Document:

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                                                                    Exhibit 10.3

                                                               EXECUTION VERSION

                            SECURITY TRUST AGREEMENT

                            Dated as of March 8, 2004

                                      among

                                ILFC RHINO I LLC
                                ILFC RHINO II LLC

                   THE ADDITIONAL GRANTORS REFERRED TO HEREIN

                                as the Grantors,

                     INTERNATIONAL LEASE FINANCE CORPORATION

                                as the Servicer,

                      DEUTSCHE BANK TRUST COMPANY AMERICAS

                            as the Indenture Trustee,

                           CITICORP NORTH AMERICA INC.

             as the Security Trustee and the Credit Facility Agent,

                                       and

                                 CITIBANK, N.A.

                              as the Operating Bank

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                               TABLE OF CONTENTS

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                                                        ARTICLE I
                                                       DEFINITIONS

Section 1.01. Definitions................................................................................................     2
Section 1.02. Construction and Usage.....................................................................................    18

                                                       ARTICLE II
                                                        SECURITY

Section 2.01. Grant of Security..........................................................................................    18
Section 2.02. Security for Obligations...................................................................................    20
Section 2.03. Representations and Warranties of the Grantors.............................................................    20
Section 2.04. Grantors Remain Liable.....................................................................................    22
Section 2.05. Delivery of Collateral.....................................................................................    22
Section 2.06. Maintenance of Accounts....................................................................................    23
Section 2.07. Covenants Regarding Accounts and Assigned Documents........................................................    25
Section 2.08. Covenants Regarding Ownership Interest Collateral and Investment Collateral................................    27
Section 2.09. Covenant Regarding Reduction, Removal or Impairment of Collateral..........................................    28
Section 2.10. Further Assurances.........................................................................................    30
Section 2.11. Place of Perfection; Records...............................................................................    31
Section 2.12. Voting Rights; Dividends; Etc..............................................................................    31
Section 2.13. Transfers and Other Encumbrances; Additional Shares or Interests...........................................    32
Section 2.14. Security Trustee Appointed Attorney-in-Fact................................................................    33
Section 2.15. Security Trustee May Perform...............................................................................    33
Section 2.16. Covenant to Pay............................................................................................    33
Section 2.17. Delivery of Collateral Supplements.........................................................................    34
Section 2.18. Annual Opinion.............................................................................................    34
Section 2.19. Additional Covenants.......................................................................................    34
Section 2.20. Representations and Warranties of the Guarantor and the Parent.............................................    34

                                                       ARTICLE III
                                       ACCOUNTS; PRIORITY OF PAYMENTS, REDEMPTION

Section 3.01. Accounts...................................................................................................    34
Section 3.02. Investments of Cash........................................................................................    35
Section 3.03. Deposits and Withdrawals Relating to the Purchase Account..................................................    36
Section 3.04. Deposits and Withdrawals Relating to the Cash Collateral Account...........................................    37
Section 3.05. Calculations...............................................................................................    39
Section 3.06. Interest Payment Date Withdrawals; Withdrawals After Notice of Event of Default or Acceleration Notice.....    41
Section 3.07. Redemption and Prepayment..................................................................................    42
Section 3.08. Pro Rata Treatment.........................................................................................    43
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                                                       ARTICLE IV
                                                        REMEDIES

Section 4.01. Remedies...................................................................................................    44

                                                        ARTICLE V
                                               SECURITY INTEREST ABSOLUTE

Section 5.01. Security Interest Absolute.................................................................................    45

                                                       ARTICLE VI
                                                  THE SECURITY TRUSTEE
                                                 AND THE OPERATING BANK

Section 6.01. Authorization and Action...................................................................................    46
Section 6.02. Absence of Duties..........................................................................................    46
Section 6.03. Representations or Warranties..............................................................................    46
Section 6.04. Reliance; Agents; Advice of Counsel........................................................................    47
Section 6.05. No Individual Liability....................................................................................    49
Section 6.06. The Operating Bank.........................................................................................    49
Section 6.07. Guaranties.................................................................................................    50

                                                       ARTICLE VII
                                               SUCCESSOR SECURITY TRUSTEES
                                                   AND OPERATING BANK

Section 7.01. Resignation and Removal of Security Trustee................................................................    50
Section 7.02. Appointment of Successor...................................................................................    50
Section 7.03. Resignation and Removal of the Operating Bank..............................................................    51

                                                      ARTICLE VIII
                                            AGREEMENT BETWEEN SECURED PARTIES

Section 8.01. Priority...................................................................................................    52
Section 8.02. Exercise of Remedies.......................................................................................    52
Section 8.03. Obligations Not Affected...................................................................................    53
Section 8.04. Secured Obligations Unimpaired.............................................................................    53
Section 8.05. Upon Discharge of Obligations..............................................................................    53
Section 8.06. Agreement of the Secured Parties...........................................................................    54
Section 8.07. Further Assurances.........................................................................................    54
Section 8.08. Notice of Event of Default.................................................................................    54

                                                       ARTICLE IX
                                                 INDEMNITY AND EXPENSES

Section 9.01. Indemnity..................................................................................................    54
Section 9.02. Secured Parties' Indemnity.................................................................................    56
Section 9.03. No Compensation from Secured Parties.......................................................................    56
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Section 9.04. Security Trustee Fees......................................................................................    56

                                                        ARTICLE X
                                                      MISCELLANEOUS

Section 10.01. Amendments; Waivers; Etc..................................................................................    57
Section 10.02. Addresses for Notices.....................................................................................    58
Section 10.03. No Waiver; Remedies.......................................................................................    59
Section 10.04. Severability..............................................................................................    59
Section 10.05. Continuing Security Interest; Assignments.................................................................    59
Section 10.06. Release and Termination...................................................................................    59
Section 10.07. Governing Law.............................................................................................    60
Section 10.08. Jurisdiction..............................................................................................    60
Section 10.09. Counterparts..............................................................................................    61
Section 10.10. Table of Contents, Headings, Etc..........................................................................    61
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SCHEDULES

Schedule I.................................    Pledged Stock, Pledged Membership Interest, Pledged Beneficial Interest
Schedule II................................                                                                Trade Names
Schedule III...............................           Chief Place of Business and Chief Executive or Registered Office

EXHIBITS

Exhibit A..................................                                           Form of Secured Party Supplement
Exhibit B-1................................                                              Form of Collateral Supplement
Exhibit B-2................................                                                 Form of Grantor Supplement
Exhibit C..................................                            Form of Notice of Assignment and Acknowledgment
Exhibit D..................................                                                       Additional Covenants
Exhibit D-2................................                                                      Core Lease Provisions
Exhibit E..................................                                                          Delivery Schedule
Exhibit F..................................                                                Form of Subsidiary Guaranty
Exhibit G..................................            Representations and Warranties of the Guarantor and Rhino I LLC
Exhibit H..................................            Form of Security Trust Agreement Supplement (US Aircraft Lease)
Exhibit I..................................                                                       Concentration Limits
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                            SECURITY TRUST AGREEMENT

                  This SECURITY TRUST AGREEMENT, dated as of March 8, 2004 is
made among ILFC RHINO I LLC, a Delaware limited liability company (the
"Parent"), ILFC RHINO II LLC, a Delaware limited liability company (the
"Issuer"), the ISSUER SUBSIDIARIES listed on the signature pages hereof or that
in the future become grantors under this Agreement (the "Issuer Subsidiaries",
and together with the Issuer, the "Issuer Group", and collectively with the
Parent and the Issuer, the "Grantors"), INTERNATIONAL LEASE FINANCE CORPORATION
("ILFC"), as the Servicer (the "Servicer"), DEUTSCHE BANK TRUST COMPANY AMERICAS
("DBTCA"), as the Indenture Trustee, CITICORP NORTH AMERICA INC. ("CNAI"), as
the Security Trustee (the "Security Trustee") and the Credit Facility Agent (the
"Credit Facility Agent"), and CITIBANK, N.A. ("Citibank") as the Operating Bank
(the "Operating Bank").

                             PRELIMINARY STATEMENTS:

                  (1)      The Issuer and DBTCA have entered into the Indenture
pursuant to which the Issuer may from time to time issue one or more series of
Notes and DBTCA has been appointed the Indenture Trustee.

                  (2)      The Issuer has entered into the Credit Facility
Agreement pursuant to which the Issuer may from time to time borrow one or more
Loans from the Banks party thereto and CNAI will act as the Credit Facility
Agent.

                  (3)      The Parent is the owner of all the beneficial
interest in the Issuer and the Issuer is the owner, directly or indirectly, of
all of the beneficial interest in certain Issuer Subsidiaries, all of the
membership interests in certain Issuer Subsidiaries and all of the outstanding
shares of capital stock of certain Issuer Subsidiaries, all as described in the
attached Schedule I or a supplement hereto.

                  (4)      The Issuer and the Issuer Subsidiaries are or may
from time to time be parties to lease and sub-lease contracts with respect to
the Financed Aircraft.

                  (5)      The Issuer and the Issuer Subsidiaries may from time
to time grant additional security for the benefit of the Secured Parties.

                  (6)      It is a condition precedent to the issuance of each
series of Notes or the borrowing of any Loan by the Issuer that each Grantor
grant the security interests required by this Agreement.

                  (7)      Each Grantor will derive substantial direct and
indirect benefit from the issuance of the Notes or the borrowing of the Loans
and from the Related Documents.

                  (8)      CNAI is willing to act as the Security Trustee under
this Agreement.

                  (9)      ILFC is willing to act as Servicer under the
Servicing Agreement and under this Agreement.

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                  (10)     CNAI is willing to act as the Credit Facility Agent
under the Credit Facility Agreement and under this Agreement.

                  (11)     Citibank is willing to act as the Operating Bank
under this Agreement.

                  NOW, THEREFORE, in consideration of the premises, each
Grantor, the Indenture Trustee, the Credit Facility Agent, the Servicer and the
Operating Bank hereby agree with the Security Trustee for its benefit and the
benefit of the other Secured Parties as follows:

                                    ARTICLE I
                                   DEFINITIONS

                  Section 1.01. Definitions. (a) Certain Defined Terms. For the
purposes of this Agreement, the following terms have the meanings indicated
below:

                  "Acceleration Default" means an Indenture Event of Default
described in clauses (4) and (5) of Section 5.01 of the Indenture and a Credit
Facility Event of Default described in Section 10.1.2 of the Credit Facility
Agreement and a Guarantor Event of Default described in clause 12(c) of the
Guaranty.

                  "Acceleration Notice" means an Indenture Acceleration Notice
or a Credit Facility Acceleration Notice, as the case may be.

                  "Account" means any or, in its plural form, all of the
accounts that become subject to a security interest of the Security Trustee
under Section 2.01(c) and any ledger accounts and ledger subaccounts maintained
therein in accordance with this Agreement.

                  "Account Collateral" has the meaning specified in Section
2.01(c).

                  "Acquisition Date" means the date on which any series of Notes
are issued or a borrowing under the Credit Facility is made to purchase Aircraft
or Substitute Aircraft.

                  "Additional Grantor" has the meaning specified in Section
10.01(b).

                  "Agreement" means this Security Trust Agreement, as the same
may be amended, modified or supplemented in accordance with the terms hereof.

                  "Agreement Collateral" means, collectively, the Aircraft
Purchase Contract Collateral and the Lease Collateral.

                  "Aircraft" means each of the aircraft listed on Exhibit E, as
such exhibit may be supplemented or amended from time to time.

                  "Aircraft Financing Amount" means the total proceeds being
advanced against any group of Aircraft or Substitute Aircraft being financed,
provided that (i) no more than 100% of the Appraised Value (as appraised at the
time of the Note Offering) of any single Aircraft or Substitute Aircraft being
financed is advanced, and (ii) the LTV Ratio, including the Aircraft or
Substitute Aircraft being financed, does not exceed 65%.

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                  "Aircraft Purchase Agreements" means such portions of the
relevant purchase agreements with each of the Manufacturers, that are assigned
to the Issuer pursuant to which the relevant Manufacturer shall deliver Financed
Aircraft to the Issuer.

                  "Aircraft Purchase Contract Collateral" has the meaning
specified in Section 2.01(e).

                  "Aircraft Purchase Price" means, with respect to any Aircraft
or Substitute Aircraft, the product of (i) a fraction, the numerator of which is
the Appraised Value (as appraised at the time of the Note Offering) of the
Aircraft or Substitute Aircraft being purchased and the denominator is the
Appraised Value of all Aircraft or Substitute Aircraft being purchased pursuant
to that particular Note Offering; and (ii) the Aircraft Financing Amount.

                  "Aircraft Sale" means any sale or disposition of a Financed
Aircraft (except for any transfer to ILFC, or any of ILFC's affiliates or the
Parent).

                  "Amortization Period" means the twelve-month period commencing
on the Expected Principal Repayment Date and ending on the Final Maturity Date.

                  "Applicable Aviation Authority" means, in relation to any
Financed Aircraft, each governmental or regulatory authority that has
responsibility for the supervision of civil aviation and/or the registration and
operations of civil aircraft in the State of Registration of such Financed
Aircraft.

                  "Applicable Law" means, with respect to any Person, all laws,
rules, regulations and orders of governmental or regulatory authorities
applicable to such Person, including, without limitation, the regulations of
each Applicable Aviation Authority applicable to such Person or with respect to
a Lessee, to the Financed Aircraft operated by it, as to which it has a
contractual responsibility.

                  "Appraisals" mean the appraisals addressed and delivered to
the Security Trustee for Financed Aircraft and for Aircraft to be delivered by
the Manufacturer to an Issuer Group Member within six months after the date of
the relevant appraisals by the Appraiser.

                  "Appraised Value" means, with respect to each Aircraft and
Financed Aircraft, the lesser of the mean and median of the Current Market
Values of such Aircraft or Financed Aircraft determined by the Appraisers on or
after February 12, 2004 and on a semiannual basis following the date hereof.

                  "Appraisers" means Airclaims Limited, Aircraft Information
Systems, Inc. and Avitas, Inc. or such appraisers as are agreed to by the
Security Trustee (in consultation with the Indenture Trustee and the Credit
Facility Agent) and the Issuer, if one is no longer available.

                  "Assigned Documents" means, collectively, the Assigned Leases
and any documents representing the assignment of the right to purchase the
Aircraft or Substitute Aircraft under the Aircraft Purchase Agreements.

                  "Assigned Leases" has the meaning specified in Section
2.01(a).

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                  "Authorized Agent" means, with respect to the Notes of any
series, any authorized Paying Agent or Note Registrar for the Notes of such
series.

                  "Bank" has the meaning assigned to such term in the Credit
Facility Agreement.

                  "Break Amount" means Note Break Amount and Credit Facility
Break Amount, as applicable.

                  "Business Day" means any day of the year on which banks are
open for commercial banking business in The City of New York, New York and Los
Angeles, California, and, if the applicable Business Day relates to the
determination of LIBOR, any such Business Day on which dealings in deposits in
Dollars are transacted in the London interbank market.

                  "Calculation Date" means the fifth Business Day immediately
preceding an Interest Payment Date.

                  "Cash Collateral Account" means the account established with
the Operating Bank and in the name of the Security Trustee pursuant to Section
3.01 herein and controlled by the Security Trustee into which all Lessees shall
be directed by the Security Trustee to make Lease Payments in the event of a
Downgrade Event. The Cash Collateral Account shall also be used to deposit
certain insurance proceeds from an Event of Loss, proceeds from an Aircraft
Sale, proceeds from a permanent requisition of a Financed Aircraft, and amounts
for redemption of Notes and prepayment of Loans.

                  "Certificated Security" means a certificated security (as
defined in Section 8-102(a)(4) of the UCC) other than a Government Security.

                  "Closing Date" means March 8, 2004.

                  "Collateral" has the meaning specified in Section 2.01.

                  "Collateral Supplement" means a supplement to this Agreement
in substantially the form attached as Exhibit B-1 executed and delivered by a
Grantor.

                  "Commitment" has the meaning assigned to such term in the
Credit Facility Agreement.

                  "Concentration Limits" shall have the meaning set forth in
Exhibit I.

                  "Contribution Agreement" means the agreement among the Issuer,
the Parent and ILFC dated as of March 8, 2004, as amended, modified and
supplemented in accordance with the terms thereof.

                  "Core Lease Provisions" has the meaning assigned to such term
in paragraph (q) of Exhibit D hereto.

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                  "Costs" means liabilities, obligations, damages, judgments,
settlements, penalties, claims, actions, suits, costs, expenses and
disbursements (including, without limitation, reasonable fees and disbursements
of legal counsel and costs of investigation).

                  "Credit Facility" means the credit facility provided to the
Issuer by the Banks under the Credit Facility Agreement.

                  "Credit Facility Acceleration Notice" means a notice given by
the Credit Facility Agent pursuant to Section 10.2 of the Credit Facility
Agreement to the Issuer, the Indenture Trustee, the Servicer, the Security
Trustee and the Operating Bank declaring the outstanding balance of Loans and
all accrued and unpaid interest thereon to be due and payable.

                  "Credit Facility Agent" means CNAI as administrative agent
under the Credit Facility Agreement.

                  "Credit Facility Agreement" means the $500,000,000 Revolving
Credit Agreement dated as of the Closing Date, among the Issuer, the Banks party
thereto and the Credit Facility Agent, as the same may be amended, modified or
supplemented from time to time in accordance with the terms thereof.

                  "Credit Facility Break Amount" means any funding losses
incurred by the Lenders as specified in Section 6.4 of the Credit Facility
Agreement.

                  "Credit Facility Event of Default" means an "event of default"
under Section 10.1 of the Credit Facility Agreement.

                  "Credit Facility Obligations" means all obligations of the
Issuer under and in respect of the Credit Facility including all obligations of
the Issuer to make payments of principal of, and interest and Credit Facility
Break Amount (if any) on, any Loan, all obligations to pay any fees, expenses or
other amounts under or in respect of such Loans, and all obligations in respect
of any amendment, modification, extension, renewal or refinancing of such Loans.

                  "Current Market Value" means, for each Aircraft or Financed
Aircraft, the value ascertained by the Appraisers on the basis of a hypothetical
sale in the secondary market negotiated in an arm's-length transaction between a
willing and able seller and a willing and able buyer, neither of whom is under
undue pressure to complete the transaction, under then current market conditions
for the period covered by the relevant Appraised Value, as determined by the
Appraisers.

                  "Delivery Date" means the date on which the bill of sale with
respect to a Financed Aircraft is delivered by its Manufacturer to the Issuer or
its designated agent.

                  "Delivery Schedule" means the delivery schedule attached as
Exhibit E hereto containing information regarding the aircraft eligible to be
financed under the Secured Note Program and/or Credit Facility, including
aircraft model, intended lessee, expected delivery date and engine model.

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                  "Discharge" has the meaning assigned to such term in Section
3.08 of this Agreement.

                  "Dollars" means the lawful currency of the United States of
America.

                  "Downgrade Event" means a downgrade of the Guarantor's senior
long-term unsecured credit ratings below Baa1 by Moody's or below BBB+ by
Standard & Poor's.

                  "Eligible Account" means (a) a segregated account maintained
on the books and records of an Eligible Institution in the name of the Security
Trustee as a Securities Account under, and as defined in, this Agreement or (b)
an account maintained on the books and records of an Eligible Institution in the
name of an Issuer Group Member in compliance with the terms of this Agreement.

                  "Eligible Institution" means (a) Citibank in its capacity as
the Operating Bank in respect of any Eligible Account, so long as it (i) has
either (A) a long-term unsecured debt rating of A (or the equivalent) or better
by each Rating Agency or (B) a short-term unsecured debt rating of A-1+ by
Standard & Poor's, P-1 by Moody's and, if rated by Fitch, F1 by Fitch, and (ii)
can act as a securities intermediary under the New York Uniform Commercial Code;
and (b) any bank organized under the laws of the United States of America or any
state thereof, or the District of Columbia (or any branch of a foreign bank
licensed under any such laws) appointed as the Operating Bank in respect of any
Eligible Account, so long as it (i) has either (A) a long-term unsecured debt
rating of AA (or the equivalent) or better by each Rating Agency or (B) a
short-term unsecured debt rating of A-l+ by Standard & Poor's, P-1 by Moody's
and, if rated by Fitch, F1+ by Fitch and (ii) can act as a securities
intermediary under the New York Uniform Commercial Code.

                  "Enforcement Notice" has the meaning assigned to such term in
Section 8.02(c) of this Agreement.

                  "Engine" means (a) each of the engines installed on any
Financed Aircraft at delivery of the Financed Aircraft from the relevant
Manufacturer to a Grantor, or (b) any replacement engine or substituted engine,
title for which is acquired by the Issuer or any Issuer Subsidiary (free from
any Liens other than Permitted Encumbrances).

                  "Event of Loss" means the determination by insurer or insurers
of applicable Financed Aircraft of the occurrence of a total loss, constructive
total loss or compromised total loss of such Financed Aircraft or Engine caused
by theft, disappearance, destruction, damage beyond economic repair,
confiscation or total loss of use of such Financed Aircraft or Engine.

                  "Expected Principal Repayment Date" means September 15, 2005,
and if such date is not a Business Day, then the Business Day immediately
following such date.

                  "Financed Aircraft" means, collectively, with respect to any
Loan or Note Offering, each Aircraft or Substitute Aircraft owned by the Issuer
or any Issuer Subsidiary, the acquisition of which was financed by such Loan or
Note Offering (or, if the context otherwise requires, financed by all Loans and
all Notes).

                                       6
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                  "Fitch" means Fitch IBCA, Inc.

                  "Foreign Issuer Subsidiary" means an Issuer Subsidiary that is
organized under the laws of a jurisdiction other than a state of the United
States or the District of Columbia.

                  "Government Security" means any security that is issued or
guaranteed by the United States of America or an agency or instrumentality
thereof and that is maintained in book-entry form on the records of the Federal
Reserve Bank of New York and is subject to the Revised Book-Entry Rules.

                  "Grantors" has the meaning specified in the recital of parties
to this Agreement.

                  "Grantor Supplement" means a supplement to this Agreement in
substantially the form attached as Exhibit B-2 executed and delivered by a
Grantor.

                  "Guarantor" means ILFC, in its capacity as guarantor under the
Guaranty.

                  "Guarantor Event of Default" means an "Event of Default" under
Section 12 of the Guaranty.

                  "Guaranty" means the guaranty (dated as of the date herewith)
by ILFC in favor of the Security Trustee for the benefit of Beneficiaries (as
defined therein), of all payment obligations of the Issuer arising under or in
connection with the Indenture, Credit Facility Agreement, this Agreement, the
Notes and the Loans.

                  "Holder" means any Person in whose name a Note of any series
is registered from time to time in the Note Register for such Notes.

                  "Indenture" means the Trust Indenture dated as of March 8,
2004 between the Issuer and the Indenture Trustee, as the same may be amended,
modified or supplemented in accordance with the terms thereof.

                  "Indenture Acceleration Notice" means a notice given by the
Indenture Trustee pursuant to Section 5.02 of the Indenture to the Issuer,
Credit Facility Agent, the Servicer, the Security Trustee and the Operating Bank
declaring the Outstanding Principal Amount of Notes and all accrued and unpaid
interest thereon to be due and payable.

                  "Indenture Event of Default" means the events of default
specified in Section 5.01 of the Indenture.

                  "Indenture Obligations" means, in respect of any series of
Notes, all obligations of the Issuer under and in respect of such series of the
Notes including all obligations of the Issuer to make payments of principal of,
and interest and Note Break Amount (if any) on, such series of Notes, all
obligations to pay any fees, expenses or other amounts under or in respect of
such series of Notes, the Indenture, and all obligations in respect of any
amendment, modification, extension, renewal or refinancing of such series of
Notes.

                                       7
<PAGE>

                  "Indenture Trustee" means Deutsche Bank Trust Company
Americas, which shall function as Indenture Trustee and also provide calculation
functions related to the Notes under this Agreement.

                  "Instrument" means any "instrument" as defined in Section
9-102(a)(47) of the UCC.

                  "Interest Accrual Period" means, as to each series of Notes,
each of the following periods: the period commencing on and including the date
of issuance of each series of Notes and ending on (but excluding) the first
Interest Payment Date and each successive period beginning on (and including) an
Interest Payment Date and ending on (but excluding) the next succeeding Interest
Payment Date; provided that the final Interest Accrual Period with respect to
any series of Notes shall end on but exclude the date on which such series of
Notes is repaid in full.

                  "Interest Payment Date" means the 15th day of each month,
provided that if any Interest Payment Date would otherwise fall on a day that is
not a Business Day, such Interest Payment Date shall be the first following day
that is a Business Day.

                  "Investment Collateral" has the meaning specified in Section
2.01(d).

                  "Issuer" has the meaning specified in the recital of parties
to this Agreement.

                  "Issuer Group" means the Issuer and each Issuer Subsidiary.

                  "Issuer Group Member" means the Issuer or an Issuer
Subsidiary.

                  "Issuer Subsidiary" means each direct or indirect subsidiary
of the Issuer (including each entity of which the Issuer or a subsidiary thereof
is the holder of the beneficial interest, membership interest or ownership
interest) existing on the Closing Date and any other subsidiary which may become
a subsidiary of the Issuer or any Issuer Group Member in the future.

                  "Issuer Subsidiary Guaranty" means the guaranty by any Issuer
Subsidiary in favor of the Security Trustee substantially in the form attached
as Exhibit F hereto.

                  "Lease" means with respect to each Financed Aircraft, each
aircraft lease agreement, conditional sale agreement, hire purchase agreement or
other similar arrangement with respect to such Financed Aircraft.

                  "Lease Assignment Documents" means, in respect of any Assigned
Lease, (a) any agreement providing for the novation thereof to substitute, or
the assignment thereof to, any Grantor as the lessor, (b) any agreement or
instrument supplemental to this Agreement for the purpose of effecting and/or
perfecting (to the extent perfection is required pursuant to this Agreement) the
assignment of, and the grant of a Lien upon, such Assigned Lease in favor of the
Security Trustee under any Applicable Law, (c) any notice provided to the Lessee
thereof of the assignment thereof pursuant to this Agreement and/or such
supplement, (d) any acknowledgment

                                       8
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of such assignment by such Lessee and (e) any undertaking of quiet enjoyment
given by the Security Trustee in respect thereof.

                  "Lease Collateral" has the meaning specified in Section
2.01(a).

                  "Lease Payments" means future rent payments, security
deposits, maintenance reserve payments, or other payments (excluding any
reimbursement of expenses paid by ILFC or the related lessor) under the Leases.

                  "Lenders" means the "Banks" party to the Credit Facility
Agreement.

                  "Lenders' Notice" has the meaning assigned to such term in
Section 8.02(d) of this Agreement.

                  "Lessee" means each Person (other than a Subsidiary) who is
the lessee of a Financed Aircraft from time to time leased from the Issuer or
any of its Subsidiaries pursuant to a Lease, a complete and correct list of whom
shall be provided from time to time and upon reasonable request to the Security
Trustee by the Issuer.

                  "LIBOR" has the meaning assigned to such term in the Reference
Agency Agreement.

                  "Lien" means any mortgage, pledge, lien, security interest or
other charge, encumbrance or preferential arrangement of any kind or nature
whatsoever, including the retained security title of a conditional vendor or
lessor, statutory or other rights in rem, any levy or any right or possession or
detention. For avoidance of doubt, the parties hereto acknowledge that the
filing of a financing statement under the Uniform Commercial Code does not, in
and of itself, give rise to a Lien.

                  "Loan" has the meaning assigned to such term in the Credit
Facility Agreement.

                  "Loan Period" has the meaning assigned to such term in the
Credit Facility Agreement.

                  "LTV Ratio" means the ratio of the outstanding principal
amount of all Notes and Loans (and if such calculation is to be performed in
connection with an offering of Notes or borrowing of Loans, after giving effect
to such offering or such borrowing) to the aggregate Appraised Value of all
Aircraft or Substitute Aircraft then owned by the Issuer or any Subsidiary (and
if such calculation is to be performed in connection with an offering or
borrowing, after giving effect to the Appraised Value of the Aircraft or
Substitute Aircraft, if any, which are expected to be purchased in connection
with such offering or such borrowing) based upon the most recent Appraisals of
such Aircraft, Substitute Aircraft or Financed Aircraft, at the time of such
Note Offering.

                  "Manager" means any, or in its plural form, all of the
managers of the Issuer appointed pursuant to its organizational documents.

                                       9
<PAGE>

                  "Manufacturer" means each of The Boeing Company and AVSA
S.A.R.L. or their successors.

                  "Material Adverse Effect" means (i) any material adverse
effect on the business, properties, condition (financial or otherwise) or
operations of the Parent and its Subsidiaries, taken as a whole since any stated
reference date or from and after the date of determination, as the case may be,
(ii) any material adverse effect on the ability of the Parent to perform its
material obligations hereunder or (iii) any material adverse effect on the
legality, validity, binding effect or enforceability of any material provision
of this Agreement.

                  "Membership Interest Collateral" means the Pledged Membership
Interests, all certificates, if any, from time to time representing any of such
Grantor's right, title and interest in the Pledged Membership Interests, any
contracts and instruments pursuant to which any such Pledged Membership
Interests are created or issued and all distributions, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the Pledged Membership Interests;
and all of such Grantor's right, title and interest in all additional membership
interests from time to time acquired by such Grantor in any manner, all
certificates, if any, from time to time representing such additional membership
interests and all distributions, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all such additional membership interests, and all proceeds
of any and all of the foregoing.

                  "Moody's" means Moody's Investor Services.

                  "Note Break Amount" has the meaning assigned to the term
"Break Amount" in the Indenture.

                  "Note Offering" means the offering of each series of Notes.

                  "Note Register" means a register of a series of Notes and of
their transfer and exchange kept by the Note Registrar.

                  "Note Registrar" means a Person that maintains an office or
agency where Notes of such series may be presented or surrendered for
registration of transfer or for exchange.

                  "Notes" has the meaning stated in the Indenture and more
particularly means any Notes authenticated and delivered under the Indenture,
and all Notes issued in replacement or substitution of such Notes.

                  "Notice of Event of Default" has the meaning specified in
Section 8.08 of this Agreement.

                  "Obligation" means Secured Obligations.

                  "Offering Event" means a proposed capital markets offering of
Notes for (i) the acquisition of Aircraft or Substitute Aircraft or (ii) the
prepayment of outstanding Loans and the acquisition of Aircraft or Substitute
Aircraft, in either case which Citigroup Global Markets Inc.

                                       10
<PAGE>

was unable to sell on terms and conditions mutually acceptable to the Issuer and
Citigroup Global Markets Inc.

                  "Officer's Certificate" means a certificate signed by, with
respect to the Issuer, any Manager and, with respect to any other Person, any
authorized officer, director, trustee or equivalent representative of such
Person.

                  "Operating Bank" means the Person acting at the time of
determination as the operating bank under this Agreement. The initial Operating
Bank is Citibank.

                  "Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Issuer, and who shall be acceptable to the Security
Trustee.

                  "Optional Redemption" has the meaning assigned to such term in
the Indenture.

                  "Ownership Interest Collateral" has the meaning in Section
2.01(b).

                  "Permitted Account Investments" means, in each case (except
with regard to clause (f) hereof), book-entry securities, negotiable instruments
or securities in registered form that evidence:

                  (a)      direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of America (having
original maturities of no more than 270 days, or such lesser time as is required
for the distribution of funds);

                  (b)      demand deposits, time deposits or certificates of
deposit of the Operating Bank or of depository institutions or trust companies
organized under the laws of the United States of America or any state thereof,
or the District of Columbia (or any domestic branch of a foreign bank) (i)
having original maturities of no more than 270 days, or such lesser time as is
required for the distribution of funds; provided that at the time of investment
or contractual commitment to invest therein, the short-term debt rating of such
depository institution or trust company shall be at least A-1 by Standard &
Poor's, P-1 by Moody's and, if rated by Fitch, F1 by Fitch; provided that,
during any applicable period, not more than 20% of the Issuer's aggregate
Permitted Account Investments may be made in investments described under this
clause (b);

                  (c)      corporate or municipal debt obligations having
remaining maturities of no more than 270 days, or such lesser time as is
required for the distribution of funds, having, at the time of the investment or
contractual commitment to invest therein, a rating of at least A-1+ or AA by
Standard & Poor's, P-1 or Aa2 by Moody's and, if rated by Fitch, F1+ or AA by
Fitch;

                  (d)      Investments in money market funds (including funds in
respect of which the Indenture Trustee or the Operating Bank or any of their
affiliates is investment manager or advisor) having a rating of at least AA by
Standard & Poor's, Aa2 by Moody's and, if rated by Fitch, AA by Fitch;

                                       11
<PAGE>

                  (e)      notes or bankers' acceptances (having original
maturities of no more than 270 days, or such lesser time as is required for the
distribution of funds) issued by any depository institution or trust company
referred to in (b) above; or

                  (f)      any other investments approved pursuant to a Rating
Agency Confirmation; provided, however, that no investment shall be made in any
obligations of any depository institution or trust company (other than the
initial Operating Bank and its affiliates) which has a contractual right to set
off and apply any deposits held, and other indebtedness owing, by any Issuer
Group Member to or for the credit or the account of such bank.

                  "Permitted Encumbrance" means any of the following:

                  (i)      any Lien arising in the ordinary course of business
by operation of law or securing obligations which are not overdue or securing
obligations which are due but are being contested in good faith by appropriate
proceedings (including without limitation, any employees', materialmen's,
mechanics', hanger keepers', fuel suppliers' or similar liens);

                  (ii)     any engine or parts-pooling arrangements or other
similar arrangement;

                  (iii)    any Lien permitted pursuant to the applicable Lease
(except for Liens created, whether by act or omission, by the Issuer, an
affiliate of the Issuer (which is not a Lender or Holder acting solely in its
capacity as such) or the relevant lessor under the Lease);

                  (iv)     any Lien (not otherwise a Permitted Encumbrance)
created by or through or arising from the debt or liabilities or any act or
omission of any Lessee or any sublessee in each case either (x) in contravention
of the relevant Lease or sublease or (y) without the consent of the Issuer or
the Issuer Subsidiary which is the lessor under the Lease to the creation of the
Lien (provided that in the case of either (x) or (y), if the Servicer or any
Issuer Group Member becomes aware of any such Lien, the Servicer on behalf of
the Issuer, the Issuer or the Issuer Subsidiary which is the lessor under the
Lease will use commercially reasonable efforts to require the Lessee to have
such Lien lifted);

                  (v)      any lease or conditional sale agreement or any
purchase option of or relating to any Aircraft provided for under the Lease or
any related agreement entered into concurrently with the Lease;

                  (vi)     any sublease of any Aircraft;

                  (vii)    any Lien for air navigation authority, airport or en
route navigation (including Eurocontrol), navigation services, landing, airport
tending, gate, handling or similar charges, fees or levies and for all other
charges, fees or levies payable for use of or services or materials (including
fuel) provided at any airport;

                  (viii)   any security interest created or required to be
created under this Agreement;

                  (ix)     any Lien created by or resulting from any litigation
or other proceeding which is being contested in good faith by appropriate
proceedings, including Liens arising out of

                                       12
<PAGE>

judgments or awards against the Parent, the Issuer or any Issuer Subsidiary with
respect to which the Parent, the Issuer or such Issuer Subsidiary is in good
faith prosecuting an appeal or proceedings for review; or Liens incurred by the
Parent, the Issuer or any Issuer Subsidiary for the purpose of any litigation or
other proceeding to which the Parent, the Issuer or such Issuer Subsidiary is a
party;

                  (x)      any Lien for taxes or assessments or governmental
charges or levies either not yet assessed or, if assessed, not yet due or
delinquent, or which can thereafter be paid without penalty, or which are being
contested in good faith by appropriate proceedings or which would not have a
material adverse effect either singularly or in the aggregate on the Collateral
or the security interests of the Secured Parties hereunder;

                  (xi)     landlord's Liens on property held under lease; or

                  (xii)    any other Liens or charges incidental to the conduct
of the business of the Parent, the Issuer or any Issuer Subsidiary or the
ownership of property or assets of any of them which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit
and which could not reasonably be expected to have a Material Adverse Effect on
the Parent, the Issuer and the Issuer Subsidiaries taken as a whole.

                  "Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.

                  "Pledged Beneficial Interest" means the beneficial interests
identified in any of Schedule I, any Collateral Supplement or Grantor
Supplement.

                  "Pledged Membership Interests" means the membership interests
identified in any of Schedule I, any Collateral Supplement or Grantor
Supplement.

                  "Pledged Stock" means the capital stock identified in any of
Schedule I, any Collateral Supplement or Grantor Supplement.

                  "Post Default Payment" has the meaning assigned to such term
in Section 3.08 of this Agreement.

                  "Prepayment" means a prepayment of any Loan under the Credit
Facility.

                  "Prepayment Date" means the date on which any Loan or Loans
under the Credit Facility is prepaid by the Issuer.

                  "Purchase Account" means an account established with the
Operating Bank and in the name of the Security Trustee pursuant to Section 3.01
herein and controlled by and pledged to the Security Trustee into which the
proceeds from each Note Offering will be deposited, to be utilized for payment
of purchase price for each Aircraft or Substitute Aircraft purchased.

                                       13
<PAGE>

                  "Rating Agency" means each of Moody's, Standard & Poor's and
any other nationally recognized rating agency designated by the Issuer; provided
that such organizations shall only be deemed to be a Rating Agency for purposes
of this Agreement with respect to the Notes they are then rating.

