Document:

exv4w1

 

EXHIBIT 4.1

CREDIT AGREEMENT

Dated as of April 26, 2006

Among

OTTER TAIL CORPORATION,

THE BANKS,

as defined herein,

JP MORGAN CHASE BANK, N.A.,

as Syndication Agent,

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Documentation Agent, and

U.S. BANK NATIONAL ASSOCIATION,

as Agent

 

 

CREDIT AGREEMENT

     THIS CREDIT AGREEMENT, dated as of April 26, 2006, is by and between OTTER TAIL CORPORATION, a
Minnesota corporation (the “Borrower”), the banks or financial institutions listed on the signature
pages hereof or which hereafter become parties hereto by means of assignment and assumption as
hereinafter described (individually referred to as a “Bank” or collectively as the “Banks”),
JPMORGAN CHASE BANK, N.A., as Syndication Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Documentation Agent, and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent
for the Banks (in such capacity, the “Agent”) and as Lead Arranger.

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

     Section 1.1 Defined Terms. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings (and such meanings
shall be equally applicable to both the singular and plural form of the terms defined, as the
context may require):

     “Advance” means the portion of the outstanding Revolving Loans by the Banks as to
which one of the available interest rate options and, if pertinent, an Interest Period, is
applicable. An Advance may be a “LIBOR Advance”, “Base Rate Advance” (each, a “type” of Advance).

     “Adverse Event” means the occurrence of any event that could have a material adverse
effect on the business, operations, property, assets or condition (financial or otherwise) of the
Borrower and the Subsidiaries as a consolidated enterprise or on the ability of the Borrower or the
Guarantor to perform its obligations under the Loan Documents.

     “Agent” means U.S. Bank National Association, as agent for the Banks hereunder and
each successor, as provided in Section 12.8, who shall act as Agent.

     “Agent’s Fee Letter” means the letter agreement, dated as of the date hereof (as
hereafter amended from time to time) between the Borrower and the Agent respecting certain fees
payable to the Agent for its own account.

     “Agreement” means this Credit Agreement, as it may be amended, modified, supplemented,
restated or replaced from time to time.

     “Applicable Facility Fee Rate; Applicable Margin” means the percentages set forth
below, determined based on the applicable Level:

2

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Applicable Margin	 	Applicable
	 	 	LIBOR	 	Base Rate	 	Facility
	Level:	 	Advances	 	Advances	 	Fee Rate
	Level I:
	 	 	0.325	%	 	 	0.0	%	 	 	0.100	%
	Level II:
	 	 	0.400	%	 	 	0.0	%	 	 	0.125	%
	Level III:
	 	 	0.550	%	 	 	0.0	%	 	 	0.150	%
	Level IV
	 	 	0.650	%	 	 	0.0	%	 	 	0.175	%
	Level V
	 	 	0.750	%	 	 	0.0	%	 	 	0.200	%
	Level VI
	 	 	1.000	%	 	 	0.0	%	 	 	0.250	%

The Applicable Facility Fee Rate and Applicable Margin shall be those shown for Level II as of
the date of this Agreement. The Applicable Facility Fee Rate and Applicable Margin shall be
adjusted ten (10) Business Days after any change in ratings that would require such adjustment.
For purposes of the foregoing, the Levels shall be defined and determined as follows:

Level I shall apply if the Borrower’s Long Term Debt Rating is A or better (S&P)
or A2 or better (Moody’s) but no numerically lower Level applies.

Level II shall apply if the Borrower’s Long Term Debt Rating is A- or better (S&P)
or A3 or better (Moody’s) but no numerically lower Level applies.

Level III shall apply if the Borrower’s Long Term Debt Rating is BBB+ (S&P) or
Baa1 (Moody’s) but no numerically lower Level applies.

Level IV shall apply if the Borrower’s Long Term Debt Rating is BBB (S&P) or Baa2
(Moody’s) but no numerically lower Level applies.

Level V shall apply if the Borrower’s Long Term Debt Rating is BBB- (S&P) or Baa3
(Moody’s) but no numerically lower Level applies.

Level VI shall apply if the Borrower’s Long Term Debt Rating is below BBB- (S&P)
or Baa3 (Moody’s).

In the event of a split rating (i.e., Long Term Debt Ratings by S&P and Moody’s that would not be
in the same Level), the Level shall be based on the higher Long Term Debt Rating unless the
ratings are more than one Level apart, in which case the Level would be based on the Long Term
Debt Rating one Level lower than the higher of the two Long Term Debt Ratings.

3

 

     “Base Rate” means, for any day, a fluctuating rate per annum as determined by the
Agent to equal to the greater of (i) the Prime Rate in effect on such day, or (ii) a rate per annum
equal to the Federal Funds Effective Rate in effect on such day plus 0.50% per annum. If for any
reason the Agent shall have determined (which determination shall be conclusive in the absence of
manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason
(including, without limitation, the inability or failure of the Agent to obtain sufficient bids or
publications in accordance with the terms hereof), the Base Rate shall be a fluctuating rate per
annum equal to the Prime Rate in effect from time to time per annum until the circumstances giving
rise to such inability no longer exist.

     “Base Rate Advance” means an Advance designated as such in a notice of borrowing under
Section 2.3 or a notice of continuation or conversion under Section 2.4.

     “Business Day” means any day (other than a Saturday, Sunday or legal holiday in the
State of Minnesota) on which national banks are permitted to be open in Minneapolis, Minnesota and
New York, New York and, with respect to LIBOR Advances, a day on which dealings in Dollars may be
carried on by the Agent in the interbank LIBOR market.

     “Capital Expenditure” means any amount debited to the fixed asset account on the
consolidated balance sheet of the Borrower in respect of (a) the acquisition (including, without
limitation, acquisition by entry into a Capitalized Lease), construction, improvement, replacement
or betterment of land, buildings, machinery, equipment or of any other fixed assets or leaseholds,
and (b) to the extent related to and not included in (a) above, materials, contract labor and
direct labor (excluding expenditures properly chargeable to repairs or maintenance in accordance
with GAAP).

     “Capitalized Lease” means any lease which is or should be capitalized on the books of
the lessee in accordance with GAAP.

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor statute,
together with regulations thereunder.

     “Commitment” means the maximum unpaid principal amount of the Loans of all Banks which
may from time to time be outstanding hereunder, being initially $150,000,000, as the same may be
increased from time to time pursuant to Section 2.9 or reduced from time to time pursuant
to Section 4.3, or, if so indicated, the maximum unpaid principal amount of Loans of any
Bank (which amounts are set forth on Schedule 1.1(a) hereto or in the relevant Assignment
and Assumption Agreement for such Bank) and, as the context may require, the agreement of each Bank
to make Loans to the Borrower and to participate in the Letters of Credit subject to the terms and
conditions of this Agreement up to its Commitment.

     “Compliance Certificate” means a certificate in the form of Exhibit B, duly
completed and signed by an authorized officer of the Borrower.

4

 

     “Default” means any event which, with the giving of notice to the Borrower or lapse of
time, or both, would constitute an Event of Default.

     “EBIT” means, for any period of determination, the consolidated net income of the
Borrower and its Subsidiaries before provision for income taxes, plus, to the extent
subtracted in determining consolidated net income, Interest Expense, all as determined in
accordance with GAAP, excluding (to the extent included): (a) non-operating gains (including,
without limitation, extraordinary or nonrecurring gains, gains from discontinuance of operations
and gains arising from the sale of assets other than inventory) during the applicable period; and
(b) similar non-operating losses during such period.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute, together with regulations thereunder.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) that is a
member of a group of which the Borrower is a member and which is treated as a single employer under
Section 414 of the Code.

     “LIBOR Advance” means an Advance designated as such in a notice of borrowing under
Section 2.3 or a notice of continuation or conversion under Section 2.4.

     “LIBOR Interbank Rate” means the offered rate for deposits in United States Dollars
for delivery of such deposits on the first day of an Interest Period of a LIBOR Advance, for the
number of days comprised therein, quoted by the Agent from Page 3750 of the Dow Jones Markets
(Telerate) screen as of approximately 11:00 a.m., London time, on the day that is two Banking Days
preceding the first day of the Interest Period of such LIBOR Advance, or the rate for such deposits
determined by the Agent at such time based on such other published service of general application
as shall be selected by the Agent for such purpose; provided, that in lieu of determining the rate
in the foregoing manner, the Agent may determine the rate based on rates offered to the Agent for
deposits in United States Dollars in the interbank eurodollar market at such time for delivery on
the first day of the Interest Period for the number of days comprised therein.

     “LIBOR Rate (Reserve Adjusted)” means a rate per annum calculated for the Interest
Period of a LIBOR Advance in accordance with the following formula:

	 	 	 	 	 	 	 	 	 
	 

	 	LRRA
	 	= 
	 	LIBOR Interbank Rate
  

	 	 
	 

	 	 	 	 	 	1.00 - LRR	 	 

In such formula, “LRR” means “LIBOR Reserve Rate” and “LRRA” means “LIBOR Rate (Reserve Adjusted)”,
in each instance determined by the Agent for the applicable Interest Period. The Agent’s
determination of all such rates for any Interest Period shall be conclusive in the absence of
manifest error.

5

 

     “LIBOR Rate (Reserve Adjusted) Daily Floating” means the LIBOR Rate (Reserve Adjusted)
determined by the Agent on each Business Day based on Interest Periods of one month reported on
such Business Day (without taking into account the two-day future delivery convention applicable to
such reports), which rate shall remain in effect until the next following Business Day.

     “LIBOR Reserve Rate” means a percentage equal to the daily average during such
Interest Period of the aggregate maximum reserve requirements (including all basic, supplemental,
marginal and other reserves), as specified under Regulation D of the Federal Reserve Board, or any
other applicable regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to extensions of credit by the
Agent the rate of interest on which is determined with regard to rates applicable to Eurocurrency
liabilities. Without limiting the generality of the foregoing, the Eurocurrency Reserve Rate shall
reflect any reserves required to be maintained by the Agent against (i) any category of liabilities
that includes deposits by reference to which the LIBOR Interbank Rate is to be determined, or (ii)
any category of extensions of credit or other assets that includes LIBOR Advances.

     “Event of Default” means any event described in Section 10.1.

     “Federal Funds Effective Rate” means, for any day, an interest rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it. In the case of a day which is not a
Business Day, the Federal Funds Effective Rate for such day shall be the Federal Funds Effective
Rate for the preceding Business Day. Each change in the Base Rate due to a change in the Federal
Funds Effective Rate shall take effect on the effective date of such change in the Federal Funds
Effective Rate.

     “Facility Fees” shall have the meaning set forth in Section 3.3.

     “Federal Reserve Board” means the Board of Governors of the Federal Reserve System or
an successor thereto.

     “GAAP” means generally accepted accounting principles as applied in the preparation of
the audited consolidated financial statement of the Borrower referred to in Section 7.5.

     “Guarantor” means Varistar Corporation, a Minnesota corporation and each successor and
assign thereof.

     “Guaranty” means the Guaranty by the Guarantor in the form of Exhibit C
hereto, duly completed and executed by the Guarantor.

6

 

     “Indebtedness” means, without duplication, all obligations, contingent or otherwise,
which in accordance with GAAP should be classified upon the obligor’s balance sheet as liabilities,
but in any event including the following (whether or not they should be classified as liabilities
upon such balance sheet): (a) obligations secured by any mortgage, pledge, security interest, lien,
charge or other encumbrance existing on property owned or acquired subject thereto, whether or not
the obligation secured thereby shall have been assumed and whether or not the obligation secured is
the obligation of the owner or another party; (b) any obligation on account of deposits or
advances; (c) any obligation for the deferred purchase price of any property or services, except
trade accounts payable arising in the ordinary course of business, (d) any obligation as lessee
under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations in
respect to Indebtedness of others; (f) undertakings or agreements to reimburse or indemnify issuers
of letters of credit; and (g) net liabilities under any interest rate swap, collar or other
interest rate hedging agreement. For all purposes of this Agreement, the Indebtedness of any
Person shall include the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer.

     “Intercreditor Agreement” means that certain Intercreditor Agreement, dated as of
April 30, 2002, among certain holders of the Borrower’s 6.63% Senior Notes, due December 1, 2011
and the Agent, as Agent for the Banks.

     “Interest and Dividend Coverage Ratio” means the ratio, calculated for each period of
four consecutive fiscal quarters of the Borrower, of: (a) EBIT for such period; to (b) the
sum for such period of (i) Interest Expense, plus (ii) dividends or interest on Preferred
Stock.

     “Interest-bearing Debt” means, without duplication, all obligations of the Borrower or
a Subsidiary on a consolidated basis: (a) in respect of borrowed money; (b) secured by a mortgage,
pledge, security interest, lien or charge on the assets of the Borrower or a Subsidiary, whether
the obligation secured is the obligation of the owner or another Person (provided that non-recourse
obligations will only be taken into account up to the fair market value of the related property);
(c) any obligation for the deferred purchase price of any property or services evidenced by a note,
payment contract (other than an account payable arising in the ordinary course of business) or
other instrument, (d) any obligation as lessee under any Capitalized Lease; (e) all guaranties and
contingent or other legal obligations in respect to Interest-bearing Debt of other Persons,
excluding ordinary course endorsements; (f) net liabilities under any interest rate swap, collar or
other interest rate hedging agreement. and (g) undertakings or agreements to reimburse or indemnify
issuers of letters of credit other than commercial letters of credit.

     “Interest Expense means, for any period of determination, the aggregate consolidated
amount, without duplication, of interest paid, accrued or scheduled to be paid in respect of any
Indebtedness of the Borrower and its Subsidiaries, including in all cases interest expense
determined in accordance with GAAP and (a) all but the principal component of payments in respect
of conditional sale contracts, Capitalized Leases and other title retention agreements, (b)
commissions, discounts and other fees and charges with respect to letters of credit and bankers’

7

 

acceptance financings and (c) net costs under any interest rate swap, collar or other interest rate
hedging agreements, in each case determined in accordance with GAAP.

     “Interest Period” means, for any LIBOR Advance, the period commencing on the borrowing
date of such LIBOR Advance or the date a Base Rate Advance is converted into such LIBOR Advance, or
the last day of the preceding Interest Period for such LIBOR Advance, as the case may be, and
ending on the numerically corresponding day one, two, three or six months thereafter, as selected
by the Borrower pursuant to Section 2.3 or Section 2.4; provided, that:

(a) any Interest Period which would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period shall end on the next preceding
Business Day;

(b) any Interest Period which begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period; and

(c) no Interest Period shall extend beyond the Termination Date.

     “Investment” means the acquisition, purchase, making or holding of any stock or other
security, any loan, advance, contribution to capital, extension of credit (except for trade and
customer accounts receivable for inventory sold or services rendered in the ordinary course of
business and payable in accordance with customary trade terms), any acquisitions of real or
personal property (other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other debt or equity
securities of or any interest in another Person or any integral part of any business or the assets
comprising such business or part thereof.

     “Letters of Credit” shall have the meaning set forth in Section 2.8.

     “Letter of Credit Agreements” shall have the meaning set forth in Section 2.8.

     “Letter of Credit Obligations” shall mean the aggregate amount of all possible
drawings under all Letters of Credit plus all amounts drawn under any Letter of Credit and not
reimbursed by the Borrower under the applicable Letter of Credit Agreement.

     “Lien” means any security interest, mortgage, pledge, lien, hypothecation, judgment
lien or similar legal process, charge, encumbrance, title retention agreement or analogous
instrument or device (including, without limitation, the interest of the lessors under Capitalized
Leases and the interest of a vendor under any conditional sale or other title retention agreement).

     “Loans” means the Revolving Loans and the Swing Line Loans.

8

 

     “Loan Documents” means this Agreement, the Notes, each Letter of Credit Agreement, the
Guaranty, the Intercreditor Agreement and each other instrument, document, guaranty, security
agreement, mortgage, or other agreement executed and delivered by the Borrower or any guarantor or
party granting security interests in connection with this Agreement, the Loans or any collateral
for the Loans.

     “Long Term Debt Rating” means the rating assigned by S&P and Moody’s to the long
term, unsecured and unsubordinated indebtedness of the Borrower.

     “Material Subsidiary” means (a) the Subsidiaries listed on Schedule 1.1(b)
hereto, and (b) any Subsidiary acquired or formed after the date of this Agreement if at the time
of such acquisition or formation or at any time thereafter both (i) the assets of such Subsidiary
shall exceed 5.00% of the consolidated non-electric generation assets of the Borrower and its
Subsidiaries, and (ii) the gross revenues of such Subsidiary shall exceed 5.00% of the consolidated
non-electric generation gross revenues of the Borrower and its Subsidiaries. Such assets and gross
revenues shall be determined on a pro forma basis at the time of such acquisition or formation, and
shall be determined thereafter at the request of the Agent, but not less than one time per fiscal
year of the Borrower thereafter.

     “Moody’s” means Moody’s Investors Service, Inc.

     “Notes” means the Revolving Notes and the Swing Line Note.

     “Payment Date” means the Termination Date, plus (a) the last day of each Interest
Period for each LIBOR Advance and, if such Interest Period is in excess of three months after the
first day of such Interest Period, and thereafter each day three months after each succeeding
Payment Date; (b) the last day of each month for any Swing Line Loan, and (c) the last day of each
March, June, September and December of each year for each Base Rate Advance and for any fees
including, without limitation, Utilization Fees, Facility Fees and the Letter of Credit commissions
payable under Section 2.8(c)(vi).

     “PBGC” means the Pension Benefit Guaranty Corporation, established pursuant to
Subtitle A of Title IV of ERISA, and any successor thereto or to the functions thereof.

     “Percentage” means, as to any Bank, the proportion, expressed as a percentage, that
such Bank’s Commitment bears to the total Commitments of all Banks. The Percentages of the Banks
as of the date of this Agreement are set forth on Schedule 1.1(a).

     “Permitted Divestitures” means sales of stock or assets, transfers of stock or assets,
mergers resulting in divestiture of stock or assets or other divestitures of assets of the Borrower
and Subsidiaries, which, in the aggregate for all such transactions after December 31, 2005, shall
not result in the sale, transfer or other divestiture of stock or assets having a value in excess
of 15% of the consolidated assets of the Borrower and its Subsidiaries at the time of
determination.

9

 

     “Person” means any natural person, corporation, limited liability company,
partnership, joint venture, firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting in an individual,
fiduciary or other capacity.

     “Plan” means an employee benefit plan or other plan, maintained for employees of the
Borrower or of any ERISA Affiliate, and subject to Title IV of ERISA or Section 412 of the Code.

     “Preferred Stock” means stock of the Borrower other than common stock.

     “Prime Rate” means the rate of interest from time to time announced by the Agent as
its “prime rate.” For purposes of determining any interest rate which is based on the Prime Rate,
such interest rate shall be adjusted each time that the prime rate changes.

     “Related Party” means any Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or is under common
control with, the Borrower, (b) which beneficially owns or holds 5% or more of the equity interest
of the Borrower; or (c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term “control” means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

     “Reportable Event” means a reportable event as defined in Section 4043 of ERISA and
the regulations issued under such Section, with respect to a Plan, excluding, however, such events
as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it
be notified within 30 days of the occurrence of such event, provided that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of ERISA shall be a reportable
event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code.

     “Required Banks” means those Banks whose total Percentage exceeds 50.00%, or if no
Commitments remain in effect, whose share of principal of the Loans exceeds 50.00% of the aggregate
outstanding principal of all Loans.

     “Restricted Payments” means any expenditure by the Borrower or any Subsidiary for
purchase, redemption or other acquisition for value of any shares of the Borrower’s or any
Subsidiary’s stock, payment of any dividend thereon (other than stock dividends and dividends
payable solely to the Borrower), any distribution on, or payment on account of the purchase,
redemption, defeasance or other acquisition or retirement for value of, any shares of the
Borrower’s or any Subsidiary’s stock, or the setting aside of any funds for any such purpose (other
than payment to, or on account of or for the benefit of, the Borrower only).

     “Revolving Loans” means the Loans described in Section 2.1(a).

10

 

     “Revolving Note” means the promissory note of the Borrower described in Section
2.5(a), substantially in the form of Exhibit A-1, as such promissory note may be
amended, modified or supplemented from time to time, and such term shall include any substitutions
for, or renewals of, such promissory note.

     “S&P” means Standard & Poor’s Ratings Group.

     “Senior Indebtedness Agreement” means any agreement, instrument or indenture governing
senior unsecured Indebtedness of the Borrower (“Senior Indebtedness”), including without limitation
the Note Purchase Agreement, dated as of December 1, 2001, as thereafter amended (the “Note
Purchase Agreement”), between the Borrower and the Noteholders named therein pertaining to the
$90,000,000, 6.63% Senior Notes of the Borrower due December 1, 2011.

     “Senior Indebtedness Prepayment Event” means the (a) occurrence of any event under any
Senior Indebtedness Agreement that would require the Borrower to prepay, or offer to prepay, any
Senior Indebtedness prior to its stated maturity, (b) occurrence of any event under any Senior
Indebtedness Agreement that would give the holder of Senior Indebtedness any right to put such
Senior Indebtedness to the Borrower or require the Borrower to repurchase or redeem such Senior
Indebtedness in each case prior to its stated maturity, or (c) voluntary offer by the Borrower to
prepay or purchase Senior Indebtedness prior to its stated maturity to remain in compliance with
any covenant or agreement of a Senior Indebtedness Agreement. Senior Indebtedness Prepayment
Events shall include, without limitation, any Transfer of Utility Assets Put Event or Debt
Prepayment Application under the Note Purchase Agreement.

     “Subsidiary” means any Person of which or in which the Borrower and its other
Subsidiaries own directly or indirectly 50% or more of: (a) the combined voting power of all
classes of stock having general voting power under ordinary circumstances to elect a majority of
the board of directors of such Person, if it is a corporation, (b) the capital interest or profit
interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other unincorporated
organization.

     “Swing Line Commitment” means the maximum unpaid principal amount of the Swing Line
Loans which may from time to time be outstanding hereunder, being initially $10,000,000, and, as
the context may require, the agreement of the Swing Line Bank to make the Swing Line Loans to the
Borrower subject to the terms and conditions of this Agreement.

     “Swing Line Bank” means U.S. Bank.

     “Swing Line Loans” means the Loans described in Section 2.1(b).

     “Swing Line Note” means the promissory note of the Borrower described in Section
2.5(b), substantially in the form of Exhibit A-2, as such promissory note may be
amended, modified or

11

 

supplemented from time to time, and such term shall include any substitutions
for, or renewals of, such promissory note.

     “Swing Line Participation Amount” is defined in Section 2.7(b).

     “Termination Date” means the earliest of (a) April 26, 2009, (b) the date on which the
Commitments are terminated pursuant to Section 10.2 hereof or (c) the date on which the
Commitments are reduced to zero pursuant to Section 4.3 hereof.

     “Total Capitalization” means as of any date of determination, the sum of (a) the
amounts set forth on the consolidated balance sheet of the Borrower as the sum of the common
stocks, preferred stock, additional paid-in capital and retained earnings of the Borrower
(excluding treasury stock); plus (b) the principal amount of Interest-bearing Debt of the
Borrower and the Subsidiaries.

     “Total Utilization” means the sum, at any time of (a) the outstanding principal amount
of the Loans, plus (b) outstanding Letter of Credit Obligations.

     “Unrefunded Swing Line Loans” is defined in Section 2.7(b).

     “U.S. Bank” means U.S. Bank National Association, in its individual capacity and not
as Agent hereunder.

     “Utilization Fees” is defined in Section 3.2.

     Section 1.2 Accounting Terms and Calculations. Except as may be expressly provided
to the contrary herein, all accounting terms used herein shall be interpreted and all accounting
determinations hereunder (including, without limitation, determination of compliance with financial
ratios and restrictions in Articles VIII and IX hereof) shall be made in accordance
with GAAP consistently applied. Any reference to “consolidated” financial terms shall be deemed to
refer to those financial terms as applied to the Borrower and its Subsidiaries in accordance with
GAAP.

     Section 1.3 Computation of Time Periods. In this Agreement, in the computation of a
period of time from a specified date to a later specified date, unless otherwise stated the word
“from” means “from and including” and the word “to” or “until” each means “to but excluding.”

     Section 1.4 Other Definitional Terms. The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. References to Sections, Exhibits, schedules
and like references are to this Agreement unless otherwise expressly provided.

ARTICLE II TERMS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

     Section 2.1 The Commitments. Subject to the terms and conditions hereof and in
reliance upon the warranties of the Borrower herein:

12

 

(a) each Bank agrees, severally and not jointly, to make loans (each, a “Revolving Loan”
and, collectively, the “Revolving Loans”) to the Borrower from time to time from the date
hereof until the Termination Date, during which period the Borrower may repay and reborrow
in accordance with the provisions hereof, provided, that the aggregate unpaid
principal amount of any Bank’s Revolving Loans, its Percentage of Letter of Credit
Obligations and its Percentage of Swing Line Loans shall not exceed such Bank’s Commitment
and provided, further, that the total of all outstanding Revolving Loans,
Letter of Credit Obligations and Swing Line Loans shall not exceed the aggregate Commitments
of all Banks at any time. The Revolving Loans shall be made by the Banks on a pro rata
basis, calculated for each Bank based on its Percentage.

(b) the Swing Line Bank agrees to make loans (each a “Swing Line Loan” and, collectively,
the “Swing Line Loans”) to the Borrower from time to time from the date hereof until the
Termination Date, during which period the Borrower may repay and reborrow in accordance with
the provisions hereof, provided, that the aggregate unpaid principal amount of the Swing
Line Loans at any one time outstanding shall not exceed the Swing Line Commitment.

     Section 2.2 Advance Options. The Revolving Loans shall be constituted of LIBOR
Advances and/or Base Rate Advances, as shall be selected by the Borrower, except as otherwise
provided herein. Any combination of types of Advances may be outstanding at the same time, except
that the total number of outstanding LIBOR Advances shall not exceed eight (8) at any one time.
Each LIBOR Advance shall be in a minimum amount of $500,000. Each Base Rate Advance shall be in a
minimum amount of $100,000. Swing Line Loans may be in any amount requested by the Borrower.

     Section 2.3 Borrowing Procedures.

(a) Request by Borrower. Any request by the Borrower for a Loan shall be in
writing, or by telephone promptly confirmed in writing, and must be given so as to be
received by the Agent not later than:

(i) 1:00 p.m., Minneapolis time, one Business day prior to the date of the requested
Loan, if the Loan shall be comprised of Base Rate Advances; or

(ii) 12:00 noon, Minneapolis time, three Business days prior to the date of the
requested Revolving Loan, if the Revolving Loan shall be, or shall include, a LIBOR
Advance.

Each request for a Loan shall specify (1) the borrowing date (which shall be a Business
Day), (2) the amount of such Loan and the type or types of Advances comprising such Loan,
and (3) if such Loan shall include LIBOR Advances, the initial Interest Periods for such
Advances. The Swing Line Bank and the Borrower shall, from time to time, enter

13

 

into mutually acceptable arrangements for notices of funding, funding and repayment of the Swing
Line Loans.

(b) Funding of Agent. The Agent shall promptly notify each other Bank of the
receipt of such request, the matters specified therein, and of such Bank’s Percentage of the
requested Revolving Loans. On the date of the requested Revolving Loans, each Bank shall
provide
its share of the requested Revolving Loans to the Agent in immediately available funds not
later than 11:00 a.m., Minneapolis time. On the date of any requested Swing Line Loans, the
Swing Line Bank shall provide the requested Swing Line Loan to the Agent in immediately
available funds not later than 4:00 p.m., Minneapolis time. Unless the Agent determines
that any applicable condition specified in Article VI has not been satisfied, the
Agent will make the requested Loans available to the Borrower at the Agent’s principal
office in Minneapolis, Minnesota in immediately available funds not later than 5:00 p.m.
(Minneapolis time) on the lending date so requested. If the Agent has made a Revolving Loan
to the Borrower on behalf of a Bank but has not received the amount of such Revolving Loan
from such Bank by the time herein required, such Bank shall pay interest to the Agent on the
amount so advanced at the overnight Federal Funds rate from the date of such Revolving Loan
to the date funds are received by the Agent from such Bank, such interest to be payable with
such remittance from such Bank of the principal amount of such Revolving Loan (provided,
however, that the Agent shall not make any Revolving Loan on behalf of a Bank if the Agent
has received prior notice from such Bank that it will not make such Revolving Loan). If the
Agent does not receive payment from such Bank by the next Business Day after the date of any
Revolving Loan, the Agent shall be entitled to recover such Revolving Loan, with interest
thereon at the rate then applicable to the such Revolving Loan, on demand, from the
Borrower, without prejudice to the Agent’s and the Borrower’s rights against such Bank. If
such Bank pays the Agent the amount herein required with interest at the overnight rate
before the Agent has recovered from the Borrower, such Bank shall be entitled to the
interest payable by the Borrower with respect to the Revolving Loan in question accruing
from the date the Agent made such Revolving Loan.

     2.4 Continuation or Conversion of Loans. The Borrower may elect to (i) continue any
outstanding LIBOR Advance from one Interest Period into a subsequent Interest Period to begin on
the last day of the earlier Interest Period, or (ii) convert any outstanding Advance into another
type of Advance (on the last day of an Interest Period only, in the instance of a LIBOR Advance),
by giving the Agent notice in writing, or by telephone promptly confirmed in writing, given so as
to be received by the Agent not later than:

(a) 1:00 p.m., Minneapolis time, one Business day prior to the date of the requested
continuation or conversion, if the continuing or converted Advance shall be a Base Rate
Advance; or

14

 

(b) 12:00 noon, Minneapolis time, three Business days prior to the date of the requested
continuation or conversion, if the continuing or converted Advance shall be a LIBOR Advance.

Each notice of continuation or conversion of an Advance shall specify (i) the effective date of the
continuation or conversion date (which shall be a Business Day), (ii) the amount and the type or
types of Advances following such continuation or conversion (subject to the limitation on amount
set forth in Section 2.2), and (iii) for continuation as, or conversion into, LIBOR
Advances, the
Interest Periods for such Advances. Absent timely notice of continuation or conversion, following
expiration of an Interest Period unless the LIBOR Advance is paid in full the Agent may at any time
thereafter convert the LIBOR Advance into a Base Rate Advance. Until such time as such Advance is
converted into a Base Rate Advance by the Agent or the Borrower or is continued as a LIBOR Advance
with a new Interest Period by notice by the Borrower as provided above, such Advance shall continue
to accrue interest at a rate equal to the interest rate applicable during the expired Interest
Period adjusted, however, to reflect changes in the Applicable Margin. No Advance shall be
continued as, or converted into, a LIBOR Advance if the shortest Interest Period for such Advance
may not transpire prior to the Termination Date or if a Default or Event of Default shall exist.

     Section 2.5 The Notes. The Loans shall be evidenced by the following Notes:

(a) The Revolving Loans of each Bank shall be evidenced by a Revolving Note in the amount
of such Bank’s Commitment originally in effect and dated as of the date of this Agreement.
The Banks shall enter in their respective records the amount of each Revolving Loan and
Advance, the rate of interest borne by each Advance and the payments made on the Revolving
Loans, and such records shall be deemed conclusive evidence of the subject matter thereof,
absent manifest error.

(a) The Swing Line Loans shall be evidenced by the Swing Line Note in the amount of the
Swing Line Commitment. The Swing Line Bank shall enter in its records the amount of each
Swing Line Loan and the payments made on the Swing Line Loans, and such records shall be
deemed conclusive evidence of the subject matter thereof, absent manifest error.

     Section 2.6 Funding Losses. In the event of (a) any failure of the Borrower to
borrow, continue or convert a LIBOR Advance on a date specified in a notice thereof, or (b) any
payment (including, without limitation, any payment pursuant to Section 4.2, 4.3 or
10.2), prepayment or conversion of any LIBOR Advance on a date other than the last day of
the Interest Period for such Advance, the Borrower agrees to pay each Bank’s costs, expenses and
Interest Differential (as determined by such Bank) incurred as a result of such event. The term
“Interest Differential” shall mean that sum amount, not less than $0, equal to the financial loss
incurred by each Bank resulting from such event, calculated as the difference between the amount of
interest such Bank would have earned (from like investments in the Money Markets as of the first
day of the Interest Period of the relevant Advance) had such event not occurred and the interest
the Bank will

15

 

actually earn (from like investments in the Money Markets as of the date of such
event) as a result of the redeployment of funds from such event. Because of the short-term nature
of this facility, the Borrower agrees that the Interest Differential shall not be discounted to its
present value. The term “Money Markets” refers to one or more wholesale funding markets available
to the Banks, including negotiable certificates of deposit, commercial paper, LIBOR deposits, bank
notes, federal funds and others. Such determinations by each Bank of shall be conclusive in the
absence of manifest error.

Section 2.7 Refunding of Swing Line Loans.

(a) At any time permitted hereunder, the Borrower may request the Banks to make Revolving
Loans which may be applied to repay the Swing Line Loans outstanding. Upon occurrence and
during continuance of a Default or Event of Default, the Swing Line Bank may, on behalf of
the Borrower (which hereby irrevocably directs the Swing Line Bank to act on its behalf),
upon notice given by the Swing Line Bank no later than 12:00 noon, Minneapolis time, on the
relevant refunding date, request each Bank to make, and each Bank hereby agrees to make, a
Revolving Loan (which shall be a Base Rate Advance), in an amount equal to such Bank’s
Percentage of the aggregate amount of the Swing Line Loans (the “Refunded Swing Line Loans”)
outstanding on the date of such notice, to refund such Swing Line Loans. Each Bank shall
make the amount of such Revolving Loan available to the Agent in immediately available
funds, no later than 2:00 p.m., Minneapolis time, on the date of such notice. The proceeds
of such Revolving Loans shall be distributed by the Agent to the Swing Line Bank and
immediately applied by the Swing Line Bank to repay the Refunded Swing Line Loans.

(b) If, for any reason, Revolving Loans may not be (as determined by the Agent in its sole
discretion), or are not, made pursuant to Section 2.7(a) to repay Swing Line Loans,
then, effective on the date such Revolving Loans would otherwise have been made, each Bank
severally, unconditionally and irrevocably agrees that it shall purchase a participating
interest in such Swing Line Loans (“Unrefunded Swing Line Loans”) in an amount equal to the
amount of Revolving Loans which would otherwise have been made by such Bank pursuant to
Section 2.7(a). Each Bank will immediately transfer to the Agent, in immediately
available funds, the amount of its participation (the “Swing Line Participation Amount”),
and the proceeds of such participation shall be distributed by the Agent to the
Swing Line Bank in such amount as will reduce the amount of the participating interest
retained by the Swing Line Bank in its Swing Line Loans.

(c) Whenever, at any time after the Swing Line Bank has received from any Bank such Bank’s
Swing Line Participation Amount, the Swing Line Bank receives any payment on account of the
Swing Line Loans, the Swing Line Bank will distribute to such Bank its Swing Line
Participation Amount (appropriately adjusted, in the case of interest payments, to reflect
the period of time during which such Bank’s participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such Bank’s
pro rata portion of such payment if such payment is not sufficient to pay
the

16

 

principal of and interest on all Swing Line Loans then due); provided,
however, that in the event that such payment received by the Swing Line Bank is
required to be returned, such Bank will return to the Swing Line Bank any portion thereof
previously distributed to it by the Swing Line Bank.

(d) Each Bank’s obligation to make the Loans referred to in Section 2.7(a) and to
purchase participating interests pursuant to Section 2.7(b) shall be absolute and
unconditional and shall not be affected by any circumstance, including, without limitation,
(i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the
Borrower may have against the Swing Line Bank, the Borrower or any other Person for any
reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or
the failure to satisfy any of the other conditions precedent specified in Article
VI; (iii) any adverse change in the condition (financial or otherwise) of the Borrower;
(iv) any breach of this Agreement or any other Loan Document by the Borrower or any Bank; or
(v) any other circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.

Section 2.8 Letters of Credit

(a) Letters of Credit. Subject to the terms and conditions of this Agreement, and
on the condition that aggregate Letter of Credit Obligations shall never exceed the lesser
of (i) $30,000,000 or (ii) the Commitments, and that the sum of Letter of Credit Obligations
plus Loans shall never exceed the aggregate Commitments of all Banks, the Borrower may, in
addition to Loans, request that the Agent issue letters of credit for the account of the
Borrower or any Subsidiary, as provided in Section 2.8(f), by making such request to
the Agent (such letters of credit as any of them may be amended, supplemented, extended or
confirmed from time to time, being herein collectively called the “Letters of Credit”). The
Agent may, at its discretion, elect to issue or decline to issue any requested Letter of
Credit. No Letter of Credit shall expire more than one year after the date of issuance
thereof (provided, that Letters of Credit may automatically extend absent notice of
termination by the issuer). Upon the date of the issuance of a Letter of Credit, the Agent
shall be deemed, without further action by any party hereto, to have sold to each Bank, and
each Bank shall be deemed without further action by any party hereto, to have
purchased from the Agent, a participation, in its Percentage, in such Letter of Credit and
the related Letter of Credit Obligations.

(b) Purchase Unconditional. Each Bank’s purchase of a participating interest in a
Letter of Credit pursuant to Section 2.8(a) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Bank or the Borrower may have
against the Agent, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default or the failure to satisfy any
of the other conditions precedent in Article VI; (iii) any adverse change in the
condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any
other

17

 

Loan Document by the Borrower or any Bank; (v) the expiry date of any Letter of Credit
occurring after such Bank’s Commitment has terminated; or (vi) any other circumstance,
happening or event whatsoever, whether or not similar or any of the foregoing.

(c) Additional Provisions. The following additional provisions shall apply to each
Letter of Credit:

(i) Upon receipt of any request for a Letter of Credit, the Agent shall notify each
Bank of the contents of such request and of such Bank’s Percentage of the amount of
such proposed Letter of Credit.

(ii) No Letter of Credit may be issued if after giving effect thereto the Letter of
Credit Obligations shall exceed $30,000,000 or if the sum of (A) the aggregate
outstanding principal amount of Loans plus (B) the aggregate Letter of
Credit Obligations would exceed the aggregate Commitments of all Banks. The
Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an
amount equal to such Bank’s Percentage of the Letter of Credit Obligations.

