6.1.  Affirmative  Covenants.   Each  of  Borrower  and
Guarantor  warrants,  covenants and agrees as follows,  until the full and final
payment of the Obligations  and the  termination of this Agreement,  unless WFBW
has previously agreed otherwise in writing;  provided that those portions of the
following covenants relating to Borrower shall be deemed made solely by Borrower
and those  portions of the following  covenants  relating to Guarantor  shall be
deemed made solely by Guarantor:

         (a)      Payment  and  Performance.  Borrower  will pay all amounts due
                  under the Loan Documents in accordance  with the terms thereof
                  and will in all material respects observe,  perform and comply
                  with every covenant,  term and condition express or implied in
                  the Loan Documents. Guarantor will observe, perform and comply
                  with every such term,  covenant and  condition,  to the extent
                  applicable to Guarantor.

         (b)      Books,  Financial Statements and Records. Each of Borrower and
                  Guarantor  will at all times  maintain full and accurate books
                  of account and  records,  will  maintain a standard  system of
                  accounting in accordance with GAAP or with another  accounting
                  system  approved  in  writing  by WFBW  and will  furnish  the
                  following statements and reports to WFBW at the expense of the
                  furnishing party:

                                       28
<PAGE>

         (1) As soon as available, and in any event within 90 days after the end
of each Fiscal Year,  complete  audited  Consolidated  financial  statements  of
Guarantor  (together with a supplement showing the complete unaudited  financial
statements of Borrower),  prepared in reasonable  detail and in accordance  with
GAAP or with  another  accounting  system  approved  in writing  by WFBW.  These
financial  statements  shall  contain at least a balance  sheet as of the end of
such Fiscal Year and a statement  of earnings  and cash flow,  setting  forth in
comparative form the corresponding figures for the preceding Fiscal Year and, to
the extent that they relate to Guarantor,  shall be accompanied by an opinion of
a firm of  independent  certified  public  accountants  chosen by Guarantor  and
competent to perform  accounting  functions  for a substantial  public  company,
which  opinion  shall  be  unqualified  and  shall  state  that  said  financial
statements  have been  prepared in accordance  with GAAP and fairly  present the
financial  position and the results of  operations of Guarantor as of the end of
and for such Fiscal Year;

         (2) As soon as available  and in any event within 60 days after the end
of each Fiscal  Quarter  (except the last Fiscal  Quarter of each Fiscal  Year),
complete unaudited Consolidated financial statements of Guarantor (together with
a supplement  showing the complete unaudited  financial  statements of Borrower)
for such  Fiscal  Quarter and for the then-  current  Fiscal  Year,  prepared by
Guarantor  in  reasonable  detail and in  accordance  with GAAP or with  another
accounting system approved in writing by WFBW;

         (3) At the  time of  submission  of any and  all  financial  statements
furnished  pursuant to clause (1) or (2) above, a report signed by the president
or chief financial officer of Borrower and of Guarantor,  in the form of Exhibit
E attached hereto and made a part hereof;

         (4) Upon the  request of WFBW,  copies of any and all federal and state
income tax returns filed by Borrower,  including  all  schedules and  amendments
thereto;

         (5) By March 31 of each year,  commencing  March 31, 2001,  through the
Maturity Date, an engineering report and economic  evaluation prepared by one or
more  independent   petroleum   engineers  chosen  by  Borrower  and  reasonably
acceptable to WFBW,  covering all oil and gas properties and interests  included
in the Borrowing Base Properties.  Each such engineering report shall be in form
and substance reasonably  satisfactory to WFBW and shall contain information and
analysis  comparable  in  scope to that  contained  in the  Initial  Engineering
Report; and

                                       29
<PAGE>

         (6) As soon as available, and in any event within 60 days after the end
of each calendar quarter,  commencing with the calendar quarter ending September
30, 2000, a report  describing,  for each  calendar  month during such  calendar
quarter,  the gross volume of production  and sales  attributable  to production
(and the prices at which such sales were made and the revenues derived from such
sales,  the prices so  disclosed  to be the average  prices on a  field-by-field
basis) for each such calendar  month from the  Borrowing  Base  Properties,  and
describing  the related ad valorem,  severance  and  production  taxes and lease
operating  expenses  attributable  thereto and incurred  for each such  calendar
month.