                  "Rating Agency Confirmation" means a written confirmation in
advance of certain actions or transactions contemplated by the Issuer from each
of the Rating Agencies then rating Notes, that such action or transaction in and
of itself will not result in the lowering, qualification or withdrawal by them
of their then current credit rating, if any, of any series of Notes.

                  "Recovered Amount" has the meaning assigned to such term in
Section 3.08 of this Agreement.

                  "Redemption" means redemption of any or all series of Notes
under the provisions of the Indenture.

                  "Redemption Date" has the meaning assigned to such term in the
Indenture.

                  "Reference Agency Agreement" means the Reference Agency
Agreement dated as of the Closing Date, among the Issuer, the Reference Agent,
the Indenture Trustee, the Credit Facility Agent and the Servicer pursuant to
which LIBOR for each Interest Accrual Period or Loan Period is determined from
time to time, as such agreement may be amended, modified, or supplemented in
accordance with the terms thereof.

                  "Reference Agent" means the Person acting, at the time of
determination, in the capacity of the Reference Agent under the Reference Agency
Agreement. The initial Reference Agent is CNAI.

                  "Reference Date" means with respect to each Interest Accrual
Period or each Loan Period, the day that is two Business Days prior to the
commencement of such Interest Accrual Period or such Loan Period.

                  "Related Documents" means the Credit Facility Agreement, the
Indenture, the constitutional documents of the Parent, the Notes, the Reference
Agency Agreement, this Agreement and any document related thereto, any documents
representing the assignment of the right to purchase the Financed Aircraft under
the Aircraft Purchase Agreements, the Servicing Agreement, the constitutional
documents of each Issuer Group Member, the Contribution Agreement, the Guaranty
and any Issuer Subsidiary Guaranty.

                  "Relevant Collateral" has the meaning specified in Section
2.08(a).

                  "Relevant Delivery Date" means, with respect to any Aircraft
or Substitute Aircraft, the date on which such Aircraft or Substitute Aircraft
is purchased by the Issuer or any other Person in the Issuer Group.

                  "Replacement Engine" means, with respect to any engine
replacing an Engine during the continuance of a Downgrade Event or an Indenture
Event of Default (if Notes are

                                       14
<PAGE>

outstanding) or a Credit Facility Event of Default (if Loans are outstanding),
an engine of which the title is possessed by the Issuer or any Issuer Subsidiary
(free of Liens other than Permitted Encumbrances) and with a utility at least
equal to the Engine so replaced.

                  "Requisite Creditors" means collectively, Holders and Lenders
(other than the Issuer and affiliates of the Issuer) together holding at least a
majority of the aggregate principal amount of Notes and Loans outstanding, a
complete and correct list of whom shall be provided from time to time to the
Security Trustee, upon the Security Trustee's reasonable request, by the
Indenture Trustee and the Credit Facility Agent.

                  "Requisite Holders" means the Holders of a majority of the
Outstanding Principal Amount of the Notes.

                  "Requisite Lenders" has the meaning attributed to "Required
Banks" in the Credit Facility Agreement, a complete and correct list of whom
shall be provided from time to time to the Security Trustee, upon the Security
Trustee's reasonable request, by the Credit Facility Agent.

                  "Responsible Officer" means (a) with respect to the Indenture
Trustee, any officer within the Corporate Trust Office, including any Vice
President, Managing Director, Director, Associate, Assistant Vice President,
Secretary, Assistant Secretary or any other officer of the Indenture Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge and
familiarity with the particular subject, (b) with respect to the Issuer, any
Manager and (c) with respect to any other Person, any authorized officer of such
Person, in each case as evidenced by certificates of incumbency or similar
certificates delivered hereunder to the Security Trustee from time to time.

                  "Revised Book-Entry Rules" means 31 C.F.R.ss.357 (Treasury
bills, notes and bonds); 12 C.F.R.ss.615 (book-entry securities of the Farm
Credit Administration); 12 C.F.R. ss.ss. 910 and 912 (book-entry securities of
the Federal Home Loan Banks); 24 C.F.R. ss. 81 (book-entry securities of the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation); 12 C.F.R. ss. 1511 (book-entry securities of the Resolution
Funding Corporation or any successor thereto); 31 C.F.R. ss. 354 (book-entry
securities of the Student Loan Marketing Association); and any substantially
comparable book-entry rules of any other Federal agency or instrumentality.

                  "Secured Note Program" means the program of the Issuer to
acquire Financed Aircraft through the issuance of Notes under the Indenture.

                  "Secured Obligations" means, in relation to the Parent, the
Issuer and the Issuer Subsidiaries collectively, the Indenture Obligations with
respect to all series of Notes, the Credit Facility Obligations with respect to
all Loans, the Secured Service Provider Obligations and, with respect to the
Secured Obligations of an Issuer Subsidiary only, such Issuer Subsidiary's
payment obligations under its Issuer Subsidiary Guaranty.

                  "Secured Party" means any of or, in the plural form, all of
each Secured Service Provider, each Holder, and each Lender.

                                       15
<PAGE>

                  "Secured Party Supplement" means a supplement to this
Agreement in substantially the form attached as Exhibit A executed and delivered
to the Security Trustee by a Service Provider.

                  "Secured Service Provider" means any of the Security Trustee,
the Indenture Trustee, the Servicer, the Reference Agent, the Credit Facility
Agent, the Operating Bank and each other provider (including any Authorized
Agent) of a Secured Service Provider Document.

                  "Secured Service Provider Document" means any of any Service
Provider Document listed under clause (a) of the definition of that term and any
other service agreement entered into by a Grantor in accordance with the
Indenture and the Credit Facility Agreement in respect of which the counterparty
has executed and delivered to the Security Trustee a Secured Party Supplement.

                  "Secured Service Provider Obligations" means, collectively,
the obligations now or hereafter existing of any Grantor to a Service Provider
under a Secured Service Provider Document.

                  "Securities Account" means a securities account as defined in
Section 8-501(a) of the UCC maintained in the name of the Security Trustee as
"entitlement holder" (as defined in Section 8-102(a)(7) of the UCC) on the books
and records of the Operating Bank or another Securities Intermediary who has
agreed that its securities intermediary jurisdiction (within the meaning of
Section 8-110(e) of the UCC) is the State of New York.

                  "Securities Intermediary" means any "securities intermediary"
of the Security Trustee as defined in 31 C.F.R. Section 357.2 or Section
8-102(a)(14) of the UCC.

                  "Security Collateral" has the meaning specified in Section
2.01(b).

                  "Security Trustee" means the Person appointed, at the time of
determination, as the security trustee under this Agreement. The initial
Security Trustee is CNAI.

                  "Service Provider" means each of the Indenture Trustee, Credit
Facility Agent, the Reference Agent, the Servicer, the Security Trustee, the
Operating Bank and any other service provider retained from time to time by the
Issuer or any of its Subsidiaries pursuant to the Related Documents.

                  "Service Provider Documents" means (a) the Servicing
Agreement, the Indenture (with respect to the obligations of the Issuer to the
Indenture Trustee), the Credit Facility Agreement (with respect to the
obligations of the Issuer to the Credit Facility Agent), the Reference Agency
Agreement, and this Agreement (with respect to the obligations of the Grantors
to the Security Trustee and the Operating Bank) and (b) any other service
agreement entered into by any Grantor pursuant to the Indenture and the Credit
Facility Agreement.

                  "Servicer" means the Person acting, at the time of
determination, as the Servicer under the Servicing Agreement. The initial
Servicer is ILFC.

                                       16
<PAGE>

                  "Servicing Agreement" means the Servicing Agreement dated as
of March 8, 2004 among ILFC, the Issuer, and Issuer Subsidiaries as amended,
modified or supplemented in accordance with the terms thereof.

                  "Standard & Poor's" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc.

                  "State of Registration" means, in relation to a Financed
Aircraft, the country or state of registration of such Financed Aircraft at that
time which is specified by the relevant Lease or is subsequently approved by the
lessor under the relevant Lease.

                  "Subsidiary" means a corporation, limited liability company,
partnership or trust more than 50% of the outstanding voting stock of which is
owned, directly or indirectly, by the Issuer or by one or more other
Subsidiaries, or by the Issuer and one or more other Subsidiaries.

                  "Substitute Aircraft" means an aircraft, to be purchased from
the Manufacturer, that is substituted by the Issuer for any Aircraft designated
to be purchased pursuant to the terms of this Agreement so long as (i) such
substituted aircraft is the same model as an Aircraft listed on the Delivery
Schedule and has a year of manufacture no earlier than 2004, and there is a
current Appraisal for such substituted aircraft or combination of substituted
aircraft; (ii) the aggregate appraised value (calculated on the same basis as
"Appraised Value") of such substituted aircraft or combination of substituted
aircraft equals or exceeds the Appraised Value of the Aircraft being replaced;
(iii) such substituted aircraft is subject to a Lease containing the Core Lease
Provisions; and (iv) each of the applicable Concentration Limits is met after
giving effect to such substitution.

                  "Taxes" mean any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, loss, damage, liability, expense, additions to tax and additional
amounts or costs Incurred or imposed with respect thereto) imposed or otherwise
assessed by the United States or by any state, local or foreign government (or
any subdivision or agency thereof) or other taxing authority, including, without
limitation: taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth and similar charges; taxes or other charges in the
nature of excise, withholding, ad valorem, stamp, transfer, value added, taxes
on goods and services, gains taxes, license, registration and documentation
fees, customs duties, tariffs, and similar charges.

                  "UCC" or "Uniform Commercial Code" means the Uniform
Commercial Code as in effect on the date of determination in the State of New
York; provided that if by reason of mandatory provisions of law, the perfection
or the effect of perfection or non-perfection of the security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions of this Agreement relating to such perfection or effect of perfection
or non-perfection.

                                       17
<PAGE>

                  "Uncertificated Security" means an uncertificated security (as
defined in Section 8-102(a)(18) of the UCC) other than a Government Security.

                  "Written Notice" means with reference to the Issuer, the
Indenture Trustee, the Credit Facility Agent, the Security Trustee or the
Servicer, a written instrument (including a fax with proof of receipt) sent by a
Responsible Officer of such Person (or in the case of the Issuer, a Manager or
officer).

                  (b)      Terms Defined in the Indenture and the Credit
Facility Agreement. For all purposes of this Agreement, all capitalized terms
used, but not defined, in this Agreement shall have the respective meanings
assigned to such terms in the Indenture and the Credit Facility Agreement. Any
amendment to such capitalized terms after the date hereof that materially
adversely affects the Security Trustee or the Operating Bank shall not apply to
the Security Trustee or the Operating Bank, as applicable, without the express
written consent of the Security Trustee or the Operating Bank, as applicable.

                  Section 1.02. Construction and Usage. The conventions of
construction and usage set forth in Section 1.02 and 1.05 of the Indenture and
Section 1.1 of the Credit Facility Agreement are hereby incorporated by
reference in this Agreement. Any amendment to such provisions after the date
hereof that materially adversely affects the Security Trustee or the Operating
Bank shall not apply to the Security Trustee or the Operating Bank, as
applicable, without the express written consent of the Security Trustee or the
Operating Bank, as applicable.

                                   ARTICLE II
                                    SECURITY

                  Section 2.01. Grant of Security. To secure the due and
punctual payment, performance and observance of the Secured Obligations, the
Parent hereby assigns to the Security Trustee for its benefit and the benefit of
the Secured Parties and hereby grants to the Security Trustee for its benefit
and the benefit of the Secured Parties a security interest in all of the
Parent's right, title and interest in and to the Membership Interest Collateral
in the Issuer owned by the Parent (the Security Trustee shall not have any
security interest in any other property of the Parent), and each Grantor, other
than the Parent, hereby assigns and pledges to the Security Trustee for its
benefit and the benefit of the Secured Parties, and hereby grants to the
Security Trustee for its benefit and the benefit of the Secured Parties a
security interest in all of such Grantor's right, title and interest in and to
the following (collectively (including the Membership Interest Collateral in the
Issuer described above), the "Collateral"):

                  (a)      all of the Issuer's and its Subsidiaries' (if any)
right, title and interest in and to all Leases to which the Issuer and its
Subsidiaries, if any, is or may from time to time be party (all such Leases the
"Assigned Leases") and any Lease Payments with respect to such Leases ,
including, without limitation, (i) all rights of the Issuer or such Subsidiaries
to receive proceeds of any insurance, indemnity, warranty or guaranty provided
for under such Assigned Leases, (ii) claims of the Issuer or such Subsidiaries
for damages arising out of or for breach or default under such Assigned Leases,
(iii) all rights under any such Assigned Lease with respect to any subleases of
the Financed Aircraft subject to such Assigned Lease and (iv) the right of the
Issuer or such

                                       18
<PAGE>

Subsidiaries to terminate such Assigned Leases, to perform thereunder and to
compel performance and otherwise exercise all remedies thereunder, whether
arising under such Assigned Leases or by statute or at law or in equity (the
Lease Payments and the Assigned Leases are collectively referred to as the
"Lease Collateral"); provided that the Security Trustee will release its Lien on
the Lease Payments received from the Lessees when paid to the Issuer or Issuer
Subsidiary or the Servicer on behalf of the Issuer or an Issuer Subsidiary;
provided, however, in the event of the occurrence and continuance of a Downgrade
Event, or the delivery of a Notice of Event of Default to the Security Trustee
and continuation of the applicable Indenture Event of Default (if any Notes are
outstanding) or Credit Facility Event of Default (if any Loans are outstanding),
such Lien will no longer be released and the Security Trustee will direct the
Lessees to remit their Lease Payments due under their respective Leases to the
Cash Collateral Account;

                  (b)      capital stock of Subsidiaries, if any, of the Issuer,
and all additional shares of stock acquired by the Issuer including all
dividends, interest, cash, instruments and other property received, receivable
or otherwise distributable with respect to or in exchange for any such stock
(collectively, the "Security Collateral"); and all of the ownership interest of
the Issuer held by the Parent and all of the ownership interests in any
Subsidiaries of the Issuer, if any, and the additional beneficial interests
acquired by the Issuer or any Issuer Subsidiary, including any and all
certificates, contracts, or instruments evidencing or creating such interest and
all distributions, cash, instruments and other property received, receivable or
otherwise distributable in respect of or in exchange for such ownership interest
(collectively with the Security Collateral, the "Ownership Interest
Collateral");

                  (c)      all right of the Issuer or its Subsidiaries (if any)
in and to the Cash Collateral Account and the Purchase Account (and any
replacement accounts therefor) and all cash, investment property, investments
and earnings thereon (other than intercompany loans, as contemplated under
Section 2.07(g) herein) ("Permitted Account Investments"), other investments,
securities, instruments or other property at any time credited to the Cash
Collateral Account or the Purchase Account (and any replacement accounts
therefor) (collectively, the "Account Collateral");

                  (d)      all certificates and instruments, if any,
representing or evidencing such Permitted Account Investments and all interest,
dividends, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the foregoing (other
than intercompany loans as contemplated under Section 2.07(g) herein)
(collectively, the "Investment Collateral");

                  (e)      all of the Issuer's and its Subsidiaries' (if any)
right, title and interest in the rights to purchase the Financed Aircraft
("Aircraft Purchase Contract Collateral");

                  (f)      with respect to each Grantor, all of such Grantor's
right, title and interest in and to the personal property identified in a
Grantor Supplement or a Collateral Supplement executed and delivered by such
Grantor to the Security Trustee; and

                                       19
<PAGE>

                  (g)      all proceeds of any and all of the foregoing
Collateral, including, without limitation, proceeds that constitute property of
the types described in subparagraphs (a) and (e) immediately above.

                  Security Trustee and each Secured Party hereby acknowledges
and agrees that nothing herein contained is intended to grant a security
interest in favor of the Security Trustee or any other Secured Party with
respect to any Aircraft, Financed Aircraft or Substitute Aircraft or any part,
product, component or proceed thereof, including without limitation any Engine.

                  Section 2.02. Security for Obligations. This Agreement secures
the payment and performance of all Secured Obligations of the Grantors to each
Secured Party (subject to the provisions of this Agreement, the Indenture and
the Credit Facility Agreement) and shall be held by the Security Trustee in
trust for the Secured Parties. Without limiting the generality of the foregoing,
this Agreement secures the payment of all amounts that constitute part of the
Secured Obligations and would be owed by any Grantor to any Secured Parties but
for the fact that the Secured Obligations are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
such Grantor.

                  Section 2.03. Representations and Warranties of the Grantors.
Each Grantor represents and warrants as of the date of this Agreement, and as of
each subsequent Acquisition Date and each Delivery Date on which such Grantor
accepts a Financed Aircraft as follows:

                  (a)      Each Grantor represents that it has been duly
organized and is validly existing and in good standing in its jurisdiction of
organization and each Grantor that is an owner of a Financed Aircraft represents
that it has been duly organized and is validly existing and in good standing
under the laws of a State of the United States of America or the District of
Columbia.

                  (b)      The Grantors are the legal and beneficial owners of
the Collateral free and clear of any Lien other than Permitted Encumbrances. No
effective financing statement or other instrument similar in effect (other than
in connection with any Lease with the Applicable Aviation Authority or other
governmental authority or office or any Permitted Encumbrance) covering all or
any part of the Collateral is on file in any recording office, except such as
may have been filed in favor of the Security Trustee relating to the Collateral
or such as may have been terminated.

                  (c)      This Agreement creates a valid security interest in
the Collateral as security for the Secured Obligations, subject in priority to
no other Liens (other than Permitted Encumbrances). Upon the taking of the
actions required hereby, such security interest will be perfected under the UCC
and, with respect only to any security interest granted by a Foreign Issuer
Subsidiary, under the applicable laws of such Foreign Issuer Subsidiary's
jurisdiction of organization. All filings and other actions necessary or
desirable to perfect and protect such security interest under the UCC and, with
respect only to any security interest granted by a Foreign Issuer Subsidiary,
under the applicable laws of such Foreign Issuer Subsidiary's jurisdiction of
organization have been (or in the case of future Collateral will be) duly taken
under the UCC and, with respect to any security interest granted by a Foreign
Issuer Subsidiary, under the applicable laws of such Foreign Issuer Subsidiary's
jurisdiction of organization. Other

                                       20
<PAGE>

than the security interest granted to the Security Trustee pursuant to this
Agreement and, other than as permitted by this Agreement, the Grantors have not
affirmatively pledged, assigned, sold, granted a security interest in, or
otherwise conveyed any of the Collateral. The Grantors have not authorized the
filing of and are not aware of the filing of any financing statements (other
than in connection with any Lease) against any Grantor that include a
description of collateral covering the Collateral other than any financing
statement relating to the security interest granted to the Security Trustee
hereunder or that has been terminated. The Grantors are not aware of any
judgment or tax lien filings against any Grantor.

                  (d)      No Grantor has any trade names except as set forth on
Schedule III hereto.

                  (e)      No consent of any other Person and no authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (i) for the
grant by such Grantor of the assignment and security interest granted hereby
under the UCC, (ii) for the execution, delivery or performance of this Agreement
by such Grantor or (iii) for the perfection or maintenance of the pledge,
assignment and security interest created hereby under the UCC or, with respect
to any security interest granted by a Foreign Issuer Subsidiary under the
applicable laws of such Foreign Issuer Subsidiary's jurisdiction of organization
except for the filing of financing and continuation statements under the UCC or,
with respect to any security interest granted by a Foreign Issuer Subsidiary,
for such consents, authorizations, approvals, actions, notices or filings as may
be required under the applicable laws of such Foreign Issuer Subsidiary's
jurisdiction of organization.

                  (f)      The jurisdiction of organization, organizational
identification number (if applicable), the correct name, the chief place of
business and chief executive or registered office of such Grantor and the office
where such Grantor keeps records of the Collateral are located at the address
specified opposite the name of such Grantor on the attached Schedule III.

                  (g)      The Pledged Stock constitutes the percentage of the
issued and outstanding shares of capital stock of the issuers thereof indicated
on the attached Schedule I. The Pledged Membership Interest constitutes the
percentage of the membership interest of the issuer thereof indicated on
Schedule I thereto. The Pledged Beneficial Interest constitutes the percentage
of the beneficial interest of the issuer thereof indicated on Schedule I hereto.

                  (h)      The Pledged Stock, the Pledged Membership Interests
and the Pledged Beneficial Interests have been duly authorized and validly
issued and are fully paid and nonassessable, and are free and clear of any Liens
other than Permitted Encumbrances.

                  (i)      To the extent the Ownership Interest Collateral is
certificated, (a) such Pledged Stock, Pledged Beneficial Interests and Pledged
Membership Interests have been delivered to the Security Trustee; (b) the
Pledged Stock, the Pledged Beneficial Interests and the Pledged Membership
Interests either (i) are in bearer form, (ii) have been endorsed, by an
effective endorsement, to the Security Trustee or one of its agents or nominees
or in blank or (iii) have been registered in the name of the Security Trustee or
one of its agents or nominees; and (c) none of the Pledged Stock, the Pledged
Beneficial Interests and the Pledged Membership Interests that constitute or
evidence the Collateral have any marks or notations indicating that

                                       21
<PAGE>

they have been pledged, assigned or otherwise conveyed to any Person other than
the Security Trustee.

                  (j)      The Leases constitute "tangible chattel paper" within
the meaning of Section 9-102(a)(78) of the UCC.

                  (k)      Each Account constitutes a "securities account"
within the meaning of Section 8-501 of the UCC.

                  Section 2.04. Grantors Remain Liable. Anything contained
herein to the contrary notwithstanding, (a) each Grantor shall remain liable
under the contracts and agreements included in the Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Security Trustee of any of its rights hereunder shall not release any Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral and (c) no Secured Party shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall any Secured Party (other than the Servicer
to the extent provided in the Servicing Agreement) be obligated to perform any
of the obligations or duties of any Grantor under the contracts and agreements
included in the Collateral or to take any action to collect or enforce any claim
for payment assigned under this Agreement.

                  Section 2.05. Delivery of Collateral. (a) All certificates,
instruments, documents or tangible chattel paper representing or evidencing any
Collateral (other than Account Collateral) shall be delivered to and held by or
on behalf of the Security Trustee in New York and, if applicable, shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to evidence the security interests granted hereby. The Security
Trustee shall have the right, upon the occurrence and continuance of an
Indenture Event of Default (if any Notes are outstanding) or a Credit Facility
Event of Default (if any Loans are outstanding) and without notice to any
Grantor, to transfer to or to register in the name of the Security Trustee or
any of its nominees any or all of the Pledged Stock, Pledged Membership
Interests and Pledged Beneficial Interests, subject only to the revocable rights
specified in Section 2.12(a). In addition, the Security Trustee shall have the
right at any time to exchange certificates or instruments representing or
evidencing any Collateral (other than Account Collateral) for certificates or
instruments of smaller or larger denominations.

                  (b)      To the extent that any Assigned Lease constitutes
"tangible chattel paper" (as defined in Section 9-102(a)(78) of the UCC), the
Grantors shall do or shall cause to be done the following:

                  (i)      With respect to each Assigned Lease which was entered
         into prior to the Relevant Delivery Date for the corresponding Financed
         Aircraft, on or before such Relevant Delivery Date: (A) add
         substantially the following language to the cover of one executed
         original of such Lease: "TO THE EXTENT, IF ANY, THAT THIS LEASE
         AGREEMENT CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE
         UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION) NO
         SECURITY INTEREST IN THIS LEASE AGREEMENT MAY

                                       22
<PAGE>

         BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER
         THAN THE ORIGINAL COUNTERPART IDENTIFIED FOR SUCH PURPOSES AS THE
         COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY CITICORP NORTH
         AMERICA INC., AS SECURITY TRUSTEE, ENDORSED ON OR ATTACHED TO OR
         FOLLOWING THE SIGNATURE PAGE THEREOF."; (B) deliver the original paper
         copy of the Lease which bears the above language on the cover page with
         substantially the following language on, or on a page attached
         following, the signature page (unsigned by the Security Trustee):
         "Receipt of the original counterpart of the foregoing Lease Agreement
         is hereby acknowledged on this ___ day of ____________, 200_. Citicorp
         North America Inc., as Security Trustee, By: __________________, Its:
         ______________" to a courier service for delivery to the Security
         Trustee c/o Citibank, N.A., 111 Wall Street, Floor 14, Zone 3, New
         York, New York 10005, Attention: Barbara Bennett (such address, the
         "SECURITY TRUSTEE ADDRESS"); and (C) request that the Security Trustee
         execute the receipt for such copy of the Lease appearing on, or on a
         page attached following, the signature page of such copy of the Lease.
         References in this subparagraph (i) to "Citicorp North America Inc."
         and its address may be replaced with the name and address of the Person
         at the time serving as Security Trustee, as may have been notified to
         the Grantors and the Servicer in a written notice. For the avoidance of
         doubt, none of the Grantors or the Servicer are required to obtain the
         signature of the Security Trustee on the receipt described in subclause
         (B) above;

                  (ii)     With respect to each Assigned Lease entered into
         after the Relevant Delivery Date for the corresponding Financed
         Aircraft: (A) add the following language to the cover of such Lease:
         "COUNTERPART NO. __ OF __ SERIALLY NUMBERED, MANUALLY EXECUTED
         COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL
         PAPER UNDER THE UNIFORM COMMERCIAL CODE IN EFFECT IN ANY APPLICABLE
         JURISDICTION, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED
         THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
         COUNTERPART NO. 1.", and (B) after the execution of such Assigned Lease
         by all the parties thereto, deliver the original paper copy which is
         manually numbered "1" (which, by way of clarification, shall not
         include the signature or the receipt therefor of the Security Trustee)
         to a courier service for delivery to the Security Trustee at the
         Security Trustee Address.

                  Section 2.06. Maintenance of Accounts. (a) Citibank hereby
agrees to act as the Operating Bank under this Agreement. From time to time the
Operating Bank shall establish and maintain on the books and records of its
office specified in Section 10.02 and maintain in the name of the Security
Trustee each Account as an Eligible Account. If, at any time, any Account ceases
to be an Eligible Account, the Operating Bank shall, within 10 Business Days
thereafter, establish a new Account having the same characteristics as such
Account that ceased to be an Eligible Account and transfer all property related
to such old Account to such new Account. The Operating Bank also agrees to
cooperate with any replacement Operating Bank as to the transfer of any property
in, or records relating to, any Account maintained by it. Except as a Secured
Party in accordance with the provisions of this Agreement, the Operating Bank
waives any claim

                                       23
<PAGE>

or lien against any Account it may have, by operation of law or otherwise, for
any amount owed to it by any Grantor.

                  (b)      The Operating Bank hereby agrees that (i) it is a
"bank" (as defined in Section 9-102(a)(8) of the UCC), (ii) each Account is and
will be maintained as a Securities Account of which the Operating Bank is the
Securities Intermediary and in respect of which the Security Trustee is the
"entitlement holder" (as defined in Section 8-102(a)(7) of the UCC) of the
"security entitlement" (as defined in Section 8-102(a)(17) of the UCC) with
respect to each "financial asset" (as defined in Section 8-102(a)(9) of the UCC)
credited to such Account and the Operating Bank shall comply with all
entitlement orders (as defined in Section 8-102(a)(8) of the UCC) issued by the
Security Trustee without further consent of the Grantors or any other person,
(iii) all cash required to be deposited in any such Account and Permitted
Account Investments and all other property acquired with cash credited to any
such Account will be credited to such Account, (iv) all items of property
(whether cash, investment property, Permitted Account Investments, other
investments, securities, instruments or other property) credited to each Account
will be treated as a "financial asset" (as defined in Section 8-102(a)(9) of the
UCC) under Article 8 of the UCC, (v) its "securities intermediary's
jurisdiction" (as defined in Section 8-110(e) of the UCC) and the "bank's
jurisdiction" (within the meaning of Section 9-304 of the UCC) with respect to
each Account is the State of New York and (vi) all securities, instruments and
other property in book entry or registered form and credited to any Account
shall be payable to or to the order of, or registered in the name of, the
Operating Bank, its agent or nominee or shall be indorsed to the Operating Bank,
its agent or nominee or in blank, and in no case whatsoever shall any "financial
asset" (as defined in Section 8-102(a)(9) of the UCC) credited to any Account be
registered in the name of any Grantor, payable to or to the order of any Grantor
or specially indorsed to any Grantor except to the extent the foregoing have
been specially endorsed by a Grantor to the Operating Bank, its agent or its
nominee or in blank or to the extent provided for in this Agreement.

                  (c)      The Security Trustee hereby appoints the Servicer,
the Indenture Trustee and the Credit Facility Agent as its agents for certain
actions to be taken by these entities on behalf of the Security Trustee pursuant
to this Agreement. Subject to Section 2.06(b), the Operating Bank acknowledges
that the Security Trustee has appointed the Servicer, the Indenture Trustee and
the Credit Facility Agent as its agents for dealings with respect to the
Accounts as specified for such entity, pursuant to Sections 3.02, 3.03 and 3.04;
the Operating Bank agrees that, until otherwise notified in writing by the
Security Trustee, the Operating Bank will follow the written directions and
instructions of the Servicer and the Indenture Trustee and the Credit Facility
Agent, as the agents for the Security Trustee, to the same extent it is required
to follow those of the Security Trustee except that, upon the occurrence and
during the continuance of an Indenture Event of Default (if any Notes are
outstanding), a Credit Facility Event of Default (if any Loans are outstanding),
or a Downgrade Event, the Operating Bank agrees that it will follow the
directions and instructions of the Security Trustee. Upon the occurrence of an
Indenture Event of Default (if any Notes are outstanding), a Credit Facility
Event of Default (if any Loans are outstanding) or a Downgrade Event the
Security Trustee shall notify the Operating Bank of such occurrence.

                                       24
<PAGE>

                  (d)      The Security Trustee agrees that it will hold (and
will indicate clearly in the books and records that it holds) its "security
entitlement" to the "financial assets" credited to each Account in trust for the
benefit of the Secured Parties.

                  Section 2.07. Covenants Regarding Accounts and Assigned
Documents. (a) Prior to the issuance of any Notes or the borrowing of any Loans,
the Servicer on behalf of the Security Trustee shall direct the Operating Bank
in writing to establish the Accounts pursuant to this Agreement.

                  (b)      Upon the inclusion of any Assigned Lease in the
Collateral, the relevant Grantor will deliver to the Security Trustee in the
case of any Assigned Lease (i) such consents, acknowledgments and/or notices
from the Lessee relating to the assignment as are provided for in the related
Lease Assignment Documents, and (ii) after any perfection, any documentation
effecting the perfection of the security assignment of, and lien upon, such
Assigned Lease under the UCC and, if the security interest in such Assigned
Lease is being granted by a Foreign Issuer Subsidiary, under the applicable laws
of such Foreign Issuer Subsidiary's jurisdiction of organization. Upon the
reasonable request of any Grantor, the Security Trustee (solely in its capacity
as such) will execute undertakings of quiet enjoyment in favor of the Lessee
under any Assigned Lease or the Lease Assignment Documents.

                  (c)      Upon (i) the inclusion of any Assigned Document in
the Collateral or (ii) the amendment, supplement or novation of any Assigned
Document or (iii) the entering into of any new Assigned Document, the relevant
Grantor will deliver an original counterpart thereof to the Security Trustee
(with language substantially similar to the language in Section 2.05(b)(i) or
(ii) herein affixed to the cover of such original counterpart) and will take
such other action as may be necessary or desirable to perfect the Lien of this
Agreement as to such Assigned Document under the UCC and, if the security
interest in such Assigned Document is being granted by a Foreign Issuer
Subsidiary, under the applicable laws of such Foreign Issuer Subsidiary's
jurisdiction of organization. For the avoidance of doubt, nothing contained in
this Agreement shall require any Grantor to perfect a security interest in the
Collateral in any foreign jurisdiction, other than with respect to the
Collateral granted by a Foreign Issuer Subsidiary and then only in such Foreign
Issuer Subsidiary's jurisdiction of organization and under the UCC.

                  (d)      Each Grantor shall, at its expense but subject to
Section 2.07(f) of this Agreement, the Indenture, the Credit Facility Agreement
and (in the case of any Assigned Lease) the Servicing Agreement:

                  (i)      perform and observe all the terms and provisions of
         the Assigned Documents to be performed or observed by it, enforce the
         Assigned Documents in accordance with their terms except as permitted
         by the Servicing Agreement, and after the occurrence and continuation
         of an Indenture Event of Default (if Notes are outstanding) or a Credit
         Facility Event of Default (if Loans are outstanding) take all such
         action to such end as may be from time to time reasonably requested by
         the Security Trustee; and

                  (ii)     furnish to the Security Trustee from time to time,
         (A) such information and reports regarding the Collateral as the
         Security Trustee may reasonably request and

                                       25
<PAGE>

         (B) after the occurrence and during the continuation of an Indenture
         Event of Default (if Notes are outstanding) or a Credit Facility Event
         of Default (if Loans are outstanding) upon a reasonable request of the
         Security Trustee make to each other party to any Assigned Document such
         demands and requests for information and reports or for action as such
         Grantor is entitled to make thereunder.

                  (e)      Each Grantor will, at its expense and upon the
reasonable request of any Secured Service Provider, pursue for the benefit of
such Secured Service Provider any claim that such Secured Service Provider has
under any Assigned Document for indemnity or otherwise.

                  (f)      So long as no notice of an Indenture Event of Default
(if any Notes are outstanding) or a Credit Facility Event of Default (if any
Loans are outstanding) shall have been delivered to the Issuer and such
Indenture Event of Default (if any Notes are outstanding) or Credit Facility
Event of Default (if no Loans are outstanding) is not continuing, no
acceleration of the Notes or the Loans shall have occurred and be continuing,
and no Downgrade Event shall have occurred and be continuing, notwithstanding
any provision to the contrary in this Agreement, each Grantor shall be entitled,
to the exclusion of the Security Trustee but subject always to the terms of this
Agreement, the Indenture and the Credit Facility Agreement (x) to exercise and
receive, directly or indirectly through one or more agents, including the
Servicer, any of the claims, rights, powers, privileges, remedies and other
benefits under, pursuant to, with respect to or arising out of the Assigned
Documents and (y) to take any action or to not take any action, directly or
indirectly through one or more agents, including the Servicer, related to the
Assigned Documents and the Lessees or counterparties thereunder, including
entering into, amending, supplementing, terminating, performing, enforcing,
compelling performance of, exercising all remedies (whether arising under any
Assigned Document or by statute or at law or in equity or otherwise) under,
exercising rights, elections or options or taking any other action under or in
respect of, granting or withholding notices, waivers, approvals and consents in
respect of, receiving all payments under, dealing with any credit support or
collateral security in respect of, or taking any other action in respect of, the
Assigned Documents and contacting or otherwise having any dealings with any
Lessee or counterparty thereunder.

                  (g)      (i) So long as no Indenture Event of Default (if any
Notes are outstanding), Credit Facility Event of Default (if any Loans are
outstanding) or Downgrade Event has occurred and is continuing, all Lease
Payments, upon payment thereof to Issuer, an Issuer Subsidiary or the Servicer
on behalf of the Issuer or Issuer Subsidiary and simultaneously with such
payment shall be released from the Lien provided for herein (provided that, the
Lien on the Lease Payments will not be released after the occurrence and
continuance of a Downgrade Event, Indenture Event of Default (if any Notes are
outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding)), and such Lease Payments may be loaned by each Grantor to another
Grantor or ILFC. Upon the occurrence and during the continuance of a Downgrade
Event or the delivery of a Notice of Event of Default to the Security Trustee
and continuation of the applicable Indenture Event of Default (if any Notes are
outstanding) or Credit Facility Event of Default (if any Loans are outstanding),
the Security Trustee shall send a notice to the Lessees to send all subsequent
Lease Payments to the Cash Collateral Account, and upon such notice the
subsequent Lease Payments shall no longer be released from the Lien in favor of
the Security Trustee.

                                       26
<PAGE>

                  (ii)     Upon the inclusion of any Lease in the Collateral, or
novation thereof to a new Lessee, or the entering into of any new Lease, the
relevant Grantor will notify the Lessee of the assignment of a security interest
in such Lease to the Security Trustee and of the right of the Security Trustee
upon a the occurrence and continuation of a Downgrade Event, an Indenture Event
of Default (if any Notes are outstanding) or a Credit Facility Event of Default
(if any Loans are outstanding), to issue a notice to such Lessee to send all
subsequent Lease Payments to the Cash Collateral Account.

