Document:

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                                                                  EXHIBIT 10.1

                                CREDIT AGREEMENT

                            DATED AS OF JUNE 14, 2004

                                      AMONG

                            CALLON PETROLEUM COMPANY
                                  AS BORROWER,

                         UNION BANK OF CALIFORNIA, N.A.,
         AS LEAD ARRANGER, ADMINISTRATIVE AGENT AND DOCUMENTATION AGENT,

                                       AND

                          THE LENDERS SIGNATORY HERETO

                   $175,000,000 SENIOR SECURED CREDIT FACILITY

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                                TABLE OF CONTENTS

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<S>                                                                                                             <C>
ARTICLE I      DEFINITIONS AND ACCOUNTING MATTERS..........................................................       1
      Section 1.01    Terms Defined Above..................................................................       1
      Section 1.02    Certain Defined Terms................................................................       1
      Section 1.03    Accounting Terms and Determinations..................................................      17
ARTICLE II     COMMITMENTS.................................................................................      17
      Section 2.01    Loans and Letters of Credit..........................................................      17
      Section 2.02    Borrowings, Continuations and Conversions, Letters of Credit.........................      18
      Section 2.03    Changes of Commitments...............................................................      20
      Section 2.04    Fees.................................................................................      20
      Section 2.05    Several Obligations..................................................................      21
      Section 2.06    Notes................................................................................      21
      Section 2.07    Prepayments..........................................................................      22
      Section 2.08    Borrowing Base.......................................................................      23
      Section 2.09    Assumption of Risks..................................................................      24
      Section 2.10    Obligation to Reimburse and to Prepay................................................      25
      Section 2.11    Lending Offices......................................................................      27
ARTICLE III    PAYMENTS OF PRINCIPAL AND INTEREST..........................................................      27
      Section 3.01    Repayment of Principal...............................................................      27
      Section 3.02    Payment of Interest..................................................................      27
      Section 3.03    Payment Waterfall....................................................................      28
ARTICLE IV     PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.............................................      29
      Section 4.01    Payments.............................................................................      29
      Section 4.02    Pro Rata Treatment...................................................................      29
      Section 4.03    Computations.........................................................................      30
      Section 4.04    Non-receipt of Funds by the Administrative Agent.....................................      30
      Section 4.05    Set-off, Sharing of Payments, Etc....................................................      30
      Section 4.06    Taxes................................................................................      31
      Section 4.07    Disposition of Proceeds..............................................................      34
ARTICLE V      CAPITAL ADEQUACY AND YIELD PROTECTION.......................................................      35
      Section 5.01    Additional Costs.....................................................................      35
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                               TABLE OF CONTENTS
                                   (continued)

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      Section 5.02    Limitation on LIBOR Loans............................................................      36
      Section 5.03    Illegality...........................................................................      37
      Section 5.04    Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03.............................      37
      Section 5.05    Compensation.........................................................................      37
      Section 5.06    Time Limit; Etc......................................................................      38
      Section 5.07    Replacement Lenders..................................................................      38
ARTICLE VI     CONDITIONS PRECEDENT........................................................................      39
      Section 6.01    Initial Funding......................................................................      39
      Section 6.02    Initial and Subsequent Loans and Letters of Credit...................................      41
      Section 6.03    Conditions Precedent for the Benefit of Lenders......................................      41
      Section 6.04    No Waiver............................................................................      41
ARTICLE VII    REPRESENTATIONS AND WARRANTIES..............................................................      42
      Section 7.01    Corporate Existence..................................................................      42
      Section 7.02    Financial Condition..................................................................      42
      Section 7.03    Litigation...........................................................................      42
      Section 7.04    No Breach............................................................................      42
      Section 7.05    Authority............................................................................      43
      Section 7.06    Approvals............................................................................      43
      Section 7.07    Use of Loans.........................................................................      43
      Section 7.08    ERISA................................................................................      43
      Section 7.09    Taxes................................................................................      44
      Section 7.10    Titles, etc..........................................................................      45
      Section 7.11    No Material Misstatements............................................................      45
      Section 7.12    Investment Company Act...............................................................      46
      Section 7.13    Public Utility Holding Company Act...................................................      46
      Section 7.14    Subsidiaries.........................................................................      46
      Section 7.15    Location of Business, Offices and Inventory..........................................      46
      Section 7.16    Defaults.............................................................................      46
      Section 7.17    Environmental Matters................................................................      46
      Section 7.18    Compliance with the Law..............................................................      47
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                                TABLE OF CONTENTS
                                   (continued)

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      Section 7.19    Insurance............................................................................      48
      Section 7.20    Hedging Agreements...................................................................      48
      Section 7.21    Restriction on Liens.................................................................      48
      Section 7.22    Material Agreements..................................................................      48
      Section 7.23    Gas Imbalances.......................................................................      49
ARTICLE VIII   AFFIRMATIVE COVENANTS.......................................................................      49
      Section 8.01    Reporting Requirements...............................................................      49
      Section 8.02    Litigation...........................................................................      51
      Section 8.03    Maintenance, Etc.....................................................................      52
      Section 8.04    Environmental Matters................................................................      53
      Section 8.05    Further Assurances...................................................................      54
      Section 8.06    Performance of Obligations...........................................................      54
      Section 8.07    Engineering Reports..................................................................      54
      Section 8.08    Title Information....................................................................      55
      Section 8.09    Collateral...........................................................................      56
      Section 8.10    ERISA Information and Compliance.....................................................      57
      Section 8.11    Inspection; Books and Records........................................................      57
ARTICLE IX     NEGATIVE COVENANTS..........................................................................      58
      Section 9.01    Debt.................................................................................      58
      Section 9.02    Liens................................................................................      59
      Section 9.03    Investments, Loans and Advances......................................................      59
      Section 9.04    Dividends, Distributions and Redemptions.............................................      61
      Section 9.05    Sales and Leasebacks.................................................................      61
      Section 9.06    Nature of Business...................................................................      61
      Section 9.07    [Intentionally omitted]..............................................................      61
      Section 9.08    Mergers, Etc.........................................................................      61
      Section 9.09    Proceeds of Notes; Letters of Credit.................................................      61
      Section 9.10    ERISA Compliance.....................................................................      62
      Section 9.11    [Intentionally omitted]..............................................................      63
      Section 9.12    Current Ratio........................................................................      63
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                                TABLE OF CONTENTS
                                   (continued)

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<S>                                                                                                             <C>
      Section 9.13    Fixed Charge Coverage Ratio..........................................................      63
      Section 9.14    Leverage Ratio.......................................................................      63
      Section 9.15    Sale of Oil and Gas Properties.......................................................      64
      Section 9.16    Environmental Matters................................................................      64
      Section 9.17    Transactions with Affiliates.........................................................      64
      Section 9.18    Subsidiaries.........................................................................      64
      Section 9.19    Negative Pledge Agreements...........................................................      64
      Section 9.20    Gas Imbalances, Take-or-Pay or Other Prepayments.....................................      65
      Section 9.21    Subordinated Debt....................................................................      65
      Section 9.22    Hanover Agreements...................................................................      65
      Section 9.23    Permitted Medusa Transactions........................................................      65
ARTICLE X      EVENTS OF DEFAULT; REMEDIES.................................................................      65
      Section 10.01   Events of Default....................................................................      65
      Section 10.02   Remedies.............................................................................      67
ARTICLE XI     THE ADMINISTRATIVE AGENT....................................................................      68
      Section 11.01   Appointment, Powers and Immunities...................................................      68
      Section 11.02   Reliance by Administrative Agent.....................................................      69
      Section 11.03   Defaults.............................................................................      69
      Section 11.04   Rights as a Lender...................................................................      69
      Section 11.05   Indemnification......................................................................      69
      Section 11.06   Non-Reliance on Administrative Agent and other Lenders...............................      70
      Section 11.07   Action by Administrative Agent.......................................................      70
      Section 11.08   Resignation or Removal of Administrative Agent.......................................      70
ARTICLE XII    MISCELLANEOUS...............................................................................      71
      Section 12.01   Waiver...............................................................................      71
      Section 12.02   Notices..............................................................................      71
      Section 12.03   Payment of Expenses, Indemnities, etc................................................      71
      Section 12.04   Amendments, Etc......................................................................      74
      Section 12.05   Successors and Assigns...............................................................      74
      Section 12.06   Assignments and Participations.......................................................      74
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                                TABLE OF CONTENTS
                                   (continued)

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      Section 12.07   Invalidity...........................................................................      76
      Section 12.08   Counterparts.........................................................................      76
      Section 12.09   References; Use of Word "Including"..................................................      76
      Section 12.10   Survival.............................................................................      76
      Section 12.11   Captions.............................................................................      76
      Section 12.12   No Oral Agreements...................................................................      77
      Section 12.13   Governing Law; Submission to Jurisdiction............................................      77
      Section 12.14   Interest.............................................................................      78
      Section 12.15   Confidentiality......................................................................      79
      Section 12.16   Exculpation Provisions...............................................................      79
      Section 12.17   Hedging Agreement Substitution of Collateral.........................................      80
      Section 12.18   Amendment, Restatement and Rearrangement of Prior Debt...............................      80
      Section 12.19   Obligations as Senior Indebtedness; Specified Senior Indebtedness....................      80
</TABLE>

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ANNEXES, EXHIBITS AND SCHEDULES

Annex I       - List of Percentage Shares and Maximum Credit Amounts

Exhibit A     - Form of Note
Exhibit B     - Form of Borrowing, Continuation and Conversion Request
Exhibit C     - Form of Compliance Certificate
Exhibit D     - List of Security Instruments
Exhibit E     - Form of Assignment Agreement

Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 7.22 - Material Agreements
Schedule 7.23 - Gas Imbalances
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances

                                      -vi-
<PAGE>

      THIS CREDIT AGREEMENT dated as of June 14, 2004 is among CALLON PETROLEUM
COMPANY, a corporation formed under the laws of the State of Delaware (the
"Borrower"); each of the lenders that is a signatory hereto or which becomes a
signatory hereto as provided in Section 12.06 (individually, together with its
successors and assigns, a "Lender" and, collectively, the "Lenders"); and UNION
BANK OF CALIFORNIA, N.A., (in its individual capacity, "UBOC"), as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Administrative Agent") and as documentation
agent.

                                 R E C I T A L S

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

      B Pursuant to such request, certain of the Lenders agreed to make such
loans and extensions of credit subject to the terms and conditions of the Prior
Credit Agreement; and

      C The Borrower has now requested (and the Lenders have agreed) that the
Prior Credit Agreement be amended and restated in its entirety in accordance
with the terms and provisions of this Agreement.

      D In consideration of the mutual covenants and agreements herein contained
and of the loans, extensions of credit and commitments hereinafter referred to,
the parties hereto agree that the Prior Credit Agreement is hereby amended and
restated in its entirety to read as follows:

                                   ARTICLE I

                       DEFINITIONS AND ACCOUNTING MATTERS

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

      Section 1.02 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have equivalent meanings
when used in the plural and vice versa):

      "2005 Subordinated Notes" shall mean the 11% Senior Subordinated Notes due
December 15, 2005, issued by Borrower under that certain indenture dated October
26, 2000, between Borrower and American Stock Transfer & Trust Company, as
trustee, as modified, renewed, or supplemented from time to time to the extent
permitted under Sections 9.01 and 9.23 of this Agreement.

      "2010 Senior Notes" shall mean the 9.75% Senior Notes due December 5,
2010, issued by Borrower under that certain indenture dated March 15, 2004,
between Borrower and American Stock Transfer & Trust Company, as trustee, as
modified, renewed, or supplemented from time to time to the extent permitted
under Sections 9.01 and 9.23 of this Agreement.

<PAGE>

      "Additional Costs" shall have the meaning assigned such term in Section
5.01(a).

      "Additional Entrada Assets" shall have the meaning assigned to such term
in Section 8.09(a).

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

      "Affiliate" of any Person shall mean (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person which owns
directly or indirectly 20% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") such corporation or other Person.

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

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

      "Aggregate Maximum Credit Amount" at any time shall equal the sum of the
Maximum Credit Amounts of the Lenders, as the same may be reduced pursuant to
Section 2.03(b). The Aggregate Maximum Credit Amount on the Closing Date shall
be $175,000,000.

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

      "Applicable Margin" shall mean the applicable per annum percentage set
forth at the appropriate intersection in the table shown below, based on the
Borrowing Base Utilization as in effect from time to time:

<TABLE>
<CAPTION>
                                        APPLICABLE MARGIN
                                  ------------------------------
BORROWING BASE UTILIZATION        LIBOR LOANS    BASE RATE LOANS
--------------------------        -----------    ---------------
<S>                               <C>            <C>
Less than 50%                        1.50%            0.00%
</TABLE>

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<TABLE>
<CAPTION>
                                        APPLICABLE MARGIN
                                  ------------------------------
BORROWING BASE UTILIZATION        LIBOR LOANS    BASE RATE LOANS
--------------------------        -----------    ---------------
<S>                               <C>            <C>
Greater than or equal to 50%,        1.75%           0.00%
but less than 80%

Greater than or equal to 80%         2.00%           0.25%
</TABLE>

Each change in the Applicable Margin resulting from a change in the Borrowing
Base Utilization shall take effect on the day such change in the Borrowing Base
Utilization occurs.

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

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

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

      "Beneficiaries" shall mean the Administrative Agent, the Lenders, each
Issuing Bank and each Affiliate of a Lender that is a party to a Hedging
Agreement with the Borrower or any Guarantor.

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

      "Borrowing Base Deficiency" shall occur and be continuing at any time
that, and relate to the amount by which, the sum of the aggregate outstanding
principal amount of the Loans, plus the LC Exposure, exceeds the Borrowing Base.

      "Borrowing Base Properties" means those Oil and Gas Properties of Borrower
and the Guarantors elected by the Borrower to be evaluated for Borrowing Base
purposes and included in the most recent Reserve Report delivered to the Lenders
under this Agreement.

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

      "Change of Control" means the occurrence of any of the following events:
(i) any Person or two or more Persons, other than the Borrower or any Affiliate
of the Borrower, acting as a

                                      -3-
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group shall acquire beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act, and including
holding proxies to vote for the election of directors other than proxies held by
the Borrower's management or their designees to be voted in favor of persons
nominated by the Borrower's Board of Directors) of 40% or more of the
outstanding voting securities of the Borrower, measured by voting power
(including both ordinary shares and any preferred stock or other equity
securities entitling the holders thereof to vote with the holders of common
stock in elections for directors of the Borrower), (ii) the Borrower shall fail
beneficially to own, directly or indirectly, 100% of the outstanding shares of
voting capital stock of any of the Guarantors on a fully-diluted basis, or (iii)
50% or more of the directors of the Borrower shall consist of Persons not
nominated by the Borrower's Board of Directors (not including as Board nominees
any directors which the Board is obligated to nominate pursuant to shareholders
agreements, voting trust arrangements or similar arrangements).

      "Closing Date" shall mean the date on which all conditions precedent
described in Section 6.01 have been satisfied or waived.

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

      "Collateral" shall mean the Property owned by the Borrower and the
Guarantors which is subject to the Liens existing and to exist under the terms
of the Security Instruments.

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

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

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<PAGE>

      "Consolidated Subsidiaries" shall mean each Subsidiary of a Person
(whether now existing or hereafter created or acquired) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of such Person in accordance with GAAP. Unless otherwise indicated,
each reference to the term "Consolidated Subsidiary" shall mean a Subsidiary
consolidated with the Borrower.

      "CPOC" means Callon Petroleum Operating Company, a Delaware corporation.

      "Debt" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (v) all
obligations of such Person under leases treated as operating leases under GAAP
and as a loan or financing for U.S. income tax purposes; (vi) all Debt (as
described in the other clauses of this definition) and other obligations of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person; (vii) all Debt (as described in the other clauses of
this definition) and other obligations of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the debtor or
obligations of others; (viii) all obligations or undertakings of such Person to
maintain or cause to be maintained the financial position or covenants of others
or to purchase the Debt or Property of others; (ix) obligations to deliver goods
or services including Hydrocarbons in consideration of advance payments, except
as permitted by Section 9.20 and disclosed by Section 8.07(c); (x) obligations
to pay for goods or services whether or not such goods or services are actually
received or utilized by such Person; (xi) any capital stock of such Person in
which such Person has a mandatory obligation to redeem such stock, but
excluding, in the case of the Borrower, mandatory obligations to redeem such
stock after September 15, 2004; (xii) any Debt of a Special Entity for which
such Person is liable either by agreement or because of a Governmental
Requirement; (xiii) the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or indirectly
received payment; and (xiv) all obligations of such Person under Hedging
Agreements.

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

      "Deferred Compensation Plan" shall mean the Callon Petroleum Operating
Company Deferred Compensation Plan dated as of December 1, 1996 and the letter
to employees dated December 13, 1996 relating thereto.

      "Deficiency Payment" shall mean, in respect of any Borrowing Base
Deficiency, any payments made by the Borrower during a Deficiency Period for
such Borrowing Base Deficiency equal to either (i) in the case of each such
payment the amount of the Borrowing Base Deficiency on the first day of such
Deficiency Period divided by six (6) or (ii) such other amount as the Majority
Lenders may approve, which when aggregated with the other such

                                      -5-
<PAGE>

payments for such Deficiency Period, are sufficient to reduce the Borrowing Base
Deficiency to zero on or before the final day of such Deficiency Period.

      "Deficiency Period" shall mean any period of time commencing on the date
that the Administrative Agent notifies the Borrower of the existence of a
Borrowing Base Deficiency and ending on the date which is six (6) months
thereafter.

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

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

      "Engineering Reports" shall have the meaning assigned such term in Section
2.08.

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

      "Entrada Field" means any and all Oil and Gas Properties on, under or
related to Garden Banks Blocks 738, 782, 826 and 827 located in the federal
offshore waters of the Gulf of Mexico.

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

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

                                      -6-
<PAGE>

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

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

      "Excepted Liens" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of Oil and Gas
Properties or 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 leases or farmout
agreements for rent or royalties and for compliance with the terms of the
farmout agreements or leases in the case of leasehold estates, to the extent
that any such Lien referred to in this clause does not materially impair the use
of the Property covered by such Lien for the purposes for which such Property is
held by the Borrower or any Subsidiary or materially impair the value of such
Property subject thereto; (v) encumbrances (other than to secure the payment of
borrowed money or the deferred purchase price of Property or services),
easements, restrictions, servitudes, permits, conditions, covenants, exceptions
or reservations in any rights of way or other Property of the Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any rights of
way or other Property which in the aggregate do not materially impair the use of
such rights of way or other Property for the purposes of which such rights of
way and other Property are held by the Borrower or any Subsidiary or materially
impair the value of such Property subject thereto; (vi) deposits of cash or
securities to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the ordinary
course of business; and (vii) Liens permitted by the Security Instruments.

      "Existing Other Debt" shall mean the 2005 Subordinated Notes and the 2010
Senior Notes.

      "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight

                                      -7-
<PAGE>

federal funds transactions with a member of the Federal Reserve System arranged
by federal funds brokers on such day, as published by the Federal Reserve Bank
of New York on the Business Day next succeeding such day, provided that (i) if
the date for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if such rate is not so published for any day, the Federal Funds Rate
for such day shall be the average rate charged to the Administrative Agent on
such day on such transactions as determined by the Administrative Agent.

      "Fee Letter" shall mean that certain letter agreement from UBOC to the
Borrower dated as of June 14, 2004 concerning certain fees in connection with
this Agreement and any agreements or instruments executed in connection
therewith, as the same may be amended or replaced from time to time.

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

      "Funded Debt" shall mean, for any Person the sum (without duplication) of
all Debt of the type described in clauses (i), (iv) and (v) of the definition
thereof.

      "GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.

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

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

      "Guarantors" shall mean CPOC, Callon Offshore Production, Inc., a
Mississippi corporation, and Mississippi Marketing, Inc., a Mississippi
corporation, each a "Guarantor".

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

                                      -8-
<PAGE>

      "Hanover Processing Agreement" shall mean that certain Processing
Agreement dated as of December 14, 2001 by and between CPOC and Hanover
Compression Limited Partnership and an accurate copy of which has been
previously provided to the Lenders.

      "Hanover Sales Documents" shall mean that certain Bill of Sale dated as of
December 14, 2001 and that certain Engineering, Procurement, Construction and
Installation (EPCI) Contract dated as of December 14, 2001 each by and between
CPOC and Hanover Compression Limited Partnership and accurate copies of which
have been previously provided to the Lenders.

      "Hedging Agreements" shall mean any commodity, interest rate or currency
swap, cap, floor, collar, forward agreement (for a term in excess of thirty
days) or other exchange or protection agreements or any option with respect to
any such transaction.

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

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

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

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

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

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

      "Initial Reserve Report" shall mean the report of the Borrower, dated
February 26, 2004, with respect to the Oil and Gas Properties of the Borrower as
of December 31, 2003, a copy of which has been delivered to the Administrative
Agent.

      "Interest Period" shall mean, with respect to any LIBOR Loan, the period
commencing on the date such LIBOR Loan is made and ending on the numerically
corresponding day in the

                                      -9-
<PAGE>

first, second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 2.02 (or such other period as may be requested by
the Borrower and agreed to by the Majority Lenders), except that each Interest
Period which commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month.

      Notwithstanding the foregoing: (i) no Interest Period may end after the
Revolving Credit Termination Date; (ii) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
no Interest Period shall have a duration of less than one month and, if the
Interest Period for any LIBOR Loans would otherwise be for a shorter period,
such Loans shall not be available hereunder.

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

      "LC Commitment" at any time shall mean $20,000,000.

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

      "Letter of Credit Agreements" shall mean the written agreements with the
Issuing Bank, as issuing lender for any Letter of Credit, executed in connection
with the issuance by the Issuing Bank of the Letters of Credit, such agreements
to be on the Issuing Bank's customary form for letters of credit of comparable
amount and purpose as from time to time in effect or as otherwise agreed to by
the Borrower and the Issuing Bank.

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

      "LIBOR" shall mean the rate of interest determined on the basis of the
rate for deposits in Dollars for a period equal to the applicable Interest
Period commencing on the first day of such Interest Period appearing on Dow
Jones Market Service Page 3750 as of 11:00 a.m. (London time) two (2) Business
Days prior to the first day of the applicable Interest Period. In the event that
such rate does not appear on Dow Jones Market Service Page 3750, "LIBOR" shall
be determined by the Administrative Agent to be the rate per annum at which
deposits in Dollars are offered by leading reference banks in the London
interbank market to UBOC at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of the applicable Interest Period for a period equal
to such Interest Period and in an amount substantially equal to the amount of
the applicable Loan.

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

                                      -10-
<PAGE>

      "LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the
Administrative Agent to be equal to the quotient of (i) LIBOR for such Loan for
the Interest Period for such Loan divided by (ii) 1 minus the Reserve
Requirement for such Loan for such Interest Period.

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

      "Loan Documents" shall mean this Agreement, the Notes, all Letters of
Credit, all Letter of Credit Agreements, the Fee Letter and the Security
Instruments.

      "Loans" shall mean the loans as provided for by Section 2.01(a).

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

      "Material Adverse Effect" shall mean any set of circumstances or events
that (i) has or could reasonably be expected to have any material and adverse
effect upon, or result in or reasonably be expected to result in a material
adverse change in, (A) the assets, liabilities, prospects, financial condition,
business, operations or affairs of the Borrower and its Subsidiaries taken as a
whole different from those reflected in the Financial Statements or the
financial statements most recently furnished pursuant to Section 8.01(a) or from
the facts represented or warranted in any Loan Document, or (B) the ability of
the Borrower and its Subsidiaries taken as a whole to carry out their business
as at the Closing Date or as proposed as of the Closing Date to be conducted or
to duly and punctually pay and perform their obligations under any of the Loan
Documents, or (C) the validity, binding effect or enforceability of this
Agreement or any of the other Loan Documents or (ii) impairs materially or could
reasonably be expected to impair materially the ability of the Administrative
Agent or any of the Lenders, to the extent permitted, to enforce its legal
remedies pursuant to the Loan Documents or otherwise available at law or in
equity.

                                      -11-
<PAGE>

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

      "Mortgaged Oil and Gas Property" shall mean any Borrowing Base Property
that is Collateral.

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

      "Notes" shall mean the Notes provided for by Section 2.06, together with
any and all renewals, extensions for any period, increases, rearrangements,
substitutions, amendments, and/or modifications thereof.

      "Obligations" shall mean all indebtedness, obligations and liabilities of
the Borrower to any of the Lenders, any of the Lenders' Affiliates, any Issuing
Bank or the Administrative Agent, individually or collectively, existing on the
date of this Agreement or arising thereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising or incurred under any Hedging
Agreement, under this Agreement or any of the other Loan Documents or in respect
of any of the Loans made or reimbursement obligations incurred or any of the
Notes, Letters of Credit or other instruments at any time evidencing any
thereof, including interest accruing subsequent to the filing of a petition or
other action concerning bankruptcy or other similar proceedings, and all
renewals, extensions, rearrangements, amendments, refinancings, replacements
and/or increases of the foregoing. The term "Obligations" shall include, where
the context refers to "Obligations" of any or all of the Guarantors, all
obligations of any or all of the Guarantors, pursuant to any and all guarantees,
guaranty agreements, and all other instruments, executed by any and all of the
Guarantors, now or in the future, guaranteeing all or any portion of the
"Obligations" of the Borrower.

      "Oil and Gas Properties" shall mean Hydrocarbon Interests; the Properties
now or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of Hydrocarbons from or attributable to such Hydrocarbon Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be on such
premises for the purpose

                                      -12-
<PAGE>

of drilling a well or for other similar temporary uses) and including any and
all oil wells, gas wells, injection wells or other wells, buildings, structures,
fuel separators, liquid extraction plants, plant compressors, pumps, pumping
units, field gathering systems, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing.

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

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

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

      "Permitted Medusa Transaction" means each of the following transactions
now or hereafter undertaken by the Borrower or any Subsidiary with respect to
the development of Oil and Gas Properties related to Mississippi Canyon Blocks
582, 538, 493, 624, 539, and 581 located in the federal offshore waters of the
Gulf of Mexico (the "Medusa Field") in conjunction with the other working
interest owners in the Medusa Field:

            (i) the construction of the gas export line and related facilities
      designed to transport natural gas production from the Medusa Field to
      downstream markets (the "Medusa Gas System"); the conveyance of all or a
      portion thereof to a third party (the "Medusa Gas System Owner") upon
      completion thereof in consideration of the Medusa Field working interest
      owners being reimbursed for all or a portion of their actual costs
      incurred for construction of that portion of the Medusa Gas System so
      conveyed; and the agreement of the Medusa Field working interest owners to
      transport all or a portion of their future gas production from the Medusa
      Field for a gathering fee (which gathering fee may vary based on actual
      throughput) paid to the Medusa Gas System Owner, pursuant to, among other
      things, the documents and agreements listed as items 6 through 18 on
      Schedule 7.22, as the same may be from time to time modified or amended;

            (ii) the construction of the oil export line and related facilities
      designed to transport oil production from the Medusa Field to downstream
      markets (the "Medusa Oil System"); the conveyance of all or a portion
      thereof to a third party (the "Medusa Oil System Owner") upon completion
      thereof in consideration of the Medusa Field working interest owners being
      reimbursed for all or a portion of their actual costs incurred for
      construction of that portion of the Medusa Oil System so conveyed; and the
      agreement of the Medusa Field working interest owners to transport all or
      a portion of their future oil production from the Medusa Field for a
      transportation fee (which transportation fee may vary based on actual
      throughput) paid to the Medusa Oil System Owner, pursuant to, among other
      things, the documents and agreements listed as items 6 through 18 on
      Schedule 7.22, as the same may be from time to time modified or amended;
      and

                                      -13-
<PAGE>

            (iii) the construction of a spar facility ( the "Medusa SPAR") to
      produce and process the Medusa field hydrocarbons; the conveyance of all
      or a portion thereof to an Affiliate or a third party (the "Medusa SPAR
      Owner") upon completion thereof in consideration of the Medusa Field
      working interest owners being reimbursed for all or a portion of their
      actual costs incurred for construction of that portion of the Medusa SPAR
      so conveyed; and the agreement of the Medusa Field working interest owners
      to produce and process all or a portion of their future production from
      the Medusa Field through the Medusa SPAR for a tariff (which tariff may
      vary based on actual throughput) paid to the Medusa SPAR Owner, pursuant
      to, among other things, the documents and agreements listed as items 6
      through 18 on Schedule 7.22, as the same may be from time to time modified
      or amended.

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

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

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

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

      "Principal Office" shall mean the principal office of the Administrative
Agent, presently located at 445 South Figueroa Street, Los Angeles, California
90071.

                                      -14-
<PAGE>

      "Prior Credit Agreement" shall mean that certain First Amended and
Restated Credit Agreement dated as of June 30, 2002 among Callon Petroleum
Company, as borrower, and Wachovia Bank, National Association, as a lender and
administrative agent, and UBOC, as a lender and documentation agent, as amended,
supplemented and modified on or before the Closing Date.

      "Prior Debt" shall mean the outstanding Debt under the Prior Credit
Agreement.

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

      "Quarterly Dates" shall mean the last day of each March, June, September,
and December, in each year, the first of which shall be June 20, 2004.

      "Redetermination Date" shall mean the date that the redetermined Borrowing
Base becomes effective subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled redeterminations.

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

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

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

      "Reserve Report" shall mean a report, in form and substance satisfactory
to the Administrative Agent, setting forth, as of each January 1 (or such other
date in the event of an unscheduled redetermination); (i) the oil and gas
reserves attributable to the Borrowing Base Properties together with a
projection of the rate of production and future net income, taxes, operating
expenses and capital expenditures with respect thereto as of such date, based
upon the pricing assumptions consistent with SEC reporting requirements at the
time and (ii) such other information as the Administrative Agent may reasonably
request. The term "Reserve Report" shall also include the information to be
provided by the Borrower as of April 1, August 1 and October 1 of each year
pursuant to Section 8.07(a).

      "Reserve Requirement" shall mean, for any Interest Period for any LIBOR
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change

                                      -15-
<PAGE>

against (i) any category of liabilities which includes deposits by reference to
which LIBOR is to be determined as provided in the definition of "LIBOR" or (ii)
any category of extensions of credit or other assets which include a LIBOR Loan.

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

      "Revolving Credit Termination Date" shall mean the earlier to occur of (i)
July 31, 2007 or (ii) the date that the Commitments are sooner terminated
pursuant to Sections 2.03(b) or 10.02.

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

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

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

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

      "Subordinated Debt" shall mean any Debt of the Borrower expressly
subordinated to the Obligations, on terms specifically including, without
limitation, that payments on such Debt shall be prohibited if a Default exists
or would result from such payment, and other terms and conditions and pursuant
to documentation, all in form and substance satisfactory to the Majority
Lenders.

      "Subsidiary" shall mean (i) any corporation of which at least a majority
of the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of

                                      -16-
<PAGE>

the happening of any contingency) is at the time directly or indirectly owned or
controlled by another Person or one or more of such Person's Subsidiaries or by
such Person and one or more of its Subsidiaries and (ii) any Special Entity of
which at least a majority of the equity interests are owned, directly or
indirectly or controlled by such Person. Unless otherwise indicated herein, each
reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower.

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

      "Transfer" shall have the meaning assigned such term in Section 9.15.

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

      Section 1.03 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the audited financial statements of the Borrower referred to in Section 7.02
(except for changes concurred with by the Borrower's independent public
accountants).

                                   ARTICLE II

                                   COMMITMENTS

      Section 2.01 Loans and Letters of Credit.

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

            (b) Letters of Credit. During the period from and including the
      Closing Date to, but excluding, the Revolving Credit Termination Date, the
      Issuing Bank, as issuing bank for the Lenders, agrees to extend credit for
      the account of the Borrower or any Guarantor at any time and from time to
      time by issuing, renewing, extending or reissuing Letters of Credit;
      provided, however, the LC Exposure at any one time outstanding shall not
      exceed the lesser of (i) the LC Commitment or (ii) the Aggregate
      Commitments, as then in effect, minus the aggregate principal amount of
      all Loans and the LC Exposure then outstanding. The Lenders shall
      participate in such Letters of Credit according to their respective
      Percentage Shares. Each of the Letters of Credit shall (i) be issued by
      the

                                      -17-
<PAGE>

      Issuing Bank, (ii) contain such terms and provisions as are reasonably
      required by the Issuing Bank, (iii) be for the account of the Borrower and
      (iv) expire not later than the earlier to occur of (A) twenty-four months
      after the date of its issuance and (B) ten (10) days before the Revolving
      Credit Termination Date.

            (c) Limitation on Types of Loans. Subject to the other terms and
      provisions of this Agreement, at the option of the Borrower, the Loans may
      be Base Rate Loans or LIBOR Loans; provided that, without the prior
      written consent of the Majority Lenders, no more than ten (10) LIBOR Loans
      may be outstanding at any time.

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

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

            (b) Minimum Amounts. All Base Rate Loan borrowings shall be in
      amounts of at least $100,000 or the remaining balance of the Aggregate
      Commitments, if less, or any whole multiple of $50,000 in excess thereof,
      and all LIBOR Loans shall be in amounts of at least $500,000 or any whole
      multiple of $100,000 in excess thereof.

            (c) Notices. All borrowings, continuations and conversions shall
      require advance written notice to the Administrative Agent (which shall
      promptly notify the Lenders) in the form of Exhibit B (or telephonic
      notice promptly confirmed by such a written notice), which in each case
      shall be irrevocable, from the Borrower to be received by the
      Administrative Agent not later than 10:00 a.m. Los Angeles, California
      time (i) on the date of each Base Rate Loan borrowing and (ii) three
      Business Days prior to the date of each LIBOR Loan borrowing, continuation
      or conversion. Without in any way limiting the Borrower's obligation to
      confirm in writing any telephonic notice, the Administrative Agent may act
      without liability upon the basis of telephonic notice believed by the
      Administrative Agent in good faith to be from the Borrower prior to
      receipt of written confirmation. In each such case, the Borrower hereby
      waives the right to dispute the Administrative Agent's record of the terms
      of such telephonic notice except in the case of gross negligence or
      willful misconduct by the Administrative Agent.

            (d) Continuation Options. Subject to the provisions made in this
      Section 2.02(d), the Borrower may elect to continue all or any part of any
      LIBOR Loan beyond the expiration of the then current Interest Period
      relating thereto by giving advance notice as provided in Section 2.02(c)
      to the Administrative Agent (which shall promptly notify the Lenders) of
      such election, specifying the amount of such Loan to be continued and the
      Interest Period therefor. In the absence of such a timely and proper
      election, the Borrower shall be deemed to have elected to convert such
      LIBOR Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any
      part of any LIBOR Loan may be continued as provided herein, provided that
      (i) any continuation of any such Loan shall be (as to each Loan as
      continued for an applicable Interest Period) in amounts of at least
      $500,000 or any whole multiple of $100,000 in excess thereof and (ii) no
      Default shall have

                                      -18-
<PAGE>

      occurred and be continuing. If a Default shall have occurred and be
      continuing, each LIBOR Loan shall be converted to a Base Rate Loan on the
      last day of the Interest Period applicable thereto.

            (e) Conversion Options. The Borrower may elect to convert all or any
      part of any LIBOR Loan on the last day of the then current Interest Period
      relating thereto to a Base Rate Loan by giving advance notice to the
      Administrative Agent (which shall promptly notify the Lenders) of such
      election. Subject to the provisions made in this Section 2.02(e), the
      Borrower may elect to convert all or any part of any Base Rate Loan at any
      time and from time to time to a LIBOR Loan by giving advance notice as
      provided in Section 2.02(c) to the Administrative Agent (which shall
      promptly notify the Lenders) of such election. All or any part of any
      outstanding Loan may be converted as provided herein, provided that (i)
      any conversion of any Base Rate Loan into a LIBOR Loan shall be (as to
      each such Loan into which there is a conversion for an applicable Interest
      Period) in amounts of at least $500,000 or any whole multiple of $100,000
      in excess thereof and (ii) no Default shall have occurred and be
      continuing. If a Default shall have occurred and be continuing, no Base
      Rate Loan may be converted into a LIBOR Loan.

            (f) Advances. Not later than 11:00 a.m. Los Angeles, California time
      on the date specified for each borrowing hereunder, each Lender shall make
      available the amount of the Loan to be made by it on such date to the
      Administrative Agent, to an account which the Administrative Agent shall
      specify, in immediately available funds, for the account of the Borrower.
      The amounts so received by the Administrative Agent shall be made
      available to Borrower by depositing the same, in immediately available
      funds, in an account of the Borrower, designated by the Borrower.

            (g) Letters of Credit.

                  (i) The Borrower shall give the Issuing Bank (which shall
      promptly notify the Lenders of such request and their Percentage Share of
      such Letter of Credit, with a copy to the Administrative Agent) advance
      notice to be received by the Issuing Bank not later than 11:00 a.m. Los
      Angeles, California time not less than three (3) Business Days prior
      thereto of each request for the issuance, and at least three (3) Business
      Days prior to the date of the renewal or extension, of a Letter of Credit
      hereunder which request shall specify (i) the amount of such Letter of
      Credit which shall be at least $50,000, (ii) the date (which shall be a
      Business Day) such Letter of Credit is to be issued, renewed or extended,
      (iii) the duration thereof, (iv) the name and address of the beneficiary
      thereof, (v) the type of the Letter of Credit and (vi) such other
      information as the Issuing Bank may reasonably request, all of which shall
      be reasonably satisfactory to the Issuing Bank. Subject to the terms and
      conditions of this Agreement, on the date specified for the issuance,
      renewal or extension of a Letter of Credit, the Issuing Bank shall issue,
      renew or extend such Letter of Credit to the beneficiary thereof.

                  (ii) In conjunction with the issuance of each Letter of
      Credit, the Borrower and the applicable Guarantor, if the account party,
      shall execute a Letter of Credit Agreement. In the event of any conflict
      between any provision of a Letter of Credit Agreement and this Agreement,
      the Borrower, the Issuing Bank, the

                                      -19-
<PAGE>

      Administrative Agent and the Lenders hereby agree that the provisions of
      this Agreement shall govern.

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

      Section 2.03 Changes of Commitments.

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

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

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

      Section 2.04 Fees.

            (a) Commitment Fee. The Borrower shall pay to the Administrative
      Agent for the account of each Lender a commitment fee on the daily unused
      amount of the Aggregate Commitments for the period from and including the
      Closing Date up to, but excluding, the earlier of the date the Aggregate
      Commitments are terminated or the Revolving Credit Termination Date at a
      rate per annum equal to the rate set forth at the appropriate intersection
      in the table set forth below:

<TABLE>
<CAPTION>
BORROWING BASE UTILIZATION         RATE
--------------------------         ----
<S>                               <C>
Less than 80%                     0.375%

Greater than or equal to 80%      0.250%
</TABLE>

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

                                      -20-
<PAGE>

            (b) Letter of Credit Fees.