                (c) Other  Information  and  Inspections.  Each of Borrower  and
Guarantor will furnish to WFBW any information  which WFBW may from time to time
reasonably request  concerning any covenant,  provision or condition of the Loan
Documents or any matter in connection with Borrower's or Guarantor's  businesses
and  operations.  Each of Borrower  and  Guarantor  will permit  representatives
appointed  by  WFBW,  including  independent  accountants,   agents,  attorneys,
appraisers  and any other  persons,  upon  reasonable  prior  notice  and during
regular  office  hours,  to visit and inspect,  at their sole risk (and,  except
during the continuance of an Event of Default,  at their sole cost and expense),
any of Borrower's or Guarantor's property, including its books of account, other
books and records,  and any  facilities or other  business  assets,  and to make
extra copies  therefrom and photocopies and  photographs  thereof,  and to write
down  and  record  any  information  such  representatives  obtain,  and each of
Borrower and Guarantor shall permit WFBW or its  representatives  to investigate
and verify the accuracy of the information  furnished to WFBW in connection with
the Loan Documents and to discuss all such matters with its officers,  managers,
employees and representatives.

                (d) Notice of Material  Events.  Borrower will  promptly  notify
WFBW: (1) of any material adverse change in the financial  condition of Borrower
or Guarantor,  (2) of the occurrence of any Default,  (3) of the acceleration of
the  maturity  of any Debt owed by Borrower  or  Guarantor  or of any default by
Borrower or Guarantor  under any  indenture,  mortgage,  agreement,  contract or
other  instrument to which any of them is a party or by which any of them or any
of their  properties is bound,  (4) of any  uninsured  claim of $500,000 or more

                                       30
<PAGE>

asserted  against  Borrower or Guarantor  or any of  Borrower's  or  Guarantor's
properties,  (5) of the filing of any suit or  proceeding  against  Borrower  or
Guarantor  (or the  occurrence of any material  development  in any such suit or
proceeding) in which an adverse  decision  could have a material  adverse effect
upon Borrower's or Guarantor's  financial condition,  business or operations (or
could  result in a judgment not covered by insurance of $500,000 or more against
Borrower  or  Guarantor),  (6) of the merger or  consolidation  of  Borrower  or
Guarantor  with  any  other  business  entity,  (7)  of  the  occurrence  of any
Termination  Event,  and (8) of the  sale,  transfer  to a third  party,  lease,
exchange  or  disposal  by  Borrower  or  Guarantor  of any  material  assets or
properties  or any  assets or  properties  with a value in  excess of  $500,000,
except sales of already-severed  hydrocarbons and other products in the ordinary
course of business of Borrower or Guarantor.  Upon the  occurrence of any of the
foregoing, each of Borrower and Guarantor will take all necessary or appropriate
steps to remedy promptly any such material adverse change,  Default, or default,
to  protect  against  any  such  adverse  claim,  to  defend  any  such  suit or
proceeding,  and to resolve all controversies on account of any of the foregoing
or to contest in good faith the  validity  thereof by  appropriate  proceedings.
Borrower or Guarantor will also notify WFBW in writing at least twenty  Business
Days  prior to the date  that  Borrower  or  Guarantor  changes  its name or the
location of its chief  executive  office or  principal  place of business or the
place where it keeps its books and records concerning the Collateral, furnishing
with such notice any necessary financing statement amendments or requesting WFBW
and its counsel to prepare the same.

                (e) Maintenance of Existence and  Qualifications.  Borrower will
maintain and preserve its existence and its rights and  franchises in full force
and effect and will qualify to do business in all states or jurisdictions  where
required by applicable law, except where the failure so to qualify will not have
any material adverse effect on Borrower.

                (f)  Maintenance  of  Properties.  Borrower will in all material
respects maintain, preserve, protect and keep all property used or useful in the
conduct of its business in  accordance  with the  standards of a reasonable  and
prudent operator.

                (g)  Payment of Trade Debt,  Taxes,  etc.  Each of Borrower  and
Guarantor  will:  (1) timely file all required  tax returns;  (2) timely pay all
taxes, assessments,  and other governmental charges or levies imposed upon it or
upon its income,  profits or  property;  (3) pay all Debt owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services

                                       31
<PAGE>

used by it in the ordinary course of its business;  and (4) maintain appropriate
accruals and  reserves  for all of the  foregoing  Debt in  accordance  with its
present  system of  accounting.  Each of  Borrower  and  Guarantor  will pay and
discharge  in all  material  respects,  when  due,  all  other  Debt,  taxes  or
assessments  now or hereafter  owed by it. Each of Borrower and  Guarantor  may,
however,  delay  paying  or  discharging  any such Debt so long as it is in good
faith  contesting the validity  thereof by appropriate  proceedings  and has set
aside on its books adequate reserves therefor.

                (h) Insurance. Borrower will maintain with financially sound and
reputable  insurance   companies,   insurance  with  respect  to  its  business,
operations  and  properties  in at least such  amounts and against at least such
risks as are usually  insured  against in the same  general area by companies of
established repute engaged in the same or a similar business.