                  Section 2.08. Covenants Regarding Ownership Interest
Collateral and Investment Collateral. (a) All Ownership Interest Collateral and
Investment Collateral (the "Relevant Collateral") shall be delivered by Grantors
to the Security Trustee as follows:

                  (i)      in the case of each Certificated Security or
         Instrument (if applicable), by (A) causing the delivery of such
         Certificated Security or Instrument to the Security Trustee in the
         State of New York, registered in the name of the Security Trustee or
         its agent or nominee or duly endorsed by an appropriate person to the
         Security Trustee or its agent or nominee or in blank and, in each case,
         held by the Security Trustee in the State of New York, or (B) if such
         Certificated Security or Instrument is registered in the name of any
         Securities Intermediary on the books of the issuer thereof or on the
         books of any securities intermediary of any Securities Intermediary, by
         causing such Securities Intermediary to continuously credit by book
         entry such Certificated Security or Instrument to a Securities Account
         maintained by such Securities Intermediary in the name of the Security
         Trustee or its agent or nominee and confirming to the Security Trustee
         that it has been so credited;

                  (ii)     in the case of each Uncertificated Security, by (A)
         causing such Uncertificated Security to be continuously registered on
         the books of the issuer thereof in the name of the Security Trustee or
         its agent or nominee or (B) if such Uncertificated Security is
         registered in the name of a Securities Intermediary on the books of the
         issuer thereof or on the books of any securities intermediary of a
         Securities Intermediary, by causing such Securities Intermediary to
         continuously credit by book entry such Uncertificated Security to a
         Securities Account maintained by such Securities Intermediary in the
         name of the Security Trustee or its agent or nominee and confirming to
         the Security Trustee that it has been so credited;

                  (iii)    in the case of each Government Security registered in
         the name of any Securities Intermediary on the books of the Federal
         Reserve Bank of New York or on the books of any securities intermediary
         of such Securities Intermediary, by causing such Securities
         Intermediary to continuously credit by book entry such security to the
         Securities Account maintained by such Securities Intermediary in the
         name of the Security Trustee or its agent or nominee and confirming to
         the Security Trustee that it has been so credited; and

                  (iv)     in the case of any Ownership Interest Collateral by
         (a) to the extent that the grant of the security interest to the
         Security Trustee in any Ownership Interest Collateral or the transfer
         of any Ownership Interest Collateral upon exercise of remedies by the
         Security Trustee is subject to any restrictions on transfer or any
         consent

                                       27
<PAGE>

         requirements, obtaining all necessary consents and approvals thereof
         and (b)(1) if Ownership Interest Collateral constitutes a Certificated
         Security, Instrument or Uncertificated Security, complying with clauses
         (i) or (ii) above, as applicable or (2) if Ownership Interest
         Collateral constitutes a general intangible, by causing an appropriate
         financing statement covering each such Ownership Interest Collateral to
         be filed in the appropriate office necessary to perfect the security
         interest of the Security Trustee therein under the UCC.

                  (b)      Each of the Issuer and the Security Trustee hereby
represents, with respect to the Relevant Collateral, that it has not entered
into, and hereby agrees that it will not enter into, any agreement (i) with any
of the other parties hereto or any Securities Intermediary specifying any
jurisdiction other than the State of New York as any Securities Intermediary's
jurisdiction in connection with any Securities Account, (ii) with any Securities
Intermediary referred to in Section 2.08(a) for purposes of 31 C.F.R. Section
357.11(b), Section 8-110(e) of the UCC or any similar state or Federal law, or
(iii) with any securities intermediary of any such Securities Intermediary, or
(iv) with any other Person relating to such Relevant Collateral pursuant to
which it has agreed that any Securities Intermediary may comply with entitlement
orders made by such Person. The Security Trustee represents that it will, by
express agreement with each Securities Intermediary, provide for each item of
property constituting Relevant Collateral held in and credited to the applicable
Securities Account, including cash, to be treated as a "financial asset" within
the meaning of Section 8-102(a)(9) of the UCC for the purposes of Article 8 of
the UCC.

                  (c)      Without limiting the foregoing, the Issuer and the
Security Trustee agree, and the Security Trustee shall cause each Securities
Intermediary, to take such different or additional action as may be required
based upon any Opinion of Counsel received pursuant to Section 2.18 in order to
maintain the perfection and priority of the security interest of the Security
Trustee in the Relevant Collateral in the event of any change in applicable law
or regulation, including Articles 8 and 9 of the UCC and regulations of the U.S.
Department of the Treasury governing transfers of interests in Government
Securities.

                  Section 2.09. Covenant Regarding Reduction, Removal or
Impairment of Collateral. (a) Each Grantor hereby agrees and covenants that such
Grantor will not directly or indirectly take any action to dispose of or remove
the Collateral or in any way impair the Collateral, or take any action which may
impair the security interest in the Collateral, except as permitted under this
Agreement.

                  (b)      (i) So long as no Indenture Event of Default (if any
Notes are outstanding), or Credit Facility Event of Default (if any Loans are
outstanding), or Downgrade Event has occurred and is continuing and prior to the
Expected Principal Repayment Date, the Issuer will have the right to substitute
for any Aircraft to be purchased one or more Substitute Aircraft and related
Leases at any time prior to the Delivery Date of such substituted Aircraft for
any reason.

                  (ii)     So long as no Indenture Event of Default (if any
Notes are outstanding), or Credit Facility Event of Default (if any Loans are
outstanding), or Downgrade Event has occurred and is continuing, and prior to
the Expected Principal Repayment Date, the Issuer or an

                                       28
<PAGE>

Issuer Subsidiary may (subject to clause (iii) below) also transfer or sell any
Financed Aircraft or Lease to the Guarantor or any of its affiliates or any
other Person so long as after giving effect to such transfer or sale the LTV
Ratio does not exceed 65% or, if the LTV Ratio exceeds 65%, the Issuer shall
repay Loans or redeem Notes in sufficient principal amount such that after
giving effect to such transfer or sale, the LTV Ratio does not exceed 65% and
all applicable Concentration Limits are met after giving effect to such transfer
or sale.

                  (iii)    Notwithstanding clause (ii) above, transfer or sale
of a Financed Aircraft will be allowed solely to permit Lessees to exercise any
purchase options under a Lease at any time; provided that after giving effect to
the exercise of such purchase option the LTV Ratio does not exceed 65% or, if
the LTV Ratio exceeds 65%, the Issuer shall repay Loans or redeem Notes in
sufficient principal amounts such that after giving effect to the exercise of
such purchase option the LTV Ratio does not exceed 65%.

                  (iv)     Any Engine may be replaced at any time by any other
engine freely (including after an Event of Loss) by the Issuer or Issuer
Subsidiary prior to the occurrence and continuance of an Indenture Event of
Default (if Notes are outstanding) or a Credit Facility Event of Default (if
Loans are outstanding) or a Downgrade Event, provided that, after the occurrence
and continuation of a Downgrade Event, an Indenture Event of Default (if any
Notes are outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding), such engine shall be a Replacement Engine. With respect to an
Event of Loss relating to an Engine, the Issuer shall procure or cause to be
procured a replacement engine or a Replacement Engine, as the case may be,
within 120 days of such Event of Loss and the Issuer may apply, or cause the
insurer to apply, any insurance proceeds received or payable in connection with
such an Event of Loss directly to pay the seller of such replacement engine or
Replacement Engine or to reimburse any Person (including ILFC or any of its
affiliates) who has purchased such replacement engine or Replacement Engine for
the cost of procuring such replacement engine or Replacement Engine. Insurance
proceeds received or payable in connection with an Event of Loss relating to an
Engine are not required to be deposited into the Cash Collateral Account and
shall not be included as Collateral hereunder and any excess insurance proceeds
not applied in accordance with the foregoing sentence shall be paid to, or may
be retained by, the Issuer.

                  (c)      Upon a transfer or substitution of an Aircraft or
Financed Aircraft pursuant to paragraph (b) of this Section, the Lease, Lease
Collateral and other Collateral relating to such Aircraft or Financed Aircraft
shall be released from the Collateral and the Lien of the Security Trustee shall
be released with respect to such Collateral. In connection with such release,
the Security Trustee at the cost and expense of Issuer shall take all such
action as may be necessary or desirable or reasonably requested to evidence the
release of its Lien provided for in this section, subject in the case of a
transfer pursuant to Section 2.09(b)(ii), to the prior receipt by the Security
Trustee from the Issuer of an Officer's Certificate certifying that no Indenture
Event of Default (if any Notes are outstanding) or Credit Facility Event of
Default (if any Loans are outstanding) has occurred or is continuing. In the
case of the immediately preceding paragraph (b)(i) the relevant Grantor shall
provide to the Security Trustee a security interest in the Lease and other Lease
Collateral relating to the Substitute Aircraft, and such Lease and other Lease
Collateral relating to such Substitute Aircraft shall become a part of the
Collateral and shall be subject to the Lien of this Agreement.

                                       29
<PAGE>

                  Section 2.10. Further Assurances. (a) Each Grantor agrees that
from time to time, at the expense of such Grantor, such Grantor shall promptly
execute and deliver all further instruments and documents, and take all further
action that may be necessary or desirable, or that the Security Trustee may
reasonably request, in order to (A) perfect and protect any pledge, assignment
or security interest granted or purported to be granted hereby under the UCC and
with respect to any security interest granted by a Foreign Issuer Subsidiary,
under the applicable laws of such Foreign Issuer Subsidiary's jurisdiction of
organization or (B) to enable the Security Trustee to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, each Grantor shall: (i) if any Collateral shall
be evidenced by a promissory note or other instrument or tangible chattel paper
(as defined in Section 9-102(a)(78) of the UCC), deliver and pledge to the
Security Trustee hereunder such note or instrument or tangible chattel paper
duly indorsed and accompanied by duly executed instruments of transfer or
assignment, if applicable; (ii) with respect to each Grantor that is not a
Foreign Issuer Subsidiary, under the UCC and with respect to any security
interest granted by a Foreign Issuer Subsidiary, under the applicable laws of
such Foreign Issuer Subsidiary's jurisdiction of organization and under the UCC,
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Security Trustee may reasonably request, in order to
perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby and (iii) with respect to each Grantor that is
not a Foreign Issuer Subsidiary, under the UCC and with respect to any security
interest granted by a Foreign Issuer Subsidiary, under the applicable laws of
such Foreign Issuer Subsidiary's jurisdiction of organization and under the UCC,
execute, file, record, or register such additional documents and supplements to
this Agreement, including any further assignments, security agreements, pledges,
grants and transfers, as may be required by or desirable, or as the Security
Trustee may reasonably request, to create, attach, perfect, validate, render
enforceable, protect or establish the priority of the security interest and lien
of this Agreement under the applicable laws of the granting Issuer Subsidiary's
jurisdiction of organization.

                  (b)      Each Grantor hereby authorizes the Security Trustee
to file one or more financing or continuation statements under the UCC, and
amendments thereto, relating to all or any part of the Collateral without the
signature of such Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

                  (c)      Each Grantor shall furnish or cause to be furnished
to the Security Trustee from time to time statements and schedules further
identifying and describing the Collateral and such other written reports
relating to the condition or location of the Collateral as the Security Trustee
may reasonably request, all in reasonable detail; provided that, to the extent
that (in the case of any Assigned Lease) such statements, schedules or reports
(or the data needed to prepare them) can be obtained only from the Servicer, no
Grantor shall be required to obtain any such statements, schedules, reports or
data beyond those to which it is entitled under the Servicing Agreement.

                  (d)      Each Grantor shall, immediately upon the organization
or acquisition by such Grantor of any Issuer Subsidiary, cause such Issuer
Subsidiary to enter into a Grantor Supplement and shall also pledge and deliver
the voting stock or other equity interest of such

                                       30
<PAGE>

Issuer Subsidiary to the Security Trustee and file any financing statements
required to be filed to perfect the security interest of the Security Trustee in
the voting stock or other equity interest of such Issuer Subsidiary under the
UCC and if such Grantor is a Foreign Issuer Subsidiary, the applicable laws of
such Foreign Issuer Subsidiary's jurisdiction of organization.

                  Section 2.11. Place of Perfection; Records. Each Grantor shall
keep its jurisdiction of organization, chief place of business and chief
executive office and the office where it keeps its records concerning the
Collateral at the location therefor specified in Schedule III or, upon 30 days'
prior written notice to the Security Trustee, at such other locations in a
jurisdiction specified in such notice. Each Grantor shall hold and preserve such
records and, during the continuance of an Indenture Event of Default (if any
Notes are outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding), shall permit representatives of the Security Trustee at any time
during normal business hours to inspect and make abstracts from such records,
all at the sole cost and expense of such Grantor and permit representatives of
the Security Trustee to be present at such Grantor's place of business to
receive copies of all the communications and remittances relating to the
Collateral, and forward copies of any notices or communications received by such
Grantor with respect to the Collateral, all in such manner as the Security
Trustee may require.

                  Without limiting the generality of the foregoing, if, after
the occurrence of a Downgrade Event, an Indenture Event of Default (if any Notes
are outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding), the Security Trustee directs the Lessees in writing to remit their
Lease Payments due under their respective Leases to the Cash Collateral Account,
with a copy to the Issuer, then each Grantor will promptly (i) forward to the
Security Trustee any original written acknowledgment from a Lessee of the above
direction which such Grantor may receive, and (ii) redirect to the Cash
Collateral Account any funds representing Lease Payments received from a Lessee
which should have been paid to the Cash Collateral Account but were misdirected
to the Grantor.

                  Section 2.12. Voting Rights; Dividends; Etc. (a) So long as no
Acceleration Notice shall have been delivered to the Issuer, or (x) no Indenture
Event of Default (if any Notes are outstanding) as described in clauses (1),
(2), (4) and (5) under Section 5.01 of the Indenture, (y) no Credit Facility
Event of Default (if any Loans are outstanding) as described in Sections 10.1.1,
10.1.2, and 10.1.4 of the Credit Facility Agreement, or (z) no Guarantor Event
of Default as described under clauses (a), (c) and (e) of Section 12 of the
Guaranty, shall have occurred and be continuing the Grantors shall have the
right to exercise the rights pursuant to Section 2.12(a):

                  (i)      Each of the Grantors shall be entitled to exercise
         any and all voting and other consensual rights pertaining to all or any
         part of the Ownership Interest Collateral pledged by such Grantor for
         any purpose not inconsistent with the terms of this Agreement, the
         organizational documents of such Grantor, the Indenture or the Credit
         Facility Agreement; provided, however, that such Grantor shall not
         exercise or shall refrain from exercising any such right if in its
         judgment such action would have a material adverse effect on the value
         of all or any part of the Ownership Interest Collateral; and

                                       31
<PAGE>

                  (ii)     The Security Trustee shall execute and deliver (or
         cause to be executed and delivered) to such Grantor all such proxies
         and other instruments as such Grantor may reasonably request in writing
         and provide for the purpose of enabling such Grantor to exercise the
         voting and other rights that it is entitled to exercise pursuant to
         Section 2.12(a)(i); and

                  (b)      If no Indenture Event of Default (if any Notes are
outstanding) or Credit Facility Event of Default (if any Loans are outstanding)
shall have occurred and be continuing, each Grantor shall be entitled to receive
and retain any and all distributions, dividends and interest paid in respect of
the Ownership Interest Collateral pledged by any Grantor, including any and all
(i) distributions, dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, such Ownership Interest
Collateral; (ii) distributions, dividends and other distributions paid or
payable in cash in respect of such Ownership Interest Collateral in connection
with a partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus; and (iii) cash paid,
payable or otherwise distributed in respect of principal of, or in redemption
of, or in exchange for, such Ownership Interest Collateral.

                  (c)      So long as no Acceleration Notice shall have been
delivered to the Issuer, or (x) no Indenture Event of Default (if any Notes are
outstanding) as described in clauses (1), (2), (4) and (5) under Section 5.01 of
the Indenture, (y) no Credit Facility Event of Default (if any Loans are
outstanding) as described in Sections 10.1.1, 10.1.2, and 10.1.4 of the Credit
Facility Agreement, or (z) no Guarantor Event of Default as described under
clauses (a), (c) and (e) of Section 12 of the Guaranty, shall have occurred and
be continuing the Grantors shall have the right to exercise the rights pursuant
to Section 2.12(a). Upon the occurrence of any of the events specified in the
preceding sentence, all rights of each Grantor to exercise or refrain from
exercising the voting and other consensual rights that it would otherwise be
entitled to exercise pursuant to Section 2.12(a) shall cease, and all such
rights shall thereupon become vested in the Security Trustee, which shall
thereupon have the sole right to exercise or refrain from exercising such voting
and other consensual rights (including, but not limited to, the right, subject
to the restrictions set forth in the applicable organizational documents, to
remove or appoint any trustee, directors and officers of any direct or indirect
subsidiary of the Issuer), provided, however, the Security Trustee shall have no
obligation to exercise such voting or consensual right without instruction from
the Requisite Creditors or, under the circumstances provided in Section 8.02(d),
the Requisite Lenders.

                  Section 2.13. Transfers and Other Encumbrances; Additional
Shares or Interests. (a) No Grantor shall (i) sell, assign (by operation of law
or otherwise) or otherwise dispose of, or grant any option with respect to, any
of the Collateral other than the pledge, assignment and security interest
created by this Agreement and as otherwise permitted herein and, subject to the
provisions of this Agreement, other than the disposition and investment of any
Investment Collateral in the ordinary course, provided that after any such
disposition the LTV Ratio does not exceed 65% (other than as permitted by this
Agreement), or (ii) create or suffer to exist any Lien upon or with respect to
any of the Collateral of such Grantor, in each case other than the pledge,
assignment and security interest created by this Agreement and Permitted
Encumbrances.

                                       32
<PAGE>

                  (b)      The Issuer Subsidiaries shall not, and the Issuer
shall not permit the Issuer Subsidiaries to, issue, deliver or sell any shares,
interests, participations or other equivalents. Any beneficial interest or
capital stock or other securities or interests issued in respect of or in
substitution for the Pledged Stock, Pledged Membership Interests or the Pledged
Beneficial Interests shall be issued or delivered (with any necessary
endorsement) to the Security Trustee.

                  Section 2.14. Security Trustee Appointed Attorney-in-Fact.
Each Grantor hereby irrevocably appoints the Security Trustee such Grantor's
attorney-in-fact, with full authority in the place and stead of such Grantor and
at the expense of the Grantors and in the name of such Grantor or otherwise,
from time to time in the Security Trustee's discretion, to take any action and
to execute any instrument that the Security Trustee may deem necessary or
advisable to accomplish the purposes of this Agreement, including:

                  (a)      during the continuance of an Indenture Event of
Default (if any Notes are outstanding) or a Credit Facility Event of Default (if
any Loans are outstanding) to ask for, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due and to
become due under or in respect of any of the Collateral;

                  (b)      during the continuance of an Indenture Event of
Default (if any Notes are outstanding) or a Credit Facility Event of Default (if
any Loans are outstanding) to receive, indorse and collect any drafts or other
instruments and documents in connection included in the Collateral;

                  (c)      during the continuance of an Indenture Event of
Default (if any Notes are outstanding) or a Credit Facility Event of Default (if
any Loans are outstanding) to file any claims or take any action or institute
any proceedings that the Security Trustee may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the rights of
the Security Trustee with respect to any of the Collateral; and

                  (d)      to execute and file any financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable under the UCC, including as identified to the Security
Trustee pursuant to the Opinion of Counsel described in Section 2.18 hereof, in
order to perfect and preserve the pledge, assignment and security interest
granted hereby;

provided that the Security Trustee's exercise of any such power shall be subject
to Section 2.07(f) of this Agreement.

                  Section 2.15. Security Trustee May Perform. If any Grantor
fails to perform any agreement contained in this Agreement, the Security Trustee
may (but shall not be obligated to) itself perform, or cause performance of,
such agreement, and the expenses of the Security Trustee incurred in connection
with doing so shall be payable by the Grantors.

                  Section 2.16. Covenant to Pay. Each Grantor covenants with the
Security Trustee (for the benefit of the Security Trustee and the Secured
Parties) that it will pay or discharge any monies and liabilities whatsoever
that are now, or at any time hereafter may be, due, owing or payable by such
Grantor in any currency, actually or contingently, solely and/or jointly, and/or
severally with another or others, as principal or surety on any account
whatsoever

                                       33
<PAGE>

pursuant to this Agreement, the Service Provider Documents, the Indenture, the
Credit Facility Agreement and the Notes in accordance with their terms.

                  Section 2.17. Delivery of Collateral Supplements. Upon the
acquisition by any Grantor of any Relevant Collateral each relevant Grantor
shall concurrently execute and deliver to the Security Trustee a Collateral
Supplement duly completed with respect to such Collateral and shall take such
steps with respect to the perfection of such Collateral under the UCC and, if
such Collateral is being pledged by a Foreign Issuer Subsidiary, under the
applicable laws of such Foreign Issuer Subsidiary's jurisdiction of organization
as are called for by this Agreement for Collateral of the same type; provided
that the foregoing shall not be construed to impair or otherwise derogate from
any restriction on any such action in any Related Document and provided, further
that the failure of any Grantor to deliver any Collateral Supplement as to any
such Collateral shall not impair the lien of this Agreement as to such
Collateral.

                  Section 2.18. Annual Opinion. Upon each anniversary of the
Closing Date, the Issuer shall cause to be delivered to the Security Trustee an
Opinion of Counsel (subject to customary assumptions, qualifications and
exceptions) to the effect that (i) during the preceding year there has not
occurred any change of New York law that would require the taking of any action
in order to maintain the perfection of the lien of this Agreement on the
Collateral in which a security interest may be perfected under the UCC as in
effect in the State of New York by the filing of a financing statement or, if
there has been such a change, setting forth the actions so to be taken and (ii)
no additional financing statement, continuation statement or amendment thereof
is required to be filed or will be required to be filed during the next fifteen
months, in each case under the UCC as in effect in the State of New York as of
the date of such opinion to maintain such perfected security interest of the
Security Trustee. The Issuer agrees to take or cause to be taken all such
actions as may be indicated in any such opinion, except that, as provided in
Section 2.08, the Security Trustee shall take any such actions as may be
required with respect to any Securities Intermediary.

                  Section 2.19. Additional Covenants. The Issuer and the Issuer
Subsidiaries covenant with the Security Trustee to abide by the covenants listed
in Exhibit D to this Agreement.

                  Section 2.20. Representations and Warranties of the Guarantor
and the Parent. Each of the Guarantor and the Parent represents and warrants as
of the date of this Agreement and as of each subsequent Acquisition Date and
each Delivery Date that the representations and warranties contained in Exhibit
G are true and correct.

                                   ARTICLE III
                   ACCOUNTS; PRIORITY OF PAYMENTS, REDEMPTION

                  Section 3.01. Accounts.

                  (a)      Establishment of Accounts. The Servicer, acting on
behalf of the Security Trustee, shall direct the Operating Bank in writing to
establish and maintain on its books and records in the name of the Security
Trustee (i) the Purchase Account with respect to the Aircraft

                                       34
<PAGE>

and Substitute Aircraft to be purchased with the proceeds from the issuance and
sale of the Notes and (ii) the Cash Collateral Account.

                  Each such Account shall be established and maintained as an
Eligible Account in accordance with the terms of this Agreement so as to create,
perfect and establish the priority of the security interest of the Security
Trustee in such Account and all cash, investments and other property therein
under this Agreement.

                  Section 3.02. Investments of Cash.

                  For so long as any Notes or Loans remain outstanding and until
such time as an Indenture Event of Default (if any Notes are outstanding) or a
Credit Facility Event of Default (if any Loans are outstanding) has occurred and
is continuing, the Servicer shall direct the Operating Bank by Written Notice to
invest and reinvest the funds on deposit in the Accounts in Permitted Account
Investments and if no directions are given, the funds shall be invested in
Fidelity Institutional Domestic Fund III (691) until otherwise directed in a
Written Notice by the Servicer; provided, however, that following the occurrence
and during the continuation of an Indenture Event of Default (if any Notes are
outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding), the Operating Bank shall invest such funds in Fidelity
Institutional Domestic Fund III (691), unless and until otherwise indicated in a
Written Notice from the Indenture Trustee and the Credit Facility Agent, and
from the time of receipt of such Written Notice until such time as such amounts
are required to be distributed pursuant to the terms of this Agreement, the
Operating Bank shall invest such funds as directed in such Written Notice, which
investments shall be Permitted Account Investments. The Operating Bank at the
direction of the Servicer or the Indenture Trustee and the Credit Facility
Agent, as the case may be, shall make such investments and reinvestments in
accordance with the terms of the following provisions:

                  (i)      the Permitted Account Investments shall have
         maturities and other terms such that sufficient funds shall be
         available to make required payments pursuant to this Agreement, the
         Indenture and the Credit Facility Agreement (A) on the next Interest
         Payment Date after which such investment is made, or (B) in accordance
         with the requirements of the relevant Leases or Aircraft Purchase
         Agreements, provided that an investment maturing within 270 days of the
         date of investment shall nevertheless be a Permitted Account Investment
         if it has been acquired with funds which are not reasonably
         anticipated, at the discretion of the Servicer, to be required to be
         paid to any other Person or otherwise transferred from the applicable
         Account prior to such maturity; and

                  (ii)     If any funds to be invested are not received in the
         Accounts by 1:00 p.m., New York City time, on any Business Day, such
         funds shall, if possible, be invested in Fidelity Institutional
         Domestic Fund III (691), unless and until otherwise indicated in a
         Written Notice from Servicer, or in the event of the occurrence and
         continuation of an Indenture Event of Default (if any Notes are
         outstanding) or a Credit Facility Event of Default (if any Loans are
         outstanding), a Written Notice from the Indenture Trustee and the
         Credit Facility Agent; provided that neither the Servicer, the
         Indenture Trustee, the Credit Facility Agent, the Operating Bank nor
         the Security Trustee shall be liable for any losses incurred in respect
         of the failure to invest funds not thereby received.

                                       35
<PAGE>

                  All interest, dividends and other distributions and payments
received on the funds on deposit in the Purchase Account or the Cash Collateral
Account, as applicable, shall be credited to the respective account upon receipt
by the Operating Bank.

                  Section 3.03. Deposits and Withdrawals Relating to the
Purchase Account.

                  On the closing date for each Note Offering after the repayment
of any outstanding Loans the remaining proceeds from such issuance will be
deposited into the Purchase Account. The amount so deposited will be held in the
Purchase Account and invested in Permitted Account Investments as provided in
Section 3.02 until applied as provided herein.

                  (a)      Amounts may be transferred from the Purchase Account
to pay the Aircraft Purchase Price for an Aircraft or Substitute Aircraft only
if: (i) no default under the Indenture, no Indenture Event of Default (in either
case if any Notes are outstanding) shall have occurred and be continuing; and
(ii) no Event of Loss with respect to the Aircraft or Substitute Aircraft being
purchased shall have occurred and be continuing; and (iii) the Servicer, on
behalf of the Issuer, shall have provided Written Notice to the Security Trustee
that in its judgment the conditions to the acquisition of each such Aircraft
being purchased specified in the relevant Aircraft Purchase Agreement have been
fulfilled or waived; and (iv) ILFC shall have made any required contribution or
payment needed to make up any shortfall in the purchase price for such Aircraft
or Substitute Aircraft.

                  Prior to any deposit into the Purchase Account, the Issuer
shall apply the proceeds of each Note Offering to the repayment of Loans
outstanding at such time.

                  No borrowings shall be made under the Credit Facility, related
to an Offering Event, until all funds on deposit in the Purchase Account are
disbursed prior to or concurrently with such borrowing.

                  The Security Trustee shall, on the relevant date, make, or
direct the Operating Bank to make, the following deposits to and withdrawals (or
allow the withdrawals by the Issuer) from the Purchase Account:

                  (b)      Deposits:

                  On the closing date for each Note Offering after the repayment
of any outstanding Loans, the Issuer shall deposit in the Purchase Account all
remaining proceeds of such offering of Notes.

                  (c)      Withdrawals:

                  (i)      Provided that the conditions set forth in Section
3.03(a) have been satisfied, pay from the Purchase Account to each respective
Manufacturer the applicable Aircraft Purchase Price for each Aircraft or
Substitute Aircraft, if any, being acquired from that Manufacturer on that
Delivery Date, at the time specified by the Servicer in a Written Notice. If,
after payment for all Aircraft or Substitute Aircraft associated with any Note
Offering, any excess proceeds remain in the Purchase Account, or if any rebates
are paid or refunded by the Manufacturer into the Purchase Account, such funds
shall be paid to ILFC as directed in a

                                       36
<PAGE>

Written Notice to the Operating Bank from the Servicer; provided that, any such
distribution shall be made only to the extent that the LTV Ratio prior to such
distribution does not exceed 65%;

                  (ii)     If prior to the Expected Principal Repayment Date and
no Indenture Event of Default (if any Notes are outstanding) has occurred and is
continuing, there are unused proceeds of an issuance of a series of Notes in the
Purchase Account, the Issuer may by Written Notice, at any time, withdraw the
unused proceeds to redeem such series of Notes, without penalty or premium but
with accrued interest thereon, including Break Amounts, if any.

                  (iii)    Upon the occurrence and continuation of an Indenture
Event of Default (if any Notes are outstanding) or on the Expected Principal
Repayment Date, upon the direction of the Security Trustee, the Operating Bank
will distribute to the Indenture Trustee, the unused funds in the Purchase
Account to redeem Notes on a pro rata and pari passu basis without premium or
penalty but with accrued interest thereon, including Break Amounts, if any.

                  (iv)     Distribute any amounts pursuant to Section 3.06.

                  Section 3.04. Deposits and Withdrawals Relating to the Cash
Collateral Account. The Cash Collateral Account shall be utilized in connection
with a Downgrade Event, an Indenture Event of Default, or a Credit Facility
Event of Default, collection of certain insurance or permanent requisition
proceeds or redemption of any Notes or the Prepayment of any Loans or for any
other purpose approved by the Security Trustee, Indenture Trustee and Credit
Facility Agent. All amounts received for the purposes of any such insurance
payment, requisition, redemption, or prepayment shall be deposited into the Cash
Collateral Account, to be paid to the Indenture Trustee or the Credit Facility
Agent, as applicable, upon the direction of the Security Trustee as set forth in
this Section 3.04.

                  Upon receipt by the Security Trustee of a Notice of Event of
Default pursuant to Section 8.08 or the occurrence and continuance of a
Downgrade Event (in the case of a Downgrade Event with respect to Lease Payments
only), all amounts (including amounts pursuant to Section 3.08) other than
amounts received from the Security Trustee pursuant to the Related Documents,
received by any of the Indenture Trustee, the Holders, the Credit Facility Agent
and the Lenders pursuant to the Related Documents other than directly or
indirectly from the Security Trustee, shall be delivered to the Security Trustee
for deposit in the Cash Collateral Account.

                  The Security Trustee shall on the relevant date make, or
direct the Operating Bank to make, the following deposits to and withdrawals
from (or allow withdrawals or deposits by the Issuer) the Cash Collateral
Account:

                  (a)      Deposits:

                  (i)      Upon the occurrence and during the continuance of a
         Downgrade Event, or upon receipt by the Security Trustee of a Notice of
         Event of Default and during the continuation of the applicable
         Indenture Event of Default (if any Notes are outstanding) or Credit
         Facility Event of Default (if any Loans are outstanding), all Lease
         Payments under the Assigned Leases shall be paid at the direction of
         the Security Trustee into the

                                       37
<PAGE>

         Cash Collateral Account; and, to the extent such Lease Payments are
         insufficient on any Interest Payment Date to make the required
         principal and interest payments due on the Notes and the Loans on such
         date, the Issuer shall deposit into the Cash Collateral Account an
         amount sufficient to make the principal and interest payments due on
         the Notes and the Loans on such Interest Payment Date;

                  (ii)     In connection with the redemption of any Notes or the
         Prepayment of any Loan, the amount for such redemption or prepayment
         shall be paid into the Cash Collateral Account by the Issuer;

                  (iii)    Upon any Aircraft Sale, the proceeds received from
         such sale will be deposited into the Cash Collateral Account;

                  (iv)     Upon the earlier to occur of (x) the receipt of
         insurance proceeds from an Event of Loss or (y) 120 days after such
         Event of Loss has occurred, upon an Event of Loss (other than of an
         Engine, if such Engine is replaced in accordance with the terms of
         Section 2.09(b)(iv)) that causes the LTV Ratio to exceed 65%, the
         Issuer shall deposit into the Cash Collateral Account the insurance
         proceeds in an amount sufficient (or, in the event the preceding clause
         (y) is effective, an amount sufficient) to redeem Notes or prepay Loans
         with accrued interest thereon (including any Break Amount, if any) such
         that after giving effect to such redemption or prepayment, the LTV
         Ratio does not exceed 65%; provided, however, that in no event shall
         such amount exceed the original amount of Notes issued or Loans
         advanced with respect to the purchase of such Financed Aircraft;

                  (v)      Any proceeds received from the permanent requisition
         of a Financed Aircraft shall be deposited into the Cash Collateral
         Account by the Issuer or any Issuer Group Member; and

                  (vi)     The Security Trustee shall deposit any amounts
         received from any of the Issuer (other than amounts received pursuant
         to 3.04(a)(i) and amounts received to compensate or indemnify the
         Security Trustee hereunder), the Indenture Trustee, the Credit Facility
         Agent, any Holder of a Note or any Lender into the Cash Collateral
         Account.

                  (b)      Withdrawals:

                  (i)      Upon an Optional Redemption, mandatory redemption or
         Prepayment of any Loan, distribute on the Redemption or Prepayment Date
         specified by the Issuer in a Written Notice, the requisite amounts on
         deposit for such redemption or prepayment from the Cash Collateral
         Account to the Indenture Trustee or the Credit Facility Agent, as
         applicable to redeem the Notes or prepay the Loans, as applicable;

                  (ii)     Proceeds from any Aircraft Sale shall be distributed,
         on the next succeeding Interest Payment Date for which notice
         requirements can be satisfied, to the Indenture Trustee or the Credit
         Facility Agent, as applicable, to redeem Notes or prepay Loans, as the
         case may be, without premium or penalty but with accrued interest and
         Break Amount, if any, thereon, to the extent required to cause the LTV
         Ratio to be less

                                       38
<PAGE>

         than or equal to 65% and thereafter if no Indenture Event of Default
         (if any Notes are outstanding) or Credit Facility Event of Default (if
         any Loans are outstanding) has occurred and is continuing, any
         remaining proceeds from such Aircraft Sale shall be distributed to the
         Issuer, provided, however, that the LTV Ratio does not exceed 65% prior
         to any such distribution and after giving effect thereto;

                  (iii)    Any proceeds from an Event of Loss shall be
         distributed to the Indenture Trustee or the Credit Facility Agent, as
         applicable, to redeem Notes or repay Loans to the extent required so
         that the LTV Ratio does not exceed 65%, and thereafter, if no Indenture
         Event of Default (if any Notes are outstanding) or Credit Facility
         Event of Default (if any Loans are outstanding) has occurred and is
         continuing, distribute any excess proceeds after such redemption or
         prepayment to the Issuer and release such proceeds from any security
         interest thereon pursuant to the terms of this Agreement;

                  (iv)     Any proceeds from a permanent requisition shall be
         distributed to the Indenture Trustee or the Credit Facility Agent, as
         applicable, to redeem Notes or prepay Loans without premium or penalty
         but with accrued interest and Break Amount, if any, on the next
         succeeding Interest Payment Date for which notice requirements can be
         satisfied, to the extent required so that the LTV Ratio does not exceed
         65% and thereafter if no Indenture Event of Default (if any Notes are
         outstanding) or a Credit Facility Event of Default (if any Loans are
         outstanding) has occurred and is continuing, any excess proceeds after
         such redemption or prepayment shall be paid to the Issuer;

                  (v)      Other than as provided for in the provisions of this
         Section 3.04(b), all amounts deposited in the Cash Collateral Account
         shall be distributed in accordance with Section 3.06.

                  Section 3.05. Calculations.

                  (a)      Calculation and Application of Interest Amounts. The
Indenture Trustee (with regard to Notes) or the Credit Facility Agent (with
regard to Loans), as the case may be, shall not later than five Business Days
prior to each Interest Payment Date, make the following calculations or
determinations with respect to interest due on the Notes and the Loans on such
Interest Payment Date and any calculations required to make each of the payments
contemplated in the case of the Indenture Trustee, by this Agreement and the
Indenture, and in the case of the Credit Facility Agent, by this Agreement, the
Credit Facility Agreement and other Related Documents, as applicable, and shall
inform the Servicer and the Security Trustee of such amounts by Written Notice:

                  (i)      based on information provided to it by the Reference
         Agent or as provided for in the Reference Agency Agreement, the
         applicable interest rate on each series of the Notes and each Loan
         based on LIBOR determined on the Reference Date for the relevant
         Interest Accrual Period and the relevant Loan Period; and

                  (ii)     the amount of interest due in respect of each series
         of Notes, and the amount of interest due in respect of each Loan on
         such Interest Payment Date.

                                       39
<PAGE>

                  (b)      Calculation of Principal Payment Amounts. After the
Expected Principal Repayment Date, the Indenture Trustee (with regard to Notes)
or the Credit Facility Agent (with regard to Loans), as the case may be, shall
not later than five Business Days prior to each Interest Payment Date, calculate
or determine the following with respect to principal payments due on such
Interest Payment Date:

                  (i)      the Outstanding Principal Amount of each series of
         the Notes and the outstanding principal balance of each Loan on such
         Interest Payment Date immediately prior to any principal payment on
         such date; and

                  (ii)     the Outstanding Principal Amount, if any, to be paid
         with respect to each series of Notes, and the outstanding principal
         balance, if any, to be paid with respect to each Loan, on each Interest
         Payment Date.

                  (c)      Calculation of Redemption, Prepayment and Break
Amounts. (i) The Indenture Trustee (with regard to Notes) or the Credit Facility
Agent (with regard to Loans), as the case may be, shall not later than three
Business Days prior to each Redemption Date or Prepayment Date on which a
Redemption of any series of Notes or a Prepayment of any Loan is scheduled to
occur, perform the calculation necessary to determine the amount required for
redemption or Prepayment and the accrued and unpaid interest on the Notes and
the Loan to be redeemed or prepaid, as the case may be.

                  (ii)     The Indenture Trustee (with regard to Notes) or the
Credit Facility Agent (with regard to Loans), as the case may be, shall not
later than one Business Day prior to a payment date other than an Interest
Payment Date, perform the calculation necessary to determine the Break Amounts,
if any, under the Indenture and the Credit Facility Agreement as applicable for
the Notes and Loans, respectively.

