Document:

CREDIT AGREEMENT

                                   DATED AS OF
                                  JUNE 15, 2007

                                      AMONG

                               TRANS ENERGY INC.,
                                  AS BORROWER,

                              CIT CAPITAL USA INC.,
                            AS ADMINISTRATIVE AGENT,

                                       AND

                            THE LENDERS PARTY HERETO

                     SOLE LEAD ARRANGER AND SOLE BOOKRUNNER

                              CIT CAPITAL USA INC.

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                                                 TABLE OF CONTENTS

                                                                                                                Page
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                                                     ARTICLE I
                                        DEFINITIONS AND ACCOUNTING MATTERS

<S>                       <C>                                                                                  <C>
Section 1.01               Terms Defined Above....................................................................1
Section 1.02               Certain Defined Terms..................................................................1
Section 1.03               Types of Loans and Borrowings.........................................................16
Section 1.04               Terms Generally; Rules of Construction................................................17
Section 1.05               Accounting Terms and Determinations; GAAP.............................................17

                                                    ARTICLE II
                                                    THE CREDITS

Section 2.01               Commitments...........................................................................17
Section 2.02               Loans and Borrowings..................................................................17
Section 2.03               Requests for Borrowings...............................................................18
Section 2.04               Interest Elections....................................................................19
Section 2.05               Funding of Borrowings.................................................................20
Section 2.06               Termination and Reduction of Aggregate Maximum Credit Amounts.........................21
Section 2.07               Borrowing Base........................................................................21
Section 2.08               Letters of Credit.....................................................................23

                                                    ARTICLE III
                               PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

Section 3.01               Repayment of Loans....................................................................27
Section 3.02               Interest..............................................................................27
Section 3.03               Alternate Rate of Interest............................................................27
Section 3.04               Prepayments...........................................................................28
Section 3.05               Fees..................................................................................29

                                                    ARTICLE IV
                                 PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS

Section 4.01               Payments Generally; Pro Rata Treatment; Sharing of Set-offs...........................30
Section 4.02               Presumption of Payment by the Borrower................................................31
Section 4.03               Certain Deductions by the Administrative Agent........................................32
Section 4.04               Disposition of Proceeds...............................................................32

                                                     ARTICLE V
                            INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

Section 5.01               Increased Costs.......................................................................32
Section 5.02               Break Funding Payments................................................................33
Section 5.03               Taxes.................................................................................33
Section 5.04               Mitigation Obligations/Replacement of Lenders.........................................34
Section 5.05               Illegality............................................................................35
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                                                    ARTICLE VI
                                               CONDITIONS PRECEDENT
<S>                       <C>                                                                                  <C>
Section 6.01               Effective Date........................................................................35
Section 6.02               Each Credit Event.....................................................................38

                                   ARTICLE VII
                         REPRESENTATIONS AND WARRANTIES

Section 7.01               Organization; Powers..................................................................39
Section 7.02               Authority; Enforceability.............................................................39
Section 7.03               Approvals; No Conflicts...............................................................39
Section 7.04               Financial Condition; No Material Adverse Change.......................................39
Section 7.05               Litigation............................................................................40
Section 7.06               Environmental Matters.................................................................40
Section 7.07               Compliance with the Laws and Agreements; No Defaults..................................41
Section 7.08               Investment Company Act................................................................41
Section 7.09               Taxes.................................................................................41
Section 7.10               ERISA.................................................................................42
Section 7.11               Disclosure; No Material Misstatements.................................................43
Section 7.12               Insurance.............................................................................43
Section 7.13               Restriction on Liens..................................................................43
Section 7.14               Subsidiaries..........................................................................43
Section 7.15               Location of Business and Offices......................................................43
Section 7.16               Properties; Titles, Etc...............................................................44
Section 7.17               Maintenance of Properties.............................................................44
Section 7.18               Gas Imbalances, Prepayments...........................................................45
Section 7.19               Marketing of Production...............................................................45
Section 7.20               Swap Agreements.......................................................................45
Section 7.21               Use of Loans and Letters of Credit....................................................45
Section 7.22               Solvency..............................................................................45
Section 7.23               Development Plan......................................................................46

                                                   ARTICLE VIII
                                               AFFIRMATIVE COVENANTS

Section 8.01               Financial Statements; Ratings Change; Other Information...............................46
Section 8.02               Notices of Material Events............................................................49
Section 8.03               Existence; Conduct of Business........................................................49
Section 8.04               Payment of Obligations................................................................49
Section 8.05               Operation and Maintenance of Properties...............................................49
Section 8.06               Insurance.............................................................................50
Section 8.07               Books and Records; Inspection Rights..................................................50
Section 8.08               Compliance with Laws..................................................................51
Section 8.09               Environmental Matters.................................................................51
Section 8.10               Further Assurances....................................................................51
Section 8.11               Reserve Reports.......................................................................52
Section 8.12               Title Information.....................................................................53
Section 8.13               Additional Collateral; Additional Guarantors..........................................53
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<S>                       <C>                                                                                  <C>
Section 8.14               ERISA Compliance......................................................................54
Section 8.15               Swap Agreements.......................................................................54
Section 8.16               Marketing Activities..................................................................55
Section 8.17               Development Plan......................................................................55

                                                    ARTICLE IX
                                                NEGATIVE COVENANTS

Section 9.01               Financial Covenants...................................................................55
Section 9.02               Debt..................................................................................56
Section 9.03               Liens.................................................................................56
Section 9.04               Dividends, Distributions and Redemptions..............................................56
Section 9.05               Investments, Loans and Advances.......................................................56
Section 9.06               Nature of Business....................................................................57
Section 9.07               Limitation on Leases..................................................................57
Section 9.08               Proceeds of Notes.....................................................................57
Section 9.09               ERISA Compliance......................................................................58
Section 9.10               Sale or Discount of Receivables.......................................................59
Section 9.11               Mergers, Etc..........................................................................59
Section 9.12               Sale of Properties....................................................................59
Section 9.13               Environmental Matters.................................................................59
Section 9.14               Transactions with Affiliates..........................................................59
Section 9.15               Subsidiaries..........................................................................59
Section 9.16               Negative Pledge Agreements; Dividend Restrictions.....................................59
Section 9.17               Gas Imbalances, Take-or-Pay or Other Prepayments......................................60
Section 9.18               Swap Agreements.......................................................................60
Section 9.19               Development Plan......................................................................60
Section 9.20               Net Profits Interest..................................................................60

                                                     ARTICLE X
                                            EVENTS OF DEFAULT; REMEDIES

Section 10.01              Events of Default.....................................................................61
Section 10.02              Remedies..............................................................................63

                                                    ARTICLE XI
                                             THE ADMINISTRATIVE AGENT

Section 11.01              Appointment; Powers...................................................................64
Section 11.02              Duties and Obligations of Administrative Agent........................................64
Section 11.03              Action by Administrative Agent........................................................64
Section 11.04              Reliance by Administrative Agent......................................................65
Section 11.05              Subagents.............................................................................65
Section 11.06              Resignation or Removal of Administrative Agent........................................65
Section 11.07              Agents as Lenders.....................................................................66
Section 11.08              No Reliance...........................................................................66
Section 11.09              Administrative Agent May File Proofs of Claim.........................................66
Section 11.10              Authority of Administrative Agent to Release Collateral and Liens.....................67
Section 11.11              The Arranger..........................................................................67
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                                                    ARTICLE XII
                                                   MISCELLANEOUS
<S>                       <C>                                                                                  <C>
Section 12.01              Notices...............................................................................67
Section 12.02              Waivers; Amendments...................................................................68
Section 12.03              Expenses, Indemnity; Damage Waiver....................................................69
Section 12.04              Successors and Assigns................................................................71
Section 12.05              Survival; Revival; Reinstatement......................................................73
Section 12.06              Counterparts; Integration; Effectiveness..............................................74
Section 12.07              Severability..........................................................................74
Section 12.08              Right of Setoff.......................................................................74
Section 12.09              GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS............................74
Section 12.10              Headings..............................................................................76
Section 12.11              Interest Rate Limitation..............................................................76
Section 12.12              EXCULPATION PROVISIONS................................................................76
Section 12.13              Collateral Matters; Swap Agreements...................................................77
Section 12.14              No Third Party Beneficiaries..........................................................77
Section 12.15              USA Patriot Act Notice................................................................77
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                         ANNEXES, EXHIBITS AND SCHEDULES

         Annex I  .........         List of Maximum Credit Amounts

         Exhibit A.........         Form of Note
         Exhibit B.........         Form of Borrowing Request
         Exhibit C.........         Form of Interest Election Request
         Exhibit D.........         Form of Compliance Certificate
         Exhibit E.........         Not used
         Exhibit F-1.......         Security Instruments
         Exhibit F-2.......         Form of Guaranty and Collateral Agreement
         Exhibit G.........         Form of Assignment and Assumption
         Exhibit H.........         Form of Conveyance of Net Profits Interest
         Exhibit I.........         Development Plan

         Schedule 1.02.....         Permitted Holders
         Schedule 7.05.....         Litigation
         Schedule 7.14.....         Subsidiaries and Partnerships
         Schedule 7.18.....         Gas Imbalances
         Schedule 7.19.....         Marketing Contracts
         Schedule 7.21.....         Use of Proceeds

                                       v

<PAGE>

         THIS CREDIT AGREEMENT dated as of June 15, 2007, is among: Trans Energy
Inc.,  a  corporation  duly formed and  existing  under the laws of the State of
Nevada (the "Borrower"); each of the Lenders from time to time party hereto; and
CIT Capital USA Inc. (in its  individual  capacity,  "CIT"),  as  administrative
agent for the Lenders (in such  capacity,  together with its  successors in such
capacity, the "Administrative Agent").

                                 R E C I T A L S

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

         B. The Lenders have agreed to make such loans and  extensions of credit
subject to the terms and conditions of this Agreement.

         C. In  consideration  of the mutual  covenants  and  agreements  herein
contained  and of the loans,  extensions of credit and  commitments  hereinafter
referred to, the parties hereto agree as follows:

                                   ARTICLE I
                       Definitions and Accounting Matters

         Section 1.01 Terms Defined Above. As used in this Agreement,  each term
defined above has the meaning indicated above.

         Section 1.02 Certain  Defined  Terms.  As used in this  Agreement,  the
following terms have the meanings specified below:

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

         "Affected Loans" has the meaning assigned such term in Section 5.05.

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

         "Aggregate  Maximum Credit  Amounts" at any time shall equal the sum of
the Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.

         "Agreement" means this Credit  Agreement,  as the same may from time to
time be amended, modified, supplemented or restated.

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

         "Applicable  Margin"  means,  for any day from the Effective Date until
the next Redetermination  Date, with respect to any ABR Loan or Eurodollar Loan,
or with  respect to the  Commitment  Fee Rate,  as the case may be, the rate per
annum set forth in the  Borrowing  Base  Utilization  Grid below  based upon the
Borrowing Base Utilization Percentage then in effect:
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                                                           Borrowing Base Utilization Grid
------------------------------------------------------------------------------------------------------------------------------------
 Borrowing Base Utilization      less than 20%          greater than or equal to  greater than or equal to  greater than or equal to
Percentage                                               20% but less than 30%     30% but less than 40%              40%
---------------------------- ------------------------ -------------------------- ------------------------- -------------------------
<S>                                   <C>                       <C>                       <C>                       <C>
Eurodollar Loans                      1.75%                     2.25%                     3.25%                     5.25%
---------------------------- ------------------------ -------------------------- ------------------------- -------------------------
ABR Loans                             0.75%                     1.25%                     2.25%                     4.25%
---------------------------- ------------------------ -------------------------- ------------------------- -------------------------
Commitment Fee Rate                   0.50%                     0.50%                     0.50%                     0.75%
---------------------------- ------------------------ -------------------------- ------------------------- -------------------------
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         Each change in the  Applicable  Margin  shall  apply  during the period
commencing  on the  effective  date  of  such  change  and  ending  on the  date
immediately  preceding  the  effective  date of the next such change,  provided,
however,  if at any time the Borrower fails to deliver a Reserve Report pursuant
to Section  8.11(a),  then the  "Applicable  Margin"  for all  Revolving  Credit
Exposure  levels  means  the  rate per  annum  set  forth  on the grid  when the
Borrowing Base Utilization Percentage is at its highest level.

         "Applicable   Percentage"  means,  with  respect  to  any  Lender,  the
percentage of the Aggregate Maximum Credit Amounts  represented by such Lender's
Maximum Credit Amount as such percentage is set forth on Annex I.

         "Approved  Counterparty"  means (a) any  Lender or any  Affiliate  of a
Lender and (b) any other Person whose long term senior  unsecured debt rating is
A-/A3 by S&P or Moody's (or their equivalent) or higher.

         "Arranger"  means CIT Capital USA Inc.,  in its  capacities as the sole
lead arranger and sole bookrunner hereunder.

         "Assignment and Assumption" means an assignment and assumption  entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 12.04(b)),  and accepted by the Administrative Agent, in the
form of Exhibit G or any other form approved by the Administrative Agent.

         "Availability Period" means the period from and including the Effective
Date to but excluding the Termination Date.

         "Board" means the Board of Governors of the Federal  Reserve  System of
the United States of America or any successor Governmental Authority.

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

         "Borrowing  Base"  means at any  time an  amount  equal  to the  amount
determined  in  accordance  with Section  2.07, as the same may be adjusted from
time to time pursuant to Section 8.12(c).

         "Borrowing Base  Deficiency"  occurs if at any time the total Revolving
Credit Exposures exceeds the Borrowing Base then in effect.

                                      -2-
<PAGE>

         "Borrowing  Base  Utilization  Percentage"  means,  as of any day,  the
fraction  expressed as a  percentage,  the  numerator of which is the sum of the
Revolving  Credit  Exposures of the Lenders on such day, and the  denominator of
which is the Borrowing Base in effect on such day.

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

         "Business  Day" means any day that is not a  Saturday,  Sunday or other
day on which commercial banks in New York City or Houston,  Texas are authorized
or required by law to remain  closed;  and if such day relates to a Borrowing or
continuation  of, a payment or  prepayment  of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower  with respect to any such  Borrowing or  continuation,  payment,
prepayment,  conversion or Interest Period, any day which is also a day on which
dealings in dollar deposits are carried out in the London interbank market.

         "Capital Expenditures" means, in respect of any Person, for any period,
the  aggregate   (determined   without   duplication)  of  all  exploration  and
development expenditures and costs that should be capitalized in accordance with
GAAP and any other  expenditures  that are  capitalized  on the balance sheet of
such Person in accordance with GAAP.

         "Capital  Leases"  means,  in respect of any Person,  all leases  which
shall have been,  or should  have been,  in  accordance  with GAAP,  recorded as
capital leases on the balance sheet of the Person liable (whether  contingent or
otherwise) for the payment of rent thereunder.

         "Casualty  Event" means any loss,  casualty or other insured damage to,
or any nationalization,  taking under power of eminent domain or by condemnation
or  similar  proceeding  of,  any  Property  of  the  Borrower  or  any  of  its
Subsidiaries having a fair market value in excess of $100,000.

         "Change in Control"  means the  occurrence  of any one of the following
events: (a) Jim Abcouwer is no longer actively involved in the management of the
Borrower  as Chief  Executive  Officer and  President,  (b) the  acquisition  of
ownership,  directly or indirectly,  beneficially or of record, by any Person or
group (within the meaning of the  Securities  Exchange Act of 1934 and the rules
of the SEC  thereunder as in effect on the date hereof) other than the Permitted
Holders,  of  Equity  Interests  representing  more  than  25% of the  aggregate
ordinary voting power represented by the issued and outstanding Equity Interests
of the  Borrower,  (c)  occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i)
nominated  by the board of  directors  of the  Borrower  nor (ii)  appointed  by
directors so nominated or (d) the  acquisition of direct or indirect  Control of
the Borrower by any Person or group other than the Permitted Holders.

         "Change in Law" means (a) the adoption of any law,  rule or  regulation
after the date of this Agreement,  (b) any change in any law, rule or regulation
or in the  interpretation or application  thereof by any Governmental  Authority
after the date of this  Agreement  or (c)  compliance  by any  Lender  (or,  for
purposes of Section  5.01(b)),  by any lending  office of such Lender or by such
Lender's  holding  company,  if any) with any  request,  guideline  or directive
(whether or not having the force of law) of any  Governmental  Authority made or
issued after the date of this Agreement.

         "Conveyance of Net Profits  Interest" means that certain  Conveyance of
Net Profits Interest in the form attached hereto as Exhibit H.

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

                                      -3-
<PAGE>

         "Commitment" means, with respect to each Lender, the commitment of such
Lender  to make  Loans  and to  acquire  participations  in  Letters  of  Credit
hereunder,  expressed as an amount  representing the maximum aggregate amount of
such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a)
modified  from time to time  pursuant to Section 2.06 and (b) modified from time
to time  pursuant  to  assignments  by or to such  Lender  pursuant  to  Section
12.04(b).  The amount representing each Lender's Commitment shall at any time be
the lesser of such Lender's  Maximum Credit Amount and such Lender's  Applicable
Percentage of the then effective Borrowing Base.

         "Commitment  Fee Rate" has the meaning set forth in the  definition  of
"Applicable Margin".

         "Consolidated  Net Income"  means with  respect to the Borrower and the
Consolidated  Subsidiaries,  for any period, the aggregate of the net income (or
loss) of the Borrower and the  Consolidated  Subsidiaries  after  allowances for
taxes for such period  determined on a  consolidated  basis in  accordance  with
GAAP;  provided that there shall be excluded from such net income (to the extent
otherwise  included therein) the following:  (a) the net income of any Person in
which  the  Borrower  or any  Consolidated  Subsidiary  has an  interest  (which
interest  does not cause the net income of such other Person to be  consolidated
with  the net  income  of the  Borrower  and the  Consolidated  Subsidiaries  in
accordance  with  GAAP),  except to the  extent of the  amount of  dividends  or
distributions  actually  paid in cash during such period by such other Person to
the Borrower or to a  Consolidated  Subsidiary,  as the case may be; (b) the net
income (but not loss) during such period of any  Consolidated  Subsidiary to the
extent that the declaration or payment of dividends or similar  distributions or
transfers or loans by that Consolidated  Subsidiary is not at the time permitted
by  operation  of the  terms of its  charter  or any  agreement,  instrument  or
Governmental  Requirement  applicable  to  such  Consolidated  Subsidiary  or is
otherwise  restricted or prohibited,  in each case determined in accordance with
GAAP;   (c)  the  net   income   (or  loss)  of  any   Person   acquired   in  a
pooling-of-interests  transaction  for  any  period  prior  to the  date of such
transaction;  (d) any  extraordinary  gains or losses during such period and (e)
any gains or losses  attributable  to  writeups  or  writedowns  of assets;  and
provided that if the Borrower or any  Consolidated  Subsidiary  shall acquire or
dispose of any Property during such period,  then  Consolidated Net Income shall
be calculated  after giving pro forma effect to such acquisition or disposition,
as if such  acquisition  or  disposition  had  occurred on the first day of such
period.

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

         "Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes  of  this  definition,  and  without  limiting  the  generality  of the
foregoing, any Person that owns directly or indirectly 20% or more of the Equity
Interests  having  ordinary  voting power for the  election of the  directors or
other  governing body of a Person (other than as a limited partner of such other
Person)  will be  deemed to  "control"  such  other  Person.  "Controlling"  and
"Controlled" have meanings correlative thereto.

         "Conveyance of Net Profits  Interest" means that certain  Conveyance of
Net Profits Interest in the form attached hereto as Exhibit H.

         "Debt"  means,  for  any  Person,  the  sum of the  following  (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances,  debentures, notes or other similar instruments;
(b) all obligations of such Person (whether  contingent or otherwise) in respect
of letters of credit,  surety or other  bonds and similar  instruments;  (c) all
accounts payable and all accrued  expenses,  liabilities or other obligations of
such Person to pay the deferred  purchase price of Property or services incurred

                                      -4-
<PAGE>

in the  ordinary  course of business  which are not greater than sixty (60) days
past the date of  invoice  or  delinquent;  (d) all  obligations  under  Capital
Leases;  (e) all obligations under Synthetic Leases; (f) all Debt (as defined in
the other  clauses of this  definition)  of others  secured by (or for which the
holder  of such Debt has an  existing  right,  contingent  or  otherwise,  to be
secured by) a Lien on any Property of such  Person,  whether or not such Debt is
assumed by such  Person;  (g) all Debt (as defined in the other  clauses of this
definition)  of  others  guaranteed  by such  Person  or in  which  such  Person
otherwise  assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the  extent of the  lesser of the  amount of such Debt and the
maximum  stated  amount of such  guarantee or assurance  against  loss;  (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the  financial  position  or  covenants  of  others or to  purchase  the Debt or
Property of others; (i) obligations to deliver  commodities,  goods or services,
including,  without  limitation,  Hydrocarbons,  in consideration of one or more
advance payments,  other than gas balancing  arrangements in the ordinary course
of business;  (j) obligations to pay for goods or services even if such goods or
services are not actually received or utilized by such Person; (k) any Debt of a
partnership for which such Person is liable either by agreement, by operation of
law or by a Governmental  Requirement  but only to the extent of such liability;
(l)  Disqualified  Capital  Stock;  and  (m)  the  undischarged  balance  of any
production  payment  created by such  Person or for the  creation  of which such
Person  directly or indirectly  received  payment.  The Debt of any Person shall
include all  obligations of such Person of the character  described above to the
extent such Person  remains  legally liable in respect  thereof  notwithstanding
that any such  obligation  is not  included as a liability  of such Person under
GAAP.

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

         "Development  Plan" shall mean the Borrower's  Plan of Development  for
the Oil and Gas  Properties  and the  related  Hydrocarbon  Interests  as of the
Effective Date attached as Exhibit I, as approved by  Administrative  Agent,  as
the same may be amended from time to time pursuant to Section 9.19.

          "Disqualified  Capital  Stock" means any Equity  Interest that, by its
terms (or by the terms of any security into which it is convertible or for which
it  is  exchangeable)  or  upon  the  happening  of  any  event,  matures  or is
mandatorily  redeemable for any consideration  other than other Equity Interests
(which would not constitute  Disqualified Capital Stock),  pursuant to a sinking
fund  obligation or otherwise,  or is  convertible or  exchangeable  for Debt or
redeemable for any consideration  other than other Equity Interests (which would
not constitute  Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part,  on or prior to the date that is one year after the earlier
of (a) the  Maturity  Date and (b) the  date on which  there  are no  Loans,  LC
Exposure or other obligations  hereunder  outstanding and all of the Commitments
are terminated.

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

         "EBITDAX" means, for any period, the sum of Consolidated Net Income for
such period plus the following  expenses or charges to the extent  deducted from
Consolidated Net Income in such period:  interest,  income taxes,  depreciation,
depletion, amortization, exploration expenses and other similar noncash charges,
minus all noncash income added to Consolidated Net Income.

         "Effective  Date" means the date on which the  conditions  specified in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).

         "Engineering  Reports"  has the meaning  assigned  such term in Section
2.07(c)(i).

                                      -5-
<PAGE>

         "Environmental  Laws"  means  any  and  all  Governmental  Requirements
pertaining in any way to health,  safety, the environment or the preservation or
reclamation  of natural  resources,  in effect in any and all  jurisdictions  in
which the Borrower or any  Subsidiary is conducting or at any time has conducted
business,  or where any Property of the Borrower or any  Subsidiary  is located,
including without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended,
the  Clean Air Act,  as  amended,  the  Comprehensive  Environmental,  Response,
Compensation,  and Liability  Act of 1980  ("CERCLA"),  as amended,  the Federal
Water Pollution Control Act, as amended,  the Occupational Safety and Health Act
of  1970,  as  amended,  the  Resource  Conservation  and  Recovery  Act of 1976
("RCRA"),  as  amended,  the Safe  Drinking  Water Act,  as  amended,  the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental  conservation or protection  Governmental  Requirements.
The term "oil" shall have the meaning  specified  in OPA,  the terms  "hazardous
substance" and "release" (or "threatened  release") have the meanings  specified
in CERCLA,  the terms "solid  waste" and  "disposal"  (or  "disposed")  have the
meanings  specified  in RCRA and the term "oil and gas  waste"  shall mean those
waste that are excluded from the definition of "hazardous  waste" pursuant to 40
C.F.R. Section 261.4(b)(5) ("Section 261.4(b)(5)");  provided, however, that (a)
in the event either OPA, CERCLA, RCRA or Section 261.4(b)(5) is amended so as to
broaden the meaning of any term  defined  thereby,  such broader  meaning  shall
apply  subsequent to the effective  date of such amendment and (b) to the extent
the laws of the  state or  other  jurisdiction  in  which  any  Property  of the
Borrower or any Subsidiary is located  establish a meaning for "oil," "hazardous
substance," "release," "solid waste," "disposal" or "oil and gas waste" which is
broader than that specified in either OPA, CERCLA, RCRA or Section  261.4(b)(5),
such broader meaning shall apply.

          "Environmental  Permit"  means  any  permit,  registration,   license,
approval, consent, exemption, variance, or other authorization required under or
issued pursuant to applicable Environmental Laws.

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

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended, and any successor statute.

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

         "ERISA Event" means (a) a "Reportable  Event" described in section 4043
of ERISA  and the  regulations  issued  thereunder,  (b) the  withdrawal  of the
Borrower,  a Subsidiary or any ERISA Affiliate from a Plan during a plan year in
which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA,
(c) the filing of a notice of intent to  terminate a Plan or the  treatment of a
Plan amendment as a termination under section 4041 of ERISA, (d) the institution
of  proceedings  to  terminate  a Plan by the PBGC,  (e)  receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition  which might  constitute  grounds  under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.

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

                                      -6-
<PAGE>

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

         "Excepted  Liens"  means:  (a) Liens for  Taxes,  assessments  or other
governmental  charges  or  levies  which are not  delinquent  or which are being
contested in good faith by appropriate  action and for which  adequate  reserves
have been  maintained in  accordance  with GAAP;  (b) Liens in  connection  with
workers' compensation,  unemployment insurance or other social security, old age
pension or public  liability  obligations  which are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been maintained in accordance with GAAP; (c) statutory  landlord's
liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics',
suppliers', workers', materialmen's, construction or other like Liens arising by
operation  of law  in  the  ordinary  course  of  business  or  incident  to the
exploration,  development,  operation and  maintenance of Oil and Gas Properties
each of which is in respect of obligations  that are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been  maintained in accordance  with GAAP; (d)  contractual  Liens
which arise in the ordinary course of business under operating agreements, joint
venture  agreements,  oil and gas  partnership  agreements,  oil and gas leases,
farm-out agreements,  division orders, contracts for the sale, transportation or
exchange of oil and  natural  gas,  unitization  and  pooling  declarations  and
agreements,  area of mutual interest agreements,  overriding royalty agreements,
marketing agreements, processing agreements, net profits agreements, development
agreements,   gas  balancing  or  deferred  production  agreements,   injection,
repressuring and recycling agreements,  salt water or other disposal agreements,
seismic or other geophysical  permits or agreements,  and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate  action
and for which adequate  reserves have been  maintained in accordance  with GAAP,
provided  that any such Lien  referred  to in this  clause  does not  materially
impair the use of the  Property  covered by such Lien for the purposes for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property  subject  thereto;  (e) Liens arising solely by virtue of
any  statutory or common law  provision  relating to banker's  liens,  rights of
set-off or similar  rights and remedies and burdening  only deposit  accounts or
other funds maintained with a creditor depository institution,  provided that no
such deposit  account is a dedicated  cash  collateral  account or is subject to
restrictions  against  access by the  depositor  in excess of those set forth by
regulations  promulgated by the Board and no such deposit account is intended by
Borrower or any of its  Subsidiaries  to provide  collateral  to the  depository
institution;  (f)  easements,  restrictions,  servitudes,  permits,  conditions,
covenants,  exceptions  or  reservations  in any Property of the Borrower or any
Subsidiary   for  the   purpose  of  roads,   pipelines,   transmission   lines,
transportation  lines,  distribution  lines for the removal of gas, oil, coal or
other minerals or timber,  and other like  purposes,  or for the joint or common
use of real estate, rights of way, facilities and equipment,  that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such  Property  for the  purposes  of which such  Property is held by the
Borrower  or any  Subsidiary  or  materially  impair the value of such  Property
subject thereto;  (g) Liens on cash or securities  pledged to secure performance
of tenders,  surety and appeal  bonds,  government  contracts,  performance  and
return of money bonds,  bids, trade contracts,  leases,  statutory  obligations,
regulatory  obligations  and other  obligations of a like nature incurred in the
ordinary  course of business and (h) judgment  and  attachment  Liens not giving
rise to an Event of Default,  provided that any  appropriate  legal  proceedings
which may have been duly  initiated  for the review of such  judgment  shall not
have been finally  terminated or the period within which such  proceeding may be
initiated  shall not have  expired  and no action to enforce  such Lien has been
commenced;  provided,  further  that Liens  described in clauses (a) through (e)
shall remain "Excepted Liens" only for so long as no action to enforce such Lien
has been  commenced  and no intention to  subordinate  the first  priority  Lien
granted  in favor of the  Administrative  Agent and the  Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens.

         "Excess  Cash Flow" for any period  shall mean  EBITDAX for such period
less (a) cash tax payments  made during such period,  (b) any changes in working
capital from the preceding  period (as determined in accordance  with GAAP) made
during such period and (c) Capital Expenditures made during such period that are
approved by the Lenders or are otherwise permitted under this Agreement.

                                      -7-
<PAGE>

         "Excluded Taxes" means, with respect to the  Administrative  Agent, any
Lender or any other  recipient of any payment to be made by or on account of any
obligation  of the Borrower or any  Guarantor  hereunder or under any other Loan
Document,  (a) income or  franchise  taxes  imposed on (or  measured by) its net
income by the United States of America or such other jurisdiction under the laws
of which such recipient is organized or in which its principal office is located
or,  in the case of any  Lender,  in which  its  applicable  lending  office  is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other  jurisdiction  in which the Borrower or any
Guarantor is located,  (c) in the case of a Foreign Lender,  any withholding tax
that is  imposed  on amounts  payable  to such  Foreign  Lender at the time such
Foreign  Lender  becomes a party to this  Agreement (or designates a new lending
office) or is  attributable  to such  Foreign  Lender's  failure to comply  with
Section 5.03(e), except to the extent that such Foreign Lender (or its assignor,
if any) was entitled,  at the time of  designation  of a new lending  office (or
assignment),  to receive additional amounts with respect to such withholding tax
pursuant to Section 5.03(a) or Section 5.03(c) and (d) taxes associated with the
Conveyance of Net Profits Interest.

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

         "Fee  Letter"  means that  certain  Proposal  Letter dated as of May 7,
2007, by and between the Borrower and the Administrative Agent.

         "Financial  Statements" means the financial  statement or statements of
the Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).

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

         "Foreign  Subsidiary"  means any Subsidiary that is not organized under
the laws of the United States of America or any state thereof or the District of
Columbia.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of  America  as in  effect  from  time to time  subject  to the terms and
conditions set forth in Section 1.05.

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

         "Governmental  Requirement"  means any law, statute,  code,  ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate,  license,  authorization or other directive or requirement,
whether  now  or  hereinafter   in  effect,   including,   without   limitation,
Environmental  Laws,  energy  regulations  and  occupational,  safety and health
standards or controls, of any Governmental Authority.

                                      -8-
<PAGE>

         "Guarantors"  means: Tyler Energy,  Inc., Tyler  Construction  Company,
Inc.,  Ritchie County Gathering  Systems,  Inc. and Prima Oil Company,  Inc. and
each other  Subsidiary  that  guarantees  the  Indebtedness  pursuant to Section
8.13(b).

         "Guaranty  Agreement" means an agreement  executed by the Guarantors in
substantially the form of Exhibit F-2 unconditionally guarantying on a joint and
several basis, payment of the Indebtedness, as the same may be amended, modified
or supplemented from time to time.

         "Hazardous  Material"  means  any  substance  regulated  or as to which
liability  might arise under any  applicable  Environmental  Law and  including,
without limitation: (a) any chemical,  compound,  material,  product, byproduct,
substance  or waste  defined  as or  included  in the  definition  or meaning of
"hazardous  substance,"  "hazardous material," "hazardous waste," "solid waste,"
"toxic   waste,"   "extremely    hazardous    substance,"   "toxic   substance,"
"contaminant,"  "pollutant,"  or words of similar meaning or import found in any
applicable  Environmental Law; (b) petroleum  hydrocarbons,  petroleum products,
petroleum  substances,  natural gas, oil, oil and gas waste,  crude oil, and any
components,  fractions,  or derivatives thereof; and (c) radioactive  materials,
asbestos containing materials, polychlorinated biphenyls, or radon.

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

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

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

         "Indebtedness"  means any and all  amounts  owing or to be owing by the
Borrower, any Subsidiary or any Guarantor (whether direct or indirect (including
those acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter  arising):  (a) to the Administrative  Agent or any Lender
under any Loan  Document;  (b) to any Lender or any  Affiliate of a Lender under
any Swap  Agreement  between the Borrower or any  Subsidiary  and such Lender or
Affiliate  of a Lender while such Person (or in the case of its  Affiliate,  the
Person  affiliated  therewith)  is a  Lender  hereunder  and (c)  all  renewals,
extensions and/or rearrangements of any of the above.

         "Indemnified Taxes" means Taxes other than Excluded Taxes.

         "Initial  Reserve  Report"  means  the  report  of  Data  &  Consulting
Services,  dated  as of  March,  2007,  with  respect  to  certain  Oil  and Gas
Properties of the Borrower and its Subsidiaries as of December 31, 2006.

         "Interest  Election Request" means a request by the Borrower to convert
or continue a Borrowing in accordance with Section 2.04.

                                      -9-
<PAGE>

         "Interest Expense" means, for any period,  the sum (determined  without
duplication)  of the aggregate  gross  interest  expense of the Borrower and the
Consolidated  Subsidiaries for such period,  including to the extent included in
interest expense under GAAP: (a) amortization of debt discount,  (b) capitalized
interest and (c) the portion of any payments or accruals  under  Capital  Leases
allocable  to interest  expense,  plus the  portion of any  payments or accruals
under  Synthetic  Leases  allocable to interest  expense whether or not the same
constitutes interest expense under GAAP.

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

         "Interest Period" means with respect to any Eurodollar  Borrowing,  the
period  commencing on the date of such  Borrowing and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
would end on a day other than a Business  Day,  such  Interest  Period  shall be
extended  to the next  succeeding  Business  Day  unless  such  next  succeeding
Business Day would fall in the next calendar  month, in which case such Interest
Period shall end on the next preceding  Business Day and (b) any Interest Period
pertaining to a Eurodollar  Borrowing that commences on the last Business Day of
a calendar  month (or on a day for which there is no  numerically  corresponding
day in the last calendar  month of such  Interest  Period) shall end on the last
Business Day of the last calendar  month of such Interest  Period.  For purposes
hereof,  the date of a  Borrowing  initially  shall  be the  date on which  such
Borrowing is made and thereafter  shall be the effective date of the most recent
conversion or continuation of such Borrowing.

         "Interim Redetermination" has the meaning assigned such term in Section
2.07(b).

         "Interim Redetermination Date" means the date on which a Borrowing Base
that  has been  redetermined  pursuant  to an  Interim  Redetermination  becomes
effective as provided in Section 2.07(d).

         "Investment"  means, for any Person:  (a) the acquisition  (whether for
cash, Property,  services or securities or otherwise) of Equity Interests of any
other Person or any agreement to make any such acquisition  (including,  without
limitation,  any "short sale" or any sale of any  securities at a time when such
securities are not owned by the Person  entering into such short sale);  (b) the
making of any  deposit  with,  or  advance,  loan or  capital  contribution  to,
assumption of Debt of, purchase or other acquisition of any other Debt or equity
participation  or interest in, or other extension of credit to, any other Person
(including   the  purchase  of  Property  from  another  Person  subject  to  an
understanding or agreement,  contingent or otherwise, to resell such Property to
such Person, but excluding any such advance,  loan or extension of credit having
a term not  exceeding  ninety  (90)  days  representing  the  purchase  price of
inventory or supplies  sold by such Person in the ordinary  course of business);
(c) the purchase or acquisition (in one or a series of transactions) of Property
of another  Person that  constitutes a business unit or (d) the entering into of
any guarantee of, or other contingent  obligation  (including the deposit of any
Equity  Interests  to be sold) with  respect to, Debt or other  liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.

         "Issuing Bank" means JPMorgan Chase Bank,  N.A., in its capacity as the
issuer of Letters of Credit or any other  Person named as an Issuing Bank by the
Administrative Agent.

         "LC  Commitment"  at any  time  means  five  hundred  thousand  dollars
($500,000).

                                      -10-
<PAGE>

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

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

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

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

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

         "Loan Documents" means this Agreement,  the Notes, the Fee Letter,  the
Conveyance  of Net  Profits  Interest,  the  Letters of Credit and the  Security
Instruments.

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

         "Majority  Lenders" means, at any time while no Loans or LC Exposure is
outstanding,  Lenders  holding greater than fifty percent (50%) of the Aggregate
Maximum  Credit  Amounts;  and at any time  while  any Loans or LC  Exposure  is
outstanding, Lenders holding greater than fifty percent (50%) of the outstanding
aggregate  principal amount of the Loans and participation  interests in Letters
of Credit (without regard to any sale by a Lender of a participation in any Loan
under Section 12.04(c)).

         "Material  Adverse  Effect"  means a  material  adverse  change  in, or
material  adverse effect on (a) the business,  operations,  Property,  condition
(financial or otherwise) or prospects of the Borrower and the Subsidiaries taken
as a whole, (b) the ability of the Borrower,  any Subsidiary or any Guarantor to
perform any of its  obligations  under any Loan  Document,  (c) the  validity or

                                      -11-
<PAGE>

enforceability  of any  Loan  Document  or (d) the  rights  and  remedies  of or
benefits  available  to the  Administrative  Agent or any Lender  under any Loan
Document.

         "Material Indebtedness" means Debt (other than the Loans and Letters of
Credit), or obligations in respect of one or more Swap Agreements, of any one or
more of the  Borrower and its  Subsidiaries  in an  aggregate  principal  amount
exceeding  $250,000.  For purposes of  determining  Material  Indebtedness,  the
"principal  amount" of the  obligations  of the  Borrower or any  Subsidiary  in
respect of any Swap Agreement at any time shall be the Swap Termination Value.

         "Maturity Date" means June 15, 2010.

         "Maximum Credit Amount" means, as to each Lender,  the amount set forth
opposite  such  Lender's  name on  Annex I under  the  caption  "Maximum  Credit
Amounts",  as the same may be (a)  reduced  or  terminated  from time to time in
connection  with a reduction or  termination  of the  Aggregate  Maximum  Credit
Amounts  pursuant to Section  2.06(b) or (b) modified from time to time pursuant
to any assignment permitted by Section 12.04(b).

         "Moody's"  means  Moody's  Investors  Service,  Inc. and any  successor
thereto that is a nationally recognized rating agency.

         "Mortgaged  Property"  means any Property  owned by the Borrower or any
Guarantor which is subject to the Liens existing and to exist under the terms of
the Security Instruments.

         "Multiemployer  Plan"  means a Plan  which is a  multiemployer  plan as
defined in section 3(37) or 4001 (a)(3) of ERISA.

          "New  Borrowing  Base  Notice" has the meaning  assigned  such term in
Section 2.07(d).

         "Notes" means the promissory notes of the Borrower described in Section
2.02(d)  and being  substantially  in the form of Exhibit A,  together  with all
amendments, modifications, replacements, extensions and rearrangements thereof.

         "Oil and Gas  Properties"  means  (a)  Hydrocarbon  Interests;  (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon  Interests;  (c)
all  presently   existing  or  future   unitization,   pooling   agreements  and
declarations  of pooled units and the units created thereby  (including  without
limitation  all  units  created  under  orders,  regulations  and  rules  of any
Governmental  Authority)  which may affect all or any portion of the Hydrocarbon
Interests;  (d)  all  operating  agreements,  contracts  and  other  agreements,
including  production  sharing contracts and agreements,  which relate to any of
the  Hydrocarbon  Interests  or the  production,  sale,  purchase,  exchange  or
processing of Hydrocarbons  from or attributable to such Hydrocarbon  Interests;
(e) all  Hydrocarbons  in and  under  and  which  may be  produced  and saved or
attributable to the Hydrocarbon  Interests,  including all oil in tanks, and all
rents, issues, profits, proceeds,  products,  revenues and other incomes from or
attributable to the  Hydrocarbon  Interests;  (f) all tenements,  hereditaments,
appurtenances and Properties in any manner appertaining,  belonging,  affixed or
incidental to the Hydrocarbon Interests and (g) all Properties,  rights, titles,
interests  and estates  described  or referred to above,  including  any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used,  held for use or useful  in  connection  with the  operating,  working  or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs,  automotive  equipment,  rental equipment or other personal Property which
may be on such  premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,  injection wells
or other  wells,  buildings,  structures,  fuel  separators,  liquid  extraction
plants, plant compressors,  pumps, pumping units, field gathering systems, tanks

                                      -12-
<PAGE>

and tank batteries,  fixtures,  valves, fittings,  machinery and parts, engines,
boilers, meters, apparatus,  equipment,  appliances, tools, implements,  cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and  servitudes  together  with  all  additions,  substitutions,   replacements,
accessions and attachments to any and all of the foregoing.

         "Organizational  Documents" means,  with respect to any Person,  (a) in
the case of any corporation,  the certificate of  incorporation  and by-laws (or
similar  documents)  of such  Person,  (b) in the case of any limited  liability
company,  the certificate of formation and limited  liability  company agreement
(or  similar  documents)  of  such  Person,  (c) in  the  case  of  any  limited
partnership,  the certificate of formation and limited partnership agreement (or
similar documents) of such Person,  (d) in the case of any general  partnership,
the  partnership  agreement (or similar  document) of such Person and (e) in any
other case, the functional equivalent of the foregoing.

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

         "Participant" has the meaning set forth in Section 12.04(c)(i).

         "Permitted Holders" means the individuals set forth on Schedule 1.02.

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

         "Plan" means any employee  pension  benefit plan, as defined in section
3(2) of ERISA,  which (a) is  currently or hereafter  sponsored,  maintained  or
contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at
any time during the six calendar  years  preceding  the date hereof,  sponsored,
maintained  or  contributed  to by the  Borrower  or a  Subsidiary  or an  ERISA
Affiliate.