(iii) Upon receipt from the beneficiary of any Letter of Credit of any demand for
payment thereunder, Agent shall promptly notify the Borrower and each Bank as to the
amount to be paid as a result of such demand and the payment date. If at any time
the Agent shall have made a payment to a beneficiary of such Letter of Credit in
respect of a drawing or in respect of an acceptance created in connection with a
drawing under such Letter of Credit, each Bank will pay to Agent immediately upon
demand by the Agent at any time during the period commencing after such payment
until reimbursement thereof in full by the Borrower, an amount equal to such Bank’s
Percentage of such payment, together with interest on such amount for each day from
the date of demand for such payment (or, if such demand is made after 2:00 p.m.
Minneapolis time on such date, from the next succeeding Business Day) to the date of
payment by such Bank of such amount at a rate of interest per annum equal to the
Federal Funds Effective Rate for such period.

(iv) The Borrower shall be irrevocably and unconditionally obligated forthwith to
reimburse the Agent for any amount paid by the Agent upon any drawing under any
Letter of Credit, without presentment, demand, protest or other formalities of any
kind, all of which are hereby waived. Such reimbursement may, subject to
satisfaction of the conditions in Article VI hereof and to the available
Commitment (after adjustment in the same to reflect the elimination of the
corresponding Letter of Credit Obligation), be made by the borrowing of Loans. The
Agent will pay to each Bank such Bank’s Percentage of all amounts received from the
Borrower for application in payment, in whole or in part, of a Letter of Credit
Obligation, but only to the extent such Bank has made payment to the Agent in
respect of such Letter of Credit pursuant to clause (iii) above.

18

 

(v) The Borrower’s obligation to reimburse the Agent for any amount paid by the
Agent upon any drawing under any Letter of Credit shall be performed strictly in
accordance with the terms of this Agreement and the applicable Letter of Credit
Agreement under any and all circumstances whatsoever and irrespective of (A) any
lack of validity or enforceability of any Letter of Credit, any Letter of Credit
Agreement or this Agreement, or any term or provision therein, (B) any draft or
other document presented under a Letter of Credit proving to be forged, fraudulent,
or invalid in any respect or any statement therein being untrue or inaccurate in any
respect, (C) payment by the Agent under a Letter of Credit against presentation of a
draft or other document that does not comply with the terms of such Letter of
Credit, or (D) any other event or circumstance whatsoever, whether or not similar to
any of the foregoing, that might, but for the provisions of this clause (v),
constitute a legal or equitable discharge of, or provide a right of setoff against,
the Borrower’s obligations hereunder. Neither the Agent nor the Bank shall have any
liability or responsibility by reason of or in connection with the issuance or
transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission or
delivery of any draft, notice or other communication under or relating to any Letter
of Credit (including any document required to make a drawing thereunder), any error
in interpretation of technical terms or any consequence arising from causes beyond
the control of the Agent; provided that the foregoing shall not be construed to
excuse the Agent from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Agent’s failure to exercise care when determining whether
drafts and other documents presented under a Letter of Credit comply with the terms
thereof. The parties hereto expressly agree that, in the absence of gross
negligence or willful misconduct on the part of the Agent (as finally determined by
a court of competent jurisdiction), the Agent shall be deemed to have exercised care
in each such determination. In furtherance of the foregoing and without limiting
the generality
thereof, the parties hereto expressly agree that, with respect to documents
presented which appear on their face to be in substantial compliance with the terms
of the Letter of Credit, the Agreement may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation or refuse to accept and make payment upon such documents if such
documents are not in strict compliance with the terms of such Letter of Credit.

(vi) The Borrower will pay to Agent for the account of each Bank in accordance with
its Percentage letter of credit fee with respect to each Letter of Credit equal to
an amount, calculated on the basis of face amount of each Letter of

19

 

Credit, in each
case for the period from and including the date of issuance of such Letter of Credit
to and including the date of expiration or termination thereof at a per annum rate
equal to the then-applicable Applicable Margin for LIBOR Advances, such fee to be
due and payable quarterly, in arrears on the Payment Dates. The Agent will pay to
each Bank, promptly after receiving any payment in respect of letter of credit fee
referred to in this clause (v), an amount equal to the product of such
Bank’s Percentage times the amount of such fees. The Borrower shall also pay
to Agent at the Principal Office for the account of the Agent a fronting fee of
0.125% of the face amount of the applicable Letter of Credit. At all times that the
rate of interest provided in Section 3.1(d) shall apply to the Loans, the
fee paid for the account of the Banks under this Section shall be increased by 2.00%
per annum. All fees hereunder shall be computed on the basis of a year of 360 days
and paid for the actual number of days elapsed.

(vii) The issuance by the Agent of each Letter of Credit shall, in addition to the
discretionary nature of this facility, be subject to the conditions precedent that
the Borrower shall have executed and delivered such applications and other
instruments and agreements relating to such Letter of Credit as the Agent shall have
reasonably requested and are not inconsistent with the terms of this Agreement (the
“Letter of Credit Agreements”). In the event of a conflict between the
terms of this Agreement and the terms of any Letter of Credit Agreement (including
the charging of any fees other than normal and customary reimbursable expenses), the
terms hereof shall control.

(viii) In the event that any Letter of Credit remains outstanding after the
Termination Date, the Borrower shall deliver, prior to the Termination Date, cash
collateral to be held and applied in accordance with the terms of Section
10.3.

(d) Indemnification; Release. Borrower hereby indemnifies and holds harmless the
Agent and each Bank from and against any and all claims and damages, losses, liabilities,
costs or expenses which the Agent or such Bank may incur (or which may be claimed against
the Agent or such Bank by any Person whatsoever), regardless of whether caused in whole or
in part by the negligence of any of the indemnified parties, in connection with the
execution and delivery of any Letter of Credit or transfer of or payment or failure to pay
under any Letter of Credit; provided that the Borrower shall not be required to
indemnify any party seeking indemnification for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the willful
misconduct or gross negligence of the party seeking indemnification, or (ii) by the failure
by the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.

(e) Existing Letters of Credit. Certain Letters of Credit previously issued by the
Agent and listed on Schedule 2.6 shall be deemed to be “Letters of Credit” for all purposes
hereunder.

20

 

(f) Issuance of Letters of Credit for Account of Subsidiaries. Upon request of the
Borrower, Letters of Credit may be issued for the account of Subsidiaries of the Borrower.
In such event, the Borrower shall be deemed to have irrevocably guarantied payment of the
obligations of each Subsidiary in respect of Letters of Credit issued for the account of
such Subsidiary, and if requested by the Bank, the Borrower shall, together with such
Subsidiary, enter into the Letter of Credit Agreement as co-applicant or guarantor, and
shall execute and deliver such other instrument of guaranty as shall be required by the
Agent.

     Section 2.9 Increase to Commitments. The Borrower may, from time to time, increase
the Commitments hereunder, by giving notice to the Agent, specifying the dollar amount of the
increase (which shall be in integral multiple of $5,000,000, and which shall not result in total
aggregate Commitments hereunder in excess of $200,000,000); provided, however, that
an increase in the Commitments hereunder may only be made at a time when no Default or Event of
Default shall have occurred and be continuing. The Borrower may increase the Commitments by either
increasing a Commitment with an existing Bank or obtaining a Commitment from a new financial
institution, the selection of which shall require the consent of the Agent, not to be unreasonably
withheld. The Borrower, the Agent and each Bank or other financial institution that is increasing
its Commitment or extending a new Commitment shall enter into an amendment to this Agreement
setting forth the amounts of the Commitments, as so increased, providing that any new financial
institution extending a new Commitment shall be a Bank for all purposes under this Agreement. No
such amendment shall require the approval or consent of any Bank whose Commitment is not being
increased and no Bank shall be required to increase its Commitment unless it shall so agree in
writing. Upon the execution and delivery of such amendment as provided above, this Agreement shall
be deemed to be amended accordingly and the Agent shall adjust the funded amount of the Advances of
the Banks so that each Bank (including the Banks with new or increased Commitments) shall hold
their respective Percentages (as amended by such amendment) of the Advances outstanding and the
unfunded Commitments (and each Bank shall so fund any increased amount of Advances).

     Section 2.10 Purpose of the Loans. The Loans shall be used for purposes of funding
working capital, capital expenditures, and other corporate purposes of the Borrower and its
Subsidiaries,
provided, that Loans shall be used only to support non-electrical operations of the
Borrower and its Subsidiaries.

ARTICLE III INTEREST AND FEES

     Section 3.1 Interest.

(a) LIBOR Advances. The unpaid principal amount of each LIBOR Advance shall bear
interest prior to maturity at a rate per annum equal to the LIBOR Rate (Reserve Adjusted)

21

 

in
effect for each Interest Period for such LIBOR Advance plus the Applicable Margin per annum.

(b) Base Rate Advances. The unpaid principal amount of each Base Rate Advance shall
bear interest prior to maturity at a rate per annum equal to the Base Rate plus the
Applicable Margin per annum.

(c) Swing Line Loans. The unpaid principal amount of all Swing Line Loans shall
bear interest prior to maturity at a rate per annum equal to the LIBOR Rate (Reserve
Adjusted) Daily Floating plus the Applicable Margin for LIBOR Advances per annum.

(d) Interest After Maturity. Any amount of the Loans not paid when due, whether at
the date scheduled therefor or earlier upon acceleration, shall bear interest until paid in
full at a rate per annum equal to the greater of (i) 2.00% in excess of the rate applicable
to the unpaid principal amount immediately before it became due, or (ii) 2.00% in excess of
the Base Rate in effect from time to time.

     Section 3.2 Utilization Fees. At any time that Total Utilization equals or exceeds
50% of the total Commitments outstanding, the Borrower shall pay fees (the “Utilization Fees”) to
the Agent for the account of the Banks (in according with their respective Percentages) in an
amount determined by applying 0.10% per annum to an amount equal to the excess of Total Utilization
over 50% of the total Commitments.

     Section 3.3 Facility Fee. The Borrower shall pay fees (the “Facility Fees”) to the
Agent for the account of the Banks (in according with their respective Percentages) in an amount
determined by applying the Applicable Facility Fee Rate per annum to the average daily amount of
the Commitments (whether used or unused) of the Banks for the period from the date hereof to the
Termination Date.

     Section 3.4 Computation. Interest, Utilization Fees and Facility Fees shall be
computed on the basis of actual days elapsed and a year of 360 days.

     Section 3.5 Payment Dates. Accrued interest under Section 3.1(a), (b)
and (c), Utilization and Facility Fees shall be payable on the applicable Payment Dates.
Accrued interest under Section 3.1(d) shall be payable on demand.

     Section 3.6 Agent’s Fee. The Borrower shall pay to the Agent fees described in the
Agent’s Fee Letter.

22

 

ARTICLE IV PAYMENTS, PREPAYMENTS, REDUCTION OR TERMINATION

OF THE CREDIT AND SETOFF

     Section 4.1 Repayment. Principal of the Loans, together with all accrued and unpaid
interest thereon, shall be due and payable on the Termination Date.

     Section 4.2 Optional Prepayments. The Borrower may, upon at least three (3) Business
Days’ prior written or telephonic notice received by the Bank, prepay the Loans, in whole or in
part, at any time subject to the provisions of Section 2.6, without any other premium or
penalty. Any such prepayment must be accompanied by accrued and unpaid interest on the amount
prepaid. Each partial prepayment shall be in an amount of $50,000 or an integral multiple thereof.
Any prepayment of a LIBOR Advance shall be in an amount equal to the remaining entire principal
balance of such Advance.

     Section 4.3 Optional Reduction or Termination of Commitment. The Borrower may, at
any time, upon no less than 2 Business Days prior written or telephonic notice received by the
Agent, reduce the Commitment, with any such reduction in a minimum amount of $500,000 or an
integral multiple thereof. Upon any reduction in the Commitment pursuant to this Section, the
Borrower shall pay to the Agent for the account of the Banks the amount, if any, by which the
aggregate unpaid principal amount of outstanding Loans plus the Letter of Credit Obligations
exceeds the Commitment as so reduced. Amounts so paid cannot be reborrowed. The Borrower may, at
any time, upon not less than 2 Business Days prior written notice to the Agent, terminate the
Commitment in its entirety. Upon termination of the Commitment pursuant to this Section, the
Borrower shall pay to the Agent for the account of the Banks the full amount of all outstanding
Loans, all accrued and unpaid interest thereon, all unpaid Utilization and Facility Fees accrued to
the date of such termination and all other unpaid obligations of the Borrower to the Banks
hereunder. All payment described in this Section is subject to the provisions of Section
2.6. Notwithstanding the foregoing, the Commitment may not be reduced to an amount below
outstanding Letter of Credit Obligations, or terminated if Letters of Credit are outstanding

     Section 4.4 Payments. Payments and prepayments of principal of, and interest on, the
Notes and all fees, expenses and other obligations under the Loan Documents shall be made without
set-off or counterclaim in immediately available funds not later than 2:00 p.m., Minneapolis time,
on the dates due at the main office of the Agent in Minneapolis, Minnesota, provided,
however, that the Swing Line Bank and the Borrower shall enter into mutually acceptable
arrangements for payment of the Swing Line Loans which may permit payment of the
Swing Line Loans later than such time. Funds received on any day after such time shall be deemed
to have been received on the next Business Day. The Agent shall promptly distribute in like funds
to each Bank its Percentage share of each such payment of principal, interest and Utilization and
Facility Fees. Subject to the definition of the term “Interest Period”, whenever any payment to be
made hereunder or on the Notes shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of time shall be
included in the computation of any interest or fees. The Agent is authorized to debit the
operating account of the Borrower designated by the Borrower for such

23

 

purpose from time to time for
all payments when due hereunder (provided that if such account shall not have sufficient available
funds to pay interest when due, the Borrower shall pay such interest in immediately available
funds).

     4.5 Proration of Payments. If any Bank or other holder of a Loan shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of offset, pursuant to
the guaranty hereunder, or otherwise) on account of principal of, interest on, or fees with respect
to any Loan, or payment of any Letter of Credit Obligations, in any case in excess of the share of
payments and other recoveries of other Banks or holders, such Bank or other holder shall purchase
from the other Banks or holders, in a manner to be specified by the Agent, such participations in
the Loans held by such other Banks or holders as shall be necessary to cause such purchasing Bank
or other holder to share the excess payment or other recovery ratably with each of such other Banks
or holders; provided, however, that if all or any portion of the excess payment or
other recovery is thereafter recovered from such purchasing Bank or holder, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but without interest.

     Section 4.6 Senior Indebtedness Prepayment Event.

(a) If a Senior Indebtedness Prepayment Event shall occur, the Borrower shall offer to
reduce the Commitments hereunder in Ratable Portion not later than the date of prepayment,
purchase or redemption of the relevant Senior Indebtedness, by written notice given to the
Agent not later than any notice required under the relevant Senior Indebtedness Agreement.
The Agent shall promptly give notice of such offer to the Banks and upon direction of the
Required Banks, shall, by written notice given to the Borrower, shall elect whether to
require such a reduction of the Commitments hereunder. In the absence of direction by the
Required Banks, the Agent shall require such a reduction.

(b) If such a reduction of the Commitments shall be so required, it will become effective
upon the prepayment, purchase or redemption by the Borrower of the relevant Indebtedness
under the relevant Senior Indebtedness Agreement. Upon such reduction, if the Loans and the
Letter of Credit Obligations outstanding shall exceed the Commitment as so reduced, the
Borrower shall (i) pay any Loans, and (ii) deliver cash collateral for the Letter of Credit
Obligations to be held and applied in accordance with the terms of Section 10.3, in
the amount of such excess. Failure by the Borrower to so pay the Loans or deliver such cash
collateral shall constitute an Event of Default under Section 10.1(a) hereof.

(c) For such purpose, a “Ratable Portion” shall mean a fraction the numerator of which is
equal to the amount of the prepayment, purchase or redemption of the relevant Senior
Indebtedness that the Borrower is required to make or offer to make, and the denominator of
which is the aggregate principal amount of such Senior Indebtedness outstanding. In the
instance of a Transfer of Utility Assets Put Event under the Note Purchase Agreement, the
Ratable Portion shall be 100%.

24

 

ARTICLE V ADDITIONAL PROVISIONS RELATING TO LOANS

     Section 5.1 Increased Costs. If, as a result of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration thereof, or compliance
by the Banks with any request or directive (whether or not having the force of law) from any court,
central bank, governmental authority, agency or instrumentality, or comparable agency:

(a) any tax, duty or other charge with respect to any Loan, the Notes or the Commitments is
imposed, modified or deemed applicable, or the basis of taxation of payments to any Bank of
interest or principal of the Loans or of the Utilization and Facility Fees (other than taxes
imposed on the overall net income of such Bank by the jurisdiction in which such Bank has
its principal office) is changed;

(b) any reserve, special deposit, special assessment or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Bank is imposed,
modified or deemed applicable;

(c) any increase in the amount of capital required or expected to be maintained by any Bank
or any Person controlling such Bank is imposed, modified or deemed applicable; or

(d) any other condition affecting this Agreement or the Commitments is imposed on any Bank
or the relevant funding markets;

and such Bank determines that, by reason thereof, the cost to such Bank of making or maintaining
the Loans, issuing or participating in the Letters of Credit or extending its Commitment is
increased, or the amount of any sum receivable by such Bank hereunder or under the Notes in respect
of any Loan is reduced;

then, the Borrower shall pay to such Bank upon demand such additional amount or amounts as
will compensate such Bank (or the controlling Person in the instance of (c) above) for such
additional costs or reduction (provided that the Banks have not been compensated for such
additional cost or reduction in the calculation of the LIBOR Reserve Rate). Any Bank making such
demand shall inform the Borrower of the basis for such demand, and provide a statement showing, in
reasonable detail, calculation of the amount demanded. The Borrower will promptly notify such Bank
if the Borrower does not agree to such Bank’s determination of any such amount. Any Bank’s
reasonable determination of such amount shall be presumed correct, absent
its manifest error or negligence in determining such amounts. In determining such amounts, the
Banks may use any reasonable averaging, attribution and allocation methods. Notwithstanding the
foregoing, no Bank shall charge the Borrower for additional amounts for such additional costs or
reductions that applied or accrued more than 90 days prior to the time that such Bank became aware
of the event giving rise to such additional costs or reductions.

25

 

     Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or Inadequate;
Impracticability. If the Agent determines (which determination shall be conclusive and binding
on the parties hereto) that:

(a) deposits of the necessary amount for the relevant Interest Period for any LIBOR Advance
are not available in the relevant markets or that, by reason of circumstances affecting such
market, adequate and reasonable means do not exist for ascertaining the LIBOR Interbank Rate
for such Interest Period;

(b) the LIBOR Rate (Reserve Adjusted) will not adequately and fairly reflect the cost to the
Banks of making or funding the LIBOR Advance for a relevant Interest Period; or

(c) the making or funding of LIBOR Advances has become impracticable as a result of any
event occurring after the date of this Agreement which, in the opinion of the Agent,
materially and adversely affects such Advances or any Bank’s Commitment or the relevant
market;

the Agent shall promptly give notice of such determination to the Borrower, and (i) any notice of a
new LIBOR Advance previously given by the Borrower and not yet borrowed or converted shall be
deemed to be a notice to make a Base Rate Advance, and (ii) the Borrower shall be obligated to
either prepay in full any outstanding LIBOR Advances, without premium or penalty on the last day of
the current Interest Period with respect thereto or convert any such LIBOR Advance to a Base Rate
Advance on such last day.

     Section 5.3 Changes in Law Rendering LIBOR Advances Unlawful. If at any time due to
the adoption of any law, rule, regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof by any court, central bank, governmental authority, agency
or instrumentality, or comparable agency charged with the interpretation or administration thereof,
or for any other reason arising subsequent to the date of this Agreement, it shall become unlawful
or impossible for any Bank to make or fund any LIBOR Advance, the obligation of such Bank to
provide such Advance shall, upon the happening of such event, forthwith be suspended for the
duration of such illegality or impossibility. If any such event shall make it unlawful or
impossible for the Bank to continue any LIBOR Advance previously made by it hereunder, such Bank
shall, upon the happening of such event, notify the Agent and the Borrower thereof in writing, and
the Borrower shall, at the time notified by such Bank, either convert each such unlawful Advance to
a Base Rate Advance or repay such Advance in full, together with accrued interest thereon, subject
to the provisions of Section 2.6.

     Section 5.4 Discretion of the Banks as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, each Bank shall be entitled to fund and maintain its
funding of all or any part of the Loans in any manner it elects; it being understood, however, that
for purposes of this Agreement, all determinations hereunder shall be made as if the Banks had
actually funded and maintained each LIBOR Advance during the Interest Period for such Advance
through the purchase of deposits having a term corresponding to such Interest Period

26

 

and bearing an interest rate equal to the LIBOR Interbank Rate for such Interest Period (whether or not
any Bank shall have granted any participations in such Advances).

ARTICLE VI CONDITIONS PRECEDENT AND SUBSEQUENT

     Section 6.1 Conditions of Initial Loan. The obligation of the Banks to make the
initial Loan hereunder shall be subject to the satisfaction of the conditions precedent, in
addition to the applicable conditions precedent set forth in Section 6.2 below, that the
Agent shall have received all of the following, in form and substance satisfactory to the Agent,
each duly executed and certified or dated as of the date of this Agreement or such other date as is
satisfactory to the Agent:

(a) The Notes payable to each Bank executed by a duly authorized officer (or officers) of
the Borrower.

(b) The Guaranty, duly executed by the Guarantor.

(c) A certificate or certificates of the Secretary or an Assistant Secretary of the
Borrower and the Guarantor, attesting to and attaching (i) a copy of the corporate
resolution of the Borrower and the Guarantor authorizing the execution, delivery and
performance of the Loan Documents, (ii) an incumbency certificate showing the names and
titles, and bearing the signatures of, the officers of the Borrower and the Guarantor
authorized to execute the Loan Documents, (iii) a copy of the Articles or Certificate of
Incorporation of the Borrower and the Guarantor with all amendments thereto, and (iv) a copy
of the By-Laws of the Borrower and the Guarantor with all amendments thereto.

(d) A Certificate of Good Standing for the Borrower and the Guarantor in the jurisdiction of
its incorporation, certified by the appropriate governmental officials.

(e) An opinion of counsel to the Borrower and the Guarantor, addressed to the Bank, in
substantially the form of Exhibit D.

(f) The Agent’s Fee Letter and payment of all fees and reimbursements payable hereunder and
thereunder.

     Section 6.2 Conditions Precedent to all Loans. The obligation of the Bank to make
any Loan hereunder (including the initial Loan) shall be subject to the satisfaction of the
following conditions precedent (and any request for a Loan shall be deemed a representation by the
Borrower that the following are satisfied):

(a) Before and after giving effect to such Loan, the representation and warranties
contained in Article VII shall be true and correct, as though made on the date of
such Loan; and

27

 

(b) Before and after giving effect to such Loan, no Default or Event of Default shall have
occurred and be continuing.

ARTICLE VII REPRESENTATIONS AND WARRANTIES

     To induce the Agent and the Banks to enter into this Agreement, to grant the Commitments and
to make Loans hereunder, the Borrower represents and warrants to the Agent and the Banks:

     Section 7.1 Organization, Standing, Etc. The Borrower and each of its corporate
Material Subsidiaries are corporations duly incorporated and validly existing and in good standing
under the laws of the jurisdiction of their respective incorporation and have all requisite
corporate power and authority to carry on their respective businesses as now conducted, to (in the
instance of the Borrower)
enter into the Loan Documents and to perform its obligations under the Loan Documents. The
Borrower and each of the Material Subsidiaries are duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary, and failure to so qualify
or remain in good standing would constitute an Adverse Event.

     Section 7.2 Authorization and Validity. The execution, delivery and performance by
the Borrower of the Loan Documents have been duly authorized by all necessary corporate action by
the Borrower, and the Loan Documents constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective terms, subject to
limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors’ rights generally and subject to limitations on the
availability of equitable remedies.

     Section 7.3 No Conflict; No Default. The execution, delivery and performance by the
Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or
regulation or any order, writ, judgment, injunction, decree, determination or award of any court,
governmental agency or arbitrator presently in effect having applicability to the Borrower, (b)
violate or contravene any provisions of the Articles (or Certificate) of Incorporation or by-laws
of the Borrower, or (c) result in a breach of or constitute a default under any indenture, loan or
credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by
which it or any of its properties may be bound or result in the creation of any Lien on any asset
of the Borrower or any Material Subsidiary, which in any such case under this subsection (c) would
constitute an Adverse Event. Neither the Borrower nor any Material Subsidiary is in default under
or in violation of any such law, statute, rule or regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, loan or credit agreement or other agreement,
lease or instrument in any case in which the consequences of such default or violation could
constitute an Adverse Event. No Default or Event of Default has occurred and is continuing.

     Section 7.4 Government Consent. No order, consent, approval, license, authorization
or validation of, or filing, recording or registration with, or exemption by, any governmental or
public body or authority is required on the part of the Borrower to authorize, or is required in
connection

28

 

with the execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents, provided, however, the Borrower is
required to make an annual filing of its Capital Structure with the Minnesota Public Utilities
Commission, and such Commission may thereafter issue orders approving or disapproving of the
Borrower’s capital structure.

     Section 7.5 Financial Statements and Condition. The Borrower’s audited consolidated
financial statements as at December 31, 2005, as heretofore furnished to the Banks, have been
prepared in accordance with GAAP on a consistent basis and fairly present the financial condition
of the Borrower and the Subsidiaries as at such dates and the results of their operations for the
fiscal year then ended. As of the dates of such consolidated financial statements, neither the
Borrower nor any Material Subsidiary had any material obligation, contingent liability, liability
for taxes or long-term lease obligation which is not reflected in such consolidated financial
statements or in the notes thereto. Since December 31, 2005, no Adverse Event has occurred.

     Section 7.6 Litigation and Contingent Liabilities. Except as described in
Schedule 7.6, there are no actions, suits or proceedings pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any Material Subsidiary or any of
their properties before any court or arbitrator, or any governmental department, board, agency or
other instrumentality which, if determined adversely to the Borrower or such Material Subsidiary,
could constitute an Adverse Event. Except as described in Schedule 7.6, neither the
Borrower nor any Material Subsidiary has any contingent liabilities which are material to the
Borrower and the Subsidiaries as a consolidated enterprise.

     Section 7.7 Compliance. The Borrower and the Material Subsidiaries are in material
compliance with all statutes and governmental rules and regulations applicable to them.

     Section 7.8 Environmental, Health and Safety Laws. To the best of the Borrower’s
knowledge after due inquiry, there does not exist any violation by the Borrower or any Material
Subsidiary of any applicable federal, state or local law, rule or regulation or order of any
government, governmental department, board, agency or other instrumentality relating to
environmental, pollution, health or safety matters which will or threatens to impose a material
liability on the Borrower or a Material Subsidiary or which would require a material expenditure by
the Borrower or such Material Subsidiary to cure. Neither the Borrower nor any Material Subsidiary
has received any notice to the effect that any part of its operations or properties is not in
material compliance with any such law, rule, regulation or order or notice that it or its property
is the subject of any governmental investigation evaluating whether any remedial action is needed
to respond to any release of any toxic or hazardous waste or substance into the environment, the
consequences of which non-compliance or remedial action could constitute an Adverse Event.

     Section 7.9 ERISA. Each Plan complies with all material applicable requirements of
ERISA and the Code and with all material applicable rulings and regulations issued under the
provisions of ERISA and the Code setting forth those requirements. No Reportable Event, other than
a Reportable Event for which the reporting requirements have been waived by regulations of

29

 

the PBGC, has occurred and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event or condition which
would permit the institution of proceedings to terminate any Plan under Section 4042 of ERISA. The
current value of the Plans’ benefits guaranteed under Title IV or ERISA does not exceed the current
value of the Plans’ assets allocable to such benefits.

     Section 7.10 Regulation U. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be
used to purchase or carry margin stock or for any other purpose which would violate any of the
margin requirements of the Board of Governors of the Federal Reserve System.

     Section 7.11 Ownership of Property; Liens. Each of the Borrower and the Material
Subsidiaries has good and marketable title to its real properties and good and sufficient title to
its other
properties, including all properties and assets referred to as owned by the Borrower and the
Material Subsidiaries in the audited consolidated financial statement of the Borrower referred to
in Section 7.5 (other than property disposed of since the date of such financial statement
in the ordinary course of business). None of the properties, revenues or assets of the Borrower or
any of the Material Subsidiaries is subject to a Lien, except for (a) Liens disclosed in the
consolidated financial statements referred to in Section 7.5, (b) Liens listed on
Schedule 7.11, or (c) Liens allowed under Section 9.8.

     Section 7.12 Taxes. Each of the Borrower and the Material Subsidiaries has filed all
federal, state and local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made
against it or any of its property and all other taxes, fees and other charges imposed on it or any
of its property by any governmental authority (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate proceedings and with
respect to which reserves in accordance with GAAP have been provided on the books of the Borrower).
No tax Liens have been filed and no material claims are being asserted with respect to any such
taxes, fees or charges. The charges, accruals and reserves on the books of the Borrower in respect
of taxes and other governmental charges are adequate.

     Section 7.13 Trademarks, Patents. Each of the Borrower and the Material Subsidiaries
possesses or has the right, by way of ownership or license, to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all technology, know-how,
processes, methods and designs used in or necessary for the conduct of its business, without known
conflict with the rights of others.

     Section 7.14 Investment Company Act. Neither the Borrower nor any Subsidiary is an
“investment company” or a company “controlled” by an investment company within the meaning of the
Investment Company Act of 1940, as amended.

30

 

     Section 7.15 Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a “holding company” or a “subsidiary company” of a holding company or an “affiliate”
of a holding company or of a subsidiary company of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

     Section 7.16 Subsidiaries. Schedule 7.16 sets forth as of the date of this
Agreement a list of all Subsidiaries and the number and percentage of the shares of each class of
capital stock owned beneficially or of record by the Borrower or any Subsidiary therein, and the
jurisdiction of incorporation of each Subsidiary.

     Section 7.17 Partnerships and Joint Ventures. Schedule 7.17 sets forth as
of the date of this Agreement a list of all partnerships or joint ventures in which the Borrower or
any Subsidiary is a partner (limited or general) or joint venturer.

     Section 7.18 Senior Debt. The Loans are senior unsecured Indebtedness of the
Borrower, and are pari passu and of equal rank and seniority with all senior unsecured Indebtedness
of the Borrower.

ARTICLE VIII AFFIRMATIVE COVENANTS

     From the date of this Agreement and thereafter until the Commitments are terminated or expire
and the Loans and all other liabilities of the Borrower to the Banks hereunder and under the Note
have been paid in full, unless the Required Banks shall otherwise expressly agree in writing the
Borrower will do, and will cause each Material Subsidiary (except in the instance of Section
8.1) to do, all of the following:

     Section 8.1 Financial Statements and Reports. Furnish to the Agent for distribution
to the Banks:

(a) As soon as available and in any event within 120 days after the end of each fiscal year
of the Borrower, the annual audit report of the Borrower and its Subsidiaries prepared on a
consolidated basis and in conformity with GAAP, consisting of at least statements of income,
cash flow, and a consolidated balance sheet as at the end of such year, setting forth in
each case in comparative form corresponding figures from the previous annual audit,
certified without qualification by independent certified public accountants of recognized
standing selected by the Borrower and acceptable to the Bank, together with any related
management letters.

(b) As soon as available and in any event within 45 days after the end of each quarter of
each fiscal year, a copy of the unaudited financial statement of the Borrower and its
subsidiaries prepared in the same manner as the audit report referred to in Section
8.1(a), signed by the Borrower’s chief financial officer, consisting of at least
consolidated statements of income and cash flow for the Borrower and the Subsidiaries for
such quarter

31

 

and for the period from the beginning of such fiscal year to the end of such
quarter, and a consolidated balance sheet of the Borrower as at the end of such quarter.

(c) Together with the consolidated financial statements furnished by the Borrower under
Sections 8.1(a) and 8.1(b), a Compliance Certificate signed by the chief
financial officer of the Borrower, which shall (i) confirm the Borrower’s Long Term Debt
Rating; and (ii) confirm either that as at the date of each such financial statement there
did not exist any Default or Event of Default or, that a Default or Event of Default
existed, in which case it shall specify the nature and period of existence thereof and what
action the Borrower proposes to take with respect thereto.

(d) Immediately upon becoming aware of any Default or Event of Default, a notice describing
the nature thereof and what action the Borrower proposes to take with respect thereto.

(e) Immediately upon becoming aware of the occurrence, with respect to any Plan, of any
Reportable Event (other than a Reportable Event for which the reporting requirements have
been waived by PBGC regulations) or any “prohibited transaction” (as defined in Section 4975
of the Code), a notice specifying the nature thereof and what action the Borrower proposes
to
take with respect thereto, and, when received, copies of any notice from PBGC of intention
to terminate or have a trustee appointed for any Plan.

(f) Promptly upon the mailing or filing thereof, copies of all financial statements, reports
and proxy statements mailed to the Borrower’s shareholders, and copies of all registration
statements, periodic reports and other documents filed with the Securities and Exchange
Commission (or any successor thereto) or any national securities exchange.

(g) Copies of any order issued by the Minnesota Public Utilities Commission regarding the
Borrower’s capital structure.

(h) Immediately upon becoming aware of the occurrence thereof, notice of the institution of
any litigation, arbitration or governmental proceeding, or the rendering of a judgment or
decision in such litigation or proceeding, which is material to the Borrower and its
Subsidiaries as a consolidated enterprise, and the steps being taken by the Person(s)
affected by such proceeding.

(i) Immediately upon becoming aware of the occurrence thereof, notice of any violation as to
any environmental matter by the Borrower or any Material Subsidiary and of the commencement
of any judicial or administrative proceeding relating to health, safety or environmental
matters (i) in which an adverse determination or result could result in the revocation of or
have a material adverse effect on any operating permits, air emission permits, water
discharge permits, hazardous waste permits or other permits held by the Borrower or any
Material Subsidiary which are material to the operations of the Borrower or such Material
Subsidiary, or (ii) which will or threatens to impose a material liability on

32

 

the Borrower
or such Material Subsidiary to any Person or which will require a material expenditure by
the Borrower or such Material Subsidiary to cure any alleged problem or violation.

(j) From time to time, such other information regarding the business, operation and
financial condition of the Borrower and the Subsidiaries as any Bank may reasonably request.

     Section 8.2 Corporate Existence. Subject to Sections 9.1, 9.2 and
9.4 in the instance of a Material Subsidiary, maintain its corporate existence in good
standing under the laws of its jurisdiction of incorporation and its qualification to transact
business in each jurisdiction in which the character of the properties owned, leased or operated by
it or the business conducted by it makes such qualification necessary, provided, that the
Borrower may cause any Material Subsidiary to be dissolved that has substantially no assets,
revenues or operations.

     Section 8.3 Insurance. Maintain with financially sound and reputable insurance
companies such insurance as may be required by law and such other insurance in such amounts and
against such hazards as is customary in the case of reputable corporations engaged in the same or
similar business and similarly situated.

     Section 8.4 Payment of Taxes and Claims. File all tax returns and reports which are
required by law to be filed by it and pay before they become delinquent all taxes, assessments and
governmental charges and levies imposed upon it or its property and all claims or demands of any
kind (including, without limitation, those of suppliers, mechanics, carriers, warehouses, landlords
and other like Persons) which, if unpaid, might result in the creation of a Lien upon its property;
provided that the foregoing items need not be paid if they are being contested in good
faith by appropriate proceedings, and as long as the Borrower’s or such Material Subsidiary’s title
to its property is not materially adversely affected, its use of such property in the ordinary
course of its business is not materially interfered with and adequate reserves with respect thereto
have been set aside on the Borrower’s or such Material Subsidiary’s books in accordance with GAAP.

     Section 8.5 Inspection. Permit any Person designated by any Bank to visit and
inspect any of its properties, corporate books and financial records, to examine and to make copies
of its books of accounts and other financial records, and to discuss the affairs, finances and
accounts of the Borrower and the Subsidiaries with, and to be advised as to the same by, its
officers at such reasonable times and intervals as such Bank may designate. So long as no Event of
Default exists, the expenses of the Banks for such visits, inspections and examinations shall be at
the expense of the Banks, but any such visits, inspections, and examinations made while any Event
of Default is continuing shall be at the expense of the Borrower.

     Section 8.6 Maintenance of Properties. Maintain its properties used or useful in the
conduct of its business in good condition, repair and working order, and supplied with all
necessary equipment, and make all necessary repairs, renewals, replacements, betterments and
improvements thereto, all as may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.

33

 

     Section 8.7 Books and Records. Keep adequate and proper records and books of account
in which full and correct entries will be made of its dealings, business and affairs.

     Section 8.8 Compliance. Comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject.

     Section 8.9 ERISA. Maintain each Plan in compliance with all material applicable
requirements of ERISA and of the Code and with all material applicable rulings and regulations
issued under the provisions of ERISA and of the Code.

     Section 8.10 Environmental Matters. Observe and comply with all laws, rules,
regulations and orders of any government or government agency relating to health, safety,
pollution, hazardous materials or other environmental matters to the extent non-compliance could
result in a material liability or otherwise constitute or result in an Adverse Event.

     Section 8.11 Failure to Approve Capital Structure. If the Minnesota Public Utilities
Commission or any other governmental authority of appropriate jurisdiction shall issue an order
finally determining not to approve, or finally disapproving of, this Agreement, the Borrower will
terminate the
Commitments and repay the Loans within thirty (30) days after such order becoming final (or within
such shorter period as such order shall provide for such termination and repayment).

     Section 8.12 Senior Debt. Take all actions necessary to assure that the Loans are
senior unsecured Indebtedness of the Borrower, and are and remain pari passu and of equal rank and
seniority with all senior unsecured Indebtedness of the Borrower (without limiting the obligation
of the Borrower to deliver collateral under certain circumstances, as specifically provided
herein).

     Section 8.13 Ratings Triggers. If documentation applicable to any Indebtedness of
the Borrower or any Subsidiary shall hereafter include a Ratings Trigger, the Borrower shall
promptly notify the Agent of such Ratings Trigger. If any Ratings Trigger shall apply to the
Borrower or any Subsidiary and if the Agent shall so request of the Borrower, the Borrower agrees
to enter into an amendment to this Agreement to include a substantively similar Ratings Trigger in
this Agreement (subject to approval of the Required Banks, it being agreed that if the Required
Banks shall not enter into such an amendment, the Borrower shall not be deemed to have failed to
comply with this Section). For such purpose, a “Ratings Trigger” shall mean any provision in any
document applicable to any Indebtedness of the Borrower or any Subsidiary stating that if the
Borrower or any Subsidiary shall not maintain a minimum debt rating by S&P, Moody’s or any other
ratings agency: (i) the Borrower or such Subsidiary shall be deemed not to have complied with such
document, (ii) a default or event of default or other acceleration event shall be deemed to have
occurred under such document, or (iii) Indebtedness governed by such document shall be prepaid or
the holder of such Indebtedness shall have the option to require such prepayment (whether
immediately or with the giving of notice, passage of time or both).