                (i) Payment of  Expenses.  Borrower  will  promptly  (and in any
event  within 30 days after any  invoice or other  statement  or notice) pay all
reasonable  costs and  expenses  incurred  by or on  behalf  of WFBW  (including
attorneys' fees) in connection with: (1) the preparation, execution and delivery
of  the  Loan  Documents  (including  without  limitation  any  and  all  future
amendments or  supplements  thereto or  restatements  thereof),  and any and all
consents,  waivers or other documents or instruments  relating  thereto,  except
that WFBW shall bear any and all costs  incurred by WFBW in connection  with the
preparation  of this  Agreement and the Note,  (2) the  preparation,  execution,
delivery, filing, recording, refiling and re-recording of any Security Documents
and any other  documents or  instruments  or further  assurances  required to be
filed or recorded or refiled or  re-recorded  by the terms of any Loan Document,
except  that WFBW shall bear any and all costs  incurred  by WFBW in  connection
with the initial  preparation,  filing and  recording of the Security  Documents
executed and  delivered  within 90 days of the time of execution and delivery of
this  Agreement  (but  not  of  future   amendments  or  re-recordings  of  said
documents),  (3) the examination of Borrower's  title to the Collateral,  except
that WFBW shall bear the cost of any title  examination  that it  requires to be
performed  either at the time of the execution and delivery of this Agreement or
within 180 days thereafter,  and (4) the enforcement,  after the occurrence of a
Default or an Event of Default, of the Loan Documents.

                (j) Performance on Borrower's  Behalf.  If Borrower fails to pay
any taxes,  insurance  premiums or other amounts it is required to pay under any
Loan Document,  WFBW may pay the same. Borrower shall immediately reimburse WFBW

                                       32
<PAGE>

for any such  payments  and each  amount  paid  shall  constitute  a part of the
Obligations,  shall be secured by the Security Documents and shall bear interest
at the rate described in Section  2.2(c)(3) above,  from the date such amount is
paid by WFBW until the date such amount is repaid to WFBW.

                (k) Compliance  with  Agreements and Law.  Borrower will perform
all  material  obligations  it is  required  to perform  under the terms of each
indenture,  mortgage,  deed of  trust,  security  agreement,  lease,  franchise,
agreement,  contract or other instrument or obligation to which it is a party or
by which it or any of its  properties is bound in such a way that they result in
no material  adverse effect upon the Borrowing Base Properties or the ability of
Borrower to perform its obligations  under or in connection with this Agreement.
Borrower  will in all  material  respects  conduct its  business  and affairs in
compliance with all laws, regulations,  and orders applicable thereto (including
those relating to pollution and other environmental matters).

                (l) Certifications of Compliance. Each of Borrower and Guarantor
will furnish to WFBW at such Person's expense all certifications which WFBW from
time  to  time  reasonably  requests,  as to the  accuracy  and  validity  of or
compliance with all  representations,  warranties and covenants made by Borrower
or Guarantor in the Loan Documents, the satisfaction of all conditions contained
therein, and all other matters pertaining thereto.

                (m)  Additional  Security  Documents.  Promptly  after a request
therefor by WFBW at any time and from time to time,  Borrower  will  execute and
deliver to WFBW such additional Security Documents and/or amendments to existing
Security  Documents as WFBW may deem  necessary or appropriate in order to grant
to WFBW a perfected  lien on and security  interest in any or all oil and/or gas
interests owned by Borrower.

                Section 6.2. Negative  Covenants.  Borrower warrants,  covenants
and agrees  that until the full and final  payment  of the  Obligations  and the
termination of this Agreement,  unless WFBW has previously  agreed  otherwise in
writing:

                (a) Financial Covenants.  (1) The Current Ratio of Borrower will
not be less than 1.0:1.0 at any time after the date hereof. (2) The Tangible Net
Worth of Borrower will not, at any time after the date hereof, be less than: (A)
$20,000,000,  plus (B) 50 percent of any and all Capital  Additions  to Borrower
after  June 30,  2000,  plus (C) 50  percent  of the  Cumulative  Net  Income of
Borrower for all Fiscal Quarters ending after June 30, 2000.