         "Prime  Rate" means the rate of interest per annum  publicly  announced
from time to time by JPMorgan  Chase  Bank,  N.A. as its prime rate in effect at
its  principal  office in New York City;  each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.  Such  rate is set by the  JPMorgan  Chase  Bank,  N.A.  as a general
reference  rate of  interest,  taking into  account such factors as the JPMorgan
Chase Bank,  N.A. may deem  appropriate;  it being  understood  that many of the
JPMorgan Chase Bank,  N.A.'s commercial or other loans are priced in relation to
such rate, that it is not  necessarily the lowest or best rate actually  charged
to any  customer  and  that the  JPMorgan  Chase  Bank,  N.A.  may make  various
commercial or other loans at rates of interest  having no  relationship  to such
rate.

         "Property" means any interest in any kind of property or asset, whether
real,  personal  or  mixed,  or  tangible  or  intangible,   including,  without
limitation, cash, securities, accounts and contract rights.

         "Proposed  Borrowing  Base" has the  meaning  assigned  to such term in
Section 2.07(c)(i).

         "Proposed  Borrowing Base Notice" has the meaning assigned to such term
in Section 2.07(c)(ii).

         "Proved Reserves" means "Proved Reserves" as defined in the Definitions
for Oil and Gas Reserves (in this paragraph,  the "Definitions")  promulgated by
the Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question.  "Proved  Developed  Producing  Reserves"  means
Proved Reserves which are categorized as both "Developed" and "Producing" in the

                                      -13-
<PAGE>

Definitions,  "Proved  Developed  Nonproducing  Reserves"  means Proved Reserves
which are categorized as both "Developed" and "Nonproducing" in the Definitions,
and "Proved Undeveloped Reserves" means Proved Reserves which are categorized as
"Undeveloped" in the Definitions.

         "Redemption"   means  with  respect  to  any  Debt,   the   repurchase,
redemption,  prepayment,  repayment,  defeasance  or any  other  acquisition  or
retirement  for value (or the  segregation  of funds with  respect to any of the
foregoing) of such Debt. "Redeem" has the correlative meaning thereto.

         "Redetermination   Date"   means,   with   respect  to  any   Scheduled
Redetermination or any Interim  Redetermination,  the date that the redetermined
Borrowing Base related thereto becomes effective pursuant to Section 2.07(d).

         "Register" has the meaning assigned such term in Section 12.04(b)(iv).

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

         "Release" means any depositing,  spilling,  leaking,  pumping, pouring,
placing, emitting, discarding,  abandoning,  emptying,  discharging,  migrating,
injecting, escaping, leaching, dumping, or disposing.

         "Remedial Work" has the meaning assigned such term in Section 8.09(a).

         "Required  Lenders" means, at any time while no Loans or LC Exposure is
outstanding,  Lenders having at least sixty-six and two-thirds percent (66-2/3%)
of the Aggregate  Maximum Credit Amounts;  and at any time while any Loans or LC
Exposure is  outstanding,  Lenders  holding at least  sixty-six  and  two-thirds
percent (66-2/3%) of the outstanding  aggregate principal amount of the Loans or
participation interests in such Letters of Credit (without regard to any sale by
a Lender of a participation in any Loan under Section 12.04(c)).

         "Reserve  Report"  means a  report,  in form and  substance  reasonably
satisfactory to the Administrative  Agent, setting forth, as of each January 1st
or July 1st (or such other date in the event of an Interim  Redetermination) the
oil and gas reserves  attributable to the Oil and Gas Properties of the Borrower
and the  Subsidiaries,  together with a projection of the rate of production and
future net income,  taxes,  operating  expenses  and capital  expenditures  with
respect thereto as of such date, based upon the economic assumptions  consistent
with the Administrative Agent's lending requirements at the time.

         "Responsible  Officer"  means,  as to any Person,  the Chief  Executive
Officer,  the President or any Vice President of such Person.  Unless  otherwise
specified,  all  references  to  a  Responsible  Officer  herein  shall  mean  a
Responsible Officer of the Borrower.

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

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

                                      -14-
<PAGE>

         "Scheduled  Redetermination"  has the  meaning  assigned  such  term in
Section 2.07(b).

         "Scheduled  Redetermination  Date"  means the date on which a Borrowing
Base that has been redetermined pursuant to a Scheduled  Redetermination becomes
effective as provided in Section 2.07(d).

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

         "Security Instruments" means the Guaranty Agreement,  mortgages,  deeds
of trust and other agreements, instruments or certificates described or referred
to in Exhibit F-1, and any and all other  agreements,  instruments,  consents or
certificates  now or  hereafter  executed  and  delivered by the Borrower or any
other Person (other than Swap  Agreements with the Lenders or any Affiliate of a
Lender or participation or similar  agreements  between any Lender and any other
lender or creditor with respect to any Indebtedness  pursuant to this Agreement)
in  connection  with,  or as  security  for the  payment or  performance  of the
Indebtedness,  the Notes, this Agreement, or reimbursement obligations under the
Letters of Credit, as such agreements may be amended, modified,  supplemented or
restated from time to time.

         "S&P"  means  Standard  &  Poor's  Ratings  Group,  a  division  of The
McGraw-Hill  Companies,  Inc.,  and any  successor  thereto that is a nationally
recognized rating agency.

         "Subsidiary"  means: (a) any Person of which at least a majority of the
outstanding  Equity  Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors,  manager or other  governing body
of such Person  (irrespective  of whether or not at the time Equity Interests of
any other class or classes of such Person  shall have or might have voting power
by  reason of the  happening  of any  contingency)  is at the time  directly  or
indirectly  owned  or  controlled  by  the  Borrower  or  one  or  more  of  its
Subsidiaries or by the Borrower and one or more of its  Subsidiaries and (b) any
partnership  of which  the  Borrower  or any of its  Subsidiaries  is a  general
partner.   Unless  otherwise  indicated  herein,  each  reference  to  the  term
"Subsidiary" shall mean a Subsidiary of the Borrower.

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

         "Swap  Termination  Value"  means,  in  respect of any one or more Swap
Agreements,  after  taking into  account  the effect of any legally  enforceable
netting agreement relating to such Swap Agreements, (a) for any date on or after
the date such Swap  Agreements  have been  closed out and  termination  value(s)
determined in accordance  therewith,  such termination  value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market  value(s)  for  such  Swap  Agreements,   as  determined  by  the
counterparties to such Swap Agreements.

         "Synthetic  Leases" means,  in respect of any Person,  all leases which
shall have  been,  or should  have been,  in  accordance  with GAAP,  treated as
operating  leases on the  financial  statements  of the Person  liable  (whether
contingently  or otherwise)  for the payment of rent  thereunder  and which were
properly treated as indebtedness for borrowed money for purposes of U.S. federal
income taxes,  if the lessee in respect  thereof is obligated to either purchase

                                      -15-
<PAGE>

for an amount in excess  of, or pay upon early  termination  an amount in excess
of, 80% of the residual value of the Property  subject to such  operating  lease
upon expiration or early termination of such lease.

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

         "Termination  Date" means the earlier of the Maturity Date and the date
of termination of the Commitments.

         "Total  Reserve  Value"  means,  with  respect to any  Proved  Reserves
expected to be produced from any Oil and Gas Properties,  the net present value,
discounted  at 10% per annum,  of the future net revenues  expected to accrue to
the Borrowers'  and their  Subsidiaries'  collective  interests in such reserves
during the remaining expected economic lives of such reserves.  Each calculation
of such expected  future net revenues shall be made in accordance  with the then
existing standards of the Society of Petroleum  Engineers,  provided that in any
event (a)  appropriate  deductions  shall be made for  severance  and ad valorem
taxes, and for operating, gathering, transportation and marketing costs required
for the production and sale of such reserves,  (b) the pricing  assumptions used
in determining  Total Reserve Value for any  particular  reserves shall be based
upon (i) annual  quotations  on the New York  Mercantile  Exchange for Henry Hub
(natural  gas) or Cushing,  Oklahoma  (oil)  futures on the date of the relevant
Reserve  Report  for  each  calendar  year to the  extent  such  quotations  are
available  for future  periods,  provided  that with respect to  quotations  for
calendar  years  after the fifth  calendar  year,  the  quotation  for the fifth
calendar  year shall be applied,  (ii) with respect to future  periods for which
quotations  are not  available  on the New York  Mercantile  Exchange,  constant
pricing for such periods  based on the quotation for the last period for which a
quotation  is  available  on the New York  Mercantile  Exchange  for  Henry  Hub
(natural gas) or Cushing,  Oklahoma (oil), (c) operating  expenses shall be held
constant,  (d) future  capital  expenditures  shall be expressed in current year
dollars (i.e., inflation shall not be assumed), and (e) to the extent basis Swap
Agreements are not in place, the cash-flows derived from the pricing assumptions
set forth in clause (b) above  shall be  further  adjusted  to  account  for the
historical  basis  differentials  for each month during the  preceding  12-month
period  calculated  by  comparing  realized  crude oil and natural gas prices to
Cushing, Oklahoma and Henry Hub NYMEX prices for each month during such period.

         "Transactions" means, with respect to (a) the Borrower,  the execution,
delivery and  performance  by the Borrower of this Agreement and each other Loan
Document to which it is a party, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder,  and the grant of Liens
by the Borrower on Mortgaged  Properties  and other  Properties  pursuant to the
Security  Instruments  and (b)  each  Guarantor,  the  execution,  delivery  and
performance by such Guarantor of each Loan Document to which it is a party,  the
guaranteeing of the  Indebtedness and the other  obligations  under the Guaranty
Agreement by such Guarantor and such Guarantor's grant of the security interests
and provision of  collateral  under the Security  Instruments,  and the grant of
Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to
the Security Instruments.

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

         Section  1.03  Types of Loans  and  Borrowings.  For  purposes  of this
Agreement, Loans and Borrowings, respectively, may be classified and referred to
by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing").

                                      -16-
<PAGE>

         Section 1.04 Terms Generally; Rules of Construction. The definitions of
terms herein  shall apply  equally to the singular and plural forms of the terms
defined.  Whenever  the  context may  require,  any  pronoun  shall  include the
corresponding  masculine,  feminine  and  neuter  forms.  The  words  "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation".  The word "will"  shall be  construed  to have the same meaning and
effect as the word  "shall".  Unless  the  context  requires  otherwise  (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement,  instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments,  supplements or modifications  set forth in the
Loan  Documents),  (b) any  reference  herein to any law shall be  construed  as
referring to such law as amended,  modified,  codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person's  successors and assigns  (subject to
the  restrictions  contained  in the Loan  Documents),  (d) the words  "herein",
"hereof" and  "hereunder",  and words of similar  import,  shall be construed to
refer to this  Agreement  in its entirety  and not to any  particular  provision
hereof,  (e) with  respect to the  determination  of any time  period,  the word
"from" means "from and including" and the word "to" means "to and including" and
(f) any reference herein to Articles,  Sections, Annexes, Exhibits and Schedules
shall be construed  to refer to Articles and Sections of, and Annexes,  Exhibits
and Schedules to, this  Agreement.  No provision of this  Agreement or any other
Loan  Document  shall be  interpreted  or  construed  against any Person  solely
because such Person or its legal representative drafted such provision.

         Section  1.05  Accounting  Terms  and   Determinations;   GAAP.  Unless
otherwise   specified  herein,   all  accounting  terms  used  herein  shall  be
interpreted,  all  determinations  with respect to accounting  matters hereunder
shall be made, and all financial  statements and  certificates and reports as to
financial  matters required to be furnished to the  Administrative  Agent or the
Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis
consistent with the Financial  Statements except for changes in which Borrower's
independent  certified public  accountants concur and which are disclosed to the
Administrative Agent on the next date on which financial statements are required
to be  delivered  to the Lenders  pursuant to Section  8.01(a);  provided  that,
unless the Borrower and the Majority  Lenders shall  otherwise agree in writing,
no such change  shall modify or affect the manner in which  compliance  with the
covenants  contained herein is computed such that all such computations shall be
conducted  utilizing  financial  information  presented  consistently with prior
periods.

                                   ARTICLE II
                                   The Credits

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

Section 2.02      Loans and Borrowings.

                  (a) Borrowings;  Several Obligations.  Each Loan shall be made
as part of a  Borrowing  consisting  of Loans  made by the  Lenders  ratably  in
accordance with their respective Commitments.  The failure of any Lender to make
any Loan  required to be made by it shall not  relieve  any other  Lender of its
obligations  hereunder;  provided that the Commitments are several and no Lender
shall be responsible for any other Lender's failure to make Loans as required.

                                      -17-
<PAGE>

                  (b) Types of Loans.  Subject to Section 3.03,  each  Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request  in  accordance  herewith.  Each  Lender  at its  option  may  make  any
Eurodollar  Loan by causing any domestic or foreign  branch or Affiliate of such
Lender to make such Loan;  provided  that any  exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance  with the
terms of this Agreement.

                  (c) Minimum  Amounts;  Limitation on Number of Borrowings.  At
the  commencement  of each Interest  Period for any Eurodollar  Borrowing,  such
Borrowing  shall be in an  aggregate  amount  that is an  integral  multiple  of
$500,000  and not less than  $500,000.  At the time that each ABR  Borrowing  is
made,  such  Borrowing  shall  be in an  aggregate  amount  that is an  integral
multiple of $500,000 and not less than $500,000;  provided that an ABR Borrowing
may be in an aggregate  amount that is equal to the entire unused balance of the
total  Commitments  or that is required to finance  the  reimbursement  of an LC
Disbursement  as contemplated  by Section  2.08(e).  Borrowings of more than one
Type may be outstanding  at the same time,  provided that there shall not at any
time  be  more  than  a  total  of  six   Eurodollar   Borrowings   outstanding.
Notwithstanding any other provision of this Agreement, the Borrower shall not be
entitled to request,  or to elect to convert or continue,  any  Borrowing if the
Interest  Period  requested  with respect  thereto  would end after the Maturity
Date.

                  (d) Notes. The Loans made by each Lender shall be evidenced by
a single promissory note of the Borrower in substantially the form of Exhibit A,
dated,  in the  case of (i)  any  Lender  party  hereto  as of the  date of this
Agreement,  as of the date of this Agreement,  or (ii) any Lender that becomes a
party hereto pursuant to an Assignment and Assumption,  as of the effective date
of the  Assignment  and  Assumption,  payable  to the order of such  Lender in a
principal  amount equal to its Maximum  Credit Amount as in effect on such date,
and otherwise  duly  completed.  In the event that any Lender's  Maximum  Credit
Amount increases or decreases for any reason (whether  pursuant to Section 2.06,
Section  12.04(b)  or  otherwise),  the  Borrower  shall  deliver or cause to be
delivered on the effective date of such increase or decrease, a new Note payable
to the order of such Lender in a principal  amount  equal to its Maximum  Credit
Amount after giving  effect to such  increase or decrease,  and  otherwise  duly
completed.  The date, amount,  Type, interest rate and, if applicable,  Interest
Period of each Loan made by each Lender, and all payments made on account of the
principal  thereof,  shall be recorded by such Lender on its books for its Note,
and,  prior to any  transfer,  may be  endorsed  by such  Lender  on a  schedule
attached  to such Note or any  continuation  thereof or on any  separate  record
maintained  by such  Lender.  Failure to make any such  notation  or to attach a
schedule shall not affect any Lender's or the  Borrower's  rights or obligations
in respect of such Loans or affect the  validity of such  transfer by any Lender
of its Note.

         Section  2.03  Requests  for  Borrowings  To request a  Borrowing,  the
Borrower shall notify the Administrative  Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing,  not later than 12:00 noon, New York City
time,  three  Business Days before the date of the proposed  Borrowing or (b) in
the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one
Business Day before the proposed  Borrowing;  provided that no such notice shall
be  required  for  any  deemed  request  of an  ABR  Borrowing  to  finance  the
reimbursement  of an LC Disbursement as provided in Section  2.08(e).  Each such
telephonic  Borrowing  Request  shall be  irrevocable  and  shall  be  confirmed
promptly by hand delivery or telecopy to the  Administrative  Agent of a written
Borrowing  Request  in  substantially  the form of  Exhibit B and  signed by the
Borrower.  Each such telephonic and written  Borrowing Request shall specify the
following information in compliance with Section 2.02:

                       (i) the aggregate amount of the requested Borrowing;

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

                                      -18-
<PAGE>

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

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

                       (v) the amount of the then effective  Borrowing Base, the
      current total Revolving Credit Exposures  (without regard to the requested
      Borrowing)  and the pro forma total  Revolving  Credit  Exposures  (giving
      effect to the requested Borrowing); and

                       (vi) the location and number of the Borrower's account to
      which funds are to be disbursed,  which shall comply with the requirements
      of Section 2.05.

If no election as to the Type of  Borrowing  is  specified,  then the  requested
Borrowing  shall be an ABR  Borrowing.  If no Interest  Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have  selected an Interest  Period of one month's  duration.  Each  Borrowing
Request  shall  constitute  a  representation  that the amount of the  requested
Borrowing  shall not cause the total  Revolving  Credit  Exposures to exceed the
total Commitments  (i.e., the lesser of the Aggregate Maximum Credit Amounts and
the then effective Borrowing Base).

Promptly  following  receipt  of a  Borrowing  Request in  accordance  with this
Section 2.03, the  Administrative  Agent shall advise each Lender of the details
thereof  and of the  amount  of  such  Lender's  Loan  to be made as part of the
requested Borrowing.

         Section 2.04 Interest Elections.

                  (a) Conversion and Continuance. Each Borrowing initially shall
be of the Type specified in the applicable Borrowing Request and, in the case of
a Eurodollar  Borrowing,  shall have an initial  Interest Period as specified in
such  Borrowing  Request.  Thereafter,  the  Borrower  may elect to convert such
Borrowing to a different  Type or to continue such Borrowing and, in the case of
a Eurodollar Borrowing,  may elect Interest Periods therefor, all as provided in
this Section  2.04.  The Borrower  may elect  different  options with respect to
different  portions of the affected  Borrowing,  in which case each such portion
shall be allocated  ratably among the Lenders holding the Loans  comprising such
Borrowing,  and the Loans  comprising  each such portion  shall be  considered a
separate Borrowing.

                  (b) Interest Election  Requests.  To make an election pursuant
to this Section 2.04, the Borrower shall notify the Administrative Agent of such
election by  telephone  by the time that a Borrowing  Request  would be required
under  Section  2.03 if the  Borrower  were  requesting  a Borrowing of the Type
resulting  from such election to be made on the effective date of such election.
Each such telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Interest  Election  Request in  substantially  the form of Exhibit C and
signed by the Borrower.

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

                       (i) the Borrowing to which such Interest Election Request
     applies  and,  if  different  options  are being  elected  with  respect to
     different  portions  thereof,  the portions thereof to be allocated to each
     resulting Borrowing (in which case the information to be specified pursuant
     to Section  2.04(c)(iii)  and (iv) shall be  specified  for each  resulting
     Borrowing);

                                      -19-
<PAGE>

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

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

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

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

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

                  (e)  Effect of Failure to  Deliver  Timely  Interest  Election
Request  and Events of Default  and  Borrowing  Base  Deficiencies  on  Interest
Election.  If the Borrower fails to deliver a timely Interest  Election  Request
with respect to a Eurodollar  Borrowing  prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such  Interest  Period such  Borrowing  shall be  converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
or  a  Borrowing  Base  Deficiency  has  occurred  and  is  continuing:  (i)  no
outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing
(and any Interest Election Request that requests the conversion of any Borrowing
to,  or  continuation  of any  Borrowing  as, a  Eurodollar  Borrowing  shall be
ineffective)  and  (ii)  unless  repaid,  each  Eurodollar  Borrowing  shall  be
converted  to an ABR  Borrowing  at the end of the  Interest  Period  applicable
thereto.

         Section 2.05 Funding of Borrowings.

                  (a) Funding by Lenders. Each Lender shall make each Loan to be
made by it  hereunder  on the  funding  date in the  Borrowing  Request  by wire
transfer of immediately available funds by 1:00 p.m., New York City time, to the
account of the  Administrative  Agent most  recently  designated  by it for such
purpose by notice to the Lenders.  The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
Houston,  Texas and  designated  by the  Borrower  in the  applicable  Borrowing
Request;  provided  that ABR Loans made to finance  the  reimbursement  of an LC
Disbursement   as  provided  in  Section   2.08(e)  shall  be  remitted  by  the
Administrative  Agent to the Issuing  Bank.  Nothing  herein  shall be deemed to
obligate any Lender to obtain the funds for its Loan in any particular  place or
manner or to constitute a  representation  by any Lender that it has obtained or
will obtain the funds for its Loan in any particular place or manner.

                  (b)  Presumption  of  Funding  by  the  Lenders.   Unless  the
Administrative  Agent  shall have  received  notice  from a Lender  prior to the
proposed date of any Borrowing  that such Lender will not make  available to the
Administrative  Agent such Lender's share of such Borrowing,  the Administrative
Agent may assume that such Lender has made such share  available on such date in
accordance with Section 2.05(a) and may, in reliance upon such assumption,  make
available to the Borrower a corresponding amount. In such event, if a Lender has
not in  fact  made  its  share  of the  applicable  Borrowing  available  to the
Administrative  Agent,  then the  applicable  Lender and the Borrower  severally
agree to pay to the Administrative  Agent forthwith on demand such corresponding
amount with  interest  thereon,  for each day from and  including  the date such
amount is made available to the Borrower to but excluding the date of payment to

                                      -20-
<PAGE>

the Administrative  Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the  Administrative  Agent
in accordance with banking  industry rules on interbank  compensation or (ii) in
the case of the  Borrower,  the interest rate  applicable to ABR Loans.  If such
Lender  pays such amount to the  Administrative  Agent,  then such amount  shall
constitute such Lender's Loan included in such Borrowing.

         Section 2.06  Termination  and  Reduction of Aggregate  Maximum  Credit
                       Amounts.

                  (a) Scheduled  Termination of Commitments.  Unless  previously
terminated, the Commitments shall terminate on the Maturity Date. If at any time
the Aggregate  Maximum  Credit  Amounts or the  Borrowing  Base is terminated or
reduced to zero, then the  Commitments  shall terminate on the effective date of
such termination or reduction.

                  (b) Optional  Termination  and  Reduction of Aggregate  Credit
Amounts.

                       (i) The Borrower may at any time terminate,  or from time
     to time reduce,  the Aggregate  Maximum Credit  Amounts;  provided that (A)
     each  reduction of the  Aggregate  Maximum  Credit  Amounts  shall be in an
     amount that is an integral  multiple of $500,000 and (B) the Borrower shall
     not  terminate or reduce the  Aggregate  Maximum  Credit  Amounts if, after
     giving effect to any concurrent  prepayment of the Loans in accordance with
     Section  3.04(c),  the total  Revolving  Credit  Exposures would exceed the
     total Commitments.

                       (ii) The Borrower shall notify the  Administrative  Agent
     of any election to terminate or reduce the Aggregate Maximum Credit Amounts
     under  Section  2.06(b)(i)  at  least  three  Business  Days  prior  to the
     effective date of such  termination or reduction,  specifying such election
     and the effective date thereof.  Promptly  following receipt of any notice,
     the Administrative  Agent shall advise the Lenders of the contents thereof.
     Each notice delivered by the Borrower pursuant to this Section  2.06(b)(ii)
     shall be irrevocable. Any termination or reduction of the Aggregate Maximum
     Credit Amounts shall be permanent and may not be reinstated. Each reduction
     of the  Aggregate  Maximum  Credit  Amounts shall be made ratably among the
     Lenders in accordance with each Lender's Applicable Percentage.

         Section 2.07 Borrowing Base.

                  (a) Initial  Borrowing Base. For the period from and including
the Effective Date to but excluding the first  Redetermination  Date, the amount
of the Borrowing Base shall be $18,000,000.  Notwithstanding the foregoing,  the
Borrowing Base may be subject to further  adjustments from time to time pursuant
to Section 8.12(c).

                  (b) Scheduled and Interim Redeterminations. The Borrowing Base
shall be  redetermined  semi-annually  in  accordance  with this Section 2.07 (a
"Scheduled Redetermination"), and, subject to Section 2.07(d), such redetermined
Borrowing  Base shall become  effective  and  applicable to the Borrower and the
Lenders on May 1st and November 1st of each year,  commencing  November 1, 2007.
In addition,  the Borrower may, by notifying the  Administrative  Agent thereof,
and the Administrative  Agent may, at the direction of the Required Lenders,  by
notifying the Borrower thereof,  one time during any 12-month period, each elect
to   cause   the   Borrowing   Base  to  be   redetermined   between   Scheduled
Redeterminations (an "Interim  Redetermination") in accordance with this Section
2.07.

                                      -21-
<PAGE>

                  (c) Scheduled and Interim Redetermination Procedure.

                       (i)  Each  Scheduled  Redetermination  and  each  Interim
     Redetermination  shall be  effectuated  as  follows:  Upon  receipt  by the
     Administrative Agent of (A) the Reserve Report and the certificate required
     to be delivered by the Borrower to the Administrative Agent, in the case of
     a Scheduled  Redetermination,  pursuant to Section 8.11(a) and (c), and, in
     the case of an Interim  Redetermination,  pursuant  to Section  8.11(b) and
     (c),  and (B)  such  other  reports,  data  and  supplemental  information,
     including, without limitation, the information provided pursuant to Section
     8.11(c), as may, from time to time, be reasonably requested by the Majority
     Lenders (the Reserve Report, such certificate and such other reports,  data
     and  supplemental   information  being  the  "Engineering  Reports"),   the
     Administrative  Agent  shall  evaluate  the  information  contained  in the
     Engineering Reports and shall, in good faith,  propose a new Borrowing Base
     (the "Proposed  Borrowing Base") based upon such information and such other
     information (including, without limitation, the status of title information
     with respect to the Oil and Gas Properties as described in the  Engineering
     Reports and the  existence of any other Debt) as the  Administrative  Agent
     deems appropriate in its sole discretion and consistent with its normal oil
     and gas lending  criteria as it exists at the particular  time. In no event
     shall the  Proposed  Borrowing  Base exceed the  Aggregate  Maximum  Credit
     Amounts.

                       (ii) The  Administrative  Agent shall notify the Borrower
     and the Lenders of the Proposed  Borrowing  Base (the  "Proposed  Borrowing
     Base Notice"):

                            (A) in the case of a Scheduled  Redetermination  (1)
          if the  Administrative  Agent  shall  have  received  the  Engineering
          Reports  required to be delivered by the Borrower  pursuant to Section
          8.11(a) and (c) in a timely and complete manner, then on or before the
          April  15th  and  October  15th of such  year  following  the  date of
          delivery or (2) if the  Administrative  Agent shall not have  received
          the  Engineering  Reports  required to be  delivered  by the  Borrower
          pursuant to Section  8.11(a) and (c) in a timely and complete  manner,
          then promptly  after the  Administrative  Agent has received  complete
          Engineering  Reports  from  the  Borrower  and  has  had a  reasonable
          opportunity  to determine  the Proposed  Borrowing  Base in accordance
          with Section 2.07(c)(i); and

                            (B)  in  the  case  of an  Interim  Redetermination,
          promptly,  and in  any  event,  within  thirty  (30)  days  after  the
          Administrative Agent has received the required Engineering Reports.

                       (iii) Any Proposed Borrowing Base that would increase the
     Borrowing  Base  then in  effect  must be  approved  or deemed to have been
     approved by the Required Lenders as provided in this Section  2.07(c)(iii);
     and any  Proposed  Borrowing  Base that  would  decrease  or  maintain  the
     Borrowing  Base then in effect  must be  approved or be deemed to have been
     approved by the Majority Lenders as provided in this Section  2.07(c)(iii).
     Upon receipt of the Proposed Borrowing Base Notice,  each Lender shall have
     fifteen  (15) days to agree with the  Proposed  Borrowing  Base or disagree
     with the Proposed Borrowing Base by proposing an alternate  Borrowing Base.
     If at the end of such  fifteen (15) days,  any Lender has not  communicated
     its approval or disapproval in writing to the  Administrative  Agent,  such
     silence shall be deemed to be an approval of the Proposed  Borrowing  Base.
     If, at the end of such 15-day period, the Required Lenders,  in the case of
     a Proposed  Borrowing  Base that would  increase the Borrowing Base then in
     effect, or the Majority Lenders,  in the case of a Proposed  Borrowing Base
     that would  decrease or maintain the  Borrowing  Base then in effect,  have
     approved  or deemed  to have  approved,  as  aforesaid,  then the  Proposed
     Borrowing Base shall become the new Borrowing  Base,  effective on the date
     specified in Section 2.07(d),  provided,  however,  that no Lender shall be
     required to increase their share of the Borrowing Base without its consent.
     If, however,  at the end of such 15-day period, the Required Lenders or the
     Majority  Lenders,  as  applicable,  have not  approved  or  deemed to have
     approved,  as  aforesaid,  then the  Administrative  Agent  shall  poll the

                                      -22-
<PAGE>

     Lenders to ascertain the highest Borrowing Base then acceptable to a number
     of Lenders  sufficient to constitute  the Required  Lenders or the Majority
     Lenders,  as applicable,  for purposes of this Section 2.07 and such amount
     shall become the new  Borrowing  Base,  effective on the date  specified in
     Section 2.07(d).

                       (iv) In connection with any Scheduled  Redetermination or
     Interim  Redetermination,  the  Administrative  Agent and the Lenders shall
     propose a new definition for "Applicable Margin". If the Borrower agrees to
     such new  definition,  such  definition  shall be in effect  until the next
     Redetermination  Date.  If the  Borrower  does not  agree  to any  proposed
     definition of  "Applicable  Margin",  then the  definition  of  "Applicable
     Margin" shall remain the same and the Borrowing Base shall not be increased
     at the Redetermination Date.

                  (d)  Effectiveness  of a Redetermined  Borrowing Base. After a
redetermined  Borrowing  Base is approved or is deemed to have been  approved by
the Required  Lenders or Majority  Lenders,  as applicable,  pursuant to Section
2.07(c)(iii), the Administrative Agent shall notify the Borrower and the Lenders
of the  amount of the  redetermined  Borrowing  Base (the  "New  Borrowing  Base
Notice"),  and such amount shall become the new  Borrowing  Base,  effective and
applicable to the Borrower, the Administrative Agent and the Lenders:

                       (i) in the case of a  Scheduled  Redetermination,  (A) if
     the  Administrative  Agent  shall have  received  the  Engineering  Reports
     required to be delivered by the  Borrower  pursuant to Section  8.11(a) and
     (b) in a timely and complete  manner,  then on the May 1st or November 1st,
     as applicable,  following such notice, or (B) if the  Administrative  Agent
     shall not have received the Engineering Reports required to be delivered by
     the Borrower  pursuant to Section  8.11(a) and (b) in a timely and complete
     manner,  then on the Business Day next succeeding  delivery of such notice;
     and

                       (ii) in the case of an  Interim  Redetermination,  on the
     Business Day next succeeding delivery of such notice.

Such  amount  shall then  become  the  Borrowing  Base until the next  Scheduled
Redetermination  Date,  the  next  Interim  Redetermination  Date  or  the  next
adjustment to the Borrowing Base under Section 8.12(c),  whichever occurs first.
Notwithstanding   the  foregoing,   no  Scheduled   Redetermination  or  Interim
Redetermination  shall  become  effective  until the New  Borrowing  Base Notice
related thereto is received by the Borrower.

(e)  Availability  of Borrowing  Base and Current  Ratio.  In the event that the
Borrower ratio of (i)  consolidated  current assets  (excluding  non-cash assets
under FAS 133) to (ii)  consolidated  current  liabilities  (excluding  non-cash
obligations  under FAS 133 and current  maturities  under this  Agreement) to be
less than 1.0 to 1.0, then the  availability for the Borrower to borrow pursuant
to the Borrowing  Base shall be reduced by an amount equal to the current assets
the Borrower would need to maintain or increase such ratio to 1.25 to 1.0.

         Section 2.08 Letters of Credit.

                  (a)  General.  Subject to the terms and  conditions  set forth
herein, the Borrower may request the issuance of dollar  denominated  Letters of
Credit for its own account or for the account of any of its  Subsidiaries,  in a
form  reasonably  acceptable to the  Administrative  Agent, at any time and from
time to time during the Availability Period;  provided that the Borrower may not
request  the  issuance,  amendment,  renewal or  extension  of Letters of Credit
hereunder if a Borrowing Base Deficiency exists at such time or would exist as a

                                      -23-
<PAGE>

result  thereof.  The  Administrative  Agent  shall  have the  right to have the
Issuing Bank or another entity issue the Letter of Credit on its behalf.

                  (b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions.  To request the  issuance  of a Letter of Credit (or the  amendment,
renewal or extension of an  outstanding  Letter of Credit),  the Borrower  shall
hand  deliver or telecopy to the  Administrative  Agent (not less than seven (7)
Business Days in advance of the requested date of issuance,  amendment,  renewal
or extension) a notice:

                       (i)  requesting  the  issuance  of a Letter  of Credit or
     identifying the Letter of Credit to be amended, renewed or extended;

                       (ii) specifying the date of issuance,  amendment, renewal
     or extension (which shall be a Business Day);

                       (iii)  specifying the date on which such Letter of Credit
     is to expire (which shall comply with Section 2.08(c));

                       (iv) specifying the amount of such Letter of Credit;

                       (v)  specifying  the name and address of the  beneficiary
     thereof and such other information as shall be necessary to prepare, amend,
     renew or extend such Letter of Credit; and

                       (vi)   specifying   the  amount  of  the  then  effective
     Borrowing Base and whether a Borrowing Base Deficiency exists at such time,
     the  current  total  Revolving  Credit  Exposures  (without  regard  to the
     requested Letter of Credit or the requested amendment, renewal or extension
     of an  outstanding  Letter of  Credit)  and the pro forma  total  Revolving
     Credit  Exposures  (giving effect to the requested  Letter of Credit or the
     requested  amendment,  renewal or  extension  of an  outstanding  Letter of
     Credit).

Each notice shall  constitute a  representation  that after giving effect to the
requested issuance,  amendment,  renewal or extension, as applicable, (i) the LC
Exposure shall not exceed the LC Commitment and (ii) the total Revolving  Credit
Exposures  shall  not  exceed  the total  Commitments  (i.e.  the  lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base).

The  Administrative  Agent  shall  then  arrange  for the Letter of Credit to be
issued on the Borrower's behalf.

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

                  (d) Participations.  By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit  increasing  the amount  thereof) and without
any  further  action  on the  part  of the  Issuing  Bank  or the  Lenders,  the
Administrative  Agent  hereby  grants to each  Lender,  and each  Lender  hereby
acquires from the  Administrative  Agent, a participation in the  Administrative
Agent's rights and obligations in respect of such Letter of Credit equal to such
Lender's  Applicable  Percentage of the aggregate  amount  available to be drawn
under  such  Letter  of  Credit.  In  consideration  and in  furtherance  of the
foregoing,  each Lender hereby absolutely and  unconditionally  agrees to pay to
the  Administrative  Agent  such  Lender's  Applicable  Percentage  of  each  LC

                                      -24-
<PAGE>

Disbursement  made by the Issuing Bank and not reimbursed by the Borrower on the
date  due as  provided  in  Section  2.08(e),  or of any  reimbursement  payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges
and agrees  that its  obligation  to  acquire  participations  pursuant  to this
Section  2.08(d) in respect of Letters of Credit is absolute  and  unconditional
and  shall  not  be  affected  by any  circumstance  whatsoever,  including  any
amendment,  renewal or extension of any Letter of Credit or the  occurrence  and
continuance  of a Default,  the  existence  of a Borrowing  Base  Deficiency  or
reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.

                  (e)  Reimbursement.  If the  Issuing  Bank  shall  make any LC
Disbursement in respect of a Letter of Credit,  the Borrower shall reimburse the
Administrative  Agent such LC Disbursement by paying to the Administrative Agent
an amount equal to such LC Disbursement not later than 12:00 noon, New York City
time, on the date that such LC  Disbursement is made, if the Borrower shall have
received notice of such LC Disbursement prior to 10:00 a.m., New York City time,
on such date,  or, if such notice has not been received by the Borrower prior to
such time on such date,  then not later than 12:00 noon,  New York City time, on
(i) the Business Day that the Borrower  receives such notice,  if such notice is
received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii)
the Business Day immediately  following the day that the Borrower  receives such
notice, if such notice is not received prior to such time on the day of receipt;
provided  that any such LC  Disbursement  shall,  subject to the  conditions  to
Borrowing set forth herein,  be deemed to have requested,  and the Borrower does
hereby request under such  circumstances,  that such payment be financed with an
ABR  Borrowing  in an  equivalent  amount  and, to the extent so  financed,  the
Borrower's  obligation to make such payment shall be discharged  and replaced by
the resulting  ABR  Borrowing.  If the Borrower  fails to make such payment when
due,  the  Administrative  Agent shall notify each Lender of the  applicable  LC
Disbursement, the payment then due from the Borrower in respect thereof and such
Lender's  Applicable  Percentage  thereof.  Promptly  following  receipt of such
notice,  each  Lender  shall  pay to the  Administrative  Agent  its  Applicable
Percentage  of the  payment  then due from the  Borrower,  in the same manner as
provided in Section  2.05 with respect to Loans made by such Lender (and Section
2.05 shall apply, mutatis mutandis,  to the payment obligations of the Lenders),
and the Administrative  Agent shall promptly pay to the Issuing Bank the amounts
so  received  by  it  from  the  Lenders.  Promptly  following  receipt  by  the
Administrative  Agent of any payment from the Borrower  pursuant to this Section
2.08(e),  the Administrative  Agent shall distribute such payment to any Lenders
that have made  payments  pursuant  to this  Section  2.08(e) to  reimburse  the
Administrative  Agent.  Any payment  made by a Lender  pursuant to this  Section
2.08(e) to reimburse the  Administrative  Agent for any LC  Disbursement  (other
than the funding of ABR Loans as contemplated above) shall not constitute a Loan
and shall not  relieve the  Borrower  of its  obligation  to  reimburse  such LC
Disbursement.

                  (f)  Obligations   Absolute.   The  Borrower's  obligation  to
reimburse LC  Disbursements  as provided in Section  2.08(e)  shall be absolute,
unconditional  and  irrevocable,  and shall be performed  strictly in accordance
with the terms of this Agreement under any and all circumstances  whatsoever and
irrespective of (i) any lack of validity or enforceability of this Agreement, or
any term or provision therein,  (ii) any draft or other document presented under
a Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement  therein being untrue or inaccurate in any respect,  (iii) payment
by the Issuing Bank under a Letter of Credit against  presentation of a draft or
other document that does not comply with the terms of such Letter of Credit,  or
(iv) any other event or circumstance  whatsoever,  whether or not similar to any
of the foregoing,  that might,  but for the provisions of this Section  2.08(f),
constitute  a legal or  equitable  discharge  of,  or  provide a right of setoff
against, the Borrower's obligations hereunder. Neither the Administrative Agent,
the Lenders nor the Issuing Bank,  nor any of their  Related  Parties shall have
any liability or  responsibility by reason of or in connection with the issuance
or  transfer  of any  Letter of Credit or any  payment  or  failure  to make any
payment thereunder  (irrespective of any of the circumstances referred to in the

                                      -25-
<PAGE>

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 Administrative Agent.

                  (g) Interim  Interest.  If the Issuing  Bank shall make any LC
Disbursement,  then,  until the Borrower shall have  reimbursed the Issuing Bank
for such LC Disbursement (either with its own funds or a Borrowing under Section
2.08(e)),  the unpaid amount thereof shall bear interest,  for each day from and
including the date such LC  Disbursement  is made to but excluding the date that
the  Borrower  reimburses  such LC  Disbursement,  at the  rate per  annum  then
applicable to ABR Loans. Interest accrued pursuant to this Section 2.08(g) shall
be for the account of the Administrative  Agent, except that interest accrued on
and after the date of  payment  by any Lender  pursuant  to  Section  2.08(e) to
reimburse  the  Administrative  Agent shall be for the account of such Lender to
the extent of such payment.

                  (h) Cash Collateralization.  If (i) any Event of Default shall
occur and be continuing and the Borrower receives notice from the Administrative
Agent or the Majority Lenders demanding the deposit of cash collateral  pursuant
to this  Section  2.08(h),  or  (ii)  the  Borrower  is  required  to pay to the
Administrative  Agent the excess  attributable  to an LC Exposure in  connection
with any  prepayment  pursuant  to  Section  3.04(c),  then the  Borrower  shall
deposit,  in an account designated by the  Administrative  Agent, in the name of
the Administrative  Agent and for the benefit of the Lenders,  an amount in cash
equal to, in the case of an Event of Default,  the LC Exposure,  and in the case
of a payment required by Section 3.04(c),  the amount of such excess as provided
in  Section  3.04(c),  as of such  date plus any  accrued  and  unpaid  interest
thereon;  provided  that the  obligation to deposit such cash  collateral  shall
become effective immediately,  and such deposit shall become immediately due and
payable,  without demand or other notice of any kind, upon the occurrence of any
Event of Default  with respect to the  Borrower or any  Subsidiary  described in
Section  10.01(h)  or  Section  10.01(i).  The  Borrower  hereby  grants  to the
Administrative  Agent, for the benefit of it and the Lenders, an exclusive first
priority and continuing  perfected security interest in and Lien on such account
and all cash, checks, drafts, certificates and instruments, if any, from time to
time  deposited or held in such  account,  all deposits or wire  transfers  made
thereto, any and all investments purchased with funds deposited in such account,
all interest, dividends, cash, instruments,  financial assets and other Property
from time to time received, receivable or otherwise payable in respect of, or in
exchange  for,  any or  all  of  the  foregoing,  and  all  proceeds,  products,
accessions, rents, profits, income and benefits therefrom, and any substitutions
and replacements therefor. The Borrower's obligation to deposit amounts pursuant
to this Section 2.08(h) shall be absolute and  unconditional,  without regard to
whether any  beneficiary of any such Letter of Credit has attempted to draw down
all or a portion of such amount  under the terms of a Letter of Credit,  and, to
the fullest  extent  permitted by  applicable  law,  shall not be subject to any
defense or be affected by a right of set-off,  counterclaim or recoupment  which
the Borrower or any of its  Subsidiaries  may now or hereafter  have against any
such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any
other Person for any reason whatsoever. Such deposit shall be held as collateral
securing  the payment and  performance  of the  Borrower's  and the  Guarantor's
obligations   under  this   Agreement   and  the  other  Loan   Documents.   The
Administrative  Agent shall have exclusive  dominion and control,  including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the  investment  of such  deposits,  which  investments  shall be made at the
option and sole  discretion of the  Administrative  Agent and at the  Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any,  on such  investments  shall  accumulate  in such  account.  Moneys in such
account  shall be applied by the  Administrative  Agent to reimburse the Issuing
Bank for LC  Disbursements  for  which it has not been  reimbursed  and,  to the
extent not so applied,  shall be held for the satisfaction of the  reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been  accelerated,  be applied to satisfy other  obligations of
the  Borrower  and  the  Guarantors  under  this  Agreement  or the  other  Loan
Documents.  If the Borrower is required to provide an amount of cash  collateral

                                      -26-
<PAGE>

hereunder as a result of the occurrence of an Event of Default, and the Borrower
is  not  otherwise  required  to  pay to the  Administrative  Agent  the  excess
attributable  to an LC Exposure in connection  with any  prepayment  pursuant to
Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall
be returned  to the  Borrower  within  three  Business  Days after all Events of
Default have been cured or waived.

