Document:

<PAGE>

                   RESTATED AND CONSOLIDATED CREDIT AGREEMENT

                                      AMONG

                           CANAAN ENERGY CORPORATION;
                               INDIAN OIL COMPANY;
        CORAL RESERVES NATURAL GAS INCOME FUND 1990 LIMITED PARTNERSHIP;
        CORAL RESERVES NATURAL GAS INCOME FUND 1991 LIMITED PARTNERSHIP;
        CORAL RESERVES NATURAL GAS INCOME FUND 1992 LIMITED PARTNERSHIP;
             CORAL RESERVES 1993 INSTITUTIONAL LIMITED PARTNERSHIP;
        CORAL RESERVES NATURAL GAS INCOME FUND 1993 LIMITED PARTNERSHIP;
           CORAL RESERVES ENERGY INCOME FUND 1995 LIMITED PARTNERSHIP;
             CORAL RESERVES 1996 INSTITUTIONAL LIMITED PARTNERSHIP;
           CORAL RESERVES ENERGY INCOME FUND 1996 LIMITED PARTNERSHIP

                                       AND

                          BANK ONE, OKLAHOMA, N.A. AND
                             THE INSTITUTIONS HEREIN
                                    AS BANKS

                                       AND

                            BANK ONE, OKLAHOMA, N.A.,
                                    AS AGENT

                                       AND

                            BANC ONE CAPITAL MARKETS
                      AS LEAD ARRANGER AND SOLE BOOK RUNNER

                                OCTOBER 23, 2000

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                         Page No.
<S>      <C>                                                                             <C>

1.       DEFINITIONS............................................................................2

2.       COMMITMENTS OF THE BANK...............................................................12
                  (a)   TERMS OF REVOLVING COMMITMENT..........................................12
                  (b)   PROCEDURE FOR BORROWING................................................12
                  (c)   LETTERS OF CREDIT......................................................13
                  (d)   PROCEDURE FOR OBTAINING LETTERS OF CREDIT..............................14
                  (e)   VOLUNTARY REDUCTION OF REVOLVING COMMITMENT............................14
                  (f)   MANDATORY COMMITMENT REDUCTIONS........................................14
                  (g)   SEVERAL OBLIGATIONS....................................................15

3.       NOTES EVIDENCING LOANS................................................................15
                  (a)   FORM OF REVOLVING NOTES................................................15
                  (b)   ISSUANCE OF ADDITIONAL NOTES...........................................15
                  (c)   INTEREST RATE..........................................................16
                  (d)   PAYMENT OF INTEREST....................................................16
                  (e)   PAYMENT OF PRINCIPAL...................................................16
                  (f)   PAYMENT TO BANKS.......................................................16
                  (g)   SHARING OF PAYMENTS, ETC...............................................16
                  (h)   NON-RECEIPT OF FUNDS BY THE AGENT......................................17

4.       INTEREST RATES........................................................................17
                  (a)   OPTIONS................................................................17
                  (b)   INTEREST RATE DETERMINATION............................................18
                  (c)   CONVERSION OPTION......................................................18
                  (d)   RECOUPMENT.............................................................18

5.       CHANGE OF CIRCUMSTANCES...............................................................19
                  (a)   UNAVAILABILITY OF FUNDS OR INADEQUACY OF PRICING.......................19
                  (b)   CHANGE IN LAWS.........................................................19
                  (c)   INCREASED COST OR REDUCED RETURN.......................................19
                  (d)   REPLACEMENT BANKS......................................................21
                  (e)   DISCRETION OF BANK AS TO MANNER OF FUNDING.............................22
                  (f)   BREAKAGE FEES..........................................................22

6.       COLLATERAL SECURITY...................................................................23
                  (a)   PLEDGE OF COLLATERAL...................................................23
                  (b)   DOCUMENTATION AND TITLE REVIEW.........................................24

                                                 i

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                  (c)   LETTERS IN LIEU OF TRANSFER ORDERS.....................................24
                  (d)   PLEDGE OF STOCK AND PARTNERSHIP INTERESTS..............................25

7.       BORROWING BASE........................................................................25
                  (a)   INITIAL BORROWING BASE.................................................25
                  (b)   SUBSEQUENT DETERMINATIONS OF BORROWING BASE............................25

8.       FEES..................................................................................27
                  (a)   COMMITMENT FEE.........................................................27
                  (b)   THE LETTER OF CREDIT FEE...............................................27
                  (c)   OTHER FEES.............................................................27

9.       PREPAYMENTS...........................................................................27
                  (a)   VOLUNTARY PREPAYMENTS..................................................27
                  (b)   MANDATORY PREPAYMENT FOR BORROWING BASE DEFICIENCY.....................27

10.      REPRESENTATIONS AND WARRANTIES........................................................28
                  (a)   CREATION AND EXISTENCE.................................................28
                  (b)   POWER AND AUTHORITY....................................................28
                  (c)   BINDING OBLIGATIONS....................................................28
                  (d)   NO LEGAL BAR OR RESULTANT LIEN.........................................28
                  (e)   NO CONSENT.............................................................28
                  (f)   FINANCIAL CONDITION....................................................29
                  (g)   LIABILITIES............................................................29
                  (h)   LITIGATION.............................................................29
                  (i)   TAXES; GOVERNMENTAL CHARGES............................................29
                  (j)   TITLES, ETC............................................................29
                  (k)   DEFAULTS...............................................................30
                  (l)   CASUALTIES; TAKING OF PROPERTIES.......................................30
                  (m)   USE OF PROCEEDS; MARGIN STOCK..........................................30
                  (n)   LOCATION OF BUSINESS AND OFFICES.......................................30
                  (o)   COMPLIANCE WITH THE LAW................................................30
                  (p)   NO MATERIAL MISSTATEMENTS..............................................31
                  (q)   ERISA..................................................................31
                  (r)   PUBLIC UTILITY HOLDING COMPANY ACT.....................................31
                  (s)   SUBSIDIARIES...........................................................31
                  (t)   ENVIRONMENTAL MATTERS..................................................31
                  (u)   LIENS..................................................................31
                  (v)   GAS CONTRACTS..........................................................31
                  (w)   PLAN OF COMBINATION....................................................32

11.      CONDITIONS OF LENDING.................................................................32

                                                 ii

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12.      AFFIRMATIVE COVENANTS.................................................................36
                  (a)   FINANCIAL STATEMENTS AND REPORTS.......................................36
                  (b)   CERTIFICATES OF COMPLIANCE.............................................37
                  (c)   TAXES AND OTHER LIENS..................................................37
                  (d)   COMPLIANCE WITH LAWS...................................................37
                  (e)   FURTHER ASSURANCES.....................................................38
                  (f)   PERFORMANCE OF OBLIGATIONS.............................................38
                  (g)   INSURANCE..............................................................38
                  (h)   ACCOUNTS AND RECORDS...................................................38
                  (i)   RIGHT OF INSPECTION....................................................38
                  (j)   NOTICE OF CERTAIN EVENTS...............................................39
                  (k)   ERISA INFORMATION AND COMPLIANCE.......................................39
                  (l)   ENVIRONMENTAL REPORTS AND NOTICES......................................39
                  (m)   COMPLIANCE AND MAINTENANCE.............................................40
                  (n)   OPERATION OF PROPERTIES................................................40
                  (o)   COMPLIANCE WITH LEASES AND OTHER INSTRUMENTS...........................40
                  (p)   CERTAIN ADDITIONAL ASSURANCES REGARDING MAINTENANCE
                           AND OPERATIONS OF PROPERTIES........................................41
                  (q)   SALE OF CERTAIN ASSETS/PREPAYMENT OF PROCEEDS..........................41
                  (r)   TITLE MATTERS..........................................................41
                  (s)   CURATIVE MATTERS.......................................................42
                  (t)   CHANGE OF PRINCIPAL PLACE OF BUSINESS..................................42
                  (u)   OPERATING ACCOUNTS.....................................................42
                  (v)   ADDITIONAL PROPERTY....................................................42
                  (w)   LETTERS IN LIEU OF TRANSFER ORDERS.....................................43
                  (x)   DIVISION ORDERS........................................................43
                  (y)   TAKE OR PAY AGREEMENT..................................................43
                  (z)   ENTITY EXISTENCE.......................................................43
                  (aa)  OWNERSHIP..............................................................43
                  (ab)  PAYMENT OF DEBT........................................................43
                  (ac)  USE OF PROCEEDS........................................................44

13.      NEGATIVE COVENANTS....................................................................44
                  (a)   NEGATIVE PLEDGE........................................................44
                  (b)   CURRENT RATIO..........................................................45
                  (c)   MINIMUM DEBT SERVICE COVERAGE RATIO....................................45
                  (d)   MINIMUM TANGIBLE NET WORTH.............................................45
                  (e)   DEBT TO EBITDA RATIO...................................................45
                  (f)   CONSOLIDATIONS AND MERGERS.............................................45
                  (g)   DEBTS, GUARANTIES AND OTHER OBLIGATIONS................................45
                  (h)   DIVIDENDS OR DISTRIBUTIONS.............................................46
                  (i)   LOANS AND ADVANCES.....................................................46
                  (j)   SALE OR DISCOUNT OF RECEIVABLES........................................46

                                                iii

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                  (k)   NATURE OF BUSINESS.....................................................46
                  (l)   TRANSACTIONS WITH AFFILIATES...........................................47
                  (m)   HEDGING TRANSACTIONS...................................................47
                  (n)   INVESTMENTS............................................................47
                  (o)   AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS.......................48
                  (p)   LEASES.................................................................48
                  (q)   ACCOUNTS PAYABLE.......................................................48
                  (r)   ISSUANCE OF PREFERRED STOCK............................................48
                  (s)   CHANGE IN OWNERSHIP OR STRUCTURE.......................................48
                  (t)   PREPAYMENTS............................................................48
                  (u)   STOCK OR INTEREST REPURCHASE...........................................48
                  (v)   CHANGE IN MANAGEMENT...................................................48

14.      EVENTS OF DEFAULT.....................................................................49

15.      THE AGENT AND THE BANKS...............................................................51
                  (a)   APPOINTMENT AND AUTHORIZATION..........................................51
                  (b)   NOTE HOLDERS...........................................................52
                  (c)   CONSULTATION WITH COUNSEL..............................................52
                  (d)   DOCUMENTS..............................................................52
                  (e)   RESIGNATION OR REMOVAL OF AGENT........................................52
                  (f)   RESPONSIBILITY OF AGENT................................................53
                  (g)   INDEPENDENT INVESTIGATION..............................................54
                  (h)   INDEMNIFICATION........................................................55
                  (i)   BENEFIT OF SECTION 15..................................................55
                  (j)   PRO RATA TREATMENT.....................................................55
                  (k)   ASSUMPTION AS TO PAYMENTS..............................................55
                  (l)   OTHER FINANCINGS.......................................................56
                  (m)   INTERESTS OF BANKS.....................................................56
                  (n)   INVESTMENTS............................................................56

16.      EXERCISE OF RIGHTS....................................................................56

17.      NOTICES...............................................................................57

18.      EXPENSES..............................................................................57

19.      INDEMNITY.............................................................................57

20.      GOVERNING LAW.........................................................................58

21.      INVALID PROVISIONS....................................................................58

                                                 iv

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22.      MAXIMUM INTEREST RATE.................................................................59

23.      AMENDMENTS............................................................................59

24.      MULTIPLE COUNTERPARTS.................................................................59

25.      CONFLICT..............................................................................59

26.      SURVIVAL..............................................................................60

27.      PARTIES BOUND.........................................................................60

28.      ASSIGNMENTS AND PARTICIPATIONS........................................................60

29.      CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND JURISDICTION.......................62

30.      WAIVER OF JURY TRIAL..................................................................62

31.      OTHER AGREEMENTS......................................................................62

32.      FINANCIAL TERMS.......................................................................62

33.      FRAUDULENT CONVEYANCE SAVINGS CLAUSE..................................................63

34.      AUTHORITY OF CANAAN...................................................................63

</TABLE>

                                                 v

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EXHIBITS
--------

Exhibit "A"       -        Notice of Borrowing
Exhibit "B"       -        Revolving Note
Exhibit "C"       -        Certificate of Compliance
Exhibit "D"       -        Form of Assignment and Acceptance Agreement
Exhibit "E"       -        Certificate Regarding Solvency

SCHEDULES
---------

Schedule 1        -        Liens
Schedule 2        -        Financial Condition
Schedule 3        -        Liabilities
Schedule 4        -        Litigation
Schedule 5        -        Subsidiaries
Schedule 6        -        Environmental Matters
Schedule 7        -        Gas Contract
Schedule 8        -        Title Matters
Schedule 9        -        Curative Matters

                                             vi
<PAGE>

                            RESTATED AND CONSOLIDATED
                                CREDIT AGREEMENT

         THIS RESTATED AND CONSOLIDATED CREDIT AGREEMENT (hereinafter referred
to as the "Agreement") executed as of the 23rd day of October, 2000, by and
among CANAAN ENERGY CORPORATION, an Oklahoma corporation, formerly named Coral
Reserves Group, Ltd. ("Canaan"), INDIAN OIL COMPANY, an Oklahoma corporation
("Indian"); CORAL RESERVES NATURAL GAS INCOME FUND 1990 LIMITED PARTNERSHIP,
an Oklahoma limited partnership; CORAL RESERVES NATURAL GAS INCOME FUND 1991
LIMITED PARTNERSHIP, an Oklahoma limited partnership; CORAL RESERVES NATURAL
GAS INCOME FUND 1992 LIMITED PARTNERSHIP, an Oklahoma limited partnership;
CORAL RESERVES 1993 INSTITUTIONAL LIMITED PARTNERSHIP, an Oklahoma limited
partnership; CORAL RESERVES NATURAL GAS INCOME FUND 1993 LIMITED PARTNERSHIP,
an Oklahoma limited partnership; CORAL RESERVES ENERGY INCOME FUND 1995
LIMITED PARTNERSHIP, an Oklahoma limited partnership; CORAL RESERVES 1996
INSTITUTIONAL LIMITED PARTNERSHIP, an Oklahoma limited partnership; CORAL
RESERVES ENERGY INCOME FUND 1996 LIMITED PARTNERSHIP, an Oklahoma limited
partnership (collectively, the "Coral Group" and together with Canaan and
Indian the "Borrowers" and each may be individually referred to herein as a
"Borrower") and BANK ONE, OKLAHOMA, N.A., a national banking association
("Bank One"), and each of the financial institutions which is a party hereto
(as evidenced by the signature pages to this Agreement) or which may from time
to time become a party hereto pursuant to the provisions of Section 28 hereof
or any successor or assignee thereof (hereinafter collectively referred to as
"Banks", and individually, "Bank") and Bank One, as Agent ("Agent").

                              W I T N E S S E T H:

         WHEREAS, on December 22, 1997 Indian entered into a Credit Agreement
with Bank One whereby Bank One provided Indian with a reducing revolving line
of credit in the maximum amount of $50,000,000.00 which such agreement has
been amended from time to time thereafter (the "Indian Agreement"); and

         WHEREAS, pursuant to the Indian Agreement, Indian executed and
delivered various loan documents including a promissory note, mortgages, deeds
of trust and other documents (the "Indian Loan Documents"); and

         WHEREAS, on varying dates, Canaan and each member of the Coral Group
entered into its own separate loan agreement with Bank One whereby Bank One
provided each member of the Coral Group with a line of credit in the combined
amount of $9,975,000.00 (the "Coral Agreements"); and

<PAGE>

         WHEREAS, pursuant to the Coral Agreements, each member of the Coral
Group executed and delivered various loan agreements, promissory notes,
mortgages, deeds of trust and other documents (the "Coral Loan Documents"); and

         WHEREAS, Borrowers have entered into and agreed upon a Plan of
Combination (hereafter defined) whereby, among other things (i) Canaan will
acquire all of the limited partners' interests in the Coral Group, (ii) Canaan
will acquire 100% of the stock of each general partner of each limited
partnership which is part of the Coral Group, (iii) Canaan will acquire 100%
of the stock of Indian, (iv) Canaan will acquire 100% of the stock of Canaan
Securities, Inc.; and

         WHEREAS, the Borrowers and Banks have agreed to consolidate and
restate the Indian Agreement and the Coral Agreements into a credit facility
which such facility shall also add Canaan as a Borrower.

         NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereby agree to restate the Indian
Agreement and the Coral Agreements as follows:

         1.       DEFINITIONS. When used herein the terms "Agent",
"Agreement", "Bank", "Banks", "Bank One", "Borrower", "Borrowers", "Coral
Agreement", "Coral Group", "Coral Loan Documents", "Indian", "Indian
Agreement", and "Indian Loan Documents" shall have the meanings indicated
above. When used herein the following terms shall have the following meanings:

                  "ADVANCE OR ADVANCES" shall mean a loan or loans hereunder.

                  "AFFILIATE" shall mean any Person which, directly or
         indirectly, controls, is controlled by or is under common control with
         the relevant Person. For the purposes of this definition, "control"
         (including, with correlative meanings, the terms "controlled by" and
         "under common control with"), as used with respect to any Person, shall
         mean a member of the board of directors, a general partner or an
         executive officer of such Person, or any other Person with possession,
         directly or indirectly, of the power to direct or cause the direction
         of the management and policies of such Person, through the ownership
         (of record, as trustee, or by proxy) of voting shares, partnership
         interests or voting rights, through a management contract or otherwise.
         Any Person owning or controlling directly or indirectly ten percent or
         more of the voting shares, partnership interests or voting rights, or
         other equity interest of another Person shall be deemed to be an
         Affiliate of such Person.

                  "ALTERNATE BASE RATE" shall mean a fluctuating rate of
         interest equal to the higher of (i) a rate per annum equal to the Prime
         Rate or (ii) the sum of the Federal Funds Effective Rate most recently
         determined by the Agent plus one half of one percent (1/2%) per annum.

                  "APPLICABLE MARGIN" means the number of Basis Points per annum
         set forth below, determined as a function of the Utilization
         Percentage:

                                       2

<PAGE>

<TABLE>
<CAPTION>
         ============================= ======================== ======================== =====================
                                            LIBOR MARGIN          ALTERNATE BASE RATE         COMMITMENT
           UTILIZATION PERCENTAGE                                       MARGIN                    FEE
         ----------------------------- ------------------------ ------------------------ ---------------------
         <S>                           <C>                      <C>                      <C>
         GREATER THAN OR EQUAL TO 90%                      225                       75                    50
         ----------------------------- ------------------------ ------------------------ ---------------------
         GREATER THAN OR EQUAL TO 75%
         but LESS THAN 90%                                 200                       50                  37.5
         ----------------------------- ------------------------ ------------------------ ---------------------
         GREATER THAN OR EQUAL TO 50%
         but LESS THAN 75%                                 175                       25                  37.5
         ----------------------------- ------------------------ ------------------------ ---------------------
         LESS THAN 50%                                     150                        0                    25
         ============================= ======================== ======================== =====================
</TABLE>

                  "ASSIGNMENT AND ACCEPTANCE" shall mean a document
         substantially in the form of Exhibit "D" hereto.

                  "BASIS POINT" means one one-hundredth of one percent (0.01%).

                  "BORROWING BASE" shall mean the value assigned by the Banks
         from time to time to the Oil and Gas Properties pursuant to Section 7
         hereof. As of the date of closing hereof, the Borrowing Base shall be
         $34,250,000.00. It is contemplated that MidFirst Bank shall become one
         of the Banks with a Revolving Commitment equal to that of Local
         Oklahoma Bank, N.A. If MidFirst Bank does, in fact, execute this
         Agreement within thirty (30) days from the date hereof, the Borrowing
         Base shall increase to $42,965,000 (after allowing for a Monthly
         Commitment Reduction) and shall remain at such amount until the next
         determination of the Borrowing Base pursuant to Section 7(b) hereof. In
         the event MidFirst Bank elects to not execute this Agreement within the
         aforementioned thirty (30) day period, the Borrowing Base shall remain
         at $34,250,000 as reduced by any Monthly Commitment Reductions.
         Further, if Agent is required to market this facility, additional fees
         may be assessed.

                  "BORROWING DATE" shall mean the date elected by Borrowers
         pursuant to Section 2(b) hereof for an Advance on the Revolving Loan.

                  "BUSINESS DAY" shall mean the normal banking hours during any
         day (other than Saturdays or Sundays) that banks are legally open for
         business in Oklahoma City, Oklahoma.

                  "CHANGE OF MANAGEMENT" shall occur if there is any material
         change in the management personnel of any Borrower. A material change
         shall be deemed to have occurred if either John K. Penton or Leo E.
         Woodard ever cease to hold a key, as determined by Banks, management
         position with the Borrowers.

                  "COMMITMENT FEE" shall mean that certain fee payable by
         Borrowers for the ratable Bank for maintaining funds available for
         Borrowers and determined as set forth in the definition of Applicable
         Margin based on the amount of the Revolving Commitment in effect for
         the applicable period.

                                       3

<PAGE>

                  "CONTESTED IN GOOD FAITH" shall mean a matter (a) which is
         being contested in good faith by or on behalf of any Person, by
         appropriate and lawful proceedings diligently conducted, satisfactory
         to the Bank, and for which a reserve has been established in an amount
         determined in accordance with GAAP, (b) in which foreclosure,
         distraint, sale, forfeiture, levy, execution or other similar
         proceedings have not been initiated or have been stayed and continue to
         be stayed, and (c) in which a good faith contest will not materially
         detract from the value of the Collateral (set forth herein in Section
         3), materially jeopardize the rights of the Bank or the Borrower with
         respect thereto, materially interfere with the operation by the
         Borrower of its business, or otherwise have a Material Adverse Effect.

                  "CORPORATE BORROWERS" shall refer to those Borrowers organized
         as a corporation pursuant to the laws of any state of the United States
         of America.

                  "CURRENT ASSETS" shall mean the total of the Borrowers'
         consolidated current assets determined in accordance with GAAP, plus,
         as of any date, the current unused availability on the Revolving
         Commitment.

                  "CURRENT LIABILITIES" shall mean the total of Borrowers'
         consolidated current obligations as determined in accordance with GAAP,
         excluding therefrom as of any date current maturities due on the
         Revolving Loan.

                  "DEBT" shall mean, with respect to any Person, all obligations
         and liabilities of such Person to any other Person including, without
         limitation, all debts, claims, overdrafts, contingent liabilities and
         indebtedness heretofore, now and/or from time to time hereafter owing,
         due or payable, however, evidenced, created, incurred, acquired or
         owing and however arising, whether under written or oral agreement,
         operation of law or otherwise as shown in Borrowers' Financial
         Statements..

                  "DEBT SERVICE COVERAGE RATIO" shall mean for any quarterly
         fiscal period the sum of (i) Net Income; (ii) interest expense; (iii)
         non-cash charges (such as depreciation, depletion and amortization, and
         writedowns from impairment of Oil and Gas Properties); (iv) deferred
         income tax expense, and excluding gains or losses arising from the sale
         of capital assets less cash dividends, all as determined in accordance
         with GAAP for such period, DIVIDED BY the greater of (i) the sum of the
         Monthly Commitment Reductions for the quarter being tested or (ii)
         1/28th of the outstanding balance of the Loan at the end of such
         quarter, PLUS any other current maturities of long term debt
         outstanding at such quarter end including obligations under Capital
         Leases, PLUS interest expense for such quarter.

                  "DEFAULT" shall mean any Event of Default and the occurrence
         of an event or condition which would with the giving of any requisite
         notice and/or passage of time or both constitute an Event of Default.

                                       4

<PAGE>

                  "DEFAULT RATE" shall mean a per annum variable rate of
         interest equal to the interest rates then otherwise applicable
         hereunder as then in effect plus two percent (2%) per annum, calculated
         on the basis of a year of 360 days and actual number of days elapsed
         (including the first day but excluding the last day), but in no event
         exceeding the Maximum Rate.

                  "DEFAULTING BANK" the term "Defaulting Bank" is used herein as
         defined in Section 3(g) hereof.

                  "EFFECTIVE DATE" shall mean the date of this Agreement.

