Document:

CREDIT AGREEMENT

                          Dated as of November 7, 2002

                                      among

                    QUEST RESOURCE CORPORATION, as Borrower,

                          WELLS FARGO BANK TEXAS, N.A.,
                as Issuing Bank, Administrative Agent and a Bank,

                                       and

                THE OTHER FINANCIAL INSTITUTIONS AS PARTY HERETO

<PAGE>

                                TABLE OF CONTENTS

                                                                Page

      ARTICLE I  DEFINITIONS                                       1
      ----------------------

         1.01 Certain Defined Terms................................1
         --------------------------

         1.02 Other Interpretive Provisions........................15
         ----------------------------------

         1.03 Accounting Principles................................15
         --------------------------

      ARTICLE II  THE CREDIT                                       16
      ----------------------

         2.01 Amounts and Terms of the Commitment..................16
         ----------------------------------------

         2.02 [Reserved]...........................................17
         ---------------

         2.03 Optional Prepayments.................................17
         -------------------------

         2.04 Borrowing Base Determinations, Mandatory Prepayments
              ----------------------------------------------------
              of Loans ............................................17
              --------

              (a) Scheduled Borrowing Base Determinations..........17
              -------------------------------------------

              (b) Mezzanine Borrowing Base.........................18
              ----------------------------

              (c) Bank's Sole Discretion...........................18
              --------------------------

              (d) Mandatory Prepayments of Loans...................18
              ----------------------------------

         2.05 Repayment............................................18
         --------------

              (a) The Loans........................................18
              -------------

              (b) Interest.........................................18
              ------------

         2.06 Fees.................................................19
         ---------

              (a) Facility Fee.....................................19
              ----------------

              (b) Increase in Borrowing Base.......................19
              ------------------------------

              (c) Commitment Fees..................................19
              -------------------

              (d) Letter of Credit Fees............................19
              -------------------------

         2.07 Computation of Fees and Interest.....................20
         -------------------------------------

         2.08 Payments by Borrower; Borrowings Pro Rata............20
         ----------------------------------------------

                                       i
<PAGE>

         2.09 Issuing the Letters of Credit........................21
         ----------------------------------

         2.10 Payments by the Banks to Administrative Agent........23
         --------------------------------------------------

         2.11 Sharing of Payments, Etc.............................24
         ------------------------------

      ARTICLE III  TAXES, YIELD PROTECTION AND ILLEGALITY          24
      ---------------------------------------------------

         3.01 Taxes................................................24
         ----------

         3.02 Increased Costs and Reduction of Return..............25
         --------------------------------------------

         3.03 Survival.............................................25
         -------------

         3.04 Foreign Lenders, Participants, and Assignees.........26
         -------------------------------------------------

         3.05 Withholding Tax......................................26
         --------------------

      ARTICLE IV  SECURITY                                         27
      --------------------

         4.01 Agreement to Deliver Security Documents..............27
         --------------------------------------------

         4.02 Perfection and Protection of Security Interests
         ----------------------------------------------------
              and Liens............................................27
              ---------

         4.03 Offset...............................................28
         -----------

         4.04 Letters in Lieu/Power of Attorney....................28
         --------------------------------------

         4.05 Assignment of Runs...................................28
         -----------------------

         4.06 Authorization to File Financing Statements...........29
         -----------------------------------------------

      ARTICLE V  CONDITIONS PRECEDENT                              29
      -------------------------------

         5.01 Conditions of Initial Loans..........................29
         -------------------------------

              (a) Subsidiary Mergers and Acquisitions..............29
              ---------------------------------------

              (b) Credit Agreement, Notes and Security Documents...30
              --------------------------------------------------

              (c) Releases of Existing Liens.......................30
              ------------------------------

              (d) Subsidiary Guaranties............................30
              -------------------------

              (e) Simultaneous Closing.............................30
              ------------------------

              (f) Subordination Agreement..........................30
              ---------------------------

              (g) Resolutions; Incumbency; Organization Documents..30
              --------------------------------------------------

                                       ii

<PAGE>

              (h) Certificates.....................................30
              ----------------

              (i) Payment of Fees..................................30
              -------------------

              (j) Opinions of Counsel..............................31
              -----------------------

              (k) Title............................................31
              ---------

              (l) Environmental....................................31
              -----------------

              (m) Company Due Diligence............................31
              -------------------------

              (n) Insurance Certificates...........................31
              --------------------------