                                  ARTICLE III
              Payments of Principal and Interest; Prepayments; Fees

         Section 3.01 Repayment of Loans.  The Borrower  hereby  unconditionally
promises to pay to the  Administrative  Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.

         Section 3.02 Interest.

                  (a) ABR Loans.  The Loans  comprising each ABR Borrowing shall
bear interest at the Alternate Base Rate plus the Applicable  Margin,  but in no
event to exceed the Highest Lawful Rate.

                  (b) Eurodollar  Loans.  The Loans  comprising  each Eurodollar
Borrowing shall bear interest at the LIBO Rate for the Interest Period in effect
for such  Borrowing plus the  Applicable  Margin,  but in no event to exceed the
Highest Lawful Rate.

                  (c) Post-Default Rate.  Notwithstanding the foregoing,  if any
principal of or interest on any Loan or any fee or other  amount  payable by the
Borrower or any Guarantor hereunder or under any other Loan Document is not paid
when due,  whether at stated  maturity,  upon  acceleration  or otherwise,  such
overdue amount shall bear interest,  after as well as before judgment, at a rate
per annum equal to two  percent  (2%) plus the rate  applicable  to ABR Loans as
provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate.

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

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

         Section 3.03 Alternate Rate of Interest.  If prior to the  commencement
of any Interest Period for a Eurodollar Borrowing:

                                      -27-
<PAGE>

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

                  (b)  the  Administrative  Agent  is  advised  by the  Majority
Lenders  that the LIBO Rate for such  Interest  Period will not  adequately  and
fairly  reflect the cost to such  Lenders of making or  maintaining  their Loans
included in such Borrowing for such Interest Period;
then the Administrative  Agent shall give notice thereof to the Borrower and the
Lenders by  telephone  or telecopy as promptly as  practicable  thereafter  and,
until the  Administrative  Agent  notifies the Borrower and the Lenders that the
circumstances  giving  rise to such  notice no longer  exist,  (i) any  Interest
Election   Request  that  requests  the  conversion  of  any  Borrowing  to,  or
continuation  of any Borrowing as, a Eurodollar  Borrowing shall be ineffective,
and  (ii)  if any  Borrowing  Request  requests  a  Eurodollar  Borrowing,  such
Borrowing shall be made as an ABR Borrowing.

         Section 3.04 Prepayments.

                  (a) Optional Prepayments. The Borrower shall have the right at
any time and from time to time to prepay any  Borrowing in whole or in part,  in
minimum increments of $500,000 or, if less than $500,000,  the remaining balance
of the Loans, subject to prior notice in accordance with Section 3.04(b).

                  (b)  Notice and Terms of  Optional  Prepayment.  The  Borrower
shall notify the  Administrative  Agent by telephone  (confirmed by telecopy) of
any  prepayment  hereunder  (i)  in  the  case  of  prepayment  of a  Eurodollar
Borrowing,  not later than 12:00 noon,  New York City time,  three Business Days
before  the  date of  prepayment,  or (ii) in the case of  prepayment  of an ABR
Borrowing,  not later than 12:00  noon,  New York City time,  one  Business  Day
before the date of prepayment.  Each such notice shall be irrevocable  and shall
specify  the  prepayment  date and the  principal  amount of each  Borrowing  or
portion  thereof to be prepaid.  Promptly  following  receipt of any such notice
relating to a Borrowing,  the  Administrative  Agent shall advise the Lenders of
the contents  thereof.  Each partial  prepayment of any Borrowing shall be in an
amount that would be  permitted  in the case of an advance of a Borrowing of the
same Type as provided in Section 2.02.  Each  prepayment of a Borrowing shall be
applied  ratably to the Loans  included  in the prepaid  Borrowing.  Prepayments
shall be accompanied by accrued interest to the extent required by Section 3.02.

                  (c) Mandatory Prepayments.

                       (i)  If,  after  giving  effect  to  any  termination  or
     reduction  of the  Aggregate  Maximum  Credit  Amounts  pursuant to Section
     2.06(b),   the  total  Revolving   Credit   Exposures   exceeds  the  total
     Commitments,  then the Borrower shall (A) prepay the Borrowings on the date
     of such termination or reduction in an aggregate  principal amount equal to
     such  excess,  and (B) if any excess  remains  after  prepaying  all of the
     Borrowings as a result of an LC Exposure,  pay to the Administrative  Agent
     on behalf of the Lenders an amount  equal to such excess to be held as cash
     collateral as provided in Section 2.08(h).

                       (ii) Upon any  redetermination  of or  adjustment  to the
     amount of the  Borrowing  Base in  accordance  with Section 2.07 or Section
     8.12(c),  if the total Revolving Credit Exposures  exceeds the redetermined
     or adjusted Borrowing Base, then the Borrower shall

                            (A) either

                                      -28-
<PAGE>

                                            (i)  prepay  the  Borrowings  in  an
                                    aggregate  principal  amount  equal  to such
                                    excess;

                                            (ii) provide  engineering reports on
                                    additional   Oil  and  Gas   Properties  not
                                    currently  included  in the  Borrowing  Base
                                    having a value  equal to at least the amount
                                    of  the   deficiency   and   grant   to  the
                                    Administrative   Agent   a  Lien   on   such
                                    properties; or

                                            (iii) use 100% of  Excess  Cash Flow
                                    to prepay the Borrowings within one Business
                                    Day of each  delivery of an Excess Cash Flow
                                    report required by Section 8.01(n)(ii);

                                             and

                                    (B) if any excess remains after the Borrower
                           exercises  one of the  options  in  (A)  above,  as a
                           result of an LC Exposure,  pay to the  Administrative
                           Agent on behalf  of the  Lenders  an amount  equal to
                           such excess to be held as cash collateral as provided
                           in Section 2.08(h).

                                    The Borrower shall be obligated to make such
                           prepayment,  pledge of collateral  and/or  deposit of
                           cash collateral  within sixty (60) days following its
                           receipt  of  the  New   Borrowing   Base   Notice  in
                           accordance  with  Section  2.07(d)  or the  date  the
                           adjustment   occurs;   provided   that  all  payments
                           required  to  be  made   pursuant  to  this   Section
                           3.04(c)(ii)   must  be  made  on  or   prior  to  the
                           Termination Date.

                                    If the  Borrower  is  unable  to  cure  such
                           Borrowing  Base  Deficiency  within  sixty  (60) days
                           following  the  determination  of the  New  Borrowing
                           Base, then the Borrower shall use 100% of Excess Cash
                           Flow to prepay  the  Borrowings  until the Loans have
                           been repaid in full.  Such payments shall be required
                           within  one  Business  Day of each  Excess  Cash Flow
                           report delivered by the Borrower  pursuant to Section
                           8.01(n)(ii).

                       (iii) Each  prepayment  of  Borrowings  pursuant  to this
     Section 3.04(c) shall be applied, first, ratably to any ABR Borrowings then
     outstanding,  and, second,  to any Eurodollar  Borrowings then outstanding,
     and if more than one Eurodollar Borrowing is then outstanding, to each such
     Eurodollar  Borrowing in order of priority  beginning  with the  Eurodollar
     Borrowing  with the least number of days  remaining in the Interest  Period
     applicable  thereto and ending with the Eurodollar  Borrowing with the most
     number of days remaining in the Interest Period applicable thereto.

                       (iv)  Each  prepayment  of  Borrowings  pursuant  to this
     Section  3.04(c)  shall be  applied  ratably to the Loans  included  in the
     prepaid Borrowings.  Prepayments  pursuant to this Section 3.04(c) shall be
     accompanied by accrued interest to the extent required by Section 3.02.

                  (d) No Premium or Penalty.  Prepayments  permitted or required
under this Section 3.04 shall be without premium or penalty,  except as required
under Section 5.02.

                                      -29-
<PAGE>

         Section 3.05 Fees.

                  (a)  Commitment  Fees.  The  Borrower  agrees  to  pay  to the
Administrative  Agent for the account of each  Lender a  commitment  fee,  which
shall accrue at the  applicable  Commitment Fee Rate on the average daily amount
of the unused amount of the Commitment of such Lender during the period from and
including  the date of this  Agreement to but excluding  the  Termination  Date.
Accrued  commitment  fees  shall be payable in arrears on the last day of March,
June,  September  and  December  of  each  year  and  on the  Termination  Date,
commencing on the first such date to occur after the date hereof. All commitment
fees  shall  be  computed  on the  basis  of a year  of 360  days,  unless  such
computation  would exceed the Highest  Lawful Rate, in which case interest shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
shall be payable for the actual number of days elapsed  (including the first day
but excluding the last day).

                  (b) Letter of Credit Fees.  The Borrower  agrees to pay (i) to
the Administrative Agent for the account of each Lender a participation fee with
respect to its  participations  in Letters of Credit,  which shall accrue at the
same  Applicable  Margin used to  determine  the  interest  rate  applicable  to
Eurodollar  Loans on the  average  daily  amount of such  Lender's  LC  Exposure
(excluding any portion thereof  attributable  to unreimbursed LC  Disbursements)
during the period from and including the date of this Agreement to but excluding
the later of the date on which such Lender's Commitment  terminates and the date
on which such Lender ceases to have any LC Exposure,  (ii) to the Administrative
Agent a fronting fee,  which shall accrue at the rate of 0.325% per annum on the
average  daily  amount  of  the  LC  Exposure  (excluding  any  portion  thereof
attributable  to  unreimbursed  LC  Disbursements)  during the  period  from and
including  the date of this  Agreement to but excluding the later of the date of
termination of the  Commitments  and the date on which there ceases to be any LC
Exposure,  provided that in no event shall such fee be less than $500 during any
quarter, and (iii) to the Administrative Agent for its own account, the standard
fees charged to it by the Issuing Bank with respect to the issuance,  amendment,
renewal  or  extension  of any  Letter  of  Credit  or  processing  of  drawings
thereunder.  Participation  fees and fronting fees accrued through and including
the last day of March,  June,  September  and  December  of each  year  shall be
payable on the third  Business Day  following  such last day,  commencing on the
first such date to occur  after the date of this  Agreement;  provided  that all
such fees shall be payable on the  Termination  Date and any such fees  accruing
after the  Termination  Date shall be payable on demand.  Any other fees payable
pursuant to this Section  3.05(b) shall be payable  within 10 days after demand.
All  participation  fees and  fronting  fees shall be computed on the basis of a
year of 360 days,  unless such computation would exceed the Highest Lawful Rate,
in which case interest  shall be computed on the basis of a year of 365 days (or
366 days in a leap  year),  and shall be payable  for the actual  number of days
elapsed (including the first day but excluding the last day).

                  (c) Borrowing Base Increase  Fees. The Borrower  agrees to pay
to the  Administrative  Agent, for the account of each Lender then party to this
Agreement,  ratably in accordance  with its Applicable  Percentage,  a Borrowing
Base  increase fee equal to 1.25% on the amount of any increase of the Borrowing
Base over the  highest  Borrowing  Base  previously  in  effect,  payable on the
effective date of any such increase to the Borrowing Base.

                                   ARTICLE IV
                Payments; Pro Rata Treatment; Sharing of Set-offs

         Section  4.01  Payments  Generally;  Pro  Rata  Treatment;  Sharing  of
                        Set-offs.

                  (a) Payments by the  Borrower.  The  Borrower  shall make each
payment  required to be made by it hereunder  (whether of  principal,  interest,
fees or reimbursement of LC  Disbursements,  or of amounts payable under Section
5.01,  Section 5.02,  Section 5.03 or otherwise)  prior to 12:00 noon,  New York
City  time,  on the date when  due,  in  immediately  available  funds,  without
defense, deduction,  recoupment, set-off or counterclaim. Fees, once paid, shall
be fully earned and shall not be refundable under any circumstances. Any amounts

                                      -30-
<PAGE>

received   after  such  time  on  any  date  may,  in  the   discretion  of  the
Administrative  Agent,  be deemed to have been  received on the next  succeeding
Business Day for purposes of  calculating  interest  thereon.  All such payments
shall be made to the  Administrative  Agent at its offices  specified in Section
12.01,  except  payments to be made  directly to the Issuing  Bank as  expressly
provided herein and except that payments pursuant to Section 5.01, Section 5.02,
Section 5.03 and Section  12.03 shall be made  directly to the Persons  entitled
thereto. The Administrative Agent shall distribute any such payments received by
it for the account of any other  Person to the  appropriate  recipient  promptly
following  receipt thereof.  If any payment hereunder shall be due on a day that
is not a  Business  Day,  the date for  payment  shall be  extended  to the next
succeeding  Business  Day,  and, in the case of any payment  accruing  interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

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

                  (c) Sharing of Payments by Lenders.  If any Lender  shall,  by
exercising any right of set-off or counterclaim or otherwise,  obtain payment in
respect of any principal of or interest on any of its Loans or participations in
LC  Disbursements  resulting  in such  Lender  receiving  payment  of a  greater
proportion  of the  aggregate  amount  of its  Loans  and  participations  in LC
Disbursements  and accrued interest thereon than the proportion  received by any
other Lender,  then the Lender receiving such greater  proportion shall purchase
(for cash at face value)  participations  in the Loans and  participations in LC
Disbursements  of other  Lenders to the extent  necessary so that the benefit of
all such payments shall be shared by the Lenders  ratably in accordance with the
aggregate  amount of principal of and accrued interest on their respective Loans
and  participations  in  LC  Disbursements;   provided  that  (i)  if  any  such
participations  are purchased and all or any portion of the payment  giving rise
thereto is recovered,  such  participations  shall be rescinded and the purchase
price restored to the extent of such recovery,  without  interest,  and (ii) the
provisions  of this  Section  4.01(c)  shall  not be  construed  to apply to any
payment  made by the  Borrower  pursuant to and in  accordance  with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the  assignment  of  or  sale  of  a  participation  in  any  of  its  Loans  or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate  thereof (as to which the provisions
of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and
agrees,  to the extent it may  effectively do so under  applicable law, that any
Lender  acquiring a  participation  pursuant to the foregoing  arrangements  may
exercise against the Borrower rights of set-off and counterclaim with respect to
such  participation  as fully as if such  Lender  were a direct  creditor of the
Borrower in the amount of such participation.

         Section  4.02  Presumption  of  Payment  by the  Borrower.  Unless  the
Administrative  Agent shall have received  notice from the Borrower prior to the
date on which any payment is due to the Administrative  Agent for the account of
the Lenders or the Issuing  Bank that the Borrower  will not make such  payment,
the  Administrative  Agent may assume that the Borrower has made such payment on
such date in  accordance  herewith  and may, in reliance  upon such  assumption,
distribute to the Lenders the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders severally agrees to repay to
the  Administrative  Agent forthwith on demand the amount so distributed to such
Lender with  interest  thereon,  for each day from and  including  the date such
amount  is  distributed  to it to but  excluding  the  date  of  payment  to the
Administrative  Agent,  at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative  Agent in accordance with banking industry
rules on interbank compensation.

                                      -31-
<PAGE>

         Section 4.03 Certain  Deductions by the  Administrative  Agent.  If any
Lender  shall fail to make any  payment  required  to be made by it  pursuant to
Section  2.05(b),  Section  2.08(d),  Section  2.08(e) or Section  4.02 then the
Administrative  Agent  may,  in its  discretion  (notwithstanding  any  contrary
provision hereof),  apply any amounts thereafter  received by the Administrative
Agent for the account of such Lender to satisfy such Lender's  obligations under
such Sections until all such unsatisfied obligations are fully paid.

         Section 4.04 Disposition of Proceeds.  The Security Instruments contain
an assignment  by the Borrower  and/or the  Guarantors  unto and in favor of the
Administrative  Agent for the benefit of the Lenders of all of the Borrower's or
each  Guarantor's  interest in and to production  and all proceeds  attributable
thereto which may be produced from or allocated to the Mortgaged  Property.  The
Security  Instruments  further  provide in general for the  application  of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby.  Notwithstanding  the assignment  contained in such
Security  Instruments,  until the  occurrence  of an Event of  Default,  (a) the
Administrative  Agent and the Lenders  agree that they will  neither  notify the
purchaser or  purchasers of such  production  nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders  will  instead  permit such  proceeds to be paid to the Borrower and its
Subsidiaries  and (b) the Lenders hereby authorize the  Administrative  Agent to
take such actions as may be  necessary to cause such  proceeds to be paid to the
Borrower and/or such Subsidiaries.

                                   ARTICLE V
           Increased Costs; Break Funding Payments; Taxes; Illegality

         Section 5.01 Increased Costs.

                  (a) Eurodollar Changes in Law. If any Change in Law shall:

                       (i)  impose,  modify  or  deem  applicable  any  reserve,
         special deposit or similar requirement against assets of, deposits with
         or for the account of, or credit extended by, any Lender  including any
         reserve requirements imposed by the Board; or

                       (ii) impose on any Lender or the London  interbank market
         any other condition  affecting this Agreement or Eurodollar  Loans made
         by such Lender;

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

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

                                      -32-
<PAGE>

                  (c) Certificates.  A certificate of a Lender setting forth the
amount or amounts necessary to compensate such Lender or its holding company, as
the case may be, as  specified  in Section  5.01(a) or (b) shall be delivered to
the Borrower and shall be conclusive  absent manifest error.  The Borrower shall
pay such Lender the amount shown as due on any such  certificate  within 10 days
after receipt thereof.

                  (d)  Effect of Failure  or Delay in  Requesting  Compensation.
Failure or delay on the part of any Lender to demand  compensation  pursuant  to
this Section 5.01 shall not constitute a waiver of such Lender's right to demand
such  compensation;  provided  that  the  Borrower  shall  not  be  required  to
compensate a Lender  pursuant to this Section  5.01 for any  increased  costs or
reductions  incurred  more  than 365 days  prior to the date  that  such  Lender
notifies the Borrower of the Change in Law giving rise to such  increased  costs
or reductions  and of such Lender's  intention to claim  compensation  therefor;
provided  further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 365-day period referred to above shall be
extended to include the period of retroactive effect thereof.

         Section 5.02 Break Funding Payments. In the event of (a) the payment of
any principal of any  Eurodollar  Loan other than on the last day of an Interest
Period applicable  thereto  (including as a result of an Event of Default),  (b)
the  conversion of any  Eurodollar  Loan into an ABR Loan other than on the last
day of the Interest  Period  applicable  thereto,  or (c) the failure to borrow,
convert,  continue or prepay any  Eurodollar  Loan on the date  specified in any
notice delivered  pursuant  hereto,  then, in any such event, the Borrower shall
compensate  each  Lender for the loss,  cost and  expense  attributable  to such
event.  In the case of a  Eurodollar  Loan,  such  loss,  cost or expense to any
Lender shall be deemed to include an amount  determined by such Lender to be the
excess,  if any, of (i) the amount of interest  which would have  accrued on the
principal amount of such Loan had such event not occurred, at the LIBO Rate that
would have been  applicable  to such Loan,  for the period from the date of such
event to the last day of the then current  Interest  Period therefor (or, in the
case of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan),  over (ii) the amount of interest which
would accrue on such principal amount for such period at the interest rate which
such Lender would bid were it to bid, at the  commencement  of such period,  for
dollar  deposits  of a  comparable  amount  and period  from other  banks in the
eurodollar market.

A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive  pursuant to this  Section 5.02 shall be delivered to the
Borrower and shall be conclusive  absent manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

         Section 5.03 Taxes.

                  (a)  Payments  Free of Taxes.  Any and all  payments  by or on
account  of any  obligation  of the  Borrower  or any  Guarantor  under any Loan
Document  shall  be  made  free  and  clear  of and  without  deduction  for any
Indemnified Taxes or Other Taxes; provided that if the Borrower or any Guarantor
shall be  required  to deduct  any  Indemnified  Taxes or Other  Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions  (including  deductions  applicable to additional
sums payable  under this Section  5.03(a)),  the  Administrative  Agent,  or the
Lender (as the case may be)  receives  an amount  equal to the sum it would have
received had no such  deductions  been made, (ii) the Borrower or such Guarantor
shall make such  deductions and (iii) the Borrower or such  Guarantor  shall pay
the full amount  deducted to the relevant  Governmental  Authority in accordance
with applicable law.

                                      -33-
<PAGE>

                  (b) Payment of Other Taxes by the Borrower. The Borrower shall
pay any Other Taxes to the relevant  Governmental  Authority in accordance  with
applicable law.

                  (c)  Indemnification  by  the  Borrower.  The  Borrower  shall
indemnify the Administrative Agent and each Lender, within 10 days after written
demand  therefor,  for the full amount of any  Indemnified  Taxes or Other Taxes
paid by the Administrative  Agent or such Lender, as the case may be, on or with
respect  to any  payment  by or on account  of any  obligation  of the  Borrower
hereunder (including  Indemnified Taxes or Other Taxes imposed or asserted on or
attributable  to amounts  payable  under this Section  5.03) and any  penalties,
interest and  reasonable  expenses  arising  therefrom or with respect  thereto,
whether or not such  Indemnified  Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate of the
Administrative  Agent or a Lender as to the amount of such  payment or liability
under  this  Section  5.03  shall be  delivered  to the  Borrower  and  shall be
conclusive absent manifest error.

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

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

                  (f) Tax  Refunds.  If the  Administrative  Agent  or a  Lender
determines,  in its sole discretion,  that it has received a refund of any Taxes
or Other  Taxes as to which it has  been  indemnified  by the  Borrower  or with
respect to which the  Borrower  has paid  additional  amounts  pursuant  to this
Section  5.03,  it shall pay over such refund to the  Borrower  (but only to the
extent of indemnity  payments made, or additional  amounts paid, by the Borrower
under this  Section 5.03 with respect to the Taxes or Other Taxes giving rise to
such refund),  net of all out-of-pocket  expenses of the Administrative Agent or
such Lender and without  interest  (other than any interest paid by the relevant
Governmental  Authority  with  respect  to  such  refund);  provided,  that  the
Borrower, upon the request of the Administrative Agent or such Lender, agrees to
repay the amount  paid over to the  Borrower  (plus any  penalties,  interest or
other  charges   imposed  by  the  relevant   Governmental   Authority)  to  the
Administrative  Agent or such  Lender in the event the  Administrative  Agent or
such Lender is required  to repay such  refund to such  Governmental  Authority.
This Section 5.03 shall not be construed to require the Administrative  Agent or
any Lender to make available its tax returns (or any other information  relating
to its taxes which it deems confidential) to the Borrower or any other Person.

         Section 5.04 Mitigation Obligations/Replacement of Lenders.

                  (a)   Mitigation   Obligations.   If   any   Lender   requests
compensation  under  Section  5.01,  or if the  Borrower  is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender  pursuant  to Section  5.03,  then such Lender  shall use  reasonable
efforts to designate a different lending office

                                      -34-
<PAGE>

for  funding  or  booking  its Loans  hereunder  or to  assign  its  rights  and
obligations hereunder to another of its offices, branches or affiliates,  if, in
the judgment of such Lender,  such designation or assignment (i) would eliminate
or reduce amounts payable  pursuant to Section 5.01 or Section 5.03, as the case
may be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be  disadvantageous  to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses  incurred by any
Lender in connection with any such designation or assignment.

                  (b) Replacement of Lenders.  If any Lender fails to consent to
a proposed amendment,  waiver or other modification to this Agreement that would
otherwise be approved by the  necessary  percentage  of Lenders to be effective,
then the  Borrower  may, at its sole  expense  and  effort,  upon notice to such
Lender and the Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the  restrictions  contained
in Section  12.04(b)),  all its  interests,  rights and  obligations  under this
Agreement to an assignee that shall assume such obligations  (which assignee may
be another Lender, if a Lender accepts such  assignment);  provided that (i) the
Borrower  shall have  received the prior written  consent of the  Administrative
Agent,  which  consent shall not  unreasonably  be withheld and (ii) such Lender
shall have received  payment of an amount equal to the outstanding  principal of
its Loans and  participations  in LC  Disbursements,  accrued interest  thereon,
accrued fees and all other amounts  payable to it  hereunder,  from the assignee
(to the extent of such  outstanding  principal and accrued interest and fees) or
the Borrower (in the case of all other amounts).  A Lender shall not be required
to make any such  assignment and delegation if, prior thereto,  as a result of a
waiver by such Lender or otherwise,  the circumstances entitling the Borrower to
require such assignment and delegation cease to apply.

         Section 5.05  Illegality.  Notwithstanding  any other provision of this
Agreement,  in the  event  that  it  becomes  unlawful  for  any  Lender  or its
applicable lending office to honor its obligation to make or maintain Eurodollar
Loans either generally or having a particular  Interest Period  hereunder,  then
(a) such Lender shall promptly notify the Borrower and the Administrative  Agent
thereof and such  Lender's  obligation  to make such  Eurodollar  Loans shall be
suspended (the  "Affected  Loans") until such time as such Lender may again make
and  maintain  such  Eurodollar  Loans and (b) all  Affected  Loans  which would
otherwise  be made by such Lender  shall be made  instead as ABR Loans (and,  if
such Lender so requests by notice to the Borrower and the Administrative  Agent,
all  Affected  Loans of such  Lender  then  outstanding  shall be  automatically
converted  into ABR Loans on the date  specified  by such Lender in such notice)
and, to the extent that Affected  Loans are so made as (or  converted  into) ABR
Loans,  all  payments  of  principal  which would  otherwise  be applied to such
Lender's Affected Loans shall be applied instead to its ABR Loans.

                                   ARTICLE VI
                              Conditions Precedent

         Section 6.01  Effective  Date.  The  obligations of the Lenders to make
Loans and of the  Administrative  Agent to procure  Letters of Credit  hereunder
shall  not  become  effective  until  the  date on which  each of the  following
conditions is satisfied (or waived in accordance with Section 12.02):

                  (a) The  Administrative  Agent,  the  Arranger and the Lenders
shall have received all  commitment,  facility and agency fees,  including those
set forth in the Fee  Letter,  and all other fees and amounts due and payable on
or prior to the Effective Date, including, to the extent invoiced, reimbursement
or payment of all  out-of-pocket  expenses  required to be reimbursed or paid by
the Borrower hereunder (including,  without limitation, the fees and expenses of
Vinson & Elkins L.L.P., counsel to the Administrative Agent).

                                      -35-
<PAGE>

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

                  (c) The Administrative Agent shall have received  certificates
of the appropriate  State agencies with respect to the existence,  qualification
and good standing of the Borrower and each Guarantor.

                  (d) The Administrative  Agent shall have received a compliance
certificate  which  shall be  substantially  in the form of  Exhibit D, duly and
properly executed by a Responsible Officer and dated as of the date of Effective
Date.

                  (e) The  Administrative  Agent shall have  received  from each
party  hereto   counterparts  (in  such  number  as  may  be  requested  by  the
Administrative Agent) of this Agreement signed on behalf of such party.

                  (f) The Administrative Agent shall have received duly executed
Notes  payable to the order of each  Lender in a principal  amount  equal to its
Maximum Credit Amount dated as of the date hereof.

                  (g) The  Administrative  Agent shall have  received  from each
party thereto duly executed  counterparts (in such number as may be requested by
the Administrative  Agent) of the Security  Instruments,  including the Guaranty
Agreement  and the other  Security  Instruments  described  on Exhibit  F-1.  In
connection  with the  execution  and delivery of the Security  Instruments,  the
Administrative Agent shall:

                       (i) be reasonably satisfied that the Security Instruments
         create first priority,  perfected Liens (subject only to Excepted Liens
         identified in clauses (a) to (d) and (f) of the definition thereof, but
         subject to the provisos at the end of such  definition) on at least 80%
         of the net present value,  discounted at 10% per annum,  of the Oil and
         Gas Properties evaluated in the Initial Reserve Report; and

                       (ii) have received  certificates,  together with undated,
         blank stock powers for each such  certificate,  representing all of the
         issued and  outstanding  Equity  Interests  of each of the  Guarantors,
         which is directly owned by either the Borrower or a Subsidiary.

                  (h) The Administrative Agent shall have received an opinion of
(i) Richard  Starkey,  special counsel to the Borrower and (ii) Vinson & Elkins,
LLP, special Texas counsel to the Administrative Agent.

                  (i) The Administrative Agent shall have received a certificate
of insurance  coverage of the Borrower  evidencing that the Borrower is carrying
insurance in accordance with Section 7.12.

                                      -36-
<PAGE>

                  (j)  The  Administrative   Agent  shall  have  received  title
information as the Administrative  Agent may reasonably require  satisfactory to
the  Administrative  Agent  setting forth the status of title to at least 80% of
the  net  present  value,  discounted  at 10%  per  annum,  of the  Oil  and Gas
Properties evaluated in the Initial Reserve Report.

                  (k) The  Administrative  Agent shall be  reasonably  satisfied
with the  environmental  condition of the Oil and Gas Properties of the Borrower
and its Subsidiaries.

                  (l) The Administrative Agent shall have received a certificate
of a  Responsible  Officer of the  Borrower  certifying  that the  Borrower  has
received all consents and approvals required by Section 7.03.

                  (m) The Administrative Agent shall have received the financial
statements  referred  to in  Section  7.04(a)  and the  Initial  Reserve  Report
accompanied by a certificate covering the matters described in Section 8.11(c).

                  (n) The Administrative  Agent shall have received  appropriate
UCC search certificates  reflecting no prior Liens encumbering the Properties of
the Borrower and the Subsidiaries for each of the following jurisdictions:  West
Virginia and any other jurisdiction requested by the Administrative Agent; other
than those being assigned or released on or prior to the Effective Date or Liens
permitted by Section 9.03.

                  (o) The Administrative Agent shall be satisfied with the terms
of  the  Conveyance  of  Net  Profits  Interest,   and  have  received  executed
counterparts of the same.

                  (p) The  Borrower  and the Lenders  shall have agreed upon the
Development Plan which shall be reasonably satisfactory to the Lenders.

                  (q) The Administrative Agent shall have received evidence that
the Borrower is repaying all existing  Debt and the Liens  associated  with such
Debt, if any, are being released  contemporaneously  with the funding under this
Agreement.

                  (r) The Administrative Agent shall have received evidence that
the  Borrower is using the proceeds  from the Loans to repay all existing  Debt,
except Debt permitted by this Agreement.

                  (s) The  Administrative  Agent shall have  received such other
documents as the  Administrative  Agent or special counsel to the Administrative
Agent may reasonably request.

         The  Administrative  Agent shall notify the Borrower and the Lenders of
the  Effective   Date,   and  such  notice  shall  be  conclusive  and  binding.
Notwithstanding the foregoing,  the obligations of the Lenders to make Loans and
of the  Administrative  Agent to procure  Letters of Credit  hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 12.02) at or prior to 2:00 p.m., New York City time, on June
30, 2007 (and, in the event such conditions are not so satisfied or waived,  the
Commitments shall terminate at such time).

                                      -37-
<PAGE>

         Section 6.02 Each Credit Event. The obligation of each Lender to make a
Loan on the occasion of any Borrowing  (including the initial  funding),  and of
the  Administrative  Agent to procure  or arrange to amend,  renew or extend any
Letter of Credit, is subject to the satisfaction of the following conditions:

                  (a) At the time of and immediately after giving effect to such
Borrowing  or the  issuance,  amendment,  renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.

                  (b) At the time of and immediately after giving effect to such
Borrowing  or the  issuance,  amendment,  renewal or extension of such Letter of
Credit,  as applicable,  no event,  development or circumstance  has occurred or
shall then exist that has resulted in, or could  reasonably be expected to have,
a Material Adverse Effect.

                  (c) The representations and warranties of the Borrower and the
Guarantors set forth in this Agreement and in the other Loan Documents  shall be
true  and  correct  on and as of the  date  of  such  Borrowing  or the  date of
issuance,  amendment,  renewal  or  extension  of  such  Letter  of  Credit,  as
applicable,  except to the extent any such  representations  and  warranties are
expressly  limited to an earlier  date,  in which case, on and as of the date of
such Borrowing or the date of issuance,  amendment, renewal or extension of such
Letter of Credit,  as applicable,  such  representations  and  warranties  shall
continue to be true and correct as of such specified earlier date.

                  (d) The  making  of  such  Loan  or the  issuance,  amendment,
renewal or extension of such Letter of Credit, as applicable, would not conflict
with,  or cause any Lender to violate or  exceed,  any  applicable  Governmental
Requirement,  and no Change in Law shall have occurred,  and no litigation shall
be  pending  or  threatened,  which  does or,  with  respect  to any  threatened
litigation,  seeks to, enjoin,  prohibit or restrain, the making or repayment of
any Loan, the issuance, amendment, renewal, extension or repayment of any Letter
of Credit or any participations  therein or the consummation of the transactions
contemplated by this Agreement or any other Loan Document.

                  (e) The  receipt by the  Administrative  Agent of a  Borrowing
Request in  accordance  with Section 2.03 or a request for a Letter of Credit in
accordance with Section 2.08(b), as applicable.

         Each  request  for a  Borrowing  and  each  request  for the  issuance,
amendment,  renewal  or  extension  of any  Letter of Credit  shall be deemed to
constitute a representation  and warranty by the Borrower on the date thereof as
to the matters specified in Section 6.02(a) through (e).

                                  ARTICLE VII
                         Representations and Warranties

         The Borrower represents and warrants to the Lenders that:

         Section  7.01  Organization;  Powers.  Each  of the  Borrower  and  the
Subsidiaries is duly organized,  validly existing and in good standing under the
laws of the  jurisdiction  of its  organization,  has all  requisite  power  and
authority, and has all material governmental licenses, authorizations,  consents
and approvals  necessary,  to own its assets and to carry on its business as now
conducted, and is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required,  except where failure to have
such  power,  authority,  licenses,  authorizations,   consents,  approvals  and
qualifications  could not  reasonably  be  expected  to have a Material  Adverse
Effect.

                                      -38-
<PAGE>

         Section 7.02 Authority; Enforceability. The Transactions are within the
Borrower's and each  Guarantor's  corporate powers and have been duly authorized
by all necessary  corporate  and, if required,  stockholder  action  (including,
without limitation, any action required to be taken by any class of directors of
the Borrower or any other Person, whether interested or disinterested,  in order
to ensure the due  authorization  of the  Transactions).  Each Loan  Document to
which the  Borrower  and each  Guarantor  is a party has been duly  executed and
delivered by the Borrower and such Guarantor and constitutes a legal,  valid and
binding   obligation  of  the  Borrower  and  such  Guarantor,   as  applicable,
enforceable  in accordance  with its terms,  subject to  applicable  bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally  and subject to general  principles  of equity,  regardless of whether
considered in a proceeding in equity or at law.

         Section 7.03  Approvals;  No  Conflicts.  The  Transactions  (a) do not
require any consent or approval of,  registration  or filing with,  or any other
action by, any  Governmental  Authority  or any other  third  Person  (including
shareholders or any class of directors, whether interested or disinterested,  of
the  Borrower  or  any  other  Person),  nor  is  any  such  consent,  approval,
registration,   filing  or  other   action   necessary   for  the   validity  or
enforceability  of any Loan  Document or the  consummation  of the  transactions
contemplated thereby,  except such as have been obtained or made and are in full
force and  effect  other  than (i) the  recording  and  filing  of the  Security
Instruments as required by this  Agreement and (ii) those third party  approvals
or consents which, if not made or obtained, would not cause a Default hereunder,
could not  reasonably  be expected to have a Material  Adverse  Effect or do not
have an adverse effect on the enforceability of the Loan Documents, (b) will not
violate any applicable law or regulation or any  Organizational  Document of the
Borrower or any Subsidiary or any order of any Governmental Authority,  (c) will
not  violate  or result in a default  under any  indenture,  agreement  or other
instrument  binding upon the Borrower or any  Subsidiary or its  Properties,  or
give  rise  to a right  thereunder  to  require  any  payment  to be made by the
Borrower  or  such  Subsidiary  and (d)  will  not  result  in the  creation  or
imposition of any Lien on any Property of the Borrower or any Subsidiary  (other
than the Liens created by the Loan Documents).

         Section 7.04 Financial Condition; No Material Adverse Change.

                  (a) The Borrower has  heretofore  furnished to the Lenders its
unaudited  consolidated  balance sheet and  statements  of income,  stockholders
equity and cash flows (i) as of and for the fiscal quarter ended March 31, 2006.
Such  financial  statements  present  fairly,  in  all  material  respects,  the
financial  position and results of operations and cash flows of the Borrower and
its  Consolidated  Subsidiaries  as of  such  dates  and  for  such  periods  in
accordance with GAAP.

                  (b)  Since  December  31,  2006,  (i) there has been no event,
development or circumstance that has had or could reasonably be expected to have
a  Material  Adverse  Effect  and  (ii) the  business  of the  Borrower  and its
Subsidiaries has been conducted only in the ordinary course consistent with past
business practices.

                  (c) Neither the  Borrower nor any  Subsidiary  has on the date
hereof  any  material  Debt  (including   Disqualified  Capital  Stock)  or  any
contingent   liabilities,   off-balance   sheet   liabilities  or  partnerships,

                                      -39-
<PAGE>

liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated  losses from any unfavorable  commitments,  except as referred to or
reflected or provided for in the Financial Statements.

         Section 7.05 Litigation.

                  (a)  Except  as set  forth  on  Schedule  7.05,  there  are no
actions,  suits,  investigations  or  proceedings by or before any arbitrator or
Governmental  Authority  pending  against or, to the  knowledge of the Borrower,
threatened  against or affecting the Borrower or any  Subsidiary (i) as to which
there is a reasonable possibility of an adverse determination that, if adversely
determined,  could reasonably be expected,  individually or in the aggregate, to
result in a Material Adverse Effect,  (ii) that involve any Loan Document or the
Transactions.

                  (b) Since the date of this Agreement, there has been no change
in the status of the matters disclosed in Schedule 7.05 that, individually or in
the  aggregate,  has resulted in, or materially  increased the  likelihood of, a
Material Adverse Effect.

         Section  7.06  Environmental  Matters.  Except for such  matters  that,
individually  or in the  aggregate,  could not  reasonably be expected to have a
Material Adverse Effect on the Borrower:

                  (a)  the  Borrower  and its  Subsidiaries  and  each of  their
respective  Properties  and  operations  thereon are, and within all  applicable
statute of  limitation  periods have been,  in  compliance  with all  applicable
Environmental Laws;

                  (b)  the  Borrower  and its  Subsidiaries  have  obtained  all
Environmental Permits required for their respective operations and each of their
Properties,  with all such  Environmental  Permits being currently in full force
and effect,  and none of Borrower or its  Subsidiaries  has received any written
notice or otherwise has knowledge  that any such existing  Environmental  Permit
will be  revoked or that any  application  for any new  Environmental  Permit or
renewal of any existing Environmental Permit will be protested or denied;

                  (c) to the Borrower's knowledge, there are no claims, demands,
suits,  orders,  inquiries,  or proceedings  concerning any violation of, or any
liability  (including as a potentially  responsible party) under, any applicable
Environmental  Laws that is pending or  threatened  against the  Borrower or its
Subsidiaries  or  any of  their  respective  Properties  or as a  result  of any
operations at the Properties;

                  (d) to  the  Borrower's  knowledge,  none  of  the  Properties
contain  or  have  contained   any:  (i)   underground   storage   tanks;   (ii)
asbestos-containing materials; or (iii) landfills or dumps; (iv) hazardous waste
management units as defined pursuant to RCRA or any comparable state law; or (v)
sites on or nominated  for the National  Priority List  promulgated  pursuant to
CERCLA or any state remedial priority list promulgated or published  pursuant to
any comparable state law;

                  (e) to the Borrower's knowledge,  there has been no Release or
threatened  Release,  of  Hazardous  Materials  at,  on,  under  or from  any of
Borrower's  or  its  Subsidiaries'  Properties,  there  are  no  investigations,
remediations,  abatements,  removals,  or  monitorings  of  Hazardous  Materials
required under applicable Environmental Laws at such Properties and none of such
Properties  are  adversely  affected by any Release or  threatened  Release of a
Hazardous Material originating or emanating from any other real property,

                                      -40-
<PAGE>

                  (f) neither the Borrower nor its Subsidiaries has received any
written notice asserting an alleged liability or obligation under any applicable
Environmental  Laws with respect to the investigation,  remediation,  abatement,
removal,  or  monitoring of any  Hazardous  Materials at, under,  or Released or
threatened to be Released from any real properties offsite the Borrower's or its
Subsidiaries' Properties and there are no conditions or circumstances that would
reasonably be expected to result in the receipt of such written notice.

                  (g) there has been no  exposure  of any Person or  property to
any Hazardous  Materials as a result of or in connection with the operations and
businesses of any of the Borrower's or its  Subsidiaries'  Properties that would
reasonably be expected to form the basis for a claim for damages or compensation
and there are no conditions or  circumstances  that would reasonably be expected
to result in the receipt of notice regarding such exposure; and

                  (h) the Borrower and its Subsidiaries have provided to Lenders
complete  and  correct  copies of all  environmental  site  assessment  reports,
investigations,  studies,  analyses, and correspondence on environmental matters
(including  matters  relating to any alleged  non-compliance  with or  liability
under Environmental Laws) that are in any of the Borrower's or its Subsidiaries'
possession or control and relating to their respective  Properties or operations
thereon.

         Section 7.07 Compliance with the Laws and Agreements; No Defaults.

                  (a) Each of the Borrower and each  Subsidiary is in compliance
with all  Governmental  Requirements  applicable  to it or its  Property and all
agreements and other instruments binding upon it or its Property,  and possesses
all licenses, permits, franchises,  exemptions, approvals and other governmental
authorizations  necessary  for the  ownership of its Property and the conduct of
its  business,  except  where  the  failure  to do  so,  individually  or in the
aggregate,  could not  reasonably  be expected  to result in a Material  Adverse
Effect.