                                       33
<PAGE>

                (b)  Limitation on Liens.  Borrower  will not create,  assume or
permit to exist any mortgage, deed of trust, pledge, encumbrance, lien or charge
of any kind  (including  any security  interest in or vendor's  lien on property
purchased  under  conditional  sales or other  title  retention  agreements  and
including any lease  intended as security or in the nature of a title  retention
agreement) upon any of Borrower's or Guarantor's  properties or assets,  whether
now owned or hereafter acquired except:

         (1) Liens at any time existing in favor of WFBW;

         (2) statutory Liens for taxes,  statutory or contractual mechanics' and
materialmen's  Liens  incurred in the  ordinary  course of  business,  and other
similar Liens incurred in the ordinary  course of business,  provided such Liens
secure only Debt which is not delinquent or which is being contested as provided
in Section 6.1(g) above; and

         (3)  purchase-money  security  interests  granted by Borrower on office
equipment,  vehicles  and other  personal  property  acquired by Borrower in the
ordinary course of business;  provided that the aggregate  amount secured by all
such security interests outstanding at any one time shall not exceed $500,000.

                (c) Additional Debt. Borrower will not create,  incur, assume or
permit to exist Debt  except:  (1) the Loan,  (2) trade debt owed to  suppliers,
pumpers,  mechanics,  materialmen  and others  furnishing  goods or  services to
Borrower in the ordinary course of Borrower's  business,  (3) Subordinated Debt,
(4)  Debt  of the  types  permitted  to be  secured  by the  security  interests
described in Section 6.2(b)(3) above; provided that the amount of such Debt does
not exceed the limits set forth in said Section,  (5) Hedging  Obligations,  (6)
unsecured Debt owed to Affiliates of Borrower not in excess of $1,000,000 in the
aggregate at any time, and (7) other unsecured Debt not in excess of $500,000 in
the aggregate at any time.

                (d)  Limitation  on Sales of Property.  Borrower  will not sell,
transfer, lease, exchange,  alienate or dispose of any of the assets included in
the Borrowing Base  Properties  except as follows (and the following  exceptions
shall be subject to any limitations contained in the Security Documents):

         (1)  equipment  which is worn out or  obsolete,  which is  replaced  by
equipment of equal  suitability  and value or which is salvaged from wells which
have been plugged and abandoned by or on behalf of Borrower;

                                       34
<PAGE>

         (2) inventory (including oil and gas sold as produced) which is sold in
the ordinary course of business;

         (3) personal  property  located on oil and gas  properties  operated by
third  parties,  the sale of which  personal  property  cannot be  prevented  by
Borrower; and

         (4) any sale or sales of one or more oil and/or gas  properties  having
an aggregate value of less than $500,000 during any calendar year.

                (e)  Limitation on Credit  Extensions.  Borrower will not extend
credit,  make advances or make loans other than normal and prudent extensions of
credit  to  customers  buying  goods  and  services  in the  ordinary  course of
business,  which  extensions shall not be for longer periods than those extended
by similar businesses operated in a normal and prudent manner.

                (f)      Fiscal Year.  Borrower will not change its fiscal year.

                (g)  Amendment of  Contracts.  Borrower will not amend or permit
any  amendment to any contract  which could  reasonably  be foreseen to release,
qualify,  limit,  make  contingent  or otherwise  detrimentally  affect,  in any
material way, the rights and benefits of WFBW under or acquired  pursuant to any
of the Security Documents.

               (h) Limitation on Guaranties. Borrower will not assume, guaranty,
endorse or be or become  secondarily  liable  for any Debt which is the  primary
obligation of any other Person.

                (i)      ERISA Plans.  Borrower will not incur any obligation to
contribute to any "multiemployer plan" as defined in Section 4001 of ERISA.

                (j)  Distributions.  Borrower will not make any Distributions.

                (k)      Reorganizations; Combinations. Borrower will not change
its name or the nature of its business, reorganize, liquidate, dissolve or enter
 into any merger, joint venture, partnership or other combination.

                (l)      Ownership.  Borrower will continue to be a wholly-owned
subsidiary of Guarantor.

                                       35
<PAGE>

                                   ARTICLE VII

                         Events of Default and Remedies

                Section 7.1.  Events of Default.   Each of  the following events
constitutes an Event of Default under this Agreement:

                (a)  Borrower  fails  to pay any  Obligation  on or  before  one
Business Day after the stated due-date of any such Obligation  without regard to
the  provisions of this Section  7.1(a),  whether at a date for the payment of a
fixed  installment  or  contingent  or other  payment  to WFBW or as a result of
acceleration or otherwise; or

                (b) Any  "default"  or "event of default"  occurs under any Loan
Document which defines  either term and any applicable  cure period set forth in
any such Loan Document expires; or

                (c)  Borrower or  Guarantor  fails to duly  observe,  perform or
comply  with  any  covenant,  agreement,  condition  or  provision  of any  Loan
Document;  provided  that,  except  with  respect  to:  (1) any  such  covenant,
agreement, condition or provision which may constitute an Event of Default under
one of the  other  subsections  of  this  Section  7.1,  or  (2)  any  covenant,
agreement,  condition or provision  contained in any of Sections 2.2, 2.3 or 6.2
above,  Borrower  shall have a 30-day grace period after written  notice of such
failure by WFBW to Borrower in which to cure such failure; or