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

                  (ii) The Issuing Bank, for its own account, shall receive
      0.125% of the face amount of each Letter of Credit as an issuing fee.

                  (iii) The Borrower agrees to pay concurrently with each
      issuance, negotiation, drawing, or amendment of each Letter of Credit, to
      the Issuing Bank for the sole account of the Issuing Bank, issuance,
      negotiation, drawing and amendment fees in the amounts set forth from time
      to time as the Issuing Bank's published scheduled fees for such services.

            (c) Fee Letter. The Borrower shall pay to the Administrative Agent
      such other fees as are set forth in the Fee Letter on the dates and in the
      amounts specified therein.

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

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

                                      -21-
<PAGE>

or the Borrower's rights or obligations in respect of such Loans or affect the
validity of such transfer by any Lender of its Note.

      Section 2.07 Prepayments.

            (a) Voluntary Prepayments. The Borrower may prepay the Base Rate
      Loans upon not less than one (1) Business Day's prior notice to the
      Administrative Agent (which shall promptly notify the Lenders), which
      notice shall specify the prepayment date (which shall be a Business Day)
      and the amount of the prepayment (which shall be at least $100,000 or the
      remaining aggregate principal balance outstanding on the Notes) and shall
      be irrevocable and effective only upon receipt by the Administrative
      Agent, provided that interest on the principal prepaid, accrued to the
      prepayment date, shall be paid on the prepayment date. The Borrower may
      prepay LIBOR Loans on the same conditions as for Base Rate Loans (except
      that prior notice to the Administrative Agent shall be not less than three
      (3) Business Days for LIBOR Loans) and in addition such prepayments of
      LIBOR Loans shall be subject to the terms of Section 5.05 and shall be in
      an amount equal to all of the LIBOR Loans for the Interest Period prepaid
      provided that interest on the principal prepaid accrued to the prepayment
      date, shall be paid on the prepayment date.

            (b) Mandatory Prepayments.

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

                  (ii) Upon any redetermination of the amount of the Borrowing
      Base in accordance with Section 2.08, if the redetermined Borrowing Base
      results in a Borrowing Base Deficiency, then the Borrower shall within
      thirty (30) days of receipt of written notice thereof either: (A) prepay
      the Loans (and provide cash collateral for the Letters of Credit) in an
      aggregate principal amount equal to the Borrowing Base Deficiency,
      together with interest on the principal amount paid accrued to the date of
      such prepayment; or (B) the Borrower shall notify the Administrative Agent
      (which will promptly notify the Lenders) in writing of the Borrower's
      election to initiate a Deficiency Period during which it will eliminate
      such Borrowing Base Deficiency by making six (6) consecutive monthly
      Deficiency Payments, the first of such payments being due and payable with
      the delivery to the Administrative Agent of such notice and each of the
      remaining payments due and payable on the same day of each month
      thereafter during the Deficiency Period; provided however, in the event of
      an acceleration of the maturity of the Notes pursuant to Section 10.02
      hereof, such acceleration shall also accelerate the maturity of all
      outstanding and unpaid Deficiency Payments. All payments under this

                                      -22-
<PAGE>

      subsection (ii), whether a single payment under clause (A) or monthly
      Deficiency Payments under clause (B), shall be applied in the order of
      priority specified in Section 3.03, and any payments required by Section
      3.03(a)(iii) to be held as cash collateral shall be held in accordance
      with Section 2.10(b).

            (c) Generally. Prepayments permitted or required under this Section
      2.07 shall be without premium or penalty, except as required under Section
      5.05 for prepayment of LIBOR Loans. Any prepayments on the Loans may be
      reborrowed subject to the then effective Aggregate Commitments.

      Section 2.08 Borrowing Base.

            (a) The Borrowing Base shall be determined in accordance with
      Section 2.08(b) by the Administrative Agent with the concurrence of the
      Lenders and is subject to redetermination in accordance with Section
      2.08(d). Upon any redetermination of the Borrowing Base, such
      redetermination shall remain in effect until the next successive
      Redetermination Date. So long as any of the Commitments are in effect or
      any LC Exposure or Loans are outstanding hereunder, this facility shall be
      governed by the then effective Borrowing Base. During the period from and
      after the Closing Date until the first redetermination pursuant to Section
      2.08(d) or adjusted pursuant to Section 8.08(c), the amount of the
      Borrowing Base shall be $60,000,000.

            (b) Upon receipt of the reports required by Section 8.07 and
      such other reports, data and supplemental information as may from time to
      time be reasonably requested by the Administrative Agent (the "Engineering
      Reports"), the Administrative Agent will redetermine the Borrowing Base.
      Such redetermination will be in accordance with its normal and customary
      procedures for evaluating oil and gas reserves and other related assets as
      such exist at that particular time, and the Administrative Agent, in its
      sole discretion, may make adjustments to the rates, volumes and prices and
      other assumptions set forth therein in accordance with its normal and
      customary procedures for evaluating oil and gas reserves and other related
      assets as such exist at that particular time. The Administrative Agent
      shall propose to the Lenders a new Borrowing Base within 14 days following
      receipt by the Administrative Agent and the Lenders of the Engineering
      Reports in a timely and complete manner. After having received notice of
      such proposal by the Administrative Agent, the Lenders shall have 14 days
      to agree or disagree with such proposal. Any Lenders that have not
      communicated their approval or disapproval at the end of the 14 days shall
      be deemed to have approved the Administrative Agent's proposal of the
      redetermined Borrowing Base. To the extent that within such 14 days the
      Administrative Agent has not received the requisite number of approvals
      from the Lenders of the redetermined Borrowing Base, the requisite number
      of Lenders shall, within a reasonable period of time, agree on a new
      Borrowing Base. Any increase in the Borrowing Base must be approved by the
      Administrative Agent and all of the Lenders and any decrease in or
      reaffirmation of the existing Borrowing Base must be approved by the
      Majority Lenders.

            (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

                                      -23-
<PAGE>
      Borrowing Base, at any time, because title information is not reasonably
      satisfactory, such Property is not Collateral or such Property is not
      assignable.

            (d) So long as any of the Commitments are in effect and until
      payment in full of all Loans hereunder, on or around the first Business
      Day of August 2004, October 2004, January 2005 and April 2005 and
      thereafter on or around the first Business Day of each April and October,
      commencing October, 2005 (each being a "Scheduled Redetermination Date"),
      the Lenders shall redetermine the amount of the Borrowing Base in
      accordance with Section 2.08(b). In addition, (i) the Borrower may
      initiate a redetermination of the Borrowing Base at any other time as it
      so elects by specifying in writing to the Administrative Agent (who will
      promptly notify the Lenders) the date by which the Borrower will furnish
      to the Administrative Agent and the Lenders a Reserve Report in accordance
      with Section 8.07(b) and the date by which such redetermination is
      requested to occur; provided, however, that the Borrower may initiate only
      one such unscheduled redetermination between Scheduled Redetermination
      Dates during the first twelve (12) months after the Closing Date and
      thereafter, may initiate only one such unscheduled redetermination per
      year and (ii) the Majority Lenders may initiate a redetermination of the
      Borrowing Base at any other time as they so elect by specifying in writing
      to the Borrower the date by which the Borrower is to furnish a Reserve
      Report in accordance with Section 8.07(b) and the date on which such
      redetermination is to occur; provided, however, that the Majority Lenders
      may initiate only one such unscheduled redetermination
      between Scheduled Redetermination Dates during the first twelve (12)
      months after the Closing Date and thereafter, may initiate only one such
      unscheduled redetermination per year.

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

      Section 2.09 Assumption of Risks. The Borrower assumes all risks of the
acts or omissions of any beneficiary of any Letter of Credit or any transferee
thereof with respect to its use of such Letter of Credit. Neither the Issuing
Bank (except in the case of gross negligence or willful misconduct on the part
of the Issuing Bank or any of its employees), its correspondents nor any Lender
shall be responsible for the validity, sufficiency or genuineness of
certificates or other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Issuing
Bank's control or the control of the Issuing Bank's correspondents (INCLUDING
THE ISSUING BANK'S OWN NEGLIGENCE). In addition, neither the Issuing Bank, the
Administrative Agent nor any Lender shall be responsible for any error, neglect,
or default of any of the Issuing Bank's correspondents; and none of the above
shall affect, impair or prevent

                                      -24-
<PAGE>

the vesting of any of the Issuing Bank's, the Administrative Agent's or any
Lender's rights or powers hereunder or under the Letter of Credit Agreements,
all of which rights shall be cumulative. The Issuing Bank and its correspondents
may accept certificates or other documents that appear on their face to be in
order, without responsibility for further investigation of any matter contained
therein regardless of any notice or information to the contrary. In furtherance
and not in limitation of the foregoing provisions, the Borrower agrees that any
action, inaction or omission taken or not taken by the Issuing Bank or by any
correspondent for the Issuing Bank in good faith in connection with any Letter
of Credit, or any related drafts, certificates, documents or instruments, shall
be binding on the Borrower and shall not put the Issuing Bank or its
correspondents under any resulting liability to the Borrower.

      Section 2.10 Obligation to Reimburse and to Prepay.

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

                                      -25-
<PAGE>

      Notwithstanding anything in this Agreement to the contrary, the Borrower
      will not be liable for payment or performance that results from the gross
      negligence or willful misconduct of the Issuing Bank, except where the
      Borrower or any Subsidiary actually recovers the proceeds for itself or
      the Issuing Bank of any payment made by the Issuing Bank in connection
      with such gross negligence or willful misconduct.

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

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

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

                                      -26-
<PAGE>

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

                                  ARTICLE III

                       PAYMENTS OF PRINCIPAL AND INTEREST

      Section 3.01 Repayment of Principal.

            (a) Loans. On the Revolving Credit Termination Date the Borrower
      shall repay the outstanding aggregate principal of the Loans and the Notes
      evidencing the Loans.

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

      Section 3.02 Payment of Interest.

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

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

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

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

            (c) Due Dates. Accrued interest on Base Rate Loans shall be payable
      on each Quarterly Date commencing on June 28, 2004, and accrued interest
      on each LIBOR Loan shall be payable on the last day of the Interest Period
      therefor and, if such Interest Period is longer than three months at
      three-month intervals following the first day of such Interest Period,
      except that interest payable at the Post-Default Rate shall be payable
      from time to time on demand and interest on any LIBOR Loan that is
      converted into a Base Rate Loan (pursuant to Section 5.04) shall be
      payable on the date of conversion (but only to the extent so converted).
      Any accrued and unpaid interest on the Loans on the Revolving Credit
      Termination Date shall be paid on such date.

                                      -27-
<PAGE>

            (d) Determination of Rates. Promptly after the determination of any
      interest rate provided for herein or any change therein, the
      Administrative Agent shall notify the Lenders to which such interest is
      payable and the Borrower thereof. Each determination by the Administrative
      Agent of an interest rate or fee hereunder shall, except in cases of
      manifest error, be final, conclusive and binding on the parties.

      Section 3.03 Payment Waterfall. Notwithstanding any other provision in
this Agreement or any other Loan Document to the contrary:

            (a) Whenever the Borrower (or any Guarantor) pays or is required to
      make payments on the Obligations, or whenever any Lender receives (and
      such funds were not received from the Administrative Agent in accordance
      with the priorities established by this Section 3.03) or has the right to
      receive funds to be applied to the Obligations (whether in bankruptcy,
      pursuant to Section 4.05, or otherwise), or whenever the Administrative
      Agent holds proceeds of collection or other funds to be applied to the
      Obligations, in each case whether before or after maturity (and
      notwithstanding any bankruptcy, insolvency, or any other proceeding), such
      payments shall be made and such proceeds and other funds shall be applied
      in the following order of priority:

                  (i) first, to reimbursements of expenses and payment of
      indemnities due and owing at the time in question to the Administrative
      Agent or the Lenders under this Agreement and the other Loan Documents;

                  (ii) second, to accrued interest (including, without
      limitation, interest which may accrue subsequent to Borrower or any
      Guarantor becoming subject to any state or federal debtor-relief statute),
      fees, and principal then due and owing to the Lenders (whether such
      principal is due and owing at maturity, due to acceleration, or due to a
      reduction in the Borrowing Base, or for any reason), together with any
      payments then due and owing to the Lenders or their Affiliates under
      Hedging Agreements permitted hereunder;

                  (iii) third, to the extent expressly required at such time
      under Section 2.10(b), to serve as cash collateral to be held by the
      Administrative Agent to secure the LC Exposure;

                  (iv) fourth, to the prepayment of principal on the Loans until
      they are paid in full;

                  (v) fifth, to the pro rata payment of all other Obligations;
      and

                  (vi) last, any excess shall be paid to the Borrower or as
      otherwise required by any Governmental Requirement.

            (b) Payments must be made in accordance with the foregoing order of
      priority whether or not the Borrower provides sufficient funds to make all
      payments due on the Obligations at the time in question, but compliance
      with such order of priority does not relieve the Borrower of its duty to
      make all payments of the Obligations whenever they

                                      -28-
<PAGE>

      become due and any breach of such duty shall constitute an Event of
      Default or Default as provided in Section 10.01.

            (c) Should any Lender receive any funds to be applied to the
      Obligations from any source whatsoever (whether in bankruptcy, pursuant to
      Section 4.05, or otherwise) and such funds have not been distributed to
      the Lenders in accordance with the provisions of this Section 3.03, such
      funds shall immediately be paid to the Administrative Agent who shall
      distribute such funds in accordance with the provisions of this Section
      3.03. The Lenders grant to the Administrative Agent the right to enforce,
      collect and receive any such payment or distribution and to give releases
      or acquittances therefor, subject, however to the express provisions
      contained in this Agreement permitting all or certain Lenders to direct
      the Administrative Agent to act or refrain from acting; provided, however,
      that nothing contained in this section shall prohibit the Lenders from
      suing for collections of principal on the Notes at maturity or for
      collection of interest on the Notes provided that the Administrative Agent
      has not already commenced such suits, and provided that the Lenders have
      the right to bring such suits under the provisions of this Agreement
      including, without limitation, all provisions under Section 10.02;
      provided that if any sums are collected by any of the Lenders, they will
      be paid to the Administrative Agent for payment and distribution in
      accordance with Section 3.03.

                                   ARTICLE IV

                PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.

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

      Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein each Lender agrees that: (i) each borrowing from the Lenders under
Section 2.01 and each continuation and conversion under Section 2.02 shall be
made from the Lenders pro rata in

                                      -29-
<PAGE>

accordance with their Percentage Share, each payment of commitment fee under
Section 2.04(a) shall be made for account of the Lenders pro rata in accordance
with their Percentage Share, and each termination or reduction of the amount of
the Aggregate Maximum Credit Amounts under Section 2.03(b) shall be applied to
the Commitment of each Lender, pro rata according to the amounts of its
respective Commitment; (ii) each payment of principal of Loans by the Borrower
shall be made for account of the Lenders pro rata in accordance with the
respective unpaid principal amount of the Loans held by the Lenders; and (iii)
each payment of interest on Loans by the Borrower shall be made for account of
the Lenders pro rata in accordance with the amounts of interest due and payable
to the respective Lenders; and (iv) each reimbursement by the Borrower of
disbursements under Letters of Credit shall be made for account of the Issuing
Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in
accordance with the amounts of reimbursement obligations due and payable to each
respective Lender.

      Section 4.03 Computations. Interest on LIBOR Loans and fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which such
interest is payable, unless such calculation would exceed the Highest Lawful
Rate, in which case interest shall be calculated on the per annum basis of a
year of 365 or 366 days, as the case may be. Interest on Base Rate Loans shall
be computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.

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

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

            (a) The Borrower agrees that, in addition to (and without limitation
      of) any right of set-off, bankers' lien or counterclaim a Lender may
      otherwise have, each Lender shall have the right and be entitled (after
      consultation with the Administrative Agent), at its option, to offset
      balances held by it or by any of its Affiliates for account of the

                                      -30-
<PAGE>

      Borrower or any Guarantor at any of its offices, in Dollars or in any
      other currency, against any principal of or interest on any of such
      Lender's Loans, or any other amount payable to such Lender hereunder,
      which is not paid when due after the passage of any applicable grace
      periods (regardless of whether such balances are then due to the
      Borrower), in which case it shall promptly notify the Borrower and the
      Administrative Agent thereof, provided that such Lender's failure to give
      such notice shall not affect the validity thereof.

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

      Section 4.06 Taxes.

            (a) Payments Free and Clear. Any and all payments by the Borrower
      hereunder shall be made, in accordance with Section 4.01, free and clear
      of and without deduction for any and all present or future taxes, levies,
      imposts, deductions, charges or withholdings, and all liabilities with
      respect thereto, excluding, in the case of each Lender, the Issuing Bank
      and the Administrative Agent, taxes imposed on its income, and franchise
      or similar taxes imposed on it, by (i) any jurisdiction (or political
      subdivision

                                      -31-
<PAGE>

      thereof) of which the Administrative Agent, the Issuing Bank or such
      Lender, as the case may be, is a citizen or resident or in which such
      Lender has an Applicable Lending Office, (ii) the jurisdiction (or any
      political subdivision thereof) in which the Administrative Agent, the
      Issuing Bank or such Lender is organized, or (iii) any jurisdiction (or
      political subdivision thereof) in which such Lender, the Issuing Bank or
      the Administrative Agent is presently doing business which taxes are
      imposed solely as a result of doing business in such jurisdiction (all
      such non-excluded taxes, levies, imposts, deductions, charges,
      withholdings and liabilities being hereinafter referred to as "Taxes"). If
      the Borrower shall be required by law to deduct any Taxes from or in
      respect of any sum payable hereunder to the Lenders, the Issuing Bank or
      the Administrative Agent (i) the sum payable shall be increased by the
      amount necessary so that after making all required deductions (including
      deductions applicable to additional sums payable under this Section 4.06)
      such Lender, the Issuing Bank or the Administrative Agent (as the case may
      be) shall receive an amount equal to the sum it would have received had no
      such deductions been made, (ii) the Borrower shall make such deductions
      and (iii) the Borrower shall pay the full amount deducted to the relevant
      taxing authority or other Governmental Authority in accordance with
      applicable law.

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

            (C) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
      LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE
      ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES
      (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
      GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY
      SUCH LENDER, THE ISSUING BANK OR THE ADMINISTRATIVE AGENT (ON THEIR BEHALF
      OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY
      (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH
      RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY
      OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR
      LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES
      WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT
      PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS
      AFTER THE DATE ANY LENDER, THE ISSUING BANK OR THE ADMINISTRATIVE AGENT,
      AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER, THE
      ISSUING BANK OR THE ADMINISTRATIVE AGENT RECEIVES A REFUND OR CREDIT IN
      RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING BANK OR
      THE ADMINISTRATIVE AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL
      PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO
      DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER
      RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE
      BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT
      HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER

                                      -32-
<PAGE>

      WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED
      THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER, THE ISSUING BANK OR
      THE ADMINISTRATIVE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS
      PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE ADMINISTRATIVE
      AGENT IN THE EVENT SUCH LENDER OR THE ADMINISTRATIVE AGENT IS REQUIRED TO
      REPAY SUCH REFUND OR CREDIT.

            (d) Lender Representations.

                  (i) Each Lender represents that it is either (A) not a
      "foreign person" as such term is defined in U.S. Treasury Regulations
      Section 1.1441-1(c)(2) or (B) it is entitled to complete exemption from
      United States withholding tax imposed on or with respect to any payments,
      including fees, to be made to it pursuant to this Agreement (1) under an
      applicable provision of a tax convention to which the United States of
      America is a party or (2) because it is acting through a branch, agency or
      office in the United States of America and any payment to be received by
      it hereunder is effectively connected with a trade or business in the
      United States of America. Each Lender that is a "foreign person" as such
      term is defined in U.S. Treasury Regulations Section 1.441-1(c)(2) agrees
      to provide to the Borrower and the Administrative Agent on the Closing
      Date, or on the date of its delivery of the Assignment pursuant to which
      it becomes a Lender, and at such other times as required by United States
      law or as the Borrower or the Administrative Agent shall reasonably
      request, two accurate and complete original signed copies of either (y)
      Internal Revenue Service Form W-8ECI (or successor form) certifying that
      all payments to be made to it hereunder will be effectively connected to a
      United States trade or business (the "Form W-8ECI Certification") or (z)
      Internal Revenue Service Form W-8BEN (or successor form) certifying that
      it is entitled to the benefit of a provision of a tax convention to which
      the United States of America is a party which completely exempts from
      United States withholding tax all payments to be made to it hereunder (the
      "Form W-8BEN Certification"). In addition, each Lender agrees that if it
      previously filed a Form W-8ECI Certification, it will deliver to the
      Borrower and the Administrative Agent a new Form W-8ECI Certification
      prior to the first payment date occurring in each of its subsequent
      taxable years; and if it previously filed a Form W-8BEN Certification, it
      will deliver to the Borrower and the Administrative Agent a new
      certification prior to the first payment date falling in the third year
      following the previous filing of such certification. Each Lender also
      agrees to deliver to the Borrower and the Administrative Agent such other
      or supplemental forms as may at any time be required as a result of
      changes in applicable law or regulation in order to confirm or maintain in
      effect its entitlement to exemption from United States withholding tax on
      any payments hereunder, provided that the circumstances of such Lender at
      the relevant time and applicable laws permit it to do so. If a Lender
      determines, as a result of any change in either (i) a Governmental
      Requirement or (ii) its circumstances, that it is unable to submit any
      form or certificate that it is obligated to submit pursuant to this
      Section 4.06, or that it is required to withdraw or cancel any such form
      or certificate previously submitted, it shall promptly notify the Borrower
      and the Administrative Agent of such fact. If a Lender is organized under
      the laws of a jurisdiction outside the United States of America, unless
      the Borrower and the Administrative Agent have received a Form W-8BEN
      Certification or Form W-8ECI

                                      -33-
<PAGE>

      Certification satisfactory to them indicating that all payments to be made
      to such Lender hereunder are not subject to United States withholding tax,
      the Borrower shall withhold taxes from such payments at the applicable
      statutory rate. Each Lender agrees to indemnify and hold harmless the
      Borrower or Administrative Agent, as applicable, from any United States
      taxes, penalties, interest and other expenses, costs and losses incurred
      or payable by (i) the Administrative Agent as a result of such Lender's
      failure to submit any form or certificate that it is required to provide
      pursuant to this Section 4.06 or (ii) the Borrower or the Administrative
      Agent as a result of their reliance on any such form or certificate which
      such Lender has provided to them pursuant to this Section 4.06.

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

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

      Section 4.07 Disposition of Proceeds. Certain of the Security Instruments
contain an assignment by the Borrower and the Guarantors, as the case may be,
unto and in favor of the Agent for the benefit of the Lenders of all Hydrocarbon
production and all proceeds attributable thereto which may be produced from or
allocated to the Mortgaged Oil and Gas Properties, and further provides in
general for the application of such proceeds to the satisfaction of the
Obligations and any other obligations described therein and secured thereby.
Notwithstanding the assignment contained in such Security Instruments, until the
occurrence of an Event of Default, the Lenders agree that they will neither
notify the purchaser or purchasers of such production nor take any other action
to cause such proceeds to be remitted to the Lenders, but the Lenders will
instead permit such proceeds to be paid to the Borrower and the Guarantors, as
the case may be.

                                      -34-
<PAGE>

                                   ARTICLE V

                      CAPITAL ADEQUACY AND YIELD PROTECTION

      Section 5.01 Additional Costs.

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

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

                                      -35-
<PAGE>

      circumstances ceases to be in effect (in which case the provisions of
      Section 5.04 shall be applicable).

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

            (d) Compensation Procedure. Any Lender notifying the Borrower of the
      incurrence of Additional Costs under this Section 5.01 shall in such
      notice to the Borrower and the Administrative Agent set forth in
      reasonable detail the basis and amount of its request for compensation.
      Determinations and allocations by each Lender for purposes of this Section
      5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) or
      (b), or of the effect of capital maintained pursuant to Section 5.01(c),
      on its costs or rate of return of maintaining Loans or its obligation to
      make Loans or issue Letters of Credit, or on amounts receivable by it in
      respect of Loans or Letters of Credit, and of the amounts required to
      compensate such Lender under this Section 5.01, shall be conclusive and
      binding for all purposes, provided that such determinations and
      allocations are made on a reasonable basis. Any request for additional
      compensation under this Section 5.01 shall be paid by the Borrower within
      thirty (30) days of the receipt by the Borrower of the notice described in
      this Section 5.01(d).

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

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

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

                                      -36-
<PAGE>

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

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

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

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

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

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

Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in

                                      -37-
<PAGE>

amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by such Lender).

      Section 5.06 Time Limit; Etc.

            (a) Time Limited. Notwithstanding anything to the contrary contained
      in Sections 5.01 through 5.05, the Borrower shall not be required to
      reimburse or pay any costs or expenses to any Lender as required by such
      sections which have accrued more than 180 days prior to such Lender's
      giving notice to the Borrower that such Lender has suffered or incurred
      such costs or expenses.

            (b) Non Discriminatory Basis. None of the Lenders shall be permitted
      to pass through to the Borrower costs and expenses under Sections 5.01
      through 5.05 which are not also passed through by such Lender to other
      customers of such Lender similarly situated when such customer is subject
      to documents containing similar provisions as those contained in such
      Sections.

      Section 5.07 Replacement Lenders.

            (a) Terminated Lenders. If any Lender has notified the Borrower and
      the Administrative Agent of its incurring Additional Costs under Section
      5.01 or has required the Borrower to make payments for Taxes under Section
      4.06 or it is unable to make LIBOR Loans under Section 5.03, then the
      Borrower may, unless such Lender has notified the Borrower and the
      Administrative Agent that the circumstances giving rise to such notice no
      longer apply, terminate, in whole but not in part, the Commitment of any
      Lender (other than the Administrative Agent) (the "Terminated Lender") at
      any time upon five (5) Business Days' prior written notice to the
      Terminated Lender and the Administrative Agent (such notice referred to
      herein as a "Notice of Termination").

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

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

                                      -38-
<PAGE>

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

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

      Section 6.01 Initial Funding. The obligation of the Lenders to make the
Initial Funding is subject to the receipt by the Administrative Agent and the
Lenders of all fees due and payable pursuant to Section 2.04 on or before the
Closing Date and the receipt by the Administrative Agent of the following
documents (in sufficient original counterparts, other than the Notes, for each
Lender) and satisfaction of the other conditions provided in this Section 6.01,
each of which shall be satisfactory to the Administrative Agent in form and
substance:

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

                                      -39-
<PAGE>

      certificate until the Administrative Agent receives notice in writing from
      the Borrower to the contrary.

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

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

            (d) The Notes, duly completed and executed.

            (e) The Security Instruments, including those described on Exhibit
      D, duly completed and executed in sufficient number of counterparts for
      recording, if necessary.

            (f) An opinion of Haynes and Boone, LLP, counsel to the Borrower and
      the Guarantors, in form and substance satisfactory to the Administrative
      Agent and its counsel, as to such matters incident to the transactions
      herein contemplated as the Administrative Agent and its counsel may
      reasonably request. An opinion of Simon, Peragrine, Smith & Redfearn,
      L.L.P., Louisiana counsel, and an opinion of Alabama counsel satisfactory
      to the Administrative Agent and its counsel, in form and substance
      satisfactory to the Administrative Agent and its counsel, as to such
      matters incident to the transactions herein contemplated as the
      Administrative Agent and its counsel may reasonably request including,
      without limitation, opinions that all mortgage taxes have been properly
      paid.

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

            (h) Title information satisfactory to the Administrative Agent
      setting forth a status of title acceptable to the Administrative Agent to
      at least 80% of the value of the Oil and Gas Properties included in the
      Initial Reserve Report.

            (i) Appropriate UCC search certificates reflecting no prior Liens
      other than those permitted pursuant to Section 9.02.

            (j) Environmental assessment reports relating to the Oil and Gas
      Properties of the Borrower and the Subsidiaries as may be requested by the
      Administrative Agent,

                                      -40-
<PAGE>

      including environmental audits, phase I reports or other environmental
      reports of any nature whatsoever (whether prepared internally or by third
      party consultants); and the Administrative Agent must be satisfied with
      the results of the review of such reports and environmental condition of
      such Oil and Gas Properties.

            (k) Letters in lieu, in form and substance satisfactory to the
      Administrative Agent, executed by the Borrower and each Subsidiary, as
      appropriate, to each of the purchasers of the Hydrocarbons of the Borrower
      and each such Guarantor produced from the Borrower's and such Guarantors'
      Mortgaged Oil and Gas Properties.

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

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

            (a) no Default shall exist;

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

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

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

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

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

                                      -41-
<PAGE>

                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

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

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

      Section 7.02 Financial Condition. The audited consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as at December 31, 2003 and
the related consolidated statement of income, stockholders' equity and cash flow
of the Borrower and its Consolidated Subsidiaries for the fiscal year ended on
said date, with the opinion thereon of Ernst & Young LLP heretofore furnished to
the Administrative Agent and the unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at March 31, 2004 and their
related consolidated statements of income, stockholders' equity and cash flow of
the Borrower and its Consolidated Subsidiaries for the three month period ended
on such date heretofore furnished to the Administrative Agent, are complete and
correct in all material respects and fairly present the consolidated financial
condition of the Borrower and its Consolidated Subsidiaries as at said dates and
the results of its operations for the fiscal year and the three month period
ending on said dates, all in accordance with GAAP, as applied on a consistent
basis (subject, in the case of the interim financial statements, to normal
year-end adjustments). Neither the Borrower nor any Subsidiary has on the
Closing Date any material Debt, 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 or in Schedule 7.02. As of the Closing Date,
since December 31, 2003, there has been no change or event having a Material
Adverse Effect.

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

      Section 7.04 No Breach. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter or by laws of the
Borrower or any Subsidiary, or any Governmental Requirement or any

                                      -42-
<PAGE>

agreement or instrument to which the Borrower or any Subsidiary is a party or by
which it is bound or to which it or its Properties are subject, or constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the Borrower or any
Subsidiary pursuant to the terms of any such agreement or instrument other than
the Liens created by the Loan Documents.

      Section 7.05 Authority. The Borrower and each Guarantor have all necessary
corporate power and authority to execute, deliver and perform its obligations
under the Loan Documents to which it is a party; and the execution, delivery and
performance by the Borrower and each Guarantor of the Loan Documents to which it
is a party, have been duly authorized by all necessary corporate action on its
part; and the Loan Documents constitute the legal, valid and binding obligations
of the Borrower and each Guarantor, enforceable in accordance with their terms.

      Section 7.06 Approvals. No authorizations, approvals or consents of, and
no filings or registrations with, any Governmental Authority are necessary for
the execution, delivery or performance by the Borrower or any Guarantor of the
Loan Documents or for the validity or enforceability thereof, except for the
recording and filing of the Security Instruments as required by this Agreement.

      Section 7.07 Use of Loans. The proceeds of the Loans shall be used for (i)
the acquisition of Oil and Gas Properties, (ii) exploration and development of
Oil and Gas Properties, (iii) working capital, (iv) to repay or retire Debt
under the Prior Credit Agreement, (v) to repurchase, redeem or repay Existing
Other Debt or Subordinated Debt to the extent otherwise permitted under this
Agreement and (vi) general corporate purposes. None of the Guarantors or the
Borrower is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of Regulation
T, U or X of the Board of Governors of the Federal Reserve System) and no part
of the proceeds of any Loan hereunder will be used to buy or carry any margin
stock.

      Section 7.08 ERISA.

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

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

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

            (d) No Plan (other than a defined contribution plan) or any trust
      created under any such Plan has been terminated since September 2, 1974.
      No liability to the PBGC (other than for the payment of current premiums
      which are not past due) by the Borrower,

                                      -43-
<PAGE>

      any Subsidiary or any ERISA Affiliate has been or is expected by the
      Borrower, any Subsidiary or any ERISA Affiliate to be incurred with
      respect to any Plan. No ERISA Event with respect to any Plan has occurred.

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

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

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

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

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

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

                                      -44-
<PAGE>

      Section 7.10 Titles, etc.

            (a) Except as set out in Schedule 7.10, each of the Borrower and the
      Guarantors has good and defensible title to its material (individually or
      in the aggregate) Properties (other than the Additional Entrada Assets),
      free and clear of all Liens, except Liens permitted by Section 9.02.
      Except as set forth in Schedule 7.10, after giving full effect to the
      Excepted Liens, the Borrower owns at least the net interests in production
      attributable to the Hydrocarbon Interests reflected in the most recently
      delivered Reserve Report and the ownership of such Properties does not in
      any material respect obligate the Borrower to bear the costs and expenses
      relating to the maintenance, development and operations of each such
      Property in an amount in excess of the working interest of each Property
      set forth in the most recently delivered Reserve Report without a
      corresponding increase in net revenue interest for such Properties. All
      information contained in the most recently delivered Reserve Report is
      true and correct in all material respects as of the date thereof.

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

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

            (d) All of the assets and Properties of the Borrower and the
      Guarantors which are reasonably necessary for the operation of its
      business are in good working condition and are maintained in accordance
      with customary industry standards.

      Section 7.11 No Material Misstatements. No written information, statement,
exhibit, certificate, document or report furnished to the Administrative Agent
and the Lenders (or any of them) by the Borrower or any Subsidiary in connection
with the negotiation of this Agreement contained any material misstatement of
fact or omitted to state a material fact or any fact necessary to make the
statement contained therein not materially misleading in the light of the
circumstances in which made and with respect to the Borrower and its
Subsidiaries taken as a whole. There is no fact peculiar to the Borrower or any
Subsidiary which has a Material Adverse Effect or in the future is reasonably
likely to have (so far as the Borrower can now foresee) a Material Adverse
Effect and which has not been disclosed in writing to the Administrative Agent
and the Lenders by or on behalf of the Borrower or any Subsidiary prior to, or
on, the Closing Date in connection with the transactions contemplated hereby.

                                      -45-
<PAGE>

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

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

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

      Section 7.15 Location of Business, Offices and Inventory. The Borrower's
principal place of business and chief executive offices are located at the
address stated on the signature page of this Agreement. The principal place of
business and chief executive office of each Subsidiary are located at the
addresses stated on Schedule 7.14. Schedule 7.14 sets forth as of the Closing
Date each of the locations where the Borrower and its Subsidiaries conducts
business or maintains inventory and indicates whether the Borrower or the
applicable Subsidiary is qualified to do business in that jurisdiction.

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

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

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

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

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

                                      -46-
<PAGE>

      compliance with the terms and conditions of all such notices, permits,
      licenses and similar authorizations;

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

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

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

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

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

                                      -47-
<PAGE>

of the Oil and Gas Properties (or properties unitized therewith) are deviated
from the vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such wells are, in fact, bottomed under and
are producing from, and the well bores are wholly within, the Oil and Gas
Properties (or in the case of wells located on properties unitized therewith,
such unitized properties).

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

      Section 7.20 Hedging Agreements. Schedule 7.20 sets forth, as of the
Closing Date, a true and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements (for terms in excess of
thirty days) or contracts of sale which provide for prepayment for deferred
shipment or delivery of oil, gas or other commodities) of the Borrower and each
Subsidiary, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark to market
value thereof, all credit support agreements relating thereto (including any
margin required or supplied), and the counter party to each such agreement.

      Section 7.21 Restriction on Liens. Neither the Borrower nor any of the
Guarantors is a party to any agreement or arrangement (other than this
Agreement, the Security Instruments and the agreements and instruments governing
the Existing Other Debt), or subject to any order, judgment, writ or decree,
which either restricts or purports to restrict its ability to grant Liens to
other Persons on or in respect of their respective assets or Properties.

      Section 7.22 Material Agreements. Set forth on Schedule 7.22 hereto is a
complete and correct list of all material agreements, leases, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the Closing Date (other than Hedging Agreements and agreements relating to
Debt of the type described in clause (iii) in the definition of Debt or clause
(vii) in the definition of Debt to the extent relating to primary obligations of
the type described in clause (iii)

                                      -48-
<PAGE>

in the definition of Debt) providing for, evidencing, securing or otherwise
relating to any Debt of the Borrower or any of its Subsidiaries, and all
obligations of the Borrower or any of its Subsidiaries to issuers of surety or
appeal bonds issued for account of the Borrower or any such Subsidiary, and such
list correctly sets forth the names of the debtor or lessee and creditor or
lessor with respect to the Debt or lease obligations outstanding or to be
outstanding and the Property subject to any Lien securing such Debt or lease
obligation. The Borrower has heretofore delivered to the Administrative Agent a
complete and correct copy of all such material credit agreements, indentures,
purchase agreements, contracts, letters of credit, guarantees, joint venture
agreements, or other instruments, including any modifications or supplements
thereto, as in effect on the Closing Date, which the Administrative Agent has
requested.

      Section 7.23 Gas Imbalances. Except as set forth on Schedule 7.23 or on
the most recent certificate delivered pursuant to Section 8.07(c), on a net
basis there are no gas imbalances, take or pay or other prepayments with respect
to the Borrower's Oil and Gas Properties which would require the Borrower to
deliver, in the aggregate, five percent (5%) or more of the quarterly production
from Hydrocarbons produced from the Borrower's Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor.

                                  ARTICLE VIII

                              AFFIRMATIVE COVENANTS

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

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

            (a) Annual Financial Statements. As soon as available and in any
      event within 90 days after the end of each fiscal year of the Borrower,
      the audited consolidated statement of income, stockholders' equity,
      changes in financial position and cash flows of the Borrower and its
      Consolidated Subsidiaries for such fiscal year, and the related
      consolidated balance sheet of the Borrower and its Consolidated
      Subsidiaries as at the end of such fiscal year, and setting forth in each
      case in comparative form the corresponding figures for the preceding
      fiscal year, and accompanied by the related opinion of independent public
      accountants of recognized national standing reasonably acceptable to the
      Administrative Agent which opinion shall state that said financial
      statements fairly present the consolidated and consolidating financial
      condition and results of operations of the Borrower and its Consolidated
      Subsidiaries as at the end of, and for, such fiscal year and that such
      financial statements have been prepared in accordance with GAAP, except
      for such changes in such principles with which the independent public
      accountants shall have concurred and such opinion shall not contain a
      "going concern" or like qualification or exception, and a certificate of
      such accountants stating that, in making the examination necessary for
      their opinion, they obtained no knowledge, except as specifically stated,
      of any Default.