                  (b) Neither the Borrower nor any  Subsidiary is in default nor
has any event or  circumstance  occurred  which,  but for the  expiration of any
applicable  grace period or the giving of notice,  or both,  would  constitute a
default or would  require  the  Borrower or a  Subsidiary  to Redeem or make any
offer to Redeem  under any  indenture,  note,  credit  agreement  or  instrument
pursuant  to which any  Material  Indebtedness  is  outstanding  or by which the
Borrower or any Subsidiary or any of their Properties is bound.

                  (c) No Default has occurred and is continuing.

         Section  7.08  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, or subject to regulation under, the
Investment Company Act of 1940, as amended.

         Section  7.09 Taxes.  Each of the  Borrower  and its  Subsidiaries  has
timely filed or caused to be filed all Tax returns and reports  required to have
been  filed and has paid or caused  to be paid all Taxes  required  to have been
paid by it,  except  (a)  Taxes  that  are  being  contested  in good  faith  by
appropriate  proceedings  and for  which the  Borrower  or such  Subsidiary,  as
applicable, has set aside on its books adequate reserves in accordance with GAAP
or (b) to the extent that the failure to do so could not  reasonably be expected
to result in a Material  Adverse Effect.  The charges,  accruals and reserves on
the books of the  Borrower  and its  Subsidiaries  in respect of Taxes and other
governmental  charges are, in the reasonable opinion of the Borrower,  adequate.
No Tax Lien has been filed and, to the  knowledge of the  Borrower,  no claim is
being asserted with respect to any such Tax or other such governmental charge.

                                      -41-
<PAGE>

         Section 7.10 ERISA.

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

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

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

                  (d) No Plan  (other than a defined  contribution  plan) or any
trust created under any such Plan has been  terminated  since September 2, 1974.
No liability to the PBGC (other than for the payment of current  premiums  which
are not past due) by the Borrower,  any  Subsidiary  or any ERISA  Affiliate has
been or is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be
incurred  with respect to any Plan.  No ERISA Event with respect to any Plan has
occurred.

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

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

                  (g)  Neither  the  Borrower,  the  Subsidiaries  nor any ERISA
Affiliate  sponsors,  maintains,  or contributes to an employee  welfare benefit
plan, as defined in section 3(1) of ERISA,  including,  without limitation,  any
such plan maintained to provide  benefits to former  employees of such entities,
that may not be terminated by the Borrower,  a Subsidiary or any ERISA Affiliate
in its sole discretion at any time without any material liability.

                  (h)  Neither  the  Borrower,  the  Subsidiaries  nor any ERISA
Affiliate  sponsors,  maintains  or  contributes  to,  or has at any time in the
six-year period preceding the date hereof  sponsored,  maintained or contributed
to, any Multiemployer Plan.

                  (i)  Neither  the  Borrower,  the  Subsidiaries  nor any ERISA
Affiliate is required to provide  security under section  401(a)(29) of the Code
due to a Plan amendment that results in an increase in current liability for the
Plan.

                                      -42-
<PAGE>

         Section 7.11 Disclosure;  No Material  Misstatements.  The Borrower has
disclosed  to  the   Administrative   Agent  and  the  Lenders  all  agreements,
instruments  and  corporate  or  other  restrictions  to  which it or any of its
Subsidiaries is subject,  and all other matters known to it, that,  individually
or in the  aggregate,  could  reasonably  be  expected  to result in a  Material
Adverse Effect. None of the other reports, financial statements, certificates or
other information furnished by or on behalf of the Borrower or any Subsidiary to
the Administrative  Agent or any Lender or any of their Affiliates in connection
with the  negotiation  of this Agreement or any other Loan Document or delivered
hereunder or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements  therein,  in the light
of the circumstances under which they were made, not misleading;  provided that,
with respect to projected  financial  information,  the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable  at the time.  There is no fact peculiar to the Borrower or any
Subsidiary  which could reasonably be expected to have a Material Adverse Effect
or in the  future is  reasonably  likely to have a Material  Adverse  Effect and
which  has not been set forth in this  Agreement  or the Loan  Documents  or the
other  documents,  certificates and statements  furnished to the  Administrative
Agent or the Lenders by or on behalf of the Borrower or any Subsidiary prior to,
or on, the date hereof in connection with the transactions  contemplated hereby.
There are no statements  or  conclusions  in any Reserve  Report which are based
upon or include  misleading  information  or fail to take into account  material
information regarding the matters reported therein.

         Section 7.12  Insurance.  The  Borrower  has, and has caused all of its
Subsidiaries to have, (a) all insurance  policies  sufficient for the compliance
by each of them with all  material  Governmental  Requirements  and all material
agreements and (b) insurance  coverage in at least amounts and against such risk
(including,  without  limitation,  public  liability)  that are usually  insured
against by  companies  similarly  situated  and engaged in the same or a similar
business for the assets and operations of the Borrower and its Subsidiaries. The
Administrative  Agent and the Lenders have been named as additional  insureds in
respect of such liability  insurance policies and the  Administrative  Agent has
been named as loss payee with respect to Property loss insurance.

         Section 7.13 Restriction on Liens.  Neither the Borrower nor any of the
Subsidiaries  is a party to any material  agreement or  arrangement  (other than
Capital Leases creating Liens permitted by Section 9.03(c), but then only on the
Property subject of such Capital Lease), or subject to any order, judgment, writ
or decree,  which either  restricts or purports to restrict its ability to grant
Liens to the  Administrative  Agent and the  Lenders  on or in  respect of their
Properties to secure the Indebtedness and the Loan Documents.

         Section 7.14  Subsidiaries.  Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower
has no Subsidiaries and the Borrower has no Foreign Subsidiaries.

         Section  7.15  Location  of  Business  and  Offices.   The   Borrower's
jurisdiction of  organization  is Nevada;  the name of the Borrower as listed in
the public records of its jurisdiction of organization is Trans Energy Inc.; and
the organizational  identification number of the Borrower in its jurisdiction of
organization  is  C20070523-0173  (or,  in each  case,  as set forth in a notice
delivered to the Administrative  Agent pursuant to Section 8.01(m) in accordance
with  Section  12.01).  The  Borrower's  principal  place of business  and chief
executive  offices are located at the address  specified in Section 12.01 (or as
set  forth in a  notice  delivered  pursuant  to  Section  8.01(m)  and  Section
12.01(c)). Each Subsidiary's jurisdiction of organization, name as listed in the
public   records   of   its   jurisdiction   of   organization,   organizational
identification  number in its jurisdiction of organization,  and the location of
its principal place of business and chief executive office is stated on Schedule
7.14 (or as set forth in a notice delivered pursuant to Section 8.01(m)).

                                      -43-
<PAGE>

         Section 7.16 Properties; Titles, Etc.

                  (a) Each of the  Borrower  and the  Subsidiaries  has good and
defensible  title to the Oil and Gas  Properties  evaluated in the most recently
delivered Reserve Report and good title to all its personal Properties,  in each
case, free and clear of all Liens except Liens permitted by Section 9.03.  After
giving  full  effect to the  Excepted  Liens,  the  Borrower  or the  Subsidiary
specified as the owner owns the net interests in production  attributable to the
Hydrocarbon  Interests  as  reflected  in the most  recently  delivered  Reserve
Report,  and the ownership of such Properties  shall not in any material respect
obligate the Borrower or such Subsidiary to bear the costs and expenses relating
to the  maintenance,  development  and  operations  of each such  Property in an
amount in excess of the working  interest of each Property set forth in the most
recently  delivered  Reserve  Report  that  is  not  offset  by a  corresponding
proportionate  increase  in the  Borrower's  or such  Subsidiary's  net  revenue
interest in such Property.

                  (b) All  material  leases  and  agreements  necessary  for the
conduct of the  business  of the  Borrower  and the  Subsidiaries  are valid and
subsisting,  in full force and effect,  and there  exists no default or event or
circumstance  which  with the  giving of notice or the  passage  of time or both
would  give  rise to a default  under  any such  lease or  leases,  which  could
reasonably be expected to have a Material Adverse Effect.

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

                  (d) All of the Properties of the Borrower and the Subsidiaries
which are reasonably necessary for the operation of their businesses are in good
working  condition  and are  maintained  in  accordance  with  prudent  business
standards.

                  (e) The Borrower and its Subsidiaries either own or have valid
licenses or other  rights to use all  databases,  geological  data,  geophysical
data, engineering data, seismic data, maps,  interpretations and other technical
information  used in their  businesses  as presently  conducted,  subject to the
limitations  contained in the  agreements  governing the use of the same,  which
limitations  are  customary  for  companies  engaged  in  the  business  of  the
exploration  and production of  Hydrocarbons,  with such exceptions as could not
reasonably be expected to have a Material Adverse Effect.

         Section  7.17  Maintenance  of  Properties.  Except  for  such  acts or
failures to act as could not be reasonably  expected to have a Material  Adverse
Effect,  the Oil and Gas Properties (and Properties  unitized  therewith) of the
Borrower and its Subsidiaries have been maintained,  operated and developed in a
good and workmanlike manner and in conformity with all Governmental Requirements
and in  conformity  with  the  provisions  of all  leases,  subleases  or  other
contracts comprising a part of the Hydrocarbon Interests and other contracts and
agreements  forming a part of the Oil and Gas Properties of the Borrower and its
Subsidiaries. Specifically in connection with the foregoing, except for those as
could not be reasonably  expected to have a Material Adverse Effect,  (i) no Oil
and Gas  Property  of the  Borrower  or any  Subsidiary  is  subject  to  having
allowable production reduced below the full and regular allowable (including the
maximum permissible tolerance) because of any overproduction (whether or not the
same was  permissible at the time) and (ii) none of the wells  comprising a part
of the Oil and Gas Properties (or Properties unitized therewith) of the Borrower
or any Subsidiary is deviated from the vertical more than the maximum  permitted
by Governmental  Requirements,  and such wells are, in fact,  bottomed under and

                                      -44-
<PAGE>

are  producing  from,  and the well  bores are  wholly  within,  the Oil and Gas
Properties  (or in the case of wells located on Properties  unitized  therewith,
such unitized  Properties)  of the Borrower or such  Subsidiary.  All pipelines,
wells,  gas  processing  plants,  platforms  and  other  material  improvements,
fixtures and  equipment  owned in whole or in part by the Borrower or any of its
Subsidiaries   that  are  necessary  to  conduct  normal  operations  are  being
maintained in a state adequate to conduct normal operations, and with respect to
such  of  the  foregoing  which  are  operated  by  the  Borrower  or any of its
Subsidiaries,  in a manner  consistent with the Borrower's or its  Subsidiaries'
past practices  (other than those the failure of which to maintain in accordance
with this  Section  7.17 could not  reasonably  be  expected  to have a Material
Adverse Effect).

         Section  7.18  Gas  Imbalances,  Prepayments.  Except  as set  forth on
Schedule 7.18 or on the most recent  certificate  delivered  pursuant to Section
8.11(c),  on a net  basis  there  are no gas  imbalances,  take or pay or  other
prepayments  which would  require the  Borrower  or any of its  Subsidiaries  to
deliver  Hydrocarbons  produced  from the Oil and Gas  Properties at some future
time without then or thereafter receiving full payment therefor exceeding 20,000
mcf of gas (on an mcf equivalent basis) in the aggregate.

         Section 7.19 Marketing of Production.  Except for contracts  listed and
in effect on the date hereof on Schedule 7.19, and thereafter  either  disclosed
in  writing  to the  Administrative  Agent  or  included  in the  most  recently
delivered  Reserve  Report (with respect to all of which  contracts the Borrower
represents that it or its  Subsidiaries are receiving a price for all production
sold thereunder which is computed  substantially in accordance with the terms of
the relevant  contract  and are not having  deliveries  curtailed  substantially
below the subject Property's  delivery  capacity),  no material agreements exist
which are not cancelable on 60 days notice or less without  penalty or detriment
for the sale of production from the Borrower's or its Subsidiaries' Hydrocarbons
(including,   without  limitation,   calls  on  or  other  rights  to  purchase,
production,  whether or not the same are  currently  being  exercised)  that (a)
pertain to the sale of  production  at a fixed  price and (b) have a maturity or
expiry date of longer than six (6) months from the date hereof.

         Section  7.20 Swap  Agreements.  After  the date  hereof,  each  report
required to be delivered by the Borrower  pursuant to Section 8.01(e) sets forth
a true  and  complete  list of all  Swap  Agreements  of the  Borrower  and each
Subsidiary,  the material  terms thereof  (including the type,  term,  effective
date,  termination date and notional amounts or volumes), the net mark to market
value thereof,  all credit support  agreements  relating thereto  (including any
margin required or supplied) and the counterparty to each such agreement.

         Section  7.21 Use of Loans and Letters of Credit.  The  proceeds of the
Loans and the  Letters  of Credit  shall be used for the  purposes  set forth on
Schedule 7.21. The Borrower and its Subsidiaries are not engaged principally, or
as one of its or their important activities, in the business of extending credit
for the  purpose,  whether  immediate,  incidental  or  ultimate,  of  buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board).
No part of the  proceeds  of any Loan or Letter  of Credit  will be used for any
purpose which violates the provisions of Regulations T, U or X of the Board.

         Section  7.22  Solvency.   After  giving  effect  to  the  transactions
contemplated  hereby,  (a) the aggregate  assets (after giving effect to amounts
that could reasonably be received by reason of indemnity,  offset,  insurance or
any  similar  arrangement),  at a  fair  valuation,  of  the  Borrower  and  the
Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrower and
the  Guarantors  on a  consolidated  basis,  as the Debt  becomes  absolute  and
matures,  (b) each of the Borrower and the Guarantors  will not have incurred or
intended  to incur,  and will not believe  that it will  incur,  Debt beyond its
ability to pay such Debt (after  taking  into  account the timing and amounts of
cash to be received by each of the Borrower and the  Guarantors  and the amounts
to be payable on or in respect of its liabilities,  and giving effect to amounts

                                      -45-
<PAGE>

that could reasonably be received by reason of indemnity,  offset,  insurance or
any similar  arrangement) as such Debt becomes absolute and matures and (c) each
of the  Borrower  and the  Guarantors  will not have (and will have no reason to
believe that it will have thereafter) unreasonably small capital for the conduct
of its business.

         Section 7.23 Development Plan.

                  (a) The Administrative Agent has been provided with a true and
correct copy of the  Development  Plan,  which is attached  hereto as Exhibit I.
Except as permitted  pursuant to Section 9.19, the Development Plan has not been
terminated, amended, modified or supplemented.

                  (b) The Borrower has obtained all consents  from  Governmental
Authorities  necessary  to implement  and complete in all material  respects the
Development Plan as in effect on the Effective Date.

                  (c) The  Development  Plan  complies in all material  respects
with all applicable restrictive covenants and Governmental Requirements and with
all  applicable  Environmental  Laws.  The  Development  Plan  covers  all  work
reasonably necessary (i) to drill and complete all wells scheduled to be drilled
thereunder, (ii) to construct, install and commence operations of the production
facilities  related  thereto  and (iii) to  complete  and  operate  all wells as
contemplated  in  connection  therewith.  The budget  (including  the budget for
capital costs described  therein) for the Development  Plan has been prepared by
the  Borrower  in good  faith  and  represents  the  total  costs  and  expenses
anticipated by the Borrower. The development schedule in the Development Plan is
realistic and feasible.

                                  ARTICLE VIII
                              Affirmative Covenants

         Until the Commitments have expired or been terminated and the principal
of and  interest  on each  Loan and all fees  payable  hereunder  and all  other
amounts  payable under the Loan  Documents  shall have been paid in full and all
Letters of Credit  shall have  expired or  terminated  and all LC  Disbursements
shall have been reimbursed,  the Borrower  covenants and agrees with the Lenders
that:

         Section 8.01 Financial  Statements;  Ratings Change; Other Information.
The Borrower will furnish to the Administrative Agent and each Lender:

                  (a) Annual Financial Statements.  As soon as available, but in
any event in  accordance  with then  applicable  law and not later  than 90 days
after the end of each fiscal  year of the  Borrower,  its  audited  consolidated
balance sheet and related  statements of  operations,  stockholders'  equity and
cash  flows as of the end of and for such  year,  setting  forth in each case in
comparative  form the figures for the previous  fiscal year,  all reported on by
independent public accountants acceptable to the Administrative Agent (without a
"going concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such consolidated
financial  statements  present  fairly in all material  respects  the  financial
condition  and  results  of  operations  of the  Borrower  and its  Consolidated
Subsidiaries  on a  consolidated  basis in  accordance  with  GAAP  consistently
applied.

                  (b) Quarterly Financial Statements.  As soon as available, but
in any event in accordance  with then  applicable law and not later than 45 days
after the end of each of the first three fiscal  quarters of each fiscal year of
the  Borrower,   its  consolidated  balance  sheet  and  related  statements  of
operations,  stockholders'  equity  and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth in
each  case in  comparative  form the  figures  for the  corresponding  period or

                                      -46-
<PAGE>

periods of (or, in the case of the balance sheet, as of the end of) the previous
fiscal year,  all  certified by one of its  Responsible  Officers as  presenting
fairly  in  all  material  respects  the  financial  condition  and  results  of
operations of the Borrower and its  Consolidated  Subsidiaries on a consolidated
basis in accordance with GAAP consistently  applied,  subject to normal year-end
audit adjustments and the absence of footnotes.

                  (c)   Certificate  of   Responsible   Officer  --  Compliance.
Concurrently with any delivery of financial  statements under Section 8.01(a) or
Section 8.01(b),  a certificate of a Responsible  Officer in  substantially  the
form of Exhibit D hereto (i)  certifying  as to whether a Default  has  occurred
and, if a Default has occurred,  specifying  the details  thereof and any action
taken  or  proposed  to be  taken  with  respect  thereto,  (ii)  setting  forth
reasonably detailed calculations  demonstrating  compliance with Section 8.12(b)
and  Section  9.01  and  (iii)  stating  whether  any  change  in GAAP or in the
application  thereof  has  occurred  since  the  date of the  audited  financial
statements  referred to in Section  7.04 and,  if any such change has  occurred,
specifying  the effect of such change on the financial  statements  accompanying
such certificate.

                  (d) Certificate of Accounting  Firm -- Defaults.  Concurrently
with any delivery of financial  statements under Section 8.01(a),  a certificate
of the  accounting  firm that  reported  on such  financial  statements  stating
whether they obtained  knowledge during the course of their  examination of such
financial  statements of any Default  (which  certificate  may be limited to the
extent required by accounting rules or guidelines).

                  (e)  Certificate  of  Responsible  Officer - Swap  Agreements.
Concurrently with any delivery of financial statements under Section 8.01(a) and
Section 8.01(b), a true and complete list of all Swap Agreements of the Borrower
and each  Subsidiary,  the material  terms thereof  (including  the type,  term,
effective  date,  termination  date and notional  amounts or  volumes),  the net
mark-to-market  value  therefor,  any new  credit  support  agreements  relating
thereto not listed on Schedule 7.19,  any margin  required or supplied under any
credit support document, and the counterparty to each such agreement.

                  (f) Certificate of Insurer -- Insurance Coverage. Concurrently
with any delivery of financial  statements under Section 8.01(a),  a certificate
of insurance  coverage from each insurer with respect to the insurance  required
by Section 8.06, in form and substance satisfactory to the Administrative Agent,
and, if  requested  by the  Administrative  Agent or any  Lender,  copies of the
applicable policies.

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

                  (h) Reports to  Shareholders.  Promptly  after the same become
publicly available,  copies of all periodic and other reports,  proxy statements
and other materials distributed by the Borrower to its shareholders generally.

                  (i) SEC and Other Filings;  Reports to Shareholders.  Promptly
after  the  same  become  publicly  available,  notice  of  all  reports,  proxy
statements and other  materials filed by the Borrower or any Subsidiary with the
SEC, or with any national securities exchange.

                  (j) Lists of Purchasers. Concurrently with the delivery of any
financial  statements to the Administrative Agent pursuant to Section 8.01(a) or
(b), a list of all  Persons  purchasing  Hydrocarbons  from the  Borrower or any
Subsidiary.

                                      -47-
<PAGE>

                  (k)  Notice of Sales of Oil and Gas  Properties.  In the event
the Borrower or any Subsidiary  intends to sell,  transfer,  assign or otherwise
dispose of any Oil or Gas Properties or any Equity  Interests in any Subsidiary,
prior written notice of such disposition,  the price thereof and the anticipated
date of closing and any other details  thereof  requested by the  Administrative
Agent or any Lender.

                  (l) Notice of Casualty Events.  Prompt written notice,  and in
any event within three Business Days, of the occurrence of any Casualty Event or
the  commencement of any action or proceeding that could  reasonably be expected
to result in a Casualty Event.

                  (m)  Information  Regarding  Borrower and  Guarantors.  Prompt
written  notice (and in any event within thirty (30) days prior  thereto) of any
change (i) in the Borrower's or any  Guarantor's  corporate name or in any trade
name used to  identify  such  Person in the  conduct of its  business  or in the
ownership  of its  Properties,  (ii) in the  location of the  Borrower's  or any
Guarantor's chief executive office or principal place of business,  (iii) in the
Borrower's  or  any  Guarantor's  identity  or  corporate  structure  or in  the
jurisdiction  in which  such  Person  is  incorporated  or  formed,  (iv) in the
Borrower's or any  Guarantor's  jurisdiction  of  organization  or such Person's
organizational  identification number in such jurisdiction of organization,  and
(v) in the Borrower's or any Guarantor's federal taxpayer identification number.

                  (n) Other  Reports.  The Borrower shall prepare and provide to
the Lenders and Administrative Agent the following reports:

                       (i) on a monthly  basis by the 30th of each  month  after
         the end of each  calendar  month,  a  report  setting  forth,  for such
         calendar  month,  the volume of production  and sales  attributable  to
         production  (and the  prices  at which  such  sales  were  made and the
         revenues derived from such sales) for each such calendar month from the
         Oil and Gas  Properties,  and  setting  forth the  related ad  valorem,
         severance   and   production   taxes  and  lease   operating   expenses
         attributable thereto and incurred for such calendar month.

                       (ii)  Upon  the   occurrence   of  any   Borrowing   Base
         Deficiency,  the Borrower shall provide, on a monthly basis on the 15th
         of each month after the end of each  calendar  moth,  a report  setting
         forth, for such calendar month, the Borrower's Excess Cash Flow;

                       (iii) such other information as the Administrative  Agent
         may  reasonably  request,  including,  but not limited to, an unaudited
         income statement,  a consolidated balance sheet and a statement of cash
         flow  (with  such  statement  to show any  variations  from the  budget
         previously   delivered),   copies  of  the   Borrower's   bank  account
         statements,  statement of expenses for the preceding  month,  notice of
         any  material  changes  with  regard  to oil and gas  prices  received,
         contracts or production expenses or any material  litigation  affecting
         the operation of the Oil and Gas Properties of the Borrower.

                       (iv) As soon as  available,  and in any event,  within 30
         days  following  the end of each  calendar  month,  the Borrower  shall
         deliver evidence  showing (A) whether actual  development is proceeding
         in accordance with the schedule set forth in the  Development  Plan (or
         if not, specifying any variations or delays) and (B) whether the amount
         theretofore spent,  together with the funds remaining to be advanced by
         the Lenders under the terms of this Agreement, are adequate to meet all
         costs  incurred and  projected to be incurred to complete all phases of
         the Development Plan.

                  (o)  Notices of Certain  Changes.  Promptly,  but in any event
within  five (5)  Business  Days  after  the  execution  thereof,  copies of any
amendment,  modification  or supplement  to the  Organizational  Documents,  any
preferred stock designation or any other organic document of the Borrower or any
Subsidiary.

                                      -48-
<PAGE>

                  (p)  Other  Requested  Information.   Promptly  following  any
request  therefor,  such other  information  regarding the operations,  business
affairs and financial  condition of the Borrower or any  Subsidiary  (including,
without  limitation,  any Plan or  Multiemployer  Plan and any  reports or other
information  required to be filed under ERISA),  or compliance with the terms of
this Agreement or any other Loan Document,  as the  Administrative  Agent or any
Lender may reasonably request.

         Section 8.02 Notices of Material  Events.  The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:

                  (a) the occurrence of any Default;

                  (b) the  filing or  commencement  of, or the threat in writing
of, any action, suit, proceeding,  investigation or arbitration by or before any
arbitrator or  Governmental  Authority  against or affecting the Borrower or any
Affiliate  thereof  not  previously  disclosed  in writing to the Lenders or any
material adverse development in any action, suit,  proceeding,  investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case,  if  adversely  determined,  could  reasonably  be expected to result in a
Material Adverse Effect;

                  (c) the occurrence of any ERISA Event that,  alone or together
with any other ERISA Events that have occurred,  could reasonably be expected to
result in liability of the Borrower and its  Subsidiaries in an aggregate amount
exceeding $250,000; and

                  (d) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect.

Each  notice  delivered  under  this  Section  8.02  shall be  accompanied  by a
statement of a  Responsible  Officer  setting  forth the details of the event or
development  requiring  such notice and any action taken or proposed to be taken
with respect thereto.

         Section 8.03  Existence;  Conduct of Business.  The Borrower  will, and
will cause each  Subsidiary  to, do or cause to be done all things  necessary to
preserve,  renew and keep in full force and effect its legal  existence  and the
rights, licenses,  permits, privileges and franchises material to the conduct of
its business and maintain,  if necessary,  its  qualification  to do business in
each other  jurisdiction  in which its Oil and Gas  Properties is located or the
ownership  of its  Properties  requires  such  qualification,  except  where the
failure  to so  qualify  could not  reasonably  be  expected  to have a Material
Adverse  Effect;  provided  that the  foregoing  shall not  prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.

         Section 8.04 Payment of Obligations.  The Borrower will, and will cause
each  Subsidiary  to, pay its  obligations,  including  Tax  liabilities  of the
Borrower and all of its Subsidiaries  before the same shall become delinquent or
in default,  except where (a) the validity or amount thereof is being  contested
in good faith by appropriate  proceedings,  (b) the Borrower or such  Subsidiary
has set aside on its books adequate  reserves with respect thereto in accordance
with GAAP and (c) the failure to make payment  pending  such  contest  could not
reasonably be expected to result in a Material  Adverse  Effect or result in the
seizure or levy of any Property of the Borrower or any Subsidiary.

         Section 8.05 Operation and Maintenance of Properties.  The Borrower, at
its own expense, will, and will cause each Subsidiary to:

                  (a)  operate  its Oil and Gas  Properties  and other  material
Properties or cause such Oil and Gas Properties and other material Properties to
be operated in a careful and efficient  manner in accordance  with the practices

                                      -49-
<PAGE>

of the industry and in compliance  with all applicable  contracts and agreements
and  in  compliance  with  all  Governmental  Requirements,  including,  without
limitation,  applicable pro ration  requirements and Environmental Laws, and all
applicable  laws,  rules and regulations of every other  Governmental  Authority
from time to time  constituted to regulate the  development and operation of its
Oil and Gas Properties and the  production  and sale of  Hydrocarbons  and other
minerals therefrom,  except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.

                  (b) keep and maintain all Property  material to the conduct of
its  business  in good  working  order  and  condition,  ordinary  wear and tear
excepted,  and  preserve,  maintain and keep in good repair,  working  order and
efficiency  (ordinary  wear and tear  excepted)  all of its material Oil and Gas
Properties and other material  Properties,  including,  without limitation,  all
equipment, machinery and facilities.

                  (c)  promptly  pay  and  discharge,  or  make  reasonable  and
customary  efforts  to cause  to be paid  and  discharged,  all  delay  rentals,
royalties,  expenses  and  indebtedness  accruing  under  the  leases  or  other
agreements affecting or pertaining to its Oil and Gas Properties and will do all
other things  necessary to keep unimpaired their rights with respect thereto and
prevent any forfeiture thereof or default thereunder.

                  (d) promptly perform or make reasonable and customary  efforts
to cause to be performed, in accordance with industry standards, the obligations
required  by  each  and  all  of the  assignments,  deeds,  leases,  sub-leases,
contracts and  agreements  affecting its interests in its Oil and Gas Properties
and other material Properties.

                  (e)  operate  its Oil and Gas  Properties  and other  material
Properties or cause or make  reasonable and customary  efforts to cause such Oil
and Gas Properties  and other  material  Properties to be operated in accordance
with  the  practices  of  the  industry  and in  material  compliance  with  all
applicable  contracts and agreements and in compliance in all material  respects
with all Governmental Requirements.

                  (f) to the  extent the  Borrower  is not the  operator  of any
Property,  the Borrower  shall use  reasonable  efforts to cause the operator to
comply with this Section 8.05.

         Section  8.06  Insurance.  The  Borrower  will,  and  will  cause  each
Subsidiary  to,  maintain,   with  financially  sound  and  reputable  insurance
companies,  insurance in such amounts and against such risks as are  customarily
maintained by companies engaged in the same or similar  businesses  operating in
the same or similar  locations.  The loss payable  clauses or provisions in said
insurance policy or policies  insuring any of the collateral for the Loans shall
be  endorsed  in favor of and made  payable to the  Administrative  Agent as its
interests may appear and such policies shall name the  Administrative  Agent and
the Lenders as "additional  insureds" and provide that the insurer will endeavor
to give at least 30 days prior notice of any cancellation to the  Administrative
Agent.

         Section 8.07 Books and Records;  Inspection  Rights. The Borrower will,
and will cause each  Subsidiary  to, keep proper  books of record and account in
which full, true and correct  entries are made of all dealings and  transactions
in relation to its business and  activities.  The Borrower  will, and will cause
each Subsidiary to, permit any representatives  designated by the Administrative
Agent or any Lender,  upon  reasonable  prior  notice,  to visit and inspect its
Properties,  to examine and make  extracts  from its books and  records,  and to
discuss its affairs,  finances and condition  with its officers and  independent
accountants, all at such reasonable times and as often as reasonably requested.

                                      -50-
<PAGE>

         Section 8.08  Compliance  with Laws.  The Borrower will, and will cause
each Subsidiary to, comply with all laws,  rules,  regulations and orders of any
Governmental  Authority  applicable  to it or its  Property,  except  where  the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

         Section 8.09 Environmental Matters.

                  (a) The Borrower  shall at its sole expense:  (i) comply,  and
shall  cause  its  Properties  and  operations  and  each  Subsidiary  and  each
Subsidiary's   Properties  and   operations  to  comply,   with  all  applicable
Environmental  Laws, the breach of which could be reasonably  expected to have a
Material  Adverse Effect;  (ii) not dispose of or otherwise  release,  and shall
cause each Subsidiary not to dispose of or otherwise  release,  any oil, oil and
gas waste,  hazardous substance,  or solid waste on, under, about or from any of
the  Borrower's or its  Subsidiaries'  Properties  or any other  Property to the
extent caused by the Borrower's or any of its Subsidiaries' operations except in
compliance with applicable  Environmental Laws, the disposal or release of which
could  reasonably be expected to have a Material  Adverse  Effect;  (iii) timely
obtain or file,  and shall cause each  Subsidiary to timely obtain or file,  all
notices,  permits,  licenses,  exemptions,  approvals,  registrations  or  other
authorizations,  if any,  required  under  applicable  Environmental  Laws to be
obtained or filed in connection  with the operation or use of the  Borrower's or
its Subsidiaries'  Properties,  which failure to obtain or file could reasonably
be  expected to have a Material  Adverse  Effect;  (iv)  promptly  commence  and
diligently prosecute to completion,  and shall cause each Subsidiary to promptly
commence and diligently  prosecute to completion,  any  assessment,  evaluation,
investigation,  monitoring,  containment, cleanup, removal, repair, restoration,
remediation or other remedial obligations (collectively, the "Remedial Work") in
the event any Remedial Work is required or reasonably necessary under applicable
Environmental  Laws  because of or in  connection  with the actual or  suspected
past, present or future disposal or other release of any oil, oil and gas waste,
hazardous  substance  or  solid  waste  on,  under,  about  or  from  any of the
Borrower's  or its  Subsidiaries'  Properties,  which  failure to  commence  and
diligently  prosecute  to  completion  could  reasonably  be  expected to have a
Material Adverse Effect;  and (v) establish and implement,  and shall cause each
Subsidiary to establish and implement,  such policies of environmental audit and
compliance  as may be necessary to  continuously  determine  and assure that the
Borrower's  and its  Subsidiaries'  obligations  under this Section  8.09(a) are
timely and fully  satisfied,  which  failure to establish  and  implement  could
reasonably be expected to have a Material Adverse Effect.

                  (b) The  Borrower  will  promptly,  but in no event later than
five days of the  occurrence of a triggering  event,  notify the  Administrative
Agent and the  Lenders in writing of any  threatened  action,  investigation  or
inquiry by any Governmental Authority or any threatened demand or lawsuit by any
landowner or other third party against the Borrower or its Subsidiaries or their
Properties  of  which  the  Borrower  has  knowledge  in  connection   with  any
Environmental  Laws  (excluding  routine  testing and corrective  action) if the
Borrower  reasonably  anticipates  that such  action  will  result in  liability
(whether  individually  or in the aggregate) in excess of $1,000,000,  not fully
covered by insurance, subject to normal deductibles.

                  (c) The  Borrower  will,  and will  cause each  Subsidiary  to
provide  environmental  audits and tests in accordance with American  Society of
Testing Materials  standards if and only if (i) the Borrower acquires additional
Oil and Gas Properties,  (ii) the  Administrative  Agent and the Lenders request
such an audit with respect to such additional Oil and Gas Properties,  and (iii)
such an audit  or  request  has not been  requested  in the past  calendar  year
(unless an Event of Default  has  occurred  and is  continuing  or as  otherwise
required  to be  obtained  by the  Administrative  Agent or the  Lenders  by any
Governmental Authority).

                                      -51-
<PAGE>

         Section 8.10 Further Assurances.

                  (a) The Borrower at its sole expense will, and will cause each
Subsidiary to, promptly execute and deliver to the Administrative Agent all such
other  documents,   agreements  and  instruments  reasonably  requested  by  the
Administrative  Agent  to  comply  with,  cure any  defects  or  accomplish  the
conditions   precedent,   covenants  and  agreements  of  the  Borrower  or  any
Subsidiary,  as the case may be, in the Loan Documents,  including the Notes, or
to further evidence and more fully describe the collateral  intended as security
for the  Indebtedness,  or to correct any  omissions  in this  Agreement  or the
Security Instruments, or to state more fully the obligations secured therein, or
to perfect,  protect or preserve any Liens created pursuant to this Agreement or
any of the  Security  Instruments  or  the  priority  thereof,  or to  make  any
recordings,  file any notices or obtain any  consents,  all as may be reasonably
necessary or appropriate, in the sole discretion of the Administrative Agent, in
connection therewith.

                  (b) The Borrower hereby authorizes the Administrative Agent to
file one or more financing or continuation  statements,  and amendments thereto,
relative to all or any part of the Mortgaged  Property  without the signature of
the  Borrower  or  any  other  Guarantor  where  permitted  by  law.  A  carbon,
photographic or other reproduction of the Security  Instruments or any financing
statement  covering  the  Mortgaged  Property  or  any  part  thereof  shall  be
sufficient as a financing statement where permitted by law.

         Section 8.11 Reserve Reports.

                  (a) On or before March 30th and  September  30th of each year,
commencing  September 30, 2007, the Borrower shall furnish to the Administrative
Agent and the Lenders a Reserve Report  evaluating the Oil and Gas Properties of
the Borrower and its  Subsidiaries as of the immediately  preceding  January 1st
and July 1st. The Reserve  Report as of January 1 of each year shall be prepared
by one or more petroleum engineers  acceptable to the Administrative  Agent, and
the July 1  Reserve  Report  of each  year  shall be  prepared  by or under  the
supervision of the chief engineer of the Borrower who shall certify such Reserve
Report to be true and accurate and to have been prepared in accordance  with the
procedures used in the immediately preceding January 1 Reserve Report.

                  (b) In the event of an Interim  Redetermination,  the Borrower
shall  furnish  to the  Administrative  Agent and the  Lenders a Reserve  Report
prepared by or under the  supervision  of the chief engineer of the Borrower who
shall  certify  such  Reserve  Report to be true and  accurate  and to have been
prepared in accordance  with the procedures  used in the  immediately  preceding
January 1 Reserve  Report.  For any  Interim  Redetermination  requested  by the
Administrative  Agent or the Borrower pursuant to Section 2.07(b),  the Borrower
shall  provide  such  Reserve  Report  with an "as of" date as  required  by the
Administrative Agent as soon as possible,  but in any event no later than thirty
(30) days following the receipt of such request.

                  (c) With the  delivery of each  Reserve  Report,  the Borrower
shall provide to the  Administrative  Agent and the Lenders a certificate from a
Responsible   Officer  certifying  that  in  all  material  respects:   (i)  the
information  contained in the Reserve Report and any other information delivered
in  connection  therewith  is  true  and  correct,  (ii)  the  Borrower  or  its
Subsidiaries  owns  good  and  defensible  title  to the Oil and Gas  Properties
evaluated  in such  Reserve  Report  and such  Properties  are free of all Liens
except for Liens  permitted  by Section  9.03,  (iii)  except as set forth on an
exhibit to the certificate,  on a net basis there are no gas imbalances, take or
pay or other  prepayments in excess of the volume specified in Section 7.18 with
respect to its Oil and Gas  Properties  evaluated in such  Reserve  Report which
would  require the Borrower or any  Subsidiary  to deliver  Hydrocarbons  either
generally  or  produced  from such Oil and Gas  Properties  at some  future time
without then or thereafter  receiving full payment therefor,  (iv) none of their
Oil and Gas Properties  have been sold since the date of the last Borrowing Base
determination  except  as set  forth on an  exhibit  to the  certificate,  which
certificate shall list all of its Oil and Gas Properties sold and in such detail
as  reasonably  required  by  the  Administrative  Agent,  (v)  attached  to the

                                      -52-
<PAGE>

certificate is a list of all marketing agreements entered into subsequent to the
later of the date hereof or the most recently delivered Reserve Report which the
Borrower could reasonably be expected to have been obligated to list on Schedule
7.19 had such agreement  been in effect on the date hereof and attached  thereto
is a schedule of the Oil and Gas  Properties  evaluated by such  Reserve  Report
that are Mortgaged  Properties  and  demonstrating  the  percentage of the Total
Reserve  Value of the Oil and Gas  Properties  that the value of such  Mortgaged
Properties represent in compliance with Section 8.13(a).

         Section 8.12 Title Information.

                  (a) On or before the delivery to the Administrative  Agent and
the Lenders of each Reserve  Report  required by Section  8.11(a),  the Borrower
will  deliver  title  information  in  form  and  substance  acceptable  to  the
Administrative  Agent covering enough of the Oil and Gas Properties evaluated by
such Reserve Report that were not included in the immediately  preceding Reserve
Report, so that the Administrative Agent shall have received together with title
information previously delivered to the Administrative Agent, satisfactory title
information  on at  least  80% of the  Total  Reserve  Value  of the Oil and Gas
Properties evaluated by such Reserve Report.

                  (b)  If  the  Borrower  has  provided  title  information  for
additional  Properties under Section 8.12(a), the Borrower shall, within 60 days
of notice from the  Administrative  Agent that title defects or exceptions exist
with  respect  to such  additional  Properties,  either  (i) cure any such title
defects or exceptions (including defects or exceptions as to priority) which are
not  permitted  by Section  9.03  raised by such  information,  (ii)  substitute
acceptable  Mortgaged  Properties with no title defects or exceptions except for
Excepted Liens (other than Excepted Liens  described in clauses (e), (g) and (h)
of  such  definition)   having  an  equivalent  value  or  (iii)  deliver  title
information in form and substance acceptable to the Administrative Agent so that
the  Administrative  Agent shall have received,  together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the  value of the Oil and Gas  Properties  evaluated  by such
Reserve Report.

                  (c) If the  Borrower  is  unable  to  cure  any  title  defect
requested  by the  Administrative  Agent or the  Lenders to be cured  within the
60-day period or the Borrower does not comply with the  requirements  to provide
acceptable  title  information  covering  80% of the  value  of the  Oil and Gas
Properties  evaluated in the most recent Reserve Report,  such default shall not
be a Default,  but instead the Administrative  Agent and/or the Majority Lenders
shall have the right to exercise the following  remedy in their sole  discretion
from time to time,  and any failure to so exercise this remedy at any time shall
not be a waiver as to future exercise of the remedy by the Administrative  Agent
or the  Lenders.  To the extent that the  Administrative  Agent or the  Majority
Lenders are not satisfied with title to any Mortgaged  Property after the 60-day
period has elapsed, such unacceptable Mortgaged Property shall not count towards
the 80%  requirement,  and the  Administrative  Agent  may send a notice  to the
Borrower  and the  Lenders  that the then  outstanding  Borrowing  Base shall be
reduced by an amount as determined by the Majority Lenders to cause the Borrower
to be in compliance with the requirement to provide acceptable title information
on 80% of the value of the Oil and Gas Properties. This new Borrowing Base shall
become effective immediately after receipt of such notice.

         Section 8.13 Additional Collateral; Additional Guarantors.

                  (a) In connection with each  redetermination  of the Borrowing
Base,  the  Borrower  shall  review the  Reserve  Report and the list of current
Mortgaged  Properties (as described in Section 8.11(c)(vi)) to ascertain whether
the  Mortgaged  Properties  represent at least 80% of the Total Reserve Value of
the Oil and Gas  Properties  evaluated in the most  recently  completed  Reserve
Report  after  giving  effect  to   exploration   and   production   activities,
acquisitions,  dispositions  and  production.  In the event  that the  Mortgaged

                                      -53-
<PAGE>

Properties do not represent at least 80% of such Total Reserve  Value,  then the
Borrower shall, and shall cause its  Subsidiaries to, grant,  within thirty (30)
days of delivery of the  certificate  required  under  Section  8.11(c),  to the
Administrative  Agent as security for the  Indebtedness  a  first-priority  Lien
interest  (provided  that Excepted Liens of the type described in clauses (a) to
(d) and (f) of the definition  thereof may exist, but subject to the provisos at
the end of such  definition)  on additional  Oil and Gas  Properties not already
subject to a Lien of the  Security  Instruments  such that after  giving  effect
thereto,  the  Mortgaged  Properties  will  represent at least 80% of such Total
Reserve Value. All such Liens will be created and perfected by and in accordance
with the  provisions  of deeds  of  trust,  security  agreements  and  financing
statements or other Security  Instruments,  all in form and substance reasonably
satisfactory  to the  Administrative  Agent  and  in  sufficient  executed  (and
acknowledged   where  necessary  or  appropriate)   counterparts  for  recording
purposes. In order to comply with the foregoing, if any Subsidiary places a Lien
on its Oil and Gas  Properties and such  Subsidiary is not a Guarantor,  then it
shall become a Guarantor and comply with Section 8.13(b).