                (d) Any  representation  or warranty  previously,  presently  or
hereafter made in writing by or on behalf of Borrower or Guarantor in connection
with any Loan  Document  shall  prove to have  been  false or  incorrect  in any
material respect on any date on or as of which made; or

                (e)  Borrower or Guarantor:

         (1)  suffers the entry  against it of a  judgment,  decree or order for
relief  by a  court  of  competent  jurisdiction  in an  involuntary  proceeding
commenced  under any applicable  bankruptcy,  insolvency or other similar law of
any  jurisdiction now or hereafter in effect,  including the federal  Bankruptcy
Code, as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of 60 days; or

         (2)  suffers  the  appointment  of a  receiver,  liquidator,  assignee,
custodian,  trustee,  sequestrator or similar official for a substantial part of
its assets or for any part of the  Borrowing  Base  Properties  in a  proceeding
brought  against or  initiated  by it,  and such  appointment  is  neither  made
ineffective  nor  discharged  within 30 days after the making  thereof,  or such
appointment is consented to, requested by, or acquiesced to by it; or

                                       36
<PAGE>

         (3)  commences  a  voluntary  case  under  any  applicable  bankruptcy,
insolvency  or similar law now or  hereafter  in effect,  including  the federal
Bankruptcy Code, as from time to time amended; or applies for or consents to the
entry of an order for relief in an involuntary case under any such law or to the
appointment  of  or  taking  possession  by a  receiver,  liquidator,  assignee,
custodian,  trustee,  sequestrator or other similar  official of any substantial
part of its  assets or any part of the  Borrowing  Base  Properties;  or makes a
general  assignment for the benefit of creditors;  or fails generally to pay (or
admits in writing its  inability  to pay) its debts as such debts become due; or
takes action in furtherance of any of the foregoing; or

         (4) suffers the entry against it of a final judgment for the payment of
money in excess of  $500,000  (not  covered  by  insurance),  unless the same is
discharged  within  30 days  after  the date of entry  thereof  or an  appeal or
appropriate proceeding for review thereof is taken within such period and a stay
of execution pending such appeal is obtained; or

         (5)  suffers  the entry of an order  issued  by any  court or  tribunal
taking,  seizing or apprehending  all or one or more parts of the Borrowing Base
Properties  having an  aggregate  value in excess of five  percent  of the total
present  value,  using a discount  rate of 10 percent per annum,  of all proved,
developed,  producing  reserves  attributed to the Borrowing Base Properties and
bringing the same into the custody of such Court or tribunal,  and such order is
not stayed or released within thirty days after the entry thereof; or

                (f) Either: (1) any "accumulated funding deficiency" (as defined
in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$10,000  exists  with  respect to any ERISA  Plan,  whether or not waived by the
Secretary of the Treasury or his delegate,  or (2) any Termination  Event occurs
with respect to any ERISA Plan and the then  current  value of such ERISA Plan's
benefits  guaranteed  under Title IV of ERISA  exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefits by more than
$10,000 (or in the case of a Termination  Event  involving  the  withdrawal of a
substantial  employer,  the withdrawing  employer's  proportionate share of such
excess exceeds such amount); or

                                       37
<PAGE>

                (g) The  Guaranty  ceases  to be in full  force and  effect  and
applicable to any and all of the Obligations  covered thereby in accordance with
its terms,  whether by operation of law,  revocation or attempted  revocation or
otherwise; or

                (h) Any default,  including  the  expiration  of any  applicable
period of grace,  occurs with respect to any other indebtedness owed by Borrower
to any Person.

Upon the  occurrence  of an Event of Default  described  in  subsection  (e)(1),
(e)(2) or (e)(3) of this  section,  all of the  Obligations  shall  thereupon be
immediately due and payable,  without presentment,  demand,  protest,  notice of
protest,  declaration or notice of acceleration  or intention to accelerate,  or
any other notice or declaration  of any kind, all of which are hereby  expressly
waived by Borrower.  During the continuance of any other Event of Default,  WFBW
at any time and from time to time (unless all Events of Default have theretofore
been  remedied) may declare any or all of the  Obligations  immediately  due and
payable,  and all  such  Obligations  shall  thereupon  be  immediately  due and
payable.

