Document:

exv4w2

 

Exhibit 4.2

NOMINATION AND OBSERVER AGREEMENT

     This NOMINATION AND OBSERVER AGREEMENT is entered into as of December 16, 2005, by and among
BioCryst Pharmaceuticals, Inc., a Delaware corporation, (the “Company”), and Kleiner Perkins
Caufield & Byers Holdings, LLC, a Delaware limited liability company (“KPCB”).

RECITALS

     WHEREAS, Concurrently herewith KPCB is acquiring 1,114,414 shares of Common Stock of the
Company (the “Purchased Shares”) pursuant to a Stock Purchase Agreement by and among the Company,
KPCB and the other parties thereto, dated as of even date herewith (the “Stock Purchase
Agreement”).

     WHEREAS, as an inducement to KPCB to enter into the Stock Purchase Agreement, the Company has
agreed to grant the director nomination and board observer rights to KPCB.

     NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth,
the Company and KPCB each agree as follows:

     1. Director Nomination Rights.

          a. Board Designee. Concurrently herewith, the Company shall take all action necessary
to: (i) increase the number of directors of the Company from ten (10) to eleven (11) directors;
(ii) appoint one director designated by KPCB who shall initially be Beth Seidenberg to fill the
additional director position (the “KPCB Designee”); and (iii) appoint the initial KPCB Designee to
serve as a member of the third class of directors, with a term of office to expire at the annual
meeting of the stockholders Company to be held in 2007. In connection with any stockholder
solicitation or action relating to the election of the directors of the Company, the Company shall
provide KPCB with thirty (30) days prior written notice of such solicitation or action. After
receipt of such notice, KPCB may, by written notice sent to the Company within ten (10) days of
receipt of such notice, request that the Company nominate, and the Company shall nominate, for
election to the Company’s board of directors (the “Board of Directors”) the KPCB Designee. In the
event that KPCB shall desire to appoint the KPCB Designee otherwise than in connection with a
stockholder solicitation or action relating to the election of directors, then as soon as
practicable upon written notice from KPCB, the Company shall appoint the KPCB Designee to the Board
of Directors.

          b. Resignation and Removal. The KPCB Designee may resign from the Board of Directors
at any time without notice but may not be removed from the Board of Directors by the Company
without “Cause.” For purposes of this Section 1.2, the following shall constitute “Cause”: (i) any
action by the KPCB Designee constituting fraud or embezzlement in the course of his tenure on the
Board of Directors, (ii) any conviction of KPCB Designee of a felony which would materially and
adversely interfere with the KPCB Designee’s ability to perform his or her duties as a member of
the Board of Directors; (iii) continued gross neglect or willful refusal by the KPCB Designee to
perform his or her duties hereunder for a
period of ten (10) days following notice to the Investor Director of such inaction; or (iv) a

 

 

material breach by the Investor Director of any other material obligations under this Agreement or
the Company’s By-laws if such breach is not curable or, if curable, is not cured within thirty (30)
days after written notice thereof by the Company to the Investor Director.

          c. Vacancies. In the event that any KPCB Designee shall cease to serve as a director
of the Company for any reason, at the discretion of KPCB, the vacancy resulting therefrom shall be
filled by another KPCB Designee.

          d. Equal Treatment. The Company shall provide the same compensation and rights and
benefits of indemnity to the KPCB Designee as are provided to other non-employee directors.

     2. Audit Committee Observer Rights. In the event that the KPCB Designee is not a
member of the audit committee of the Board of Directors, the KPCB Designee shall have the right to
attend all meetings the audit committee in a non-voting observer capacity and, in this respect,
shall be provided copies of all notices, minutes, consents and other audit committee members’
materials. In no event shall the failure to provide the notice described above invalidate in any
way any action taken at a meeting of the audit committee.

     3. Miscellaneous.

          a. Termination. This Agreement shall terminate and have no further force or effect at
such time as KPCB and its affiliates cease to beneficially own, in the aggregate, at least 560,000
shares of Common Stock of the Company, subject to proportional adjustments to reflect stock splits,
combinations, subdivisions, or the like. The 371,472 shares of Common Stock originally purchased
by KPTV, LLC pursuant to the Stock Purchase Agreement shall be deemed to not be beneficially owned
by KPCB and its affiliates for the purposes of making such share ownership determination.

          b. Specific Enforcement. It is agreed and understood that monetary damages would not
adequately compensate KPCB for the breach of this Agreement by any of the parties hereto, that this
Agreement shall be specifically enforceable, and that any breach or threatened breach of this
Agreement shall be the proper subject of a temporary or permanent injunction or restraining order.
Further, the Company agrees to waive any claim or defense that there is an adequate remedy at law
for such breach or threatened breach.

          c. Assignment. The rights and obligations of this Agreement shall bind and inure to
the benefit of the parties and their respective successors and legal assigns.

          d. Governing Law; Consent to Jurisdiction. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of Delaware applicable to
contracts executed and to be wholly performed within such State. THIS AGREEMENT SHALL BE ENFORCED,
GOVERNED AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS PRINCIPLES. FURTHERMORE, THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE UNITED

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STATES OF AMERICA FOR THE NORTHERN DISTRICT OF CALIFORNIA IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT.

          e. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.

          f. Headings. The headings contained in this Agreement are for convenience of
reference only and are not to be given any legal effect and shall not affect the meaning or
interpretation of this Agreement.

          g. Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or
telecopy numbers which such party shall subsequently designate in writing to the other party):

	 	 	 	 	 
	 

	 	(i)
	 	if to the Company to:
	 
	 	 	 	 
	 

	 	 	 	BioCryst Pharmaceuticals, Inc.
	 

	 	 	 	2190 Parkway Lake Drive
	 

	 	 	 	Birmingham, AL 35244
	 

	 	 	 	Facsimile No. (205) 444-4640
	 
	 	 	 	 
	 

	 	(ii)
	 	if to KPCB to:
	 
	 	 	 	 
	 

	 	 	 	Kleiner Perkins Caufield & Byers Holdings, LLC
	 

	 	 	 	2750 Sand Hill Road
	 

	 	 	 	Menlo Park, California 94025
	 

	 	 	 	Facsimile No. (650) 233-0300
	 

	 	 	 	Attention: John Denniston
	 
	 	 	 	 
	 

	 	 	 	With a copy to:
	 

	 	 	 	Fenwick & West LLP
	 

	 	 	 	801 California Street
	 

	 	 	 	Mountain View, CA 94041
	 

	 	 	 	Attention: Sayre E. Stevick, Esq.

Each such notice or other communication shall for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered by hand, by messenger or by courier, or
if sent by facsimile, upon confirmation of receipt

          h. Amendments; Waiver. This Agreement may not be modified, amended, supplemented,
canceled or discharged, except by written instrument executed by the Company

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and KPCB. No failure to exercise, and no delay in exercising, any right, power or privilege
under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude the exercise of any other right, power or privilege.
No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision, nor shall any waiver be implied from any
course of dealing between the parties. No extension of time for performance of any obligations or
other acts hereunder or under any other agreement shall be deemed to be an extension of the time
for performance of any other obligations or any other acts. The rights and remedies of the parties
under this Agreement are in addition to all other rights and remedies, at law or equity, that they
may have against each other.

          i. Severability. The parties stipulate that the terms and provisions of this
Agreement are fair and reasonable as of the date of this Agreement. However, if any provision of
this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
If, moreover, any of those provisions shall for any reason be determined by a court of competent
jurisdiction to be unenforceable because excessively broad or vague as to duration, activity or
subject, it shall be construed by limiting, reducing or defining it, so as to be enforceable.

          j. Entire Agreement. This Agreement contains the entire agreement and understanding
of the parties in respect of its subject matter and supersedes all prior agreements and
understandings between or among the parties with respect to such subject matter.

          k. Further Assurances. From and after the date of this Agreement, upon the request of
KPCB or the Company, the Company and KPCB shall execute and deliver such instruments, documents or
other writings as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.

[Remainder of this page intentionally left blank]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	BIOCRYST PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Michael A. Darwin	 	 
	 

	 	Name:
	 	 

Michael A. Darwin
	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	KLEINER PERKINS CAUFIELD & BYERS HOLDINGS, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Brook H. Byers	 	 
	 

	 	Name:
	 	 

Brook H. Byers
	 	 
	 

	 	Title:
	 	 Managing Member	 	 

[Signature Page to Nomination and Observer Agreement]CREDIT AGREEMENT

                             Dated as of May 20,2005

                                      among

                      EBS OIL AND GAS PARTNERS PRODUCTION CO., L.P.
                                  as Borrower,

                       EBS OIL AND GAS PARTNERS PRODUCTION GP, LLC
                                       and
                      EBS OIL AND GAS PARTNERS OPERATING CO., L.P.,
                                  as Guarantors

                                       and

                              PETRO CAPITAL II, LP,
                      as Administrative Agent and a Lender

                                       and

                       the other parties hereto as Lenders

<PAGE>
                                    TABLE OF
                                    CONTENTS

<TABLE>
<S>                                                                                                        <C>

    ARTICLE I. DEFINITIONS...................................................................................1
   1.01   Certain Defined Terms..............................................................................1
   1.02   Other Interpretive Provisions......................................................................8
   1.03   Accounting Principles..............................................................................9
    ARTICLE II. THE CREDIT...................................................................................9
   2.01   Amounts and Terms of the Commitment................................................................9
   2.02   Prepayment.........................................................................................9
   2.03   Repayment..........................................................................................9
   2.04   Fees..............................................................................................10
   2.05   Computation of Fees and Interest..................................................................10
   2.06   Payments by Borrower..............................................................................10
   2.07   Interest Recapture................................................................................10
   2.08   Taxes$............................................................................................11
   2.09   Sharing of Payments, Etc..........................................................................11
     ARTICLE III SECURlTY...................................................................................12
   3.01   The Security..................................................:...................................12
   3.02   Agreement to Deliver Security Documents.............................:.............................12
   3.03   Perfection and Protection of Security Interests and Liens.........................................12
   3.04   Offset............................................................................................13
   3.05   Production Proceeds...............................................................................13
     ARTICLE IV. CONDITIONS PRECEDENT.......................................................................14
   4.01   Conditions of Initial Loan........................................................................14
     ARTICLE V. REPRESENTATIONS AND WARRANTIES..............................................................15
   5.01   Corporate Existence and Power.....................................................................15
   5.02   Corporate Authorization; No Contravention.........................................................15
   5.03   Governmental Authorization................................................................:.......16
   5.04   Binding Effect....................................................................................16
   5.05   Financial Condition...............................................................................16
   5.06   Litigation........................................................................................16
   5.07   No Default........................................................................................16
   5.08   ERISA.............................................................................................16
   5.09   Margin Regulations................................................................................16
   5.10   Title to Properties...............................................................................16
   5.11   Oil and Gas Reserves..............................................................................17
   5.12   Initial Reserve Report............................................................................17
   5.13   Gas Imbalances....................................................................................17
   5.14   Taxes.............................................................................................17
   5.15   Environmental Matters.............................................................................17
   5.16   Regulated Entities................................................................................18
   5.17   No Burdensome Restrictions........................................................................18
   5.18   Solvency..........................................................................................18
   5.19   Subsidiaries/Investments/Ownership................................................................18
   5.20   Insurance.........................................................................................18
   5.21   Full Disclosure...................................................................................18
ARTICLE VI. AFFIRMATIVE COVENANTS...........................................................................18
   6.01   Financial Statements..............................................................................18
   6.02   Certificates Other Production and Reserve Information.............................................19
   6.03   Notices...........................................................................................20
   6.04   Preservation of Corporate Existence, Etc..........................................................20
   6.05   Maintenance of Property...........................................................................20
   6.06   Insurance. .......................................................................................20
   6.07   Payment of Obligations............................................................................20
   6.08   Compliance with Laws..............................................................................21

</TABLE>

<PAGE>

 <TABLE>
<S>                                                                                                          <C>
   6.09   Maintenance of Books and Records..................................................................21
   6.10   Environmental Laws..................................:.............................................21
   6.11   Use of Proceeds. .................................................................................21
   6.12   Further Assurances. .........................................:....................................21
   6.13   Guarantees..........:.............................................................................21
   6.14   Security Documents................................................................................21
       ARTICLE VII. NEGATIVE COVENANTS......................................................................21
   7.0 I  Limitation on Liens............................................................:..................22
   7.02   Disposition of Assets.............................................................................22
   7.03   Consolidations and Mergers........................................................................23
   7.04   Loans and Investments.............................................................................23
   7.05   Limitation on Indebtedness........................................................................23
   7.06   EBI1DA to Interest Expense...............:...,....;...............................................24
   7.07   Transactions with Affiliates.................................................................:... 24
   7.08   Margin Stock......................................................................................24
   7.09   Contingent Obligations..................,...............................~.........................24
   7.10   Restricted Payments...............................................................................24
   7.11   Change in Business, Organization Documents, Name and Address......................................24
   7.12   Accounting Changes................................................................................24
   7.13   Restrictions of Pledges.................................:..........,..............................24
ARTICLE VIII. EVENTS OF DEFAULT.............................................................................25
   8.01   Event of Default..................................................................................25
   8.02   Remedies....................................... ..................................................26
   8.03   Set-off. .........................................................................................27
   8.04   Payments Set Aside...............................................................................'27
   8.05   Subordination of the Loan Party Liens.............................................................27
   8.06   Rights Not Exclusive..............................................................................28
ARTICLE IX. ADMINISTRATIVE AGENT............................................................................28
   9.01   Appointment and Authorization.....................................................................28
   9.02   Delegation of Duties..............................................................................28
   9.03   Liability of Administrative Agent.................................................................28
   9.04   Reliance by Administrative Agent..................................................................28
   9.05   Notice of Default.................................................................................29
   9.06   Credit Decisions.............................................:.:..................................29
   9.07   Indemnification...................................................................................30
   9.08   Administrative Agent in Individual Capacity.......................................................30
   9.09   Successor Administrative Agent.................................................~..................30
ARTICLE X. MISCELLANEOUS.........................................................................:..........31
   10.01  Amendments and Waivers........................:...................................................31
   10.02  Notices...........................................................................................31
   10.03  No Waiver; Cumulative Remedies....................................................................32
   10.04  Costs and Expenses................................................................................32
   10.05  Indemnity.........................................................................................32
   10.06  Environmental Indemnification.....................................................................32
   10.07  Successors and Assigns............................................................................33
   10.08  Interest..................................................................................:.......33
   10.09  Counterparts and Facsimile Signatures.............................................................34
   10.10  Severability......................................................................................34
   10.11  No Third Parties Benefited........................................................................34
   10.12  USA PATRIOT Act Notice............................................................................34
   10.13  Governing Law.....................................................................................34
   10.14  Submission To Jurisdiction........................................................................35
   10.15  Waiver of Jury Trial..............................................................................35
   10.16  Entire Agreement..................................................................................35
   10.17  NO ORAL AGREEMENTS................................................................................36

</TABLE>

<PAGE>

  APPENDIX

  APPENDIX I    Specific Terms, Fees and Conditions

SCHEDULES

  SCHEDULE I    Security Documents

  EXHIBITS

 Exhibit A      Form of Promissory Note
 Exhibit B      Form of Letters in Lieu

<PAGE>

                                CREDIT AGREEMENT

            This CREDIT AGREEMMENT, dated as of May 20, 2005, is entered into
    among EBS OIL AND GAS PARTNERS PRODUCTION CO., L.P., a Texas limited
    partnership ("Borrower"), EBS OIL AND GAS PARTNERS PRODUCTION GP, LLC, a
    Texas limited partnership ("EBS GP'), EBS OIL AND GAS PARTNERS OPERATING
    CO., L.P., a Texas limited partnership ("EBS Op Co" and EBS Op Co and EBS GP
    are each a "Guarantor' and collectively, "Guarantors"), and PETRO CAPITAL
    II, L.P., a Texas limited partnership ("PC II"), as administrative agent for
    the Lenders ("Administrative Agent') and the other Persons parties hereto as
    lenders (collectively "Lenders").

            In consideration of the mutual agreements, provisions and covenants
   contained herein and other good and valuable consideration, the receipt and
   adequacy of which are hereby acknowledged, the parties hereto agree as
   follows:

                                    ARTICLEL
                                   DEFINlTIONS

         1.01    Certain Defined Terms.         In addition to the terms defined
   in the preamble of this Agreement, the fol1owing terms have the following
   meanings herein:

   "Acquisition"  means any  transaction  or  series of  related  transactions
   for the  purpose of or resulting, directly or indirectly, in (a) the
   acquisition of all or substantially all of the assets of a Person, or of any
   business or division of a Person, (b) the acquisition of in excess of 50% of
   the capital stock of a corporation (or similar entity), which stock has
   ordinary voting power for the election of the members of such entity's board
   of directors or persons exercising similar functions (other than stock having
   such power only by reason of the happening of a contingency), or the
   acquisition of in excess of 50% of the partnership interests or equity of any
   Person not a corpo~tion which acquisition gives the acqUiring Person the
   power to direct or canse the direction of the management and policies of such
   Person, or (c) a merg~r or consolidation or any other combination with
   another Person provided that Borrower is the surviving entity.

   "Affiliate" means, as to any Person, any other Person which, directly or
   indirectly, is in control of, is controlled by, or is under common control
   with, such Person. A Person shall be deemed to control another Person if the
   controlling Person possesses,  directly or indirectly,  the power to direct
   or cause the direction of the management and policies of the other Person,
   whether through the ownership of voting securities, by contract, or
   otherwise.                                                          .

   "Agent-Related Person" as to Administrative Agent, means Administrative
   Agent, its Affiliates, and the officers,  directors,  employees,  agents, and
   attorneys-in-fact  of Administrative Agent and its Affiliates.

   "Agreemenf' means this Credit Agreement including all Appendices, Schedules
   and Exhibits attached hereto, as same may be amended in writing from time to
   time.

   "Assignee" has the meaning specified in Subsection 11.08(b).

   "Bankruptcy CotW' means the Federal Bankruptcy Reform Act of1978 (11 U.S.C.
   ss.101, et seq.).

   "Borrowing" means a borrowing hereunder consisting of Loans made to
   Borrower by Lenders under Article O.

   "Business Day" means any day other than a Saturday, Sunday or other day on
   which commercial banks located in the city of Administrative Agent's Payment
   Office are authorized or required by law to close.

<PAGE>

   "Capital Lease" means, when used with respect to any Person, any lease in
  respect of which any of the obligations of such Person thereunder constitute
  Capitalized Lease Obligations.