                  "ELIGIBLE ASSIGNEE" shall mean any of (i) a Bank or any
         Affiliate of a Bank; (ii) a commercial bank or federal savings
         association organized under the laws of the United States, or any state
         thereof, and having a combined capital and surplus of at least
         $100,000,000; (iii) a commercial bank organized under the laws of any
         other country which is a member of the Organization for Economic
         Cooperation and Development, or a political subdivision of any such
         country, and having a combined capital and surplus of at least
         $100,000,000.00, provided that such bank is acting through a branch or
         agency located in the United States; (iv) a Person that is primarily
         engaged in the business of commercial banking and that (A) is a
         subsidiary of a Bank, (B) a subsidiary of a Person of which a Bank is a
         subsidiary, or (C) a Person of which a Bank is a subsidiary; (v) any
         other entity (other than a natural person) which is an "accredited
         investor" (as defined in Regulation D under the Securities Act) which
         extends credit or buys loans as one of its businesses, including, but
         not limited to, insurance companies, mutual funds, investments funds
         and lease financing companies; and (vi) with respect to any Bank that
         is a fund that invests in loans, any other fund that invests in loans
         and is managed by the same investment advisor of such Bank or by an
         Affiliate of such investment advisor (and treating all such funds so
         managed as a single Eligible Assignee); provided, however, that no
         Affiliate of any Borrower shall be an Eligible Assignee.

                  "ENVIRONMENTAL LAWS" shall mean the Comprehensive
         Environmental Response, Compensation and Liability Act of 1980, as
         amended by the Super Fund Amendments and Reauthorization Act of 1986,
         42 U.S.C.A.  Section 9601, ET SEQ., the Resource Conservation and
         Recovery Act, as amended by the Hazardous Solid Waste Amendment of
         1984, 42 U.S.C.A. Section 6901, ET SEQ., the Clean Air Act, 42
         U.S.C.A.  Section 1251, ET SEQ., the Toxic Substances Control Act, 15
         U.S.C.A.  Section 2601, ET SEQ., The Oil Pollution Act of 1990, 33
         U.S.G. Section 2701, ET SEQ., and all other laws, statutes, codes,
         acts, ordinances, orders, judgments, decrees, injunctions, rules,
         regulations, order and restrictions of any federal, state, county,
         municipal and other governments, departments, commissions, boards,
         agencies, courts, authorities, officials and officers, domestic or
         foreign, relating to air pollution, water pollution, noise control
         and/or the handling, discharge, disposal or recovery of on-site or
         off-site asbestos or "hazardous substances" as defined by 42 U.S.C.
         Section 9601, ET SEQ., as amended, as each of the foregoing may be
         amended from time to time.

                                       5

<PAGE>

                  "ENVIRONMENTAL LIABILITY" shall mean any claim, demand,
         obligation, cause of action, order, violation, damage, injury,
         judgment, penalty or fine, cost of enforcement, cost of remedial action
         or any other costs or expense whatsoever, including reasonable
         attorneys' fees and disbursements, resulting from the violation or
         alleged violation of any Environmental Law or the imposition of any
         Environmental Lien (as hereinafter defined) which could reasonably be
         expected to individually or in the aggregate have a Material Adverse
         Effect.

                  "ENVIRONMENTAL LIEN" shall mean a Lien in favor of any court,
         governmental agency or instrumentality or any other Person (i) for any
         Environmental Liability or (ii) for damages arising from or cost
         incurred by such court or governmental agency or instrumentality or
         other person in response to a release or threatened release of asbestos
         or "hazardous substance" into the environment, the imposition of which
         Lien could reasonably be expected to have a Material Adverse Effect.

                  "ERISA" shall mean the Employee Retirement Income Security Act
         of 1974, as amended.

                  "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, an
         interest rate per annum equal to the weighted average of the rates on
         overnight Federal funds transactions with members of the Federal
         Reserve System arranged by Federal funds brokers on such day, as
         published for such day (or, if such day is not a Business Day, for the
         immediately preceding Business Day) by the Federal Reserve Bank New
         York, or, if such rate is not so published for any day which is a
         Business Day, the average of the quotations at approximately 10:00 a.m.
         (Chicago time) on such day on such transactions received by Agent from
         three Federal funds brokers of recognized standing selected by Agent in
         its sole discretion.

                  "FINANCIAL STATEMENTS" shall mean balance sheets, income
         statements, statements of cash flow and appropriate footnotes and
         schedules, prepared in accordance with GAAP.

                  "GAAP" shall mean generally accepted accounting principles,
         consistently applied.

                  "INTEREST PAYMENT DATE" shall mean (i) the last day of each
         month for Loans accruing interest based upon the Alternate Base Rate
         and (ii) the last day of each Interest Period for Loans accruing
         interest based upon the LIBOR Rate (except for Interest Periods longer
         than three months in which event the Interest Payment Date will be on
         the last day of each third month after the start of the Interest
         Period.

                  "INTEREST PERIOD" shall mean with respect to any LIBOR Loan
         (i) initially, the period commencing on the date such LIBOR Loan is
         made and ending one (1), two (2), three (3) or six (6) months
         thereafter as selected by the Borrowers pursuant to Section 4(a)(ii),
         and (ii) thereafter, each period commencing on the day following the
         last day of the next preceding Interest Period applicable to such LIBOR
         Loan and ending one (1), two (2), three (3) or six

                                       6

<PAGE>

         (6) months thereafter, as selected by the Borrowers pursuant to
         Section 4(a)(ii); provided, however, that (i) if any LIBOR Interest
         Period would otherwise expire on a day which is not a London Business
         Day, such Interest Period shall expire on the next succeeding London
         Business Day unless the result of such extension would be to extend
         such Interest Period into the next calendar month, in which case such
         Interest Period shall end on the immediately preceding London
         Business Day, (ii) if any LIBOR Interest Period begins on the last
         London Business Day of a calendar month (or on a day for which there
         is no numerically corresponding day in the calendar month at the end
         of such Interest Period) such Interest Period shall end on the last
         London Business Day of a calendar month, and (iii) any LIBOR Interest
         Period which would otherwise expire after the Maturity Date shall end
         on such Maturity Date.

                  "LP BORROWERS" shall refer to those Borrowers hereunder
         organized as a limited partnership pursuant to the laws of any state of
         the United States of America.

                  "LETTERS OF CREDIT" the term "Letters of Credit" is used
         herein as defined in Section 2(c) hereof.

                  "LIBOR LOAN" shall mean any loan during any period which bears
         interest at the LIBOR Rate, or which would bear interest at such rate
         if the Maximum Rate ceiling was not in effect at a particular time.

                  "LIBOR RATE" shall mean the offered rate for the period equal
         to or next greater than the LIBOR Interest Period for U.S. Dollar
         deposits of not less than $1,000,000.00 as of 11:00 A.M. City of
         London, England time two (2) London Business Days prior to the first
         day of the LIBOR Interest Period as shown on the display designated as
         "British Bankers Association Interest Settlement Rates" on Reuters for
         the purpose of displaying such rate. In the event that such rate is not
         available on Reuters, then such offered rate shall be otherwise
         independently determined by Agent from an alternate, substantially
         similar independent source available to Agent or shall be calculated by
         Agent by a substantially similar methodology as that theretofore used
         to determine such offered rate.

                  "LIEN" shall mean any mortgage, deed of trust, pledge,
         security interest, assignment, encumbrance or lien (statutory or
         otherwise) of every kind and character.

                  "LOAN" shall mean the Revolving Loan.

                  "LOAN DOCUMENTS" shall mean this Agreement, the Notes, the
         Security Instruments and all other documents executed in connection
         with the transaction described in this Agreement.

                  "LONDON BUSINESS DAY" shall mean a Business Day on which
         dealings in U.S. Dollar deposits are carried on in the London interbank
         market.

                                       7

<PAGE>

                  "MAJORITY BANKS" shall mean Banks holding 66 2/3% or more of
         the Revolving Commitments or if the Revolving Commitments have been
         terminated, Banks holding 66 2/3% or more of the outstanding Loans.

                  "MATERIAL ADVERSE EFFECT" shall mean any circumstance or event
         which could have a material adverse effect on (i) the consolidated
         assets or properties, liabilities, financial condition, business,
         operations, affairs or circumstances of Canaan, taken as a whole as if
         all Borrowers had merged into it, or (ii) the ability of Canaan and the
         other Borrowers, taken as a whole as discussed above, to carry out
         their collective business as of the date of this Agreement or as
         proposed at the date of this Agreement to be conducted or to meet their
         obligations under the Notes, this Agreement or the other Loan Documents
         on a timely basis.

                  "MAXIMUM RATE" shall mean at any particular time in question,
         the maximum non-usurious rate of interest which under applicable law
         may then be charged on the Note. If such Maximum Rate changes after the
         date hereof, the Maximum Rate shall be automatically increased or
         decreased, as the case may be, without notice to Borrowers from time to
         time as of the effective date of each change in such Maximum Rate.

                  "MONTHLY COMMITMENT REDUCTION" as used herein, as defined in
         Section 2(f) hereof.

                  "NET INCOME" shall mean Borrowers' consolidated net income
         after income taxes calculated in accordance with GAAP.

                  "NOTES" shall mean the Revolving Notes, substantially in the
         form of Exhibit "B" hereto issued or to be issued hereunder to each
         Bank, respectively, to evidence the indebtedness to such Bank arising
         by reason of the Advances on the Revolving Loan, together with all
         modifications, renewals and extensions thereof or any part thereof.

                  "OIL AND GAS PROPERTIES" shall mean all oil, gas and mineral
         properties and interests, related personal properties, in which
         Borrowers grant to the Banks either (i) a first and prior lien and
         security interest pursuant to Section 6 hereof or (ii) a negative
         pledge pursuant to Section 13(a) below.

                  "OTHER FINANCING" the term "Other Financing" is used herein as
         defined in Section 15(l) hereof.

                  "PAYOR" the term "Payor" is used herein as defined in Section
         3(h)hereof.

                  "PERMITTED LIENS" shall mean (i) royalties, overriding
         royalties, reversionary interests, production payments and similar
         burdens; (ii) joint operating agreements, sales contracts or other
         arrangements for the sale of production of oil, gas or associated
         liquid or gaseous hydrocarbons which would not (when considered
         cumulatively with the matters discussed in clause (i) above) deprive
         either Borrower of any material right in respect of any such

                                       8

<PAGE>

         Borrower's assets or properties (except for rights customarily
         granted with respect to such contracts and arrangements); (iii)
         statutory Liens for taxes or other assessments that are not yet
         delinquent (or that, if delinquent, are being Contested in Good
         Faith; (iv) easements, rights of way, servitudes, permits, surface
         leases and other rights in respect to surface operations, pipelines,
         grazing, logging, canals, ditches, reservoirs or the like,
         conditions, covenants and other restrictions, and easements of
         streets, alleys, highways, pipelines, telephone lines, power lines,
         railways and other easements and rights of way on, over or in respect
         of either Borrower's assets or properties and that do not
         individually or in the aggregate, cause a Material Adverse Effect;
         (v) materialmen's, mechanic's, repairman's, employee's,
         warehousemen's, landlord's, carrier's, pipeline's, contractor's,
         sub-contractor's, operator's, non-operator's (arising under operating
         or joint operating agreements), and other Liens (including any
         financing statements filed in respect thereof) incidental to
         obligations incurred by any Borrower in connection with the
         construction, maintenance, development, transportation, storage or
         operation of such Borrower's assets or properties to the extent not
         delinquent (or which, if delinquent, are being Contested in Good
         Faith; (vi) all contracts, agreements and instruments, and all
         defects and irregularities and other matters affecting any Borrower's
         assets and properties which were in existence at the time such
         Borrower's assets and properties were originally acquired by such
         Borrower and all routine operational agreements entered into in the
         ordinary course of business, which contracts, agreements,
         instruments, defects, irregularities and other matters and routine
         operational agreements are not such as to, individually or in the
         aggregate, interfere materially with the operation, value or use of
         such Borrower's assets and properties, considered in the aggregate;
         (vii) liens in connection with workmen's compensation, unemployment
         insurance or other social security, old age pension or public
         liability obligations; (viii) legal or equitable encumbrances deemed
         to exist by reason of the existence of any litigation or other legal
         proceeding or arising out of a judgment or award with respect to
         which an appeal is being prosecuted in good faith and levy and
         execution thereon have been stayed and continue to be stayed; (ix)
         rights reserved to or vested in any municipality, governmental,
         statutory or other public authority to control or regulate any
         Borrower's assets and properties in any manner, and all applicable
         laws, rules and orders from any governmental authority; (x)
         landlord's liens; and (xi) Liens incurred pursuant to the Security
         Instruments or otherwise created in favor of the Agent or the Banks
         pursuant to the Loan Documents.

                  "PERSON" shall mean an individual, a corporation, a
         partnership, an association, a trust or any other entity or
         organization, including a government or political subdivision or an
         agency or instrumentality thereof.

                  "PLAN OF COMBINATION" shall mean that certain business
         combination described in the Canaan Energy Corporation Prospectus/Proxy
         Statement dated August 14, 2000.

                  "PLANS" shall mean any plan subject to Title IV of ERISA and
         maintained by any Borrower, or any such plan to which any Borrower is
         required to contribute on behalf of its employees.

                                       9

<PAGE>

                  "PREVIOUS LOAN DOCUMENTS" shall mean the Indian Loan Documents
         and the Coral Loan Documents.

                  "PRIME RATE" shall mean as of any date, the fluctuating rate
         of interest per annum equal to the prime rate of interest announced
         from time to time by Bank One, Oklahoma, N.A. or its parent (which is
         not necessarily the lowest rate charged to any customer), changing when
         and as said prime rate changes.

                  "PRIME RATE LOANS" shall mean any loan during any period which
         bears interest based upon the Prime Rate or which would bear interest
         based upon the Prime Rate if the Maximum Rate ceiling was not in effect
         at that particular time.

                  "PRO RATA OR PRO RATA PART" shall mean for each Bank, (i) for
         all purposes where no Loan is outstanding, such Bank's Revolving
         Commitment Percentage and (ii) otherwise, the proportion which the
         portion of the outstanding Loans owed to such Bank bears to the
         aggregate outstanding Loans owed to all Banks at the time in question.

                  "REIMBURSEMENT OBLIGATIONS" shall mean at any time, the
         obligations of the Borrowers in respect of all Letters of Credit then
         outstanding to reimburse amounts actually paid by any Bank in respect
         of any drawing or drawings under a Letter of Credit.

                  "REQUIRED PAYMENT" the term "Required Payment" is used herein
         as defined in Section 3(h) hereof.

                  "REVOLVING COMMITMENT" shall mean (A) for all Banks, the
         LESSER of (i) $100,000,000 or (ii) the Borrowing Base in effect from
         time to time, in each case as reduced from time to time pursuant to
         Sections 2 and 7 hereof , and (B) as to any Bank, its obligation to
         make Advances hereunder on the Revolving Loan and purchase
         participations in Letters of Credit issued hereunder by the Agent in
         amounts not exceeding, in the aggregate, an amount equal to such Bank's
         Revolving Commitment Percentage times the total Revolving Commitment as
         of any date. The Revolving Commitment of each Bank hereunder shall be
         adjusted from time to time to reflect assignments made by such Bank
         pursuant to Section 28 hereof. Each reduction in the Revolving
         Commitment shall result in a Pro Rata reduction in each Bank's
         Revolving Commitment.

                  "REVOLVING COMMITMENT PERCENTAGE" shall mean for each Bank the
         percentage derived by dividing its Revolving Commitment at the time of
         the determination by the Revolving Commitments of all Banks at the time
         of determination. The Revolving Commitment Percentage of each Bank
         hereunder shall be adjusted from time to time to reflect assignments
         made by such Bank pursuant to Section 28 hereof.

                  "REVOLVING LOAN" shall mean the loan or loans made under the
         Revolving Commitment pursuant to Section 2 hereof.

                                       10
<PAGE>

                  "REVOLVING MATURITY DATE" shall mean October 31, 2003 or as
         such date may be extended from time to time with the consent of all
         Banks.

                  "REVOLVING NOTES" shall mean the Revolving Notes described in
         Section 3 hereof.

                  "SECURITY INSTRUMENTS" shall mean collectively this Agreement,
         all deeds of trust, mortgages, security agreements, assignments of
         production and financing statements, and other collateral documents
         covering the Oil and Gas Properties and related personal property,
         equipment, oil and gas inventory and proceeds of the foregoing, all
         such documents to be in form and substance satisfactory to Agent.

                  "SUBSIDIARY" shall mean any corporation or other entity of
         which securities or other ownership interests having ordinary voting
         power to elect a majority of the board of directors or other persons
         performing similar functions are at the time directly or indirectly
         owned by any Borrower or another subsidiary.

                  "TANGIBLE NET WORTH" shall mean, on a consolidated basis,
         Borrowers' total assets excluding all intangible assets (including,
         without limitation, goodwill, trademarks, patents, copyrights,
         organizational expenses, and similar intangible items) less total
         liabilities excluding subordinated debt, if any. As used in this
         definition, "subordinated debt" shall mean all indebtedness owing by
         Borrowers, or any one or more of them, which has been subordinated by
         written agreement to all indebtedness now or hereafter owing by
         Borrowers, or any one or more of them, to Banks.

                  "TOTAL OUTSTANDINGS" shall mean as of any date, the sum of (i)
         the total principal balance outstanding on the Revolving Notes, plus
         (ii) the total face amount of all outstanding Letters of Credit, plus
         (iii) the total amount of all unpaid Reimbursement Obligations.

                  "TRANCHE" shall mean a LIBOR Loan or a Prime Rate Loan.

                  "UNSCHEDULED REDETERMINATIONS" shall mean a redetermination of
         the Borrowing Base made at any time other than on the dates set for the
         regular semi-annual redetermination of the Borrowing Base which are
         made (A) at the reasonable request of Borrowers, (B) at any time it
         appears to Agent or Majority Banks, in the exercise of their reasonable
         discretion, that either (i) there has been an unscheduled material
         decrease in the value of the Oil and Gas Properties, or (ii) an event
         has occurred which is reasonably expected to have a Material Adverse
         Effect.

                  "UTILIZATION PERCENTAGE" shall mean the ratio of the Total
         Outstandings to the most recent Borrowing Base, as decreased by Monthly
         Commitment Reductions to date (as described in Section 2(f) below).

                                       11

<PAGE>

         2.       COMMITMENTS OF THE BANK.

                  (a) TERMS OF REVOLVING COMMITMENT. On the terms and conditions
         hereinafter set forth, each Bank agrees severally to make Advances to
         the Borrowers from time to time during the period beginning on the
         Effective Date and ending on the Revolving Maturity Date in such
         amounts as the Borrowers may request up to an amount not to exceed, in
         the aggregate principal amount outstanding at any time, the Revolving
         Commitment. The obligation of the Borrowers hereunder shall be
         evidenced by this Agreement and the Revolving Notes issued in
         connection herewith, said Revolving Notes to be as described in Section
         3 hereof. Notwithstanding any other provision of this Agreement, no
         Advance shall be required to be made hereunder if any Event of Default
         (as hereinafter defined) has occurred and is continuing or if any event
         or condition has occurred or failed to occur which with the passage of
         time or service of notice, or both, would constitute an Event of
         Default. Each Advance under the Revolving Commitment shall be an
         aggregate amount of at least $100,000 or a whole number multiple
         thereof except an Advance of the entire remaining unborrowed Revolving
         Commitment. Irrespective of the face amount of the Revolving Note or
         Notes, the Banks shall never have the obligation to Advance any amount
         or amounts in excess of the Revolving Commitment or to increase the
         Revolving Commitment. The total number of Tranches under the Revolving
         Commitment which may be outstanding at any time hereunder shall never
         exceed four (4), whether such Tranches are Prime Rate Loans, LIBOR
         Loans, or a combination thereof. Within the limit of each Bank's
         Revolving Commitment, the Borrowers may borrow, repay and reborrow
         under this Section 2 prior to the Revolving Maturity Date.

                  (b) PROCEDURE FOR BORROWING. Whenever the Borrowers or any
         Borrower desires an Advance hereunder, they, or any one of them, shall
         give Agent telegraphic, telex, facsimile or telephonic notice ("Notice
         of Borrowing") of such requested Advance, which in the case of
         telephonic notice, shall be promptly confirmed in writing. Each Notice
         of Borrowing shall be in the form of Exhibit "A" attached hereto and
         shall be received by Agent not later than 11:00 a.m. Oklahoma City,
         Oklahoma time, (i) one Business Day prior to the Borrowing Date in the
         case of the Prime Rate Loan, or (ii) three (3) London Business Days
         prior to any proposed Borrowing Date in the case of LIBOR Loans. Each
         Notice of Borrowing shall specify (i) the Borrowing Date (which, if at
         Prime Rate Loan, shall be a Business Day and if a LIBOR Loan, a London
         Business Day), (ii) the principal amount to be borrowed, (iii) the
         portion of the Advance constituting Prime Rate Loans and/or LIBOR Loans
         and (iv) if any portion of the proposed Advance is to constitute LIBOR
         Loans, the initial Interest Period selected by Borrowers pursuant to
         Section 4 hereof to be applicable thereto. Upon receipt of such Notice,
         Agent shall advise each Bank thereof; provided, that if the Banks have
         received at least one (1) day's notice of such Advance prior to funding
         of a Prime Rate Loan, or at least three (3) days' notice of each
         Advance prior to funding in the case of a LIBOR Loan, each Bank shall
         provide Agent in care of Bank One, Texas, N.A. at its office at 1717
         Main Street, Dallas, Texas 75201, not later than 1:00 p.m.,Dallas,
         Texas time, on the Borrowing Date, in immediately available funds, its
         pro rata share of the

                                       12

<PAGE>

         requested Advance, but the aggregate of all such fundings by each
         Bank shall never exceed such Bank's Revolving Commitment. Not later
         than 2:00 p.m., Dallas, Texas time, on the Borrowing Date, Agent
         shall make available to the Borrowers at the same office, in like
         funds, the aggregate amount of such requested Advance. Neither Agent
         nor any Bank shall incur any liability to the Borrowers in acting
         upon any Notice of Borrowing which Agent or such Bank believes in
         good faith to have been given by a duly authorized officer or other
         person authorized to borrow on behalf of Borrowers or for otherwise
         acting in good faith under this Section 2(b). Upon funding of
         Advances by Banks in accordance with this Agreement, pursuant to any
         such Notice, the Borrowers shall have effected Advances hereunder.

                  (c) LETTERS OF CREDIT. On the terms and conditions hereinafter
         set forth, the Agent shall from time to time during the period
         beginning on the Effective Date and ending on the Revolving Maturity
         Date upon request of Borrowers issue standby and/or commercial Letters
         of Credit for the account of Borrowers (the "Letters of Credit") in
         such face amounts as Borrowers may request, but not to exceed in the
         aggregate face amount at any time outstanding the sum of Two Million
         Five Hundred Thousand Dollars ($2,500,000.00). The face amount of all
         Letters of Credit issued and outstanding hereunder shall be considered
         as Advances for Borrowing Base purposes and all payments made by the
         Agent on such Letters of Credit shall be considered as Advances under
         the Revolving Notes. Each Letter of Credit issued for the account of
         Borrowers hereunder shall (i) be in favor of such beneficiaries as
         specifically requested by Borrowers, (ii) have an expiration date not
         exceeding the earlier of (a) one year or (b) the Revolving Maturity
         Date, and (iii) contain such other terms and provisions as may be
         reasonably required by Bank. Each Bank (other than Agent) agrees that,
         upon issuance of any Letter of Credit hereunder, it shall automatically
         acquire a participation in the Agent's liability under such Letter of
         Credit in an amount equal to such Bank's Revolving Commitment
         Percentage of such liability, and each Bank (other than Agent) thereby
         shall absolutely, unconditionally and irrevocably assume, as primary
         obligor and not as surety, and shall be unconditionally obligated to
         Agent to pay and discharge when due, its Revolving Commitment
         Percentage of Agent's liability under such Letter of Credit. The
         Borrowers hereby unconditionally agree to pay and reimburse the Agent
         for the amount of each demand for payment under any Letter of Credit
         that is in substantial compliance with the provisions of any such
         Letter of Credit at or prior to the date on which payment is to be made
         by the Agent to the beneficiary thereunder, without presentment,
         demand, protest or other formalities of any kind. Upon receipt from any
         beneficiary of any Letter of Credit of any demand for payment under
         such Letter of Credit, the Agent shall promptly notify Canaan of the
         demand and the date upon which such payment is to be made by the Agent
         to such beneficiary in respect of such demand. Forthwith upon receipt
         of such notice from the Agent, Canaan, on behalf of all Borrowers,
         shall advise the Agent whether or not they intend to borrow hereunder
         to finance their obligations to reimburse the Agent, and if so, submit
         a Notice of Borrowing as provided in Section 2(b) hereof. If Borrowers
         fail to so advise Agent and thereafter fail to reimburse Agent, the
         Agent shall notify each Bank of the demand and the failure of the
         Borrowers to reimburse the Agent, and each Bank shall reimburse the

                                       13

<PAGE>

         Agent for its Revolving Commitment Percentage of each such draw paid by
         the Agent and unreimbursed by the Borrowers. All such amounts paid by
         Agent and/or reimbursed by the Banks shall be treated as an Advance or
         Advances under the Revolving Commitment, which Advances shall be
         immediately due and payable and shall bear interest at the Default
         Rate.