                                      -49-
<PAGE>

            (b) Quarterly Financial Statements. As soon as available and in any
      event within 45 days after the end of each of the first three fiscal
      quarterly periods of each fiscal year of the Borrower, consolidated
      statements of income, changes in financial position and cash flows of the
      Borrower and its Consolidated Subsidiaries for such period and for the
      period from the beginning of the respective fiscal year to the end of such
      period, and the related balance sheet as at the end of such period, and
      setting forth in each case in comparative form the corresponding figures
      for the corresponding period in the preceding fiscal year, accompanied by
      the certificate of a Responsible Officer, which certificate shall state
      that said financial statements fairly present the consolidated financial
      condition and results of operations of the Borrower and its Consolidated
      Subsidiaries in accordance with GAAP, as at the end of, and for, such
      period (subject to normal year-end audit adjustments).

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

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

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

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

            (g) Other Matters. From time to time such other information
      regarding the business, affairs or financial condition of the Borrower or
      any Subsidiary (including, without limitation, any Plan or Multiemployer
      Plan, any reports or other information required to be filed under ERISA),
      and any operating reports with respect to the operation of Oil and Gas
      Properties as any Lender or the Administrative Agent may reasonably
      request.

            (h) Hedging Agreements. As soon as available and in any event within
      forty five days after the last day of each calendar quarter, a report, in
      form and substance

                                      -50-
<PAGE>

      satisfactory to the Administrative Agent, setting forth as of the last
      Business Day of such calendar quarter a true and complete list of all
      Hedging Agreements (including commodity price swap agreements, forward
      agreements with terms in excess of thirty days or contracts of sale which
      provide for prepayment for deferred shipment or delivery of oil, gas or
      other commodities) of the Borrower and each Subsidiary, the material terms
      thereof (including the type, term, effective date, termination date and
      notional amounts or volumes), the net mark to market value therefor, any
      new credit support agreements relating thereto not listed on Schedule
      7.20, any margin required or supplied under any credit support document,
      and the counter party to each such agreement.

            (i) Monthly Reports. As soon as available and in any event within 45
      days after the end of each month, a report in form and substance
      satisfactory to the Administrative Agent prepared by the Borrower for each
      of its Borrowing Base Properties detailing for such month production,
      revenue, expense, production taxes and price information;

            (j) Annual Projected Budget. At the time it furnishes each set of
      financial statements pursuant to paragraph (a) above, an annual operating
      budget for the Borrower and its Subsidiaries in form and substance
      reasonably acceptable to the Administrative Agent, which budget shall
      include revenues, expenses and capital expenditures (detailing the
      projected capital expenditures with respect to drilling (both development
      and exploration), leasehold, geological and geophysical, capitalized
      general and administrative expenses, and capitalized interest) for the
      following fiscal year.

            (k) Sales and Leasebacks. Prompt written notice if the Borrower or
      any Subsidiary enters into any arrangement permitted by Section 9.05.

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

      Section 8.02 Litigation. The Borrower shall promptly give to the
Administrative Agent notice of: (i) all legal or arbitral proceedings, and of
all proceedings before any Governmental Authority affecting the Borrower or any
Subsidiary, except proceedings which, if adversely determined, could not
reasonably be expected to have a Material Adverse Effect, and (ii) of any
litigation or proceeding against or adversely affecting in any material respect
the Borrower or any Subsidiary in which the amount involved is not covered in
full by insurance (subject to normal and customary deductibles and for which the
insurer has not assumed the defense) or injunctive or similar relief is sought.
The Borrower will, and will cause each of its Subsidiaries to, promptly notify
the Administrative Agent and each of the Lenders of any claim, judgment, Lien
(other than those permitted under Section 9.02) or other encumbrance affecting
any Borrowing Base Property of the Borrower or any Subsidiary if the value of
the claim, judgment, Lien, or other encumbrance affecting such Borrowing Base
Property shall exceed $500,000.

                                      -51-
<PAGE>

      Section 8.03 Maintenance, Etc.

            (a) Generally. The Borrower shall and shall cause each Subsidiary
      to: preserve and maintain its corporate existence and all of its material
      rights, privileges and franchises; keep books of record and account in
      which full, true and correct entries will be made of all dealings or
      transactions in relation to its business and activities; comply with all
      Governmental Requirements if failure to comply with such requirements will
      have a Material Adverse Effect; pay and discharge all taxes, assessments
      and governmental charges or levies imposed on it or on its income or
      profits or on any of its Property prior to the date on which penalties
      attach thereto, except for any such tax, assessment, charge or levy the
      payment of which is being contested in good faith and by proper
      proceedings and against which adequate reserves are being maintained; upon
      reasonable notice, permit representatives of the Administrative Agent or
      any Lender, during normal business hours, to examine, copy and make
      extracts from its books and records, to inspect its Properties, and to
      discuss its business and affairs with its officers, all to the extent
      reasonably requested by such Lender or the Administrative Agent (as the
      case may be); and keep, or cause to be kept, insured by financially sound
      and reputable insurers all Property of a character usually insured by
      Persons engaged in the same or similar business similarly situated against
      loss or damage of the kinds and in the amounts customarily insured against
      by such Persons and carry such other insurance as is usually carried by
      such Persons. The Borrower shall promptly obtain endorsements to such
      insurance policies naming "Union Bank of California, N.A., as
      Administrative Agent for the Beneficiaries" as joint loss payee and
      containing provisions that such policies will not be canceled without 30
      days prior written notice having been given by the insurance company to
      the Administrative Agent.

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

            (c) Oil and Gas Properties. The Borrower will and will cause each
      Subsidiary to, at its own expense, (i) do or cause to be done all things
      reasonably necessary to preserve and keep in good repair, working order
      and efficiency all of its Oil and Gas Properties and other material
      Properties including, without limitation, 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 preserved and maintained in accordance with customary industry
      standards, except to the extent a portion of such Properties is no longer
      capable of producing Hydrocarbons in economically reasonable amounts and
      (ii) maintain good and defensible title to its material (individually and
      in the aggregate) Properties, free and clear of all Liens, except Liens
      permitted by Section 9.02. 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 indebtedness accruing under the material leases or
      other

                                      -52-
<PAGE>

      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 customary industry standards, the material obligations
      required by each and all of the material 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 reasonably necessary to keep
      unimpaired, except for Liens permitted under Section 9.02, its rights with
      respect to its Oil and Gas Properties and other material Properties and
      prevent any material forfeiture thereof or default thereunder, except to
      the extent a portion of such Properties is no longer capable of producing
      Hydrocarbons in economically reasonable amounts and except for
      dispositions permitted by Section 9.15. The Borrower will and will cause
      each Subsidiary to operate its Oil and Gas Properties and other material
      Properties or cause or make reasonable and customary efforts to cause such
      Oil and Gas Properties and other material Properties to be operated in a
      reasonably prudent manner in accordance with the customary practices of
      the industry and in compliance in all material respects with all
      applicable contracts and agreements and in compliance in all material
      respects with all Governmental Requirements. The Borrower will not amend,
      waive, or release any such contract if such amendment, waiver or release
      could reasonably be expected to cause a Material Adverse Effect.

      Section 8.04 Environmental Matters.

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

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

            (c) Future Acquisitions. The Borrower will and will cause each
      Subsidiary to provide environmental audits and tests as reasonably
      requested by the Administrative Agent or the Lenders (or as otherwise
      required to be obtained by the Administrative Agent or the Lenders by any
      Governmental Authority) in connection with any future acquisitions of
      material Oil and Gas Properties or other material Properties.

                                      -53-
<PAGE>

      Section 8.05 Further Assurances. The Borrower will and will cause each
Guarantor to cure promptly any defects in the creation and issuance of the Notes
and the execution and delivery of the Security Instruments and this Agreement.
The Borrower at its expense will and will cause each Guarantor to promptly
execute and deliver to the Administrative Agent upon request all such other
documents, agreements and instruments to comply with or accomplish the covenants
and agreements of the Borrower or any Guarantor, as the case may be, in the
Security Instruments and this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Notes, or to correct any
omissions in the Security Instruments, or to state more fully the security
obligations set out herein or in any of the Security Instruments, or to perfect,
protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.

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

      Section 8.07 Engineering Reports.

            (a) Not less than 30 days prior to each Scheduled Redetermination
      Date, commencing with the Scheduled Redetermination Date to occur on or
      around August 1, 2004, the Borrower shall furnish to the Administrative
      Agent and the Lenders a Reserve Report. The Reserve Report for the August
      1, 2004 redetermination shall be for reserves attributable to the
      Borrowing Base Properties as of June 30, 2004, and prepared by or under
      the supervision of the chief engineer of the Borrower who shall certify
      such Reserve Report to be true and accurate and to have been prepared in
      all material respects in accordance with the procedures (other than
      forecasted product prices) used in the Initial Reserve Report. The January
      1 Reserve Report of each year shall be prepared by certified independent
      petroleum engineers or other independent petroleum consultant(s)
      acceptable to the Administrative Agent and the April 1 Reserve Report,
      August 1 Reserve Report, and October 1 Reserve Report of each year, as
      applicable, shall be prepared by or under the supervision of the chief
      engineer of the Borrower who shall certify such Reserve Report to be true
      and accurate and to have been prepared in all material respects in
      accordance with the procedures (other than forecasted product prices) used
      in the immediately proceeding January 1 Reserve Report.

            (b) In the event of an unscheduled redetermination, the Borrower
      shall furnish to the Administrative Agent and the Lenders a Reserve Report
      prepared by or under the supervision of the chief engineer of the Borrower
      who shall certify such Reserve Report to be true and accurate and to have
      been prepared in all material respects in accordance with the procedures
      (other than forecasted product prices) used in the immediately preceding
      Reserve Report. For any unscheduled redetermination requested by the
      Majority Lenders or the Borrower pursuant to Section 2.08(d)), the
      Borrower shall provide such Reserve Report with an "as of" date as
      required by the Majority Lenders as

                                      -54-
<PAGE>

      soon as possible, but in any event no later than 30 days following the
      receipt of the request by the Administrative Agent.

            (c) With the delivery of each Reserve Report, the Borrower shall
      provide to the Administrative Agent and the Lenders, a certificate from a
      Responsible Officer certifying that, to the best of his knowledge and in
      all material respects: (i) the information contained in the Reserve Report
      and any other information delivered in connection therewith is true and
      correct, (ii) the Borrower owns good and defensible title to the Borrowing
      Base Properties evaluated in such Reserve Report and such Properties are
      free of all Liens except for Liens permitted by Section 9.02, (iii) except
      as set forth on an exhibit to the certificate, on a net basis there are no
      gas imbalances, take or pay or other prepayments with respect to its
      Borrowing Base Properties evaluated in such Reserve Report which would
      require the Borrower to deliver Hydrocarbons produced from such Borrowing
      Base Properties at some future time without then or thereafter receiving
      full payment therefor, (iv) none of its Borrowing Base Properties listed
      in the immediately prior Reserve Report as having proved reserves have
      been sold since the date of the last Borrowing Base determination except
      as set forth on an exhibit to the certificate, which certificate shall
      list all of such Borrowing Base Properties sold and in such detail as
      reasonably required by the Administrative Agent, (v) attached to the
      certificate is a list of all Persons disbursing proceeds to the Borrower
      from its Mortgaged Oil and Gas Properties and (vi) except as set forth on
      a schedule attached to the certificate all of the Borrowing Base
      Properties evaluated by such Reserve Report are Mortgaged Oil and Gas
      Properties.

      Section 8.08 Title Information.

            (a) Delivery. On or before the delivery to the Administrative Agent
      and the Lenders of each Reserve Report required by Section 8.07(a), the
      Borrower will deliver title information in form and substance acceptable
      to the Administrative Agent covering enough of the Mortgaged Oil and Gas
      Properties evaluated by such Reserve Report that were not included in the
      immediately preceding Reserve Report, so that the Administrative Agent
      shall have received together with title information previously delivered
      to the Administrative Agent, satisfactory title information on at least
      eighty percent (80%) of the value of the Mortgaged Oil and Gas Properties
      evaluated by such Reserve Report.

            (b) Cure of Title Defects. The Borrower shall cure any title defects
      or exceptions which are not Excepted Liens raised by such information, or
      substitute acceptable Oil and Gas Properties of an equivalent value, with
      no title defects or exceptions except for Excepted Liens, within 60 days
      after a request by the Administrative Agent or the Lenders to cure such
      defects or exceptions.

            (c) Failure to Cure Title Defects. If the Borrower is unable to cure
      any title defect requested by the Administrative Agent or the Lenders to
      be cured within the 60- day period or the Borrower does not comply with
      the requirements to provide acceptable title information covering eighty
      percent (80%) of the value of the Mortgaged Oil and Gas Properties
      evaluated in the most recent Reserve Report and included in the

                                      -55-
<PAGE>

      determination of the then current Borrowing Base, such default shall not
      be a Default or an Event of Default, but instead the Administrative Agent
      and the Lenders shall have the right to exercise the following remedy in
      their sole discretion from time to time, and any failure to so exercise
      this remedy at any time shall not be a waiver as to future exercise of the
      remedy by the Administrative Agent or the Lenders. To the extent that the
      Administrative Agent or the Lenders are not satisfied with title to any
      Mortgaged Oil and Gas Property after the time period in Section 8.08(b)
      has elapsed, such unacceptable Mortgaged Oil and Gas Property shall not
      count towards the eighty percent (80%) requirement, and the Administrative
      Agent may send a notice to the Borrower and the Lenders that the then
      outstanding Borrowing Base shall be reduced by an amount as determined by
      all of the Lenders to cause the Borrower to be in compliance with the
      requirement to provide acceptable title information on eighty percent
      (80%) of the value of the Mortgaged Oil and Gas Properties included in the
      determination of the Borrowing Base. This new Borrowing Base shall become
      effective immediately after receipt of such notice.

      Section 8.09 Collateral.

            (a) Collateral. The Obligations shall be secured by a perfected
      first priority Lien (subject only to Liens permitted under Section 9.02
      entitled to priority under applicable law or under Section 9.02) granted
      to the Administrative Agent for the benefit of the Beneficiaries in (i)
      the Oil and Gas Properties of the Borrower and the Guarantors, whether now
      owned or hereafter acquired, pursuant to the terms of the Security
      Instruments to which they are parties, and which compose at least 90% of
      the value of the Borrowing Base Properties described in the most recent
      Reserve Report and (ii) all of the accounts receivable, inventory,
      contract rights, all of the equity interests in all Subsidiaries of the
      Borrower and each Guarantor organized in a state, province, or territory
      of the United States of America and 65% of the equity interests in all
      Subsidiaries of the Borrower and each Guarantor organized in a
      jurisdiction other than a state, province or territory of the United
      States pursuant to the terms of the Security Instruments to which they are
      parties. Notwithstanding the foregoing, (i) none of the Borrower's or any
      of its Subsidiary's ownership interest in and to Medusa Spar, LLC shall be
      part of the collateral security for the Obligations and (ii) no additional
      ownership interest acquired by the Borrower or any Subsidiary after the
      Closing Date in and to the Entrada Field or related equipment, accounts
      receivable, contracts, general intangibles or other assets (collectively,
      the "Additional Entrada Assets") shall be collateral security for the
      Obligations unless the Borrower has notified the Administrative Agent, in
      writing, that it has elected to include such Additional Entrada Assets as
      a portion of the Borrowing Base.

            (b) Title Information. Subject to the provisions of Section 8.08,
      concurrently with the granting of the Lien or other action referred to in
      Section 8.09(a) above, the Borrower will provide to the Administrative
      Agent title information in form and substance satisfactory to the
      Administrative Agent in its sole discretion with respect to the Borrower's
      interests in such Mortgaged Oil and Gas Properties.

                                      -56-
<PAGE>

            (c) Legal Opinions. Also, promptly after the filing of any new
      Security Instrument in any state, upon the reasonable request of the
      Administrative Agent, the Borrower will provide to the Administrative
      Agent an opinion addressed to the Administrative Agent for the benefit of
      the Lenders in form and substance satisfactory to the Administrative Agent
      in its sole discretion from counsel acceptable to Administrative Agent,
      stating that the Security Instrument is valid, binding and enforceable in
      accordance with its terms in legally sufficient form for such
      jurisdiction, and the means by which such Security Instrument will perfect
      the Lien created thereby.

      Section 8.10 ERISA Information and Compliance. The Borrower will promptly
furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Administrative Agent with sufficient copies to the Lenders (i)
promptly after the filing thereof with the United States Secretary of Labor, the
Internal Revenue Service or the PBGC, copies of each annual and other report
with respect to each Plan or any trust created thereunder, (ii) immediately upon
becoming aware of the occurrence of any ERISA Event or of any "prohibited
transaction," as described in section 406 of ERISA or in section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by a Responsible Officer specifying the nature thereof, what
action the Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes
to take with respect thereto, and, when known, any action taken or proposed by
the Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (iii) immediately upon receipt thereof, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of section 412 of the Code (determined without regard
to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.

      Section 8.11 Inspection; Books and Records. Upon reasonable notice, the
Borrower will and will cause each Guarantor to permit the Administrative Agent
and any Lender or any of their respective agents or representatives thereof,
during normal business hours and subject to the terms of any applicable
confidentiality or non-disclosure agreements to which the Borrower or such
Guarantor may be bound, to (a) examine and make copies of and abstracts from the
records and books of account of, and visit and inspect at their reasonable
discretion the Properties of, the Borrower or such Guarantor, and (b) discuss
the affairs, finances and accounts of the Borrower or such Guarantor with any of
their respective officers or directors, all to the extent reasonably requested
by the Administrative Agent or such Lender, as the case may be. The Borrower
will and will cause each Guarantor to keep proper books of records and account
in which full, true and correct entries in conformity with GAAP and all
Governmental Requirements in all material respects shall be made of all dealings
and transactions in relation to its business and activities.

                                      -57-
<PAGE>

                                   ARTICLE IX

                               NEGATIVE COVENANTS

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

      Section 9.01 Debt. Neither the Borrower nor any Subsidiary will incur,
create, assume or permit to exist any Debt, except:

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

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

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

            (d) purchase money Debt and Debt under capital leases (as required
      to be reported on the financial statements of the Borrower pursuant to
      GAAP) in addition to any obligations that are Debt as permitted under
      Section 9.05, not to exceed $5,000,000, provided, however, that the
      obligations due under the Hanover Processing Agreement shall not be
      considered capital lease obligations for purposes of the limitation on
      capital leases contained in this Section 9.01(d);

            (e) Debt in addition to any Debt not otherwise permitted this
      Section 9.01 that is unsecured and not to exceed $5,000,000 in the
      aggregate outstanding at one time;

            (f) Subordinated Debt (including any increases of Existing Other
      Debt in connection with any refinancings thereof or otherwise) in an
      amount not to exceed $20,000,000 in the aggregate outstanding at any one
      time and with final maturity after July 31, 2007 and no sinking fund
      payments, scheduled principal payments, or mandatory redemption
      obligations on or prior to July 31, 2007;

            (g) Existing Other Debt and any refinancings, renewals or extensions
      (but not increases except as provided in Section 9.01(f)) of such
      Subordinated Debt, provided that any such refinancing provides for a final
      maturity after September 30, 2004 (or July 31, 2004, for the portion of
      the 2002 Subordinated Notes being extended and renewed as described in
      Section 6.01(l)), and no sinking fund payments, scheduled principal
      payments, or mandatory redemption obligations on or prior to September 30,
      2004, (or July 31, 2004, for the portion of the 2002 Subordinated Notes
      being extended and

                                      -58-
<PAGE>

      renewed as described in Section 6.01(l)) and is otherwise pursuant to
      terms and conditions satisfactory to the Majority Lenders;

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

            (i) Hedging Agreements covering (A) oil and gas production of proved
      developed producing Oil and Gas Properties of the Borrower or any
      Guarantor; provided, however, that such Hedging Agreements related to oil
      or gas production shall not, either individually or in the aggregate,
      cover more than ninety percent (90%) of estimated production of oil or gas
      of the Borrower and the Guarantors for each individual period covered by
      the Hedging Agreements and (B) fluctuations in interest rates for notional
      principal amounts not to exceed at any time outstanding 80% of the Debt
      for borrowed money of the Borrower and its Consolidated Subsidiaries; and

            (j) Debt arising out of the Deferred Compensation Plan to the extent
      such Debt can be satisfied out of the investments permitted by Section
      9.03(k) and the proceeds thereof.

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

            (a) Liens securing the payment of any Obligations (provided that any
      Lien securing any of the Obligations must secure all of the Obligations);

            (b) Excepted Liens;

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

            (d) Liens disclosed on Schedule 9.02;

            (e) Liens on cash or securities of the Borrower or any Subsidiary
      securing the Debt described in Section 9.01(h) and 9.01(i); provided,
      however that the aggregate amount of cash or securities which may secure
      Debt described in Section 9.01(i) shall not exceed (i) from the Closing
      Date until July 31, 2004, $10,000,000 and (ii) $7,500,000 thereafter; and

            (f) other Liens securing Debt permitted under Section 9.01 not
      exceeding $5,000,000 in the aggregate at any time.

      Section 9.03 Investments, Loans and Advances. Neither the Borrower nor any
Guarantor will make or permit to remain outstanding any loans or advances to or
investments in any Person, except that the foregoing restriction shall not apply
to:

                                      -59-
<PAGE>

            (a) investments, loans or advances reflected in the Financial
      Statements or which are disclosed to the Lenders in Schedule 9.03;

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

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

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

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

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

            (g) investments, loans or advances made by the Borrower in or to the
      Guarantors or by any Guarantor in or to Borrower or another Guarantor;

            (h) investments by the Borrower in direct ownership interests in
      additional Oil and Gas Properties and gas gathering systems related
      thereto, and investments, loans or advances in connection with or related
      to farm out agreements, farm in agreements, joint operating agreements,
      joint venture or area of mutual interest agreements, processing
      facilities, seismic acquisition and evaluation, pipelines or other similar
      or customary arrangements made in the ordinary course of business only
      insofar as they do not (i) reduce the net revenue interest of the Borrower
      or any Guarantor in any Borrowing Base Property for which value was given
      in the most recent Borrowing Base redetermination below the undivided net
      revenue interest specified for the Borrower or such Guarantor in the most
      recent Reserve Report utilized by the Administrative Agent and the Lenders
      in determining the then effective Borrowing Base and/or (ii) increase the
      undivided working interest in any such Borrowing Base Property without a
      corresponding increase in the net revenue interest specified for the
      Borrower or such Guarantor in the most recent Reserve Report utilized by
      the Administrative Agent and the Lenders in determining the then effective
      Borrowing Base;

            (i) loans or advances to employees of the Borrower and the
      Guarantors in the ordinary course of business not to exceed an amount
      equal to $1,000,000 in the aggregate at any time outstanding;

                                      -60-
<PAGE>

            (j) other investments, loans or advances not to exceed, in the
      aggregate at any time outstanding, an amount equal to $10,000,000; and

            (k) investments made pursuant to the Deferred Compensation Plan.

      Section 9.04 Dividends, Distributions and Redemptions. The Borrower will
not declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders, except
that, if no Default exists or would result therefrom, the Borrower may (i) pay
dividends on preferred stock issued and outstanding prior to June 1, 2004, (ii)
redeem preferred stock with the proceeds of or in connection with the issuance
of equity securities, and (iii) pay stock dividends only in common stock of the
Borrower.

      Section 9.05 Sales and Leasebacks. Neither the Borrower nor any Subsidiary
will enter into any arrangement, directly or indirectly, with any Person whereby
the Borrower or any Subsidiary shall sell or transfer any of its Borrowing Base
Property with respect to Borrowing Base Property having a value, in the
aggregate at any time outstanding, in excess of $5,000,000, whether now owned or
hereafter acquired, and whereby the Borrower or any Subsidiary shall then or
thereafter rent or lease as lessee such Borrowing Base Property or any part
thereof or other Borrowing Base Property which the Borrower or any Subsidiary
intends to use for substantially the same purpose or purposes as the Borrowing
Base Property sold or transferred; provided, however, that the sale of Property
undertaken pursuant to the Hanover Sales Documents shall not be deemed to be a
sale and leaseback for purposes of the limitations on sales and leasebacks of
Property contained in this Section 9.05.

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

      Section 9.07 [Intentionally omitted].

      Section 9.08 Mergers, Etc. Neither the Borrower nor any Subsidiary will
merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person, except
that, provided no Default or Change of Control exists or would result therefrom,
(i) any Subsidiary may merge into, or transfer all or substantially all of its
Property or assets to, the Borrower (provided the Borrower is the surviving
entity) or with any other Guarantor and (ii) the Borrower or any Subsidiary may
merge with, or transfer all or substantially all of its Property or assets to,
another Person if the Borrower or such Subsidiary is the surviving entity. The
Borrower shall provide the Administrative Agent with at least 30 days prior
written notice of any merger or consolidation permitted by this Section 9.08.

      Section 9.09 Proceeds of Notes; Letters of Credit. The Borrower will not
permit the proceeds of the Notes or Letters of Credit to be used for any purpose
other than those permitted by Section 7.07. Neither the Borrower nor any Person
acting on behalf of the Borrower has taken or will take any action which might
cause any of the Loan Documents to violate Regulation T, U or X or any other
regulation of the Board of Governors of the Federal Reserve

                                      -61-
<PAGE>

System or to violate Section 7 of the Securities Exchange Act of 1934 or any
rule or regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect.

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

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

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

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

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

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

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

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

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

                                      -62-
<PAGE>

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

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

      Section 9.11 [Intentionally omitted].

      Section 9.12 Current Ratio. The Borrower will not permit its ratio of (a)
consolidated current assets, plus the amount equal to the difference between (i)
the Borrowing Base and (ii) the sum of all Loans outstanding, plus LC Exposure
to (b) consolidated current liabilities (excluding current maturities of long
term debt (determined in accordance with GAAP)) to be less than 1.0 to 1.0 at
any time. For purposes of this Section 9.12, "consolidated current assets" shall
mean assets which would, in accordance with GAAP, be included as current assets
on a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries and "consolidated current liabilities" shall mean liabilities which
would, in accordance with GAAP, be included as current liabilities on a
consolidated balance sheet of the Borrower and its Consolidated Subsidiaries.
?Notwithstanding the foregoing, consolidated current liabilities shall be
determined excluding recognized but unrealized gains and/or losses attributable
to commodity or interest rate derivative instruments determined under the
provisions of Financial Accounting Standards Board Statements ("FASB") 133 or
143, as the same may be further amended, modified or clarified by the FASB.

      Section 9.13 Fixed Charge Coverage Ratio. The Borrower will not permit its
Fixed Charge Coverage Ratio as of the end of any fiscal quarter of the Borrower
(calculated quarterly at the end of each fiscal quarter, commencing June 30,
2004) to be less than 2.50 to 1.00. For purposes of this Section 9.13, "Fixed
Charge Coverage Ratio" shall mean the ratio of (a) EBITDA for the immediately
preceding four fiscal quarters of the Borrower and its Consolidated Subsidiaries
to (b) the sum of cash interest expense, capital lease obligations, required
payments of principal on Debt (excluding, however, any principal due upon the
final maturity date for such Debt), and preferred dividends paid in cash by the
Borrower and its Consolidated Subsidiaries during such four fiscal quarters.
Notwithstanding the foregoing, the Fixed Charge Coverage Ratio (i) for the
fiscal quarter ending June 30, 2004, shall be calculated for the two fiscal
quarters ended on such date, and (ii) for the fiscal quarter ending September
30, 2004, shall be calculated for the three fiscal quarters ending on such date.

      Section 9.14 Leverage Ratio. The Borrower will not permit its Leverage
Ratio as of the end of any fiscal quarter of the Borrower (calculated quarterly
at the end of each fiscal quarter, commencing June 30, 2004) to be greater than
4.00 to 1.00. For the purposes of this Section 9.14, "Leverage Ratio" shall mean
the ratio of (a) Funded Debt for the Borrower and its Subsidiaries on a
Consolidated basis as of the end of such fiscal quarter to (b) EBITDA for the

                                      -63-
<PAGE>

immediately preceding four fiscal quarters of the Borrower and its Consolidated
Subsidiaries then ended. Notwithstanding the foregoing, the Leverage Ratio (i)
for the fiscal quarter ending June 30, 2004, shall be calculated using the
EBITDA for the two fiscal quarters ending on such date multiplied by two, and
(ii) for the fiscal quarter ending September 30, 2004, shall be calculated using
the EBITDA for the three fiscal quarters ending on such date multiplied by 4/3.

      Section 9.15 Sale of Oil and Gas Properties. The Borrower will not, and
will not permit any Guarantor to, sell, assign, farm-out, convey or otherwise
transfer any Borrowing Base Property or any interest in any Borrowing Base
Property (a "Transfer") except for (a) the sale of Hydrocarbons in the ordinary
course of business; (b) farmouts of undeveloped acreage and assignments in
connection with such farmouts; (c) the sale or transfer of equipment that is no
longer necessary for the business of the Borrower or such Guarantor or is
contemporaneously replaced by equipment of at least comparable value and use and
(d) during any consecutive 12 month period, sales in the ordinary course of
business of Borrowing Base Properties which shall not exceed 15% of the then
current Borrowing Base; provided, however, that upon any such Transfer of
Borrowing Base Properties the Lenders may reduce the Borrowing Base by an amount
equal to 100% of the loan value of such Collateral and if a Borrowing Base
Deficiency results therefrom, the Borrower shall concurrently, with completing
such Transfer, made a prepayment of the outstanding principal amount of the
Loans sufficient to eliminate such Borrowing Base Deficiency.

      Section 9.16 Environmental Matters. Neither the Borrower nor any
Subsidiary will cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such Property to
any remedial obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.

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

      Section 9.18 Subsidiaries. The Borrower shall not and shall not permit any
Subsidiary to sell or to issue any stock or ownership interest of a Subsidiary
unless such sale or issuance would be in compliance with Section 9.03 and the
other terms and provisions of this Agreement.

      Section 9.19 Negative Pledge Agreements. Except for provisions in Existing
Other Debt documents, neither the Borrower nor any Guarantor will create, incur,
assume or permit to exist any contract, agreement or understanding (other than
this Agreement and the Security Instruments, and the agreements and instruments
creating Liens otherwise permitted under Section 9.02 with respect to the
Property covered by such Liens only) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property
or restricts any Guarantor from paying dividends to the Borrower, or which
requires the consent of or notice to other Persons in connection therewith.

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      Section 9.20 Gas Imbalances, Take-or-Pay or Other Prepayments. The
Borrower will not allow gas imbalances, take-or-pay or other prepayments with
respect to the Oil and Gas Properties of the Borrower or any Guarantor which
would require the Borrower or any Guarantor to deliver in the aggregate five
percent (5%) or more of their Hydrocarbons produced on a quarterly basis from
such Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor.

      Section 9.21 Subordinated Debt. Except with respect to the 2005
Subordinated Notes, neither the Borrower nor any Guarantor shall make any
voluntary prepayment in respect of any Subordinated Debt or the Existing Other
Debt, nor will they make any other payment thereon that would not be allowed
under the subordination provisions of any Subordinated Debt or the Existing
Other Debt. The Borrower will not amend, supplement or otherwise modify any
instruments evidencing, or agreements relating to or executed in connection
with, any Existing Other Debt, in any manner which would have the effect of (a)
accelerating the timing or amount of any scheduled payments of principal or
interest thereon, (b) increasing the rate of interest payable thereon or (c)
resulting in a Material Adverse Effect.

      Section 9.22 Hanover Agreements. Without the prior written consent of the
Lenders, the Borrower will not, and will not permit any Subsidiary to, amend,
supplement, restate or otherwise modify the Hanover Processing Agreement, the
Hanover Sales Documents or any other document executed in connection therewith
that could adversely affect in any material respect the Lenders and their rights
and remedies under any Loan Document.

      Section 9.23 Permitted Medusa Transactions. Notwithstanding anything in
this Agreement or any other Loan Document to the contrary, so long as no Default
or Event of Default has occurred and is continuing at the time Borrower or any
of its Subsidiaries enters into any Permitted Medusa Transaction, the entering
into and carrying out of such Permitted Medusa Transaction shall be allowed
hereunder and shall not in itself constitute a breach of, non-compliance with,
or Default or Event of Default under this Agreement or any other Loan Document.

                                   ARTICLE X

                           EVENTS OF DEFAULT; REMEDIES

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

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

            (b) the Borrower or any Subsidiary shall default in the payment when
      due of any principal of or interest on any of its other Debt aggregating
      $2,500,000 or more, or

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<PAGE>

      any event specified in any note, agreement, indenture or other document
      evidencing or relating to any such Debt shall occur if the effect of such
      event is to cause, or (with the giving of any notice or the lapse of time
      or both) to permit the holder or holders of such Debt (or a trustee or
      agent on behalf of such holder or holders) to cause, such Debt to become
      due prior to its stated maturity; or

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

            (d) the Borrower shall default in the performance of any of its
      obligations under Article IX, Section 8.01(c) or any other Article of this
      Agreement other than under Article VIII (excluding Section 8.01(c)); or
      the Borrower shall default in the performance of any of its obligations
      under Article VIII or any Security Instrument (other than the payment of
      amounts due which shall be governed by Section 10.01(a)) and such default
      shall continue unremedied for a period of thirty (30) days after the
      earlier to occur of (i) notice thereof to the Borrower by the
      Administrative Agent or any Lender (through the Administrative Agent), or
      (ii) the Borrower otherwise becoming aware of such default; or

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

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

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

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<PAGE>

            (h) a judgment or judgments for the payment of money in excess of
      $5,000,000 in the aggregate shall be rendered by a court against the
      Borrower or any Subsidiary and the same shall not be discharged (or
      provision shall not be made for such discharge), or a stay of execution
      thereof shall not be procured, within thirty (30) days from the date of
      entry thereof and the Borrower or such Subsidiary shall not, within said
      period of 30 days, or such longer period during which execution of the
      same shall have been stayed, appeal therefrom and cause the execution
      thereof to be stayed during such appeal; or

            (i) the Security Instruments after delivery thereof shall for any
      reason, except to the extent permitted by the terms thereof, cease to be
      in full force and effect and valid, binding and enforceable in accordance
      with their terms, or cease to create a valid and perfected Lien of the
      priority required thereby on any of the collateral purported to be covered
      thereby, except to the extent permitted by the terms of this Agreement, or
      the Borrower shall so state in writing; or

            (j) a Change of Control occurs; or

            (k) Any Guarantor takes, suffers or permits to exist any of the
      events or conditions referred to in paragraphs (e), (f), (g) or (h) or if
      any provision of any guaranty agreement related thereto shall for any
      reason cease to be valid and binding on such Guarantor or if such
      Guarantor shall so state in writing; or

            (l) an Event of Default (as defined thereunder) shall occur under
      the Hanover Processing Agreement or Hanover Sales Documents.

      Section 10.02 Remedies.

            (a) In the case of an Event of Default other than one referred to in
      clauses (e), (f) or (g) of Section 10.01 or in clause (k) to the extent it
      relates to clauses (e), (f) or (g), the Administrative Agent, upon request
      of the Majority Lenders, shall, by notice to the Borrower, cancel the
      Commitments (in whole or part) and/or declare the principal amount then
      outstanding of, and the accrued interest on all (but not less than all)
      of, the Loans and all other amounts payable by the Borrower hereunder and
      under the Notes (including without limitation the payment of cash
      collateral to secure the LC Exposure as provided in Section 2.10(b)) to be
      forthwith due and payable, whereupon such amounts shall be immediately due
      and payable without presentment, demand, protest, notice of intent to
      accelerate, notice of acceleration or other formalities of any kind, all
      of which are hereby expressly waived by the Borrower.

            (b) In the case of the occurrence of an Event of Default referred to
      in clauses (e), (f) or (g) of Section 10.01 or in clause (k) to the extent
      it relates to clauses (e), (f) or (g), the Commitments shall be
      automatically canceled and the principal amount then outstanding of, and
      the accrued interest on, the Loans and all other amounts payable by the
      Borrower hereunder and under the Notes (including without limitation the
      payment of cash collateral to secure the LC Exposure as provided in
      Section 2.10(b)) shall become automatically immediately due and payable
      without presentment, demand, protest, notice

                                      -67-
<PAGE>

      of intent to accelerate, notice of acceleration or other formalities of
      any kind, all of which are hereby expressly waived by the Borrower.

            (c) In the case of an acceleration of the Loans pursuant to the
      foregoing clause (a) or (b) of this Section 10.02, or if the Borrower
      defaults in the full and complete payment of all of the Loans or other
      Obligations due on the Revolving Credit Termination Date, then the
      Administrative Agent, upon request of the Majority Lenders, shall take
      reasonable actions to liquidate the Collateral.

            (d) All proceeds received after maturity of the Notes, whether by
      acceleration or otherwise shall be applied as provided in Section 3.03.

                                   ARTICLE XI

                            THE ADMINISTRATIVE AGENT

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

                                      -68-
<PAGE>

      Section 11.02 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telecopier, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the
Administrative Agent.

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

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

      SECTION 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE
ADMINISTRATIVE AGENT AND THE ISSUING BANK RATABLY IN ACCORDANCE WITH THEIR
PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE
EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT
WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND
FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND
NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE
ADMINISTRATIVE AGENT OR THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT
OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER DOCUMENTS
CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY,
BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL
ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY
DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT,
ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF
THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT
NEGLIGENCE OF THE ADMINISTRATIVE AGENT OR THE ISSUING BANK, PROVIDED THAT NO

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<PAGE>

LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE AGENT.

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

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

      Section 11.08 Resignation or Removal of Administrative Agent. Subject to
the appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrower, and the Administrative Agent may be removed at
any time with or without cause by

                                      -70-
<PAGE>

the Majority Lenders. Upon any such resignation or removal, the Majority Lenders
shall have the right to appoint a successor Administrative Agent with the
consent of the Borrower (such consent not to be unreasonably withheld). If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Administrative Agent's giving of notice of resignation or the
Majority Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent with the consent of the Borrower (such consent not to be
unreasonably withheld). Upon the acceptance of such appointment hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon 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. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article XI and Section 12.03 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent.

                                  ARTICLE XII

                                  MISCELLANEOUS

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

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

      Section 12.03 Payment of Expenses, Indemnities, etc.