                Section 7.2. Remedies.  If any Default or Event of Default shall
occur and be  continuing,  the  obligation of WFBW to make  Advances  under this
Agreement shall terminate immediately. If any Event of Default shall occur, WFBW
may protect and enforce its rights under the Loan  Documents by any  appropriate
proceedings,  including  proceedings for specific performance of any covenant or
agreement  contained in any Loan  Document,  and WFBW may enforce the payment of
any Obligations due or enforce any other legal or equitable  right.  All rights,
remedies and powers conferred upon WFBW under the Loan Documents shall be deemed
cumulative and not exclusive of any other rights,  remedies or powers  available
under the Loan Documents or at law or in equity.

                Section 7.3.  Indemnity.  Borrower  hereby  agrees to indemnify,
defend and hold harmless WFBW and its agents, affiliates,  officers,  directors,
and employees  from and against any and all claims,  losses,  demands,  actions,
causes of action,  and  liabilities  whatsoever  (including  without  limitation
reasonable  attorney's  fees and  expenses,  and costs and  expenses  reasonably
incurred in  investigating,  preparing or defending  against any  litigation  or
claim, action, suit,  proceeding or demand of any kind or character) arising out
of or resulting from: (a) the Loan Documents  (including  without limitation the

                                       38
<PAGE>

enforcement thereof),  except to the extent such claims, losses, and liabilities
are proximately caused by a WFBW's gross negligence or willful  misconduct,  (b)
the  contamination  of any of the  Borrowing  Base  Properties  by any hazardous
substance or environmental pollutant, or (c) the violation of any federal, state
or local environmental statute, rule, regulation or ordinance, including without
limitation violation of the Comprehensive  Environmental Response,  Compensation
and Liability Act, as amended from time to time, or of the Resource Conservation
and Recovery Act, as amended from time to time.

                                  ARTICLE VIII

                                  Miscellaneous

                Section 8.1.  Waiver and Amendment.  No failure or delay by WFBW
in exercising any right, power or remedy which it may have under any of the Loan
Documents  shall  operate as a waiver  thereof or of any other  right,  power or
remedy,  nor shall any single or  partial  exercise  by WFBW of any such  right,
power or remedy preclude any other or further  exercise  thereof or of any other
right,  power or remedy.  No waiver of any provision of any Loan Document and no
consent  to any  departure  therefrom  shall ever be  effective  unless it is in
writing and signed by WFBW,  and then such waiver or consent  shall be effective
only in the specific  instances  and for the purposes for which given and to the
extent  specified  in such  writing.  No  notice to or  demand  on  Borrower  or
Guarantor shall in any case of itself entitle Borrower or Guarantor to any other
or further notice or demand in similar or other  circumstances.  No modification
or  amendment of or  supplement  to this  Agreement or the other Loan  Documents
shall be valid or  effective  unless  the same is in  writing  and signed by the
party against whom it is sought to be enforced.

                Section 8.2. Survival of Agreements;  Cumulative  Nature. All of
Borrower's and Guarantor's various  representations,  warranties,  covenants and
agreements  in the Loan  Documents  shall  survive the execution and delivery of
this  Agreement  and the other Loan  Documents  and the  performance  hereof and
thereof, including without limitation the making or granting of the Loan and the
delivery of the Note and the other Loan  Documents,  and shall  further  survive
until  all of the  Obligations  are  paid  in full  to  WFBW  and all of  WFBW's
obligations to Borrower are terminated.  The  representations,  warranties,  and

                                       39
<PAGE>

covenants made by Borrower or Guarantor in the Loan  Documents,  and the rights,
powers,  and privileges  granted to WFBW in the Loan Documents,  are cumulative,
and no Loan  Document  shall be construed in the context of another to diminish,
nullify,  or  otherwise  reduce the benefit to WFBW of any such  representation,
warranty,  covenant,  right,  power or  privilege.  In  particular  and  without
limitation,  no  exception  set out in  this  Agreement  to any  representation,
warranty or covenant herein contained shall apply to any similar representation,
warranty or covenant contained in any other Loan Document, and each such similar
representation,  warranty or covenant shall be subject only to those  exceptions
which are  expressly  made  applicable  to it by the terms of the  various  Loan
Documents.

                Section 8.3. Notices. All notices,  requests,  consents, demands
and other communications  required or permitted under any Loan Document shall be
in writing and, unless  otherwise  specifically  provided in such Loan Document,
shall be  deemed  sufficiently  given or  furnished  if  delivered  by  personal
delivery, by expedited delivery service with proof of delivery, or by registered
or certified United States mail, return receipt requested,  postage prepaid,  at
the addresses specified below (unless changed by similar notice in writing given
by the  particular  Person whose  address is to be changed).  Any such notice or
communication  shall be deemed to have been  given,  in the case of  notices  by
personal delivery or by expedited  delivery service,  at the time of delivery to
the appropriate address,  marked to the attention of the appropriate person, or,
in the case of mail,  three  Business  Days after  deposit in the United  States
mail, addressed in the manner provided herein:

Borrower's address:     1700 Broadway Street, Suite 1150
                        Denver, Colorado  80290
                        Attention: Mr. Kevin Struzeski

with a copy to
 Guarantor at:          1700 Broadway Street, Suite 1150
                        Denver, Colorado  80290
                        Attention: Mr. Kevin Struzeski

WFBW's address:         MAC #C7301-046
                        1740 Broadway
                        Denver, Colorado  80274
                        Attention: Energy & Minerals Group

                Section 8.4.  Parties in  Interest.  All grants,  covenants  and
agreements  contained in the Loan Documents  shall bind and inure to the benefit
of the parties thereto and their  respective  successors and assigns;  provided,
however,  that no  Obligated  Person may assign or transfer any of its rights or
delegate any of its duties or  obligations  under any Loan Document  without the
prior written consent of WFBW.

                Section 8.5.  Governing Law. The Loan Documents  shall be deemed
contracts and instruments made under the laws of the State of Colorado and shall
be  construed  and enforced in  accordance  with and governed by the laws of the

                                       40
<PAGE>

State of Colorado and the laws of the United States of America,  except:  (a) to
the extent that the law of another  jurisdiction is expressly  elected in a Loan
Document,  and (b) with respect to specific  Liens,  or the perfection  thereof,
evidenced by Security  Documents covering real or personal property which by the
laws  applicable  thereto are required to be construed under the laws of another
jurisdiction.  Each of Borrower and Guarantor hereby irrevocably  submits itself
to the  non-exclusive  jurisdiction of the state and federal courts of the State
of Colorado.

                Section  8.6.  Limitation  on Interest.  WFBW and the  Obligated
Persons intend to contract in strict  compliance with applicable  usury law from
time to time in effect. In furtherance  thereof such persons stipulate and agree
that none of the terms and provisions contained in the Loan Documents shall ever
be construed to create a contract to pay, for the use,  forbearance or detention
of money,  interest in excess of the maximum amount of interest  permitted to be
charged by  applicable  law from time to time in effect.  Neither any  Obligated
Person  nor any  present  or  future  guarantors,  endorsers,  or other  Persons
hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned  interest  thereon or shall ever be required to pay interest thereon in
excess of the maximum amount that may be lawfully  charged under  applicable law
from time to time in effect,  and the  provisions  of this section shall control
over all other  provisions  of the Loan  Documents  which may be in  conflict or
apparent conflict  herewith.  WFBW expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any  Obligation  is  accelerated.  If: (a) the maturity of any  Obligation is
accelerated  for any reason,  (b) any  Obligation is prepaid and as a result any
amounts held to constitute  interest are determined to be in excess of the legal
maximum,  or (c) WFBW or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that  permitted to be charged by applicable  law then in effect,  then
all such sums  determined to  constitute  interest in excess of such legal limit
shall,  without  penalty,  be  promptly  applied to reduce the then  outstanding
principal of the related Obligations or, at WFBW's option,  promptly returned to
Borrower or the other payor thereof upon such determination.

                Section 8.7. Severability.  If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable, all other terms and
provisions of the Loan Documents shall  nevertheless  remain effective and shall
be enforced to the fullest extent permitted by applicable law.

                                       41
<PAGE>

                Section 8.8.  Counterparts.  This  Agreement  may be  separately
executed  in any  number of  counterparts  and by  different  parties  hereto in
separate  counterparts,  each of  which  when so  executed  shall be  deemed  to
constitute one and the same Agreement.

                Section 8.9.  Conflicts.  To  the extent  of  any irreconcilable
conflicts between the provisions of this Agreement and  the provisions of any of
the Loan Documents, the provisions of this Agreement shall prevail.

                Section 8.10.  Entire Agreement.  This Agreement,  the Note, the
Security  Documents and the other Loan  Documents  from time to time executed in
connection  herewith state the entire agreement between the parties with respect
to the subject matter hereof.

                Section  8.11.  Arbitration.  (a) Subject to the  provisions  of
Section  8.11(b) below,  WFBW and each of Borrower and Guarantor agree to submit
to binding  arbitration any and all claims,  disputes and controversies  between
them (and their respective employees,  officers, directors,  attorneys and other
agents),  whether in tort,  contract or otherwise,  arising out of or in any way
relating to this  Agreement,  the Note, the Security  Documents,  the other Loan
Documents,   the   Loan   and  the   negotiation,   execution,   administration,
collateralization,  repayment, modification, extension, collection, enforcement,
default  or  termination  thereof.  Such  arbitration  shall  proceed in Denver,
Colorado,  shall be governed by Colorado law (including  without  limitation the
provisions of CRS  13-21-102(5)  and all applicable  statutes of limitation) and
shall be conducted in accordance  with the Commercial  Arbitration  Rules of the
American   Arbitration   Association  (the  "AAA").  Any  award  entered  in  an
arbitration,  whether on motions or at a hearing, with or without testimony from
witnesses,  shall be made by a written opinion stating the reasons for the award
made. The decision of any  arbitration  pursuant to this Agreement shall be made
based upon Colorado law without  reference to any choice of law rules.  Judgment
on any award hereunder may be entered in any court having jurisdiction.