34

 

ARTICLE IX NEGATIVE COVENANTS

     From the date of this Agreement and thereafter until the Commitments are terminated or expire
and the Loans and all other liabilities of the Borrower to the Banks hereunder and under the Note
have been paid in full, unless the Required Banks shall otherwise expressly agree in writing the
Borrower will not, and will not permit any Material Subsidiary to, do any of the following:

     Section 9.1 Merger. Merge or consolidate or enter into any analogous reorganization
or transaction with any Person; provided, however, any wholly-owned Subsidiary may
be merged with or liquidated into the Borrower (if the Borrower is the surviving corporation) or
any other wholly-owned Subsidiary, and the Borrower and Material Subsidiaries may enter Permitted
Divestitures.

     Section 9.2 Sale of Assets. Sell, transfer, lease or otherwise convey all or any
substantial part of its assets except for (a) sales and leases of inventory in the ordinary course
of business, (b) sales or other transfers by a wholly-owned Subsidiary to the Borrower or another
wholly-owned Subsidiary; and (c) Permitted Divestitures.

     Section 9.3 Plans. Permit any condition to exist in connection with any Plan which
might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a
trustee
appointed to administer such Plan, permit any Plan to terminate under any circumstances which would
cause the lien provided for in Section 4068 of ERISA to attach to any property, revenue or asset of
the Borrower or any Subsidiary or permit the underfunded amount of Plan benefits guaranteed under
Title IV of ERISA to exceed $500,000.

     Section 9.4 Ownership of Stock. Take any action, or permit any Material Subsidiary
to take any action, which would result in a decrease in the Borrower’s or any Material Subsidiary’s
ownership interest in any Subsidiary (including, without limitation, decrease in the percentage of
the shares of any class of stock owned), other than Permitted Divestitures.

     Section 9.5 Other Agreements. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Banks which would: (a) be violated
or breached by the Borrower’s performance of its obligations under the Loan Documents, or (b)
prohibit any Subsidiary of the Borrower from paying dividends or distributions on, or redeeming,
acquiring or retiring for value, any shares of stock or other ownership interest that the Borrower
holds in such Subsidiary.

     Section 9.6 Restricted Payments. Either: (a) make any Restricted Payment if any
Default or Event of Default shall exist or shall result from the making of such Restricted Payment;
or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any
sinking fund payment on account of, or any other provision for, or otherwise pay, acquire or retire
for value, any Indebtedness of the Borrower or any Subsidiary that is subordinated in right of
payment to the Loans (whether pursuant to its terms or by operation of law), except for
regularly-scheduled payments of interest and principal (which shall not include payments
contingently required upon

35

 

occurrence of a change of control or other event) that are not otherwise
prohibited hereunder or under the document or agreement stating the terms of such subordination.

Section 9.7 Investments. Acquire for value, make, have or hold any Investments,
except:

(a) Investments outstanding on the date hereof and listed on Schedule 9.7, and any
increases or decreases in the value thereof or write-ups, write-downs or write-offs with
respect to such Investments;

(b) Travel advances to officers and employees in the ordinary course of business;

(c) Investments in readily marketable direct obligations of the United States of America
having maturities of one year or less from the date of acquisition;

(d) Certificates of deposit or bankers’ acceptances, each maturing within one year from the
date of acquisition, issued by any commercial bank organized under the laws of the United
States or any State thereof which has (i) combined capital, surplus and undivided profits of
at least $100,000,000, and (ii) a credit rating with respect to its unsecured indebtedness
from a nationally recognized rating service that is satisfactory to the Bank;

(e) Commercial paper maturing within 270 days from the date of issuance and given the
highest rating by a nationally recognized rating service;

(f) Repurchase agreements relating to securities issued or guaranteed as to principal and
interest by the United States of America;

(g) Extensions of credit in the nature of accounts receivable or notes receivable arising
from the sale of goods and services in the ordinary course of business;

(h) Share of stock, obligations or other securities received in settlement of claims arising
in the ordinary course of business;

(i) Investments outstanding on the date hereof in Subsidiaries by the Borrower and other
Subsidiaries, Investments by the Borrower or other Subsidiaries in Persons that will be
Subsidiaries upon completion of such Investments;

(j) Investments not otherwise permitted hereunder which shall not exceed (based on total
consideration paid by the Borrower or a Material Subsidiary): (i) $10,000,000 for any single
Investment or series of related Investments in any Person not engaged in one or more of the
Borrower’s and Subsidiaries’ present lines of business, or (ii) $20,000,000 for any single
Investment or series of related Investments in any Person that is engaged in one or more of
the Borrower’s and Subsidiaries’ present lines of business, provided that consent of
the Required Banks to such Investments in excess of such limit shall not be unreasonably
withheld; and

36

 

(k) Any Material Subsidiary may make Investments constituting Loans to the Borrower and
provided that no Default or Event of Default shall have occurred and continued, the Borrower
and any Material Subsidiary may make Investments constituting loans to (i) any Material
Subsidiaries, or (ii) any Subsidiaries that are not Material Subsidiaries, provided,
that such loans to any one Subsidiary shall not exceed $15,000,000 in aggregate principal
amounts outstanding at any time.

     Section 9.8 Liens. Create, incur, assume or suffer to exist any Lien with respect to
any property, revenues or assets now owned or hereafter arising or acquired, except:

(a) Liens in connection with the acquisition of property by way of purchase money mortgage
and security interests, conditional sale or other title retention agreement, Capitalized
Lease or other deferred payment contract, and attaching only to the property being acquired;

(b) Liens existing on assets of Material Subsidiaries acquired after December 31, 2005,
which existed at the time of such acquisition and attach only to the assets of such Material
Subsidiaries;

(c) Liens existing on the date of this Agreement and disclosed on Schedule 7.11
hereto and Liens securing any extension, renewal, restatement or replacement of the credit
facilities
described on Schedule 7.11, provided, that Liens securing such extensions,
renewals, restatements or replacement credit facilities shall not attach to materially
different assets than the Liens disclosed on such Schedule 7.11 and shall not secure
indebtedness exceeding the amount of credit facilities described on Schedule 7.11;

(d) Deposits or pledges to secure payment of workers’ compensation, unemployment insurance,
old age pensions or other social security obligations, in the ordinary course of business of
the Borrower or a Subsidiary;

(e) Liens for taxes, fees, assessments and governmental charges not delinquent or to the
extent that payments therefor shall not at the time be required to be made in accordance
with the provisions of Section 8.4;

(f) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising
in the ordinary course of business, for sums not due or to the extent that payment therefor
shall not at the time be required to be made in accordance with the provisions of
Section 8.4;

(g) Deposits to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the ordinary course of
business;

37

 

(h) Liens granted to secure obligations to any other holder of senior Indebtedness of the
Borrower (including without limitation obligations to insurers of bond obligations of the
Borrower), provided, that (i) such Liens were required to be granted pursuant to agreement
and instruments entered into by the Borrower prior to the date of this Agreement, and (ii)
the Agent is granted a pari passu Lien, not subordinate in priority (whether due to time of
filing or otherwise) to such Lien attaching to either (x) the same assets and rights as the
Lien in favor of such other holder of senior Indebtedness (in which case if the Agent shall
so notify the Borrower, the holder of such senior Indebtedness shall enter into an
inter-creditor agreement satisfactory to the Agent confirming such respective priorities of
such Liens), or (y) other assets that are acceptable to the Required Banks in their sole
discretion to secure all Indebtedness and obligations of the Borrower hereunder, whether
then existing or thereafter arising; and

(i) Liens not otherwise permitted by this Section securing Indebtedness not to exceed
$2,000,000 in the aggregate at any time outstanding.

In no case shall Liens permitted hereunder apply to the stock of the Guarantor and in no case shall
Liens under (d), (f) or (g) secure any Indebtedness for borrowed money or Indebtedness constituting
obligations to issuers of letters of credit.

     Section 9.9 Contingent Liabilities. Either: (a) endorse, guarantee, contingently
agree to purchase or to provide funds for the payment of, or otherwise become contingently liable
upon, any obligation of any other Person, except by the endorsement of negotiable instruments for
deposit or collection (or similar transactions) in the ordinary course of business, or (b) agree to
maintain the net
worth or working capital of, or provide funds to satisfy any other financial test applicable to,
any other Person, except (in the case of (a) or (b) above) for (i) guaranty by the Borrower of
loans to leveraged Employee Stock Ownership Plans; (ii) a performance guaranty by the Guarantor of
performance by DMI Industries, Inc. under a certain contract involving aggregate payments of
approximately $20,000,000; (iii) guaranties by the Guarantor or any Material Subsidiary of
obligations of any Material Subsidiary as lessee under any lease that is not a Capitalized Lease,
(iv) guaranties by Subsidiaries of the Guarantor of obligations of the Guarantor in respect of
Indebtedness identified in Schedule 7.11 hereto, (v) other guaranties limited as to principal of
recovery to not more than $10,000,000 in the aggregate; (vi) guaranties by the Guarantor of the
obligations of the Borrower under that certain Note Purchase Agreement, dated as of December 1,
2001, among the Borrower and the various purchasers which are parties thereto, and (vii) guaranty
by the Guarantor of the obligations of the Borrower in respect of up to $40,000,000 of Insured
Senior Notes due October 1, 2017.

     Section 9.10 Unconditional Purchase Obligations. Enter into or be a party to any
contract for the purchase or lease of materials, supplies or other property or services if such
contract requires that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.

38

 

     Section 9.11 Transactions with Related Parties. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale lease or exchange of
property or the rendering of any service, with any Related Party, except in the ordinary course of
and pursuant to the reasonable requirements of the Borrower’s or the applicable Material
Subsidiary’s business and upon fair and reasonable terms no less favorable to the Borrower or such
Material Subsidiary than would obtain in a comparable arm’s-length transaction with a Person not a
Related Party.

     Section 9.12 Use of Proceeds. Permit any proceeds of the Loans to be used for
purposes other than general corporate purposes (including acquisitions, to the extent permitted
hereunder) or permit any proceeds of the Loans to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of “purchasing or carrying any margin stock”
within the meaning of Regulation U of the Federal Reserve Board, as amended from time to time, and
furnish to any Bank, upon its request, a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in Regulation U.

     Section 9.13 Interest-bearing Debt to Total Capitalization. Permit the ratio, as of
the last day of any fiscal quarter of the Borrower, of (a) Interest-bearing Debt, to (b) Total
Capitalization to be greater than 0.60 to 1.00.

     Section 9.14 Interest and Dividend Coverage Ratio. Permit the Interest and Dividend
Coverage Ratio for any period of four consecutive fiscal quarters to be less than 1.50 to 1.00.

ARTICLE X EVENTS OF DEFAULT AND REMEDIES

     Section 10.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default:

(a) The Borrower shall fail to make when due, whether by acceleration or otherwise, any
payment of principal of or interest on the Note or any fee or other amount required to be
made to the Banks pursuant to the Loan Documents;

(b) Any representation or warranty made or deemed to have been made by or on behalf of the
Borrower or any Material Subsidiary by any of the Loan Documents or by or on behalf of the
Borrower or any Material Subsidiary in any certificate, statement, report or other writing
furnished by or on behalf of the Borrower to the Banks pursuant to the Loan Documents shall
prove to have been false or misleading in any material respect on the date as of which the
facts set forth are stated or certified or deemed to have been stated or certified;

(c) The Borrower shall fail to comply with Section 8.2 hereof or any Section of
Article IX hereof;

(d) The Borrower shall fail to comply with any agreement, covenant, condition, provision or
term contained in the Loan Documents (and such failure shall not constitute an Event of

39

 

Default under any of the other provisions of this Section 10.1) and such failure to
comply shall continue for thirty (30) calendar days after notice thereof to the Borrower by
the Bank;

(e) The Borrower or any Material Subsidiary shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the
appointment of a custodian, trustee or receiver of the Borrower or such Material Subsidiary
or for a substantial part of the property thereof or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be appointed for the
Borrower or a Material Subsidiary or for a substantial part of the property thereof and
shall not be discharged within 30 days;

(f) Any bankruptcy, reorganization, debt arrangement or other proceedings under any
bankruptcy or insolvency law shall be instituted by or against the Borrower or a Material
Subsidiary, and, if instituted against the Borrower or a Material Subsidiary, shall have
been consented to or acquiesced in by the Borrower or such Material Subsidiary, or shall
remain undismissed for 30 days, or an order for relief shall have been entered against the
Borrower or such Material Subsidiary, or the Borrower or any Material Subsidiary shall take
any corporate action to approve institution of, or acquiescence in, such a proceeding;

(g) Any dissolution or liquidation proceeding shall be instituted by or against the Borrower
or a Material Subsidiary and, if instituted against the Borrower or such Material
Subsidiary, shall be consented to or acquiesced in by the Borrower or such Material
Subsidiary or shall remain for 30 days undismissed, or the Borrower or any Material
Subsidiary shall take any corporate action to approve institution of, or acquiescence in,
such a proceeding;

(h) A judgment or judgments for the payment of money in excess of the sum of $1,000,000 in
the aggregate shall be rendered against the Borrower or a Material Subsidiary and the
Borrower or such Material Subsidiary shall not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution thereof, prior to any
execution on such judgments by such judgment creditor, within 30 days from the date of entry
thereof, and within said period of 30 days, or such longer period during which execution of
such judgment shall be stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal;

(i) The institution by the Borrower or any ERISA Affiliate of steps to terminate any Plan if
in order to effectuate such termination, the Borrower or any ERISA Affiliate would be
required to make a contribution to such Plan, or would incur a liability or obligation to
such Plan, in excess of $1,000,000, or the institution by the PBGC of steps to terminate any
Plan;

(j) The maturity of any Indebtedness of the Borrower (other than Indebtedness under this
Agreement) or a Material Subsidiary in the aggregate in excess of $5,000,000 shall be
accelerated, or the Borrower or a Material Subsidiary shall fail to pay any such
Indebtedness (in excess of such amount) when due or, in the case of such Indebtedness
payable on demand, when demanded, or any event shall occur or condition shall exist and
shall

40

 

continue for more than the period of grace, if any, applicable thereto and shall have
the effect of causing, or permitting (any required notice having been given and grace period
having expired) the holder of any such Indebtedness (in excess of such amount) or any
trustee or other Person acting on behalf of such holder to cause, such Indebtedness to
become due prior to its stated maturity or to realize upon any collateral given as security
therefor;

(k) Any Loan Document shall not be, or shall cease to be, enforceable and binding in
accordance with its terms, or the Borrower, any Material Subsidiary, or any other obligor
thereunder (except for the Agent or the Banks) shall disavow or contest, or attempt to
disavow or contest, its obligations under such Loan Document; or

(l) Any
Person, or group of Persons acting in concert, that owned less than
5% of the shares of any voting class of stock of the Borrower shall have acquired more than 25% of the shares of such voting stock.

     Section 10.2 Remedies. If (a) any Event of Default described in Sections
10.1(e), (f) or (g) shall occur with respect to the Borrower, the Commitments
shall automatically terminate and the outstanding unpaid principal balance of the Notes, the
accrued interest thereon and all other obligations of the Borrower to the Banks and the Agent under
the Loan Documents shall automatically become immediately due and payable; or (b) any other Event
of Default shall occur and be continuing, then the Agent may take any or all of the following
actions (and shall take any or all of the following actions on direction of the Required Banks):
(i) declare the Commitments terminated, whereupon the Commitments shall terminate, (ii) declare
that the outstanding unpaid principal balance of the Notes, the accrued and unpaid interest thereon
and all other obligations of the Borrower to the Banks and the Agent under the Loan Documents to be
forthwith due and payable, whereupon the Notes, all accrued and unpaid interest thereon and all
such obligations shall immediately become due and payable, in each case without demand or notice of
any kind, all
of which are hereby expressly waived, anything in this Agreement or in the Notes to the contrary
notwithstanding, (iii) exercise all rights and remedies under any other instrument, document or
agreement between the Borrower and the Agent or the Banks, and (iv) enforce all rights and remedies
under any applicable law.

     Section 10.3 Letters of Credit. In addition to the foregoing remedies, if any Event
of Default described in Section 10.1(e), (f) or (g) shall have occurred, or
if any other Event of Default shall have occurred and the Agent shall have declared that the
principal balance of the Notes is due and payable, the Borrower shall pay to the Agent an amount
equal to all Letter of Credit Obligations. Such payment shall be in immediately available funds or
in similar cash collateral acceptable to the Agent and shall be pledged to the Agent for the
ratable benefit of the Banks. Such amount shall be held by the Agent in a cash collateral account
until the outstanding Letters of Credit are terminated without payment or are paid and Letter of
Credit Obligations with respect thereto are payable. In the event the Borrower defaults in the
payment of any Letter of Credit Obligations, the proceeds of the cash collateral account shall be
applied to the payment thereof. The Borrower acknowledges and agrees that the Banks would not have
an adequate remedy at law for failure by

41

 

the Borrower to pay immediately to the Agent the amount
provided under this Section, and that the Agent shall, on behalf of the Banks, have the right to
require the Borrower to perform specifically such undertaking whether or not any of the Letter of
Credit Obligations are due and payable. Upon the failure of the Borrower to make any payment
required under this Section, the Agent, on behalf of the Banks, may proceed to use all remedies
available at law or equity to enforce the obligation of the Borrower to pay or reimburse the Agent.
The balance of any payment due under this Section shall bear interest payable on demand until paid
in full at a per annum rate equal to the Base Rate plus 2.00%.

     Section 10.4 Security Agreement in Accounts and Setoff. As additional security for
the payment of all of the Obligations, the Borrower grants to the Agent, each Bank and each holder
of a Note a security interest in, a lien on, and an express contractual right to set off against,
each deposit account and all deposit account balances, cash and any other property of the Borrower
now or hereafter maintained with, or in the possession of, the Agent, such Bank or such other
holder of a Note. Upon the occurrence of any Event of Default, upon written direction by the Agent
to such effect, the Agent, each such Bank and each such holder of a Note may: (a) refuse to allow
withdrawals from any such deposit account; (b) apply the amount of such deposit account balances
and the other assets of the Borrower described above to the Obligations; and (c) offset any other
obligation of the Agent, such Bank or such holder of a Note against the Obligations; all whether or
not the Obligations are then due or have been accelerated and all without any advance or
contemporaneous notice or demand of any kind to the Borrower, such notice and demand being
expressly waived.

ARTICLE XI THE AGENT

     Section 11.1 Appointment and Grant of Authority. Each Bank hereby appoints the
Agent, and the Agent hereby agrees to act, as agent under this Agreement and under the Guaranty.
The Agent shall have and may exercise such powers under this Agreement and the Guaranty as are
specifically delegated to the Agent by the terms hereof and thereof, together with such other
powers as are reasonably incidental thereto. Each Bank hereby authorizes, consents
to, and directs the Borrower to deal with the Agent as the true and lawful agent of such Bank to
the extent set forth herein and under the Guaranty.

     Section 11.2 Non-Reliance on Agent. Each Bank agrees that it has, independently and
without reliance on the Agent or any other Bank, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into
this Agreement and that it will, independently and without reliance upon the Agent, and based on
such documents and information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be
required to keep informed as to the performance or observance by the Borrower of this Agreement and
the Loan Documents or to inspect the properties or books of the Borrower. Except for notices,
reports and other documents and information expressly required to be furnished to the Banks by the
Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any

42

 

credit or other information concerning the affairs, financial condition or business of the Borrower
(or any of its related companies) which may come into the Agent’s possession.

     Section 11.3 Responsibility of the Agent and Other Matters.

(a) The Agent shall have no duties or responsibilities except those expressly set forth in
this Agreement and those duties and liabilities shall be subject to the limitations and
qualifications set forth in this Section. The duties of the Agent shall be mechanical and
administrative in nature.

(b) Neither the Agent nor any of its directors, officers or employees shall be liable for
any action taken or omitted (whether or not such action taken or omitted is within or
without the Agent’s responsibilities and duties expressly set forth in this Agreement) under
or in connection with this Agreement, or any other instrument or document in connection
herewith, except for gross negligence or willful misconduct. Without limiting the
foregoing, neither the Agent nor any of its directors, officers or employees shall be
responsible for, or have any duty to examine: (i) the genuineness, execution, validity,
effectiveness, enforceability, value or sufficiency of the Loan Agreements; (ii) the
collectibility of any amounts owed by the Borrower; (iii) any recitals or statements or
representations or warranties in connection with this Agreement or the Notes; (iv) any
failure of any party to this Agreement to receive any communication sent; or (v) the
assets, liabilities, financial condition, results of operations, business or
creditworthiness of the Borrower.

(c) The Agent shall be entitled to act, and shall be fully protected in acting upon, any
communication in whatever form believed by the Agent in good faith to be genuine and correct
and to have been signed or sent or made by a proper person or persons or entity. The Agent
may consult counsel and shall be entitled to act, and shall be fully protected in-any
action taken in good faith, in accordance with advice given by counsel. The Agent may
employ agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable
care. The Agent shall not be bound to ascertain or inquire as to the performance or
observance of any of the terms, provisions or conditions of this Agreement or the Notes on
the Borrower’s part.

     Section 11.4 Action on Instructions. The Agent shall be entitled to act or refrain
from acting, and in all cases shall be fully protected in acting or refraining from acting under
this Agreement or the Notes or any other instrument or document in connection herewith or therewith
in accordance with instructions in writing from (i) the Required Banks except for instructions
which under the express provisions hereof must be received by the Agent from all the Banks, and
(ii) in the case of such instructions, from all the Banks.

     Section 11.5 Indemnification. To the extent the Borrower does not reimburse and save
the Agent harmless according to the terms hereof for and from all costs, expenses and disbursements
in connection herewith or with the other Loan Documents, such costs, expenses and

43

 

disbursements to
the extent reasonable shall be borne by the Banks ratably in accordance with their Percentages and
the Banks hereby agree on such basis (a) to reimburse the Agent for all such reasonable costs,
expenses and disbursements on request and (b) to indemnify and save harmless the Agent against and
from any and all losses, obligations, penalties, actions, judgments and suits and other reasonable
costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent, other than as a consequence of actual gross negligence
or willful misconduct on the part of the Agent, arising out of or in connection with this Agreement
or the Notes or any instrument or document in connection herewith or therewith, or any request of
the Banks, including without limitation the reasonable costs, expenses and disbursements in
connection with defending itself against any claim or liability, or answering any subpoena, related
to the exercise or performance of any of its powers or duties under this Agreement or the other
Loan Documents or the taking of any action under or in connection with this Agreement or the Notes.

     Section 11.6 U.S. Bank National Association and Affiliates. With respect to U.S. Bank
National Association’s Commitment and any Loans by U.S. Bank National Association under this
Agreement and any Note and any interest of U.S. Bank National Association in any Note, U.S. Bank
National Association shall have the same rights, powers and duties under this Agreement and such
Note as any other Bank and may exercise the same as though it were not the Agent. U.S. Bank
National Association and its affiliates may accept deposits from, lend money to, and generally
engage, and continue to engage, in any kind of business with the Borrower as if U.S. Bank National
Association were not the Agent.

     Section 11.7 Notice to Holder of Notes. The Agent may deem and treat the payees of
the Notes as the owners thereof for all purposes unless a written notice of assignment, negotiation
or transfer thereof has been filed with the Agent. Any request, authority or consent of any holder
of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of
such Note.

     Section 11.8 Successor Agent. The Agent may resign at any time by giving at least 30
days written notice thereof to the Banks and the Borrower. Upon any such resignation, the Required
Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been
appointed by the Required Banks and shall have accepted such appointment within 30 days after the
retiring Agent’s giving notice of resignation, then the retiring Agent may, but shall not be
required to, on behalf of the Banks, appoint a successor Agent.

     Section 11.9 Syndication Agent, Documentation Agent and Lead Arranger. None of the
Syndication Agent, Documentation Agent or Lead Arranger shall have any duties, responsibilities or
liabilities in such capacities.

44

 

ARTICLE XII MISCELLANEOUS

     Section 12.1 No Waiver and Amendment. No failure on the part of the Banks or the
holder of the Notes to exercise and no delay in exercising any power or right hereunder or under
any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise
of any power or right preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein and in any other instrument, document or agreement delivered
or to be delivered to the Banks hereunder or in connection herewith are cumulative and not
exclusive of any remedies provided by law. No notice to or demand on the Borrower not required
hereunder or under the Notes shall in any event entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the right of the Banks or the
holder of the Notes to any other or further action in any circumstances without notice or demand.

     Section 12.2 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Borrower and the Agent upon direction of the
Required Banks and then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless agreed to by the Agent and all of the Banks:

(a) increase the amounts of (except as provided in Section 2.9) or extend the terms
of the Commitments or subject the Banks to any additional obligations;

(b) change the principal of, or interest on, the Notes or any fees or other amounts payable
hereunder;

(c) postpone any date fixed for any payment of principal of, or interest on, the Notes or
any fees or other amounts payable hereunder;

(d) release the Guaranty or release any collateral held subject to Section 10.3, except as
contemplated by such Section; or

(e) change the definition of Required Banks or amend this Section 12.2

provided, further that amendments, waivers or consents affecting the rights of the
Agent shall also require the consent of the Agent.

     Section 12.3 Assignments and Participations.

(a) Assignments. Each Bank shall have the right, subject to the further provisions
of this Sections 12.3, to sell or assign all or any part of its Commitments, Loans,
Notes, and other rights and obligations under this Agreement and related documents (such
transfer, and “Assignment”) to any commercial lender, other financial institution or other
entity (an

45

 

“Assignee”). Upon such Assignment becoming effective as provided in Section
12.3(b), the assigning Bank shall be relieved from the portion of its Commitment,
obligations to indemnify the Agent and other obligations hereunder to the extent assumed and
undertaken by the Assignee, and to such extent the Assignee shall have the rights and
obligations of a “Bank” hereunder. Notwithstanding the foregoing, unless otherwise
consented to by the Borrower and the Agent, each Assignment shall be in the initial
principal amount of not less than $5,000,000 in the aggregate for all Loans and Commitments
assigned, or an integral multiple of $1,000,000 if above such amount Each Assignment shall
be documented by an agreement between the assigning Bank and the Assignee (an “Assignment
and Assumption Agreement”) substantially in the form of Exhibit E attached hereto.

(b) Effectiveness of Assignments. An Assignment shall become effective hereunder
when all of the following shall have occurred: (i) the Agent and the Borrower (or, following
occurrence and during continuance of an Event of Default, the Agent only and not the
Borrower) shall consent to such Assignment (which consent shall not be unreasonably
withheld), by either notice of such consent or by executing and delivering such
Assignments, (ii) either the assigning Bank or the Assignee shall have paid a processing fee
of $3,500 to the Agent for its own account, (iii) the Assignee shall have submitted the
Assignment and Assumption Agreement to the Agent with a copy for the Borrower, and shall
have provided to the Agent information the Agent shall have reasonably requested to make
payments to the Assignee, and (iv) the assigning Bank and the Agent shall have agreed upon a
date upon which the Assignment shall become effective. Upon the Assignment becoming
effective, (x) if requested by the assigning Bank, the Agent and the Borrower shall make
appropriate arrangements so that new Notes are issued to the assigning Bank and the
Assignee; and (y) the Agent shall forward all payments of interest, principal, fees and
other amounts that would have been made to the assigning Bank, in proportion to the
percentage of the assigning Bank’s rights transferred, to the Assignee.

(c) Participations. Each Bank shall have the right, subject to the further
provisions of this Section 12.3, to grant or sell a participation in all or any part
of its Loans, Notes and Commitments (a “Participation”) to any commercial lender, other
financial institution or
other entity (a “Participant”) without the consent of the Borrower, the Agent of any other
party hereto. The Borrower agrees that if amounts outstanding under this agreement and the
Notes are due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to have the
right of setoff in respect of its Participation in amounts owing under this Agreement and
any Note to the same extent as if the amount of its Participation were owing directly to it
as a Bank under this agreement or any note; provided, that such right of setoff shall be
subject to the obligation of such Participant to share with the Banks, and the Banks agree
to share with such Participant, as provided in Section 4.5 hereof. The Borrower
also agrees that each Participant shall be entitled to the benefits of Article V
with respect to its Participation, provided, that no Participant shall be entitled to
receive

46

 

any greater amount pursuant to such Sections than the transferor Bank would have
been entitled to receive in respect of the amount of the Participation transferred by such
transferor Bank to such Participant had no such transfer occurred.

(d) Limitation of Rights of any Assignee or Participant. Notwithstanding anything
in the foregoing to the contrary, except in the instance of an Assignment that has become
effective as provided in Section 12.3(b), (i) no Assignee or Participant shall have
any direct rights hereunder, (ii) the Borrower, the Agent and the Banks other than the
assigning or selling Bank shall deal solely with the assigning or selling Bank and shall not
be obligated to extend any rights or make any payment to, or seek any consent of, the
Assignee or Participant, (iii) no Assignment or Participation shall relieve the assigning or
selling Bank from its Commitment to make Loans hereunder or any of its other obligations
hereunder and such Bank shall remain solely responsible for the performance hereof, the (iv)
no Assignee or Participant, other than an affiliate of the assigning or selling Bank, shall
be entitled to require such Bank to take or omit to take any action hereunder, except that
such Bank may agree with such Assignee or Participant that such Bank will not, without such
Assignee’s or Participant’s consent, take any action which would, in the case of any
principal, interest or fee in which the Assignee or Participant has an ownership or
beneficial interest: (w) extend the final maturity of any Loans or extend the Termination
Date, (x) reduce the interest rate on the Loans or the rate of Utilization and Facility
Fees, (y) forgive any principal of, or interest on, the Loans or any fees, or (z) release
all or substantially all of the Collateral for the Loans.

(e) Tax Matters. No Bank shall be permitted to enter into any Assignment or
Participation with any Assignee or Participant who is not a United States Person unless such
Assignee or Participant represents and warrants to such Bank that, as at the date of such
Assignment or Participation, it is entitled to receive interest payments without withholding
or deduction of any taxes and such Assignee or Participant executes and delivers to such
Bank on or before the date of execution and delivery of documentation of such Participation
or Assignment, a United States Internal Revenue Service Form W8BEN or W8ECI, or any
successor to either of such forms, as appropriate, properly completed an claiming complete
exemption from withholding and deduction of all Federal Income Taxes. A “United States
Person” means any citizen, national or resident of the United
States, any corporation or other entity created or organized in or under the laws of the
United States or any political subdivision hereof or any estate or trust, in each case that
is not subject to withholding of United States Federal income taxes or other taxes on
payment of interest, principal of fees hereunder.

(f) Information. Each Bank may furnish any information concerning the Borrower in
the possession of such Bank from time to time to Assignees and Participants and potential
Assignees and Participants.

(g) Federal Reserve Bank. Nothing herein stated shall limit the right of any Bank
to assign any interest herein and in any Note to a Federal Reserve Bank.

47

 

     Section 12.4 Costs, Expenses and Taxes; Indemnification.

(a) The Borrower agrees, whether or not any Advance is made hereunder, to pay on demand:
(i) all costs and expenses of the Agent (including the reasonable fees and expenses of
counsel and paralegals for such persons who may be employees of such persons) incurred in
connection with the preparation, execution and delivery of the Loan Documents and the
preparation, negotiation and execution of any and all amendments to each thereof, and (ii)
all costs and expenses of the Agent and each of the Banks incurred after the occurrence of
an Event of Default in connection with the enforcement of the Loan Documents. The Borrower
agrees to pay, and save the Banks harmless from all liability for, any stamp or other taxes
which may be payable with respect to the execution or delivery of the Loan Documents. The
Borrower agrees to indemnify and hold the Banks harmless from any loss or expense which may
arise or be created by the acceptance in good faith by the Agent of telephonic or other
instructions for making Advances or disbursing the proceeds thereof.

(b) The Borrower agrees to defend, protect, indemnify, and hold harmless the Agent and each
and all of the Banks, each of their respective Affiliates and each of the respective
officers, directors, employees and agents of each of the foregoing (each an “Indemnified
Person” and, collectively, the “Indemnified Persons”) from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel to such Indemnified Persons in connection
with any investigative, administrative or judicial proceeding, whether direct, indirect or
consequential and whether based on any federal or state laws or other statutory regulations,
including, without limitation, securities and commercial laws and regulations, under common
law or at equitable cause, or on contract or otherwise, the capitalization of the Borrower,
the Commitments, the making of, management of and participation in the Advances or the use
or intended use of the proceeds of the Advances, provided that the Borrower shall have no
obligation under this Section 12.4(b) to an Indemnified Person with respect to any
of the foregoing to the extent resulting from the gross negligence or willful misconduct of
such Indemnified Person or arising solely from claims between one such Indemnified Person
and another such Indemnified Person. The indemnity set forth
herein shall be in addition to any other obligations or liabilities of the Borrower to each
Indemnified Person under the Loan Documents or at common law or otherwise.

(c) The obligations of the Borrower under this Section 12.4 shall survive any
termination of this Agreement.

     Section 12.5 Notices. Except when telephonic notice is expressly authorized by this
Agreement, any notice or other communication to any party in connection with this Agreement shall
be in writing and shall be sent by manual delivery, telegram, telex, facsimile transmission,

48

 

overnight courier or United States mail (postage prepaid) addressed to such party at the address
specified on the signature page hereof, or at such other address as such party shall have specified
to the other party hereto in writing. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if sent by telegram, telex
or facsimile transmission, from the first Business Day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed; provided,
however, that any notice to the Agent under Article II hereof shall be deemed to
have been given only when received by the Agent.

     Section 12.6 Successors. This Agreement shall be binding upon the Borrower, the
Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of
the Borrower, the Banks and the Agent and the successors and assigns of the Banks. The Borrower
shall not assign its rights or duties hereunder without the written consent of the Banks.

     Section 12.7 Severability. Any provision of the Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other jurisdiction.

     Section 12.8 Subsidiary References. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as the Borrower has one or more Subsidiaries.

     Section 12.9 Captions. The captions or headings herein and any table of contents
hereto are for convenience only and in no way define, limit or describe the scope or intent of any
provision of this Agreement.

     Section 12.10 Entire Agreement. The Loan Documents embody the entire agreement and
understanding between the Borrower, the Banks and the Agent with respect to the subject matter
hereof and thereof. This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof.

     Section 12.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same instrument, and either
of the parties hereto may execute this Agreement by signing any such counterpart.

     Section 12.12 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT
GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.

     Section 12.13 Consent to Jurisdiction. AT THE OPTION OF THE BANKS, THIS AGREEMENT
AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA;
AND THE BORROWER

49

 

CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM
THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE BANKS AT ITS OPTION SHALL BE ENTITLED TO HAVE THE
CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT
BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

     Section 12.14 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE AGENT EACH WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER
THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN
THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.

     Section 12.15 Existing Credit Agreement. This Agreement amends and supersedes a
Credit Agreement, dated as of April 27, 2005 (the “Existing Credit Agreement”), among the Borrower,
the Banks named therein and U.S. Bank National Association, as Agent. It shall govern certain
loans made under the Existing Credit Agreement, and Letters of Credit issued under the Existing
Credit Agreement shall be continued as Letters of Credit hereunder. Upon closing of this
Agreement, the Agent shall (a) as promptly as practicable, adjust funding of the Revolving Loans so
that each Bank holds its Percentage of the Revolving Loans as provided herein, and (b) adjust its
records so that participations in Letters of Credit and Swing Line Loans of each Bank comport with
its Percentage, as provided herein.

(signature pages follows)

50

 

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

	 	 	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kevin G. Moug	 	 
	 

	 	 	 	 

   Kevin G. Moug
	 	 
	 	 	Title:  Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	P.O. Box 496	 	 
	 	 	Fergus Falls, MN 56538-0496	 	 
	 	 	Attention: Mr. Kevin G. Moug	 	 
	 

	 	 	 	          Chief Financial Officer	 	 
	 	 	Telephone: (701) 451-3562	 	 
	 	 	Fax: (701) 232-4108	 	 

Signature Page 1

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	U.S. BANK NATIONAL ASSOCIATION,	 	 
	 	 	as Agent, Lead Arranger and a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/
Delton Steele	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	505 Second Avenue North	 	 
	 	 	Mail Code EP-ND-0630	 	 
	 	 	Fargo, ND 58102	 	 
	 	 	Attention: Mr. Delton Steele	 	 
	 	 	                 Vice President	 	 
	 	 	Telephone: (701) 280-3553	 	 
	 	 	Fax: (701) 280-3580	 	 

Signature Page 2

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	JPMORGAN CHASE BANK, N.A. as Syndication	 	 
	 	 	Agent and as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Gabriel J. Simon	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Assistant Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	227 W. Monroe	 	 
	 	 	Chicago, IL 60606	 	 
	 	 	Attention: Gabriel J. Simon	 	 
	 	 	Telephone: (312) 541-3342	 	 
	 	 	Fax: (312) 541-3376	 	 

Signature Page 3

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	WELLS FARGO BANK, NATIONAL	 	 
	 	 	 ASSOCIATION. as Documentation Agent and as a	 	 
	 	 	Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ G. N. Ophaug	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: V.P.	 	 
	 