  "Capitalized Lease Oblig(ltions" means, all obligations of such Person to
  pay rent or other amounts . under any lease of (or other aqangement conveying
  the right to use) real or personal property, or a combination thereof, which
  obligations shall have been or should be, in accordance with GAAP, capitalized
  on the books of such Person.

  "Cash Equivalents" means: (a) securities issued or fully guaranteed or
  insured by the United State~ Government or any agency thereof and backed by
  the full faith and credit of the United States having matuiities of not more
  than twelve (12) months from the date of acquisition; (b) certificates of
  deposit, time deposits, Eurodollar time deposits, or bankers' acceptances
  having in each case a tenor of not more than three (3) months from the date of
  acquisition issued by any U.S. commercial bank or any branch or agency of a
  non-U.S. commercial bank licensed to conduct business in the U.S. having
  combined capital and surplus of not less than Five Hundred Million Dollars
  ($500,000,000); and (c) commercial paper of an issuer rated at least A-I by
  S&P or P-l by Moody's at the time of acquisition, and in either case having a
  tenor of not more than twelve (12) months.

  "Change of Control' means (a) a purchase or acquisition, directly or
  indirectly, by aoy "person" or "group" within the meaning of Section 13(d)(3)
  and 14(d)(2) of the Securities and Exchange Act of 1934 (a "Group"), of
  beneficial ownership" (as such term is defined in Rule 13d-3 under the
  Exchange Act) of securities of Borrower which, together with any securities
  owned beneficially by any "affiliates" or "associates" of such Group (as such
  terms are defined in Rule 12b-2 under the Exchange Act), shall represent more
  than twenty percent (20%) of the combined voting power of Borrower's
  securities which are entitled to vote generally in the election of direc;tors
  (or managers, in the case of a limited liability company) and which are
  outstanding on the date immediately prior to the date of such purchase or
  acquisition; or (b) a sale of twenty percent or more by value of the assets of
  Borrower taken as a whole; or (c) the liquidation or dissolution- of Borrower;
  or (d) the first day on which the Current Stakeholders cease to own directly
  or indirectly at least fifty percent (50.0%) of the voting power of Borrower's
  securities. As herein defined, "Current Stakeholder' means any individual
  Person with direct or beneficial ownership and entitled to vote generally in
  the election of directors (or managers, in the case of a limited liability
  company) of Borrower as of the date of this Agreement as listed on Appendix I
  hereto.

  "Closing" means the date on which all conditions precedent set forth in
  Section 4.01 are satisfied or waived by Administrative Agent and the Lenders.

  "Code" means the Internal Revenue Code of 1986 and regulations promulgated
  thereunder.

  "Collateral' means all real and personal property of any kind owned by the
  Borrower, including aU Oil and Gas Properties now owned or hereafter acquired
  by the Borrower, which is subject to a Lien in favor of Collateral Agent for
  the benefit of Lenders or which under the terms of any Security Document is
  purported to be subject to such Lien.

 "Collateral Agent' means Petro Capital in its capacity as Collateral Agent.

 "Commitment' means Lenders' commitment to lend to Borrower under the Loan
  Commitment.

  "Contingent Obligation" means, as to any Person without duplication, any
  direct or indirect liability of that Person with or without recourse, (a) with
  respect to any Indebtedness, dividend, Jetter of credit or other similar
  obligation (the "primary obligations") of another Person (the "primary
  obigor), including any obligation of that Person (i) to purchase, repurchase
  or otherwise acquire such primary obligations or any security therefor, (ii)
  to advance or provide funds for the payment or discharge of any such primary
  obligation, or to maintain working capital or equity capital of the primary
  obligor or otherwise to maintain the net worth or solvency or any balance
  sheet item, level of income or fmancial condition of the primary obligor,
  (iii) to purchase property, securities or services primarily for the purpose
  of assuring the owner of

                                        2

<PAGE>

 any such primary obligation of the ability of the primary obligor to make
 payment of such primary obligation, or (iv) otherwise to assure or hold
 harmless the holder of any such primary obligation against loss in respect
 thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
 Instrument issued for the account of that Person or as to which that Person is
 otherwise liable for reimbursement of drawings or payments; or (c) to purchase
 any materials, supplies or other property trom, or to obtain the services of,
 another Person if the relevant contract or other related doctunent or
 obligation requires that payment for such materials, supplies or other
 property, or for such services, shall be made regardless of whether delivery of
 such materials, supplies or other property is ever made or tendered, or such
 services are ever performed or tendered. The amount of any Contingent
 Obligation shall, in the case of Guaranty Obligations, be deemed equal to the
 maximum stated or determinable amount of the primary obligation in respect of
 which such Guaranty Obligation is made or, if not stated or if indeterminable,
 the maximum reasonably anticipated liability in respect thereof, and in the
 case of other Contingent Obligations shall be equal to the maximum reasonably
 anticipated liability in respect thereof.

 "Contract Rate" has the meaning specified in Appendix I.

 "Contractual Obligation" means, as to any Person, any provision of any
 security issued by such Person or of any agreement, undertaking, contract,
 indenture, mortgage, deed of trust or other instrument, document or agreement
 to which such Person is a party or by which it or any of its property is bound.

   "Current Managemenf' means the current executive officers of Borrower or its
 general partner, in the case of a limited partnership as specified in Appendix
 I.

   "Default' means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.

"Default Rate" has the meaning set forth in Subsection 2.05(b)(iii).

"Dollars", "dollars" and "$" each mean lawful money of the United States.

"EBITDA" means with respect to Borrower for any fiscal period, without
duplication (i) Net Income plus (ii) depreciation, depletion, amortization and
other non-cash items reducing Net Income plus (iii) Interest Expense plus (iv)
income tax expense.

   "Effective Amount' means on any date, the aggregate outstanding principal
 amount of Loans after giving effect to any prepayments or repayments of Loans
 occurring on such date.

   "Environmental Claims" means all material claims by any Governmental
 Authority or other Person alleging potential liability or responsibility for
 violation of any Environmental Law, or for release or injury to the
 environment.

   "Environmental Laws" means all material federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all material administrative orders, requests, licenses, authorizations and
permits of, 8nd agreements with, any Governmental Authorities, in each case
relating to environmental, health, and safety matters.

"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.

   "ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with the Borrower within the meaning of Section 414(b),
(c), (m) or (0) of the Code.

   "ERISA Event' means (a) a Reportab(e Event with respect to a Plan; (b) a
withdrawal by the Borrower or any ERISA Affiliate from a Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 400 1 (a)(2) of ERISA) or a cessation of operations which is
treated as such a withdrawal under Section 4062( e) of ERlSA; ( c) a complete or
partial withdrawal by the Borrower or any ERISA Affiliate trom a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate (other than pursuant to Section 4041
(b)

                                        3

<PAGE>

  of ERISA>> the treatment of a Plan amendment as a tennination under Section
  4041(c) or 4041A of ERISA) or the commencement of proceedings by thePBGC to
  teIminate a Plan or Multiemployer Plan; (e) an event or condition which might
  reasonably be expected to constitute grounds under Section 4042 of ERISA for
  the termination of. or the appointment of a trustee to administer) any Plan or
  Multiemployer Plan; or (f) the imposition of any liability under Title N of
  ERISA. other than PBGC premiums due but not delinquent under Section 4007 of
  ERISA, upon the Borrower or any ERISA Affiliate.

"Event of Defaulf' means any of the events or circumstances specified in
 Section 8.01.

"Exchange Act' means the Securities and Exchange Act of 1934) and
regulations promulgated thereunder.

"Existing Credit Agreement" means that certain Credit Agreement dated
February 1) 2005) between . Borrower and Petro Capital IT. LP, as same may be
amended, modified or restated from time to time.

    "FBB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.

    "GAAP" means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financiill Accounting Standards Board.

    "Governmental Authority" means any nation or government, any state or other
 political subdivision thereof, any central bank (or similar monetaIy or
 regulatory authority) thereof, any entity exercising executive, legislative)
 judicial) regulatory or administrative functions of or pertaining to
 government, and any corporation or other entity owned or controlled, through
 stock or capital ownership or otherwise) by any of the foregoing.

    "Guaranty" means the guaranty of even date herewith executed by a Guarantor
 in favor of Administrative Agent and Lenders.

      "Hedge Agreements" means all future contracts, forward contracts, swap,
   cap or collar contracts, option contracts, hedging contracts or other
   derivative contracts or similar agreements covering Oil and Gas commodities
   or prices or financial, monetaIy or interest rate instruments.

    "Highest Lawful Rate" means) for each Lender) as of a particular date) the
 maximum nonusurious interest rate that under applicable federal and Texas law
 may then be contracted for, charged or received by Lenders in connection with
 the Obligations.        .                                        .

    "Hydrocarbon Interests" means leasehold and other interests in or under oil,
 gas and other liquid or gaseous hydrocarbon leases with respect to Oil and Gas
 Properties wherever located, mineral fee interests) overriding royalty and
 royalty interests. net profit interests. and production payment interests
 relating to oil, gas or other liquid or gaseous hydrocarbons wherever located,
 including any reserved or residual interest of whatever nature.

    "Indebtedness" of any Person means) without duplication. (a) all
 indebtedness for borrowed money; (b) all obligations issued, undertaken or
 assumed as the deferred purchase price of property or services (other than
 trade payables entered. into in the ordinary course of business on ordinary
 terms); (c) all noncontingent reimbursement or payment obligations with respect
 to Surety Instruments; (d) all obligations evidenced by notes, bonds.
 debentures or similar instruments, including obligations so evidenced incurred
 in connection with the acquisition of property) assets or businesses; (e) all
 indebtedness created or arising under any conditional sale or other title
 retention agreement, or incurred as fmancing) in either case with respect to
 property acquired by the Person (even though the rights and remedies of the
 seller or bank under such agreement in the event of default are limited to
 repossession or sale of such property) including, without limitation,
 production payments) net profit interests and other Hydrocarbon Interests
 subject to repayment out of future Oil and Gas production; (f) all obligations
 with respect to Capital Leases; (g) all net obligations with respect to
 Operating Leases; (h) all indebtedness referred to in clauses

                                                       4
<PAGE>

   (a) through (g) above secured by (or for which the holder of such
   Indebtedness has an existing right, contingent or otherwise, to be secured
   by) any Lien upon or in property (including accounts and contracts rights)
   owned by such Person, even though such Person has not assumed or become
   liable for the payment of such Indebtedness; and (i) all Guaranty Obligations
   in respect of indebtedness or obligations of others of the kinds referred to
   in clauses"(a) through" (g) above.

     "Indemnified Environmental Liabilities" has the meaning specified in
     Section 10.06.

  "Indemnified Liabilities" has the meaning specified in Section 10.05.

  "Indemnified Person" has the meaning specified in Section 10.05.

  "Independent Auditor" has the meaning specified inSubsection 6.01(a).

     "Initial Reserve Report" means the Reserve Report described in Section
     4.01(c).

     "Insolvency Proceeding" means (a) any case, action or proceeding relating
   to bankruptcy, reorganization, insolvency, liquidation, receivership,
   dissolution, winding up or relief of debtors, or (b) any general assignment
   for the benefit of creditors, composition, marshalling of assets for
   creditors, or other, similar ammgement in resPect of its creditors generally
   or any substantial portion of its creditors; undertaken under U.S. Federal,
   state or foreign law, including the Bankruptcy Code.

     "Intercreditor Agreement' means that certaiIi Intercreditor and Collateral
   Agency Agreement of even date herewith between Borrower, Petro Capital as
   Lender under the Existing Credit Agreement, Administrative Agent under this
   Credit Agreement and Collateral Agent and the Lenders party hereto.

  "Interest Expense" means, with respect to Borrower and its Subsidiaries,
   for any fiscal period, the aggregate amount of all costs, fees and expenses
   paid by Borrower and its Subsidiaries in such fiscal period which are
   classified as interest expense on the combined financial statements of
   Borrower and its Subsidiaries, all as determined in conformity with GAAP.

    "Interest Payment Date" means the last Business Day of each calendar month.

     "Investor Rights Agreement" means that certain Investor Rights Agreement
  executed in connection with the Existing Credit Agreement between Borrower and
  Lenders dated February 1,2005, as amended, supplemented, restated or
  otherwise modified as of the date hereof.

    "IRS' means the Internal Revenue Service, and any Governmental Authority
  succeeding to any of its principal functions under the Code.

    "Lender's Payment Office" means the principal address for each Lender as set
  forth on Appendix I hereof or such other address as Lenders may from time to
  time specify.

     "Lien" means any security interest, mortgage, deed of trust, pledge,
  hypothecation, assignment, charge or deposit arrangement; encumbrance, Lien
  (statutory or other) or preferential arrangement of any kind or nature
  whatsoever in respect of any property (including those created by, arising
  under or evidenced by any conditional sale or other title retention agreement
  and the interest of a lessor under a Capital Lease), any fmancing lease having
  substantially the same economic effect as any of the foregoing, or the filing
  of any financing statement naming the owner of the asset to which such Lien
  relates as debtor, under the Uniform Commercial Code or any comparable law and
  any contingent or other agreement to provide any of the foregoing.

    "Loans" means an extension of credit by Lenders to Borrower under Section
    2.01.

    "Loan Documents" means this Agreement, the Note, the Guarantees, the
    Investor Rights Agreement, the Security Documents and all other documents
    delivered to Lenders in connection herewith.

    "Margin Stock' means "margin stock" as such term is defined in Regulation
T, U or X of the FRB.

                                                                  5

<PAGE>

      "Material Adverse Effect' means (a) a material adverse change in, or a
   material adverse effect upon, the operations, business, Properties or
   fmancial condition of the Borrower; (b) a material impairment of the ability
   of Borrower to perfonn under any Loan Document; or ( c) a material adverse
   effect upon the legality, validity, binding effect or enforceability against
   Borrower of any Loan Document.

     "Maximum Loan Amount' means the amount set forth under Section 2.01, as
  such amount may be reduced nom time to time pursuant to Section 2.03.

     "Mortgages" means the Mortgages, Deeds of Trust, Assignments of Production,
   Security Agreements and Financing Statements trom the Borrower for the
   benefit of Lenders and all supplements, assignments, amendments and
   restatements thereto (or any agreement in substitution therefor) which are
   executed and delivered to Administrative Agent pursuant to Article IV of this
   Agreement                   .

     "Mortgaged Properties" means such properties upon which the Borrower has
   purported to grant a Lien in favor of Administrative Agent for the benefit of
   the Lenders pursuant to the Mortgages.

     "Multiemployer Plan" means a "multiemployer plan," within the meaning of
  Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes,
  is making, or is obligated to make contributions or, during the preceding
  seven (7) calendar years, has made, or been obligated to make, contributions.

     "Net Income' means, for any fiscal period, the net income (or net loss) of
  Borrower for such period detennined in accordance with GAAP consistently
  applied.

     "Note" means a promissory note specified in Section 2.01, substantially in
  the same form as Exhibit "A" issued by Borrower hereunder to each Lender
  including any amendment, modification, renewal or replacement of such
  promissory note, and "Notes" means each Note issued by Borrower hereunder to
  the Lenders.

    "Obligations" means the aggregate amount of all advances, debts,
 liabilities, obligations, covenants and duties arising under any Loan Document
 or owing by Borrower to any Lender, Administrative Agent or any Indemnified
 Person, whether direct or indirect (including those acquired by assignment),
 absolute or contingent, due or to become, due, now existing or hereafter
 arising.

    "Oil and GaS" means petroleum, natural gas and other related hydrocarbons or
minerals or any of them and all other substances produced or extracted in
association therewith.

    "0i1 and Gas Properties" means Hydrocarbon Interests now owned or
hereafter acquired by the . Borrower and contracts executed in connection
therewith and all tenements, hereditaments, appurtenances, and properties
belonging, affixed or incidental to such Hydrocarbon Interests, including,
without limitation, any and aU property, real or personal, now owned or
hereafter acquired by the Borrower and situated upon or to be situated upon, and
used, built for use, or useful in connection with the operating, working or
developing of such Hydrocarbon Interests, including, without limitation, any and
all petroleum and/or natural gas wells, buildings, structures, field separators,
liquid extractors, plant compressors, pumps, pumping units, field gathering
systems, tank and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, liters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, tubing and rods, surface leases, rights of-
way, easements and servitudes, and all additions, substitutions, replacements
for, fixtures and attachments to any and allof the foregoing owned directly or
indirectly by the Borrower.                                               .

  "Operating Lease" means an operating lease determined in accordance with GAAP.

    "Organization Documents" means, for any corporation: the articles of
 incorporation, the bylaws, any certificate of determination or instrument
 relating to the rights of the shareholders of such corporation, any shareholder
 rights agreement, and all applicable resolutions of the board of. directors (or
 any committee thereot) of such corporation; for any limited liability company:
 the articles of organization, the regulations or operating agreement,
 certificate of organization and all applicable resolutions of the

                                                       6

<PAGE>

members of such  company;  and for any limited  partnership:  the limited
partnership  agreement and all Organization  Documents  for  its  general
partner  as  any  of  the  foregoing  have  been  amended  or
supplemented nom time to time.

    "Other Taxes" means any' present or future mortgage tax, stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise nom any payment made hereunder or nom the execution, delivery
or registration of, or otherwise with respect to, this Agreement or any other
Loan Documents. "

   "PBGC' means the Pension Benefit Guaranty Corporation, or any Govenunental
 Authority succeeding to any of its principal functions under ERISA.

"Pension Plan" means a pension plan (as defmed in Section 3(2) of ERISA
subject to Title IV of ERISA, other than a Multiemployer Plan, which Borrower
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multiemployer Plan (as described in Section
4064(a) of ERISA) has made contributions at any time during the immediately
preceding five (5) plan years.

   "Permitted Liens" has the meaning set forth in Section 7.01.

   "Person" means an individual, partnership, limited partnership, corponttion,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental
Authority. "

   "Plan" means an employee benefit plan (as defmed in Section 3(3) of ERISA)
which is subject to ERISA, other than a Multiemployer Plan, and which Borrower
sponsors or maintains or to which Borrower makes, is making, or is obligated to
make contributions and includes any Pension Plan.

   "Principal Business" means the business of the exploration for, and
development, acquisition, production, gathering and upstream marketing of Oil
and Gas.

   "Production Sales Contracts" mean those agreements now or hereafter executed
in connection with the sale by Borrower of Oil and Gas attributable to the Oil
and Gas Properties as" same may be amended from time to time. .