                  (b) In the  event  that the  Borrower  forms or  acquires  any
Subsidiary,  the Borrower shall promptly cause such  Subsidiary to guarantee the
Indebtedness  pursuant to the Guaranty  Agreement.  In connection  with any such
guaranty, the Borrower shall, or shall cause such Subsidiary to, (A) execute and
deliver a supplement to the Guaranty Agreement executed by such Subsidiary,  (B)
pledge all of the Equity  Interests of such new Subsidiary  (including,  without
limitation,  delivery  of  original  stock  certificates  evidencing  the Equity
Interests of such Subsidiary,  together with an appropriate undated stock powers
for each certificate duly executed in blank by the registered owner thereof) and
(C) execute and deliver such other additional  closing  documents,  certificates
and legal opinions as shall reasonably be requested by the Administrative Agent.

         Section 8.14 ERISA  Compliance.  The Borrower will promptly furnish and
will cause the  Subsidiaries  and any ERISA Affiliate to promptly furnish to the
Administrative  Agent (i)  promptly  after the  filing  thereof  with the United
States Secretary of Labor,  the Internal Revenue Service or the PBGC,  copies of
each  annual and other  report  with  respect to each Plan or any trust  created
thereunder,  (ii) immediately upon becoming aware of the occurrence of any ERISA
Event or of any "prohibited  transaction,"  as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder,  a written notice signed by the President or the principal Financial
Officer,  the Subsidiary or the ERISA Affiliate,  as the case may be, specifying
the nature  thereof,  what  action the  Borrower,  the  Subsidiary  or the ERISA
Affiliate is taking or proposes to take with respect  thereto,  and, when known,
any action taken or proposed by the Internal Revenue Service,  the Department of
Labor or the PBGC with  respect  thereto,  and (iii)  immediately  upon  receipt
thereof,  copies of any notice of the PBGC's intention to terminate or to have a
trustee  appointed to administer any Plan. With respect to each Plan (other than
a  Multiemployer  Plan),  the Borrower will, and will cause each  Subsidiary and
ERISA  Affiliate  to,  (i)  satisfy  in full  and in a  timely  manner,  without
incurring any late payment or underpayment  charge or penalty and without giving
rise to any lien, all of the  contribution  and funding  requirements of section
412 of the Code (determined  without regard to subsections (d), (e), (f) and (k)
thereof) and of section 302 of ERISA (determined without regard to sections 303,
304 and 306 of  ERISA),  and (ii)  pay,  or  cause to be paid,  to the PBGC in a
timely  manner,  without  incurring any late payment or  underpayment  charge or
penalty,  all  premiums  required  pursuant to sections  4006 and 4007 of ERISA.

         Section 8.15 Swap Agreements. Within 30 days of the Effective Date, the
Borrower shall enter into hedge  positions  satisfactory  to the  Administrative
Agent,  and thereafter  shall neither assign,  terminate or unwind any such Swap
Agreements nor sell any Swap Agreements if the effect of such action (when taken
together  with any other Swap  Agreements  executed  contemporaneously  with the
taking of such action) would have the effect of canceling  its  positions  under
such Swap Agreements required hereby.

                                      -54-
<PAGE>

         Section 8.16 Marketing Activities.  The Borrower will not, and will not
permit  any of its  Subsidiaries  to,  engage in  marketing  activities  for any
Hydrocarbons  or  enter  into  any  contracts  related  thereto  other  than (i)
contracts for the sale of Hydrocarbons  scheduled or reasonably  estimated to be
produced  from  their  proved Oil and Gas  Properties  during the period of such
contract,  (ii) contracts for the sale of  Hydrocarbons  scheduled or reasonably
estimated to be produced  from proved Oil and Gas  Properties  of third  parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrower and its  Subsidiaries  that the Borrower or one of its Subsidiaries
has the right to market  pursuant  to joint  operating  agreements,  unitization
agreements  or other similar  contracts  that are usual and customary in the oil
and gas  business  and (iii) other  contracts  for the  purchase  and/or sale of
Hydrocarbons  of third parties (A) which have  generally  offsetting  provisions
(i.e.  corresponding  pricing mechanics,  delivery dates and points and volumes)
such that no "position" is taken and (B) for which  appropriate  credit  support
has been  taken to  alleviate  the  material  credit  risks of the  counterparty
thereto.

         Section  8.17  Development  Plan.  The  Borrower  shall comply with the
capital  expenditure limits set in Section 9.01(e),  except for any modification
of the  Development  Plan  which is  permitted  by the  terms of  Section  9.19.
Promptly   following   such   modification,   the  Borrower  shall  provide  the
Administrative Agent a true and correct copy of such modification.

                                   ARTICLE IX
                               Negative Covenants

         Until the  Commitments  have expired or terminated and the principal of
and interest on each Loan and all fees payable  hereunder  and all other amounts
payable  under the Loan  Documents  have been  paid in full and all  Letters  of
Credit  have  expired or  terminated  and all LC  Disbursements  shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:

         Section 9.01 Financial Covenants.

                  (a) Interest  Coverage Ratio. The Borrower will not, as of the
last day of any fiscal  quarter,  permit its ratio of EBITDAX  for the period of
four fiscal quarters then ending to Interest  Expense for such period to be less
than (i) 1.25 to 1.00 for all fiscal  quarters ending in 2007, (ii) 1.75 to 1.00
for all  fiscal  quarters  ending in 2008 and (iii)  2.25 to 1.00 for all fiscal
quarters ending thereafter.

                  (b) Ratio of Debt to EBITDAX.  The  Borrower  will not, at any
time,  permit its ratio of Debt as of such time to EBITDAX  for the four  fiscal
quarters ending on the last day of the fiscal quarter immediately  preceding the
date of determination for which financial statements are available to be greater
than (i) 6.5 to 1.0 for all fiscal  quarters ending in 2007, (ii) 5.5 to 1.0 for
all fiscal  quarters ending in 2008 and (iii) 4.5 to 1.0 for all fiscal quarters
ending thereafter.

                  (c) Current  Ratio.  The Borrower  will not permit,  as of the
last day of any fiscal  quarter,  its ratio of (i)  consolidated  current assets
(including the unused amount of the total  Commitments,  but excluding  non-cash
assets  under  FAS  133) to (ii)  consolidated  current  liabilities  (excluding
non-cash  obligations under FAS 133 and current maturities under this Agreement)
to be less than 1.0 to 1.0.

                  (d) Asset  Coverage  Ratio.  The Borrower  will not, as of any
date of  determination,  permit its ratio of Total  Reserve  Value to Debt as of
such date to be less than 2.0 to 1.0.

                  (e) Capital  Expenditures.  The Borrower will not and will not
permit its  Subsidiaries  to either  make or commit or agree to make any Capital
Expenditure  (by purchase or Capital  Lease or incur costs  associated  with the
exploration  and  development  of  Borrower's or its  Subsidiaries'  Oil and Gas
Properties)  outside the Development  Plan, after the Effective Date, that would
cause the aggregate  amount of all such Capital  Expenditures to exceed $500,000
unless otherwise agreed to by the Administrative Agent.

                                      -55-
<PAGE>

         Section  9.02  Debt.  The  Borrower  will not,  and will not permit any
Subsidiary to, incur, create, assume or suffer to exist any Debt, except:

                  (a) the  Notes or other  Indebtedness  arising  under the Loan
Documents or any guaranty of or  suretyship  arrangement  for the Notes or other
Indebtedness arising under the Loan Documents.

                  (b)  accounts  payable and accrued  expenses,  liabilities  or
other  obligations  to pay the deferred  purchase price of Property or services,
from time to time  incurred in the  ordinary  course of  business  which are not
greater  than ninety (90) days past the date of invoice or  delinquent  or which
are being  contested in good faith by appropriate  action and for which adequate
reserves have been maintained in accordance with GAAP.

                  (c) Debt under Capital Leases not to exceed $250,000.

                  (d) intercompany  Debt between the Borrower and any Subsidiary
or between  Subsidiaries to the extent  permitted by Section  9.05(e);  provided
that such Debt is not held, assigned, transferred,  negotiated or pledged to any
Person other than the  Borrower or one of its  wholly-owned  Subsidiaries,  and,
provided further,  that any such Debt owed by either the Borrower or a Guarantor
shall be  subordinated  to the  Indebtedness  on terms set forth in the Guaranty
Agreement.

                  (e) other Debt not to exceed  $250,000 in the aggregate at any
one time outstanding.

         Section  9.03 Liens.  The  Borrower  will not,  and will not permit any
Subsidiary to, create,  incur,  assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:

                  (a) Liens securing the payment of any Indebtedness.

                  (b) Excepted Liens.

                  (c) Liens securing Capital Leases permitted by Section 9.02(c)
but only on the Property under lease.

         Section 9.04 Dividends,  Distributions  and  Redemptions.  The Borrower
will not, and will not permit any of its  Subsidiaries  to,  declare or make, or
agree to pay or make, directly or indirectly, any Restricted Payment, return any
capital to its  stockholders  or make any  distribution  of its  Property to its
Equity Interest  holders,  except  Subsidiaries may declare and pay dividends to
the Borrower ratably with respect to their Equity Interests.

         Section 9.05  Investments,  Loans and Advances.  The Borrower will not,
and will not permit any Subsidiary to, make or permit to remain  outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:

                  (a)  accounts  receivable  arising in the  ordinary  course of
business.

                                      -56-
<PAGE>

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

                  (c)  deposits  maturing  within  one  year  from  the  date of
creation thereof with,  including  certificates of deposit issued by, any Lender
or any office  located in the United  States of any other bank or trust  company
which is organized under the laws of the United States or any state thereof, has
capital,  surplus and undivided profits aggregating at least $100,000,000 (as of
the date of such bank or trust company's most recent financial  reports) and has
a short term  deposit  rating of no lower  than A2 or P2, as such  rating is set
forth from time to time, by S&P or Moody's,  respectively or, in the case of any
Foreign  Subsidiary,  a bank  organized in a  jurisdiction  in which the Foreign
Subsidiary  conducts  operations having assets in excess of $500,000,000 (or its
equivalent in another currency).

                  (d) deposits in money market funds  investing  exclusively  in
Investments described in Section 9.05(b) or Section 9.05(c).

                  (e)  Investments  (i)  made  by  the  Borrower  in or  to  the
Guarantors  and  (ii)  made  by  any  Subsidiary  in or to the  Borrower  or any
Guarantor.

                  (f)  Investments in direct  ownership  interests in additional
Oil and Gas Properties and gas gathering  systems  related thereto or related to
farm-out,  farm-in,  joint  operating,  joint venture or area of mutual interest
agreements, gathering systems, pipelines or other similar arrangements which are
usual and  customary  in the oil and gas  exploration  and  production  business
located within the geographic boundaries of the United States of America.

                  (g) Investments in stock,  obligations or securities  received
in  settlement of debts arising from  Investments  permitted  under this Section
9.05 owing to the  Borrower or any  Subsidiary  as a result of a  bankruptcy  or
other insolvency  proceeding of the obligor in respect of such debts or upon the
enforcement  of any Lien in favor of the  Borrower  or any of its  Subsidiaries;
provided that the Borrower  shall give the  Administrative  Agent prompt written
notice in the event that the aggregate amount of all Investments held at any one
time under this Section 9.05(g) exceeds $100,000.

         Section  9.06 Nature of Business.  The Borrower  will not, and will not
permit any Subsidiary to, allow any material  change to be made in the character
of its  business  as an  independent  oil and  gas  exploration  and  production
company.

         Section 9.07 Limitation on Leases.  The Borrower will not, and will not
permit  any  Subsidiary  to,  create,  incur,  assume  or  suffer  to exist  any
obligation  for the payment of rent or hire of  Property of any kind  whatsoever
(real or  personal  but  excluding  Capital  Leases  and  leases of  Hydrocarbon
Interests),  under leases or lease  agreements  which would cause the  aggregate
amount of all payments made by the Borrower and the Subsidiaries pursuant to all
such leases or lease agreements,  including,  without  limitation,  any residual
payments  at the end of any lease,  to exceed  $250,000  in any period of twelve
consecutive calendar months during the life of such leases.

         Section  9.08  Proceeds  of Notes.  The  Borrower  will not  permit the
proceeds of the Notes to be used for any purpose  other than those  permitted by
Section  7.21.  Neither  the  Borrower  nor any  Person  acting on behalf of the
Borrower  has taken or will take any action  which  might  cause any of the Loan
Documents to violate  Regulations T, U or X or any other regulation of the Board
or to violate  Section 7 of the  Securities  Exchange Act of 1934 or any rule or
regulation  thereunder,  in  each  case  as now in  effect  or as the  same  may
hereinafter be in effect.

                                      -57-
<PAGE>

         Section  9.09 ERISA  Compliance.  The  Borrower  will not, and will not
permit any Subsidiary to, at any time:

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

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

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

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

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

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

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

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

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

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

                                      -58-
<PAGE>

         Section 9.10 Sale or Discount of  Receivables.  Except for  receivables
obtained  by the  Borrower  or any  Subsidiary  out of the  ordinary  course  of
business or the  settlement of joint interest  billing  accounts in the ordinary
course of  business  or  discounts  granted  to settle  collection  of  accounts
receivable or the sale of defaulted  accounts  arising in the ordinary course of
business in connection  with the  compromise  or  collection  thereof and not in
connection with any financing  transaction,  the Borrower will not, and will not
permit any Subsidiary to, discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.

         Section 9.11  Mergers,  Etc. The Borrower will not, and will not permit
any Subsidiary to, merge into or with or consolidate  with any other Person,  or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or  otherwise  dispose of  (whether in one  transaction  or in a series of
transactions)  all or  substantially  all of its  Property  to any other  Person
(whether   now  owned  or  hereafter   acquired)   (any  such   transaction,   a
"consolidation"),  or liquidate or dissolve;  provided that any  Subsidiary  may
participate  in a  consolidation  with the Borrower  (provided that the Borrower
shall be the  continuing  or  surviving  corporation)  or any  other  Subsidiary
provided that if one of such Subsidiaries is a wholly-owned Subsidiary, then the
surviving Person shall be a wholly-owned Subsidiary.

         Section 9.12 Sale of  Properties.  The Borrower  will not, and will not
permit any Subsidiary to, sell, assign,  farm-out,  convey or otherwise transfer
any Property  except for (a) the sale of  Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in connection with
such  farmouts;  and (c) the sale or  transfer  of  equipment  that is no longer
necessary for the business of the Borrower or such  Subsidiary or is replaced by
equipment of at least comparable value and use.

         Section 9.13 Environmental Matters. The Borrower will not, and will not
permit any Subsidiary to, cause or permit any of its Property to be in violation
of, or do anything or permit anything to be done which (a) will subject any such
Property to any Remedial Work under any Environmental Laws or (b) will cause any
representation in Section 7.06 to be untrue or inaccurate at any time,  assuming
disclosure  to the  applicable  Governmental  Authority of all  relevant  facts,
conditions  and  circumstances,  if any,  pertaining to such Property where such
violations,  remedial obligations or inaccurate representations could reasonably
be expected to have a Material Adverse Effect.

         Section 9.14 Transactions  with Affiliates.  The Borrower will not, and
will not permit  any  Subsidiary  to,  enter  into any  transaction,  including,
without  limitation,  any purchase,  sale,  lease or exchange of Property or the
rendering of any service,  with any  Affiliate  (other than the  Guarantors  and
wholly-owned   Subsidiaries  of  the  Borrower)  unless  such  transactions  are
otherwise  permitted under this Agreement and are upon fair and reasonable terms
no less  favorable  to it than it would  obtain  in a  comparable  arm's  length
transaction with a Person not an Affiliate.

         Section 9.15  Subsidiaries.  The Borrower will not, and will not permit
any  Subsidiary  to,  create or acquire  any  additional  Subsidiary  unless the
Borrower  gives written notice to the  Administrative  Agent of such creation or
acquisition and complies with Section 8.13(b). The Borrower shall not, and shall
not permit any  Subsidiary to, sell,  assign or otherwise  dispose of any Equity
Interests in any Subsidiary.  Neither the Borrower nor any Subsidiary shall have
any Foreign Subsidiaries.

         Section 9.16 Negative Pledge  Agreements;  Dividend  Restrictions.  The
Borrower will not, and will not permit any Subsidiary to, create,  incur, assume
or suffer to exist any  contract,  agreement or  understanding  (other than this
Agreement,  the Security  Instruments or Capital Leases creating Liens permitted
by Section  9.03(c))  which in any way  prohibits  or  restricts  the  granting,
conveying, creation or imposition of any Lien on any of its Property in favor of
the Administrative Agent and the Lenders or restricts any Subsidiary from paying
dividends or making  distributions  to the Borrower or any  Guarantor,  or which
requires the consent of or notice to other Persons in connection therewith.

                                      -59-
<PAGE>

         Section 9.17 Gas  Imbalances,  Take-or-Pay  or Other  Prepayments.  The
Borrower will not, and will not permit any Subsidiary to, allow gas  imbalances,
take-or-pay or other  prepayments  with respect to the Oil and Gas Properties of
the  Borrower  or any  Subsidiary  that  would  require  the  Borrower  or  such
Subsidiary  to  deliver  Hydrocarbons  at  some  future  time  without  then  or
thereafter  receiving  full payment  therefor to exceed 20,000 mcf of gas (on an
mcf equivalent basis) in the aggregate.

         Section  9.18 Swap  Agreements.  The  Borrower  will not,  and will not
permit any Subsidiary to, enter into any Swap  Agreements  with any Person other
than (a)  Swap  Agreements  in  respect  of  commodities  (i)  with an  Approved
Counterparty and (ii) the notional volumes for which (when aggregated with other
commodity Swap Agreements then in effect other than basis  differential swaps on
volumes already hedged pursuant to other Swap  Agreements) do not exceed,  as of
the date such Swap Agreement is executed,  (A) 80% of the reasonably anticipated
projected  production from proved,  developed,  producing Oil and Gas Properties
for each month of the  calendar  year of 2007 for each of crude oil and  natural
gas,  calculated  separately,  (B) 75% of the reasonably  anticipated  projected
production  from proved,  developed,  producing Oil and Gas  Properties for each
month of the  calendar  years of 2008 and 2009 for each of crude oil and natural
gas, calculated separately,  and (C) 70% of the reasonably anticipated projected
production  from proved,  developed,  producing Oil and Gas  Properties for each
month of the  calendar  years of 2010 and 2011 for each of crude oil and natural
gas, calculated separately, and (b) Swap Agreements in respect of interest rates
with an Approved  Counterparty,  as  follows:  (i) Swap  Agreements  effectively
converting interest rates from fixed to floating,  the notional amounts of which
(when  aggregated  with  all  other  Swap  Agreements  of the  Borrower  and its
Subsidiaries then in effect effectively  converting interest rates from fixed to
floating)  do not exceed  50% of the then  outstanding  principal  amount of the
Borrower's Debt for borrowed money which bears interest at a fixed rate and (ii)
Swap Agreements  effectively  converting  interest rates from floating to fixed,
the notional amounts of which (when aggregated with all other Swap Agreements of
the Borrower and its Subsidiaries then in effect effectively converting interest
rates  from  floating  to  fixed)  do not  exceed  75% of the  then  outstanding
principal  amount of the Borrower's Debt for borrowed money which bears interest
at  a  floating  rate.  In  no  event  shall  any  Swap  Agreement  contain  any
requirement,  agreement or covenant for the Borrower or any  Subsidiary  to post
collateral or margin to secure their obligations under such Swap Agreement or to
cover market exposures.

         Section 9.19 Development Plan.

                  (a) Without the prior written consent of the Majority Lenders,
the Borrower shall not amend,  modify or supplement any term of the  Development
Plan if the effect of such amendment,  modification,  supplement or waiver would
be to materially and adversely  affect the commercial  terms of the  Development
Plan or the schedule of the Development Plan.

                  (b) Without the prior written consent of the Majority Lenders,
the Borrower shall not cancel,  terminate or abandon the Development Plan unless
a successor Development Plan has been agreed to by the Lenders or the conditions
of such new Development Plan are not materially less favorable than those of the
predecessor Development Plan.

         Section 9.20 Net Profits Interest.

                  (a) As additional consideration for the making of the Loans by
the Lenders,  the Borrower agrees to convey to the Lenders,  in undivided shares
proportionate to their respective Commitments,  a net profits interest in and to
all Oil and Gas  Properties of the Borrower.  The net profits  interest shall be
conveyed  with respect to each (i) Oil and Gas Property  currently  owned by the
Borrower and (ii) any additional  Oil and Gas Property  acquired by the Borrower

                                      -60-
<PAGE>

or any  Subsidiary  or in which  the  Borrower  or any  Subsidiary  acquires  an
additional  interest,  in each case,  after the effective  date through the date
this Agreement is terminated.

                  (b) The Lenders shall  receive 2% of the net profits  received
by the  Borrower  from all Oil and Gas  Properties  of the  Borrower  after  the
Effective  Date.  The net  profits  interest  shall be  subject to the terms and
conditions set forth in the form of the Conveyance of Net Profits Interest,  and
any other agreements currently in existence as of the time of the acquisition of
such  Properties and validly  affecting the underlying  leases or the Borrower's
interest therein.

                  (c) The net profits  interest  required to be conveyed hereby:
(i) shall be effective  as of the first day of the  calendar  month in which the
Conveyance was made, (ii) shall be  substantially  in the form of the Conveyance
of Net Profits Interest,  (iii) shall be executed and filed for recording by the
Borrower  promptly  after the  receipt,  delivery and  recording  of  applicable
assignments into the Borrower establishing its interest of record in any Oil and
Gas Properties,  (iv) shall be delivered by the Borrower to the Lenders promptly
after its return from  recording,  and (v) shall survive any  termination of the
Credit Agreement.

                                   ARTICLE X
                           Events of Default; Remedies

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

                  (a) the Borrower  shall fail to pay any  principal of any Loan
or any  reimbursement  obligation in respect of any LC Disbursement  when and as
the same shall become due and  payable,  whether at the due date thereof or at a
date fixed for prepayment thereof, by acceleration or otherwise.

                  (b) the Borrower shall fail to pay any interest on any Loan or
any fee or any  other  amount  (other  than an  amount  referred  to in  Section
10.01(a)) payable under any Loan Document, when and as the same shall become due
and payable,  and such failure shall  continue  unremedied for a period of three
Business Days.

                  (c) any  representation  or warranty made or deemed made by or
on behalf of the Borrower or any  Subsidiary in or in  connection  with any Loan
Document or any amendment or  modification  of any Loan Document or waiver under
such Loan Document, or in any report, certificate,  financial statement or other
document  furnished  pursuant to or in connection  with any Loan Document or any
amendment or modification thereof or waiver thereunder, shall prove to have been
incorrect when made or deemed made.

                  (d) the  Borrower or any  Subsidiary  shall fail to observe or
perform any  covenant,  condition  or agreement  contained  in Section  8.01(m),
Section 8.01(o), Section 8.02, Section 8.03, Section 8.13 or in ARTICLE IX.

                  (e) the  Borrower or any  Subsidiary  shall fail to observe or
perform any covenant,  condition or agreement contained in this Agreement (other
than those specified in Section 10.01(a),  Section 10.01(b) or Section 10.01(d))
or any other Loan  Document,  and such failure shall  continue  unremedied for a
period of 30 days  after the  earlier to occur of (A)  notice  thereof  from the
Administrative  Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible  Officer of the Borrower or such  Subsidiary
otherwise becoming aware of such default.

                                      -61-
<PAGE>

                  (f) the  Borrower  or any  Subsidiary  shall  fail to make any
payment  (whether of principal or interest and  regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable.

                  (g) any event or condition occurs that results in any Material
Indebtedness  becoming  due prior to its  scheduled  maturity or that enables or
permits  (with or without  the giving of notice,  the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
Redemption  thereof or any offer to Redeem to be made in respect thereof,  prior
to its scheduled  maturity or require the Borrower or any  Subsidiary to make an
offer in respect thereof.

                  (h)  an  involuntary  proceeding  shall  be  commenced  or  an
involuntary  petition shall be filed seeking (i) liquidation,  reorganization or
other relief in respect of the Borrower or any Subsidiary or its debts,  or of a
substantial part of its assets, under any Federal,  state or foreign bankruptcy,
insolvency,  receivership  or similar law now or hereafter in effect or (ii) the
appointment  of a receiver,  trustee,  custodian,  sequestrator,  conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets,  and, in any such case,  such  proceeding or petition shall continue
undismissed  for 60 days or an order or decree  approving or ordering any of the
foregoing shall be entered.

                  (i) the  Borrower  or any  Subsidiary  shall  (i)  voluntarily
commence any proceeding or file any petition seeking liquidation, reorganization
or other  relief  under any Federal,  state or foreign  bankruptcy,  insolvency,
receivership  or similar law now or  hereafter  in effect,  (ii)  consent to the
institution  of, or fail to  contest  in a timely and  appropriate  manner,  any
proceeding or petition described in Section 10.01(h), (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator,  conservator
or similar official for the Borrower or any Subsidiary or for a substantial part
of its assets,  (iv) file an answer  admitting  the  material  allegations  of a
petition filed against it in any such proceeding,  (v) make a general assignment
for the  benefit  of  creditors  or (vi)  take any  action  for the  purpose  of
effecting any of the  foregoing;  or any  stockholder of the Borrower shall make
any  request  or take any  action  for the  purpose  of calling a meeting of the
stockholders  of the Borrower to consider a  resolution  to dissolve and wind-up
the Borrower's affairs.

                  (j) the Borrower or any Subsidiary shall become unable,  admit
in writing its inability or fail generally to pay its debts as they become due.

                  (k) (i) one or more  judgments  for the payment of money in an
aggregate  amount in excess of $250,000 to the extent not covered by independent
third party  insurance  provided by insurers of the highest claims paying rating
or financial  strength as to which the insurer does not dispute  coverage and is
not subject to an insolvency  proceeding)  or (ii) any one or more  non-monetary
judgments that have, or could reasonably be expected to have, individually or in
the  aggregate,  a  Material  Adverse  Effect,  shall be  rendered  against  the
Borrower,  any Subsidiary or any  combination  thereof and the same shall remain
undischarged  for a period of 30 consecutive  days during which  execution shall
not be  effectively  stayed,  or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of the Borrower or any  Subsidiary to
enforce any such judgment.

                  (l) the Loan Documents  after  delivery  thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in full
force and effect and valid,  binding and  enforceable  in accordance  with their
terms  against the Borrower or a Guarantor  party thereto or shall be repudiated
by any of them,  or cease to create a valid and  perfected  Lien of the priority
required  thereby on any of the  collateral  purported  to be  covered  thereby,
except to the extent  permitted by the terms of this Agreement,  or the Borrower
or any Subsidiary or any of their Affiliates shall so state in writing.

                                      -62-
<PAGE>

                  (m) an ERISA Event shall have occurred that, in the opinion of
the Majority Lenders,  when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse Effect.

                  (n) a Change in Control shall occur.

         Section 10.02 Remedies.

                  (a)  In the  case  of an  Event  of  Default  other  than  one
described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time
thereafter during the continuance of such Event of Default,  the  Administrative
Agent may, and at the request of the Majority  Lenders,  shall, by notice to the
Borrower, take either or both of the following actions, at the same or different
times:  (i) terminate the  Commitments,  and  thereupon  the  Commitments  shall
terminate immediately, and (ii) declare the Notes and the Loans then outstanding
to be due and payable in whole (or in part,  in which case any  principal not so
declared  to be due  and  payable  may  thereafter  be  declared  to be due  and
payable),  and  thereupon  the  principal of the Loans so declared to be due and
payable,  together  with  accrued  interest  thereon  and  all  fees  and  other
obligations of the Borrower and the Guarantors  accrued  hereunder and under the
Notes and the other Loan Documents (including,  without limitation,  the payment
of cash  collateral  to secure the LC Exposure as provided in Section  2.08(h)),
shall become due and payable immediately,  without presentment, demand, protest,
notice of intent to accelerate,  notice of  acceleration  or other notice of any
kind, all of which are hereby waived by the Borrower and each Guarantor;  and in
case of an Event of Default described in Section  10.01(h),  Section 10.01(i) or
Section 10.01(j),  the Commitments shall  automatically  terminate and the Notes
and the principal of the Loans then outstanding,  together with accrued interest
thereon  and  all  fees  and  the  other  obligations  of the  Borrower  and the
Guarantors  accrued  hereunder and under the Notes and the other Loan  Documents
(including,  without limitation, the payment of cash collateral to secure the LC
Exposure as provided in Section  2.08(h)),  shall  automatically  become due and
payable,  without presentment,  demand, protest or other notice of any kind, all
of which are hereby waived by the Borrower and each Guarantor.

                  (b) In the case of the occurrence of an Event of Default,  the
Administrative  Agent and the Lenders  will have all other  rights and  remedies
available at law and equity.

                  (c) All  proceeds  realized  from  the  liquidation  or  other
disposition  of collateral or otherwise  received  after  maturity of the Notes,
whether by acceleration or otherwise, shall be applied:

                       (i) first, to payment or reimbursement of that portion of
         the Indebtedness constituting fees, expenses and indemnities payable to
         the Administrative Agent in its capacity as such;

                       (ii) second,  to serve as cash  collateral  to be held by
         the Administrative Agent to secure the LC Exposure; and

                       (iii) third, pro rata to payment or reimbursement of that
         portion of the Indebtedness constituting fees, expenses and indemnities
         payable to the Lenders;

                       (iv) fourth,  pro rata to payment of accrued  interest on
         the Loans;

                       (v) fifth,  pro rata to payment of principal  outstanding
         on  the  Loans  and  Indebtedness  referred  to in  Clause  (b)  of the
         definition  of  Indebtedness  owing to a Lender  or an  Affiliate  of a
         Lender;

                                      -63-
<PAGE>

                       (vi) sixth, pro rata to any other Indebtedness;

                       (vii) seventh,  any excess, after all of the Indebtedness
         shall have been indefeasibly paid in full in cash, shall be paid to the
         Borrower or as otherwise required by any Governmental Requirement.

                                   ARTICLE XI
                            The Administrative Agent

         Section  11.01  Appointment;   Powers.   Each  of  the  Lenders  hereby
irrevocably  appoints the  Administrative  Agent as its agent and authorizes the
Administrative  Agent to take such  actions on its behalf and to  exercise  such
powers as are delegated to the Administrative  Agent by the terms hereof and the
other Loan  Documents,  together with such actions and powers as are  reasonably
incidental thereto.

         Section  11.02 Duties and  Obligations  of  Administrative  Agent.  The
Administrative  Agent  shall not have any  duties or  obligations  except  those
expressly set forth in the Loan  Documents.  Without  limiting the generality of
the  foregoing,  (a)  the  Administrative  Agent  shall  not be  subject  to any
fiduciary or other implied duties,  regardless of whether a Default has occurred
and is  continuing  (the use of the term  "agent"  herein  and in the other Loan
Documents with reference to the Administrative  Agent is not intended to connote
any  fiduciary or other  implied (or express)  obligations  arising under agency
doctrine of any applicable law; rather,  such term is used merely as a matter of
market  custom,  and is  intended  to create or reflect  only an  administrative
relationship between independent  contracting  parties),  (b) the Administrative
Agent  shall  have no duty to take any  discretionary  action  or  exercise  any
discretionary  powers,  except as provided in Section  11.03,  and (c) except as
expressly set forth herein, the Administrative  Agent shall not have any duty to
disclose,  and shall not be liable for the failure to disclose,  any information
relating to the Borrower or any of its  Subsidiaries  that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity.  The Administrative Agent shall be deemed not to have knowledge of
any  Default   unless  and  until  written   notice  thereof  is  given  to  the
Administrative  Agent by the Borrower or a Lender,  and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation  made in or in connection  with this  Agreement or any other Loan
Document,  (ii) the  contents  of any  certificate,  report  or  other  document
delivered  hereunder or under any other Loan Document or in connection  herewith
or therewith,  (iii) the  performance  or  observance  of any of the  covenants,
agreements  or other terms or  conditions  set forth herein or in any other Loan
Document,  (iv) the validity,  enforceability,  effectiveness  or genuineness of
this Agreement,  any other Loan Document or any other  agreement,  instrument or
document,  (v) the  satisfaction  of any  condition  set forth in  ARTICLE VI or
elsewhere herein,  other than to confirm receipt of items expressly  required to
be delivered to the  Administrative  Agent or as to those  conditions  precedent
expressly required to be to the Administrative  Agent's  satisfaction,  (vi) the
existence,  value,  perfection  or  priority of any  collateral  security or the
financial or other  condition of the Borrower and its  Subsidiaries or any other
obligor or  guarantor,  or (vii) any failure by the Borrower or any other Person
(other than  itself) to perform any of its  obligations  hereunder  or under any
other  Loan  Document  or  the  performance  or  observance  of  any  covenants,
agreements  or other  terms or  conditions  set  forth  herein or  therein.  For
purposes of determining  compliance with the conditions specified in ARTICLE VI,
each Lender shall be deemed to have consented to,  approved or accepted or to be
satisfied  with,  each  document  or  other  matter  required  thereunder  to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative  Agent shall have received  written notice from such Lender prior
to the proposed closing date specifying its objection thereto.

         Section 11.03 Action by Administrative  Agent. The Administrative Agent
shall  have  no  duty  to  take  any   discretionary   action  or  exercise  any
discretionary   powers,   except   discretionary  rights  and  powers  expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent

                                      -64-
<PAGE>

is required to exercise in writing as directed by the Majority  Lenders (or such
other  number or  percentage  of the  Lenders  as shall be  necessary  under the
circumstances as provided in Section 12.02) and in all cases the  Administrative
Agent shall be fully  justified in failing or refusing to act hereunder or under
any other Loan Documents unless it shall (a) receive written  instructions  from
the Majority  Lenders or the Lenders,  as  applicable,  (or such other number or
percentage  of the  Lenders as shall be  necessary  under the  circumstances  as
provided  in  Section  12.02)  specifying  the  action  to be  taken  and (b) be
indemnified to its satisfaction by the Lenders against any and all liability and
expenses  which may be incurred by it by reason of taking or  continuing to take
any such action.  The  instructions as aforesaid and any action taken or failure
to act pursuant thereto by the  Administrative  Agent shall be binding on all of
the  Lenders.   If  a  Default  has  occurred  and  is   continuing,   then  the
Administrative  Agent  shall take such action  with  respect to such  Default as
shall be directed by the  requisite  Lenders in the written  instructions  (with
indemnities)  described in this Section 11.03,  provided that,  unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be  obligated  to) take such  action,  or refrain  from
taking such action,  with respect to such Default as it shall deem  advisable in
the  best  interests  of  the  Lenders.   In  no  event,   however,   shall  the
Administrative   Agent  be  required  to  take  any  action  which  exposes  the
Administrative  Agent  to  personal  liability  or  which  is  contrary  to this
Agreement,  the Loan Documents or applicable law. The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request  of the  Majority  Lenders  or the  Lenders  (or such  other  number  or
percentage  of the  Lenders as shall be  necessary  under the  circumstances  as
provided in Section 12.02), and otherwise the Administrative  Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other  document or instrument  referred to or provided for
herein or therein or in  connection  herewith  or  therewith  INCLUDING  ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.

         Section 11.04  Reliance by  Administrative  Agent.  The  Administrative
Agent  shall be  entitled to rely upon,  and shall not incur any  liability  for
relying upon, any notice, request, certificate,  consent, statement, instrument,
document or other  writing  believed by it to be genuine and to have been signed
or sent by the proper Person.  The  Administrative  Agent also may rely upon any
statement made to it orally or by telephone and believed by it to be made by the
proper Person, and shall not incur any liability for relying thereon and each of
the  Borrower  and  the  Lenders   hereby   waives  the  right  to  dispute  the
Administrative  Agent's  record of such  statement,  except in the case of gross
negligence or willful misconduct by the Administrative Agent. The Administrative
Agent may consult  with legal  counsel  (who may be counsel  for the  Borrower),
independent  accountants  and other  experts  selected  by it,  and shall not be
liable for any action taken or not taken by it in accordance  with the advice of
any such counsel,  accountants or experts. The Administrative Agent may deem and
treat the payee of any Note as the holder thereof for all purposes hereof unless
and until a written  notice of the  assignment  or  transfer  thereof  permitted
hereunder shall have been filed with the Administrative Agent.

         Section 11.05 Subagents.  The Administrative  Agent may perform any and
all its duties and  exercise its rights and powers by or through any one or more
sub-agents  appointed by the Administrative  Agent. The Administrative Agent and
any such  sub-agent  may perform any and all its duties and  exercise its rights
and powers through their respective Related Parties. The exculpatory  provisions
of the preceding  Sections of this ARTICLE XI shall apply to any such  sub-agent
and to the Related Parties of the  Administrative  Agent and any such sub-agent,
and  shall  apply  to  their  respective   activities  in  connection  with  the
syndication of the credit  facilities  provided for herein as well as activities
as Administrative Agent.

         Section 11.06 Resignation or Removal of Administrative  Agent.  Subject
to the  appointment  and  acceptance  of a  successor  Administrative  Agent  as
provided in this Section 11.06, the Administrative  Agent may resign at any time
by notifying the Lenders and the Borrower,  and the Administrative  Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any such

                                      -65-
<PAGE>

resignation  or  removal,   the  Majority  Lenders  shall  have  the  right,  in
consultation  with the Borrower,  to appoint a successor.  If no successor shall
have been so  appointed  by the Majority  Lenders and shall have  accepted  such
appointment within 30 days after the retiring  Administrative Agent gives notice
of its  resignation or removal of the retiring  Administrative  Agent,  then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New York,
or an Affiliate of any such bank.  Upon the  acceptance  of its  appointment  as
Administrative  Agent hereunder by a successor,  such successor shall succeed to
and become  vested with all the  rights,  powers,  privileges  and duties of the
retiring  Administrative  Agent, and the retiring  Administrative Agent shall be
discharged  from its duties and obligations  hereunder.  The fees payable by the
Borrower to a successor  Administrative Agent shall be the same as those payable
to its  predecessor  unless  otherwise  agreed  between  the  Borrower  and such
successor.   After  the  Administrative  Agent's  resignation   hereunder,   the
provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the
benefit  of  such  retiring  Administrative  Agent,  its  sub-agents  and  their
respective  Related  Parties in respect  of any  actions  taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

         Section 11.07 Agents as Lenders. Each bank serving as an Administrative
Agent  hereunder  shall have the same  rights and  powers in its  capacity  as a
Lender as any other  Lender and may  exercise  the same as though it were not an
Administrative Agent, and such bank and its Affiliates may accept deposits from,
lend money to and generally  engage in any kind of business with the Borrower or
any Subsidiary or other  Affiliate  thereof as if it were not an  Administrative
Agent hereunder.

         Section  11.08  No  Reliance.  Each  Lender  acknowledges  that it has,
independently  and without reliance upon the  Administrative  Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit  analysis and decision to enter into this Agreement and each
other Loan Document to which it is a party.  Each Lender also  acknowledges that
it will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such  documents and  information as it shall from time
to time deem  appropriate,  continue to make its own  decisions in taking or not
taking action under or based upon this Agreement,  any other Loan Document,  any
related agreement or any document furnished hereunder or thereunder.  Except for
notices,  reports and other documents and information  expressly  required to be
furnished  to  the  Lenders  by  the   Administrative   Agent   hereunder,   the
Administrative  Agent or the Arranger shall not have any duty or  responsibility
to  provide  any  Lender  with any credit or other  information  concerning  the
affairs,  financial  condition  or  business  of  the  Borrower  (or  any of its
Affiliates)  which may come into the possession of the  Administrative  Agent or
any of its Affiliates.  In this regard,  each Lender  acknowledges that Vinson &
Elkins  L.L.P.  is  acting  in  this  transaction  as  special  counsel  to  the
Administrative  Agent only,  except to the extent otherwise  expressly stated in
any legal  opinion or any Loan  Document.  Each other party  hereto will consult
with its own legal  counsel to the extent that it deems  necessary in connection
with the Loan Documents and the matters contemplated therein.

         Section 11.09 Administrative Agent May File Proofs of Claim.

In  case  of  the  pendency  of  any  receivership,   insolvency,   liquidation,
bankruptcy,  reorganization,   arrangement,  adjustment,  composition  or  other
judicial  proceeding  relative to the Borrower or any of its  Subsidiaries,  the
Administrative  Agent  (irrespective  of whether the principal of any Loan shall
then be due and payable as herein  expressed or by  declaration or otherwise and
irrespective of whether the  Administrative  Agent shall have made any demand on
the  Borrower)  shall  be  entitled  and  empowered,  by  intervention  in  such
proceeding or otherwise:

                  (a) to file and  prove a claim  for the  whole  amount  of the
principal  and  interest  owing and unpaid in respect of the Loans and all other
Indebtedness  that are owing and unpaid and to file such other  documents as may
be  necessary  or  advisable  in order to have the claims of the Lenders and the

                                      -66-
<PAGE>

Administrative  Agent  (including  any  claim for the  reasonable  compensation,
expenses, disbursements and advances of the Lenders and the Administrative Agent
and their  respective  agents and counsel and all other  amounts due the Lenders
and the  Administrative  Agent under  Section  12.03)  allowed in such  judicial
proceeding; and

                  (b) to  collect  and  receive  any  monies  or other  property
payable or  deliverable  on any such claims and to distribute  the same; and any
custodian,  receiver,  assignee,  trustee,  liquidator,  sequestrator  or  other
similar  official in any such judicial  proceeding is hereby  authorized by each
Lender to make such payments to the Administrative  Agent and, in the event that
the  Administrative  Agent shall consent to the making of such payments directly
to the  Lenders,  to pay to the  Administrative  Agent  any  amount  due for the
reasonable   compensation,   expenses,   disbursements   and   advances  of  the
Administrative  Agent and its agents and counsel,  and any other amounts due the
Administrative Agent under Section 12.03.

Nothing contained herein shall be deemed to authorize the  Administrative  Agent
to  authorize  or consent to or accept or adopt on behalf of any Lender any plan
of  reorganization,   arrangement,   adjustment  or  composition  affecting  the
Indebtedness  or the rights of any  Lender or to  authorize  the  Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.