	 	 	 	 	 	 
	 	 	670 McKnight Road North, 4th Floor	 	 
	 	 	St. Paul, MN 55119	 	 
	 	 	Attention: Craig T. Hansen	 	 
	 	 	Telephone: (651) 205-9956	 	 
	 	 	Fax: (651) 205-5839	 	 

Signature Page 4

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	HARRIS NESBITT FINANCING, INC., as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ James Whitmore	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Managing Director	 	 
	 
	 	 	 	 	 	 
	 	 	700 Louisiana, Suite 4400	 	 
	 	 	Houston, TX 77022	 	 
	 	 	Attention: Cahal Carmody	 	 
	 	 	Telephone: (713) 546-9750	 	 
	 	 	Fax: (713) 223-4007	 	 

Signature Page 5

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	KEYBANK NATIONAL ASSOCIATION,	 	 
	 	 	as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  /s/ Keven D. Smith	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Senior Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	601 108TH Avenue N.E.	 	 
	 	 	Mail Code: WA-31-18-0512	 	 
	 	 	Bellevue, WA 98004	 	 
	 	 	Attention: Keven D. Smith	 	 
	 	 	Telephone: (425) 709-4579	 	 
	 	 	Fax: (425)709-4565	 	 

Signature Page 6

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A., as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Robert J. Cole	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	Energy Capital Services	 	 
	 	 	445 S. Figueroa Street, 15th Floor	 	 
	 	 	Los Angeles, CA 90071	 	 
	 	 	Attention: Robert Olson	 	 
	 	 	Telephone: (213) 236-7407	 	 
	 	 	Fax: (213) 236-4096	 	 

Signature Page 7

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A., as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Daniel R. Petrik	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Senior Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	231 S. LaSalle Street	 	 
	 	 	Chicago, IL 60697	 	 
	 	 	Attention: Daniel R. Petrik	 	 
	 	 	Telephone: (312) 828-8160	 	 
	 	 	Fax: (312) 828-7393	 	 

Signature Page 8

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	BANK HAPOALIM B.M., as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Helen H. Gateson	 	     /s/
Lenroy Hackett
	 

	 	 	 	 

	 	 

	 	 	Title: Vice President	 	First Vice President
	 
	 	 	 	 	 	 
	 	 	1177 Avenue of the Americas	 	 
	 	 	New York, NY 10036-2790	 	 
	 	 	Attention: Helen Gateson	 	 
	 	 	Telephone: (212) 782-2161	 	 
	 	 	Fax: (212) 782-2382	 	 

Signature Page 9

to Credit Agreement

 

 

	 	 	 	 	 	 	 
	 	 	BANK OF THE WEST, as a Bank	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Andrew Gaspard	 	 
	 

	 	 	 	 

	 	 
	 	 	Title: Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	250 Marquette Ave., Suite 575	 	 
	 	 	Minneapolis, MN 55401	 	 
	 	 	Attention: Andrew Gaspard	 	 
	 	 	Telephone: (612) 339-0670	 	 
	 	 	Fax: (612) 339-6362	 	 

Signature Page 10

to Credit Agreement

 

 

EXHIBITS

	 	 	 	 	 
	Exhibit	 	Contents
	A-1

	 	 	 	Revolving Note
	A-2

	 	 	 	Swing Line Note
	 
	 	 	 	 
	B

	 	 	 	Compliance Certificate
	 
	 	 	 	 
	C

	 	 	 	Guaranty
	 
	 	 	 	 
	D

	 	 	 	Form of Legal Opinion
	 
	 	 	 	 
	E

	 	 	 	Assignment and Assumption
	 
	 	 	 	 
	Schedules
	 	 	 	 
	 
	 	 	 	 
	1.1(a)

	 	 	 	Commitments and Percentages
	 
	 	 	 	 
	1.1(b)

	 	 	 	Material Subsidiaries
	 
	 	 	 	 
	2.6     

	 	 	 	Existing Letters of Credit (Section 2.6)
	 
	 	 	 	 
	7.6     

	 	 	 	Litigation (Section 7.6)
	 

	 	 	 	Contingent Liabilities (Section 7.6)
	 
	 	 	 	 
	7.11     

	 	 	 	Existing Liens (Sections 7.11 and 9.8)
	 
	 	 	 	 
	7.16     

	 	 	 	Subsidiaries (Section 7.16)
	 
	 	 	 	 
	7.17     

	 	 	 	Partnerships/Joint Ventures (Section 7.17)
	 
	 	 	 	 
	9.7     

	 	 	 	Investments (Section 9.7)

 

 

EXHIBIT A-1

PROMISSORY NOTE

			
	 	 	 
	$[Commitment]
	 	Minneapolis, Minnesota: April 26, 2006

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, a Minnesota corporation (the
“Borrower”), promises to pay to the order of [BANK] (the “Bank”), on the Termination Date, or other
due date or dates determined under the Credit Agreement hereinafter referred to, the principal sum
of                      DOLLARS ($[Commitment]), or if less, the then aggregate unpaid
principal amount of the Revolving Loans (as such terms are defined in the Credit Agreement) as may
be borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving Loans and all
payments of principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.

     The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid
principal amount hereof from time to time outstanding from the date hereof until paid in full at
the rates per annum which shall be determined in accordance with the provisions of the Credit
Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement.

     All payments of principal and interest under this Note shall be made in lawful money of the
United States of America in immediately available funds at the office of U.S. Bank National
Association, at 800 Nicollet Mall, Minneapolis, Minnesota 55402, or at such other place as may be
designated by the Agent to the Borrower in writing.

     This Note is the Note referred to in, and evidences indebtedness incurred under, a Credit
Agreement dated as of April 26, 2006 (herein, as it may be amended, modified or supplemented from
time to time, called the “Credit Agreement”) among the Borrower, the Banks, as defined therein
(including the Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including those under which
the Borrower is permitted and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately due and payable.

     All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment,
demand, protest and notice of dishonor in connection with this Note.

     This Note is made under and governed by the internal laws of the State of Minnesota.

	 	 	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

EXHIBIT A-2

PROMISSORY NOTE

			
	 	 	 
	$10,000,000
	 	Minneapolis, Minnesota: April 26, 2006

     FOR VALUE RECEIVED, the undersigned OTTER TAIL CORPORATION, a Minnesota corporation (the
“Borrower”), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the “Bank”), on the
Termination Date, or other due date or dates determined under the Credit Agreement hereinafter
referred to, the principal sum of TEN MILLION DOLLARS ($10,000,000), or if less, the then aggregate
unpaid principal amount of the Swing Line Loans (as such terms are defined in the Credit Agreement)
as may be borrowed by the Borrower from the Bank under the Credit Agreement. All Swing Line Loans
and all payments of principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.

     The Borrower further promises to pay to the order of the Bank interest on the aggregate unpaid
principal amount hereof from time to time outstanding from the date hereof until paid in full at
the rates per annum which shall be determined in accordance with the provisions of the Credit
Agreement. Accrued interest shall be payable on the dates specified in the Credit Agreement.

     All payments of principal and interest under this Note shall be made in lawful money of the
United States of America in immediately available funds at the office of U.S. Bank National
Association, at 800 Nicollet Mall, Minneapolis, Minnesota 55402, or at such other place as may be
designated by the Agent to the Borrower in writing.

     This Note is the Note referred to in, and evidences indebtedness incurred under, a Credit
Agreement dated as of April 26, 2006 (herein, as it may be amended, modified or supplemented from
time to time, called the “Credit Agreement”) among the Borrower, the Banks, as defined therein
(including the Bank) and U.S. Bank National Association, as Agent, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including those under which
the Borrower is permitted and required to make prepayments and repayments of principal of such
indebtedness and under which such indebtedness may be declared to be immediately due and payable.

     All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment,
demand, protest and notice of dishonor in connection with this Note.

     This Note is made under and governed by the internal laws of the State of Minnesota.

	 	 	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

Exhibit B

Compliance Certificate

                                                                                , 20___

U.S. Bank National Association

505 Second Avenue North

EP-ND-0630

Fargo, ND 58102

Attention: Delton Steele

                    Vice President

Ladies/Gentlemen:

     Reference is made to that certain Credit Agreement, dated as of April 26, 2006 (as amended
from time to time, the “Credit Agreement”), among OTTER TAIL CORPORATION (the “Borrower”), the
Banks named therein and U.S. BANK NATIONAL ASSOCIATION, as Agent (the “Agent”). Terms not
otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement.

     As required pursuant to Section 8.1(d) of the Credit Agreement, the Borrower hereby certifies
that as of                     , 20___, the following is true, correct and accurate in all respects:

     1. The consolidated financial statements submitted herewith are fairly presented in all
material respects.

     2. No Default and no Event of Default, has occurred and continued.

     3. All representations and warranties of the Borrower contained in Article VII of the
Credit Agreement are true and correct, as though made on such date;

     4. The Borrower’s Long Term Debt Rating is:

	 	 	 	 	 	 	 
	 

	 	Standard & Poor’s:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Moody’s:	 	 	 	 
	 

	 	 	 	 
.	 	 

     5. Covenant compliance is demonstrated as follows:

     Section 9.13 Interest-bearing Debt to Total Capitalization.

	 	 	 	 	 	 	 
	 

	 	Interest-bearing Debt:
	 	$                    	 	 
	 
	 	 	 	 	 	 
	 

	 	to:	 	 	 	 

 

 

	 	 	 	 	 	 	 
	 

	 	Total Capitalization:
	 	$                    	 	 

(Required: not greater than 0.60 to 1.00).

     Section 9.14 Interest and Dividend Coverage Ratio. For the four-quarter period
ending on the date of the enclosed consolidated financial statements:

	 	 	 	 	 	 	 
	 

	 	EBIT:
	 	$                    	 	 
	 
	 	 	 	 	 	 
	 

	 	to:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	sum of	 	 	 	 
	 

	 	Interest Expense:
	 	$___	 	 
	 

	 	Dividends on Preferred Stock:
	 	$___	 	 
	 

	 	 	 	$                    	 	 
	 
	 	 	 	 	 	 
	 

	 	Ratio: ___ to 1.00	 	 	 	 

(Required: not less than 1.50 to 1.00).

	 	 	 	 	 	 	 
	 	 	OTTER TAIL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	[chief financial officer]	 	 

 

 

Exhibit C

GUARANTY

     FOR VALUE RECEIVED and in consideration of entry by the Banks (as defined in the Credit
Agreement) and U.S. BANK NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, together
with it successors and assigns, called the “Agent”) into that certain Credit Agreement, dated as of
April 26, 2006 (as thereafter amended, modified, extended, renewed, restated or replaced from time
to time called the “Credit Agreement”) among the Banks, the Agent and OTTER TAIL CORPORATION, a
Minnesota corporation (hereinafter called the “Debtor”), VARISTAR CORPORATION, a Minnesota
corporation (the “Guarantor”) hereby unconditionally guarantees the full and prompt payment when
due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of the
Debtor to the Banks or the Agent under the Credit Agreement, each Note issued thereunder, and each
other Loan Document (as defined therein), including without limitation all future advances, and all
obligations to reimburse the Agent for drawings under all Letters of Credit, and all of such
obligations that arise after the filing of a petition by or against the Debtor under the Bankruptcy
Code, even if the obligations do not accrue because of the automatic stay under Bankruptcy Code
Section 362 or otherwise (all such obligations being hereinafter collectively called the
“Liabilities”), and the Guarantor further agrees to pay all expenses (including attorneys’ fees and
legal expenses) paid or incurred by the Banks or Agent in endeavoring to collect the Liabilities,
or any part thereof, and in enforcing this guaranty.

     The Guarantor agrees that, in the event of the dissolution or insolvency of the Debtor or the
Guarantor, or the inability of the Debtor or the Guarantor to pay debts as they mature, or an
assignment by the Debtor or the Guarantor for the benefit of creditors, or the institution of any
proceeding by or against the Debtor or the Guarantor alleging that the Debtor or the Guarantor is
insolvent or unable to pay debts as they mature, and if such event shall occur at a time when any
of the Liabilities may not then be due and payable, the Guarantor will pay to the Agent forthwith
the full amount which would be payable hereunder by the Guarantor if all Liabilities were then due
and payable.

     As additional security for the payment of all of the Liabilities and all obligations of the
Guarantor hereunder (collectively, the “Guaranty Obligations”), the Guarantor grants to the Agent
for the benefit of itself and the Banks a security interest in, a lien on, and an express
contractual right to set off against, each deposit account and all deposit account balances, cash
and any other property of the Guarantor now or hereafter maintained with, or in the possession of,
the Agent. Upon the occurrence of any default hereunder (as described in the immediately preceding
paragraph), the Agent may: (a) refuse to allow withdrawals from any such deposit account; (b) apply
the amount of such deposit account balances and the other assets of the Guarantor described above
to the Guaranty Obligations; and (c) offset any other obligation of the Agent against the Guaranty
Obligations; all whether or not the Guaranty Obligations are then due or have been accelerated and
all without any advance or contemporaneous notice or demand of any kind to the Guarantor, such
notice and demand being expressly waived.

     This guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and
shall remain in full force and effect (notwithstanding, without limitation, the dissolution of the
Guarantor or that at any time or from time to time all Liabilities may have been paid in full).

 

 

     The Guarantor further agrees that, if at any time all or any part of any payment theretofore
applied by the Agent or the Banks to any of the Liabilities is or must be rescinded or returned by
the Agent or the Banks for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of the Debtor), such Liabilities shall, for the purposes of this
guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by the Agent or the Banks, and this
guaranty shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or the Banks had not been made.

     The Agent and the Banks may, from time to time, at their sole discretion and without notice to
the Guarantor, take any or all of the following actions: (a) be granted a security interest in any
property to secure any of the Liabilities or the Guaranty Obligations, (b) retain or obtain the
primary or secondary obligation of any obligor or obligors, in addition to the Guarantor, with
respect to any of the Liabilities, (c) extend or renew for one or more periods (whether or not
longer than the original period), alter or exchange any of the Liabilities, or release or
compromise any obligation of any nature of any other obligor with respect to any of the
Liabilities, (d) release its security interest in, or surrender, release or permit any substitution
or exchange for, all or any part of any property securing any of the Liabilities or any obligation
hereunder, or extend or renew for one or more periods (whether or not longer than the original
period) or release, compromise, alter or exchange any obligations of any nature of any obligor with
respect to any such property, and (e) resort to the Guarantor for payment of any of the
Liabilities, whether or not the Agent and the Banks (i) shall have resorted to any property
securing any of the Liabilities or (ii) shall have proceeded against any other obligor primarily or
secondarily obligated with respect to any of the Liabilities (all of the actions referred to in
preceding clauses (i) and (ii) being hereby expressly waived by the Guarantor).

     Any amounts received by the Agent and the Banks from whatsoever source on account of the
Liabilities may be applied by it toward the payment of such of the Liabilities, and in such order
of application, as the Agent may from time to time elect.

     Until such time as this guaranty shall have been discontinued and the Agent and the Banks
shall have received payment of the full amount of all Liabilities and of all obligations of the
Guarantor hereunder, no payment made by or for the account of the Guarantor pursuant to this
guaranty shall entitle the Guarantor by subrogation or otherwise to any payment by the Debtor or
from or out of any property of the Debtor and the Guarantor shall not exercise any right or remedy
against the Debtor or any property of the Debtor by reason of any performance by the Guarantor of
this guaranty.

     The Guarantor hereby expressly waives: (a) notice of the acceptance by the Agent or the Banks
of this guaranty, (b) notice of the existence or creation or non-payment of all or any of the
Liabilities, (c) presentment, demand, notice of dishonor, protest, and all other notices
whatsoever, and (d) all diligence in collection or protection of or realization upon the
Liabilities or any part thereof, any obligation hereunder, or any security for, or guaranty of, any
of the foregoing.

     Each Bank may from time to time without notice to the Guarantor, assign or transfer its
Percentage (as defined in the Credit Agreement) or any or all of the Liabilities or any interest
therein; and, notwithstanding any such assignment or transfer or any subsequent assignment or
transfer thereof, such Liabilities shall be and remain Liabilities for the purposes of this
guaranty,

 

 

and each and every immediate and successive assignee or transferee of any of the Liabilities or of
any interest therein shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this guaranty to the same extent as if such assignee or
transferee were such Bank.

     Unless the Agent shall otherwise consent in writing, the Agent shall have the sole right to
enforce this Guaranty, as Agent as provided in the Credit Agreement, for the benefit of the Agent
and the Banks (including any transferee, as provided in the prior paragraph).

     The Guarantor hereby warrants to the Agent and the Banks that the Guarantor now has, and will
continue to have independent means of obtaining information concerning the affairs, financial
condition and business of the Debtor. Neither the Agent nor the Bank shall have any duty or
responsibility to provide the Guarantor with any credit or other information concerning the
affairs, financial condition or business of the Debtor which may come into the Agent’s or the
Bank’s possession.

     No delay on the part of the Agent or any Bank in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Agent or any Bank of any
right or remedy shall preclude other or further exercise thereof or the exercise of any other right
or remedy; nor shall any modification or waiver of any of the provisions of this guaranty be
binding upon the Agent or any Bank except as expressly set forth in a writing duly signed and
delivered on behalf of the Agent and the Required Banks (as defined in the Credit Agreement). No
action of the Agent or the Banks permitted hereunder shall in any way affect or impair the rights
of the Agent or the Banks and the obligations of the Guarantor under this guaranty. For the
purposes of this guaranty, Liabilities shall include all obligations of the Debtor to the Agent or
the Banks specified as Liabilities, notwithstanding any right or power of the Debtor or anyone else
to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and
no such claim or defense shall affect or impair the obligations of the Guarantor hereunder. The
obligations of the Guarantor under this guaranty shall be absolute and unconditional irrespective
of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of
the Guarantor. The Guarantor hereby acknowledge that there are no conditions to the effectiveness
of this guaranty.

     This guaranty shall be binding upon the Guarantor, and upon the successors and assigns of the
Guarantor.

     Wherever possible, each provision of this guaranty shall be interpreted in such a manner as to
be effective and valid under applicable law, but if any provision of this guaranty shall be
prohibited by or invalid under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining
provisions of this guaranty.

     THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS GUARANTY SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL BANKS.

 

 

     THE AGENT AND THE BANKS (BY ACCEPTING THIS GUARANTY) AND THE GUARANTOR HEREBY EXPRESSLY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.

     AT THE OPTION OF THE AGENT, THIS GUARANTY MAY BE ENFORCED IN ANY FEDERAL COURT SITTING IN
MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE GUARANTOR CONSENTS TO THE JURISDICTION AND VENUE OF ANY
SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE
GUARANTOR COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS GUARANTY, THE AGENT, AT ITS
OPTION, SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE
DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.

     SIGNED AND DELIVERED as of April 26, 2006.

	 	 	 	 	 	 	 
	 

	 	VARISTAR
CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

Exhibit D

Opinion of Counsel

April 26, 2005

To: The Banks party to the

Credit Agreement described herein

[address to each bank]

Ladies and Gentlemen:

     I have acted as counsel to Otter Tail Corporation, a Minnesota corporation (the “Company”), in
connection with the transactions contemplated by that certain Credit Agreement, dated as of April
26, 2006, entered into among the Company, the Banks, as defined therein, and U.S. Bank National
Association, as Agent (the “Credit Agreement”), and to Varistar Corporation (the “Guarantor”) in
connection with that certain Guaranty dated as of April 26, 2006, entered into by the Guarantor
(the “Guaranty”). This opinion is being delivered to you pursuant to Section 6.1(e) of the Credit
Agreement. Capitalized terms used herein, except as otherwise specifically defined herein, are
used with the same meaning as defined in the Credit Agreement.

     In connection with this opinion, I have examined the following documents:

     (a) The Articles or Certificate of Incorporation of the Company and the Guarantor;

     (b) The Bylaws of the Company and the Guarantor;

     (c) Resolutions of the Board of Directors of the Guarantor;

     (d) An executed copy of the Credit Agreement and the Guaranty; and

     (e) An executed copy of the Notes.

     I also have examined such other documents and reviewed such questions of law as I have
considered necessary and appropriate for the purposes of this opinion.

     In rendering my opinions set forth below, I have assumed the authenticity of all documents
submitted to me as originals, the genuineness of all signatures (other than the signatures of
officers of the Company and the Guarantor) and the conformity to authentic originals of all
documents submitted to me as copies. I also have assumed the legal capacity for all purposes
relevant hereto of all natural persons (other than officers of the Company and the Guarantor) and,
with respect to all parties to agreements or instruments relevant hereto other than the Company and
the Guarantor, that such parties had the requisite power and authority

 

 

(corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite action (corporate or
otherwise), executed and delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to questions of fact material to my
opinion, I have relied upon representations and certificates of officers and other employees of the
Company and the Guarantor (known by me to have authority to make such representations and
certifications on behalf of the Company and the Guarantor) and certificates of public officials.

     Based on the foregoing, I am of the opinion that:

     (i) The Company and the Guarantor are each a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, and each is duly qualified and
in good standing as a foreign corporation in all other jurisdictions in which its respective
present operations or properties require such qualification, except where failure so to qualify or
to be in good standing would not constitute an Adverse Event.

     (ii) The Company and the Guarantor each has full corporate power and authority to (a) own and
operate its properties and assets and carry on its business as presently conducted, as described in
the Company’s Annual Report or Form 10-K for the year ended December 31, 2001, and (b) enter into
and perform its obligations under the Loan Documents to which it is a party.

     (iii) The execution and delivery of the Loan Documents, the borrowing by the Company under the
Credit Agreement and the performance by the Company and Guarantor of their respective obligations
under the Loan Documents to which it is a party have been duly authorized by all necessary
corporate action, and the Loan Documents have been duly executed and delivered on behalf of the
Company and the Guarantor and the Loan Documents have been duly executed and delivered on behalf of
the Company and the Guarantor, as applicable and constitute valid and binding obligations of the
Company and the Guarantor, enforceable in accordance with their respective terms.

     (iv) There is no provision in (a) the Company’s or the Guarantor’s Articles or Certificate of
Incorporation or Bylaws, (b) any indenture, mortgage, contract or agreement to which the Company or
the Guarantor is a party or by which the Company or the Guarantor or its respective properties are
bound, (c) any law, statute, rule or regulation or (c) any writ, order or decision of any court or
governmental instrumentality binding on the Company or the Guarantor which would be contravened by
the execution, delivery or performance by the Company or the Guarantor of the Loan Documents to
which it is a party, except in the case of clauses (b) and (d) for any such contravention which
would not constitute an Adverse Event.

     (v) There are no actions, suits or proceedings pending or, to the best of my knowledge,
threatened against the Company or the Guarantor before any court or arbitrator or by or before any
administrative agency or government authority, which, if adversely determined, could reasonably be
expected to constitute an Adverse Event.

 

 

     The opinions expressed above are limited to the laws of the States of Minnesota and the
federal laws of the United States and I express no opinion as to the laws of any other
jurisdiction.

     The foregoing opinions are being furnished to you solely for your benefit and may not be
relied upon by, nor may copies be delivered to, any other person without my prior written consent.

	 	 	 	 	 
	 	Very truly yours,

George A. Koeck

General Counsel and Corporate Secretary

 	 
	 	 	 
	 	 	 
	 	 	 

 

 

	 	 	 	 	 

Exhibit E

Assignment and Assumption

ASSIGNMENT AND ASSUMPTION AGREEMENT

(Otter Tail Corporation)

     This Agreement, dated as of the date set forth in Item I (each reference to an
“Item” herein shall be deemed to refer to such Item on Schedule I hereto),
is made by the party named in Item II, (the “Assignor”) to the entity named in Item
III (the “Assignee”).

WITNESSETH

     The Assignor has entered into a Credit Agreement dated as of April 26, 2006, as amended
thereafter (the “Credit Agreement”) among OTTER TAIL CORPORATION (the “Borrower”), certain lenders
including the Assignor (collectively, the “Bank Group”) and U.S. BANK NATIONAL ASSOCIATION, as
Agent, under which the Assignor has agreed to make Revolving Loans and Term Loans, and to issue or
participate in the risk of issuance of Letters of Credit, in each instance in amounts of up to
those set forth in Item IV (such amount equals the original commitment of the Assignor and
may have been, or may be, reduced or increased by other assignments by, or to, the Assignor, and
will be reduced by the assignment under this Agreement) and the Bank Group has agreed to make
Revolving Loans and Term Loans, and to issue or participate in the risk of issuance of Letters of
Credit, in each instance in amounts of up to those set forth in Item V. Such Revolving
Loans and Term Loans are sometimes called the “Loans” hereinafter; such Letters of Credit are
sometimes called the “Letters of Credit” hereinafter; the Loans, the Bank’s participation in the
Letters of Credit, and the Bank’s participation in any unreimbursed drawing under any Letter of
Credit or any advance or loans made in connection with drawings under any Letter of Credit are
sometimes called the “Advances” or each “Advance,, hereinafter. Unless the context clearly
indicates otherwise, all other terms used in this Agreement shall have the meanings given them by,
and shall be construed as set forth in the Credit Agreement.

     In consideration of the premises and the mutual covenants contained herein, the Assignor and
the Assignee hereby covenant and agree as follows:

     1. Assignment and Assumption. Subject to the terms and conditions of this Agreement,
the Assignor and the Assignee agree that:

(a) the Assignor hereby sells, transfers, assigns and delegates to the Assignee, in
consideration of entry by the Assignee into this Agreement [and of Payment by the
Assignee to the Assignor of the amount set forth in Item VI]; and

(b) the Assignee hereby purchases, assumes and undertakes from the Assignor, without
recourse and without representation or warranty (except as expressly provided in this
Agreement)

 

 

a share equal to the percentage set forth in Item VII (expressed as a percentage of the
aggregate Advances and Commitments of the Bank Group) of the Assignor’s commitments, loans,
participations, rights, benefits, obligations, liabilities and indemnities under and in connection
with the Credit Agreement and all of the Advances, including without limitation the right to
receive payment of principal, and interest on such percentage of the Assignor’s Advances, and the
obligation to fund all future Advances and drawings under the Letters of Credit in respect of such
assignment, and to indemnify the Agent or any other party under the Credit Agreement and to pay all
other amounts payable by a Bank (in such percentage of the aggregate obligations of the Bank Group)
under or in connection with the Credit Agreement.

     The interest of the Assignor under the Credit Agreement (including the portion of the
Assignor’s Advances and all such commitments, loans, participations, rights, benefits, obligations,
liabilities and indemnities) which the Assignee purchases and assumes hereunder is hereinafter
referred to as its “Assigned Share”. The day upon which the Assignee shall make the payment
described in the prior paragraph is hereinafter referred to as the “Funding Date”. Upon completion
of the assignment hereunder, the Assignor will have the revised share of the total Loans and
Commitments of the Bank Group set fort in Item VIII.

     2. Future Payments. The Assignor shall notify the Agent to make all payments with
respect to the Assigned Share after the Funding Date directly to the Assignee. The Assignor and
Assignee agree and acknowledge that all payment of interest, commitment fees, letter of credit
commissions and other fees accrued up to, but not including, the Funding Date are the property of
the Assignor, and not the Assignee. The Assignee shall, upon payment of any interest, commitment
fees, letter of credit commissions or other fees, remit to the Assignor all of such interest,
commitment fees, letter of credit commissions an other fees accrued u to, but not including, the
Funding Date.

     3. No Warranty or Recourse. The sale, transfer, assignment and delegation of the
Assigned Share is made without warranty or recourse against the Assignor of any kind, except that
the Assignor warrants that it has not sold or otherwise transferred any other interest in the
Assigned Share to any other party. The Assignor may, however, have sold and may hereafter sell
Participations in, or may have assigned or may hereafter assign, portions of its interest in the
Advances and the Credit Agreement that in the aggregate (together with the portion assigned
hereby), do not exceed 100% of the Assignor’s interest in the Advances and the Credit Agreement.

     4. Covenants and Warranties. To induce the other to enter into this Agreement, each
of the Assignee and the Assignor warrants and covenants with respect to itself that:

(a) Existence. It is, in the case of the Assignee, a                                          organized
under the laws of                                          and it is, in the case of the Assignor, a                                         
duly existing under the laws of                                         ;

(b) Authority. It is duly authorized to execute, deliver and perform this
Agreement;

 

 

(c) No Conflict. The execution, delivery and performance of this Agreement do not
conflict with any provision of law or of the charter or by-laws (or equivalent constituent
documents) of such party, or of any agreement binding upon it; and

(d) Valid and Binding. All acts, conditions and things required to be done and
performed and to have occurred prior to the execution, delivery and performance of this
Agreement, and to constitute the same the legal, valid and binding obligation of such party
enforceable against such party in accordance with its terms, have been done and performed
and have occurred in due and strict compliance with all applicable laws.

     5. Covenants and Warranties by the Assignee. To induce the Assignor to enter into
this Agreement, the Assignee warrants and covenants that (a) it is purchasing and assuming the
Assigned Share in the course of making loans in the ordinary course of its commercial lending
business, and (b) it has, independently and without reliance upon the Assignor, and based upon such
financial statements and other documents and information as it has deemed appropriate, made its own
credit analysis an decision to engage in this purchase and transfer of the Assigned Share. The
Assignee acknowledges that the Assignor has not made and does not make any representations or
warranties or assume any responsibility with respect to the validity, genuineness, enforceability
or collectibility of the Advances, the Credit Agreement or any related instrument, document or
agreement.

     6. Promissory Note. The Notes of the Assignor shall be delivered to the Agent or
Borrower at such time and by such means as the Assignor and the Agent or Borrower shall agree, with
the request by the Assignor that the Borrower issue new notes payable to the Assignor and to the
Assignee to reflect the assignment of the Assigned Share hereunder.

     7. Payments to the Assignor. All amounts payable to the Assignor in U.S. Dollars
shall be paid by transfer of federal funds to the Assignor, ABA No.
        , Account No.         Attention:         Reference: [Borrower].

     8. Other Transactions. The Assignee shall have no interest in any property in the
Assignor’s possession or control, or in any deposit held or other indebtedness owing by the
Assignor, which may be or become collateral for or otherwise available for payment of the Advances
by reason of the general description of secured obligations contained in any security agreement or
other agreement or instrument held by the Assignor or by reason of the right of set-off,
counterclaim or otherwise, except that if such interest is provided for in provisions of the Credit
Agreement regarding sharing of set-off, the Assignee shall have the same rights as any other lender
that is a party to the Credit Agreement. The Assignor and its affiliates may accept deposits from,
lend money to, act as trustee under indentures for an generally engage in any kind of business with
the Borrower, and any person who may do business with or own securities of the Borrower, or any of
the Borrower’s subsidiaries. The Assignee shall have no interest in any property taken as security
for any other loans or any other credits extended to the Borrower or any of its subsidiaries by the
Assignor to the Borrower.

 

 

     9. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Assignor and the Assignee.

     10. Expenses. In the event of any action to enforce the provisions of this Agreement
against a party hereto, the prevailing party shall be entitled to recover all costs and expenses
incurred in connection therewith including, without limitation, attorneys’ fees and expenses,
including allocable cost of in-house legal counsel and staff.

     11. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE 0F MINNESOTA.

     12. Amendments, Changes and Modifications. This Agreement may not be amended,
changed, modified, altered, or terminated except by an agreement in writing signed by the Assignor
and the Assignee or their permitted successors or assigns).

     13. Withholding Taxes. The Assignee (a) represents and warrants to the Assignor, the
Agent and the Borrower that under applicable law and treaties no tax will be required to be
withheld by the Assignor with respect to any payments to be made to the Assignee hereunder, (b)
agrees to furnish (if it is organized under the laws of any jurisdiction other than the United
States or any State thereof) to the Assignor, the Agent and the Borrower prior to the time that the
Agent or Borrower is required to make any payment of principal, interest or fees hereunder either
U.S. Internal Revenue Service Form W8ECI or W8BEN and agrees to provide new Forms upon the
expiration of any previously delivered form or comparable statements in accordance with applicable
U.S. law and regulations and amendments thereto, duly executed and completed by the Assignee, and
(c) agrees to comply with all applicable U.S. laws and regulations with regard to such withholding
tax exemption.

     14. Entire Agreement. This Agreement sets forth the entire understanding of the
parties except for the consents contemplated hereby, and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intent has been made by any party which is not embodied in this
Agreement, and no party shall be bound by or liable for any alleged representation, promise,
inducement or statement of intention not expressly set forth herein.

     15. Counterparts. This Agreement may be executed by the Assignor and the Assignee in
separate counterparts, each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute one and the same Agreement.

 

 

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on their behalf by
their duly authorized officers as of the date and year first above written.

	 	 	 	 	 	 	 
	Address:	 	[Assignor]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 
	 

	 	 	 	 

	  (print name)	 
	 	 	 
	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 

	 
	 
	 	 	 	 	 	 
	Address:	 	[Assignee]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 
	 

	 	 	 	 

	  (print name)	 
	 	 	 
	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 

	 

[Consents required to become effective as provided in Section 12.3 of the Credit Agreement:

Consented
to this ___ day

of                             , 20___.

U.S. Bank National Association, as Agent

	 	 	 	 	 	 	 
	By:	 	 	 
	 

	 	 	(print name)	 
	 
	 
	Title:
	 	 	 	 	 	 
	 

	 	 

	 

	 

	 

	 

Consented
to this ___ day

of                                         , 20___.

OTTER TAIL CORPORATION, as Borrower

	 	 	 	 	 	 	 
	By:	 	 	 
	 

	 	 	(print name)	 
	 
	 
	Title:
	 	 	 	 	 	] 
	 

	 	 

	 

	 

	 

	 

 

 

Schedule I

to

Assignment and Assumption

	 	 	 
	Item I:

	 	Date of Assignment:
	 
	 	 
	Item II:

	 	Assigning Bank (the “Assignor”):
	 
	 	 
	Item III:

	 	Assignee (the “Assignee”):
	 
	 	 
	Item IV:

	 	Initial Total Commitment of the Assignor:
	 

	 	Revolving Loans:
	 
	 	 
	 

	 	Term Loans:
	 
	 	 
	 

	 	Letters of Credit:
	 
	 	 
	Item V:

	 	Bank Group’s Initial Total Commitment:
	 
	 	 
	 

	 	Revolving Loans:
	 
	 	 
	 

	 	Term Loans:
	 
	 	 
	 

	 	Letters of Credit:
	 
	 	 
	Item VI:

	 	Payment to the Assignor on Funding Date:
	 
	 	 
	Item VII:

	 	Percentage Assigned: ___%
	 
	 	 
	 

	 	(Expressed as a percentage of the total aggregate Commitments of the Bank Group,
carry out to 10 decimal places; upon effectiveness of the Assignment as provide in
the Credit Agreement, this will constitute the Assignee’s “Pro Rata Share”
	 
	 	 
	Item VIII:

	 	Revised Percentage of the Assignor: ___%
	 
	 	 
	 

	 	(carry out to 10 decimal places; upon effectiveness of the Assignment as provided in
the Credit Agreement, this will constitute the Assignor’s “Pro Rata Share”)

 

 

Schedule 1.1(a)

Commitments and Percentages

	 	 	 	 	 	 	 	 
	Bank:	 	Initial Commitment:	 	Percentage:
	U.S. Bank
	 	$	35,000,000		 	23.333333333333	%
	JP Morgan Chase
	 	$	22,500,000		 	15.000000000000	%
	Wells Fargo
	 	$	22,500,000		 	15.000000000000	%
	Harris Bank
	 	$	15,000,000		 	10.000000000000	%
	Key Bank
	 	$	15,000,000		 	10.000000000000	%
	Bank of America
	 	$	10,000,000		 	6.666666666667	%
	Union Bank of California
	 	$	15,000,000		 	10.000000000000	%
	Bank Hapoalim
	 	$	7,500,000		 	5.000000000000	%
	Bank of the West
	 	$	7,500,000		 	5.000000000000	%
	 	 	 	 		%
	 	 
	Total:
	 	$	150,000,000		 	100.000000000000	%

 

 

Schedule 1.1(b)

Material Subsidiaries

(as of date of this Credit Agreement)

	 	 	 	 	 
	1.
	 	Varistar Corporation	 	corp.
	 
	 	 	 	 
	2.
	 	BTD Manufacturing, Inc.	 	corp.
	 
	 	 	 	 
	3.
	 	DMI Industries, Inc.	 	corp.
	 
	 	 	 	 
	4.
	 	DMS Health Technologies, Inc.	 	corp.
	 
	 	 	 	 
	5.
	 	DMS Imaging, Inc.	 	corp.
	 
	 	 	 	 
	6.
	 	Northern Pipe Products, Inc.	 	corp.
	 
	 	 	 	 
	7.
	 	Vinyltech Corporation	 	corp.
	 
	 	 	 	 
	8.
	 	Idaho Pacific Holdings, Inc.	 	corp
	 
	 	 	 	 
	9.
	 	ShoreMaster, Inc.	 	corp.
	 
	 	 	 	 
	10.
	 	T.O. Plastics, Inc.	 	corp.

 

 

Schedule 2.6

Existing Letters of Credit (Section 2.6)

Amount; $12,000,000

Beneficiary: SAFECO Insurance Company, Seattle, WA

Expiry Date: 9/1/06

For Account of: Otter Tail Corporation

Amount: $2,369,500

Beneficiary: Liberty Mutual Insurance Company

Expiry Date: 12/31/06

For Account of: Otter Tail Corporation

 

 

Schedule 7.6

Litigation (Section 7.6)

Contingent Liabilities (Section 7.6)

NONE

 

 

Schedule 7.11

Existing Liens (Sections 7.11 and 9.8)

1. Varistar Corporation (“Varistar”) and its Subsidiaries have pledged their respective
shares or membership interests in the following subsidiaries to U.S. Bank National Association:

1. BTD MANUFACTURING, INC.

2. DMI INDUSTRIES, INC.

3. NORTHERN PIPE PRODUCTS, INC.

4. AERIAL CONTRACTORS, INC.

5. MOORHEAD ELECTRIC, INC.

6. E.W. WYLIE CORPORATION

7. T.O. PLASTICS, INC.

8. DMS HEALTH TECHNOLOGIES, INC.

9 DMS IMAGING, INC.

10. DMS LEASING, INC.

11. VINYLTECH CORPORATION

2. Pledges of such shares and membership interests secure the following indebtedness:

(a) $1,210,000 Term Note issued by the Guarantor to U.S Bank National Association (not as
Agent under the Credit Agreement, but individually, called “USB”);

(b) $750,000 Facility for issuance of letters of credit by USB for the account of the
Guarantor or its Subsidiaries;

(c) $450,000 facility for issuance of letters of credit by USB for the account of the
Guarantor or its Subsidiaries;

(d) Letters of Credit with face amounts of up to $12,215,205, which have been, or may
hereafter be, issued by U.S. Bank National Association for the account of DMI Industries,
Inc., a Subsidiary of the Guarantor; and

3. The following debt is also secured by collateral:

(a) $103,000 term loan by USB to DMI Industries, Inc. secured by certain real property and
related assets; and

(b) $61,000 term loan by USB to DMI Industries, Inc., secured by certain real property and
related assets.

 

 

     Schedule 7.16

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Number and Class of Shares Issued	 	 
	 	 	 	 	and Owned by Otter Tail	 	 
	Company	 	State of Organization	 	Corporation or its Subsidiaries	 	Footnote Ref.
	 