   "Pro-Rata Share" means, as to any Lender at any time, the percentage set
 forth opposite its name as its Pro-Rata Share on Appendix I hereto, as amended
 from time to time.

  "Regulation U" and "Regulation X' means Regulation U and Regulation X,
respectively, of the FRB.

   "Requirement of Law" means, as to any Person, any law (statutory or common),
treaty, rule or regu~ation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.

   "Reserve Report' means a report, acceptable to Lenders, covering proved
developed, proved undeveloped and probable Oil and Gas reserves attributable to
the Borrower's Oil and Gas Properties and setting forth (i) the total quantity
of proved developed and proved undeveloped reserves (separately c1assified as
producing, shut-in, behind pipe, and undeveloped), (ii) the estimated future net
revenues and future Net Income and cumulative estimated future net revenues and
future Net Income, (iii) the discounted present value of future Net Income, and
(iv) such other information and data with respect to the Oil and Gas Properties
as Lenders may reasonably request

   "Responsible Officer" means the president of the Borrower or such other
         Person designated as a Responsible Officer by Borrower.

   "SEC' means the Securities and Exchange Commission.

   "Security Documents" means the Mortgage, collateral assignments, security
 agreements, pledges, assignments and related fmancing statements listed on
 Schedule I as same may be amended,

                                       7
<PAGE>
  supplemented or modified from time to time and any and all other instruments
  now or hereafter executed in connection with or as security for the payment of
  the Obligations.

    "Solvent' means, as to any Person at any time, that (a) the fair value of
  all of the property of such Person is greater than the amount of such,
  Person's liabilities (including disputed, contingent and unliquidated
  liabilities) as such value is established and liabilities evaluated for
  purPoses of Section 101(32) of the Bankruptcy Code; (b) the present fair
  saleable value of all of the property of such Person is not less than the
  amount that will be required to pay the probable liability of such Person on
  its debts as they become absolute and matured; (c) such Person does not intend
  to, and does not believe that it will, incur debts or liabilities beyond such
  Person's ability to pay as such debts and liabilities mature; and (d) such
  Person is not engaged in business or a transaction, and is not l!-bout to
  engage in business or a transaction, for which such Person's property would
  constitute unreasonably small capital.

    "Stated Maturity Date' means the date set forth on Appendix I stated to be
  the maturity date for the Notes.

    "Status Report' means a status report prepared periodically (as specified on
   Appendix I) by Borrower in form, scope and content acceptable to Lenders,
   setting forth as of such period then ended (i) detailed production data from
   the Mortgaged Properties by property, including, the volumes of Oil and Gas
   produced and saved, the volumes of Oil and Gas sold, gross revenue, "Net
   Income, related leasehold operating expenses, severance taxes, capital costs
   and any production imbalances incurred during such period (ii) all new Oil
   and Gas Properties acquired by the Borrower since the date of Borrower's last
   Status Report, (iii) the current list of purchasers of production including
   mailing address and the wells covered by such Production Sales Contracts, and
   (iv) such additional information with respect to any of the Borrower's Oil
   and Gas Properties as may be reasonably requested by Lenders.

    "Subsidiary" of a Person means any corporation, association, partnership,
 joint venture or other business entity of which more than 50% of the voting
 stock or other equity interests (in the case of Persons other than
 corporations), is owned or controlled directly or indirectly by the Person, or
 one or more of the Subsidiaries of the Person, or a combination thereof. Unless
 the context otherwise clearly requires, references herein to a "Subsidiary"
 refer to a Subsidiary of Borrower.

    "Surety Instruments" means all letters of credit (including standby),
 banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar
 instruments.

    "Taxes' means any and all present or future taxes, levies, imposts,
 deductions, charges or withholdings, and all liabilities' with respect thereto,
 excluding such taxes (including income taxes or franchise taxes) as are imposed
 on or measured by such Lender's Net Income by the jurisdiction (or any
 political subdivision thereof) under the laws of which Lenders is organized or
 maintains a lending office.

   "Termination Date' means the earlier of (a) the Stated Maturity Date, or (b)
 the date on which the Loans are due and payable in accordance with the
 provisions of this Agreement.

   "United States" and "U.S." each means the United States of America. '

         1.02 Other Interpretive Provisions. The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms. Unless
otherwise specified or the context clearly requires otherwise, the words
"hereof', "herein", "hereunder" and similar words refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Subsection,
Section, Schedule and Exhibit references are to this Agreement. The term
"documents" includes any and all instruments, documents, agreements,
certificates, indentureS, notices and other writings, however evidenced. The
tenn "including" is no~ limiting and means "including without limitation." In
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including"; the words "to" and "until"
each mean "to but excluding", and the word "through" means "to and including."
Unless otherwise expressly provided herein, (i) references to agreements
(including'this Agreement) and

                                        8

<PAGE>

  other contractual instruments shall be deemed to include all subsequent
  amendments and other modifications thereto, but only to the extent such
  amendments and other modifications are not prohibited by the terms of any Loan
  Document, and (ii) references to any statute or regulation are to be construed
  as including all statutory and regulatory provisions consolidating, .amending,
  replacing, supplementing or interpreting the statute or regulation. Tbe
  captions and headings of this Agreement are for convenience of reference only
  and shall not affect the interpretation of this Agreement. This Agreement and
  the other Loan Documents are the result of negotiations among and have been
  reviewed by counsel to Lenders and Borrower, and are the products of all
  parties. Accordingly, they shall not be construed against Borrower, or Lenders
  ~erely because of Lenders' involvement in the preparation thereof.

           1.03 Acconnting Principles.

                   (a) Unless the context otherwise clearly requires, all
  accounting terms not expressly defmed herein shall be construed, and all
  financial computations required under this Agreement shall be made in
  accordance with GAAP~ consistently applied.

                   (b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of Borrower.

                   (c) References herein to Borrower's financial statements or
balance sheets shall mean, respectively, the consolidated fmancial statements or
consolidated balance sheets of Borrower and its Subsidiaries, if any.

                                   ARTICLE II
                                   THE CREDIT

         2.01 Amounts and Terms of the Commitment. Subject to the terms and
 conditions herein each Lender hereby severally agrees to lend to Borrower their
 Pro-Rata Share of $3,500,000 (the "Maximum Loan Amount'), and at Closing each
 Lender shall fund to Borrower, at Borrower's direction, an amount equal to
 their Pro-Rata Share. The obligation of Borrower to repay the aggregate amount
 of such. Loans made by Lenders, together with interest accruing thereon, shall
 be evidenced by Notes made payable by Borrower to the order of such Lender. If
 Borrower pays or prepays any portion of the Loans und.er this Agreement, then
 such portion may not be reborrowed. The Loans shall bear interest at the rates
 provided for under Section 2.03 below. Lenders, at their sole discretion, shall
 have the option to extend the Stated Maturity Date for a period and upon such
 terms acceptable to Lenders; provided such right to extend shall not preclude
 Borrower's right to prepay the Obligations in accordance with Section 2.02
 below. .

          2.02 Prepayment. Borrower may, at any time prepay the Obligations in
 full, but not in part, upon irrevocable .notice to Lenders of not less than
 five (5) Business Days. In the event the Obligations are paid prior to the
 Stated Maturity Date for any reason (whether voluntary or by acceleration),
 Borrower shall pay to Lenders the Yield Maintenance Premium in addition to all
 principal, accrued but unpaid interest and expenses under the Notes.

          2.03 Repayment.

                  (a) Principal. Borrower shall repay all outstanding principal
 under the Not~s on the Tennination Date plus all accrued but unpaid interest
 and oujstanding expenses hereunder or under the Loan Documents.

                                        9

<PAGE>

                    (b) Interest

                             (i) Principal outstanding under the Notes shall
            bear interest trom the applicable Borrowing Date at a rate per annum
            equal to the lesser of (a) the Contract Rate, or (b) the Highest
            Lawful Rate. .

                             (ii) Interest shall be paid in arrears on each
            Interest Payment Date and any accrued by unpaid interest shall be
            due and payable in full on the Termination Date.

                             (iii) Notwithstanding SubsectiOn 2.03(h)(i), while
           any Event of Default exists, Borrower shall pay interest (after as
           well as before entry of judgment thereon to the extent permitted by
           law) on the principal amount of all outstanding Loans, at a rate per
           annum equal to the Highest Lawful Rate, until paid, regardless
           whether payment is made before or after entry of a judgment (the
           <<Default Ratll').

           2.04 Fees.

                    (a) Commitment 'Fee. Borrower shall pay at Closipg to
   Lenders the fees in the amounts set forth on Appendix I hereto.

                    (b) Other Fees. Borrower shall pay such other fees at
Closing as required under Section 4.01.

                    (c) Fees Fullv Earned. Borrower agrees that as of Closing
all such fees and warrants as provided under this Section 2.04 shall be fully
earned.

        2.05 Computation of Fees and Interest. All computations of interest for
    Loans and all other computations of fees shall be made on the basis' of
    actual days elapsed (including the first day but excluding the last day)
    but computed as if each month consisted of 30 days and each calendar year
    consisted of 360 days.

           2.06 Payments by Borrower.

                   (a) All payments to be made by Borrower shall be made to each
  Lender in an amount equal to such Lender's Pro-Rata Share of the total amount
  of any such payment, without set-off,. reCoupment or counterclaim. Except as
  otherwise expressly provided herein, all payments by Borrower shall be made to
  Administrative Agent for the account of the Lenders at Administrative Agent's
  address referred to in Section 10.02, and shall be made in dollars and in
  immediately available funds, no later than 11 :00 a.m. (Dallas, Texas time) on
  the date due. Any payment received by Administrative Agent later .than 11:00
  a.m. (Dallas, Texas time) shall be deemed to have been received on the
  following Business Day and any applicable interest or fee shall continue to
  accrue.

                  (b) Whenever any payment is due on a day other than a
  Business Day, such payment shall be made on the following Business Day, and
  such extension of time shall in such case be included in the computation of
  interest or fees, as the case may be..

          2.07 Interest Recapture. If the Contract Rate exceeds the Highest
  Lawful Rate, then the Contract Rate shall be limited to the Highest Lawful
  Rate, but any subsequent reductions in the Contract Rate shall not reduce the
  interest rate thereon below the Highest Lawful Rate until the total amount of
  accrued interest equals the amount of interest that would have accrued if
  Contract Rate had always been in effect. If at the Termination Date the total
  interest paid or accrued is less than the interest that would

                                              10

<PAGE>

  have accrued if the Contract Rate had always been in effect, then, at that
  time and to the extent permitted by law, BOITower shall pay an amount equal to
  the difference between: (a) the lesser of the amount of interest that would
  have accrued if the Contract Rates had always been in effect and the amount of
  interest that would have accrued if the Highest Lawful Rate had always been in
  effect; and (b) the amount of interest actually paid or accrued on the Note.

      2.08 Taxes.

        (a) Any and all payme~ts by BOlTower hereunder or under the Notes shall
  be made free and clear of and without deduction for any and all present or
  future taxes, levies, imposts, deductions, charges, or withholdings, and all
  Liabilities with respect thereto (hereinafter referred to as "Taxes"),
  excluding taxes imposed on Lenders' income, and ffanchise taxes imposed on
  Lenders, by the jurisdiction under the laws of which such Lender is organized
  or is or should be qualifIed to do business or any political subdivision
  thereof and, taxes imposed on such Lender's income, and ffancbise taxes
  imposed on Lenders by the jurisdiction of its principal lending office or any
  political subdivision thereof. If the Borrower
  shall be required by law to deduct any Taxes from or in respect of any sum
  payable hereunder or under the Notes to Lenders, then (i) the sum payable
  shall be increased as may be necessary so that after making.
 . all required deductions (including deductions applicable to additional sums
  payable under this Section 2.8) Lenders receives an amount equal to the sum it
  would have received had no such deductions been made, (ii) Borrower shall make
  such deductions, and (iii) Borrower shall pay the full amount deducted to the
  relevant taxation authority or other authority in accordance with applicable
  law.

                  (b) In addition, Borrower agrees to pay any Other Taxes which
 arise from any payment made hereunder or under the Loan Documents or from the
 execution, delivery, or registration of, or otherwise with respect to, this
 Agreement or the other Loan Documents (hereinafter refelTed to as "Other
 Taxes").

                  (c) Borrower will indemnify Lenders for the full amount of
 Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
 imposed by any jurisdiction on amounts payable under this Section 2.8) paid by
 Lenders or any Liability (including penalties and interest) arising therefrom
 or with respect thereto, whether or not such Taxes or Other Taxes were
 correctly or legally asserted. This indemnification shall be made within five
 (5) days from the date Lenders make written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes,
 Borrower will furnish to each Lender, at its address referred to in Section
 9.4, the original or a certified copy of a receipt evidencing payment thereof.

                 ( e) Without prejudice to the survival of any other agreement
 of Borrower hereunder, the agreements and obligations of BOlTower contained in
 this Section 2.8 shall survive the termination of the commitments under this
 Agreement and the payment in full of the Obligation.

         2.09 Sharing of Payments, Etc. If any Lender shall obtain on account of
 the Obligations made by it, any payment (whether voluntary, involuntary,
 through the exercise of any right of set-oft, or otherwise) or receive any
 Collateral in respected thereof in excess of the amount such Lender was
 entitled to receive pursuant to the terms hereof, such Lender shall immediately
 (a) notify Administrative Agent of such fact, and (b) purchase from the other
 Lenders such participations in the Loans made by them as shall be necessary to
 cause such purchasing Lender to share the excess payment according to the
 teQ11S hereof; provided. however. that if all or an portion of such excess
 payment is thereafter recovered trom the purchasing Lender, such purchase shal~
 to that extent, be rescinded and each other Lender shall repay to the
 purchasing Lender the purchase price paid therefor, together with an amount
 equal to such paying

                                                      11

<PAGE>

    Lender's ratable share (according to the proportion of (i) the amount of
    such paying Lender's required repayment to (ii) the total amount so
    recovered from the purchasing Lender) of any interest or other amount paid
    or payable by the purchasing Lender in respect of the total amount so
    recovered. BOlTOwer agrees that any Lender so purchasing a participation
    from another Lender may, to the fullest extent permitted by law, exercise
    all its rights of payment (including the right of set-off) with respect to
    such participation as fully as if such Lender were the direct creditor of
    Borrower in the amount of such participation. Administrative Agent will keep
    records (which shall be conclusive and binding in the absence of manifest
    error) of participations purchased under this Section 2;09 and will in each
    case notify the Lenders following any such purchases or repayments.

                                     ARTICLE III
                                       SECURITY

             3.01 The Security, The Obligations will be secured by a Lien on all
    of the Borrower's Oil and Gas Properties now or hereafter acquired and such
    other Collateral described in Schedule I under the Security Documents.

            3.02 Agreement to Deliver Security Documents.

                     (a) Borrower agrees to deliver to Administrative Agent to
    further secure the Obligations whenever requested by Lenders in their sole
    and absolute discretion, deeds of trust, mortgages, chattel mortgages,
    security agreements, financing statements, letters in lieu of production,
    and 'other Security Documents in form and substance satisfactory to Lenders
    covering aU of Borrower's real and personal property of any kind, including
    all Oil and Gas Properties owned or acquired in the future, for the purpose
    of granting, confirming, and perfecting first and prior Liens or security
    interests subject to no other liens except as provided in the Intercreditor
    Agreement. .

                     (b) Borrower agrees to deliver, within thirty (30) days
    whenever requested by Lenders, favorable title opinions from legal counsel
    acceptable to Lenders or such other evidence of title satisfactory to
    Lenders with respect to Borrower's Oil and Gas Properties .designated by
    Lenders, based upon abstract or record examinations to dates acceptable to
    Lenders, (i) evidencing that Borrower has good and defensible title to such
    Properties an~ interests, free and clear of all Liens except Permitted
  . Liens, and (ii) confirming that such Properties and interests are subject to
    Liens granted under Security Documents securing the Obligations and such
    Security Documents constitute and create legal, v.alid and duly perfected
    rlI'S1: deed of trust or mortgage Liens in such Properties and interests and
    rust priority assignments of and security interests in the Oil and Gas
    attributable to such Oil and GaS Properties an9 interests and the proceeds
    thereof subject to no other liens except as provided in the Intercreditor
    Agreement.

            3.03 Perfection and Protection of Security Interests and Liens.
   Borrower will from time to time deliver to Administrative Agent any rmancing
   statements, amendments, assignments and continuation statements, extension
   agreements and other documents, properly completed and executed (and
   acknowledged when required) by Borrower in form and substance satisfactory to
   Administrative Agent, which Administrative Agent requests for the purpose of
   perfecting, comfirming, or protecting any Liens or other rights in
   Collateral securing any Obligations. Borrower hereby authorizes
   Administrative Agent to file, in any applicable jurisdiction where
   Administrative Agent deems it necessary, a financing statement or statements,
   and at the request of Administrative Agent, Borrower will join Administrative
..  Agent in executing one or more rmancing statements pursuant to the applicable
   Uniform Commercial Code in form satisfactory to Administrative Agent, and
   will pay the cost of filing or recording such instrument, as a fmancing
   statement, in all public offices at any time and from time to time whenever

                                                         12

<PAGE>

    filing or recording of any financing  statement is deemed by Administrative
    Agent to be necessary or
    desirable.

            3.04 Offset. To secure the repayment of the Obligations, Borrower
    hereby grants Lenders a security interest, 'Lien, and right of offset, each
    of which shall be in addition to all other interests, Liens, and rights of
    Lenders at common law, under the Loan Documents or otherwise, and each of
    which shall be upon and against (a) any and all moneys, securities or other
    property (and the proceeds therefrom) of Borrower now or hereafter held or
    received by or in transit to Lenders from or for the account of Borrower,
    whether for safekeeping, custody, pledge, transmission, collection or
    otherwise, and (b) any other credits and claims of Borrower at any time
    existing against Lenders. Upon the occurrence of any Event of Default, each
    Lender is hereby authorized to. for~close upon, offset, appropriate, and
    apply, at any time and from time to time, without notice to Borrower, any
    and all ite~s hereinabove referred to against the Obligations then due and
    payable.

            3.05 Production Proceeds.

                     (a) Borrower shall provide to Administrative Agent undated
    letters, in the form of Exhibit "8' attached hereto, in blank to each
    purchaser of production, and disburser of proceeds of production from or
    attributable to Borrower's Mortgaged Properties, with the addressees left
    blank, authorizing arid directing the addressees to make future payments
    attributable to Borrower's share of production from the Mortgaged Properties
    directly to Administrative Agent excluding any po~ion of such proceeds in
    excess of the working interest and net revenue interest set forth on
    Schedule I to the extent such excess proceeds are attributable to third
    parties such as royalty owners and other working interest owners.