            (a) The Borrower agrees:

                  (i) whether or not the transactions hereby contemplated are
      consummated, to pay all reasonable expenses of the Administrative Agent in
      the

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      administration (both before and after the execution hereof and including
      advice of counsel as to the rights and duties of the Administrative Agent
      and the Lenders with respect thereto) of, and in connection with the
      negotiation, syndication, investigation, preparation, execution and
      delivery of, recording or filing of, preservation of rights under,
      enforcement of, and refinancing, renegotiation or restructuring of, the
      Loan Documents and any amendment, waiver or consent relating thereto
      (including, without limitation, travel, photocopy, mailing, courier,
      telephone and other similar expenses of the Administrative Agent, the cost
      of environmental audits, surveys and appraisals at reasonable intervals,
      the reasonable fees and disbursements of counsel and other outside
      consultants for the Administrative Agent and, in the case of enforcement,
      the reasonable fees and disbursements of counsel for the Administrative
      Agent and any of the Lenders); and promptly reimburse the Administrative
      Agent for all amounts expended, advanced or incurred by the Administrative
      Agent or the Lenders to satisfy any obligation of the Borrower under this
      Agreement or any Security Instrument, including without limitation, all
      costs and expenses of foreclosure;

                  (ii) TO INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER AND
      EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
      REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
      PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON
      DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY
      BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT
      ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF
      OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF
      THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION,
      DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF
      THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE
      BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY
      INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V)
      ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE
      BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE
      ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO
      PAY UNDER ANY LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING UNDER
      ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR
      OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND
      CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED
      TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR
      (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT
      LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER
      EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING
      TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
      LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS
      ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT
      EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN
      THE LENDERS OR ANY LENDER AND THE ADMINISTRATIVE AGENT OR A LENDER'S
      SHAREHOLDERS AGAINST THE ADMINISTRATIVE AGENT OR LENDER OR BY

                                      -72-
<PAGE>

      REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF ANY
      INDEMNIFIED PARTY; AND

                  (iii) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
      INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
      RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
      LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY
      ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF
      THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL
      OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF
      THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY
      ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE
      TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR
      PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
      LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
      LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL
      OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED
      BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH
      OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED,
      HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(A)(III)
      IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
      OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD
      AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED
      POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
      FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).

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

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

            (d) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
      PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
      CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE
      ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT
      CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF
      THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED

                                      -73-
<PAGE>

      WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT
      THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS
      NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
      INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE
      CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE
      GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.

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

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

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

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

      Section 12.06 Assignments and Participations.

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

            (b) Any Lender may, upon the written consent of the Administrative
      Agent and, if no Event of Default has occurred and is continuing, the
      Borrower (which consent will not be unreasonably withheld), assign to one
      or more assignees all or a portion of its rights and obligations under
      this Agreement pursuant to an Assignment Agreement substantially in the
      form of Exhibit E (an "Assignment"); provided, however, that (i) any such
      assignment of a partial interest in a Note shall be in the amount of at
      least $5,000,000 or such lesser amount to which the Borrower has
      consented; (ii) the assignee or assignor shall pay to the Administrative
      Agent a processing and recordation fee of $3,500 for each assignment and
      (iii) no consent of the Administrative Agent of the Borrower shall be
      required for any assignment by a Lender to any Lender or any nominee

                                      -74-
<PAGE>

      or Affiliate of any Lender. Any such assignment will become effective upon
      the execution and delivery to the Administrative Agent of the Assignment
      and the consent of the Administrative Agent and, if applicable, the
      Borrower. Promptly after receipt of an executed Assignment, the
      Administrative Agent shall send to the Borrower a copy of such executed
      Assignment. Upon receipt of such executed Assignment, the Borrower, will,
      at its own expense, execute and deliver new Notes to the assignor and/or
      assignee, as appropriate, in accordance with their respective interests as
      they appear. Upon the effectiveness of any assignment pursuant to this
      Section 12.06(b), the assignee will become a "Lender," if not already a
      "Lender," for all purposes of this Agreement and the Loan Documents. The
      assignor shall be relieved of its obligations hereunder to the extent of
      such assignment (and if the assigning Lender no longer holds any rights or
      obligations under this Agreement, such assigning Lender shall cease to be
      a "Lender" hereunder except that its rights under Sections 4.06, 5.01,
      5.05 and 12.03 shall not be affected). The Administrative Agent will
      prepare on the last Business Day of each month during which an assignment
      has become effective pursuant to this Section 12.06(b), a new Annex I
      giving effect to all such assignments effected during such month, and will
      promptly provide the same to the Borrower and each of the Lenders.

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

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

                                      -75-
<PAGE>

            (e) Notwithstanding anything in this Section 12.06 to the contrary,
      any Lender may assign and pledge its Note to any Federal Reserve Bank. No
      such assignment and/or pledge shall release the assigning and/or pledging
      Lender from its obligations hereunder.

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

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

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

      Section 12.09 References; Use of Word "Including". The words "herein,"
"hereof," "hereunder" and other words of similar import when used in this
Agreement refer to this Agreement as a whole, and not to any particular article,
section or subsection. Any reference herein to a Section or Article shall be
deemed to refer to the applicable Section or Article of this Agreement unless
otherwise stated herein. Any reference herein to an exhibit, schedule, or other
attachment shall be deemed to refer to the applicable exhibit, schedule, or
other attachment attached hereto unless otherwise stated herein. The word
"including", "includes" and words of similar import means "including, without
limitation".

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

      Section 12.11 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

                                      -76-
<PAGE>

      SECTION 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

      SECTION 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.

            (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
      IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT
      THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT
      THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED.
      CH. 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING
      CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO
      THIS AGREEMENT OR THE NOTES.

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

            (c) THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
      PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
      PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
      MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS, SUCH SERVICE
      TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN
      SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY
      HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
      TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER OR
      ITS PROPERTIES IN ANY OTHER JURISDICTION.

            (d) THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY
      (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED
      BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
      AGREEMENT OR ANY LOAN DOCUMENT AND FOR ANY COUNTERCLAIM

                                      -77-
<PAGE>

      THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
      LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
      SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER
      THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
      HERETO NOR ANY REPRESENTATIVE, AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
      REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
      IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
      (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS CREDIT
      AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED
      HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
      CERTIFICATIONS CONTAINED IN THIS SECTION 12.13.

      Section 12.14 Interest. It is the intention of the parties hereto that
each Lender shall conform strictly to usury laws applicable to it. Accordingly,
if the transactions contemplated hereby would be usurious as to any Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the full term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of

                                      -78-
<PAGE>

interest which would have been payable to such Lender if the total amount of
interest had been computed without giving effect to this Section 12.14. To the
extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of
determining the Highest Lawful Rate, such Lender elects to determine the
applicable rate ceiling under such Chapter by the weekly ceiling from time to
time in effect.

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

      SECTION 12.16 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY
INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING

                                      -79-
<PAGE>

ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."

      Section 12.17 Hedging Agreement Substitution of Collateral. If the
Obligations are paid in full and this Agreement is terminated, the
Administrative Agent and the Lenders shall execute and deliver or cause to be
executed and delivered such instruments of satisfaction and reassignment as may
be appropriate in order to release all liens and security interests created by
the Security Instruments, provided, however, that in lieu of paying off any such
Obligations arising under any Hedging Agreement with any Lender or Affiliate of
any Lender, the Borrower may provide substitute credit support under a standard
form ISDA Credit Support Annex acceptable to such Lender (or its Affiliate) in
the form of a letter of credit or cash equivalents in an amount equal to 110% of
the then current exposure under such Hedging Agreement.

      Section 12.18 Amendment, Restatement and Rearrangement of Prior Debt. The
parties hereto agree that to the extent the Prior Debt is refinanced with
proceeds of Loans hereunder, this Agreement amends, restates and rearranges such
Prior Debt pursuant to the terms and conditions of this Agreement.

      Section 12.19 Obligations as Senior Indebtedness; Specified Senior
Indebtedness. It is the intent of all the parties hereto that all of the
Obligations arising under this Agreement and the other Loan Documents shall
constitute (and to the extent, if any, required are hereby designated by
Borrower to constitute) "Senior Indebtedness" and "Specified Senior
Indebtedness" as such terms are defined in the indentures governing the Existing
Other Debt. This Agreement and the other Loan Documents represent the "Credit
Facility" or the "Senior Secured Credit Facility", as the case may be, as
defined in the indentures governing the Existing Other Debt. Notwithstanding the
foregoing, the acknowledgment of intent contained in this Section 12.19 shall
not be deemed to modify or amend any provision of this Agreement or any of the
other Loan Documents.

                         [SIGNATURES BEGIN ON NEXT PAGE]

                                      -80-
<PAGE>

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

BORROWER:                             CALLON PETROLEUM COMPANY

                                      By: /s/ JOHN S. WEATHERLY
                                         ------------------------------------
                                      Name:  John S. Weatherly
                                      Title: Senior Vice President and Chief
                                             Financial Officer

                                      Address for Notices:

                                      P.O. Box 1287, Natchez, MS 39121 1287;

                                      or

                                      200 North Canal Street, Natchez, MS 39120
                                      Telecopier No.: 601 446 1410
                                      Telephone No.:  601 442 1601
                                      Attention: Rodger W. Smith, Treasurer

<PAGE>

ADMINISTRATIVE AGENT
and LENDER:                       UNION BANK OF CALIFORNIA, N.A.,
                                  individually and as Administrative Agent

                                  By: /s/ ALI AHMED
                                     -------------------------------------------
                                  Name:           Ali Ahmed
                                  Title: Assistant Vice President

                                  By: /s/ ALI AHMED
                                     -------------------------------------------
                                  Name: Ali Ahmed
                                       -----------------------------------------
                                  Title: Assistant Vice President
                                        ----------------------------------------

                                  Lending Office for Base Rate Loans and
                                  LIBOR Loans:

                                  Energy Capital Services - Monterey Park Office
                                  601 Potrero Grande Drive, #4 957 161
                                  Monterey Park, CA  91754

                                  Address for Notices:

                                  Energy Capital Services - Dallas Office
                                  500 N. Akard, Suite 4200
                                  Dallas, TX  75201
                                  Telecopier No.: (214) 922 4209
                                  Telephone No.:  (214) 922 4200
                                  Attention:  Ali Ahmed

                                  With copy to:

                                  Energy Capital Services - Dallas Office
                                  500 N. Akard, Suite 4200
                                  Dallas, TX  75201
                                  Telecopier No.: (214) 922 4209
                                  Telephone No.:  (214) 922 4200
                                  Attention:  Hannah Payne

<PAGE>

                              CONSENT OF GUARANTORS

      Each Guarantor hereby consents and agrees to the terms of this Agreement
and agrees that each and every guaranty executed in connection with this
Agreement shall be legal, valid, and binding obligations of each Guarantor
enforceable against each Guarantor in accordance with its terms.

      WITNESS THE EXECUTION HEREOF, as of the 11th day of June, 2004.

                                       CALLON PETROLEUM OPERATING COMPANY,
                                       a Delaware corporation

                                       By: /s/ JOHN S. WEATHERLY
                                          --------------------------------------
                                       Name: John S. Weatherly
                                            ------------------------------------
                                       Title: Senior Vice President and Chief
                                              Financial Officer
                                             -----------------------------------

                                       CALLON OFFSHORE PRODUCTION, INC.,
                                       a Mississippi corporation

                                       By: /s/ JOHN S. WEATHERLY
                                          --------------------------------------
                                       Name: John S. Weatherly
                                            ------------------------------------
                                       Title: Senior Vice President and Chief
                                              Financial Officer
                                             -----------------------------------

                                       MISSISSIPPI MARKETING, INC.,
                                       a Mississippi corporation

                                       By: /s/ JOHN S. WEATHERLY
                                          --------------------------------------
                                       Name: John S. Weatherly
                                            ------------------------------------
                                       Title: Senior Vice President and Chief
                                              Financial Officer
                                             -----------------------------------

<PAGE>

                                     ANNEX I

                          LIST OF PERCENTAGE SHARES AND
                             MAXIMUM CREDIT AMOUNTS

<TABLE>
<CAPTION>
                                             PERCENTAGE
NAME OF LENDER                                  SHARE               MAXIMUM CREDIT AMOUNT
--------------                                  -----               ---------------------
<S>                                          <C>                    <C>
Union Bank of California, N.A.                   100%                    $175,000,000
            TOTAL                                100%                    $175,000,000
</TABLE>

<PAGE>

                                    EXHIBITS

CERTAIN IMMATERIAL EXHIBITS TO THIS CREDIT AGREEMENT HAVE BEEN CONSIDERED
IMMATERIAL AND HAVE BEEN DELETED FROM THIS FILING. THESE EXHIBITS WILL BE
PROVIDED TO THE SEC UPON REQUEST.

<PAGE>

                                  SCHEDULE 7.02

                                   LIABILITIES

                                      None

<PAGE>

                                  SCHEDULE 7.03

                                   LITIGATION

                                      AS OF

                                 April 14, 2004

[ ] HENRY J. DAUTERIVE, ET AL VS CHEVRON U.S.A., CONOCO, INC., SHELL OIL
COMPANY, LLOG EXPLORATION CO., SUNDANCE ACQUISITION CORP., CALLON OFFSHORE
PRODUCTION, INC., AND HUNT PETROLEUM CORPORATION, 16TH JDC, IBERIA PARISH, LA
(CASE #101332-B)

Filed:  4/09/01

[ ] THE ORLEANS LEVEE DISTRICT VS. THE ESTATE OF WILLIAM G HELIS, CHEVRON USA
AND CALLON OFFSHORE PRODUCTION, INC., 25TH JDC, PARISH OF PLAQUEMINES (CASE
#47843)

Filed:  9/28/01

<PAGE>

                                  SCHEDULE 7.09

                                      TAXES

                                      None

<PAGE>

                                  SCHEDULE 7.10

                                  TITLES, ETC.

                                      None

<PAGE>

                                  SCHEDULE 7.14

                          SUBSIDIARIES AND PARTNERSHIPS

Callon Petroleum Company is a Delaware corporation and is qualified to do
business as foreign corporations in the following states: Alabama, Arkansas,
California, Colorado, Florida, Louisiana, Michigan, Mississippi, Montana, New
Mexico, North Dakota, Ohio, Oklahoma, Texas, Utah, and Wyoming. The jurisdiction
of incorporation of all of Callon Petroleum Company's directly and indirectly
owned subsidiaries, the jurisdictions where such subsidiaries are qualified to
do business as foreign corporations, and the authorized and outstanding capital
stock of such subsidiaries is listed in the following table.

<TABLE>
<CAPTION>
                           STATE OF                JURISDICTIONS QUALIFIED             AUTHORIZED         OUTSTANDING
     SUBSIDIARY         INCORPORATION                  TO DO BUSINESS                 CAPITAL STOCK      CAPITAL STOCK
     ----------         -------------                  --------------                 -------------      -------------
<S>                     <C>                   <C>                                    <C>                 <C>
Callon Petroleum         Delaware             Alabama, Arkansas, California,         3,000 shares of     2,680 shares of
Operating Company                             Colorado, Florida, Louisiana,           Common Stock       Common Stock
                                              Michigan, Mississippi, Montana,
                                              New Mexico, North Dakota, Ohio,
                                              Oklahoma, Texas, Utah, Wyoming

Callon Offshore          Mississippi          Alabama, Louisiana, Texas              5,000 shares of     5,000 shares of
Production, Inc.                                                                     Common Stock        Common Stock

Mississippi              Mississippi          Louisiana, Mississippi                 1,000 shares of     1,000 shares of
Marketing, Inc.                                                                      Common Stock        Common Stock
</TABLE>

The principal place of business of each of the subsidiaries listed in the
preceding table is: P.O. Box 1287, Natchez, MS 39121-1287 or 200 North Canal
Street, Natchez, MS 39120.

Callon Offshore Production, Inc. and Mississippi Marketing, Inc. are wholly
owned subsidiaries of Callon Petroleum Operating Company. Callon Petroleum
Operating Company is a wholly owned subsidiary of Callon Petroleum Company.

In addition, Callon Mineral Properties, Inc. is wholly owned subsidiary of
Callon Petroleum Operating Company. This subsidiary is inactive and has no
assets other than cash equivalent to the value of outstanding common stock.

Callon Petroleum Operating Company is a party to the Gulfstar 3-D Seismic
Partnership I, dated February 21, 2001 between Gulfstar Energy, Inc., Cheyenne
Petroleum Company, Gulfstar Seismic, Inc., Range Energy Ventures Corporation,
and Cheyenne International Corporation. Callon Petroleum Operating Company owns
50.00% of this partnership.

<PAGE>

                                  SCHEDULE 7.17

                              ENVIRONMENTAL MATTERS

                                      None

<PAGE>

                                  SCHEDULE 7.19

                                    INSURANCE

                         See attached Insurance Schedule

<PAGE>

                                  SCHEDULE 7.20

                               HEDGING AGREEMENTS

<TABLE>
<CAPTION>
                                             QUANTITY                             COLLARS                           FAIR MARKET
                                              (MMBTU           TIME            ----------------                     VALUE AS OF
  GAS CONTRACTS               DATE          PER MONTH)        PERIOD           CALL         PUT         SWAP         3/31/2004
  -------------               ----          ----------        ------           ----         ---         ----        ---------
<S>                          <C>            <C>              <C>               <C>          <C>         <C>         <C>
MERRILL LYNCH

04DL00590/04DL00592          1/14/04         100,000         4/04-11/04        $6.00        $5.00                   ($199,300)
04DL00591/04DL00592          1/14/04         100,000         12/04-3/05        $7.15        $5.00                   ($152,200)
04DL00504/04DL00509          1/13/04         100,000         4/04-11/04        $6.25        $5.00                   ($199,300)
04DL00506/04DL00509          1/13/04         100,000         12/04-3/05        $7.07        $5.00                   ($159,100)
1558928/1558933               1/6/04         250,000         4/04-11/04        $6.00        $5.00                   ($665,000)

FIMAT

1885/1887                    1/13/04          50,000         4/04-11/04        $6.25        $5.00                   ($ 99,650)
1833/1835                    12/5/03         100,000          1/04-3/04        $7.20        $5.00                    $      0
3979/3981                    10/3/04         100,000         12/03-3/04        $7.25        $5.25                    $      0
1915/1917                    2/11/04         100,000         6/04-11/04        $5.60        $5.00                   ($370,600)
1911/1913                    2/11/04         100,000         12/04-3/05        $6.50        $5.00                   ($225,600)
</TABLE>

<TABLE>
<CAPTION>
                                             QUANTITY                              COLLARS                            FAIR MARKET
                                            (BBLS PER          TIME            ----------------                       VALUE AS OF
  OIL CONTRACTS               DATE            MONTH)          PERIOD           CALL         PUT         SWAP           3/31/2004
  -------------               ----            ------          ------           ----         ---         ----           ---------
<S>                          <C>            <C>              <C>              <C>          <C>          <C>           <C>
MERRILL LYNCH

04DL01961                    2/11/04          15,000         7/04-12/04                                 $30.00        ($274,352)
04DL01873                    2/10/04          15,000          4/04-3/05                                 $30.00        ($573,923)
1558971/1558983               1/6/04          30,000          2/04-1/05       $32.00       $29.00                     ($874,200)
04DL00596/04DL00595          1/14/04          15,000         2/04-10/04       $32.50       $30.00                     ($299,325)
04DL00651/04DL00650          1/15/04          15,000          2/04-1/05       $32.50       $30.00                     ($350,550)

FIMAT

1893                         1/13/04           5,000          2/04-1/05                                 $31.25        ($112,900)
1891                         1/13/04          10,000          2/04-1/05                                 $31.00        ($250,799)
1895                         1/20/04          15,000          2/04-1/05                                 $31.50        ($301,199)
</TABLE>

ALL CURRENT CONTRACTS HAVE MARGIN REQUIREMENTS

<PAGE>

                                  SCHEDULE 7.22

                               MATERIAL AGREEMENTS

1. Indenture and note for 11.0% Senior Subordinated Notes due December 15, 2005
and related Supplemental Indenture for the Company's 11% Senior Subordinated
Notes due 2005.

2. Indenture and note for 9.75% Senior Notes due December 8, 2010.

3. Callon Petroleum Operating Company Deferred Compensation Plan dated as of
December 1,1996 and letter to employees dated December 13, 1996, relating
thereto.

4. The Prior Credit Agreement and related loan documents.

5. Capital Lease by and between Callon Petroleum Company and Hanover Compression
Limited Partnership dated December 14, 2001 for a ten-year gas processing
agreement.

6. Medusa Gas Pipeline Delineation of Responsibilities Agreement by and between
UK Deepwater Gathering Company L.L.C. and Murphy Exploration and Production
Company, British-Borneo Deepwater L.L.C. and Callon Petroleum Operating Company
dated as of September 1, 2001.

7. Medusa Gas Pipeline Dedication Agreement by and between UK Deepwater
Gathering Company L.L.C. and Murphy Exploration and Production Company,
British-Borneo Deepwater L.L.C. and Callon Petroleum Operating Company dated as
of June 1, 2002.

8. Medusa Gas Pipeline Performance Guaranty Agreement by and between UK
Deepwater Gathering Company L.L.C. and Callon Petroleum Company dated as of June
1, 2002.

9. Medusa Gas Pipeline Performance Guaranty Agreement by and between EL Paso
Energy Partners, L.P. and Murphy Exploration and Production Company,
British-Borneo Deepwater L.L.C. and Callon Petroleum Operating Company dated as
of June 1, 2002.

10. Medusa Gas Pipeline Amendment and Supplement to Delineation of
Responsibilities Agreement by and between UK Deepwater Gathering Company, L.L.C.
(now Gulf Terra Field Services, L.L.C.) and Murphy Exploration and Production
Company, British-Borneo Deepwater L.L.C. and Callon Petroleum Operating Company
dated as of August 7, 2003.

11. Medusa Oil Pipeline Provision and Ownership Agreement by and between Shell
Pipeline Company LP and Murphy Exploration and Production Company,
British-Borneo Deepwater L.L.C. and Callon Petroleum Operating Company dated as
of November 15, 2002.

12. Medusa Oil Pipeline Tie-In and Transportation Agreement by and between Shell
Pipeline Company LP and Murphy Exploration and Production Company British-Borneo
Deepwater L.L.C. and Callon Petroleum Operating Company dated as of November 15,
2002.

<PAGE>

13. Medusa Spar Ownership and Operation Letter of Intent among Murphy
Exploration and Production Company, Callon Petroleum Operating Company and
Oceaneering International, Inc. dated as of April 29, 2003.

14. Medusa Spar Agreement among Murphy Exploration and Production Company,
Callon Petroleum Operating Company and Oceaneering International, Inc. dated as
of August 8, 2003.

15. Guaranty and Consent Agreement by Callon Petroleum Company in favor of
Medusa Spar LLC dated as of December 18, 2003.

16. Minimum Throughput Guarantee and Consent Agreement by and among Murphy
Exploration and Production Company, Callon Petroleum Operating Company,
Oceaneering International, Inc., Medusa Spar LLC and The Bank of Nova Scotia
dated as of December 18, 2003.

17. Limited Liability Company Agreement by and between Murphy Exploration and
Production Company, Callon Petroleum Operating Company and Oceaneering
International, Inc. dated as of December 18, 2003.

18. Pledge Agreement by and between Murphy Exploration and Production Company,
Callon Petroleum Operating Company, Oceaneering International, Inc. and The Bank
of Nova Scotia dated as of December 18, 2003.

<PAGE>

                                  SCHEDULE 7.23

                                 GAS IMBALANCES

                            CALLON PETROLEUM COMPANY
                         BALANCING AS OF MARCH 31, 2004

<TABLE>
<CAPTION>
                                                             VOLUME
                                                              MCFE
                                                             (UNDER)
                                                              OVER
                                                            ---------
<S>                                                         <C>
Main Pass 234                                                  (5,819)
Mobile 864                                                    (24,216)
Eugene Island 335                                               3,718
High Island A-494                                              (8,960)
Matagorda Island 558                                           (3,126)
Mobile 952/953                                                 30,188
South Marsh Island 261                                         17,163
East Cameron 275                                              (20,344)
East Cameron 294                                               (2,399)
East Cameron 374                                                2,514
Ship Shoal 28/35                                               (7,480)
Main Pass 36                                                     (529)
Mississippi Canyon 538/582 - Medusa                              (348)
Bayou Postillion - Cotton Wells                                    29
Bayou Postillion - Williams 4-4                               (11,178)
Garden City                                                    (2,540)
South Bosco                                                       967
                                                            ---------
     Total                                                    (32,360)
                                                            =========
Production for 1st Quarter 2004                             5,742,600
  5% of 1st Quarter Production                                287,130
</TABLE>

<PAGE>

                                  SCHEDULE 9.01

                                      DEBT

Any Debt arising under the Prior Credit Agreement and related loan documents
(which Debt, if any, is being repaid and refinanced under this Agreement on the
Closing Date).

The Borrower has issued and outstanding $33,000,000 of 11.00% Senior
Subordinated Notes due December 15, 2005. Interest is payable quarterly.

The Borrower has outstanding a Capital Lease with Hanover Compression Limited
Partnership for a ten-year gas processing agreement.

The Borrower has issued and outstanding $200,000,000 of 9.75 % Senior Notes due
December 8, 2010. Interest is payable quarterly.

Any Debt arising from or related to the Guaranty and Consent Agreement by Callon
Petroleum Company in favor of Medusa Spar LLC dated as of December 18, 2003.

Any Debt arising from or related to the Minimum Throughput Guarantee and Consent
Agreement by and among Murphy Exploration and Production Company, Callon
Petroleum Operating Company, Oceaneering International, Inc., Medusa Spar LLC
and The Bank of Nova Scotia dated as of December 18, 2003.

Any Debt arising from or related to other Medusa Documents in items 6-18 on
Schedule 7.22.

<PAGE>

                                  SCHEDULE 9.02

                                      LIENS

Liens on Callon Petroleum Operating Company's ownership interests in Medusa Spar
LLC securing indebtedness of Medusa Spar LLC.

Any other Liens arising under Medusa Documents listed as items 6-18 on Schedule
7.22.

Any other Liens arising under the Capital Lease by and between Callon Petroleum
Company and Hanover Compression Limited Partnership dated December 14, 2001.

<PAGE>

                                  SCHEDULE 9.03

                         INVESTMENTS, LOANS AND ADVANCES

Investment in Medusa Spar LLC of 10%

Investment in Gulfstar 3-D Seismic Partnership<PAGE>
                                                                   EXHIBIT 10.13

                           LOAN AND SECURITY AGREEMENT

                                       by

                                       and

                                      among

                           LOWRANCE ELECTRONICS, INC.,
                                LEI EXTRAS, INC.,
                       LOWRANCE AUSTRALIA PTY LIMITED, AND
                            LOWRANCE CONTRACTS, INC.
                            collectively, as Borrower

                                       and

                         BARCLAYS BUSINESS CREDIT, INC.
                                    as Lender

                             Date: December 15, 1993

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                            <C>
SECTION 1.  GENERAL DEFINITIONS............................................................................     1
   1.1      Defined Terms..................................................................................     1
   1.2      Accounting Terms...............................................................................    15
   1.3      Other Terms....................................................................................    15
   1.4      Certain Matters of Construction................................................................    16
   1.5      Borrower.......................................................................................    16

SECTION 2.  CREDIT FACILITY................................................................................    16
   2.1      Revolving Credit Loans.........................................................................    16
   2.2      Term Loan......................................................................................    17
   2.3      Manner of Borrowing Revolving Credit Loans.....................................................    18
   2.4      Letters of Credit..............................................................................    18
   2.5      Foreign Currency Purchase Contracts............................................................    18
   2.6      All Loans to Constitute One Obligation.........................................................    19
   2.7      Loan Account...................................................................................    19
   2.8      Joint and Several Liability; Rights of Contribution............................................    19

SECTION 3.  INTEREST, FEES, TERM AND REPAYMENT.............................................................    20
   3.1      Interest, Fees and Charges.....................................................................    20
   3.2      Term of Agreement..............................................................................    24
   3.3      Early Termination by Borrower..................................................................    24
   3.4      Effect of Termination..........................................................................    24
   3.5      Payments.......................................................................................    24
   3.6      Application of Payments and Collections........................................................    25
   3.7      Statements of Account..........................................................................    25

SECTION 4.  COLLATERAL: GENERAL TERMS......................................................................    26
   4.1      Security Interest in Collateral................................................................    26
   4.2      Lien on Realty.................................................................................    26
   4.3      Representations, Warranties and Covenants -- Collateral........................................    27
   4.4      Lien Perfection................................................................................    27
   4.5      Real Property Lien Documentation...............................................................    27
   4.6      Location of Collateral.........................................................................    28
   4.7      Insurance of Collateral........................................................................    28
   4.8      Protection of Collateral.......................................................................    29

SECTION 5.  PROVISIONS RELATING TO ACCOUNTS................................................................    29
   5.1      Representations, Warranties and Covenants......................................................    29
   5.2      Assignments, Records and Schedules of Accounts.................................................    30
   5.3      Administration of Accounts.....................................................................    31
   5.4      Collection of Accounts.........................................................................    31
   5.5      Notice Regarding Disputed Accounts.............................................................    32
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                            <C>
SECTION 6.  PROVISIONS RELATING TO INVENTORY...............................................................    32
   6.1      Representations, Warranties and Covenants......................................................    32
   6.2      Inventory Reports..............................................................................    33
   6.3      Returns of Inventory...........................................................................    33

SECTION 7.  PROVISIONS RELATING TO EQUIPMENT...............................................................    33
   7.1      Representations, Warranties and Covenants......................................................    33
   7.2      Evidence of Ownership of Equipment.............................................................    33
   7.3      Records and Schedules of Equipment.............................................................    34
   7.4      Dispositions of Equipment......................................................................    34

SECTION 8.  REPRESENTATIONS AND WARRANTIES.................................................................    34
   8.1      General Representations and Warranties.........................................................    34
   8.2      Reaffirmation..................................................................................    40
   8.3      Survival of Representations and Warranties.....................................................    40

SECTION 9.  COVENANTS AND CONTINUING AGREEMENTS............................................................    40
   9.1      Affirmative Covenants..........................................................................    40
   9.2      Negative Covenants.............................................................................    47
   9.3      Specific Financial Covenants...................................................................    52

SECTION 10. CONDITIONS PRECEDENT...........................................................................    52
   10.1     Documentation..................................................................................    52
   10.2     Other Conditions...............................................................................    54

SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT..............................................    55
   11.1     Events of Default..............................................................................    55
   11.2     Acceleration of the Obligations................................................................    58
   11.3     Remedies.......................................................................................    58
   11.4     Remedies Cumulative; No Waiver.................................................................    59

SECTION 12. MISCELLANEOUS..................................................................................    60
   12.1     Power of Attorney..............................................................................    60
   12.2     Indemnity......................................................................................    61
   12.3     Modification of Agreement......................................................................    61
   12.4     Reimbursement of Expenses......................................................................    61
   12.5     Indulgences Not Waivers........................................................................    62
   12.6     Severability...................................................................................    62
   12.7     Successors and Assigns.........................................................................    63
   12.8     Cumulative Effect; Conflict of Terms...........................................................    63
   12.9     Execution in Counterparts......................................................................    63
   12.10    Notice.........................................................................................    63
   12.11    Lender's Consent...............................................................................    64
   12.12    Demand Obligations.............................................................................    64
   12.13    Time of Essence................................................................................    64
   12.14    Entire Agreement...............................................................................    64
   12.15    Interpretation.................................................................................    64
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                            <C>
   12.16    No Fiduciary Relationship or Joint Venture.....................................................    64
   12.17    Publicity......................................................................................    64
   12.18    Destruction of Borrower's Documents............................................................    65
   12.19    Nonapplicability of Article 5069-15.01 et seq..................................................    65
   12.20    No Preservation or Marshaling..................................................................    65
   12.21    Security Interest in Australian Property.......................................................    65
   12.22    Obligations Under Deed of Covenant to Pay......................................................    65
   12.23    GOVERNING LAW; CONSENT TO FORUM................................................................    65
   12.24    WAIVERS BY BORROWER............................................................................    66
   12.25    DTPA WAIVER....................................................................................    67
   12.26    ORAL AGREEMENTS INEFFECTIVE....................................................................    67

SIGNATURES.................................................................................................    82
</TABLE>

<PAGE>

EXHIBITS:

EXHIBIT A-1      Form of Secured Promissory Note

EXHIBIT A-2      Form of Revolving Credit Note

EXHIBIT B        Borrower's Business Locations

EXHIBIT C        Permitted Costs and Expenses

EXHIBIT D        Jurisdiction of Organization and qualification

EXHIBIT E        Corporate Names

EXHIBIT F        Patents, Trademarks, Copyrights and Licenses

EXHIBIT G        Capital Structure

EXHIBIT H        Contracts Restricting Borrower's Right to Incur Debt

EXHIBIT I        Litigation

EXHIBIT J        Property Owned or Leased by Borrower

EXHIBIT K        Pension Plans

EXHIBIT L        Taxing Authorities

EXHIBIT M        Labor Contracts

EXHIBIT N        Trade Relations

EXHIBIT O        Capitalized Leases

EXHIBIT P        Operating Leases

EXHIBIT Q        Form of Compliance Certificate

EXHIBIT R        Form of Tax Certificate

EXHIBIT S        Permitted Liens

EXHIBIT T        Bill and Hold Sales, Etc.

                                       iv

<PAGE>

                           LOAN AND SECURITY AGREEMENT

         THIS LOAN AND SECURITY AGREEMENT is made this 15th day of December,
1993, by and among BARCLAYS BUSINESS CREDIT, INC., a Connecticut corporation
("Lender"), LOWRANCE ELECTRONICS, INC., a Delaware corporation ("Lowrance"), LEI
EXTRAS, INC., a Delaware corporation ("LEI"), LOWRANCE AUSTRALIA PTY LIMITED, a
New South Wales, Australia corporation ("Lowrance Australia") (ACN 050 050 612),
and LOWRANCE CONTRACTS, INC., a Delaware corporation ("Lowrance Contracts")
(Lowrance, LEI, Lowrance Australia and Lowrance Contracts are herein
individually and collectively called "Borrower").

SECTION 1. GENERAL DEFINITIONS

         1.1 Defined Terms. When used herein, the following terms shall have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):

         Account Debtor - any Person who is or may become obligated under or on
account of an Account.

         Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest.

         Affiliate - a Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (b) which beneficially owns or holds 5%
or more of any class of the Voting Stock of Borrower; (c) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by Borrower or a
Subsidiary of Borrower; (d) 5% or more of whose Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest) is
beneficially owned or held by a Person referred to in (a), (b) or (c) above; or
(e) in the case of a natural Person, is a director or officer of any of the
foregoing. For purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of Voting Stock, by contract
or otherwise.

         Agreement - this Loan and Security Agreement.

         Applicable Annual Rate - as defined in Section 3.1(A) of this
Agreement.

         Authority - as defined in Section 9.1(R) of this Agreement.

         Average Monthly Loan Balance - the amount obtained by adding the unpaid
balance of Revolving Credit Loans owing by Borrower to Lender at the end of each
day for each day during the month in question and by dividing such sum by the
number of days in such month.

         Bank - Barclays Bank PLC.

<PAGE>

         Base Rate - the rate of interest announced or quoted by Bank at its New
York office from time to time as its base rate for commercial loans, whether or
not such rate is the lowest rate charged by Bank to its most preferred
borrowers; and, if the base rate for commercial loans is discontinued by Bank as
a standard, a comparable reference rate designated by Bank as a substitute
therefor shall be the Base Rate. The Base Rate as of the Closing Date is 6.0%.

         Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:

                  (A)      the Revolving Credit Commitment; or

                  (B)      an amount equal to:

                           (i)      85% of the net amount of Eligible Accounts
                  other than Eligible Wal-Mart Accounts or Eligible Kmart
                  Accounts outstanding at such date;

                                      PLUS

                           (ii)     80% of the net amount of Eligible Wal-Mart
                  Accounts and Eligible Kmart Accounts outstanding at such date;

                                      PLUS

                           (iii)    the lesser of (A) the Inventory Commitment
                  Amount or (B) the sum of (x) 30% of the value of Raw Materials
                  Eligible Inventory at such date, and (y) 60% of the value of
                  Finished Goods Eligible Inventory at such date, all of the
                  above as calculated on the basis of the lower of cost or
                  market with cost calculated on a first-in, first-out basis;

                           MINUS (subtract from the sum of clauses (i), (ii) and
                           (iii) above)

                           (iv)     an amount equal to the sum of (A) the face
                  amount of all Letters of Credit outstanding at such date, (B)
                  the amount of all reserves established by Lender on a monthly
                  basis (and promptly notified to Borrower) to reflect the
                  liability of Lender and/or Bank under or in connection with
                  guaranties by Lender and/or Bank of all foreign exchange
                  contracts pursuant to Section 2.5 hereof, (C) the amount of
                  any mandatory prepayment paid pursuant to Section 2.2(B) and
                  applied by Lender to the Revolving Credit Loans outstanding,
                  (D) any amounts received by Lender from the Insurance
                  Assignment and applied to the Obligations, and (E) any amounts
                  which Lender may pay (but which have not been paid and applied
                  to the Revolving Credit Loans outstanding) pursuant to any of
                  the Loan Documents for the account of Borrower other than
                  Letters of Credit.

         For purposes hereof, the net amount of Eligible Accounts, Eligible
Wal-Mart Accounts or Eligible Kmart Accounts, as the case may be, at any time
shall be the face amount of such Eligible Accounts, Eligible Wal-Mart Accounts
or Eligible Kmart Accounts, less any and all credit memoranda or credit
adjustments issued for discounts (which may, at Lender's option, be

                                       2

<PAGE>

calculated on the shortest terms), credits and rebills, returns, allowances,
pricing errors or other similar items at any time outstanding or payable in
connection with such Accounts at such time.

         Business Day - any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the States of Texas or Illinois or is a day on
which banking institutions located in such state are closed.

         Capital Expenditures - expenditures made and liabilities incurred
(other than expenditures or liabilities incurred with respect to operating
leases) for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise.

         Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease (other than obligations under motor vehicle leases)
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with GAAP.

         Closing Date - the date on which all of the conditions precedent in
Section 10 are satisfied and the initial Loan is made hereunder.

         Code - the Uniform Commercial Code as adopted and in force in the State
of Texas, as from time to time in effect.

         Collateral - all of the Property and interests in Property described in
Section 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations.

         Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.

         Credit Enhancements - Letters of Credit an guaranties of foreign
currency purchase contracts issued by Bank or Lender from time to time for
Borrower's account in accordance with Section 2.4 and Section 2.5 of this
Agreement.

         Dated Assets - as defined in Section 2.8(C) of this Agreement.

         Dated Liabilities - as defined in Section 2.8(C) of this Agreement.