                  (d)      Aircraft Acquisitions. (i) No later than five
Business Days prior to the expected Delivery Date for each Aircraft or
Substitute Aircraft, the Servicer shall determine, and give the Indenture
Trustee, the Credit Facility Agent and the Security Trustee, a Written Notice
setting out the amounts (including the Aircraft Purchase Price, the Aircraft
Financing Amount and any contribution made by the Guarantor to make up any
shortfall in the purchase price of the Aircraft) to be paid under the provisions
of this Agreement for such Aircraft or Substitute Aircraft on the Delivery Date.

                  (ii)     In case of a default under the Indenture, the Issuer
         shall have the requisite cure period provided under the Indenture to
         cure such default, and shall have thirty days to finance the
         acquisition of the Aircraft or Substitute Aircraft with proceeds
         available for the acquisition of such Aircraft or Substitute Aircraft.

                  (e)      Calculation of Any Other Required Amounts. The
Indenture Trustee or the Credit Facility Agent, as the case may be, shall
determine as soon as practicable after each Calculation Date, but in no event
later than four Business Days preceding the immediately succeeding Interest
Payment Date, the amounts payable during the period commencing on the preceding
Interest Payment Date and ending on such Interest Payment Date. The Servicer
shall

                                       40
<PAGE>

provide any information reasonably requested by the Indenture Trustee or Credit
Facility Agent which is required or useful in making such calculations.

                  (i)      The Indenture Trustee shall provide any information,
         determinations and perform calculations required in accordance with the
         Indenture and this Agreement as they relate to the Notes. The Credit
         Facility Agent shall provide any information, determinations and
         perform calculations required in accordance with the Credit Facility
         Agreement and this Agreement as they relate to the Loans.

                  (f)      Monitoring of LTV Ratio and Concentration Limits. The
Security Trustee shall be responsible for calculating and monitoring the
Issuer's compliance with the LTV Ratio and the Concentration Limits upon the
occurrence of the relevant event(s) or in connection with the transaction(s)
described herein. The Security Trustee shall provide a certificate or notice
regarding adherence to the LTV Ratio and the Concentration Limits, upon
reasonable request, to the Servicer, Issuer, Guarantor, Indenture Trustee or
Credit Facility Agent, and the parties receiving such certificate or notice
shall be entitled to rely on such certificate or notice to satisfy the
requirement of any provision in this Agreement, the Indenture, the Credit
Facility Agreement or the Servicing Agreement. The Servicer and the Grantors
shall provide in writing (including by electronic mail), any and all relevant
information requested by the Security Trustee in order to calculate and monitor
the LTV Ratio and the Concentration Limits, including, but not limited to,
details regarding the event or transaction which gives rise to the Security
Trustee's obligation to calculate the LTV Ratio and the Concentration Limits,
the amounts proposed to be deposited, distributed or withdrawn hereunder as a
result of such event or transaction, the time and manner of the making of any
such deposit, distribution or withdrawal, and/or the Person(s) from or to whom
any such deposit, distribution or withdrawal shall be made or paid. The Security
Trustee shall be entitled to rely without liability on any such relevant
information and shall have no duty, liability or obligation to investigate or
verify the facts provided to it by the Servicer or the Grantors and contemplated
in this Section 3.05. The reliance by any party upon the certificate or notice
provided by the Security Trustee shall be subject to the accuracy of the
information provided to the Security Trustee by the Grantors and the Servicer.

                  Section 3.06. Interest Payment Date Withdrawals; Withdrawals
After Notice of Event of Default or Acceleration Notice. (a) Subject to clauses
(b) and (c) below, one Business Day prior to each Interest Payment Date, the
Issuer shall distribute on such day, to the Indenture Trustee and the Credit
Facility Agent the amounts due to the Holders and the Lenders and any amounts
payable to Service Providers, in accordance with the Related Documents.

                  (b)      Subject to clause (c) below, following the occurrence
and continuation of a Downgrade Event, one Business Day prior to each Interest
Payment Date, the Issuer shall direct the Operating Bank, in each case as and at
the time specified in a Written Notice of the Issuer, to distribute from the
Cash Collateral Account to the Indenture Trustee and the Credit Facility Agent
the amounts due to the Holders and the Lenders. The Issuer shall also distribute
on such Interest Payment Date to the Service Providers any other amounts payable
under the Related Documents.

                  (c)      (x) Following the receipt of a Notice of Event of
Default and continuation of the applicable Indenture Event of Default (if any
Notes are outstanding) or Credit Facility

                                       41
<PAGE>

Event of Default (if any Loans are outstanding), and prior to the receipt of an
Acceleration Notice, one Business Day prior to each Interest Payment Date or (y)
immediately upon the receipt of an Acceleration Notice, the Security Trustee
shall direct the Operating Bank to distribute from the Cash Collateral Account
to the Indenture Trustee and the Credit Facility Agent the amounts when due to
the Holders and the Lenders, and any amounts payable to the Service Providers
when due, in the order of priority set forth below but, in each case, only to
the extent that all amounts ranking prior thereto have been paid in full:

                  (i)      First, pari passu to the Service Providers (other
                           than the Guarantor or any of its affiliates) any
                           amounts due and payable to them (including commitment
                           fees under Section 3.4 of the Credit Facility
                           Agreement);

                  (ii)     Second, any expenses incurred in connection with the
                           preservation or protection of the Collateral (other
                           than expenses payable to the Guarantor or any of its
                           affiliates) payable under the Related Documents, and
                           any Recovered Amount, as defined in Section 3.08
                           (minus any portion actually paid previously), all
                           amounts stated herein being pari passu;

                  (iii)    Third, pari passu to the Indenture Trustee for the
                           benefit and account of Holders and to the Credit
                           Facility Agent for the benefit and account of the
                           Lenders, pro rata, an amount equal to the aggregate
                           amount of all accrued and unpaid interest due and
                           payable on the Notes and Loans, any increased costs,
                           if any, due under Section 6.1 of the Credit Facility
                           Agreement, plus Break Amounts, if any, due to the
                           Holders and Lenders;

                  (iv)     Fourth, pari passu to the Indenture Trustee for the
                           benefit and account of the Holders and to the Credit
                           Facility Agent for the benefit and account of the
                           Lenders, pro rata, an amount equal to the principal
                           due with respect to the Notes and the Loans
                           outstanding and any other amounts due under the
                           Related Documents not previously covered herein; and

                  (v)      Fifth, only upon full payment of all obligations
                           under the Indenture, the Credit Facility Agreement
                           and other Related Documents, to the Service Providers
                           comprised of the Guarantor or any of its affiliates,
                           any amounts due under the Service Provider Documents;

                  (vi)     After payment in full of all amounts specified in
                           clauses (i) through (v) above, any remaining amounts
                           to the Issuer.

                  Section 3.07. Redemption and Prepayment.

                  (a)      Optional Redemption - Notes. Upon each Optional
Redemption prior to the Expected Principal Repayment Date and absent an
Indenture Event of Default (if any Notes are outstanding), one or more Financed
Aircraft and related Leases may be transferred by the Issuer to another person
(including ILFC or any of its affiliates) and the Leases and other Collateral
related to such Financed Aircraft may be released from the security interest
under this Agreement so long as (i) the LTV Ratio will not exceed 65% (as
determined by the Security

                                       42
<PAGE>

Trustee and communicated by a notice delivered to the Issuer and the Servicer)
and (ii) after giving effect to such proposed release, each of the applicable
Concentration Limits is met. After the Expected Principal Repayment Date, or if
an Indenture Event of Default (if any Notes are outstanding) or a Credit
Facility Event of Default (if any Loans are outstanding) has occurred and is
continuing, no Financed Aircraft or related Lease and other Collateral may be
transferred in connection with an Optional Redemption.

                  (b)      Optional Prepayment - Loans. Upon each optional
prepayment of Loans prior to the Expected Principal Repayment Date and absent a
Credit Facility Event of Default (if any Loans are outstanding), one or more
Financed Aircraft and related Leases and other Collateral may be transferred by
the Issuer to another person (including ILFC or any of its affiliates) and the
Leases and other Collateral related to such Financed Aircraft may be released
from the security interest under this Agreement so long as (i) the LTV Ratio
will not exceed 65% (as determined by the Security Trustee and communicated by a
notice delivered to the Issuer and the Servicer) and (ii) after giving effect to
such proposed release each of the applicable Concentration Limits is met. After
the Expected Principal Repayment Date, or if an Indenture Event of Default (if
any Notes are outstanding) or a Credit Facility Event of Default (if any Loans
are outstanding) has occurred and is continuing no Financed Aircraft or related
Lease or other Collateral may be transferred in connection with an optional
prepayment.

                  (c)      Mandatory Redemption/Prepayment. Prior to the
Expected Principal Repayment Date or other than during the occurrence and
continuation of either or both of an Indenture Event of Default (if any Notes
are outstanding) or Credit Facility Event of Default (if any Loans are
outstanding), no Notes may be mandatorily redeemed so long as any Loans are
outstanding unless the Issuer obtains the prior written consent of the Credit
Facility Agent except for any mandatory redemption from Note proceeds under
Section 3.03(c)(ii) and (iii). Mandatory redemptions or prepayments of the Notes
and Loans during the Amortization Period or during the continuation of an
Indenture Event of Default (if any Notes are outstanding) or a Credit Facility
Event of Default (if any Loans are outstanding) shall be applied to scheduled
principal payments in inverse order of maturity on a pro rata and pari passu
basis except for any mandatory redemption from Note proceeds under Section
3.03(c)(ii) and (iii).

                  (d)      Dates for Redemption and Prepayment. Redemption Dates
and Prepayment Dates shall be determined by the Issuer subject to compliance
with the provisions of this Agreement, the Indenture and the Credit Facility
Agreement.

                  Section 3.08. Pro Rata Treatment. Following its receipt of a
Notice of Event of Default and thereafter so long as the related Indenture Event
of Default (if any Notes are outstanding) or Credit Facility Event of Default
(if any Loans are outstanding) shall be continuing, if the Credit Facility
Agent, any Bank or the Indenture Trustee (a "Recipient") shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
offset or otherwise) from any Person (other than the Security Trustee, whether
directly or indirectly) on account of any amounts due under the Related
Documents (a "Post Default Payment"), such Recipient shall pay such Post Default
Payment to the Security Trustee and the Security Trustee shall direct the
Operating Bank to distribute such payment in accordance with Section 3.06(c). If
the receipt by any Recipient of any Post Default Payment, whether by exercise of
an offset or any other circumstance, results in the discharge or satisfaction in
whole or in part of any

                                       43
<PAGE>

obligation of the Issuer to make payments to such Recipient (a "Discharge"), the
Security Trustee shall, upon receipt, direct the Operating Bank to distribute
any Post Default Payments related to a Discharge directly to the Credit Facility
Agent or Indenture Trustee, as applicable, for the benefit of the Recipient
pursuant to Section 3.06(c) as if such Discharge did not occur (except to the
extent of the payment of any portion of such Post Default Payment actually
received by such Recipient pursuant to Section 3.06(c)).

                  If all or any portion of any Recipient's Post Default Payment
distributed by the Security Trustee in accordance with Section 3.06(c) (a
"Recovered Amount") is thereafter recovered from such Recipient, such Recipient
shall be entitled to receive pursuant to Section 3.06(c) the amount equal to the
Recovered Amount minus any portion of the Post Default Payment related to such
Recovered Amount actually paid to such Recipient previously pursuant to Section
3.06(c) and the foregoing provisions of this section.

                                   ARTICLE IV
                                    REMEDIES

                  Section 4.01. Remedies. Upon delivery of an Enforcement
Notice:

                  (a)      The Security Trustee may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein, all
the rights and remedies of a secured party upon default under the UCC (whether
or not the UCC applies to the affected Collateral) and also may (i) require any
Grantor to, and such Grantor hereby agrees that it shall at its expense and upon
request of the Security Trustee forthwith, assemble all or part of the
Collateral (and after foreclosure of the stock pledge, the Security Trustee
shall also be entitled to dispose of the Financed Aircraft, subject to the
rights of any Lessee) as directed by the Security Trustee and make it available
to the Security Trustee at a place to be designated by the Security Trustee that
is reasonably convenient to both parties and (ii) without notice except as
specified below, sell or cause the sale of the Collateral (and after a
foreclosure on the stock pledge of the Issuer, the Financed Aircraft, subject to
the rights of any Lessee) or any part thereof in one or more parcels at public
or private sale, at any of the Security Trustee's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the
Security Trustee may deem commercially reasonable. Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least ten days' notice to
such Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification. The
Security Trustee shall not be obligated to make any sale of Collateral (and
after the foreclosure on the stock pledge of the Issuer, the Financed Aircraft,
subject to the rights of any Lessee), regardless of notice of sale having been
given. The Security Trustee may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Notwithstanding any provision in this Agreement to the contrary, any
such sale shall not be subject to the restrictions described in Article IX of
the Indenture.

                  (b)      Any Lender under the Credit Facility Agreement shall
be allowed to bid on any such foreclosure sale in debt (together with payment in
cash, if necessary).

                                       44
<PAGE>

                  (c)      All cash proceeds received by the Security Trustee in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral (and after the foreclosure of the stock pledge of the
Issuer, subject to the rights of any Lessee, the Financed Aircraft) may, in the
discretion of the Security Trustee, be held by the Security Trustee as
collateral for, and/or then or at any time thereafter applied in whole or in
part by the Security Trustee for the benefit of the Secured Parties against, all
or any part of the Secured Obligations in accordance with Article III of this
Agreement and the provisions of the Indenture and the Credit Facility Agreement.
Any surplus of such cash or cash proceeds held by the Security Trustee and
remaining after payment in full of all the Secured Obligations shall be paid
over to the relevant Grantors or whomsoever may be lawfully entitled to receive
such surplus. Any amount received for any sale or sales conducted in accordance
with the terms of this section shall be deemed conclusive and binding on the
Issuer, each Grantor and the Secured Parties.

                  (d)      Notwithstanding anything herein to the contrary, the
Security Trustee shall only act under this Article IV as directed under Article
VIII.

                                    ARTICLE V
                           SECURITY INTEREST ABSOLUTE

                  Section 5.01. Security Interest Absolute. A separate action or
actions may be brought and prosecuted against each Grantor to enforce this
Agreement, irrespective of whether any action is brought against any other
Grantor or whether any other Grantor is joined in any such action or actions.
All rights of the Security Trustee and the Secured Parties and the security
interest and Lien granted under, and all obligations of each Grantor under, this
Agreement shall be absolute and unconditional, irrespective of:

                  (a)      any lack of validity or enforceability of any Related
Document, Assigned Document, or any other agreement or instrument relating
thereto;

                  (b)      any change in the time, manner or place of payment
of, the security for, or in any other term of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent to any departure
from any Related Document, Assigned Document, or any other agreement or
instrument relating thereto;

                  (c)      any taking, exchange, release or non-perfection of
the Collateral or any other Collateral or taking, release or amendment or waiver
of or consent to departure from any guaranty, for all or any of the Secured
Obligations;

                  (d)      any manner of application of Collateral, or proceeds
thereof, to all or any of the Secured Obligations, or any manner of sale or
other disposition of any Collateral for all or any of the Secured Obligations;

                  (e)      any change, restructuring or termination of the
corporate structure, partnership or trust or existence as applicable of any
Grantor; or

                                       45
<PAGE>

                  (f)      any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor or a
third-party grantor of a security interest or a Person deemed to be a surety.

                                   ARTICLE VI
                              THE SECURITY TRUSTEE
                             AND THE OPERATING BANK

                  Section 6.01. Authorization and Action. (a) Each Secured Party
(each Holder by its acceptance of a Note and each Lender by becoming a party to
the Credit Facility Agreement) hereby appoints and authorizes CNAI as the
initial Security Trustee to take such action as trustee on behalf of the Secured
Parties and to exercise such powers and discretion under this Agreement and the
other Related Documents as are specifically delegated to the Security Trustee by
the terms of this Agreement and of the Related Documents, and no implied duties
and covenants shall be deemed to arise against the Security Trustee. The entity
serving as the Security Trustee may be a Lender and may also hold Notes and
interests in Notes.

                  (b)      The Security Trustee accepts such appointment and
agrees to perform the same but only upon the terms of this Agreement and agrees
to receive and disburse all property received by it in accordance with the terms
of this Agreement. The Security Trustee in its individual capacity shall not be
answerable or accountable under any circumstances, except for its own willful
misconduct or gross negligence (or simple negligence in the handling of funds or
breach of any of its representations or warranties set forth in this Agreement)
and the Security Trustee shall not be liable for any action or inaction of any
Grantor or any other parties to any of the Related Documents.

                  Section 6.02. Absence of Duties. The powers conferred on the
Security Trustee under this Agreement with respect to the Collateral are solely
to protect its interest on behalf of Secured Parties in this Agreement and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it under this Agreement, the Security Trustee shall have no
duty as to any Collateral, as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not any Secured Party has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve or perfect rights against any parties or any other rights pertaining to
any Collateral. The Security Trustee shall have no duty to ascertain or inquire
as to the performance or observance of any covenants, conditions or agreements
on the part of any Grantor or Lessee or any other party, except to the extent
provided for in this Agreement.

                  Section 6.03. Representations or Warranties. The Security
Trustee does not make, and shall not be deemed to have made, any representation
or warranty as to the validity, legality or enforceability of this Agreement,
any other Related Document or any other document or instrument or as to the
correctness of any statement contained in any thereof, or as to the validity or
sufficiency of any of the pledge and security interests granted hereby, except
that the Security Trustee in its individual capacity hereby represents and
warrants (a) that each such document to which it is a party has been or will be
duly executed and delivered by one of its officers who is and will be duly
authorized to execute and deliver such document on its behalf,

                                       46
<PAGE>

and (b) this Agreement is the legal, valid and binding obligation of the
Security Trustee, enforceable against the Security Trustee in accordance with
its terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally.

                  Section 6.04. Reliance; Agents; Advice of Counsel. (a) The
Security Trustee shall incur no liability to anyone as a result of acting upon
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document believed by it to be
genuine and believed by it to be signed by the proper party or parties. The
Security Trustee may accept a copy of a resolution of the board or other
governing body of any party to this Agreement or any Related Document, certified
by the Secretary or an Assistant Secretary thereof or other duly authorized
Person of such party as duly adopted and in full force and effect, as conclusive
evidence that such resolution has been duly adopted by said board or other
governing body and that the same is in full force and effect. As to any fact or
matter the manner of ascertainment of which is not specifically described in
this Agreement, the Security Trustee shall be entitled to receive and may for
all purposes hereof conclusively rely on a certificate, signed by an officer of
any duly authorized Person, as to such fact or matter, and such certificate
shall constitute full protection to the Security Trustee for any action taken or
omitted to be taken by it in good faith in reliance thereon. The Security
Trustee shall furnish to each Service Provider upon request such information and
copies of such documents as the Security Trustee may have and as are necessary
for such Service Provider to perform its duties under the applicable Related
Documents. The Security Trustee shall assume, and shall be fully protected in
assuming, that each other party to this Agreement is authorized by its
constitutional documents to enter into this Agreement and to take all action
permitted to be taken by it pursuant to the provisions of this Agreement, and
shall not inquire into the authorization of such party with respect thereto.

                  (b)      The Security Trustee may execute any of the powers
hereunder or perform any duties under this Agreement either directly or by or
through agents, including attorneys or a custodian or nominee, and the Security
Trustee shall not be responsible for any misconduct or negligence on the part
of, or for the supervision of, any such agent, attorney, custodian or nominee
appointed with due care by it hereunder.

                  (c)      The Security Trustee may consult with counsel, and
any opinion of counsel or any advice of such counsel shall be full and complete
authorization and protection in respect of any action taken or suffered or
omitted by it under this Agreement in good faith and in accordance with such
advice or opinion of counsel.

                  (d)      The Security Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or in relation
hereto, at the request, order or direction of any of the Secured Parties,
pursuant to the provisions of this Agreement, unless such Secured Party shall
have offered to the Security Trustee reasonable security or indemnity
satisfactory to it against the costs, expenses and liabilities which may be
incurred therein or thereby.

                  (e)      The Security Trustee shall not be required to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in

                                       47
<PAGE>

the exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it, and none of the provisions
contained in this Agreement shall in any event require the Security Trustee to
perform, or be responsible or liable for the manner of performance of, any
obligations of the Issuer, the Servicer or any other party under any of the
Related Documents.

                  (f)      The Security Trustee shall not be liable for any
Costs, Taxes or the selection of Permitted Account Investments or for any
investment losses resulting from Permitted Account Investments.

                  (g)      When the Security Trustee incurs expenses or renders
services in connection with an exercise of remedies specified in Article IV or
during any case or proceeding, such expenses (including the fees and expenses of
its counsel) and the compensation for such services is intended to constitute
expenses of administration under any bankruptcy law or law relating to
creditors' rights generally.

                  (h)      The Security Trustee shall not be charged with
knowledge of an Indenture Event of Default or a Credit Facility Event of Default
unless a Responsible Officer of the Security Trustee obtains actual knowledge of
such event, or the Security Trustee receives Written Notice of such event from
any of the Indenture Trustee, the Credit Facility Agent, any Grantor or the
Servicer. For the purposes of this clause (h), a "Responsible Officer of the
Security Trustee" shall refer to any officer of the Security Trustee principally
charged with the implementation of and performance under this Agreement of the
duties of the Security Trustee or any other senior officer of the Security
Trustee to whom matters concerning this Agreement are referred because of
his/her knowledge of and familiarity with this Agreement, provided that for the
purposes of Written Notice to be provided under this clause by various parties
to the Security Trustee, such Written Notice shall be provided as specified by
the Security Trustee in Section 10.02 of this Agreement.

                  (i)      The Security Trustee shall have no duty to monitor
the performance of the Issuer, the Servicer or any other party to the Related
Documents or the utilization for the purposes described of any of the amounts
distributed or withdrawn pursuant to Article III herein, nor shall it have any
liability in connection with the appointment of any Service Provider or the
malfeasance or nonfeasance by such parties. The Security Trustee shall have no
liability in connection with non-compliance by the Issuer, the Servicer, any
Lessee or any other party under a Lease with statutory or regulatory
requirements related to the Collateral, any Financed Aircraft or any Lease. The
Security Trustee shall not make or be deemed to have made any representations or
warranties with respect to the Collateral, any Financed Aircraft or any Lease or
the validity or sufficiency of any assignment or other disposition of the
Collateral, any Financed Aircraft, or any Lease.

                  (j)      If at any time the Security Trustee is served with
any judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process which in any way affects the Collateral,
including the Accounts (including but not limited to orders of attachment or
garnishment or other forms of levies or injunctions or stays relating to the
transfer of the Collateral, including the Accounts), the Security Trustee is
authorized to comply therewith in any manner it or legal counsel of its own
choosing deems appropriate

                                       48
<PAGE>

provided that the Security Trustee shall use its best efforts to notify the
Issuer, the Indenture Trustee and Credit Facility Agent and consult with the
Issuer prior to taking any action; and if the Security Trustee complies with any
such judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process, the Security Trustee shall not be liable to
any of the parties hereto or to any other Person or entity even though such
order, judgment, decree, writ or process may be subsequently modified or vacated
or otherwise determined to have been without legal force or effect.

                  (k)      In no event shall the Security Trustee be liable (i)
for acting in accordance with or relying upon any instruction, notice, demand,
certificate or document from any party hereto or any entity acting on behalf of
any party hereto pursuant to the provisions of this Agreement, (ii) for any
indirect, consequential, punitive or special damages, regardless of the form of
action and whether or not any such damages were foreseeable or contemplated,
(iii) for the investment or reinvestment of any cash held by it hereunder, in
each case in good faith, in accordance with the terms hereof, including without
limitation any liability for any delays (not resulting from its gross negligence
or willful misconduct) in the investment or reinvestment of funds on deposit in
the Accounts, or any loss of interest incident to any such delays, or (iv) for
an amount in excess of the value of the funds on deposit in the Accounts, valued
as of the first date of the event that gives rises to a claim hereunder, but
only to the extent of direct money damages.

                  (l)      The Security Trustee shall not incur any liability
for not performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Security Trustee
(including but not limited to any act or provision of any present or future law
or regulation or governmental authority, any act of God, terrorism or war, or
the unavailability of the Federal Reserve Bank wire or facsimile or other wire
or communication facility).

                  (m)      In the event of any ambiguity, uncertainty or
conflict hereunder or in any notice, instruction or other communication received
by the Security Trustee hereunder, the Security Trustee may, in its sole
discretion, refrain from taking any action other than retain possession of the
Collateral, including the property in the Accounts, unless the Security Trustee
receives written instructions, signed by the party or parties delivering such
notice, instructions or other communication, which eliminates such ambiguity,
uncertainty or conflict, provided however, the Security Trustee shall
immediately notify the relevant parties of such ambiguity, uncertainty or
conflict and cooperate with such parties to resolve such ambiguity, uncertainty
or conflict.

                  Section 6.05. No Individual Liability. The Security Trustee
shall have no individual liability in respect of all or any part of the Secured
Obligations, and all parties shall look, subject to the Lien and priorities of
payment provided herein, in the Indenture, and in the Credit Facility Agreement,
only to the Guaranty, the Grantors, the Guarantors or the Collateral for payment
or satisfaction of the Secured Obligations.

                  Section 6.06. The Operating Bank. The Operating Bank shall be
entitled to the immunities and privileges of the Security Trustee under Sections
6.02, 6.03, 6.04 and 6.05. The Operating Bank agrees to perform its duties
hereunder in accordance with the requirements of,

                                       49
<PAGE>

and subject to the limitations of the duties of, a Securities Intermediary under
the UCC. The provisions of Section 6.04(h) shall also be applicable to the
Operating Bank.

                  In addition, with respect to the Operating Bank:

                  All income earned on the property on deposit in the Accounts
shall be considered the currently reportable income of the Issuer for federal
income tax purposes. The Operating Bank annually shall file information returns
with the United States Internal Revenue Service and payee statements with the
Issuer, documenting such income payments. The Issuer shall provide the Operating
Bank with all forms and information necessary to complete such information
returns and payee statements as reasonably requested.

                  Should the Operating Bank become liable for the payment of
Taxes, including withholding taxes, relating to income derived from property on
deposit in the Accounts or any payment made hereunder, the Operating Bank may
pay such Taxes from the property on deposit in the Accounts and shall be
indemnified and held harmless by the Issuer from any amounts that it is
obligated to pay in the way of such Taxes. This paragraph shall survive
notwithstanding any termination of this Agreement or the resignation of the
Operating Bank.

                  Section 6.07. Guaranties. For purposes of the Guaranty and the
Issuer Subsidiary Guaranty, each of the Beneficiaries (as defined under the
Guaranty and the Issuer Subsidiary Guaranty) hereby name the Security Trustee as
its agent under the Guaranty and the Issuer Subsidiary Guaranty, as the case may
be. Notwithstanding anything to the contrary hereunder or thereunder, each of
the Beneficiaries (as defined under the Guaranty and the Issuer Subsidiary
Guaranty) acknowledges and agrees that the Security Trustee shall not act under
either the Guaranty or the Issuer Subsidiary Guaranty except pursuant to Section
8.02(c) of this Agreement. Each of the Beneficiaries acknowledges and agrees
that the Security Trustee, in so acting as agent for the Beneficiaries under the
Guaranty and the Issuer Subsidiary Guaranty, shall be entitled to the same
immunities and privileges as set forth hereunder.

                                   ARTICLE VII
                           SUCCESSOR SECURITY TRUSTEES
                               AND OPERATING BANK

                  Section 7.01. Resignation and Removal of Security Trustee. The
Security Trustee may resign at any time without cause by giving at least 30
days' prior written notice to the Issuer, the Indenture Trustee and the Credit
Facility Agent. At the direction of the Requisite Creditors, the Indenture
Trustee and the Credit Facility Agent may, acting jointly, at any time remove
the Security Trustee for material cause by a Written Notice delivered to the
Secured Parties and the Security Trustee. No resignation or removal of the
Security Trustee pursuant to this Section 7.01 shall become effective prior to
the date of appointment by the Indenture Trustee and the Credit Facility Agent,
acting jointly, of a successor Security Trustee and the acceptance of such
appointment by such successor Security Trustee.

                  Section 7.02. Appointment of Successor. (a) In the case of the
resignation or removal of the Security Trustee, the Indenture Trustee and the
Credit Facility Agent (acting together) on behalf of the Secured Parties, shall
promptly appoint a successor Security Trustee,

                                       50
<PAGE>

provided that, so long as no Indenture Event of Default or Credit Facility Event
of Default has occurred and is continuing, such successor Security Trustee shall
be acceptable to ILFC. If a successor Security Trustee shall not have been
appointed and accepted its appointment hereunder within 60 days after the
Security Trustee gives notice of resignation, the retiring Security Trustee or
the Secured Parties (or the Indenture Trustee and the Credit Facility Agent on
behalf of the Secured Parties) may petition any court of competent jurisdiction
for the appointment of a successor Security Trustee. The cost and expenses
(including reasonable attorneys' fees and expenses) incurred by the Security
Trustee in connection with such proceeding shall be paid by, and be deemed an
obligation of, the Issuer. Any successor Security Trustee so appointed by such
court shall immediately and without further act be superseded by any successor
Security Trustee appointed as provided in the first sentence of this paragraph
within one year from the date of the appointment by such court.

                  (b)      Any successor Security Trustee shall execute and
deliver to the Secured Parties an instrument accepting such appointment. Upon
the acceptance of any appointment as Security Trustee hereunder, a successor
Security Trustee, upon the execution and filing or recording of such financing
statements, or amendments thereto, and such amendments or supplements to this
Agreement, and such other instruments or notices, as may be necessary or
desirable, or as the Indenture Trustee or the Credit Facility Agent may request,
in order to continue the perfection (if any), to the extent perfection is
required pursuant to this Agreement, of the Liens granted or purported to be
granted hereby, shall succeed to and become vested with all the rights, powers,
discretion, privileges and duties of the retiring Security Trustee, and the
retiring Security Trustee shall be discharged from its duties and obligations
under this Agreement and the other Related Documents. The retiring Security
Trustee shall take all steps necessary to transfer all Collateral in its
possession and all its control over the Collateral to the successor Security
Trustee. After any retiring Security Trustee's resignation or removal hereunder
as to any actions taken or omitted to be taken by it while it was Security
Trustee, the provisions of all of Article VII shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Security Trustee
under this Agreement.

                  (c)      Each Security Trustee shall be an Eligible
Institution, if there be such an institution willing, able and legally qualified
to perform the duties of a Security Trustee hereunder.

                  (d)      Any corporation into which the Security Trustee may
be merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Security
Trustee shall be a party, or any corporation to which substantially all the
business of the Security Trustee may be transferred, shall be the Security
Trustee under this Agreement without further act.

                  (e)      Following the resignation or removal of the Security
Trustee, and the appointment and acceptance of such appointment by a successor
Security Trustee, all references to "New York" in Sections 2.05 and 2.08 herein
shall be deemed to refer to the state in which the Security Trustee is
physically located.

                  Section 7.03. Resignation and Removal of the Operating Bank.
With regard to the resignation or removal of the Operating Bank, all terms of
Section 7.01 and Section 7.02

                                       51
<PAGE>

hereunder, to the extent applicable, shall apply to the Operating Bank to the
same extent as if the term "Security Trustee" was replaced with the term
"Operating Bank", in all applicable instances.

                                  ARTICLE VIII
                        AGREEMENT BETWEEN SECURED PARTIES

                  Section 8.01. Priority. The Notes and the Loans will be pari
passu in payment priority from whatever source (whether voluntary, involuntary,
by application of setoff or otherwise) except (i) in the case of a Redemption or
Prepayment if such Redemption or Prepayment occurs before the Expected Principal
Repayment Date and absent any Indenture Event of Default (if any Notes are
outstanding) or Credit Facility Event of Default (if any Loans are outstanding),
or (ii) except a redemption when there are unused proceeds from an offering of
Notes remaining in the Purchase Account. In the circumstances described in the
foregoing clause (i), in accordance with the terms hereof, (A) no Notes may be
redeemed if any Loans are outstanding, except with the consent of the Credit
Facility Agent and (B) Loans may be prepaid at any time permitted under the
Credit Facility Agreement without redemption of any outstanding Notes. In the
circumstances described in the foregoing clause (ii), in accordance with the
terms hereof, if no Indenture Event of Default has occurred and is continuing
and prior to the Expected Principal Repayment Date such unused proceeds shall be
used to redeem Notes of such series and on the Expected Principal Repayment Date
or after the occurrence and during the continuation of the Indenture Event of
Default, such unused proceeds shall be used to redeem Notes on a pro rata and
pari passu basis.

                  Section 8.02. Exercise of Remedies. (a) Upon request by the
Security Trustee, the Indenture Trustee and the Credit Facility Agent will, at
the expense of the Issuer, join in enforcement, collection, execution, levy or
foreclosure proceedings and otherwise cooperate fully in the maintenance of such
proceedings by the Security Trustee, including by executing and delivering all
such consents, pleadings, releases and other documents and instruments as the
Security Trustee may reasonably request in connection therewith, it being
understood that the conduct of such proceedings shall at all times be under the
exclusive control of the Security Trustee acting upon the written directions of
the Requisite Creditors.

                  (b)      Subject to clause (c), the Indenture Trustee and the
Credit Facility Agent agree, upon written request by the Security Trustee, at
the expense of the Issuer, to release the Liens and security interests in any
Collateral and to execute and deliver all such directions, consents, pleadings,
releases and other documents and instruments as the Security Trustee may
reasonably request in connection therewith, upon any sale, lease, transfer or
other disposition of such Collateral or part thereof in accordance with the
terms of this Agreement.

                  (c)      Subject to clause (d), in the absence of direction
from the Requisite Creditors, the Security Trustee (consistent with and subject
to Section 6.02 hereof) shall have no obligation to take any action with respect
to the Collateral, the Guaranty or any guaranty by any Issuer Subsidiary. The
Security Trustee will take action with respect to the Collateral, the Guaranty
or any guaranty by any Issuer Subsidiary only upon the written direction of the
Requisite Creditors. The exercise of any remedy with respect to the Collateral
(including pursuant to Section 4.01(a) hereof) may be undertaken on behalf of
the Security Trustee at the

                                       52
<PAGE>

direction of the Requisite Creditors and at the expense of the Issuer,
consistent with Section 6.04 and Section 9.01 hereof, respectively. Upon the
occurrence and continuation of an Indenture Event of Default (if any Notes are
outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding) or if any acceleration of the Notes or an acceleration of the Loans
shall have occurred and be continuing and, subject to Section 8.02(d), upon the
written direction of the Requisite Creditors, such direction constituting an
enforcement notice (an "Enforcement Notice"), the Security Trustee will enforce
performance of the Guaranty or any guaranty of any Issuer Subsidiary and/or
enforce the security interests granted under this Agreement and sell or
otherwise dispose of the Collateral in the manner set forth in such Enforcement
Notice. Except as specifically contemplated herein, the Operating Bank is hereby
authorized to act upon the instructions of the Security Trustee.

                  (d)      So long as Loans are outstanding, in the event that
within 60 days (30 days in the case of a payment default) after an Acceleration
Notice is provided to the Security Trustee, the Requisite Creditors fail to
provide an Enforcement Notice to the Security Trustee, then Requisite Lenders
may provide a written notice (such written notice constituting a lenders'
notice, "Lenders' Notice") to the Security Trustee directing the Security
Trustee in the enforcement of remedies hereunder including with respect to the
Collateral. The Security Trustee will as soon as possible thereafter notify the
Indenture Trustee on behalf of the Holders of the receipt of the Lenders'
Notice. The Requisite Holders will, in turn, have 30 days from the receipt of
the Lenders' Notice from the Security Trustee to countermand the Lenders'
Notice. If such Lenders' Notice is not countermanded in a timely fashion, the
Security Trustee will foreclose and/or enforce the security interests granted
under this Agreement and sell or otherwise dispose of the Collateral as directed
by Requisite Lenders, and the Requisite Holders will have no further need to
consent to such actions by the Security Trustee and no further opportunity to
countermand such actions. For the avoidance of doubt, if there is timely
countermand, the Requisite Creditors shall have the rights hereunder as if such
Lenders' Notice had not been delivered.

                  Section 8.03. Obligations Not Affected. This Agreement shall
continue to be effective or shall be revived or reinstated, as the case may be,
if at any time any payment of any of the Secured Obligations is rescinded or
must otherwise be returned by any Secured Party upon the insolvency, bankruptcy
or reorganization of any Grantor, or otherwise, all as though such payment had
not been made.

                  Section 8.04. Secured Obligations Unimpaired. Nothing in this
Agreement shall impair (a) as between the Issuer and any Secured Party, the
obligations of the Issuer to such Secured Party, including the Secured
Obligations, and (b) the provisions relating to the priority of payments herein;
provided that it is understood that the enforcement of rights and remedies
against the Collateral shall be subject to the terms of this Agreement.

                  Section 8.05. Upon Discharge of Obligations. Upon the payment
in full of the Secured Obligations, each of the Security Trustee and the
Operating Bank shall, without any further action on its part, be relieved of any
obligation under this Agreement with respect to such discharged Secured
Obligations.

                                       53
<PAGE>

                  Section 8.06. Agreement of the Secured Parties. Prior to the
date which is one year and one day after the payment in full of the Secured
Obligations, each Secured Party agrees by either signing this Agreement or by
signing the Secured Party Supplement, in respect of amounts due to any Secured
Party hereunder, not to directly or indirectly take any action against the
Parent, the Issuer or any Issuer Subsidiary, seeking to adjudicate any of them
as bankrupt or insolvent; seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of its debt under any
law relating to bankruptcy, insolvency or reorganization or relief of debtors;
or seeking the entry of an order for relief of the appointment of a receiver,
trustee or other similar official for either all or any substantial part of its
property provided, however that nothing herein shall prevent the Security
Trustee from otherwise participating in such bankruptcy proceeding instituted by
any other Person.