         Section 11.10 Authority of Administrative  Agent to Release  Collateral
and Liens. Each Lender hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan  Documents.  Each Lender  hereby  authorizes  the  Administrative  Agent to
execute and deliver to the Borrower,  at the  Borrower's  sole cost and expense,
any and all  releases of Liens,  termination  statements,  assignments  or other
documents  reasonably  requested by the Borrower in connection  with any sale or
other  disposition  of Property to the extent such sale or other  disposition is
authorized by the terms of the Loan Documents.

         Section  11.11  The  Arranger.  The  Arranger  shall  have  no  duties,
responsibilities  or  liabilities  under  this  Agreement  and  the  other  Loan
Documents  other than their  duties,  responsibilities  and  liabilities  in its
capacity as a Lender hereunder.

                                  ARTICLE XII
                                  Miscellaneous

         Section 12.01 Notices.

                  (a)  Except in the case of  notices  and other  communications
expressly  permitted to be given by telephone (and subject to Section 12.01(b)),
all notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service,  mailed by certified or
registered mail or sent by telecopy, as follows:

                       (i) if to the  Borrower,  to it at 210  2nd  Street,  St.
         Marys,  WV 26170,  Attn:  James K.  Abcouwer,  Chairman,  (Telecopy No.
         304-422-4064);

                       (ii) if to the  Administrative  Agent, to it at 505 Fifth
         Avenue, 10th Floor, New York, NY 10017, attention of Marguerite Fischer
         (Telecopy No. (212) 771-9675).

                  (b) Notices and other  communications to the Lenders hereunder
may  be  delivered  or  furnished  by  electronic   communications  pursuant  to
procedures  approved by the  Administrative  Agent;  provided that the foregoing
shall not apply to notices  pursuant to ARTICLE II, ARTICLE III,  ARTICLE IV and

                                      -67-
<PAGE>

ARTICLE V unless otherwise agreed by the Administrative Agent and the applicable
Lender. The Administrative  Agent or the Borrower may, in its discretion,  agree
to accept  notices  and  other  communications  to it  hereunder  by  electronic
communications  pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.

                  (c) Any party hereto may change its address or telecopy number
for notices and other  communications  hereunder by notice to the other  parties
hereto.  All  notices  and other  communications  given to any  party  hereto in
accordance  with the provisions of this  Agreement  shall be deemed to have been
given on the date of receipt.

         Section 12.02 Waivers; Amendments.

                  (a) No failure on the part of the Administrative  Agent or any
Lender to exercise  and no delay in  exercising,  and no course of dealing  with
respect to, any right, power or privilege,  or any abandonment or discontinuance
of steps to  enforce  such  right,  power or  privilege,  under  any of the Loan
Documents  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  right,  power or  privilege  under  any of the Loan  Documents
preclude  any other or further  exercise  thereof or the  exercise  of any other
right, power or privilege.  The rights and remedies of the Administrative  Agent
and the Lenders  hereunder and under the other Loan Documents are cumulative and
are not exclusive of any rights or remedies that they would  otherwise  have. No
waiver of any provision of this  Agreement or any other Loan Document or consent
to any  departure  by the  Borrower  therefrom  shall in any event be  effective
unless the same shall be permitted by Section 12.02(b),  and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.  Without limiting the generality of the foregoing,  the making of a
Loan or issuance of a Letter of Credit shall not be construed as a waiver of any
Default,  regardless of whether the Administrative  Agent or any Lender may have
had notice or knowledge of such Default at the time.

                  (b) Neither this  Agreement nor any  provision  hereof nor any
Security Instrument nor any provision thereof may be waived, amended or modified
except  pursuant to an agreement or  agreements  in writing  entered into by the
Borrower  and the Majority  Lenders or by the  Borrower  and the  Administrative
Agent with the consent of the Majority Lenders;  provided that no such agreement
shall (i) increase the  Commitment  or the Maximum  Credit  Amount of any Lender
without the written  consent of such Lender,  (ii) increase the  Borrowing  Base
without the written  consent of the Required  Lenders,  decrease or maintain the
Borrowing  Base without the consent of the Majority  Lenders,  or modify Section
2.07 in any  manner  without  the  consent  of each  Lender,  (iii)  reduce  the
principal  amount of any Loan or LC  Disbursement or reduce the rate of interest
thereon, or reduce any fees payable hereunder,  or reduce any other Indebtedness
hereunder or under any other Loan Document,  without the written consent of each
Lender  affected  thereby,  (iv)  postpone  the  scheduled  date of  payment  or
prepayment  of the  principal  amount  of any  Loan or LC  Disbursement,  or any
interest  thereon,  or any fees  payable  hereunder,  or any other  Indebtedness
hereunder  or under any other Loan  Document,  or reduce the amount of, waive or
excuse any such payment,  or postpone or extend the Termination Date without the
written consent of each Lender affected  thereby,  (v) change Section 4.01(b) or
Section  4.01(c) in a manner that would  alter the pro rata  sharing of payments
required  thereby,  without the written  consent of each  Lender,  (vi) waive or
amend Section  3.04(c),  Section  6.01,  Section  6.02,  Section  8.13,  Section
10.02(c)  or  Section  12.13 or change  the  definition  of the  terms  "Foreign
Subsidiary" or "Subsidiary",  without the written consent of each Lender,  (vii)
release any Guarantor (except as set forth in the Guaranty  Agreement),  release
any of the collateral  (other than as provided in Section 11.10),  or reduce the
percentage  set forth in Section  8.13(a) to less than 80%,  without the written
consent of each Lender,  or (viii) change any of the  provisions of this Section
12.02(b) or the definitions of "Required  Lenders" or "Majority  Lenders" or any
other provision  hereof  specifying the number or percentage of Lenders required
to waive, amend or modify any rights hereunder or under any other Loan Documents
or make any  determination  or grant any  consent  hereunder  or any other  Loan

                                      -68-
<PAGE>

Documents,  without the written consent of each Lender; provided further that no
such agreement shall amend,  modify or otherwise  affect the rights or duties of
the Administrative  Agent hereunder or under any other Loan Document without the
prior  written  consent  of  the  Administrative   Agent.   Notwithstanding  the
foregoing,  any  supplement to Schedule 7.14  (Subsidiaries)  shall be effective
simply by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly deliver
a copy thereof to the Lenders.

         Section 12.03 Expenses, Indemnity; Damage Waiver.

                  (a) The Borrower  shall pay (i) all  reasonable  out-of-pocket
expenses  incurred by the  Administrative  Agent and its Affiliates,  including,
without  limitation,  the reasonable fees,  charges and disbursements of counsel
and other outside  consultants  for the  Administrative  Agent,  the  reasonable
travel, photocopy,  mailing, courier,  telephone and other similar expenses, and
the cost of environmental audits and surveys and appraisals,  in connection with
the syndication of the credit facilities  provided for herein,  the preparation,
negotiation,  execution,  delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative  Agent as
to the  rights  and  duties of the  Administrative  Agent and the  Lenders  with
respect  thereto)  of  this  Agreement  and the  other  Loan  Documents  and any
amendments,  modifications  or waivers of or consents  related to the provisions
hereof  or  thereof  (whether  or not the  transactions  contemplated  hereby or
thereby shall be consummated),  (ii) all costs, expenses, Taxes, assessments and
other charges incurred by any  Administrative  Agent or any Lender in connection
with any filing, registration,  recording or perfection of any security interest
contemplated by this Agreement or any Security  Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the
Administrative  Agent in  connection  with the issuance,  amendment,  renewal or
extension of any Letter of Credit or any demand for payment thereunder, (iv) all
out-of-pocket  expenses  incurred  by any  Administrative  Agent or any  Lender,
including the fees,  charges and disbursements of any counsel for any Agent, the
Issuing Bank or any Lender,  in connection with the enforcement or protection of
its  rights in  connection  with this  Agreement  or any  other  Loan  Document,
including its rights under this Section 12.03,  or in connection  with the Loans
made or Letters of Credit issued hereunder,  including,  without limitation, all
such  out-of-pocket  expenses  incurred  during any  workout,  restructuring  or
negotiations in respect of such Loans or Letters of Credit.

                  (b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE
ARRANGER AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS
(EACH  SUCH  PERSON  BEING  CALLED  AN  "INDEMNITEE")  AGAINST,  AND  HOLD  EACH
INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,  DAMAGES,  LIABILITIES AND
RELATED EXPENSES,  INCLUDING THE FEES,  CHARGES AND DISBURSEMENTS OF ANY COUNSEL
FOR ANY INDEMNITEE,  INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE  ARISING OUT
OF, IN CONNECTION  WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY,  THE  PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY
OTHER LOAN DOCUMENT OF THEIR RESPECTIVE  OBLIGATIONS  HEREUNDER OR THEREUNDER OR
THE  CONSUMMATION OF THE TRANSACTIONS  CONTEMPLATED  HEREBY OR BY ANY OTHER LOAN
DOCUMENT,  (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT,  INCLUDING THIS AGREEMENT,  OR WITH ANY GOVERNMENTAL
REQUIREMENT,  (iii) ANY  INACCURACY OF ANY  REPRESENTATION  OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE  BORROWER OR ANY  GUARANTOR  SET FORTH IN ANY OF THE
LOAN  DOCUMENTS OR ANY  INSTRUMENTS,  DOCUMENTS OR  CERTIFICATIONS  DELIVERED IN

                                      -69-
<PAGE>

CONNECTION  THEREWITH,  (iv)  ANY LOAN OR  LETTER  OF  CREDIT  OR THE USE OF THE
PROCEEDS  THEREFROM,  INCLUDING,  WITHOUT  LIMITATION,  (A) ANY  REFUSAL  BY THE
ISSUING  BANK TO HONOR A DEMAND  FOR  PAYMENT  UNDER A LETTER  OF  CREDIT IF THE
DOCUMENTS  PRESENTED IN CONNECTION  WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH
THE TERMS OF SUCH LETTER OF CREDIT,  OR (B) THE  PAYMENT OF A DRAWING  UNDER ANY
LETTER OF  CREDIT  NOTWITHSTANDING  THE  NON-COMPLIANCE,  NON-DELIVERY  OR OTHER
IMPROPER  PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION  THEREWITH,  (v)
ANY OTHER ASPECT OF THE LOAN  DOCUMENTS,  (vi) THE OPERATIONS OF THE BUSINESS OF
THE BORROWER AND ITS  SUBSIDIARIES BY THE BORROWER AND ITS  SUBSIDIARIES,  (vii)
ANY  ASSERTION  THAT THE  LENDERS  WERE NOT  ENTITLED  TO RECEIVE  THE  PROCEEDS
RECEIVED  PURSUANT TO THE SECURITY  INSTRUMENTS,  (viii) ANY  ENVIRONMENTAL  LAW
APPLICABLE  TO THE  BORROWER  OR ANY  SUBSIDIARY  OR  ANY OF  THEIR  PROPERTIES,
INCLUDING  WITHOUT  LIMITATION,  THE  PRESENCE,  GENERATION,  STORAGE,  RELEASE,
THREATENED  RELEASE,  USE,  TRANSPORT,  DISPOSAL,  ARRANGEMENT  OF  DISPOSAL  OR
TREATMENT OF OIL, OIL AND GAS WASTES,  SOLID WASTES OR HAZARDOUS  SUBSTANCES  ON
ANY OF THEIR  PROPERTIES,  (ix) THE BREACH OR  NON-COMPLIANCE BY THE BORROWER OR
ANY  SUBSIDIARY  WITH ANY  ENVIRONMENTAL  LAW  APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY,  (x) THE PAST  OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR  PROPERTIES  OR PAST  ACTIVITY ON ANY OF THEIR  PROPERTIES  WHICH,  THOUGH
LAWFUL AND FULLY  PERMISSIBLE  AT THE TIME,  COULD RESULT IN PRESENT  LIABILITY,
(xi) THE PRESENCE,  USE,  RELEASE,  STORAGE,  TREATMENT,  DISPOSAL,  GENERATION,
THREATENED  RELEASE,  TRANSPORT,  ARRANGEMENT  FOR TRANSPORT OR ARRANGEMENT  FOR
DISPOSAL OF OIL, OIL AND GAS WASTES,  SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR
AT ANY OF THE PROPERTIES  OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR
ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS  MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY
ENVIRONMENTAL  LIABILITY  RELATED  IN  ANY  WAY TO  THE  BORROWER  OR ANY OF ITS
SUBSIDIARIES,  OR (xiii) ANY OTHER ENVIRONMENTAL,  HEALTH OR SAFETY CONDITION IN
CONNECTION  WITH THE LOAN DOCUMENTS,  OR (xiv) ANY ACTUAL OR PROSPECTIVE  CLAIM,
LITIGATION,  INVESTIGATION  OR  PROCEEDING  RELATING  TO ANY  OF THE  FOREGOING,
WHETHER  BASED ON CONTRACT,  TORT OR ANY OTHER THEORY AND  REGARDLESS OF WHETHER
ANY  INDEMNITEE  IS A PARTY  THERETO,  AND SUCH  INDEMNITY  SHALL EXTEND TO EACH
INDEMNITEE  NOTWITHSTANDING  THE SOLE OR CONCURRENT  NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER,  WHETHER ACTIVE OR PASSIVE,  WHETHER AN AFFIRMATIVE ACT OR
AN  OMISSION,  INCLUDING  WITHOUT  LIMITATION,  ALL TYPES OF  NEGLIGENT  CONDUCT
IDENTIFIED  IN  THE  RESTATEMENT  (SECOND)  OF  TORTS  OF  ONE  OR  MORE  OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE  INDEMNITEES;  PROVIDED  THAT SUCH  INDEMNITY  SHALL NOT,  AS TO ANY
INDEMNITEE,  BE  AVAILABLE  TO THE EXTENT  THAT SUCH  LOSSES,  CLAIMS,  DAMAGES,
LIABILITIES  OR  RELATED  EXPENSES  ARE  DETERMINED  BY  A  COURT  OF  COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE.

                  (c) To the extent  that the  Borrower  fails to pay any amount
required  to be paid by it to the  Administrative  Agent or the  Arranger  under
Section   12.03(a)  or  (b),  each  Lender   severally  agrees  to  pay  to  the
Administrative  Agent  or the  Arranger,  as the  case  may  be,  such  Lender's
Applicable   Percentage   (determined   as  of  the  time  that  the  applicable
unreimbursed  expense or  indemnity  payment is sought) of such  unpaid  amount;

                                      -70-
<PAGE>

provided that the  unreimbursed  expense or  indemnified  loss,  claim,  damage,
liability  or related  expense,  as the case may be, was incurred by or asserted
against the Administrative Agent or the Arranger in its capacity as such.

                  (d) To the extent  permitted by  applicable  law, the Borrower
shall not assert,  and hereby waives,  any claim against any Indemnitee,  on any
theory of liability,  for special,  indirect,  consequential or punitive damages
(as opposed to direct or actual damages)  arising out of, in connection with, or
as a result of, this  Agreement,  any other Loan  Document or any  agreement  or
instrument contemplated hereby or thereby, the Transactions,  any Loan or Letter
of Credit or the use of the proceeds thereof.

                  (e) All amounts due under this Section  12.03 shall be payable
promptly after written demand therefor.

         Section 12.04 Successors and Assigns.

                  (a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their  respective  successors and
assigns  permitted  hereby,  except  that (i) the  Borrower  may not  assign  or
otherwise transfer any of its rights or obligations  hereunder without the prior
written consent of each Lender (and any attempted  assignment or transfer by the
Borrower  without  such  consent  shall be null and void) and (ii) no Lender may
assign or  otherwise  transfer  its rights or  obligations  hereunder  except in
accordance  with this Section  12.04.  Nothing in this  Agreement,  expressed or
implied,  shall be construed  to confer upon any Person  (other than the parties
hereto, their respective  successors and assigns permitted hereby,  Participants
(to the  extent  provided  in Section  12.04(c))  and,  to the extent  expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.

                  (b)  (i)  Subject  to the  conditions  set  forth  in  Section
12.04(b)(ii), any Lender may assign to one or more assignees all or a portion of
its rights and obligations  under this Agreement  (including all or a portion of
its  Commitment  and the Loans at the time  owing to it) with the prior  written
consent (such consent not to be unreasonably withheld) of:

                            (A) the  Borrower,  provided  that no consent of the
              Borrower shall be required if such  assignment is to a Lender,  an
              Affiliate  of a Lender or, if an Event of Default has occurred and
              is continuing, is to any other assignee; and

                            (B)  the  Administrative  Agent,  provided  that  no
              consent  of the  Administrative  Agent  shall be  required  for an
              assignment  to an assignee that is a Lender  immediately  prior to
              giving effect to such assignment.

                       (ii)  Assignments  shall  be  subject  to  the  following
         additional conditions:

                                 (A)  except in the case of an  assignment  to a
              Lender or an Affiliate of a Lender or an  assignment of the entire
              remaining  amount of the assigning  Lender's  Commitment or Loans,
              the  amount of the  Commitment  or Loans of the  assigning  Lender
              subject  to each such  assignment  (determined  as of the date the
              Assignment  and  Assumption  with  respect to such  assignment  is
              delivered  to the  Administrative  Agent)  shall  not be less than
              $1,000,000  unless  each of the  Borrower  and the  Administrative
              Agent  otherwise  consent,  provided  that no such  consent of the
              Borrower shall be required if an Event of Default has occurred and
              is continuing;

                                 (B) each partial assignment shall be made as an
              assignment of a proportionate  part of all the assigning  Lender's
              rights and obligations under this Agreement;

                                      -71-
<PAGE>

                                 (C)  the  parties  to  each  assignment   shall
              execute and deliver to the Administrative  Agent an Assignment and
              Assumption,  together  with a processing  and  recordation  fee of
              $3,500; and

                                 (D) the assignee,  if it shall not be a Lender,
              shall deliver to the Administrative Agent such contact information
              as the Administrative Agent shall request.

                       (iii) Subject to Section  12.04(b)(iv) and the acceptance
         and recording  thereof,  from and after the effective date specified in
         each Assignment and Assumption the assignee thereunder shall be a party
         hereto and, to the extent of the interest  assigned by such  Assignment
         and Assumption,  have the rights and obligations of a Lender under this
         Agreement,  and the assigning Lender thereunder shall, to the extent of
         the interest  assigned by such Assignment and  Assumption,  be released
         from its  obligations  under  this  Agreement  (and,  in the case of an
         Assignment and Assumption covering all of the assigning Lender's rights
         and obligations  under this Agreement,  such Lender shall cease to be a
         party  hereto but shall  continue  to be  entitled  to the  benefits of
         Section  5.01,  Section  5.02,  Section  5.03 and Section  12.03).  Any
         assignment or transfer by a Lender of rights or obligations  under this
         Agreement that does not comply with this Section 12.04 shall be treated
         for  purposes  of  this  Agreement  as  a  sale  by  such  Lender  of a
         participation in such rights and obligations in accordance with Section
         12.04(c).

                       (iv) The Administrative Agent, acting for this purpose as
         an agent of the Borrower,  shall  maintain at one of its offices a copy
         of each  Assignment and  Assumption  delivered to it and a register for
         the  recordation  of the names and  addresses of the  Lenders,  and the
         Maximum  Credit  Amount  of, and  principal  amount of the Loans and LC
         Disbursements  owing to, each Lender  pursuant to the terms hereof from
         time to time (the  "Register").  The entries in the  Register  shall be
         conclusive, and the -------- Borrower, the Administrative Agent and the
         Lenders  may treat each Person  whose name is recorded in the  Register
         pursuant to the terms hereof as a Lender  hereunder for all purposes of
         this Agreement,  notwithstanding  notice to the contrary.  The Register
         shall be available for  inspection  by the Borrower and any Lender,  at
         any reasonable time and from time to time upon reasonable prior notice.
         In  connection  with any changes to the  Register,  if  necessary,  the
         Administrative  Agent will reflect the revisions on Annex I and forward
         a copy of such revised Annex I to the Borrower and each Lender.

                       (v) Upon its receipt of a duly  completed  Assignment and
         Assumption  executed  by an  assigning  Lender  and  an  assignee,  the
         assignee's completed Administrative  Questionnaire (unless the assignee
         shall already be a Lender  hereunder),  the processing and  recordation
         fee  referred to in Section  12.04(b)  and any written  consent to such
         assignment required by Section 12.04(b), the Administrative Agent shall
         accept  such  Assignment  and  Assumption  and record  the  information
         contained therein in the Register. No assignment shall be effective for
         purposes of this Agreement  unless it has been recorded in the Register
         as provided in this Section 12.04(b).

                  (c) (i) Any Lender may,  without the consent of the  Borrower,
the  Administrative  Agent,  sell  participations  to one or more banks or other
entities  (a  "Participant")  in all or a portion  of such  Lender's  rights and
obligations  under this Agreement  (including all or a portion of its Commitment
and the Loans owing to it);  provided that (A) such Lender's  obligations  under
this  Agreement  shall remain  unchanged,  (B) such Lender  shall remain  solely
responsible to the other parties hereto for the performance of such  obligations
and (C) the  Borrower,  the  Administrative  Agent and the other  Lenders  shall
continue to deal solely and directly  with such Lender in  connection  with such
Lender's  rights  and  obligations  under  this  Agreement.   Any  agreement  or
instrument  pursuant to which a Lender sells such a participation  shall provide
that such Lender shall retain the sole right to enforce  this  Agreement  and to

                                      -72-
<PAGE>

approve  any  amendment,  modification  or  waiver  of  any  provision  of  this
Agreement;  provided  that such  agreement or  instrument  may provide that such
Lender will not, without the consent of the Participant, agree to any amendment,
modification  or waiver  described in the proviso to Section  12.02 that affects
such  Participant.  In addition such agreement must provide that the Participant
be bound by the  provisions of Section 12.03.  Subject to Section  12.04(c)(ii),
the Borrower agrees that each  Participant  shall be entitled to the benefits of
Section  5.01,  Section 5.02 and Section 5.03 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to Section 12.04(b).
To the extent  permitted by law, each  Participant also shall be entitled to the
benefits of Section 12.08 as though it were a Lender,  provided such Participant
agrees to be subject to Section 4.01(c) as though it were a Lender.

                  (ii) A  Participant  shall  not be  entitled  to  receive  any
         greater  payment under Section 5.01 or Section 5.03 than the applicable
         Lender  would  have  been  entitled  to  receive  with  respect  to the
         participation  sold  to  such  Participant,  unless  the  sale  of  the
         participation  to such  Participant is made with the  Borrower's  prior
         written  consent.  A Participant  that would be a Foreign  Lender if it
         were a Lender  shall not be  entitled to the  benefits of Section  5.03
         unless the  Borrower  is  notified  of the  participation  sold to such
         Participant  and  such  Participant  agrees,  for  the  benefit  of the
         Borrower, to comply with Section 5.03(e) as though it were a Lender.

                  (d) Any  Lender  may at any time  pledge or assign a  security
interest  in all or any  portion of its rights  under this  Agreement  to secure
obligations  of such  Lender,  including,  without  limitation,  any  pledge  or
assignment to secure  obligations  to a Federal  Reserve Bank,  and this Section
12.04(d)  shall  not  apply to any  such  pledge  or  assignment  of a  security
interest;  provided  that no such pledge or  assignment  of a security  interest
shall release a Lender from any of its  obligations  hereunder or substitute any
such pledgee or assignee for such Lender as a party hereto.

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

         Section 12.05 Survival; Revival; Reinstatement.

                  (a) All covenants, agreements,  representations and warranties
made  by the  Borrower  herein  and in the  certificates  or  other  instruments
delivered  in  connection  with or pursuant to this  Agreement or any other Loan
Document  shall be  considered  to have been  relied  upon by the other  parties
hereto and shall survive the  execution  and delivery of this  Agreement and the
making of any Loans and  issuance  of any Letters of Credit,  regardless  of any
investigation made by any such other party or on its behalf and  notwithstanding
that the Administrative  Agent or any Lender may have had notice or knowledge of
any Default or  incorrect  representation  or warranty at the time any credit is
extended  hereunder,  and shall continue in full force and effect as long as the
principal of or any accrued  interest on any Loan or any fee or any other amount
payable under this Agreement is  outstanding  and unpaid or any Letter of Credit
is outstanding  and so long as the  Commitments  have not expired or terminated.
The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and
ARTICLE XI shall  survive and remain in full force and effect  regardless of the
consummation  of the  transactions  contemplated  hereby,  the  repayment of the
Loans,  the  expiration  or  termination  of  the  Letters  of  Credit  and  the
Commitments or the termination of this Agreement, any other Loan Document or any
provision hereof or thereof.

                  (b) To the extent  that any  payments on the  Indebtedness  or
proceeds  of  any  collateral  are  subsequently  invalidated,  declared  to  be
fraudulent  or  preferential,  set aside or  required to be repaid to a trustee,
debtor in possession,  receiver or other Person under any bankruptcy law, common

                                      -73-
<PAGE>

law or equitable cause, then to such extent, the Indebtedness so satisfied shall
be revived and continue as if such payment or proceeds had not been received and
the Administrative  Agent's and the Lenders' Liens, security interests,  rights,
powers and remedies  under this  Agreement and each Loan Document shall continue
in  full  force  and  effect.  In  such  event,  each  Loan  Document  shall  be
automatically  reinstated  and the  Borrower  shall  take such  action as may be
reasonably  requested by the Administrative Agent and the Lenders to effect such
reinstatement.

         Section 12.06 Counterparts; Integration; Effectiveness.

                  (a) This  Agreement  may be executed in  counterparts  (and by
different  parties  hereto  on  different  counterparts),  each of  which  shall
constitute an original,  but all of which when taken together shall constitute a
single contract.

                  (b) This Agreement,  the other Loan Documents and any separate
letter  agreements  with  respect to fees  payable to the  Administrative  Agent
constitute the entire contract among the parties  relating to the subject matter
hereof  and  thereof  and  supersede  any  and  all  previous   agreements   and
understandings,  oral or  written,  relating to the  subject  matter  hereof and
thereof.  THIS  AGREEMENT  AND THE  OTHER  LOAN  DOCUMENTS  REPRESENT  THE FINAL
AGREEMENT  AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE  CONTRADICTED  BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                  (c) Except as provided in Section 6.01,  this Agreement  shall
become  effective when it shall have been executed by the  Administrative  Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken  together,  bear the signatures of each of the other parties  hereto,
and  thereafter  shall be binding  upon and inure to the  benefit of the parties
hereto and their  respective  successors  and  assigns.  Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.

         Section  12.07  Severability.  Any  provision of this  Agreement or any
other  Loan  Document  held  to be  invalid,  illegal  or  unenforceable  in any
jurisdiction  shall,  as to such  jurisdiction,  be ineffective to the extent of
such invalidity,  illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining  provisions hereof or thereof;  and
the invalidity of a particular provision in a particular  jurisdiction shall not
invalidate such provision in any other jurisdiction.

         Section  12.08  Right of  Setoff.  If an Event of  Default  shall  have
occurred and be  continuing,  each Lender and each of its  Affiliates  is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all  deposits  (general  or  special,  time or
demand,  provisional  or  final)  at any time  held and  other  obligations  (of
whatsoever  kind,   including,   without  limitations   obligations  under  Swap
Agreements)  at any time owing by such Lender or  Affiliate to or for the credit
or the  account of the  Borrower  or any  Subsidiary  against any of and all the
obligations  of the  Borrower  or any  Subsidiary  owed  to such  Lender  now or
hereafter existing under this Agreement or any other Loan Document, irrespective
of whether or not such Lender shall have made any demand under this Agreement or
any other Loan Document and although  such  obligations  may be  unmatured.  The
rights of each Lender under this  Section  12.08 are in addition to other rights
and  remedies  (including  other  rights of  setoff)  which  such  Lender or its
Affiliates may have.

                                      -74-
<PAGE>

         Section  12.09  GOVERNING  LAW;  JURISDICTION;  CONSENT  TO  SERVICE OF
                         PROCESS.

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

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

                  (c) EACH PARTY IRREVOCABLY  CONSENTS TO THE SERVICE OF PROCESS
OF ANY OF THE  AFOREMENTIONED  COURTS IN ANY SUCH  ACTION OR  PROCEEDING  BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO
IT AT THE  ADDRESS  SPECIFIED  IN  SECTION  12.01 OR SUCH  OTHER  ADDRESS  AS IS
SPECIFIED  PURSUANT TO SECTION 12.01 (OR ITS  ASSIGNMENT AND  ASSUMPTION),  SUCH
SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.  NOTHING HEREIN
SHALL  AFFECT THE RIGHT OF A PARTY OR ANY  HOLDER OF A NOTE TO SERVE  PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL  PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

                  (d) EACH PARTY  HEREBY  (i)  IRREVOCABLY  AND  UNCONDITIONALLY
WAIVES,  TO THE  FULLEST  EXTENT  PERMITTED  BY LAW,  TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING  RELATING TO THIS  AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED  BY LAW,  ANY  RIGHT  IT MAY HAVE TO  CLAIM  OR  RECOVER  IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL  DAMAGES;  (iii)  CERTIFIES  THAT NO PARTY
HERETO  NOR ANY  REPRESENTATIVE,  AGENT OR  COUNSEL  FOR ANY  PARTY  HERETO  HAS
REPRESENTED,  EXPRESSLY OR  OTHERWISE,  OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE  EVENT OF  LITIGATION,  SEEK TO  ENFORCE  THE  FOREGOING  WAIVERS,  AND (iv)
ACKNOWLEDGES  THAT IT HAS BEEN  INDUCED TO ENTER INTO THIS  AGREEMENT,  THE LOAN
DOCUMENTS AND THE TRANSACTIONS  CONTEMPLATED  HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

                                      -75-
<PAGE>

         Section 12.10 Headings.  Article and Section  headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and  shall  not  affect  the   construction  of,  or  be  taken  into
consideration in interpreting, this Agreement.

         Section  12.11  Interest  Rate  Limitation.  It is the intention of the
parties hereto that each Lender shall conform  strictly to usury laws applicable
to it. Accordingly, if the transactions contemplated hereby would be usurious as
to any Lender  under laws  applicable  to it  (including  the laws of the United
States of America  and the State of Texas or any other  jurisdiction  whose laws
may  be  mandatorily   applicable  to  such  Lender  notwithstanding  the  other
provisions of this Agreement),  then, in that event, notwithstanding anything to
the  contrary in any of the Loan  Documents  or any  agreement  entered  into in
connection with or as security for the Notes,  it is agreed as follows:  (i) the
aggregate of all consideration  which constitutes  interest under law applicable
to any Lender that is contracted  for, taken,  reserved,  charged or received by
such Lender  under any of the Loan  Documents  or  agreements  or  otherwise  in
connection with the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable  law, and any excess shall be canceled  automatically
and if theretofore paid shall be credited by such Lender on the principal amount
of the  Indebtedness  (or,  to the  extent  that  the  principal  amount  of the
Indebtedness shall have been or would thereby be paid in full,  refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated  by reason of an election of the holder  thereof  resulting from any
Event of  Default  under this  Agreement  or  otherwise,  or in the event of any
required or  permitted  prepayment,  then such  consideration  that  constitutes
interest  under law  applicable  to any Lender may never  include  more than the
maximum  amount allowed by such  applicable  law, and excess  interest,  if any,
provided for in this Agreement or otherwise shall be canceled  automatically  by
such  Lender  as of  the  date  of  such  acceleration  or  prepayment  and,  if
theretofore  paid,  shall be credited by such Lender on the principal  amount of
the  Indebtedness   (or,  to  the  extent  that  the  principal  amount  of  the
Indebtedness shall have been or would thereby be paid in full,  refunded by such
Lender to the  Borrower).  All sums paid or agreed to be paid to any  Lender for
the use,  forbearance  or detention of sums due hereunder  shall,  to the extent
permitted by law applicable to such Lender,  be amortized,  prorated,  allocated
and spread  throughout the stated term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of  interest  on account of any Loans
hereunder does not exceed the maximum amount allowed by such  applicable law. If
at any time and from time to time (i) the  amount  of  interest  payable  to any
Lender on any date shall be computed at the Highest  Lawful Rate  applicable  to
such Lender pursuant to this Section 12.11 and (ii) in respect of any subsequent
interest  computation  period the amount of interest  otherwise  payable to such
Lender would be less than the amount of interest payable to such Lender computed
at the  Highest  Lawful  Rate  applicable  to such  Lender,  then the  amount of
interest  payable  to  such  Lender  in  respect  of  such  subsequent  interest
computation  period  shall  continue to be  computed at the Highest  Lawful Rate
applicable  to such Lender  until the total  amount of interest  payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest  had been  computed  without  giving
effect to this  Section  12.11.  To the  extent  that  Chapter  303 of the Texas
Finance Code is relevant for the purpose of determining  the Highest Lawful Rate
applicable  to a Lender,  such Lender elects to determine  the  applicable  rate
ceiling  under such  Chapter by the weekly  ceiling from time to time in effect.
Chapter  346  of the  Texas  Finance  Code  does  not  apply  to the  Borrower's
obligations hereunder.

         Section  12.12  EXCULPATION  PROVISIONS.  EACH  OF THE  PARTIES  HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS  AND AGREES THAT IT IS CHARGED WITH NOTICE AND  KNOWLEDGE OF THE TERMS
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY  INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS  AND  EFFECTS  OF THIS  AGREEMENT;  THAT IT HAS BEEN  REPRESENTED  BY
INDEPENDENT  LEGAL COUNSEL OF ITS CHOICE  THROUGHOUT THE NEGOTIATIONS  PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  AND HAS RECEIVED

                                      -76-
<PAGE>

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

         Section 12.13 Collateral Matters;  Swap Agreements.  The benefit of the
Security  Instruments  and of the provisions of this  Agreement  relating to any
collateral  securing the  Indebtedness  shall also extend to and be available to
those Lenders or their Affiliates which are counterparties to any Swap Agreement
with the Borrower or any of its  Subsidiaries  on a pro rata basis in respect of
any obligations of the Borrower or any of its Subsidiaries which arise under any
such Swap  Agreement  while such Person or its  Affiliate is a Lender,  but only
while such Person or its Affiliate is a Lender,  including  any Swap  Agreements
between  such Persons in  existence  prior to the date hereof.  No Lender or any
Affiliate of a Lender shall have any voting  rights under any Loan Document as a
result  of  the  existence  of  obligations  owed  to it  under  any  such  Swap
Agreements.

         Section 12.14 No Third Party Beneficiaries.  This Agreement,  the other
Loan  Documents,  and  the  agreement  of the  Lenders  to  make  Loans  and the
Administrative  Agent to procure  and arrange to issue,  amend,  renew or extend
Letters of Credit  hereunder are solely for the benefit of the Borrower,  and no
other Person (including, without limitation, any Subsidiary of the Borrower, any
obligor,  contractor,  subcontractor,  supplier or  materialman)  shall have any
rights,  claims,  remedies  or  privileges  hereunder  or under any  other  Loan
Document  against  the  Administrative  Agent  or  any  Lender  for  any  reason
whatsoever. There are no third party beneficiaries.

         Section 12.15 USA Patriot Act Notice.  Each Lender hereby  notifies the
Borrower that pursuant to the  requirements of the USA Patriot Act (Title III of
Pub. L. 107-56  (signed into law October 26, 2001)) (the "Act"),  it is required
to obtain,  verify and record  information  that identifies the Borrower,  which
information  includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.

                          [SIGNATURES BEGIN NEXT PAGE]

                                      -77-
<PAGE>

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

BORROWER:                           TRANS ENERGY INC.

                                    By:
                                         ---------------------------------------
                                            James K. Abcouwer, CEO and President

                                      -78-
<PAGE>

Administrative Agent and Lender:    CIT CAPITAL USA INC.,
                                    as Administrative Agent and Lender

                                    By:
                                         ---------------------------------------
                                    Name:
                                    Title:

                                      -79-exhibit10-1.htm

    Exhibit
      10.1 
      
        

      

      
        

      

    

    

    COMMERCIAL
      LOAN AGREEMENT

    

    (Loan
      No.
      9117000148)

    

    

    This
      Commercial Loan Agreement dated as
      of August 31, 2005 ("Agreement") is by

    and
      among
      CALIFORNIA BANK & TRUST, a California banking corporation, as
      lender

    ("Bank"),
      and ICON INCOME FUND EIGHT B L.P.; ICON INCOME FUND NINE, LLC; ICON INCOME
      FUND
      TEN, LLC; and ICON LEASING FUND ELEVEN, LLC, as borrowers

    (separately
      and collectively "Borrower").

    

    1.       DEFINITIONS

    

    1.1
      The
      following terms shall have the following meanings when used in this

         Agreement:

    

         "Account
      Obligor" shall mean the obligor on any Accounts Receivable.

    

         "Accounts"
      shall mean each of the presently  existing and hereafter arising
      accounts,  Accounts  Receivable,  contract  rights
      and other  forms of  monetary
      obligations  and  receivables
      (including  healthcare   receivables)  owing  to
      Borrower,   and  any  credit  insurance,   guaranties,   or
      security  therefore, irrespective of whether earned by
      performance.

    

         "Accounts
      Receivable" shall mean open Accounts which are Collateral.

    

         "Adjusted
      Total Liabilities" shall mean the sum of current liabilities plus long
      term  liabilities  (excluding  all  non-recourse  debt
      and all  other  debt subordinated to
      Borrower's  obligations to Bank in a manner acceptable to Bank),
      including, without limitation, accrued and deferred income taxes, all calculated
      in accordance with GAAP, consistently applied.

    

         "Affiliate”
      shall mean, when used with respect to any Person, any other Person which,
      directly or indirectly, controls or is controlled by or is under common control
      with such Person.  For  purposes of
      this  definition,  "control"
      (including,  with  correlative  meanings,  the
      terms  "controlled by" and "under
      common  control  with"),  with  respect
      to any  Person,  shall mean  possession, directly
      or  indirectly,  of the power to direct or cause
      the  direction  of the management and policies of such
      Person,  whether through the ownership of voting securities, by
      contract or otherwise.

    

         "Agreement"  shall  mean
      this  Commercial  Loan  Agreement  as  amended  or
      modified from time to time,  together  with all exhibits and
      schedules  attached hereto from time to time.

    

         "Authorized
      Officer” shall have the meaning given the term in Section 5.3.a.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Availability"
      shall mean, as of the date of determination, the difference between the Line
      of
      Credit Limit and the outstanding amount under the Line of Credit.

    

         "Bank"
      shall mean California Bank & Trust, its successors and assigns.

    

         "Banking
      Day" shall mean, unless otherwise provided in this Agreement, a day other than
      Saturday, Sunday, or a legal holiday on which Bank is open for business in
      the
      State of California.

    

         "Beneficial
      Interest” shall mean a beneficial interest in a trust, a partnership interest in
      a partnership, or a membership interest in a limited liability
      company.

    

         "Borrower"
      shall mean ICON Income Fund Eight B L.P.; ICON Income Fund Nine, LLC; ICON
      Income Fund Ten, LLC; and ICON Leasing Fund Eleven, LLC, separately and
      collectively.

    

         "Borrower’s
      Assets" shall mean any real or personal property owned, now or hereafter, in
      whole or in part by Borrower.

    

         "Borrowing
      Base"  shall  mean 85% of
      the  Present  Value  of the  Eligible
      Borrowing Base Contracts, with the limitation that no more than $5,000,000.00
      in
      advances, in the aggregate,  shall be based on a contract or contracts
      involving the same Lessee or Debtor unless otherwise  approved in
      writing by Bank and with
      the  further  limitation  that no
      more  than  25% of
      the  Present  Value  of the
      Eligible  Borrowing  Base  Contracts  shall
      mature within 90 days (to the extent that the  $5,000,000.00 or 25%
      limitation is exceeded in the Eligible  Borrowing Base Contracts
      identified on Schedule 1, Bank approves that excess).

    

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

    

         "Collateral”
      means and includes, without limitation, all property and
      assets  granted
      as  collateral  security  for a
      Loan,  whether  real or personal property, whether granted
      directly or indirectly,  whether granted now or in the
      future  and  whether  granted in the form of
      a  security  interest,  assignment, pledge, lien,
      or any other security or lien interest whatsoever, whether created by law,
      contract or otherwise. The word "Collateral" includes without limitation all
      collateral described in the section of this Agreement titled
      "Collateral."

    

         "Collateral
      Documents” shall mean all the documents set forth in this Agreement in the
      section titled "Collateral Documents."

    

         "Contribution
      Agreement” shall have the meaning given the term in Section 8.23 of this
      Agreement.

    

         "Debt
      Service Coverage Ratio" means EBITDA divided by Interest Expense.

    

         "Debtor"
      means a borrower under a Loan Contract or Indirect Loan Contract.

    

         "Default”
      means an event which, with the passage of time or the giving of notice or both,
      would constitute an Event of Default.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Default
      Rate" shall have the meaning given the term in Section 5.8.

    

         "Designated
      Accounts" shall have the meaning given the term in Section 5.3 of this
      Agreement.

    

         "Discount
      Rate" means the rate of interest equal to one-quarter of one percent (0.25%)
      per
      annum in  excess  of the
      Prime  Rate,  which  shall  vary
      concurrently with any change in the Prime Rate.

    

         "EBITDA"
      means the sum of (a) Borrower's net
      income;  (b)  depreciation and
      amortization  expense  and  other  non-cash  items  deducted  on
      the  Borrower's financial  statements in determining such
      net income; (c) Interest Expense;  and (d) taxes imposed by
      any  jurisdiction  upon  Borrower's net
      income,  absent the effect of write-ups or forgiveness of debt; all as
      calculated in accordance with GAAP, consistently applied.