         Deed of Covenant to Pay - the Deed of Covenant to Pay to be executed by
the Domestic Borrowers and Lender on or about the Closing Date.

         Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.

         Default Rate - as defined in Section 3.1(B) of this Agreement.

                                       3

<PAGE>

         Distribution - in respect of any corporation means and includes: (a)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (b) the redemption or
acquisition of its Securities unless made contemporaneously from the net
proceeds of the sale of Securities.

         Domestic Borrowers - collectively, Lowrance, LEI and Lowrance
Contracts.

         Dollars - dollars in lawful currency of the United States of America.

         Dominion Account - one or more special accounts of Lender established
by Borrower pursuant to this Agreement at one or more banks selected by
Borrower, but acceptable to Lender, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.

         Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services is an
Eligible Account. Notwithstanding the generality of the foregoing, no Account
shall be an Eligible Account if:

                  (a)      it arises out of a sale made by Borrower to (i) a
         Subsidiary of Borrower, (ii) an Affiliate of Borrower, (iii) a Person
         controlled by an Affiliate of Borrower, or (iv) an officer, director,
         employee or agent of Borrower, a Subsidiary of Borrower or an Affiliate
         of Borrower; or

                  (b)      with respect to Accounts owing by Account Debtors
         other than Wal-Mart and Kmart, for which Borrower in the ordinary
         course of business allows payment terms in excess of 60 days after the
         original invoice date, such Accounts are unpaid for more than 60 days
         after the original due date shown on the invoice; provided, however,
         that no Account shall be deemed an Eligible Account if it is unpaid
         more than 210 days from the original invoice date; or

                  (c)      with respect to Accounts for which Borrower in the
         ordinary course of business allows payment terms of 60 days or less
         after the original invoice date, such Accounts are unpaid more than 90
         days after the original invoice date; provided, however, that during
         the period commencing on the Closing Date and ending on December 31,
         1993, all such Accounts owing by Wal-mart or Kmart which are unpaid for
         more than 60 days after the original due date shown on the invoice
         shall be deemed Eligible Accounts but only with respect to the portion
         of such Accounts that (i) do not exceed $750,000, and (ii) otherwise
         qualify as Eligible Accounts hereunder; or

                  (d)      20% or more of the Accounts from the Account Debtor
         are not deemed Eligible Accounts hereunder, to the extent of all
         Accounts owing by such Account Debtor; or

                  (e)      the total unpaid Accounts of the Account Debtor
         (other than Wal-Mart or Kmart) exceed 10% of the net amount of all
         Accounts, to the extent of such excess, if Lender in the exercise of
         its good faith credit judgment determines that the collection of the
         Account from the Account Debtor is insecure or that payment thereof is
         doubtful; or

                                       4

<PAGE>

                  (f)      any material covenant, representation or warranty
         contained in this Agreement with respect to such Account has been
         breached; or

                  (g)      the Account Debtor is also Borrower's creditor or
         supplier, or has disputed liability with respect to such Account, or
         has made any claim with respect to any other Account due from such
         Account Debtor to Borrower, or the Account otherwise is or may become
         subject to any right of setoff by the Account Debtor (including any
         right of setoff arising from cooperative advertising arrangements,
         rebate allowances, and other advertising credits between Borrower and
         the Account Debtor), in an amount equal to the extent of any offset,
         dispute or claim; or

                  (h)      the Account Debtor has commenced a voluntary case
         under the federal bankruptcy laws, as now constituted or hereafter
         amended, or made an assignment for the benefit of creditors, or a
         decree or order for relief has been entered by a court having
         jurisdiction in the premises in respect of the Account Debtor in an
         involuntary case under the federal bankruptcy laws, as now constituted
         or hereafter amended, or any other petition or other application for
         relief under the federal bankruptcy laws has been filed against the
         Account Debtor, or if the Account Debtor has failed, suspended
         business, ceased to be Solvent, or consented to or suffered a receiver,
         trustee, liquidator or custodian to be appointed for it or for all or a
         significant portion of its assets or affairs; or

                  (i)      it arises from a sale to an Account Debtor outside
         the United States (other than Canada), unless the sale is on letter of
         credit, guaranty, or acceptance terms, in each case acceptable to
         Lender or such Account is covered by FCIA insurance; or

                  (j)      it arises from a sale to the Account Debtor on a
         bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
         consignment or any other repurchase or return basis and has not been
         disclosed to Lender on Exhibit T attached hereto; or

                  (k)      Lender in the exercise of its good faith credit
         judgment believes that collection of such Account is insecure or that
         payment thereof is doubtful or will be delayed by reason of the Account
         Debtor's financial condition; or

                  (l)      the Account Debtor is the United States of America or
         any department, agency or instrumentality thereof, unless Borrower
         assigns its right to payment of such Account to Lender, in form and
         substance satisfactory to Lender, so as to comply with the Assignment
         of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.);
         or

                  (m)      the Account Debtor is located in the States of New
         Jersey, Minnesota or Indiana, unless Borrower has filed a Notice of
         Business Activities Report with the appropriate officials in each
         applicable state for the then current year; or

                  (n)      the Account is subject to a Lien other than a
         Permitted Lien; or

                  (o)      the goods giving rise to such Account have not been
         delivered to a common carrier or the services giving rise to such
         Account have not been performed by

                                       5

<PAGE>

         Borrower and accepted by the Account Debtor or the Account otherwise
         does not represent a final sale; or

                  (p)      the Account arises from a progress billing or an
         invoice for deposit; or

                  (q)      the Account arises from a sale which is an
         installment sale or lease or is otherwise a sale on an extended payment
         basis, except to the extent permitted pursuant to clauses (b) and (c)
         above; or

                  (r)      the Account is evidenced by chattel paper or an
         instrument of any kind, or has been reduced to judgment; or

                  (s)      Borrower has made any agreement with the Account
         Debtor for any deduction therefrom, except for (i) discounts or
         allowances which are made in the ordinary course of business for prompt
         payment and which discounts or allowances are reflected in the
         calculation of the face value of each invoice related to such Account,
         and (ii) other discounts and allowances of the type granted by Borrower
         to Account Debtors in the ordinary course of business on the Closing
         Date; or

                  (t)      Borrower has made an agreement with the Account
         Debtor to extend the time of payment thereof, except to the extent
         permitted pursuant to clauses (b) and (c) above; or

                  (u)      the Account arises from a retail sale of goods to a
         Person who is purchasing same primarily for personal, family or
         household purposes; or

                  (v)      the Account includes any sales, excise or other taxes
         of any nature at any time outstanding or payable in connection with
         such Account, to the extent of the amount of such taxes included in
         such Account; or

                  (w)      the Account includes any interest, late fees, and
         service charges that may have accrued on such Account by reason of the
         Account Debtor not having paid the Account as it became due, to the
         extent of the amount of such interest, late fees, and service charges
         included in such Account.

         Eligible Inventory - Inventory of Borrower consisting of raw materials
or finished goods (after deducting therefrom, (A) Inventory consisting of
packaging materials and supplies, promotional materials, samples and display
materials, and Inventory neither offered for sale nor used as a component in the
production or repair of Borrower's finished goods, (B) all reserves established
for excess, slow moving, obsolete or unmerchantable Inventory, which reserves
shall be calculated and adjusted from time to time using the Borrower's reports
with respect to the determination of excess raw materials and finished goods,
and (C) all reserves established by Lender in its good faith credit judgment
with respect to shrinkage or spoilage of Inventory) is Eligible Inventory.
Notwithstanding the generality of the foregoing, no Inventory shall be Eligible
Inventory unless it:

                  (a)      is raw materials or finished goods,

                                       6

<PAGE>

                  (b)      is in good, new and saleable condition or usable in
         the production or repair of Borrower's finished goods (and is not work
         in progress),

                  (c)      meets all standards imposed by any governmental
         agency or authority,

                  (d)      conforms in all respects to the warranties and
         representations set forth in Section 6.1 hereof,

                  (e)      is at all times subject to Lender's duly perfected,
         first priority security interest and not other Lien except a Permitted
         Lien,

                  (f)      is situated at a location in compliance with Section
         4.6 hereof and is not in-transit, and

                  (g)      is not consigned by any Person to Borrower or by
         Borrower to any Person.

         Furthermore, Lender shall have the right to increase or decrease from
time to time the amount of the deduction described in clause (B) of the first
sentence of this definition of Eligible Inventory if Lender, following its
evaluation of Borrower's reserves for excess, slow moving, obsolete or
unmerchantable Inventory (which reserves shall be evaluated by Lender utilizing
Borrower's books and records), determines in the exercise of its good faith
credit judgment that such increases or decreases are necessary or appropriate.
No Inventory of Lowrance Australia shall be deemed to be Eligible Inventory.

         Eligible Kmart Account - an Eligible Account owing to Borrower by
Kmart.

         Eligible Wal-Mart Account - an Eligible Account owing to Borrower by
Wal-Mart.

         Environmental Indemnity Matters - as defined in Section 9.1(R)(viii) of
this Agreement.

         Environmental Complaint - as defined in Section 9.1(R) of this
Agreement.

         Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including, but not
limited to, the Resource Conservation and Recovery Act; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980; the Toxic
Substances Control Act, as amended; the Clean Water Act; the River and Harbor
Act; Water Pollution Control Act; the Marine Protection Research and Sanctuaries
Act; the Deep-Water Port Act; the Safe Drinking Water Act; the Superfund
Amendments and Reauthorization Act of 1986; the Federal Insecticide, Fungicide
and Rodenticide Act; the Mineral Lands and Leasing Act; the Surface Mining
Control and Reclamation Act; state and federal superlien and environmental
cleanup programs and laws; and U.S. Department of Transportation regulations.

         Environmental Report - as defined in Section 10.1(P) of this Agreement.

         Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an

                                       7

<PAGE>

interest, whether now owned or hereafter acquired and wherever located, and all
parts, accessories and special tools and all increases and accessions thereto
and substitutions and replacements therefor.

         ERISA - the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated thereunder.

         ERISA Affiliate - Borrower and each Person under common control with
Borrower or otherwise treated as a single employer with Borrower under ERISA or
IRC Section 414.

         Excess - as defined in Section 3.1(D) of this Agreement.

         Event of Default - as defined in Section 11.1 of this Agreement.

         Finished Goods Eligible Inventory - Eligible Inventory consisting of
finished goods.

         Fixed and Floating Equitable Charge - the Fixed and Floating Equitable
Charge to be executed by Lowrance Australia prior to the Closing Date in favor
of Lender granting a security interest in certain assets of Lowrance Australia.

         GAAP - with respect to any date of determination, generally accepted
accounting principles as used by the Financial Accounting Standards Board and/or
the American Institute of Certified Public Accountants.

         General Intangibles - all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, deposit accounts, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, rights to royalties, blueprints, drawings, confidential
information, catalogs, sales literature, video tapes, consulting agreements,
employment agreements, customer lists, tax refund claims, computer programs,
insurance policies, deposits with insurers, all claims under guaranties,
security interests or other security held by or granted to Borrower to secure
payment of any of the Accounts by an Account Debtor, all rights to
indemnification and all other intangible property of every kind and nature
(other than Accounts).

         Hazardous Discharge - as defined in Section 9.1(R) of this Agreement.

         Hazardous Substance - without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated byphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials
as defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act or applicable
state law, and any other applicable federal and state laws now in force or
hereafter enacted relating to hazardous waste disposal.

         Indebtedness - as applied to a Person means, without duplication (a)
all items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be

                                       8

<PAGE>

determined, including, without limitation, Capitalized Lease Obligations, (b)
all obligations of other Persons which such Person has guaranteed and (c) in the
case of Borrower (without duplication), the Obligations.

         Indemnified Persons - as defined in Section 12.2 of this Agreement.

         Indemnity Matters - as defined in Section 12.2 of this Agreement.

         Insurance Assignment - the two Assignments of Life Insurance Policy as
Collateral which are to be executed by Borrower in favor of Lender on or about
the Closing Date and by which Borrower shall assign to Lender as security for
the Obligations all of Borrower's rights in, to and under two certain life
insurance policies owned by Borrower and insuring the life of Darrell J.
Lowrance in the face amount of $2,000,000 and $1,000,000 respectively.

         Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired and wherever located, including, but not limited to, all goods intended
for sale or lease by Borrower, or for display or demonstration; all work in
process; all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
printing, packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Borrower's business; and all documents
evidencing and General Intangibles relating to any of the foregoing.

         Inventory Commitment Amount - the amount indicated below for the
periods indicated below:

<TABLE>
<CAPTION>
                                                       Inventory
         Applicable Period                         Commitment Amount
 ---------------------------------                 -----------------
<S>                                                <C>
(a)   October 1 through October 31                     $7,000,000

(b)   November 1 through November 30                   $8,000,000

(c)   December 1 through March 31                      $10,000,000

(d)   April 1 through April 30                         $8,000,000

(e)   May 1 through September 30                       $7,000,000
</TABLE>

         provided, however, that so long as no Default or Event of Default has
occurred and is continuing on any anniversary date of this Agreement, then, in
such event, the Inventory Commitment Amount for each month in the twelve-months
immediately succeeding such anniversary date shall be an amount equal to (i)
$1,000,000, plus (ii) the Inventory Commitment Amount for the corresponding
month in the twelve-months immediately preceding such anniversary date.

         IRC - the United States Internal Revenue Code of 1986, as amended, and
all rules and regulations promulgated thereunder.

         Kmart - Kmart Corporation and its Affiliates.

                                       9

<PAGE>

         Lender - as defined in the preamble to this Agreement.

         Letter of Credit - a standby or documentary letter of credit at any
time issued by Lender, Bank or another Person under this Agreement for the
account of Borrower.

         Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including, but not limited
to, the security interest, security title or lien arising from a security
agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For the
purpose of this Agreement, Borrower shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes.

         Loan Account - the loan account established on the books of Lender
pursuant to Section 2.7 hereof.

         Loan Documents - this Agreement, the Other Agreements and the Security
Documents.

         Loans - all loans and advances made by Lender pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans, the Term
Loan, each payment made pursuant to a guaranty of a foreign currency purchase
contract, and each payment made pursuant to a Letter of Credit.

         Losses - as defined in Section 12.2 of this Agreement.

         Maximum Legal Rate - as defined in Section 3.1(C) of this Agreement.

         Money Borrowed - as applied to Indebtedness, means (a) Indebtedness for
borrowed money; (b) Indebtedness, whether or not in any such case the same was
for borrowed money, (i) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (ii) which constitutes obligations evidenced
by bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than accounts payable) or that was issued or
assumed as full or partial payment for Property; (c) Indebtedness that
constitutes a Capitalized Lease Obligation; and (d) Indebtedness under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (a) through (c) hereof.

         Mortgage - the Mortgage, Security Agreement, Financing Statement and
Assignment of Rents to be executed by Lowrance on or about the Closing Date in
favor of Lender and by which Lowrance shall grant and convey to Lender, as
security for the Obligations, a first priority Lien upon all Real Property owned
by Lowrance in fee simple, including, without limitation, all such Real Property
located in Tulsa, Oklahoma.

                                       10

<PAGE>

         Multiemployer Plan - a multiemployer plan as defined in Section 3(37)
of ERISA to which any ERISA Affiliate contributes, has contributed to in the
last six years or is required to contribute to.

         New Mortgages - as defined in Section 4.2 hereof.

         Notes - the Term Note and the Revolving Credit Notes.

         Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the other Loan Documents or otherwise, whether direct or indirect
(including those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, attorneys' fees and any other sums chargeable to Borrower under
any of the Loan Documents.

         Original Term - as defined in Section 3.2 of this Agreement.

         OSHA - the Occupational Safety and Health Act and all rules and
regulations from time to time promulgated thereunder.

         Other Agreements - any and all agreements, instruments and documents
(other than this Agreement and the Security Documents), heretofore, now or
hereafter executed by Borrower and delivered to Lender in respect to the
transactions contemplated by this Agreement, including, without limitation, the
Term Note, the Revolving Credit Notes and the Deed of Covenant to Pay.

         Patent Assignment - the Patent Security Agreement to be executed by
Lowrance on or about the Closing Date in favor of Lender and by which Lowrance
shall assign to Lender, and grant to Lender a security interest in, as security
for the Obligations, all of Lowrance's right, title and interest in and to all
of its patents.

         PBGC - the Pension Benefit Guaranty Corporation.

         Pension Plan - an employee pension benefit plan as defined in Section
3(2) of ERISA, which is maintained or contributed to by an ERISA Affiliate or
for which contributions are required from an ERISA Affiliate, and which is
subject to Title IV of ERISA.

         Permitted Liens - any Lien of a kind specified in subparagraphs (i)
through (x) of Section 9.2(H) of this Agreement.

         Permitted Raw Materials Loan Amount - the amount indicated below for
the periods indicated below:

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                                       Permitted Raw
                  Period                           Materials Loan Amount
---------------------------------------------      ---------------------
<S>                                                <C>
(a)     Closing Date through September 30,
        1994                                             $2,250,000

(b)     October 1, 1994 through September 30,
        1995                                             $2,750,000

(c)     October 1, 1995 through September 30,
        1996                                             $3,250,000

(d)     October 1, 1996 through September 30,
        1997                                             $3,750,000
</TABLE>

         provided, however, that if a Default or Event of Default has occurred
and is continuing on any anniversary date of this Agreement, then, in such
event, the Permitted Raw Materials Loan Amount for the twelve-month period
immediately succeeding such anniversary date shall be the Permitted Raw
Materials Loan Amount specified for the twelve-month period immediately
preceding such anniversary date rather than the Permitted Raw Materials Loan
Amount specified above.

         Person - an individual, partnership, corporation, joint stock company,
land trust, business trust or unincorporated organization, or a government or
agency or political subdivision thereof.

         Plan - an employee benefit plan as defined in Section 3(3) of ERISA
that is maintained or contributed to or for which contributions are required by
an ERISA Affiliate.

         Prohibited Transaction - a transaction described in Section 406 of
ERISA or Section 4975 of the IRC which would subject any Plan or ERISA Affiliate
to any taxes, fines, penalties or other liabilities, directly or through any
indemnification agreements.

         Projections - Lowrance's forecasted (a) consolidated balance sheets,
and cash flow statements, and (b) consolidated and consolidating profit and loss
statements, all prepared on a consistent basis with Lowrance's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.

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

         Purchase Money Indebtedness - means and includes (a) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (b) any Indebtedness (other than the Obligations)
incurred at the time of or within sixty days prior to or after the acquisition
of any fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (c) any renewals, extensions or refinancings thereof, but not
any increases in the principal amounts thereof outstanding at the time.

         Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the

                                       12

<PAGE>

purchase price of which was financed through the incurrence of the Purchase
Money Indebtedness secured by such Lien.

         Raw Materials Eligible Inventory - Eligible Inventory consisting of raw
materials.

         Real Property - all real Property now owned or hereafter acquired by
Borrower, including, without limitation, the real Property of Borrower subject
to the Mortgage.

         Release - as defined in Section 8.1(AA)(iii) of this Agreement.

         Rentals - as defined in Section 9.2(X) of this Agreement.

         Renewal Term - as defined in Section 3.2 of this Agreement.

         Reportable Event - any of the events set forth in Section 4043(b) of
ERISA and the regulations thereunder, excluding any event not subject to the
provision for 30 days notice to the PBGC under such regulations.

         Restricted Investment - any investment in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following: (a) investments in one or
more Subsidiaries of Borrower; (b) Property to be used in the ordinary course of
business; (c) current assets arising from the sale of goods and services in the
ordinary course of business of Borrower and its Subsidiaries; (d) investments in
direct obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (e)
investments in certificates of deposit maturing within one year from the date of
acquisition issued by Valley National Bank of Tulsa, Oklahoma or another bank or
trust company organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least $50,000,000;
(f) investments in commercial paper of investment grade and maturing not more
than 270 days from the date of creation thereof; (g) investments in Australian
dollars for Australian Subsidiaries in an amount not to exceed $500,000 at any
given time; (h) investments in life insurance policies in place on the Closing
Date and any renewals and replacements thereof or in new policies insuring the
lives of executive officers of Borrower consistent with the types of policies
offered by Borrower to its officers on the Closing Date, to the extent such
policies are offered by Borrower to its officers as an employee benefit, and (i)
investments otherwise permitted under this Agreement.

         Revolving Credit Availability - at any date means the excess of the
Borrowing Base over the amount of the Revolving Credit Loans then outstanding.

         Revolving Credit Commitment - as at any date of determination thereof,
$26,500,000 minus the face amount of all Credit Enhancements outstanding at such
date.

         Revolving Credit Notes - collectively, the two Revolving Credit Notes
to be executed on or about the Closing Date by Borrower in favor of Lender, each
in the principal amount of $13,250,000 to evidence the Revolving Credit Loans,
which shall be in the form of Exhibit A-2 attached hereto.

                                       13

<PAGE>

         Revolving Credit Loan - a Loan made by Lender as provided in Section
2.1 of this Agreement.

         Seasonal Dating Accounts - Accounts with respect to which Borrower in
the ordinary course of business allows payment terms in excess of sixty (60)
days after the original invoice date and which are Eligible Accounts.

         Seasonal Dating Accounts Loan Amount - the amount indicated below for
the period indicated below:

<TABLE>
<CAPTION>
                                                               Seasonal Dating
       Applicable Period                                    Accounts Loan Amount
-------------------------------                             --------------------
<S>                                                         <C>
December 15 through December 31                                  $10,000,000
January 1 through April 30                                       $15,000,000
May 1 through December 14                                        $10,000,000
</TABLE>

provided, however, that so long as no Default or Event of Default has occurred
and is continuing on any anniversary date of this Agreement, then, in such
event, the Seasonal Dating Accounts Loan Amount for each month in the
twelve-months immediately succeeding such anniversary date shall be an amount
equal to (a) $1,500,000, plus (b) the Seasonal Dating Accounts Loan Amount for
the corresponding month in the twelve-months immediately preceding such
anniversary date.

         Schedule of Accounts - as defined in Section 5.2 of this Agreement.

         Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

         Security Documents - the Mortgage, each New Mortgage, the Stock Pledge
Agreement, the Insurance Assignment, the Patent Assignment, the Trademark
Assignment, the Fixed and Floating Equitable Charge and all other instruments
and agreements now or at any time hereafter securing the whole or any part of
the Obligations.

         Solvent - as to any Person, such Person (a) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (b) is able to pay all of its
Indebtedness as such Indebtedness matures and (c) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.

         Stock Pledge Agreement - the Stock Pledge Agreement to be executed by
Lowrance on or about the Closing Date in favor of Lender by which Lowrance shall
grant to Lender a first priority security interest in all of the issued and
outstanding shares of capital stock of LEI, Lowrance Contracts, Lowrance
Electronics Deutschland GmbH and Electronica Lowrance De Mexico S.A. De C.V.
owned by Lowrance as security for the obligations of Lowrance under this
Agreement.

                                       14

<PAGE>

         Subordinated Debt - Indebtedness of Borrower that is expressly
subordinated to the Obligations, upon terms and conditions satisfactory to
Lender in its sole discretion.

         Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting Stock
at the time of determination.

         Tangible Net Worth - at any date means the tangible net worth of a
Person as shown on its balance sheet at such date in accordance with GAAP.

         Term Loan - the Loan described in Section 2.2(A) of this Agreement.

         Term Note - the Secured Promissory Note to be executed by Borrower on
or about the Closing Date in favor of Lender to evidence the Term Loan, which
shall be in the form of Exhibit A-1 attached hereto.

         Termination Amount - at any date means the sum of (a) the amount of the
Term Loan then outstanding, plus (b) the Revolving Credit Commitment at such
date, plus (c) the face amount of all Credit Enhancements outstanding at such
date.

         Trademark Assignment - the Trademark Security Agreement to be executed
by Lowrance on or about the Closing Date in favor of Lender and by which
Lowrance shall assign to Lender, and grant to Lender a security interest in, as
security for the Obligations, all of Lowrance's right, title and interest in and
to all of its trademarks.

         Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).

         Wal-Mart - Wal-Mart Stores, Inc. and its Affiliates.

         1.2      Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in preparation of the financial statements, in all material respects,
referred to in Section 9.1(J), and all material financial data pursuant to this
Agreement shall be prepared in accordance with GAAP, consistently applied and
maintained throughout the term of this Agreement, unless GAAP requires
otherwise. In the event that changes in GAAP shall be mandated by the Financial
Accounting Standards Board and/or the American Institute of Certified Public
Accountants or any similar accounting body of comparable standing, to the extent
that such changes would modify such accounting terms or the interpretation or
computation thereof as contemplated by this Agreement at the time of execution
hereof, then in such event such changes shall be followed in defining such
accounting terms only after Lender and Borrower amend this Agreement to reflect
the original intent of such terms in light of such changes, and such terms shall
continue to be applied and interpreted without such change until such agreement.

         1.3      Other Terms. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Code to
the extent the same are used or defined therein.

                                       15

<PAGE>

         1.4      Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. The section titles, table of contents
and list of exhibits appear as a matter of convenience only and shall not affect
the interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including, without
limitation, references to any of the Loan Documents, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.

         1.5      Borrower. All references to "Borrower" herein shall refer to
and include each of Lowrance, LEI, Lowrance Australia and Lowrance Contracts.
Except as otherwise provided herein, all representations contained herein shall
be deemed individually made by each "Borrower" and each of the covenants,
agreements, and obligations set forth herein shall be deemed to be the joint and
separate covenants, agreements, and obligations of the Borrowers. For purposes
of Section 11.1 of this Agreement, references to the "Borrower" shall be deemed
to mean and include each of Lowrance, LEI, Lowrance Australia and Lowrance
Contracts or all of them. Any notice, request, consent, report or other
information or agreement delivered to Lender by any Borrower shall be deemed to
be ratified by, consented to, and also delivered by the other Borrowers.
Lowrance, LEI, Lowrance Australia and Lowrance Contracts each recognize and
agree that each covenant and agreement of "Borrower" or "Borrowers" in this
Agreement and in the Other Agreements shall create a joint and several
obligation of such entities, which may be enforced against such entities
jointly, or each entity separately. Without limiting the terms of this
Agreement, and the Other Agreements, the security interests granted under this
Agreement and the Security Documents in properties, assets, and collateral of
"the Domestic Borrowers" shall include and extend to the properties, interests,
assets, and collateral of such entities, and any of them. Similarly, the term
"Obligations" shall include, without limitation, all or any of them, to Lenders,
whether such obligations, limitations, and indebtedness shall be joint, several,
joint and several, or individual.

SECTION 2. CREDIT FACILITY

         Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a total credit facility of up to $30,000,000
available upon Borrower's request therefor, as follows:

         2.1      Revolving Credit Loans.

                  (A)      Subject to all of the terms and conditions of this
Agreement, Lender agrees, for so long as no Default or Event of Default exists,
to make Revolving Credit Loans to Borrower from time to time, as requested by
Borrower in accordance with the terms of Section 2.3 hereof, up to a maximum
principal amount at any time outstanding equal to the Borrowing Base at such
time. It is expressly understood and agreed that Lender may use the Borrowing
Base as a maximum ceiling on Revolving Credit Loans outstanding to Borrower at
any time. If the unpaid balance of the Revolving Credit Loans should exceed the
Borrowing Base or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all the benefits thereof. It

                                       16

<PAGE>

is expressly understood and agreed that Lender shall not have any obligation to
make any Revolving Credit Loans to Borrower at any time that there exists a
Default or an Event of Default.

                  (B)      Notwithstanding the foregoing provisions of Section
2.1(A), it is expressly agreed and understood that (i) the aggregate outstanding
amount of all Revolving Loans advanced against Eligible Accounts and Eligible
Inventory of LEI and Lowrance Contracts shall not exceed $500,000 at any time;
(ii) the aggregate outstanding amount of Revolving Loans advanced against
Eligible Accounts of Lowrance Australia shall not exceed $1,000,000 at any time;
(iii) the aggregate outstanding amount of all Revolving Loans advanced against
Raw Materials Eligible Inventory shall not exceed the Permitted Raw Materials
Loan Amount at any time; (iv) the aggregate outstanding amount of all Revolving
Loans advanced against Seasonal Dating Accounts shall not exceed the Seasonal
Dating Accounts Loan Amount; and (v) the aggregate outstanding amount of
Revolving Loans advanced against Eligible Inventory shall not exceed $1,000,000
for a period of at least forty-five (45) consecutive days during each fiscal
year of Borrower.

                  (C)      Notwithstanding the foregoing provisions of Sections
2.1(A) and 2.1(B), Lender shall have the right to establish reserves in such
amounts, and with respect to such matters, as Lender shall, in the exercise of
its good faith credit judgement, deem necessary or appropriate, against the
amount of Revolving Credit Loans which Borrower may otherwise request under
Section 2.1(A) with respect to (i) past due and unpaid sales taxes, (ii) sums
chargeable against Borrower's Loan Account as Revolving Credit Loans under any
section of this Agreement, and (iii) such other matters, events, conditions or
contingencies as are now known or may hereafter become known to Lender which
Lender in its good faith credit judgment determines has resulted or probably
could result in the creation of a liability or an impairment of an asset which
has or probably could have an adverse impact on the value of the Collateral
included in the Borrowing Base or the Borrower's ability to repay the Loans, if
the amount of the liability so created or asset so impaired can be reasonably
estimated.

                  (D)      The Revolving Credit Loans shall be used solely to
(i) refinance certain existing Indebtedness of Borrower to Norwest Business
Credit, Inc., Norwest Bank of Minnesota, National Association, Arkansas Valley
State Bank and Norwest Financial Leasing, Inc., (ii) pay costs, expenses and
fees relating to the consummation of the Loans to be made under this Agreement,
and (iii) finance Borrower's general operating capital needs to the extent not
inconsistent with the provisions of this Agreement.

         2.2      Term Loan.

                  (A)      Term Loan. Subject to the terms and conditions of
this Agreement, Lender agrees to make a term loan to Borrower in the principal
amount of $3,500,000, which shall be repayable in accordance with the terms of
the Term Note and shall be secured by the Property of Borrower described in
Section 4 hereof and in the Security Documents. The Term Loan shall be funded
concurrently with funding of the initial Revolving Credit Loan. The proceeds of
the Term Loan shall be used by Borrower solely for purposes for which the
proceeds of the Revolving Credit Loans are authorized to be used.

                                       17

<PAGE>

                  (B)      Mandatory Prepayments. If Borrower sells any of its
Equipment or real Property, the proceeds of which exceed $25,000 in the
aggregate during any fiscal year of Borrower, or if any of the Collateral is
taken by condemnation, Borrower shall pay to Lender, unless otherwise agreed by
Lender, as and when received by Borrower and as a mandatory prepayment of the
Term Loan, (or, at Lender's option, such of the other Obligations as Lender may
elect), a sum equal to the proceeds received by Borrower from such sale or
condemnation or at Borrower's option, Borrower may use the proceeds from
Equipment sales to acquire replacement Equipment in accordance with Section 7.4
of this Agreement.

         2.3      Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 2.1 hereof shall be as
follows:

                  (A)      A request for a Revolving Credit Loan shall be made,
or shall be deemed to be made, in the following manner: (i) Borrower may give
Lender notice of its intention to borrow, in which notice Borrower shall specify
the amount of the proposed borrowing and the proposed borrowing date; (ii) the
becoming due of any amount required to be paid under this Agreement or the Term
Note as interest shall be deemed irrevocably to be a request for a Revolving
Credit Loan on the due date in the amount required to pay such interest; and
(iii) the becoming due of any other Obligations shall be deemed irrevocably to
be a request for a Revolving Credit Loan on the due date in the amount then so
due;

                  (B)      Borrower hereby irrevocably authorizes Lender to
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this Section 2.3 as follows: (i) the proceeds of each
Revolving Credit Loan requested under Section 2.3(A)(i) shall be disbursed by
Lender in lawful money of the United States of America in immediately available
funds, in the case of the initial borrowing, in accordance with the terms of the
written disbursement letter from Borrower, and in the case of each subsequent
borrowing, by wire transfer to such bank account as may be agreed upon by
Borrower and Lender from time to time; and (ii) the proceeds of each Revolving
Credit Loan requested under Section 2.3(A)(ii) or (iii) shall be disbursed by
Lender by way of direct payment of the relevant Obligation.

         2.4      Letters of Credit. If requested to do so by Borrower and
subject to the terms of this Agreement and any documents executed in connection
with any Letter of Credit, Lender will issue its, or will cause Bank to issue
Letters of Credit for the account of Borrower, provided that no Default or Event
of Default then exists. The aggregate face amount of all Letters of Credit
issued by Lender or Bank outstanding at any time shall not exceed $2,500,000. No
documentary Letter of Credit issued by Lender or Bank shall have a term
exceeding 180 days. Each standby Letter of Credit issued by Lender or Bank shall
have an expiration date no more than one year from the date of issuance and
shall, upon expiration, be renewable for an additional one-year period.
Notwithstanding the foregoing, no Letter of Credit may have an expiration date
after the last day of the Original Term, or, if this Agreement remains in effect
after the Original Term, after the last day of the Renewal Term. Any amounts
paid by Lender in connection with any Letter of Credit shall be deemed to be
advances of Revolving Credit Loans and Obligations under this Agreement.

         2.5      Foreign Currency Purchase Contracts. If requested to do so by
Borrower, and provided that no Default or Event of Default exists at the time
of, or would exist after giving

                                       18

<PAGE>

effect to, such request, Lender shall issue or cause Bank to issue, one or more
guaranties, all in form and substance acceptable to Lender, by which Lender or
Bank shall guaranty the payment or performance of Borrower's obligations to
other persons in connection with foreign currency purchase contracts entered
into in the ordinary course of Borrower's business; provided, however, that (a)
in no event shall Lender or Bank be obligated to issue any such guaranty in
respect of any such foreign currency purchase contract if (i) any such foreign
currency purchase contract has a settlement date of more than 360 days after its
issuance date, or (ii) the settlement date of any such foreign currency purchase
contract shall or may under any circumstances occur on or after the last day of
the then-current term of this Agreement, unless Borrower shall have delivered to
Lender an irrevocable Letter of Credit naming Lender as beneficiary, in a face
amount equal to or greater than any liability of Lender (as determined by Lender
in its sole discretion) in respect of such foreign currency purchase contract,
issued by an issuer acceptable to Lender and otherwise in form and substance
acceptable to Lender, (b) each foreign currency purchase contract and/or
guaranty agreement relating to such foreign currency contract shall include a
provision, in form and substance satisfactory to Lender, whereby the liability
of Lender shall not exceed a specific sum in Dollars and (c) Lender's aggregate
obligations under all such guaranties shall never exceed $10,000,000. For
purposes of this Section 2.5 and for purposes of determining the Borrowing Base,
the liability of Lender or Bank under a guaranty of a foreign currency purchase
or sale contract shall be equal to any actual or contingent loss or deficiency
thereunder as determined by Lender on a monthly basis. The amount of any such
loss or deficiency shall be determined by Lender, in its sole discretion, on a
mark-to-market basis as of the date of determination for the regularly scheduled
settlement date of such foreign currency purchase or sale contract. Borrower's
obligations to Lender in respect of such guaranties of foreign currency purchase
contracts, including, without limitation, any costs or expenses incurred by
Lender or Bank due to the failure of Borrower to perform its duties under such
contracts shall constitute Revolving Credit Loans hereunder, shall be secured by
the Collateral and shall be payable in accordance with the terms of this
Agreement.

         2.6      All Loans to Constitute One Obligation. All Loans shall
constitute one general obligation of Borrower, and shall be secured by Lender's
security interest in and Lien upon all of the Collateral, and by all other
security interests and Liens heretofore, now or at any time or times hereafter
granted by Borrower to Lender.

         2.7      Loan Account. Lender shall enter all Loans as debits to the
Loan Account and shall also record in the Loan Account all payments made by
Borrower on a Loan and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrower hereunder.

         2.8      Joint and Several Liability; Rights of Contribution.

                  (A)      Each Borrower states and acknowledges that: (i)
pursuant to this Agreement, Borrowers desire to utilize their borrowing
potential on a consolidated basis to the same extent possible if they were
merged into a single corporate entity; (ii) it has determined that it will
benefit specifically and materially from the advances of credit contemplated by
this Agreement; (iii) it is both a condition precedent to the obligations of
Lender hereunder and a desire of Borrowers that each Borrower execute and
deliver to Lender this Agreement; and (iv)

                                       19

<PAGE>

Borrowers have requested and bargained for the structure and terms of and
security for the advances contemplated by this Agreement.

                  (B)      Each Borrower hereby irrevocably and unconditionally:
(i) agrees that it is jointly and severally liable to Lender for the full and
prompt payment of all the Obligations and the full and prompt performance of all
obligations of any Borrower under this Agreement or any other Loan Document,
notwithstanding anything herein or in any other Loan Document specifying that a
particular Borrower is responsible for a given payment or performance; (ii)
agrees to fully and promptly perform all of its obligations hereunder with
respect to each advance of credit hereunder as if such advance had been made
directly to it; and (iii) agrees as a primary obligation to indemnify Lender on
demand for and against any loss incurred by Lender as a result of any of the
obligations of any of the Borrowers being or becoming void, voidable,
unenforceable or ineffective for any reason whatsoever, whether or not known to
Lender or any Person, the amount of such loss being the amount which Lender or
any Person, the amount of such loss being the amount which Lender would
otherwise have been entitled to recover from any Borrower.

                  (C)      It is the intent of each Borrower that the
indebtedness, obligations and liability hereunder of no one of them be subject
to challenge on any basis. Accordingly, as of the date hereof, the liability of
each Borrower under this Section 2.8, together with all of its other liabilities
to all Persons as of the date hereof and as of any other date on which a
transfer is deemed to occur by virtue of this Agreement, calculated in amount
sufficient to pay its probable net liabilities on its existing Indebtedness as
the same become absolute and matured ("Dated Liabilities") is, and is to be,
less than the amount of the aggregate of a fair valuation of its property as of
such corresponding date ("Dated Assets"). To this end each Borrower under this
Section 2.8 (i) grants to and recognizes in the other Borrower, ratably, rights
of subrogation and contribution in the amount, if any, by which the Dated Assets
of such Borrower, but for the aggregate of subrogation and contribution in its
favor recognized herein, would exceed the Dated Liabilities of such Borrower or,
as the case may be (ii) acknowledges receipt of and recognizes its right to
subrogation and contribution ratably from the other Borrower in the amount, if
any, by which the Dated Liabilities of such Borrower, but for the aggregate of
subrogation and contribution in its favor recognized herein, would exceed the
Dated Assets of such Borrower under this Section 2.8. In recognizing the value
of the Dated Assets and the Dated Liabilities, it is understood that Borrowers
will recognize, to at least the same extent of their aggregate recognition of
liabilities hereunder, their rights to subrogation and contribution hereunder.
It is a material objective of this Section 2.8 that each Borrower recognizes
rights to subrogation and contribution rather than be deemed to be insolvent (or
in contemplation thereof) by reason of an arbitrary interpretation of its joint
and several obligations hereunder.