                     (b) - Borrower hereby designates Administrative Agent as
    its agent and attorney-infact, to act in its name, place, and stead for the
    purpose of completing and delivering any and all of the
,  letters in lieu of transfer orders delivered by Borrower, as applicable, to
   Administrative Agent, including, without limitation, completing any blanks
   contained in such letters and attaching exhibits thereto describing the
   relevant Collateral. Borrower hereby ratifies and conf1l1I}.S all that
   Administrative Agent shall lawfully do or cause to be done by virtue of this
   power of attorney and the rights granted with respect to such power of
   attorney. This power of attorney is coupled with the interest of
   Administrative Agent in the Collateral, shall commence and be in full force
   and effect as of Closing and shall remain in full force and effect and shall
   be irrevocable so long as any Obligation remains outstanding 011 unpaid or
   any Commitment exists. The powers conferred on Administrative Agent by this
   appointment are solely to protect the interests of the Lenders under the Loan
   Documents and shall not impose any duty upon Administrative Agent to exercise
   any such powers. ADMINISTRATIVE AGENT AND LENDERS SHALL BE ACCOUNTABLE ONLY
   FOR AMOUNTS THAT IT ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF SUCH
   POWERS AND SHALL NOT BE RESPONSffiLE TO BORROWER OR ANY OTHER PERSON FOR ANY
   ACT OR FAILURE TO ACT WITH RESPECT TO SUCH POWERS, EXCEPT FOR ADMINISTRATIVE
   AGENT'S OR SUCH LENDER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

                    (c) Notwithstanding that, under Article HI of the Mortgages,
   Borrower has assigned to Administrative Agent all of the proceeds of
   production accruing to Borrower's share of production from the Mortgaged
   Properties cover~d thereby, until such time as an Event of Default shall have
   occurred and be continuing, Borrower shall be entitled to receive from the
   purchasers or disbursers of its production all such proceeds, subject however
   to the Liens created under the Mortgages. Upon the occurrence and during the
   continuance of an Event of Default, Lender may deliver to the addressees the
   letters-in-lieu described in Section 3.05 above and may exercise all rights
   and remedies granted under the

                                                         13

<PAGE>

 Mortgages, including the right to obtain possession of all proceeds of runs
 then held by Borrower or to receive directly from the purchaser or disburser of
 production such proceeds of production

                  (d) In no case shall any failure, whether intentional or
 inadvertent, by Administrative Agent to collect directly any such proceeds of
 runs constitute in any way a waiver, rescission or release of any of its rights
 under the Mortgages, nor shall any release of any.other proceeds of runs or of
 any rights of Administrative Ageilt to collect other proceeds of runs
 thereafter.

                                   ARTICLE IV.
                              CONDITIONS PRECEDENT

          4.01 Conditions of Initial Loan. The obligation of Lenders to make its
 initial Loan is subject to the condition that Administrative Agent shall have
 received on or before Closing all of the following, in form and substance
 satisfactory to Lenders: .

                  (a) Credit Agreement and Other Loan Documents. This
 Agreement, the Notes, the Investor Rights Agreement, each Guaranty, the
 Security Documents, and such other Loan Documents made a part hereof to be
 executed and delivered at Closing executed by each party thereto, and where
 appropriate, properly acknowledged and notarized;

      . (b) Secretary's Certificate. A certificate of the Secretary or Assistant
 Secretary of General Partner and each Guarantor, certifying as of the date on
 which Closing occurs: (i) resolutions of the board of directors or members of
 General Partner and each Guarantor, as applicable, authorizing the transactions
 contemplated hereby; (ii) the names and genuine signatures of the Responsible
 Officers of General Partner and each Guarantor, as. applicable, authorized to
 execute, deliver and perform, as applicable, this Agreement, the Security
 Documents, and all. other Loan Documents to be delivered h~reunder; (iii) the
 Organization Documents of Borrower and General Partner and each Guarantor, as
 in effect on the date on which Closing occurs; (iv) the good standing
 certificate for General Partner and each Guarantor from its state of
 incorporation, formation or organization, as applicable, evidencing its
 qualification to do business in such state as of a date no more than thirty
 (30) days prior to Closing; and (v) as applicable, certificate(s) of authority
 for Borrower and each Guarantor from foreign states wherein Borrower and each
 Guarantor conducts business, evidencing Borrower's qualification to do business
 in such state as of a date no more than thirty (30) days prior to Closing;

                  (c) Payment of Administrative Agent and Lenders' Fees. Payment
 by Borrower of all accrued and unpaid fees, costs and expenses owed pursuant to
 this Agreement to the extent then due and payable at Closing including such
 fees set forth on Appendix I, together with attorney costs of Administrative
 Agent. to the extent invoiced prior to or at Closing, plus such additional
 amounts of attorney costs and filing fees as shall constitute each Lenders'
 estimate of same incurred or to be incurred by it through Closing (provided
 that such estimate shall not thereafter preclude final settling of accounts
 between Borrower and each Lender); including any such costs, fees and expenses
 arising under or referenced in Sections 2.04 and 9.04;

                  (d) Other Documents. Each additional document, instrument, or
 item of information requested by Lenders, including without limitation: .

                          (i) satisfactory title information from title
         examiners acceptable to Lenders in their discretion, verifying
         Borrower's good and defensible title to the Mortgaged Properties (other
         than the specific Mortgaged Properties identified under Appendix 1,
         Post Closing Conditions) free and clear of all Liens other than
         Permitted Liens;

                                       14

<PAGE>

                       (ii) copies of all environmental assessments, reports and
         other information with contents and findings satisfactory to Lenders
         with respect to the Mortgaged Properties;

                      (ill) copies of existing Hedging
                      Agreements, on terms and with counter parties satisfactory
                      to Lenders;

                     (iv) copies of all current Authority for
                      Expenditures, Joint Interest Billings and division orders
                      affecting Borrower's Oil and Gas Properties on tenns
                      satisfactory to Lenders;

                   . (v) Borrower and each Guarantor's
                      Organization DOcuments as amended up through Closing shaU
                      be in form satisfactory to Lenders and Lenders shall be
                      provided with copies of all Management Agreements,
                      Employment .Contracts, Joint Operating Agreements, Farmout
                      Agreements, long tenn marketing or Production Sales
                      Contracts, and other material contracts entered into by
                      Borrower to the extent requested by Lenders;

                     (vi) certificates of insurance for Borrower as required
                      under Section 6.06 of this Agreement;

                     (vii) opinion of Borrower's and each
                      Guarantor's counsel in form satisfactory to Lenders
                      including, among other matters, the due fonnation,
                      standing and. authorization of each Person and as to the
                      enforceability of the Loan Documents, and perfection of
                      the Security Documents.

                  (e) No Material .Adverse Effect. No Material Adverse Effect
shall have occulTed with respect to Borrower, its Properties or Guarantors. No
Event of Default shall exist under the Existing Credit Agreement.

                  (f) . Additional Conditions Precedent. Borrower
             shall deliver or cause to be delivered such additional
             documentation and such other conditions shall be satisfied as s~t
             forth on Appendix I hereto.

                                   ARTICLE V.
                         REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants to Administrative Agent and
               each Lender that:

                     5.01 Corporate Existence and Power.  Borrower: (a) is
             validly existing and in good standing  under  the  laws  of  the
             jurisdiction  of  its  incorporation,   formation  or organization,
             as  applicable;   (b)  has  the  power  and  authority  and  all
             material governmental  licenses,  authorizations,  consents and
             approvals to own. its assets, carry on its business as currently
             conducted and to execute, deliver, and perfonn its obligations
             under the Loan Documents, (c) is duly qualified as a foreign
             company and is licensed and in good standing under the laws
             of each jurisdiction where its ownership> lease or operation of
             property or the conduct of its business requires such qualification
             or license; and (d) is in compliance in all material respects with
             all Requirements of Law.

                     5.02 . Corporate Authorization; No Contravention. Tbe
             execution, delivery and performance by BOlTOwer of this Agreement
             and each other Loan Document to which Borrower is a party, have
             been duly authorized by all necessary corporate, partnership or
             limited liability company action, as applicable, and do not and
             will not (a) contravene the terms of any of Borrower's Organization
             Documents; (b) conflict with or result in any breach or
             contravention of, or the creation of any Lien under, any document
             evidencing any Contractual Obligation to which Borrower is a party
             or any order,

                                       15

<PAGE>

   injunction, writ or decree of any Governmental Authority to which Borrower or
   its property is subject; or ( c) violate any Requirement of Law.

            5.03 Governmental Authorization. No approval, consent, exemption,
   authorization, or other action by, or notice to, or filing with, any
   Governmental Authority is necessary or required in connection with the
   execution, delivery or performance by, or enforcement against, Borrower of
   this Agreement or any other Loan Document to which it is a party.

          5.04 Binding Effect. This Agreement and each other Loan
          Document to which Borrower is a party constitute the legal, valid and
          binding obligations of Borrower, enforceable against Borrower in
          accordance with their respective terms, except as enforceability may
          be limited by applicable bankruptcy, insolvency, or similar laws
          affecting the enforcement of creditors' rights generally or by
          equitable principles relating to enforceability.

            5.05 Financial Condition. Borrower has delivered to each Lender
   copies of (a) its financial statements as of March 31, 2005, such rmancial
   statements are true and correct, fairly represent the financial condition of
   Borrower as of such date and was prepared in" accordance with GAAP; as of the
   date hereof, there are no obligations, Liabilities, or Indebtedness
   (including contingent and indirect Liabilities) of BOlTower which are
   material and are not reflected in such financial statements. No Material
   Adverse Effect has occurred since the date of such financial statements. .

           5.06 Litigation. There are no actions, suits, proceedings, claims or
   disputes pending, or to the knowledge of the Borrower, threatened or
   contemplated, at law, in equity, in arbitration or before any Governmental
   Atrthority, against Borrower, or any of its Properties. No injunction, writ,
   temporary restraining order or any order of any nature has been issued by any
   court or other Governmental Authority purporting to enjoin or restrain the
   execution, delivery or perfonnance of this Agreement or any other Loan
   Document, or directing that the transactions provided for herein or therein
   not be consummated as herein or therein provided.

           5.07 No Default. No Default or Event of Default exists or would be
  reasonably expected to result ftom the incurring of any Obligations by
  BOlTower. As of the date on which Closing occurs, Borrower is not in default
  under or with respect to any Contractual Obligation in any respect which,
  individually or together with all such defaults, would reasonably be expected
  to have a Material Adverse Effect.

           5.08 ERISA.

                   (a) Borrower has not had and currently does not have or
 maintain a Plan.

                   (b) Borrower does not sponsor, maintain or contribute to, or
  has at any time in the preceding six calendar years, sponsored, maintained or
  contributed to, any Multiemployer Plan.

           5.09 Margin Regulations. The proceeds of the Loans shall be used
  solely for the purposes set forth in and permitted by Section 6.11. Borrower
  is not generally engaged in the business of purchasing or selling Margin Stock
  or extending credit for the purpose of purchasing or carrying Margin Stock.

         5.10 Title to Properties. Borrower has good and defensible title to the
  Mortgaged Properties and all other real property necessary or used in the
  ordinary conduct of its business. As of the date on which Closing occurs, the
  property of Borrower is subject to no Liens, other than Permitted Liens.

                                  16

<PAGE>

            5.11 Oil and Gas Reserves. Borrower is and will hereafter be the
   owner of the Oil and Gas that it purports to own :trom time to time in and
   under its Oil and Gas Properties, together with the right to produce the
   same. 'Such Oil and Gas Properties are not subject to any Lien other than
   Permitted Liens. All Oil and Gas has been and will hereafter be produced,
   sold and delivered in accordance with all applicable laws and regulations of
   governmental authority; Borrower has complied and will comply with all
   material terms of each oil, gas and mineral lease comprising its Oil and Gas
   Properties and all other Contractual Obligations related thereto; and all
   such oil, gas and mineral leases have been and will hereafter be maintained
   in full force and effect. Provided, however that nothing in this Section 5.11
   shall prevent Borrower from abandoning any well or forfeiting, surrendering,
   releasing or defaulting unper any lease in the ordinary course of business
   which is not disadvantageous in any way to Administrative Agent or Lenders
   and yvhich, in the opinion of Borrower, is in the best interest of Borrower,
   and Borrower is and will hereafter be in compliance with all obligations
   hereunder.

         5.12 Initial Reserve Report. To the knowledge of the Borrower (i) the
  assumptions stated or used in.the preparation of the Initial Reserve Report
  are reasonable, (ii) all information furnished in the preparation of the
  Initial Reserve Report was accurate in all material respects, (iii) there has
  been no material adverse change in the amount of the estimated Oil and Gas
  shown in. the Initial Reserve Report since the date thereof, except for
  changes which have occurred as a result of production from and after the
  effective date thereof in the ordinary course of business, and (iv) the
  Initial Reserve Report does not omit any statement or information necessary to
  cause the same not to be misleading to Lenders.

           5.13 Gas Imbalances. Except as disclosed to Lenders in writing prior
  t9 the date of this Agreement. there are no gas imbalances in excess of two
  percent (2%) of monthly projected deliveries from Borrower's Oil and Gas
  Properties in the aggregate, and no take or payor other prepayments with
  respect to any such Oil and Gas Properties which would require Borrower to
  deliver Oil and Gas produced from any of its Oil and. Gas Properties at some
  future time without receiving full. payment therefor within si:rty (60) days
  of such production.

           5.14 Taxes.  Borrower has filed all Federal tax returns and reports
  required to be filed, or if
  not filed, for which an extension has been granted therefor, and has paid all
  Federal taxes, assessments, fees and other governmental charges levied or
  imposed upon its or its properties, income or assets otherwise due. and
  payable, except those which are being contested in good faith by appropriate
  proceedings and for which adequate reserves have been provided in accordance
  with GAAP. Borrower has flIed all state and other non-Federal tax returns and
  reports required to be filed, and has paid all state and other non-Federitl
  taxes, assessments, fees and other governmental charges levied or imposed upon
  it or its properties, income or assets otherwise due and payable. To the
  knowledge of Borrower, there is no proposed tax assessment against it that
  would, if made, reasonably be expected to have a Material Adverse Effect.

          5.15. Environmental Matters. Borrower conducts in the ordinary course
  of business a review of the effect of existing Environmental Laws and
  Environmental Claims, if any, on its business~ operations and Properties. and
  such Properties which it is acquiring or planning to acquire. Borrower is in
  compliance in all material respects with all Environmental Laws and does not
  have any liability for any Environmental Claim.

                                       17

<PAGE>

                      5.16 Regulated Entities. None. of Borrower or any Person
              controlling Borrower, is an "Investment Company" within the
              meaning of the Investment Company Act of 1940. Borrower is not
              subject to regulation under the Public Utility Holding Company Act
              of 1935, the Federal Power Act, the Interstate Commerce Act, any
              state public utilities code, or any other Federal or state statute
              or regulation limiting its ability to incur Indebtedness.

                    5.17  No  Burdensome  Restrictions.  Borrower is not a party
              to or  bound  by any Contractual Obligation,  or  subject  to any
              restriction  in  any  Organization  Document,  or  any Requirement
              of Law, which would reasonably be expected to have a Material
              Adverse Effect.

                   5.18 Solvency. As of the date on which Closing occurs,
Borrower is Solvent.

                   5.19 Subsidiaries/Investments/Ownership. As of the date on
              which Closing occurs, Borrower has no Subsidiaries and has no
              material equity investments in any other corporation or entity.
              Borrower, Guarantors and their general partners are owned as set
              forth on Appendix I.

                   5.20 Insurance. The Oil and Gas Properties and all other
             property of Borrower and Guarantors are insured with financially
             sound and reputable insurance cQmpanies not Affiliates of such
             Person, in such amounts, with such dequctibies and covering such
             risks as are customarily carried by companies engaged in similar
             businesses and owning similar properties in localities where
             Borrower's Oil and Gas Properties and Guarantors' properties and
             operations are located.

          5.21 Full Disclosure. None of the representations or warranties made
 by the Borrower in the Loan Documents as of the date such representations and
 warranties are made or deemed made, and none. of the statements contained in
 any exhibit, report, written statement or certificate furnished by or on behalf
 of Borrower in connection with the Loan Documents contains any untrue statement
 of a material fact or omits any material fact requii-ed to be stated therein or
 necessary to make the statements made therein, in light of the circumstances
 under which they are made, not misleading as of the time when made or
 delivered.

                                   ARTICLE VI.
                             AFFIRMATIVE COVENANTS

                  So long as any Loan or other Obligation shall remain unpaid or
             unsatisfied, unless Administrative Agent and Lenders waive
             compliance in writing:

                     6.01  Financial  Statements.  Borrower  shall  maintain  a
             system  of  accounting established and administered in accordance
             with GAAP and deliver to Lenders:

                              (a) as soon as available, but not later than
             ninety (90) days after the last day of each fiscal year of Borrower
             prepared by an Independent Auditor, commencing with the 2004 fiscal
             year, a copy of the annual audited financial statements of Borrower
             as of the end of such year including the related balance sheet and
             statements of income, owner's equity and cash flows for such year,
             setting forth in each case in comparative form the figures for the
             previous fiscal year and certified by a Responsible Officer as
             presenting fairly the financial positiQn of Borrower and its
             Subsidiaries, if any, for the periods indicated in conformity with
             GAAP; .