	AC Equipment, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(3	)
	AWI Acquisition Company Limited

	 	Prince Edward Island Canada
	 	1 Share Common
	 	 	(8	)
	Aerial Contractors, Inc.

	 	North Dakota
	 	10 Shares Common
	 	 	(3	)
	AgraWest Investments Limited

	 	Prince Edward Island Canada
	 	5,000,000 Shares Common

1,500,000 Shares Class A Preferred

1,500,000 Shares Class B Preferred

1,500 Shares Class C Preferred
	 	 	(9	)
	BTD Manufacturing, Inc.

	 	Minnesota
	 	200 Shares Common
	 	 	(1	)
	Chassis Liner Corporation**

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	DMI Industries, Inc.

	 	North Dakota
	 	980 Shares Common
	 	 	(1	)
	DMI Canada, Inc.

	 	Canada
	 	1 Share Common
	 	 	(4	)
	DMS Health Technologies, Inc.

	 	North Dakota
	 	8,500 Shares Class A

5,100 Shares Class B
	 	 	(1	)
	DMS Imaging, Inc.

	 	North Dakota
	 	1,606 Shares Common Voting
	 	 	(2	)
	DMS Leasing Corporation**

	 	North Dakota
	 	2,500 Shares Common
	 	 	(2	)
	E. W. Wylie Corporation

	 	North Dakota
	 	100 Shares Common
	 	 	(1	)
	Foley Company

	 	Missouri
	 	50,000 Shares Common
	 	 	(1	)
	Galva Foam Marine Industries, Inc.

	 	Missouri
	 	100,000 Shares Common
	 	 	(6	)
	Idaho Pacific Holdings, Inc.

	 	Delaware
	 	10,002 Shares Class A Common
(voting)
	 	 	(1	)
	Idaho- Pacific Corporation

	 	Idaho
	 	400 Shares Common
	 	 	(8	)
	Idaho- Pacific Colorado Corporation

	 	Delaware
	 	100 Shares Common
	 	 	(8	)
	Lynk3 Technologies, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(3	)
	Midwest Construction Services, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	Moorhead Electric, Inc.

	 	Minnesota
	 	80 Shares Common
	 	 	(3	)
	Northern Pipe Products, Inc.

	 	North Dakota
	 	10,000 Shares Common
	 	 	(1	)
	Otter Tail Assurance Limited

	 	Cayman Islands
	 	50,000 Shares Common
	 	 	(7	)
	Otter Tail Energy Services Company,
Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(7	)
	Overland Mechanical Services, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(5	)
	Shoreline Industries, Inc.

	 	Minnesota
	 	1,000 Shares Common
	 	 	(6	)
	ShoreMaster, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	St. George Steel Fabrication, Inc.**

	 	Utah
	 	1 ,000 Shares Common
	 	 	(1	)
	T.O. Plastics, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(1	)
	Varistar Corporation

	 	Minnesota
	 	100 Shares Common
	 	 	(7	)
	Ventus Energy Systems, Inc.

	 	Minnesota
	 	100 Shares Common
	 	 	(3	)
	Vinyltech Corporation

	 	Arizona
	 	100 Shares Common
	 	 	(1	)

	 	 	 
	(1)

	 	Subsidiary of Varistar Corporation

	(2)

	 	Subsidiary of DMS Health
Technologies, Inc.

	(3)

	 	Subsidiary of Midwest Construction
Services, Inc.

	(4)

	 	Subsidiary of DMI Industries, Inc.

	(5)

	 	Subsidiary of Otter Tail Energy
Services Company, Inc.

	(6)

	 	Subsidiary of ShoreMaster, Inc.

	(7)

	 	Subsidiary of Otter Tail Corporation

	(8)

	 	Subsidiary of Idaho Pacific
Holdings, Inc.

	(9)

	 	Subsidiary of AWI Acquisition
Company Limited

	**

	 	Inactive

 

 

Schedule 7.17

Partnerships/Joint Ventures (Section 7.17)

None

 

 

Schedule 9.7

Investments as of December 31, 2005

	 	 	 	 	 
	 	 	12/31/2005	 
	Investment in Affordable Housing (OTC)
	 	$	2,966,993	 
	Investment in Loan Pools (OTP)
	 	 	741,558	 
	Investment — Moorhead State Lighting (OTESCO)
	 	 	787,419	 
	Investment — Bank of Butterfield Bond Fund (OTAL)
	 	 	1,717,424	 
	Investment — Bank of Butterfield Reserve Fund
(OTAL)
	 	 	1,349,285	 
	Note Receivable — SMI — Aviva
	 	 	200,000	 
	Note Receivable — DMS
	 	 	177,929	 
	CoBank (St Paul Bank for Coop’s)
	 	 	600,276	 
	Other Miscellaneous (DMS, OTESCO-Overland Inv)
	 	 	161,152	 
	 
	 	 	 	 
	 
	 	 	 
	TOTAL
	 	$	8,702,036[NATIONAL OILWELL VARCO LOGO]

                                                                  April 27, 2006

                           PURCHASE AND SALE AGREEMENT
                 NATIONAL-OILWELL, L.P. AND UNION DRILLING INC.

     This Purchase and Sale Agreement is made and entered this 21st day of
April, 2006 between Union Drilling Inc. (UDRL) with offices at 4055
International Plaza, Suite 610. Ft. Worth, Texas 76109 and National-Oilwell,
L.P. ("NOV"), with offices at 10000 Richmond, Houston, Texas 77042. In
consideration of the mutual promises, covenants and agreements hereinafter set
forth, the parties mutually agree as set forth below:

AGREEMENT:

The parties agree to include the following terms:

1.   UDI hereby agrees to purchase rig equipment for three (3) Ideal Rigs from
     NOV,Such equipment is described in NOV's quotation number NOI-11283-Dwk,
     Rev 1 and shall be purchased in accordance with the prices set forth
     therein.

2.   Pursuant to the terms and conditions of the Letter of Intent ("LOI")
     executed by the parties on November 8,2005, UDI provided NOV with a initial
     deposit of $1,000,000.00 to secure the construction slots for the three (3)
     Ideal Rigs. Upon execution of this Purchase and Sale Agreement, the initial
     deposit shall be applied to UDI's total down payment costs.

3.   UDI further agrees to remit to NOV a thirty percent (30%) down payment
     based on the total contract price for all rigs.

4.   Delivery of the equipment is subject to Ex-works, NOV's facility - Houston
     (INCOTERMS 2000 Edition), subject to further tax implementation and
     clarification.

5.   The delivery date of the first rig is scheduled for October, 2006. The
     second rig will be delivered November, 2006, and the third rig will be
     delivered December, 2006.

6.   A second milestone payment of 50% of the total contract price for each rig
     shall be made by UDI to NOV upon completion of the "Rig Up" of each rig.
     For clarification, "Rig-Up" shall be considered complete when both parties
     agree and/or verify that 85% of all components required per the quotation
     are in place and assembled within the drilling unit.

7.   A third milestone payment of 20% of the total contract price for each rig
     shall be made by UDI to NOV upon completion of the factory acceptance
     tests.

                                                                               2

8.   The parties agree that the equipment and services provided under this
     Purchase and Sale Agreement shall be governed by NOV's standard terms and
     conditions included in its quotation number NOI-11283-Dwk, Rev.1, and which
     are hereby incorporated herein.

Attachment 1: Standard Terms & Conditions
Attachment 2: Special Conditions
Attachment 3: Pro Forma Invoice for 30% downpayment

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized representatives on the date first above
written.

NATIONAL-OILWELL, L.P.                   UNION DRILLING, INC.

--------------------------------------   ---------------------------------------
David C. Crumpler                        Christopher Strong
V.P. Sales and Marketing                 President and CEO

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

[NATIONAL OILWELL VARCO LOGO]                                           PROPOSAL

               NATIONAL OILWELL VARCO IDEAL 1500 (DC) RIG PACKAGE

                                  PREPARED FOR:

                                 UNION DRILLING

                                    PROJECT:
                                      NONE
                                NOI PROPOSAL REF:
                              NOI-11283-DWK REV. 01

                            Wednesday, April 26, 2006

  THIS PROPOSAL IS SUBJECT TO OUR STANDARD AND ANY SPECIAL TERMS AND CONDITIONS
                                    OF SALE.

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

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                                                           OUR REFERENCE:
                                                           NOI-11283-DWK
                                                           Rev. 01
                                                           YOUR REFERENCE:
                                                           NONE

UNION DRILLING

National Oilwell Varco is pleased to offer our equipment detailed in the
following proposal.

A minimum 30% non refundable down payment required at time of order, 50% at time
of Rig-Up with balance at time of shipment (ex-works). These prices are valid
for 30 days and will remain firm through delivery, subject to receipt of written
purchase order.

Deliveries of the Ideal Rig Packages are to be confirmed by Product Line Manager
at time of order placement. As of this date, subject to prior sale, these
packages are available TBD (ex-works, Houston Facility) based on "STANDARD IDEAL
RIG PACKAGES". Any changes to the standard specification or optional equipment
requested to be integrated into the package will extend these committed
deliveries.

This quote is for standard production equipment and uses National Oilwell Varco
standard components. Third party and/or regulator agency requirements are not
considered part of standard production equipment and if required, may result in
increased costs.

This quote does not provide for, nor include documentation or third party
certification. Charges for such certification, if required, will be quoted upon
definition of your requirements

Thank you for considering National Oilwell Varco.

Tyson Seeliger
Product Line Manager - Ideal & Rapid Rigs

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

                                  Page 2 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                                  SECTION RECAP

                         PROPOSAL CURRENCY: U.S. DOLLARS

1. IDEAL RIG 1500                    $25,096,650.00
2. COMMISSIONING & STARTUP ON SITE   $    56,100.00

TOTAL                                $25,152,750.00

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

                                  Page 3 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                            SECTION 1 IDEAL RIG 1500

1.1  IDEAL 1500 STANDARD RIG PACKAGE

     QTY. 3 EA. IDEAL-1500 (DC)

     STANDARD 1500HP IDEAL(TM) RIG SYSTEM

     The Ideal(TM) Rig System, rated @ 1500 HP, can drill up to depths of
     18,000 ft., encompassing a wide array of features and benefits.

     Designed and manufactured to achieve extraordinary gains in drilling
     efficiencies for light, safe and efficient rapid deployment.

     Enhanced safety features including low-set drawworks. All assembly labor is
     performed at ground level with more inherently safe assembly techniques.

     National Oilwell Varco quality, reliability and support through National
     Oilwell Varco's worldwide network of parts and service locations.

     Please note: The standard 1500HP Ideal(TM) Rig System is not intended for
     extreme cold weather operation.

     The 1500HP IDEAL(TM) RIG SYSTEM package comes complete with the following
     equipment:

     DRAWWORKS
     FAST MOVING RIG
     TRAVELING EQUIPMENT
     ROTARY EQUIPMENT
     ELECTRICAL POWER SYSTEM
     MUD PUMPS
     MUD SYSTEM
     HIGH PRESSURE MUD PIPING
     BOP CONTROL AND CLOSING SYSTEM
     INSTRUMENTATION
     AIR SYSTEM
     FUEL SYSTEM
     ELECTRICAL RIG-UP
     MECHANICAL RIG-UP
     MISCELLANEOUS EQUIPMENT

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

                                  Page 4 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                            DRAWWORKS EQUIPMENT GROUP

     Qty. 1 EA. JC50D

          Drawworks

          LS-NOW model JC50D drawworks (without sandline drum), rated 1500HP,
          with:

               o    27" X 49" grooved drum for 1-3/8" Wire Rope

               o    Integral dual electric motor drive

               o    Disengaging auxiliary brake coupling

               o    Four hoisting speeds

               o    Disc brake system with water cooled discs, hydraulic service
                    calipers and spring set emergency calipers, including H.P.U.

               o    LT1170/250T low speed drum shaft clutch

               o    LT1070/200T high speed drum shaft clutch

               o    Two wire line turnbacks

               o    Air-operated controls located at drillers cabin

               o    All necessary chains except rotary table drive

     Qty. 1 EA. DS50

          Auxiliary Electric Brake

          LS-NOW model DS50 eddy current brake

               o    Rated brake torque          44814 lb-ft / 60.76 KNm

               o    Applicable drilling range   11483-16404ft / 3500-5000m

               o    Max. exciting power         16 HP / 12 KW

               o    Exciting coil insulation
                    class/No.                   H/4

               o    Cooling water flow rate     75 G/min / 285L/min

               o    Max. temperature of inlet
                    water                       107 DEG. F/ 42 DEG. C

               o    Max. temperature of outlet
                    water                       322 DEG. F / 72 DEG. C

               o    Weight                      17934 lb / 7285 kg

          C/W one(1) 503 water cooling unit

     Qty. 1 EA. MODEL 2025A-LS

          Eddy Current Brake Control System

          National Oilwell Varco Model 2025-A Primary Brake Control System, for
          application with a Model DS50 Eddy Current Brake. The system shall
          consist of the following:

               o    Model 59926, 2025-A With H20 Alarm

               o    Model 55858 Driller's Control Unit. (Intrinsically Safe)

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

                                  Page 5 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               o    Model 55860 Power Selector Unit (Intrinsically Safe)

               o    6600-32-0198 Power Transformer, 3 Phase, 30 kVA, 60 Hz, 480
                    Volt AC Primary, 220 Volt AC Secondary (Drip-Proof)

     Qty. 1 EA. MODEL 2025A-MS

          Brake Water Cooling Monitor System

          National Oilwell Varco designed brake cooling water monitor system to
          monitor eddy current brake cooling water flow and temperature and
          provide an alarm for insufficient cooling water inlet flow rate and
          high cooling water outlet water temperature. In the event of either
          low cooling water flow or high cooling water temperature an alarm bell
          and red alarm and red alarm lamp will be activated.

          The system consists of the following:

          (2) Cooling water flow switches (intrinsically safe)
          (1) Cooling water temperature switch (intrinsically safe)
          (1) Set installation hardware
          (3) Installation/maintenance manuals

               o    Model 57064, Flow Switch

               o    Model 56236 Temp Sensor

               o    Model 59924 Brake Sensor Junction Box

          Display to be integrated with SDAQ and read out on the monitor at the
          driller's position.

     Qty. 2 EA. YZ08/YZ08A

          Drilling Motor - Drawworks

          Yongji YZ08/YZ08A drilling motor.

          SPECIFICATIONS

               o    Rated power:       1072 HP/800 KW

               o    Rated voltage:     750 V

               o    Rated current:     1150 A

               o    Rated speed:       970 RPM

               o    Rated torque       5925 ft-lb/8033.7 N.m

               o    Max. current:      1600A

               o    Max. torque:       9002 ft-lb/12206.4 N.m

               o    Exciting type      series

               o    Insulation class   H

               o    Cooling type:      Air forced ventilation

               o    Ex-proof type:     Air pressurization

               o    Weight:            7054 lb/3200 kg

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

                                  Page 6 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          FEATURES

               o    Self excited series field

               o    Single shaft extension with standard hub

               o    Pressurized connection box with bolts for connecting
                    armature & field cables

               o    High current, powerful torque and wide speed adjusting
                    range at constant power

               o    C/W blower driven by 15HP ex-proof AC motor, 460V, 60Hz
                    and 230V spacer heater.

     Qty. 1 EA. CBS-1

          Crown Block Saver

          LS-NOW type Toggle Valve, adjustable support and air piping.

          FEATURES

          Safety shut off device to limit block travel, installed on drawworks
          to actuate main drum brake when required travel is reached.

                                 FAST MOVING RIG

     Qty. 1 EA. LS-IDEAL-1500
          Fast Moving Rig

          Mast

               o    Mast 142' height x 750,000# hook load capacity, upper and
                    lower section. Crown, jib boom, ladder & racking board
                    included. Upper section to contain block and reserve line
                    spool while in transit, lower section to contain top drive
                    while in transit. Crown contains (5) 50" sheaves, (1) 60"
                    fast line sheave and (2) 42" deadline sheaves.

               o    Ramp/Rail style mast raising system includes truck mounted
                    mast alignment mechanism.

               o    Dual mast stand (API Monogrammed).

               Substructure

               o    25' slingshot substructure, hydraulic cylinder raising, with
                    pipe ramp and 3-stairs, bop handling rail.

          Drawworks Master Skid W/ 2 Mast Raising Cylinders and Brake Water
          Cooling Unit Reservoir & Piping

               o    Skid contains 282 bbl integral brake water cooling unit
                    reservoir, brake water cooling pumps and piping are mounted
                    on the skid,

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

                                  Page 7 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                    the drawworks mounts on the skid, the mast raising cylinders
                    pin to and rest in cradles on the skid when not in use.

               (Mast and substructure API monogrammed.)

     Qty. 1 EA. 2302043

          Hydraulic Power Unit

          Self-contained skid mounted hydraulic power unit with two hydraulic
          pumps. The first hydraulic pump is driven by a diesel engine and the
          second hydraulic pump is driven by a explosion-proof electric motor.
          Diesel engine and/or electric motor driven hydraulic pumps can be used
          separately or in-conjunction to power the hydraulic system

          Dual Electric/Diesel Hydraulic Power Unit consisting of the following:

          Hydraulic Pumps:

               (1)  Variable displacement pressure compensated piston pump
                    (electric)

                    Flow:       40GPM @ 1800 RPM
                    Pressure:   3000 PSI

               (1)  Variable displacement pressure compensated through drive
                    tandem piston pumps (diesel)

                    Flow:       65GPM @ 2300 RPM
                    Pressure:   3000 PSI

               (2)  Gear pump (Circulation pump)

                    Displacement:   2 CIR

          Hydraulic Control Manifold and Components:

                   No Pressure Filter
               (3) 20 SAE outlet ports
               (4) 24 SAE return ports
               (2) 0-5000 PSI pressure gauges

               o    Hydraulic reservoir stainless steel 60 US gallons with all
                    accessories.

               o    Diesel Fuel Tank Stainless steel 150 gallons with all
                    accessories

               o    Pump to motor adapters and coupling sets

               o    In tank return line filter housing and element 10 micron
                    absolute

               o    3500 PSI relief valve (flanged mounted)

               o    Flange mounted check valves

               o    Hydraulic fan driven air to oil cooler

               o    Tank mounted suction filters for pump supply

               o    Low level and high temp shutdown

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

                                  Page 8 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Diesel Motor:

               o    Deutz BF6L914

               o    195HP @ 2300 RPM

               o    Air cooled 6 cylinder four stroke

               o    12 volt starter

               o    SAE C pump adapter & drive plate

          Electric Items:

               (1)  75 HP 1800 RPM 365TC 460 volt C face (Class 1, Div 2 G-D)

               (1)  Remote stop/start station

          Skid:

               o    A36 carbon steel skid

               o    Oilfield skid with roll-off ends

               o    Drip drain with drain valve

          Assembly:

               o    All fittings and hose ends will be carbon steel.

               o    Label all connections, pressure and supply indication points

               o    Sand blast and paint all components including the skid

               o    Assembly and testing of the HPU

          Notes:

               1.   All electric motors are 60 HZ.

               2.   All gauges and instrumentation to display imperial units.

               3.   All Equipment name plates to be in English

               4.   Five (5) copies of Operation and Maintenance manuals in
                    English)

     Qty. 1 EA. STDPIPE-1

          4", 5000psi WP Standpipe

     Qty. 1 EA. SPM-1

          Standpipe Manifold

          One (1) Single 4" standpipe manifold to connect to standpipe.

          Manifold Consisting of:

               o    One (1) 4" 5,000# WP BW mud gate valve

               o    One (1) 2" 5,000# WP WN mud gate valve (kill, fill)

               o    Two (2) 4" fig 1002 hammer unions

               o    One (1) 2" connection for pressure gauge with 1002 hammer
                    union

               o    One (1) 2" 1502 hammer union & wing nut connection for

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

                                  Page 9 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                    pressure transducer.

               o    One (1) Pressure gauge 0-6000# 2" flanged connection

               o    Includes X-ray, hydrotest and paint.

     Qty. 1 EA. VH-1

          Vibrator Hose

          Connects standpipe manifold to drill floor connection.

     Qty. 2 EA. TWB-1

          Tong Weight Box

          Complete with pulleys and lines, LESS weight material.

     Qty. 1 EA. 2300-0-EP

          Safety Climbing Device

          Mast ladder safety climb with three safety belts. Rope lock 2300-0-EP
          with 5/8" line.

     Qty. 3 EA. CB-TS

          Climbing Belt, Complete with Tail Rope

     Qty. 1 EA. DLS-H-5000-1-3/8

          Drill Line Spooler

          Hydraulic Powered Drill Line Stand designed to accommodate steel reel
          with 5000 Ft. 1-3/8" Drill Line.

     Qty. 5000 FT 800091-1-3/8

          1-3/8" Drilling line, 6X19, EIPS-PF-RI, IWRC

     Qty. 1 EA. WC-D-BOPH

          Bop Beams

          Trolley rail on Sub for hoisting and positioning BOP stack.

     Qty. 1 EA. MR-CB-2CYLXHC

          National Oilwell Varco Two Cylinder Hydraulic Catworks

          Hydraulic catworks mounted in mast. Individual hydraulic makeup &
          breakout cylinders. Includes all wire line and all hydraulic piping
          for the two cylinder catworks.

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

                                  Page 10 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          SPECIFICATIONS

               o    Breakout and Makeup Cylinders - 4" Bore x 8' Stroke

               o    Maximum Speed - 67' Per Min. at 35 GPM

               o    Maximum Pull - 20,000# at 2,000 PSI

     Qty. 1 EA. Q250

          Model Q250 Spinning Wrench

               Air Spinner:       12cubic meters/min
               Applicable Pipe:   3-1/2" - 10"
               Norm Power:        16HP
               Spinning Speed:    108-38 rpm
               Spinning Torque:   1094-2500 NM

     Qty. 1 EA. HYD-PIPING

          Hydraulic Piping for Mast and Substructure

          For mast and substructure raising/lowering and other hydraulic
          functions (not including top drive).

     Qty. 1 EA. LFLH-75-C-8C-R-PVF

          National Oilwell Varco Rotary Slip Deadline Anchor, Lug Type Floor
          Mount

          Drum is designed to rotate completely around the shaft during line
          slipping.Drum design includes a lead in groove to a smooth surface.
          Rollers guide the line across the drum surface as the drum rotates.

          Designed and Manufactured to API 8C, PSL-1

          For 1-3/8" Wireline size.
          Has double clamp for use with PVF wireline.
          Have lugs for mounting to floor with two pins.

               Model:                      LFLH-75-C-8C-R-PVF
               Mounting:                   Lug Floor Mount
               Orientation:                Left Hand
               Load Cell (Not Supplied):   E-551 Compression Type
               Maximum Deadline Load:      75,000 LBS. (34 mT)
               Drum Diameter:              24" (609.6mm)
               Approximate Weight:         2212 LBS. (1005 kg)

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

                                  Page 11 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                               TRAVELING EQUIPMENT

     Qty. 1 EA. YC450

          LS-NOW Model YC450 Traveling Block

          FEATURES

               o    Heavy steel fabricated main frame

               o    Heavy wireline guards

               o    Steel sheaves with induction hardened API wireline grooves

               o    Tapered roller bearings in sheaves

               o    Oil quenched and tempered alloy steel shaft with individual
                    grease passages to each bearing

               o    High strength steel becket

               o    Designed to API standard 8A

          SPECIFICATIONS

               o    Model:                YC450

               o    Max. hook load:       500 ton

               o    Number of sheaves:    6

               o    Sheave diameter:      1524mm (60")

               o    Shaft diameter:       254mm (10")

               o    Wireline size:        1-3/8"

               o    Approximate length:   3075mm (121")

               o    Approximate width:    1600mm (63")

               o    Approximate depth:    800mm (31")

               o    Approximate weight:   17934lbs/8135kg

     Qty. 1 EA. DG450

          LS-NOW Model DG450 Hook

          Complete with conventional bail, safety positioner, built in hydraulic
          snubber and rotation lock.

          Built to API 8A

               Max. hook load:                             500 Ton
               Overall dimensions (L x W x H ):   116" x 35" x 35"
               Weight:                              7707 lb/3496kg

     Qty. 1 EA. SL-450-5

          LS-NOW Model Sl-450-5  Swivel w/Spinner

          With spinning function.

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

                                  Page 12 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Equipped with standard bails.

          The wash pipe and packing assembly are cartridge type and can be
          replaced on the floor without disconnecting the rotary hose and/or
          gooseneck.

          The gooseneck is provided with an outlet for wireline logging.

          Equipped with 4" API hose connection.

          Conforms to API specification 8A.

          Maximum Static Load Rating   500 Ton
          Maximum Speed                300 RPM
          Maximum Working Pressure     5,000 PSI

          Hook Clearance over the Gooseneck 549 mm (21.6 in.)

               Diameter of Stem           2.95"
               Coupling Thread to Stem    7-5/8" Reg. LH
               Coupling Thread to Kelly   6-5/8" Reg. LH

     Qty. 1 PKG EV-LK

          350 Ton Elevator Links, Capacity 350T, size 108" API 8A.

                                ROTARY EQUIPMENT

     Qty. 1  ZP-375

          LS-NOW Model ZP375 37-1/2" Rotary Table

               o    Built to API 7K

               o    Opening dia.          37-1/2"

               o    Static load rating    1,300,000 lbs

               o    Max. working torque   23,900 ft-lbs

               o    Weight                16640 lbs

     Qty. 1 EA. IRD-LS-NOW

          Independent rotary drive for LS-NOW ZP375 rotary table includes:

               o    Coupling, with Spacer, between Rotary and Transmission

               o    2-Speed IRD Transmission (Roller Chain Type)

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

                                  Page 13 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               o    Coupling between Transmission and DC Motor

               o    Inertia Brake for IRD Components

          Above components to be assembled with rotary and motor (not included)
          as one unit. Above modified to directly mount drive in substructure.

     Qty. 1

          Full Guard, Included in Item. IRD-LS-NOW

     Qty. 1 EA. YZ08/YZ08A

          Motor - Rotary Table

          Yongji YZ08/YZ08A drilling motor.

          SPECIFICATIONS

               o    Rated power:       1072 HP/800 KW

               o    Rated voltage:     750 V

               o    Rated current:     1150 A

               o    Rated speed:       970 RPM

               o    Rated torque       5925 ft-lb/8033.7 N.m

               o    Max. current:      1600A

               o    Max. torque:       9002 ft-lb/12206.4 N.m

               o    Exciting type      series

               o    Insulation class   H

               o    Cooling type:      Air forced ventilation

               o    Ex-proof type:     Air pressurization

               o    Weight:            7054 lb/3200 kg

          FEATURES

               o    Self excited series field

               o    Single shaft extension with standard hub

               o    Pressurized connection box with bolts for connecting
                    armature & field cables

               o    High current, powerful torque and wide speed adjusting range
                    at constant power

               o    C/W blower driven by 15HP ex-proof AC motor, 460V, 60Hz and
                    230V spacer heater.

     Qty. 1 EA.

          Master Bushing Bowl

          LS-NOW split body pin drive master bushing for ZP375 rotary table,
          complete with API No.3 bowl, lifting sling, and bit breaker plate for
          ZP375 rotary table.

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

                                  Page 14 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     Qty. 1 EA.

          Master Bushing Bowl

          LS-NOW API No. 2 Bowl for 10- 3/4" and 9 -5/8" Pipe.

     Qty. 1 EA.

          Master Bushing Bowl

          LS-NOW API No. 1 Bowl for 13-3/8" and 11- 3/4" Pipe

     Qty. 1 EA.

          Split Casing Bushing

          LS-NOW 37-1/2" x 20" split casing bushing for LS-NOW 37-1/2" Rotary
          Table

     Qty. 1 EA.

          Kelly Bushing

          LS-NOW pin drive roller kelly bushing for 5-1/4" HEX KELLY

     Qty. 1 EA.

          Hex Kelly

          5-1/4"x40' Hex. Kelly. (5" Drill pipe), Drill Pipe connection NC50-
          4-1/2IF.

     Qty. 1 EA.

          Upper Kelly Valve

          7-3/4" OD / 3-1/16" ID 6-5/8" reg LH (Upper)

                             ELECTRICAL POWER SYSTEM

     Qty. 1 EA. 6715-00

          SCR House

          System Description

          Item   Qty   Description
          ----   ---   -----------
            1     3    Detroit Diesel V-1600 engines driving a 1750 kVA, 600
                       VAC, 60 Hz generator.
            2     1    1500 HP Drawworks, driven by two (2) series wound Yongi
                       DC motors.
            3     2    1600 HP Mud Pumps, each driven by two (2) series wound
                       Yongi DC motors.

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

                                  Page 15 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

            4     1    1000 HP Rotary Table driven by one (1) series wound Yongi
                       DC motor.

          SCOPE OF NATIONAL OILWELL VARCO SUPPLIED EQUIPMENT

          National Oilwell Varco to provide the following equipment (Requires
          Engineering confirmation of description)

          Item   Qty   Description
          ----   ---   -----------
           1      4    Model 1400 SCR control cubicles
           2      3    Model 1400 Engine/Generator control cubicles
           3      1    Blank cubicle for future Gen Control
           4      1    Synchronizing system
           5      1    Ground detection system
           6      1    Hands off circuit
           7      1    Power limit system
           8      1    PLC System
           9      1    Driller's console
           10     1    Driller's foot throttle
           11     1    Drawworks dynamic brake system
           12     1    Eddy Current Brake Control
           13     1    600 Volt feeder section
           14     1    Transformer section
           15     1    MCC section
           16     1    Power Control House

          1)   MODEL 1400 SCR CONTROL CUBICLE

               NOV will supply four (4) Model 1400 SCR Drive Control cubicles
               each to include:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    AC Input, 1600AF, Stationary Mount, Circuit Breaker
                            Switch with UV trip and auxiliary contacts.

                 2     1    Voltmeter, 0 - 1000 VDC
                 3     1    Ammeter, 0 - 2000ADC

                 4     1    SCR "ON" indicating lamp, (Red)

                 5     1    6 pulse, 1800 amp, 750 VDC, vertical air cooled SCR
                            Bridge. The bridge shall be protected using
                            semiconductor type fuses with form C contacts, which
                            are activated when the fuse opens.

                 6     1    Surge Suppression "ON" Indicating Lamp (Green).
                            Surge Suppression will be provided to clamp any
                            transient voltages, which could be damaging to the
                            SCR devices. The surge suppressor will consist of a
                            fused set of metal oxide varistors (MOVs).

                 7     1    Set of DC assignment contactors to allow for
                            multiple

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

                                  Page 16 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                            assignments of the bridge.

                 8     1    DC Control Module with:

                            o    Pulse thyristor-firing circuits with "Hard
                                 Firing" outputs. The synchronizing signal
                                 originates directly from the AC line so that no
                                 pilot generator is required.

                            o    High speed current regulator with
                                 twenty-millisecond response. Automatic current
                                 limit load sharing for motors driving the same
                                 shaft and driven by separate armature supplies
                                 no setup or adjustment required.

                            o    Individual control of current limit for all
                                 drilling functions. The rotary table torque
                                 limit will be mounted in the driller's console.

                            o    Ramp generator on the Drawworks current
                                 regulator to control the rate of rise of motor
                                 torque.

                            o    Motor speed regulators for the Mud Pumps,
                                 Drawworks, and Rotary Table (Top Drive). Each
                                 regulator will be interlocked with its related
                                 assignment contactor.

                            o    All controls are designed to be "Foolproof", no
                                 preset sequence of operation is required. The
                                 operator may push any button at any time and
                                 the system will either follow when it is safe
                                 or block the command if it is not consistent
                                 with the operation.

                            o    Manual firing control for emergency operation.

                            o    Thyristor gate suppression at approximately
                                 150% of the bridge rating.

                            o    "Zero Throttle Interlock", the hand throttle
                                 must be returned to zero after an assignment
                                 change before the motor can be powered.

                            o    Module Fault Finder includes a meter and switch
                                 mounted on the front for monitoring critical
                                 internal voltages

          2)   MODEL 1400 ENGINE/GENERATOR CONTROL CUBICLE

               NOV will supply three (3) Model 1400 Generator Control cubicles
               each to include:

               Item   Qty   Description
               ----   ---   -----------
                1      1    2000AF, Stationary Mount Circuit Breaker with LI
                            solid state trip unit, manually charged, electric
                            closing soleNOVd, UV release and necessary auxiliary
                            contacts.
                2      1    Circuit Breaker Pushbutton "CLOSE"
                3      1    Ammeter Meter

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

                                  Page 17 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                4      1    Kilowatt Meter
                5      1    Kilovar Meter
                6      1    Generator Hour Meter
                7      1    Engine Control Pushbutton "OFF IDLE-RUN"
                8      1    Generator "RUN" Indicating Lamp (White)
                9      1    Generator "ON LINE" Indicating Lamp (Red)
                10     1    Generator Sync Indicating Lamp (Amber)
                11     1    Manual Engine Speed Adjust Potentiometer
                12     1    Manual Voltage Adjust Potentiometer
                13     1    Engine Generator Solid State Control Module with:

                            o    Voltage Regulator

                            o    Electronic Governor Control

                                 o    Response time of .8 second typical

                                 o    Maximum load unbalance between engines
                                      (one hot, one cold) at all points, no load
                                      to full load, +5% of its rated load

                                 o    Working temperature range of 30 DEG. C to
                                      +50 DEG. C

                                 o    No load to full load regulation of +1%

                                 o    Governor electronics arranged for battery
                                      power to advance throttle for "black
                                      start" capability.

                            o    Reactive power is shared between the generators
                                 by reactive power droop compensation

                            o    Real power is shared by a master / slave
                                 command line

                            o    Exciter power supply, 12 amp maximum current
                                 (the exciter current limit is set to suit the
                                 individual exciter)

                            o    Exciter power supply maximum voltage is 240
                                 volts (this is set by the choices of the
                                 exciter transformer and the generator self
                                 excitation requirements)

                            o    Protective functions built into the regulator
                                 are:

                                 o    Reverse Power Trip

                                 o    Under Frequency Trip

                                 o    Over voltage Trip

                                 o    Over speed Trip

                                 o    Frequency / Voltage Scheduled for Engine
                                      Operation at Idle Speeds

          3)   BLANK CUBICLE FOR FUTURE GEN CONTROL

               NOV will supply one (1) blank cubicle for future Gen Control.
               This cubicle will

          4)   SYNCHRONIZING SYSTEM

               NOV will supply a Synchronizing System that will consist of the

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

                                  Page 18 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               following items:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    Synchronizing System
                            (1) - Synchronizing selector switch
                            (2) - Synchronizing lights (clear)
                            (1) - Synchroscope
                            (1) - Synch check relay
                            (1) - Voltmeter-main bus & Generator (0 750 V)
                            (1) - Frequency Meter-main bus & Generator
                                  (50 - 70 Hz)

          5)   GROUND DETECTION NETWORK

               NOV will supply a Ground Detection Network consisting of the
               following items:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    Ground Detection Circuit
                            (3) - Ground Detection Lights
                            (1) - Percent DC Ground Meter
                            (1) - Percent AC Ground Meter
                            (1) - Test Pushbutton
                            (1) - Audible Alarm to be mounted on the exterior of
                                  the house
                            (1) - Strobe Light to be mounted on the exterior of
                                  the house
                            (1) - Alarm Acknowledge Pushbutton

          6)   HANDS-OFF CIRCUIT (HOC)

               The HOC will supply power for the engine starting circuit and the
               pulse pick-up circuit in each of the AC generator control
               modules. The items included will be:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    Set of CPT's.
                 2     1    Set of fuses.
                 3     1    Single-phase diode bridge.
                 4     2    12V Batteries

          7)   POWER LIMIT SYSTEM

               The Power Limit Circuit will monitor the KW & KVA of each engine
               generator set. If either of these parameters reach its limits,
               the Power Limit Circuit will reduce the power being delivered to
               the loads so that the load on each generator is held at its limit
               until the loads on the SCR drives are reduced (by other action)
               to a level below the generator limit. A meter on the Driller's
               Console indicates percent

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

                                  Page 19 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               Power Limit. A warning lamp is illuminated on the Driller's
               Console at a load level just below the power limit.

          8)   PLC SYSTEM

               The System Host PLC is a high speed, versatile modular mini-PLC.
               The PLC is used for serial communication with remote consoles and
               other rig devices. Additionally, the PLC incorporates the SCR
               bridge assignment logic. The PLC shall consist of the following.

               Item   Description
               ----   -----------
                 1    Siemens S7-300 Modular Mini-PLC
                 2    32 Bit, Fixed & Floating Point CPU
                 3    Up To 1024 Digital Inputs / 1024 Digital Outputs
                 4    Up To 256 Analog Inputs / 256 Analog Outputs
                 5    Complete Instruction Set With "Built-In" Functions
                 6    Built-In Self Diagnostics
                 7    Fiber Optic Communication Capability

          9)   DRILLER'S CONSOLE

               The console will be constructed of 12-gauge stainless steel and
               the hand throttle wheels of solid stainless steel. Each hand
               wheel will drive two (2) independent potentiometers to provide
               100% backup of the throttle function. The console will be
               watertight and include a gasket type door. The console will be
               equipped with purging for application in a Class I Division 2,
               Group D Hazardous area. A rig air supply fitting will be provided
               for connection to an external 85 to 150 psi dry air supply. An
               internal pressure regulator is included to maintain a positive
               interior pressure relative to the ambient. NOV to supply a
               driller's console with the following controls and indicators:

               Item   Qty   Description
               ----   ---   -----------
                1      1    SCR Assignment Switch
                2      1    Rotary Table Speed Control
                3      1    Rotary Table "FWD OFF REV"
                4      1    Drawworks Speed Control
                5      1    Drawworks Switch "FWD OFF REV"
                6      2    Mud Pump Speed Controls
                7      2    Mud Pump "ON-OFF" Switch
                8      1    Rotary Table Torque Limit Selector Switch
                9      1    Rotary Table Torque Meter Scaled for Amps
                10     1    PLC "By-Pass" Switch
                11     1    Power Limit Meter
                12     3    Generator "ON" Lamps (Red)
                13     4    SCR "ON" Lamps (Green)
                14     1    Drawworks Blower "ON" Lamp (White) *
                15     1    Rotary Table Blower "ON" Lamp (White) *

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

                                  Page 20 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                16     2    Mud Pump Blower "ON" Lamps (White) *
                17     1    Power Limit Lamp (Amber)
                18     1    Console Purge Loss Lamp (Amber) *
                19     1    PLC "OK" indicator lamp (Amber)
                20     1    Ground fault Indication Lamp (Amber) *
                21     1    Audible alarm activated for items marked (*)
                22     1    Alarm Silence Button
                23     1    PLC I/O module for PLC communication
                24     1    AC Emergency Shutdown Push Button (All Engine Kill)
                25     1    DC Emergency Shutdown Push Button
                26    Lot   Pyle National plugs & receptacles

          10)  DRILLER'S FOOT THROTTLE

               The foot throttle is constructed of 12-gauge No.304 stainless
               steel throughout, built to withstand the environment normally
               encountered on the rig floor. It includes dual stainless steel
               return springs to provide a fail safe return to the off position
               in the event of a spring failure. Provisions for a dry air
               connection to the electrical compartment are also included. The
               foot throttle connects directly to the Driller's console through
               a three-conductor cable.