                  Section 8.07. Further Assurances. Each of the parties hereto
(other than the Grantors and the Security Trustee) agrees to do such other acts
and things, and to deliver to the Security Trustee such additional agreements,
powers and instruments, as the Security Trustee may reasonably require or deem
advisable to carry into effect the purposes of this Agreement or to better
assure and confer unto the Security Trustee its rights, powers and remedies
hereunder.

                  Section 8.08. Notice of Event of Default. Promptly upon a
Responsible Officer of the Indenture Trustee or the Credit Facility Agent, as
applicable, obtaining actual knowledge of the occurrence of an Indenture Event
of Default (if any Notes are outstanding) or Credit Facility Event of Default
(if any Loans are outstanding), the Indenture Trustee (in the case of an
Indenture Event of Default (if any Notes are outstanding)) the Credit Facility
Agent (in the case of a Credit Facility Event of Default (if any Loans are
outstanding)), the Issuer or any other Secured Party (other than the Holders,
the Lenders, the Security Trustee or the Operating Bank), who has knowledge of
an Indenture Event of Default (if any Notes are outstanding) or a Credit
Facility Event of Default (if any Loans are outstanding), shall provide a
Written Notice (such notice a "Notice of Event of Default") to the Security
Trustee, other Secured Parties (other than the Holders and the Lenders) and the
Operating Bank specifying such event. Neither the Security Trustee nor the
Operating Bank shall have any obligation to perform any duty or task hereunder
dependent upon the occurrence of either an Indenture Event of Default (if any
Notes are outstanding) or a Credit Facility Event of Default (if any Loans are
outstanding) until such time as it has actually received such Written Notice
from the Issuer, the Indenture Trustee or the Credit Facility Agent or any other
Secured Party, as the case may be, unless the Security Trustee has obtained
actual knowledge of such event as specified in Section 6.04(h).

                                   ARTICLE IX
                             INDEMNITY AND EXPENSES

                  Section 9.01. Indemnity. (a) The Issuer shall indemnify the
Security Trustee (and its officers, directors, employees and agents) for, and
hold it harmless against, any loss, liability or expense (including reasonable
legal fees and expenses) incurred by it without gross negligence or willful
misconduct on its part in connection with the acceptance or administration of
this Agreement and its duties hereunder, including the costs and expenses of
defending itself against any claim or liability and of complying with any
process served upon it or any of its officers in connection with the exercise or
performance of any of its powers or duties hereunder and hold it harmless
against, any loss, liability or reasonable expense incurred without gross

                                       54
<PAGE>

negligence or willful misconduct on its part. In addition, when the Security
Trustee acts on any information, instructions, communications, (including, but
not limited to, communications with respect to the delivery of securities or the
wire transfer of funds) sent by telephone, telex or facsimile, the Security
Trustee, absent gross negligence, shall not be responsible or liable in the
event such communication is not an authorized or authentic communication of any
of the parties hereunder or is not in the form any such party sent or intended
to send (whether due to fraud, distortion or otherwise). The Issuer shall
indemnify the Security Trustee against any loss, liability, claim or expense
(including reasonable legal fees and expenses) it may incur with its acting in
accordance with any such communication. The Security Trustee shall notify the
Issuer promptly of any claim asserted against the Security Trustee for which it
may seek indemnity; provided, however, that failure to provide such notice shall
not invalidate any right to indemnity hereunder. The Issuer shall defend the
claim and the Security Trustee shall cooperate in the defense. The Security
Trustee may have separate counsel and the Issuer shall pay reasonable fees and
expenses of such counsel. The Issuer need not pay for any settlements made
without its consent; provided that such consent shall not be unreasonably
withheld or delayed. The Issuer need not reimburse any expense or indemnify
against any loss or liability incurred by the Security Trustee through gross
negligence, willful misconduct or fraud.

                  (b)      The Issuer shall upon demand pay to the Security
Trustee the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the
Security Trustee may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Security Trustee or any
other Secured Party against any Grantor hereunder, or (iv) the failure by any
Grantor to perform or observe any of the provisions hereof.

                  (c)      The Issuer shall indemnify the Operating Bank (and
its officers, directors, employees and agents) for, and hold it harmless
against, any loss, liability or expense (including reasonable legal fees and
expenses) incurred by it without gross negligence (determined with reference to
reasonable commercial standards applicable to Securities Intermediaries under
the UCC) or willful misconduct on its part in connection with its duties
hereunder, including the costs and expenses of defending itself against any
claim or liability and of complying with any process served upon it or any of
its officers in connection with the exercise or performance of any of its powers
or duties hereunder and hold it harmless against, any loss, liability or
reasonable expense incurred without gross negligence (determined with reference
to reasonable commercial standards applicable to Securities Intermediaries under
the UCC) or willful misconduct on its part. In addition, when the Operating Bank
acts on any information, instructions, communications, (including, but not
limited to, communications with respect to the delivery of securities or the
wire transfer of funds) sent by telephone, telex or facsimile, the Operating
Bank, absent gross negligence, shall not be responsible or liable in the event
such communication is not an authorized or authentic communication of any of the
parties hereunder or is not in the form any such party sent or intended to send
(whether due to fraud, distortion or otherwise). The Issuer shall indemnify the
Operating Bank against any loss, liability, claim or expense (including
reasonable legal fees and expenses) it may incur with its acting in accordance
with any such communication. The Operating Bank shall notify the Issuer promptly
of any claim asserted against the Operating Bank for which it may seek
indemnity; provided, however, that

                                       55
<PAGE>

failure to provide such notice shall not invalidate any right to indemnity
hereunder. The Issuer shall defend the claim and the Operating Bank shall
cooperate in the defense. The Operating Bank may have separate counsel and the
Issuer shall pay reasonable fees and expenses of such counsel. The Issuer need
not pay for any settlements made without its consent; provided that such consent
shall not be unreasonably withheld or delayed. The Issuer need not reimburse any
expense or indemnity against any loss or liability incurred by the Operating
Bank through gross negligence, willful misconduct or fraud.

                  (d)      The Issuer shall upon demand pay to the Operating
Bank the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the
Operating Bank may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any property on deposit in the
Accounts, (iii) the exercise or enforcement of any of the rights of the
Operating Bank against any Grantor hereunder, or (iv) the failure by any Grantor
to perform or observe any of the provisions hereof.

                  (e)      Notwithstanding the foregoing, the Security Trustee
and the Operating Bank shall exercise reasonable care in the custody of any
Collateral in its possession and the accounting for and transfer of moneys
actually received by it under this Agreement. The Security Trustee and the
Operating Bank shall be deemed to have exercised reasonable care in the custody
and preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Security Trustee and the
Operating Bank accords its own property.

                  Section 9.02. Secured Parties' Indemnity. Each of the Security
Trustee and the Operating Bank shall be entitled to be indemnified (subject to
the limitations and requirements described in Section 9.01 mutatis mutandis) by
the Secured Parties to the sole satisfaction of the Security Trustee or the
Operating Bank, as applicable, before proceeding to exercise any right or power
under this Agreement at the request or direction of the Requisite Creditors or
any other party making such request or direction (in which case such party shall
indemnify the Security Trustee and the Operating Bank). The provisions of
Section 9.01 and this Section 9.02 shall survive the termination of this
Agreement or the earlier resignation or removal of the Security Trustee or the
Operating Bank, as applicable.

                  Section 9.03. No Compensation from Secured Parties. Each of
the Security Trustee and the Operating Bank agrees that it shall have no right
against the Secured Parties for any fee as compensation for its services in such
capacity.

                  Section 9.04. Security Trustee Fees. In consideration of the
Security Trustee's performance of the services provided for under this
Agreement, the Issuer shall pay to the Security Trustee an annual fee set forth
under a separate agreement between the Issuer and the Security Trustee.

                                       56
<PAGE>

                                    ARTICLE X
                                  MISCELLANEOUS

                  Section 10.01. Amendments; Waivers; Etc.

                  (a)      Amendments to the Agreement. No amendment or waiver
of any provision of this Agreement, and no consent to any departure by any party
from the provisions of this Agreement, shall in any event be effective unless
the same shall be in writing and signed by each Service Provider and each party
hereto. In executing and delivering any amendment or modification to this
Agreement, the Security Trustee (and, if applicable, the Operating Bank) shall
be entitled to (i) an Opinion of Counsel stating that such amendment is
authorized and permitted pursuant to the Indenture, the Credit Facility
Agreement and this Agreement and complies with the terms thereof and hereof and
(ii) an Officer's Certificate stating that all conditions precedent to the
execution, delivery and performance of such amendment have been satisfied in
full. The Security Trustee and the Operating Bank may, but shall have no
obligation to, execute and deliver any amendment or modification which would
affect its duties, powers, rights, immunities or indemnities hereunder. Except
as expressly provided herein, the Security Trustee shall obtain the consent of
the Indenture Trustee and the Credit Facility Agent prior to taking any action
which would affect the Holders or Lenders.

                  (b)      Amendments to the Indenture and the Credit Facility
Agreement. (i) Pursuant to Section 8.01 and Section 8.02 of the Indenture, the
Issuer and the Indenture Trustee may not enter into a supplemental indenture
under Sections 8.01(2), (3), (4), (5) and (8), and Section 8.02 of the Indenture
that could materially adversely affect the Lenders without the prior written
consent of the Credit Facility Agent.

                  (ii)     Pursuant to Section 12.1 of the Credit Facility
Agreement, no amendment, modification or waiver of, or consent with respect to,
any provision of the Credit Facility Agreement or any Loan shall in any event be
effective if the same shall materially adversely affect the holders of the
Indenture Notes, without the prior written consent of the Indenture Trustee.

                  (c)      Supplements. (A) Upon the execution and delivery by
any Person of a Grantor Supplement, (i) such Person shall be referred to as an
"Additional Grantor" and shall be and become a Grantor hereunder, and each
reference in this Agreement to "Grantor" shall also mean and be a reference to
such Additional Grantor, (ii) Annexes I, II, III and IV attached to each Grantor
Supplement shall be incorporated into, become a part of and supplement Schedules
I, II, and III, respectively, and the Security Trustee may attach such Annexes
as supplements to such Schedules; and each reference to such Schedules shall be
a reference to such Schedules as so supplemented and (iii) such Additional
Grantor shall be a Grantor for all purposes under this Agreement and shall be
bound by the obligations of the Grantors hereunder.

                  (B)      Upon the execution and delivery by a Grantor of a
Collateral Supplement, Annexes I and II to each Collateral Supplement shall be
incorporated into, become a part of and supplement Schedules I and II,
respectively, and the Security Trustee may attach such Annexes as supplements to
such Schedules; and each reference to such Schedules shall be a reference to
such Schedules as so supplemented.

                                       57
<PAGE>

                  Section 10.02. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier)
and mailed, telecopied or delivered to the intended recipient at its address
specified, as follows:

         For each Grantor:                c/o International Lease Finance
                                          Corporation
                                          10250 Constellation Boulevard, 34th
                                          Floor
                                          Los Angeles, CA 90067
                                          Attn: Legal Department
                                          Tel: (310) 788-1999
                                          Fax: (310) 788-1990

         For the Indenture Trustee:       Deutsche Bank Trust Company Americas
                                          60 Wall Street
                                          New York, NY 10005
                                          Attn: Susan Barstock
                                          Tel: (212) 250-8522
                                          Fax: (212) 797-8606

         For the Security Trustee:        Citicorp North America Inc.
                                          c/o Citibank, N.A.
                                          111 Wall Street, Floor 14, Zone 3
                                          New York, NY 10005
                                          Attn: Barbara Bennett, Assistant Vice
                                          President
                                          Tel: (212) 657-5810
                                          Fax: (212) 657-2762

         For the Credit Facility Agent:   Citicorp North America Inc.
                                          2 Penns Way, Suite 200,
                                          New Castle, DE 19720
                                          Attn: Carolyn Figueroa
                                          Tel: (302) 894-6089
                                          Fax: (212) 994-0847

         For the Servicer:                International Lease Finance
                                          Corporation
                                          10250 Constellation Boulevard, 34th
                                          Floor
                                          Los Angeles, CA 90067
                                          Attn: Legal Department
                                          Tel: (310) 788-1999
                                          Fax: (310) 788-1990

         For the Operating Bank:          Citibank, N.A.
                                          111 Wall Street
                                          14th Floor/Zone 3
                                          New York, New York 10005
                                          Attn: Barbara Bennett, Assistant Vice
                                          President
                                          Tel: (212) 657-5810
                                          Fax: (212) 657-2762

                                       58
<PAGE>

or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the terms
of this Section 10.02. Each such notice shall be effective (a) upon receipt when
sent through the mails, registered or certified mail, return receipt requested,
postage prepaid, with such receipt to be effective the date of delivery
indicated on the return receipt, or (b) one Business Day after delivery to an
overnight courier, or (c) on the date personally delivered to an authorized
officer of the party to which sent, or (d) on the date transmitted by legible
telecopier transmission with a confirmation of receipt.

                  Whenever under the terms hereof the time for giving a notice
or performing an act falls upon a Saturday, Sunday, or a banking holiday in New
York City, such time shall be extended to the next day on which the Security
Trustee or the Operating Bank, as applicable, is open for business.

                  Section 10.03. No Waiver; Remedies. No failure on the part of
the Security Trustee or the Operating Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

                  Section 10.04. Severability. If any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired.

                  Section 10.05. Continuing Security Interest; Assignments.
Subject to Section 10.06(c), this Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full force and effect until
the earlier of the payment in full in cash of the Secured Obligations and the
circumstances specified in Section 10.06(c), (b) be binding upon each Grantor,
its successors and assigns and (c) inure, together with the rights and remedies
of the Security Trustee and the Operating Bank hereunder, to the benefit of the
Secured Parties and their respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Secured Party
may assign or otherwise transfer all or any portion of its rights and
obligations under any Related Document to which it is a party in accordance with
the terms thereof to any other Person or entity, and such other Person or entity
shall thereupon become vested with all the rights in respect thereof granted to
such Secured Party herein or otherwise.

                  Section 10.06. Release and Termination. (a) Upon any sale,
transfer or other disposition of any item of Collateral in accordance with the
terms hereof, the Security Trustee will, at the Issuer's expense, execute and
deliver to the Grantor of such item of Collateral such documents as such Grantor
shall reasonably request and provide to the Security Trustee to evidence the
release of such item of Collateral from the assignment and security interest
granted hereby.

                  (b)      Except as otherwise provided in Section 10.06(c),
upon the payment in full in cash of the Secured Obligations (and the expiration
or termination of all commitments of the Lenders under the Credit Facility
Agreement), the pledge, assignment and security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the appropriate

                                       59
<PAGE>

Grantors. Upon receipt of a Written Notice from the Indenture Trustee and the
Credit Facility Agent specifying any such termination, the Security Trustee
will, at the Issuer's expense, execute and deliver to each relevant Grantor such
documents as such Grantor shall prepare and reasonably request to evidence such
termination.

                  (c)      If at any time all Notes have been defeased pursuant
to the Indenture, all Loans (including any outstanding commitments under the
Credit Facility Agreement) have been repaid pursuant to the Credit Facility
Agreement and all commitments of the Lenders under the Credit Facility Agreement
have expired or been terminated, the pledge, assignment and security interest in
the Ownership Interest Collateral shall be released and the certificates or
other instruments representing or evidencing any of the Collateral held by the
Security Trustee shall be returned to the Issuer upon receipt by the Security
Trustee of a Written Notice from the Indenture Trustee and the Credit Facility
Agent specifying such defeasance and repayment and upon the receipt of such
Written Notice the Security Trustee shall, at the expense of the Issuer, execute
and deliver to the Issuer such documents as the Issuer shall prepare and
reasonably request to evidence such termination.

                  Section 10.07. Governing Law. THIS AGREEMENT, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE HEREOF, SHALL IN ALL RESPECTS
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL SUBSTANTIVE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES
THEREOF (OTHER THAN ss.5-1401 OF THE GENERAL OBLIGATIONS LAW).

                  Section 10.08. Jurisdiction. (a) Each of the parties hereto
irrevocably agrees that the courts sitting in the borough of Manhattan in the
City of New York shall have jurisdiction to hear and determine any suit, action
or proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and, for such purposes, irrevocably submits to
the jurisdiction of such courts. Each of the parties hereto hereby waives the
right to trial by jury. To the extent that in any jurisdiction any party hereto
may be entitled to claim, for itself or its assets, immunity from suit,
execution, attachment (whether before or after judgment) or other legal process,
each hereby irrevocably agrees not to claim, and hereby waives, such immunity.
Each of the parties hereto irrevocably waives any objection which it might now
or hereafter have to the federal U.S. or New York State courts located in New
York, New York being nominated as the forum to hear and determine any suit,
action or proceeding, and to settle any disputes, which may arise out of or in
connection with this Agreement and agrees not to claim that any such court is
not a convenient or appropriate forum. Each of the parties hereto agrees that
the process by which any suit, action or proceeding is begun may be served on it
by being delivered in connection with any suit, action or proceeding in New
York, New York to the Person named as the process agent of such party in the
Indenture at the address set out therein or at the principal New York City
office of such process agent, if not the same.

                  (b)      Each of the parties hereto hereby consents generally
in respect of any legal action or proceeding arising out of or in connection
with this Agreement to the giving of any relief or the issue of any process in
connection with such action or proceeding, including the making, enforcement or
execution against any property whatsoever (irrespective of its use or

                                       60
<PAGE>

intended use) of any order or judgment which may be made or given in such action
or proceeding.

                  Section 10.09. Counterparts. This Agreement may be executed in
two or more counterparts by the parties hereto, and each such counterpart shall
be considered an original and all such counterparts shall constitute one and the
same instrument.

                  Section 10.10. Table of Contents, Headings, Etc. The Table of
Contents and headings of the Articles and Sections of this Agreement have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms and provisions
hereof.

                                       61
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by its representative or officer thereunto duly
authorized as of the date first above written.

                                             ILFC RHINO I LLC

                                             By: /s/ Alan H. Lund
                                                --------------------------------
                                                Name: Alan H. Lund
                                                Title: Chief Financial Officer

                                             By: /s/ Pamela S. Hendry
                                                --------------------------------
                                                Name: Pamela S. Hendry
                                                Title: Treasurer

                                             ILFC RHINO II LLC

                                             By: /s/ Alan H. Lund
                                                --------------------------------
                                                Name: Alan H. Lund
                                                Title: Chief Financial Officer

                                             By: /s/ Pamela S. Hendry
                                                -------------------------------
                                                Name: Pamela S. Hendry
                                                Title: Treasurer

<PAGE>

                                             CITICORP NORTH AMERICA INC.,
                                             as the Security Trustee

                                             By: /s/ Peter C. Bickford
                                                --------------------------------
                                                Name: Peter C. Bickford
                                                Title: Vice President

                                             CITICORP NORTH AMERICA INC.,
                                             as the Credit Facility Agent

                                             By: /s/ Peter C. Bickford
                                                --------------------------------
                                                Name: Peter C. Bickford
                                                Title: Vice President

<PAGE>

                                             DEUTSCHE BANK TRUST COMPANY
                                             AMERICAS,
                                             as the Indenture Trustee

                                             By: /s/ Susan Barstock
                                                --------------------------------
                                                Name: Susan Barstock
                                                Title: Vice President

<PAGE>

                                             CITIBANK, N.A.,
                                             as the Operating Bank

                                             By: /s/ Barbara E. Bennett
                                                --------------------------------
                                                Name: Barbara E. Bennett
                                                Title: Assistant Vice President

<PAGE>

                                             INTERNATIONAL LEASE FINANCE
                                                   CORPORATION,
                                             as the Servicer

                                             By: /s/ Alan H. Lund
                                                --------------------------------
                                                Name: Alan H. Lund
                                                Title: Vice Chairman
                                                       Chief Financial Officer

                                             By: /s/ Pamela S. Hendry
                                                -------------------------------
                                                Name: Pamela S. Hendry
                                                Title: Vice President and
                                                       Treasurer

<PAGE>

                                                                      SCHEDULE I
                                                        SECURITY TRUST AGREEMENT

                                  PLEDGED STOCK

<TABLE>
<CAPTION>
                                                          Percentage of
                                            Number of      Outstanding
Stock Issuer              Par Value           Shares          Shares          Certificate No(s).
------------              ---------           ------          ------          ------------------
<S>                       <C>               <C>           <C>                 <C>
NONE
</TABLE>

                          PLEDGED MEMBERSHIP INTERESTS

<TABLE>
<CAPTION>
                               Percentage of
Issuer                      Membership Interest          Certificate No.*
------                      -------------------          ----------------
<S>                         <C>                          <C>
</TABLE>

                          PLEDGED BENEFICIAL INTERESTS

<TABLE>
<CAPTION>
                               Percentage of
Issuer                      Membership Interest          Certificate No.
------                      -------------------          ----------------
<S>                         <C>                          <C>
NONE
</TABLE>

----------------------------

* Uncertificated beneficial interest in Parent and Issuer.

<PAGE>

                                                                     SCHEDULE II
                                                        SECURITY TRUST AGREEMENT

         TRADE NAMES

         None

<PAGE>

                                                                    SCHEDULE III
                                                        SECURITY TRUST AGREEMENT

<TABLE>
<CAPTION>
                                                                                                                 Location
    Name                 Chief                   Chief Place                                   Jurisdiction         of
     of                Executive                      of                    Registered              of          Collateral
  Grantor                Office                    Business                   Office           Organization       Records
-------------    -----------------------   -----------------------   -----------------------   ------------     ----------
<S>              <C>                       <C>                       <C>                       <C>              <C>
ILFC Rhino I     c/o International Lease   c/o International Lease   The Corporation Service     Delaware       California
LLC              Finance Corporation       Finance Corporation       Company
                 10250 Constellation       10250 Constellation       2711 Centerville Road,
                 Boulevard,                Boulevard,                Suite 400
                 34th Floor                34th Floor                Wilmington, DE 19808
                 Los Angeles, CA 90067     Los Angeles, CA 90067
                 Attn: Legal Department    Attn: Legal Department

ILFC Rhino II    c/o International Lease   c/o International Lease   The Corporation Service     Delaware       New York
LLC              Finance Corporation       Finance Corporation       Company
                 10250 Constellation       10250 Constellation       2711 Centerville Road,
                 Boulevard,                Boulevard,                Suite 400
                 34th Floor                34th Floor                Wilmington, DE 19808
                 Los Angeles, CA 90067     Los Angeles, CA 90067
                 Attn: Legal Department    Attn: Legal Department
</TABLE>

<PAGE>

                                                                       EXHIBIT D

                              ADDITIONAL COVENANTS

                  (a)      Legal Existence. Except as permitted pursuant to
paragraph (d) below, the Issuer and the Parent will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence and
the rights and franchises of the Issuer and any Issuer Subsidiaries; provided,
however, that the Issuer and the Parent shall not be required to preserve any
such right or franchise if it shall determine that the preservation thereof is
no longer desirable in the conduct of the business of the Issuer and/or any
Issuer Subsidiary and that the loss thereof is not disadvantageous in any
material respect to the Holders.

                  (b)      Payment of Taxes and Other Claims. The Issuer, and
the Parent with respect to Taxes, will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all Taxes, assessments
and governmental charges levied or imposed upon the Issuer or any Subsidiary or
upon the income, profits or property of the Issuer or any Issuer Subsidiary or
the Parent, and (2) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Issuer or any
Issuer Subsidiary or the Parent; provided, however, that the Issuer or the
Parent shall not be required to pay or discharge or cause to be paid or
discharged (i) any such Tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings, or which would not have a material adverse effect either singularly
or in the aggregate on the Collateral or the security interests of the Secured
Parties, or (ii) any Permitted Encumbrance.

                  (c)      Limitation on the Issuance, Transfer and Sale of
Equity Interests. The Issuer and the Parent will not (i) issue, deliver or sell
any shares, interests, participations or other equivalents in equity (however
designated, whether voting or non-voting, other than beneficial interests,
shares, participations or other equivalents existing on the Closing Date or
issued, delivered or sold to ILFC Rhino I LLC), or (ii) permit any Issuer
Subsidiary, directly or indirectly, to issue, deliver or sell, any shares,
interests, participations or other equivalents in equity (however designated,
whether voting or non-voting, other than beneficial interests, shares,
participations or other equivalents existing on the Closing Date or sold to the
Issuer or another Issuer Subsidiary).

                  (d)      Limitation on Consolidation, Merger and Transfer of
Assets. The Parent and the Issuer will not, nor will it permit any Issuer
Subsidiary to, consolidate with or merge into any other Person or convey,
transfer or otherwise dispose of its properties and assets substantially as an
entirety in one transaction or in a series of related transactions (except for
the Leases and transfers and sales of Financed Aircraft, related Leases and
Engines as contemplated by the Related Documents or the Leases) to any Person,
and the Parent and the Issuer shall not permit any Person to consolidate with or
merge into the Parent, Issuer or any Issuer Subsidiary or convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety in one transaction or in a series of related transactions to the
Issuer, unless:

                  (i)      the Person formed by such consolidation or into which
         the Issuer or the Parent is merged or the Person which acquires by
         conveyance or transfer, the properties and assets of the Issuer or the
         Parent substantially as an entirety, shall be a limited

                                     D-(i)

<PAGE>

         liability company, shall be organized and validly existing under the
         laws of the United States of America, any State thereof or the District
         of Columbia and shall expressly assume, by an indenture supplemental to
         the Indenture, executed and delivered to the Indenture Trustee, in form
         satisfactory to the Indenture Trustee, or by an assumption agreement,
         executed and delivered to the Credit Facility Agent, in form and
         substance satisfactory to the Credit Facility Agent, the due and
         punctual payment of the principal of and interest on all the Notes and
         the Loans, as the case may be, and the performance of every covenant of
         the Indenture, the Credit Facility Agreement and any Secured Obligation
         under the Security Trust Agreement on part of the Issuer or the Parent
         to be performed or observed;

                  (ii)     immediately after giving effect to such transaction
         no Indenture Event of Default (so long as any Notes are outstanding) or
         Credit Facility Event of Default (so long as any Loans are
         outstanding), and no event which, after notice or lapse of time or
         both, would become an Indenture Event of Default (so long as any Notes
         are outstanding) or Credit Facility Event of Default (so long as any
         Loans or Commitments are outstanding), shall have happened and be
         continuing and such transaction will not (a) cause the Issuer to be
         classified as an association or publicly traded partnership taxable as
         a corporation for United States federal income tax purposes or (b)
         affect the treatment of the Notes as debt for United States federal
         income tax purposes; and

                  (iii)    the Issuer or the Parent has delivered to the
         Indenture Trustee and the Credit Facility Agent, an Officer's
         Certificate and an Opinion of Counsel, each stating that such
         consolidation, merger, conveyance, transfer and, if an indenture
         supplemental to the Indenture or assumption agreement is required in
         connection with such transaction, such supplemental indenture or
         assumption agreement, comply with this limitation and that all
         conditions precedent herein provided for relating to such transaction
         have been complied with.

                  (e)      Limitation on Mortgage, Lien or Pledge of Property.
The Parent and the Issuer will not, nor will it permit any Issuer Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon any property of the
Parent, the Issuer or any Issuer Subsidiary, or upon any shares of stock or
beneficial interests of the Parent, the Issuer or any Issuer Subsidiary.
Notwithstanding the foregoing the Parent and the Issuer may, or may permit any
Issuer Subsidiary or Lessee to, create, incur, assume or suffer to exist any
Permitted Encumbrance.

                  (f)      Limitation on Payments and Dividends. No dividend
whatsoever shall be paid or declared nor shall any distributions be made on the
stock or beneficial interests of the Issuer, nor shall any payment be made by
the Parent or the Issuer to acquire or retire shares of such stock or beneficial
interests, at a time when an Indenture Event of Default (so long as any Notes
are outstanding) or Credit Facility Event of Default (so long as any Loans are
outstanding) has occurred and is continuing.

                  (g)      Bankruptcy and Insolvency. (i) The Parent or the
Issuer will promptly provide the Indenture Trustee, the Security Trustee, the
Credit Facility Agent and the Rating Agencies with Written Notice of the
institution of any proceeding by or against ILFC, ILFC Rhino I LLC, the Issuer
or any Issuer Subsidiaries, as the case may be, seeking to adjudicate any

                                     D-(ii)

<PAGE>

of them bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or composition of
their debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for either all or
any substantial part of their property, (ii) the Parent and the Issuer will not
take, nor will it permit the Issuer Subsidiaries to take, any action to waive,
repeal, amend, vary, supplement or otherwise modify their charter documents that
would materially adversely affect the rights, privileges or preferences of any
Holders and the Lenders and (iii) the Parent and the Issuer shall not, without
the prior affirmative vote of 100% of its Managers, (x) merge or consolidate
with any other corporation, company or entity or sell all or substantially all
of its assets, or acquire all or substantially all of the assets, capital stock
or other ownership interest of any other corporation, company or entity, except
as permitted in its constitutional documents or herein; or (y) (i) dissolve or
liquidate, in whole or in part, or institute proceedings to be adjudicated
bankrupt or insolvent; (ii) file, consent to the filing of or join in the filing
of, a bankruptcy or insolvency petition against the Issuer or otherwise
institute bankruptcy or insolvency proceedings; (iii) file a petition seeking or
consent to reorganization or relief under any applicable federal or state law
relating to bankruptcy or insolvency; (iv) consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or other similar official
as to the Issuer or all or substantially all of its property; or (v) make a
general assignment for the benefit of creditors.

                  (h)      Limitation on Creation of Subsidiaries. The Parent
will not create any Subsidiary other than the Issuer. The Issuer will not create
an Issuer Subsidiary except for the purpose of holding a Financed Aircraft
and/or entering into the related Lease or sublease with a Lessee and/or
purchasing or selling a Financed Aircraft. Any new Issuer Subsidiary will become
a party to the Security Trust Agreement and will guaranty the payment
obligations of the Issuer with respect to the Notes, the Loans, the Indenture
and the Credit Facility.

                  (i)      Limitation on Indebtedness. Neither the Parent, the
Issuer nor any of its Subsidiaries will incur any indebtedness for borrowed
money other than the indebtedness for borrowed money incurred by the offering of
each series of Notes and any drawings under the Credit Facility, or intercompany
loans.

                  (j)      Tax Treatment. None of ILFC Rhino I LLC or the Issuer
or any Issuer Subsidiaries will make an election to treat either ILFC Rhino I
LLC or the Issuer or any Issuer Subsidiaries as a corporation for U.S. federal
income tax purposes or fail to make an available election that would avoid such
treatment. None of the Parent or the Issuer or any Issuer Subsidiaries will take
any action that would cause the Parent or the Issuer or any Issuer Subsidiary to
be treated as a corporation or partnership for such purposes.

                  (k)      Compliance. The Parent and the Issuer will comply
with the provisions of its limited liability company agreement and will cause
any of the Issuer Subsidiaries to comply with its respective charter documents.

                  (l)      Compliance with Law; Maintenance of Permits. The
Parent and the Issuer and the Issuer Subsidiaries, if any, will comply with
Applicable Laws. Issuer or the relevant Issuer Subsidiary, when the Lessor under
a Lease, will with limited exceptions, (i) contractually

                                    D-(iii)

<PAGE>

require of each Lessee in its Lease to obtain all material governmental
registrations, certificates, licenses, permits and authorizations required for
such Lessee to use and operate the Financed Aircraft in the State of
Registration, and (ii) contractually require each Lessee not to operate any
Financed Aircraft under any Lease in any material respect contrary to any
Applicable Law.

                  The foregoing provision will not be deemed to have been
breached by virtue of acts or omissions of a Lessee, sub-lessee or any Person
who has possession of the Financed Aircraft or any Engine for the purpose of
repairs, maintenance, modification or storage or by virtue of any requisition,
seizure, or confiscation of the Financed Aircraft if neither the Issuer or any
Subsidiary consents to those acts or omissions and the Issuer or any Subsidiary
that is the lessor or owner of the Financed Aircraft promptly and diligently
takes such commercially reasonable actions as a leading international aircraft
operating lessor would take under similar circumstances.

                  (m)      Limitation on Aircraft Acquisitions. Neither the
Issuer nor its Subsidiaries will acquire any aircraft other than the Aircraft or
Substitute Aircraft.

                  (n)      Appraisal of Aircraft. The Issuer will obtain
semi-annual appraisals for the Financed Aircraft and the Aircraft listed on the
Delivery Schedule that are expected to be delivered during the six-month period
following such Appraisal. The Issuer will furnish such Appraisals to each of the
Security Trustee, the Indenture Trustee and Credit Facility Agent.

                  (o)      Maintenance of Assets. The Issuer will contractually
require each Lessee of a Financed Aircraft, to directly or indirectly, cause
such Financed Aircraft to be maintained in a state of repair and condition
consistent with the reasonable commercial practice of leading international
aircraft operating lessors with respect to similar aircraft under lease. While a
Financed Aircraft is off-lease, the Issuer will, or will cause an Issuer
Subsidiary to, maintain such Financed Aircraft in a state of repair and
condition consistent with the practice of the Servicer with respect to similar
aircraft not under Lease.

                  (p)      Notification of Losses. The Issuer will notify the
Indenture Trustee, the Security Trustee, the Credit Facility Agent, and the
Servicer, in writing, as soon as the Issuer or any of its Subsidiaries becomes
aware of any loss, theft, damage or destruction to any Financed Aircraft or
Engine if the potential cost of repair or replacement of such asset (without
regard to any insurance claim related thereto) is reasonably expected to exceed
the greater of U.S. $5,000,000 or the damage notification threshold under the
relevant Lease.

                  (q)      Core Lease Provisions. The Issuer will include in all
Leases relating to the Aircraft, which are executed after the date hereof
certain core lease provisions which are described in Exhibit D-2 attached hereto
(the "Core Lease Provisions").

                  (r)      Insurance of the Financed Aircraft. The Issuer or any
Issuer Subsidiary will maintain or require that each Lessee maintain (i) at all
times hull and war risk hull insurance with respect to the Financed Aircraft
leased by such Lessee covering at least 110% of the initial principal amount of
the proceeds of Notes and Loans used to purchase such Financed Aircraft, (ii)
while a Financed Aircraft is in the possession of a Lessee pursuant to a Lease,
(A) aviation and airline general third party liability insurance in an amount
not less than $500,000,000 per

                                     D-(iv)

<PAGE>

occurrence for narrowbody Financed Aircraft or $750,000,000 per occurrence for
widebody Financed Aircraft (or 75% of such applicable amount if the Financed
Aircraft is a non-passenger (cargo) aircraft), and (B) third party war risk
liability insurance with limit amounts equal to such amounts as are consistent
with the Servicer's own practice with respect to its aircraft, which limit may
be lower than or different from the amounts under other insurance coverages,
except that with respect to certain war risk liability coverages a government
guaranty, agreement or indemnity satisfactory to the Servicer may be accepted in
substitution for third party war risk liability insurance; and (iii) while a
Financed Aircraft is off-lease, third party aviation and general liability
insurance in an amount equal to the amount then maintained by the Servicer under
the Servicer's third party aviation and general liability policy for its
aircraft which are off-lease, which amount may be less than or different from
the amounts described in clause (ii) above. Notwithstanding the foregoing, the
Issuer's or Issuer Subsidiary's obligation to maintain or require to be
maintained the insurance described above is subject to such insurance being
generally available in the relevant insurance market at commercially reasonable
rates.

                  (s)      Servicing Agreement. So long as any Notes, Loans or
Commitments are outstanding the Issuer will not make, nor cause the Servicer to
make, any amendments to the Servicing Agreement, which adversely affect the
interests of the Holders or the Lenders, without the consent of the Security
Trustee.

                  (t)      Ownership of Aircraft. Each Financed Aircraft will at
all times be owned by the Issuer or an Issuer Subsidiary organized in a state of
the United States or in the District of Columbia.