                        (b) as soon as available, but not later than forty-five
           (45) days after the last day of each qu~rly fiscal period (except the
           last) of each fiscal year of Borrower, a copy of the unaudited .
           balance sheets of Borrower as of the end of such quarter including
           the related statements of income, owner's equity and cash flows for
           the period commencing on the first day and ending on the last day of

                                        18

<PAGE>

    such quarter, in comparative form the figures for the same period of the
    previous fiscal year, and certified by a Responsible Officer as fairly
    presenting the financial position of the Borrower and its Subsidiaries for
    the period indicated, in accordance with GAAP; and

                     (c) Borrower shall deliver on Closing and or before
    December 1 everY year thereafter, an annual development plan for its Oil and
    Gas Properties, as approved by Borrower's Board of Directors, which outlines
    operations, budget and use of Loan proceeds to finance the development plan.
    .
             6.02 Certificates Other Production and Reserve Information.
    Borrower shall furnish to Administrative Agent:

                 (a) - as soon as available, but not later than the dates
   provided in Appendix 1, Status Reports executed by a Responsible Officer in
   form reasonably acceptable to Lenders, as of the last day of the reported
   periods;

                     (b) concurrently with the delivery of each of the
   statements and reports referred to in Subsections 6.01(a) - (b) and 6.02(a),
   a Compliance Certificate executed by a Responsible Officer;

                     (c) a Reserve Report prepared by Borrower's. in-house
   petroleum engineer(s) covering the Borrower' Oil and Gas Properties on or
   before June 30 of each' year commencing June 30, 2005, (the "In-house Reserve
   Report Due Date") and ~ Reserve Report prepared by an independent petroleum
   engineer retained by Borrower and acceptable to Lenders covering the
   Borrower' Oil and Gas Properties (all foregoing Reserve Reports b.eing
   acceptable to Lenders) on or before December 31 of each year commencing
   December 31, 2005 (the "Third Party Reserve Report Due Date");

                     (d) . Concurrently with the delivery of each Reserve Report
   provided under Subsection 6.02(c) above, Borrower shall provide updated
   information to Administrative Agent's counsel for the Mortgage Matching
   Schedule identifying (i) any additional wells covered by the new Reserve
   Report which were not covered by the most recent prior Reserve Report and
   (ii) any wells covered by the most recent prior Reserve Report which are not
   covered by the new Reserve Report;

                  . (e) promptly upon the request of Lenders, such copies of all
   geological, engineering and related data contained in the Borrower' files or
   readily accessible to the Borrower relating to its Oil and Gas Properties;

                    (f) promptly upon the. request by Lenders, title and
   mortgage Lien evidence satisfactory to Lenders covering such Oil and Gas
   Properties as may be designated by Lenders, covering the Borrower' title
   thereto and certifying that the Obligations are secured by Liens and security
   interests as provided in this Agreement and the Security Documents;

                    (g) before the close of business on Friday of each week, a
   report of accounts payable and a copy of related invoices evidencing the use
   of Loan proceeds in accordance with Section 6.11 below. Such report shall
   separately reflect accounts payable (i) which were outstanding as of Closing.
   (ii)
 . which are related to new drilling operations, and (iii) which are related to
 well completion operations; and

                    (h) promptly upon the request of Administrative Agent or
   Lenders, such additional information regarding the business, operations,
   finaricial or corporate affairs of the Borrower as Administrative Agent or
   L~ders may nom time to time reasonably request.

                                                        19

<PAGE>

           6.03. Notices. Borrower shall promptly notify Lenders:

                   (a) of the occurrence of any Default or Event of Default. and
  of the occurrence or existence of any event or circumstance that would
  reasonably be expected to become a Default or Event of Default;

                   (b) of any matter that has. resulted or may reasonably be
  expected to result in a Material Adverse Effect. including (i) breach or
  non-performance of, or any default under, any Contractual Obligation of
  Borrower; (ii) any dispute, litigation, investigation, proceeding or
  suspension between Borrower and any Governmental Authority; or (ii) the
  commencement of, or any material development in, any litigation or proceeding
  affecting Borrower (including pursuant to any applicable Environmental Laws);

                   (c) of any material change in accounting policies or
financial reporting practices by Borrower; and

                   (d) of the formation or acquisition by Borrower or any
Guarantor of any Subsidiary.

  Each notice under this Section shall be accompanied by a written statement by
  a Responsible Officer setting forth details of the occurrence .referred to
  therein, and stating what action the Borrower propose to take with respect
  thereto and at what time. .

          6.04 Preservation of Corporate Existence, Etc. Borrower shall:

.. (a) preserve and maintain ill full force and effect its separate, legal
existence, and maintain its good standing under the laws of its state or
jurisdiction of incorporation or organization, as applicable; and

                  (b) preserve and maintain in full force and effect all
  governmental rights, privileges, qualifications, permits, licenses and
  franchises necessary for the normal conduct of its business.

          6.05 Maintenance of Property Borrower shall maintain and preserve all
  its property which is used or useful in its business in good working order and
  condition, ordinary wear and tear excepted and shall use the reasonably
  prudent standard of care typical in the industry in the operation and
  maintenance of its Oil and Gas Properties and Gathering System Properties.

          6.06 Insurance. Borrower and each Guarantor shall each maintain, with
 financially sound and reputable independent insurers, insurance with respect to
 its operations and its Oil and Gas Properties and other properties and business
 against loss or damage of the kinds customarily insuted against by Persons
 engaged in the same or similar business, of such types and in such amounts as
 are customarily carried under similar circumstances which insurance shall name
 Administrative Agent and Lenders as "additional insured" and as a "loss payee,"
 as applicable.

         6.07 Payment of Obligations. Borrower and each Guarantor shall each pay
 and discharge as the same shall become due and payable, aU of its obligations
 and liabilities, including: (a) all tax liabilities, assessments and
 governmental charges or levies upon it or its Properties or assets, unless the
 same are being contested in good faith by appropriate proceedings and adequate
 reserves iri accordance with GAAP are being maintained; (b) all lawful claims
 which, if unpaid, would by law become a Lien upon its Property; and (c ) all
 Indebtedness, as and when due ~d payable, but subject to any subordination
 provisions contained in any instrument or agreement evidencing such
 indebtedness. .

                                                      20

<PAGE>

         6.08 Compliance with Laws. Borrower and each Guarantor shall each
  comply in all material respects with all Requirements of Law of any
  Governmental Authority, having jurisdiction over it or its business except
  such as roay be contested in good faith or as to which a bona fide dispute may
  exist'

         6.09 Maintenance of Books and Records. Borrower shall maintain proper
  books of record and account. in which full, true and correct entries in
  conformity with GAAP consistently applied shall be made of all of its
  fmancialtransactions and matters involving its assets and business.

           6.10 Environmental Laws. Borrower and each Guarantor shall each
  conduct its operations and keep and maintain and use commercially reasonable
  efforts to cause third Persons conducting operations on its Property to keep
  and maintain such Property in compliance with all Environmental Laws.

         6.11 Use of Proceeds. Borrower shall use the proceeds of the Loan to
  pay (a) at least $1,300,000.00 of outstanding accounts payable, (b)
  $1,087,000.00 in costs and expenses associated with new drilling operations,
  (c) $600,000.00 in costs and expenses associated with well completion
  operations, (d) up to $283,000.00 for the cost of acquisition and expansion
  of Gribble extension of existing gathering SyStems, and (e) $230,000.00 to
  fmance Borrower's expenses associated with this Agreement.

         6.12 Further Assurances. BOITower and Guarantors shall promptly cure
 any defects in the creation and issuance of the Notes and the execution and
 delivery of this Agreement. the Investor Rights Agreement. the Intercreditor
 Agreement. the Security Documents, or any other instruments refened to or
 mentioned herein or therein to which each is a party. Bon:ower at its expense
 will promptly do aU acts and things, and will execute and file or record, all
 instrumentS 'reasonably requested by Lenders, to establish, perfect. maintain
 and continue the perfected security interests of Administrative Agent in or the
 Lien of Administrative Agent on the Collateral. Borrower will pay the
 reasonable costs and expenses of all filings and recordings and all searches
 deemed necessary by Administrative Agent to establish and determine the
 validity and the priority of the Liens created or intended to be created by the
 Security Documents; and Borrower shall satisfy all other claims and charges
 which in the reasonable opinion of Administrative , Agent might prejudice,
 impair or otherwise a:ff~t any of the Collateral or any Lien thereon in favor
 of Administrative Agent.

          6.13
          Guarantees.

     Borrower shall cause eaCh Guarantor to execute the Guaranty and if, at any
 time after the date of this Agreement. BOITower or either Guarantor shall
 create or acquire any' Subsidiary that is not a Guarantor then BOITOwer shall
 cause each such Subsidiary to execute and deliver a Guaranty to Lenders and
 such Subsidiary shall become a Party to this Agreement

         6.14 Security Documents. BOITower shall promptly execute and deliver to
 Administrative Agent such Security Documents as may be required pursuant to
 Section 3.02 to ensure that the Borrower' Oil and G~ Properties are covered by
 a Lien and security interest in favor of Administrative Agent for the benefit
 of Lenders Oat all times.

                                  ARTICLE VII.
                               NEGATIVE COVENANTS

          So long as any Loan or other Obligation shall remain' unpaid or
 unsatisfied, unless Lenders waive compiiance in writing:

                                       21

<PAGE>

         7.01 Limitation on Liens. Borrower and each Guarantor agrees that it
 shall not directly or indirectly, make, create, incur, assume or suffer to
 exist any Lien upon or with respect to any part of its property, whether now
 owned or hereafter acquired, other than the following ("Permitted Liens"):

                  (a) any Lien created under any Loan Document;

                  (b) Liens securing the Existing Credit Agreement to the extent
 permitted under the Intercreditor Agreement;

                  (c) Liens securing Alternative Financings to the extent
permitted under Section 7.05;

                  (d) Liens for taxes, fees, assessments or other governmental
 charges which are not delinquent or remain payable without penalty, or to the
 extent that nonpayment thereof is permitted by Section 6.07; .

                  (e) carriers', warehousemen's, mechanics', landlords',
 materialmen's, repairmen's or other similar Liens arising in the ordinary
 course of business securing obligations which are not delinquent or remain
 payable without penalty or which are being cO!ltested in good faith and by
 appropriate proceedings. which proceedings have the effect of preventing the
 forfeiture or sale of the property subject thereto;

                  (f) Liens consisting of pledges or deposits required in the
 ordinary course of business in connection with workers' compensation,
 unemployment insurance and other social security legislation;

                 (g) Liens securing (i) the non-delinquent performance of bids,
 trade contracts (other than for borrowed money), statutory obligations, (ii)
 contingent obligations, Surety Instruments (other than those providing credit
 support for borrowed money), and (iii) other non-delinquent obligations of a
 like nature; in each case, incurred in the ordinary course of business;

                 (h) easements, rights-of-way, restrictions, defects or other
 exceptions to title and other similar encumbrances incurred in the ordinary
 course of business which, in the aggregate. are not substantial in amount, are
 not incurred to secure Indebtedness, and which do not in any case materially
 detract from the value of the property subject thereto or interfere with the
 ordinary conduct of Borrower's business; and

                 (i) . Liens arising solely by virtue of any statutory or common
 law provision relating to banker's liens, rights of set-off or similar rights
 and remedies as to deposit accounts or other funds maintained with a creditor
 depository institution; provided that (i) such deposit account is not a
 dedicated cash collateral account and is not subject to restrictions against
 access by Borrower, and (ii) Borrower maintains (subject to such right of set
 off) dominion and control over such account(s).

         7.02 Disposition of Assets.. Borrower shall not directly or
indirectly, sell. assign, lease, convey, transfer or otherwise dispose of
(whether in one or a series of transactions) (collectively, "Dispositions") any
property (including accounts and notes receivable. with or without recourse) or
enter into any agreement to do any of the foregoing, except, so long as no
Default or Event of Default results therefrom:

                 (a) Dispositions of inventory including produced Oil and Gas in
 the ordinary course of business for cash on a current basis;

                                       22

<PAGE>

                 (b) Dispositions of obsolete or worn-out equipment in the
              ordinary course of business;

                (c) Dispositions of Oil and Gas Properties
              contractually held by BOlTOwer for the benefit of BOITower's
              investors upon receipt of-payment trom such investors of all
              amounts due and owning to BOITower attributable to such interests;
              and

                (d) Disposition of BOlTOwer's Oil and Gas
              Properties on a promoted basis to third parties to the extent such
              Oil and Gas Properties are not included in the Col1ateral.

              provided, however, nothing contained herein shall restrict or
              prohibit Dispositions of net revenue and working interests in the
              Oil and Gas Properties contractually held by Borrower for the
              benefit of Borrower's investors in compliance with the terms of
              such agreements.

             . 7.03 . Consolidations and Mergers. Borrower shall not merge,
              consolidate witb or into, or
              convey, transfer, lease or otherwise disP9se of (whether in one
              transaction or in a series of transactions) all or. substantially
              all of its assets (whether now owned or hereafter acquired) to or
              in favor of any .Person. Notwithstanding the foregoing, nothing in
              this Section 7.03. 5ha11 prohibit Borrower trom merging or
              consolidating with one or more other BOlTower, provided that to
              the extent BOITower is a party to such merger or consolidation,
              BOlTower shall be the surviving entity; and further, Drovided.
              that no such merger or consolidation shall affect the Liens or
              security interests of Administrative Agent in and to the
              Collateral.

         7.04 Loans and Investments. Borrower shall not purchase or acquire or
make any commitment therefor, any capital stock, equity interest, or any
obligations or other securities of; or any interest in, any Person, or .make or
commit to make any Acquisitions, or make or commit to make any advance, loan,
extension of credit or capital contribution to or any other investment in, any
Person including any .A.ff1liate of Borrower, except for: (a) investments in
Cash Equivalents; (b) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sale or lease of goods. or services in the
ordinary course of business; (c) extensions of credit or other advances in an
amount not to exceed $20,000 in the estimation of anticipated travel or other
reimbursable expenses to any employees, officers, directors or Lenders.

                 7.05 Limitation on Indebtedness. Borrower shall not create,
             incur, assume, suffer to exist, or otherwise becOD;lC or remain
             directly or indirectly liable with respect to any Indebtedness,
             except (a) Indebtedness incurred pursuant to the Loan Documents,
             (b) Indebtedness consisting of Contingent Obligations permitted
             pursuant to Section 7.08; (c) Indebtedness under the Existing
             Credit Agreement and other Indebtedness in favor of third parties
             (i) on terms and conditions first offered to Lenders which Leriders
             has. declined to provide to Borrower within ten (10) Business Days
             of notice thereof; (ii) Lenders have consented to such Indebtedness
             trom such third party lender, which consent shall not be
             unreasonably withheld, and (iii) such Indebtedness shall be subject
             to an intercreditor agreement between Lenders and any such third
             party lender on terms and conditions reasonably satisfactory to
             Lenders ("Alternative Finandngs") provided that, (A) Lenders' prior
             consent shall not be required in the event Bon-ower arranges
             financing which pays in full at one time all of Borrower's
             Obligations and (B) in the event Borrower proposes to drill any
             future well ("Proposed Well") on the Oil and Properties
             constituting a portion of the Collateral, to the extent such
             Proposed Well is properly permitted, conforms with existing spacing
             rules, and is not a replacement, reworking, redriI1ing or sidetrack
             of the existing well bore of any wells constituting a portion of
             the Collateral, in the event Lender declines to provide such
             financing and BOlTower finds Alternative Financing, Borrower can
             require a release of the Mortgage Property insofar as the lands and
             l~es included within pro ration unit sUlTounding the Proposed Wen
             and Lender shall deliver a release as.to such Proposed Well within
             ten (10) Business Days.ofBoITower's request (provided

                                         23

<PAGE>

 periods, if any, whether at stated maturity or otherwise; (ii) commences any
 Insolvency Proceeding with respect to itself, or (iii) takes any action to
 effectuate or authorize any of the foregoing; or

              . (g) Involuntarv Proceedings. (i) Any involuntary Insolvency
  Proceeding is commenced or filed against Borrower or any Guarantor or any
  writ, judgment, wan-ant of attachment, execution or similar process; is issued
  or levied against all or a substantial part of Borrower's or any Guarantor's
  Properties, and any such proceeding or petition shall not be dismissed, or
  such writ, judgment, warrant of attachment, execution or similar process shall
  not be released, vacated or fully bonded within 60 days after commencement,
  filing or levy; (ii) BOlTower or any Guarantor admits the material allegations
  of a petition against it or any of its Subsidiaries in any Insolvency
  Proceeding, or an
  order for relief is ordered in any Insolvency Proceeding; or (iii) Borrower
  or any Guarantor acquiesces in the appointment of a receiver, trustee,
  custodian, conservator, liquidator. mortgagee in possession (or Administrative
  Agent therefor), or other similar Person for itself or a substantial portion
  of its property or business; or

                  (h) Monetary Judgments. One or more judgments, orders. decrees
  or arbitration awards is entered against BOlTOwer or any Guarantor involving
  in the aggregate a liability (to the extent
 not covered by independent third-party insurance as to which the insurer does
 not dispute coverage) as to 'any single or related series of transactions,
 incidents or conditions in exce-ss of $100.000. and the 'same shall remain
 unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30)
 days after the entry thereof, or

                  (i) Loss of Petmit Any Governmental Authority revokes or fails
 to renew any material license, permit or ftanchise of Borrower or any Guarantor
 or of any of their Subsidiaries, or any such Person for any reason loses any
 material license. permit or franchise, or suffers the imposition of any
 restraining order, escrow, suspension or impound of funds in connection with
 any proceeding (judicial or administrative) with respect to any material
 license, permit or franchise; or ,

                  (j) Adverse Change. There occurs any event or circumstance
which has a Material Adverse Effect; or

                  (k) Chang;e of Control or Mana2ement. There occurs any Change
 of Control or a change of management such that any of the Current Management
 shall cease or fail for any reason to serve and function in their current
 capacity as an executive officer of Borrower and shall not be succeeded in such
 position by a Person acceptable to Lenders; or

                  (l) Invaliditv of Loan Documents. The Loan Documents, or any
 of them. after delivery thereof. shall for any reason, except to the extent
 permitted by the terms thereof. cease to be in full force and effect and valid,
 binding and enforceable in accordance with their terms. or, with respect to the
 Security Documents. cease to create a valid and perfected Lien or security
 interest, as the case may be, of the priority required thereby on any of the
 Collateral purported to be covered thereby. except to the extent permitted by
 the terms of this Agreement, or Borrower or any Guarantor shall so state in
 writing.

         8.02 Remedies. If any Event of Default occurs and is continuing,
Lenders shall:

                 (a) exercise all rights and remedies available to them under
 the Loan Documents or applicable law without presentment, demand, protest,
 notice of intention to accelerate, notice of acceleration or any other no~ce
 of any kind, all of which are hereby expressly waived by the Borrower and

                                       26

<PAGE>

                 . (b) Notwithstanding the foregoing. upon the occurrence of any
              event specified in Subsection 8.01U),or (g), the obligation of
              Lenders to make Loans shall automatically tenninate and the unpaid
              principal amount of all outstanding Loans and all interest and
              other amounts as aforesaid shall automatically become due and
              payable without further act of Lenders.