                  (d) PROCEDURE FOR OBTAINING LETTERS OF CREDIT. The amount and
         date of issuance, renewal, extension or reissuance of a Letter of
         Credit pursuant to the Banks' commitment above in Section 2(c) shall be
         designated by Canaan's, on behalf of all Borrowers, written request
         delivered to Agent at least three (3) Business Days prior to the date
         of such issuance, renewal, extension or reissuance. Concurrently with
         or promptly following the delivery of the request for a Letter of
         Credit, Canaan, on behalf of all Borrowers, shall execute and deliver
         to the Agent an application and agreement with respect to the Letters
         of Credit, said application and agreement to be in the form used by the
         Agent. The Agent shall not be obligated to issue, renew, extend or
         reissue such Letters of Credit if (A) the amount thereon when added to
         the face amount of all outstanding Letters of Credit plus any
         Reimbursement Obligations exceeds Two Million Five Hundred Thousand
         Dollars ($2,500,000.00) or (B) the amount thereof when added to the
         Total Outstandings would exceed the Revolving Commitment. Borrowers
         agree to pay the Agent for the benefit of the Banks commissions for
         issuing the Letters of Credit (calculated separately for each Letter of
         Credit) in an amount equal to the greater of (i) the otherwise
         applicable LIBOR Margin on the maximum face amount of the Letter of
         Credit, or (ii) $500.00. Agent shall keep all amounts up to $500.00 of
         any letter of credit fee for its own account. Amounts in excess of
         $500.00 shall be shared on a pro rata basis with the Banks. In
         addition, Borrowers shall also pay to the Agent, as the Letter of
         Credit issuer, a fronting fee equal to fifteen (15) Basis Points on the
         face amount of each Letter of Credit issued hereunder. Such commissions
         shall be payable prior to the issuance of each Letter of Credit and
         thereafter on each anniversary date of such issuance while such Letter
         of Credit is outstanding.

                  (e) VOLUNTARY REDUCTION OF REVOLVING COMMITMENT. The Borrowers
         may at any time, or from time to time, upon not less than three (3)
         Business Days' prior written notice to Agent, reduce or terminate the
         Revolving Commitment; provided, however, that (i) each reduction in the
         Revolving Commitment must be in the amount of $500,000 or more, in
         increments of $100,000 and (ii) each reduction must be accompanied by a
         prepayment of the Revolving Notes in the amount by which the
         outstanding principal balance of the Revolving Notes exceeds the
         Revolving Commitment as reduced pursuant to this Section 2.

                  (f)      MANDATORY COMMITMENT REDUCTIONS -

                           (i) MONTHLY COMMITMENT REDUCTION. The Borrowing Base
                  and the Revolving Commitment shall be reduced as of the first
                  (1st) day of each month by an amount determined by the Banks
                  pursuant to Section 7(b) hereof (the "Monthly Commitment
                  Reduction"). The Monthly Commitment Reduction shall be
                  $535,000.00 beginning as of December 1, 2000 and shall
                  continue at such amount

                                       14

<PAGE>

                  until redetermined pursuant to Section 7(b) hereof. If as a
                  result of any such Monthly Commitment Reduction, the Total
                  Outstandings ever exceed the Revolving Commitment then in
                  effect, the Borrowers shall make the mandatory prepayment of
                  principal required pursuant to Section 9(b) hereof.

                           (ii) OTHER REDUCTIONS. The Borrowing Base shall be
                  reduced from time to time by the amount of any prepayment
                  required by Section 12(q) hereof upon the sale of Oil and Gas
                  Properties. If, as a result of any such reduction in the
                  Borrowing Base, the Total Outstandings ever exceed the
                  Borrowing Base then in effect, the Borrowers shall make the
                  mandatory prepayment of principal required pursuant to Section
                  9(b) hereof.

                  (g) SEVERAL OBLIGATIONS. The obligations of the Banks under
         the Revolving Commitment are several and not joint. The failure of any
         Bank to make an Advance required to be made by it shall not relieve any
         other Bank of its obligation to make its Advance, and no Bank shall be
         responsible for the failure of any other Bank to make the Advance to be
         made by such other Bank.

         3.      NOTES EVIDENCING LOANS.  The loans described above in Section 2
shall be evidenced by promissory notes of Borrowers as follows:

                  (a) FORM OF REVOLVING NOTES - The Revolving Loan shall be
         evidenced by a Note or Notes in the aggregate face amount of
         $100,000,000, and shall be in the form of Exhibit "B" hereto with
         appropriate insertions (each a "Revolving Note"). Notwithstanding the
         face amount of the Revolving Notes, the actual principal amount due
         from the Borrowers to Banks on account of the Revolving Notes, as of
         any date of computation, shall be the sum of Advances then and
         theretofore made on account thereof, less all principal payments
         actually received by Banks in collected funds with respect thereto.
         Although the Revolving Notes may be dated as of the Effective Date,
         interest in respect thereof shall be payable only for the period during
         which the loans evidenced thereby are outstanding and, although the
         stated amount of the Revolving Notes may be higher, the Revolving Notes
         shall be enforceable, with respect to Borrowers' obligation to pay the
         principal amount thereof, only to the extent of the unpaid principal
         amount of the loans. Irrespective of the face amount of the Revolving
         Notes, no Bank shall ever be obligated to advance on the Revolving
         Commitment any amount in excess of its Revolving Commitment then in
         effect.

                  (b) ISSUANCE OF ADDITIONAL NOTES - At the Effective Date there
         shall be outstanding two (2) Revolving Notes in the aggregate face
         amount of $100,000,000 payable to the order of Bank One and Local
         Oklahoma Bank, N.A., respectively. From time to time new Notes may be
         issued to other Banks as such Banks become parties to this Agreement.
         Upon request from Agent, the Borrowers shall execute and deliver to
         Agent any such new or additional Notes. From time to time as new Notes
         are issued the Agent shall require that

                                       15

<PAGE>

         each Bank exchange their Notes for newly issued Notes to better
         reflect the extent of each Bank's Revolving Commitment hereunder. The
         Notes replaced shall be marked to indicate that they have been
         replaced and/or returned to the Borrowers.

                  (c) INTEREST RATES - The unpaid principal balance of the Notes
         shall bear interest from time to time as set forth in Section 4 hereof.

                  (d) PAYMENT OF INTEREST - Interest on the Notes shall be
         payable on each Interest Payment Date and upon any prepayment of
         principal.

                  (e) PAYMENT OF PRINCIPAL - Principal of the Revolving Note or
         Notes shall be due and payable to the Agent for the ratable benefit of
         the Banks on the Revolving Maturity Date unless earlier due in whole or
         in part pursuant to Section 2(f) above or as a result of an
         acceleration of the amount due or pursuant to the mandatory prepayment
         provisions of Section 9(b) hereof.

                  (f) PAYMENT TO BANKS - Each Bank's Pro Rata Part of each
         payment or prepayment of the Loans shall be directed by wire transfer
         to such Bank by the Agent at the address provided to the Agent for such
         Bank for payments no later than 2:00 p.m., Oklahoma City, Oklahoma,
         time on the Business Day such payments or prepayments are deemed
         hereunder to have been received by Agent; provided, however, in the
         event that any Bank shall have failed to make an Advance as
         contemplated under Section 2 hereof (a "Defaulting Bank") and the Agent
         or another Bank or Banks shall have made such Advance, payment received
         by Agent for the account of such Defaulting Bank or Banks shall not be
         distributed to such Defaulting Bank or Banks until such Advance or
         Advances shall have been repaid in full to the Bank or Banks who funded
         such Advance or Advances. Any payment or prepayment received by Agent
         at any time after 12:00 noon, Oklahoma City, Oklahoma, time on a
         Business Day shall be deemed to have been received on the next Business
         Day. Interest shall cease to accrue on any principal as of the end of
         the day preceding the Business Day on which any such payment or
         prepayment is deemed hereunder to have been received by Agent. If Agent
         fails to transfer any principal amount to any Bank as provided above,
         then Agent shall promptly direct such principal amount by wire transfer
         to such Bank.

                  (g) SHARING OF PAYMENTS, ETC. - If any Bank shall obtain any
         payment (whether voluntary, involuntary, or otherwise) on account of
         the Loans, (including, without limitation, any set-off) which is in
         excess of its Pro Rata Part of payments on either of the Loans, as the
         case may be, obtained by all Banks, such Bank shall purchase from the
         other Banks such participation as shall be necessary to cause such
         purchasing Bank to share the excess payment pro rata with each of them;
         provided that, if all or any portion of such excess payment is
         thereafter recovered from such purchasing Bank, the purchase shall be
         rescinded and the purchase price restored to the extent of the
         recovery. The Borrowers agree that any Bank so purchasing a
         participation from another Bank pursuant to this Section may, to the
         fullest extent permitted by law, exercise all of its rights of payment
         (including the right of

                                       16

<PAGE>

         offset) with respect to such participation as fully as if such Bank
         were the direct creditor of the Borrowers in the amount of such
         participation.

                  (h) NON-RECEIPT OF FUNDS BY THE AGENT - Unless the Agent shall
         have been notified by a Bank or the Borrowers (the "Payor") prior to
         the date on which such Bank is to make payment to the Agent of the
         proceeds of a Loan to be made by it hereunder or the Borrowers are to
         make a payment to the Agent for the account of one or more of the
         Banks, as the case may be (such payment being herein called the
         "Required Payment"), which notice shall be effective upon receipt, that
         the Payor does not intend to make the Required Payment to the Agent,
         the Agent may assume that the Required Payment has been made and may,
         in reliance upon such assumption (but shall not be required to), make
         the amount thereof available to the intended recipient on such date
         and, if the Payor has not in fact made the Required Payment to the
         Agent, the recipient of such payment shall, on demand, pay to the Agent
         the amount made available to it together with interest thereon in
         respect of the period commencing on the date such amount was made
         available by the Agent until the date the Agent recovers such amount at
         the overnight federal funds rate.

         4.       INTEREST RATES.

                  (a)      OPTIONS.

                           (i) PRIME RATE LOANS. On Prime Rate Loans the
                  Borrowers agree to pay interest on the Notes calculated on the
                  basis of the actual days elapsed in a year consisting of 360
                  days with respect to the unpaid principal amount of each Prime
                  Rate Loan from the date the proceeds thereof are advanced to
                  Borrowers until maturity (whether by acceleration or
                  otherwise), at a varying rate per annum equal to the lesser of
                  (i) the Maximum Rate (defined herein), or (ii) the sum of the
                  Alternate Base Rate plus the Applicable Margin. Subject to the
                  provisions of this Agreement as to prepayment, the principal
                  of the Notes representing Prime Rate Loans shall be payable as
                  specified in Section 3(e) hereof and the interest in respect
                  of each Prime Rate Loan shall be payable on each Interest
                  Payment Date. Past due principal and, to the extent permitted
                  by law, past due interest in respect to each Prime Rate Loan,
                  shall bear interest, payable on demand, at a rate per annum
                  equal to the Default Rate.

                           (ii) LIBOR LOANS. On LIBOR Loans the Borrowers agree
                  to pay interest calculated on the basis of a year consisting
                  of 360 days with respect to the unpaid principal amount of
                  each LIBOR Loan from the date the proceeds thereof are
                  advanced to Borrowers until maturity (whether by acceleration
                  or otherwise), at a varying rate per annum equal to the lesser
                  of (i) the Maximum Rate, or (ii) the LIBOR Rate plus the
                  Applicable Margin. Subject to the provisions of this Agreement
                  with respect to prepayment, the

                                       17

<PAGE>

                  principal of the Notes shall be payable as specified in
                  Section 3(e) hereof and the interest with respect to each
                  LIBOR Loan shall be payable on each Interest Payment Date.
                  Past due principal and, to the extent permitted by law, past
                  due interest shall bear interest, payable on demand, at a
                  rate per annum equal to the Default Rate. Upon three (3)
                  London Business Days' written notice prior to the making by
                  the Banks of any LIBOR Loan (in the case of the initial
                  Interest Period therefor) or the expiration date of each
                  succeeding Interest Period (in the case of subsequent
                  Interest Periods therefor), Borrowers shall have the option,
                  subject to compliance by Borrowers with all of the
                  provisions of this Agreement, as long as no Event of Default
                  exists, to specify whether the Interest Period commencing on
                  any such date shall be a one (1), two (2), three (3) or six
                  (6) month period. If Agent shall not have received timely
                  notice of a designation of such Interest Period as herein
                  provided, Borrowers shall be deemed to have elected to
                  convert all maturing LIBOR Loans to Prime Rate Loans.

                  (b) INTEREST RATE DETERMINATION. The Agent shall determine
         each interest rate applicable to the Loans hereunder in accordance with
         the provisions of this Agreement. The Agent shall give prompt notice to
         the Borrowers and the Banks of each rate of interest so determined and
         its determination thereof shall be conclusive absent error.

                  (c) CONVERSION OPTION. Borrowers may elect from time to time
         (i) to convert all or any part of its LIBOR Loans to Prime Rate Loans
         by giving Agent irrevocable notice of such election in writing prior to
         10:00 a.m. (Oklahoma City, Oklahoma time) on the conversion date and
         such conversion shall be made on the requested conversion date,
         provided that any such conversion of a LIBOR Loan shall only be made on
         the last day of the LIBOR Interest Period with respect thereof, (ii) to
         convert all or any part of its Prime Rate Loans to LIBOR Loans by
         giving the Agent irrevocable written notice of such election three (3)
         London Business Days prior to the proposed conversion and such
         conversion shall be made on the requested conversion date or, if such
         requested conversion date is not a London Business Day or a Business
         Day, as the case may be, on the next succeeding London Business Day or
         Business Day, as the case may be. Any such conversion shall not be
         deemed to be a prepayment of any of the loans for purposes of this
         Agreement or the Notes.

                  (d) RECOUPMENT. If at any time the applicable rate of interest
         selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed
         the Maximum Rate, thereby causing the interest on the Notes to be
         limited to the Maximum Rate, then any subsequent reduction in the
         interest rate so selected or subsequently selected shall not reduce the
         rate of interest on the Notes below the Maximum Rate until the total
         amount of interest accrued on the Note equals the amount of interest
         which would have accrued on the Notes if the rate or rates selected
         pursuant to Sections 4(a)(i) or (ii), as the case may be, had at all
         times been in effect.

                                       18

<PAGE>

         5.       CHANGE OF CIRCUMSTANCES.

                  (a) UNAVAILABILITY OF FUNDS OR INADEQUACY OF PRICING. In the
         event that, in connection with any proposed LIBOR Loan, the Agent
         determines, which determination shall, absent manifest error, be final,
         conclusive and binding upon all parties, due to changes in
         circumstances since the date hereof, adequate and fair means do not
         exist for determining the LIBOR Rate or such rate will not accurately
         reflect the costs to the Banks of funding LIBOR Loans for such LIBOR
         Interest Period, the Agent shall give notice of such determination to
         the Borrowers and the Banks, whereupon, until the Agent notifies the
         Borrowers and the Banks that the circumstances giving rise to such
         suspension no longer exist, the obligations of the Banks to make,
         continue or convert Loans into LIBOR Loans shall be suspended, and all
         Loans to Borrowers shall be Prime Rate Loans during the period of
         suspension.

                  (b) CHANGE IN LAWS. If at any time any new law or any change
         in existing laws or in the interpretation of any new or existing laws
         shall make it unlawful for any Bank to make or continue to maintain or
         fund LIBOR Loans hereunder, then such Bank shall promptly notify
         Borrowers in writing and such Bank's obligation to make, continue or
         convert Loans into LIBOR Loans under this Agreement shall be suspended
         until it is no longer unlawful for such Bank to make or maintain LIBOR
         Loans. Upon receipt of such notice, Borrowers shall either repay the
         outstanding LIBOR Loans owed to the Banks, without penalty, on the last
         day of the current Interest Periods (or, if any Bank may not lawfully
         continue to maintain and fund such LIBOR Loans, immediately), or
         Borrowers may convert such LIBOR Loans at such appropriate time to
         Prime Rate Loans.

                  (c)      INCREASED COST OR REDUCED RETURN.

                           (i) If, after the date hereof, the adoption of any
                  applicable law, rule, or regulation, or any change in any
                  applicable law, rule, or regulation, or any change in the
                  interpretation or administration thereof by any governmental
                  authority, central bank, or comparable agency charged with the
                  interpretation or administration thereof, or compliance by any
                  Bank with any request or directive (whether or not having the
                  force of law) of any such governmental authority, central
                  bank, or comparable agency:

                                    (A) shall subject such Bank to any tax,
                           duty, or other charge with respect to any LIBOR
                           Loans, its Notes, or its obligation to make LIBOR
                           Loans, or change the basis of taxation of any amounts
                           payable to such Bank under this Agreement or its
                           Notes in respect of any LIBOR Loans (other than
                           franchise taxes and taxes imposed on the overall net
                           income of such Bank);

                                    (B) shall impose, modify, or deem applicable
                           any reserve, special deposit, assessment, or similar
                           requirement (other than reserve requirements,

                                       19

<PAGE>

                           if any, taken into account in the determination of
                           the LIBOR Rate) relating to any extensions of
                           credit or other assets of, or any deposits with or
                           other liabilities or commitments of, such Bank,
                           including the Revolving Commitment of such Bank
                           hereunder; or

                                    (C) shall impose on such Bank or on the
                           London interbank market any other condition affecting
                           this Agreement or its Notes or any of such extensions
                           of credit or liabilities or commitments;

                  and the result of any of the foregoing is to increase the cost
                  to such Bank of making, converting into, continuing, or
                  maintaining any LIBOR Loans or to reduce any sum received or
                  receivable by such Bank under this Agreement or its Notes with
                  respect to any LIBOR Loans, then Borrowers shall pay to such
                  Bank on demand such amount or amounts as will compensate such
                  Bank for such increased cost or reduction. If any Bank
                  requests compensation by Borrowers under this Section 5(c),
                  Borrowers may, by notice to such Bank (with a copy to Agent),
                  suspend the obligation of such Bank to make or continue LIBOR
                  Loans, or to convert all or part of the LIBOR Loan owing to
                  such Bank to Prime Rate Loans, until the event or condition
                  giving rise to such request ceases to be in effect (in which
                  case the provisions of Section 5(c) shall be applicable);
                  PROVIDED that such suspension shall not affect the right of
                  such Bank to receive the compensation so requested.

                           (ii) If, after the date hereof, any Bank shall have
                  determined that the adoption of any applicable law, rule, or
                  regulation regarding capital adequacy or any change therein or
                  in the interpretation or administration thereof by any
                  governmental authority, central bank, or comparable agency
                  charged with the interpretation or administration thereof, or
                  any request or directive regarding capital adequacy (whether
                  or not having the force of law) of any such governmental
                  authority, central bank, or comparable agency, has or would
                  have the effect of reducing the rate of return on the capital
                  of such Bank or any corporation controlling such Bank as a
                  consequence of such Bank's obligations hereunder to a level
                  below that which such Bank or such corporation could have
                  achieved but for such adoption, change, request, or directive
                  (taking into consideration its policies with respect to
                  capital adequacy), then from time to time upon demand
                  Borrowers shall pay to such Bank such additional amount or
                  amounts as will compensate such Bank for such reduction.

                           (iii) Each Bank shall promptly notify Borrowers and
                  Agent of any event of which it has knowledge, occurring after
                  the date hereof, which will entitle such Bank to compensation
                  pursuant to this Section 5(c) and will designate a separate
                  lending office, if applicable, if such designation will avoid
                  the need for, or reduce the amount of, such compensation and
                  will not, in the judgment of such Bank, be otherwise
                  disadvantageous to it. Any Bank claiming compensation under
                  this Section 5(c) shall furnish to Borrowers and Agent a
                  statement setting forth the

                                       20

<PAGE>

                  additional amount or amounts to be paid to it hereunder
                  which shall be conclusive in the absence of manifest error.
                  In determining such amount, such Bank may use any reasonable
                  averaging and attribution methods.

                           (iv) Any Bank giving notice to the Borrowers through
                  the Agent, pursuant to Section 5(c) shall give to the
                  Borrowers a statement signed by an officer of such Bank
                  setting forth in reasonable detail the basis for, and the
                  calculation of such additional cost, reduced payments or
                  capital requirements, as the case may be, and the additional
                  amounts required to compensate such Bank therefor.

                           (v) Within five (5) Business Days after receipt by
                  the Borrowers of any notice referred to in Section 5(c), the
                  Borrowers shall pay to the Agent for the account of the Bank
                  issuing such notice such additional amounts as are required to
                  compensate such Bank for the increased cost, reduce payments
                  or increase capital requirements identified therein, as the
                  case may be; provided, that the Borrowers shall not be
                  obligated to compensate such Bank for any increased costs,
                  reduced payments or increased capital requirements to the
                  extent that such Bank incurs the same prior to a date six (6)
                  months before such Bank gives the required notice.

                  (d)      REPLACEMENT BANKS.

                           (i) If any Bank has notified Canaan and the Agent of
                  its incurring additional costs under Section 5, then the
                  Borrowers may, unless such Bank has notified the Borrowers
                  that the circumstances giving rise to such notice no longer
                  apply, terminate, in whole or in part, the Revolving
                  Commitment of such Bank (other than the Agent) (the
                  "TERMINATED LENDER") at any time upon five (5) Business Days'
                  prior written notice to the Terminated Lender and the Agent
                  (such notice referred to herein as a "NOTICE OF TERMINATION").

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

                                       21
<PAGE>

                           (iii) 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
                  Bank or Replacement Banks to which the Terminated Lender will
                  assign its Revolving Commitment and, if there will be more
                  than one Replacement Bank, the portion of the Terminated
                  Lender's Revolving Commitment to be assigned to each
                  Replacement Bank.

                           (iv) On the Lender Termination Date, (i) the
                  Terminated Lender shall by execution and delivery of an
                  Assignment and Acceptance assign its Revolving Commitment to
                  the Replacement Bank or Replacement Banks (pro rata, if there
                  is more than one Replacement Bank, in proportion to the
                  portion of the Terminated Lender's Revolving Commitment to be
                  assigned to each Replacement Bank) indicated in the Notice of
                  Termination and shall assign to the Replacement Bank or
                  Replacement Banks each of its Revolving 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 Bank or Replacement Banks (pro rata as aforesaid),
                  (iii) the Replacement Bank or Replacement Banks 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 Bank or
                  Replacement Banks 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 28, and the Terminated Lender
                  will have the rights and benefits of an assignor under Section
                  28. To the extent not in conflict, the terms of Section 28
                  shall supplement the provisions of this Section 5. For each
                  assignment made under this Section 5, the Replacement Lender
                  shall pay to the Agent the processing fee provided for in
                  Section 28. The Borrower will be responsible for the payment
                  of any breakage costs associated with termination and
                  Replacement Lenders, as set forth herein.