    

         "Eligible
      Borrowing Base Contract” means a Revolving Loan Contract which satisfies each of
      the following conditions at the date of determination:

    

         a.   No
      event of default exists under such contract, except that past due payments
      that
      are deemed acceptable under paragraph b. below shall not
      cause  an  otherwise   Eligible  Borrowing  Base  Contract  to  becomeineligible;

    

         b.   Scheduled
      payments by the Lessee or the Debtor under such contract are

              current
      or less than 60 days past the scheduled payment date specified

              in
      such contract;

    

         c.   The  contract  identifies  Borrower  as
      the lessor or  lender,  or, if

              another  Person
      is the  original  lessor or
      lender,  the  lessor's  or

              lender's  interest
      in the contract and
      the  underlying  equipment  has

              been  transferred  in  writing  to  Borrower  (if
      the  Revolving  Loan

              Contract
      is an  Indirect  Lease or
      Indirect  Loan  Contract,  the term

              "Borrower"  in
      this clause is replaced by "Person in whom Borrower has

              a
      Beneficial Interest");

    

         d.   There  is  no   indication  on  the  contract  that  Borrower  or  any

              predecessor-in-interest
      on the contract has transferred or pledged any

              interest
      in the contract to any Person other than Bank or Borrower (if

              the  Revolving  Loan  Contract
      is an Indirect  Lease or Indirect  Loan

              Contract,
      the term "Borrower" in this clause is replaced by "Person in

              whom  Borrower  has
      a  Beneficial  Interest")  or,  if  there  is
      such

              indication,  such
      interest has been validly transferred by such Person

              to
      Borrower or Bank;

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         e.   If
      the  contract  is
      a  lease,  the  lease  and
      the  equipment  leased

              thereunder  are
      owned by Borrower  and are subject to no
      Liens  (other

              than  Permitted  Liens)
      in favor of anyone  other  than Bank or to any

              rights
      other than the rights of the Lessee as lessee under such lease;

              if
      a lease is deemed a security interest under the
      applicable  Uniform

              Commercial
      Code,  Borrower has a perfected  first-priority Lien in
      the

              equipment  covered  thereby  (if
      the  Revolving  Loan  Contract  is
      an

              Indirect
      Lease or Indirect Loan Contract,  the term "Borrower" in
      this

              clause
      is  replaced  by  "Person  in
      whom  Borrower  has a  Beneficial

              Interest");

    

         f.   Bank  has
      a  perfected  first  priority  Lien  in
      the  Revolving  Loan

              Contract  and,
      if the Revolving  Loan Contract is a lease,  Bank has
      a

              perfected  first-priority
      Lien in the equipment subject to that lease,

              subject
      to any Permitted  Liens (if the Revolving  Loan Contract is
      an

              Indirect  Lease
      or Indirect Loan  Contract,  Bank has a first
      priority

              Lien
      in Borrower's Beneficial Interest in the lessor or lender);

    

         g.   If
      the  contract is a loan,  the  contract is owned
      by Borrower and is

              subject
      to no Lien,  other
      than  Permitted  Liens,  in favor of
      anyone

              other
      than Bank,  and Borrower has a perfected  first priority
      Lien in

              the
      equipment  that secures the loan,  subject to any
      Permitted  Liens

              (if
      the Revolving Loan Contract is an Indirect Loan Contract, the term

              "Borrower"  in
      this clause is replaced by "Person in whom Borrower has

              a
      Beneficial Interest");

    

         h.   The
      contract is written; the contract has not been amended or modified

              except
      by a written  document  delivered  to
      Bank;  the  contract  was

              entered  into  or  acquired  in  the  ordinary  course  of  Borrower's

              business;  the
      contract is in full force and effect and is enforceable

              in
      accordance with its terms; to Borrower's  knowledge,  the
      equipment

              covered
      by the contract is in good working order; the Lessee or Debtor

              has  accepted  the  equipment  delivered  pursuant
      to the  contract as

              evidenced
      by a
      delivery  and  acceptance  certificate  executed
      by the

              Lessee
      or Debtor or other standard  document;  if a
      lease,  the Lessee

              has
      commenced making rent payments pursuant to the terms of the lease;

              if
      a loan, the Debtor has commenced  making loan
      payments  pursuant to

              the  loan;  and  to  Borrower's  knowledge,   no  defenses,   offsets,

              counterclaims
      or disputes exist under or with respect to such contract

              or
      to the equipment covered by such contract;

    

         i.   All
      existing "chattel paper" originals of the contract,  together
      with

              any  and  all  schedules,   supplements  and  amendments  thereto  and

              modifications  thereof,  including  any
      and all  promissory  notes and

              other   instruments  as  defined  in  the  Uniform   Commercial  Code,

              evidencing  any
      monetary  obligation  owing to Borrower
      in  connection

              therewith,  have
      been  delivered to, and are in the possession of Bank

              (if
      the Revolving  Loan Contract is an Indirect Lease or Indirect
      Loan

              Contract,
      the term "Borrower" in this clause is replaced by "Person in

              whom
      Borrower has a Beneficial Interest");

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         j.   If
      the Revolving  Loan Contract is an Indirect  Lease or
      Indirect Loan

              Contract,
      Borrower shall have, prior to the making of a Line of Credit

              advance,  disclosed  to
      Bank in writing the  identity of the lessor or

              lender,  as
      the case may be, and the nature
      of  Borrower's  Beneficial

              Interest
      in such Person;

    

         k.   No  part  of
      the  contract,  or
      the  equipment  thereunder,  shall  be

              financed
      by non-recourse  or other debt (unless  subordinated on
      terms

              and
      conditions satisfactory to Bank); and

    

         l.
      The contract  shall have a remaining  term of not less than
      31 days from the date of funding by Bank.

    

         "Environmental  Laws"
      shall mean each and every material federal,  state or local law,
      ordinance,  regulation,  permit,  license,  authorization,  judgment,
      decree,  agreement,  restriction or requirement pertaining
      to health, industrial hygiene, Hazardous Substances (as defined below), or
      the
      environment.

    

         "Event
      of Default" means and includes without  limitation any of the Events
      of  Default  set  forth in
      this  Agreement  in
      the  section  titled  "Events  of
      Default."

    

         "Facility
      Fee" shall have the meaning given the term in Section 3.5.a. of this
      Agreement.

    

         "GAAP"
      means generally accepted accounting principles set forth in the opinions and
      pronouncements of the Accounting Principles Board and the American Institute
      of
      Certified Public Accountants and statements and pronouncements of the Financial
      Accounting Standards Board, or in such other statements by such other entity
      as
      may be in general use by significant segments of the accounting profession,
      which are applicable to the circumstances as of the date of
      purpose.

    

         "Hazardous
      Substance" shall mean any substance whose nature, existence, use or effect
      render it subject now, or in the future, to federal, state or local regulation,
      investigation, remediation or removal as potentially injurious to public health
      or welfare.

    

         "Indirect
      Lease" means a lease (including a schedule under a master lease) in which a
      Person in whom Borrower has a Beneficial Interest is the lessor or has been
      assigned the lessor's interest.

    

         "Indirect
      Loan Contract" means a loan contract  (including a schedule under a
      master loan  contract) or  promissory  note in
      which a Person in whom Borrower has
      a  Beneficial  Interest  is
      the  lender  or payee or has
      been  assigned  the lender's or payee's
      interest.

    

         "Interest  Expense"  for
      any  applicable  period  shall  mean
      all  interest expense  as it appears
      on  Borrower's  income  statement  for
      such  period,  all calculated in accordance with GAAP,
      consistently applied.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Inventory"
      shall mean all finished goods wherever located, and goods which are or may
      at
      any time be held for sale or lease,  furnished  under any
      contract of service or held as raw
      materials,  work-in-progress,  supplies, components or
      materials used or consumed in Borrower's  business or which are or
      might be used
      in  connection  with  the  manufacturing,   shipping,  advertising,  selling  or
      finishing  of
      such  goods,  merchandise  and  other  personal  property  and
      all

    documents
      of title or documents  representing  the
      same,  whether  negotiable or non-negotiable and all such
      property, the sale or other disposition of which has given rise to
      Accounts  Receivable and which has been returned to or repossessed or
      stopped in transit by Borrower.

    

         "Lease"  shall
      mean a lease  (including  a schedule  under a
      master  lease) under which  Borrower is the lessor or for
      which  Borrower has been assigned the lessor's interest.

    

         "Lessee"
      means a lessee under any Lease or Indirect Lease.

    

         "Lien"  shall
      mean any lien or security  interest  arising from a
      mortgage,
      deed  of  trust,  encumbrance,   pledge,  hypothecation,   assignment,   deposit
      arrangement,  security  agreement,  adverse claim
      or charge,  conditional  sale,
      trust  receipt,  judgment,  attachment  or
      by operation of law, or from a lease, consignment,  or bailment for
      security  purposes and any  agreement to grant any lien or
      security interest.

    

         "LIBO
      Rate" shall have the meaning given the term in Sections 3.2.b.iii.

    

         "Line
      of Credit  Applicable  Interest  Period" shall
      have the meaning given the term in Section 3.2.b.

    

         "Line  of  Credit  Availability  Period"  shall  mean  the  period  of
      time commencing on the date of this Agreement and continuing until the Line
      of
      Credit Expiration Date.

    

         "Line
      of Credit Expiration Date" shall mean August 31, 2007.

    

         "Line
      of Credit" shall have the meaning given the term in Section 2.1.a.

    

         "Line
      of Credit LIBO Rate Portion" shall have the meaning given the term in Section
      3.2.b.

    

         "Line
      of Credit  Limit"  shall have
      the  meaning  given the term in Section 2.1.a.

    

         "Line
      of Credit  Note"  shall  have
      the  meaning  given the term in Section 2.1.a.

    

         "Liquidity"  means
      Borrower's cash reserves (other than the Restricted Cash
      Deposit  and  other  deposits  reserved  pursuant  to  Borrower's   non-recourse
      financing, if any) and unused  vailability under the Line of
      Credit.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Loan"
      shall mean and include,  without limitation,  any and all
      commercial
      loans  and  financial  accommodations  from  Bank
      to  Borrower,  whether  now or hereafter existing,
      and however evidenced,  including without limitation,  those
      loans and financial accommodations described in this Agreement or on any exhibit
      or schedule attached to this Agreement from time to time.

    

         "Loan  Contract"  shall
      mean a loan contract  (including a schedule under a master
      loan  contract)  or  promissory  note in
      which  Borrower is the lender or payee or which Borrower has been
      assigned the lender's or payee's interest.

    

         "Loan  Documents"  shall
      mean this  Agreement  and all other  documents and
      agreements executed or delivered to Bank in connection with this
      Agreement.

    

         "Manager"  means
      ICON
      Capital  Corp.,  a  Connecticut  corporation,  in
      its capacity  as manager of
      those  entities  comprising  Borrower  that
      are  limited liability  companies and in its capacity as
      general  partner of ICON Income Fund Eight B L.P.

    

         "Material  Adverse  Change"  means
      a  material  adverse  effect  on (a) the
      business,  operations,  results of
      operations,  assets, liabilities or condition (financial or otherwise)
      of Manager,  (b) the
      business,  operations,  results of
      operations,  assets,  liabilities  or  condition  (financial  or  otherwise)  of
      Borrower and its  Subsidiaries  taken as a whole, (c) the
      ability of Borrower to

    perform
      its  obligations  under the Loan  Documents to
      which it is a party or of Bank to enforce the Obligations or realize upon the
      Collateral, (d) the value of the  Collateral or the amount that Bank
      would be likely to receive (after giving consideration  to delays in
      payment and costs of enforcement) in the liquidation of such
      Collateral,  (e) the validity or enforceability  of this
      Agreement,  the
      other  Loan  Documents,  or  the  rights  and  remedies  of  Bank  hereunder  or

    thereunder,
      or (f) the priority of Bank's Liens with respect to the Collateral.

    

         "Note"
      shall mean the Line of Credit Note.

    

         "Obligation"
      shall mean all
      loans,  advances,  debt,  principal,  interest,
      fees,  expenses,  costs and other  amounts owed to
      Bank by Borrower  pursuant to
      this  Agreement,  together  with
      all  guaranties,  covenants and duties owing by
      Borrower  to Bank of
      any  kind  or  description  hereunder,  whether  direct  or
      indirect,  absolute  or  contingent,  due
      or
      to  become  due,  now  existing  or
      hereafter  arising,  including
      any  interest,  fees,  expenses,  costs
      and other amounts owed to Bank that but for the  provisions of
      the  Bankruptcy  Code would have accrued after
      the  commencement of any insolvency  proceeding and
      including any
      debt,  liability,  or  obligation  owing
      from Borrower to other Persons that Bank may have obtained by assignment or
      otherwise.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Optional  Line
      of Credit  Interest  Rate" shall have the meaning given the
      term in Section 3.2.b.

    

         "PBGC"  shall
      mean the
      Pension  Benefit  Guaranty  Corporation  established
      pursuant to Subtitle A of Title IV of ERISA.

    

         "Permitted  Liens"
      shall mean any: (a) Liens approved in writing by Bank or arising under this
      Agreement or the other Loan  Documents;  (b) Liens for
      taxes, fees, assessments or other governmental charges or levies, either not
      delinquent or being contested in good faith by
      appropriate  proceedings,  provided the same have no
      priority  over any of Bank's Liens;  (c)
      Liens  incurred in the ordinary course of business of
      Borrower,  except that (i) no Liens other than in favor of Bank
      are  permitted  on any of the
      Leases,  Loan  Contracts  and
      other  property identified in Schedule 1 or otherwise the subject of
      any Line of Credit advance, and (ii) no Lien is permitted on
      any  equipment  related to clause (i) except in favor of
      Bank and, in the case of equipment securing a Loan Contract,  a Lien
      in favor of Borrower; provided, however, that nothing herein shall prevent
      Borrower from incurring Liens in favor of carriers, warehousemen, mechanics,
      materialmen, workmen and  landlords  and
      other  similar  Liens,  in each
      case  arising in the ordinary course of business;  (d) Liens
      consisting of another Person's  interest in a
      residual  sharing  agreement
      or  remarketing  agreement with respect to the sale of
      equipment  upon the  termination  of a Lease or
      Indirect  Lease provided that the value of Borrower's interest in such
      equipment as shown on its books is net of such other
      Person's  interest;  (e) Liens on equipment subject to a
      Lease that are expressly  permitted by the terms of the
      Lease;  (f) judgment Liens not constituting  an Event
      of  Default  hereunder;  (g)  subordinate  Liens  granted
      pursuant to the Contribution  Agreement;  (h) Liens of the
      relevant deposit bank incurred  in
      the  ordinary  course
      of  business  encumbering  customary  deposit
      accounts or brokerage  accounts;  (i) Liens
      encumbering  deposits made to secure
      obligations  arising  from  statutory,   regulatory,   contractual  or  warranty

    requirements,  including  rights  of  setoff;  and
      (j)  Liens  arising  from the refinancing of any
      of the indebtedness secured by any of the foregoing described
      Liens.

    

         "Person"  shall
      mean and include an
      individual,  a  partnership,  a limited liability
      company, a corporation,  a joint stock corporation,  an
      unincorporated
      association,  a  joint  venture  or  other  similar  entity  or  a  governmental
      authority.

    

         "Plan"  shall  mean  any  employee   pension  benefit  plan  maintained  or
      contributed to by Borrower and insured by the PBGC under Title IV of
      ERISA.

    

         "Present
      Value" means any fixed unpaid payment  obligation owed to Borrower by
      a  Lessee  under  a  lease  or
      a  Debtor  under  a
      loan  (including,  without limitation,  unpaid
      regularly scheduled payments, puts and balloon payments) (in each
      case  excluding  leases  and loans  that
      are not  Eligible  Borrowing  Base
      Contracts),  such unpaid payments to be discounted to their present
      value on the date of  calculation  at the Discount Rate. If
      the contract is an Indirect Lease

    or
      Indirect  Loan  Contract,  the  Present  Value  shall
      be  multiplied  by that percentage  of the
      foregoing  that  corresponds  to  Borrower's  interest
      in the Person that is the  lessor or lender,  as the case
      may be. If a lessee  under a lease has the option to
      terminate  the lease as of a date prior to its scheduled
      termination  date,  the  Present  Value
      of that lease  shall be the lower of the

    following:  (i)
      the Present Value based on the lease  terminating  at such
      prior date plus the amount of any payment  that the
      lessee  would be  obligated to pay the lessor upon exercise
      of such option,  discounted to its present value on the date of
      calculation at the Discount Rate; or (ii) the Present Value based on the lease
      terminating at its scheduled termination date.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         "Prime  Rate"
      shall mean the rate of interest set from time to time by Bank at its head office
      as its Prime Rate.  The Prime Rate is determined by Bank as a means of
      pricing credit  extensions to some customers and is neither tied to
      any external  rate of  interest  or index nor is
      it  necessarily  the lowest rate of interest charged by Bank
      at any given time for any particular class of customers or credit
      extensions.

    

         "Regular  Line
      of Credit  Interest  Rate" shall have the
      meaning  given the term in Section 3.2.a.

    

         "Restricted  Cash
      Deposit" shall have the meaning given the term in Section 8.8.

    

         "Revolving
      Loan Contract" means a Lease,  Loan Contract,  Indirect
      Lease or Indirect  Loan  Contract  based on
      which  Bank  makes a Line
      of  Credit  advance (including  any  and
      all  schedules,  supplements  and  amendments  thereto  and
      modifications  thereof and together with any and all
      promissory  notes and other instruments,  as defined in the
      Uniform Commercial Code, evidencing any monetary obligation owing to Borrower
      in
      connection  therewith) originated by Borrower or acquired by Borrower
      from the lessor or lessor's  assignee or from the lender or lender's
      assignee, as the case may be.

    

         "Security  Agreement"
      shall mean the document delivered by Borrower to Bank detailed in the section
      of
      this Agreement titled "Collateral Documents."

    

         "Subsidiary"
      shall mean a business entity in which Borrower owns, directly or indirectly,
      an
      equity interest having sufficient ordinary voting power to elect a majority
      of
      the board of directors  or other  managers of such entity or
      the management of which is otherwise controlled,  directly or
      indirectly through one or more intermediaries, of which Borrower has a
      controlling interest.

    

         "Tangible  Net  Worth"  means
      the gross  book  value
      of  Borrower's  Assets (excluding goodwill,
      patents,  trademarks, trade names, organizational expenses, treasury
      stock,  unamortized  debt discount and
      expense,  deferred  research and development costs, other
      like intangibles, and monies due from Affiliates except in connection with
      sales
      to Affiliates on terms that Borrower  normally provides to third
      parties) plus debt that is subordinated to Bank in a
      manner  acceptable

    to
      Bank,  less
      all  liabilities,  including,  without  limitation,  accrued  and
      deferred  income  taxes,  and any
      reserves  against  assets,  all  calculated
      in accordance with GAAP, consistently applied.

    

         "UCC-1
      Financing  Statement" shall mean the document  delivered by
      Borrower to Bank detailed in the section of this Agreement titled "Collateral
      Documents."

    

         "Unused
      Commitment Fee" shall have the meaning given to the term in Section
      3.5.c.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    2.       LOAN
      FACILITY

    

         2.1
      Bank agrees to make  available to Borrower the
      following  credit on the following terms, covenants and
      conditions:

    

         a.   Revolving  Line
      of  Credit.  During  the Line
      of  Credit  Availability

              Period  and
      so  long  as
      no  Event  of  Default  has  occurred  and
      is

              continuing,
      Bank will, on a revolving basis, make advances to Borrower

              ("Line
      of Credit"),  which,  except as set forth below, may not at
      any

              time
      exceed
      an  aggregate  amount  outstanding  equal
      to the lesser of

              Seventeen  Million  Dollars  ($17,000,000.00)  or
      the  Borrowing  Base

              (collectively  the
      "Line of Credit Limit").  Borrower's  obligation
      to

              repay  advances  under  the
      Line of  Credit  shall be  evidenced  by
      a

              promissory  note
      in a form  acceptable  to
      Bank  (the  "Line of Credit

              Note").  During
      the Line of Credit Availability  Period,  Borrower
      may

              repay  principal  amounts  and  reborrow  them.  Borrower  agrees
      that

              Borrower  will
      not permit the  outstanding  balance  under the
      Line of

              Credit
      to exceed the Line of Credit  Limit
      unless  Borrower  increases

              the  Restricted  Cash
      Deposit by an amount equal to the sum that would

              otherwise
      be overadvanced, in which case Borrower shall have the right

              to
      borrow an amount in excess of the Borrowing  Base but not more
      than

              $17,000,000.00.  Provided  no
      Event of  Default  has  occurred  and
      is

              continuing
      at such time, Borrower may request (i) a one year extension

              of
      the Line of
      Credit  Availability  Period  within  sixty
      days of the

              Line
      of Credit  Expiration  Date,  but Bank has no
      obligation to grant

              the  extension  and/or
      (ii) the addition to Borrower of an  additional

              fund
      or funds managed by Manager or an Affiliate of Manager acceptable

              to
      Bank, but Bank has no obligation to grant the addition.

    

    3.       TERMS

    

    3.1      Availability
      Period.

    

         a.   Availability  Period
      Line of Credit.  Borrower may draw on the Line of

              Credit  during
      the Line of Credit  Availability  Period,  unless
      (i) a

              Default
      or an Event of Default has occurred and is  continuing or
      (ii)

              Borrower  has  failed  to  satisfy  any  condition  hereunder  to
      such

              borrowing
      and Bank has refused to waive such condition.

    

    3.2      Interest
      Rate.

    

    

         a.   Line
      of
      Credit  Interest  Rate.  Interest  on  advances
      on the Line of

              Credit  shall  accrue  at
      the  Prime  Rate  plus
      one  quarter  percent

              (P+0.25%)  per
      annum in effect from time to time (the "Regular Line of

              Credit  Interest  Rate").  Any
      changes in the  Regular  Line of Credit

              Interest  Rate  resulting  from
      a change in the Prime  Rate shall take

              effect
      without notice at the time the Prime Rate is set.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         b.   Line
      of
      Credit  Optional  Interest.  Instead  of
      the  Regular  Line of

              Credit  Interest  Rate,  Borrower  may  elect  to
      have up to five  (5)

              advances
      on the  outstanding  principal  balance of the
      Line of Credit

              (each
      a "Line of Credit LIBO Rate Portion")  during the Line of
      Credit

              Availability  Period
      bear interest at the LIBO Rate, as defined below,

              plus
      two and  three-quarters  percent (L+2.75%) (the "Optional
      Line of

              Credit  Interest  Rate")
      during an interest rate period  designated by

              Borrower
      (the "Line of Credit Applicable  Interest
      Period").  Borrower

              shall
      not  select a Line of
      Credit  Applicable  Interest  Period  that

              would
      extend beyond the Line of Credit  Expiration Date. Each
      interest

              rate
      is a rate per annum. At the end of any Line of
      Credit  Applicable

              Interest
      Period,  the interest rate will revert to the Regular Line
      of

              Credit
      Interest Rate, unless Borrower has designated  another
      Optional

              Line
      of  Credit  Interest  Rate  for
      that  Line
      of  Credit  LIBO  Rate

              Portion.

    

              Designation  of
      a Line of Credit  LIBO Rate  Portion  shall be
      made by

              delivery
      or telephone facsimile transmission to Bank of written notice

              signed  by  an  Authorized   Officer  of  such   election,   including

              designation  of
      the amount of the  proposed  Line of Credit  LIBO
      Rate

              Portion,  the
      proposed Line of Credit  Applicable  Interest Period
      and

              the
      proposed effective date of the election. The notice shall be given

              at
      least three (3) Banking  Days in advance of
      the  effective  date of

              the  election.  The  election  shall
      also be subject to the  following

              requirements:

    

         i.   The
      Line of Credit  Applicable  Interest  Period
      during which the LIBO

              Rate
      will be in effect will be three (3)  months,  so long as no
      Event

              of
      Default has occurred and
      is  continuing.  In  determining a Line
      of

              Credit
      Applicable  Interest Period, a month means a period that
      starts

              on
      one  Banking  Day in
      a  month  and  ends  on
      and  includes  the day

              preceding
      the numerically corresponding day in the next month. For any

              month
      in which there is no such numerically corresponding day, then as

              to
      that month, such day shall be deemed to be the last calendar day of

              such
      month. Any Line of Credit Applicable  Interest Period which
      would

              otherwise  end
      on a non-Banking  Day shall end on the
      next  succeeding

              Banking  Day
      unless  that is the first day of a month,  in which
      event

              such
      Line of Credit  Applicable  Interest Period shall end on the
      next

              preceding
      Banking Day.

    

         ii.  Each
      Line of Credit LIBO Rate Portion  shall be for an amount not
      less

              than
      Two Hundred Fifty Thousand Dollars ($250,000.00).

    

         iii.
      The  "LIBO  Rate"  shall  mean,  for
      each  Line of  Credit  Applicable

              Interest  Period
      with  respect to a Line of Credit LIBO
      Rate  Portion,

              the
      per annum rate  determined  by the Bank as of the first day
      of the

              Line
      of Credit  Applicable  Interest Period to be equal to the
      rate at

              which  U.S.  dollar  deposits  can
      be  acquired  by Bank in the London

              Interbank   Eurocurrency  Market  two  (2)  Banking  Days  before  the

              commencement
      of such Line of Credit  Applicable  Interest Period in
      an

              amount
      comparable to such Line of Credit LIBO Rate Portion.

    

         iv.  No
      Line of Credit LIBO Rate Portion bearing  interest at the LIBO
      Rate

              may
      be  converted  to
      a  different  rate  during  the  Line
      of  Credit

              Applicable
      Interest Period.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         v.   Each  prepayment  of
      a
      Line  of  Credit  LIBO  Rate  Portion,  whether

              voluntary,
      by reason of acceleration or otherwise, will be accompanied

              by
      the  amount  of  accrued  interest  on
      the  amount  prepaid,  and a

              prepayment  fee
      equal to the amount  (if any) by which
      the  additional

              interest  which
      would have been  payable on the amount  prepaid had
      it

              not
      been  paid  until  the last day of the Line
      of  Credit  Applicable

              Interest
      Period exceeds the interest which would have been recoverable

              by
      Bank
      by  placing  the  amount  prepaid  on
      deposit in the LIBO Rate

              Market
      for a period  starting  on the date on which it was prepaid
      and

              ending
      on the last day of the interest  period for such Line of
      Credit

              LIBO
      Rate Portion.  Any such calculation  shall be made by Bank
      in the

              same
      manner in which such  calculation is made in respect to all
      other

              customers  of
      Bank  and Bank  shall,  upon
      the  request  of  Borrower,

              deliver  to  Borrower  all  backup  information  showing  how
      any such

              prepayment
      fee is calculated.

    

    3.3      Repayment
      Terms.

    

         a.   Line
      of Credit.

    

         i.   Borrower  shall
      pay  interest  monthly in  arrears on
      the  outstanding

              balance
      under the Line of Credit  commencing on September 1, 2005,
      and

              then
      on the first  Banking Day of each
      month  thereafter,  except that

              interest  accruing
      at the Optional Line of Credit  Interest Rate shall

              be
      due at the end of the applicable Interest Rate Period.

    

         ii.  Borrower
      shall pay in full, all principal,  interest and other
      charges

              outstanding  under
      the Line of Credit no later than the Line of Credit

              Expiration
      Date.

    

    3.4      Expenses.

    

    

         a.   Subject
      to any limitations contained herein,  Borrower agrees to
      repay

              Bank
      for the  reasonable  expenses  incurred in
      processing and funding

              the
      Line of Credit,  including
      the  following:  filing,  recording
      and

              search  fees,  appraisal  fees,  asset
      based field  report  fees,  and

              documentation
      fees.

    

         b.   Borrower  agrees
      to  reimburse  Bank for
      any  reasonable  expenses  it

              incurs
      in the  negotiation  and  preparation of this
      Agreement and any

              agreement
      or instrument required by this Agreement.

    

         c.   Borrower's
      prior deposit of Twenty Thousand Dollars ($20,000.00) shall

              be
      applied to Bank's expenses under this Section.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    3.5      Fees.

    

         a.   Facility
      Fee. Borrower agrees to pay the amount of Eight-Five Thousand

              Dollars  ($85,000.00)  to
      Bank as a loan  fee for the  Line
      of  Credit

              ("Facility
      Fee").

    

         b.   Renewal
      Fee.  Borrower agrees to pay a fee equal to one-quarter of
      one

              percent
      (0.25%) of the Bank's  committed amount for the Line of
      Credit

              upon
      any renewal of the Line of Credit.

    

         c.   Unused
      Commitment Fee. For the Line of Credit,  Borrower agrees to
      pay

              a
      fee  ("Unused  Commitment  Fee") equal to the
      product of one-half of

              one
      percent  (0.50%)  multiplied by the
      difference  between  Seventeen

              Million
      Dollars  ($17,000,000.00) and the amount of credit extended
      to

              Borrower,  determined
      by the Average Loan Balance,  as
      defined  below,

              maintained
      during the Line of Credit Availability Period. For purposes

              of
      this section,  the "Average Loan Balance" is calculated by
      dividing

              the
      sum of the daily loan  balances  on the Line of
      Credit  during the

              applicable  period
      by the number of days in that  period.  This fee
      is

              due
      and payable each  calendar  quarter in
      arrears,  and is due on the

              tenth
      (10th) day of each of
      the  following  months  during the Line
      of

              Credit  Availability  Period:   October,   January,  April  and  July,

              respectively,  except
      a  prorated  fee for the
      first  partial  quarter

              shall
      be due in October,  2005 and for the final  quarter shall be
      due

              and
      payable on the Line of Credit Expiration Date.

    

    4.                SECURITY

    

         4.1  Collateral.  All
      obligations of Borrower under this Agreement shall be

              secured
      by the following:

    

         a.   Personal
      Property. Borrower's obligations to Bank under this Agreement

              shall
      be secured by, and Borrower shall grant to Bank, a first Lien in

              all
      business  personal  property  Borrower now owns or
      will own in the

              future,
      including without limitation,  Borrower's Accounts
      Receivable,

              equipment,  equipment
      held for lease,  Leases,  chattel paper,
      general

              intangibles,  Inventory,
      any money deposit accounts or other assets of

              Borrower
      which hereafter come into the possession,  custody or
      control

              of  Bank  and  all  products  and  proceeds  of  the   above-described

              collateral,  including,  but
      not limited to, money,  deposit accounts,

              goods,  insurance
      proceeds and other property,  except that Collateral

              shall
      not include  Leases,  Indirect  ------
      Leases,  Loan  Contracts,

              Indirect
      Loan Contracts (and the equipment  subject thereto) which
      are

              financed
      by Borrower  with  non-recourse  debt and which
      have not been

              financed
      by Bank.  The  Collateral  shall be
      further  described in the

              Security
      Agreement executed by Borrower.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         4.2
      Collateral Documents.  In connection with the
      foregoing,  Borrower will

    execute
      the following "Collateral Documents":

    

         a.   Security
      Agreement. A Security Agreement executed by each Borrower, as

              debtor,  in
      favor of Bank, as secured party, by which Bank will obtain

              a
      Lien in the Collateral  consisting of certain of Borrower's
      personal

              property.

    

         b.   UCC-1
      Financing  Statement.  UCC-1 financing  statement
      as debtor,  in

              favor
      of Bank, as secured party,  filed with the
      Delaware,  California

              and
      New York Secretaries of State offices.

    

                          5.
      DISBURSEMENTS, PAYMENTS AND COSTS

    

    5.1  Request
      for Credit.  Each  request for an advance  under
      the Line of Credit will be made by a disbursement  request in a form
      acceptable to Bank executed by an Authorized Officer, or by any other means
      acceptable to Bank.

    

    5.2  Disbursements  and
      Payments.  Each advance under the Line of Credit by Bank and each
      payment by Borrower under the Line of Credit will be:

    

    a.
      Made
      at  Bank's  South  Bay  Commercial  Banking  Office,  or
      other  location selected by Bank from time to time.

    

    b.
      Made
      for the account of Bank's South Bay Commercial  Banking Office (or
      other office or branch selected by Bank from time to time).

    

    c.
      Made
      in lawful money of the United States in immediately  available funds
      and shall be made without setoff or counterclaim.

    

    d.
      Evidenced by records kept by Bank.

    

    5.3      Telephone
      Authorization.

    

         a.   Bank
      may honor telephone instructions for disbursements and repayments

              pursuant
      to this Agreement, given by an Authorized Officer, as defined

              below,  or  any  officer  authorized  by
      an  Authorized  Officer.  For

              purposes  of
      this  Agreement,  "Authorized  Officer"  shall  mean  any

              officer  of  Borrower  whose
      name and  signature  are set forth in the

              Corporate
      Authorizations, as defined below.

    

         b.   Advances  will
      be deposited  in, and payments may be withdrawn by Bank

              from,
      Borrower's deposit accounts as designated in writing by Borrower

              ("Designated
      Accounts")

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         c.   Upon
      Bank's  request,  Borrower will
      provide  written  confirmation to

              Bank
      of telephone  authorized  transactions  pursuant
      to this Section.

              Borrower  agrees
      to provide such  confirmation  within one (1)
      Banking

              Day
      of the telephone authorization. If there is a discrepancy and Bank

              has  already  acted  on  the  telephone  instructions,  the  telephone

              instructions
      will prevail over the written confirmation.

    

         d.   Borrower  indemnifies
      and holds harmless Bank (including its officers,

              employees,  and  agents)  from  all  liability,  loss,  and  costs  in

              connection  with
      any act resulting  from
      telephone  instructions  that

              Bank
      reasonably believes are made by an Authorized Officer or a person

              authorized  by
      an  Authorized  Officer  except to the extent of
      Bank's

              gross
      negligence or willful misfeasance.  This indemnity and
      agreement

              to
      hold harmless will survive this Agreement's termination.

    

    5.4
      Banking  Days.  All payments
      and  disbursements  which would be due on a day which is not
      a Banking Day will be due on the
      next  Banking  Day.  All  payments
      received  on a day which is not a  Banking  Day
      will be  applied  to the Line of Credit on the next Banking
      Day.

    

    5.5
      Taxes. Borrower will not deduct any taxes from any payments made to Bank. If
      any  government  authority  imposes  any
      taxes or  charges  on any  payments  to
      Borrower, Borrower will pay the taxes or charges. Upon request by Bank, Borrower
      will confirm that it has paid the taxes by giving Bank official tax receipts
      (or
      notarized  copies  thereof) within thirty (30) days after
      the date the taxes are due.

    

    5.6
      Interest  Calculation.  Except as
      otherwise  stated in this  Agreement,  all
      interest, if any, will be computed on the basis of a 360-day year and the actual
      number of days elapsed.  This results in more interest or a higher fee
      than if a 365-day year is used.

    

    5.7
      Fee
      on Late Payments. At Bank's sole option in each instance, Borrower shall pay
      a
      late fee equal to two percent (2.0%) of any
      monthly  installment  not paid
      within  fifteen  (15)  days of the  date
      due  under  this  Agreement  (including
      interest).

    

    5.8
      Default  Rate.  If any amount under
      this  Agreement is not paid in full when due at
      maturity,  or upon  acceleration of the Loans pursuant to
      Bank's exercise of its rights
      and  remedies  hereunder,  Borrower  agrees
      to pay interest on the outstanding  principal  at
      the  rate
      of  interest  then  in  effect  under  this
      Agreement plus two percent (2.0%) (the "Default Rate").

    

    5.9
      Overdrafts. At Bank's sole option in each instance, and provided there is no
      Event of Default  which has occurred and
      is  continuing,  Bank may make advances under this Agreement
      to prevent or cover an overdraft on any account of Borrower with
      Bank.  Each such advance will accrue  interest from the date
      of the advance or the date on which the account is
      overdrawn,  whichever  occurs first,  at the
      interest rate then applicable to the Line of Credit.  Any advances
      made pursuant

    to
      this  section  shall be added to
      the  outstanding  balance  under the Line of
      Credit.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    

    6.       CONDITIONS

    

    6.1
      Initial Advance. Bank's obligation to extend any credit to Borrower pursuant
      to
      this Agreement is subject to the condition  precedent that prior to or
      on the date of this Agreement,  Borrower shall have complied with
      the  requirements set forth  below in
      this  section  and
      shall  have  delivered  to Bank,  in
      form and substance  satisfactory  to
      Bank,  the  following  documents,  duly  executed
      by

    authorized
      representatives of Borrower or as specified below:

    

         a.   This
      Agreement.

    

         b.   Line
      of Credit Note.

    

         c.   Security
      Agreement of Borrower and UCC-1
      Financing  Statements,  filed

              with
      the Delaware, California and New York Secretaries of State.

    

         d.   Borrowing
      Authorizations. Borrowing resolutions granting authorization

              to
      borrow and pledge in a form acceptable to Bank.

    

         e.   Termination
      Statements. Evidence, satisfactory to Bank, that all Liens

              in
      favor of any third Persons
      not  constituting  Permitted  Liens
      have

              been
      terminated.

    

         f.   Insurance.   Evidence  of  insurance  coverage,  as  required  in  the

              "Affirmative
      Covenants" section of this Agreement.

    

         g.   Governing  Documents.  A  copy  of  the  organizational  documents  of

              Borrower  certified  by  the  Secretary  of  State  of  the  state  of

              organization
      of the Borrower.

    

         h.   Fees
      and  Costs.  Payment of
      the  Facility  Fee
      and  reimbursement  of

              Bank's
      filing fees,  reasonable  fees of
      counsel,  appraisal  fee, and

              other  expenses  reasonably  incurred
      by Bank in connection  with this

              Agreement.

    

         i.   Deposit
      Accounts. The opening of Borrower's deposit accounts with Bank

              together
      with entry of a lock box agreement by Borrower and Bank.

    

         j.   Opinion
      of Counsel.  Bank shall have  received an
      opinion  letter from

              Borrower's
      counsel, in form and substance satisfactory to Bank.

    

         k.   Contribution  Agreement.  The  Contribution  Agreement
      shall have been

              executed
      by each entity  comprising  Borrower and a copy thereof
      shall

              have
      been delivered to Bank.

    

         l.   Material  Adverse  Change.  A
      Material  Adverse  Change shall not have

              occurred,
      as determined by Bank in its sole discretion.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         m.   Search
      Results.  Bank shall have received Uniform  Commercial Code
      and

              other
      public record  searches with respect to Borrower in each case
      in

              form
      and substance satisfactory to Bank.

    

         n.   Due   Diligence.   Bank  shall  have   completed   its  due  diligence

              requirements
      with respect to Borrower, including audits, financial and

              legal  due   diligence,   and  review  of  Borrower's   formation  and

              authorization
      documents.

    

         o.   Good  Standing.  Bank
      shall have received  good
      standing  certificates

              form
      the appropriate secretary of state of the state in which Borrower

              and
      the Manager are  organized  and in each state in
      which  Borrower's

              failure
      to qualify to do business  would result in a
      Material  Adverse

              Change.

    

         p.   Alternative
      Dispute Resolution.  Borrower shall execute an
      Alternative

              Dispute
      Resolution Agreement in form acceptable to Bank.

    

         q.   Miscellaneous.  Such
      other evidence as Bank may reasonably  require to

              establish
      the  consummation of the
      transactions  contemplated  hereby,

              the
      taking of all  proceedings  in
      connection  herewith and compliance

              with
      the conditions set forth in this Agreement.

    

         6.2  Conditions
      to Each Line of Credit Advance.

    

         The  obligation  of
      Bank to make
      any  advances  under  the  Line
      of  Credit
      (including  the  initial  advance)  shall  be  subject  to
      each  of the  further conditions precedent that on the date
      of such advance:

    

         a.   Following
      the making of any
      such  advances,  the  aggregate  principal

              amount  outstanding
      under the Line of Credit shall not exceed the Line

              of
      Credit Limit (except as set forth in Section 2.1a).

    

         b.   No
      Default or Event of Default shall have occurred and be continuing.

    

         c.   Borrower
      shall provide Bank with a disbursement  request and
      Borrowing

              Base
      Certificate in form and content acceptable to Bank executed by an

              Authorized
      Officer and all  representations  therein shall be true
      and

              correct
      in all material respects.

    

    7.
      REPRESENTATIONS AND WARRANTIES

    

         When  Borrower  signs  this  Agreement,  and
      until  Bank is repaid in full, Borrower makes the following
      representations and warranties. Each request for an
      extension   of  credit   under  the  Line  of  Credit   constitutes   a  renewed
      representation.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    7.1  Organization  of  Borrower.  Each
      entity  comprising  Borrower is a limited partnership or
      limited liability company duly formed and existing under the laws of the State
      of Delaware.

    

    7.2  Authorization.  This  Agreement,  and
      any instrument or agreement  required hereunder,  are within
      Borrower's powers, have been duly authorized,  and do not conflict
      with any of Borrower's organizational documents.

    

    7.3  Enforceable  Agreements.  This  Agreement  and
      any related Loan  Documents, including any  instrument or
      agreement  required  hereunder
      or  thereunder,  are legal, valid and
      binding  obligations of Borrower,  enforceable against
      Borrower in accordance  with
      their  respective  terms,  except
      as  enforceability  may be limited  by:
      (i)  bankruptcy,  insolvency,  moratorium  and
      other  similar  laws affecting the  enforcement of
      creditors'  rights  generally;  and (ii)
      equitable

    principles
      whether applied in an action at law or a proceeding in equity.

    

    7.4
      Good
      Standing.  In each state in which  Borrower does
      business,  Borrower is properly licensed,  in good
      standing,  and, where required, in compliance in all material respects
      with all legal  requirements,  including,  without
      limitation, fictitious name statutes, except to the extent that Borrower's
      failure to comply with the foregoing would not result in a Material Adverse
      Change.

    

    7.5
      No  Conflicts.  This  Agreement  does
      not  conflict  with or  violate in any
      material  respect any  provision  of any
      law,  rule,  regulation,  order,  writ,
      judgment, injunction, decree, determination,  or award applicable to
      Borrower or any other agreement,  or result in a breach of or
      constitute a default under any other  agreement,  lease or
      instrument to which  Borrower is a party or by which

    Borrower
      or its property may be bound or affected.

    

    7.6
      Financial Information.  All financial and other information that has
      been or

    will
      be
      supplied to Bank are:

    

         a.   an
      accurate reflection of Borrower's financial condition.

    

         b.   in
      the form required by Bank.

    

         c.   in
      compliance with all applicable government regulations.

    

         Since
      the dates of the financial statements specified above, there has been no
      Material Adverse Change.

    

    7.7  Litigation.  There
      is
      no  litigation,  investigation,  proceeding,  Lien
      or dispute pending or threatened against or affecting Borrower,  or
      the property of Borrower, the adverse determination of which would constitute
      a
      Material Adverse Change,  except  as has
      been  disclosed  in  writing  to
      Bank  prior to the date hereof.

    

    7.8
      Collateral.  All Collateral is owned by the grantor of the Lien, free
      of any material title defects or any Liens, except Permitted Liens. Bank will
      possess a properly  perfected  first Lien in
      the  Collateral,  except to the extent of any Permitted
      Liens.

    

    7.9  Permits,   Franchises.   Borrower   possesses  all  permits,   memberships,
      franchises, contracts and licenses required and all trademark rights, trade
      name
      rights,  patent  rights
      and  fictitious  name
      rights  necessary  to enable it to conduct the business in
      which it is now engaged without conflict with the rights of
      others  except to
      the  extent  that  Borrower's  failure  to
      comply  with the

    foregoing
      would not result in a Material Adverse Change.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    7.10
      Tax
      Returns.  Borrower  has filed
      all  required  tax returns,  has paid all
      taxes  shown to be due and  payable  on
      said  returns  or any  assessments  made
      against  it or  any  of
      its  property  and  has  no  knowledge  of  any  pending
      assessments or  adjustments  of its income tax for any
      year  provided,  however,
      that  Borrower  shall not
      be  required  to pay any such tax
      or  assessment,  the payment of which is being contested in
      good faith and by proper proceedings,  so long as
      Borrower  has  established  reasonable  reserves
      for the disputed tax or assessment and any enforcement of such tax or assessment
      shall be stayed.