                      8.03 Set-off: In addition to any rights and remedies of
             Lenders provided by law, if an Event of Default exists, Lenders are
             authorized at any time and from time to time, without prior notice
             to Borrower or any Guarantor, any'such notice being waived by
             BOlTQwer and each Guarantor tQ.the fullest extent permitted by law,
             set off and apply any and all deposits (gen.eral or special, time
             or demand, provisional or final) at any time held by, and other
             indebtedness at any time owing by Lenders to or for .the credit or
             the account of Borrower against any and all Obligations owing to
             Lenders, now or hereafter existing, irrespective of whether Lenders
             shall have made demand under. this Agreement or any Loan Document
             and although such Obligations may be contingent or unmatured.

                 8.04 Payments Set Aside. To the extent that Borrower or any
             Guarantor makes a payment to Lenders, or a Lenders exercises its
             right of set-off, and such payment or the proceeds of such set-off
             or any part thereof are subsequently invalidated, declare~ to be
             ftaudulent or preferential, set aside or required (including
             pursuant to any settlement entered into by such Lenders in its
             discretion) to be repaid to a trustee, receiver or any other party,
             in connection with any Insolvency Proceeding or otherwise, then to
             the extent of such recovery the obligation or part thereof
             originally intended to be satisfied shall be revived and continued
             in full force and effect as if such payment had not been made or
             such set-off had not occurred.

                 8.05 Subordination of the Loan Party Liens.

                 (a) Each Guarantor hereby subordinates and assigns in favor of
Administrative Agent any and all Liens, statutory or otherwise and any rights
of offset it has or may have in the future against BOlTower's interests in the
Collateral including the Mortgaged Properties and the Contracts and Records
(defined below).

                 (b) Following the occurrence and during the
            continuance of any Event of Default,
          . Lenders are expressly granted the right at their option, to visit
            and inspect (i) each Guarantor's offices wherein contracts and
            records regarding any of the Collateral are located, including all
            books and records, farmout agreements, area of mutual interest
            agreements, development agreements, geologic and geophysical survey
            agreements, operating agreements, contracts and other agreements
            that relate to any of the Mortgaged Properties, proprietary seismic,
            geological and geophysical, drilling and production data and
            records, all accounting records, joint interest billing records,
            division order records, land files, and contracts and records
            referring to the production, sale, purchase, exchange or processing
            of Oil and Gas whether such data, information or agreements are in
            written form or electronic format (collectively "Contracts a"d
            Records't), and to examine, take copies and extracts therefrom, at
            Borrower's expense and (ii) any of the Mortgaged Properties.

                 (c) Following the occurrence and during the
            continuance of an Event of Default, each Guarantor acknowledges that
            Lenders is expressly granted the right to exercise any and all
            LieD$, statutory or otherwise, rights of offset or recoupment it has
            and to receive the monies, income, proceeds, or benefits
            attributable to the sale of Oil and Gas from or attributable to the
            Mortgaged Properties, to hold the same as security for the
            Obligations and to apply it on the principal and' interest or other
            amounts owning on any of the Obligations, whether or not then due,
            in such order or manner as Lenders may elect.

                . (d) In the event of a foreclosure, deed in lieu of
            foreclosure, appointment of a receiver, custodian or keeper or other
            transfer of record or beneficial ownership or operations of the

                                        27

<PAGE>

     Collateral~ each Guarantor, as bailee, agrees to cooperate and assist
     Administrative Agent, its officers, Administrative Agents and counsel in
     the peaceful transfer and delivery of such Contracts and Records to such
     party or parties as Administrative Agent may in writing direct.

         8.06 Rights Not Exclusive. The rights provided for in this Agreement
     and the other Loan Documents are cumulative and are not exclusive of any
     other rights, powers, privileges or remedies provided by law or in equity,
     or under any other instrument, document or agreement now existing or
     hereafter arising.

                                   ARTICLE IX.
                              ADMINISTRATIVE AGENT

         9.01 Appointment and Authorization. Each Lender hereby irrevocably
    (subject to Section 9.09) appoints. designates and authorizes Administrative
    Agent to take such action on its behalf under the provisions of this
    Agreement and each other Loan Document and to exercise such powers and
    perform such duties as are expressly delegated tp it by the terms of this
    Agreement or any other Loan Document, together with such powers as are
    reasonably incidental thereto. Each Lender hereby irrevocably (Subject to
    Section 9.09) appoints and designates Administrative Agent as Collateral
    Agent, and authorizes Administrative Agent in such capacity as Collateral
    Agent to take such action on its behalf. Notwithstanding any provision to
    the contrary contained elsewhere- in this Agreement or in any other Lom
    Document, Administrative Agent shall have only such duties or
    responsibilities. as expressly set forth herein, Administrative Agent shall
    not have or be deemed to have any fiduciary relationship with any Lender,
    and no implied covenants, functions. responsibilities. duties. obligations
    or liabilities shall be read into this Agreement or any other Loan Document
    or otherwise exist against Administrative Agent.

             9.02 Delegation of Duties. Administrative Agent may execute any of
    its duties under this Agreement or any other Loan Document by or through
    agents, employees or attorneys-in-fact and shall be entitled to advice of
    counsel concerning all matters pertaining to such duties. Administrative
    Agent shall not be responsible for the negligence or misconduct of any agent
    or attorney-in-fact that it selects with reasonable care.

     - 9.03 Liability of Administrative Agent. None of the Agent-Related Persons
    shall (i) be liable for any action taken - or omitted to be taken by any of
    them under or in connection with this Agreement or any other Loan Document
    or the transactions contemplated hereby or thereby (except for its own gross
    negligence or willful misconduct). or (ii) be responsible in any manner to
    any of the Lenders or any Affiliate of any Len~er for any recital,
    statement, representation or warranty made by any Loan Party or any
    Affiliate of a Loan Party. or any officer thereof, contained in this
    Agreement or in any other Loan Document, or in any certifIcate, report,
    statement or other document referred to or provided for in. or received by
    Administrative Agent under or in connection with. this Agreement or any
    other Loan Document, or the validity. effectiveness (other than such
    Agent-Related Person's own due execution and  delivery),  genuineness,
    enforceability  or sufficiency of this Agreement or any other Loan
    Document. or for any failure of any Loan Party or any other party to any
    Loan Document to perform its obligations hereunde~ or thereunder. No
    Agent-Related Person shall be under any obligation to anyLender to ascertain
    or to inquire as to the observance or performance of any oftlie agreements
    contained in, or conditions of, this Agreement or any other Loan Document,
    or to inspect the properties. books or records of any Loan Party or any
    Affiliate of any Loan.

            9.04 Reliance by Administrative Agent.

                    (a) Administrative Agent shall be entitled to rely, and
   shall be fully protected in relying, - upon any writing. resolution, notice.
   consent, certificate; affidavit, letter. telegram, electronic

                                    28

<PAGE>

  mail, facsimile, telex or telephone message, statement or other document or
  conversation believed by it to be genuine and correct and to have been signed,
  sent or made by the proper Person or Persons, and upon advice and statements
  of legal counsel, independent accountants and other experts selected by
  Administrative Agent. Administrative Agent shall be fully justified in failing
  or refusing to take any action under this Agreement or any .other Loan
  Document unless it shall fJrSt receive such advice or concurrence of the
  Lenders as it deems appropriate and, if it so requests, it shall first be
  indemnified to its satisfaction by the Lenders and their Affiliates against
  any and all liability and expense which may be incurred by it by reason of
  taking or  continuing  to take any such action.  Administrative  Agent shall
  in all cases be fully protected in acting. or in refraining nom acting, under
  this Agreement or any other Loan Document in accordance with a request or
  consent of the Lenders and such request and any action taken or failure to act
  pursuant thereto shall be binding upon all of the Lenders.

                   (b) For purposes of determining compliance with the
  conditions specified in Section 4.01, each Lender that has made available to
  Administrative Agent its Pro Rata Share of the initial Loan or subsequent
  Loan, as the case may be, shall be deemed to have consented to; approved or
  accepted or to be satisfied with, each document or other matter either sent by
  Administrative Agent to such Lender for consent, approval, acceptance or
  satisfaction, or required thereunder to be consented to or approv~ by or
  acceptable or satisfactory to the Lender as a condition precedent to such
  initial Loan or subsequent Loan, as applicable.

          9.05 Notice of Default. Administrative Agent shall not be deemed to
  have knowledge or notice of the occurrence of any Default or Event of Default,
  unless Administrative Agent shall have received written notice from a Lender
  or Borrower referring to this Agreement, describing such Default or Event of
  Default and stating that such notice is.a "notice of default'. Administrative
  Agent will notify the Lenders of its receipt of any such notice. Subject to
  Suhsection 9.04(a), Administrative Agent shall taICe such action with respect
  to such Default or Event of Default as may be requested unanimously by the
  Llenders in accordance with Article VIII; provided that unless and until
  Administrative Agent has received any such request, Administrative Agent may
  (but shall not be obligated to) take such action, or refrain from taking such
  action. with respect to such Default .or Event of Default as it shall deem
  advisable or in the best interest of the Lenders.

   . 9.06 Credit Decisions. Each Lender acknowledges that none of the
 Agent-Related Persons has made any representation or warranty to it, and that
 no act by any Agent-Related Person hereafter taken, including any review of the
 affairs of Borrower, shall be deemed to constitute any representation or
 warranty by any Agent-Related Person to any Lender. Each Lender represents to
 Administrative Agent that it has, independently and without reliance upon any
 Agent-Related Person and based on such documents and information as it has
 deemed appropriate, made its own appraisal of and investigation into the
 business, prospects, operations, property, financial and other condition and
 creditworthiness of Borrower, and all applicable bank regulatory laws relating
 to the transactions contemplated hereby, and made its own decision to enter
 into this Agreement and to extend credit to Borrower hereunder. Each Lender
 also represents that it will, independently and without reliance upon any
 Agent-Related Person and based on such documents and information as it shall
 deem appropriate at the time, continue to make its own credit analysis,
 appraisals and decisions in taking or not taking action under this Agreement
 and the other Loan Documents and Hedge Agreements, and to make such
 investigations as it deems necessary to inform itself as to the business,
 prospects, operations, property, fmancial and other condition and
 creditworthiness of Borrower. Except for notices, reports and other documents
 expressly herein required to be furnished to the Lenders by Administrative
 Agent, Administrative Agent shall not have any duty or responsibility to
 provide any Lenoer with any credit or other information concerning the
 business, prospects, operations, property, fmancial and other condition or
 creditworthiness of Borrower which may come into the possession of any of the
 Agent-Related Persons.

                                       29

<PAGE>

              9.07 . INDEMNIFICATION. Whether or not the transactions
              contemplated hereby are consummated,  the Lenders and any
              Affiliates of the Lenders shall  indemnify upon demand
              the Agent Related Persons (to the extent not reimbursed by or on
              behalf of Borrower and without limiting the obligation of Borrower
              to do so>>) pro rata according to each respective Lender's Pro
              Rata Share) each Agent-Related Person from and against any and
              all Indemnified Liabilities INCLUDING SUCH INDEMNIFIED
              LIABILITIES AS MAY ARISE OR BE CAUSED BY THE NEGLIGENCE, SOLE,
              JOINT) CONCURRENT, COMPARATIVE OR OTHERWISE OF SUCH AGENT-RELATED
              PERSONS; provided) however, that no Lender shall be liable for the
              payment to any Agent-Related Persons of any portion of such
              Indemnified Liabilities to the extent the same arise from (i) the
              gross negligence or willful misconduct of any Agent-Re~ted Person
              or (ii) a claim or action asserted by one or more other
              Agent-Related Persons. WIthout limitation of the foregoing, each
              Lender shall reimburse
              Administrative Agent upon demand for its ratable. share of any
              costs or out-of-pocket expenses (including Attorney Costs)
              incurred by Administrative Agent in connection with the
              preparation) execution, delivery, administration) modificatJon,
              amendment or enforcement (whether through negotiations) legal
              proceedings or otherwise) of, or legal advice in respect of rights
              or responsibilities under, this Agreement, any other Loan
              Document) or any document contemplated by or referred to herein,
              to the extent that Administrative Agent is not reimbursed for such
              expenses by or on behalf of Borrower. The undertaking in this
              Section shall sUrvive the payment of all Obligations hereunder
              and. the resignation or replacement of Administrative Agent.

         9.08 Administrative Agent in Individual Capacity. Administrative Agent,
in its individual capacity, may make loans to acquire equity interests in and
generally engage in any kind of banking, trust, fmancial advisory) underwriting
or other business with. Borrower of any Affiliate thereof as though
Administrative Agent were not Administrative Agent hereunder and without notice
to or consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, Administrative Agent qr its Affiliates may receive infonnation
regarding Borrower (including infonnation that may be subject to confidentiality
obligations in favqr of Borrower) and acknowledge that the Agent-Related Persons
shall be under no obligation to provide such information to them. With respect
to its Loans) Administrative Agent, in its individual capacity as a Lender)
shall.have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though. it were not Administrative Agent or the
Issuing Lender.

                  9.09 Successor Administrative Agent. Administrative Agent may
             resign as Administrative Agent upon 30 days' notice to the Lenders.
             If Administrative Agent resigns under this Agreement, the Lenders
             shall appoint ftom among the Lenders a successor administrative
             agent in the same capacity as the retiring Administrative Agent for
             the Lenders: If no successor administrative agent is appointed
             prior to the effective date of the resignation of such retiring
             Administrative Agent, such retiring Administrative Agent may
             appoint, after consulting with the Lenders, a successor
             administrative agent from: among the Lenders. Upon tb,e acceptance
             of its appointment as successor administrative agent hereunder,
             such successor administrative agent shall succeed to all. the
             rights, powers and duties of the retiring Administrative Agent and
             the tenn "Administrative Agenf' shall mean such successor
             administrative agent and the retiring Administrative Agent's
             appointment, powers and duties as Administrative Agent.
             shall be terminated. After any retiring Administrative Agent's
             resignation hereunder as Administrative Agent, the provisions of
             this Article IX and Sections 10.04,10.05 and 10.06 shall inure to
             its benefit as to any actiops taken or omitted to be taken by it
             while it was Administrative Agent under this Agreement. If no
             successor administrative agent has accepted appointment as
             Administrative Agent in the same capacity as the retiring
             Administrative Agent by the date which is 30 days followirig a
             retiring Administrative Agent) s notice of resignation, the
             retiring Administrative Agent shall either withdraw its resignation
             or may appoint as a successor administrative agent a commercial
             bank organized under the laws of the United States of America or of
             any State thereof.

                                        30
<PAGE>
                                   ARTICLE X
                                 MISCELLANEOUS

           10.01 Amendments and Waivers. No amendment or waiver of any provision
   of this Agreement or any other Loan Document, and no consent with respect to
   any departure by Borrower therefrom, shall be effective unless the same shall
   be in writing and signed by Administrative Agent,
  . Lenders and Borrower and then any such waiver or consent shall be effective
  only in the specific instance and for the specific purpose for which given.

           10.02 Notices.

                    (a) Subject to the limitations set forth in
   Subsection lO.02(d) below, Borrower is authorized to receive on behalf of
   itself and e~h Guarantor all notices from Lenders at the address, facsimile
   number and electronic mail address for Borrower set out on Appendix I; and
   all notices to Lenders shall be sent to Lenders at each Lenders' address,
   facsimile number and electronic mail address set forth on Appendix I.

                   (b) All notices, requests, consents and other
  communications required or permitted hereunder or under any other Loan
  Document shall be in writing and mailed, faxed, delivered, or (subject to
  Subsection lO.02(d) below) transmitted by electronic mail, to the address,
  facsimile number, or electronic mail address specified for notices; or, as
  directed to Borrower, Lenders to such other address as shall be designated by
  such Person in a written notice to the other parties, and as directed to any
  other party, at such other address as shall be designated by such party in a
  written notice to Borrower, Administrative Agent and Lenders.

                   (c) All such notices, requests, consents and communications
  shall be deemed to be given or made, and shall be effective; upon the earlier
  to occur of (i) actual receipt by the intended recipient or (ii) (A) if
  delivered by hand or by courier, when signed for by the intended recipient or
  an authorized representative of such recipient; (B) if delivered by mail, the
  third Business Day after the date on which such mail, postage prepaid was
  depQsited in the U.S. mail; (C) if delivered by facsimile, when
.. transmitted in legible form by facsimile machine; and (D) if delivered by
  electronic mail or via internet or intranet websites (which form of delivCIy
  is subject to the provisions of Subsection lO.02(d) below), when delivered;
  provided, however, that notice and other communications to Administrative
  Agent or Lenders pursuant to Article II or Article VI shall not be effective
  until actually receiyed by Administrative Agent or the Lender to which such
  notice was addressed.

                   (d) Electronic mail and interIiet and intranet websites may
  be used only to distribute routine communications, such as financial
  statements and other information, and to distribute Loan Documents for
  execution by the parties hereto, and shall not be recognized for any other
  purpose.

                   (e) Any agreement of any Administrative Agent or Lenders
  herein to receive certain notices by telephone or facsimile is solely for the
  convenience and at the request of the Borrower. Administrative Agent and
  Lenders shall be entitled to rely on the authority of any Person purporting to
  be a Person authorized by Borrower t6 give such notice and neither
  Administrative Agent nor Lenders shall not have any liability to Borrower on
  account of any action taken or not taken by Administrative Agent or Lenders in
  reliance upon such telephonic or facsimile notice. The obligation of Borrower
  to repay the Loans shall not be affected in any way or to any extent by any
  failure by Administrative Agent or Lenders to receive written conflfIDation of
  any telephonic or facsimile notice or the receipt by Administrative Agent or
  Lenders of a confumat~on which is at variance with the terms understood by
  Lenders to be contained in the telephonic or facsimile notice.

                                   31

<PAGE>

           10.03 No Waiver; Cumulative Remedies. No failure to exercise and no
  delay in exercising, on the part of Administrative Agent or Lenders, any
  right, remedy; power or privilege hereunder, shall operate as a waiver
  thereof; nor shall any single or partial exercise of aily right, remedy, power
  or privilege hereunder preclude any other or further exercise thereof or the
  exercise of any other right, remedy, power or privilege.

           10.04 Costs and Expenses. Borrower shall whether or not the
  transactions contemplated hereby are consummated, pay or reimburse
  Administrative Agent and Lenders within five (5) Business Days after demand
  (or the date of Closing if sooner) for all reasonable costs and expenses
  incurred by Administrative Agent and Lenders in connection with the
  development, preparation, delivery, administration and execution of, and any
  amendment, supplement, waiver or modification to (in each case, whether or not
  consummated), this Agreement, any Loan Document and any other documents
  prepared in connection herewith or therewith, and the consummation of the
  transactions contemplated hereby and thereby, including attorney costs
  incurred by Adnlinistrative Agent and Lenders with respect thereto.