                  (e) DISCRETION OF BANK AS TO MANNER OF FUNDING.
         Notwithstanding any provisions of this Agreement to the contrary, each
         Bank shall be entitled to fund and maintain its funding of all or any
         part of its Loans in any manner it sees fit, it being understood,
         however, that for the purposes of this Agreement all determinations
         hereunder shall be made as if each Bank had actually funded and
         maintained each LIBOR Loan through the purchase of deposits having a
         maturity corresponding to the last day of the LIBOR Interest Period
         applicable to such LIBOR Loan and bearing an interest rate to the
         applicable interest rate for such LIBOR Period.

                  (f) BREAKAGE FEES. Without duplication under any other
         provision hereof, if any Bank incurs any loss, cost or expense
         (including, without limitation, any loss of profit and loss, cost,
         expense or premium reasonably incurred by reason of the liquidation or

                                       22

<PAGE>

         re-employment of deposits or other funds acquired by such Bank to fund
         or maintain any LIBOR Loan or the relending or reinvesting of such
         deposits or amounts paid or prepaid to the Banks) as a result of any of
         the following events other than any such occurrence as a result in the
         change of circumstances described in Sections 5(a) and (b):

                           (i) any payment, prepayment or conversion of a LIBOR
                  Loan on a date other than the last day of its LIBOR Interest
                  Period (whether by acceleration, prepayment or otherwise);

                           (ii) any failure to make a principal payment of a
                  LIBOR Loan on the due date thereof; or

                           (iii) any failure by the Borrowers to borrow,
                  continue, prepay or convert to a LIBOR Loan on the dates
                  specified in a notice given pursuant to Section 2(b) or 4(c)
                  hereof;

         then the Borrowers shall pay to such Bank such amount as will reimburse
         such Bank for such loss, cost or expense. If any Bank makes such a
         claim for compensation, it shall furnish to Borrowers and Agent a
         statement setting forth the amount of such loss, cost or expense in
         reasonable detail (including an explanation of the basis for and the
         computation of such loss, cost or expense) and the amounts shown on
         such statement shall be conclusive and binding absent manifest error.

         6.       COLLATERAL SECURITY.

                  (a) PLEDGE OF COLLATERAL. To secure the performance by
         Borrowers of their obligations under the Indian Loan Documents and the
         Coral Loan Documents, Borrowers have heretofore granted and assigned to
         Bank One a first and prior lien on certain of their respective Oil and
         Gas Properties, certain related equipment, oil and gas inventory and
         the proceeds of the foregoing. The Debt evidenced by the Previous Loan
         Documents is now evidenced by the Loan Documents. Contemporaneously
         with the execution of this Agreement and the Notes, the Borrowers shall
         (i) grant and assign to Agent for the ratable benefit of the Banks a
         first and prior Lien on certain of its Oil and Gas Properties, certain
         related equipment, oil and gas inventory, certain bank accounts and
         proceeds of the foregoing, and/or (ii) amend and/or restate certain
         Security Instruments already in place in order to memorialize the
         agency relationship between Bank One and the Banks and to recognize the
         increased indebtedness. The Liens held by Bank One on the Oil and Gas
         Properties shall be assigned, as of the Effective Date, to the Agent
         for the ratable benefit of the Banks. The Oil and Gas Properties
         heretofore and herewith mortgaged to the Agent shall represent not less
         than 90% of the Engineered Value (as hereinafter defined) of Borrowers'
         Oil and Gas Properties as of the Effective Date. Obligations arising
         from transactions between Borrowers and one or more of the Banks
         providing for the hedging, forward sale or swap or crude oil or natural
         gas or interest rate protection ("Hedging Obligations") shall

                                       23

<PAGE>

         be secured by the Collateral described herein. The Hedging Obligations
         shall be secured and repaid on a pari passu basis with the indebtedness
         and obligations of the Borrowers under the Loan Documents. All Oil and
         Gas Properties and other collateral in which Borrowers have heretofore
         granted to Bank One, or herewith grant or hereafter grant to Agent for
         the ratable benefit of the Banks a first and prior Lien (to the
         satisfaction of the Agent) in accordance with this Section 6, as such
         properties and interests are from time to time constituted, are
         hereinafter collectively called the "Collateral".

                  (b) DOCUMENTATION AND TITLE REVIEW. The granting and assigning
         of such security interests and Liens by Borrowers shall be pursuant to
         Security Instruments in form and substance reasonably satisfactory to
         the Agent. Concurrently with the delivery of each of the Security
         Instruments or within a reasonable time thereafter, Borrowers shall
         furnish to the Agent mortgage and title opinions or other title
         information satisfactory to Agent with respect to the title and Lien
         status of Borrowers' interests in not less than 90% of the Engineered
         Value of the Oil and Gas Properties covered by the Security Instruments
         as Agent shall have designated. "Engineered Value" for this purpose
         shall mean future net revenues discounted at the discount rate being
         used by the Agent as of the date of any such determination utilizing
         the pricing parameters used in the engineering report furnished to the
         Agent for the ratable benefit of the Banks, pursuant to Sections 7 and
         12 hereof. Borrowers will cause to be executed and delivered to the
         Agent, in the future, additional Security Instruments if the Agent
         reasonably deems such are necessary to insure perfection or maintenance
         of Banks' security interests and Liens in the Collateral or any part
         thereof.

                  (c) LETTERS IN LIEU OF TRANSFER ORDERS. The Borrowers shall
         provide the Agent for the benefit of the Banks, undated letters in lieu
         of transfer orders, in form and substance satisfactory to Agent, from
         the Borrowers to each purchaser of hydrocarbons and disburser proceeds
         of hydrocarbons from and attributable to the Oil and Gas Properties,
         together with additional letters with addresses left blank authorizing
         and directing the addressees to make future payments attributable to
         hydrocarbons from the Oil and Gas Properties directly to the Agent for
         the benefit of the Banks. The Banks agree that none of the letters in
         lieu of transfer orders provided by the Borrowers pursuant to this
         Section 6(c) will be sent to the addressee prior to the occurrence of
         an Event of Default, at which time the Agent may, at its option and in
         addition to the exercise of any of its other rights and remedies, send
         any and all of such letters to such addressees; provided, however, that
         upon the occurrence of an Event of Default other than those specified
         in Sections 14(f) and (g), the Agent shall not send any or all of such
         letters until the applicable period to cure, if any, such Default has
         lapsed without such Default being cured. Borrowers hereby designate the
         Agent as its agent and attorney-in-fact, to act in its name, place and
         stead for the purpose of completing and delivering any and all letters
         in lieu of transfer orders delivered by the Borrowers to the Agent for
         the benefit of the Banks pursuant to Sections 6(c) and 11(a)(viii)
         hereof, including, without limitation, completing any blanks contained
         in such letters and attaching exhibits thereto describing the relevant
         Collateral. Borrowers hereby ratify and confirm all that the Agent
         shall lawfully do or cause to be done by virtue of this power of
         attorney and the rights

                                       24

<PAGE>

         granted with respect to such power of attorney. This power of
         attorney is coupled with the interests of the Agent in the
         Collateral, shall commence and be in full force and effect as of the
         Effective Date and shall remain in full force and effect and shall be
         irrevocable until the obligations, if any, of the Agent hereunder
         have terminated and the full satisfaction of all obligations due
         hereunder or under the Notes. The powers conferred on Agent by this
         appointment may only be exercised by the Agent by execution by any
         Person who, at the time of exercise, is an officer of the Agent, and
         are solely to protect the interests of the Agent and the Banks under
         the Loan Documents and shall not impose any duty upon the Agent to
         exercise any such powers. The Agent shall be accountable only for
         amounts that it actually receives or has expressly directed that
         others receive as a result of the exercise of such powers and shall
         not be responsible to the Borrowers, or any other Person for any act
         or failure to act with respect to such powers, except for gross
         negligence or willful misconduct.

                  (d) PLEDGE OF STOCK AND PARTNERSHIP INTERESTS. As additional
         security for the payment and performance of this Agreement and all
         obligations represented by the Notes, Canaan shall pledge 100% of its
         ownership interest in Indian, Coral Reserves, Inc., Coral Reserves
         Energy Corp., and each of the LP Borrowers.

         7.       BORROWING BASE.

                  (a) INITIAL BORROWING BASE. At the Effective Date, the
         Borrowing Base shall be as described in the definition of "Borrowing
         Base" at Section 1 above.

                  (b) SUBSEQUENT DETERMINATIONS OF BORROWING BASE. Subsequent
         determinations of the Borrowing Base shall be made by the Banks at
         least semi-annually on November 1 and May 1 of each year beginning May
         1, 2001 or as Unscheduled Redeterminations. In connection with, and as
         of, each determination of the Borrowing Base, the Banks shall also
         redetermine the Monthly Commitment Reduction. The Borrowers shall
         furnish to the Banks as soon as possible but in any event no later than
         April 1 of each year, beginning April 1, 2001 with an effective date of
         December 31, 2000, with an engineering report in form and substance
         satisfactory to the Agent prepared by an independent petroleum
         engineering firm acceptable to Agent covering the Oil and Gas
         Properties constituting the Borrowing Base based on a present worth
         value discounted at ten percent utilizing economic and pricing
         parameters used by Agent as established from time to time, together
         with such other information concerning the value of the Oil and Gas
         Properties as the Agent shall deem necessary to determine the value of
         the Oil and Gas Properties. By October 1 of each year, or within thirty
         (30) days after either (i) receipt of notice from Agent that the Banks
         require an Unscheduled Redetermination, or (ii) Canaan gives notice to
         Agent of their desire to have an Unscheduled Redetermination performed,
         the Borrowers shall furnish to the Banks an engineering report in form
         and substance satisfactory to Agent prepared by Borrowers' in-house
         engineering staff valuing the Oil and Gas Properties utilizing economic
         and pricing parameters used by the Agent as established from time to
         time, together with such other information, reports and data concerning
         the value of the Oil and Gas Properties as Agent

                                       25

<PAGE>

         shall deem reasonably necessary to determine the value of such Oil
         and Gas Properties. Agent shall by notice to the Borrowers no later
         than May 1 and November 1 of each year, or within a reasonable time
         thereafter (herein called the "Determination Date"), notify the
         Borrowers of the designation by the Banks of the new Borrowing Base
         and Monthly Commitment Reduction for the period beginning on such
         Determination Date and continuing until, but not including, the next
         Determination Date. If an Unscheduled Redetermination is made by the
         Banks, the Agent shall notify the Borrowers within a reasonable time
         after receipt of all requested information of the new Borrowing Base
         and Monthly Commitment Reduction, and such new Borrowing Base and
         Monthly Commitment Reduction shall continue until the next
         Determination Date. If the Borrowers do not furnish all such
         information, reports and data by any date specified in this Section
         7(b), the Banks may nonetheless designate the Borrowing Base and
         Monthly Commitment Reduction at any amounts which the Banks in their
         discretion determine and may redesignate the Borrowing Base and
         Monthly Commitment Reduction from time to time thereafter until the
         Banks receive all such information, reports and data, whereupon the
         Banks shall designate a new Borrowing Base and Monthly Commitment
         Reduction as described above. Each Bank shall determine the amount of
         the Borrowing Base and Monthly Commitment Reduction based upon the
         loan collateral value which such Bank in its discretion (using such
         methodology, assumptions and discounts rates as such Bank customarily
         uses in assigning collateral value to oil and gas properties, oil and
         gas gathering systems, gas processing and plant operations) assigns
         to such Oil and Gas Properties and other Collateral of the Borrowers
         at the time in question and based upon such other credit factors
         consistently applied (including, without limitation, the assets,
         liabilities, cash flow, business, properties, prospects, management
         and ownership of the Borrowers and their affiliates) as such Bank
         customarily considers in evaluating similar oil and gas credits, but
         such Bank in its discretion shall not be required to give any
         additional positive value to any Oil and Gas Property over the
         current economic and pricing parameters used by such Bank for such
         Determination Date which additional value is derived directly from a
         hedging, forward sale or swap agreement covering such Oil and Gas
         Property as of the date of such determination. All determinations or
         Unscheduled Redeterminations of the Borrowing Base and the Monthly
         Commitment Reduction require the approval of Majority Banks;
         provided, however, that notwithstanding anything to the contrary
         herein, the amount of the Borrowing Base may not be increased, nor
         may the Monthly Commitment Reduction be reduced, without the approval
         of all Banks. If the Banks cannot otherwise agree on the Borrowing
         Base or the Monthly Commitment Reduction, each Bank shall submit in
         writing to the Agent its proposed Borrowing Base and Monthly
         Commitment Reduction and the Borrowing Base and Monthly Commitment
         Reduction shall be set on the basis of the weighted average of the
         Borrowing Bases and the weighted average of the Monthly Commitment
         Reductions proposed by the Banks. If at any time any of the Oil and
         Gas Properties are sold, the Borrowing Base then in effect shall
         automatically be reduced by a sum equal to the amount of prepayment
         required to be made pursuant to Section 12(q) hereof. The Borrowing
         Base shall be additionally reduced from time to time pursuant to the
         provisions of Sections 2(e) and 2(f) hereof. It is expressly
         understood that the Banks have no obligation to designate the
         Borrowing Base or the

                                       26

<PAGE>

         Monthly Commitment Reduction at any particular amounts, except in the
         exercise of their discretion, whether in relation to the Revolving
         Commitment or otherwise. Provided, however, that the Banks shall not
         have the obligation to designate a Borrowing Base in an amount in
         excess of the Revolving Commitment or its legal or internal lending
         limits.

         8.       FEES.

                  (a) COMMITMENT FEE. The Borrowers shall pay to Agent for the
         ratable benefit of the Banks the Commitment Fee (calculated on a daily
         basis). The Commitment Fee shall be payable in arrears on the last
         Business Day of each calendar quarter beginning December 31, 2000 with
         the final fee payment due on the Maturity Date for any period then
         ending for which the Commitment Fee shall not have been theretofore
         paid. In the event the Revolving Commitment terminates on any date
         prior to the end of any such monthly period, the Borrowers shall pay to
         the Agent for the ratable benefit of the Banks, on the date of such
         termination, the total Commitment Fee due for the period in which such
         termination occurs.

                  (b) THE LETTER OF CREDIT FEE. The Borrowers shall pay to the
         Agent the Letter of Credit fees required above in Section 2(d).

                  (c) OTHER FEES. The Borrowers shall pay to the Agent such
         other fees as are set forth in that certain letter dated September 14,
         2000 from Bank One to Canaan as supplemented by that certain letter
         dated as of the date hereof from Bank One to Canaan.

         9.       PREPAYMENTS.

                  (a) VOLUNTARY PREPAYMENTS. Subject to the provisions of
         Section 5(e) hereof, the Borrowers may at any time and from time to
         time, without penalty or premium, prepay the Notes, in whole or in
         part. Each such prepayment shall be made on at least three (3) London
         Business Days' notice to Agent in the case of LIBOR Loan Tranches and
         without notice in the case of Prime Rate Loan Tranches and shall be in
         a minimum amount of $1,000,000.00 or any larger $100,000 multiple or
         the unpaid balance on the Notes, whichever is less, plus accrued
         interest thereon to the date of prepayment.

                  (b) MANDATORY PREPAYMENT FOR BORROWING BASE DEFICIENCY. In the
         event the Total Outstandings ever exceed the Borrowing Base as
         determined by Banks pursuant to Section 7(b) hereof, the Borrowers
         shall, within thirty (30) days after notification from the Agent,
         either (A) by instruments reasonably satisfactory in form and substance
         to the Bank, provide the Agent with collateral with value and quality
         in amounts satisfactory to all of the Banks in their discretion in
         order to increase the Borrowing Base by an amount at least equal to
         such excess, or (B) prepay, without premium or penalty, the principal
         amount of the Revolving Notes in an amount at least equal to such
         excess plus accrued interest thereon to the date of prepayment. If the
         Total Outstandings ever exceed the Revolving Commitment as a result of
         a Monthly Commitment Reduction or any other required reduction in the

                                       27

<PAGE>

         Revolving Commitment, then in such event, Borrowers shall immediately
         prepay the principal amount of the Revolving Notes in an amount at
         least equal to such excess plus accrued interest to the date of
         prepayment.

         10.      REPRESENTATIONS AND WARRANTIES. In order to induce the Banks
to enter into this Agreement, the Borrowers hereby, jointly and severally,
represent and warrant to the Banks (which representations and warranties will
survive the delivery of the Notes) that:

                  (a) CREATION AND EXISTENCE. The Corporate Borrowers are each a
         corporation duly organized, validly existing and in good standing under
         the laws of the jurisdiction in which it was formed and is duly
         qualified in all jurisdictions wherein failure to qualify may result in
         a Material Adverse Effect. The LP Borrowers are each a limited
         partnership duly organized, validly existing and in good standing under
         the laws of the State of Oklahoma and is duly qualified in all
         jurisdictions wherein failure to qualify may result in a Material
         Adverse Effect. Borrowers each have all power and authority to own its
         properties and assets and to transact the business in which it is
         engaged.

                  (b) POWER AND AUTHORITY. Borrowers are each duly authorized
         and empowered to create and issue the Notes; and Borrowers are duly
         authorized and empowered to execute, deliver and perform their
         respective Loan Documents, including this Agreement; and all
         corporation or limited partnership, as the case may be, action on each
         Borrower's part requisite for the due creation and issuance of the
         Notes and for the due execution, delivery and performance of the Loan
         Documents, including this Agreement, has been duly and effectively
         taken.

                  (c) BINDING OBLIGATIONS. This Agreement does, and the Notes
         and other Loan Documents upon their creation, issuance, execution and
         delivery will, constitute valid and binding obligations of Borrowers,
         enforceable in accordance with their respective terms (except that
         enforcement may be subject to applicable principles of equity and the
         effect of any applicable bankruptcy, insolvency, or similar debtor
         relief laws now or hereafter in effect and relating to or affecting the
         enforcement of creditors' rights generally).

                  (d) NO LEGAL BAR OR RESULTANT LIEN. The Notes and the Loan
         Documents, including this Agreement, do not and will not, to the best
         of each Borrower's knowledge violate any provisions of any contract,
         agreement, law, regulation, order, injunction, judgment, decree or writ
         to which any Borrower is subject which could reasonable be expected to
         have a Material Adverse Effect, or result in the creation or imposition
         of any lien or other encumbrance upon any assets or properties of any
         Borrower, other than those contemplated by this Agreement.

                  (e) NO CONSENT. The execution, delivery and performance by the
         Borrowers of the Notes and by the Borrowers of their respective Loan
         Documents, including this Agreement, does not require the consent or
         approval of any other person or entity, including

                                       28

<PAGE>

         without limitation any regulatory authority or governmental body of
         the United States or any state thereof or any political subdivision
         of the United States or any state thereof except for (i) consents
         required for federal, state and, in some instances, private leases,
         right of ways and other conveyances or encumbrances of oil and gas
         leases, if any, all of which consents have been obtained by the
         Borrowers.

                  (f) FINANCIAL CONDITION. The audited Financial Statements of
         Borrowers dated December 31, 1999 and the unaudited Financial
         Statements of Borrowers dated as of March 30, 2000, which have been
         delivered to Banks are complete and correct in all material respects,
         and fully and accurately reflect in all material respects the financial
         condition and results of the operations of Borrowers on a separate
         basis as of the date or dates and for the period or periods stated. No
         change has since occurred in the condition, financial or otherwise, of
         any Borrower which is reasonably expected to have a Material Adverse
         Effect, except as disclosed to the Banks in Schedule "2" attached
         hereto.

                  (g) LIABILITIES. No Borrower has any material (individually or
         in the aggregate) liability, direct or contingent, except as disclosed
         to the Banks in the Financial Statements or on Schedule "3" attached
         hereto. No unusual or unduly burdensome restrictions, restraint, or
         hazard exists by contract, law or governmental regulation or otherwise
         relative to the business, assets or properties of Borrowers which is
         reasonably expected to have a Material Adverse Effect.

                  (h) LITIGATION. Except as described in the Financial
         Statements, or as otherwise disclosed to the Banks in Schedule "4"
         attached hereto, there is no litigation, legal or administrative
         proceeding, investigation or other action of any nature pending or, to
         the knowledge of the officers of Borrowers threatened against or
         affecting Borrowers which involves the possibility of any judgment or
         liability not fully covered by insurance, and which is reasonably
         expected to have a Material Adverse Effect.

                  (i) TAXES; GOVERNMENTAL CHARGES. Borrowers have each filed all
         tax returns and reports required to be filed and has paid all taxes,
         assessments, fees and other governmental charges levied upon them or
         their assets, properties or income which are due and payable, including
         interest and penalties, the failure of which to pay could reasonably be
         expected to have a Material Adverse Effect, except such as are being
         contested in good faith by appropriate proceedings and for which
         adequate reserves for the payment thereof as required by GAAP has been
         provided and levy and execution thereon have been stayed and continue
         to be stayed.

                  (j) TITLES, ETC. Borrowers each have defensible title to all
         of its respective assets, including without limitation, the Oil and Gas
         Properties, free and clear of all liens or other encumbrances except
         Permitted Liens.

                                       29

<PAGE>

                  (k) DEFAULTS. No Borrower is in default and no event or
         circumstance has occurred which, but for the passage of time or the
         giving of notice, or both, would constitute a default under any loan or
         credit agreement, indenture, mortgage, deed of trust, security
         agreement or other agreement or instrument to which any Borrower is a
         party in any respect that would be reasonably expected to have a
         Material Adverse Effect. No Event of Default hereunder has occurred and
         is continuing.

                  (l) CASUALTIES; TAKING OF PROPERTIES. Since the dates of the
         latest Financial Statements of the Borrowers delivered to Banks,
         neither the business nor the assets or properties of Borrowers have
         been affected (to the extent it is reasonably likely to cause a
         Material Adverse Effect), as a result of any fire, explosion,
         earthquake, flood, drought, windstorm, accident, strike or other labor
         disturbance, embargo, requisition or taking of property or cancellation
         of contracts, permits or concessions by any domestic or foreign
         government or any agency thereof, riot, activities of armed forces or
         acts of God or of any public enemy.

                  (m) USE OF PROCEEDS; MARGIN STOCK. The proceeds of the
         Revolving Commitment may be used by the Borrowers for the purposes of
         (i) financing the Plan of Combination, (ii) refinancing existing Debt,
         and (iii) general corporate purposes. Neither Borrower is engaged
         principally or as one of its important activities in the business of
         extending credit for the purpose of purchasing or carrying any "margin
         stock " as defined in Regulation U of the Board of Governors of the
         Federal Reserve System (12 C.F.R. Part 221), or for the purpose of
         reducing or retiring any indebtedness which was originally incurred to
         purchase or carry a margin stock or for any other purpose which might
         constitute this transaction a "purpose credit" within the meaning of
         said Regulation G or U.

                  No Borrower nor any person or entity acting on behalf of any
         Borrower has taken or will take any action which might cause the loans
         hereunder or any of the Loan Documents, including this Agreement, to
         violate Regulation G or U or any other regulation of the Board of
         Governors of the Federal Reserve System or to violate the Securities
         Exchange Act of 1934 or any rule or regulation thereunder, in each case
         as now in effect or as the same may hereafter be in effect.

                  (n) LOCATION OF BUSINESS AND OFFICES. The principal place of
         business and chief executive offices of the Borrowers are located at
         the address stated in Section 17 hereof.

                  (o) COMPLIANCE WITH THE LAW. To the best of each Borrower's
         knowledge, no Borrower:

                      (i) is in violation of any law, judgment, decree, order,
                  ordinance, or governmental rule or regulation to which any
                  Borrower, or any of its assets or properties are subject; or

                                       30

<PAGE>

                      (ii) has failed to obtain any license, permit, franchise
                  or other governmental authorization necessary to the
                  ownership of any of its assets or properties or the conduct
                  of its business;

         which violation or failure is reasonably expected to have a Material
         Adverse Effect.

                  (p) NO MATERIAL MISSTATEMENTS. No information, exhibit or
         report furnished by Borrowers to the Banks 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.