                                     D-(v)<PAGE>

                                                                    EXHIBIT 10.1
                                                               Execution Version

================================================================================

                                CREDIT AGREEMENT

                                   Dated as of

                                 March 16, 2004

                                      among

                          NEWFIELD EXPLORATION COMPANY

                            The Lenders Party Hereto

                                       and

                              JPMORGAN CHASE BANK,
                   as Administrative Agent and as Issuing Bank

                       -----------------------------------

                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                              as Syndication Agent

                       -----------------------------------

                      BANK OF MONTREAL d/b/a HARRIS NESBITT
                         CREDIT LYONNAIS NEW YORK BRANCH
                               FLEET NATIONAL BANK
                           As Co-Documentation Agents

                       -----------------------------------

                          J. P. MORGAN SECURITIES INC.,

                                       and

                          WACHOVIA CAPITAL MARKETS, LLC
                   as Joint Bookrunners and Co-Lead Arrangers

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                                <C>
                                                   ARTICLE I
                                                  DEFINITIONS

Section 1.01.         Defined Terms.............................................................................     1
Section 1.02.         Classification of Loans and Borrowings....................................................    18
Section 1.03.         Terms Generally...........................................................................    18
Section 1.04.         Accounting Terms; GAAP....................................................................    19

                                                   ARTICLE II
                                                  THE CREDITS

Section 2.01.         Commitments...............................................................................    19
Section 2.02.         Loans and Borrowings......................................................................    19
Section 2.03.         Requests for Borrowings...................................................................    19
Section 2.04.         Borrowing Base............................................................................    20
Section 2.05.         Payments Generally; Pro Rata Treatment; Sharing of Set-offs...............................    21
Section 2.06.         Letters of Credit.........................................................................    22
Section 2.07.         Funding of Borrowings.....................................................................    26
Section 2.08.         Interest Elections........................................................................    26
Section 2.09.         Termination and Reduction of Commitments..................................................    27
Section 2.10.         Repayment of Loans; Evidence of Debt......................................................    28
Section 2.11.         Prepayment of Loans.......................................................................    29
Section 2.12.         Fees......................................................................................    29
Section 2.13.         Interest..................................................................................    30
Section 2.14.         Alternate Rate of Interest................................................................    31
Section 2.15.         Increased Costs...........................................................................    31
Section 2.16.         Break Funding Payments....................................................................    32
Section 2.17.         Taxes.....................................................................................    32
Section 2.18.         Mitigation Obligations; Replacement of Lenders............................................    33

                                                  ARTICLE III
                                         REPRESENTATIONS AND WARRANTIES

Section 3.01.         Organization; Powers; Subsidiaries........................................................    34
Section 3.02.         Authorization; Enforceability.............................................................    34
Section 3.03.         Governmental Approvals; No Conflicts......................................................    35
Section 3.04.         Financial Condition; No Material Adverse Change...........................................    35
Section 3.05.         Properties................................................................................    35
Section 3.06.         Litigation and Environmental Matters......................................................    36
Section 3.07.         Compliance with Laws and Agreements.......................................................    37
Section 3.08.         Investment and Holding Company Status.....................................................    37
Section 3.09.         Taxes.....................................................................................    37
Section 3.10.         ERISA.....................................................................................    37
Section 3.11.         Disclosure................................................................................    37
</TABLE>

                                      -i-

<PAGE>

<TABLE>
<S>                                                                                                                 <C>
Section 3.12.         Insurance.................................................................................    38
Section 3.13.         Fiscal Periods............................................................................    38
Section 3.14.         Use of Proceeds...........................................................................    38

                                                   ARTICLE IV
                                                   CONDITIONS

Section 4.01.         Effective Date............................................................................    38
Section 4.02.         Each Credit Event.........................................................................    39

                                                   ARTICLE V
                                             AFFIRMATIVE COVENANTS

Section 5.01.         Financial Statements; Ratings Change and Other Information................................    40
Section 5.02.         Notices of Material Events................................................................    41
Section 5.03.         Existence; Conduct of Business............................................................    41
Section 5.04.         Payment of Obligations....................................................................    42
Section 5.05.         Maintenance of Properties; Insurance......................................................    42
Section 5.06.         Books and Records; Inspection Rights......................................................    42
Section 5.07.         Compliance with Laws......................................................................    42
Section 5.08.         Oil and Gas Properties....................................................................    42
Section 5.09.         Principal Business........................................................................    43
Section 5.10.         Subsidiary Guaranties.....................................................................    43
Section 5.11.         Engineering Reports.......................................................................    43

                                                   ARTICLE VI
                                               NEGATIVE COVENANTS

Section 6.01.         Debt......................................................................................    44
Section 6.02.         Liens.....................................................................................    45
Section 6.03.         Fundamental Changes.......................................................................    45
Section 6.04.         Investments, Loans, Advances, Guarantees and Acquisitions.................................    46
Section 6.05.         Swap Agreements...........................................................................    46
Section 6.06.         Restricted Payments.......................................................................    46
Section 6.07.         Transactions with Affiliates..............................................................    46
Section 6.08.         Restrictive Agreements....................................................................    46
Section 6.09.         Subsidiary Debt and Preferred Stock.......................................................    47
Section 6.10.         Designation of Unrestricted Subsidiaries..................................................    47
Section 6.11.         New Unrestricted Subsidiaries.............................................................    48
Section 6.12.         Sale Leaseback Transactions...............................................................    48
Section 6.13.         Sale or Discount of Receivables...........................................................    48
Section 6.14.         Sale of Oil and Gas Properties............................................................    48
Section 6.15.         Subsidiaries and Partnerships.............................................................    48
Section 6.16.         Hydrocarbon Sales Contract................................................................    48
Section 6.17.         Environmental Matters.....................................................................    48
Section 6.18.         Subordinated Debt.........................................................................    48
Section 6.19.         Fiscal Periods............................................................................    49
</TABLE>

                                      -ii-

<PAGE>

<TABLE>
<S>                                                                                                                <C>
Section 6.20.         Use of Proceeds...........................................................................    49
Section 6.21.         Total Debt to EBITDA Ratio................................................................    49
Section 6.22.         EBITDA to Interest Ratio..................................................................    49

                                                  ARTICLE VII
                                               EVENTS OF DEFAULT

Section 7.01.         Events of Default.........................................................................    49

                                                  ARTICLE VIII
                                            THE ADMINISTRATIVE AGENT

Section 8.01.         The Administrative Agent..................................................................    51

                                                   ARTICLE IX
                                                 MISCELLANEOUS

Section 9.01.         Notices...................................................................................    53
Section 9.02.         Waivers; Amendments.......................................................................    54
Section 9.03.         Expenses; Indemnity; Damage Waiver........................................................    55
Section 9.04.         Successors and Assigns....................................................................    56
Section 9.05.         Survival..................................................................................    58
Section 9.06.         Counterparts; Integration; Effectiveness..................................................    59
Section 9.07.         Severability..............................................................................    59
Section 9.08.         Right of Setoff...........................................................................    59
Section 9.09.         Governing Law; Jurisdiction; Consent to Service of Process................................    59
Section 9.10.         WAIVER OF JURY TRIAL......................................................................    60
Section 9.11.         Headings..................................................................................    60
Section 9.12.         Confidentiality...........................................................................    60
Section 9.13.         Interest Rate Limitation..................................................................    61
Section 9.14.         Co-Lead Arrangers and Syndication Agent...................................................    61
Section 9.15.         USA Patriot Act Notice....................................................................    61
</TABLE>

                                     -iii-

<PAGE>

SCHEDULES:

Schedule 1.01 -- Existing Investments; Existing Letters of Credit
Schedule 2.01 -- Commitments
Schedule 3.05 -- Subsidiaries
Schedule 6.02 -- Existing Liens
Schedule 6.08 -- Existing Restrictions

EXHIBITS:

Exhibit A         Form of Assignment and Assumption
Exhibit B         Form of Opinion of Borrower's Counsel
Exhibit C         Form of Subsidiary Guaranty

                                      -iv-

<PAGE>

CREDIT AGREEMENT dated as of March 16, 2004 among Newfield Exploration Company,
a Delaware corporation, the LENDERS party hereto, and JPMORGAN CHASE BANK, as
Administrative Agent and as Issuing Bank.

                  The parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

                  Section 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:

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

                  "Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.

                  "Administrative Agent" means JPMorgan Chase Bank, in its
capacity as administrative agent for the Lenders hereunder.

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

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

                  "Agreement" means this Credit Agreement dated as of March 16,
2004, as amended or otherwise modified from time to time.

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

                  "Applicable Percentage" means, with respect to any Lender, the
percentage (expressed as a decimal) of the total Commitments represented by such
Lender's Commitment. If the Commitments have terminated or expired, the
Applicable Percentages shall be determined based upon the Commitments most
recently in effect, giving effect to any assignments.

                  "Applicable Rate" means, for any day, with respect to any ABR
Loan or Eurodollar Loan, or with respect to the commitment fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as
the case may be, based upon the ratings by Moody's and S&P, respectively,
applicable on such date to the Index Debt:

<PAGE>

<TABLE>
<CAPTION>
                              ABR             Eurodollar           Commitment Fee
Index Debt Ratings:          Spread             Spread                  Rate
---------------------------------------------------------------------------------
<S>                          <C>              <C>                  <C>
    Category 1                 0                0.875%                 0.20%
BBB/Baa2 or higher
---------------------------------------------------------------------------------
    Category 2                 0                1.125%                 0.25%
     BBB-/Baa3
---------------------------------------------------------------------------------
    Category 3                 0                1.250%                 0.30%
      BB+/Ba1
---------------------------------------------------------------------------------
    Category 4                 0                1.500%                 0.35%
      BB/Ba2
---------------------------------------------------------------------------------
    Category 5               0.250%             1.750%                 0.45%
 BB-/Ba3 or lower
---------------------------------------------------------------------------------
</TABLE>

                  For purposes of the foregoing, (i) if neither Moody's nor S&P
shall have in effect a rating for the Index Debt (other than by reason of the
circumstances referred to in the last sentence of this definition), then such
rating agencies shall be deemed to have established a rating in Category 5; (ii)
if only one of Moody's and S&P has in effect a rating for the Index Debt, then
the Applicable Rate shall be determined solely based on the rating of such
rating agency; (iii) if the ratings established or deemed to have been
established by Moody's and S&P for the Index Debt shall fall within different
Categories, the Applicable Rate shall be based on the higher of the two ratings
unless one of the two ratings is two or more Categories lower than the other, in
which case the Applicable Rate shall be determined by reference to the Category
next above that of the lower of the two ratings; and (iv) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt shall be changed (other than as a result of a change in the rating system
of Moody's or S&P), such change shall be effective as of the date on which it is
first announced by the applicable rating agency, irrespective of when notice of
such change shall have been furnished by the Borrower to the Administrative
Agent and the Lenders pursuant to Section 5.01 or otherwise. Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change. If (a) the rating system of Moody's or S&P shall
change, the Borrower and the Lenders shall negotiate in good faith to amend this
definition to reflect such changed rating system of such rating agency and,
pending the effectiveness of any such amendment, the Applicable Rate shall be
determined by reference to the rating of such rating agency most recently in
effect prior to such change; and (b) both Moody's and S&P shall cease on the
same date to be in the business of rating corporate debt obligations, the
Borrower and the Lenders shall negotiate in good faith to amend this definition
to reflect the unavailability of ratings from such rating agencies and, pending
the effectiveness of any such amendment, the Applicable Rate shall be determined
by reference to the ratings of such rating agencies most recently in effect
prior to such cessation.

                  "Approved Fund" has the meaning assigned to such term in
Section 9.04(b).

                  "Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the

                                      -6-

<PAGE>

Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate
as shall be determined by the Administrative Agent to be representative of the
cost of such insurance to the Lenders.

                  "Assignment and Assumption" means an assignment and assumption
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.

                  "Attributable Obligation" means, with respect to any Sale
Leaseback Transaction as of any particular time, the present value at such time
discounted at the rate of interest implicit in the terms of the lease of the
obligations of the lessee under such lease for net rental payments during the
remaining term of the lease (including any period for which such lease has been
extended or may, at the option of the Borrower or any Subsidiary, be extended).

                  "Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.

                  "Available Commitment" means, for any Lender at any time, the
lesser of (i) such Lender's Commitment at such time and (ii) such Lender's
Applicable Percentage times the Borrowing Base at such time.

                  "Available Commitment (For Fee Purposes)" means, for any
Lender at any time, the amount that would be such Lender's Available Commitment
at such time if the Senior Notes were the only Debt included in the Borrowing
Base Debt Amount at such time.

                  "Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.

                  "Board" means the Board of Governors of the Federal Reserve
System of the United States of America.

                  "Borrower" means Newfield Exploration Company, a Delaware
corporation.

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

                  "Borrowing Base" means, at any time, the amount by which the
Calculated Borrowing Base at such time exceeds the sum of (i) Borrowing Base
Debt Amount at such time plus (ii) 30% of the aggregate principal amount then
outstanding of all Subordinated Debt. Any change in the Borrowing Base due to a
change in the Calculated Borrowing Base, the Borrowing Base Debt Amount or the
principal amount of such Subordinated Debt shall be effective from and including
the date of such change in the Calculated Borrowing Base, the Borrowing Base
Debt Amount or the principal amount of such Subordinated Debt, respectively.

                  "Borrowing Base Approval Lenders" means, at any time, Lenders
having Credit Exposures and unused Commitments representing at least 75% of the
sum of the total Credit Exposures and unused Commitments at such time.

                  "Borrowing Base Debt Amount" means, at any time, the aggregate
principal amount outstanding at such time, without duplication, of all
consolidated Debt of the Borrower and the Restricted Subsidiaries, except (i)
the aggregate Credit Exposures of all Lenders at such time, (ii) Subordinated
Debt, (iii) letters of credit (other than Letters of Credit) not exceeding in
the aggregate (including both the aggregate maximum undrawn amount thereof and
the aggregate amount of all disbursements thereunder that have not been
reimbursed) an amount equal to $50,000,000 minus the LC Exposure at such time
and (iv) Debt referred to in clause (k) of the definition herein of Debt.

                                      -7-

<PAGE>

                  A "Borrowing Base Deficiency" will be deemed to exist at all
times that the Borrowing Base Deficiency Amount is greater than zero.

                  "Borrowing Base Deficiency Amount" means, at any time, the
amount, if any, by which (a) the aggregate Credit Exposures of all Lenders at
such time exceeds (b) the Borrowing Base at such time.

                  "Borrowing Base Notice" means a written notice sent to the
Borrower by the Administrative Agent notifying the Borrower of the Calculated
Borrowing Base determined by the Borrowing Base Approval Lenders.

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

                  "Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.

                  "Calculated Borrowing Base" means at any time an amount equal
to the amount determined in accordance with Section 2.04 and in effect at such
time.

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

                  "Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of Equity Interests representing more than 30% of the aggregate ordinary voting
power represented by the issued and outstanding Equity Interests of the
Borrower; (b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of the Borrower by Persons who were neither (i) nominated
by the board of directors of the Borrower nor (ii) appointed by directors so
nominated; or (c) the acquisition of direct or indirect Control of the Borrower
by any Person or group.

                  "Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement by any Governmental Authority, (b)
any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this
Agreement or (c) compliance by any Lender or the Issuing Bank (or, for purposes
of Section 2.15(b), by any lending office of such Lender or by such Lender's or
the Issuing Bank's holding company, if any) with any request, guideline or
directive (whether or not having the force of law) of any Governmental Authority
made or issued after the date of this Agreement.

                  "Code" means the Internal Revenue Code of 1986, as amended
from time to time.

                  "Co-Documentation Agents" means Bank of Montreal d/b/a Harris
Nesbitt, Credit Lyonnais New York Branch and Fleet National Bank, as
co-documentation agents in connection with this Agreement.

                  "Co-Lead Arrangers" means J.P. Morgan Securities Inc. and
Wachovia Capital Markets, LLC.

                  "Commitment" means, with respect to each Lender, the
commitment of such Lender to

                                      -8-

<PAGE>

make Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from
time to time pursuant to Section 2.09 and (b) reduced or increased from time to
time pursuant to assignments by or to such Lender pursuant to Section 9.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Assumption pursuant to which such Lender shall have assumed
its Commitment, as applicable. The initial aggregate amount of the Lenders'
Commitments is $600,000,000.

                  "Company Report" has the meaning assigned to such term in
Section 5.11(a).

                  "Consolidated Interest Expense" means, for any period, the sum
of (i) gross interest expense (including all cash and accrued interest expense)
of the Borrower and its Consolidated Restricted Subsidiaries for such period on
a consolidated basis in accordance with GAAP, including to the extent included
in interest expense in accordance with GAAP (a) the amortization of debt
discounts and (b) the portion of any payments or accruals with respect to
capital leases allocable to interest expense plus (ii) capitalized interest of
the Borrower and its Consolidated Restricted Subsidiaries for such period on a
consolidated basis in accordance with GAAP. If any Consolidated Restricted
Subsidiary is designated as an Unrestricted Subsidiary in accordance with
Section 6.10, then on and after the date of such designation, Consolidated
Interest Expense shall be computed for all prior periods as if such Subsidiary
was not a Consolidated Restricted Subsidiary during such periods.

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

                  "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controls", "Controlling" and "Controlled" have meanings correlative
thereto.

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

                  "Debt" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding accounts payable
incurred in the ordinary course of business that are not more than 90 days past
due or that are being contested in good faith by appropriate proceedings and as
to which such Person has set aside on its books adequate reserves with respect
thereto in accordance with GAAP), (e) all Debt of others secured by (or for
which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property owned or acquired by such Person, whether or
not the Debt secured thereby has been assumed, (f) all Guarantees by such Person
of Debt of others, (g) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, (j)
all obligations or undertakings of such Person with respect to payments received
by such Person in consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including obligations under
"take-or-pay" contracts, contracts to deliver oil, gas or other minerals in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment) or with respect to other
obligations to deliver goods or services in consideration of advance payments
therefor but excluding gas imbalances arising in the ordinary course of business
between joint working interest owners of production; (k) obligations arising
under futures contracts, swap contracts or similar hedging agreements; and (l)
all obligations of such Person under any synthetic lease, tax retention
operating lease or off-balance sheet loan or financing. The

                                      -9-

<PAGE>

Debt of any Person shall include the Debt of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such Debt
provide that such Person is not liable therefor.

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

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

                  "EBITDA" means, for any period, the sum of (i) the
consolidated net income (or loss) of the Borrower and its Consolidated
Restricted Subsidiaries for such period determined in accordance with GAAP plus
(ii) to the extent included in the determination of such net income (or loss),
the consolidated charges for such period for interest, depreciation, depletion
and amortization plus (or, if there is a benefit from income taxes, minus) (iii)
to the extent included in the determination of such net income, the amount of
the provision for or benefit from income taxes; provided that in determining
such consolidated net income and such consolidated charges, there shall be
excluded therefrom (to the extent otherwise included therein) (a) the net income
(but not loss) of, and charges for interest, depreciation, depletion and
amortization of, any Person which is subject to any restriction, contractual or
otherwise, which prevents the payment of dividends or distributions or the
making of dividends or distributions on Equity Interests of such Person to the
extent of such restrictions, (b) pre-tax gains or losses on the sale, transfer
or other disposition of any property by the Borrower or its Consolidated
Restricted Subsidiaries (other than sales, transfers and other dispositions in
the ordinary course of business), (c) all extraordinary gains and extraordinary
losses, prior to applicable income taxes, and (d) any item constituting the
cumulative effect of a change in accounting principles, prior to applicable
income taxes; provided further that in determining EBITDA, there shall be
disregarded the after-tax effects of each of the following matters: (i)
write-downs after December 31, 2002 under FASB Statement No. 19, (ii) non-cash
write-downs of assets after December 31, 2002 under FASB Statement No. 121 or
pursuant to Rule 4-10(c) of SEC Regulation S-X (17CFR Section 210.4-10(c)), and
(iii) non-cash gains, losses or adjustments under FASB Statement. No. 133;
provided further that if during such period the Borrower or any of its
Consolidated Restricted Subsidiaries acquires or disposes of any Person (or any
Equity Interest in any Person other than the Borrower) or all or substantially
all of the assets of any Person, the EBITDA attributable to such assets (or an
amount equal to the percentage of ownership of the Borrower or Consolidated
Restricted Subsidiary, as the case may be, in such Person so acquired or
disposed times the EBITDA of such Person) for such period determined on a pro
forma basis (which determination, in each case, shall be subject to approval of
the Administrative Agent, not to be unreasonably withheld) shall be included (in
the case of an acquisition) or excluded (in the case of a disposition) as EBITDA
for such period; except that during the portion of such period that follows such
acquisition or disposition, the computation in respect of EBITDA of such Person
or such assets, as the case may be, shall be made on the basis of actual (rather
than pro forma) results. If any Consolidated Restricted Subsidiary is designated
as an Unrestricted Subsidiary in accordance with Section 6.10, then on and after
the date of such designation, EBITDA shall be computed for all prior periods as
if such Subsidiary was not a Consolidated Restricted Subsidiary during such
periods.

                  "EBITDA to Interest Ratio" means, for any period, the ratio of
(i) EBITDA for such period to (ii) Consolidated Interest Expense for such
period.

                  "Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).

                  "Engineering Reports" has the meaning assigned to that term in
Section 2.04(b).

                  "Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices, permits or
binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or reclamation

                                      -10-

<PAGE>

of natural resources, or the management, release or threatened release of any
Hazardous Material.

                  "Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials into
the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.

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

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

                  "ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.

                  "ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.

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

                  "Event of Default" has the meaning assigned to such term in
Article VII.

                  "Excepted Liens" means (i) Liens for taxes, assessments or
other governmental charges or levies not yet due or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained; (ii) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance or other social
security laws or regulations; (iii) operator's, vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction
or other like Liens arising by operation of law in the ordinary course of
business or incident to the exploration, development, operation and maintenance
of Oil and Gas Properties or statutory landlord's liens, each of which is in
respect of obligations that have not been outstanding more than 90 days or which
are being contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP; (iv) any Liens
reserved in

                                      -11-

<PAGE>

leases or farmout agreements for rent or royalties and for compliance with the
terms of the farmout agreements or leases in the case of leasehold estates, to
the extent that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by the Borrower or a Restricted Subsidiary or materially
impair the value of such Property subject thereto; (v) encumbrances (other than
to secure the payment of Debt, the deferred purchase price of Property or
services or other monetary obligations), easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any rights of way
or other Property of the Borrower or a Restricted Subsidiary for the purpose of
roads, pipelines, transmission lines, transportation lines and distribution
lines for the removal of gas, oil, coal or other minerals or timber, and other
like purposes, or for the joint or common use of real estate, rights of way,
facilities and equipment which in the aggregate do not have a Material Adverse
Effect and, in each case, arise in the ordinary course of business; (vi)
defects, irregularities in title, zoning restrictions and deficiencies in title
of any Property which in the aggregate do not have a Material Adverse Effect;
(vii) deposits not exceeding $10,000,000 in the aggregate outstanding at any one
time to secure the performance of requirements of any Governmental Authority,
bids, trade contracts, leases, statutory obligations and other obligations of a
like nature incurred in the ordinary course of business; (viii) reservations in
original grants from any Governmental Authority; (ix) rights of any Governmental
Authority to terminate a lease; and (x) Liens of judgments that do not
constitute an Event of Default under Section 7.01(k); provided that in no event
will any Lien on property of the Borrower or any Restricted Subsidiary that
secures any obligation of an Unrestricted Subsidiary be an Excepted Lien.

                  "Excluded Taxes" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.17(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.17(a).

                  "Existing Credit Agreement" means the Credit Agreement dated
as of January 23, 2001 among the Borrower, JPMorgan Chase Bank and others, as
amended.

                  "Existing Letters of Credit" means the letters of credit
listed on Schedule 1.01.

                  "Facility Obligations" means all obligations (liquidated,
contingent or otherwise) from time to time owed by the Borrower or any
Subsidiary pursuant to, as a result of, or in connection with any Loan Document,
including all principal of and interest on the Loans, all reimbursement and
other obligations in connection with the Letters of Credit and all obligations
to pay fees, costs, expenses, indemnities and other amounts payable under any
Loan Document.

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

                  "Financial Officer" means the chief financial officer,
principal accounting officer,

                                      -12-

<PAGE>

treasurer or controller of the Borrower.

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

                  "GAAP" means generally accepted accounting principles in the
United States of America.

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

                  "Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Debt or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including the creation of any Lien on any asset of the guarantor to secure any
such Debt or obligation and any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Debt or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such Debt or
other obligation or (d) as an account party in respect of any letter of credit
or letter of guaranty issued to support such Debt or obligation; provided, that
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business.

                  "Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates released into the
environment, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances or
wastes of any nature regulated pursuant to any Environmental Law.

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

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

                  "Indemnified Taxes" means Taxes other than Excluded Taxes.

                  "Index Debt" means senior, unsecured, long-term indebtedness
for borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.

                  "Information Memorandum" means the Confidential Information
Memorandum dated February, 2004 relating to the Borrower and the Transactions.

                  "Interest Election Request" means a request by the Borrower to
convert or continue a Borrowing in accordance with Section 2.08.

                                      -13-

<PAGE>

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

                  "Interest Period" means (a) with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
fourteenth day thereafter (subject to availability) (an "Irregular Interest
Period") or on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as the Borrower may elect, or such other period
as may be requested by the Borrower and agreed to by all of the Lenders (also an
"Irregular Interest Period"), provided, that (i) if any Interest Period would
end on a day other than a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (ii) no Interest Period may be elected
that would end after the Maturity Date, and (iii) any Interest Period (other
than an Irregular Interest Period) that commences on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.

                  "Investment" means, as applied to any Person, any direct or
indirect (i) purchase or other acquisition by such Person of any Equity
Interest, Debt or other securities (including any option, warrant or other right
to acquire any of the foregoing) of any other Person, (ii) loan or advance made
by such Person to any other Person, (iii) Guarantee, assumption or other
incurrence of liability by such Person of or for any Debt or other obligation of
any other Person, (iv) creation of any Debt owed to such Person by any other
Person, (v) capital contribution or other investment by such Person in any other
Person or (vi) purchase or other acquisition (in one transaction or a series of
transactions) of any assets of any other Person constituting a business unit.
The amount of any Investment shall be the original cost of such Investment plus
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment or interest earned on such Investment.

                  "Issuing Bank" means JPMorgan Chase Bank, in its capacity as
the issuer of Letters of Credit hereunder, and its successors in such capacity
as provided in Section 2.06(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.

                  "LC Disbursement" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.

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

                  "Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Assumption, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Assumption.

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

                                      -14-

<PAGE>

Existing Letters of Credit.

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

                  "Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset, (c) production payments and the like payable
out of Oil and Gas Properties and (d) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities.

                  "Loan Documents" means this Agreement, any promissory note
referred to in Section 2.10(e) and each Subsidiary Guaranty.

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

                  "Material Adverse Effect" means a material adverse effect on
(a) the business, assets, operations or financial condition of the Borrower and
the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower to
perform any of its obligations under this Agreement or (c) the rights of or
benefits available to the Lenders under this Agreement or any other Loan
Document, except that seasonal declines in energy prices will not constitute a
Material Adverse Effect.

                  "Material Indebtedness" means Debt (other than the Loans and
Letters of Credit), or obligations in respect of one or more Swap Agreements, of
any one or more of the Borrower and its Restricted Subsidiaries in an aggregate
principal amount equal to or exceeding $25,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of the Borrower
or any Restricted Subsidiary in respect of any Swap Agreement at any time shall
be the maximum aggregate amount (giving effect to any netting agreements) that
the Borrower or such Restricted Subsidiary would be required to pay if such Swap
Agreement were terminated at such time.

                  "Maturity Date" means March 14, 2008.

                  "Moody's" means Moody's Investors Service, Inc.

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

                  "Non-Recourse Debt" means Debt of a Subsidiary:

                  (1)      as to which neither the Borrower nor any Restricted
Subsidiary (a) provides credit support of any kind (including any Guarantee,
undertaking, agreement or instrument that would constitute Debt), (b) is
directly or indirectly liable as a guarantor or otherwise or (c) is the lender;

                                      -15-

<PAGE>

                  (2)      no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of Debt of the Borrower or any Restricted Subsidiary to declare a default
on such Debt or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and

                  (3)      as to which the lenders of such Non-Recourse Debt
have been notified in writing that they will not have any recourse to the
Borrower, any Restricted Subsidiary or any assets of any of them.

                  "Oil and Gas Properties" means Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all
presently existing or future unitization, pooling agreements and declarations of
pooled units and the units created thereby (including all units created under
orders, regulations and rules of any Governmental Authority) which may affect
all or any portion of the Hydrocarbon Interests; all operating agreements,
contracts and other agreements which relate to any of the Hydrocarbon Interests
or the production, sale, purchase, exchange or processing of Hydrocarbons from
or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and
which may be produced and saved or attributable to the Hydrocarbon Interests,
including all oil in tanks, the lands covered thereby and all rents, issues,
profits, proceeds, products, revenues and other incomes from or attributable to
the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and
Properties in any manner appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests and all Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes, together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.

                  "Oil or Gas Swap Contract" means any crude oil or natural gas
price swap, price cap, price collar, forward agreement, or other exchange or
price protection transaction or any combination of such transactions or
agreements or options with respect to any such transaction or agreement.

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

                  "Outside Report" has the meaning assigned to such term in
Section 5.11(a).

                  "Participant" has the meaning set forth in Section 9.04.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.

                  "Permitted Investments" means:

                  (a)      investments existing on the Effective Date and listed
on Schedule 1.01;

                  (b)      investments in additional Oil and Gas Properties and
gas gathering systems related thereto;

                  (c)      accounts receivable arising out of the sale of
Hydrocarbons, other assets or

                                      -16-

<PAGE>

services in the ordinary course of business;

                  (d)      direct obligations of, or obligations the principal
of and interest on which are unconditionally guaranteed by, the United States
(or any agency thereof to the extent such obligations are legally backed by the
full faith and credit of the United States), in each case maturing within one
year from the date of creation thereof;

                  (e)      commercial paper maturing within one year from the
date of creation thereof rated A2 or higher by S&P or P2 or higher by Moody's;

                  (f)      deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any Lender
or any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state thereof and
has capital, surplus and undivided profits aggregating at least $500,000,000 (as
of the date such Lender's or bank or trust company's most recent financial
reports) and has a short term deposit rating of no lower than A2 or P2, as such
rating is set forth from time to time by S&P or Moody's, respectively;

                  (g)      advances to operators under operating agreements
entered into by the Borrower or any Restricted Subsidiary in the ordinary course
of business;

                  (h)      repurchase agreements of any commercial banks in the
United States and Canada, if the commercial paper of such bank or of the bank
holding company of which such bank is a wholly-owned subsidiary is rated in the
highest rating categories of S&P, Moody's or any other rating agency
satisfactory to the Required Lenders, that are fully secured by securities
described in paragraph (d) of this definition;

                  (i)      eurodollar investments maturing within one year with
financial institutions meeting the qualifications established in paragraph (f)
of this definition;

                  (j)      any investment in any Unrestricted Subsidiary if, at
the time of making such investment, the aggregate book value of the assets of
the Borrower and the Restricted Subsidiaries, on a consolidated basis (excluding
investments in Unrestricted Subsidiaries) exceeds $2,250,000,000;

                  (k)      any investment in, or loans or advances to, or
Guarantees of any Debt permitted by Section 6.09 of, Restricted Subsidiaries
that are wholly-owned by the Borrower;

                  (l)      investments in loan participations purchased from a
bank with which deposits may be made under paragraph (f) of this definition, if
the remaining term of any such participation at the time such participation is
bought is 90 days or less and the borrower obligated to pay such loan then has a
credit rating of A2 or higher from S&P or P2 or higher from Moody's on such
borrower's short term unsecured obligations;

                  (m)      remarketed certificates of participation sold in
private placements, representing undivided interests in the assets of a trust or
similar entity owning debt instruments, provided that such certificates of
participation have received a credit rating of A2 or higher from S&P or of P2 or
higher from Moody's and are payable in full within 90 days after purchase;

                  (n)      asset backed securities with an average life of 24
months or less and rated in one of the top two rating categories of Moody's or
S&P;

                  (o)      corporate notes or bonds rated A3 or better by
Moody's or A- or better by S&P maturing within one year;

                  (p)      loans and advances made by any Restricted Subsidiary
to the Borrower;

                                      -17-

<PAGE>

                  (q)      money market funds that (i) comply with the criteria
set forth in Securities and Exchange Commission Rule 2a-7 under the Investment
Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody's and (iii) have
portfolio assets of at least $5,000,000,000;

                  (r)      any acquisition of any Equity Interest or other
securities if the only consideration given therefor is shares of common stock of
the Borrower; and

                  (s)      investments in the Newfield Foundation in an amount
up to $2,000,000 per year (and the Newfield Foundation may invest such amounts
and any amounts funded prior to the Effective Date in any securities or
investments deemed appropriate by the trustee committee thereof).

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

                  "Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.

                  "Prime Rate" means the rate of interest per annum publicly
announced from time to time by JPMorgan Chase Bank as its prime rate in effect
at its principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.

                  "Property" and "asset" (in each case whether or not
capitalized) each means any and all tangible and intangible assets and
properties, including goods, real property, personal property, fixtures, cash,
securities, accounts, contract rights, intangibles, intellectual property, any
other form of asset or property and any interest therein.

                  "Redetermination Date" has the meaning set forth in Section
2.04.

                  "Register" has the meaning set forth in Section 9.04.

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

                  "Required Lenders" means, at any time, Lenders having Credit
Exposures and unused Commitments representing more than 50% of the sum of the
total Credit Exposures and unused Commitments at such time.

                  "Reserve Report" means a report, in form and substance
satisfactory to the Administrative Agent, setting forth, as of the last day of
each December (the "December 31 Reserve Report") and as of the last day of June
(the "June 30 Reserve Report") (or such other date as comports with Section
5.11(b) in the event of an unscheduled redetermination) the proved oil and gas
reserves attributable to the Oil and Gas Properties of the Borrower and its
Restricted Subsidiaries, together with a projection of the rate of production
and future net income, production, severance or similar taxes, operating
expenses and capital expenditures with respect thereto as of such date, based
upon the pricing assumptions consistent with SEC reporting requirements at the
time. Furthermore, such information shall be provided for each field, unit or
lease comprising the Oil and Gas Properties of the Borrower and its Restricted
Subsidiaries and by category of the reserves contained in each well, unit or
lease, including proved producing, proved non-producing and proved undeveloped.

                  "Responsible Officer" means the chief executive officer, the
president, any vice president or the chief financial officer of the Borrower.

                                      -18-
<PAGE>

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

                  "Restricted Subsidiaries" mean all Subsidiaries that are not
Unrestricted Subsidiaries.

                  "S&P" means Standard & Poor's.

                  "Sale Leaseback Transaction" means any arrangement entered
into by the Borrower or any Subsidiary, directly or indirectly, whereby the
Borrower or any Subsidiary shall sell or transfer any Property and whereby the
Borrower or any Subsidiary shall then or thereafter rent or lease as lessee such
property or any part thereof or other property which the Borrower or any
Subsidiary intends to use for substantially the same purpose or purposes as the
property sold or transferred.

                  "Scheduled Redetermination Date" shall have the meaning set
forth in Section 2.04(a).

                  "Senior Notes" means the senior unsecured notes having a
principal balance of $300,000,000 on the Effective Date issued under the
indenture dated October 15, 1997 between the Borrower and Wachovia Bank,
National Association (formerly First Union National Bank), as trustee, and all
other senior notes (other than notes evidencing the Loans) issued by the
Borrower or any Subsidiary after the Effective Date to the extent that the
principal of such senior notes is due more than one year after the date of
issuance thereof.

                  "Senior Subordinated Indenture" means that certain indenture
dated as of December 10, 2001 between the Borrower and Wachovia Bank, National
Association (formerly known as First Union National Bank), as Trustee, as
supplemented by the First Supplemental Indenture dated as of August 13, 2002.

                  "Senior Subordinated Notes" means those certain 8 3/8% Senior
Subordinated Notes due 2012 in an aggregate amount of $250,000,000 issued under
the Senior Subordinated Indenture by the Borrower and all obligations relating
thereto.

                  "Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.

                  "Subordinated Debt" means the Senior Subordinated Notes and
other Debt issued by the Borrower containing provisions subordinating such Debt
to the Facility Obligations on terms reasonably comparable to subordination
provisions generally used at the time for public subordinated debt issuances and
containing other terms and conditions which are substantially similar to
subordinated debt issued by companies of similar credit rating in the same
industry, but in any event such Debt shall not (i) have any covenants or default
provisions more restrictive than this Agreement or be Guaranteed by any
Subsidiary or (ii) require any payment of principal or any redemption or
purchase prior to March 31, 2011.

                                      -19-
<PAGE>

                  "subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.

                  "Subsidiary" means any subsidiary of the Borrower.

                  "Subsidiary Guarantor" means each Subsidiary that has executed
a Subsidiary Guaranty.

                  "Subsidiary Guaranty" means a Guaranty Agreement substantially
in the form of Exhibit C with such changes thereto, if any, as the Required
Lenders may reasonable request, executed by a Subsidiary.

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

                  "Syndication Agent" means Wachovia Bank, National Association,
as syndication agent in connection with this Agreement.

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

                  "Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.

                  "Total Debt" means the consolidated Debt of the Borrower and
its Consolidated Restricted Subsidiaries (other than obligations described in
clause (k) of the definition herein of Debt).

                  "Total Debt to EBITDA Ratio" means, as of any day, the ratio
of (i) the aggregate principal amount of Total Debt outstanding on such day to
(ii) EBITDA for the four consecutive fiscal quarters of the Borrower most
recently ended prior to such day (or, if such day is the last day of a fiscal
quarter of the Borrower, for the four consecutive fiscal quarters of the
Borrower ended on such day).

                  "Transactions" means the execution, delivery and performance
by the Borrower and the Subsidiary Guarantors of the Loan Documents, the
borrowing of Loans, the use of the proceeds thereof and the issuance of Letters
of Credit hereunder.

                                      -20-
<PAGE>

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

                  "Unrestricted Subsidiary" means (i) any Subsidiary that has
been designated as an Unrestricted Subsidiary by the Borrower in accordance with
Section 6.10, and (ii) each subsidiary of such Unrestricted Subsidiary.

                  "Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

                  Section 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans and Borrowings may be classified and referred
to by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing").

                  Section 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, subject to any limitation on assignments set
forth herein, (c) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, and (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement.

                  Section 1.04. Accounting Terms; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

                                   ARTICLE II

                                   THE CREDITS

                  Section 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Loans in dollars to the Borrower
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Credit Exposure exceeding such
Lender's Available Commitment or (b) the total Credit Exposures exceeding the
total Available Commitments. Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Loans.