SECTION 3. INTEREST, FEES, TERM AND REPAYMENT

         3.1      Interest, Fees and Charges.

                  (A)      Interest. Outstanding principal on the Loans shall
bear interest, calculated daily, at the following rates per annum (individually
called, as applicable, an "Applicable Annual Rate"): (i) the Term Loan shall
bear interest at a fluctuating rate per annum equal to 1.50% above the Base Rate
and (ii) the Revolving Credit Loans shall bear interest at a fluctuating rate

                                       20

<PAGE>

per annum equal to 1.00% above the Base Rate, each of which shall be increased
or decreased, as the case may be, by an amount equal to any increase or decrease
in the Base Rate, with such adjustments to be effective as of the opening of
business on the day that any such change in the Base Rate becomes effective. The
Base Rate in effect on the date hereof shall be the Base Rate effective as of
the opening of business on the date hereof, but if this Agreement is executed on
a day that is not a Business Day, the Base Rate in effect on the date hereof
shall be the Base Rate effective as of the opening of business on the last
Business Day immediately preceding the date hereof. Interest on the Loans shall
be calculated daily, based on the actual days elapsed over a 360 day year.
Further, for the purpose of computing interest, all items of payment received by
Lender shall be applied by Lender (subject to final payment of all drafts and
other items received in form other than immediately available funds) against the
Obligations on the first Business Day after receipt. The determination of when a
payment is received by Lender will be made in accordance with Section 3.6.

                  (B)      Default Rate of Interest. Upon and after the
occurrence of an Event of Default, and during the continuation thereof, the
principal amount of the Loans and other Obligations shall bear interest,
calculated daily (computed on the actual days elapsed over a year of 360 days),
at 2.00% above the Applicable Annual Rate or other applicable rate of interest
(a "Default Rate").

                  (C)      Maximum Rate of Interest. Notwithstanding anything to
the contrary in this Agreement or otherwise, (i) if at any time the amount of
interest computed on the basis of an Applicable Annual Rate or a Default Rate
would exceed the amount of such interest computed upon the basis of the maximum
rate of interest permitted by applicable state or federal law in effect from
time to time hereafter (the "Maximum Legal Rate"), the interest payable under
this Agreement shall be computed upon the basis of the Maximum Legal Rate, but
any subsequent reduction in such Applicable Annual Rate or Default Rate, as
applicable, shall not reduce such interest thereafter payable hereunder below
the amount computed on the basis of the Maximum Legal Rate until the aggregate
amount of such interest accrued and payable under this Agreement equals the
total amount of interest which would have accrued if such interest had been at
all times computed solely on the basis of an Applicable Annual Rate or Default
Rate, as applicable; and (ii) unless preempted by federal law, an Applicable
Annual Rate or Default Rate, as applicable, from time to time in effect
hereunder may not exceed the "indicated ceiling rate" from time to time in
effect under Tex. Rev. Civ. Stat. Ann. Art. 5069-1.04(c) (Vernon 1987). If the
applicable state or federal law is amended in the future to allow a greater rate
of interest to be charged under this Agreement than is presently allowed by
applicable state or federal law, then the limitation of interest hereunder shall
be increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to Lender by
reason thereof shall be payable upon demand.

                  (D)      Excess Interest. No agreements, conditions,
provisions or stipulations contained in this Agreement or any other instrument,
document or agreement between Borrower and Lender or default of Borrower, or the
exercise by Lender of the right to accelerate the payment of the maturity of
principal and interest, or to exercise any option whatsoever contained in this
Agreement or any other Loan Document, or the arising of any contingency
whatsoever, shall entitle Lender to contract for, charge, or receive, in any
event, interest exceeding the

                                       21

<PAGE>

Maximum Legal Rate. In no event shall Borrower be obligated to pay interest
exceeding such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may be in any event or contingency whatsoever
operate to bind, obligate or compel Borrower to pay a rate of interest exceeding
the Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in excess
of the Maximum Legal Rate ("Excess"), Borrower acknowledges and stipulates that
any such contract, charge, or receipt shall be the result of an accident and
bona fide error, and that any Excess received by Lender shall be applied, first,
to reduce the principal then unpaid hereunder; second, to reduce the other
Obligations; and third, returned to Borrower, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Base Rate and
the Maximum Legal Rate, such a result could inadvertently occur. By the
execution of this Agreement, Borrower covenants that (i) the credit or return of
any Excess shall constitute the acceptance by Borrower of such Excess, and (ii)
Borrower shall not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging or receiving of
any interest in excess of the maximum authorized by applicable law. For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by Lender, all interest at any time contracted for, charged
or received by Lender in connection with this Agreement shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement.

                  (E)      Incorporation by this Reference. The provisions of
Section 3.l(D) shall be deemed to be incorporated into every document or
communication relating to the Obligations which sets forth or prescribes any
account, right or claim or alleged account, right or claim of Lender with
respect to Borrower (or any other obligor in respect of Obligations), whether or
not any provision of Section 3.1 is referred to therein. All such documents and
communications and all figures set forth therein shall, for the sole purpose of
computing the extent of the Obligations and obligations of the Borrower (or
other obligor) asserted by Lender thereunder, be automatically re-computed by
any Borrower or obligor, and by any court considering the same, to give effect
to the adjustments or credits required by Section 3.1(D).

                  (F)      Commitment Fee. From the date hereof, Borrower agrees
to pay to Lender a monthly commitment fee, equal to one-quarter of one percent
(.25%) per annum (calculated on the basis of a year of 360 days) of the amount
by which the $26,500,000 exceeds the Average Monthly Loan Balance for such
month. Such unused facility fee shall be payable in arrears, with the first
payment being due on January 1, 1994 and continuing regularly on the first
Business Day of each month thereafter during the term of this Agreement, and
upon the termination hereof. In no event, however, shall any charge be payable
(i) for any month for which the Average Monthly Loan Balance was less than
$26,500,000 by reason of Lender's declining to extend Loans to Borrower in
amounts equal to the Borrowing Base, to the extent of such refusal, or (ii) for
any month during which or after Lender accelerates the maturity or demands
payment of the Obligations by reason of the occurrence of any Event of Default.

                  (G)      Closing Fee. Borrower shall pay to Lender a closing
fee of $150,000, which shall be deemed fully earned and nonrefundable at the
closing of the transactions contemplated hereby and shall be paid concurrently
with the initial Loan hereunder. Such fee shall compensate Lender for the costs
associated with the origination, structuring, processing,

                                       22

<PAGE>

approving and closing of the transactions contemplated by this Agreement,
including, but not limited to, administrative, out-of-pocket, general overhead
and lost opportunity costs, but not including any expenses for which Borrower
has agreed to reimburse Lender pursuant to any other provisions of this
Agreement or any of the other Loan Documents, such as, by way of example, legal
fees and expenses.

                  (H)      Loan Servicing Fee. Borrower agrees to pay to Lender
an annual loan servicing fee of $25,000, payable on a quarterly basis beginning
on the Closing Date and continuing regularly thereafter on the first Business
Day of each fiscal quarter during the term of this Agreement, and upon the
termination hereof. The loan servicing fee payable on any payment date shall
equal $6,250, provided that the loan servicing fee shall not at any time be
equal to or in excess of the amount which would cause the aggregate interest on
the Obligations to exceed the Maximum Legal Rate.

                  (I)      Capital Adequacy Charge. In the event that Lender
shall have determined that the adoption of any law, rule or regulation regarding
capital adequacy, or any change therein or in the interpretation or application
thereof or compliance by Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) from any central bank or
governmental authority, does or shall have the effect of reducing the rate of
return on Lender's capital as a consequence of its obligations hereunder to a
level below that which Lender could have achieved but for such adoption, change
or compliance (taking into consideration Lender's policies with respect to
capital adequacy) by an amount deemed by Lender, in its sole discretion, to be
material, then from time to time, after submission by Lender to Borrower of a
written demand therefor, the Borrower shall pay to Lender such additional amount
or amounts as will compensate Lender for such reduction. A certificate of Lender
claiming entitlement to payment as set forth above shall be presumptive in the
absence of manifest error. Such certificate shall set forth the nature of the
occurrence giving rise to such payment, the additional amount or amounts to be
paid to Lender, and the method by which such amounts were determined. In
determining such amount, Lender may use any reasonable averaging and attribution
method.

                  (J)      Foreign Currency Guaranty and Letter of Credit Fees.
As additional consideration for Lender's issuing its, or causing Bank to issue
its Letters of Credit for Borrower's account or for issuing its guaranties of
foreign currency purchase contracts at Borrower's request pursuant to Section
2.4 or 2.5 hereof, Borrower agrees to pay Lender fees equal to (i) the greater
of (a) $500 or (b) 3.00% per annum of the face amount of each standby Letter of
Credit, which fee shall be deemed fully earned upon issuance of each such
standby Letter of Credit, and shall be due and payable in equal monthly
installments beginning on the first Business Day of the month following the date
of issuance of such standby Letter of Credit and continuing on the first
Business Day of each successive month thereafter during the term thereof and
(ii) the greater of (a) $150 or (b) $0.50% per annum of the face amount of each
documentary Letter of Credit issued by Lender or Bank for Borrower's account,
which fee shall be deemed fully earned and shall be due and payable upon
issuance of each such documentary Letter of Credit. In addition to the foregoing
fees, Borrower shall pay to Lender any out-of-pocket costs incurred by Lender in
connection with the issuance of any Credit Enhancements. No fee payable by
Borrower to Lender under this Section 3.1(J) shall be subject to rebate or
proration upon the termination of this Agreement for any reason.

                                       23

<PAGE>

         3.2      Term of Agreement. Subject to Lender's right to cease making
Loans to Borrower at any time upon or after the occurrence of a Default or Event
of Default, (a) this Agreement shall be in effect for a period of three years
from the date hereof, through and including December 14, 1996 (the "Original
Term"), and (b) unless terminated by either party upon at least 180 days notice
to the other party prior to the end of the Original Term, this Agreement shall
automatically renew for an additional one year period, through and including
December 14, 1997 (the "Renewal Term"). Notwithstanding anything herein to the
contrary, Lender may terminate this Agreement without notice upon or after the
occurrence of an Event of Default.

         3.3      Early Termination by Borrower.

                  (A)      Borrower may prepay the Term Loan at any time during
the term of this Agreement, in whole or in part, without premium or penalty, but
any portions so prepaid may not be reborrowed. Further, Borrower may terminate
the Revolving Credit Commitment and this Agreement in its entirety, without
premium or penalty. However, if Borrower chooses to terminate the Revolving
Credit Commitment and this Agreement in its entirety, Borrower shall give Lender
at least 30 days prior written notice thereof, and, on the designated
termination date, all of the Obligations shall become due and payable in
immediately available funds, and all Credit Enhancements issued by Lender or
Bank shall have expired or otherwise been terminated.

         3.4      Effect of Termination. All of the Obligations shall be
forthwith due and payable upon any termination of this Agreement. Except as
otherwise expressly provided for in this Agreement or the other Loan Documents,
no termination or cancellation (regardless of cause or procedure) of this
Agreement or any of the other Loan Documents shall in any way affect or impair
the rights, powers or privileges of Lender or the obligations, duties or
liabilities of Borrower or Lender in any way relating to (a) any transaction or
event occurring prior to such termination or cancellation or (b) any of the
undertakings, agreements, covenants, warranties or representations of Borrower
contained in this Agreement or any of the other Loan Documents. All such
undertakings, agreements, covenants, warranties and representations of Borrower
shall survive such termination or cancellation and Lender shall retain its Liens
in the Collateral and all of its rights and remedies under this Agreement and
the other Loan Documents notwithstanding such termination or cancellation until
all of the Obligations have been paid in full, in immediately available funds.

         3.5      Payments. Principal and interest on the Term Loan shall be
payable as provided in the Term Note. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically containing payment
provisions which are in conflict with this Section 3.5 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), the Obligations shall be payable as follows:

                  (A)      principal payable on account of Revolving Credit
Loans made by Lender to Borrower pursuant to Section 2.1 of this Agreement shall
be payable by Borrower to Lender immediately upon the earliest of (i) the
receipt by Lender or Borrower of any proceeds of any of the Collateral, to the
extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of
such Loans, or (iii) termination of this Agreement;

                                       24

<PAGE>

                  (B)      interest accrued on the Revolving Credit Loans shall
be due on the earliest of (i) the first day of each month (for the immediately
preceding month), computed through the last calendar day of the preceding month,
(ii) the occurrence of an Event of Default in consequence of which Lender elects
to accelerate the maturity and payment of the Obligations or (iii) termination
of this Agreement;

                  (C)      costs, fees and expenses payable pursuant to this
Agreement shall be payable by Borrower, on demand, to Lender or to any other
Person designated by Lender in writing; and

                  (D)      the balance of the Obligations requiring the payment
of money, if any, shall be payable by Borrower to Lender as and when provided in
this Agreement, the Other Agreements or the Security Documents, or, if not
otherwise provided, then on demand.

         Borrower hereby irrevocably authorizes Lender, in Lender's good faith
discretion, to advance to Borrower and to charge to the Loan Account as a
Revolving Credit Loan, sums sufficient to pay all amounts due and payable under
Sections 3.5(B), (C) and (D) and under the Notes, whether or not any such
advance would cause the outstanding Revolving Credit Loans to exceed the
Borrowing Base.

         3.6      Application of Payments and Collections. Borrower irrevocably
waives the right to direct the application of any and all payments and
collections at any time or times hereafter received by Lender from or on behalf
of Borrower, and Borrower does hereby irrevocably agree that Lender shall have
the continuing exclusive right to apply and reapply any and all such payments
and collections received at any time or times hereafter by Lender or its agent
against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of collections of Accounts as authorized by Section 5.4 hereof a credit
balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time or
times for so long as no Default or Event of Default exists. In no event shall
such credit balance be applied or be deemed to have been applied as a prepayment
of the Term Loan unless so requested by Borrower, but Lender may offset such
credit balance against the Obligations upon or after the occurrence of an Event
of Default. Payments and collections received by Lender from the Dominion
Account or otherwise in Chicago, Illinois (a) before 2:00 p.m. on a Business Day
shall be deemed received on such Business Day, and (b) after 2:00 p.m. on a
Business Day shall be deemed received on the next succeeding Business Day, in
each case for purposes of determining the amount of Revolving Credit Loans
available for borrowing hereunder and for purposes of computing interest on the
Loans (subject in each case to final payment of all items and collections
received in form other than immediately available funds).

         3.7      Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this Agreement,
and such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within 120 days after the date each account is mailed to Borrower. Such
notice shall only be deemed an objection to those items specifically objected to
therein.

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SECTION 4. COLLATERAL: GENERAL TERMS

         4.1      Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, each Domestic Borrower hereby
grants to Lender a continuing security interest in and Lien upon all the
following Property and interests in Property of such Domestic Borrower, whether
now owned or existing or hereafter created, acquired or arising and wheresoever
located.

                  (A)      Accounts;

                  (B)      Inventory;

                  (C)      Equipment;

                  (D)      General Intangibles;

                  (E)      all monies and other Property of any kind, now or at
any time or times hereafter, in the possession or under the control of Lender or
a bailee of Lender;

                  (F)      all accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (A), (B), (C), (D) and
(E) above, including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and

                  (G)      all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of such Domestic Borrower pertaining to any of (A), (B),
(C), (D), (E) or (F) above.

         4.2      Lien on Realty. The due and punctual payment and performance
of the Obligations shall also be secured by the Lien created by the Mortgage
upon all real Property of Lowrance described therein. If any Domestic Borrower
shall acquire at any time or times hereafter any interest in other real
Property, each such Domestic Borrower agrees promptly to execute and deliver to
Lender, as additional security and Collateral for the Obligations, deeds of
trust, security deeds, mortgages or other collateral assignments satisfactory in
form and substance to Lender and its counsel (herein collectively referred to as
"New Mortgages") covering such real Property. The Mortgage and each New Mortgage
shall be duly recorded in each office where such recording is required to
constitute a valid Lien on the real Property covered thereby. Each Domestic
Borrower shall deliver to Lender, at the sole expense of such Domestic Borrower,
mortgagee title insurance policies issued by a title insurance company
satisfactory to Lender insuring Lender as mortgagee; such policies shall be in
form and substance satisfactory to Lender and shall insure a valid first Lien in
favor of Lender on the Property covered thereby, subject only to those
exceptions acceptable to Lender and its counsel. Each Domestic Borrower shall
deliver to Lender such other documents, including, without limitation, as-built
survey prints of the real Property, as Lender and its counsel may reasonably
request relating to the real Property subject to the Mortgage and any such New
Mortgages.

                                       26

<PAGE>

         4.3      Representations, Warranties and Covenants -- Collateral. To
induce Lender to enter into this Agreement, each Domestic Borrower represents,
warrants, and covenants to Lender.

                  (A)      The Collateral is now and, so long as any of the
Obligations are outstanding, will continue to be owned solely by such Domestic
Borrower. No other Person has or will have any right, title, interest, claim, or
Lien therein, thereon or thereto other than a Permitted Lien.

                  (B)      Except as specifically consented to in writing by
Lender, the Liens granted to Lender shall be first and prior on the Collateral
and any proceeds, including insurance proceeds, resulting from the sale,
disposition, or loss thereof. No further action need be taken to perfect the
Liens granted to Lender, other than the filing of continuation statements under
the Code or other applicable law, continued possession by Lender of that portion
of the Collateral constituting instruments or documents, and the processing of
Lien notations on motor vehicle, trailer or vessel title certificates.

                  (C)      All goods evidenced by the Collateral constituting
chattel paper, documents or instruments, the possession of which has been given
to Lender, are owned by such Domestic Borrower and the same are free and clear
of any prior Lien. Each Domestic Borrower shall pay and discharge when due all
taxes, levies, and other charges upon said Collateral and upon the goods
evidenced by any documents constituting Collateral and shall defend Lender
against and save it harmless from all claims of any Person with respect to the
Collateral. This indemnity shall include reasonable attorneys' fees and legal
expenses.

         4.4      Lien Perfection. Each Domestic Borrower agrees to execute
within five (5) days of Lender's request the UCC-1 financing statements provided
for by the Code or otherwise together with any and all other instruments,
assignments or documents and shall take such other action as may be required to
perfect or to continue the perfection of Lender's security interest in the
Collateral, including, without limitation, the execution within five (5) days of
Lender's request upon or after the occurrence of an Event of Default of all
documents deemed necessary by Lender to cause Lender's Lien to be noted on any
motor vehicle, trailer or vessel certificates of title with respect to any motor
vehicles, trailers or vessels forming a part of the Collateral. Unless
prohibited by applicable law, each Domestic Borrower hereby authorizes Lender to
execute and file any such financing statement on such Domestic Borrower's
behalf. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.

         4.5      Real Property Lien Documentation. Each Domestic Borrower
agrees to execute for Lender's benefit within five (5) days of Lender's request
the Mortgages and such leasehold mortgages, deeds of trust or other documents
evidencing a collateral assignment of such Domestic Borrower's interest in the
Real Property and any additional Real Property owned by such Domestic Borrower
as Lender may request. Such documents shall be recorded, at the expense of each
Domestic Borrower, with such filing offices as may be required to evidence
Lender's Lien upon the real Property owned or hereafter acquired by each such
Domestic Borrower.

                                       27

<PAGE>

         4.6      Location of Collateral. All Collateral, other than Inventory
in transit, motor vehicles, trailers and vessels, will at all times be kept by
Borrower at one or more of the business locations set forth in Exhibit B and
shall not, without the prior written approval of Lender, be moved therefrom
except, prior to an Event of Default, for (A) sales of Inventory in the ordinary
course of business; (B) the storage of Inventory at locations within the
continental United States other than those shown on Exhibit B if (i) Borrower
gives Lender written notice of the new storage location at least 60 days prior
to storing Inventory at such location, (ii) Lender's security interest in such
Inventory is and continues to be a duly perfected, first priority Lien thereon,
(iii) neither Borrower's nor Lender's right of entry upon the premises where
such Inventory is stored, or its right to remove the Inventory therefrom, is in
any way restricted, (iv) the owner of such premises agrees with Lender not to
assert any landlord's, bailee's or other Lien in respect of the Inventory for
unpaid rent or storage charges, and (v) all negotiable documents and receipts in
respect of any Collateral maintained at such premises are promptly delivered to
Lender; (C) temporary transfers (for a period not to exceed three months in any
event) of Equipment from a location set forth on Exhibit B to another location
if done for the limited purpose of repairing, refurbishing or overhauling such
Equipment in the ordinary course of Borrower's business; (D) removals in
connection with dispositions of Equipment that are authorized by Section 7.4
hereof; (E) tooling maintained at vendor locations used for the purpose of
producing component parts for Borrower; (F) removals of property in the ordinary
course of Borrower's business as conducted on the Closing Date for the purpose
of equipping Borrower's field sales force with samples, displays, office
equipment and the like; (G) transfers of Property from one location set forth in
Exhibit B to another location set forth in Exhibit B and (H) removals of other
Property (other than Eligible Inventory and any Equipment securing the Term
Loan) in the ordinary course of Borrower's business as conducted on the Closing
Date, if the aggregate book value of all such Property removed from the business
locations set forth on Exhibit B does not exceed $400,000.

         4.7      Insurance of Collateral. Borrower agrees to maintain and pay
for insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by documents, covering casualty, hazard,
public liability and such other risks and in such amounts and with recognized
insurance companies satisfactory to Lender, with allowances for self insurance
and/or deductibles as are common for companies in similar businesses, similarly
situated. Borrower shall deliver the originals of such policies to Lender with
satisfactory endorsements naming Lender as loss payee and as mortgagee pursuant
to a standard mortgagee clause. Each policy of insurance or endorsement shall
contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be impaired
or invalidated by any act or neglect of Borrower or owner of the Property nor by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at Borrower's expense, procure the same, but shall not be required to do
so. Borrower agrees to deliver to Lender, promptly upon Lender's request, true
copies of all reports made in any reporting forms to insurance companies.
Borrower will maintain, with financially sound and reputable insurers, insurance
with respect to its Properties and business against such casualties and
contingencies of such type (including public liability, product liability,
larceny, embezzlement, or other criminal misappropriation insurance) and in such
amounts as is customary in the business or as otherwise agreed to by Lender and
Borrower, but in no event shall the amount of Borrower's casualty and hazard
insurance as to its

                                       28

<PAGE>

Properties be less than the sum of (i) the outstanding amount of the Term Loan,
plus (ii) the aggregate outstanding amount of all Revolving Loans advanced
against Eligible Inventory.

         4.8      Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the Collateral or in
respect of the sale thereof shall be borne and paid by Borrower. If Borrower
fails to promptly pay any portion thereof when due and Borrower is not
contesting such amounts in good faith, by appropriate proceedings, and has not
established adequate reserves for the payment of any such contested amounts,
Lender may, at its option, but shall not be required to, pay the same and charge
the Loan Account therefor. Borrower agrees to reimburse Lender promptly therefor
with interest accruing thereon daily at the Base Rate plus 1.50%. All sums so
paid or incurred by Lender for any of the foregoing and all costs and expenses
(including reasonable attorneys' fees, legal expenses, and court costs) which
Lender may incur in enforcing or protecting its Lien on or rights and interest
in the Collateral or any of its rights or remedies under any Loan Document or in
respect of any of the transactions to be had hereunto, together with interest at
the Default Rate, shall be considered Obligations hereunder secured by all
Collateral. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other person
whomsoever, but the same shall be at Borrower's sole risk.

SECTION 5. PROVISIONS RELATING TO ACCOUNTS

         5.1      Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts, and,
unless otherwise indicated in writing to Lender, that with respect to each
Eligible Account:

                  (A)      it is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;

                  (B)      it arises out of a completed, bona fide sale and
delivery of goods to a common carrier or rendition of services by Borrower in
the ordinary course of its business and in accordance with the terms and
conditions of all purchase orders, contracts or other documents relating thereto
and forming a part of the contract between Borrower and the Account Debtor;

                  (C)      it has been generated in compliance with Borrower's
normal credit policies as historically in effect (or as modified from time to
time on prior written notice to Lender) or on such other reasonable terms
disclosed in writing to Lender in advance of the creation of such Account, and
such terms are expressly set forth on the face of the invoice covering such sale
or rendition of services;

                                       29

<PAGE>

                  (D)      its if for a liquidated amount maturing as stated in
the invoice covering such sale or rendition of services, the details of which
have been furnished or are available to Lender;

                  (E)      such Account, and Lender's security interest therein,
is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or
any other adverse condition except for disputes resulting in returned goods
where the amount in controversy is deemed by Lender to be immaterial and except
for such offsets, Liens, deductions, defenses, disputes, counterclaims or other
adverse conditions arising in the ordinary course of Borrower's business and
which are reflected in the calculation of the net amount of such Account, and
each such Account is absolutely owing to Borrower and is not contingent in any
respect or for any reason;

                  (F)      Borrower has made no agreement with any Account
Debtor thereunder for any deduction therefrom, except discounts or allowances or
other credits which are granted by Borrower in the ordinary course of its
business and which are reflected in the calculation of the Account;

                  (G)      there are no facts, events or occurrences which in
any way impair the validity or enforceability thereof or tend to reduce the
amount payable thereunder from the face amount of the Account assigned to
Lender;

                  (H)      to the best of Borrower's knowledge, the Account
Debtor thereunder (i) is Solvent and (ii) had the capacity to contract at the
time any contract or other document giving rise to the Account was executed; and

                  (I)      except as disclosed on Borrower's weekly problem
account report, Borrower has no knowledge of any fact or circumstance which
would impair the validity or collectability of the Account, and to the best of
Borrower's knowledge there are no proceedings or actions which are threatened or
pending against any Account Debtor thereunder which might result in any material
adverse change in such Account Debtor's financial condition or the
collectability of such Account.

         5.2      Assignments, Records and Schedules of Accounts. If so
requested by Lender in writing, each Domestic Borrower shall execute and deliver
to Lender formal written assignments of all of its Accounts weekly or, if
requested by Lender, daily, which shall include all Accounts that have been
created since the date of the last assignment, together with invoice registers
related thereto. Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
a daily basis a sales and collections report for the preceding day, in form
satisfactory to Lender. On or before the fifteenth day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form satisfactory to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed ("Schedule of Accounts"), and, upon Lender's reasonable request therefor,
copies of proof of delivery, repayment histories and present status reports
relating to the Accounts so scheduled and other matters and information relating
to the status of then existing Accounts.

                                       30

<PAGE>

         5.3      Administration of Accounts.

                  (A)      Upon the granting of any discounts, allowances or
credits by Borrower that are not shown on the face of the invoice for the
Account involved, Borrower shall promptly report such discounts, allowances or
credits, as the case may be, to Lender and in no event later than the time of
its submission to Lender of the next Schedule of Accounts as provided in Section
5.2. Upon and after the occurrence of an Event of Default, Lender shall have the
right to settle or adjust all disputes and claims directly with the Account
Debtor and to compromise the amount or extend the time for payment of the
Accounts upon such terms and conditions as Lender may deem advisable, and to
charge the deficiencies, costs and expenses thereof, including reasonable
attorney's fees, to Borrower.

                  (B)      Upon the occurrence and during the continuance of an
Event of Default, if an Account includes a charge for any tax payable to any
governmental taxing authority, Lender is authorized, in its sole discretion, to
pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge the Loan Account therefor. Upon Lender's request,
Borrower shall notify Lender if any Account includes any tax due to any
governmental taxing authority and, in the absence of such notice, Lender shall
have the right to retain the full proceeds of the Account and shall not be
liable for any taxes to any governmental taxing authority that may be due by
Borrower by reason of the sale and delivery creating the Account.

                  (C)      Whether or not a Default or an Event of Default has
occurred, any of Lender's officers, employees or agents shall have the right, at
any time or times hereafter, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount, or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.

         5.4      Collection of Accounts.

                  (A)      To expedite collection, each Domestic Borrower shall
endeavor in the first instance to make collection of its Accounts for Lender.
All remittances received by each Domestic Borrower on account of Accounts shall
be held as Lender's property by each such Domestic Borrower as trustee of an
express trust for Lender's benefit and each such Domestic Borrower shall
immediately deposit same in the Dominion Account. Lender shall have the right at
any time after the occurrence of a Default or an Event of Default to notify the
Account Debtors of each Domestic Borrower that Accounts have been assigned to
Lender and to collect Accounts directly in its own name and to charge the
collection costs and expenses, including reasonable attorneys' fees, to such
Domestic Borrowers. Lender has no duty to protect, insure, collect or realize
upon the Accounts or preserve rights in them.

                  (B)      Each Domestic Borrower shall deposit all proceeds of
the Collateral or cause the same to be deposited in kind in one or more Dominion
Accounts pursuant to one or more lockbox arrangements with such banks as may be
selected by such Domestic Borrower and be acceptable to Lender. Each Domestic
Borrower shall issue to any such bank, an irrevocable letter of instruction
directing such banks to deposit all payments or other remittances received in
the lockbox to the Dominion Account for application on account of the
Obligations. All funds

                                       31

<PAGE>

deposited in the Dominion Account shall immediately become the property of
Lender and each Domestic Borrower shall obtain the agreement by such banks to
waive any offset rights against the funds so deposited. Lender assumes no
responsibility for such lockbox arrangement, including, without limitation, any
claim of accord and satisfaction or release with respect to deposits accepted by
any bank thereunder. Notwithstanding the foregoing, Borrower may utilize
collections from its Canadian and Australian lockboxes to pay costs and expenses
of the type specified on Exhibit C attached hereto which are due and payable or
are to become due and payable in Canadian or Australian currency.

         5.5      Notice Regarding Disputed Accounts. Borrower shall provide
Lender with a weekly report, in a form acceptable to Lender, detailing those
Accounts with balances past due in excess of $10,000 (except for such Accounts
owing from Account Debtors located in Australia), and reflecting (i) the aging
of each Account, (ii) the reason for the dispute involving each such Account,
and (iii) Borrower's proposed course of action relating to each such Account.

SECTION 6. PROVISIONS RELATING TO INVENTORY

         6.1      Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Lender that Lender may rely, in
determining which items of Inventory constitute Eligible Inventory, on all
statements and representations made by Borrower with respect to any Inventory
and that:

                  (A)      all Inventory is presently and will continue to be
located at Borrower's places of business listed on Exhibit B and will not be
removed therefrom except as authorized by Section 4.6 of this Agreement;

                  (B)      except for Inventory in transmit to Lowrance
Australia which may from time to time be temporarily detained and held by
customs officials in Australia, no Inventory is now, nor shall any Inventory at
any time or times hereafter be, stored with a bailee, warehouseman or similar
party without Lender's prior written consent and, if Lender gives such consent,
Borrower will concurrently therewith cause any such bailee, warehouseman, or
similar party to issue and deliver to Lender, in form and substance acceptable
to Lender, warehouse receipts therefor in Lender's name;

                  (C)      at any time when consigned Inventory exceeds in the
aggregate $50,000, no other Inventory will be consigned to any Person without
Lender's prior written consent, and, if such consent is given, Borrower shall,
prior to the delivery of the other Inventory on consignment, (i) provide Lender
with all consignment agreements to be used in connection with such consignment,
all of which shall be acceptable to Lender, (ii) prepare, execute and file
appropriate financing statements with respect to such consigned Inventory,
showing Lender as assignee, (iii) conduct a search of all filings made against
the consignee in all jurisdictions in which such consigned Inventory is to be
located and deliver to Lender copies of the results of all such searches, and
(iv) notify, in writing, all the creditors of the consignee which are or may be
holders of Liens in the Inventory to be consigned that Borrower expects to
deliver certain Inventory to the consignee, all of which Inventory shall be
described in such notice by item or type; and

                                       32

<PAGE>

                  (D)      no Inventory is or will be produced in violation of
the Fair Labor Standards Act.

         6.2      Inventory Reports. Borrower agrees to furnish Lender with
Inventory reports at such times as Lender may reasonably request, but at least
once each month. Such reports shall be in form and detail currently generated by
Borrower or in such other form and detail as Lender may reasonably request and
which Borrower can reasonably generate. Borrower shall conduct cycle counts of
its Inventory no less frequently than is conducted by Borrower on the Closing
Date, and if requested by Lender will provide the results of the cycle counts
and such additional information as Lender shall request.

         6.3      Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower the shipment of which generated
an Account on which such Account Debtor is obligated in excess of $25,000 (or,
with respect to Kmart or Wal-Mart, the shipment of which generated an Account on
which either Kmart or Wal-Mart is obligated in excess of $100,000), Borrower
shall notify Lender of the same immediately, specifying the reason for such
return and the location and condition of the returned Inventory. After the
occurrence of an Event of Default, Borrower shall segregate all returned
Inventory from all other Property owned by Borrower until processed and shall
process and return such returned Inventory to finished goods Inventory and hold
the same for resale after the issuance of a credit to the Account generated by
the original sale of such returned Inventory.

SECTION 7. PROVISIONS RELATING TO EQUIPMENT

         7.1      Representations, Warranties and Covenants. With respect to the
Equipment, Borrower represents, warrants and covenants to and with Lender that:

                  (A)      the Equipment essential to Borrower's operations is
in good operating condition and repair or is in the process of operations of
repair. With respect to all Equipment essential to Borrower's operations, all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted; and

                  (B)      except with respect to Borrower's Canadian,
Australian or Mexican business locations, Borrower will not permit any of the
Equipment to become affixed to any real Property leased to Borrower so that an
interest arises therein under the real estate laws of the applicable
jurisdiction unless the landlord of such real Property has executed a landlord
waiver or leasehold mortgage in favor of Lender, and Borrower will not permit
any of the Equipment to become an accession to any personal Property other than
Equipment (i) subject to first priority Liens in favor of Lender, (ii) subject
to Permitted Liens or (iii) leased in accordance with the terms of this
Agreement.

         7.2      Evidence of Ownership of Equipment. Promptly on request
therefor by Lender, Borrower shall deliver to Lender any and all evidence of
ownership, if any, of any of the Equipment (including, without limitation, upon
or after the occurrence of an Event of Default, certificates of title and
applications for title with respect to motor vehicles, trailers and vessels).

                                       33

<PAGE>

         7.3      Records and Schedules of Equipment. Borrower shall use its
best efforts to maintain accurate records of its Equipment and any dispositions
made in accordance with Section 7.4 hereof, all in form and in detail similar to
that currently maintained by Borrower, and shall furnish Lender with a current
schedule containing the foregoing information on at least a quarterly basis and
more often if requested by Lender.

         7.4      Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (A) dispositions of Equipment which, in the aggregate during
any fiscal year of Borrower, has a fair market value or book value, whichever is
less, of $25,000 or less, provided that all proceeds thereof are turned over to
Lender, or (B) replacements of Equipment that is substantially worn, damaged or
obsolete with Equipment of like kind, function and value, provided that (i) the
replacement Equipment shall be acquired prior to or within 90 days of any
disposition of the Equipment that is to be replaced, (ii) the replacement
Equipment shall be free and clear of Liens other than Permitted Liens that are
not Purchase Money Liens, and (iii) Borrower shall give Lender at least five
days prior written notice of such disposition and shall turn over to Lender all
proceeds realized from any such disposition, but only if (A) the fair market
value or book value, which ever is greater, for any individual item of such
Equipment exceeds $10,000 or (B) the fair market value or book value, whichever
is greater, of all such Equipment sold in any fiscal year of Borrower exceeds
$25,000, and only to the extent Borrower has any proceeds remaining from the
sale of such Equipment after purchasing the replacement Equipment relating
thereto.

SECTION 8. REPRESENTATIONS AND WARRANTIES

         8.1      General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender as follows:

                  (A)      Organization and Qualification. Each of Lowrance, LEI
and Lowrance Contracts is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Lowrance Australia is a
corporation duly organized, validly existing and in good standing under the laws
of New South Wales, Australia. Borrower has duly qualified and is authorized to
do business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Exhibit D attached hereto and made a part hereof and in
all other states and jurisdictions where the character of its Properties or the
nature of its activities make such qualification necessary and where the failure
to be so qualified would have a material adverse effect on the Borrower's
business and its Properties.

                  (B)      Corporate Name. During the preceding seven years,
Borrower has not been known as or used any corporate, fictitious or trade names
except as disclosed on Exhibit E attached hereto and made a part hereof. Except
as set forth on Exhibit E, Borrower has not, during the preceding seven years,
been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.

                                       34

<PAGE>

                  (C)      Corporate Power and Authority. Borrower has the right
and power and is duly authorized and empowered to enter into, execute, deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
and do not had will not (i) require any consent or approval of the shareholders
of Borrower; (ii) contravene Borrower's charter, articles of incorporation or
by-laws; (iii) violate, or cause Borrower to be in default under, any provision
of any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award in effect having applicability to Borrower; (iv) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which Borrower is a
party or by which it or its Properties may be bound or affected; or (v) result
in, or require, the creation or imposition of any Lien (other than Permitted
Liens) upon or with respect to any of the Properties now owned or hereafter
acquired by Borrower.

                  (D)      Legally Enforceable Agreement. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of Borrower enforceable against it in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally or by principles of equity
pertaining to the availability of equitable remedies.

                  (E)      Use of Proceeds. Borrower's uses of the proceeds of
any Loans pursuant to this Agreement are, and will continue to be, legal and
proper corporate uses, duly authorized by its Board of Directors, and such uses
will not violate any applicable laws, including, without limitation, the Foreign
Assets Control Regulations, the Foreign Funds Control Regulations and the
Transaction Control Regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended).

                  (F)      Margin Stock. Borrower is not engaged Principally, or
as one of its important activities, in the business of purchasing or carrying
"margin stock" (within the meaning of Regulation G or U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loans to Borrower will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock or be used for any purpose which violates or is inconsistent with the
provisions of Regulation G, T, U or X of said Board of Governors.

                  (G)      Governmental Consents. Borrower has, and is in good
standing with respect to, all governmental consents, approvals, authorizations,
permits, certificates, inspections, and franchises necessary to continue to
conduct its business as hereto fore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it, except where
the failure to have such consents, approvals, authorizations, permits,
certificates, inspections and franchises would not have a material adverse
effect on the Borrower's business or Properties.

                  (H)      Patents, Trademarks, Copyrights and Licenses.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and planned future
conduct of its business without any known conflict

                                       35

<PAGE>

with the rights of others. All such patents, trademarks, service marks, trade
names, copyrights, licenses and other similar rights are listed on Exhibit F
attached hereto and made a part hereof.