                  (q) ERISA. Borrowers are each in compliance in all material
         respects with the applicable provisions of ERISA, and no "reportable
         event", as such term is defined in Section 403 of ERISA, has occurred
         with respect to any Plan of Borrowers.

                  (r) PUBLIC UTILITY HOLDING COMPANY ACT. No Borrower is a
         "holding company", or "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.

                  (s) SUBSIDIARIES. All of the Borrowers' Subsidiaries are
         listed on Schedule "5" hereto.

                  (t) ENVIRONMENTAL MATTERS. Except as disclosed on Schedule
         "6", no Borrower (i) has received notice or otherwise learned of any
         Environmental Liability which would be reasonably likely to
         individually or in the aggregate have a Material Adverse Effect arising
         in connection with (A) any non-compliance with or violation of the
         requirements of any Environmental Law or (B) the release or threatened
         release of any toxic or hazardous waste into the environment, (ii) has
         received notice of any threatened or actual liability in connection
         with the release or notice of any threatened release of any toxic or
         hazardous waste into the environment which would be reasonably likely
         to individually or in the aggregate have a Material Adverse Effect or
         (iii) has received notice or otherwise learned of any federal or state
         investigation evaluating whether any remedial action is needed to
         respond to a release or threatened release of any toxic or hazardous
         waste into the environment for which either Borrower is or may be
         liable which may reasonably be expected to result in a Material Adverse
         Effect.

                  (u) LIENS. Except (i) as disclosed on Schedule "1" hereto and
         (ii) for Permitted Liens, the assets and properties of the Borrowers
         are free and clear of all liens and encumbrances.

                  (v) GAS CONTRACTS. Except as described on Schedule "7" hereto,
         the Borrowers (a) are not obligated in any material respect by virtue
         of any prepayment made under any

                                       31

<PAGE>

         contract containing a "take-or-pay,", "recoupment," or "prepayment"
         provision or under any similar agreement to deliver hydrocarbons
         produced from or allocated to any of the Oil and Gas Properties at
         some future date without receiving full payment therefor at the time
         of delivery, and (b) has not produced gas, in any material amount,
         subject to, and is not, nor are any of the Oil and Gas Properties,
         subject to balancing rights of third parties or subject to balancing
         duties under governmental requirements, except as to such matters for
         which the Borrowers have established monetary reserves adequate in an
         amount to satisfy such obligations and has segregated such reserves
         from other accounts or the Borrowers' balancing obligations in the
         aggregate would not reasonably be expected to have a Material Adverse
         Effect.

                  (w) PLAN OF COMBINATION. Canaan has received all approvals
         necessary to consummate the partnership rollup transaction as described
         in the Plan of Combination and has received all regulatory and legal
         approvals pertaining to the Plan of Combination.

         11.      CONDITIONS OF LENDING.

                  (a) The effectiveness of this Agreement, and the obligation to
         make the initial Advance or issue any initial Letter of Credit under
         the Revolving Commitment shall be subject to satisfaction of the
         following conditions precedent:

                           (i)   EXECUTION AND DELIVERY. The Borrowers shall
                  each have executed and delivered the Agreement, the Notes
                  and other required Loan Documents, and the other Security
                  Instruments, all in form and substance satisfactory to the
                  Agent; Canaan shall have executed and delivered a Pledge
                  Agreement with respect to the Indian stock, the Coral
                  Reserves, Inc. stock, the Coral Reserves Energy Corp. stock
                  and the limited partnership interests in each member of the
                  Coral Group;

                           (ii)  LEGAL OPINION. The Agent shall have received
                  from Borrowers' legal counsel a favorable legal opinion in
                  form and substance satisfactory to it (i) as to the matters
                  set forth in Subsections 10(a), (b), (c), (d), (e), (h) and
                  (w) hereof and (ii) as to such other matters as Agent or its
                  counsel may reasonably request;

                           (iii) RESOLUTIONS, CONSENTS OR AUTHORIZATIONS. The
                  Agent shall have received appropriate certified corporate
                  resolutions of the Corporate Borrowers and resolutions of the
                  general partner of each LP Borrower;

                           (iv)  GOOD STANDING. The Agent shall have received
                  evidence of existence and good standing for Borrowers;

                           (v)   INCUMBENCY. The Agent shall have received a
                  signed certificate of the secretary or assistant secretary of
                  the corporate Borrowers and the secretary or assistant
                  secretary of the general partner of each LP Borrower,
                  certifying the names

                                       32

<PAGE>

                  of the officers of Borrowers authorized to sign loan
                  documents on behalf of Borrowers, together with the true
                  signatures of each such officer. The Agent may conclusively
                  rely on such certificate until the Agent receives a further
                  certificate of Borrowers canceling or amending the prior
                  certificate and submitting signatures of the officers named
                  in such further certificate;

                           (vi)   CERTIFICATE OF INCORPORATION OR LIMITED
                  PARTNERSHIP AND BYLAWS OR PARTNERSHIP AGREEMENT. The Agent
                  shall have received (i) copies of the Certificate of
                  Incorporation of the Corporate Borrowers and all amendments
                  thereto, certified by the Secretary of State of the State of
                  its incorporation, and a copy of the bylaws of the Corporate
                  Borrowers and all amendments thereto, certified by the
                  Secretary or Assistant Secretary of such Corporate Borrowers
                  as being true, correct and complete and (ii) copies of the
                  Articles of Limited Partnership of the LP Borrowers and all
                  amendments thereto, certified by the Secretary of State of
                  Oklahoma, and a copy of the Partnership Agreement of the LP
                  Borrowers and all amendments thereto, certified by the general
                  partner of the LP Borrowers as being true, correct and
                  complete;

                           (vii)  PRIORITY OF LIENS. The Agent shall have
                  received satisfactory evidence of the first lien status of the
                  Liens granted by Borrowers to the Banks;

                           (viii) LETTERS IN LIEU. The Agent shall have
                  received undated letters in lieu of transfer orders, in form
                  and substance satisfactory to the Agent, from the Borrowers to
                  each purchaser of hydrocarbons and disburser of proceeds of
                  hydrocarbons from and attributable to the Oil and Gas
                  Properties, together with additional letters with the
                  addresses left blank, authorizing and directing the addressees
                  to make future payments attributable to the hydrocarbons from
                  the Oil and Gas Properties directly to the Agent for the
                  benefit of the Banks, all as required by Section 6 hereof;

                           (ix)   CERTIFICATE REGARDING SOLVENCY. The Agent
                  shall have received a Certificate substantially in the form
                  of Exhibit E attached hereto from the Comptroller or Chief
                  Financial Officer of each corporate borrower and each
                  general partner of the LP Borrowers.

                           (x)    PAYMENT OF FEES. The Agent shall have received
                  payment of all fees due from Borrowers as of the Effective
                  Date.

                           (xi)   REPRESENTATION AND WARRANTIES. The
                  representations and warranties of Borrowers under this
                  Agreement are true and correct in all material respects as of
                  such date, as if then made (except to the extent that such
                  representations and warranties related solely to an earlier
                  date);

                           (xii)  NO EVENT OF DEFAULT. No Event of Default shall
                  have occurred and be continuing nor shall any event have
                  occurred or failed to occur which, with the

                                       33

<PAGE>

                  passage of time or service of notice, or both, would
                  constitute an Event of Default hereunder under the Previous
                  Loan Documents or under any other material financing
                  obligations;

                           (xiii) OTHER DOCUMENTS. Agent shall have received
                  such other instruments and documents incidental and
                  appropriate to the transaction provided for herein as Agent or
                  its counsel may reasonably request, and all such documents
                  shall be in form and substance reasonably satisfactory to the
                  Agent;

                           (xiv)  LEGAL MATTERS SATISFACTORY. All legal matters
                  incident to the consummation of the transactions contemplated
                  hereby shall be reasonably satisfactory to special counsel for
                  Agent retained at the expense of the Borrowers; and

                           (xv)   PLAN OF COMBINATION. Borrowers shall have
                  delivered evidence satisfactory to Agent that (i) Borrower,
                  Canaan, has obtained all appropriate and requisite approvals
                  to consummate the Plan of Combination, and (ii) the Plan of
                  Combination has been consummated upon terms previously
                  disclosed to Agent.

                           (xvi)  STRUCTURE. The legal structure, organization
                  and ownerships of each Borrower shall be satisfactory to Banks
                  and their counsel.

                           (xvii) LITIGATION. There shall be in existence no
                  injunction or restraining order which, in the reasonable
                  judgment of Agent or its counsel, which prohibit the making of
                  the Revolving Loans or the completion of the Plan of
                  Combination nor shall there be pending or threatened
                  litigation which would be reasonably expected to result in a
                  Material Adverse Effect on Borrowers or their Subsidiaries.

                           (xviii) DUE DILIGENCE. Agent shall have completed its
                  due diligence, and shall be satisfied with the results, of its
                  investigation of Borrowers. Further, all legal, financial,
                  accounting, tax and fiduciary aspects of the Plan of
                  Combination, the organization and ownership of Borrowers.

                           (xix)  FINANCIAL INFORMATION. Borrowers shall have
                  provided Agent with (i) June 30, 2000 Financial Statements,
                  (ii) a Compliance Certificate as required pursuant to the
                  Previous Loan Documents, and (iii) an updated pro forma
                  balance sheet, a sources and uses of funds statement and cash
                  flow projections.

                           (xx)   INITIAL ENGINEERING REPORT. Agent shall have
                  received a satisfactory third-party engineering report with an
                  effective date of December 31, 1999 on their Oil and Gas
                  Properties subsequent to the Plan of Combination issued by
                  Netherland Sewell & Associates. In addition, Borrowers must
                  provide Agent with an internally prepared engineering report
                  on the same properties with an effective date of June 30,
                  2000.

                                       34

<PAGE>

                           (xxi) PREVIOUS DEBT. Those certain subordinated debt
                  obligations, referred to herein and in the Previous Loan
                  Documents as the MidFirst Debt, and the INDCO Note, must be
                  paid in full in a manner satisfactory to Agent on or prior to
                  the effective date of the Plan of Combination. The "Coral
                  Production Payment" (as defined in the Previous Loan
                  Documents) must be paid off if either of the following
                  conditions exist: (i) there exist lien rights against any
                  property of a Borrower hereunder securing the Coral Production
                  Payment or (ii) any Person, other than a Borrower, receives
                  any proceeds of the Coral Production Payment.

                           (xxii) DEBT SERVICE CAPITALIZATION. Borrowers pro
                  forma ratio of its Debt to Capitalization shall be no more
                  than 56%. For the purposes hereof, this ratio shall be
                  determined by dividing the Total Outstandings by (i) the Total
                  Outstandings plus Borrowers' reported equity (on a
                  consolidated basis).

                           (xxiii) ENVIRONMENTAL. Agent shall have received all
                  environmental reports available to Borrowers and Agent shall
                  be reasonably satisfied with the contents thereof and the
                  Borrower's plans with respect thereto.

                           (xxiv) REGULATIONS. Borrowers shall be in compliance
                  with all applicable requirements of Regulations U, T, and X of
                  the Board of Governors of the Federal Reserve System.

                  (b) The obligation of the Banks to make any Advance or issue
         any Letter of Credit under the Revolving Commitment (including the
         initial Advance) shall be subject to the following additional
         conditions precedent that, at the date of making each such Advance and
         after giving effect thereto:

                           (i) REPRESENTATION AND WARRANTIES. The
                  representations and warranties of Borrowers under this
                  Agreement are true and correct in all material respects as of
                  such date, as if then made (except to the extent that such
                  representations and warranties related solely to an earlier
                  date);

                           (ii) NO EVENT OF DEFAULT. No Event of Default shall
                  have occurred and be continuing nor shall any event have
                  occurred or failed to occur which, with the passage of time or
                  service of notice, or both, would constitute an Event of
                  Default;

                           (iii) OTHER DOCUMENTS. Agent shall have received such
                  other instruments and documents incidental and appropriate to
                  the transaction provided for herein as Agent or its counsel
                  may reasonably request, and all such documents shall be in
                  form and substance reasonably satisfactory to the Agent; and

                                      35

<PAGE>

                           (iv) LEGAL MATTERS SATISFACTORY. All legal matters
                  incident to the consummation of the transactions contemplated
                  hereby shall be reasonably satisfactory to special counsel for
                  Agent retained at the expense of Borrowers.

         12.      AFFIRMATIVE COVENANTS. A deviation from the provisions of this
Section 12 shall not constitute a Default or Event of Default under this
Agreement if such deviation is consented to in writing by the Majority Banks
prior to the date of deviation. The Borrowers will at all times comply with the
covenants contained in this Section 12 from the date hereof and for so long as
the Revolving Commitment is in existence or any amount is owed to the Agent or
the Banks under this Agreement or the other Loan Documents.

                  (a) FINANCIAL STATEMENTS AND REPORTS. Borrowers shall promptly
         furnish to the Agent from time to time upon request such information
         regarding the business and affairs and financial condition of
         Borrowers, as the Agent may reasonably request, and will furnish to the
         Agent:

                           (i) ANNUAL AUDITED FINANCIAL STATEMENTS. As soon as
                  available, and in any event within ninety (90) days after the
                  close of each fiscal year beginning with the fiscal year ended
                  December 31, 2000, the annual audited consolidated Financial
                  Statements of Borrowers, prepared in accordance with GAAP
                  accompanied by an unqualified opinion rendered by an
                  independent accounting firm reasonably acceptable to the
                  Agent;

                           (ii) QUARTERLY FINANCIAL STATEMENTS. Beginning with
                  quarter ending September 30, 2000, as soon as available, and
                  in any event within forty-five (45) days after the end of the
                  first three fiscal quarters of each year, the quarterly
                  unaudited consolidated Financial Statements of Borrowers
                  prepared in accordance with GAAP;

                           (iii) REPORT ON PROPERTIES. As soon as available and
                  in any event on or before April 1 and October 1 of each
                  calendar year, and at such other times as any Bank, in
                  accordance with Section 7 hereof, may request, the engineering
                  reports required to be furnished to the Agent under such
                  Section 7 on the Oil and Gas Properties;

                           (iv) QUARTERLY PRODUCTION REPORTS. Within forty-five
                  (45) days after the end of each quarter, a report setting
                  forth for each month in the quarter, in form and substance
                  satisfactory to the Agent, indicating the immediately
                  preceding quarter's sales volume, sales revenues, production
                  taxes, operating expense and net operating income from or
                  attributable to the Oil and Gas Properties, and any material
                  gas balance liabilities of either Borrower, with detailed
                  calculations and worksheets, and, in the case of take or pay
                  or prepayment agreements during such quarter, provide copies
                  of the same, all in form and substance satisfactory to Agent;

                                      36

<PAGE>

                           (v) ADDITIONAL INFORMATION. Promptly upon request of
                  the Agent from time to time any additional financial
                  information or other information that the Agent may reasonably
                  request.

         All such reports, information, balance sheets and Financial Statements
         referred to in Subsection 12(a) above shall be in such detail as the
         Agent may reasonably request and shall be prepared in a manner
         consistent with the Financial Statements.

                  (b) CERTIFICATES OF COMPLIANCE. Concurrently with the
         furnishing of the annual audited Financial Statements pursuant to
         Subsection 12(a)(i) hereof and the quarterly unaudited Financial
         Statements pursuant to Subsection 12(a)(ii) hereof for the months
         coinciding with the end of each calendar quarter, Canaan, on a
         consolidated basis and on behalf of all Borrowers, will furnish or
         cause to be furnished to the Agent a certificate in the form of Exhibit
         "C" attached hereto, signed by the President of each Borrower, (i)
         stating that each Borrower has fulfilled in all material respects its
         obligations under the Notes and the Loan Documents, including this
         Agreement, and that all representations and warranties made herein and
         therein continue (except to the extent they relate solely to an earlier
         date) to be true and correct in all material respects (or specifying
         the nature of any change), or if a Default has occurred, specifying the
         Default and the nature and status thereof; (ii) to the extent requested
         from time to time by the Agent, specifically affirming compliance of
         each Borrower in all material respects with any of its representations
         (except to the extent they relate solely to an earlier date) or
         obligations under said instruments; (iii) setting forth the
         computation, in reasonable detail as of the end of each period covered
         by such certificate, of compliance with Sections 13(b), (c), (d), and
         (e) containing or accompanied by such financial or other details,
         information and material as the Agent may reasonably request to
         evidence such compliance.

                  (c) TAXES AND OTHER LIENS. The Borrowers will pay and
         discharge promptly all taxes, assessments and governmental charges or
         levies imposed upon the Borrowers, or upon the income or any assets or
         property of Borrowers, as well as all claims of any kind (including
         claims for labor, materials, supplies and rent) which, if unpaid, might
         become a Lien or other encumbrance upon any or all of the assets or
         property of Borrowers and which could reasonably be expected to result
         in a Material Adverse Effect; provided, however, that neither Borrower
         shall be required to pay any such tax, assessment, charge, levy or
         claim if the amount, applicability or validity thereof shall currently
         be contested in good faith by appropriate proceedings diligently
         conducted, levy and execution thereon have been stayed and continue to
         be stayed and if Borrowers shall have set up adequate reserves
         therefor, if required, under GAAP.

                  (d) COMPLIANCE WITH LAWS. Borrowers will observe and comply,
         in all material respects, with all applicable laws, statutes, codes,
         acts, ordinances, orders, judgments, decrees, injunctions, rules,
         regulations, orders and restrictions relating to environmental
         standards or controls or to energy regulations of all federal, state,
         county, municipal and other

                                      37

<PAGE>

         governments, departments, commissions, boards, agencies, courts,
         authorities, officials and officers, domestic or foreign.

                  (e) FURTHER ASSURANCES. Upon Agent's request, the Borrowers
         will cure promptly any defects in the creation and issuance of the
         Notes and the execution and delivery of the Notes and the Loan
         Documents, including this Agreement. The Borrowers at their sole
         expense will promptly execute and deliver to Agent upon its reasonable
         request all such other and further documents, agreements and
         instruments in compliance with or accomplishment of the covenants and
         agreements in this Agreement, or to correct any omissions in the Notes
         or more fully to state the obligations set out herein.

                  (f) PERFORMANCE OF OBLIGATIONS. The Borrowers will pay the
         Notes and other obligations incurred by it hereunder according to the
         reading, tenor and effect thereof and hereof; and Borrowers will do and
         perform every act and discharge all of the obligations provided to be
         performed and discharged by the Borrowers under the Loan Documents,
         including this Agreement, at the time or times and in the manner
         specified.

                  (g) INSURANCE. The Borrowers now maintain and will continue to
         maintain insurance with financially sound and reputable insurers with
         respect to its assets against such liabilities, fires, casualties,
         risks and contingencies and in such types and amounts as is customary
         in the case of persons engaged in the same or similar businesses and
         similarly situated. Upon request of the Agent, the Borrowers will
         furnish or cause to be furnished to the Agent from time to time a
         summary of the respective insurance coverage of Borrowers in form and
         substance satisfactory to the Agent, and, if requested, will furnish
         the Agent copies of the applicable policies. Upon demand by Agent any
         insurance policies covering any properties securing the Obligations
         shall be endorsed (i) to provide that such policies may not be
         canceled, reduced or affected in any manner for any reason without
         fifteen (15) days prior notice to Agent, (ii) to provide for insurance
         against fire, casualty and other hazards normally insured against, in
         the amount of the full value (less a reasonable deductible not to
         exceed amounts customary in the industry for similarly situated
         business and properties) of the property insured, and (iii) to provide
         for such other matters as the Agent may reasonably require.
         Additionally, the Borrowers shall at all times maintain adequate
         insurance with respect to all of its other assets and wells in
         accordance with prudent business practices.

                  (h) ACCOUNTS AND RECORDS. Borrowers will keep books, records
         and accounts in which full, true and correct entries will be made of
         all dealings or transactions in relation to its business and
         activities, prepared in a manner consistent with prior years, subject
         to changes suggested by such Borrowers' auditors.

                  (i) RIGHT OF INSPECTION. Borrowers will permit any officer,
         employee or agent of the Banks to examine Borrowers' books, records and
         accounts, and take copies and extracts therefrom, all at such
         reasonable times during normal business hours and as often as the Banks
         may reasonably request. The Banks will use best efforts to keep all
         Confidential

                                      38

<PAGE>

         Information (as herein defined) confidential and will not disclose or
         reveal the Confidential Information or any part thereof other than (i)
         as required by law, and (ii) to the Banks', and the Banks'
         subsidiaries', Affiliates, officers, employees, legal counsel and
         regulatory authorities or advisors to whom it is necessary to reveal
         such information for the purpose of effectuating the agreements and
         undertakings specified herein or as otherwise required in connection
         with the enforcement of the Banks' and the Agent's rights and remedies
         under the Notes, this Agreement and the other Loan Documents. As used
         herein, "Confidential Information" means information about the
         Borrowers furnished by the Borrowers to the Banks, but does not
         include information (i) which was publicly known, or otherwise known
         to the Banks, at the time of the disclosure, (ii) which subsequently
         becomes publicly known through no act or omission by the Banks, or
         (iii) which otherwise becomes known to the Banks, other than through
         disclosure by the Borrowers.

                  (j) NOTICE OF CERTAIN EVENTS. The Borrowers shall immediately
         notify the Agent if Borrowers learn of the occurrence of (i) any event
         which constitutes a Default or Event of Default together with a
         detailed statement by Borrowers of the steps being taken to cure such
         Event of Default; (ii) any legal, judicial or regulatory proceedings
         affecting Borrowers, or any of the assets or properties of Borrowers
         which, if adversely determined, could reasonably be expected to have a
         Material Adverse Effect; (iii) any dispute between Borrowers and any
         governmental or regulatory body or any other Person or entity which, if
         adversely determined, might reasonably be expected to cause a Material
         Adverse Effect; (iv) any event or circumstance which requires the
         prepayment, purchase or redemption of any outstanding public note
         issue, whether issued prior or subsequent to the Effective Date, with a
         detailed statement of steps being taken to cure such default or event
         of default under such instruments, or (v) any other matter which in
         Borrowers' reasonable opinion could have a Material Adverse Effect.

                  (k) ERISA INFORMATION AND COMPLIANCE. The Borrowers will
         promptly furnish to the Agent immediately upon becoming aware of the
         occurrence of any "reportable event", as such term is defined in
         Section 4043 of ERISA, or of any "prohibited transaction", as such term
         is defined in Section 4975 of the Internal Revenue Code of 1954, as
         amended, in connection with any Plan or any trust created thereunder, a
         written notice signed by the chief financial officer of Borrowers
         specifying the nature thereof, what action Borrowers are taking or
         proposes to take with respect thereto, and, when known, any action
         taken by the Internal Revenue Service with respect thereto.

                  (l) ENVIRONMENTAL REPORTS AND NOTICES. The Borrowers will
         deliver to the Agent (i) promptly upon its becoming available, one copy
         of each report sent by Borrowers to any court, governmental agency or
         instrumentality pursuant to any Environmental Law, (ii) notice, in
         writing, promptly upon Borrowers' receipt of notice or otherwise
         learning of any claim, demand, action, event, condition, report or
         investigation indicating any potential or actual liability arising in
         connection with (x) the non-compliance with or violation of the
         requirements of any Environmental Law which reasonably could be
         expected to have a

                                      39

<PAGE>

         Material Adverse Effect; (y) the release or threatened release of any
         toxic or hazardous waste into the environment which reasonably could
         be expected to have a Material Adverse Effect or which release
         Borrower would have a duty to report to any court or government agency
         or instrumentality, or (iii) the existence of any Environmental Lien
         on any properties or assets of Borrowers, and Borrowers shall
         immediately deliver a copy of any such notice to Agent.