                  Section 2.02. Loans and Borrowings. (a) Each Loan shall be
made as part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective

                                      -21-
<PAGE>

Applicable Percentages. The failure of any Lender to make any Loan required to
be made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.

                  (b)      Subject to Section 2.14, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.

                  (c)      At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $2,000,000. At the time that
each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $2,000,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Available Commitments or that is required to finance
the reimbursement of an LC Disbursement as contemplated by Section 2.06(e).
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of ten Eurodollar
Borrowings outstanding.

                  (d)      Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to convert
or continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.

                  Section 2.03. Requests for Borrowings. To request a Borrowing,
the Borrower shall notify the Administrative Agent of such request by telephone
(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of the proposed Borrowing or (b)
in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of the proposed Borrowing; provided that any
such notice of an ABR Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e) may be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:

                  (i)      the aggregate amount of the requested Borrowing;

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

                  (iii)    whether such Borrowing is to be an ABR Borrowing or a
                           Eurodollar Borrowing;

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

                  (v)      the location and number of the Borrower's account to
         which funds are to be disbursed, which shall comply with the
         requirements of Section 2.07.

If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.

                                      -22-
<PAGE>

                  Section 2.04. Borrowing Base. (a) During the period beginning
on and including the Effective Date until the first Redetermination Date, the
amount of the Calculated Borrowing Base shall be $875,000,000. So long as any of
the Commitments is in effect or any Letter of Credit is outstanding and until
payment in full of all Facility Obligations, the Calculated Borrowing Base shall
be redetermined from time to time in accordance with Section 2.04(b) by the
Administrative Agent with the concurrence of the Borrowing Base Approval
Lenders. Redeterminations shall occur on or around the first Business Day of
each May and November, commencing November 1, 2004 (each being a "Scheduled
Redetermination Date") and may occur on other dates in accordance with Section
2.04(d). Upon any redetermination of the Calculated Borrowing Base, such
redetermination shall remain in effect until the next Redetermination Date.
"Redetermination Date" shall mean the date that the redetermined Calculated
Borrowing Base becomes effective subject to the notice requirements specified in
Section 2.04(e) both for scheduled redeterminations and unscheduled
redeterminations. So long as any of the Commitments is in effect or any Letter
of Credit is outstanding and until all of the Facility Obligations are paid in
full, the credit facilities provided herein shall be governed by the then
effective Calculated Borrowing Base.

                  (b)      Upon receipt of the reports required by Section 5.11
and such other reports, data and supplemental information as may from time to
time be reasonably requested by the Administrative Agent (the "Engineering
Reports"), the Administrative Agent will redetermine a new Calculated Borrowing
Base. Such redetermination will be in accordance with the Administrative Agent's
normal and customary procedures for evaluating oil and gas reserves and other
related assets as such exist at that particular time. The Administrative Agent
in its sole discretion, may make adjustments to the rates, volumes, prices and
other assumptions set forth therein. The Administrative Agent shall propose to
the Lenders a new Calculated Borrowing Base within 30 days following receipt by
the Administrative Agent of the Engineering Reports in a timely and complete
manner. After having received notice of such proposal by the Administrative
Agent, each Lender shall have 10 days to agree or disagree with such proposal.
Any failure of a Lender to communicate its approval or disapproval within such
ten day period shall be deemed to be an approval of such proposal. If the
Borrowing Base Approval Lenders approve (including any such deemed approval) the
Administrative Agent's proposal, then such proposal shall be the new Calculated
Borrowing Base. If however, the Borrowing Base Approval Lenders do not approve
such proposal within 10 days, the Borrowing Base Approval Lenders shall, within
a reasonable period of time, agree on a new Calculated Borrowing Base.

                  (c)      The Administrative Agent may exclude any Oil and Gas
Property or portion of production therefrom or any income from any other
Property from the Calculated Borrowing Base, at any time, if title information
is not reasonably satisfactory.

                  (d)      In addition to scheduled redeterminations, the
Borrower may request an unscheduled redetermination of the Calculated Borrowing
Base at any other time but no more often than once between Scheduled
Redetermination Dates by specifying in writing to the Administrative Agent the
date on which such redetermination is to occur and providing a Reserve Report in
accordance with Section 5.11(b) at least 60 days prior to the requested
redetermination date. Also, the Required Lenders may initiate only one
unscheduled redetermination during any consecutive 12 month period by specifying
in writing to the Borrower the date on which the Borrower is to furnish a
Reserve Report in accordance with Section 5.11(b) and the date on which such
redetermination is to occur.

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

                  Section 2.05. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs. (a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available

                                      -23-
<PAGE>

funds, without set-off or counterclaim. Any amounts received after such time on
any date may, in the discretion of the Administrative Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except payments to be made
directly to the Issuing Bank as expressly provided herein and except that
payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly
to the Persons entitled thereto. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment
hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any
payment accruing interest, interest thereon shall be payable for the period of
such extension. All payments hereunder shall be made in dollars.

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

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

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

                                      -24-
<PAGE>

                  (e)      If any Lender shall fail to make any payment required
to be made by it pursuant to Section 2.05(d), 2.06(d) or (e) or 2.07(b), then
the Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.

                  Section 2.06. Letters of Credit. (a) General. Subject to the
terms and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit in dollars for its own account or for the account of any
Restricted Subsidiary, in a form reasonably acceptable to the Administrative
Agent and the Issuing Bank, at any time and from time to time during the
Availability Period. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the Borrower to, or
entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.

                  (b)      Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance of
the requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only if
(and upon issuance, amendment, renewal or extension of each Letter of Credit the
Borrower shall be deemed to represent and warrant that), after giving effect to
such issuance, amendment, renewal or extension (i) the LC Exposure shall not
exceed $50,000,000 and (ii) the total Credit Exposures shall not exceed the
total Available Commitments.

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

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

                                      -25-
<PAGE>

                  (e)      Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
if such LC Disbursement is not less than $1,000,000, the Borrower may, subject
to the conditions to borrowing set forth herein, request in accordance with
Section 2.03 that such payment be financed with an ABR Borrowing in an
equivalent amount and, to the extent so financed, the Borrower's obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply,
mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear. Any payment made by a Lender pursuant to
this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than
the funding of ABR Loans as contemplated above) shall not constitute a Loan and
shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.

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

                                      -26-
<PAGE>

respect to documents presented which appear on their face to be in substantial
compliance with the terms of a Letter of Credit, the Issuing Bank may, in its
sole discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.

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

                  (h)      Interim Interest. If the Issuing Bank shall make any
LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement
in full on the date such LC Disbursement is made, the unpaid amount thereof
shall bear interest, for each day from and including the date such LC
Disbursement is made to but excluding the date that the Borrower reimburses such
LC Disbursement, at the rate per annum then applicable to ABR Loans; provided
that, if the Borrower fails to reimburse such LC Disbursement when due pursuant
to paragraph (e) of this Section, then Section 2.13(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing Bank,
except that interest accrued on and after the date of payment by any Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.

                  (i)      Replacement of the Issuing Bank. The Issuing Bank may
be replaced at any time by written agreement among the Borrower, the
Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank.
The Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.12(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.

                  (j)      Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (h) or (i) of Article VII. Furthermore, if any
amount of cash collateral is required to be paid to the Administrative Agent
pursuant to subclause (i)(2) or (ii)(2) of Section 2.10(f), the Borrower shall
pay such amount to the Administrative Agent to be deposited in such account. All
deposits contemplated by this Section 2.06(j) shall be held by the
Administrative Agent as collateral for the payment and performance of the
Facility Obligations. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the

                                      -27-
<PAGE>

option and sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Lenders with LC
Exposure representing greater than 50% of the total LC Exposure), be applied to
satisfy other Facility Obligations. If the Borrower is required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower within three Business Days after all Events of Default have been
cured or waived.

                  (k)      Existing Letters of Credit. All Existing Letters of
Credit shall be deemed to be issued under this Agreement as of the Effective
Date and shall constitute Letters of Credit hereunder for all purposes
(including Section 2.06(d)), and no notice requesting issuance thereof shall be
required hereunder. Each reference herein to the issuance of a Letter of Credit
shall include any such deemed issuance. JPMorgan Chase Bank is the Issuing Bank
for purposes of the Existing Letters of Credit. All fees accrued on the Existing
Letters of Credit to but excluding the Effective Date shall be for the account
of the "Agent" and the "Banks" (as those terms are used in the Existing Credit
Agreement), and all fees accruing on the Existing Letters of Credit on and after
the Effective Date shall be for the account of the Issuing Bank and the Lenders
as provided herein.

                  Section 2.07. Funding of Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request; provided that ABR Loans made to finance the reimbursement of an LC
Disbursement as provided in Section 2.06(e) shall be remitted by the
Administrative Agent to the Issuing Bank.

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

                  Section 2.08. Interest Elections. (a) Each Borrowing initially
shall be of the Type specified in the applicable Borrowing Request and, in the
case of a Eurodollar Borrowing, shall have an initial Interest Period as
specified in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The Borrower

                                      -28-
<PAGE>

may elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing.

                  (b)      To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if the
Borrower were requesting a Borrowing of the Type resulting from such election to
be made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.

                  (c)      Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:

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

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

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

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

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

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

                  (e)      If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if
an Event of Default has occurred and is continuing and the Administrative Agent,
at the request of the Required Lenders, so notifies the Borrower, then, so long
as an Event of Default is continuing (i) no outstanding Borrowing may be
converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.

                  Section 2.09. Termination and Reduction of Commitments. (a)
Unless previously terminated, the Commitments shall terminate on the Maturity
Date.

                  (b)      The Borrower may at any time terminate, or from time
to time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $5,000,000 and
not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce
the Commitments if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.11, the total Credit Exposures would exceed
the total Available Commitments.

                                      -29-
<PAGE>

                  (c)      The Borrower shall notify the Administrative Agent of
any election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.

                  Section 2.10. Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay to the Administrative Agent for
the account of each Lender the then unpaid principal amount of each Loan on the
Maturity Date.

                  (b)      Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.

                  (c)      The Administrative Agent shall maintain accounts in
which it shall record (i) the amount of each Loan made hereunder, the Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.

                  (d)      The entries made in the accounts maintained pursuant
to paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.

                  (e)      Any Lender may request that Loans made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).

                  (f)      If at any time the Borrowing Base Deficiency Amount
is greater than zero, then the Borrower shall (i) within 45 days of receipt of
written notice thereof, (1) prepay the principal of the Loans (or reduce the LC
Exposure) in an amount equal to 50% of such Borrowing Base Deficiency Amount
(but this subclause (i)(1) shall not require prepayment or reduction in an
amount exceeding the outstanding principal balance of the Loans), and (2), if
the Loans are prepaid in full pursuant to the foregoing subclause (i)(1) and 50%
of such Borrowing Base Deficiency Amount exceeds the principal amount of the
Loans so prepaid plus the amount the LC Exposure was reduced pursuant to the
foregoing subclause (i)(l), pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as provided
in Section 2.06(j) hereof; and (ii) within 90 days of receipt of written notice
thereof, (1) prepay the principal of the Loans (or reduce the LC Exposure) in an
amount equal to such Borrowing Base Deficiency Amount remaining after
application of the amounts referenced in clause (i) of this sentence (but this
subclause (ii)(1) shall not require prepayment or reduction in an amount
exceeding the outstanding principal balance of the Loans), and (2) if the Loans
are prepaid in full pursuant to the foregoing subclause (ii)(l) and if such
remaining Borrowing Base Deficiency Amount

                                      -30-
<PAGE>

exceeds the principal amount of the Loan so prepaid plus the amount the LC
Exposure was reduced pursuant to the foregoing subclause (ii)(l), pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.06(j) hereof. Additionally,
at the time of each prepayment of principal of the Loans pursuant to this
Section 2.10(f), the Borrower will pay all interest accrued to the date of such
prepayment on the principal amount so prepaid.

                  Section 2.11. Prepayment of Loans. (a) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to prior notice in accordance with paragraph (b) of this
Section.

                  (b)      The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; provided that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.09, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.09. Promptly following receipt of any such notice relating to a
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of an advance of a Borrowing of the same Type as
provided in Section 2.02. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.

                  Section 2.12. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the daily amount of the unused Available
Commitment (For Fee Purposes) of such Lender during the period from and
including the date of this Agreement to but excluding the date on which the
Commitment of such Lender terminates. Commitment fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day and on the date on
which the Commitments terminate, commencing on the first such date to occur
after the Effective Date. Additionally, if any principal of Senior Notes at any
time is paid, then the Borrower agrees to pay to the Administrative Agent, for
the ratable benefit of the Lenders, an additional commitment fee equal to the
Applicable Rate on the date of such payment times the amount of such payment,
for the period from the Redetermination Date immediately prior to such date of
payment (or if the first Redetermination Date has not occurred, from the
Effective Date) to such date of payment, which additional commitment fee shall
be payable on such date of payment. Additionally, if any principal of
Subordinated Debt at any time is paid, then the Borrower agrees to pay to the
Administrative Agent, for the ratable benefit of the Lenders, an additional
commitment fee equal to the Applicable Rate on the date of such payment times
the amount of such payment times 0.3, for the period from the Redetermination
Date immediately prior to such date of payment (or if the first Redetermination
Date has not occurred, from the Effective Date) to such date of payment, which
additional commitment fee shall be payable on such date of payment. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).

                  (b)      The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate used to determine the interest rate applicable to Eurodollar Loans on the
average daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date on which
such Lender's Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, provided that the minimum participation fee payable to any
Lender with respect to any Letter of Credit will be $500 times such Lender's
Applicable Percentage, and

                                      -31-
<PAGE>

(ii) to the Issuing Bank an issuance fee of $250 and a fronting fee, which shall
accrue at the rate of 1/8% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including the last day of March, June,
September and December of each year shall be payable on the third Business Day
following such last day, commencing on the first such date to occur after the
Effective Date; provided that all such fees shall be payable on the date on
which the Commitments terminate and any such fees accruing after the date on
which the Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).

                  (c)      The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times
separately agreed upon between the Borrower and the Administrative Agent.

                  (d)      All fees payable hereunder shall be paid on the dates
due, in immediately available funds, to the Administrative Agent (or to the
Issuing Bank, in the case of fees payable to it) for distribution, in the case
of commitment fees and participation fees, to the Lenders. Fees paid shall not
be refundable under any circumstances.

                  Section 2.13. Interest. (a) The Loans comprising each ABR
Borrowing shall bear interest at the Alternate Base Rate plus the Applicable
Rate.

                  (b)      The Loans comprising each Eurodollar Borrowing shall
bear interest at the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate.

                  (c)      Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.

                  (d)      Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and upon termination of the
Commitments; provided that (i) interest accrued pursuant to paragraph (c) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment pursuant to Section 2.11 of an
ABR Loan prior to the end of the Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.

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

                                      -32-
<PAGE>

                  Section 2.14. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:

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

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

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

                  Section 2.15. Increased Costs. (a) If any Change in Law shall:

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

                  (ii)     impose on any Lender or the Issuing Bank or the
         London interbank market any other condition affecting this Agreement or
         Eurodollar Loans made by such Lender or any Letter of Credit or
         participation therein;

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.

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

                  (c)      A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be prima
facie evidence of the matters covered thereby absent manifest error. The
Borrower shall pay such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt
thereof.

                                      -33-
<PAGE>

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

                  Section 2.16. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of Default
or the existence of a Borrowing Base Deficiency), (b) the conversion of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar
Loan on the date specified in any notice delivered pursuant hereto (regardless
of whether such notice may be revoked under Section 2.11(b) and is revoked in
accordance therewith), or (d) the assignment of any Eurodollar Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by the Borrower pursuant to Section 2.18, then, in any such event, the
Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. Such loss, cost or expense to any Lender shall be
deemed to include an amount determined by such Lender to be the excess, if any,
of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the Adjusted LIBO Rate that would
have been applicable to such Loan, for the period from the date of such event to
the last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
Lender would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be prima facie evidence of the matters covered thereby
absent manifest error. The Borrower shall pay such Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.

                  Section 2.17. Taxes. (a) Any and all payments by or on account
of any obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.

                  (b)      In addition, the Borrower shall pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.

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

                                      -34-
<PAGE>

delivered to the Borrower by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be prima facie evidence of the matters covered thereby absent
manifest error.

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

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

                  (f)      If the Administrative Agent or a Lender determines,
in its sole discretion, that it has received a refund of any Taxes or Other
Taxes as to which it has been indemnified by the Borrower or with respect to
which the Borrower has paid additional amounts pursuant to this Section 2.17, it
shall pay over such refund to the Borrower (but only to the extent of indemnity
payments made, or additional amounts paid, by the Borrower under this Section
2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net
of all out-of-pocket expenses of the Administrative Agent or such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); provided, that the Borrower, upon the
request of the Administrative Agent or such Lender, agrees to repay the amount
paid over to the Borrower (plus any penalties, interest or other charges imposed
by the relevant Governmental Authority) to the Administrative Agent or such
Lender in the event the Administrative Agent or such Lender is required to repay
such refund to such Governmental Authority. This Section shall not be construed
to require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person or to take any position to
obtain a refund, deduction or credit that is inconsistent with any position
otherwise taken by the Administrative Agent or such Lender, as the case may be,
on any of its tax returns.

                  Section 2.18. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.15, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.

                  (b)      If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
2.17, or if any Lender defaults in its obligation to fund Loans hereunder, then
the Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not unreasonably be withheld, (ii) such Lender shall have

                                      -35-
<PAGE>

received payment of an amount equal to the outstanding principal of its Loans
and participations in LC Disbursements, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.15 or payments required
to be made pursuant to Section 2.17, such assignment will result in a reduction
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

            The Borrower represents and warrants to the Lenders that:

                  Section 3.01. Organization; Powers; Subsidiaries. The Borrower
is duly organized and validly existing under the laws of Delaware. The Borrower
is in good standing under the laws of Delaware, each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and each of the Borrower and its Subsidiaries
has all requisite power and authority to carry on its business as now conducted
and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required, except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. As of the Effective Date, all Subsidiaries
are Restricted Subsidiaries. As of the Effective Date, no Subsidiary has in
effect any Guarantee of any Debt or other obligation of the Borrower or any
Subsidiary.

                  Section 3.02. Authorization; Enforceability. The Transactions
are within the Borrower's (and, in the case of the execution, delivery and
performance of a Subsidiary Guaranty by a Subsidiary Guarantor, such Subsidiary
Guarantor's) powers and have been duly authorized by all necessary corporate
and, if required, stockholder action. This Agreement has been duly executed and
delivered by the Borrower and constitutes a legal, valid and binding obligation
of the Borrower, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law. Each
Subsidiary Guaranty signed by a Subsidiary Guarantor has been duly executed and
delivered by such Subsidiary Guarantor and constitutes a legal, valid and
binding obligation of such Subsidiary Guarantor, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

                  Section 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of the Borrower or any of its Subsidiaries or any order
of any Governmental Authority, (c) will not violate or result in a default under
any indenture, agreement or other instrument binding upon the Borrower or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by the Borrower or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.

                  Section 3.04. Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows (i)
as of and for the fiscal year ended December 31, 2002, reported on by
PricewaterhouseCoopers LLC, independent public accountants, and (ii) as of and
for the fiscal quarter and the portion of the fiscal year ended September 30,
2003, certified by its chief financial officer. Such

                                      -36-
<PAGE>

financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (ii) above.

                  (b)      Since December 31, 2002, there has been no material
adverse change in the business, assets, operations or financial condition of the
Borrower and its Subsidiaries, taken as a whole, except that seasonal declines
in energy prices will not constitute a material adverse change for purposes
hereof.

                  (c)      Neither the Borrower nor any Subsidiary has on the
Effective Date any material Debt, contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in the financial statements dated as of December 31, 2002 referred to in
Section 3.04(a). Since the date of such financial statements, neither the
business nor the Properties of the Borrower or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.

                  (d)      As of the Effective Date, no Subordinated Debt is
outstanding except the Senior Subordinated Notes.

                  Section 3.05. Properties. (a) Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property (except Oil and Gas Properties) material to its business,
except where the failure to have such title and leasehold interests,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

                  (b)      Each of the Borrower and its Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except where the failure to have such ownership or license or the
existence of such infringement, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

                  (c)      Except as set out in the certificates delivered
pursuant to Sections 4.01(f) and 5.11(d), each of the Borrower and the
Subsidiaries has good and defensible title to its material (individually or in
the aggregate) Oil and Gas Properties, free and clear of all Liens except Liens
permitted by Section 6.02. As used in this Agreement, "good and defensible
title" to Oil and Gas Properties shall be based on the standard that a prudent
Person engaged in the business of ownership, development and operation of Oil
and Gas Properties where such Oil and Gas Properties are located with knowledge
of all of the facts and their legal bearing would be willing to accept as good
and defensible title. Except as set forth in the certificates delivered pursuant
to Sections 4.01(f) and 5.11(d), after giving full effect to the Liens permitted
by Section 6.02 and subject to permitted sales under this Agreement, the
Borrower and its Restricted Subsidiaries own the net interests in production
attributable to the Hydrocarbon Interests reflected in the most recently
delivered Reserve Report in all material respects and the ownership of such
Properties shall not in any material respect obligate the Borrower or any
Restricted Subsidiary to bear the costs and expenses relating to the
maintenance, development and operation of any such Property in an amount in
excess of the working interest of such Property set forth in the most recently
delivered Reserve Report. All factual information contained in the most recently
delivered Reserve Report is true and correct in all material respects as of the
date of such Reserve Report.

                  (d)      All leases and agreements necessary for the conduct
of the business of the Borrower and its Subsidiaries are, to the best knowledge
of the Borrower and its Subsidiaries, valid and subsisting, in full force and
effect and, to the best knowledge of the Borrower and its Subsidiaries, there
exists no default or event or circumstance which with the giving of notice or
the passage of time or both

                                      -37-
<PAGE>

would give rise to a default under any such lease or leases, which would in the
aggregate have a Material Adverse Effect.

                  (e)      The rights, properties and other assets presently
owned, leased or licensed by the Borrower and its Subsidiaries including all
easement and rights of way, include all rights, Properties and other assets
necessary to permit the Borrower and its Subsidiaries to conduct their business
in all material respects in the same manner as their business has been conducted
prior to the Effective Date.

                  (f)      All of the assets and Properties of the Borrower and
its Subsidiaries which are reasonably necessary for the operation of their
business are in good working condition for their current use and are maintained
in accordance with business standards of a reasonably prudent operator where
such assets and Properties are located.

                  (g)      Except (i) as set forth on Schedule 3.05 and (ii) for
participation agreements existing or entered into in the ordinary course of
business of the Borrower with respect to the drilling, development or
acquisition of Oil and Gas Properties with participants under arrangements which
do not constitute state law partnerships, as of the Effective Date the Borrower
has no Subsidiaries and no interest in any partnerships.

                  Section 3.06. Litigation and Environmental Matters. (a) There
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect or (ii) that involve this
Agreement or the Transactions.

                  (b)      Except for matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
become subject to any Environmental Liability, (iii) has received notice of any
claim asserting or alleging any Environmental Liability or (iv) knows of any
basis for any Environmental Liability.

                  Section 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.

                  Section 3.08. Investment and Holding Company Status. Neither
the Borrower nor any of its Subsidiaries is (a) an "investment company" or a
company "controlled" by an "investment company" as those terms are defined in,
or subject to regulation under, the Investment Company Act of 1940, as amended,
or (b) a "holding company" or a "subsidiary company" of a "holding company," or
an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" as those terms are defined in, or subject to
regulation under, the Public Utility Holding Company Act of 1935.

                  Section 3.09. Taxes. Each of the Borrower and its Subsidiaries
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.

                                      -38-
<PAGE>

                  Section 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed by more than $10,000,000 the fair market value of the assets of such
Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$20,000,000 the fair market value of the assets of all such underfunded Plans.

                  Section 3.11. Disclosure. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to which
it or any of its Subsidiaries is subject, and all other matters known to it,
that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect. Neither the Information Memorandum nor any of the
other reports, financial statements, certificates or other written information
furnished by or on behalf of the Borrower to the Administrative Agent, the
Syndication Agent, either Co-Lead Arranger or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished), taken as a whole, contained
when furnished any material misstatement of fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided that, with
respect to projected financial information, the Borrower represents only that
such information was prepared in good faith based upon assumptions believed by
the Borrower to be reasonable at the time recognizing that there are
industry-wide risks normally associated with the types of business conducted by
the Borrower and its Subsidiaries; provided further that it is understood that
the Reserve Reports are based upon professional opinions, estimates and
projections.

                  Section 3.12. Insurance. Insurance complying with the
requirements of Section 5.05 is in full force and effect. Neither the Borrower
nor any Subsidiary has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited below usual and customary policy
limits, by an insurance carrier to which it has applied for any such insurance
or with which it has carried insurance during the last three years.

                  Section 3.13. Fiscal Periods. The fiscal year of the Borrower
and its consolidated Subsidiaries is the twelve-month period ending on December
31 of each year and the fiscal quarters of the Borrower and its consolidated
Subsidiaries are each of the three-month periods ending on March 31, June 30,
September 30 and December 31 of each year.

                  Section 3.14. Use of Proceeds. Following application of the
proceeds of each Loan, not more than 25% of the value of assets (either of the
Borrower only or of the Borrower and its Restricted Subsidiaries on a
consolidated basis), which are subject to any arrangement with the
Administrative Agent, the Issuing Bank or any Lender (herein or otherwise)
whereby the Borrower's or any Restricted Subsidiary's right or ability to sell,
pledge or otherwise dispose of assets is in any way restricted (or pursuant to
which the exercise of any such right is or may be cause for accelerating the
maturity of all or any portion of the Loans or any amount payable hereunder or
under any such other arrangement), will be margin stock (within the meaning of
Regulation U of the Board).

                                   ARTICLE IV

                                   CONDITIONS

                  Section 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):

                                      -39-
<PAGE>

                  (a)      The Administrative Agent shall have received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.

                  (b)      The Administrative Agent shall have received a
favorable written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of Vinson & Elkins L.L.P., counsel for the
Borrower, substantially in the form of Exhibit B, and covering such other
matters relating to the Borrower, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrower hereby requests such
counsel to deliver such opinion.

                  (c)      The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good standing of
the Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.

                  (d)      The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the President, a Vice
President or a Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a), (b) and (c) of Section 4.02 and setting
forth the calculation of the Borrowing Base as of the Effective Date.

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

                  (f)      The Administrative Agent shall have received the
December 31 Reserve Report for 2003 comporting with the requirements of Section
5.11(a), the related reports contemplated by Section 5.11(c), any related
Engineering Reports requested by the Administrative Agent and the certificate
contemplated by Section 5.11(d).

                  (g)      The Administrative Agent shall have received an
original promissory note as contemplated by Section 2.10(e) for each Lender that
has notified the Administrative Agent prior to the Effective Date that such
Lender requests such note.

                  (h)      The Administrative Agent shall have received such
other documents as it may reasonably request.

                  (i)      All commitments under, and all letters of credit
(other than the Existing Letters of Credit) issued pursuant to, the Existing
Credit Agreement shall have been terminated and all amounts outstanding under
the Existing Credit Agreement shall have been paid in full. Each Lender that is
a party to the Existing Credit Agreement waives each notice of termination of
such commitments or of prepayment required thereby.

The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at
or prior to 3:00 p.m., New York City time, on March 31, 2004 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).

                  Section 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:

                                      -40-
<PAGE>

                  (a)      The representations and warranties of the Borrower
set forth in this Agreement (and, if any Subsidiary Guaranty has been executed,
of the Subsidiary Guarantors set forth in the Subsidiary Guaranties) shall be
true and correct on and as of the date of such Borrowing or the date of
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable.

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

                  (c)      No Material Adverse Effect shall have occurred since
December 31, 2002.

Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a), (b)
and (c) of this Section.

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

                  Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:

                  Section 5.01. Financial Statements; Ratings Change and Other
Information. The Borrower will furnish to the Administrative Agent and each
Lender:

                  (a)      within 90 days after the end of each fiscal year of
the Borrower, its audited consolidated (and if any Unrestricted Subsidiary
existed during such year, its unaudited consolidating) balance sheet and related
statements of operations, stockholders' equity and cash flows as of the end of
and for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, (i) all (other than any such consolidating balance
sheet and consolidating statements) reported on by PricewaterhouseCoopers LLC or
other independent public accountants of recognized national standing (without a
"going concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, and (ii) in the case of such consolidating balance sheet and
consolidating statements, if any, certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidating basis in accordance with GAAP consistently applied;

                  (b)      within 45 days after the end of each of the first
three fiscal quarters of each fiscal year of the Borrower, its consolidated (and
if any Unrestricted Subsidiary existed during such year its consolidating)
balance sheet and related statements of operations, stockholders' equity and
cash flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis (and, in the case of such
consolidating balance sheet and consolidating statements, if any, on a
consolidating basis) in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

                                      -41-
<PAGE>

                  (c)      concurrently with any delivery of financial
statements under clause (a) or (b) above, a certificate of a Financial Officer
of the Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Sections 6.21 and 6.22,
(iii) setting forth a calculation of the Borrowing Base and (iv) stating whether
any change in GAAP or in the application thereof has occurred since the date of
the audited financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;

                  (d)      promptly after the delivery to the Securities and
Exchange Commission, a copy of the certification signed by the principal
executive officer and the principal financial officer of the Borrower (each, a
"Certifying Officer") as required by Rule 13A-14 under the Securities Exchange
Act of 1934 and a copy of the internal controls disclosure statement by such
Certifying Officers as required by Rule 13A-15 under the Securities Exchange Act
of 1934 and Final Rules Release No. 33-8238 of the United States Securities and
Exchange Commission, each as included in the Borrower's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, for the applicable fiscal period;

                  (e)      promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
distributed by the Borrower to its shareholders generally, as the case may be;

                  (f)      promptly after Moody's or S&P shall have announced a
change in the rating established or deemed to have been established for the
Index Debt, notice of such rating change;

                  (g)      within three Business Days of any issuance of
Subordinated Debt or any Senior Note, notice of such issuance including the
amount and maturity thereof and a copy of the indenture or other instrument
pursuant to which such Subordinated Debt or Senior Note was issued;

                  (h)      if the Borrowing Base Debt Amount has increased by
more than $5,000,000 since the most recent Redetermination Date (or if the first
Redetermination Date has not occurred, since the Effective Date), (i) within
five Business Days of such increase, notice of such amount and (ii) until the
next Redetermination Date, notice of the amount of each additional increase (if
$5,000,000 or more) in the Borrowing Base Debt Amount; provided that the
Borrower will not be required to provide such notices with respect to increases
in the Borrowing Base Debt Amount resulting from short term borrowings under the
Borrower's money market lines of credit so long as the total aggregate
outstanding principal amount of such borrowings does not exceed $40,000,000; and

                  (i)      promptly following any request therefor, such other
information regarding the operations, business affairs and financial condition
of the Borrower or any Subsidiary, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably request.

                  Section 5.02. Notices of Material Events. The Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:

                  (a)      the occurrence of any Default or the occurrence of
any Borrowing Base Deficiency;

                  (b)      the filing or commencement of any claim for taxes,
action, suit or proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any Affiliate thereof that involves
monetary claims in excess of $20,000,000 or that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;

                                      -42-
<PAGE>

                  (c)      the occurrence of any ERISA Event that, alone or
together with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in an
aggregate amount exceeding $10,000,000; and

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

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

                  Section 5.03. Existence; Conduct of Business. The Borrower
will, and will cause each of its Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises used or
useful in the conduct of its business; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.03 or the release, surrender or disposition of the legal existence of
any Restricted Subsidiary or of any such rights, licenses, permits, privileges
and franchises (other than the legal existence of the Borrower), if all such
releases, surrenders and dispositions, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.

                  Section 5.04. Payment of Obligations. The Borrower will, and
will cause each of its Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Borrower or such Subsidiary has set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.

                  Section 5.05. Maintenance of Properties; Insurance. The
Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain
all property (except Oil and Gas Properties) material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and (b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as is customarily maintained by
companies engaged in the same or similar businesses operating in the same or
similar locations.

                  Section 5.06. Books and Records; Inspection Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.

                  Section 5.07. Compliance with Laws. The Borrower will, and
will cause each of its Subsidiaries to, comply with all laws, rules, regulations
and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.

                  Section 5.08. Oil and Gas Properties. (a) The Borrower will
operate, and will cause the Subsidiaries to operate, their Oil and Gas
Properties or cause such Oil and Gas Properties to be operated in a careful and
efficient manner in accordance with the practices of the industry and in
compliance with all applicable contracts and agreements and in compliance in all
respects with all requirements of any Governmental Authority, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.

                                      -43-
<PAGE>

                  (a)      The Borrower will and will cause each Subsidiary to,
at its own expense, do or cause to be done all things reasonably necessary to
preserve and keep in good repair and working order (ordinary wear and tear
excepted) all of its Oil and Gas Properties and other material Properties
including all equipment, machinery and facilities, and from time to time will
make all the reasonably necessary repairs, renewals and replacements so that at
all times the state and condition of its Oil and Gas Properties and other
material Properties will be fully preserved and maintained, except to the extent
a portion of such Properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts or where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect. In a manner
consistent with the prudent operator standard, the Borrower will and will cause
each Subsidiary to promptly: (i) pay and discharge, or make reasonable and
customary efforts to cause to be paid and discharged, all delay rentals,
royalties, expenses and obligations accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas Properties, (ii) perform
or make reasonable and customary efforts to cause to be performed, in accordance
with industry standards, the obligations required by each and all of the
assignments, deeds, leases, sub-leases, contracts and agreements affecting its
interests in its Oil and Gas Properties and other material Properties, (iii)
will and will cause each Subsidiary to do all other things necessary to keep
unimpaired, except for Liens permitted by Section 6.02, its rights with respect
thereto and prevent any forfeiture thereof or a default thereunder, except where
the failure to do so could not reasonably be expected to result in a Material
Adverse Effect.

                  Section 5.09. Principal Business. Borrower will, and will
cause each Subsidiary to, maintain as its primary business the exploration,
production and development of oil, natural gas and other liquid and gaseous
Hydrocarbons.

                  Section 5.10. Subsidiary Guaranties. If any Restricted
Subsidiary is created or acquired which has Guaranteed, or any Restricted
Subsidiary Guarantees or proposes to Guarantee (in each case, the "Guaranteeing
Subsidiary"), any Debt or other obligation of the Borrower or any Restricted
Subsidiary, then the Borrower will cause the Guaranteeing Subsidiary,
simultaneously with or prior to such acquisition or creation or such Guarantee
of Debt or other obligation, as the case may be, to deliver to the
Administrative Agent (i) a Subsidiary Guaranty duly executed by such
Guaranteeing Subsidiary, (ii) certified copies of the charter, by-laws,
partnership or company agreement or similar documents pertaining to such
Guaranteeing Subsidiary, (iii) evidence, reasonably satisfactory to the
Administrative Agent, of the authorization and due execution and delivery of
such Subsidiary Guaranty by such Guaranteeing Subsidiary, (iv) other documents
and certificates of the type referred to in Section 4.01(c) with respect to such
Guaranteeing Subsidiary and (v) a legal opinion of counsel reasonably acceptable
to the Administrative Agent in substantially the form of Exhibit B, but
referring to such Guaranteeing Subsidiary and such Subsidiary Guaranty rather
than the Borrower and the documents referred to in Exhibit B.

                  Section 5.11. Engineering Reports. (a) The Borrower shall
deliver the December 31 Reserve Report at least 60 days prior to the next
following May 1 Scheduled Redetermination Date. The Borrower shall deliver the
June 30 Reserve Report at least 60 days prior to the next following November 1
Scheduled Redetermination Date. The December 31 Reserve Report shall include (a)
a report prepared by Ryder-Scott Company, Petroleum Engineers, DeGoyler &
McNaughton or other certified independent engineer of recognized standing
satisfactory to the Administrative Agent (the "Outside Report"), which covers at
least 80% of the proved oil and gas reserves attributable to the Oil and Gas
Properties of the Borrower and the Restricted Subsidiaries, and (b) a report
prepared by or under the supervision of the chief engineer of the Borrower who
shall certify such report to be true and accurate and to have been prepared in
accordance with the procedures used in such Outside Report (the "Company
Report"), which covers the proved oil and gas reserves attributable to the Oil
and Gas Properties of the Borrower and the Restricted Subsidiaries which were
not covered by such Outside Report. The June 30 Report shall be a Company Report
which covers the proved oil and gas reserves attributable to all of the Oil and
Gas Properties of the Borrower and the Restricted Subsidiaries. The Borrower may
elect to use the immediately preceding December 31 Reserve Report instead of
preparing the June 30 Reserve Report, in which case reserve run off with no
replacement will be assumed. Further, the Borrower will be required to

                                      -44-
<PAGE>

provide a review of the Oil and Gas Properties which shall include a comparison
of actual and projected production volumes.

                  (a)      For each unscheduled redetermination, the Borrower
shall furnish to the Lenders, a Reserve Report, as of a date no earlier than 60
days prior to the date on which such redetermination is to occur in accordance
with Section 2.04(d), prepared by or under the supervision of the chief engineer
of the Borrower who shall certify such Reserve Report to be true and accurate
and to have been prepared in accordance with the procedures used in the
immediately preceding December 31 Reserve Report. For any unscheduled
redetermination requested by the Required Lenders pursuant to Section 2.04(d),
the Borrower shall provide such Reserve Report as soon as possible, but in any
event no later than 45 days following its receipt of the request by the Required
Lenders.