          10.05 Indemnity.  Whether or not the transactions contemplated hereby
 are consummated, Borrower and each Guarantor shall jointly and severally
 indeDlllifY and hold Administrative Agent and each Lender, and each of its
 Affiliates, officers, directors, employees, counsel, Administrative Agents and
 attorneys-in-fact (each an "Indemnified Person") harmless trom and against
 any and all liabilities, obligations, losses, damages, penalties, actions,
 judgments, suits, costs, charges, expenses and disbursements (including
 attorneys' fees and expenses) of any kind or nature whatsoever which may at any
 time (including at any time following repayment of the Loans) be imposed on,
 incurred by or asserted against any Indemnified Person in any way relating tp
 or arising out of this Agreement or "any document contemplated by or referred
 to herein, or the transactions contemplated hereby, or any action taken or
 omitted by any Indemnified Person under or in connection with any of the
 foregoing, including with respect to any investigation, litigation or
 proceeding (including any Insolvency Proceeding or appellate proceeding)
 related to or arising out of this Agreement or the Loans or the use of the
 proceeds thereof, whether or not any Indemnified Person is a party thereto (all
 the foregoing, collectively, the "Indemnified Liabilities") WHETHER OR NOT SUCH
 INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY INDEMNIFIED PERSONS
 NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT LIMITATION, THOSE CLAIMS
 WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE
 INDEMNIFIED PERSON, OR ANY ONE OR MORE OF THEM, provided that Borrower shall
 not have any obligation hereunder to any Indemnified Person with respect to
 Indemnified Liabilities to the extent same arise trom the gross negligence or
 willful misconduct of such Indemnified Person as determined by a final judgment
 rendered by a court of competent jurisdiction, or that arise solely by reason
 of claims among Indemnified Persons; provided, however, no indemnity shall be
 afforded under this Section 10.05 in respect of any property for any occurrence
 arising from the acts or omissions of Administrative Agent or any Lender during
 the period after which Borrower, its successors or assigns, or their
 Administrative Agents or representatives, shall have obtained possession of
 such Property (whether by foreclosure or deed in lieu of foreclosure, as
 mortgagee-in-possession or otherwise). The agreements in this Section shall
 survive payment of aU other Obligations. "

         10.06 Environmental Indemnification. In addition to the
indemnifications hereunder and under any other Loan Documents, the Borrower,
jointly and severally, shall indemnify, protect and hold each Indemnified
Person hannless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, proceedings, costs,
expenses (including, without limitation, all attorneys' fees and legal expenses
whether or not suit is brought) and disbursements of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted against
such Indemnified Person, with respect to or as a direct or indirect result of
the violation by Borrower or each Guarantor of

                                   32

<PAGE>

  any Environmental Law; or with respect to or as a direct or indirect result of
  Borrower's or each Guarantor's use, generation, manufacture, production,
  storage, release, threatened release, discharge, disposal or presence in
  connection with the Mortgaged Properties of a hazardous substance including,
  without limitation, (a) all damages of any sucb use, generation, manufacture,
  production, storage, release, threatened release, discharge, disposal or
  presence, or (b) the costs of any reasonably required or necessary
  environmental investigation, monitoring, repair, cleanup or detoxification
  and the preparation and implementation of any closure, remedial or other plans
  (all the foregoing, collectively, the "Indemnified Environmental
  Liabilities"). Each of Borrower and each Guarantor agree to indemnify and hold
  each Indemnified Person harmless as provided in this Section 1O.06, WHETHER OR
  NOT THE INDEMNIFIED ENVIRONMENTAL LIABILITIES ARISE OUT OF OR AS A RESULT OF
  ANY INDEMNIFIED PERSON'S NEGliGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT
  LIMITATION, THOSE INDEMNIFIED ENVIRONMENTAL LIABILITIES WHICH RESULT FROM
  THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED
  PERSON, OR ANY ONE OR MORE OF THEM provided; that Borrower and each Guarantor
  shall not have any obligation hereunder to any Indemnified Person with respect
  to Indemnified Environmental Liabilities to the extent same arise from the
  gross  negligence or willful misconduct of such ~demnified Person as
  determined by a final judgment rendered by a court of competent jurisdiction.
  The provisions of and undertakings and indemnification set forth in this
  Section 10.06 shall survive (x) the satisfaction and payment of the
  Obligations and termination of this Agreement, and (y) the release of any
  Liens securing the Obligations or the extinguishment of such Liens by
  foreclosure or action in lieu thereof.

          10.07 Successors and Assigns. The provisions of this Agreement shall
 be binding upon and inure to the benefit of the parties hereto and their
 respective successors and assigns, except that neither Borrower nor either
 Guarantor may assign or transfer any of its rights or obligations under this
 Agreement without the prior written consent of Lenders. Either Lender may at
 any time assign and delegate to one or more Persons (each an "Assignee") all,
 or any ratable part of all, of its Loans and the other rights and 9bligations
 of Lenders hereunder.

          10.08 Interest

                  (a) It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Agreement, the Notes or in any of the" other Loan Documents
securing the payment hereof or otherwise relating hereto, in no event shall this
Agreement, the Notes or such other Loan Documents require the payment or pennit
the payment, taking, reserving, receiving, collection, or charging of any sums
constituting interest under applicable laws, if any, which exceed the maximum
amount permitted by such laws. If any such excess interest is called" for,
contracted for, charged, taken, reserved, or received in connection with the
Loans evidenced by the Notes or in any of the Loan Documents securing the
payment thereof or otherwise relating thereto, or in any communication by
Lenders or any other person to Borrower or any other person, or in the event all
or part of the principal "or interest thereof shall be prepaid or accelerated,
so that under
any of such circumstances or under any other circumstance whatsoever the amount
of interest contracted for, charged, taken, reserved, or received on the amount
of principal aCtually outstanding from time to time under the Notes shall exceed
the maximum amount of interest permitted by applicable usury laws, then in any
such event it is agreed as follows: (i) the provisions of this paragraph shall
govern and control, (ii) neither Borrower nor any other person or entity now or
hereafter liable for the payment and performance of the Obligations shall be
obligated to pay the amount of such interest to the extent such interest is in
excess of the maximum amount of interest permitted by applicable usury laws,
(iii) any such excess which is or has been received notwithstanding this
paragraph shall be credited against the then unpaid principal balance of the"
Notes or, if the Notes have been or would be paid in full, refunded to Borrower,
and (iv) the provisions of this Agreement, the Notes and the other Loan
Documents securing the payment hereof and

                                   33

<PAGE>

              otherwise relating hereto, and any communication to Borrower, shaH
              immediately be deemed reformed and such excess interest reduced,
              without the necessity of executing any other document, to the
              Highest Lawful Rate allowed under applicable laws as now or
              hereafter construed by courts having jurisdiction.
              hereof or thereof. Without limiting the foregoing, all
              calculations of the rate of the interest contracted for, charged,
              taken, reserved, or received in connection with the Notes or this
              Agreement which are made for the purpose of determining whether
              such rate exceeds the Highest Lawful Rate shall be made to the
              extent pennitted by applicable laws by amortizing, prorating,
              allocating and spreading during the period of the full tennof the
              Loans, including all prior and subsequent renewals and extensions,
              all interest at any time contracted for, charged, tak~n, reserved,
              or received. The tenns of this paragraph shall be deemed to be
              mcorporated in every document and communication relating to the
              Note, the Loans or any other Loan Document.

                               (b) Texas Finance Code, Chapter 346 (which
              regulates certain revolving loan accounts and revolving tri-party
              accounts) shall not apply to any Loans.

                               (c) To the extent that the interest rate laws of
             the State of Texas are applicable to the Loans, the applicable
             interest rate ceiling is the indicated (weekly) ceiling from time
             to time in affect under Texas Finance Code ss.303.001, as limited
             by Texas Finance Code ss.303.009, and to the extent that this
             Agreement is deemed an "open end account" as such term is defined
             in Texas Finance Code ss.301.002(a)(14). Lenders retain the right
             to modify the interest rate in accordance with applicable law.

             10.09 Counterparts and FacsimUe Signatures. This Agreement may be
   executed in any number of separate counterparts. each of which. when so
   executed, shall be deemed an original, and all of said counterparts taken
   together shall be deemed to constitute but one and the same instrument. The
   Loan Documents may be transmitted and/or signed by facsimile. The
   effectiveness of any such documents and signatures shall, subject to
   applicable law, have the same force and effect as manually-signed originals
   and shall be binding on Borrower, each Guarantor. Administrative Agent and
   Lenders may also require that any such documents and signatures be confirmed
   by a manually-signed original thereof; provided, however. that the failure to
   request or deliver the same shall not limit the effectiveness of any
   facsimile document or signature.

                      10.10 Severability. The illegality or unenforceability of
             any provision of this Agreement or any instrument or agreement
             required hereunder shall not in any way affect or impair the
             legality or enforceability of the remaining provisions of this
             Agreement or any instrument or agreement required hereunder. .

                      10.11 No Third Parties  Benefited.  This  Agreement and
             the other Loan  Documents are made and entered into for the sole
             protection.  and legal  benefit of borrower,  each Guarantor,
             Administrative  Agent and Lenders. and their permitted successors
             and assigns, and no other Person shall be a direct or
             indirect legal beneficiary of, or have any direct or indirect
             cause of action or claim in connection with this Agreement or any
             of the other Loan Documents.

                     10.12 USA PATRIOT Act Notice. Each Lender hereby notifies
             Borrower and each Guarantor that pursuant to the requirements of
             the USA Patriot Act (Title m of Pub. L. 107-56 (signed into law
             October 26, 2001) (the "Acf') it is required to obtain, verify
             and record information that identifies Borrower and each Guarantor.
             which information includes the name and address of BOlTower and
             each Guarantor and other information that will allow Lenders to
             identify Borrower and each Guarantor in accordance with the Act.

                     10.13  Governing Law. This  Agreement,  the. Note, the
            Guarantees,  the Investor Rights Agreement,  the Security Documents,
            and the other Loan Documents shall be governed by construed and

                                         34

<PAGE>

  interpreted in accordance with, the laws of the State of Texas, except to the
  extent that federal laws of the United States of America apply.

          10.14 Submission To Jurisdiction. With respect to any and all
  disputes arising hereunder, or under the Note, the Security Documents, the
  other Loan Documents, or any of the other instruments and documents executed
  in connection herewith or therewith Dot settled, each of Borrower, each
  Guarantor, Administrative Agent and Lenders hereby irrevocably and
  unconditionally:

                  (a) submits for itself and its Property in any legal action or
 proceeding relating to this Agreement, the Notes and any document to which it
 is a party, or for recognition and enforcement of any judgment in respect of
 any thereof, to the non-exclusive general jurisdiction of the courts of the
 State of Texas, the courts of the United States of America for the Northern
 District of Texas, and appellate courts trom any thereof;

                  (b) consents that any such action or proceeding may be brought
 in such courts, and waives any objection that it may now or hereafter have to
 the venue of any such action or proceeding in any such court or that such
 action or proceeding was brought in an inconvenient court and agrees not to
 plead or claim the same;

                  (c) agrees that nothing herein shall affect the right to
 effect service of process in any other manner permitted by law or shall limit
 the right to sue in any other jurisdiction; ,

                  (d) agrees that service upon it or its authorized agent shall,
 to the fullest extent permitted by law, constitutes valid and effective'
 personal service upon it, as the case' may be, and that the failure of any such
 authorized agent to give any notice of such' service to it shall not impair or
 affect in any way the validity ,of such service or any judgment rendered in any
 action or proceeding based thereon; and

                  (e) waives, to the fullest extent permitted by applicable law,
 any objection, including any objection to the laying of venue or based on the
 grounds of forum non conveniens, which it may now or hereafter have to the
 bringing of any action or proceeding in such jurisdiction in respect of this
 agreement or any document related hereto.

         10.15 Waiver of Jury Trial. Borrower and each Guarantor each waives, to
 the fullest extent permitted by applicable law, its rights to a trial by jury
 of any claim or cause of action based upon or arising out of or related to this
 Agreement, the Note, the Security Documents, the Investor Rights Agreement, the
 other Loan Documents, or the transactions contemplated hereby or thereby, in
 any action, proceeding or other litigation of any type brought by any of the
 parties against any other party or any Indemnified Person, or assignee thereof,
 whether with respect to contract claims, tort claims, or otherwise. Borrower
 and each Guarantor, to the fullest extent permitted by applicable law, each
 agrees that any such claim or cause of action shall be tried by a court trial
 without a jury. Without limiting the foregoing, to the fullest extent permitted
 by applicable law, Borrower and each Guarantor each further agrees that its
 respective right to a trial by jwy is waived by operation of this section as to
 any action, counterclaim or other proceeding which seeks, in whole or in part,
 to challenge the validity or enforceability of this Agreement or the other Loan
 Documents or any provision hereof or thereof. This waiver shall apply to any
 subsequent amendments, renewals, supplements or modifications to this Agreement
 and the other Loan Documents.

         10.16 Entire Agreement. This Agreement,  together with the other Loan
Documents,  embodies the entire agreement and understanding among the Borrower,
Guarantors, Administrative Agent and

                                       35

<PAGE>

 Lenders and supersedes aU prior or contemporaneous agreements and
 understandings of such Persons, verbal or written. relating to the subject
 matter hereof and thereof.

         10.17 NO ORAL AGREEMENTS. THIS WRITfEN LOAN AGREEMENT, TOGETHER WITH
THE OTHER WRITIEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITII. 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.

                  [The Remainder of/his Page Intentionally left
                       Blank. Signature Pages to Follow.]

<PAGE>

    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
  duly executed and delivered in Dallas, Texas by their proper and duly
  authorized officers as of the day and year first above written.

  BORROWER:
   EBS OIL AND GAS PARTNERS PRODUCl10N CO., LP.

   By:

   EBS OIL AND GAS PARTNERS PRODUCTION GP, LLC, its General Partner

   By:

 GUARANTORS:

 EBS OIL AND GAS PARTNERS PRODUCTION GP, LLC

 By:

James I. Staley, II
Member & Board Member

 EBS OIL AND GAS PARTNERS OPERATING CO., LoP.

 By:

EBS OIL AND GAS PARTNERS OPERATING GP, LLC, its General Partner

By:

James I. Staley, II
Member & Board Member

<PAGE>

 ADMINISTRATIVER AGENT

 PETRO CAPITAL II L.P., a Texas limited partnership

  By:

 Petro/EBS Management, LLC. a Texas limited liability company,
 its General Partner

By:

<PAGE>

  LENDER

  LEVY FAMILY PARTNERS, LLC
      ---------------------
  By;
  Name:
  Title:

  Address:
  980 North Michigan Ave., Suite 400 Chicago, lllinois 60611
  Tel: (312) 245-2915
  Fax: (312) 280-2739

  LENDER

  X-MEN, L.L.C.

 By:
 Name:
 Title:

 Address:
 520 Lake Cook Road, Suite 105 Deerfield, Dlinois 60015
 Tel: (847) 282-5200
 Fax: (847) 282-5220

 LENDER

 ALBERT ADRIANI

 Address:
 930 North York, Suite 200
 Hinsdale, lllinois 60521
 Tel: (630) 484-5120
 Fax: (630) 230-0174

<PAGE>

   LENDER

   BARGUS PARTNERSHIP
   By:
   AUGUST C. SCHULTES, IV, its general parmer
   -------------------------

  Address:
  664 South Evergreen Ave.
  Woodbury Heights, New Jersey 08097
  Tel: (856) 845-5656
  Fax: (856) 845-1335

  LENDER

  BARRY COHN

  Address:
  2505 Astor Court
  Glenview, TIlinois 60026
  Tel: (847) 282-5200
  Fax: (847) 282-5220

 LENDER

 PATRICK PARKER

 Address: Scarborough Building, 6th and Congress
 101 W. 6th Street, Suite 610
 Austin, Texas 78701
 Tel:
 Fax:

<PAGE>

    LENDER

    EDWIN J. HAGERTY

    Address: .
    5100 Westgrove Drive.
    Dallas, Texas 75248
    Tel: (972) 701-3060
    Fax: (847) 701-3091

    LENDER

    BRUCE GOLDSTEIN

   Address:
   1934 Deercrest Lane
   North Brook, IL 60062
   Tel: (847) 778-0903
   Fax: (847) 282-5220

<PAGE>

   LENDER

   PETRO CAPITAL ADVISORS, LLC

  By:
  Tracy Scott Turner
  Manager

.. Address:
  3838 Oak Lawn Ave., Suite 1775
  Dallas,  Texas  75219
  Tel:  (214)  661-7762
  Fax:  (214) 661-7760

  LENDER

  MILTON P. WEBSTER, ill

 Address:
 9624 Mountain Ridge Place Boulder, CO 80302
 Tel: (303) 402-9320
 Fax: (214) 443-0680

<PAGE>

                                CREDIT AGREEMENT

            dated as of May 20, 2005 between Petro Capital II, L.P.
              ("Administrative Agent") and EBS Oil and Gas Partners
                        Production Co., L.P. ("Borrower')

             This Appendix I is attached to and made a part of the Credit
     Agreement. All capitalized tenns not otherwise defme4 in this Appendix I
     are defmed "in the Credit Agreement.

    Administrative Agent:

    Petro Capital IT, L.P.
    Attn: Tracy Scott Turner
    Phone: (214) 661-7762
    Fax: (214) 661-7760
    Email: turner@petrocapital.com

    Borrower:

    EBS Oil and Gas Partners Production Co., L.P.
    Attn: James I Staley
    Phone: (214) 526-2696
    Fax: (214) 520-1804
    Email: J.I.Staley@ebsci.com

    Guarantors:

    EBS Oil and Gas Partners Production GP, LLC.
    Attn: James I Staley
    Phone: (214) 526-2696
    Fax: (214) 520-1804
    Email: J.I.Staley@ebsci.com

   EBS Oil and Gas Partners Operating Co., L.P.
   Attn: James I Staley
   Phone: (214) 526-2696
   Fax: (214) 520-1804
   Email: J.I.Staley@ebsci.com

   Borrower's General Partners: Managers/Officers:

   Borrower is managed by EBS Oil and Gas Partners Production GP, LLC. There are
   no officers of Borrower. EBS Oil and Gas Partners Production GP, LLC is
   managed by a three member Management Committee comprised of Kelly K. Buster,
   James I Staley II, and Noell C. Rather, there are no officers of Borrower.