                  (m) COMPLIANCE AND MAINTENANCE. The Borrowers will (i) observe
         and comply in all material respects with all Environmental Laws
         (including, but not limited to, "CERCLA") and all laws pertaining to
         ERISA; (ii) except as provided in Subsections 12(o) and 12(p) below,
         maintain the Oil and Gas Properties and other assets and properties in
         good and workable condition at all times and make all repairs,
         replacements, additions, betterments and improvements to the Oil and
         Gas Properties and other assets and properties as are needed and proper
         so that the business carried on in connection therewith may be
         conducted properly and efficiently at all times in the opinion of the
         Borrowers exercised in good faith; (iii) take or cause to be taken
         whatever actions are necessary or desirable to prevent an event or
         condition of default by Borrowers under the provisions of any gas
         purchase or sales contract or any other contract, agreement or lease
         comprising a part of the Oil and Gas Properties or other collateral
         security hereunder which default could reasonably be expected to result
         in a Material Adverse Effect; and (iv) furnish Agent upon request
         evidence satisfactory to Agent that there are no Liens on the Oil and
         Gas Properties, except Permitted Liens.

                  (n) OPERATION OF PROPERTIES. Except as provided in Subsection
         12(p) and (q) below, the Borrowers will operate, or use reasonable
         efforts to cause to be operated, all Oil and Gas Properties in a
         careful and efficient manner in accordance with the practice of the
         industry and in compliance in all material respects with all applicable
         laws, rules, and regulations, and in compliance in all material
         respects with all applicable proration and conservation laws of the
         jurisdiction in which the properties are situated, and all applicable
         laws, rules, and regulations, of every other agency and authority from
         time to time constituted to regulate the development and operation of
         the properties and the production and sale of hydrocarbons and other
         minerals therefrom; provided, however, that the Borrowers shall have
         the right to contest in good faith by appropriate proceedings, the
         applicability or lawfulness of any such law, rule or regulation and
         pending such contest may defer compliance therewith, as long as such
         deferment shall not subject the properties or any part thereof to
         foreclosure or loss.

                  (n) COMPLIANCE WITH LEASES AND OTHER INSTRUMENTS. The
         Borrowers will pay or cause to be paid and discharged all rentals,
         delay rentals, royalties, production payment, and indebtedness required
         to be paid by Borrowers (or required to keep unimpaired in all material
         respects the rights of Borrowers in the Oil and Gas Properties)
         accruing under, and perform or cause to be performed in all material
         respects each and every act, matter, or thing required of Borrowers by
         each and all of the assignments, deeds, leases, subleases, contracts,
         and agreements in any way relating to Borrowers or any of the Oil and
         Gas Properties and do all other things necessary of Borrowers to keep
         unimpaired in all material respects the rights of

                                      40

<PAGE>

         Borrowers thereunder and to prevent the forfeiture thereof or default
         thereunder; provided, however, that nothing in this Agreement shall be
         deemed to require Borrowers to perpetuate or renew any oil and gas
         lease or other lease by payment of rental or delay rental or by
         commencement or continuation of operations nor to prevent Borrowers
         from abandoning or releasing any oil and gas lease or other lease or
         well thereon when, in any of such events, in the opinion of Borrowers
         exercised in good faith, it is not in the best interest of the
         Borrowers to perpetuate the same.

                  (p) CERTAIN ADDITIONAL ASSURANCES REGARDING MAINTENANCE AND
         OPERATIONS OF PROPERTIES. With respect to those Oil and Gas Properties
         which are being operated by operators other than the Borrowers, the
         Borrowers shall not be obligated to perform any undertakings
         contemplated by the covenants and agreement contained in Subsections
         12(o) or 12(p) hereof which are performable only by such operators and
         are beyond the control of the Borrowers; however, the Borrowers agree
         to promptly take all reasonable actions available under any operating
         agreements or otherwise to bring about the performance of any such
         material undertakings required to be performed thereunder.

                  (q) SALE OF CERTAIN ASSETS/PREPAYMENT OF PROCEEDS. Except with
         respect to sales permitted under Section 13(a)(ii)(C) and (D) hereof,
         the Borrowers will immediately pay over to the Agent for the ratable
         benefit of the Banks as a prepayment of principal on the Revolving
         Notes, an amount equal to 100% of the Release Price received by
         Borrowers from the sale of the Oil and Gas Properties, which sale has
         been approved in advance by the Majority Banks. The term "Release
         Price" as used herein shall mean a price determined by the Majority
         Banks in their discretion based upon the loan collateral value which
         such Banks in their discretion (using such methodology, assumptions and
         discounts rates as such Banks customarily use in assigning collateral
         value to oil and gas properties, oil and gas gathering systems, gas
         processing and plant operations) assign to such Oil and Gas Properties
         at the time in question. Any such prepayment of principal on the
         Revolving Notes required by this Section 12(q), shall not be in lieu
         of, but shall be in addition to, any Monthly Commitment Reduction or
         any mandatory prepayment of principal required to be paid pursuant to
         Section 9(b) hereof.

                  (r) TITLE MATTERS. Within ninety (90) days after the Effective
         Date with respect to the Oil and Gas Properties listed on Schedule "8"
         hereto, furnish Agent with title opinions and/or title information
         reasonably satisfactory to Agent showing defensible title of the
         applicable Borrower to such Oil and Gas Properties subject only to the
         Permitted Liens. As to any Oil and Gas Properties hereafter mortgaged
         to Agent, Borrowers will promptly (but in no event more than thirty
         (30) days following such mortgaging), furnish Agent with title opinions
         and/or title information reasonably satisfactory to Agent covering a
         sufficient value of such Oil and Gas Properties to maintain the
         required level of title coverage at 81% of the Engineered Value of the
         total Oil and Gas Properties. Said title information shall show
         defensible title of the applicable Borrower to such Oil and Gas
         Properties subject only to Permitted Liens.

                                      41

<PAGE>

                  (s) CURATIVE MATTERS. Within sixty (60) days after the
         Effective Date with respect to matters listed on Schedule "9" and,
         thereafter, within sixty (60) days after receipt by Borrowers from
         Agent or its counsel of written notice of title defects the Agent
         reasonably requires to be cured, Borrowers shall either (i) provide
         such curative information, in form and substance satisfactory to Agent,
         or (ii) substitute Oil and Gas Properties of value and quality
         satisfactory to the Agent for all of Oil and Gas Properties for which
         such title curative was requested but upon which Borrowers elected not
         to provide such title curative information, and, within sixty (60) days
         of such substitution, provide title opinions or title information
         satisfactory to the Agent covering the Oil and Gas Properties so
         substituted.

                  (t) CHANGE OF PRINCIPAL PLACE OF BUSINESS. Borrowers shall
         give Agent at least thirty (30) days prior written notice of its
         intention to move its principal place of business from the address set
         forth in Section 17 hereof.

                  (u) OPERATING ACCOUNTS. Borrowers shall establish and maintain
         with Agent one or more operating accounts (the "Operating Accounts"),
         the maintenance of each of which shall be subject to such rules and
         regulations as the Agent shall from time to time specify. Such
         Operating Accounts shall be the primary oil and gas operating account
         of the Borrowers for the purpose of depositing proceeds from oil and
         gas sales received from the Collateral and such accounts shall be
         maintained with the Agent until all amounts due hereunder and under the
         Notes have been paid in full. The Borrowers hereby grant a security
         interest to Banks in and to the Operating Accounts and all checks,
         drafts and other items ever received by any Bank for deposit therein.
         If any Event of Default shall occur and be continuing, Agent shall have
         the immediate right, without prior notice or demand, to take and apply
         against the Borrowers' obligations hereunder any and all funds legally
         and beneficially owned by the Borrowers then or thereafter on deposit
         in the Operating Accounts for the ratable benefit of the Banks.
         Borrowers shall not redirect the payment of such proceeds of production
         without the consent of Agent. The setoff rights discussed above apply
         only to (i) each Borrower's separate depository accounts, and (ii) each
         Borrower's separate funds in any combined revenue distribution account.

                  (v) ADDITIONAL PROPERTY. Borrowers shall, within five (5) days
         after receiving a written request thereof from Agent, execute and
         deliver, or cause to be executed and delivered, such mortgages, deeds
         of trust, instruments, security agreements, assignments, financing
         statements, and other documents, as may be reasonably necessary in the
         opinion of Agent and Agent's counsel, to grant Agent valid first
         mortgage liens and first, prior and perfected security interests in and
         to additional Oil and Gas Properties of such value as Agent shall deem
         necessary to provide additional security for full and prompt payment of
         all amounts owed hereunder and under the Notes. At Agent's option and
         on request therefor, Borrowers will furnish Agent title opinions
         covering such additional Oil and Gas Properties prepared by counsel not
         employed by Borrowers (or such other evidence to Borrowers' ownership
         thereof and their revenue interest therein or attributable thereto as
         Agent may

                                      42

<PAGE>

         reasonably require), in form and substance satisfactory to Agent,
         subject only to title defects approved by Agent.

                  (w) LETTERS IN LIEU OF TRANSFER ORDERS. The Borrowers shall
         promptly upon the reasonable request of the Agent, at any time and from
         time to time and without limitation on the rights of Agent in
         accordance with Section 6(c) hereof, execute such letters in lieu of
         transfer orders, in addition to the letters signed by the Borrowers and
         delivered to the Agent in satisfaction of the conditions set forth in
         Sections 6(c) and 11(a)(x) hereof, as are necessary or appropriate to
         transfer and deliver to the Agent for the benefit of the Banks proceeds
         from or attributable to any Oil and Gas Property or other Collateral;
         provided, however, that such letters shall only be delivered to the
         addressees thereof in accordance with the provision of Section 6(c)
         hereof.

                  (x) DIVISION ORDERS. The Borrowers shall promptly upon request
         by the Agent at any time and from time to time following the occurrence
         of any Event of Default and without limitations on the rights of the
         Agent in accordance with Section 6(c) hereof, execute such division
         and/or transfer orders as are necessary or appropriate to transfer and
         deliver to the Agent for the ratable benefit of the Banks proceeds from
         the sale of hydrocarbon production from or attributable to any Oil and
         Gas Property; provided, however, that the Banks shall only send or
         deliver such division orders and/or transfer orders in accordance with
         Section 6(c) hereof.

                  (y) TAKE OR PAY AGREEMENT. The Borrowers shall, in connection
         with their delivery of the engineering reports required by Sections 7
         and 12 hereof, deliver to Agent copies of contracts or other agreements
         concerning "take or pay" and "prepayment", and provide notice of all
         gas balance liabilities of the Borrowers.

                  (z) ENTITY EXISTENCE. With the exception of those actions
         permitted by Section 13(f) below, each Borrower shall preserve and
         maintain its existence as a corporation or a limited partnership, as
         the case may be, and all of its rights, privileges and franchises
         necessary or desirable in the normal conduct of its business, and
         conduct its business in an orderly and efficient manner consistent with
         good practices and in accordance with all valid regulations and orders
         of any governmental authority.

                  (aa) OWNERSHIP. With the exception of those actions permitted
         by Section 13(f) below and except as set forth in the Plan of
         Combination, Canaan shall continue to own 100% of the outstanding
         voting stock of Indian and of each general partner of the Coral Group
         and shall continue to own 100% of all limited partnership interests in
         each member of the Coral Group.

                  (ab) PAYMENT OF DEBT. Borrowers shall pay and discharge (i)
         all taxes, assessments and governmental charges or levies imposed upon
         it or upon its income or profits, or upon any property belonging to it,
         before delinquent, (ii) all lawful claims (including claims for labor,

                                      43

<PAGE>

         materials and supplies), which, if unpaid, might give rise to a Lien
         upon any of its property, and (iii) all of its other indebtedness,
         except as prohibited hereunder; provided, however, that Borrowers shall
         not be required to pay any such tax, assessment, charge or levy if and
         so long as the amount, applicability or validity thereof shall
         concurrently be contested in good faith by appropriate proceedings and
         appropriate accruals and cash reserves therefor have been established
         in accordance with generally accepted accounting principles.

                  (ac) USE OF PROCEEDS. Borrowers shall only use the proceeds to
         (i) finance the Plan of Combination, including up to $1,000,000.00 for
         the repurchase of partnership interests in each member of the Coral
         Group, (ii) refinance existing debts, and (iii) other general corporate
         or partnership purposes.

         13.      NEGATIVE COVENANTS. A deviation from the provisions of this
Section 13 shall not constitute a Default or an Event of Default under this
Agreement if such deviation is consented to in writing by the Majority Banks
prior to the date of deviation. The Borrowers will at all times comply with the
covenants contained in this Section 13 from the date hereof and for so long as
the Revolving Commitment is in existence or any amount is owed to the Agent or
the Banks under this Agreement or the other Loan Documents.

                  (a) NEGATIVE PLEDGE. Neither Borrowers nor any of their
         subsidiaries shall without the prior written consent of the Majority
         Banks:

                           (i) create, incur, assume or permit to exist any
                  Lien, security interest or other encumbrance on any of its
                  assets or properties except Permitted Liens; or

                           (ii) sell, lease, transfer or otherwise dispose of,
                  in any fiscal year, any of its oil and gas assets except for
                  (A) sales of production from Borrowers' Oil and Gas Properties
                  made in the ordinary course of Borrowers' oil and gas
                  businesses, (B) sales made with the consent of Majority Banks
                  which are made pursuant to, and in full compliance with,
                  Section 12(q) hereof; (C) sales, leases or transfers or other
                  dispositions of Oil and Gas Properties made by Borrowers
                  during any fiscal year, in one or any series of transactions,
                  the aggregate value of which does not exceed $500,000.00
                  between consecutive Determination Dates if, and only if, such
                  sale, lease, transfer or other disposition does not result in
                  the occurrence of a Default or Event of Default; and (D) an
                  overriding royalty revenue interest in Oil and Gas Properties
                  acquired subsequent to the date hereof of up to one percent
                  (1%) of the interest acquired by the Borrowers per
                  acquisition, in the aggregate and not by individual Borrowers,
                  to distribute to certain employees of Borrowers; provided,
                  however, it is understood that the interest conveyed shall not
                  be included in calculations of the Borrowing Base. Further,
                  Neither Borrowers nor any of their Subsidiaries shall, without
                  the prior written consent of Majority Banks, sell, lease,
                  transfer or otherwise dispose of any oil and gas assets to any
                  other Borrower or Subsidiary unless such disposition is
                  permitted by Section 13(f).

                                      44
<PAGE>

                  (b) CURRENT RATIO. Canaan, on behalf of all Borrowers, shall
         not allow its ratio of consolidated Current Assets to consolidated
         Current Liabilities to be less than 1.0 to 1.0 as of the end of any
         fiscal quarter.

                  (c) MINIMUM DEBT SERVICE COVERAGE RATIO. Canaan, on behalf of
         all Borrowers, will not allow its consolidated Debt Service Coverage
         Ratio to ever be less than 1.10 to 1.0 for any quarterly fiscal period.

                  (d) MINIMUM TANGIBLE NET WORTH. The Borrowers' consolidated
         Tangible Net Worth shall be no less than 80% of the Tangible Net Worth
         as of October 31, 2000. The Tangible Net Worth shall increase each
         quarter beginning December 31, 2000 by (i) 50% of Net Income for the
         quarter then ended with no adjustment for losses PLUS (ii) 75% of the
         proceeds of any issuance of equity.

                  (e) DEBT TO EBITDA RATIO. Canaan will maintain, on a
         consolidated basis, as of each fiscal quarter end a ratio of (a) total
         liabilities excluding (i) accounts arising from the purchase of goods
         and services in the ordinary course of business, (ii) accrued expenses
         or losses, and (iii) deferred revenues or gains to (b) Net Income, plus
         depletion, amortization, depreciation, interest expense and income
         taxes, for the quarter then ended, annualized, of less than 3.00:1.00
         for the quarter then ended.

                  (f) CONSOLIDATIONS AND MERGERS. No Borrower will consolidate
         or merge with or into any other Person, except that any Borrower may
         (i) merge with another Person if such Borrower is the surviving entity
         in such merger and if, after giving effect thereto, no Default or Event
         of Default shall have occurred and be continuing; or (ii) after prior
         notification is sent to Agent, merge or consolidate into any other
         Borrower.

                  (g) DEBTS, GUARANTIES AND OTHER OBLIGATIONS. Without the
         consent of Majority Banks, no Borrower will incur, create, assume or in
         any manner become or be liable in respect of any indebtedness
         (including Letters of Credit other than those Letters of Credit
         permitted hereunder) in excess of $200,000.00 in the aggregate for all
         Borrowers, nor will any Borrower guarantee or otherwise in any manner
         become or be liable in respect of any indebtedness, liabilities or
         other obligations of any other person or entity, whether by agreement
         to purchase the indebtedness of any other person or entity or agreement
         for the furnishing of funds to any other person or entity through the
         purchase or lease of goods, supplies or services (or by way of stock
         purchase, capital contribution, advance or loan) for the purpose of
         paying or discharging the indebtedness of any other person or entity,
         or otherwise, except that the foregoing restrictions shall not apply
         to:

                           (i) the Notes and any renewal or increase thereof, or
                  other indebtedness of the Borrowers heretofore disclosed to
                  Banks in the Borrowers' Financial Statements or on Schedule
                  "3" hereto; or

                                      45

<PAGE>

                           (ii) taxes, assessments or other government charges
                  which are not yet due or are being contested in good faith by
                  appropriate action promptly initiated and diligently
                  conducted, if such reserve as shall be required by GAAP shall
                  have been made therefor and levy and execution thereon have
                  been stayed and continue to be stayed; or

                           (iii) indebtedness (other than in connection with a
                  loan or lending transaction) incurred in the ordinary course
                  of business, including, but not limited to indebtedness for
                  drilling, completing, leasing and reworking oil and gas wells
                  or the treatment, distribution, transportation of sale of
                  production therefrom;

                           (iv) any renewals or extensions of (but not increases
                  in) any of the foregoing; or

                           (v) indebtedness to other Borrowers.

                  (h) DIVIDENDS OR DISTRIBUTIONS. No Borrower will declare, pay
         or make, whether in cash or property, or set aside or apply any money
         or assets to pay or make any dividend or distribution during any fiscal
         year. Notwithstanding the above, this negative covenant shall not
         prohibit Borrowers, other than Canaan, from declaring, paying or
         making, whether in cash or property, dividends or distributions to
         Canaan.

                  (i) LOANS AND ADVANCES. No Borrower shall make or permit to
         remain outstanding any loans or advances made by any Borrower to or in
         any person or entity, except that the foregoing restriction shall not
         apply to:

                           (i) loans or advances to any person, the material
                  details of which have been set forth in the Financial
                  Statements of the Borrowers heretofore furnished to Banks; or

                           (ii) advances made in the ordinary course of
                  Borrowers' oil and gas business; or

                           (iii) loans or advances among Borrowers.

                  (j) SALE OR DISCOUNT OF RECEIVABLES. No Borrower will discount
         or sell with recourse, or sell for less than the greater of the face or
         market value thereof, any of its notes receivable or accounts
         receivable.

                  (k) NATURE OF BUSINESS. No Borrower will permit any material
         change to be made in the character of its business as carried on at the
         date hereof.

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<PAGE>

                  (l) TRANSACTIONS WITH AFFILIATES. No Borrower will enter into
         any transaction with any Affiliate (other than another Borrower),
         except transactions upon terms that are no less favorable to it than
         would be obtained in a transaction negotiated at arm's length with an
         unrelated third party.

                  (m) HEDGING TRANSACTIONS. No Borrower will enter into any
         transaction providing (i) for the hedging, forward sale, swap or any
         derivative thereof of crude oil or natural gas or other commodities, or
         (ii) for a swap, collar, floor, cap, option, corridor, or other
         contract which is intended to reduce or eliminate the risk of
         fluctuation in interest rates, as such terms are referred to in the
         capital markets, except the foregoing prohibitions shall not apply to
         (x) transactions consented to in writing by the Majority Banks which
         are on terms acceptable to the Majority Banks, or (y) Pre-Approved
         Contracts. The term "Pre-Approved Contracts" as used herein shall mean
         any contract or agreement (i) to hedge, forward sell or swap crude oil
         or natural gas or otherwise sell up to 75% of the Borrowers' monthly
         production forecast for all of Borrowers' (A) proved and producing oil
         properties for the period covered by the proposed hedging transaction,
         and (B) proved and producing gas properties for the period covered by
         the proposed hedging transaction, (ii) with a term of eighteen (18)
         months or less, (iii) with "strike prices" per barrel or MCF as
         applicable greater than the Agent's forecasted price in the most recent
         engineering evaluation, and (iv) with counter-parties approved by
         Agent.

                  (n) INVESTMENTS. No Borrower shall make any investments in any
         person or entity, except such restriction shall not apply to:

                           (i) investments and direct obligations of the United
                  States of America or any agency thereof;

                           (ii) investments in certificates of deposit issued by
                  the Banks or certificates of deposit with maturities of less
                  than one year, issued by other commercial banks in the United
                  States having capital and surplus in excess of $500,000,000
                  and which have a senior unsecured debt rating of A+ by
                  Standard & Poor's Ratings Group or A1 by Moody's Investors
                  Service, Inc.; or

                           (iii) investments in insured money market funds,
                  LIBOR investment accounts and other similar accounts at Agent
                  or such investment with maturities of less than ninety (90)
                  days at other commercial banks having capital and surplus in
                  excess of $500,000,000 and which have a senior unsecured debt
                  rating of A+ by Standard & Poor's Ratings Group or A1 by
                  Moody's Investors Service, Inc.; or

                           (iv)     investments in oil and gas properties; or

                           (v) investments in other Borrowers; provided such
                  investments shall not require a transfer of assets other than
                  cash.

                                      47

<PAGE>

                  (o) AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS. No
         Borrower will permit any amendment to, or any alteration of, its
         Articles of Incorporation or Bylaws or partnership agreement, which
         amendment or alteration could reasonably be expected to have a Material
         Adverse Effect.

                  (p) LEASES. No Borrower will enter into or agree to enter
         into, any rental or lease agreement resulting or which would result in
         aggregate rental or lease payments of the Borrowers exceeding
         $300,000.00 in the aggregate in any fiscal year of the Borrowers under
         all rental or lease agreement under which any Borrower is a lessee of
         the property or assets covered thereby; PROVIDED, HOWEVER, that the
         foregoing restriction shall not apply to oil, gas and mineral leases or
         permits or similar agreements entered into in the ordinary course of
         business or orders of any governmental authority adjudicating the
         rights or pooling the interests of the owners of oil and gas properties
         or lease agreements in effect as of the date hereof.

                  (q) ACCOUNTS PAYABLE. No Borrower shall allow any account
         payable to become in excess of 90 days past due, from the date of
         invoice, except such accounts payable as are being Contested in Good
         Faith.

                  (r) ISSUANCE OF PREFERRED STOCK. No Borrower shall issue any
         preferred stock after the date hereof without the consent of the
         Majority Banks. As of the date hereof, Borrowers represent and warrant
         that none of them have any preferred stock issued and outstanding.

                  (s) CHANGE IN OWNERSHIP OR STRUCTURE. With the exception of
         Canaan, no Borrower shall permit or suffer to exist any change in its
         current ownership or a change or amendment to its current corporate or
         limited partnership structure except as set forth in Section 13(f).

                  (t) PREPAYMENTS. Except as may be otherwise permitted herein,
         Borrowers shall not directly or indirectly make any payments upon any
         Debt other than regularly scheduled installments of principal and
         interest.

                  (u) STOCK OR INTEREST REPURCHASE. Except as may be otherwise
         set forth herein or in the Plan of Combination, Borrowers shall not
         repurchase nor set aside any funds to repurchase any stock or
         partnership interests. Notwithstanding the above, Borrowers shall be
         entitled to utilize up to $500,000.00, in the aggregate, to repurchase
         Canaan stock from the date hereof through April 23, 2001. Except as may
         be otherwise set forth herein or in the Plan of Combination, Borrowers'
         ability to repurchase Canaan stock will expire at 12:01 a.m. April 24,
         2001.

                  (v) CHANGE IN MANAGEMENT. No Borrower shall not make, permit
         or suffer to exist a Change in Management.