         (b) Nothing in the preceding  paragraph,  nor the exercise of any right
to  arbitrate  thereunder,  shall  limit the right of any party  hereto:  (1) to
foreclose  against any real or personal  property  collateral by the exercise of
the power of sale under a deed of trust,  mortgage,  or other security agreement
or  instrument  or applicable  law; (2) to exercise  self-help  remedies such as
setoff or repossession;  or (3) to obtain provisional or ancillary remedies such
as replevin,  injunctive relief,  attachment or appointment of a receiver from a

                                       42
<PAGE>

court  having  jurisdiction,  before,  during  or  after  the  pendency  of  any
arbitration  proceeding.  The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or exercise of
self-help  remedies  shall not constitute a waiver of the right or obligation of
any party to submit any claim or dispute to arbitration,  including those claims
or  disputes  arising  from  exercise  of any  judicial  relief,  or  pursuit of
provisional or ancillary remedies or exercise of self-help remedies.

         (c) If the amount in dispute is $500,000 or more, arbitration hereunder
shall be before a three-person panel of neutral  arbitrators,  consisting of one
person from each of the following categories:  (1) an attorney who has practiced
in the area of commercial law for at least eight years or a retired judge at the
Colorado or United  States  District  Court or an appellate  court level:  (2) a
person with at least eight years  experience  in commercial  lending:  and (3) a
person with at least eight  years  experience  in the  petroleum  industry.  The
parties to the dispute or their representatives shall obtain from the AAA a list
of persons meeting the criteria  outlined above for each category of arbitrator,
and the  parties  shall  select  one  person  from each  category  in the manner
established by the AAA.

         (d) If the  amount in dispute is less than  $500,000,  the  arbitration
shall be  conducted  before one  arbitrator,  who shall be an  attorney  who has
practiced  in the area of  commercial  law for at least eight years or a retired
judge at the Colorado or United  States  District  Court or an  appellate  court
level. The parties to the dispute or their representatives shall obtain from the
AAA a list of persons meeting the criteria outlined above, and the parties shall
select the person in the manner established by the AAA.

         (e) In any arbitration  hereunder:  (1) the arbitrator(s)  shall decide
(by  documents  only or with a  hearing,  at the  arbitrators'  discretion)  any
pre-hearing  motions which are substantially  similar to pre-hearing  motions to
dismiss for failure to state a claim or motions  for summary  adjudication;  (2)
discovery  shall be permitted,  but shall be limited as provided in Rule 26.1(o)
of the Colorado Rules of Civil Procedure, and shall be subject to the scheduling
by the  arbitrator(s),  and any  discovery  disputes  shall be  subject to final
determination by the arbitrator(s);  and (3) the arbitrator(s) shall award costs
and expenses of the arbitration  proceeding in accordance with the provisions of
this Agreement, the Note and/or the other Loan Documents.

                IN WITNESS  WHEREOF,  this  Agreement is executed as of the date
first written above.

                                       43
<PAGE>

                BONNEVILLE FUELS CORPORATION

                By:___________________________
                    Patrick R. McDonald,
                    President

                WELLS FARGO BANK WEST, NATIONAL ASSOCIATION

                By: __________________________
                     Don McDonald,
                     Vice President

                                       44
<PAGE>

                                 LIMITED JOINDER

                CARBON ENERGY CORPORATION, a Colorado corporation ("Guarantor"),
joins herein for the sole purpose of making the  representations  and warranties
set forth in the foregoing  Credit  Agreement,  insofar and only insofar as they
relate to  Guarantor,  and  agreeing to perform the  covenants  set forth in the
foregoing  Credit  Agreement,  insofar  and  only  insofar  as  they  relate  to
Guarantor;  provided  that this joinder  shall not be deemed an  undertaking  by
Guarantor  to repay the Loan (as  defined  in the  foregoing  Credit  Agreement)
except to the extent that  Guarantor is obligated to do so pursuant to the terms
of the Guaranty (as defined in the foregoing Credit Agreement).

                CARBON ENERGY CORPORATION

                By:___________________________
                     Patrick R. McDonald,
                     President

                                       45

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