                  (I)      Capital Structure. Exhibit G attached hereto and made
a part hereof states (i) the correct name of each Subsidiary of each Borrower,
the jurisdiction of incorporation and the percentage of its Voting Stock owned
by each such Borrower, (ii) the name of each of Borrower's corporate or joint
venture Affiliates and the nature of the affiliation, (iii) the number, nature
and holder of all outstanding Securities of each Borrower and its Subsidiaries,
and (iv) the number of authorized, issued and treasury shares of each Borrower
and its Subsidiaries. Each Borrower has good title to all of the shares it
purports to own of the stock of each Subsidiary, free and clear in each case of
any Lien other than Permitted Liens. All such shares have been duly issued and
are fully paid and nonassessable. Except as otherwise disclosed in Borrower's
filings with the Securities Exchange Commission, there are not outstanding any
options to purchase, or any rights or warrants to subscribe for, or any
commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of any Borrower. Except as otherwise disclosed in Borrower's filings with
the Securities Exchange Commission, Borrower is not, to the best of its
knowledge, aware of any other outstanding agreements or instruments binding upon
any shareholders of a Borrower relating to the ownership of its shares of
capital stock.

                  (J)      Solvent Financial Condition. On a consolidated basis,
Borrower is now and, after giving effect to initial Loans to be made hereunder,
will be, Solvent.

                  (K)      Restrictions. Borrower is not a party or subject to
any contract, agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or ownership of any of
its Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit H attached hereto, none of which prohibit the execution of or
compliance with this Agreement by Borrower. Neither Borrower nor any of its
Subsidiaries has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its Property, whether now owned
or hereafter acquired, to be subject to a Lien that is not a Permitted Lien.

                  (L)      Litigation. Except as set forth on Exhibit I attached
hereto and made a part hereof, there are no actions, suits, proceedings or
investigations pending, or to the knowledge of Borrower, threatened, against or
affecting Borrower or any of its Subsidiaries, or the business, operations,
Properties, prospects, profits or condition of Borrower or any of its
Subsidiaries, in any court or before any governmental authority or arbitration
board or tribunal, and no action, suit, proceeding or investigation shown on
Exhibit I involves the possibility of materially and adversely affecting the
Properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or the ability of Borrower to perform this Agreement. Neither
Borrower nor any of its Subsidiaries is in default with respect to any order,
writ, injunction, judgment, decree or rule of any court, governmental authority
or arbitration board or tribunal.

                  (M)      Title to Properties. Borrower and its Subsidiaries
each has good, indefeasible and marketable title to and fee simple ownership of,
or valid and subsisting

                                       36

<PAGE>

leasehold interests in, all of its Real Property, and good title to all of its
other Property, in each case, free and clear of all Liens except Permitted
Liens. Exhibit J identifies all Real Property leased or owned by Borrower and
its Subsidiaries and, if leased, identifies the lessor thereof.

                  (N)      Financial Statements; Fiscal Year. The Consolidated
balance sheets of Lowrance and such other Persons described therein (including
the accounts of all Subsidiaries for the respective periods during which a
Subsidiary relationship existed) as of July 31, 1993, and the related statements
of income, changes in stockholder's equity, and cash flows for the periods ended
on such dates, have been prepared in accordance with GAAP (except for changes in
application in which Borrower's independent certified public accountants
concur), and present fairly the financial position of Lowrance and its
Subsidiaries at such dates and the results of their operations for such periods.
Since July 31, 1993 there has been no material change in the condition,
financial or otherwise, of Lowrance, its Subsidiaries and such other Persons as
shown on the Consolidated balance sheet as of such date and no change in the
aggregate value of Equipment and real Property owned by Lowrance or its
Subsidiaries or such other Persons, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of Lowrance and each of its Subsidiaries ends on July
31st of each year.

                  (O)      Full Disclosure. The financial statements referred to
in Section 8.1(N) above, do not, nor does this Agreement or any other written
statement of Borrower to Lender (including, without limitation, Borrower's
filings, if any, with the Securities and Exchange Commission), contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. There is no fact
which Borrower has failed to disclose to Lender in writing which materially
affects adversely or, so far as Borrower can now foresee, will materially affect
adversely the Properties, business, prospects, profits, or condition (financial
or otherwise) of Borrower or any of its Subsidiaries or the ability of Borrower
or its Subsidiaries to perform this Agreement.

                  (P)      ERISA. Except as disclosed in Exhibit K attached
hereto, there are no Pension Plans or Multiemployer Plans and no fact exists
that could result in any material liability (other than as disclosed on
Borrower's financial statements) to Borrower relating to any former Plan. No
Reportable Event has occurred with respect to any Pension Plan that is not a
Multiemployer Plan. No Prohibited Transaction has occurred. The PBGC has not
instituted proceedings to terminate any Pension Plan. No ERISA Affiliate nor any
duly appointed administrator of a Pension Plan has (i) incurred any liability to
the PBGC with respect to a Pension Plan other than for premiums not yet due and
payable, or (ii) instituted or intends to institute proceedings under Section
4041(c) of ERISA to terminate any Pension Plan, or (iii) instituted proceedings
to withdraw from any Pension Plan that is a Multiemployer Plan. No "accumulated
funding deficiency" within the meaning of Section 302(a)(2) of ERISA exists with
respect to any Pension Plan. No liability has been incurred by any ERISA
Affiliate which remains unsatisfied for any taxes or penalties, (i) with respect
to any Plan that is not a Multiemployer Plan or, (ii) to the best of Borrower's
knowledge and belief, with respect to any Multiemployer Plan. No litigation is
pending or threatened concerning or involving any Plan. No amendment to any
Pension Plan has been adopted such that security is required to be given
pursuant to IRC Section 401(a)(29) and no lien exists under IRC Section 412(n)
with respect to any Plan. Except as shown on Exhibit K with respect to the date
and using the assumptions

                                       37

<PAGE>

described thereon, and to the best of Borrower's knowledge and belief, no
unfunded or unreserved liability exists for benefits under any Plan that would
have a material adverse effect. No ERISA Affiliate contributes to, has
contributed to, or is or has been obligated to contribute to, any Multiemployer
Plan. Except as disclosed in Lowrance's policy manual, no ERISA Affiliate
maintains any Plan which provides benefits to an employee or the employee's
dependents after the employee terminates employment other than as required by
law and no written or oral representations have been made to any employee or
former employee promising or guaranteeing any employer payment or funding for
the continuation of medical, dental, or disability coverage beyond that legally
required.

                  (Q)      Taxes. Lowrance's federal tax identification number
is 44-0624411, LEI's federal tax identification number is 73-1370103, Lowrance
Contracts' federal tax identification number is 73-1373751, and Lowrance
Australia's tax number is ACN 050 050 612. To the best of Borrower's knowledge,
on a consolidated basis, Borrower and its Subsidiaries each has filed all
federal, state and local tax returns and other reports it is required by law to
file and has paid, or made provision for the payment of, all taxes, assessments,
fees and other governmental charges that are due and payable. To the best of
Borrower's knowledge, on a consolidated basis, the provisions for taxes on the
books of Borrower and its Subsidiaries are adequate for all years not closed by
applicable statutes, and for its current fiscal year. There are no material
unresolved questions or claims concerning any tax liability of Borrower. None of
the transactions contemplated hereby or under any agreements referred to
hereunder will result in any material tax liability for Borrower or result in
any other material adverse tax consequence for Borrower. Exhibit L contains an
accurate list of all taxing authorities to which Borrower and its Subsidiaries
and their respective Properties are subject. No Properties of Borrower or its
Subsidiaries are subject to any Lien in favor of any such taxing authorities for
nonpayment of taxes, except as specified on Exhibit L.

                  (R)      Labor Relations. Except as described on Exhibit M
attached hereto and made a part hereof, neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining agreement, and there are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.

                  (S)      Compliance With Laws. To the best of Borrower's
knowledge, Borrower has duly complied in all material respects with, and its
Properties, business operations and leaseholds are in compliance in all material
respects with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business, including, without limitation, OSHA, all Environmental Laws, the
Securities Act of 1933, the Securities Exchange Act of 1934, the Fair Labor
Standards Act, laws relating to income, unemployment, payroll or social security
taxes and Plans under ERISA, the Flood Disaster Protection Act of 1973, the
Consumer Credit Protection Act, the Federal Trade Commission Act, statutes
creating and governing the Bureau of Alcohol, Tobacco and Firearms, and any and
all state statutes or pronouncements addressing, or related to, subjects the
same as or comparable to those covered by such enumerated federal statutes, and
there have been no citations, notices or orders of noncompliance issued to
Borrower or any of its Subsidiaries under any such law, rule or regulation.

                                       38

<PAGE>

                  (T)      Surety Obligations. Borrower is not obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.

                  (U)      No Defaults. No event has occurred and no condition
exists which would, upon the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Neither Borrower nor any of its Subsidiaries is in default, and no event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, a default in the payment
of any Indebtedness to any Person for Money Borrowed.

                  (V)      Brokers. There are no claims for brokerage
commissions, finder's fees or investment banking fees in connection with the
transactions contemplated by this Agreement.

                  (W)      Business Locations; Agent for Process. During the
preceding seven year period, Borrower has had no office, place of business or
agent for service of process located in any state or county other than as shown
on Exhibit B.

                  (X)      Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and , except as disclosed
on Exhibit N, there exists no present condition or state of facts or
circumstances which would materially affect adversely Borrower or prevent
Borrower from conducting such business after the consummation of the transaction
contemplated by this Agreement in substantially the same manner in which it has
heretofore been conducted.

                  (Y)      Leases. Exhibit O attached hereto is a complete
listing of all capitalized leases of Borrower and Exhibit P attached hereto is a
complete listing of all operating leases of Borrower.

                  (Z)      Investment Company Act. Borrower is not an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.

                  (AA)     OSHA and Environmental Compliance.

                           (i)      Borrower is in compliance with, and its
                  facilities, business, assets, Property, leaseholds and
                  Equipment are in compliance in all material respects with, the
                  provisions of OSHA, the Resource Conservation and Recovery Act
                  and all Environmental Laws; there have been no outstanding
                  citations, notices or orders of non-compliance issued to
                  Borrower or relating to its business, assets, Property,
                  leaseholds or Equipment under such laws, rules or regulations.

                           (ii)     Borrower has been issued all required
                  federal, state and local licenses, certificates or permits
                  relating to all applicable Environmental Laws.

                                       39

<PAGE>

                           (iii)    (a) There are no visible signs of releases,
                  spills, discharges, leaks or disposal (collectively referred
                  to as "Releases") of Hazardous Substances at, upon, under or
                  within any Real Property or any premises leased by Borrower;
                  (b) there are no underground storage tanks or polychlorinated
                  biphenyls on the Real Property or any premises leased by
                  Borrower; and (c) except as permitted by law, neither the Real
                  Property nor any premises leased by Borrower has ever been
                  used as a treatment, storage or disposal facility of Hazardous
                  Waste.

         8.2      Reaffirmation. Each request for a Loan made by Borrower
pursuant to this Agreement or any of the other Loan Documents shall constitute
(i) an automatic representation and warranty by Borrower to Lender that there
does not then exist any Default or Event of Default and (ii) a reaffirmation as
of the date of said request that all of the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents are true in
all material respects except for any changes in the nature of Borrower's
business or operations that would render the information contained in any
exhibit attached hereto either inaccurate or incomplete, so long as Lender has
consented to such changes in writing or such changes are expressly permitted by
this Agreement.

         8.3      Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lender that all representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents, and shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.

SECTION 9. COVENANTS AND CONTINUING AGREEMENTS

         9.1      Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:

                  (A)      Taxes and Liens. Pay and discharge, and cause each
Subsidiary to pay and discharge, all taxes, assessments and governmental charges
upon it, its income and Properties as and when such, taxes, assessments and
charges are due and payable (and, if requested by Lender, provide Lender with
proof that Borrower or such Subsidiary has done so), except and to the extent
only that such taxes, assessments and charges are being actively contested in
good faith and by appropriate proceedings, Borrower maintains adequate reserves
on its books therefor and the nonpayment of such taxes, assessments and charges
does not result in a Lien upon any Properties or Borrower other than a Permitted
Lien. Borrower shall also pay and discharge any lawful claims which, if unpaid,
might become a Lien against any of Borrower's Properties, except for Permitted
Liens. Borrower shall also make timely payment or deposit of all FICA payments
and withholding taxes required of it by the applicable laws, and will, upon
request, furnish Lender with proof satisfactory of it that Borrower has made
such payments or deposits.

                  (B)      Tax Returns. File, and cause each Subsidiary to file,
all federal, state and local tax returns and other reports Borrower or such
Subsidiary is required by law to file and

                                       40

<PAGE>

maintain adequate reserves for the payment of all taxes, assessments,
governmental charges, and levies imposed upon it, its income, or its profits, or
upon any Property belonging to it.

                  (C)      Payment of Bank Charges. Pay to Lender, on demand,
any and all fees, costs or expenses which Lender pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to Borrower
or any other Person on behalf of Borrower, by Lender, proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender, of any check or item of payment received or delivered to
Lender on account of the Obligations.

                  (D)      Business and Existence. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its separate corporate existence
and all rights, privileges, and franchises in connection therewith, and
maintain, and cause each Subsidiary to maintain, its qualification and good
standing in all jurisdictions in which such qualification is necessary and where
the failure to do so would have a material adverse effect on Borrower's business
or Properties.

                  (E)      Maintain Properties. Maintain, and cause each
Subsidiary to maintain, its Properties in good condition and make, and cause
each Subsidiary to make, all necessary renewals, repairs, replacements,
additions and improvements thereto to enable Borrower and each Subsidiary to
conduct its business as presently conducted.

                  (F)      Compliance with Laws. Comply, and cause each
Subsidiary to comply, with all laws, ordinances, governmental rules and
regulations to which it is subject, including, without limitation, all
Environmental Laws, and obtain and keep in force any and all licenses, permits,
franchises, or other governmental authorizations necessary to the ownership of
its Properties or to the conduct of its business, which violation or failure to
obtain might materially and adversely affect the business, prospects, profits,
Properties, or condition (financial or otherwise) of Borrower.

                  (G)      ERISA Compliance. Each ERISA Affiliate will (i) make
prompt payment of all contributions it is obligated to make under all Plans or
are required to meet the minimum funding standard set forth in ERISA, (ii)
within 30 days after the filing thereof, furnish to Lender each annual
report/return (Form 5500 Series), as well as all schedules and attachments
required to be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA, and the regulations promulgated thereunder, in
connection with each of its Plans that is not a Multiemployer Plan for each Plan
year, (iii) notify Lender prior to any request for a waiver of the funding
requirements of IRC Section 412 or the commencement of any distress termination
pursuant to ERISA Section 4041(c), (iv) notify Lender immediately of any
Reportable Event, Prohibited Transaction, and of any fact arising in connection
with any of its Plans that is not a Multiemployer Plan, which might constitute
grounds for termination thereof by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such Plan,
together with a statement, if requested by Lender, as to the reason therefor and
the action, if any, proposed to be taken with respect thereto, (v) notify Lender
immediately of any event which is likely to give rise to an assertion of
withdrawal liability in connection with a Multiemployer Plan, and (vi) furnish
to Lender, promptly upon Lender's request therefor, such additional information
concerning any Plan as may be reasonably requested.

                                       41

<PAGE>

                  (H)      Business Records. Keep, and cause each domestic
Subsidiary to keep, adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions, except for the recording of income
taxes and reserves by domestic Subsidiaries.

                  (I)      Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower,
inspect and make extracts from its books and records, and discuss with its
officers, its employees and its independent accountants, Borrower's business,
assets, liabilities, financial condition, business prospects and results of
operations.

                  (J)      Financial Statements. Cause to be prepared and
furnished to Lender the following (all to be kept and prepared in accordance
with GAAP applied on a consistent basis, unless Borrower's certified public
accountants concur in any change therein and such change is disclosed to Lender
and is consistent with GAAP):

                           (i)      as soon as possible, but not later than 90
                  days after the close of each fiscal year of Borrower,
                  unqualified audited financial statements of Borrower and its
                  Subsidiaries as of the end of such year, on a consolidated
                  basis, certified by a firm of independent certified public
                  accountants of recognized national standing or otherwise
                  acceptable to Lender (except for a qualification for a change
                  in accounting principles with which the independent public
                  accountant concurs);

                           (ii)     as soon as possible, but not later than 30
                  days after the end of each month hereafter (or, with respect
                  to the months of July, August and September, not later than 45
                  days after the end of such months), unaudited interim
                  consolidated financial statements of Borrower and its
                  Subsidiaries as of the end of such month and of the portion of
                  Borrower's fiscal year then elapsed, on a consolidated basis,
                  certified by the principal financial officer of Borrower as
                  prepared in accordance with GAAP and fairly presenting the
                  consolidated financial position and results of operations of
                  Borrower and its Subsidiaries for such month and period
                  subject only to changes from audit and year-end adjustments;
                  provided, however, that (a) such statements need not contain
                  notes, and (b) with respect all such interim financial
                  statements (i.e. those financial statements that do not end as
                  of the last day of any fiscal quarter), such statements need
                  not contain adjustments for indirect overhead, cut-off of
                  income and expenses, reserves, manufacturing absorption,
                  income taxes, or the cash surrender value of life insurance
                  policies;

                           (iii)    promptly after the sending or filing
                  thereof, as the case may be, copies of any proxy statements,
                  financial statements or reports which Borrower has made
                  available to its shareholders and copies of any regular,
                  periodic and special reports or registration statements which
                  Borrower files with the Securities and Exchange Commission or
                  any governmental authority which may be substituted therefor,
                  or any national securities exchange; and

                                       42

<PAGE>

                           (iv)     such other data and information (financial
                  and otherwise) as Lender, from time to time, may reasonably
                  request, bearing upon or related to the Collateral, Borrower's
                  financial condition or results of operations, including,
                  without limitation, federal income tax returns of Borrower,
                  accounts payable ledgers, and bank statements.

         Borrower shall promptly forward to Lender, when received by Borrower, a
copy of the accountants' letter to Borrower's management that is prepared in
connection with such financial statements and also shall cause to be prepared
and shall furnish to Lender a certificate of the aforesaid certified public
accountants certifying to Lender that, based upon their examination of the
financial statements of Borrower and its Subsidiaries performed in connection
with their examination of said financial statements, they are not aware of any
Default or Event of Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof. Concurrently with the delivery of the
financial statements described in clauses (i) and (ii) of this Section 9.1(J),
Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of Exhibit O attached hereto.

                  (K)      Notices to Lender. Notify Lender in writing: (i)
promptly after Borrower's learning thereof, of the commencement of any
litigation affecting Borrower or any of its Properties, whether or not the claim
is considered by Borrower to be covered by insurance, and of the institution of
any administrative proceeding which may materially and adversely affect
Borrower's operations, financial condition, Properties or business or Lender's
Lien upon any of the Collateral; (ii) at least 60 days prior thereto, of
Borrower's opening of any new office or place of business or Borrower's closing
of any existing office or place of business; (iii) promptly after Borrower's
learning thereof, of any labor dispute to which Borrower may become a party, any
strikes or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which it is a party or by which it is bound;
(iv) promptly after Borrower's learning thereof, of any material default by
Borrower under any note, indenture, loan agreement, mortgage, lease, deed,
guaranty or other similar agreement relating to any Indebtedness of Borrower
individually or in the aggregate exceeding $100,000; (v) promptly after the
occurrence thereof, of any Default or Event of Default; (vi) promptly after the
occurrence thereof, of any default by any obligor under any note or other
evidence of Indebtedness in excess of $25,000 payable to Borrower; and (vii)
promptly after the rendition thereof, of any judgment rendered against Borrower
or any of its Subsidiaries.

                  (L)      Landlord and Storage Agreements. Provide Lender with
copies of all agreements between Borrower and any landlord or warehouseman which
owns any premises at which any Inventory or other Collateral may, from time to
time, be kept, other than those certain agreements entered into by Borrower's
regional sales managers, unless requested by Lender.

                  (M)      Subordinations. Provide Lender with a debt
subordination agreement, in form and substance satisfactory to Lender, executed
by Borrower and any Person who is an officer, director or Affiliate of Borrower
to whom Borrower is or hereafter becomes indebted for Money Borrowed,
subordinating in right of payment and claim all of such Indebtedness and any
future advances thereon to the full and final payment and performance of the
Obligations.

                                       43

<PAGE>

                  (N)      Further Assurances. At Lender's request, promptly
execute or cause to be executed and deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or carry
out the terms or intent of this Agreement or any of the other Loan Documents.
Without limiting the generality of the foregoing, if any of the Accounts, the
face value of which exceeds $1,000, arises out of a contract with the United
States of America, or any department, agency, subdivision or instrumentality
thereof, Borrower shall promptly notify Lender thereof in writing and shall
execute any instruments and take any other action required or requested by
Lender to comply with the provisions of the Federal Assignment of Claims Act.

                  (O)      Tax Certificate. Within 90 days after the end of each
fiscal year of Borrower, or more frequently if requested by Lender, cause the
chief financial officer of Borrower to prepare and deliver to Lender a
certificate in the form of Exhibit R attached hereto, with appropriate
insertions.

                  (P)      Projections. As soon as available, and in any event
no later than 60 days after the end of each fiscal year of Borrower, deliver to
Lender Projections of Borrower for the forthcoming fiscal year, month by month.

                  (Q)      Systems. Maintain any system reasonably requested by
Lender for creating backup data on computer hardware, software or firmware, such
as Accounts and customer lists, and deliver and pledge to Lender such tapes or
discs with respect thereto as may be required by Lender, all substantially in
the form utilized by Borrower on the Closing Date and as thereafter changed from
time to time.

                  (R)      Environmental Matters.

                           (i)      Ensure that the Real Property remains in
                  compliance in all material respects with all Environmental
                  Laws and it will not place or permit to be placed any
                  Hazardous Substances on any Real Property except as not
                  prohibited by applicable law or appropriate governmental
                  authorities.

                           (ii)     Establish and maintain a system to assure
                  and monitor continued compliance with all applicable
                  Environmental Laws which system shall include periodic reviews
                  of such compliance and shall be appropriate to the nature of
                  Borrower's business.

                           (iii)    (a) Employ in connection with its use of the
                  Real Property appropriate technology necessary to maintain
                  substantial compliance with any applicable Environmental Laws
                  and (b) dispose of any and all Hazardous Waste generated at
                  the Real Property only at facilities and with carriers that
                  maintain valid permits under the Resource Conservation and
                  Recovery Act and any other applicable Environmental Laws.
                  Borrower shall obtain certificates of disposal, such as
                  hazardous waste manifest receipts, from all treatment,
                  transport, storage or disposal facilities or operators in
                  connection with the transport or disposal of any Hazardous
                  Waste generated at the Real Property.

                                       44

<PAGE>

                           (iv)     In the event the Borrower obtains, gives or
                  receives notice of any Release or threat of Release of a
                  reportable quantity of any Hazardous Substances at the Real
                  Property (any such event being hereinafter referred to as a
                  "Hazardous Discharge") or receives any notice of violation,
                  request for information or notification that it is potentially
                  responsible for investigation or cleanup of environmental
                  conditions at the Real Property, demand letter or complaint,
                  order, citation, or other written notice with regard to any
                  Hazardous Discharge or violation of Environmental Laws
                  affecting the Real Property or Borrower's interest therein
                  (any of the foregoing is referred to herein as an
                  "Environmental Complaint") from any Person or entity,
                  including any state agency responsible in whole or in part for
                  environmental matters in the state in which the Real Property
                  is located or the United States Environmental Protection
                  Agency(any such person or entity hereinafter the "Authority"),
                  then the Borrower shall, within thirty (30) Business Days,
                  give written notice of same to the Lender setting forth facts
                  and circumstances giving rise to the Hazardous Discharge or
                  Environmental Complaint. Such information is to be provided to
                  allow Lender to protect its security interest in the Real
                  Property and is not intended to create nor shall it create any
                  obligation upon Lender with respect thereto.

                           (v)      Promptly forward to the Lender copies of any
                  request for information, notification of potential liability,
                  demand letter relating to potential responsibility with
                  respect to the investigation or cleanup of Hazardous
                  Substances at any other site owned, operated or used by
                  Borrower to dispose of Hazardous Substances and shall continue
                  to forward copies of correspondence between the Borrower and
                  the Authority regarding such claims to the Lender until the
                  claim is settled. The Borrower shall promptly forward to the
                  Lender copies of all documents and reports concerning a
                  Hazardous Discharge at the Real Property that the Borrower is
                  required to file under any Environmental Laws. Such
                  information is to be provided solely to allow the Lender to
                  protect Lender's security interest in the Real Property and
                  the Collateral.

                           (vi)     Respond promptly to any Hazardous Discharge
                  or Environmental Complaint and take all necessary action in
                  order to safeguard the health of any Person and to avoid
                  subjecting the Collateral or Real Property to any Lien. If
                  Borrower shall fail to respond promptly to any Hazardous
                  Discharge or Environmental Complaint or Borrower shall fail to
                  comply with any of the requirements of any Environmental Laws,
                  the Lender may, but without the obligation to do so, for the
                  sole purpose of protecting the Lender's interest in
                  Collateral: (a) give such notices or (b) enter onto the Real
                  Property (or authorize third parties to enter onto the Real
                  Property) and take such actions as the Lender (or such third
                  parties as directed by the Lender) deem reasonably necessary
                  or advisable, to clean up, remove, mitigate or otherwise deal
                  with any such Hazardous Discharge or Environmental Complaint.
                  All reasonable costs and expenses incurred by the Lender (or
                  such third parties) in the exercise of any such rights,
                  including any sums paid in connection with any judicial or
                  administrative investigation or proceedings, fines and
                  penalties, together with interest thereon from the date
                  expended at the Default Rate for Loans constituting Revolving

                                       45

<PAGE>

                  Credit Loans shall be paid upon demand by the Borrower, and
                  until paid shall be added to and become a part of the
                  Obligations secured by the Liens created by the terms of this
                  Agreement or any other agreement between Lender and Borrower.

                           (vii)    Provide Lender, at the Borrower's expense,
                  upon Lender's request, which shall be made in good faith, but
                  in any event not more often than once per year, with an
                  environmental site assessment or environmental audit report
                  prepared by an environmental engineering firm acceptable to
                  Lender to assess with a reasonable degree of certainty the
                  existence of a Hazardous Discharge and the potential costs in
                  connection with abatement, cleanup and removal of any
                  Hazardous Substances found on, under, at or within the Real
                  Property. Any report or investigation of such Hazardous
                  Discharge proposed and acceptable to an appropriate Authority
                  that is charged to oversee the clean-up of such Hazardous
                  Discharge shall be acceptable to the Lender. If such
                  estimates, individually or in the aggregate, exceed $100,000,
                  the Lender shall have the right to require the Borrower to
                  post a bond, letter of credit or other security reasonably
                  satisfactory to the Lender to secure payment of these costs
                  and expenses.

                           (viii)   Defend and indemnify the Lender and hold the
                  Lender, and its respective employees, agents, directors and
                  officers harmless from and against all loss, liability, damage
                  and expense, claims, costs, fines and penalties, including
                  attorney's fees, suffered or incurred by the Lender under or
                  on account of any Environmental Laws, including, without
                  limitation, the assertion of any Lien thereunder, with respect
                  to any Hazardous Discharge, the presence of any Hazardous
                  Substances affecting the Real Property, whether or not the
                  same originates or emerges from the Real Property or any
                  contiguous real estate, including any loss of value of the
                  Real Property as a result of the foregoing (collectively,
                  "Environmental Indemnity Matters"), but excluding any loss,
                  liability, damage and expense, claims, costs, fines and
                  penalties and attorneys' fees resulting from the gross
                  negligence or willful misconduct of Lender and its employees,
                  agents, directors and officers. The Borrower's obligations
                  under this Section 9.1(R) shall arise upon the discovery of
                  the presence of any Hazardous Substances at the Real Property,
                  whether or not any federal, state, or local environmental
                  agency has taken or threatened any action in connection with
                  the presence of any Hazardous Substances. Borrower shall have
                  the right to contest any Environmental Indemnity Matter and to
                  employ counsel acceptable to Lender to conduct any such
                  contest (at Borrower's sole expense), but only if and for so
                  long as (i) no Event of Default has occurred and is continuing
                  hereunder, (ii) such Environmental Indemnity Matters are, in
                  Lender's good faith credit judgment, being actively and
                  diligently contested in good faith and by appropriate
                  proceedings, and (iii) such contest does not involve any
                  danger of foreclosure, sale, forfeiture or loss of, or
                  imposition of any Lien, other than a Permitted Lien, on any
                  part of the Collateral or subject any person claiming
                  indemnity to criminal liability. If Borrower elects to engage
                  its own counsel to contest any Environmental Indemnity Matter,
                  Lender shall have the right to participate in the defense of
                  any such Environmental Indemnity Matter and shall retain the
                  right to settle any such matter on terms and conditions
                  satisfactory to Lender. All such

                                       46

<PAGE>

                  settlements shall be paid by and remain the sole
                  responsibility of Borrower. The Borrower's obligation and the
                  indemnifications hereunder shall survive the termination of
                  this Agreement.

                           (ix)     For purposes of Section 8.1(AA), 9.1(R) and
                  9.2(AA), all references to Real Property shall be deemed to
                  include all of Borrower's right, title and interest in and to
                  leased premises.

                  (S)      Vendor Agreements. Provide Lender with copies of all
vendor agreements between Borrower and either of Wal-Mart and Kmart, and
promptly after any modification or amendment thereof, provide Lender with copies
of any such modifications or amendments.

         9.2      Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:

                  (A)      Mergers; Consolidations; Acquisitions. Merge or
consolidate, or permit any Subsidiary to merge or consolidate, with any Person,
except a consolidation or merger involving only Borrower and one or more wholly
owned Subsidiaries; nor acquire all or any substantial part of the Properties of
any Person. Notwithstanding the foregoing, Lowrance shall be permitted to merge
or consolidate and may acquire all or substantially all of the Property of any
Person if (i) no Default or Event of Default exists or would exist after giving
effect to such merger, consolidation or acquisition, (ii) Lowrance is the
surviving corporation of any such merger or consolidation and (iii) the total
amount of all consideration paid and/or Indebtedness incurred by Lowrance in
connection with any such merger, consolidation or acquisition does not exceed
$250,000.

                  (B)      Loans. Make, or permit any Subsidiary to make, any
loans or other advances of money (other than for salary, travel advances,
advances against commissions and other similar advances in the ordinary course
of business) to any Person that is not a Borrower, including, without
limitation, any of Borrower's Affiliates, officers or employees, except for (i)
loans to Borrower's employees which in the aggregate do not exceed at any time
$50,000, and (ii) advances to Lowrance Electronics Deutschland GmbH which in the
aggregate do not exceed $350,000 at any time, and (iii) advances to Electronica
Lowrance De Mexico S.A. De C.V. which in the aggregate do not exceed $600,000 at
any time.

                  (C)      Total Indebtedness. Create, incur, assume, or suffer
to exist, or permit any Subsidiary to create incur or suffer to exist, any
Indebtedness, except: (i) Indebtedness owing to Valley National Bank of Tulsa,
Oklahoma with respect to that certain letter of credit issued by Valley National
Bank to the State of Oklahoma for the support of contingent workman's
compensation claims; (ii) Obligations owing to Lender; (iii) Subordinated Debt;
(iv) Indebtedness of any Subsidiary to Borrower; (v) unsecured accounts payable
to trade creditors and current operating expenses (other than for Money
Borrowed) , in each case incurred in the ordinary course of business; (vi)
Obligations to pay Rentals permitted by Section 9.2(X); (vii) Purchase Money
Indebtedness, to the extent that the principal payments on all such Indebtedness
(other than Capitalized Lease Obligations) do not exceed $800, 000 in the
aggregate during any

                                       47

<PAGE>

fiscal year of Borrower (for the purposes of this (vii), the principal amount of
any Purchase Money Indebtedness consisting of capitalized leases shall be
computed as a Capitalized lease Obligation); (viii) contingent liabilities
arising out of endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business; (ix) Indebtedness
arising from a loan or advance to the extent permitted by Section 9.2(B); (x)
Indebtedness of Borrower or any Subsidiary with respect to federal, state or
foreign income taxes to the extent reflected as a liability on its balance
sheet; (xi) borrowings of the cash surrender value of officer life insurance
policies for the purpose of paying the applicable premium thereon, if the net
proceeds of the life insurance policies on Darrell J. Lowrance are not reduced
below $3,000,000; (xii) Indebtedness not included in paragraphs (i) through (xi)
above which does not exceed at any time, in the aggregate, the sum of $250,000.

                  (D)      Affiliate Transactions. Enter into, or be a party to,
or permit any Subsidiary to enter into or be a party to, any transaction with
any Affiliate or stockholder, except in the ordinary course of and pursuant to
the reasonable requirements of Borrower's or such Subsidiary's business and upon
fair and reasonable terms which are fully disclosed to Lender and are no less
favorable to Borrower than would obtain in a comparable arm's length transaction
with a Person not an Affiliate or stockholder of Borrower or such Subsidiary;
provided, however, that nothing contained in this Section 9.2(D) shall prohibit
the consummation of any transaction expressly permitted pursuant to Section
9.2(J) of this Agreement.

                  (E)      Partnerships or Joint Ventures. Become or agree to
become a general or limited partner in any general or limited partnership or a
joint venturer in any joint venture, if (i) Borrower would be required to expend
more than $200,000 in the aggregate during any fiscal year as a result of
becoming a general or limited partner or joint venturer, or (ii) Borrower would
incur Indebtedness as a result of becoming a general or limited partner or joint
venturer which, when aggregated with any Indebtedness incurred by Borrower under
Section 9.2(A), would exceed $250,000.

                  (F)      Adverse Transactions. Enter into any transaction, or
permit any Subsidiary to enter into any transaction, which materially and
adversely affects or may materially and adversely affect the Collateral or
Borrower's ability to repay the Obligations or permit or agree to any material
extension, compromise or settlement or make any change or modification of any
kind or nature with respect to any Account, including any of the terms relating
thereto, other than discounts and allowances in the ordinary course of business,
all of which shall be reflected in the Schedules of Accounts submitted to Lender
pursuant to Section 5.2 of this Agreement.

                  (G)      Guaranties. Guarantee, assume, endorse or otherwise,
in any way, become directly or contingently liable with respect to the
Indebtedness of any Person except (i) by endorsement of instruments or items of
payment for deposit or collection, (ii) for the guarantee by Lowrance of its
Subsidiaries' obligations with respect to office equipment leases, real Property
leases, motor vehicle leases, (iii) for the guarantee by Lowrance of its
Subsidiaries' obligations as otherwise necessary for the conduct of the
Subsidiaries' business if the aggregate amount of Lowrance's liability with
respect to all such guarantees does not exceed $25,000, and (iv) for the
guarantee by Lowrance of the obligations of any other Person if the aggregate
amount of Lowrance's liability with respect to all such guarantees does not
exceed $50,000.

                                       48

<PAGE>

                  (H)      Limitation on Liens. Create or suffer to exist, or
permit any Subsidiary to create or suffer to exist, any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by Section 9.1(A), hereof, but only if in
Lender's good faith credit judgment such Lien does not affect adversely Lender's
rights or the priority of Lender's Lien in the Collateral; (iii) Liens securing
the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like Persons for labor, materials, supplies or rentals
incurred in the ordinary course of Borrower's business, but only if the payment
thereof is not at the time required and only if such Liens are junior to the
Liens in favor of Lender; (iv) Liens resulting from deposits made in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance, social security and other like laws; (v) attachment,
judgment and other similar non-tax Liens arising in connection with court
proceedings, but only if and for so long as the execution or other enforcement
of such Liens is and continues to be effectively stayed and bonded on appeal in
a manner satisfactory to Lender for the full amount thereof, the validity and
amount of the claims secured thereby are being actively contested in good faith
and by appropriate lawful proceedings and such Liens do not, in the aggregate,
materially detract from the value of the Property of Borrower or materially
impair the use thereof in the operation of Borrower's business; (vi) Purchase
Money Liens securing Permitted Purchase Money Indebtedness which is not incurred
in violation of Section 9.2(C) of this Agreement; (vii) reservations,
exceptions, easements, rights of way, and other similar encumbrances affecting
real Property, provided that, in Lender's good faith credit judgment, they do
not in the aggregate materially detract from the value of said Properties or
materially interfere with their use in the ordinary conduct of Borrower's
business and, if said real Property constitutes Collateral, Lender has consented
thereto; (viii) Liens securing Indebtedness of a Subsidiary to Borrower or
another Subsidiary; (ix) such other Liens as appear on Exhibit S attached
hereto; and (x) such other Liens as Lender may hereafter approve in writing.

                  (I)      Subordinated Debt. Make, or permit any Subsidiary to
make, any prepayment of any part or all of any Subordinated Debt; or otherwise
repurchase, redeem or retire any instrument evidencing any such Subordinated
Debt prior to maturity; or enter into any agreement (oral or written) which
could in any way be construed to amend, modify, alter or terminate any one or
more instruments or agreements evidencing or relating to any Subordinated Debt.

                  (J)      Distributions. Declare or make, or permit any
Subsidiary to declare or make, any Distributions except (i) repurchases of
capital stock of Borrower from its Affiliates in an amount not to exceed
$250,000 during any fiscal year of Borrower, and (ii) the payment of any
Distributions to Lowrance by its Subsidiaries on their capital stock.

                  (K)      Subsidiaries. Hereafter create any Subsidiary or
divest itself of any material assets by transferring them to any Subsidiary to
whose existence Lender has consented.

                  (L)      Capital Expenditures. Make Capital Expenditures
which, in the aggregate, as to Borrower and its Subsidiaries, exceed (i)
$5,000,000 during Borrower's fiscal year ending July 31, 1994, or (ii)
$4,500,000 during each fiscal year of Borrower thereafter.

                                       49

<PAGE>

                  (M)      Capital Lease Obligations. Incur Capital Lease
Obligations which, in the aggregate, as to Borrower and its Subsidiaries exceed
(i) $3,000,000 during Borrower's fiscal year ending July 31, 1994, or (ii)
$2,500,000 during each fiscal year of Borrower thereafter.

                  (N)      Business Locations. Transfer its principal place of
business or chief executive office, or open new manufacturing plants, or
transfer existing manufacturing plants, or maintain warehouses or records with
respect to Accounts or Inventory, to or at any locations other than those at
which the same are presently kept or maintained, as set forth on Exhibit B
hereto, except upon at least 60 days prior written notice to Lender and after
the delivery to Lender of financing statements, if required by Lender, in form
satisfactory to Lender to perfect or continue the perfection of Lender's Lien
and security interest hereunder.