                                      48

<PAGE>

         14.      EVENTS OF DEFAULT. Any one or more of the following events
shall be considered an "Event of Default" as that term is used herein:

                  (a) The Borrowers shall fail to pay when due or declared due
         the principal of, and the interest on, the Notes, or any fee or any
         other indebtedness of the Borrowers incurred pursuant to this Agreement
         or any other Loan Document and such failure to pay is not cured within
         three days after written notice of such failure is sent by Agent to
         Canaan, on behalf of all Borrowers; or

                  (b) Any representation or warranty made by Borrowers under
         this Agreement, or in any certificate or statement furnished or made to
         the Banks pursuant hereto, or in connection herewith, or in connection
         with any document furnished hereunder, shall prove to be untrue in any
         material respect as of the date on which such representation or
         warranty is made (or deemed made), or any representation, statement
         (including financial statements), certificate, report or other data
         furnished or to be furnished or made by Borrowers under any Loan
         Document, including this Agreement, proves to have been untrue in any
         material respect, as of the date as of which the facts therein set
         forth were stated or certified; or

                  (c) Default shall be made in the due observance or performance
         of any of the covenants or agreements of the Borrowers contained in the
         Loan Documents (any such default under a Security Instrument other than
         failure to pay must be such as would have a Material Adverse Effect),
         including this Agreement (excluding covenants contained in Section 13
         of the Agreement for which there is no cure period), and such default
         shall continue for more than thirty (30) days after notice thereof from
         Agent to Borrowers; or

                  (d) Default shall be made in the due observance or performance
         of the covenants of Borrowers contained in Section 13 of this
         Agreement; or

                  (e) Default shall be made in respect of any obligation for
         borrowed money in excess of $250,000, other than the Notes, for which
         Borrowers are liable (directly, by assumption, as guarantor or
         otherwise), or any obligations secured by any mortgage, pledge or other
         security interest, lien, charge or encumbrance with respect thereto, on
         any asset or property of Borrowers in respect of any agreement relating
         to any such obligations unless Borrowers are not liable for same (i.e.,
         unless remedies or recourse for failure to pay such obligations is
         limited to foreclosure of the collateral security therefor), and if
         such default shall continue beyond the applicable grace period, if any;
         or

                  (f) Borrowers shall commence a voluntary case or other
         proceedings seeking liquidation, reorganization or other relief with
         respect to itself or its debts under any bankruptcy, insolvency or
         other similar law now or hereafter in effect or seeking an appointment
         of a trustee, receiver, liquidator, custodian or other similar official
         of it or any substantial part of its property, or shall consent to any
         such relief or to the appointment of or

                                      49

<PAGE>

         taking possession by any such official in an involuntary case or other
         proceeding commenced against it, or shall make a general assignment
         for the benefit of creditors, or shall fail generally to pay its debts
         as they become due, or shall take any corporate action authorizing the
         foregoing; or

                  (g) An involuntary case or other proceeding, shall be
         commenced against Borrowers seeking liquidation, reorganization or
         other relief with respect to it or its debts under any bankruptcy,
         insolvency or similar law now or hereafter in effect or seeking the
         appointment of a trustee, receiver, liquidator, custodian or other
         similar official of it or any substantial part of its property, and
         such involuntary case or other proceeding shall remain undismissed and
         unstayed for a period of sixty (60) days; or an order for relief shall
         be entered against Borrowers under the federal bankruptcy laws as now
         or hereinafter in effect; or

                  (h) A final judgment or order for the payment of money in
         excess of $250,000 (or judgments or orders aggregating in excess of
         $250,000) shall be rendered against Borrowers and such judgments or
         orders shall continue unsatisfied and unstayed for a period of thirty
         (30) days; or

                  (i) In the event the Total Outstandings shall at any time
         exceed the Borrowing Base established for the Revolving Notes, and the
         Borrowers shall fail to comply with the provisions of Section 9(b)
         hereof; or

                  (j) A Change of Management shall occur; or

                  (k) Any Security Instrument shall for any reason not, or cease
         to, create valid and perfected first-priority Liens against the
         Collateral purportedly covered thereby and such occurrence would have a
         Material Adverse Effect; or

                  Upon occurrence of any Event of Default specified in
         Subsections 14(f) and (g) hereof, the entire principal amount due under
         the Notes and all interest then accrued thereon, and any other
         liabilities of the Borrowers hereunder, shall become immediately due
         and payable all without notice and without presentment, demand,
         protest, notice of protest or dishonor or any other notice of default
         of any kind, all of which are hereby expressly waived by the Borrowers.
         In any other Event of Default, the Agent, upon request of Majority
         Banks, shall by notice to the Borrowers declare the principal of, and
         all interest then accrued on, the Notes and any other liabilities
         hereunder to be forthwith due and payable, whereupon the same shall
         forthwith become due and payable without presentment, demand, protest,
         notice of intent to accelerate, notice of acceleration or other notice
         of any kind, all of which the Borrowers hereby expressly waive,
         anything contained herein or in the Note to the contrary
         notwithstanding. Nothing contained in this Section 14 shall be
         construed to limit or amend in any way the Events of Default enumerated
         in the Note, or any other document executed in connection with the
         transaction contemplated herein.

                                      50

<PAGE>

                  Upon the occurrence and during the continuance of any Event of
         Default, the Banks are hereby authorized at any time and from time to
         time, without notice to the Borrowers (any such notice being expressly
         waived by the Borrowers), to set-off and apply any and all deposits
         (general or special, time or demand, provisional or final) at any time
         held and other indebtedness at any time owing by any of the Banks to or
         for the credit or the account of the Borrowers against any and all of
         the indebtedness of the Borrowers under the Notes and the Loan
         Documents, including this Agreement, irrespective of whether or not the
         Banks shall have made any demand under the Loan Documents, including
         this Agreement or the Notes and although such indebtedness may be
         unmatured. Any amount set-off by any of the Banks shall be applied
         against the indebtedness owed the Banks by the Borrowers pursuant to
         this Agreement and the Notes. The Banks agree promptly to notify the
         Borrowers after any such setoff and application, provided that the
         failure to give such notice shall not affect the validity of such
         set-off and application. The rights of the Bank under this Section are
         in addition to other rights and remedies (including, without
         limitation, other rights of set-off) which the Banks may have.

                  The setoff rights discusses above apply only to (i) each
         Borrower's separate depository accounts and (ii) each Borrower's
         separate funds in any combined revenue distribution accounts.

         15.      THE AGENT AND THE BANKS.

                  (a) APPOINTMENT AND AUTHORIZATION. Each Bank hereby appoints
         Agent as its nominee and agent, in its name and on its behalf: (i) to
         act as nominee for and on behalf of such Bank in and under all Loan
         Documents; (ii) to arrange the means whereby the funds of Banks are to
         be made available to the Borrowers under the Loan Documents; (iii) to
         take such action as may be requested by any Bank under the Loan
         Documents (when such Bank is entitled to make such request under the
         Loan Documents); (iv) to receive all documents and items to be
         furnished to Banks under the Loan Documents; (v) to be the secured
         party, mortgagee, beneficiary, and similar party in respect of, and to
         receive, as the case may be, any collateral for the benefit of Banks;
         (vi) to promptly distribute to each Bank all material information,
         requests, documents and items received from the Borrowers under the
         Loan Documents; (vii) to promptly distribute to each Bank such Bank's
         Pro Rata Part of each payment or prepayment (whether voluntary, as
         proceeds of insurance thereon, or otherwise) in accordance with the
         terms of the Loan Documents and (viii) to deliver to the appropriate
         Persons requests, demands, approvals and consents received from Banks.
         Each Bank hereby authorizes Agent to take all actions and to exercise
         such powers under the Loan Documents as are specifically delegated to
         Agent by the terms hereof or thereof, together with all other powers
         reasonably incidental thereto. With respect to its commitments
         hereunder and the Notes issued to it, Agent and any successor Agent
         shall have the same rights under the Loan Documents as any other Bank
         and may exercise the same as though it were not the Agent; and the term
         "Bank" or "Banks" shall, unless otherwise expressly indicated, include
         Agent and any successor Agent in its capacity as a Bank. Agent and any
         successor Agent and its Affiliates

                                      51

<PAGE>

         may accept deposits from, lend money to, act as trustee under
         indentures of and generally engage in any kind of business with the
         Borrowers, and any person which may do business with the Borrowers,
         all as if Agent and any successor Agent was not Agent hereunder and
         without any duty to account therefor to the Banks; provided that, if
         any payments in respect of any property (or the proceeds thereof) now
         or hereafter in the possession or control of Agent which may be or
         become security for the obligations of the Borrowers arising under the
         Loan Documents by reason of the general description of indebtedness
         secured or of property contained in any other agreements, documents or
         instruments related to any such other business shall be applied to
         reduction of the obligations of the Borrowers arising under the Loan
         Documents, then each Bank shall be entitled to share in such
         application according to its pro rata part thereof. Each Bank, upon
         request of any other Bank, shall disclose to all other Banks all
         indebtedness and liabilities, direct and contingent, of the Borrowers
         to such Bank as of the time of such request.

                  (b) NOTE HOLDERS. From time to time as other Banks become a
         party to this Agreement, Agent shall obtain execution by the Borrowers
         of additional Notes in amounts representing the Commitment of each such
         new Bank, up to an aggregate face amount of all Revolving Notes not
         exceeding $100,000,000.00. The obligation of such Bank shall be
         governed by the provisions of this Agreement, including but not limited
         to, the obligations specified in Section 2 hereof. From time to time,
         Agent may require that the Banks exchange their Notes for newly issued
         Notes to better reflect the Commitments of the Banks. Agent may treat
         the payee of any Note as the holder thereof until written notice of
         transfer has been filed with it, signed by such payee and in form
         satisfactory to Agent.

                  (c) CONSULTATION WITH COUNSEL. Banks agree that Agent may
         consult with legal counsel selected by Agent and shall not be liable
         for any action taken or suffered in good faith by it in accordance with
         the advice of such counsel.

                  (d) DOCUMENTS. Agent shall not be under a duty to examine or
         pass upon the validity, effectiveness, enforceability, genuineness or
         value of any of the Loan Documents or any other instrument or document
         furnished pursuant thereto or in connection therewith, and Agent shall
         be entitled to assume that the same are valid, effective, enforceable
         and genuine and what they purport to be.

                  (e) RESIGNATION OR REMOVAL OF AGENT. Subject to the
         appointment and acceptance of a successor Agent as provided below,
         Agent may resign at any time by giving written notice thereof to Banks
         and the Borrowers, and Agent may be removed at any time with or without
         cause by all Banks. If no successor Agent has been so appointed by all
         Banks (and approved by the Borrowers) and has accepted such appointment
         within 30 days after the retiring Agent's giving of notice of
         resignation or removal of the retiring Agent, then the retiring Agent
         may, on behalf of Banks, appoint a successor Agent. Any successor Agent
         must be approved by Borrowers, which approval will not be unreasonably
         withheld. Upon the acceptance of any appointment as Agent hereunder by
         a successor Agent, such successor

                                      52

<PAGE>

         Agent shall thereupon succeed to and become vested with all the rights
         and duties of the retiring Agent, and the retiring Agent, shall be
         discharged from its duties and obligations hereunder. After any
         retiring Agent's resignation or removal hereunder as Agent, the
         provisions of this Section 15 shall continue in effect for its benefit
         in respect to any actions taken or omitted to be taken by it while it
         was acting as Agent. To be eligible to be an Agent hereunder the party
         serving, or to serve, in such capacity must own a Pro Rata Part of the
         Commitments equal to the level of Commitment required to be held by
         any Bank pursuant to Section 28 hereof.

                  (f) RESPONSIBILITY OF AGENT. Agent agrees to act, subject to
         the express conditions contained in this Section 15, in substantially
         the same manner that it would act in dealing with a loan held for its
         own account. It is expressly understood and agreed that the obligations
         of Agent under the Loan Documents are only those expressly set forth in
         the Loan Documents as to each and that Agent, shall be entitled to
         assume that no Default or Event of Default has occurred and is
         continuing, unless Agent has actual knowledge of such fact or has
         received notice from a Bank or the Borrowers that such Bank or the
         Borrowers considers that a Default or an Event of Default has occurred
         and is continuing and specifying the nature thereof. Neither Agent nor
         any of its directors, officers, attorneys or employees shall be liable
         for any action taken or omitted to be taken by them under or in
         connection with the Loan Documents, except for its or their own gross
         negligence or willful misconduct. Agent shall not incur liability under
         or in respect of any of the Loan Documents by acting upon any notice,
         consent, certificate, warranty or other paper or instrument believed by
         it to be genuine or authentic or to be signed by the proper party or
         parties, or with respect to anything which it may do or refrain from
         doing in the reasonable exercise of its judgment, or which may seem to
         it to be necessary or desirable.

                  Agent shall not be responsible to Banks for any of the
         Borrowers' recitals, statements, representations or warranties
         contained in any of the Loan Documents, or in any certificate or other
         document referred to or provided for in, or received by any Bank under,
         the Loan Documents, or for the value, validity, effectiveness,
         genuineness, enforceability or sufficiency of or any of the Loan
         Documents or for any failure by the Borrowers to perform any of its
         obligations hereunder or thereunder. Agent may employ agents and
         attorneys-in-fact and shall not be answerable, except as to money or
         securities received by it or its authorized agents, for the negligence
         or misconduct of any such agents or attorneys-in-fact selected by it
         with reasonable care.

                  The relationship between Agent and each Bank is only that of
         agent and principal and has no fiduciary aspects. Nothing in the Loan
         Documents or elsewhere shall be construed to impose on Agent any duties
         or responsibilities other than those for which express provision is
         therein made. In performing its duties and functions hereunder, Agent
         does not assume and shall not be deemed to have assumed, and hereby
         expressly disclaims, any obligation or responsibility toward or any
         relationship of agency or trust with or for the Borrower or any of its
         beneficiaries or other creditors. As to any matters not expressly
         provided for by the

                                      53

<PAGE>

         Loan Documents, Agent shall not be required to exercise any discretion
         or take any action, but shall be required to act or to refrain from
         acting (and shall be fully protected in so acting or refraining from
         acting) upon the instructions of all Banks and such instructions shall
         be binding upon all Banks and all holders of the Notes; provided,
         however, that Agent shall not be required to take any action which is
         contrary to the Loan Documents or applicable law.

                  Agent shall have the right to exercise or refrain from
         exercising, without notice or liability to the Banks, any and all
         rights afforded to Agent by the Loan Documents or which Agent may have
         as a matter of law; provided, however, Agent shall not (i) except as
         provided in Section 7(b) hereof, without the consent of Majority Banks
         designate the amount of the Borrowing Base or the Monthly Commitment
         Reduction or (ii) without the consent of all Banks, take any other
         action with regard to amending the Loan Documents, waiving any default
         under the Loan Documents or taking any other action with respect to the
         Loan Documents which requires consent of all Banks. Provided further,
         however, that no amendment, waiver, or other action shall be effected
         pursuant to the preceding clause (ii) without the consent of all Banks
         which: (i) would increase the Borrowing Base or decrease the Monthly
         Commitment Reduction, (ii) would reduce any fees hereunder, or the
         principal of, or the interest on, any Bank's Note or Notes, (iii) would
         postpone any date fixed for any payment of any fees hereunder, or any
         principal or interest of any Bank's Note or Notes, (iv) would
         materially increase any Bank's obligations hereunder or would
         materially alter Agent's obligations to any Bank hereunder, (v) would
         release Borrowers from their obligation to pay any Bank's Note or
         Notes, (vi) release any of the Collateral, (vii) would change the
         definition of Majority Banks, (viii) would amend, modify or change any
         provision of this Agreement requiring the consent of all the Banks,
         (ix) would waive any of the conditions precedent to the Effective Date
         or the making of any Loan or issuance of any Letter of Credit or (x)
         would extend the Revolving Maturity Date or (xi) would amend this
         sentence or the previous sentence. Agent shall not have liability to
         Banks for failure or delay in exercising any right or power possessed
         by Agent pursuant to the Loan Documents or otherwise unless such
         failure or delay is caused by the gross negligence of the Agent, in
         which case only the Agent responsible for such gross negligence shall
         have liability therefor to the Banks.

                  (g) INDEPENDENT INVESTIGATION. Each Bank severally represents
         and warrants to Agent that it has made its own independent
         investigation and assessment of the financial condition and affairs of
         the Borrowers in connection with the making and continuation of its
         participation hereunder and has not relied exclusively on any
         information provided to such Bank by Agent in connection herewith, and
         each Bank represents, warrants and undertakes to Agent that it shall
         continue to make its own independent appraisal of the credit worthiness
         of the Borrowers while the Notes are outstanding or its commitments
         hereunder are in force. Agent shall not be required to keep itself
         informed as to the performance or observance by the Borrowers of this
         Agreement or any other document referred to or provided for herein or
         to inspect the properties or books of the Borrowers. Other than as
         provided in this Agreement, Agent shall not have any duty,
         responsibility or liability to provide any Bank with

                                      54

<PAGE>

         any credit or other information concerning the affairs, financial
         condition or business of the Borrowers which may come into the
         possession of Agent.

                  (h) INDEMNIFICATION. Banks agree to indemnify Agent, ratably
         according to their respective Commitments on a Pro Rata basis, from and
         against any and all liabilities, obligations, losses, damages,
         penalties, actions, judgments, suits, costs, expenses or disbursements
         of any proper and reasonable kind or nature whatsoever which may be
         imposed on, incurred by or asserted against Agent in any way relating
         to or arising out of the Loan Documents or any action taken or omitted
         by Agent under the Loan Documents, provided that no Bank shall be
         liable for any portion of such liabilities, obligations, losses,
         damages, penalties, actions, judgments, suits, costs, expenses or
         disbursements resulting from Agent's gross negligence or willful
         misconduct. Each Bank shall be entitled to be reimbursed by the Agent
         for any amount such Bank paid to Agent under this Section 15(h) to the
         extent the Agent has been reimbursed for such payments by the Borrowers
         or any other Person. THE PARTIES INTEND FOR THE PROVISIONS OF THIS
         SECTION TO APPLY TO AND PROTECT THE AGENT FROM THE CONSEQUENCES OF ANY
         LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO BE
         IMPOSED ON AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN
         NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR
         CONCURRING CAUSE OF ANY SUCH LIABILITY.

                  (i) BENEFIT OF SECTION 15. The agreements contained in this
         Section 15 are solely for the benefit of Agent and the Banks and are
         not for the benefit of, or to be relied upon by, the Borrowers, any
         affiliate of the Borrowers or any other person.

                  (j) PRO RATA TREATMENT. Subject to the provisions of this
         Agreement, each payment (including each prepayment) by the Borrowers
         and collection by Banks (including offsets) on account of the principal
         of and interest on the Notes and fees provided for in this Agreement,
         payable by the Borrowers shall be made Pro Rata; provided, however, in
         the event that any Defaulting Bank shall have failed to make an Advance
         as contemplated under Section 3 hereof and Agent or another Bank or
         Banks shall have made such Advance, payment received by Agent for the
         account of such Defaulting Bank or Banks shall not be distributed to
         such Defaulting Bank or Banks until such Advance or Advances shall have
         been repaid in full to the Bank or Banks who funded such Advance or
         Advances.

                  (k) ASSUMPTION AS TO PAYMENTS. Except as specifically provided
         herein, unless Agent shall have received notice from the Borrowers
         prior to the date on which any payment is due to Banks hereunder that
         the Borrowers will not make such payment in full, Agent may, but shall
         not be required to, assume that the Borrowers have made such payment in
         full to Agent on such date and Agent may, in reliance upon such
         assumption, cause to be distributed to each Bank on such due date an
         amount equal to the amount then due such Bank. If and to the extent the
         Borrowers shall not have so made such payment in full to Agent, each
         Bank shall repay to Agent forthwith on demand such amount distributed
         to such Bank together with interest thereon, for each day from the date
         such amount is distributed to such Bank until the

                                      55

<PAGE>

         date such Bank repays such amount to Agent, at an interest rate equal
         to the overnight federal funds rate.

                  (l) OTHER FINANCINGS. Without limiting the rights to which any
         Bank otherwise is or may become entitled, such Bank shall have no
         interest, by virtue of this Agreement or the Loan Documents, in (a) any
         present or future loans from, letters of credit issued by, or leasing
         or other financial transactions by, any other Bank to, on behalf of, or
         with the Borrowers (collectively referred to herein as "Other
         Financings") other than the obligations hereunder; (b) any present or
         future guarantees by or for the account of the Borrowers which are not
         contemplated by the Loan Documents; (c) any present or future property
         taken as security for any such Other Financings; or (d) any property
         now or hereafter in the possession or control of any other Bank which
         may be or become security for the obligations of the Borrowers arising
         under any loan document by reason of the general description of
         indebtedness secured or property contained in any other agreements,
         documents or instruments relating to any such Other Financings.

                  (m) INTERESTS OF BANKS. Nothing in this Agreement shall be
         construed to create a partnership or joint venture between Banks for
         any purpose. Agent, Banks and the Borrowers recognize that the
         respective obligations of Banks under the Revolving Commitment shall be
         several and not joint and that neither Agent nor any of Banks shall be
         responsible or liable to perform any of the obligations of the other
         under this Agreement. Each Bank is deemed to be the owner of an
         undivided interest in and to all rights, titles, benefits and interests
         belonging and accruing to Agent under the Security Instruments,
         including, without limitation, liens and security interests in any
         collateral, fees and payments of principal and interest by the
         Borrowers under the Revolving Commitment on a Pro Rata basis. Each Bank
         shall perform all duties and obligations of Banks under this Agreement
         in the same proportion as its ownership interest in the Loans
         outstanding at the date of determination thereof.

                  (n) INVESTMENTS. Whenever Agent in good faith determines that
         it is uncertain about how to distribute to Banks any funds which it has
         received, or whenever Agent in good faith determines that there is any
         dispute among the Banks about how such funds should be distributed,
         Agent may choose to defer distribution of the funds which are the
         subject of such uncertainty or dispute. If Agent in good faith believes
         that the uncertainty or dispute will not be promptly resolved, or if
         Agent is otherwise required to invest funds pending distribution to the
         Banks, Agent may invest such funds pending distribution (at the risk of
         the Borrowers). All interest on any such investment shall be
         distributed upon the distribution of such investment and in the same
         proportions and to the same Persons as such investment. All monies
         received by Agent for distribution to the Banks (other than to the
         Person who is Agent in its separate capacity as a Bank) shall be held
         by the Agent pending such distribution solely as Agent for such Banks,
         and Agent shall have no equitable title to any portion thereof.

         16       EXERCISE OF RIGHTS. No failure to exercise, and no delay in
exercising, on the part of the Agent or the Banks, any right hereunder shall
operate as a waiver thereof, nor shall any single or

                                      56

<PAGE>

partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights of the Agent and the Banks hereunder
shall be in addition to all other rights provided by law. No modification or
waiver of any provision of the Loan Documents, including this Agreement, or the
Note nor consent to departure therefrom, shall be effective unless in writing,
and no such consent or waiver shall extend beyond the particular case and
purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other
circumstances without such notice or demand.

         17.      NOTICES. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and instruments
referred to herein must be given in writing (which may be by facsimile
transmission) and must be personally delivered or mailed by prepaid certified
or registered mail to the party to whom such notice or communication is
directed at the address of such party as follows: (a) BORROWERS: c/o CANAAN
ENERGY CORPORATION, 119 North Robinson, Suite 600, Oklahoma City, Oklahoma
73102, Facsimile No.: 405/232-2226, Attention: Michael S. Mewbourn; (b) AGENT:
BANK ONE, OKLAHOMA, N.A., 15 East Fifth Street, Tulsa, Oklahoma, 74103,
Attention: Coy Gallatin. Any such notice or other communication shall be deemed
to have been given (whether actually received or not) on the day it is
personally delivered or delivered by facsimile as aforesaid or, if mailed, on
the third day after it is mailed as aforesaid. Any party may change its address
for purposes of this Agreement by giving notice of such change to the other
party pursuant to this Section 17. Any notice required to be given to the Banks
shall be given to the Agent and distributed to all Banks by the Agent.