          11)  DRAWWORKS DYNAMIC BRAKE SYSTEM

               NOV will provide a Drawworks Dynamic Brake system. The dynamic
               brake will slow the Drawworks A motor from full speed to some
               preset cathead speed within 10 to 15 seconds after the foot
               throttle is released. The power generated by the freewheeling DC
               motor is fed into a stainless steel grid resistor bank mounted
               out on the porch. During normal operation of the Drawworks, the
               dynamic brake is not connected. If at any time the motor speed is
               higher than the DW throttle setting and the foot throttle is not
               in use, the brake circuit will engage and reduce the motor speed
               to the hand throttle setting.

          12)  EDDY CURRENT BRAKE CONTROL SYSTEM

               National Oilwell Varco's primary brake control system, for
               application with and eddy current brake. The system shall consist
               of the following:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    Air cooled 25 kW SCR unit with door mounted alarm
                            minimic panel (NEMA 1)
                 2     1    Driller's control unit (intrinsically safe)
                 3     1    Power selector unit (intrinsically safe)
                 4     1    Power transformer, 3 phase, 30 kVA, 60 Hz, 480 Volt
                            AC primary, 220 Volt AC secondary (Drip-proof)

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

                                  Page 21 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          13)  600 VOLT FEEDER SECTION

               NOV will provide a Feeder Section in the line-up containing the
               following items:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    1200 AF Circuit breaker for MCC transformer.
                 2     1    1600 AF Circuit breaker for Top Drive Feeder

          14)  TRANSFORMERS

               NOV will provide the following ventilated dry type transformers:

               Item   Qty   Description
               ----   ---   -----------
                 1     1    1000 kVA, 600:480 Volt, 60 Hz, three phase, aluminum
                            wound, NEMA 3R enclosed MCC transformer.

          15)  480 VOLT MOTOR CONTROL CENTER

               NOV will provide the following vertical sections of MCC. The MCC
               will be NEMA type, 480 Volt, 60 Hz, with individual breakers. The
               horizontal bus will be copper and suitably rated. The vertical
               bus will be copper and rated for 300 amps. A copper ground bus
               will run the full length of the MCC line up. Each starter will be
               complete with a 480:120 control power transformer fused on the
               primary and secondary (magnetic only) breaker, a contactor and an
               ambient compensated overload element (heater).

          LEGION: FVNR = Full Voltage Non-Reversing
                  HOA  = Hands - Off - Automatic
                  3WRC = 3 Wire Remote Control
                  AF   = Amp Frame
                  AT   = Amp Trip

          Item    HP   Size   Type   Control   Function
          ----   ---   ----   ----   -------   ---------------------------------
           1     1.5     1    FVNR   HOA       Mud Pump #1 Lube Oil Pump
           2     3       1    FVNR   HOA       Mud Pump #1 Linear Wash Pump
           3     15      2    FVNR   HOA       Mud Pump #1A Blower
           4     15      2    FVNR   HOA       Mud Pump #1B Blower
           5     60      4    FVNR   HOA       Mud Pump #1 Charging Pump
           6     1.5     1    FVNR   HOA       Mud Pump #2 Lube Oil Pump
           7     3       1    FVNR   HOA       Mud Pump #2 Linear Wash Pump
           8     15      2    FVNR   HOA       Mud Pump #2 A Blower
           9     15      2    FVNR   HOA       Mud Pump #2 B Blower
           10    60      4    FVNR   HOA       Mud Pump #2 Charging Pump
           11    15      2    FVNR   HOA       DWA Blower
           12    15      2    FVNR   HOA       DWB Blower
           13    15      2    FVNR   HOA       RT Blower Motor
           14    25      2    FVNR   3WRC      Trip Tank #1

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

                                  Page 22 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

           15    25      2    FVNR   3WRC      Trip Tank #2
           16    100     4    FVNR   3WRC      Mud Mix Pump#1
           17    100     4    FVNR   3WRC      Mud Mix Pump #2
           18    100     4    FVNR   3WRC      Spare
           19    100     4    FVNR   3WRC      Desander Pump
           20    100     4    FVNR   3WRC      Desilter Pump
           21    60      4    FVNR   3WRC      Degasser Pump
           22    25      2    FVNR   3WRC      Water xfer Pump #1
           23    25      2    FVNR   3WRC      Water xfer Pump #2
           24    25      2    FVNR   HOA       Brake Cooling Loop #1
           25    25      2    FVNR   HOA       Brake Cooling Loop #2
           26    75      4    FVNR   3WRC      Main HPU
           27    25      2    FVNR   3WRC      Centrifuge FD Pump #1
           28    75      4    FVNR   3WRC      Centrifuge #1
           29    25      1    FVNR   3WRC      Centrifuge FD Pump #2
           30    75      4    FVNR   3WRC      Centrifuge #2
           31    10      1    FVNR   HOA       Spare
           32    10      1    FVNR   3WRC      Spare
           33    25      2    FVNR   HOA       Spare
           34    25      2    FVNR   3WRC      Spare
           35    50      3    FVNR   3WRC      Spare
           36    75      4    FVNR   3WRC      Spare

          Feeder Circuit Breakers

          Item    AT/AF    Function
          ----   -------   --------
           1     150/150   Air Compressor #1
           2     150/150   Air Compressor #2
           3     150/150   Lighting transformer
           4     100/100   BOP Closing Unit Pump #1
           5     100/100   Spare
           7     40/60     House AC #1
           8     50/60     Baylor Brake Supply
           9     30/30     HPU Disc Brake
           10    40/60     House AC #2
           11    150/150   Mud Tank Panel
           12    50/60     Accumulator BOP
           14    30/30     Spare
           15    20/30     Dog House A/C Feeder
           16    15/30     Dog House Purge Feeder
           17    60/60     Spare
           18    15/30     Block Heater #1
           19    15/30     Block Heater #2
           20    15/30     Block Heater #3
           21    15/30     Spare
           22    150/150   Spare

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

                                  Page 23 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          16)  POWER CONTROL HOUSE

               The Power Control House will be designed for transportation by an
               oilfield trailer. The house size will be approximately 10' W x
               46' L x 10'6" H.

               The house columns and ceiling frame will be constructed from
               structural steel seam welded. The outside shall be fabricated
               from twelve-gauge sheet steel. All corners are to be formed by
               bending leaving no sheet edge exposed.

               Three of the walls will be insulated with three-inch thick
               polystyrene block insulation. The floor and the wall with the
               receptacles and plugs will not be insulated. The inside surface
               of the walls will be finished with a sandwich style insulating
               board with aluminum sheet interior. A rubber neoprene mat will
               run the full length of the interior aisle of the House.

               One (1) 42 circuit 120Y208 volt, 3 phase, 4 wire panel board will
               be mounted on an interior wall for lighting and other required
               needs. Four (4) fluorescent lighting fixtures (2 40WRS) will be
               supplied for aisle lighting. Two (2) 120 volt duplex receptacles
               will be included. An emergency lighting fixture will also be
               included in the center interior of the House.

               Two (2) steel doors with panic hardware will be supplied, one at
               each end and on opposite sides of the house. Both doors shall be
               designed to open to the outside by pushing down on the opening
               bar.

               The two (2) air conditioning units will be of the split unit type
               with the condenser and evaporator sections mounted separately.
               Each unit will be rated at 7.5 tons. The hot air generated by the
               SCR bridges will be discharged out the top of the cubicles and
               contained within the dead air space between the ceiling and the
               roof. This air will then be ducted to the return air side of the
               evaporator sections of the units. Transformers and air
               conditioning condenser units will be mounted on a covered porch
               at one end of the house.

               The incoming power connections will be located in a recessed box
               located at the top and on one side of the house and spaced
               approximately eight feet apart. This location is on the same side
               of the house as the SCR line up. The receptacles for the outgoing
               DC power and rig AC loads are to be installed in panels which
               slant downward to relieve stress on the outgoing cables, except
               for the receptacles located at the very bottom of the plug panel,
               which will not be slanted downward because of the physical
               limitations of their

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

                                  Page 24 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               location. The mating plugs for the receptacles will also be
               supplied with the house.

               The exterior of the house will be cleaned with a sweep blast of
               sand to remove scale and oxidation. The exterior coating will
               consist of a sub coat of primer and a topcoat of urethane linear
               gray. The interior floor will be painted ANSI gray.

     Qty. 3 EA. R163-7M36

          Generator Set

          Stewart & Stevenson packaged Model R1630F900 generator sets, 600 volt,
          3 phase, 60 Hz, 0.6 PF, 1800 RPM, equipped as follows:

          Diesel Driver

               o    Detroit Diesel 16V2000/G80, Model R163-7M36

               o    1350 BHP @ 1800 RPM, Prime Rated

               o    16V configuration

               o    4 stroke direct injected

               o    Bore and stroke 5.12 x 5.91 (130 x 150); 1944 CID (31.88L)

               o    Turbocharged (dual)

               o    Charge air cooled, SPCC

               o    SAE "0" flywheel housing

               o    Detroit Diesel Electronic Controls MDEC

               o    Provides engine monitoring and control

               o    Electronic (isochronous) governing

               o    Accessory Package

          A.   Instrumentation

               o    DDC Electronic Display Module. Provides engine monitoring
                    functions to include:

               o    Engine RPM

               o    Coolant temperature

               o    Oil pressure

               o    Battery voltage

               o    Diagnostic function

               o    Engine hours

               o    Overspeed shutdown. Independent of electronic controls.

               o    Magnetic pick-up

               o    Air inlet shut down

               o    MDEC sensing of following alarm and shutdown functions:

               o    High coolant temperature alarm

               o    Low coolant level alarm

               o    High oil temperature alarm

          B.   Air cleaner. Dual dry type for standard service, mounted with
               pre-

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

                                  Page 25 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               cleaner caps.

          C.   Lubricating System

               o    Filter, replaceable spin-on.

               o    Gear driven oil pump.

               o    Angularity limits: 30 DEG. Front up/down, 30 DEG. side tilt.

               o    Integral oil cooler

          D.   Fuel System

               o    Racor filter/moisture separator with replaceable element.

               o    DDC secondary filter, replaceable spin-on

               o    MDEC Electronic Unit Injector (EUI)

          E.   Start System

               o    Air starter, bell housing mounted, complete with actuator
                    valve and filter.

          F.   Electrical System

               o    Dual 12V HD batteries, mounted, marine boxes

               o    Engine driven 24V alternator, 70 amp (battery and alternator
                    package may be deleted if 24V power available from others
                    for electronic engine controls)

               o    MDEC wiring harness

               o    DDC Electronic Computer Module (ECU), mounted

          G.   Cooling System

               o    Radiator, front mounted, engine driven blower type fan,
                    separate Circuit Charge Cooling (SCCC) equipped with dual
                    cores

               o    Separate Circuit Charge Air Cooling (SCCC) engine systems.

               o    Jacket water heater, 110/220V

               o    115 DEG. F ambient sizing

          H.   Pancake Exhaust System - Dual

               o    2.8" flex pipes

               o    2 - Exhaust silencer, spark arresting, loose GT 402-4108

               o    2 - 6" spool pieces

               o    2 - 8" exhaust outlets with 45 DEG. mitered outlet and
                    bird screen

          Exhaust insulation for mufflers & flex piping - installed during rig
          up.

          Generator

               o    National Oilwell Varco 1750 KVA NOV/Baylor alternator,
                    single bearing for direct mounting to 16V2000, "0" housing,
                    1800 RPM.

          EXPANDED DESCRIPTION BELOW

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

                                  Page 26 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Construction

               o    Engine, generator, radiator assemblies unitized on heavy
                    duty structural steel. Accessory packages installed and
                    mounted unless noted as loose.

               o    Oil and fuel lines extended and fastened to base side rails
                    for convenient service and quick connection.

               o    Dimensions - 198" L x 75"W; Weight - 24,500 lb. - Estimate

               Manuals, Documentation, Testing

               o    Operation and Maintenance Manuals (2 copies each unit)

               o    Generator test reports

               o    Detroit Diesel Corporation dynamometer test reports

               o    Stewart & Stevenson Standard Manufacturers test

          GENERATOR

          Model: S437QUJ

          National Oilwell Varco AC Generator with direct connected brushless
          rotating exciter in accordance with the following:

               o    RPM:                     800

               o    Electrical Rating        1050kW, 0.6pf, 1750kVA,
                    3pH, 60Hz, 600V, Wye

               o    Temperature Rise         105 DEG. C by resistance over
                    40 DEG. C ambient

               o    Duty                     Continuous SCR

               o    Insulation               Class H form wound - VPI

               o    Enclosure                Drip proof guarded

               o    Weight                   Approximate 9,500 lbs.

               o    Bearings                 One anti-friction, grease
                    lubricated

               o    RTD's                    6 X PT100 in stator, 1 X
                    PT100 in bearing

               o    Excitation               Brushless - shaft mounted

               o    Housing Adapter          SAE "0"

               o    Drive Disc               SAE 518

               o    Accessories:

               o    Oversized terminal box
                    with bus bars

               o    Space heaters

     Qty. 1 LOT 16V2000-HOUSE-3

          Generator House

          Engine/generator enclosure for three (3) Detroit Diesel 16V2000 power
          sets consisting of:

               o    Three (3) 10' x 40' Three runner oilfield type skids. Skids

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

                                  Page 27 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                    constructed of W18" beam with 1/4" checkered plate flooring.

               o    Three (3) 10' x 38' long roofs (10' clear height). Roofs
                    corrugated panel metal construction.

               o    Installation for three (3) National Oilwell Varco furnished
                    pancake syle muffler systems

               o    One (1) fuel feed manifold with supply line to generator set
                    each skid.

               o    One (1) fuel return manifold with return line to generator
                    set each skid.

               o    Install following National Oilwell Varco furnished equipment
                    on skid extensions:

               o    Two (2) Air Compressors

               o    Two (2) Air Receivers

               o    One (1) Air Dryer

               o    One (1) Cold Start Unit

          Provide piping between air compressors and air receiver and to engine
          starters.

                                    MUD PUMPS

     Qty. 2 EA. 12-P-160

               NOV model 12-P-160 mud pump, triplex single acting.

               SPECIFICATIONS

               Max. input horsepower         1600HP(1193KW)
               Rated pump speed              120SPM
               Piston stroke                 12"
               Max. working pressure         5000psi
               Max. liner bore               7-1/4"
               Suction connection flange     10"ASA-150lb.R.J.
               Discharge connection flange   6" API-5000lb.R.J.
               Dimension                     5309L x 2889W x 1905H
               Weight                        24810kg

               FEATURES

               o    Forged crank-shaft. Connecting rods and pinion shaft

               o    Roller bearing throughout

               o    Two-piece piston rod allows removal of piston without
                    disturbing liner

               o    Clamp lock liners and piston rod assemblies in place

               o    Full circle spray cools and lubricates liners regardless of
                    pump speed

               o    Metal to metal liner retention

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

                                  Page 28 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               o    Herringbone gears

               o    Two piece cylinder modules with complete interchangeability
                    between modules

               o    "Fast Change" valve cover arrangement

               o    External liner spray system

               o    Equipped with 6-1/2" "NOV-Mission" Supreme liners & pistons.

               o    Standard lube system

     Qty. 2 EA.

          Discharge Strainer Cross, complete with:

               o    5" 5000# discharge flange connections

               o    4" 5000# top connection for pulsation dampener

               o    5" 5000# end connection for strainer clean-out

     Qty. 2 EA.

          Flange, 5-1/8" 5000# Blind flange, to match 2-1/16" gauge.

     Qty. 4 EA.

          Flange, 5-1/8" 5000# API 6B Weld neck flange.

     Qty. 2 EA.

          Blind Flange, 5-1/8" 5000# Mod. 6B blind flange.

     Qty. 8 EA.

          Ring Joint Gasket.

     Qty. 2 EA.

          Jib Crane with Trolley only For a 12-P-160 Mud Pump, for handling
          fluid end expendable parts (only)

     Qty. 2 EA.

          1/2 ton hand hoist for use with Jib Crane

     Qty. 2 EA.

          National Oilwell Varco Shear Pin Type Relief Valve

          3" standard  service pin  shearing  type relief valve with pin of same
          diameter for 1500-5000psi

     Qty. 2 EA. 1292369

          In-Line Suction Stabilizer for 12-P-160 Pump application.

     Qty. 2 EA. LS-20-5000

          LS-NOW Model Pulsation Dampener.

          Maximum service pressure   5,000 PSI
             Surge capacity:         20 gallons

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

                                  Page 29 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Connection:                4" API 5,000 RTJ
          Diaphragm:                 Hydrogenated Nitrile (installed)

     Qty. 2 EA. Pump Drive

          For 12-160-P mud pump with:

               o    Extended skid frame

               o    Rear mounted dual belt drive

               o    Complete with sheaves, hubs & V-belts

               o    Vertically split belt guards

               For use with YZ08/YZ08A DC motors

     Qty. 4 EA. YZ08/YZ08A

          Motor - Pumps

          Yongji YZ08/YZ08A drilling motor.

          SPECIFICATIONS

               o    Rated power:       1072 HP/800 KW

               o    Rated voltage:     750 V

               o    Rated current:     1150 A

               o    Rated speed:       970 RPM

               o    Rated torque       5925 ft-lb/8033.7 N.m

               o    Max. current:      1600A

               o    Max. torque:       9002 ft-lb/12206.4 N.m

               o    Exciting type      series

               o    Insulation class   H

               o    Cooling type:      Air forced ventilation

               o    Ex-proof type:     Air pressurization

               o    Weight:            7054 lb/3200 kg

          FEATURES

               o    Self excited series field

               o    Single shaft extension with standard hub

               o    Pressurized connection box with bolts for connecting
                    armature & field cables

               o    High current, powerful torque and wide speed adjusting range
                    at constant power

               o    C/W blower driven by 15HP ex-proof AC motor, 460V, 60Hz and
                    230V spacer heater.

     Qty. 2 EA. Mud Pump Master Skid

          Oilfield master skid for mud pump with rear mounted drives. Pump # 1
          skid dimension is 13' X 30' and Pump #2 is 12' X 30', each are mounted

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

                                  Page 30 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          on a three runner oilfield type skid with the top and ends completely
          plated with 1/4" plate. Each skid has a sump for containment as well
          as pipe supports for HP piping lines.

                                   MUD SYSTEM

     Qty. 1 EA. MS-2T-1314BBL

          Mud Tank System - Two Tank, Total Capacity of 1314 BBL / Patent
          Pending

          SHAKER TANK GENERAL DESCRIPTION:

          1.   To be equipped with the Following Equipment:

               A.   Brandt King Cobra Linear Motion Shale Shaker utilizes a
                    Cobra Linear Motion screen deck containing four screens and
                    33.4 sq. ft. screening area and the contour plus deck design
                    with drying panel.

                    Screen area:    33.4 sq. ft., flat screens
                    Screens/deck:   four screens
                    Screen angle:   contour deck design 0 DEG., +5 DEG.,
                                    +5 DEG., +5 DEG.
                    Deck angle:     adjustable from -5 DEG. to +3 DEG.
                    "G" force:      nominal 6.3 G's
                    Electrical:     direct drive, two 2.5 hp canister vibra
                                    motors, 60 Hz, 230/460 volt, 3 phase,
                                    explosion proof

                    Overall dimensions:

                       Length:        120"
                       Width:         65"
                       Height:        69"
                       Weir height:   41"
                       Weight:        4300 lbs.

                    (Screens are not included with shaker) - Left hand

               B.   Brandt King Cobra Linear Motion Shale Shaker utilizes a
                    Cobra Linear Motion screen deck containing four screens and
                    33.4 sq. ft. screening area and the contour plus deck design
                    with drying panel.

                    Screen area:      33.4 sq. ft., flat screens
                    Screens/deck:     four screens
                    Screen angle:     contour deck design 0 DEG., +5 DEG.,
                                      +5 DEG., +5 DEG.
                    Deck angle:       adjustable from -5 DEG. to +3 DEG.
                    "G" force:        nominal 6.3 G's
                    Electrical:       direct drive, two 2.5 hp canister vibra
                                      motors, 60 Hz, 230/460 volt, 3 phase,
                                      explosion proof

                    Overall dimensions:

                       Length:        120"

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

                                  Page 31 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                       Width:         65"
                       Height:        69"
                       Weir height:   41"
                       Weight:        4300 lbs.

                    (Screens are not included with shaker) - right hand

               C.   One (1) Degasser Model DG-10, vertical vacuum degasser with
                    60" diameter vessel mounted on an oilfield skid. includes
                    explosion proof 1800 rpm 5 hp motor and starter, suction and
                    discharge piping, and jet nozzle with 1-3/4" bore.

                       Maximum capacity:     1000 gpm.
                       Electrical service:   xp 3 phase 230/460v/60Hz.

               D.   One (1) Desander Vertical Model DSN-3V-10CTX, 3 cone
                    features manifold constructed of 8" sch. 40 pipe mounted on
                    an angle iron base, three (3) 10" diameter CTX desander with
                    grooved end inlet and overflow, desilting capacity of 1500
                    gpm.

               E.   One (1) Desilter Model DSLR-20GG-4CTX, 20 cone features 24"
                    round manifold constructed of 3/8" plate mounted on an angle
                    iron base, twenty (20) 4" CTX cones with grooved end inlet
                    and overflow, desilting capacity of 1300 gpm.

               F.   One (1) Vertical Centrifugal Pump Model 67065408ITAD0DS,
                    degasser feed/clean out centrifugal 6x5x14 14" impeller
                    1150rpm 60hp vertical centrifugal pump w/dual mechanical
                    seals @18 ppg mud.

               G.   One (1) Vertical Centrifugal Pump Model 670861516IT70DS,
                    desander feed/clean out centrifugal 8x6x11 11" impeller
                    1750rpm 100hp vertical centrifugal pump w/dual mechanical
                    seals @14 ppg mud.

               H.   One (1) Vertical Centrifugal Pump Model67861516IT70DS,
                    desilter feed/clean out centrifugal 8x6x14 14" impeller
                    1750rpm 100hp vertical centrifugal pump w/dual mechanical
                    seals @14 ppg mud.

               I.   Three (3) Agitators 10hp Agitator Model MX-MA10-MTHC, drill
                    mud agitator with 30:1 helical gear speed reducer, cast iron
                    drop bearing housing for shaft support, and 10 hp, 1800 rpm
                    explosion proof c-face motor.

                    Includes shaft 36" long and impeller up to 40" diameter
                    pitched blade impeller.

                       Electrical service:   xp 3 phase 230/460v/60Hz.

          2.   Shaker Tank Overall Dimension Is 55-0' Long X 12-0" Wide.

          3.   Tank will be as follows: (52' 9" long x 10-0' wide x 8' 6" high
               walls)

               A.   One (1) settling tank (sand trap) double slopped floor
                    114.923bbls

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

                                  Page 32 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               B.   One (1) degasser tank 151.696bbls

               C.   One (1) desander tank 120.608bbls

               D.   One (1) desilter tank 120.608bbls

               E.   One (1) reserve tank #1 161.156

          4.   Shakers are mounted on two individual skids for fast moving and
               to prevent having to have any fold up or down walk around.

          5.   Walls and partitions are to be fabricated of crimped 1/4" plate.

          6.   Flat bottom floors will be constructed of 3/8" plate.

          7.   Galvanized serrated grating will be installed over the mud
               compartments, on walkways, on equipment platforms, and on stairs.

          8.   Skid beams will be W12 X 45 PPF A36 for the main mud tank skids.

          9.   The equipment skid to mount the degasser, desander, and desilter
               is setting on the reserve side of the mud tank with easy mount
               connection with no support members under the skid to interfere
               with other equipment possibilities. All 1-1/4 serrated grading
               will be mounted on the skid.

          10.  Rim line will be constructed of 6" square tubing with 1/2" wall
               thickness. The rig side of the rim used for transferring mud and
               jetting each section to the reserve side and displacing mud.

          11.  Rim line will be constructed of 6" square tubing with 1/2" wall
               thickness. The off-rig side of the rim used for transferring
               water and 2" outlets provided for shaker, desander and desilter,
               chemical mixing, and mud mixing area.

          12.  Hinged manways with rung ladders will be installed in all
               compartments.

          13.  All handrails will be constructed of 1-1/2" square tube with
               3/16" wall thickness and most of the handrails will be designed
               to stay in place during shipment but lay down to avoid having to
               rig them up each time.

          14.  Toe plates will be installed on the perimeter of tank and/or
               walkway and surrounding the cuttings chute.

          15.  Handrails to be furnished around cuttings chute.

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

                                  Page 33 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          16.  Wedge style dumps to be installed in each compartment off-rig
               side.

          17.  Shaker tank piped for one (1) desander, one (1) desilter single
               source pumping, and each compartment will have suction in a sump
               for transferring and jetting mud.

          18.  Discharge and suction piping will be kept below the grating
               except where necessary to feed equipment.

          19.  Piping extensions higher than the mud agitators will be connected
               with a union for quick rig up and rig down.

          20.  All piping up to 6" will be schedule 80 IPS.

          21.  All piping 8" and larger will be schedule 40 IPS

          22.  Mud trough will be sized for 1500gpm.

          23.  All pumps to be mission magnum with dual mechanical seals
               intended for sucking the tanks dry.

          24.  All butterfly valves will have actuators below the grating with
               socket adapter for manual operation.

          25.  Where possible butterfly valves to be outside mud tanks and all
               butterfly valves are above mud level.

          26.  Agitator beams located in three sections of the tank.

          27.  Shaker tank piped for one (1) degasser, one (1) desander, one (1)
               desilter, and each compartment will have suction in a sump for
               transferring and jetting mud.

          28.  One (1) set of external stairs will be built for shaker tank
               access with 42" handrails.

          29.  One (1) crossover platform from Shaker Tank to Intermediate Tank
               #1.

          SUCTION TANK GENERAL DESCRIPTION:

          30.  To equipped with the following equipment:

               A.   Two (2) Vertical Centrifugal Pumps Model

               67065408ITAD0DS, __ charging mud pumps and feed/clean out

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

                                  Page 34 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               centrifugal 6x5x14, ___ 14" impeller 1150 rpm 60 hp vertical
               centrifugal pump, ___ w/dual mechanical seals @ 18 ppg mud.

               B.   Two (2) Vertical Centrifugal Pumps Model 670654509ITAD0DS,
                    mix and feed/clean out centrifugal 6x5x14, 14" impeller 1150
                    rpm 75 hp vertical centrifugal pump, w/dual mechanical seals
                    @ 18 ppg mud.

               C.   Four (4) Agitators 10hp Agitator Model MX-MA10-MTHC, drill
                    mud agitator with 30:1 helical gear speed reducer, cast iron
                    drop bearing housing for shaft support, and 10 hp 1800 rpm
                    explosion proof c-face motor.

                    Includes shaft 84" long and impeller up to 36" diameter and
                    49' diameter in suction #2 pitched blade impeller.
                    Electrical service: xp 3 phase 230/460v/60Hz

               D.   One (1) Mud Hopper Model MH-6-WVT, MUD MIXING HOPPER with
                    venture tube hopper mud 6" with venture features include
                    venture discharge nozzle, jet nozzle, sack cutting table,
                    and hopper isolation value.

          31.  Suction tank overall dimension 55' long x 12'-0 wide.

          32.  Tank will be as follows:

               A.   One (1) suction tank #2 232.275bbls

               B.   One (1) reserve tank #2 135.427bbls

               C.   One (1) suction tank #1 156.269bbls

               D.   One (1) premix (pill) tank 121.42bbls

          33.  Mud tank measurement 46'-3/4"long x 10-0" wide.

          34.  Walls and partitions are to be fabricated of crimped 1/4" plate.

          35.  Flat bottom floors will be constructed of 3/8" plate.

          36.  Galvanized serrated grating will be installed over the mud
               compartments, on walkways, on equipment platforms, and on stairs.

          37.  Diamond checkered thread plate will be installed on the hopper
               floor and on the tank top over the hopper porch.

          38.  Skid beams will be W12 X 45 PPF A36 for the main mud tank skids.

          39.  Rim line will be constructed of 6" square tubing with 1/2" wall
               thickness. The rig side of the rim used for transferring mud and
               jetting each section to the reserve side and displacing mud.
               Hinged manways with rung ladders will be installed in all

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

                                  Page 35 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               compartments.

          40.  Rim line will be constructed of 6" square tubing with 1/2" wall
               thickness. The off-rig side of the rim used for transferring
               water and 2" outlets provided for shaker, desander and desilter,
               chemical mixing, and mud mixing area.

          41.  All handrails will be constructed of 1-1/2" square tube with
               3/16" wall thickness and most of the handrails will be designed
               to stay in place during shipment but lay down to avoid having to
               rig them up each time.

          42.  Toe plates will be installed on the perimeter of tank and/or
               walkways.

          43.  Wedge style dumps to be installed in each compartment.

          44.  All pumps to be mission magnum with dual mechanical seals
               intended for sucking the tanks dry.

          45.  Suction tank piped for one (1) mud hopper, two (2) charging
               pumps, and each compartment will have suction in a sump for
               transferring and jetting mud.

          46.  All piping up to 6" will be schedule 80 IPS.

          47.  All piping 8" and larger will be schedule 40 IPS

          48.  All four (4) compartments will be agitated.

          49.  Overflow and underflow pipes will be fitted with hammer seal
               unions.

          50.  All butterfly valves will have actuators below the grating with
               socket adapter for manual operation.

          51.  Where possible butterfly valves to be outside mud tanks and all
               butterfly valves to be above mud level.

          52.  One set of stairs to tank will be built for the suction tank
               access with 42" handrail.

          Paint System:

          Blasted and primed with epoxy inside and out and painted with enamel
          hardener.

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

                                  Page 36 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     Qty. 1  1490413

          Caustic Barrel

          National Oilwell Varco Caustic Barrel, telescoping.

     Qty. 1  1490308

          Mud Check Station

          National Oilwell Varco Mud Check Station with sink.

     Qty. 1 EA. PBDG-48

          Poor Boy Degasser

          48" OD X 15 ft. long Poor Boy Degasser, skid mounted.
          Skid suitable for also mounting optional choke kill manifold).
          TO MOUNT ON COMMON SKID WITH TRIP TANK ASSEMBLY.

     Qty. 1 EA.

          Trip Tank Assembly - 100 BBL

          Trip tank assembly, skid mounted, constructed.

          TO MOUNT ON SAME SKID AS POOR BOY DEGASSER.
          (Two pump assemblies from below, to be mounted and piped on skid)

     Qty. 1 EA.

          Brake Water Cooling Unit

          Brake water cooling unit. Cooling system consist of a water tank
          integrated into the drawworks master skid, with piping, mounting for
          (2) 3x2x13 circulating pumps, and a heat exchanger. Heat exchanger is
          cooled with rig water.

     Qty. 2 EA. 61373-2

          Brake Water Cooling Pump

          3x2x13 Mission Magnum pump with 13" impeller, mechanical seal, 3ph,
          60hz, 460V, 25 HP, explosion proof motor. Mounted on a low profile
          channel base.

          Elevation of centerline of assembly 12-15/16".

     Qty. 4 EA. 323280081-2

          Trip Tank & Water Transfer Pump

          3x2x13 Mission Magnum I pump with 11" impeller, mechanical seal, 3ph,
          60hz, 460V, 25 HP, explosion proof motor.

          Elevation of centerline of assembly 15".

     Qty. 1 EA WT-400BBL

          400BBL Water Tank

          General Construction:

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

                                  Page 37 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               o    3 runner wide flange oilfield skid

               o    3/8" flat plate bottom

               o    1/4" v-crimp walls

               o    Open top design

               o    1/4" floor plate on skid extension

               o    Ladder rungs inside & out

               o    4" drain with butterfly valve

               o    10'-0" wide x 7'-0" deep x 32'-8" long mounted on a 42'-0"
                    long skid- provision for transfer pumps located on skid
                    porch.

               o    400 BBL Cap.

                            HIGH PRESSURE MUD PIPING

     High Pressure Mud Piping System

     Qty. 1 EA.

          The system will be fabricated as per NOV drawings.
          Spec of valves.

               o    4"-5000PSI W.P. gate valve

               4" 5000psi buttweld mud gate valve for H2S.

               o    2"-5000PSI W.P. gate valve

          2" 5000psi weldneck mud gate valve for H2S, API 6A, flanged with ring
          grooves lined.

     Qty. 3 PKG

          Vibrator Hose w/Nitrile Lining

          4" X 12' X 10,000 PSI test pressure/5,000 PSI working pressure
          vibrator hose with 4" NPT male threads on each end and a safety clamp
          & chain each end.

     Qty. 1 EA.

          Rotary Hose w/Nitrile Lining
          3-1/2" X 75" X 10,000 PSI test pressure/5,000 PSI working pressure
          rotary hose with 4" NPT male threads each end and a safety clamp &
          chain each end.

                         BOP CONTROL AND CLOSING SYSTEM

     Qty. 1 EA. MB200-11BT3

     1.   Type80, M-SERIES accumulator module MODEL MC220-11BT3, in accordance
          with API RPI6E/16D, consisting of:

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

                                  Page 38 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          (a)  Twenty Two (22) - eleven (11) gallon 3,000 PSI working pressure
               bladder type accumulators. The accumulator shell is manufactured
               from a single piece of chrome molybdenum steel and is free from
               joints, seams or welds. The top loading design permits field
               repair without voiding the certification. The accumulator
               assembly is tested to 4,500 PSI. This vessel meets USCG, API and
               other agency requirements. Accumulators are provided with ASME
               u-1a certificates and may be certified by other agencies if
               required at the time of order.

          (b)  Four (4) - 4-1/2" OD machined steel accumulator manifolds. These
               manifolds are free from welds, seams or joints and meet
               requirements for working pressure up to 5,000 PSI. The
               accumulator manifolds are each equipped with an isolation and
               bleed valve to permit isolation of approximately twenty five
               percent (25%) of the accumulators for maintenance or checking
               pre-charge while maintaining the remaining accumulator capacity
               in operation. Space is provided for mounting up to twenty four
               (24) accumulators.

          (c)  One (1) - 3500 PSI pressure relief valve set at 3,300 PSI i.e 10%
               above the working pressure of accumulator pressure to prevent
               over pressurizing the accumulators and pump systems and is self
               resetting, to comply with API RPI6E/16D specifications.

          (d)  One (1) - 350 gallons fluid reservoir complete with baffles, 4"
               inspection ports, metal protected sight level gauge, air vent and
               14" cleanout man way. The reservoir is provided with a tank
               flange for installation of low pressure fluid level alarm. Space
               is provided for up to six (6) manifold valves and one (1) annular
               valve.

          (e)  One (1) - 5 station machined unit mounted hydraulic control
               manifold rated at 5,000 PSI working pressure. The machined
               manifold is free from welds, seams or joints and is used to
               supply hydraulic pressure to the hydraulic control manifold
               function valves.

          (f)  One (1) - alternate source valve for introduction of hydraulic
               fluid from an alternative pump sources to comply with API
               RPI6E/16D requirement. This valve is plugged when not in use.

          (g)  The assembly is complete with 1" schedule 160 piping rated for
               5,000-PSI working pressure. Assembled on a welded structural
               steel skid with mounting provisions for electric pump, air pump,
               hydraulic control manifold and interface modules described in the
               following paragraphs of these specifications.

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

                                  Page 39 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     1.1  T-series electric pump module model UET50HT460. This module is mounted
          on item 1 of these specifications and is used to pump fluid stored in
          the reservoir at atmospheric pressure, up to 3000 PSI to charge the
          accumulators and operate the BOP stack functions as per API RP16E/16D,
          consisting of:

          (a)  One (1) - positive displacement reciprocating triplex plunger
               pump with 1-1/4" plungers.

          (b)  One (1) - nominal ratio mechanical chain and sprocket drive
               assembly encased in an oil bath type chain guard.

          (c)  One (1) - 50 horse power, 1775 rpm, 3 phase, 60 hz, 460v
               explosion proof electric motor, suitable NEMA frame, horizontal
               mount.

          (d)  One (1) - NEMA explosion proof electric motor starter with
               off/auto mode selector switch and 3 phase over current protection
               and auxiliary contact to operate "pump running" light in remote
               panel, ul listed.

               Note: electric motor, starter & pressure switch are approved for
               installation in hazardous zones as identified in API RP 500 Class
               1, group D, Division 1. Starter to motor wiring is 4 conductor,
               hexane insulated flexible armored cords with gland entries.

          (e)  One (1) - explosion proof electric dual adjustment pressure
               switch set to automatically stop the pump when system pressure
               reaches 3000 PSI and restart the pump when system pressure drops
               to nominal 2700 PSI.

          (f)  Complete with 2-1/2" 20 mesh suction strainers and 1-1/2", 5000
               PSI working pressure discharge check valve.

          Note: The output flow is 19.70 gpm

     1.2  T- series air pump module model UA8546-TB. This unit is mounted on
          item 1 of these specifications and is used in conjunction with the
          primary electric pump to meet API RP16E/16D requirements, consisting
          of: -

          (a)  Four (4) - 8-1/2" air motor driven 60:1 ratio pumps with
               self-adjusting packing. This assembly produces approximately 20.0
               gpm at mid range pressure of 2000 PSI and 15.6 gpm at 3000PSI
               with 125 PSI of air supply.

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

                                  Page 40 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Note: Minimum air supply pressure required for operation of air pump
                without stalling is 50 PSI.

          (b)  One (1) - hydro-pneumatic pressure switch set at 2900 PSI to shut
               the air pump off at normal operating pressure. The pumps will
               automatically start again if system pressure falls approximately
               400 PSI.

          (c)  One (1) - 1" air control manifold with four (4) pump shut - off
               valves, inlet air filter, air line lubricator, air pressure gauge
               and 1" npt female customer inlet connection.