<PAGE>

  EBS Oil and Gas Partners Operating Company, L.P. is managed by EBS Oil and Gas
  Partners Operatin1 GP, LLC. There are no officers ofEBS Oil and Gas Partners
  Operating Company, L.P.. EBS Oil and Gas Partners Operating GP, LLC is managed
  by a three member Management Committee comprised of Kelly K. Buster, James I
  Staleyll, and Noell C. Rather, there are no officers of Borrower.

  Ownership'ofBorrower and Guarantors

 Borrower.

 EBS on and Gas Partners Production Company, L.P. .

 EBS Oil and Gas Partners
 Production GP, LLC, General Partner       0.1 percent general partner interest
 James 1. Staley, II                       33.3 percent limited partner interest
 Kelly K. Buster                           33.3 percent limited partner interest
 Enexco, Inc.                              33.3 percent limited partner interest
 Petro Capital II, L.P.                     100 percent Class B limited partner
                                                interes

  EBS Oil and Gas Partners Production GP. LLC
  James I. Staley,II                        33.34 percent membership interest
.. Kelly K. Buster                           33.33 percent membership interest
  Enexco, Inc.                              33.33 percent membership interest

  EBS Oil and Gas Partners Operating Company, L.P.

  EBS Oil and Gas Partners
  Operating GP, LLC, General Partner        0.1 percent general partner interest
  James I. Staley, II                      33.3 percent limited partner interest
  Kelly K. Buster                          33.3 percent limited partner interest
  Enexco, Inc.                             33.3 percent limited partner interest

  EBS Oil and Gas Partners Operating GP. LLC
  James I. Staley, II                     33.34 percent membership interest
  Kelly K. Buster                         33.33 percent membership interest
  Enexco, Inc.                            33.33 percent membership interest

<PAGE>

  1.    LOAN TERMS

  A. Maximum Loan Amount - (Section 1.01):  $3,500,000.00

  B. Lenders' Pro Rata Share:

       (i) Levy Family Partners, LLC           28.57% ($1,000,000.00)
       (ii) X-Men, L.L.C.                      30.29% ($1,060,000.00)
       (iii) Albert Adriani                    14.29% ($500,000.00)
       (iv) Bargus Partnership                  7.71% ($270,060.00)
       (v) Barry Cohn                           7.71% ($270,000.00)
       (vi) Patrick Parker                      5.71% ($200,000.00)
       (vii) Edwin 1. Hagerty                   2.86% (SI00,000.00)
       (viii) Bruce I. Goldstein                1.07% ($37,500.00)
       (ix) Petro Capital Advisors, LLC         1.43% ($50,000.00)
       (x) Milton P. Webster, III               0.36% ($12,500.00)

 C. Pricing - (Section 2.03 )

Contract Rate: The per annum rate to equal to twelve percent (12%).

Default Rate: lesser of:
        (i) Contract Rate plus 5% or
       (ii) Highest Lawful Rate

Stated Maturity Date (Section 1.02):  Ninety (90) days from Closing

Fees (Section 2.04)

    Origination Fee (Petro Capital Securities, LLC): 6% of Maximmum Loan Amount

ADDITIONAL CLOSING CONDITIONS (if any) (Subsection 4.01(f):

A.Borrower shall have delivered to Lenders, fully executed and completed Letters
in Lieu in th form of Exhibit B hereto and as described. in Subsection 3.05(a),
addressed to each c Borrowers purchasers of production in such number as Lenders
may require.

B. Borrower shall ~ave defensible title to the Oil and Gas Properties With not
more than the undivided working interest (WI) and not less than the undivided
net revenue interest (NRI) se forth on Schedule I hereto.

<PAGE>

 Borrower shall have delivered to Lenders fully executed original counterpart of
 Intercreditor Agreement and such amendments to the Existing Credit Agreement as
 may required under the Intercreditor Agreement.

Borrower shall bve delivered to Lenders a fully executed' Amended and Restated
Limi Partnership Agreement evidencing Lenders' aggregate ownership of a 3 1/2%
limited partnersi interest in Borrower.

<PAGE>
                                   SCHEDULE I

                               SECURITY DOCUMENTS

<PAGE>

  I. Security Documents:

           1. Oil and Gas Properties

                   Borrower's lien and security interest limited to the Working
  Interests (WI) and Net Revenue Interests (NRI) in and to the Oil and Gas
  Properties covering the following wells:

<TABLE>
<CAPTION>

          ST  COUNTY          FIELD               CAT  PROPERTY               WI           NRI
            <S>                <C>                  <C>    <C>                  <C>         <C>
          --  -----           -------------     -----   -----------         --------      --------
          TX  WISE            NEW ARK. EAST      PDP    BALTHROP 2          0.125000      0.100000
          TX  WISE            NEWARK EAST        PDP    LINDLEY 2           0.200000      0.156000
          TX  WISE            NEWARK EAST        PDP    SKINNER 1           0.180000      0.142200
          TX  WISE            NEWARK EAST        PDP    WOODRUFF 1          0.185000      0.148000
          TX  DENTON          NEWARK EAST        PDP    MONROE 1 *          0.300000      0.237500
          TX  WISE            NEWARK EAST        PDP    LINDLEY 1           0.200000      0.156000
          TX  WISE            NEW ARK EAST       PDNP   KNOX 2              0.154500.     0.123600
          TX  WISE            NEWARK EAST        PDP    PRUETI 2            0.140000      0.109200
          TX  WISE            NEW ARK EAST       PDP    KNOX 1              0.154500      0.123600
          TX  DENTON          NEWARK EAST        PDNP   FOREMAN 1           0.217500      0.171825
          TX  WISE            NEWARK EAST        PDP    PRUEIT 1            0.140000      0.109200
          TX  WISE            NEWARK EAST        PDP    BALTHROP 1          0.125000      0.100000
          TX  MONTAGUE        NEWARKEAST         PDNP   DUNN                0.130000      0.115500
          TX  MONTAGUE        NEWARK EAST        PDNP   PHILLIPS 1          0.120000      0.090000
          TX  COOK                                      GRIBBLE             0.170000      0.132600
                                                        ARTHUR
          TX  MONTAGUE                                  LITILE
          TX  MONTAGUE                                  SMITH
                                                        PATRlCIA
          TX  WISE                                      BARNETT

</TABLE>
  and,

                 Borrower's undivided 49% interest in and to the Gas Gathering
  Properties acquired from Central Crude, Inc. shall be evidenced by:

                  A. Mortgage, Deed of Trust, Security Agreement, Assignment of
                     Production and Financing State~ent covering Borrower's Oil
                     and Gas Properties located in:

                            County                           State
                            -----                            ------
                     (i)     Cook                            Texas

                    (ii)     Denton                          Texas
<PAGE>

                  ( iii)    Montague                         Texas

                    (iv)    Wise                             Texas

                  B. As amended by First Amendment to Mortgage, Deed of Trust,
                     Security Agreement, Assignment of Production and Financing
                     Statement covering Borrower's Oil imd Gas Properties
                     located in:

                           County                           State
                           -----                            ------
                 (1)        Cook                             Texas

                (ii)        Denton                           Texas

               (iii)        Montague                         Texas

                (iv)        Wise                             Texas

2.       Security Agreements.

         A       Commercial Security Agreement by and among EBS OIL AND GAS
 PARTNERS PRODUCTION GP LLC, a Texas limited liability company and PETRO CAPITAL
 II, L.P. as amended by First Amendment to Commercial Security Agreement by and
 among EBS OIL AND GAS PARTNERS PRODUCTION GP LLC, a Texas limited liability
 company and PETRO CAPITAL n, L.P., as Collateral Agent.

         B       Commercial Security Agreement by and among EBS OIL AND GAS
 PARTNERS OPERATING COMPANY LP, a Texas limited partnership and PETRO CAPITAL
 II, L.P., as amended by First Amendment to Commerc~al Security Agreement by and
 among EBS OIL AND GAS PARTNERS OPERATING C0MPANY LP, a Texas limited
 partnership and PETRO CAPITAL II, L.P. .

3. Financing Statements

         A. Financing Statement - Borrower

            Jurisdiction: Secretary of State of Texas

         B. Financing Statement - Operating Co.

            Jurisdiction:  Secretary of State of Texas

         C. Financing Statement - Production Co.

            Jurisdiction: Secretary of State of Texas

<PAGE>

                             FORM OF PROMISSORY NOTE

                                 PROMISSORY NOTE

 May --,2005                                                       $___________

       FOR VALUE RECEIVED, the undersigned, EBS OIL AND GAS PARTNERS PRODUCTION,
  COMPANY, L.P., a Texas limited partnership ("Maker'), promises to pay to the
  order of (herein called "Payee", which term shall herein in every instance
  refer to any owner or holder of this Note) the sum of ($. .00) or so much
  thereof as may be advanced to Maker by Payee from time to time,
  together with interest on the principal hereof outstanding until maturity,
  said principal and interest being payable in lawful money.
  of the United States of America as more particularly provided in that certain
  Credit Agreement of even .date herewith, be~een between Maker, PETRO CAPITAL
  II, LP, as administrative agent (the "Administrative Agent') for the financial
  institutions designated as parties thereto (the "Lenders") and the Lenders (as
  such may be amended or restated from time to time, the "Credit Agreemenf').
  Capitalized terms used, but not otherwise defined, herein shall have the
  meaning given such terms in the Credit Agreement.

                     Maker may prepay this Note in whole or in part as provided
  in the Credit Agreement without . being required to pay any penalty or
  premium for such privilege. All prepayments hereunder, whether designated as
  payments of principal or interest, shall be applied in Payee's discretion to
  the principal or interest of this Note or to expenses provided for herein, or
  any combination of the foregoing.

          Maker and any and all sureties, guarantors and. endorsers of this Note
  and all other parties now or hereafter liable hereon, severally waive grace,
  demand, presentment for payment, protest, notice of any kind (including, but
  not limited to, notice of dishonor, notice of protest,. notice of intention to
  accelerate and notice of acceleration) and diligence in collecting and
  bringing suit against any party hereto and agree (i) to all extensions and
  partial payments, with or without notice, before or after maturity, (ii) to
  any substitution, exchange or release of any security now or hereafter given
  for this Note, (Hi) to the release of any party primarily or secondarily
  liable hereon, and (iv) that it will not be necessary for Payee, in order to
  enforce payment of this Note, to first institute or exhaust Payee's remedies
  against Maker or any other party liable therefor or against any security for
  this Note.

          If any sum payable under this Note or under the Credit Agreement is
  not paid when due (whether the same becomes due by acceleration or otherwise)
  and this .Note is placed in the hands of an attorney for collection or
  enforcement of this Note or the Credit Agreement, or if this Note is collected
  through any legal pf9ceedings, including, but not limited: to suit, probate,
  insolvency or bankruptcy proceedings, Maker agrees to pay all reasonable
  attorneys' fees and all reasonable expenses of collection and costs of court.

          Regardless of any provision contained in this Note or any other Loan
 Document executed or delivered in connection therewith, Payee shall never be
 deemed to have contracted for or be entitled. to receive, collect or apply as
 interest on this Note (whether termed interest herein or deemed to be interest
 by judi~ial determination or operation of law), any amount in excess of the
 Highest Lawful Rate (hereafter defmed), and, in the event that Payee ever
 receives, collects or applies as interest any such excess, such amount which
 would be excessive interest shaH be applied to the reduction of the unpaid
 principal balance of this Note; and, if the principal balance of this Note is
 paid in full, any remaining

<PAGE>

 excess shall forthwith be paid to Maker. In determining whether or not the
 interest paid or payable under any specific contingency exceeds the Highest
 Lawful Rate, Maker and Payee shall, to the maximum extent pennitted under
 applicable law, (a) characterize any non principal payment (other than payments
 which are expressly designated as interest payments hereunder) as an expense or
 fee rather than as interest, (b) exclude voluntary pre payments and the effect
 thereof, and (c) spread the total amount of interest throughout the entire
 contemplated term of this Note so that the interest rate is unifonn throughout
 such tenn; provided that if this Note is paid and performed in full prior to
 the end of the full contemplated tenn hereof, and if the interest received for
 the actual period of existence thereof exceeds the Highest Lawful Rate, if any,
 then Payee or any holder hereof shall refund to Maker the amount of such
 excess, or credit the amount of such ~xcess against the aggregate unpaid
 principal balance of aU advances made by Payee or any holder hereof under this
 Note at the time in question. Texas Finance Code, Chapter 346, which regulates
 certain revolving loan accounts and revolving tri-party accounts, shall not
 apply to any revolving loan accounts created under this Note or the other Loan
 Documents or maintained in connection therewith.

          Maker warrants that this Note is executed solely for business or
 commercial purposes, other than agricultural purposes and warrants that it is
 specifically exempted under Section 226.3(a) of Regulation Z issued by the
 Board of Governors of the Federal Reserve System and under Title I (Truth in
 Lending Act) and Title V (General Provisions) of the Consumer Credit Protection
 Act, and that no disclosures are required to be given under such regulations
 and ederal laws in connection with the above transaction.

          Any check, draft, money order or other instrument given in payment of
 all or any portion hereof .may be accepted by Payee and handled in
 collection in the customary manner, but the same shall not
 constitute payment hereunder or diminish any rights of Payee except to the
 extent that actual cash proceeds of such instrument are unconditionally
 received by Payee.

          Except to the extent required by federal law, this Note shall be
 governed by and construed under the laws of the State of Texas.

                               EBS   OIL   AND   GAS   PARTNERS   PRODUCTION
                               COMPANY, L.P. a Texas limited partnership,

                               By: EBS Oil and Gas  Partners  Production  GP
                               LLC, its general partner

                               By:
                               James I. Staley, II
                               Member and Board Member

                                         -MAKER

<PAGE>
                                   EXHIBIT B

                             FORM OF LETTER IN LIEU

<PAGE>
__________________________________
__________________________________
__________________________________

           Attn: Division Order Department

                   Re: Letter in Lieu of Transfer Order

          Gentlemen:

                   EBS OIL AND GAS PARTNERS PRODUCTION COMPANY, L.P., as
          Mortgagor, has executed the mortgages and f'mancing statements
          descn1>ed on Exhibit A attached hereto (collectively, the "Mortgage")
          for the benefit of PETRO CAPITAL II, LP, ("Collateral Agenr), granting
          a mortgage on and pledging those certain properties and certain
          specified interests of Mortgagor in said properties (the "Pledged
          Properties") described in the Mortgage to secure certain obligations
          also descn1>ed in the Mortgage. Enclosed is a copy of the Mortgage
          covering the Pledged Properties.

          Exhibit B attached hereto lists the properties which are
          subject to the Mortgage for which you are accounting to Mortgagor and
          the decimal interest in production heretofore paid to Mortgagor with
          respect to its interest in each given property.

         Pursuant to the assignment of production provision in the Mortgage,
Mortgagor transferred and assigned all of its interests in the Pledged
Properties to Collateral Agent. Therefore, Mortgagor hereby authorizes and
instructs you that all future payments attributable to Mortgagor's interest in
the Pledged Properties, which would otherwise be paid to Mortgagor, should be
made by check payable to:

          Petro Capital II, L.P.
          3838 Oak Lawn Ave.,
          Suite 1775
          Dallas, Texas 75219
          Attn: Tracy Scott Turner
          Phone: (214) 661-7762
          Fax: (214) 661-7760

          until notified in writing by Collateral Agent to discontinue such
          payments. Also, Mortgagor hereby requests that you change your
          reco.rds to reflect that Collateral Agent is entitled to the proceeds
          of production attributable to the Pledged Properties.

               In consideration of your acceptance of this Letter-in-Lieu of
          Transfer Order, Collateral Agent and Mortgagor agree as follows:

                  1. Mortgagor has heretofore executed Transfer or Division
                  Orders to you covering each of the properties referred to in
                  Exhibit B attached to this letter. This letter is being
                  executed by the undersigned in lieu of execution of separate
                  Transfer or Division Orders. With respect to proceeds from the
                  sale of oil, gas and other hydrocarbons as to which you
                  account hereunder, Collateral Agent agrees that it will be
                  bound by the terms, conditions, warranties and covenants of
                  all such Transfer or Division .Orders heretofore executed by
                  Mortgagor now in force, with the

<PAGE>

           same effect. as though it had executed the originals thereof;
           provided, however, the aggregate liability of Collateral Agent with
           respect to any warranty, representation, covenant or indemnification
           contained therein or in this letter shall be limited to an amount
           equal to the amounts disbursed by you to Collateral Agent hereunder.

          2. . Mortgagor hereby agrees that you are relieved of any
          responsibility in connection with the application of the proceeds paid
          by you to CoUateral Agent as hereinabove specified and payment made by
          you to Collateral Agent shall be binding and conclusive as between you
          and Mortgagor.

          In the absence of a question about the enclosed schedule, you are
  respectfully requested to make disbursement to Collateral Agent as instructed
  herein and NOT TO SUSPEND OR DELAY any payments by virtue of the assigmnent of
  production from Mortgagor to Collateral Agent. Should you require additional
  documentation prior to implementing the manner of disbursement requested
  herein, notwithstanding the warranties and indemnifications contained
  hereinabove, please suspend disbursements to Mortgagor, pending execution of
  such additional documentation as you may reasonably require.

          In order that we may have a record evidencing your. acceptance of this
  Letter-in-Lieu of Transfer Order, we request that you execute one copy of
  this letter in the space provided below and return the same to Collateral
  Agent in the enclosed self-addressed envelope.

  Very  truly yours,

 EBS OIL AND GAS  PARTNERS  PRODUCTION  COMPANY,  L.P.  a Texas
 limited partnership,

  By:  EBS OIL AND GAS  PARTNERS  PRODUCTION  GP.,  LLC,  a Texas
 limited liability company, its general partner

 By:

         James I. Staley, II
         Member and Board Member

 Petro  Capital  II,  LP,
 a Texas limited partnership

 By: Petro/EBS Management, LLC, a Texas limited liability company,
 its General Partner

 By:
 Tracy Scott Turner
 Manager

<PAGE>

ACCEPTED this __ day 0f ___, 20__.

___________________________________Purchaser of Production

By:
Name:
Title:

<PAGE>

        THE MORTGAGE

<PAGE>

   PLEDGED PROPERTIES

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