                  (b)      Concurrently with the delivery of each Reserve
Report, the Borrower shall provide the Lenders production reports covering in
the aggregate the net production of oil and gas of the Borrower and the
Restricted Subsidiaries, which reports shall include quantities or volumes of
production, realized product prices, operating expenses, taxes, capital
expenditures and such other information as the Administrative Agent may
reasonably request and covering the six month period ending on the "as of" date
of the Reserve Report being delivered with such production report.

                  (c)      With the delivery of each Reserve Report, the
Borrower shall provide to the Lenders, a certificate from the Responsible
Officer who is the chief engineer of the Borrower that, to the best of his
knowledge and in all material respects, (i) the factual information contained in
the Reserve Report and Engineering Reports is true and correct, (ii) the
Borrower or a Restricted Subsidiary owns good and defensible title to the Oil
and Gas Properties evaluated in such Reserve Report free of all Liens except for
Excepted Liens, (iii) except as set forth on an exhibit to the certificate or in
the Reserve Report, on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to the Oil and Gas Properties evaluated in such
Reserve Report which would require the Borrower or any Restricted Subsidiary to
deliver Hydrocarbons produced from such Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor, (iv) no Oil and
Gas Properties have been sold since the date of the last Calculated Borrowing
Base determination except as permitted by the terms of this Agreement, (v)
attached to the certificate are statements of the Borrower's and each Restricted
Subsidiary's outstanding Oil or Gas Swap Contracts, which statements shall
include for each such Oil or Gas Swap Contract (A) the termination date, (B) the
notional amounts or volumes and the periods covered by such volumes, and (C) the
price to be paid or the basis for calculating the price to be paid by the
Borrower and the other Person under each Oil or Gas Swap Contract for each of
the future periods covered by each Oil or Gas Swap Contract, (vi) the Borrowing
Base Debt Amount on the date of such certificate is the amount set forth in such
certificate, and (vii) the amount of Subordinated Debt outstanding on the date
of such certificate is the amount set forth in such certificate.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

                  Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:

                  Section 6.01. Debt. The Borrower will not, and will not permit
any Restricted Subsidiary to, create, incur or assume any Debt, if at the time
of such creation, incurrence or assumption or immediately after giving effect
thereto any Borrowing Base Deficiency would exist or any Default shall have
occurred and be continuing; provided that this Section 6.01 shall not prohibit
the Borrower and its Restricted Subsidiaries from creating or incurring, even if
a Borrowing Base Deficiency or any Default

                                      -45-
<PAGE>

shall have occurred, (i) Debt evidenced by bonds or surety obligations, in each
case required by any Governmental Authority, (ii) obligations to pay into escrow
accounts or establish other reserves, in each case under this clause (ii) only
in amounts necessary to cover costs of abandonment of oil and gas wells or
drilling sites, and (iii) obligations described in clause (k) of the definition
herein of Debt that arise after the occurrence of a Borrowing Base Deficiency or
Default pursuant to a futures contract, swap contract or similar hedging
agreement entered into prior to such occurrence; provided further that this
Section 6.01 shall not prohibit obligations described in clause (k) of the
definition herein of Debt if no Default shall have occurred and be continuing.

                  Section 6.02. Liens. The Borrower will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:

                  (a)      Excepted Liens;

                  (b)      any Lien on any property or asset of the Borrower or
any Restricted Subsidiary existing on the date hereof and set forth in Schedule
6.02; provided that (i) such Lien shall not apply to any other property or asset
of the Borrower or any Restricted Subsidiary and (ii) such Lien shall secure
only those obligations which it secures on the date hereof;

                  (c)      any Lien existing on any property or asset prior to
the acquisition thereof by the Borrower or any Restricted Subsidiary or existing
on any property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that (i)
such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such
Lien shall not apply to any other property or assets of the Borrower or any
Restricted Subsidiary, (iii) such Lien does not secure any obligation of an
Unrestricted Subsidiary and (iv) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person becomes
a Subsidiary, as the case may be;

                  (d)      Liens securing Capital Lease Obligations of the
Borrower or any Restricted Subsidiary if the aggregate amount of all such
Capital Lease Obligations does not exceed $25,000,000 and such Liens do not
encumber any Oil and Gas Properties;

                  (e)      Liens on cash or securities securing obligations of
the Borrower or any Restricted Subsidiary arising by law or under production
sharing contracts, joint operating agreements or similar agreements to pay into
escrow accounts or establish other reserves, in each case only in amounts
necessary to cover costs of abandonment of oil and gas wells or drilling sites;
and

                  (f)      Liens on the Equity Interests of any Unrestricted
Subsidiary.

                  Section 6.03. Fundamental Changes. (a) The Borrower will not,
and will not permit any Restricted Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of its business or assets,
or any Equity Interests of any of its Restricted Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except that,
if at the time thereof and immediately after giving effect thereto no Default
shall have occurred and be continuing, this Section 6.03 shall not prohibit (i)
any Person from merging into the Borrower in a transaction in which the Borrower
is the surviving corporation, (ii) any Person (other than the Borrower) from
merging into any Restricted Subsidiary in a transaction in which the surviving
entity is a Restricted Subsidiary wholly-owned by the Borrower, (iii) any
Restricted Subsidiary from selling, transferring, leasing or otherwise disposing
of its assets to the Borrower or to another Restricted Subsidiary wholly-owned
by the Borrower, (iv) any Restricted Subsidiary from liquidating or dissolving
if the Borrower determines in good faith that such liquidation or dissolution is
in the best interests of the Borrower and is not materially disadvantageous to
the Lenders and (v) any Restricted Subsidiary from

                                      -46-
<PAGE>

selling, transferring, leasing or otherwise disposing of its assets if such
sale, transfer, lease or other disposition would otherwise be permitted under
Section 6.14.

                  (a)      The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.

                  Section 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any Restricted
Subsidiary to, purchase, hold or acquire (including pursuant to any merger with
any Person that was not a wholly owned Subsidiary prior to such merger) any
Investment in any Person except Permitted Investments. The Borrower will not,
and will not permit any Restricted Subsidiary to, Guarantee any obligation of
any Unrestricted Subsidiary.

                  Section 6.05. Swap Agreements. The Borrower will not, and will
not permit any Restricted Subsidiary to, enter into any Swap Agreement, except
(a) Swap Agreements entered into to hedge or mitigate risks to which the
Borrower or any Restricted Subsidiary has actual exposure (other than those in
respect of Equity Interests of the Borrower or any of its Subsidiaries), and (b)
Swap Agreements entered into in order to effectively cap, collar or exchange
interest rates (from fixed to floating rates, from one floating rate to another
floating rate or otherwise) with respect to any interest-bearing liability or
investment of the Borrower or any Restricted Subsidiary.

                  Section 6.06. Restricted Payments. The Borrower will not, and
will not permit any of the Restricted Subsidiaries to, pay, declare or make, or
agree to pay, declare or make, directly or indirectly, any Restricted Payment,
except (a) the Borrower may declare and pay dividends with respect to its Equity
Interests payable solely in additional shares of its common stock, (b)
Subsidiaries may declare and pay dividends ratably with respect to their Equity
Interests, (c) the Borrower may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of the Borrower and its Subsidiaries and (d) the Borrower may declare
and pay cash dividends, and redeem for cash or repurchase for cash its common
and preferred stock, if in each case (i) the aggregate amount of such dividends
plus the aggregate amount paid for such redemptions and repurchases during each
four consecutive fiscal quarters of the Borrower does not exceed 100% of the
consolidated net income of the Borrower and its Restricted Subsidiaries for such
four quarters, and (ii) at the time of any such dividend, redemption or
repurchase, and immediately after giving effect thereto, no Borrowing Base
Deficiency shall exist and no Default shall have occurred and be continuing.

                  Section 6.07. Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) in the ordinary course of business at prices and on terms
and conditions not less favorable to the Borrower and each Subsidiary than could
be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Borrower and its wholly-owned Restricted
Subsidiaries not involving any other Affiliate and (c) any Restricted Payment
permitted by Section 6.06.

                  Section 6.08. Restrictive Agreements. The Borrower will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of the
Borrower or any Restricted Subsidiary to create, incur or permit to exist any
Lien upon any of its property or assets, or (b) the ability of any Restricted
Subsidiary to pay dividends or other distributions with respect to any of its
Equity Interests or to make or repay loans or advances to the Borrower or any
other Restricted Subsidiary or to Guarantee Debt of the Borrower or any other
Restricted Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 6.08 (but shall apply to any extension or renewal
of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions

                                      -47-
<PAGE>

and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured Debt
(including Capital Lease Obligations) permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Debt and (v) clause (a) of the foregoing shall not apply to customary provisions
in leases and other contracts restricting the assignment thereof.

                  Section 6.09. Subsidiary Debt and Preferred Stock. The
Borrower will not permit any Restricted Subsidiary to issue preferred stock and
will not permit the aggregate principal amount of Debt of its Restricted
Subsidiaries (excluding any Debt of a Restricted Subsidiary owed to the Borrower
or another Restricted Subsidiary, but including any Guarantee by a Restricted
Subsidiary of Debt of the Borrower) at any time to exceed $25,000,000.

                  Section 6.10. Designation of Unrestricted Subsidiaries. The
Borrower will not designate any Subsidiary as an Unrestricted Subsidiary,
unless:

                  (i)      neither such Subsidiary nor any of its subsidiaries
         has any Debt except Non-Recourse Debt;

                  (ii)     neither such Subsidiary nor any of its subsidiaries
         is a party to any agreement, arrangement, understanding or other
         transaction with the Borrower or any Restricted Subsidiary, except
         those agreements and other transactions entered into in writing in the
         ordinary course of business at prices and on terms and conditions not
         less favorable to the Borrower and each Restricted Subsidiary than
         could be obtained on an arm's-length basis from unrelated third
         parties;

                  (iii)    at the time of such designation, the aggregate book
         value of the assets of the Borrower and the Restricted Subsidiaries, on
         a consolidated basis (excluding investments in Unrestricted
         Subsidiaries) exceeds $2,250,000,000;

                  (iv)     neither such Subsidiary nor any of its subsidiaries
         is a Guarantor Subsidiary or has any outstanding Letter of Credit
         issued for its account;

                  (v)      neither such Subsidiary nor any of its subsidiaries
         owns any Oil and Gas Properties included in the Calculated Borrowing
         Base or other Property relevant to the Calculated Borrowing Base in
         effect at the time of such designation;

                  (vi)     at the time of such designation and immediately after
         giving effect thereto, no Borrowing Base Deficiency shall exist and no
         Default shall have occurred and be continuing;

                  (vii)    the Borrower would have been in compliance with
         Section 6.22 on the last day of the most recently ended fiscal quarter
         of the Borrower had such Subsidiary been an Unrestricted Subsidiary on
         such day;

                  (viii)   neither such Subsidiary nor any of its subsidiaries
         owns any Debt or Equity Interest of, or is the beneficiary of any Lien
         on any property of, the Borrower or any Restricted Subsidiary; and

                  (ix)     at or immediately prior to such designation, the
         Borrower delivers a certificate to the Lenders certifying (a) the names
         of such Subsidiary and all of its subsidiaries, and (b) that all
         requirements of this Section have been met for such designation.

                  Section 6.11. New Unrestricted Subsidiaries. The Borrower will
not permit any Unrestricted Subsidiary to acquire or create any subsidiary of
such Unrestricted Subsidiary unless such subsidiary is designated as an
Unrestricted Subsidiary in accordance with Section 6.10.

                                      -48-
<PAGE>

                  Section 6.12. Sale Leaseback Transactions. The Borrower will
not enter into, and will not permit any Restricted Subsidiary to enter into, any
Sale Leaseback Transaction if, immediately after giving effect thereto, the
aggregate amount of all Attributable Obligations for all Sale Leaseback
Transactions would exceed $25,000,000.

                  Section 6.13. Sale or Discount of Receivables. The Borrower
will not, and will not permit any Restricted Subsidiary to, discount or sell
(with or without recourse) any of its notes receivable or accounts receivable,
except that the Borrower may discount or sell past due accounts receivable and
past due notes receivable if the Borrower determines in its reasonable judgment
that such course of action is a reasonably prudent means of collection with
respect to such note receivable or account receivable and if the notes and
accounts receivables discounted or sold do not constitute a material portion of
the Borrower's and the Restricted Subsidiaries' notes receivable or accounts
receivable outstanding at such time.

                  Section 6.14. Sale of Oil and Gas Properties. Except for
Hydrocarbons sold in the ordinary course of business as and when produced, the
Borrower will not, and will not permit any Restricted Subsidiary to, sell,
assign, transfer, farm-out or convey, directly or indirectly, by way of merger
or sale of equity securities in a Subsidiary or otherwise ("Transfer"), any
interest in any of its Oil and Gas Properties in excess of $100,000,000 in the
aggregate during the period from the Effective Date to the initial
Redetermination Date or during any period from one Redetermination Date to the
next Redetermination Date, as such value is determined by the most recent
December 31 Reserve Report using a 9% discount rate and giving effect to
production prior to the effective date of the Transfer, without the prior
written consent of Required Lenders, which consent will not be unreasonably
withheld.

                  Section 6.15. Subsidiaries and Partnerships. The Borrower will
not, and will not permit any Restricted Subsidiary to, create or acquire any
Subsidiary unless (i) the Borrower shall give the Administrative Agent prompt
notice of the creation of such Subsidiary and (ii) the Borrower is in compliance
with Sections 5.10 and 6.04.

                  Section 6.16. Hydrocarbon Sales Contract. The Borrower will
not, and will not permit any Restricted Subsidiary to, enter into any contract
for the sale of Hydrocarbons produced from any of its Oil and Gas Properties in
which the Borrower or such Subsidiary warrants quantities of Hydrocarbons to be
delivered thereunder.

                  Section 6.17. Environmental Matters. The Borrower will not,
and will not permit any Subsidiary to, cause or permit any of its Property to be
in violation of, or do anything or permit anything to be done which will subject
any such Property to any remedial obligations under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property, where
such violations and remedial obligations would in the aggregate, have a Material
Adverse Effect.

                  Section 6.18. Subordinated Debt. The Borrower will not modify
or amend the terms of any Subordinated Debt or any related indentures or other
document, if the effect of such modification or amendment would be to shorten
the time for payment on any Subordinated Debt, increase the rate of interest on
any Subordinated Debt or change the method of calculating interest so as to
effectively increase the rate of interest on any Subordinated Debt, change any
of the provisions of the covenants, subordination provisions and events of
default or any of the definitions used in or relating thereto, or any other
provisions which would detrimentally affect the rights of the Lenders.

                  Section 6.19. Fiscal Periods. The Borrower will not change,
and will not permit any of its Consolidated Restricted Subsidiaries to change,
its fiscal year from the twelve-month period ending on December 31 of each year
or any of its fiscal quarters from the three-month periods ending March 31, June
30, September 30 and December 31 of each year.

                                      -49-
<PAGE>

                  Section 6.20. Use of Proceeds. The Borrower will not use, and
will not permit any Subsidiary to use, the proceeds of any Loan for any purpose
other than general corporate and working capital purposes which may include the
acquisition, exploration and development of Oil and Gas Properties, and in any
event will not use, and will not permit any Subsidiary to use, any such proceeds
(i) in any manner that violates or results in a violation of any law or
regulation or this Agreement, or to purchase or carry, directly or indirectly,
any margin stock (within the meaning of Regulation U of the Board) or for any
purpose that would result in any Loan being a "purpose credit" within the
meaning of Regulation U. The Borrower will not use and will not permit any
Subsidiary to use any Letter of Credit to support any Debt of any Person or to
support any obligation of an Unrestricted Subsidiary.

                  Section 6.21. Total Debt to EBITDA Ratio. The Borrower will
not permit the Total Debt to EBITDA Ratio to exceed 3.00 to 1.00 at any time.

                  Section 6.22. EBITDA to Interest Ratio. The Borrower will not
permit the EBITDA to Interest Ratio to be less than 3.00 to 1.00 for any period
of four consecutive fiscal quarters of the Borrower.

                                  ARTICLE VII

                                EVENTS OF DEFAULT

                  Section 7.01. Events of Default. If any of the following
events ("Events of Default") shall occur:

                  (a)      the Borrower shall fail to pay any principal of any
Loan or any reimbursement obligation in respect of any LC Disbursement (other
than LC Disbursements that are financed as a Borrowing in accordance with
Section 2.06(e)) when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or otherwise;

                  (b)      the Borrower shall fail to pay any interest on any
Loan or any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement, when and as the same shall
become due and payable, and such failure shall continue unremedied for a period
of three Business Days;

                  (c)      any representation or warranty made or deemed made by
or on behalf of the Borrower or any Subsidiary in or in connection with this
Agreement, any other Loan Document or any amendment, waiver or modification
hereof or thereof, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with this Agreement, any other
Loan Document or any amendment or modification hereof or waiver hereunder, shall
prove to have been incorrect in any material respect when made or deemed made;

                  (d)      the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02 or 5.03 (with respect
to the Borrower's existence) or in Article II or Article VI;

                  (e)      the Borrower or any Subsidiary Guarantor shall fail
to observe or perform any covenant, condition or agreement contained in this
Agreement or any other Loan Document (other than those specified in clause (a),
(b) or (d) of this Article), and such failure shall continue unremedied for a
period of 30 days after notice thereof from the Administrative Agent to the
Borrower (which notice will be given at the request of any Lender);

                  (f)      the Borrower or any Restricted Subsidiary shall fail
to make any payment (whether of principal or interest and regardless of amount)
in respect of any Material Indebtedness, when and as the same shall become due
and payable;

                                      -50-
<PAGE>

                  (g)      any event or condition occurs that results in any
Material Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance thereof, prior to
its scheduled maturity; provided that this clause (g) shall not apply to secured
Debt that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Debt if such indebtedness is paid when due;

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

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

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

                  (k)      one or more judgments for the payment of money in an
aggregate amount in excess of $25,000,000 (net of insured amounts payable by a
financially responsible insurer that has been notified thereof and has not
denied coverage) shall be rendered against the Borrower, any Restricted
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Restricted Subsidiary to enforce any
such judgment;

                  (l)      an ERISA Event shall have occurred that, in the
opinion of the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in a Material Adverse
Effect or result in liability of the Borrower and its Subsidiaries in an
aggregate amount exceeding $25,000,000 for all periods;

                  (m)      a Change in Control shall occur;

                  (n)      any provision of any Subsidiary Guaranty for any
reason is not a legal, valid, binding and enforceable obligation of the
Subsidiary Guarantor shown as being a party thereto or any Subsidiary or the
Borrower shall so state in writing; or

                  (o)      the Borrower or any other Person shall petition or
apply for or obtain any order restricting payment by the Issuing Bank under any
Letter of Credit or extending the liability of the Issuing Bank under any Letter
of Credit beyond the expiration date stated therein;

then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative

                                      -51-
<PAGE>

Agent may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times: (i) terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower; and in case of any event with respect to the Borrower described in
clause (h) or (i) of this Article, the Commitments shall automatically terminate
and the principal of the Loans then outstanding, together with accrued interest
thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or other notice
of any kind, all of which are hereby waived by the Borrower. Without limiting
the foregoing or any other provision hereof, the Borrower shall also have the
obligations, and the Administrative Agent and Lenders shall have the rights and
remedies, specified in Section 2.06(j).

                                  ARTICLE VIII

                            THE ADMINISTRATIVE AGENT

                  Section 8.01. The Administrative Agent. Each of the Lenders
and the Issuing Bank hereby irrevocably appoints the Administrative Agent as its
agent and authorizes the Administrative Agent to take such actions on its behalf
and to exercise such powers as are delegated to the Administrative Agent by the
terms hereof, together with such actions and powers as are reasonably incidental
thereto.

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

                  The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise as directed in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), and (c) except
as expressly set forth herein, the Administrative Agent shall not have any duty
to disclose, and shall not be liable for the failure to disclose, any
information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. THE ADMINISTRATIVE AGENT SHALL NOT BE LIABLE
FOR ANY ACTION TAKEN OR NOT TAKEN BY IT WITH THE CONSENT OR AT THE REQUEST OF
THE REQUIRED LENDERS (OR SUCH OTHER NUMBER OR PERCENTAGE OF THE LENDERS AS SHALL
BE NECESSARY UNDER THE CIRCUMSTANCES AS PROVIDED IN SECTION 9.02) OR IN THE
ABSENCE OF ITS OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT. The Administrative
Agent shall not be liable for the accuracy of, or the methodology or procedures
used by it in redetermining or proposing, any Calculated Borrowing Base. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Borrower or a Lender, and the Administrative Agent shall not be responsible for
or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement, any other Loan
Document or any other agreement,

                                      -52-
<PAGE>

instrument or document, (ii) the contents of any certificate, report or other
document delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the amount of the Borrowing Base, or (vi) the satisfaction of any
condition set forth in Article IV or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent.

                  The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

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

                  Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower (but such consultation shall not be required if
an Event of Default shall have occurred and is continuing), to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders and the Issuing Bank, appoint
a successor Administrative Agent which shall be a bank with an office in New
York, New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

                  Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.

                  EACH LENDER, RATABLY IN ACCORDANCE WITH ITS RESPECTIVE
APPLICABLE PERCENTAGE, SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, SUB-AGENTS
APPOINTED BY THE ADMINISTRATIVE AGENT PURSUANT

                                      -53-
<PAGE>

TO THIS ARTICLE VIII AND EACH RELATED PARTY OF THE ADMINISTRATIVE AGENT AND SUCH
SUB-AGENTS (EACH SUCH PERSON BEING CALLED AN "AGENT INDEMNITEE") AGAINST, AND
HOLD EACH AGENT INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY AGENT INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
AGENT INDEMNITEE TO THE EXTENT (i) THAT SUCH AGENT INDEMNITEE IS ENTITLED TO
INDEMNIFICATION FROM THE BORROWER PURSUANT TO SECTION 9.03(b) AND (ii) EITHER
(1) SUCH AGENT INDEMNITEE IS NOT PROMPTLY AND INDEFEASIBLY PAID THE AMOUNT OF
SUCH INDEMNIFICATION BY THE BORROWER OR (2) ANY SUCH PAYMENT IS RESCINDED OR
MUST OTHERWISE BE RETURNED BY SUCH AGENT INDEMNITEE UPON THE INSOLVENCY,
BANKRUPTCY OR REORGANIZATION OF ANY PERSON OR OTHERWISE. IT IS THE EXPRESS
INTENT OF THE PARTIES HERETO THAT EACH AGENT INDEMNITEE SHALL, TO THE EXTENT
CONTEMPLATED IN SECTION 9.03 BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR
CONTRIBUTORY NEGLIGENCE. PAYMENT BY ANY LENDER PURSUANT TO THIS ARTICLE VIII
SHALL NOT RELIEVE THE BORROWER OF ITS OBLIGATIONS UNDER SECTION 9.03, AND EACH
LENDER MAKING A PAYMENT UNDER THIS PARAGRAPH SHALL BE ENTITLED TO RECEIVE FROM
EACH AGENT INDEMNITEE SUCH LENDER'S RATABLE SHARE OF ANY AMOUNT INDEFEASIBLY
RECOVERED BY SUCH AGENT INDEMNITEE FROM THE BORROWER ON ACCOUNT OF THE
PREVIOUSLY UNPAID INDEMNIFICATION PURSUANT TO SECTION 9.03(b) THAT REQUIRED SUCH
PAYMENT BY SUCH LENDER UNDER THIS PARAGRAPH, IN EACH CASE WITHOUT INTEREST.

                                   ARTICLE IX

                                  MISCELLANEOUS

                  Section 9.01. Notices. (a) Except in the case of notices and
other communications expressly permitted to be given by telephone (and subject
to paragraph (b) below), all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:

                  (i)      if to the Borrower, to it at 363 N. Sam Houston
         Parkway, Suite 2020, Houston, Texas 77060, Attention of chief financial
         officer (Telecopy No. (713) 847-6006);

                  (ii)     if to the Administrative Agent, to JPMorgan Chase
         Bank, Loan and Agency Services Group, 1111 Fannin St., 10th Floor,
         Houston, Texas 77002-8069, Attention of Ms. Janene English (Telecopy
         No. (713) 427-6307), with a copy to JPMorgan Chase Bank, 600 Travis
         Street, 20th Floor, Houston, Texas 77002, Attention of Mr. Peter
         Licalzi (Telecopy No. (713) 216-4117);

                  (iii)    if to the Issuing Bank, to it at the address set
         forth in paragraph (ii) above; and

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

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

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

                                      -54-
<PAGE>

                  Section 9.02. Waivers; Amendments. (a) No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any right
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Administrative Agent, the Issuing Bank and the Lenders
hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.

                  (a)      Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Required Lenders or by the Borrower
and the Administrative Agent with the consent of the Required Lenders; provided
that no such agreement shall (i) increase or extend the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce
any fees payable hereunder, without the written consent of each Lender affected
thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan or LC Disbursement, or any interest thereon, or any fees payable
hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby, (iv) postpone the due date of any
payment of the principal amount of any Loan or LC Disbursement due pursuant to
Section 2.10(f), or reduce the amount of, waive or excuse any such payment,
without the written consent of each Lender affected thereby, (v) delete (or make
changes that have the practical effect of deleting) from this Agreement (1) the
borrowing base mechanism or (2) the related requirement for mandatory
prepayments, without the written consent of each Lender affected thereby (for
avoidance of doubt, this clause (v) does not prevent changes consented to
pursuant to clause (vi) of this sentence relating to methodology, timing,
amounts or matters included or excluded in determining the Calculated Borrowing
Base or the Borrowing Base, content of reports and similar items), (vi) change
Section 2.04 or 5.11 or change, for the purpose of any such Section, the
definitions of defined terms used in any such Section, in each case without the
written consent of the Administrative Agent and the Borrowing Base Approval
Lenders, (vii) change Section 2.05(b) or (c) or Section 2.09 in a manner that
would alter the pro rata treatment of Lenders or pro rata sharing of payments
required thereby, without the written consent of each Lender, or (viii) change
any of the provisions of this Section, the definition of "Borrowing Base
Approval Lenders" or the definition of "Required Lenders" or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or the Issuing Bank hereunder without the prior written
consent of the Administrative Agent or the Issuing Bank, as the case may be.

                  Section 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of and due diligence related to the credit facilities provided
for herein, the preparation and administration of this Agreement, the other Loan
Documents or any amendments, modifications or waivers of the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall
be consummated), (ii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder and (iii) all
reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Issuing Bank or any Lender, including the fees, charges and disbursements of

                                      -55-
<PAGE>

any counsel for the Administrative Agent, the Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
this Agreement or any other Loan Document, including its rights under this
Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.

                  (b)      THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE
AGENT, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND
HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT
CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE
OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY OTHER
TRANSACTIONS CONTEMPLATED HEREBY, (ii) ANY LOAN OR LETTER OF CREDIT OR THE USE
OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING BANK TO HONOR A
DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN
CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER
OF CREDIT), (iii) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, OR (iv) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO
ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE. IT IS THE EXPRESS INTENT OF
THE PARTIES HERETO THAT EACH INDEMNITEE SHALL, TO THE EXTENT PROVIDED IN THIS
SECTION 9.03, BE INDEMNIFIED FOR ITS OWN ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE.

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

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

                  (e)      All amounts due under this Section shall be payable
promptly after written demand therefor.

                  Section 9.04. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any Affiliate of the Issuing Bank that issues any Letter of Credit), except that
(i) the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void) and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective

                                      -56-
<PAGE>

successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit), Participants (to the extent provided in
paragraph (c) of this Section), sub-agents appointed by the Administrative Agent
pursuant to Article VIII and, to the extent expressly contemplated hereby, the
Related Parties of each of the Administrative Agent, any such sub-agent, the
Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

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

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

                           (B)      the Administrative Agent.

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

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

                           (B)      each partial assignment shall be made as an
                  assignment of a proportionate part of all the assigning
                  Lender's rights and obligations under this Agreement;

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

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

                  For the purposes of this Section 9.04(b), the term "Approved
Fund" has the following meaning:

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

                  (iii)    Subject to acceptance and recording thereof pursuant
to paragraph (b)(iv) of this Section, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any

                                      -57-
<PAGE>

assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this Section 9.04 shall be treated for purposes of
this Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (c) of this Section.

                  (iv)     The Administrative Agent, acting for this purpose as
an agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of, and principal
amount of the Loans and LC Disbursements owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and the Borrower, the Administrative Agent, the Issuing
Bank and the Lenders may treat each Person whose name is recorded in the
Register pursuant to the terms hereof as a Lender hereunder for all purposes of
this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.

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

                  (c)(i)   Any Lender may, without the consent of the Borrower,
the Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender's
obligations under this Agreement shall remain unchanged, (B) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.05(c) as though it were a
Lender.

                  (ii)     A Participant shall not be entitled to receive any
greater payment under Section 2.15 or 2.17 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 2.17
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
Section 2.17(e) as though it were a Lender.

                  (d)      Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section
shall not apply to any such pledge or assignment of a security interest;
provided that no such pledge or

                                      -58-
<PAGE>

assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

                  Section 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, the Issuing Bank or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
or any Letter of Credit is outstanding and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.

                  Section 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent or the Syndication Agent constitute the entire contract
among the parties relating to the subject matter hereof and supersede any and
all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement shall
become effective when it shall have been executed by the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.

                  Section 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.

                  Section 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the Borrower against any of and all the obligations of the Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.

                  Section 9.09. Governing Law; Jurisdiction; Consent to Service
of Process. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.

                  (b)      The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and

                                      -59-
<PAGE>

unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement against the Borrower or its
properties in the courts of any jurisdiction.

                  (c)      The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

                  (d)      Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.

                  Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

                  Section 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.

                  Section 9.12. Confidentiality. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to any Loan Document, (e) in
connection with the exercise of any remedies hereunder or under any other Loan
Document or any suit, action or proceeding relating to any Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to (i)
any assignee of or Participant in, or any prospective assignee of or Participant
in, any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating to the Borrower or any Subsidiary, (g) with the consent of the Borrower
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section,
"Information" means all information received from the Borrower relating to the
Borrower or its business, other than any such information that is available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis prior to disclosure by

                                      -60-
<PAGE>

the Borrower; provided that, in the case of information received from the
Borrower after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.

                  Section 9.13. Interest Rate Limitation. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.

                  Section 9.14. Co-Lead Arrangers, Co-Documentation Agents and
Syndication Agent. None of the Co-Lead Arrangers, Co-Documentation Agents and
Syndication Agent shall have any duty, responsibility or liability under the
Loan Documents in their respective capacities as Co-Lead Arranger,
Co-Documentation Agent or Syndication Agent, as the case may be.

                  Section 9.15. USA Patriot Act Notice. Each Lender hereby
notifies the Borrower that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it
is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in
accordance with the Act.

                                      -61-
<PAGE>

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

                                  NEWFIELD EXPLORATION COMPANY

                                  By: /s/ TERRY W. RATHERT
                                     -----------------------------------------

                                  Name: Terry W. Rathert

                                  Title: Vice President and Chief Financial
                                         Officer

                                  JPMORGAN CHASE BANK, individually and as
                                  Administrative Agent

                                  By: /s/ ROBERT C. MERTENSOTTO
                                     -----------------------------------------

                                  Name: Robert C. Mertensotto

                                  Title: Managing Director

                                  WACHOVIA BANK, NATIONAL ASSOCIATION

                                  By: /s/ PHILIP TRINDER
                                     -----------------------------------------

                                  Name: Philip Trinder

                                  Title: Vice President

                                  HARRIS NESBITT FINANCING, INC.

                                  By: /s/ JAMES V. DUCOTE
                                     -----------------------------------------

                                  Name: James V. Ducote

                                  Title: Vice President

                                      -62-
<PAGE>

                                  CREDIT LYONNAIS NEW YORK BRANCH

                                  By: /s/ OLIVIER AUDEMARD
                                     -----------------------------------------

                                  Name: Olivier Audemard

                                  Title: Senior Vice President

                                  FLEET NATIONAL BANK

                                  By: /s/ JEFFREY H. RATHKAMP
                                     -----------------------------------------

                                  Name: Jeffrey H. Rathkamp

                                  Title: Director

                                  BARCLAYS BANK PLC

                                  By: /s/ NICHOLAS A. BELL
                                     -----------------------------------------

                                  Name: Nicholas A. Bell

                                  Title: Director - Loan Transaction Management

                                  THE BANK OF NOVA SCOTIA

                                  By: /s/ NADINE BELL
                                     -----------------------------------------

                                  Name: Nadine Bell

                                  Title: Senior Manager

                                  UNION BANK OF CALIFORNIA

                                  By: /s/ ALI AHMED
                                     -----------------------------------------

                                  Name: Ali Ahmed

                                  Title: Vice President

                                  By: /s/ RANDALL OSTERBERG
                                     -----------------------------------------

                                  Name: Randall Osterberg

                                  Title: Senior Vice President

                                      -63-
<PAGE>

                                  THE BANK OF NEW YORK

                                  By: /s/ CRAIG J. ANDERSON
                                     -----------------------------------------

                                  Name: Craig J. Anderson

                                  Title: Vice President

                                  THE ROYAL BANK OF SCOTLAND PLC

                                  By: /s/ JAMES R. MCBRIDE
                                     -----------------------------------------

                                  Name: James R. McBride

                                  Title: Managing Director

                                  U.S. BANK NATIONAL ASSOCIATION

                                  By: /s/ MARK E. THOMPSON
                                     -----------------------------------------

                                  Name: Mark E. Thompson

                                  Title: Vice President

                                  WASHINGTON MUTUAL BANK, FA

                                  By: /s/ DAVID W. PHILLIPS
                                     -----------------------------------------
                                  Name: David W. Phillips

                                  Title: Vice President

                                      -64-
<PAGE>

                                  SOCIETE GENERALE

                                  By: /s/ JASON HENDERSON
                                     -----------------------------------------

                                  Name: Jason Henderson

                                  Title: Vice President

                                  COMERICA BANK

                                  By: /s/ CHARLES E. HALL
                                     -----------------------------------------

                                  Name: Charles E. Hall

                                  Title: Sr. Vice President

                                  UFJ BANK

                                  By: /s/ CLYDE L. REDFORD
                                     -----------------------------------------

                                  Name: Clyde L. Redford

                                  Title: Senior Vice President

                                  COMPASS BANK

                                  By: /s/ DOROTHY MARCHAND
                                     -----------------------------------------

                                  Name: Dorothy Marchand

                                  Title: Senior Vice President

                                  BANK OF AMERICA, N.A.

                                  By: /s/ STEVEN A. MACKENZIE
                                     -----------------------------------------

                                  Name: Steven A. Mackenzie

                                  Title: Vice President

                                      -65-
<PAGE>

                                  DNB NOR BANK ASA

                                  By: /s/ PETER M. DODGE
                                     -----------------------------------------

                                  Name: Peter M. Dodge

                                  Title: First Vice President

                                  By: /s/ ALFRED C. JONES III
                                     -----------------------------------------

                                  Name: Alfred C. Jones III

                                  Title: Senior Vice President

                                  THE FROST NATIONAL BANK

                                  By: /s/ ANDREW A. MERRYMAN
                                     -----------------------------------------

                                  Name: Andrew A. Merryman

                                  Title: Senior Vice President

                                  NATEXIS BANQUES POPULAIRES

                                  By: /s/ DONOVAN C. BROUSSARD
                                     -----------------------------------------

                                  Name: Donovan C. Broussard

                                  Title: Vice President & Manager

                                  By: /s/ DANIEL PAYER
                                     -----------------------------------------

                                  Name: Daniel Payer

                                  Title: Vice President

                                  SOUTHWEST BANK OF TEXAS

                                  By: /s/ W. BRYAN CHAPMAN
                                     -----------------------------------------

                                  Name: W. Bryan Chapman

                                  Title: Senior Vice President - Energy Lending

                                      -66-
<PAGE>

                                  SCHEDULE 2.01

                               INITIAL COMMITMENTS

<TABLE>
<CAPTION>
                                          AMOUNT OF              PERCENTAGE OF TOTAL
              LENDER                      COMMITMENT                COMMITMENTS
-----------------------------------      -----------            -------------------
<S>                                      <C>                    <C>
JPMorgan Chase Bank                      $ 45,000,000                    7.50%
Wachovia Bank, National Association      $ 45,000,000                    7.50%
Harris Nesbitt Financing, Inc.           $ 45,000,000                    7.50%
Credit Lyonnais                          $ 45,000,000                    7.50%
Barclays Bank plc                        $ 32,500,000                5.416667%
The Bank of Nova Scotia                  $ 32,500,000                5.416667%
Union Bank of California                 $ 32,500,000                5.416667%
The Bank of New York                     $ 32,500,000                5.416667%
The Royal Bank of Scotland plc           $ 32,500,000                5.416667%
U.S. Bank National Association           $ 32,500,000                5.416667%
Fleet National Bank                      $ 30,000,000                    5.00%
Washington Mutual Bank, FA               $ 28,500,000                    4.75%
Societe Generale                         $ 28,500,000                    4.75%
Comerica Bank                            $ 22,500,000                    3.75%
UFJ Bank                                 $ 22,500,000                    3.75%
Compass Bank                             $ 18,000,000                    3.00%
Bank of America, N.A.                    $ 15,000,000                    2.50%
DnB NOR Bank ASA                         $ 15,000,000                    2.50%
The Frost National Bank                  $ 15,000,000                    2.50%
Natexis Banques Populaires               $ 15,000,000                    2.50%
Southwest Bank of Texas                  $ 15,000,000                    2.50%
                                         ------------                --------
               TOTAL                     $600,000,000                     100%
</TABLE>

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