          (d)  Four (4) - 20 mesh suction inlet strainers.

          (e)  Four (4) - 1/2" 5000 PSI working pressure discharge check valves.

     1.3  M-series hydraulic control manifold module model UMGT2RB06P10 mounted
          on item 1 of these specifications, consisting of:

          (a)  One (1) - air motor driven, sub plate mounted 1500-0-10, 1"
               ported, low dead band pressure reducing and regulating valve for
               controlling annular regulated pressure. This regulator features
               failsafe remote control capability through a pneumatic motor gear
               drive assembly and additionally provides manual adjustment at the
               regulator should pilot pressure for remote control be
               interrupted. The regulator will respond to pressure changes on
               the down stream side with sensitivity sufficient to maintain the
               set pressure within +- 150 PSI as per requirements of API
               RP53/16D. This regulator is automatically limits maximum outlet
               pressure to 1500 PSI which is within the manufacturer
               specifications for all annular preventers except the Cameron type
               "d".

          (b)  One (1) - sub plate mounted, 1500-0-10 1" ported, pressure
               reducing and regulating valve for controlling manifold regulated
               pressure to the ram type preventers and/or hydraulic actuated
               choke and kill line valves. This regulator is manually adjusted
               and limits maximum outlet pressure to 1500 PSI during normal
               operation. Maximum outlet pressure of 3000 PSI is available upon
               request however the manifold regulator bypass serves the purpose.

          Note: The regulators are all stainless steel fitted, linear shear seal
                type valves with increased flow rates and 5000 PSI rated working
                pressure bodies.

          (c)  Two (2) - 25 micron filters. One is installed in supply line to
               each hydraulic regulator.

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

                                  Page 41 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          (d)  One (1) - 1" size stainless steel fitted, 4-way, 3 position
               manually operated rotary shear seal selector valve rated for 3000
               PSI WP for controlling pressure to open and close the annular
               preventer. This valve is isolated from the manifold valve circuit
               and receives supply pressure from the annular regulator.

          (e)  Five (5) - 1" size stainless steel fitted, 4 way, 3 position
               manually operated rotary shear seal selector valves rated for
               3000 PSI working pressure to control pressure to open and close
               ram preventers and/or hydraulically actuated choke and kill line
               valves.

          (f)  One (1) - shear/blind ram guard mounted on the 4 way valve to
               prevent accidental operation of the shear/blind ram.

          (g)  One (1) - 1" size, 4-way, 2 position manually operated rotary
               shear seal 3000 PSI WP. by-pass valve for operation of the
               manifold regulator by-pass function. This valve allows selection
               of regulated pressure or 3000 PSI (full accumulator pressure) to
               the manifold valves for emergency operation of the ram type
               preventers.

          (h)  One (1) bolt on gauge panel assembly with snubber oil consisting
               of:-

               o    accumulator pressure gauge 0-6000 PSI (0-42000 KPA), 6"
                    face, glycerin filled, panel mount, dual scale.

               o    manifold regulated pressure gauges 0-10000 PSI (0-70000
                    KPA), 6" face glycerin filled, panel mount dual scale.

               o    annular regulated pressure gauge 0-3000 PSI (0-21000 KPA),
                    6" face glycerin filled, panel mount, dual scale.

          (i)  One (1) - 10000 PSI working pressure manifold bleeder valve for
               bleeding system pressure to the reservoir when required for
               maintenance.

          (j)  One (1) - manifold self resetting relief valve set at 5500 PSI.

          (k)  Supply piping and outlet pipes to the preventers for 5000 PSI
               working pressure.

     1.4  A-series interface module model IA2-AOPRB06 this module permits
          pneumatic remote control of the manifold functions from two remote
          panels. It is mounted on item 1 of these specifications as per API
          RP16E/16D, consists of:-

          (a)  Six (6) - 3" x 2" air cylinders complete with mounting brackets
               plumbing items and fittings installed on the 4-way rotary shear

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

                                  Page 42 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               valves on the manifold module for remote operation of the BOP
               stack functions.

          (b)  One (1) - air cylinder complete with mounting brackets, plumbing
               items and fittings installed on the by-pass valve for remote
               operation of the manifold regulator by-pass function.

          (c)  One (1) - annular regulator pneumatic drive installation kit
               consisting of:-

               o    two (2) - quick exhaust air valves.

               o    One (1) - air pressure regulator with gauge.

               o    One (1) - air lubricator.

               o    One (1) - manually operated air directional control valve,
                    spring centered with air pilot operators for remote control
                    and local increase/decrease control.

          (d)  One (1) -air shuttle valve assembly with two junction box
               assemblies to interface with the remote panels. One (1) 3-way air
               transmitter assembly for remote indication of annular pressure,
               manifold pressure and accumulator pressure to the driller's
               panel.

          (e)  Three (3) - air pressure regulators to control instrument air
               pressure to each air transmitter.

          (f)  One (1) - float operated explosion proof switch installed in the
               fluid reservoir actuated by low fluid level. The switch is
               hardwired to the interface junction box using cable glands and
               armored cable rated for division 1 hazardous installation.

          (g)  One (1) - explosion proof cast enclosure suitable for division 1
               installation containing:

               o    Pressure switches for remote indicator lights and alarms
                    for:

                    o    low accumulator pressure.

                    o    low reservoir fluid level.

                    o    low air supply pressure.

          (h)  One (1) - alarm control circuit installed in the explosion proof
               enclosure. An alarm condition will cause the appropriate warning
               light to flash and the horn to sound at the unit and tool pusher
               panel. Depressing the alarm acknowledge button on the panel will
               silence the horn and cause the warning light to remain steady.
               The warning remains lit until the condition that caused the alarm
               is corrected.

     1.5  Graphic air operated driller remote control panel aogprb06-fc with

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

                                  Page 43 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          graphic illustration of bop stack to meet API RPI6E/16D, consisting
          of:-

          (a)  Six (6) 1/4" spring centered, 4-way control valves for operation
               of the preventers and hydraulically operated gate valves.

          (b)  One (1) - 1/4" spring centered 4-way control valve for remote
               operation of the bypass/internal override function.

          (c)  One (1) - 1/4" spring centered 4-way valve with lubricator and
               air regulator for increase/decrease control of the annular
               pneumatic motor driven hydraulic regulator.

          (d)  Four (4) - gauges: - one (1) 0-300 PSI air pressure, and three
               (3) receiver gauges, one (1) 0-3000 PSI annular pressure, one (1)
               0-6000 PSI accumulator pressure and one (1) 0-10000 PSI manifold
               pressure.

          (e)  One (1) - master air safety valve which must be operated before
               the driller can operate any of the preventers.

          (h)  One (1) - alarm box consisting of:

               o    One (1) - light indicator to indicate electric "pump
                    running".

               o    One (1) - "lamp test" push button.

               o    Three (3) - indicator lights to indicate following alarm
                    conditions:-

                    o    low accumulator pressure.

                    o    low reservoir fluid level.

                    o    low air supply pressure.

                    o    standby power on.

               o    One explosion proof warning horn.

               o    One (1) - alarm acknowledges pushbutton switch. An alarm
                    condition will cause the appropriate warning light to flash
                    and the horn to sound at driller's panel. Depressing the
                    alarm acknowledge switch will silence the horn and cause the
                    warning light to remain steady. The warning light remains
                    lit until the condition that caused the alarm is corrected.

               o    One (1) exf -10 explosion proof male receptacles for
                    connection of the electric control cable to unit junction
                    box alarms.

          (f)  One (1) - air junction box fixed plate JGF-24 mounted on the
               remote panel for connection to the junction box hose plate on the
               air cable.

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

                                  Page 44 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          (g)  One (1) - filter, lubricator assembly.

          (h)  Free-standing cabinet panel complete with lubricator and all air
               valve, fittings, and connections.

     1.6  Interconnect air hose bundle assembly model 150JG19JG. This unit
          interfaces the driller remote control panel to the air junction box of
          the interface module located on the accumulator unit, consisting of:-

          (a)  Two (2) - 24 air junction box hose plates (one assembled on each
               end of the air hose bundle).

          (b)  One (1) - one hundred fifty (150) ft. Length of 19 lines air hose
               bundle, each line is a 3/8" o.d. polyethylene air tube. All lines
               are encased in a flame resistant polyvinylchloride sheath.

     1.7  Interconnect electric cable assembly model 150-OO10XF with explosion
          proof connectors on one end and hardwired on accumulator unit alarm
          junction box at other end used to connect tool pusher panel to
          interface module located on the accumulator unit, consisting of:

          (a)  One (1) - exf 10 explosion proof female connector to connect to
               the tool pusher panel female receptacle and unit mounted junction
               box.

          (b)  One hundred fifty (150) ft.10 conductor cable with 16 AWG
               standard copper and insulated wires encased in sheath.

     1.8  Graphic air operated tool pusher remote control panel AOGORB06-FC with
          graphic illustration of bop stack, consisting of:-

          (a)  Six (6) 1/4" spring centered, 4-way control valves for operation
               of the preventers and hydraulically operated gate valves.

          (b)  One (1) - 1/4" spring centered 4-way control valve for remote
               operation of the bypass/internal override function.

          (c)  Four (4) - gauges: - one (1) 0-300 PSI air pressure, and three
               (3) receiver gauges, one (1) 0-3000 PSI annular pressure, one (1)
               0-6000 PSI accumulator pressure and one (1) 0-10000 PSI manifold
               pressure.

          (d)  One (1) - filter, lubricator assembly.

          (e)  One (1) - master air safety valve which must be operated before
               the driller can operate any of the preventers.

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

                                  Page 45 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          (f)  One (1) - air junction box fixed plate JGF-24 mounted on the
               remote panel for connection to the junction box hose plate on the
               air cable.

          (g)  Free-standing cabinet panel complete with lubricator and all air
               valve, fittings, and connections.

     1.9  Interconnect air hose bundle assembly model 150JG19JG. This unit
          interfaces the driller remote control panel to the air junction box of
          the interface module located on the accumulator unit, consisting of:-

          (a)  Two (2) - JGH24 air junction box hose plates (one assembled on
               each end of the air hose bundle).

          (b)  One (1) - one hundred fifty (150) ft. Length of 19 lines air hose
               bundle, each line is a 3/8" o.d. polyethylene air tube. All lines
               are encased in a flame resistant polyvinylchloride sheath.

     1.10 Twelve (12) - 1" x 15 ft, 3000 PSI fire resistant bop hose.

     1.11 Twelve (12) - 1" x 25 ft, 3000 PSI fire resistant bop hose.

     1.12 One (1) - 22 pro-12 pipe rack assemblies mounted on side junkbin/bop
          closing unit skid. Each pipe rack consists of 12 numbers of
          1'x22'-7-1/4" pipe with 1"fig 602 hammer union halves on each ends.

     1.12 Thirty six (36) - 1" fig 602 hammer union.

     1.13 0902-0100 - charging and gauging assembly to aid in pre-charging of
          the accumulator bottles consisting of: Air chuck, adapter, gauge,
          tank valve, swivel connector, hose, coupler, nut and bleeder valve.

     1.14 902-0300 - bladder pull rod. This item enables easy replacement of the
          separator bottle bladder.

     1.15 0902-0200 - valve core tool. This item enables easy removal and
          installation of the valve cores.

     1.16 0902-0400, spanner wrench

     1.17 All the above will be mounted on the JunkBin/BOP Closing Unit
          transportation skid.

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

                                  Page 46 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                           CONTROLS & INSTRUMENTATION

     Qty. 1 EA Ideal Rig Control & Instrumentation System

          For 1500HP IDEAL Rig System Land Rig

          The Ideal Rig Control System provides conventional control for DC
          motors and machinery, plus many efficiency and safety enhancing
          features found in more sophisticated integrated control systems.

          The Drillers Console is ergonomically designed and manufactured with a
          stainless steel frame and 304 stainless steel facial panels. The
          console contains the following equipment:

               o    Drawworks Controls

               o    Pump Controls

               o    Rotary Table Controls

               o    Cathead Controls

               o    Weight Indicator

               o    Driller's Meter Panel

               o    Driller's Display Panel

               o    Emergency Stop

          Much emphasis has been placed on console layout and ease of operation
          and as a result this user-friendly product requires no special
          operator training. There are no hydraulic components in the driller's
          console.

          Driller's Meter Panel

          The Driller's Meter Panel (DMP) provides additional analog and digital
          indication of the main drilling parameters on conventional analogue
          meters and digital readouts. The operation of this panel is
          independent of the DDP and as such it provides full display
          redundancy. For the Ideal Rig, meters indicate Hook Load, Stand-Pipe
          Pressure, Tong Torque, Rotary Table Torque, Rotary Table RPM, Mud Pump
          #1 SPM, Mud Pump #2 SPM and trip tank indicator.

          Driller's Display Panel

          The Driller's Display Panel (DDP) is a color touchscreen display that
          is used for SDAQ Drilling Information System. The unit is fully
          ruggedized for drill floor operation. Requires 110v AC 60Hz rig
          supply.

          DDP Specifications:

          o    15" Active Matrix Color LCD

          o    1024 x 768 Resolution XGA LCD screen

          o    400 cd/m2 minimum brightness

          o    Console mounted

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

                                  Page 47 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          o    Weight: 20kg

          o    Dimensions: 420(L) x 200(W) x 410(H)mm

          The Ideal Auto Driller & Brake Control Safety System

          This system incorporates remote braking, kinetic energy monitoring and
          automatic drilling systems. The control system features:

          o    Joystick Control of Disc Brakes and Eddy Current Brake.

          o    Floor and Crown Block protection.

          o    Block Speed Limiting.

          o    Soft Stop at Crown & Floor.

          o    Emergency stop.

          o    Auxiliary Brake Monitoring.

          o    Weight on Bit Auto Drilling

          o    Rate of Penetration Auto Drilling

          The Ideal Auto Driller & Brake Control Safety System is a complete
          system hardware package and is supplied with all materials (except
          cables), required to effect its installation, including:

          o    Safe Area Signal Conditioning Unit

          o    Safe Area Power Supply Unit with Battery Back Up

          o    Control / Display Unit

          o    Intrinsically Safe Spear Shaft (Drillers offside) mounted Height
               Sensor.

          o    Intrinsically Safe Weight Sensor

          o    Audible Alarm

          o    Main Brake/Clutch Solenoid

          o    Safe Area Auxiliary/Electric Brake Interface

          o    Safe Area Drawworks on/off throttle relay

          o    Installation kit including, junction boxes, cable glands, hoses,
               fittings, mounting brackets and associated fasteners.

          1.   Remote Braking

          The joystick control system provides electronic over hydraulic
          operation of the disc brakes. The joystick is a "dead man" type
          device. The service calipers are fully applied with the joystick in
          the spring returned position. Center to forward on the joystick
          gradually releases the brakes, with the maximum joystick stroke fully
          releasing the brakes. When the operator releases the joystick it
          springs forward, fully applying the service brakes. To assist the
          driller the console is fitted with dual hydraulic pressure gauges
          which indicate both driller side and off driller side brake caliper
          pressures.

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

                                  Page 48 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          2.   Kinetic Energy Monitoring

          The kinetic energy monitoring system monitors the load, speed and
          position of the traveling block and when required operates the
          drawworks brakes, clutches and motors to bring the traveling block to
          a controlled stop within preset limits of travel. Interfaces are
          included for operation of the drawworks auxiliary brake; service and
          emergency / park brakes and clutches as well as the drawworks drive
          motor/s. During downward travel, the system measures the total hook
          load to determine a safe velocity profile for downward motion. As the
          blocks descend and speed is gained, the auxiliary brake is engaged to
          bring the block speed within the safe velocity profile. This process
          continues until the block comes to rest at, or just above, the bottom
          limit of travel. However, should the auxiliary brake fail to control
          the descent as requested, then the system will assume an auxiliary
          brake fault and will immediately actuate the service and emergency /
          park brake calipers in an effort to bring the blocks to a controlled
          stop. Should the speed be at or below 6" per second at the lower limit
          the system assumes that the driller has control and will allow him to
          proceed below the lower limit at this speed. Should the speed increase
          to above 6" per second the system will immediately actuate the service
          and emergency / park brake calipers.

          When traveling upwards the system assesses upward velocity and hook
          load and, when required, will switch off the drive to the drawworks
          motors and at the same time it shall apply, momentarily, the Elmagco
          brake to bring the drawworks and traveling block assembly to a
          standstill at, or just below, the upper limit of travel. Just before
          the blocks come to a stop the service and emergency / park brake
          calipers are also set to prevent any subsequent, unwanted, downward
          motion. An override facility is available on the drillers console to
          allow upward travel beyond the upper limit. This override requires
          that the driller operates a spring return pushbutton and speed does
          not rise above 12" per second.

          3.   Auto-Drilling

          The auto drilling system provides a simple, user-friendly auto-driller
          that can control hook load and hence weight on bit (WOB),
          automatically. Additionally the unit can be set to auto-drill in Rate
          of Penetration (ROP) mode for "top-hole" or other specific drilling
          applications.

          In WOB operation the system compares the actual bit weight to the
          desired bit weight releasing the drawworks brakes to feed off drill
          line. As this is happening any increase in bit weight is compared to
          the

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

                                  Page 49 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          corresponding movements of the drawworks drum. In this way the system
          continuously monitors the relationship between drawworks rotation and
          the transfer of weight from the hook to the bit. The frequency and
          duration of the brake release cycle is then controlled to provide
          optimum ROP while ensuring that bit weight is kept at a constant
          level.

          In ROP operation the system acts as a block lowering speed control
          device. The block will descend at the desired rate set by the
          operator. Additionally the system will automatically stop and reset
          itself to zero ROP should a preset WOB be exceeded in this mode.

          4.   DISPLAY PARAMETERS

          o    Ton Miles

          o    Hook Load

          o    Block Speed

          o    Height from Floor

          o    Rate of Penetration / Weight on Bit

          o    Brake Caliper Hydraulic Pressure (Electrical Gauge)

          o    Set-up Menu

          o    Maintenance Menu

          Ideal Auto-Driller & Brake Control Safety System - Features and
          Benefits

          The system ensures safe block speeds and progressive, shock free stops
          should the floor and crown limits be exceeded. Should the Baylor brake
          be requested to slow the traveling block and fail to do so the main
          brakes will be applied regardless of block height.

          The joystick allows the driller to be located at an ergonomically
          efficient location on the rig floor without the need for complicated
          mechanical linkages. This affords the Driller a superior view of what
          is happening on the rig floor and racking board and gives flexibility
          to optimizing the rig floor layout.

          The joystick removes the requirement for continuous operation of the
          traditional, heavy brake handle. The repeatability of Ideal
          Auto-Driller provides maximum rate of penetration whilst guarding
          against overweighting of the drill bit. These features reduce driller
          fatigued and enable him to more alertly focus on the safety and
          efficiency of the drilling operation.

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

                                  Page 50 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Simplicity is a prime user criterion in the system design. The
          intuitive controls are self-explanatory. Minimal training is required
          to operate and run the system.

          SDAQ Drilling Information System

          The SDAQ monitors and displays drilling parameters and related alarm
          functions on the DDP. Information is displayed in analog or digital
          formats, as selected by the driller. The standard Ideal Rig
          configuration monitors the same parameters monitored on the Driller's
          Meter Panel, plus pump stroke counters, rig air pressure and HPU
          pressure.

          The SDAQ can also distribute real time drilling information to other
          devices connected to the system network, including other terminals on
          the rig location (safe or hazardous area), M/D Totco RigSense, or
          remote monitoring services connected to the rig via modem.

          Sensors

          The following sensors are supplied on the Ideal Rig to provide
          feedback for the Driller's Meter Panel, the Ideal Auto-Driller and the
          SDAQ systems. All sensors are intrinsically safe.

          1.   Hook Load Sensor (EEx Zone 1). Solid state, strain gauge pressure
               transmitter, 4 to 20 mA. Range 0 to 1080 PSI to suit deadline
               sensator.

          2.   Mud pressure sensor (EEx Zone 1). Solid state, strain gauge
               pressure transmitter, 4 to 20 mA. Range 0 to 5000 PSI.

          3.   Rotary/Top Drive torque sensor. Split core current transformer, 4
               to 10 mA. Range and calibration nominally 0 to 1000 amps
               (Adjusted to suit rig).

          4.   Mud pump SPM sensor 9EEx Zone 1). Inductive proximity switch,
               NAMUR digital output.

          5.   Rotary/Top Drive RPM sensor (EEx Zone 1). Inductive proximity
               switch, NAMUR digital output.

          6.   Height/ROP sensor (EEx Zone 1). Digital shaft encoder with
               quadrature output, 250 pulses per drawworks resolution.

          7.   Tong torque sensor (EEx solid state, strain gauge pressure
               transmitter, 4 to 20 mA. Range nominally 0 to 2000 PSI (Adjusted
               to suit rig).

          8.   Tension load cell 25k - for tong torque, utilizes item #7 for
               signal transmission.

          Signal Conditioning Unit (SCU)

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

                                  Page 51 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          The sensors are connected to remote I/O in the SCU, inside the SCR
          house. Remote I/O is equipped with barriers and marshalling components
          for field terminations. Cable to the Control Cabinet is included.

               Specifications:

               Weight       Approximately 100 lbs
               Dimensions   600mm x 600mm x 300mm
               Electrical   110-220VAC, 50/60 Hz

     Qty. 1 EA. WL100

          KINNECOR / LANTEC Wireline Winch

          Stand mounted winch, with 5.5" dia. barrel, 16" dia. flange, 20" long
          and cable dia .092" performance based on motor torque of 5,888 LB. IN.
          @ 68RPM:

          Drum holds 34,800 T of cable on 57 layers.  (outfitted with 25,000 ft,
          stainless steel line)

          Bare drum line pull = 2,100 LB @ 100 FPM
          Mid drum line pull = 990 LB @ 210 FPM
          Full drum line pull = 740 @ 282 FPM

                                   AIR SYSTEM

     Qty. 2 EA. HP75 Air Compressor

          Ingersoll-Rand Model HP75 air compressors

               Type                  Oil flooded screw air compressor
               Model                 75 HP
               Capacity              299CFM
               Rated pressure        140PSI
               Power supply          480V/60Hz/3Ph
               Cooling method        Air cooled
               Ambient temperature   <46[_]C

          SCOPE OF SUPPLY:

          Air compressor mounted on air receiver, main electric motor,
          modulation system, oil cooler, after cooler, air filter, oil filter,
          water/gas separator, electrical control system, piping, enclosure,
          etc.

     Qty. 1 EA. LD-0.8/10

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

                                  Page 52 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Cold Start Unit

          Two-stage cold start compressor unit, belt drive, guard skid with 301
          cc gasoline fuel engine.

     Qty. 2 IR85D

          Ingersoll-Rand Model IR85D air dryer.

               o    Model                      IR85D

               o    Capacity                   7.5 M3/min.

               o    Max. inlet temperature     66DEG. C

               o    Filtering capability Oil   0.5ppm

               o    Particle size              1u

     Qty. 2 EA. VAR-53CF-PI

          53CF vertical air receiver with ring base. The 400 gallon receiver is
          ASME coded and stamped fro 165 PSIG working pressure. Finish is
          factory standard.

          36"OD x 98"L

          Air Accessory Kit consist of

               Pressure Relief Valve
               Pressure Gauge
               Automatic Drain

     Qty. 1 EA.

          32CF Horizontal air receiver with mounting feet. The 230 gallon
          receiver is ASME coded and stamped for 165 PSIG working pressure.
          30"OD, 84" length. With accessory kit.

          Air Accessory Kit consists of:

               Pressure Relief Valve
               Pressure Gauge
               Automatic Drain

     Qty. 2 EA. QJ200-5B

          Model QJ200-5B Utility air winch. Five (5) ton capacity.

          Air winch consisting of the following features:

          1.   Key part, piston air motor and adopts dual supporting structure
               making a more smoothly and efficiently operation.

          2.   Unique design lubrication system of motor valve core makes a more
               thorough lubrication and a more dependable winch.

          3.   Air distribution valve box is grouped with motor body, making it
               easier to replace quick-wear parts.

          4.   High starting torque allows for start-up with load.

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

                                  Page 53 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          5.   Equipped with automatic brake system and hand brake.

          6.   Automatic brake mechanism integrated in air motor valve box
               allowing one handle control for lifting, lowering and braking.

          Technical Parameters

          Working Pressure                  0.5 - 0.9 MPa   72 - 130 psi
          Maximum Line Pull (first layer)            50kN     5.5 US ton
          Maximum rope speed                     35 m/min   114.8 ft/min
          Air Consumption (7atm)                 3 m3/min    800 gal/min
                      Rated Power                    15kW           20hp
          Air motor   Piston Stroke                  76mm            3in
                      Cylinder number                   5              5
                      Diameter                      220mm          8.7in
          Drum        Width                         435mm        17.1 in
                      Diameter of flange            485mm           19in
          Rope Storage                               120m         393 ft
          Rope Diameter                          15.875mm          5/8in
          Overall Length                           1300mm           51in
          Overall Width                             940mm           37in
          Overall Height                            985mm           39in
          Weight                                    620kg         1370lb

     Qty. 1 EA. 8CF

          8 c.f. horizontal air receiver, 60 gallon, ASME coded and stamped to
          accept minimum 165 PSIG working pressure.

          20" OD x 48" Length

                                   FUEL SYSTEM

     Qty. 1 LOT FT-400-BBL-CYL
          Cylindrical fuel tank, having a 400 BBL capacity, saddle mounted on a
          three runner skid with oilfield type skid ends for tailboarding. Tank
          includes one 20" OD manway, ladder rungs inside and out, one (1) 2"
          vent, one (1) 4" fill connection, and one (1) 4" drain and one (1)
          sight level gauge.

          Skid extension decked with 1/4" checkered plate to accommodate fuel
          transfer pump and one fuel filter.

          Pump and filter quoted separately.

     Qty. 1 EA. K-FF1081

          National Oilwell Varco Model FS-1081 Fuel Filter System

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

                                  Page 54 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          This filter package is a three-stage filter type. There is a prefilter
          to remove dirt, a coalescer element to form dissolved water into
          droplets and separator element to make the water droplets drop out of
          the fuel.

          PREFILTER:

          Contains a quantity of three pleated paper filter elements each rated
          to remove solids to five (5) microns. The three elements will hold
          approximately twenty pounds of dirt before time to change out the
          elements. The purpose of the prefilter is to trap solids or dirt
          before they can reach the coalescer.

          COALESCER:

          Contains a quantity of two coalescer elements and two separator
          elements. The purpose of the coalescer element is to separate the
          water from the fuel by forming the water into droplets so that the
          water will fall out of the fuel by gravity. The purpose of the
          separator element is to repel any droplets that do not fall out of the
          fuel. This tank has an automatic drain valve to let the separated
          water out. This is what is commonly referred to as two-stage
          separation. It is important to remember that even though the coalescer
          and separator elements will remove dirt, their primary function is to
          remove water. Rated to remove water to 5 parts per million or
          99.999995%.

          DIESEL FUEL TRANSFER PUMPS

          Two packages each having a Roper 2AM21 gear pumps with built in relief
          valve, rated at 35-39 GPM mounted on a base with a flexible coupling,
          OSHA coupling guard and a 3 HP, 1800RPM, explosion proof motor,
          230-460Volts, 3 phase, 60 cycle.

          MOUNTING:

          These two filter tanks along with the two pump packages are mounted on
          a base, piped with valves for series flow through the tanks or to
          bypass the filters. The pumps will be manifold together so that
          product can flow through either pump while the other pump is
          operating. Pressure gauges are mounted on each of the tanks to measure
          pressure drop and know when to change filters. The system will also
          include an automatic drain for water, and all necessary valves, unions
          etc. to make it a complete functional unit. The system only requires a
          hose from the main fuel storage and a hose to the day tank. The total
          unit is painted with a two-part catalyst setting epoxy.

                                ELECTRICAL RIG-UP

          Electrical materials, supervision, electrical rig-up, welding, and rig
          down.

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

                                  Page 55 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          LIGHTING SYSTEM - 120Volt 60 HZ

               1.   Mast, Racking Board, Crown and Obstruction Lighting

               2.   Rig Floor - Drawworks Lighting

               3.   Pipe Rack and Area Lighting

               4.   Substructure Lighting

               5.   Mud Pump Lighting

               6.   Generator Skids

               7.   Doghouse

               8.   Water Tank

               9.   Brake Cooling Tank

               10.  Hydraulic Unit Skid clamps, safety cables, and stringer, and
                    whips.

               11.  BOP Skid

               12.  Work Shop

               13.  Fuel Tank Skid

               14.  Suction Tank, 3 - AC Generators 600 Volt 60 HZ

               15.  Agitator Tank

          All fixtures to be completed outfitted with plugs and receptacles,
          cable

          GENERATOR POWER AND CONTROL CABLES

               1.   A/C power and control cables to connect generators to SCR
                    House

               2.   Control cables for generators

               3.   Glastic plate for cable entrance @ generator

               4.   Cable Trays included

          D.C. MOTOR POWER AND CONTROL CABLES

          Mud Pumps Motors (4)
          Drawworks Motors (2)
          Rotary Table Motor (1)

               1.   Power and Control Cables

          AC POWER AND CONTROL CABLES

               1.   (2) Mud Tanks are included

               2.   Cable tray's included

          PLUG AND RECEPTACLE PANELS FURNISHED BY NOV

               1.   Plugs and receptacles furnished by Prime

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

                                  Page 56 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

               A.   Between Mud Pump 1 and Mud Pump 2 (4 motors)

               B.   For Mud Tanks & System

               C.   Grasshopper

               D.   (2) Water Tanks

               E.   120 Volt Power BOP Closing

               F.   Swing out Booms on Water Tank

               G.   Mud Pump Boom

               H.   Workshop & Connections

               I.   BOP Plugs @ Doghouse

               J.   BOP Plugs @ BOP

          RIG-UP SPECIFICATIONS

          A.   Cables supplied will be Polyrad XT 125 degree C type P

          B.   Electrical Rig-up will meet API standards

          C.   All connections to be weatherproof

          D.   Receptacles to have watertight covers

          E.   Grounding of skids included

          F.   Function Test & Support

     ENGINEERING

          A.   As built drawings on a C.D. will be provided to NOV.

                                MECHANICAL RIG-UP

     Qty. 1 LOT MRU-T-RD-1500

          Rigup Test Rig Down

     Qty. 1 LOT EL-CBLTRY-GRHPR

          Cable Trays To Grasshopper

     Qty. 1 EA. BN-1, Bell Nipple

     Qty. 1  FL-12, 12" Flow Line

     Qty. 1 EA. Mousehole Scabbard Assembly

     Qty. 1 EA. Rathole Assembly

                             MISCELLANEOUS EQUIPMENT

     DRILLER'S CABIN

     Ideal Rig Control & Instrumentation System

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

                                  Page 57 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     For 1500HP IDEAL Rig System Land Rig

     The Ideal Rig Control System provides conventional control for DC motors
     and machinery, plus many efficiency and safety enhancing features found in
     more sophisticated integrated control systems.

     The Drillers Console is ergonomically designed and manufactured with a
     stainless steel frame and 304 stainless steel facial panels. The console
     contains the following equipment:

     o    Drawworks Controls

     o    Pump Controls

     o    Rotary Table Controls

     o    Cathead Controls

     o    Weight Indicator

     o    Driller's Meter Panel

     o    Driller's Display Panel

     o    Emergency Stop

     Much emphasis has been placed on console layout and ease of operation and
     as a result this user-friendly product requires no special operator
     training. There are no hydraulic components in the driller's console.

     Driller's Meter Panel

     The Driller's Meter Panel (DMP) provides additional analog and digital
     indication of the main drilling parameters on conventional analogue meters
     and digital readouts. The operation of this panel is independent of the DDP
     and as such it provides full display redundancy. For the Ideal Rig, meters
     indicate Hook Load, Stand-Pipe Pressure, Tong Torque, Rotary Table Torque,
     Rotary Table RPM, Mud Pump #1 SPM, Mud Pump #2 SPM and trip tank
     indicator.

     Driller's Display Panel

     The Driller's Display Panel (DDP) is a color touchscreen display that
     is used for SDAQ Drilling Information System. The unit is fully
     ruggedized for drill floor operation. Requires 110v AC 60Hz rig
     supply.

     DDP Specifications:

     o    15" Active Matrix Color LCD

     o    1024 x 768 Resolution XGA LCD screen

     o    400 cd/m2 minimum brightness

     o    Console mounted

     o    Weight: 20kg

     o    Dimensions: 420(L) x 200(W) x 410(H)mm

     The Ideal Auto Driller & Brake Control Safety System

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

                                  Page 58 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     This system incorporates remote braking, kinetic energy monitoring and
     automatic drilling systems. The control system features:

     o    Joystick Control of Disc Brakes

     o    Floor and Crown Block protection.

     o    Block Speed Limiting.

     o    Soft Stop at Crown & Floor.

     o    Emergency stop.

     o    Auxiliary Brake Monitoring.

     o    Weight on Bit Auto Drilling

     o    Rate of Penetration Auto Drilling

     o    Safe Area Signal Conditioning Unit

     o    Safe Area Power Supply Unit with Battery Back Up

     o    Control / Display Unit

     o    Intrinsically Safe Spear Shaft (Drillers offside) mounted Height
          Sensor.

     o    Intrinsically Safe Weight Sensor

     o    Audible Alarm

     o    Main Brake/Clutch Solenoid

     o    Safe Area Auxiliary/Electric Brake Interface

     o    Safe Area Drawworks on/off throttle relay

     o    Installation kit including, junction boxes, cable glands, hoses,
          fittings, mounting brackets and associated fasteners.

     Remote Braking

     The joystick control system provides electronic over hydraulic operation of
     the disc brakes. The joystick is a "dead man" type device. The service
     calipers are fully applied with the joystick in the spring returned
     position. Center to forward on the joystick gradually releases the brakes,
     with the maximum joystick stroke fully releasing the brakes. When the
     operator releases the joystick it springs centered, fully applying the
     service brakes. To assist the driller the console is fitted with dual
     hydraulic pressure gauges which indicate both driller side and off driller
     side brake caliper pressures.

     Kinetic Energy Monitoring

     The kinetic energy monitoring system monitors the load, speed and position
     of the traveling block and when required operates the drawworks brakes,
     clutches and motors to bring the traveling block to a controlled stop
     within preset limits of travel. Interfaces are included for operation of
     the drawworks auxiliary brake; service and emergency / park brakes and
     clutches as well as the drawworks drive motor/s. During downward travel,
     the system measures the total hook load to determine a safe velocity
     profile for downward motion. As the blocks descend and speed is gained, the
     auxiliary brake is engaged to bring the block speed within the safe
     velocity profile. This process continues until the block comes to rest at,
     or just above, the bottom limit of travel. However, should the auxiliary
     brake fail to control the descent as requested, then the system will assume
     an auxiliary brake fault and will immediately actuate the service and
     emergency / park brake

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

                                  Page 59 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     calipers in an effort to bring the blocks to a controlled stop. Should the
     speed be at or below 6" per second at the lower limit the system assumes
     that the driller has control and will allow him to proceed below the lower
     limit at this speed. Should the speed increase to above 6" per second the
     system will immediately actuate the service and emergency / park brake
     calipers. When traveling upwards the system assesses upward velocity and
     hook load and, when required, will switch off the drive to the drawworks
     motors and at the same time it shall apply, momentarily, the Elmagco brake
     to bring the drawworks and traveling block assembly to a standstill at, or
     just below, the upper limit of travel. Just before the blocks come to a
     stop the service and emergency / park brake calipers are also set to
     prevent any subsequent, unwanted, downward motion. An override facility is
     available on the drillers console to allow upward travel beyond the upper
     limit. This override requires that the driller operates a spring return
     pushbutton and speed does not rise above 12" per second.

     Auto-Drilling

     The auto drilling system provides a simple, user-friendly auto-driller that
     can control hook load and hence weight on bit (WOB), automatically.
     Additionally the unit can be set to auto-drill in Rate of Penetration (ROP)
     mode for "top-hole" or other specific drilling applications.

     In WOB operation the system compares the actual bit weight to the desired
     bit weight releasing the drawworks brakes to feed off drill line. As this
     is happening any increase in bit weight is compared to the corresponding
     movements of the drawworks drum. In this way the system continuously
     monitors the relationship between drawworks rotation and the transfer of
     weight from the hook to the bit. The frequency and duration of the brake
     release cycle is then controlled to provide optimum ROP while ensuring that
     bit weight is kept at a constant level.

     In ROP operation the system acts as a block lowering speed control device.
     The block will descend at the desired rate set by the operator.
     Additionally the system will automatically stop and reset itself to zero
     ROP should a preset WOB be exceeded in this mode.

     Display Parameters

     o    Ton Miles

     o    Hook Load

     o    Block Speed

     o    Height from Floor

     o    Rate of Penetration / Weight on Bit

     o    Brake Caliper Hydraulic Pressure (Electrical Gauge)

     o    Set-up Menu

     o    Maintenance Menu

     Ideal Auto-Driller & Brake Control Safety System - Features and Benefits

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

                                  Page 60 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     The system ensures safe block speeds and progressive, shock free stops
     should the floor and crown limits be exceeded. Should the Baylor brake be
     requested to slow the traveling block and fail to do so the main brakes
     will be applied regardless of block height.

     The joystick allows the driller to be located at an ergonomically efficient
     location on the rig floor without the need for complicated mechanical
     linkages. This affords the Driller a superior view of what is happening on
     the rig floor and racking board and gives flexibility to optimizing the rig
     floor layout.

     The joystick removes the requirement for continuous operation of the
     traditional, heavy brake handle. The repeatability of Ideal Auto-Driller
     provides maximum rate of penetration whilst guarding against overweighting
     of the drill bit. These features reduce driller fatigued and enable him to
     more alertly focus on the safety and efficiency of the drilling operation.

     Simplicity is a prime user criterion in the system design. The intuitive
     controls are self-explanatory. Minimal training is required to operate and
     run the system.

     SDAQ Drilling Information System

     The SDAQ monitors and displays drilling parameters and related alarm
     functions on the DDP. Information is displayed in analog or digital
     formats, as selected by the driller. The standard Ideal Rig configuration
     monitors the same parameters monitored on the Driller's Meter Panel, plus
     pump stroke counters.

     The SDAQ can also distribute real time drilling information to other
     devices connected to the system network, including other terminals on the
     rig location (safe or hazardous area), M/D Totco RigSense, or remote
     monitoring services connected to the rig via modem.