                  (O)      Change of Business. Enter into any business not
reasonably related to Borrower's existing business or make any material change
in any of Borrower's business objectives, purposes and operations.

                  (P)      Disposition of Assets. Sell, lease or otherwise
dispose of any of its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (i)
sales of Inventory in the ordinary course of Borrower's business for so long as
no Event of Default exists hereunder, (ii) a transfer of Property to Borrower by
a Subsidiary, (iii) dispositions expressly authorized by this Agreement, or (iv)
cash or inventory transactions in the ordinary course of business for the
promotion of Borrower's name or products.

                  (Q)      Name of Borrower. Use any corporate name (other than
its own) or any fictitious name, tradestyle or "d/b/a" except for the names
disclosed on Exhibit E attached hereto.

                  (R)      Bill-and-Hold Sales, Etc. Except as otherwise
described on Exhibit T, make a sale to any customer on a bill-and-hold,
guaranteed sale, sale and return, sale on approval or consignment basis; or any
sale on a repurchase or return basis; provided, however, that Borrower shall be
permitted to make sales on a sale on approval or consignment basis so long as
(i) the total amount of all such sales do not exceed $100,000 during any fiscal
year, and (ii) Borrower notifies Lender in writing of each such sale that
exceeds $25,000.

                  (S)      Use of Lender's Name. Without the prior written
consent of Lender, use the name of Lender or the name of any affiliates of
Lender in connection with any of Borrower's business or activities, except in
connection with internal business matters, as required in dealings with
governmental agencies and financial institutions and to trade creditors of
Borrower solely for credit reference purposes.

                  (T)      Margin Securities. Own, purchase or acquire (or enter
into any contract to purchase or acquire) any "margin security" as defined by
any regulation of the Federal Reserve Board as now in effect or as the same may
hereafter be in effect unless, prior to any such purchase or acquisition or
entering into any such contract, Lender shall have received an opinion of
counsel satisfactory to Lender to the effect that such purchase or acquisition
will not cause this Agreement to violate Regulations G, T, U or X or any other
regulation of the Federal Reserve Board then in effect.

                                       50

<PAGE>

                  (U)      Restricted Investment. Make or have, or permit any
Subsidiary to make or have, any Restricted Investment.

                  (V)      Fiscal Year. Change, or permit any Subsidiary to
change, its fiscal year, or permit any Subsidiary to have a fiscal year
different from that of Borrower.

                  (W)      Stock of Subsidiary, Etc. Sell or otherwise dispose
of any shares of capital stock of any Subsidiary, except in connection with a
transaction permitted under Section 9.2(A), or permit any Subsidiary to issue
any additional shares of its capital stock except director's qualifying shares.
Borrower hereby agrees that Lender may, during the term of this Agreement, take
custody of any stock certificates evidencing shares of capital stock of any
Subsidiary (which have not otherwise been pledged to Lender pursuant to the
Stock Pledge Agreement); provided, however, that Borrower's delivery of any such
stock certificates to Lender shall not constitute a grant to Lender of a
security interest in the shares of stock evidenced by such stock certificates.

                  (X)      Leases. Become a lessee under any operating lease
(other than a lease under which Borrower is lessor) of Property if the aggregate
Rentals payable during any current or future fiscal year of Borrower under the
lease in question and all other leases under which Borrower is then lessee would
exceed $800,000.00. The term "Rentals" means, as of the date of determination,
all payments which the lessee is required to make by the terms of any lease.

                  (Y)      Tax Consolidation. File or consent to the filing of
any consolidated income tax return with any Person other than a Subsidiary.

                  (Z)      Prepayments. Make, or permit any Subsidiary to make,
any prepayment of. any part or all of any Money Borrowed, except that (i)
Borrower and its Subsidiaries may prepay outstanding Money Borrowed in
connection with a Purchase Money Lien from the proceeds of the sale of property
subject to such Lien and (ii) Borrower may prepay Lender as provided in this
Agreement or any of the Other Agreements.

                  (AA)     Compliance with Environmental Laws. (i) Use any of
the Real Property or any portion thereof for the handling, processing, storage
or disposal of Hazardous Substances, other than in compliance with Environmental
Laws, (ii) cause or permit to be located on any of the Real Property any
underground tank or other underground storage receptacle for Hazardous
Substances, (iii) generate any Hazardous Substances on any of the Real Property
except as may be necessary for Borrower to conduct its operations as conducted
on the Closing Date, (iv) conduct any activity at any Real Property or use any
Real Property in any manner so as to cause a Release or threatened Release of
Hazardous Substances on, upon or into the Real Property, or (iv) otherwise
conduct any activity at any Real Property or use any Real Property in any manner
that would violate any Environmental Law or bring such Real Property in
violation of any Environmental Law.

                  (BB)     Amend any Pension Plan. Amend any pension Plan so as
to require security to be provided pursuant to IRC Section 401(a)(29).

                                       51

<PAGE>

         9.3      Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to Lender,
Borrower covenants that, unless otherwise consented to by Lender in writing, it
shall:

                  (A)      Minimum Tangible Net Worth. Maintain at all times a
Consolidated Tangible Net Worth of not less than $9,500,000.

                  (B)      Maximum Leverage Ratio. Maintain, on a Consolidated
basis, a ratio of (i) total Indebtedness to (ii) Tangible Net Worth of not more
than the ratio shown below for each month during the periods corresponding
thereto:

<TABLE>
<CAPTION>
                Period                                         Ratio
                ------                                         -----
<S>                                                          <C>
December 15, 1993 through June 30, 1994                      4.25 to 1
July 1, 1994 through July 31, 1994                           2.50 to 1

August 1, 1994 through June 30, 1995                         4.00 to 1
July 1, 1995 through July 31, 1995                           2.50 to 1

August 1, 1995 through June 30, 1996                         4.00 to 1
July 1, 1996 through July 31, 1995                           2.50 to 1

August 1, 1996 through June 30, 1997                         4.00 to 1
July 1, 1997 through July 31, 1997                           2.50 to 1

August 1, 1997 through June 30, 1998                         4.00 to 1
</TABLE>

SECTION 10. CONDITIONS PRECEDENT

         Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other Sections of this Agreement, it is understood and agreed that
Lender will not make any Loan under Section 2 of this Agreement unless and until
each of the following conditions has been and continues to be satisfied, all in
form and substance satisfactory to Lender and its counsel:

         10.1     Documentation. Lender shall have received the following
documents, each to be in form and substance satisfactory to Lender and its
counsel:

                  (A)      certified copies of Borrower's casualty insurance
policies, together with endorsements naming Lender as loss payee and as
mortgagee pursuant to a standard mortgagee clause, and certified copies of
Borrower's liability insurance policies, together with endorsements naming
Lender as a co-insured;

                  (B)      copies of all filing receipts or acknowledgments
issued by any governmental authority to evidence any filing or recordation
necessary to perfect the Liens of

                                       52

<PAGE>

Lender in the Collateral and evidence to Lender that such Liens constitute valid
and perfected security interests and Liens, having the Lien priority specified
in Section 4.3(B) hereof;

                  (C)      landlord or warehouseman agreements with respect to
all premises leased by Borrower;

                  (D)      a copy of the Articles or Certificate of
Incorporation of Borrower, and all amendments thereto, certified within 15 days
before the Closing Date by the Secretary of State or other appropriate official
of its jurisdiction of incorporation;

                  (E)      a copy of the bylaws of Borrower or, in the case of
Lowrance Australia, the certificate of incorporation, memorandum and articles of
association, and all amendments thereto, certified as of the closing date by the
Secretary or Assistant Secretary of Borrower;

                  (F)      except for Lowrance Australia, good standing
certificates for Borrower, issued within 15 days before the Closing Date by the
Secretary of State or other appropriate official of Borrower's jurisdiction of
incorporation and each jurisdiction where the conduct of Borrower's business
activities or the ownership of its Properties necessitates qualification, where
the failure to be so qualified would have a material adverse effect upon
Borrower's business or Properties;

                  (G)      a closing certificate signed by the Chief Executive
Officer and Chief Financial Officer of Borrower dated as of the date hereof,
stating that (i) the representations and warranties set forth in Section 8
hereof are true and correct on and as of such date, (ii) Borrower is on such
date in compliance with all the terms and provisions set forth in this
Agreement, and (iii) on such date no Default or Event of Default has occurred or
is continuing;

                  (H)      the Security Documents duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto;

                  (I)      the Other Agreements duly executed and delivered by
Borrower;

                  (J)      fully paid mortgagee title insurance policies (or
binding commitments to issue title insurance policies, marked to Lender's
satisfaction to evidence the form of such policies to be delivered after the
Closing Date), in standard ALTA form, issued by a title insurance company
satisfactory to Lender, each in an amount equal to not less than the fair market
value of the real Property or leasehold interest, as the case may be, subject to
the Mortgage, insuring the Mortgage to create a valid Lien on all real Property
and valid Liens on the leasehold interest described therein with no exceptions
which Lender shall not have approved in writing and no survey exceptions;

                  (K)      a survey with respect to each parcel of real Property
comprising a part of the Collateral, which survey shall indicate the following:
(i) an accurate metes and bounds or lot, block and parcel description of such
Property; (ii) the correct location of all building, structures and other
improvements on such Property, including, without limitation, all streets,
easements, rights of way and utility lines; (iii) the location of ingress and
egress from such Property, and the location of any setback or other building
lines affecting such Property; and (iv) a certification by

                                       53

<PAGE>

a registered land surveyor, certifying to the accuracy and completeness of such
survey and to such other matters relating to such real Property and survey as
Lender shall require;

                  (L)      the favorable, written opinion of Doerner, Stuart,
Saunders, Daniel & Anderson, counsel to Borrower, regarding Borrower, the Loan
Documents and the transactions contemplated by the Loan Documents and the
favorable, written opinion of Bartier Perry & Purcell regarding Lowrance
Australia, the Fixed and Floating Equitable Charge and the transactions
contemplated by the Fixed and Floating Equitable Charge;

                  (M)      written instructions from Borrower directing the
application of proceeds of the initial Loan made pursuant to this Agreement, and
an initial Borrowing Base Certificate from Borrower reflecting that Borrower has
Eligible Accounts and Eligible Inventory in amounts sufficient in value and
amount to support Loans in the amount requested by Borrower on the date of such
certificate;

                  (N)      duly executed agreement establishing the Dominion
Account with a financial institution acceptable to Lender for the collection or
servicing of the Accounts;

                  (O)      a letter of instruction to Borrower's accountants
authorizing them to communicate with Lender regarding Borrower;

                  (P)      Phase I and Phase II environmental site assessment
reports (collectively, "Environmental Reports"), upon which Lender is expressly
entitled to rely, from one or more environmental consulting firms acceptable to
Lender, stating such firm's or firms' (i) opinion as to Borrower's compliance
with all Environmental Laws with respect to all of Borrower's Real Property, and
(ii) estimation of costs, if any, required to place Borrower in compliance with
all Environmental Laws with respect to all of Borrowers' Real Property;

                  (Q)      the Insurance Assignment, duly executed, accepted and
acknowledged by or on behalf of each of the signatories thereto; and

                  (R)      such other documents, instruments and agreements as
Lender shall reasonably request in connection with the foregoing matters,
including, without limitation, any items identified in the Closing Checklist
delivered by Lender to Borrower immediately prior to the Closing Date.

         10.2     Other Conditions. The following conditions have been and shall
continue to be satisfied:

                  (A)      no Default or Event of Default shall exist;

                  (B)      each of the conditions precedent set forth in the
other Loan Documents shall have been satisfied;

                  (C)      since July 31, 1993, except for changes which are
reflected on the July 31, 1993 financial statements prepared by management and
submitted to Lender, there shall not have occurred any material adverse change
in the business, financial condition or results of operations of Borrower on a
consolidated basis, or the existence or value of any Collateral, or any event,

                                       54

<PAGE>

condition or state of facts which would reasonably be expected materially and
adversely to affect the business, financial condition or results of operations
of Borrower on a consolidated basis;

                  (D)      no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby or which,
in Lender's discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents;

                  (E)      Borrower shall have paid all expenses of Lender
pursuant to any invoices presented to Borrower related to the negotiation,
preparation and execution of the Loan Documents, including attorneys' fees;

                  (F)      all representations and warranties made by Borrowers
to Lenders in the Loan Documents shall be true and correct;

                  (G)      on the Closing Date, the Borrowing Base shall exceed
the amount of Revolving Credit Loans requested by Borrower on the Closing Date
by at least $2,000,000.00, and Borrower shall have provided Lender with a
Borrowing Base Certificate to the foregoing effect;

                  (H)      Borrowers shall have paid to Lender all fees required
by Section 3 to be paid on the Closing Date;

                  (I)      Lender shall have received favorable responses to its
reference checks of Borrower;

                  (J)      on the Closing Date, Lender's servicing requirements
for the Loans shall have been approved by Lender's division credit officer; and

                  (K)      on the Closing Date, all covenants in this Agreement
shall have been approved by Lender's division credit officer.

SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT

         11.1     Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":

                  (A)      Payment of Notes. Borrower shall fail to pay any
installment of principal, interest or premium, if any, owing on the Term Note or
the Revolving Credit Notes on the due date of such installment, and five days
shall have elapsed after the giving of notice by Lender to Borrower of such
failure.

                  (B)      Payment of Other Obligations. Borrower shall fail to
pay any of the Obligations that are not evidenced by the Term Note or the
Revolving Credit Notes on the due

                                       55

<PAGE>

date thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise), and five days shall have elapsed after the giving of notice by
Lender to Borrower of such failure.

                  (C)      Misrepresentations. Any warranty, representation, or
other statement made or furnished to Lender by or on behalf of Borrower or
Guarantor or in any instrument, certificate or financial statement furnished in
compliance with or in reference to this Agreement or any of the other Loan
Documents proves to have been false or misleading in any material respect when
made or furnished.

                  (D)      Breach of Covenants. Borrower shall fail or neglect
to perform, keep or observe (i) any covenant contained in Sections 4 3, 4.4,
4.5, 4.6, 5.4(B), 9.1(F), 9.2 or 9.3 of this Agreement, (ii) any covenant
contained in Sections 5.2, 9.1(A), 9.1(J), 9.1(K), 9.1(O) or 9.1(P) of this
Agreement and the breach of such covenant is not cured to Lender's satisfaction
within five (5) days after the sooner to occur of Borrower's receipt of notice
of such breach from Lender or the date on which such failure or neglect becomes
known to any officer of Borrower; provided, however, that if Borrower shall
default in the performance or observance of any of the foregoing covenants more
than once during the term of this Agreement, then, in such event, the breach of
any such covenant shall immediately constitute an Event of Default hereunder and
no grace or cure period shall be applicable to such default, or (iii) any other
covenant contained in this Agreement (other than a covenant a default in the
performance or observance of which is dealt with specifically elsewhere in this
Section 11.1) and the breach of such other covenant is not cured to Lender's
satisfaction within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure or neglect
becomes known to any officer of Borrower.

                  (E)      Default Under Other Agreements. Any event of default
shall occur under, or Borrower shall default in the performance or observance of
any term, covenant, condition or agreement contained in, any of the Other
Agreements and such default shall continue beyond any applicable period of
grace.

                  (F)      Default Under Security Documents. Any event of
default shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any of
the Security Documents and such default shall continue beyond any applicable
period of grace.

                  (G)      Other Defaults. There shall occur any default or
event of default on the part of Borrower (including specifically, but without
limitation, due to nonpayment) under any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any material Indebtedness (other than the Obligations)
if the payment or maturity of such Indebtedness is accelerated in consequence of
such event of default or demand for payment of such Indebtedness is made.

                  (H)      Uninsured Losses; Unauthorized Dispositions. Any
material loss, theft, damage or destruction not fully covered by insurance (as
required by this Agreement and subject to such deductibles as Lender shall have
agreed to in writing), or sale, lease or encumbrance of any of the Collateral or
the making of any levy, seizure, or attachment thereof or thereon except in all
cases as may be specifically permitted by other provisions of this Agreement.

                                       56

<PAGE>

                  (I)      Insolvency, etc. Lowrance shall cease to be Solvent
or shall suffer the appointment of a receiver, trustee, custodian, controller,
administrator or similar fiduciary, or shall make an assignment for the benefit
of creditors, or any petition for an order for relief shall be filed by or
against Borrower under the Bankruptcy Code (if against Borrower, the
continuation of such proceeding for more than 30 days), or Borrower shall make
any offer of settlement, extension or composition to their respective unsecured
creditors generally.

                  (J)      Business Disruption; Condemnation. There shall occur
a cessation of a substantial part of the business of Borrower for a period which
significantly affects Borrower's capacity to continue its business, on a
profitable basis and any loss which could result from such cessation is not
fully covered by business interruption insurance (as required by this Agreement
and subject to such deductibles as Lender shall have agreed to in writing); or
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower which is essential to the continued or lawful
operation of its business; or Borrower shall be enjoined, restrained or in any
way prevented by court, governmental or administrative order from conducting all
or any material part of its business affairs; or any material lease or agreement
pursuant to which Borrower leases, uses or occupies any Property shall be
canceled or terminated prior to the expiration of its stated term; or any
material part of the Collateral shall be taken through condemnation or the value
of such Property shall be impaired through condemnation.

                  (K)      Change of Ownership. Darrell J. Lowrance, or his
estate in the event of his death, shall cease to own and control, beneficially
and of record, 33% of the issued and outstanding capital stock of Borrower or
20% of the issued and outstanding capital stock if Borrower shall conduct a
public offering of its capital stock.

                  (L)      ERISA.

                           (i)      Both (a) and (b) following shall occur: (a)
                  any one of the following shall occur (w) proceedings have been
                  instituted to terminate, or a notice of termination has been
                  filed with respect to, any Pension Plan (other than a
                  Multiemployer Plan) by any ERISA Affiliate, the PBGC or any
                  representative of either, or any such Pension Plan shall be
                  terminated under Section 4041 or Section 4042 of ERISA, (x) a
                  Reportable Event has occurred with respect to any Pension Plan
                  (other than a Multiemployer Plan) and continues for a period
                  of 60 days, (y) a Prohibited Transaction has occurred, or (z)
                  any other event or condition which constitutes grounds under
                  Section 4042 of ERISA for the termination of, or appointment
                  of a trustee to administer, a Pension Plan has occurred, and
                  (b) the sum of any liability to PBGC under Section 4062 of
                  ERISA, plus the currently payable obligations of any ERISA
                  Affiliate to fund liabilities under all Pension Plans (when
                  aggregated with the liabilities related to the events
                  described in (a) above), shall have a material adverse effect;

                           (ii)     Any of (a), (b), or (c) following shall
                  occur with respect to any Multiemployer Plan: (a) any ERISA
                  Affiliate incurs a withdrawal liability under Section 4201 of
                  ERISA, or (b) any Multiemployer Plan is "in reorganization" as
                  that term is defined in Section 4241 of ERISA, or (c) any such
                  Multiemployer

                                       57

<PAGE>

                  Plan is terminated under Section 4041A of ERISA; and the
                  aggregate liability likely to be incurred by any ERISA
                  Affiliate as a result of all or any of the events specified in
                  clauses (a), (b) and (c) above occurring, when aggregated with
                  any liabilities arising pursuant to any event described in the
                  preceding paragraph (i), shall have a material adverse effect.

                           (iii)    Borrower adopts or amends any Plan so as to
                  create or result in a liability or funding obligation that has
                  a material adverse effect, or when aggregated with all other
                  liabilities described in this Section 11.1(L), has a material
                  adverse effect.

                  (M)      Litigation. Borrower or any Affiliate, shall
challenge or contest in any action, suit or proceeding the validity or
enforceability of this Agreement or any of the other Loan Documents, the
legality or enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.

                  (N)      Criminal Forfeiture. Borrower shall be criminally
indicted or convicted under any law that could lead to a forfeiture of any
Property of Borrower.

                  (O)      Judgments. Any money judgment, writ of attachment or
similar process in an amount in excess of $100,000 is entered or filed against
Borrower or any of its Property and results in the creation or imposition of any
Lien that is not a Permitted Lien.

         11.2     Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the Obligations payable
on demand in accordance with Section 3.5 hereof, upon or at any time after the
occurrence of an Event of Default as above provided, all or any portion of the
Obligations due or to become due from Borrower to Lender (whether under this
Agreement, or any of the other Loan Documents or otherwise) shall, at Lender's
option (or, in the case of an Event of Default under Section 11.1(I), hereof,
immediately upon the occurrence thereof), become at once due and payable without
presentment, demand, protest, notice of dishonor, notice of default, notice of
intent to accelerate, notice of acceleration, or any other notice whatsoever,
and Borrower shall forthwith pay to Lender, in addition to any and all sums and
charges due, the entire principal of and interest accrued on the Obligations.

         11.3     Remedies. Upon and after the occurrence of an Event of
Default, Lender shall have and may exercise from time to time the following
rights and remedies:

                  (A)      All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative, and none of which shall be exclusive, and shall be in addition to
any other rights or remedies contained in this Agreement or any of the other
Loan Documents.

                  (B)      The right to take immediate possession of the
Collateral, and (i) to require each Domestic Borrower to assemble the
Collateral, at each such Domestic Borrower's expense, and make it available to
Lender at a place designated by Lender which is reasonably convenient to both
parties, and (ii) to enter any of the premises of each Domestic Borrower or
wherever any

                                       58

<PAGE>

of the Collateral shall be located, and to keep and store the same on said
premises until sold (and if said premises be the Property of such Domestic
Borrower, such Domestic Borrower agrees not to charge Lender for storage
thereof).

                  (C)      The right to sell or otherwise dispose of all or any
Inventory or Equipment of any Domestic Borrower in its then condition, or after
any further manufacturing or processing thereof, at public or private sale or
sales, with such notice as may be required by law, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable. Each
Domestic Borrower agrees that ten days written notice to such Domestic Borrower
of any public or private sale or other disposition of such Collateral shall be
reasonable notice thereof, and such sale shall be at such locations as Lender
may designate in said notice. Lender shall have the right to conduct such sales
on the Domestic Borrowers' premises, without charge therefor, and such sales may
be adjourned from time to time in accordance with applicable law. Lender shall
have the right to sell, lease or otherwise dispose of such Collateral, or any
part thereof, for cash, credit or any combination thereof, and Lender may
purchase all or any part of such Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Obligations.

                  (D)      Lender is hereby granted a license or other right to
use, without charge, each Domestic Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any Property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral and such Domestic
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit.

                  (E)      The proceeds realized from the sale of any Collateral
of any Domestic Borrower may be applied, after allowing two Business Days for
collection, first to the costs, expenses and reasonable attorneys' fees incurred
by Lender in collecting the Obligations, in enforcing the rights of Lender under
the Loan Documents and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling and delivering any of the
Collateral; secondly, to interest due upon any of the Obligations; and thirdly,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.

                  (F)      With respect to the face amount of all Letters of
Credit issued by Lender or Bank, Lender may, at its option, require Borrower to
deposit with Lender funds equal to such face amount, and if Borrower fails to
promptly make such deposit, Lender may advance such amount as a Revolving Credit
Loan (whether or not such advance would cause the outstanding balance of
Revolving Credit Loans to exceed the Borrowing Base). Any such deposit or
advance shall be held by Lender as a reserve to fund future payments on future
drawings against such Letters of Credit. At such time as all Letters of Credit
issued by Lender or Bank have been drawn upon or expired, any amounts remaining
in such reserve shall be applied against any outstanding Obligations, or to the
extent all Obligations have been indefeasibly paid in full, returned to
Borrower.

         11.4     Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any

                                       59

<PAGE>

other agreement between Lender and Borrower, heretofore, concurrently, or
hereafter entered into, shall be deemed cumulative to and not in derogation or
substitution of any of the terms, covenants, conditions, or agreements of
Borrower herein contained. The failure or delay of Lender to exercise or enforce
any rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such Liens, rights, powers and remedies, but all such Liens, rights,
powers, and remedies shall continue in full force and effect until all Loans and
all other Obligations owing or to become owing from Borrower to Lender shall
have been fully satisfied, and all Liens, rights, powers, and remedies herein
provided for are cumulative and none are exclusive.

SECTION 12. MISCELLANEOUS

         12.1     Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:

                  (A)      At such time or times upon or after the occurrence of
an Event of Default as Lender or said agent may determine, endorse Borrower's
name on any checks, notes, acceptances, drafts, money orders or any other
evidence of payment or proceeds of the Collateral which come into the possession
of Lender or under Lender's control; and

                  (B)      At such time or times upon or after the occurrence of
an Event of Default as Lender or its agent may determine: (i) demand payment of
the Accounts from the Account Debtors, enforce payment of the Accounts by legal
proceedings or otherwise, and generally exercise all of Borrower's rights and
remedies with respect to the collection of the Accounts; (ii) settle, adjust,
compromise, discharge or release any of the Accounts or other Collateral or any
legal proceedings brought to collect any of the Accounts or other Collateral;
(iii) sell or assign any of the Accounts and other Collateral upon such terms,
for such amounts and at such time or times as Lender deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any Account Debtor or to any notice of
lien, assignment or satisfaction of lien or similar document in connection with
any of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any Collateral
and deposit the same to the account of Lender on account of the Obligations;
(viii) endorse the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to the Accounts, Inventory and any other Collateral; (ix) use
Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any other
Collateral and to which Borrower has access; (xi) make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Lender's determination, to fulfill Borrower's obligations under this Agreement.

                                       60

<PAGE>

         12.2     Indemnity. Borrower hereby indemnifies, holds harmless, and
shall defend Lender and its directors, officers, agents, counsel and employees
("Indemnified Persons") from and against any and all losses, liabilities,
damages, costs, expenses, suits, actions and proceedings ("Losses") ever
suffered or incurred by any Indemnified Person arising out of or relating to
this Agreement or any other transaction contemplated hereby (collectively,
"Indemnity Matters"), but not including any Losses caused by the gross
negligence or willful misconduct of any Indemnified Person, and Borrower shall
reimburse the Lender and each other Indemnified Person for any expenses
(including in connection with the investigation of, preparation for or defense
of any actual or threatened claim, action or proceeding arising therefrom,
including any such costs of responding to discovery requests or subpoenas,
regardless of whether Lender or such other Indemnified Person is a party
thereto). Without limiting the generality of the foregoing, this indemnity shall
extend to any claims asserted against Lender or any other Indemnified Person by
any Person under any Environmental Laws or similar laws, by reason of Borrower's
or any other Person's (other than any Indemnified Person) failure to comply with
laws applicable to solid or hazardous waste materials or other toxic substances.
Each Indemnified Person may select its own counsel with respect to any Losses,
in addition to any Borrower's counsel, and shall be indemnified therefor
hereunder. Borrower shall have the right to contest any Indemnity Matter and to
employ counsel acceptable to Lender to conduct any such contest (at Borrower's
sole expense), but only if and for so long as (i) no Event of Default has
occurred and is continuing hereunder, (ii) such Indemnity Matters are, in
Lender's good faith credit judgment, being actively and diligently contested in
good faith and by appropriate proceedings, and (iii) such contest does not
involve any danger of foreclosure, sale, forfeiture or loss of, or imposition of
any Lien, other than a Permitted Lien, on any part of the Collateral or subject
any person claiming indemnity to criminal liability. If Borrower elects to
engage its own counsel to contest any Indemnity Matter, Lender shall have the
right to participate in the defense of any such Indemnity Matter and shall
retain the right to settle any such matter on terms and conditions satisfactory
to Lender. All such settlements shall be paid by and remain the sole
responsibility of Borrower. Notwithstanding any contrary provision of this
Agreement, the obligation of Borrower under this Section 12.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.

         12.3     Modification of Agreement. This Agreement and the other Loan
Documents may not be modified, altered or amended, except by an agreement in
writing signed by Borrower and Lender.

         12.4     Reimbursement of Expenses. Without limiting Borrower's
obligations for payment of reasonable expenses as provided elsewhere in this
Agreement or in any other Loan Document, if, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender incurs any out-of-pocket expenses (including, without limitation, the
fees and expenses of Lender's attorneys if Lender retains legal counsel) in
connection with: (A) the negotiation and preparation of the Loan Documents, any
amendment or modification of any Loan Documents; or (B) the administration of
the Loan Documents and the transactions contemplated thereby; (C) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral, any
Loan Documents, Lender's and Borrower's relationship, or Borrower's affairs; (D)
any attempt to enforce any rights of Lender against Borrower or any other Person
which may be obligated to

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<PAGE>

Lender by virtue of any Loan Documents, including, without limitation, the
Account Debtors; (E) the exercise or enforcement of any rights, remedies or
privileges of Lender under the Loan Documents or applicable law; (F) the
analysis of information received in connection with any Loan Documents; (G) the
audit of any Collateral or Borrower's books and records; (H) the granting of any
consents or waivers requested in connection with the Loan Documents; (I) the
collection of any Obligations; or (J) any attempt to inspect, verify, protect,
preserve, restore, collect, sell, liquidate or otherwise dispose of or realize
upon the Collateral; then, in any such event, all expenses, costs, charges and
other fees incurred by Lender or its attorneys or relating to any of the events
or actions described in this Section 12.4 shall be payable, on demand, by
Borrower to Lender and shall be additional Obligations hereunder secured by the
Collateral; provided, however, that if during any fiscal year of Borrower no
Default has occurred which remains uncured for a period of thirty (30) days or
more, Borrower shall not be required to pay any expenses incurred by Lender in
connection with any audit described in clause (G) of this Section 12.4 that
exceed $15,000 during such fiscal year. Without limiting the generality of the
foregoing, such expenses, costs, charges and fees may include: recording costs;
appraisal costs; accountants' fees, costs and expenses; court costs and
expenses; photocopying and duplicating expenses; court reporter fees, costs and
expenses; attorney and paralegal fees, costs and expenses; long distance
telephone charges; air express charges; telegram and facsimile charges; wire
transfer fees; secretarial overtime charges; and expenses for travel, lodging
and food. Additionally, if any taxes (excluding taxes imposed upon or measured
by the net income of Lender) shall be payable on account of the execution or
delivery of any of the Loan Documents, or the creation of any of the Obligations
hereunder, by reason of any existing or hereafter enacted federal or state
statute, Borrower will pay all such taxes, including, but not limited to, any
interest and penalties thereon, and will indemnify and hold Lender harmless from
and against liability in connection therewith.

         12.5     Indulgences Not Waivers. Lender's failure, at any time or
times hereafter, to require strict performance by Borrower of any provision of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Lender of an Event of Default by Borrower under this Agreement or
any of the other Loan Documents shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or any of the other Loan
Documents, whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Event of Default by Borrower under this
Agreement or any of the other Loan Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.

         12.6     Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

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<PAGE>

         12.7     Successors and Assigns. This Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of the successors and
assigns of Borrower and Lender; provided, however, that Borrower may not sell,
assign or transfer any interest in this Agreement or any other Loan Document, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers and duties hereunder or thereunder. Any purported
assignment by Borrower in violation of this Section 12.7 shall be void, without
Lender's prior written consent. Borrower hereby consents to Lender's sale,
assignment, transfer or of the disposition, at any time or times hereafter, of
100% of Lender's interest in this Agreement, the other Loan Documents, and the
Obligations, including, without limitation, Lender's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. In the case of any such
sale or assignment, the assignee shall have, to the extent of such assignment,
the same rights, benefits and obligations as it would have if it were the
original "Lender" hereunder and Lender shall be relieved of all obligations
hereunder upon any such assignment.

         12.8     Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.5, of
this Agreement and except as otherwise provided in any of the other Loan
Documents by specific reference to the applicable provision of this Agreement,
if any provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.

         12.9     Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which counterparts taken together shall constitute but
one and the same instrument.

         12.10    Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail return receipt requested, by personal
delivery against receipt, or by telegraph or telex and, unless otherwise
expressly provided herein, shall be deemed to have been validly served, given or
delivered when delivered against receipt or one Business Day after deposit in
the U. S. mail postage prepaid, or, in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of telex notice, when sent,
answerback received, addressed as follows:

                  (A) If to Lender:    Barclays Business Credit, Inc.
                                       2711 North Haskell Avenue Suite 2100
                                       Dallas, Texas 75204
                                       Attn: Loan Administration Manager

                  with a copy to:      Hughes & Luce, L.L.P.
                                       1717 Main Street, Suite 2800
                                       Dallas, Texas 75201
                                       Attn: Larry A. Makel, Esq.

                  (B) If to Borrower:  Lowrance Electronics, Inc.
                                       12000 East Skelly Drive

                                       63

<PAGE>

                                    Tulsa, Oklahoma 74128
                                    Attn: Mark C. Wilmoth

                  with a copy to:   Doerner, Stuart, Saunders, Daniel & Anderson
                                    320 South Boston, Suite 500
                                    Tulsa, Oklahoma 74103
                                    Attention: Robert F. Biolchini, Esq.

or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.10; provided, however, that any notice,
request or demand to or upon Lender pursuant to Sections 2.3 or 3.3 shall not be
effective until received by Lender. Any written notice that is not sent in
conformity with the provisions hereof shall nevertheless be effective on the
date that such notice is actually received by the noticed party.

         12.11    Lender's Consent. Whenever Borrower requests in writing
Lender's consent or waiver for any action, inaction, condition, or event under
this Agreement, any of the Other Agreements or any of the Security Documents,
Lender shall give, withhold or condition its consent or waiver in writing (i)
solely on the basis of its reasonable credit judgment exercised in good faith
and (ii) in an expeditious manner, but in no event later than ten days from such
request.

         12.12    Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.

         12.13    Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.

         12.14    Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.

         12.15    Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.

         12.16    No Fiduciary Relationship or Joint Venture. No provision
herein or in any of the other Loan Documents and no course of dealing between
the parties hereto shall be deemed to create any fiduciary relationship between
Lender and Borrower or to create any partnership or joint venture between Lender
and Borrower.

         12.17    Publicity. Borrower hereby consents to the issuance of or
dissemination by Lender to the public of information describing the credit
accommodations entered into pursuant

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<PAGE>

to this Agreement including, without limitation, the names and addresses of
Borrower, a general description of Borrower's business and the use of Borrower's
name and logo in connection therewith.

         12.18    Destruction of Borrower's Documents. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) month after they are delivered to or received by
Lender, unless Borrower requests, in writing, the return of the said documents,
schedules, invoices or other papers and makes arrangements, at Borrower's
expense, for their return; provided, however, that in no event shall Lender be
liable to Borrower for any failure to retain Borrower's records for any period
of time or to return such records to Borrower.

         12.19    Nonapplicability of Article 5069-15.01 et seq. Borrower and
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions of
Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not apply
to this Agreement or any of the other Loan Documents.

         12.20    No Preservation or Marshaling. Borrower agrees that Lender has
no obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person.

         12.21    Security Interest in Australian Property. Notwithstanding any
other provision of this Agreement, nothing contained herein shall create a
security interest in, or constitute an assignment of, any Property of Lowrance
Australia which is located in the Country of Australia.

         12.22    Obligations Under Deed of Covenant to Pay. Notwithstanding any
other provision of this Agreement, the obligations of the Domestic Borrowers
arising under the Deed of Covenant to Pay shall not constitute Obligations that
are secured by the Collateral.

         12.23    GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
DALLAS, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART
OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR
FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER
HEREBY CONSENTS AND AGREES THAT THE DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR,
AT LENDER'S OPTION, THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS,
DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR
TO ANY MATTER ARISING

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<PAGE>

OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE FORM OR JURISDICTION.

         12.24    WAIVERS BY BORROWER. BORROWER WAIVES (A) PRESENTMENT, DEMAND
AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO
ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION
OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH
BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER
LENDER MAY DO IN THIS REGARD; (B) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (C) THE BENEFIT
OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (D) NOTICE OF ACCEPTANCE
HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED THE FOREGOING RIGHTS
AND/OR MATTERS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT. BORROWER HEREBY AGREES THAT IT SHALL HAVE NO RIGHT TO REQUIRE LENDER TO
TERMINATE LENDER'S SECURITY INTEREST IN THE COLLATERAL OR IN ANY OF THE PROPERTY
OF BORROWER UNTIL THE OCCURRENCE OF EACH OF THE FOLLOWING (A) PAYMENT IN FULL OF
THE OBLIGATIONS; (B) TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS;
AND (C) EXECUTION BY

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<PAGE>

BORROWER AND BY ANY PERSON WHOSE LOANS TO BORROWER ARE USED IN WHOLE OR IN PART
TO SATISFY THE OBLIGATIONS OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR
DAMAGE LENDER MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF
PAYMENT RECEIVED BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO
THE OBLIGATIONS, AND BORROWER HEREBY WAIVES ANY RIGHT TO REQUIRE A TERMINATION
OF LENDER'S SECURITY INTEREST PRIOR TO THE OCCURRENCE OF EACH OF THE
ABOVE-DESCRIBED EVENTS.

         12.25    DTPA WAIVER. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE
ANN. SECTION 17.01 ET SEQ. (VERNON SUPP. 1987)), OTHER THAN SECTION 17.555
THEREOF PERTAINING TO CONTRIBUTION AND INDEMNITY, AND EXPRESSLY WARRANTS AND
REPRESENTS THAT BORROWER (A) HAS ASSETS OF $5,000,000 OR MORE, (B) HAS KNOWLEDGE
AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER TO
EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS BEEN REPRESENTED
BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

         12.26    ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

         IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas,
Texas, on the day and year specified at the beginning hereof.

                                        "BORROWER"

                                        LOWRANCE ELECTRONICS, INC.,

                                        By: /s/ Darrell J. Lowrance
                                            ------------------------------------
                                            Darrell J. Lowrance, President

                                        LEI EXTRAS, INC.

                                        By: /s/ Steven L. Schneider
                                            ------------------------------------
                                            Steven L. Schneider, President

                                       67

<PAGE>

                                   LOWRANCE CONTRACTS, INC.

                                   By: /s/ Terry R. Nimmo
                                       ------------------------------------
                                       Terry R. Nimmo, Vice President

                                   The Common Seal of LOWRANCE AUSTRALIA
                                   PTY LIMITED was affixed in accordance
                                   with its Articles of Association in the
                                   presence of:

                                   By: /s/ Darrell J. Lowrance
                                       ------------------------------------
                                       Darrell J. Lowrance, Director

                                   By: /s/ Steven L. Schneider
                                       ------------------------------------
                                       Steven L. Schneider, Director

                                   "LENDER"

                                   BARCLAYS BUSINESS CREDIT, INC.

                                   By: /s/ Raymond C. Gore
                                       -----------------------------------
                                       Raymond C. Gore, Regional Vice President

                                       68

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