         18.      EXPENSES. The Borrowers shall pay (i) all reasonable and
necessary out-of-pocket expenses of the Banks, including reasonable fees and
disbursements of special counsel for the Agent, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any default or Event of Default or alleged default or Event of
Default hereunder, (ii) all reasonable and necessary out-of-pocket expenses of
the Agent, including reasonable fees and disbursements of special counsel for
the Agent in connection with the preparation of any participation agreement for
a participant or participants requested by the Borrowers or any amendment
thereof and (iii) if a Default or an Event of Default occurs, all reasonable
and necessary out-of-pocket expenses incurred by the Banks, including
reasonable fees and disbursements of counsel, in connection with such Default
and Event of Default and collection and other enforcement proceedings resulting
therefrom. The Borrowers shall indemnify the Banks against any transfer taxes,
document taxes, assessments or charges made by any governmental authority by
reason of the execution, delivery and filing of the Loan Documents. The
obligations of this Section 18 shall survive any termination of this Agreement,
the expiration of the Loans and the payment of all indebtedness of the
Borrowers to the Banks hereunder and under the Notes.

         19.      INDEMNITY. The Borrowers agree to indemnify and hold harmless
the Banks and their respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Banks, including all local counsel hired by such counsel) ("Claim") incurred
by the Banks in investigating

                                      57

<PAGE>

or preparing for, defending against, or providing evidence, producing documents
or taking any other action in respect of any commenced or threatened
litigation, administrative proceeding or investigation under any federal
securities law, federal or state environmental law, or any other statute of any
jurisdiction, or any regulation, or at common law or otherwise, which is
alleged to arise out of or is based upon any acts, practices or omissions or
alleged acts, practices or omissions of the Borrowers or their agents or arises
in connection with the duties, obligations or performance of the Indemnified
Parties in negotiating, preparing, executing, accepting, keeping, completing,
countersigning, issuing, selling, delivering, releasing, assigning, handling,
certifying, processing or receiving or taking any other action with respect to
the Loan Documents and all documents, items and materials contemplated thereby
even if any of the foregoing arises out of an Indemnified Party's ordinary
negligence. The indemnity set forth herein shall be in addition to any other
obligations or liabilities of the Borrowers to the Banks hereunder or at common
law or otherwise, and shall survive any termination of this Agreement, the
expiration of the Loans and the payment of all indebtedness of the Borrowers to
the Banks hereunder and under the Notes, provided that the Borrowers shall have
no obligation under this Section to the Bank with respect to any of the
foregoing arising out of the gross negligence or willful misconduct of the
Bank. If any Claim is asserted against any Indemnified Party, the Indemnified
Party shall endeavor to notify the Borrowers of such Claim (but failure to do
so shall not affect the indemnification herein made except to the extent of the
actual harm caused by such failure). The Indemnified Party shall have the right
to employ, at the Borrowers' expense, counsel of the Indemnified Parties'
choosing and to control the defense of the Claim. The Borrowers may at their
own expense also participate in the defense of any Claim. Each Indemnified
Party may employ separate counsel in connection with any Claim to the extent
such Indemnified Party believes it reasonably prudent to protect such
Indemnified Party. THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION TO
APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY
LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON
AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT
THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM.

         20.      GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN OKLAHOMA, OKLAHOMA COUNTY,
OKLAHOMA, AND THE SUBSTANTIVE LAWS OF OKLAHOMA SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OTHER
DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED
THEREIN.

         21.      INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, such provisions shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of the Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.

                                      58
<PAGE>

         22.      MAXIMUM INTEREST RATE. It is the intention of the parties
hereto to comply strictly with any applicable usury laws as in effect from time
to time and, in this regard, there shall never be taken, received, contracted
for, collected, charged or received on any sums advanced hereunder interest in
excess of that which would accrue at the Maximum Rate.

         If, under any circumstances, the aggregate amounts paid on the Notes or
under this Agreement or any other Loan Document include amounts which by law are
deemed interest and which would exceed the amount permitted if the Maximum Rate
were in effect, the Borrowers stipulate that such payment and collection will
have been and will be deemed to have been, to the fullest extent permitted by
applicable laws of the State of Oklahoma or the United States of America, the
result of mathematical error on the part of the Borrowers and the Agent; and the
Agent shall promptly credit the amount of such excess to the principal amount
due on the Notes, or if the principal amount due on the Notes shall have been
paid in full, refund the amount of such excess to the Borrowers (to the extent
only of such interest payments in excess of that which would have accrued and
been payable on the basis of the Maximum Rate) upon discovery of such error by
the Agent or notice thereof from the Borrowers.

         If the maturity of the Notes is accelerated by reason of an election of
the Agent resulting from any Event of Default or otherwise in accordance with
this Agreement, or in the event any prepayment, then such consideration that
constitutes interest under applicable laws may never include amounts which are
more than the Maximum Rate, and the amount of such excess, if any, provided for
in this Agreement or otherwise shall be canceled automatically by the Agent as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be credited by the Agent on the principal amount due on the Notes, or if the
principal amount due on the Notes shall have been paid in full, refunded by the
Agent to the Borrowers.

         All sums paid, or agreed to be paid, to the Agent for the use,
forbearance and detention of the proceeds of any Advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term hereof until paid in full so that the actual rate of
interest is uniform but does not exceed the Maximum Rate throughout the full
term hereof.

         23.      AMENDMENTS. This Agreement may be amended only by an
instrument in writing executed by an authorized officer of the party against
whom such amendment is sought to be enforced.

         24.      MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical separate counterparts, each of which for all purposes is to
be deemed an original, but all of which shall constitute, collectively, one
agreement. No party to this Agreement shall be bound hereby until a counterpart
of this Agreement has been executed by all parties hereto.

         25.      CONFLICT. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Loan Documents, the
terms or provisions contained in this Agreement shall be controlling.

                                       59

<PAGE>

         26.      SURVIVAL. All covenants, agreements, undertakings,
representations and warranties made in the Loan Documents, including this
Agreement, the Notes or other documents and instruments referred to herein shall
survive all closings hereunder and shall not be affected by any investigation
made by any party.

         27.      PARTIES BOUND. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, legal representatives and estates, provided, however, that the Borrowers
may not, without the prior written consent of all of the Banks, assign any
rights, powers, duties or obligations hereunder.

         28.      ASSIGNMENTS AND PARTICIPATIONS.

                           (a) Each Bank shall have the right to sell, assign or
                  transfer all or any part of its Note or Notes, its Commitments
                  and its rights and obligations hereunder to one or more
                  Affiliates, Banks, financial institutions, pension plans,
                  insurance companies, investment funds, or similar Persons who
                  are Eligible Assignees or to a Federal Reserve Bank; PROVIDED,
                  that in connection with each sale, assignment or transfer
                  (other than to an Affiliate, a Bank or a Federal Reserve
                  Bank), the applicable Bank will consider the opinion and
                  recommendation of Borrowers, which opinion and recommendation
                  shall in no way be binding upon such Bank, and each such sale,
                  assignment, or transfer (other than to an Affiliate, a Bank or
                  a Federal Reserve Bank), shall require the consent of Agent,
                  which consent will not be unreasonably withheld, and the
                  assignee, transferee or recipient shall have, to the extent of
                  such sale, assignment, or transfer, the same rights, benefits
                  and obligations as it would if it were such Bank and a holder
                  of such Note, Commitments and rights and obligations,
                  including, without limitation, the right to vote on decisions
                  requiring consent or approval of all Banks or Majority Banks
                  and the obligation to fund its Commitments; provided, further,
                  that (1) each such sale, assignment, or transfer (other than
                  to an Affiliate, a Bank or a Federal Reserve Bank) shall be in
                  an aggregate principal amount not less than $5,000,000, (2)
                  each remaining Bank shall at all times maintain Commitments
                  then outstanding in an aggregate principal amount at least
                  equal to $5,000,000; (3) each such sale, assignment or
                  transfer shall be of a Pro Rata portion of such Bank's
                  Revolving Commitment, (4) no Bank may offer to sell its Note
                  or Notes, Commitments, rights and obligations or interests
                  therein in violation of any securities laws; and (5) no such
                  assignments (other than to a Federal Reserve Bank) shall
                  become effective until the assigning Bank and its assignee
                  delivers to Agent and Borrowers an Assignment and Acceptance
                  and the Note or Notes subject to such assignment and other
                  documents evidencing any such assignment. An assignment fee in
                  the amount of $3,500 for each such assignment (other than to
                  an Affiliate, a Bank or the Federal Reserve Bank) will be
                  payable to Agent by assignor or assignee. Within five (5)
                  Business Days after its receipt of copies of the Assignment
                  and Acceptance and the other documents relating thereto and
                  the Note or Notes, the Borrowers shall execute and deliver to
                  Agent (for delivery to the relevant assignee)

                                       60

<PAGE>

                  a new Note or Notes evidencing such assignee's assigned
                  Commitments and if the assignor Bank has retained a portion
                  of its Commitments, a replacement Note in the principal
                  amount of the Commitments retained by the assignor (except
                  as provided in the last sentence of this paragraph (a) such
                  Note or Notes to be in exchange for, but not in payment of,
                  the Note or Notes held by such Bank). On and after the
                  effective date of an assignment hereunder, the assignee
                  shall for all purposes be a Bank, party to this Agreement
                  and any other Loan Document executed by the Banks and shall
                  have all the rights and obligations of a Bank under the Loan
                  Documents, to the same extent as if it were an original
                  party thereto, and no further consent or action by
                  Borrowers, Banks or the Agent shall be required to release
                  the transferor Bank with respect to its Commitments assigned
                  to such assignee and the transferor Bank shall henceforth be
                  so released.

                  (b) Each Bank shall have the right to grant participations in
         all or any part of such Bank's Notes and Commitments hereunder to one
         or more pension plans, investment funds, insurance companies, financial
         institutions or other Persons, provided, that:

                           (i) each Bank granting a participation shall retain
                  the right to vote hereunder, and no participant shall be
                  entitled to vote hereunder on decisions requiring consent or
                  approval of Bank or Majority Banks (except as set forth in
                  (iii) below);

                           (ii) in the event any Bank grants a participation
                  hereunder, such Bank's obligations under the Loan Documents
                  shall remain unchanged, such Bank shall remain solely
                  responsible to the other parties hereto for the performance of
                  such obligations, such Bank shall remain the holder of any
                  such Note or Notes for all purposes under the Loan Documents,
                  and Agent, each Bank and Borrowers shall be entitled to deal
                  with the Bank granting a participation in the same manner as
                  if no participation had been granted; and

                           (iii) no participant shall ever have any right by
                  reason of its participation to exercise any of the rights of
                  Banks hereunder, except that any Bank may agree with any
                  participant that such Bank will not, without the consent of
                  such participant (which consent may not be unreasonably
                  withheld) consent to any amendment or waiver requiring
                  approval of all Banks.

                  (c) It is understood and agreed that any Bank may provide to
         assignees and participants and prospective assignees and participants
         financial information and reports and data concerning Borrowers'
         properties and operations which was provided to such Bank pursuant to
         this Agreement.

                                       61

<PAGE>

                  (d) Upon the reasonable request of either Agent or Borrowers,
         each Bank will identify those to whom it has assigned or participated
         any part of its Notes and Commitment, and provide the amounts so
         assigned or participated.

         29.      CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND
JURISDICTION. THE OBLIGATIONS OF BORROWERS UNDER THE LOAN DOCUMENTS ARE
PERFORMABLE IN OKLAHOMA COUNTY, OKLAHOMA. ANY SUIT, ACTION OR PROCEEDING
AGAINST THE BORROWERS WITH RESPECT TO THE LOAN DOCUMENTS OR ANY JUDGMENT
ENTERED BY ANY COURT IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS OF THE
STATE OF OKLAHOMA, COUNTY OF OKLAHOMA, OR IN THE UNITED STATES COURTS LOCATED
IN OKLAHOMA COUNTY, OKLAHOMA AND THE BORROWERS HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION OR PROCEEDING. THE BORROWERS HEREBY IRREVOCABLY CONSENT TO SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE MAILING THEREOF
BY BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWERS, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 17. THE
BORROWERS HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH THEY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED
IN THE STATE OF OKLAHOMA, COUNTY OF OKLAHOMA, AND HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

         30.      WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT AND THE BANKS
(BY THEIR ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
BORROWERS, THE AGENT AND THE BANKS, ARISING OUT OF OR IN ANY WAY RELATED TO
THIS DOCUMENT, THE NOTES, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP
BETWEEN THE AGENT, THE BANKS AND THE BORROWERS. THIS PROVISION IS A MATERIAL
INDUCEMENT TO THE AGENT AND THE BANKS TO PROVIDE THE FINANCING DESCRIBED
HEREIN.

         31.      OTHER AGREEMENTS. THIS WRITTEN CREDIT AGREEMENT REPRESENTS
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.

         32.      FINANCIAL TERMS. All accounting terms used in this Agreement
which are not specifically defined herein shall be defined in accordance with
GAAP.

                                       62

<PAGE>

         33.      FRAUDULENT CONVEYANCE SAVINGS CLAUSE. Notwithstanding any
provision of this Agreement to the contrary, it is intended that this
Agreement shall not constitute a "Fraudulent Conveyance" (as defined below) as
to any Borrower. Consequently, each Borrower agrees that if this Agreement
would, but for the application of this sentence, constitute a Fraudulent
Conveyance as to any such Borrower, the obligations of such Borrower under
this Agreement shall be valid and enforceable against such Borrower only to
the maximum extent that would not cause this Agreement to constitute a
Fraudulent Conveyance as to such Borrower, and this Agreement shall
automatically be deemed to have been amended accordingly at all relevant
times. For purposes hereof, a "FRAUDULENT CONVEYANCE" means a fraudulent
conveyance under Section 548 of the Bankruptcy Code (or any successor section)
or a fraudulent conveyance or fraudulent transfer under the provisions of any
applicable fraudulent conveyance or fraudulent transfer law or similar law of
any state or other governmental unit, as in effect from time to time.

         34.      AUTHORITY OF CANAAN. Each Borrower hereby designates Canaan
as its agent and attorney-in-fact, to act in its name, place and stead for the
purpose of completing and delivering and/or receiving any and all
certificates, notices or reports, financial or otherwise. Any documents
executed by Canaan or requests delivered by Canaan shall be deemed given by
each Borrower herein, unless otherwise indicated. Agent shall be held harmless
by each Bank for acting upon any such document or request and shall be
entitled to rely upon the authority granted herein.

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

          THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.

                                       63
<PAGE>

                                    BORROWERS:

                                    CANAAN ENERGY CORPORATION,
                                    an Oklahoma corporation

                                    /s/ John K. Penton
                                    -------------------------------
                                    By: John K. Penton
                                    Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    INDIAN OIL COMPANY,
                                    an Oklahoma corporation

                                    /s/ John K. Penton
                                    -------------------------------
                                    By: John K. Penton
                                    Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES NATURAL GAS INCOME
                                    FUND 1990 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves, Inc.,
                                             Managing General Partner

                                             /s/ John K. Penton
                                             --------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES NATURAL GAS INCOME
                                    FUND 1991 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves Energy Corp.,
                                             Managing General Partner

                                             /s/ John K. Penton
                                             ----------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES NATURAL GAS INCOME
                                    FUND 1992 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves Energy Corp.,
                                             Managing General Partner

                                             /s/ John K. Penton
                                             ----------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES 1993 INSTITUTIONAL
                                    LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves, Inc.,
                                             Managing General Partner

                                             /s/ John K. Penton
                                             -------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES NATURAL GAS INCOME
                                    FUND 1993 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves Energy Corp.,
                                             Managing General Partner

                                             /s/ John K. Penton
                                             ----------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES ENERGY INCOME
                                    FUND 1995 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves Energy Corp.,
                                             Managing General Partner

                                              /s/ John K. Penton
                                             ----------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES 1996 INSTITUTIONAL
                                    LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves, Inc.,
                                             Managing General Partner

                                              /s/ John K. Penton
                                             --------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    CORAL RESERVES ENERGY INCOME
                                    FUND 1996 LIMITED PARTNERSHIP,
                                    an Oklahoma limited partnership

                                    By:      Coral Reserves Energy Corp.,
                                             Managing General Partner

                                              /s/ John K. Penton
                                             ----------------------------
                                             By: John K. Penton
                                             Title: President

                                    Address:

                                    119 N. Robinson, Suite 600
                                    Oklahoma City, Oklahoma 73102
                                    Telephone: 405/232-3222
                                    Facsimile: 405/232-2226

<PAGE>

                                    BANKS:

                                    BANK ONE, OKLAHOMA, N.A.,
                                    a national banking association

                                     /s/ Coy Gallatin
                                    -------------------------------
                                    By: Coy Gallatin
                                    Title: Vice President

                                    Address:

                                    15 East Fifth Street
                                    Tulsa, Oklahoma 74103
                                    Telephone: 918/586-5203
                                    Facsimile: 918/586-5474

<PAGE>

                                    LOCAL OKLAHOMA BANK, N.A.,
                                    a national banking association

                                     /s/ John K. Slay, Jr.
                                    ------------------------------
                                    By: John K. Slay, Jr.
                                    Title: Senior Vice President

                                    Address:

                                    3601 N.W. 63rd Street
                                    Oklahoma City, Oklahoma 73116-2087
                                    Telephone: 405/841-2179
                                    Facsimile: 405/841-2175<PAGE>

                               SECOND AMENDMENT TO
                                CREDIT AGREEMENT

         This Second Amendment to Credit Agreement (this "Amendment") is entered
into as of August 10, 2000, by and between IMPERIAL BANK, a California banking
corporation ("Bank") on the one hand, and Monterey Pasta Company, a Delaware
corporation ("Borrower") on the other hand.

                                    RECITALS

         WHEREAS, Borrower and Bank are parties to that certain Credit
Agreement, dated as of August 2, 1999, as amended by that certain First
Amendment to Credit Agreement between Borrower and Bank, dated as of January 5,
2000 (and as otherwise amended, modified, revised, supplemented or restated from
time to time, the "Agreement"); and

         WHEREAS, the parties hereto desire to amend the Agreement in accordance
with the terms and conditions of this Amendment.

         NOW, THEREFORE, the parties agree as follows:

1.       Section 1.01 of the Agreement is hereby amended to read in its
entirety as follows:

         "1.01(a) REVOLVING CREDIT COMMITMENT.

         (a) REVOLVING LINE OF CREDIT. Subject to the terms and conditions of
         this Agreement, provided that no event of default then has occurred and
         is continuing, Bank shall, upon Borrower's request make advances
         ("Revolving Loans") to Borrower, for working capital requirements of
         Borrower, in an amount not to exceed $1,500,000 (the "Revolving Line of
         Credit") until AUGUST 9, 2001 (the "Revolving Line of Credit Maturity
         Date"). Revolving Loans may be repaid and reborrowed, provided that all
         outstanding principal and accrued interest on the Revolving Loans shall
         be payable in full on the Revolving Credit Maturity Date."

2.       New Sections 1.07 and 1.08 are hereby inserted in the Agreement
immediately following existing Section 1.06 thereof to read in their
entireties as follows:

         "1.07    SHORT TERM NON-REVOLVING COMMITMENT.

         (a) NON-REVOLVING LOAN. Subject to the terms and conditions of this
         Agreement, provided that no event of default then has occurred and is
         continuing, Bank shall, upon Borrower's request make advances
         ("Non-Revolving Loans") to Borrower, for capital expenditures or
         acquisitions approved, in writing by Bank, in an amount not to exceed
         $8,500,000 (the "Non-Revolving Note") until AUGUST 9, 2001 (the
         "Non-Revolving Note Maturity Date").

<PAGE>
         (b) NON-REVOLVING NOTE. The interest rate, principal and interest
         payments, maturity date and certain other terms of the Non-Revolving
         Loan will be contained in a promissory note dated the date of this
         agreement, as such may be amended or replaced from time to time."

1.08     APPLICABLE MARGIN; INTEREST COMPUTATION; LIBOR ADDENDUM'S; DEFAULT
         RATE.

         a) The applicable Prime Margin or LIBOR Margin as referenced
         in the Revolving Note and the Non-Revolving Note shall be
         determined based on the ratio of Debt to Tangible Net Worth as
         set forth below:

<TABLE>
<CAPTION>
------------------------------------------ ---------------------------------- ----------------------------------
           LEVERAGE (DEBT/TNW)                     (i) Prime Margin                         (ii) LIBOR Margin
------------------------------------------ ---------------------------------- ----------------------------------
<S>                                        <C>                                <C>
Less than 0.50:1                                           0                                      185 b.p.
------------------------------------------ ---------------------------------- ----------------------------------
Greater than 0.51:1, but                                   0                                      210 b.p.
 Less than 0.75:1
------------------------------------------ ---------------------------------- ----------------------------------
Greater than 0.76:1                                        0                                      235 b.p.
------------------------------------------ ---------------------------------- ----------------------------------
</TABLE>

The Bank will determine the applicable LIBOR Margin for each calendar fiscal
quarter on the forty-fifth (45th) day ("Margin Determination Date") following
the last day of each quarter of the immediately preceding fiscal quarter by
reference to the Compliance Certificate delivered to the Bank by the Borrower
pursuant to Section 4.5(d) of this Agreement with respect to the immediately
preceding calendar fiscal quarter beginning with the quarter ending September
30, 2000. Based on such determination, the applicable LIBOR Margin shall be
increased, decreased or remain the same on the Margin Determination Date and
remain in effect until the following Margin Determination Date. Failure to
deliver the Compliance Certificate within the required time shall cause the
highest Applicable Margin to be charged until such Compliance Certificate is
received by the Bank.

The applicable LIBOR Margin in effect as of August 10, 2000, will be Two Hundred
Percent (200%).

                  (b) Interest on all Credits shall be computed on the basis of
         the actual days during which the principal balance is outstanding,
         divided by 360, which shall for interest computation purposes be
         considered one year. Interest on each Credit shall be due and payable
         in accordance with the LIBOR Addendums attached to the Revolving Note
         and the Term Note until payment in full of all amounts due hereunder,
         and shall be payable in accordance with the provisions of Section 1.08
         herein.

                  (c) The LIBOR Addenda attached to the Revolving Note and the
         Term Note shall set forth additional terms relating to Prime Rate and
         LIBOR Rate loans.

                  (d) Upon the occurrence and during the continuance of an Event
of Default hereunder the interest rate on each Credit shall be five percent per
year in excess of the rate otherwise applicable.

<PAGE>

3. Unless otherwise defined, all initially capitalized terms in this Amendment
shall be as defined in the Agreement. The Agreement, as amended hereby, shall be
and remain in full force and effect in accordance with its respective terms and
hereby is ratified and confirmed in all respects. Except as expressly set forth
herein, the execution, delivery, and performance of this Amendment shall not
operate as a waiver of, or as an amendment of, any right, power, or remedy of
Bank under the Agreement, as in effect prior to the date hereof. Borrower
ratifies and reaffirms the continuing effectiveness of all promissory notes,
guaranties, security agreements, mortgages, deeds of trust, environmental
agreements, and all other instruments, documents and agreements entered into in
connection with the Agreement.

4. Borrower represents and warrants that the Representations and Warranties
contained in the Agreement are true and correct as of the date of this
Amendment, and that no Event of Default has occurred and is continuing.

5. This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
instrument.

6. As a condition to the effectiveness of this Amendment, Bank shall have
received, in form and substance satisfactory to Bank, the following:

     (a)  this Amendment, duly executed by Borrower;

     (b)  if requested by Bank, Bank shall have received a certified copy of the
          resolutions of Borrower's board of directors authorizing the execution
          and delivery of this Amendment and the execution and delivery of such
          other documents, instruments and agreements as Bank shall reasonably
          request; and

     (c)  such other documents, and completion of such other matters, as Bank
          may reasonably deem necessary or appropriate.

     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.

MONTEREY PASTA COMPANY                       IMPERIAL BANK,
a Delaware corporation                       a California banking corporation

By:                                          By:
   -------------------------------              -------------------------------
        R. Lance Hewitt                             Brian C. Santos
Title:  CEO                                  Title: Senior Vice President

By:
     -----------------------------
         Stephen Brinkman
Title:   CFO/Secretary

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