     Sensors

     The following sensors are supplied on the Ideal Rig to provide feedback for
     the Driller's Meter Panel, the Ideal Auto-Driller and the SDAQ systems. All
     sensors are intrinsically safe.

     * Hook Load Sensor (EEx Zone 1). Solid state, strain gauge pressure
     transmitter, 4 to 20 mA. Range 0 to 1080 PSI to suit deadline sensator.

     * Mud pressure sensor (EEx Zone 1). Solid state, strain gauge pressure
     transmitter, 4 to 20 mA. Range 0 to 5000 PSI.

     * Rotary/Top Drive torque sensor. Split core current transformer, 4 to 10
     mA. Range and calibration nominally 0 to 1000 amps (Adjusted to suit rig).

     * Mud pump SPM sensor 9EEx Zone 1). Inductive proximity switch,

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

                                  Page 61 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     NAMUR digital output.

     * Rotary/Top Drive RPM sensor (EEx Zone 1). Inductive proximity switch,
     NAMUR digital output.

     * Height/ROP sensor (EEx Zone 1). Digital shaft encoder with quadrature
     output, 250 pulses per drawworks resolution.

     * Tong torque sensor (EEx solid state, strain gauge pressure transmitter, 4
     to 20 mA. Range nominally 0 to 2000 PSI (Adjusted to suit rig).

     * Tension load cell 25k - for tong torque, utilizes item #7 for signal
     transmission.

     Signal Conditioning Unit (SCU)

     The sensors are connected to remote I/O in the SCU, inside the SCR house.
     Remote I/O is equipped with barriers and marshalling components for field
     terminations. Cable to the Control Cabinet is included.

     Specifications:

     Weight Approximately 100 lbs
     Dimensions 600mm x 600mm x 300mm
     Electrical 110-220VAC, 50/60 Hz

     Miscellaneous Equipment

     Drillers Dog House / Control Cabin

     The driller's cabin is designed to provide the drilling operators a safe
     and comfortable work environment. The cabin will be suitable for the
     required area classification. Considerations made include:

     Environment

     Considerations made include comfortable colors, low noise levels, and high
     automation level this environment will enhance the quality and the success
     of the drilling operations where critical split-second decisions are often
     made.

     Ergonomics

     The driller's cabin and other control panels are designed to make the
     operator able to work long shifts without stress or strain. The positioning
     of instruments and controls has been thoroughly evaluated with regard to
     frequency of use, interrelation and ease of operation and help reduce
     fatigue to the driller.

     Classification

     The driller's cabin will be rated for a Class 1 Division 2 area. The
     protection means for this housing will be accomplished by pressurization
     according to NFPA496 requirements.

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

                                  Page 62 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     Safety

     Since most of the machinery operations are controlled from the driller's
     cabin the safety will be enhanced considerably. There will be two (2)
     escape routes from the cabin. Protection bars and netting on the sloped
     windows secure operators from falling/ moving objects. All windows are of
     9/16" laminated, heat strengthened safety glass.

     Layout

     From the driller's cabin the operator can control most of the equipment
     used in the drilling process. Most controls used are included in the
     drillers control console and are in easy reach of the operators.

     The driller's cabin is located on the drill floor and is designed to have a
     clear line of sight to the operating machinery and people on the drill
     floor.

     The equipment/control panels in the driller's cabin will be placed in the
     most visual / convenient position (fire /gas, drillers talk back,
     etc.)Driller's cabin features: the cabin supply includes as a minimum the
     equipment listed below:

     Driller's cabin carbon steel enclosure.

     Removable protection net attached to the protection bars on sloped windows.

     Insulated walls, roof and floor

     Architectural items such as: wall panels, ceiling panels, Floor cover,
     door and windows

     Wall mounted HVAC

     Junction boxes where required

     Access to equipment in ceiling/floor the driller's cabin will have
     available space for

     The drillers cabin will have available space for the Typical
     instrumentation / equipment as listed below:

     DCC panel
     Ex telephones
     ESD pushbuttons
     Talkback station
     BOP panel
     Choke panel

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

                                  Page 63 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     Fire / gas monitor / panel

     Thermostat / pressurization monitoring system for HVAC the driller's cabin
     is connected to an independent HVAC

     The driller's cabin is connected to an independent HVAC system with dual
     blowers and two independent power feeders.

     The HVAC unit is located on the outside wall of the cabin.

     The HVAC system supplies the necessary air to pressure the cabin and
     maintain a safe working environment within the hazardous area. The operator
     has the ability to see an HVAC common alarm on the SDI screens if something
     should occur.

     The driller's cabin will be configured to accept the top drive driller's
     console. The topdrive drillers console will be free issued for
     installation. Installation material will include the appropriate plugs
     and/or receptacles and cabling

     Drillers cabins will be designated as follows

     A drillers cabin with Top drive console installed will be called a model
     "C" cabin.

     A drillers cabin without a top drive console installed will be called a
     model "B" cabin. The installation of the top drive console will occur at
     the equipment install phase of the project.

     Qty. 1 SET YNG-CTWLK

          One (1) section catwalk, 60" wide x 18" high x 49' long. Decked with
          1/2" plate for approximately 10' from the pipe ramp and 3/8" plate for
          the remaining length.

     Qty. 1 EA. WS 10

          One (1) workshop / change house.

          The workshop skid;

          1. Skid dimension is 10'-0" x 38'-0" x 9'-8 3/8" high.

          2. Locker quantities - change house (24).

          3. Storage bin quantities - workshop (34).

          4. (1) Workbench located in workshop.

          5. (1) Sitting Bench located in change house.

          Air conditioning/heating not included.

     Qty. 1 EA. JB-1

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

                                  Page 64 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

          Junkbin/BOP Closing Unit skid.

          Skid dimension 7'-0" x 38'-0" x 8'-10 3/4" high with a removable roof,
          mounted on a two runner oilfield type skid, top and ends completely
          plated with 1/4" plate. Junk Bin sides plated 2 ft. high with 1/4"
          plate.

     Qty. 1 Electrical Cable Handling System

          4-Booms, 2-Pedestals

          (3) Swing arm booms with junction boxes leading to drawworks, HPU and
          mud system which are connected to the below.

          (1) Telescoping boom with drag chain which leads the bulk of cabling
          to the plug board of the SCR house from the substructure via the
          grasshopper.

          (2) Pedestals with junction boxes mounted on each mud pump skid that
          has a cable tray assembly leading to the SCR plug board

          This assembly mounts on the water tank and two mud pump skids.

     TOTAL                                                        $25,096,650.00

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

                                  Page 65 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                    SECTION 2 COMMISSIONING & STARTUP ON SITE

2.1  LOCAL SERVICE WITHIN US

     QTY. 3 EA PS-SERV

     To provide service technician to assist with the installation and
     commissioning of the equipment on-site. Seventeen days is allowed,
     excluding travel and living expenses (to be charge at cost plus 10%).
     Additional days, if required, will be charged at current day rates plus
     expenses at cost plus 10%.

     Standby or delay time will be billed at the above rates caused by, but not
     limited to the following conditions:

          o    Weather and other Force Majeure Events,

          o    Waiting on transportation,

          o    Waiting on cranes, forklifts, utilities, etc.

          o    Failure of equipment not provided by NOV

          o    Lack of vendor/customer information

          o    Late delivery of customer supplied equipment

          o    Delays caused by field modifications to customer supplied
               equipment

          o    Inability to perform work due to interference from other
               contractors

          o    Inability to work more than 4 hours in any single day caused by
               the customer or other vendor.

     TOTAL                                                            $56,100.00

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

                                  Page 66 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

                          STANDARD TERMS AND CONDITIONS

1. ACCEPTANCE

Orders or other requests, whether oral or written, for machinery or equipment
("Equipment"), or the supply or sale of spare or replacement parts ("Parts") or
for services ("Services") to be provided by National Oilwell Varco, L.P., on
behalf of itself and its divisions and subsidiaries ("Seller") to its customers
(each a "Buyer") are subject to Seller written acceptance by an authorized
representative of Seller and any orders so accepted will be governed by (i) the
terms and conditions stated in these Terms and Conditions for provision of
Equipment, Parts or Services ("Terms and Conditions"), (ii) the written proposal
submitted by Seller to Buyer ("Proposal"), if any, (iii) the written order
acknowledgment issued by Seller to Buyer ("Acknowledgment"), if any (iv) any
change orders identified as such and agreed to in writing by Seller (the Order,
Terms and Conditions, Proposal, Acknowledgment, and any such change order, and
any such additional terms as agreed to in writing by an authorized
representative of Seller collectively referred to herein as "Agreement." Buyer's
submission of a purchase order (or other similar document) shall be deemed to be
an express acceptance of these Terms and Conditions notwithstanding language in
Buyer's purchase order (or other similar document) inconsistent herewith, and
any inconsistent language in Buyer's purchase order (or other similar document)
is hereby rejected. Buyer's purchase order (or other similar document is
incorporated in this Agreement, only to the extent of specifying the nature and
description of the Equipment, Parts or Services and then only to the extent
consistent with the Proposal or Acknowledgment. In the event of any conflict
between a Proposal and an Acknowledgement, the Acknowledgment shall prevail.

2. PRICES

Prices of Equipment, Parts or Services shall be as stated in the Proposal or
Acknowledgment, or if there is no Proposal or Acknowledgment, as otherwise
agreed to in writing by Seller. All price quotations are Ex-works (INCOTERMS
2000) Seller's premises or as agreed per quote and are subject to change without
notice. All sales, use, import, excise and like taxes, whether foreign or
domestic, shall be charged to and borne by Buyer. Seller bears no responsibility
for any consular fees for legalizing invoices, certificates of origin, stamping
bills of lading, or other charges required by the laws of any country of
destination, or any fines imposed due to incorrect declarations. Charges will be
added for factory preparation and packaging for shipment. Minimum freight and
invoice charges apply, as in effect at the time of order. If by reason of any
act of government, the cost to Seller of performing its obligations hereunder is
increased, such increase shall be added to the quoted price.

3. PAYMENT TERMS

Unless alternate payment terms are specified or approved by Seller's credit
department, all charges, including applicable packing and transportation costs,
billed by Seller are payable within Net 30 days of the date of invoice. Seller
reserves the right to modify or withdraw credit terms at any time without
notice. Unless otherwise specified all payments are due in the currency
specified in Seller's Proposal, Acknowledgment and/or invoice. Interest shall be
due from Buyer to Seller on over due accounts at the maximum rate allowed by
law. When partial shipments are made, the goods will be invoiced as shipped and
each month's invoices will be treated as a separate account and be payable
accordingly. Payment for goods is due whether or not technical documentation
and/or any third party certifications are complete at the time of shipment.
Seller shall be entitled to recover all reasonable attorney's fees and other
costs incurred in the collection of overdue accounts. Seller reserves the right
where genuine doubts arise as to Buyer's financial position or if Buyer is in
default of any payment, to suspend delivery or performance of any order or any
part thereof without liability or without prejudice to and without limitation of
any other remedy until Buyer cures the default and payment or satisfactory
security for payment has been provided. Seller shall have the option to extend
the delivery date by a time at least equal to the period of suspension.

4. DELIVERY

Unless otherwise specified on the face hereof, all US and international sales
shall be Exworks Seller's premises (INCOTERMS 2000), as modified by these Terms
and Conditions. Where goods are to be supplied from stock, such supply is
subject to availability of stocks at the date of delivery. Partial shipments may
be made as agreed by Buyer and Seller. Stated delivery dates are approximate
only and cannot be guaranteed. Seller shall have no liability for damages
arising out of the failure to keep a projected delivery date, irrespective of
the length of the delay. In the event Buyer is unable to accept delivery of
goods when tendered, Seller may, at its option, arrange storage of the goods and
Buyer shall be liable to Seller for the reasonable cost of such storage. This
provision is without prejudice to any other rights, which Seller may have with
respect to Buyer's failure to take delivery of goods, which includes the right
to invoice Buyer for the goods. Buyer agrees that title to the goods will
transfer to Buyer upon invoicing notwithstanding Buyer's inability to accept
delivery and that Buyer assumes all risk of loss or damage to the goods from the
date title passes to Buyer.

5. FORCE MAJUERE

If either party is unable by reason of Force Majeure to carry out any of its
obligations under this Agreement, other than obligations to pay money, then on
such party giving notice and particulars in writing to the other party within a
reasonable time after the occurrence of the cause relied upon, such obligations
shall be suspended. "Force Majeure" shall include acts of God, laws and
regulations, government action, war, civil disturbances, strikes and labor
problems, delays of vendors, carriers, lightening, fire, flood, washout, storm,
breakage or accident to equipment or machinery, shortage of raw materials, and
any other causes that are not reasonably within the control of the party so
affected. Seller shall be paid its applicable standby rate, if any, during any
such Force Majeure event.

6. CANCELLATION

Orders placed by Buyer and accepted by Seller may be canceled only with the
consent of Seller and will subject Buyer to cancellation charges. All of
Seller's documents, drawings and like information shall be returned to Seller
upon Buyer's request for cancellation. No orders may be canceled subsequent to
shipment. As estimated actual damages, Buyer agrees to pay Seller the greater of
Seller's actual costs incurred prior to cancellation plus a reasonable profit,
or the following minimum cancellation charges:

     a)   20% of order value if canceled 30 or more days prior to the original
          shipment date;

     b)   50% of the order value if canceled thereafter; or

     c)   100% of the value of any non-standard items, which are items not built
          for stock or built to customer specifications.

Buyer shall verify the amount of the cancellation charges prior to canceling an
order.

7. TITLE AND RISK OF LOSS

Ownership and risk of loss pass to Buyer upon the earlier of (i) Seller's
delivery of the goods to the carrier, or (ii) invoicing by Seller for the goods
where Buyer is unable to accept delivery on the scheduled date. Seller retains a
security interest in the goods until the purchase price has been paid, and Buyer
agrees to perform upon request all acts required to secure Seller's interest.
Seller accepts no responsibility for any damage, shortage or loss in transit.
Seller will attempt to pack or prepare all shipments so that they will not
break, rust or deteriorate in shipment, but does not guarantee against such
damage. Claims for any damage, shortage or loss in transit must be made by Buyer
on the carrier.

8. LIMITED WARRANTY

NEW EQUIPMENT/PARTS. IN THE CASE OF THE PURCHASE OF NEW EQUIPMENT/PARTS AND
SOLELY FOR THE BENEFIT OF THE ORIGINAL USER, SELLER WARRANTS, FOR A PERIOD OF 18
MONTHS FROM SHIPMENT OR 12 MONTHS FROM INSTALLATION, WHICHEVER IS EARLIER, THAT
EQUIPMENT OF ITS OWN MANUFACTURE SHALL CONFORM TO THE MATERIAL AND TECHNICAL
SPECIFICATIONS SET FORTH IN THE RELEVANT SCOPE OF WORK DOCUMENT OR PURCHASE
ORDER AS AGREED TO IN WRITING BY SELLER AND BUYER. IF THE EQUIPMENT FAILS TO
CONFORM WITH SUCH SPECIFICATIONS UPON INSPECTION BY SELLER, SELLER AT ITS OPTION
AND AS BUYER'S SOLE REMEDY, WILL EITHER REPAIR OR REPLACE SUCH DEFECTIVE
EQUIPMENT WITH THE TYPE ORIGINALLY FURNISHED.

REMANUFACTURED TO "AS NEW" EQUIPMENT. SELLER WARRANTS TO BUYER, THAT FOR A
PERIOD OF TWELVE MONTHS FROM THE DATE OF SHIPMENT TO BUYER OR INSTALLATION OF
PART(S), WHICHEVER IS EARLIEST, THAT RECONDITIONED TO "AS NEW" MACHINERY OR
EQUIPMENT WILL BE FREE FROM DEFECTS IN MATERIAL AND WORKMANSHIP.

OVERHAULED EQUIPMENT. SELLER WARRANTS THAT FOR A PERIOD OF FOUR (4) MONTHS FROM
THE DATE OF SHIPMENT OR THREE (3) MONTHS FROM INSTALLATION, WHICHEVER IS
EARLIEST, THAT OVERHAULED EQUIPMENT WILL BE FREE FROM DEFECTS IN WORKMANSHIP.
THIS WARRANTY EXPRESSLY ASSUMES THAT PARTS NORMALLY CONSIDERED CONSUMABLES
(INCLUDING, BUT NOT LIMITED TO RUBBER GOODS, SEALS (RUBBER, POLYMER AND/OR
METALLIC) AND/OR BEARINGS, ARE REPLACED DURING OVERHAUL. IF BUYER REQUESTS THAT
SUCH PARTS NOT BE REPLACED, SELLER HEREBY DISCLAIMS ANY WARRANTY FOR SAID
EQUIPMENT OR PARTS.

SERVICE. SELLER WARRANTS THAT THE SERVICES TO BE PROVIDED PURSUANT TO THIS
AGREEMENT SHALL CONFORM TO THE MATERIAL ASPECTS OF THE SPECIFICATIONS SET FORTH
IN THE RELEVANT SCOPE OF WORK DOCUMENT AS AGREED TO IN WRITING BY SELLER AND
BUYER. SELLER SHALL RE-PERFORM THAT PART OF THE NON-CONFORMING SERVICES,
PROVIDED SELLER IS NOTIFIED BY BUYER PRIOR TO SELLER'S DEPARTURE FROM THE
WORKSITE. SELLER'S WARRANTY OBLIGATIONS HEREUNDER SHALL NOT APPLY IF THE
NON-CONFORMITY WAS CAUSED BY A) BUYER'S FAILURE TO PROPERLY STORE OR MAINTAIN
THE EQUIPMENT OR PARTS; B) UNAUTHORIZED MODIFICATIONS, REPAIR OR SERVICE OF THE
EQUIPMENT OR PARTS BY BUYER; C) UTILIZATION OF REPLACEMENT PARTS NOT
MANUFACTURED BY SELLER; OR D) USE OR HANDLING OF THE EQUIPMENT OR PARTS BY BUYER
IN A MANNER INCONSISTENT WITH SELLER'S RECOMMENDATIONS. FURTHER SELLER'S
WARRANTY OBLIGATIONS UNDER THIS ARTICLE 8 SHALL TERMINATE IF A) BUYER FAILS TO
PERFORM ITS OBLIGATIONS UNDER THIS OR ANY OTHER AGREEMENT BETWEEN THE PARTIES,
OR B) IF BUYER FAILS TO PAY ANY CHARGES DUE SELLER. ANY THIRD PARTY WARRANTIES
PROVIDED ON EQUIPMENT OR PARTS NOT MANUFACTURED BY SELLER ARE ASSIGNED TO BUYER,
WITHOUT RECOURSE, AT THE TIME OF DELIVERY, PROVIDED SUCH WARRANTIES ARE
ASSIGNABLE.

THIS ARTICLE 8 SETS FORTH BUYER'S SOLE REMEDY AND SELLER'S ONLY OBLIGATION WITH
REGARD TO NON-CONFORMING EQUIPMENT, PARTS OR SERVICES. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED PURSUANT TO THE PROVISIONS OF THIS ARTICLE 8, SELLER MAKES NO
OTHER WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, AND SELLER
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR
PURPOSE.

9. CHANGES

Seller expressly reserves the right to change, discontinue or modify the design
and manufacture of its products without obligation to furnish, retrofit or
install goods previously or subsequently sold.

10. RETURN OF MAKE TO STOCK GOODS

Upon Seller's written approval, unused incorrectly shipped or "Made to Stock"
goods ordered incorrectly, in new condition and of current manufacture and
catalog specifications may be returned by Buyer for credit (subject to a
restocking fee), provided written request is received within one year after the
purchase date. Non-standard goods are not returnable for credit. Requests for
return of goods must show original purchase order number, invoice number,
description of material, and date of purchase. Return of goods does not relieve
Buyer of the obligation to make payment against Seller's invoice, and any credit
or refund allowed will be issued following Seller's receipt of the goods. The
credit allowed on returned goods, if any, is a merchandise credit and is
applicable only against future purchases of Seller goods. The credit given will
be solely in Seller's discretion and may be based on the original or a
subsequently adjusted price; a charge will be made to clean-up, refinish and
restock. No rubber or electronic products or components may be returned for
credit after six months from date of shipment.

11. LIABILITIES, RELEASES AND INDEMNIFICATION

FOR PURPOSE OF THIS ARTICLE 11, THE FOLLOWING DEFINITIONS SHALL APPLY:

     (1)  "SELLER GROUP" SHALL MEAN (I) SELLER, ITS PARENT, SUBSIDIARY OR
          RELATED COMPANIES, (II) ITS AND THEIR WORKING INTEREST OWNERS,
          CO-LESSEES, CO-OWNERS, PARTNERS, JOINT VENTURERS, IF ANY, AND THEIR
          RESPECTIVE PARENTS, SUBSIDIARY OR RELATED COMPANIES AND (III) THE
          OFFICERS, DIRECTORS, EMPLOYEES, CONSULTANTS, AGENTS AND INVITEES OF
          ALL OF THE FOREGOING.

     (2)  "BUYER GROUP" SHALL MEAN (I) BUYER, ITS PARENT, SUBSIDIARY OR RELATED
          COMPANIES, (II) ITS AND THEIR WORKING INTEREST OWNERS, CO-LESSEES,
          CO-OWNERS, PARTNERS, JOINT VENTURERS, IF ANY, AND THEIR RESPECTIVE
          PARENTS, SUBSIDIARY OR RELATED COMPANIES AND (III) THE OFFICERS,
          DIRECTORS, EMPLOYEES, CONSULTANTS, AGENTS AND INVITEES OF ALL OF THE
          FOREGOING.

     (3)  "CLAIMS" SHALL MEAN ALL CLAIMS, DEMANDS, CAUSES OF ACTION,
          LIABILITIES, DAMAGES, JUDGMENTS, FINES, PENALTIES, AWARDS, LOSSES,
          COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
          COSTS OF LITIGATION) OF ANY KIND OR CHARACTER ARISING OUT OF, OR
          RELATED TO, THE PERFORMANCE OF OR SUBJECT MATTER OF THIS AGREEMENT
          (INCLUDING, WITHOUT LIMITATION, PROPERTY LOSS OR DAMAGE, PERSONAL OR
          BODILY INJURY, SICKNESS, DISEASE OR DEATH, LOSS OF SERVICES AND/OR
          WAGES, OR LOSS OF CONSORTIUM OR SOCIETY).

     A.   SELLER SHALL RELEASE, INDEMNIFY, DEFEND AND HOLD BUYER GROUP HARMLESS
          FROM AND AGAINST ANY AND ALL CLAIMS IN RESPECT OF PERSONAL OR BODILY
          INJURY TO, SICKNESS, DISEASE OR DEATH OF ANY MEMBER OF SELLER GROUP OR
          SELLER GROUP'S SUBCONTRACTORS OR THEIR EMPLOYEES, AGENTS OR INVITEES,
          AND ALL CLAIMS IN RESPECT OF DAMAGE TO OR LOSS OR DESTRUCTION OF
          PROPERTY OWNED, LEASED, RENTED OR HIRED BY ANY MEMBER OF SELLER GROUP
          OR SELLER GROUP'S SUBCONTRACTORS OR THEIR EMPLOYEES, AGENTS OR
          INVITEES.

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

                                  Page 67 of 68

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

a
[NATIONAL OILWELL VARCO LOGO]                                           Proposal
--------------------------------------------------------------------------------
Customer Name: UNION DRILLING                    Quote No: NOI-11283-DWK Rev. 01
Project Name:  NONE                              Date: 26-Apr-06
Cust Ref No:   NONE
--------------------------------------------------------------------------------

     B.   BUYER SHALL RELEASE, INDEMNIFY, DEFEND AND HOLD SELLER GROUP HARMLESS
          FROM AND AGAINST ANY AND ALL CLAIMS IN RESPECT OF PERSONAL OR BODILY
          INJURY TO, SICKNESS, DISEASE OR DEATH OF ANY MEMBER OF BUYER GROUP OR
          BUYER GROUP'S OTHER CONTRACTORS OR THEIR EMPLOYEES, AGENTS OR
          INVITEES, AND ALL CLAIMS IN RESPECT OF DAMAGE TO OR LOSS OR
          DESTRUCTION OF PROPERTY OWNED, LEASED, RENTED OR HIRED BY ANY MEMBER
          OF BUYER GROUP OR BUYER GROUP'S OTHER CONTRACTORS OR THEIR EMPLOYEES,
          AGENTS OR INVITEES.

     C.   IN THE EVENT THIS AGREEMENT IS SUBJECT TO THE INDEMNITY LIMITATIONS IN
          CHAPTER 127 OF THE TEXAS CIVIL PRACTICES AND REMEDIES CODE (OR ANY
          SUCCESSOR STATUTE), AND SO LONG AS SUCH LIMITATIONS ARE IN FORCE, EACH
          PARTY COVENANTS AND AGREES TO SUPPORT THE MUTUAL INDEMNITY OBLIGATIONS
          CONTAINED IN PARAGRAPHS A AND B ABOVE, BY CARRYING EQUAL AMOUNTS OF
          INSURANCE (OR QUALIFIED SELF INSURANCE) IN AN AMOUNT NOT LESS THAN
          U.S. $1,000,000.00.

     D.   NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY,
          IN ALL INSTANCES WHERE SELLER IS PROVIDING SERVICES AT A WELLSITE,
          BUYER, TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, SHALL
          RELEASE, INDEMNIFY, DEFEND AND HOLD SELLER GROUP AND SELLER GROUP
          SUBCONTRACTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS ASSERTED
          BY OR IN FAVOR OF ANY PERSON OR PARTY, INCLUDING SELLER GROUP, BUYER
          GROUP OR ANY OTHER PERSON OR PARTY, RESULTING FROM: (I) LOSS OF OR
          DAMAGE TO ANY WELL OR HOLE (INCLUDING BUT NOT LIMITED TO THE COSTS OF
          RE-DRILL), (II) BLOWOUT, FIRE, EXPLOSION, CRATERING OR ANY
          UNCONTROLLED WELL CONDITION (INCLUDING BUT NOT LIMITED TO THE COSTS TO
          CONTROL A WILD WELL AND THE REMOVAL OF DEBRIS), (III) DAMAGE TO ANY
          RESERVOIR, GEOLOGICAL FORMATION OR UNDERGROUND STRATA OR THE LOSS OF
          OIL, WATER OR GAS THEREFROM, (IV) POLLUTION OR CONTAMINATION OF ANY
          KIND (OTHER THAN SURFACE SPILLAGE OF FUELS, LUBRICANTS, RIG SEWAGE OR
          GARBAGE, TO THE EXTENT ATTRIBUTABLE TO THE NEGLIGENCE OF SELLER GROUP,
          INCLUDING BUT NOT LIMITED TO THE COST OF CONTROL, REMOVAL AND
          CLEAN-UP, OR (V) DAMAGE TO, OR ESCAPE OF ANY SUBSTANCE FROM, ANY
          PIPELINE, VESSEL OR STORAGE FACILITY.

     E.   NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY,
          NEITHER PARTY SHALL BE LIABLE TO THE OTHER AND EACH PARTY RELEASES THE
          OTHER FOR ANY INDIRECT, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL
          DAMAGES OR LOSSES (WHETHER FORESEEABLE AT THE DATE OF THIS AGREEMENT,
          INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOST PRODUCTION, LOST
          REVENUE, LOST PRODUCT, LOST PROFIT, LOST BUSINESS OR BUSINESS
          OPPORTUNITIES.

     F.   NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY,
          SELLER'S TOTAL LIABILITY FOR ALL CLAIMS, DAMAGES, CAUSES OF ACTION,
          DEMANDS, JUDGMENTS, FINES, PENALTIES, AWARDS, LOSSES, COSTS AND
          EXPENSES (INCLUDING ATTORNEY'S FEES AND COST OF LITIGATION) SHALL BE
          LIMITED TO AND SHALL NOT EXCEED THE VALUE OF THE PRODUCTS OR SERVICES
          PURCHASED

     G.   THE EXCLUSIONS OF LIABILITY, RELEASES AND INDEMNITIES

          SET FORTH IN PARAGRAPHS A. THROUGH F. OF THIS ARTICLE 11 SHALL APPLY
          TO ANY CLAIM(S), LOSSES OR DAMAGES WITHOUT REGARD TO THE CAUSE(S)
          THEREOF, INCLUDING BUT NOT LIMITED TO PRE-EXISTING CONDITIONS, WHETHER
          SUCH CONDITIONS BE PATENT OR LATENT, THE UNSEAWORTHINESS OF ANY VESSEL
          OR VESSELS, IMPERFECTION OF MATERIAL, DEFECT OR FAILURE OF PRODUCTS OR
          EQUIPMENT, BREACH OF REPRESENTATION OR WARRANTY (EXPRESS OR IMPLIED),
          ULTRAHAZARDOUS ACTIVITY, STRICT LIABILITY, TORT, BREACH OF CONTRACT,
          BREACH OF DUTY (STATUTORY OR OTHERWISE), BREACH OF ANY SAFETY
          REQUIREMENT OR REGULATION, OR THE NEGLIGENCE OR OTHER LEGAL FAULT OR
          RESPONSIBILITY OF ANY PERSON (INCLUDING THE INDEMNIFIED OR RELEASED
          PARTY), WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, ACTIVE
          OR PASSIVE.

     H.   REDRESS UNDER THE INDEMNITY PROVISIONS SET FORTH IN THIS ARTICLE 11
          SHALL BE THE EXCLUSIVE REMEDY(IES) AVAILABLE TO THE PARTIES HERETO FOR
          THE MATTERS, CLAIMS, DAMAGES AND LOSSES COVERED BY SUCH PROVISIONS.

12. INSURANCE

Upon written request, each party shall furnish to the other party certificates
of insurance evidencing the fact that the adequate insurance to support each
party's obligations hereunder has been secured. To the extent of each party's
release and indemnity obligations expressly assumed by each party hereunder,
each party agrees that all such insurance policies shall a) be primary to the
other party's insurance; b) include the other party, its parent, subsidiary and
affiliated or related companies, and its and their respective officers,
directors, employees, consultants and agents as additional insured; and c) be
endorsed to waive subrogation against the other party, it's parent subsidiary
and affiliated or related companies, and its and their respective officers,
directors, employees, consultants and agents.

13. GOVERNING LAW.

A. Except for Equipment, Parts or Services provided, or to be provided, by
Seller in North or South America (the "America's"), this Agreement shall be
governed by and interpreted in accordance with English law, excluding conflicts
and choice of law principles.

B. For Equipment, Parts or Services provided, or to be provided, by Seller in
the America's, this Agreement shall be governed by and interpreted in accordance
with the substantive laws of Texas, excluding conflicts and choice of law
principles.

Seller retains the right to arbitrate and any all disputes that may arise in
connection with the sale of its Equipment, Product or Services.

14. OWNERSHIP AND PATENT INDEMNITY.

All software used in connection with the Equipment, Parts or Services, either
purchased or rented from Seller, is copyrighted and owned by Seller and licensed
to Buyer. Seller warrants that the use or sale of Equipment or Parts hereunder
will not infringe patents of others by reason of the use or sale of such
Equipment or Parts per se, and hereby agrees to hold Buyer harmless against
judgment for damages for infringement of any such patent, provided that Buyer
shall promptly notify Seller in writing upon receipt of any claim for
infringement, or upon the filing of any such suit for infringement, whichever
first occurs, and shall afford Seller full opportunity, at Seller's option and
expense, to answer such claim or threat of suit, assume the control of the
defense of such suit, and settle or compromise same in any way Seller sees fit.
Seller does not warrant that such Equipment or Parts: (a) will not infringe any
such patent when not of Seller's manufacture, or specially made, in whole or in
part, to the Buyer's design specifications; or (b) if used or sold in
combination with other materials or apparatus or used in the practice of
processes, will not, as a result of such combination or use, infringe any such
patent, and Seller shall not be liable and does not indemnify Buyer for damages
or losses of any nature whatsoever resulting from actual or alleged patent
infringement arising pursuant to (a) and (b) above. THIS PARAGRAPH STATES THE
ENTIRE RESPONSIBILITY OF SELLER CONCERNING PATENT INFRINGEMENT.

15. REGULATORY COMPLIANCE

By acceptance of delivery of this order, Buyer warrants it has complied with all
applicable governmental, statutory and regulatory requirements and will furnish
Seller with such documents as may be required. Seller warrants and certifies
that in the performance of this contract, it will comply with all applicable
statutes, rules, regulations and orders of the United States and of any state or
political subdivision thereof, including laws and regulations pertaining to
labor, wages, hours and other conditions of employment, applicable price
ceilings if any, and that the articles delivered hereunder shall be produced in
compliance with the Fair Labor Standards Act and the Equal Employment
Opportunity provisions of pertinent Executive Orders and the regulations adopted
thereunder. Seller will not provide any certification or other documentation nor
agree to any contract provision or otherwise act in any manner which may cause
Seller to be in violation of United States law, including but not limited to the
Export Administration Act of 1979 and regulations issued pursuant thereto. All
orders shall be conditional upon granting of Export Licenses or Import Permits
which may be required. Buyer shall obtain at its own risk any required Export
License and Import Permits and Buyer shall remain liable to accept and pay for
material if licenses are not granted or are revoked.

16. CONFIDENTIAL INFORMATION

Each party recognizes and acknowledges that it shall maintain all data,
information, disclosures, documents, drawings, specifications, patterns,
calculations, technical information and other documents (collectively,
"Confidential Information") obtained from the other party in strict confidence
subject only to disclosure required by law or legal process. In the event that
Seller owns copyrights to patents to, or has filed patent applications on, any
technology related to the Equipment, Services or Parts furnished by Seller
hereunder, and if Seller makes any improvements on such technology, then such
improvements shall not fall within the confidentiality obligations included
herein, and Seller shall own all such improvements, including drawings,
specifications, patterns, calculations, technical information and other
documents. However, nothing hereinabove contained shall deprive the Receiving
Party of the right to use or disclose any information: a) which is, at the time
of disclosure, known to the trade or public; or b) which becomes at a later date
known to the trade or the public through no fault of the Receiving Party and
then only after said later date; or c) which is possessed by the Receiving
Party, as evidenced by the Receiving Party's written records, before receipt
thereof from the Disclosing Party; or d) which is disclosed to the Receiving
Party in good faith by a third party who has an independent right to such
information; e) which is developed by the Receiving Party as evidenced by
documentation, independently of the Confidential Information, or (f) which is
required to be disclosed by the Receiving Party pursuant to an order of a court
of competent jurisdiction or other governmental agency having the power to order
such disclosure, provided that the Receiving Party uses its best efforts to
provide timely notice to the Disclosing party of such order to permit the
Disclosing Party an opportunity to contest such order.

17. INDEPENDENT CONTRACTOR

It is expressly understood that Seller is an independent contractor, and that
neither Seller nor its principle, partners, employees or subcontractors are
servants, agents or employees of Buyer. In all cases where Seller's employees
(defined to include Seller's and its subcontractors, direct, borrowed, special,
or statutory employees) are covered by the Louisiana Worker's Compensation Act.
La. R.S. 23:102 et seg., Seller and Buyer agreed that all Products and Services
provided by Seller and Seller's employees pursuant to this Agreement are an
integral part of and are essential to the ability of Seller to generate Seller's
goods, products, and services for the purpose of La. R.S. 23:106(A) (1).
Furthermore, Seller and Buyer agree that Buyer is the statutory employer of all
of Seller's employees for the purpose of La. R.S. 23:1061(A) (3)

18. GENERAL

Failure of Buyer or Seller to enforce any of the terms and conditions of this
Agreement shall not prevent a subsequent enforcement of such terms and
conditions or be deemed a waiver of any subsequent breach. Should any provisions
of this Agreement, or portion thereof, be unenforceable or in conflict with
governing country, state, province, or local laws, then the validity of the
remaining provisions, and portions thereof, shall not be affected by such
unenforceability or conflict, and this Agreement shall be construed as if such
provision supersedes all prior oral or written agreements or representations.
Buyer acknowledges that it hast not relied on any representations other than
those contained in this Agreement. This Agreement shall not be varied,
supplemented, qualified, or interpreted by any prior course of dealing between
the parties or by any usage of trade and may only be amended by an agreement
executed by an authorized representative of each party.

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

                                  Page 68 of 68

                                                                               1

[NATIONAL OILWELL VARCO LOGO]

                                                                  April 27, 2006

                               SPECIAL CONDITIONS

The parties agree that these Special Conditions shall apply and supersede any
corresponding terms in NOV's Standard Terms & Conditions. All other provisions
in NOV's Standard terms and conditions remain "as is".

Proposed Indemnity Provision for UDI's Agreement with NOV to Purchase "Ideal"
Drilling Rigs.

     o    NOV represents to UDI that NOV's Ideal Rig does not violate or
          infringe the patent or intellectual property right of any person and
          the sale of the Ideal Rigs to, and the purchase or use of the Ideal
          Rigs by, UDI will not violate or constitute an infringement or breach
          of any such rights. In the event that a claim is made against NOV or
          UDI for the sale or use of the Ideal Rig, NOV agrees to the following:

     o    Nov agrees to indemnify, defend and hold UDI and its officers,
          directors and affiliates harmless from and against all losses, claims,
          liabilities, damages and expense (including reasonable attorney's
          fees) arising out of or based on any breach of the foregoing
          representation and warranty, and in the event that a third party's
          claims involves claims for relief other than the monetary damages such
          as enjoining or seeking to prevent the use of the Ideal Rig or any
          portion thereof by UDI, NOV's indemnity shall include, promptly
          providing to UDI, at NOV's election to either (i)substitute equipment
          equivalent to an Ideal Rig, which is not subject to such a claim and
          is otherwise non-infringing, or (ii) obtaining for UDI the right to
          use the Ideal Rig, or (iii) modify the Ideal Rigs owned by UDI in a
          manner acceptable to UDI so it becomes non-infringing, but are
          functionally equivalent, or (4) refund the purchase price. The above
          are the sole and exclusive remedies with respect to a violation of the
          above representation or warranty.

                                                                               2

     o    Not withstanding anything contained herein to the contrary herein to
          the contrary, neither party shall be liable for any indirect or
          consequential damages sustained or alleged to have been sustained by
          the other party under this agreement

     NATIONAL-OILWELL, L.P.                UNION DRILLING, INC

     -----------------------------------   -------------------------------------
     DAVID C. CRUMPLER                     CHRISTOPHER STRONG
     V.P. SALES AND MARKETING              PRESIDENT & CEO

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00102-of-00352.parquet"}]]