    

    7.11
      No
      Event of  Default.  No Default or Event of Default
      has  occurred  and is continuing.

    

    7.12     ERISA
      Plans.

    

         a.   Borrower
      has  fulfilled  its  obligations,  if
      any,  under the minimum

              funding  standards  of
      ERISA and the Code,  with respect to each Plan,

              and
      is in  compliance  in
      all  material  respects  with
      the  presently

              applicable  provisions
      of ERISA and the Code, and has not incurred any

              liability
      with respect to any Plan under Title IV of ERISA.

    

         b.   No
      reportable  event has occurred  under
      Section  4043(b) of ERISA for

              which
      the PBGC requires a thirty (30) day notice.

    

         c.   No
      action by Borrower to terminate or withdraw  from any Plan has
      been

              taken
      and no notice of intent to terminate a Plan has been filed under

              Section
      4041 of ERISA.

    

         d.   No
      proceeding  has been commenced with respect to a Plan under
      Section

              4042
      of ERISA,  and no event has  occurred
      or  condition  exists which

              might
      constitute grounds for the commencement of such a proceeding.

    

    7.13     Environmental
      Compliance.

    

         a.   Environmental
      Compliance.  Borrower, to its knowledge, has implemented

              and
      complied  and will,  in the
      future,  implement  and comply or will

              cause
      its Lessees or Debtors to  implement  and comply in all
      material

              respects
      with all Environmental Laws.

    

         b.   Survival
      of Representations  and
      Warranties.  The  representations and

              warranties
      of this Section 7.14 shall be continuing  and shall
      survive

              the
      termination  and release of this Agreement
      or  foreclosures  under

              the
      Security  Agreement and the discharge or payment of any
      obligation

              under
      this Agreement.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    8.                AFFIRMATIVE
      COVENANTS

    

         Borrower  agrees,  so
      long as credit is available  under this Agreement and until Bank is
      repaid in full:

    

    8.1
      Loan  Documents.  To comply with and observe in
      all  material  respects  all terms and conditions
      of this Agreement, and all other Loan Documents, including, without limitation,
      the obligation to pay principal, interest and all other sums due under this
      Agreement or under any of the other Loan Documents.

    

    8.2
      Use
      of Proceeds. To use the proceeds of the Line of Credit for financing for
      the  acquisition of equipment for lease and related leases and for
      other working capital purposes.

    

    8.3  Financial  Information.  To  provide  Bank  with  the  following  financial
      information and statements:

    

    a.
      As
      soon as  available,  and in any event within ninety (90)
      days (one hundred twenty  (120) days in the case of
      Manager)  after the end of each  fiscal  year,
      Borrower's and Manager's  unqualified  CPA audited
      annual  financial  statements with balance
      sheets,  income statements and operating
      budgets.  Statements shall
      be  prepared  by  Hays  &  Company,  LLP
      or  other  accounting  firm  reasonably
      acceptable to Bank.

    

         b.   As
      soon as available,  and in any event within sixty (60) days of
      each

              quarterly
      period,  Borrower's  quarterly internally prepared
      financial

              statements.

    

         c.   As
      soon as available, and in any event within fifteen (15) days of the

              end
      of each month a
      Borrowing  Base  Certificate  signed
      by  Manager's

              Chief
      Financial Officer.

    

         d.   An
      annual  independent  appraisal of all equipment related to
      Eligible

              Borrowing
      Base Contracts.

    

         e.   An
      annual  independent  report of the audit of the
      Manager's  systems,

              Borrowing  Base,   billings,   collections,   ageings  and  a  general

              documentation
      review.

    

         f.   Any  additional  financial  and/or  reporting  information  reasonably

              requested
      by the Bank.

    

         g.
      Each statement provided under Section 8.3.a. and Section 8.3.b. shall be
      accompanied by a 

    Compliance
      Certificate in form and substance acceptable to Bank

    signed
      by
      Manager's Chief Financial Officer.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    8.4  Minimum  Debt  Service  Coverage  Ratio.  To
      maintain as of the end of each fiscal quarter based on the
      combined  financial  results as reported on SEC Form 10Q of
      each entity  comprising  Borrower,  a Debt
      Service  Coverage Ratio of not less than 2.00 to 1.00 on a rolling
      four quarter basis.

    

    8.5
      Tangible Net Worth. To maintain as of the end of each fiscal quarter, based
      on
      the combined financial results as reported on SEC Form 10Q of each entity
      comprising Borrower, Tangible Net Worth of not less than One Hundred Twenty-Five
      Million Dollars ($125,000,000.00).

    

    8.6
      Leverage Ratio. To collectively  maintain,  and cause each
      entity comprising Borrower  to  maintain,  as of
      the  end of
      each  fiscal  quarter,  based  on the
      financial  results  as  reported  on
      SEC  Form  10Q
      of  each  entity  comprising
      Borrower,  a ratio of
      Adjusted  Total  Liabilities  to Tangible Net
      Worth not to exceed 0.5 to 1.0.

    

    8.7
      Minimum Liquidity.  To maintain, as of the end of each fiscal quarter,
      based on the combined financial results as reported on the SEC Form 10Q of
      each
      entity
      comprising   Borrower,   Liquidity   of   at   least   Seven   Million   Dollars
      ($7,000,000.00).

    

    8.8
      Restricted Cash Deposit. To maintain at all times,  deposits in a
      restricted deposit account with Bank in an amount not less than
      twenty  percentage (20%) of all
      outstanding  advances,  plus each pending requested
      advance,  on the Line of Credit ("Restricted Cash
      Deposit").

    

    8.9
      Manager's  Profitability.  As of the end of each fiscal
      year,  Manager shall have a positive profit.

    

    8.10     Notices
      to Bank.  To promptly notify Bank in writing of:

    

    

         a.   Any
      change in the location of
      Borrower's  principal  executive  office

              which
      is currently in New York City, New York;

    

         b.   Any
      Material Adverse Change;

    

         c.   Any  Default
      or Event of  Default,  setting  forth in
      such  notice the

              details
      of such  Default or Event or Default  and the
      action  which is

              proposed
      to be taken by Borrower with respect thereto;

    

         d.   All
      actions,  suits, and proceedings  before any court or
      governmental

              department,  commission,  board,  bureau,  agency,
      or instrumentality,

              domestic
      or foreign, affecting Borrower which, if determined adversely

              to
      Borrower would result in a Material Adverse Change;

    

         e.   Any
      material dispute between Borrower and any
      governmental  regulatory

              body
      or law  enforcement  authority  which
      would  result in a Material

              Adverse
      Change;

    

         f.   All
      claims  made or  threatened  by any third
      party  against  Borrower

              relating
      to any loss or injury resulting from any Environmental Law or

              Hazardous  Substance  that
      shall be in an amount  claimed in excess of

              $2,500,000;
      and

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    8.11
      Collateral  Examination.  Bank may have examiners of its
      selection annually conduct an examination of the Collateral with the annual
      expense thereof (not to exceed $10,000.00) reimbursed by Borrower.

    

    8.12  Right
      of  Inspection.  Permit  Bank or
      its  agents  with at least 24 hours notice by
      telephone,  telephone  facsimile and actual delivery of
      written notice to Borrower to examine and make copies and abstracts from
      Borrower's records, to inspect  Collateral  (subject to
      quiet  enjoyment  covenants) and to discuss the
      affairs,  finances,  and accounts of Borrower with any of
      its executive officers and Borrower's independent accountants.

    

    8.13
      Payment of Taxes.  Borrower  will pay
      and  discharge all lawful tax claims, including  assessments
      and  governmental  charges or levies imposed upon it, its
      income or  profits,  or
      the  improvements  before  penalties  attached  thereto;
      provided,  however,  that  Borrower  shall
      not be  required to pay any such tax, assessment,  charge or
      levy,  the  payment of which is
      being  contested  in good faith and by
      proper  proceedings so long as Borrower has
      established  reasonable
      reserves  for  the  disputed  tax  assessment  or  charge  and  any  enforcement
      proceedings have been stayed.

    

    8.14
      Books and Records.  To maintain adequate books and records reflecting
      full, true and correct entries of all material financial transactions of
      Borrower.

    

    8.15  Compliance.  To
      comply in all material  respects  with all
      material  laws, regulations,  orders of
      any  government  body  with  authority  over  Borrower's
      business and all material  contractual  obligations arising
      from any agreements, instruments or undertakings to which Borrower is bound
      except to the extent that the failure to comply with which would not result
      in a
      Material Adverse Change.

    

    8.16
      Preservation of Borrower’s Rights.  To maintain and preserve all
      rights, privileges, and franchises Borrower now has that are necessary in the
      normal conduct of Borrower's business.

    

    8.17
      Perfection of Liens.  To help Bank perfect and protect its Liens, and
      reimburse Bank for reasonable costs incurred to protect its Liens.

    

    8.18     ERISA
      Plan.  To give prompt written notice to Bank:

    

    

         a.   Within
      ten (10) days after Borrower knows or has reason to know of the

              occurrence
      of any reportable  event under Section 4043(b) of ERISA
      for

              which
      the PBGC requires thirty (30) days' notice, together with a copy

              of
      such materials  required to be filed with the PBGC (with respect
      to

              such  reportable  event
      and in each such case a statement of the chief

              financial  officer
      of the Borrower  setting  forth  details as to
      such

              reportable  event
      and the action that  Borrower  proposes to take
      with

              respect
      thereto.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         b.   Within
      ten (10) days after Borrower knows or has reason to know of any

              condition  existing  with
      respect to a Plan which  presents a material

              risk
      of  termination  or  withdrawal  from a
      Plan or the filing of any

              notice
      of intent to terminate under Section 4041 of ERISA.

    

         c.   At
      least ten (10) days prior to the  filing by any
      plan  administrator

              of
      a Plan of a notice of intent to terminate such Plan,  together
      with

              a
      copy of such notice.

    

         d.   Within
      ten (10) days after the filing  thereof  with
      the  Secretary of

              the
      Treasury,  a copy of any  application by the Borrower or any
      ERISA

              Affiliate
      for a waiver of the minimum  funding  standard under
      Section

              412
      of the Code.

    

         e.   Within
      ten (10) days after Borrower knows or has reason to know of any

              event
      giving rise to any notice of noncompliance  made with respect
      to

              a
      Plan under Section 4141(b) of ERISA.

    

         f.   Within
      ten (10) days after Borrower knows or has reason to know of any

              event
      giving rise to any  commencement  of any proceeding with
      respect

              to
      a Plan under Section 4042 of ERISA.

    

    8.19     Expenses.  To
      pay all reasonable expenses of Bank for the following:

    

    

         a.   Preparation,  negotiation
      and administration of the Loan Documents and

              the
      protection of the rights of Bank under the Loan Documents;

    

         b.   The  enforcement
      of payment of Borrower's  obligations  under the
      Loan

              Documents,  whether
      by
      judicial  pleadings  or  otherwise,  including,

              without  limitation,   in  connection  with  bankruptcy,   insolvency,

              liquidation,
      reorganization,  moratorium and other similar proceedings

              involving
      the Borrower or a "workout" of Borrower's  obligations
      under

              the
      Loan Documents.

    

         The  obligations  of
      the Borrower under this Section shall be effective and
      enforceable  whether or not any amounts are
      advanced  pursuant to this Agreement and shall survive payment of all
      of Borrower's obligations to the Bank.

    

         8.20
      Cooperation.  To take any action reasonably requested by Bank to carry
      out the intent of this Agreement.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    8.21     Insurance.

    

         a.   Insurance  Covering
      Assets.  To maintain or cause to be maintained all

              risk
      property damage insurance policies covering the personal property

              Collateral.  Each  insurance  policy  shall  be
      for the  value  of the

              personal  property  Collateral
      or such other amount as required in the

              Revolving
      Loan Contract.

    

         b.   General
      Business Insurance.  To maintain insurance as is customary
      for

              a
      business of the kind that Borrower conducts.

    

         c.   Evidence
      of Insurance. Upon request of Bank, to deliver to Bank a copy

              of
      each insurance  policy,  or, if permitted by Bank, a
      certificate of

              insurance
      listing all insurance policies currently in force.

    

    8.22  Operating/Business  Accounts.  To
      establish and maintain  deposit accounts with Bank for each of the
      entities comprising  Borrower.  The account conversion
      process  shall  be  completed  within  sixty  (60)  days  of  execution  of
      this
      Agreement.  Borrower  shall  also  open
      and  maintain  with  Bank a lock box for Accounts
      Receivable collection.

    

    8.23
      Contribution Agreement. The entities comprising Borrower shall have entered
      into
      an  agreement,  among  themselves,  providing  that,
      to the extent that the property  of any one of them is used to
      repay  Bank an amount  greater  than the amount
      owed on account of a Line of Credit advance that such entity has obtained from
      Bank,  then such entity shall be entitled
      to  reimbursement  from the other entities comprising
      Borrower for any excess so paid, such agreement shall remain in full force
      and
      effect,  and a copy executed by each Borrower  shall have
      been delivered  to
      Bank  ("Contribution  Agreement").  Such  agreement  shall  not
      be amended,  modified,  or restated in any manner that
      would  materially  adversely change the substance of the
      requirements set forth in this section and, if it is
      amended,  modified  or  restated,  a
      fully  executed  copy  of  such  amendment,
      modification or restatement shall be promptly delivered by Borrower to
      Bank.

    

    9.       NEGATIVE
      COVENANTS

    

         Borrower  agrees,  so
      long as credit is available  under this Agreement and until Bank is
      repaid in full:

    

    9.1
      Other
      Debts. Not to have outstanding or incur any direct or contingent debts or lease
      obligations (other than those to Bank), or become liable for the debts of others
      without Bank's prior written consent. This does not prohibit:

    

         a.   Trade
      debt incurred in the ordinary course of business and outstanding

              less
      than sixty (60) days after the same has become due.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

         b.   Endorsing  negotiable  instruments  received  in
      the  usual  course of

              business.

    

         c.   Obtaining  surety
      bonds or similar  instruments in the usual course of

              business.

    

         d.   Debts,  lines
      of credit  and leases in  existence  on the date
      of this

              Agreement  as  disclosed
      in public  filings  with
      the  Securities  and

              Exchange
      Commission and otherwise in writing to Bank.

    

         e.   Guarantees
      to Lessees and Debtors in the ordinary course of business.

    

         f.   Debt   subordinated   to  the  Obligations  on  terms  and  conditions

              satisfactory
      to Bank in its sole discretion.

    

         g.   Debt  in  respect  of  netting  services,  overdraft  protections  and

              otherwise
      in connection  with deposit  accounts in the ordinary
      course

              of
      business.

    

         h.   Non-recourse
      secured debts.

    

         i.   Remarketing
      and residual sharing arrangements.

    

         j.   Indebtedness
      in connection with Permitted Liens.

    

         k.  Refinancings
      of any of the foregoing debt.

    

    9.2  Other
      Liens. Not to create,  assume, or allow any Lien on Collateral except
      Permitted Liens.

    

    9.3  Distributions.  (a)
      Not to declare or pay any distribution to the holder of
      any  limited  liability  company
      or  partnership  interest  now  outstanding  or
      hereafter  issued or purchased,  redeem or retire any such
      interest  except,  as long
      as  Borrower  is
      in  compliance  with  all  terms  and  conditions  of
      this Agreement  and would  remain so after  taking
      such  actions,  Borrower  may make
      distributions  to its partners,  members and
      investors,  or redeem or retire any outstanding interests, as provided
      or permitted in the organizational  agreement of
      each  Borrower,  as amended  from time to
      time;  (b) pay  management  fees or
      acquisition  fees except  that,  as long as
      Borrower is in  compliance  with all terms
      and  conditions  of this  Agreement  and
      would remain so after taking such
      actions,  Borrower  may  pay  such  fees
      if  authorized  under  the  partnership

    agreement
      or
      limited  liability  company  operating  agreement  for
      the entities comprising Borrower.

    

    9.4
      Loans, Investments; Secondary Liabilities. Other than in the ordinary course
      of
      business,  (a) not to make any loans or advances to any Person; (ii)
      make any investment in the securities of any Person;  (iii) guarantee
      or otherwise become liable upon the obligation of any Person which is not an
      Affiliate or Subsidiary of Borrower,  except
      by  endorsement  of
      negotiable  instruments  for deposit or collection in the
      ordinary and normal course of its business.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    9.5
      Change in  Organization  or Operations.  Not to
      cause,  permit or suffer any material
      change,  revision,  amendment or modification of any kind in
      and to its organization  and  operations or the change of
      ownership or control of Borrower, if the effect thereof would be a Material
      Adverse change.

    

    9.6
      Dissolutions, Mergers or Acquisitions. Not to liquidate or dissolve or enter
      into any consolidation,  merger, partnership,  pool, joint
      venture, syndicate or other combination, with respect to Borrower's business
      or
      Borrower's Assets as a whole or such portion as in the opinion of
      Bank,  constitutes a substantial part thereof or acquire or
      purchase  any  business'  assets,  except
      in the  ordinary course of Borrower's  business or engage in
      any business activity  substantially

    different
      from  Borrower's  present  business,  provided  however,  that
      nothing herein  shall  prohibit  or
      limit  Borrower's  right  to  enter  into
      any of the foregoing described business  transactions (other than
      liquidation,  dissolution or merger  whereby the Borrower is
      not the  surviving  entity) if in  Borrower's
      reasonable  judgment such  transaction  represents
      the most  efficient  means by which it may acquire or
      purchase,  directly or indirectly, one or more Leases or

    Indirect  Leases,  or
      Loans or Indirect Loan Contracts,  or a portfolio of same, all as
      permitted by the constituent documents of Borrower.

    

    9.7
      Sale
      of Assets;  Sale and  Leaseback.  Other than in
      the ordinary  course of business,  not to sell
      or  otherwise  dispose of any of its assets for less than
      fair market value or enter into any sale leaseback agreement covering any of
      its
      fixed or capital assets.

    

    9.8  Suspension
      of Business.  Not to  voluntarily  suspend its
      business for more than five (5) consecutive business days in any thirty (30)
      day
      period.

    

    9.9  Transactions  with  Affiliates.  Not
      to  enter  any  transaction  with  any
      Affiliate
      of  Borrower,  including  Borrower's  officers,  directors,  partners,
      members  and  Subsidiaries,  on terms
      less  favorable  than
      those  available  to Borrower from entities or persons not
      affiliated  with  Borrower,  if the effect thereof
      would be to create an Event of Default hereunder.

    

    10.      DEFAULT

    

    10.1
      Events  of  Default.  The  occurrence  of
      any one or more of the  following

         events
      shall constitute an "Event of Default":

    

    a.   Failure
      to Pay. Borrower fails to make any payment of principal or interest

         under
      this Agreement within five (5) days of the date due.

    

    b.   Non-Compliance.  Borrower  fails
      to meet  the  conditions  of,  or fails
      to

         perform
      any  material  obligation  within  thirty  (30)
      days after  written

         notice
      by Bank to Borrower of such failure, under:

    

    i.   this
      Agreement;

    

    ii.  any
      of the other Loan Documents; or

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    iii.
      any
      other agreement between Borrower and Bank.

    

    c.   Other  Defaults.  Any
      material  event of default (after taking into account

         all
      applicable  notice and cure periods)  involving an
      indebtedness of more

         than
      Two Million Five Hundred  Thousand
      Dollars  ($2,500,000)  occurs under

         any
      agreement  evidencing  indebtedness  for borrowed
      money if the event of

         default
      consists of failing to make a payment when due.

    

    d.   Lien  Priority.  Bank  fails
      to have
      an  enforceable  first  Lien  position

         (except
      for any Permitted  Liens or prior Liens to which Bank has
      consented

         in
      writing) on the Collateral.

    

    e.   False  Information.  Any
      representation or warranty under this Agreement or

         any
      other Loan Document or in connection with any
      transaction  contemplated

         hereby
      shall prove to have been false or misleading in any material
      respect

         when
      made or when deemed to have been made.

    

    f.   Bankruptcy.  Borrower
      files a bankruptcy petition, a bankruptcy petition is

         filed  against  Borrower
      or  Borrower  makes a
      general  assignment  for the

         benefit
      of  creditors.  The default will be deemed cured if
      any  bankruptcy

         petition
      filed against  Borrower is dismissed within a period of sixty
      (60)

         days
      after the filing;  provided,  however, that Bank will not be
      obligated

         to
      extend any additional credit to Borrower during any such period.

    

    g.   Receivers.  A
      receiver or
      similar  official  is  appointed  for  Borrower's

         business,
      or Borrower's business is terminated.

    

    h.   Litigation.
      Any litigation is filed against Borrower in an aggregate amount

         of
      Two Million Five Hundred  Thousand
      Dollars  ($2,500,000.00)  or more and

         such  litigation
      is not  dismissed or fully bonded or insured  within
      sixty

         (60)
      calendar days after service of process upon Borrower.

    

    i.   Judgments.
      Any judgments or arbitration awards are entered against Borrower

         and,  absent  procurement  of
      a stay of  execution,  such judgment or award

         remains  unbonded
      or  unsatisfied or uncovered by insurance for thirty (30)

         calendar  days  after  the  date
      of  entry;  or  Borrower  enters  into
      any

         settlement  agreement
      with respect to any litigation or arbitration,  in an

         aggregate   amount  of  Two   Million   Five   Hundred   Thousand   Dollars

         ($2,500,000.00)
      or more.

    

    j.   ERISA
      Plans. The occurrence of a material  reportable event with respect
      to

         a
      Plan or any Plan termination (or commencement of proceedings to
      terminate

         a
      Plan) or Borrower's full or partial  withdrawal from a Plan, which is,
      in

         the  reasonable  judgment
      of Bank,  likely to result in the  termination
      of

         such  Plan
      for  purposes  of  Title IV
      of  ERISA,  or
      could  reasonably  be

         expected,  in
      the judgment of Bank, to subject Borrower to any tax, penalty

         or
      liability (or any combination of the foregoing) which, in the
      aggregate,

         would
      result in a Material Adverse Change .

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    10.2
      Remedies.  Upon the  occurrence  and during
      the  continuance of an Event of Default herein,  Bank shall
      be entitled to pursue any and all remedies,  rights,
      privileges  and benefits  contained in
      this  Agreement or in the Note,  or other
      Loan  Documents,  or  available  at law
      or in equity or by  statute,  including,
      without  limitation,  declaring  any  or
      all of
      the  Note  immediately  due  and

    payable.  No
      remedy conferred upon or reserved to Bank hereunder or under any of the
      other  Loan  Documents  is  intended  to
      be  exclusive  of any other  remedy
      conferred  upon or  reserved  to
      Bank  hereunder  or under any of the other Loan Documents or
      at law or in equity or by statute, but each shall be cumulative and shall be
      in
      addition to every other  remedy  given  hereunder
      or under the other Loan  Documents or now or
      hereafter  existing at law or in equity or by statute.
      Every  power or remedy  given by the
      Loan  Documents  to Bank may be  exercised,
      concurrently or  independently,  from time to time and as
      often as may be deemed expedient by Bank, and Bank may pursue inconsistent
      remedies. In addition,  upon and after
      the  occurrence  of an Event
      of  Default,  Bank  shall have all of the
      following rights and remedies:

    

    a.   All
      obligations and  indebtedness  hereunder may, at the option
      of Bank and

         without  demand,  notice,  or
      legal process of any kind,  be declared,  and

         immediately  shall  become,  due
      and  payable and Bank
      may  terminate  this

         Agreement
      at any time, without notice,  notwithstanding any other
      provision

         of
      this  Agreement.  No  such  termination  shall  affect  liabilities  and

         obligations  of  Borrower
      or the  rights,  powers and  remedies of the
      Bank

         under
      the Security Agreement with respect to
      future  collateral,  until all

         obligations
      of Borrower to Bank have been satisfied or paid in full.

    

    b.   All
      obligations hereunder shall bear interest at the Default Rate;

    

    c.   All
      of the rights and  remedies  of a
      secured  party  under the  California

         Commercial  Code
      or other  applicable law, all of which rights and
      remedies

         shall
      be cumulative,  and not exclusive, to the extent permitted by law,
      in

         addition
      to any other rights and remedies  contained in
      this  Agreement and

         in
      any of the documents or agreements executed in connection herewith;

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    d.   The
      right  to:  (i) have Bank or
      Bank's  agent  peacefully  enter  upon
      the

         premises
      of Borrower or any other place or places where
      the  Collateral  is

         located,  without  any  obligation  to
      pay rent to  Borrower  or any  other

         person,
      through self-help and without judicial process or first obtaining a

         final
      judgment or giving  Borrower  notice and opportunity for a
      hearing on

         the
      validity of Bank's claim,  and remove the Collateral from such
      premises

         to
      the  premises  of Bank or any  agent of
      Bank,  for such time as Bank may

         require
      to  collect
      or  liquidate  the  Collateral  or (ii)
      have a receiver

         appointed
      by a court to conduct Borrower's business,  without regard to
      the

         adequacy
      of any security for  Borrower's  indebtedness  to
      Bank,  and enter

         upon
      and take  possession of Borrower's  Assets,  or
      any part thereof,  and

         perform
      any acts that may be  necessary  or proper to conserve the
      value of

         Borrower's  Assets
      and/or run  Borrower's  business as an
      ongoing  concern;

         and/or
      (iii)  require  Borrower to assemble and deliver
      the  Collateral  to

         Bank
      at a place to be designated by Bank;

    

    e.   The
      right to: (i) notify Account Obligors that the Accounts Receivable
      have

         been  assigned  to
      Bank and that Bank has a Lien  therein;  and (ii)
      direct

         such
      Account  Obligors to make all payments due from them upon the
      Accounts

         Receivable,  directly  to
      Bank or to a lock box  designated  by
      Bank.  Bank

         shall  promptly  furnish  Borrower  with
      a copy of any such notice sent and

         Borrower
      hereby agrees that any such notice in Bank's sole
      discretion,  may

         be
      sent on Bank's stationery,  in which event, Borrower shall, upon
      demand,

         co-sign
      such notice with Bank; and

    

    f.   The
      right to sell,  lease or to otherwise  dispose of all or any
      Collateral

         in
      its then  condition,  or after any
      further  manufacturing  or processing

         thereof,  at
      public or private sale or sales,  in lots or in bulk, for
      cash

         or
      on credit, all as Bank, in its sole discretion,  may deem
      advisable.  At

         any
      such sale or sales of
      the  Collateral,  the  Collateral  need
      not be in

         view
      of those present and  attending the sale,  nor at the same
      location at

         which
      the sale is
      being  conducted.  Bank  shall  have the
      right to conduct

         such
      sales on Borrower's  premises or elsewhere and shall have the right
      to

         use  Borrower's  premises  without  charge  for
      such sales for such time or

         times
      as Bank may see fit. Bank is hereby  granted a license or other
      right

         to
      use, without charge, Borrower's labels,
      patents,  copyrights,  rights of

         use
      of any name,  trade secrets,  trade
      names,  trademarks and  advertising

         matter,  or  any  property  of
      a  similar  nature,  as
      it  pertains  to the

         Collateral,  in  advertising  for  sale  and  selling  any  Collateral  and

         Borrower's  rights
      under all licenses and
      all  franchise  agreements  shall

         inure
      to Bank's benefit but Bank shall have no obligations thereunder.
      Bank

         may
      purchase all or any part of the  Collateral  at public or,
      if permitted

         by
      law, private sale and, in lieu of actual payment of such purchase
      price,

         may  setoff  the  amount
      of
      such  price  against  amounts  due  under  this

         Agreement.  The
      proceeds  realized from the sale of any Collateral shall
      be

         applied  first  to
      the  costs  and  expenses,  including  attorneys'  fees,

         incurred  by  Bank  for   collection  and  for   acquisition,   completion,

         protection,  removal,  storage,  sale
      and delivery of the  Collateral;  and

         second
      to amounts due under this Agreement.  Bank shall account to
      Borrower

         for
      any  surplus.  If any  deficiency  shall
      arise,  Borrower  shall remain

         liable
      to Bank therefor.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    g.   Appointment  of
      Receiver.  Borrower  agrees that in addition to any and
      all

         remedies,
      rights, privileges and benefits contained in this Agreement or in

         the
      Note and other Loan Documents, or available at law, or in equity, or
      by

         statute,
      upon the occurrence of an Event of Default herein, Borrower agrees

         and  stipulates  that
      any court
      of  competent  jurisdiction  may  appoint
      a

         receiver
      to operate and manage the business of Borrower.

    

    10.3
      Disclaimer. Whether or not Bank elects to employ any or all of the remedies
      available to it upon the  occurrence  of an Event of
      Default,  Bank shall not be liable for: (i) payment of any
      reasonable  expense  incurred in connection  with
      the  exercise  of any
      remedy  available  to Bank,  and (ii)
      the  performance  or non-performance of any other
      obligations of Borrower.

    

    10.4
      Costs and Expenses. Upon the occurrence of any Event of Default, Bank shall
      be
      entitled to recover all
      reasonable  costs,  expenses,  and attorneys' fees
      in connection with  administering  or enforcing
      this  Agreement,  whether or not an action is
      filed.

    

    11.      MISCELLANEOUS

    

    11.1  GAAP.  Except  as  otherwise  stated  in  this  Agreement,  all  financial
      information provided to Bank and all financial covenants will be made under
      GAAP
      consistently applied.

    

    11.2
      Personal  Jurisdiction.  BORROWER
      HEREBY  IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR
      PROCEEDING  WITH RESPECT TO THIS  AGREEMENT OR ANY OF
      THE  AGREEMENTS, DOCUMENTS OR INSTRUMENTS  DELIVERED IN
      CONNECTION HEREWITH MAY BE BROUGHT IN THE COURTS OF THE  STATE
      OF  CALIFORNIA  AND,  BY  EXECUTION  AND  DELIVERY  HEREOF,
      BORROWER  ACCEPTS AND  CONSENTS  TO, FOR ITSELF
      AND IN RESPECT OF ITS  PROPERTY, GENERALLY
      AND  UNCONDITIONALLY,  THE  JURISDICTION  OF
      THE AFORESAID  COURTS AND AGREES  THAT
      SUCH  JURISDICTION  SHALL
      BE  EXCLUSIVE,  UNLESS  WAIVED BY BANK IN
      WRITING,  WITH RESPECT TO ANY ACTION OR PROCEEDING  BROUGHT
      BY BORROWER  AGAINST BANK. NOTHING HEREIN SHALL LIMIT THE RIGHT OF
      BANK TO BRING PROCEEDINGS  AGAINST BORROWER IN THE COURTS OF ANY OTHER
      JURISDICTION. BORROWER HEREBY WAIVES, TO THE
      FULL  EXTENT  PERMITTED  BY LAW,  ANY
      RIGHT TO STAY OR TO DISMISS  ANY ACTION OR PROCEEDING BROUGHT BEFORE
      SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS.

    

    11.3
      Successors and Assigns.  This Agreement is binding on Borrower's and
      Bank's successors and assignees.  Borrower agrees that it may not
      assign this Agreement without Bank's prior written consent.

    

    11.4  Severability;  Waivers.  If
      any part of this Agreement is not enforceable, the rest of
      the  Agreement  may be  enforced.  No
      failure on the part of Bank to exercise,  and no delay in
      exercising,  any right,  power,  or remedy under
      this Agreement  shall  operate as a
      waiver  thereof;  nor shall any single or partial
      exercise  of any
      right  under  this  Agreement  preclude  any  other
      or  further exercise thereof or the exercise of any other right. Any
      consent or waiver under this Agreement must be in writing.  If Bank
      waives a default,  it may enforce a later default.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    11.5
      Costs and Expenses.  In addition to the recovery of costs and expenses
      upon an occurrence of an Event of Default, if Bank incurs expenses in connection
      with the preparation,  administration,  or
      enforcement,  of this Agreement,  Borrower shall pay Bank
      all such reasonable costs and reasonable attorneys' fees.

    

    11.6  Appointment
      of Bank as Attorney in Fact.  Until all
      the  obligations  have been paid in
      full,  Borrower  irrevocably  appoints Bank as its
      attorney in fact and authorizes and empowers it to endorse and
      affix  Borrower's  name to or upon any
      check,  draft, note,  instrument or other writing relating
      to the collection of Accounts Receivable,  or relating to any other
      Collateral,  or upon any check or other instrument given in
      payment  thereof,  or upon any
      omitted  assignment,

    notification  of  assignment,  demand  or  auditor's  verification  relating  to
      Collateral and upon all other  instruments  and
      writings  required to assert and protect Bank's rights in the
      Collateral. Bank shall not exercise the appointment
      as  provided  in  this  Section  except  upon  the  occurrence  and  during  the
      continuance of an Event of Default.

    

         11.7
      Entire Agreement.  This Agreement,  the Note, and any
      related security or other agreements required by this Agreement,
      collectively:

    

    a.   represent
      the sum of
      the  understandings  and  agreements  between
      Bank and

         Borrower
      concerning this Agreement;

    

    b.   replace  any
      prior oral or written  agreements  between  Bank
      and  Borrower

         concerning
      this credit;

    

    c.   are  intended
      by Bank and  Borrower as the
      final,  complete  and  exclusive

         statement
      of the terms agreed to by them; and

    

    d.   any
      alteration or amendment to this Agreement shall not be effective
      unless

         given
      in writing and signed by an authorized person of the party or
      parties

         sought
      to be changed or bound by the alteration or amendment.

    

         In
      the  event  of  any  conflict  between  this  Agreement  and  any  other
      agreements required by this Agreement, this Agreement will prevail.

    

    11.8
      Notices.  Except as otherwise  provided
      herein,  all notices required under
      this  Agreement  shall
      be  personally  delivered  or sent by
      first  class  mail, postage prepaid, to the addresses on the
      signature page of this Agreement, or to such
      other  addresses  as Bank
      and  Borrower  may  specify  from time
      to time in writing.

    

    11.9
      Headings. Article and section headings are for reference only and shall not
      affect the interpretation or meaning of any provisions of this
      Agreement.

    

    11.10  Counterparts.  This
      Agreement may be executed in as many  counterparts as necessary or
      convenient,  and by the different parties on
      separate  counterparts each of  which,  when
      so  executed,  shall be
      deemed  an  original  but all such counterparts
      shall constitute but one and the same agreement.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    11.11
      Further Assurances.  Borrower shall, at its expense and without
      expense to Bank,  do, execute and deliver such further acts and
      documents as Bank from time to
      time  reasonably  requires  for
      the  assuring  to Bank the rights  created or
      intended to be created by this  Agreement,  the perfection
      or priority of Bank's Liens, and for carrying out the intention or facilitating
      the performance of the terms of this  Agreement  or
      any  document  executed  in  connection  with  this

    Agreement.

    

    11.12  Singular/Plural.  Terms  defined  in
      the  singular  shall also have their meanings in the plural
      as the context of this Agreement requires.

    

    11.13
      Revival  Clause.  If any of the payments of money or
      transfers of property made to Bank
      by  Borrower  hereunder  or under the
      Note  should  for any  reason subsequently be
      declared to be "fraudulent"  or a
      "voidable  preference"  within the meaning of any state or
      federal  law  relating  to  fraudulent  conveyances,
      preferential, or otherwise voidable or recoverable, in whole or in part, for
      any
      reason,   under  the  Bankruptcy   Code  or  any  other  federal  or  state  law
      (collectively referred to herein as "Voidable Transfers"),  and Bank
      is required to repay or restore the amount of any
      such  Voidable  Transfers,  or any portion
      thereof, then, as to the amount repaid or restored pursuant to any such Voidable
      Transfer  (including  all costs,  expenses
      and  attorneys'  fees of Bank related
      thereto,   including,   without   limitation,   relief   from  stay  or  similar
      proceedings),   the  liability  of  Borrower  shall  automatically  be  revived,
      reinstated  and  restored in such  amount or
      amounts,  and shall exist as though such Voidable Transfer had never
      been made to Bank.  Nothing set forth herein is an admission that any
      such Voidable Transfer has occurred.  Borrower  expressly
      acknowledges  that Bank may rely upon  advice
      of  counsel,  and if so advised by counsel, may settle,
      without defending, any action to avoid any alleged Voidable
      Transfer,  and that
      upon  settlement,  Borrower  shall  again
      be liable  for any deficiency resulting from such settlement as
      provided in this Section.

    

    11.14  Survival
      of  Representations  and  Warranties.  All  representations  and
      warranties of the Borrower contained herein or in any other Loan Document,
      or in
      any  certificate  or
      other  writing  delivered  by or on behalf of
      the  Borrower pursuant to any
      Loan  Document,  will survive the making of each advance and
      the execution  and delivery of the
      Loan  Documents,  and have been or will be relied upon by
      Bank, notwithstanding any investigation made by Bank or on its
      behalf.

    

    11.15  Provisional  Remedies.  Nothing  contained  in
      this  Agreement  shall  be construed  to
      limit any right that Bank may have under this  Agreement or at law to
      exercise any  provisional  remedies that it may have under
      this  Agreement or any of
      the  Loan  Documents  as
      a  result  of
      any  Event  of  Default  hereunder
      (including,  without limitation, the right to conduct a non-judicial
      foreclosure sale, the right to seize any personal property  collateral
      and the right to seek

    the
      appointment of a receiver).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    11.16  Confidentiality.  In
      handling any  confidential  information,  Bank
      shall exercise  the same  degree of care that
      it  exercises  with  respect  to its own
      proprietary  information  and  agrees
      to  maintain  the  confidentiality  of
      any
      non-public  information  received  pursuant  to  this  Agreement,   except  that
      disclosures  of  such  information  may
      be  made:  (a)
      to  the  subsidiaries  or Affiliates of Bank
      in  connection  with their  present
      or  prospective  business relations  with
      Borrower;  (b) to  prospective  transferees or
      purchasers of any interest  in
      the  Line  of  Credit,  provided  that  they  have  entered  into
      a comparable  confidentiality  agreement in favor of
      Borrower and have delivered a copy to Borrower; (c) as required by law,
      regulations,  rule or order, subpoena, judicial order or similar
      order;  (d) as may be required in connection  with the
      examination,  audit or similar  investigation  of
      Bank; and (e) as Bank may deem
      appropriate  in  connection  with  the  exercise  of  any  remedies   hereunder.
      Confidential  information thereunder shall not include information
      that either : (i) is in the  public  domain or in
      the  knowledge  or  possession  of Bank
      when disclosed to Bank, or becomes part of the public domain after disclosure
      to
      Bank through no fault of Bank;  or (ii) is disclosed to Bank by a
      third party that is not prohibited from disclosing such
      information.

    

    11.17
      Joint and Several Liability.  Notwithstanding  how Line of
      Credit advances and repayments may be allocated among the entities comprising
      the Borrower, each
      entity  comprising  Borrower  has joint
      and  several  liability  to Bank for all
      obligations of Borrower under the Loan Documents.

    

         This  Agreement  is  executed
      as of the date stated at the top of the first page.

    

    

     

    

    

    
      	
              ICON
                INCOME FUND EIGHT B L.P.,

              a
                Delaware limited partnership

              By:  ICON
                CAPITAL CORP., its general partner

               

               

              By:
                /s/ Thomas W. Martin

              Thomas
                W. Martin

              Executive
                Vice President and

              Chief
                Financial Officer

               

            	
              CALIFORNIA
                BANK & TRUST,

               a
                California banking corporation

               

               

              By:
                /s/ J. Michael Sullivan

              Name:    J.
                Michael Sullivan

              Title:   Vice
                President and Relationship Manager

               

            
	
              Address
                where notices are to be sent:

               

              ICON
                INCOME FUND EIGHT B L.P.

              c/o
                ICON Capital Corp. its general partner

              100
                Fifth Avenue, 10th Floor

              New
                York, NY 10011

              Attention:  General
                Counsel

              Attention:  Thomas
                W. Martin, CFO

              Facsimile
                No.:  (212) 418-4739

               

            	
              Address
                where notices are to be sent:

               

              South
                Bay Commercial Banking

              1690
                South El Camino Real

              San
                Mateo, CA 94402

            

    

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    SIGNATURES
      CONTINUED ON FOLLOWING PAGES

    

    

    

    

    ICON
      INCOME FUND NINE, LLC,

    a
      Delaware limited liability company

    By: ICON
      CAPITAL CORP., its manager

    

    

    By:
      /s/ Thomas W. Martin

    Thomas
      W.
      Martin

    Executive
      Vice President and

    Chief
      Financial Officer

    

    Address
      where notices are to be sent:

    

    ICON
      INCOME FUND NINE, LLC

    c/o
      ICON
      Capital Corp. its manager

    100
      Fifth
      Avenue, 10th Floor

    New
      York,
      NY 10011

    Attention:  General
      Counsel

    Attention:  Thomas
      W. Martin, CFO

    Facsimile
      No.:  (212) 418-4739

    

    ICON
      INCOME FUND TEN, LLC,

    a
      Delaware limited liability company

    

    By:
      ICON CAPITAL CORP., its manager

    

    By:
      /s/ Thomas W. Martin

    Thomas
      W.
      Martin

     Executive
      Vice President and

     Chief
      Financial Officer

    

    Address
      where notices are to be sent:

    

    ICON
      INCOME FUND TEN, LLC

    c/o
      ICON
      Capital Corp. its manager

    100
      Fifth
      Avenue, 10th Floor

    New
      York,
      NY 10011

    Attention:  General
      Counsel

    Attention:  Thomas
      W. Martin, CFO

    Facsimile
      No.:  (212) 418-4739

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

      SIGNATURES
      CONTINUED ON FOLLOWING PAGE

    

    

    

    ICON
      LEASING FUND ELEVEN, LLC,

    a
      Delaware limited liability company

    By:
      ICON CAPITAL CORP., its manager

    

    

    By:
       /s/ Thomas W. Martin

    Thomas
      W.
      Martin

    Executive
      Vice President and

    Chief
      Financial Officer

    

    Address
      where notices are to be sent:

    

    ICON
      LEASING FUND ELEVEN, LLC

    c/o
      ICON
      Capital Corp. its manager

    100
      Fifth
      Avenue, 10th Floor

    New
      York,
      NY 10011

    Attention:  General
      Counsel

    Attention:  Thomas
      W. Martin, CFO

    Facsimile
      No.:  (212) 418-4739

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