              (o) Derivative Contracts.............................31
              ------------------------

              (p) Operating Agreements.............................31
              ------------------------

              (q) Contingent Liabilities...........................31
              --------------------------

              (r) Other Documents..................................31
              -------------------

         5.02 Conditions to All Loans..............................32
         ----------------------------

              (a) Notice...........................................32
              ----------

              (b)Continuation of Representations and Warranties....32
              -------------------------------------------------

              (c) No Existing Default..............................32
              -----------------------

              (d) No Material Adverse Effect.......................32
              ------------------------------

      ARTICLE VI  REPRESENTATIONS AND WARRANTIES                   32
      ------------------------------------------

         6.01 Existence and Authority..............................32
         ----------------------------

         6.02 Organizational Authorization; No Contravention.......32
         ---------------------------------------------------

         6.03 Governmental Authorization...........................32
         -------------------------------

         6.04 Binding Effect.......................................32
         -------------------

         6.05 Litigation...........................................33
         ---------------

         6.06 No Default...........................................33
         ---------------

         6.07 ERISA................................................33
         ----------

         6.08 Margin Regulations...................................34
         -----------------------

                                      iii
<PAGE>

         6.09 Title to Oil and Gas Properties......................34
         ------------------------------------

         6.10 Oil and Gas Operations...............................34
         ---------------------------

         6.11 Initial Reserve Report...............................34
         ---------------------------

         6.12 Gas Imbalances.......................................34
         -------------------

         6.13 Taxes................................................34
         ----------

         6.14 Financial Condition..................................35
         ------------------------

         6.15 Environmental Matters................................35
         --------------------------

         6.16 Regulated Entities...................................35
         -----------------------

         6.17 No Burdensome Restrictions...........................35
         -------------------------------

         6.18 Copyrights, Patents, Trademarks and Licenses, etc....35
         -------------------------------------------------------

         6.19 Subsidiary...........................................35
         ---------------

         6.20 Insurance............................................35
         --------------

         6.21 Full Disclosure......................................36
         --------------------

         6.22 Solvency.............................................36
         -------------

         6.23 Capitalization and Subsidiaries......................36
         ------------------------------------

         6.24 Relationship of Credit Parties.......................36
         -----------------------------------

      ARTICLE VII  AFFIRMATIVE COVENANTS                           36
      ----------------------------------

         7.01 Financial Statements.................................36
         -------------------------

         7.02 Certificates; Other Production and Reserve
              Information1.........................................37

         7.03 Notices..............................................37
         ------------

         7.04 Preservation of Company Existence, Etc...............38
         --------------------------------------------

         7.05 Maintenance of Mortgaged Properties..................38
         ----------------------------------------

         7.06 Insurance............................................39
         --------------

         7.07 Payment of Obligations...............................39
         ---------------------------

         7.08 Compliance with Laws.................................39
         -------------------------

                                       iv
<PAGE>

         7.09 Inspection of Property and Books and Records.........39
         -------------------------------------------------

         7.10 Environmental Laws...................................40
         -----------------------

         7.11 Use of Proceeds......................................40
         --------------------

         7.12 Additional Collateral................................40
         --------------------------

              (a) Lien in Oil and Gas Properties...................40
              ----------------------------------

              (b) Title Information................................40
              ---------------------

              (c) Legal Opinions...................................40
              ------------------

              (d) Subordination of Obligor's Liens.................41
              ------------------------------------

         7.13 Further Assurances...................................42
         -----------------------

         7.14 Subsidiary Guaranties................................42
         --------------------------

         7.15 Mandatory Hedging Program............................42
         ------------------------------

         7.16 Phase I Reports......................................42
         --------------------

         7.17 ERISA Information and Compliance.....................42
         -------------------------------------

      ARTICLE VIII  NEGATIVE COVENANTS                             43
      --------------------------------

         8.01 Limitation on Liens..................................43
         ------------------------

         8.02 Disposition of Assets................................44
         --------------------------

         8.03 Consolidations and Mergers...........................44
         -------------------------------

         8.04 Loans and Investments................................44
         --------------------------

         8.05 Limitation on Indebtedness...........................45
         -------------------------------

         8.06 Transactions with Affiliates.........................45
         ---------------------------------

         8.07 Margin Stock.........................................45
         -----------------

         8.08 Contingent Obligations...............................45
         ---------------------------

         8.09 Mezzanine Debt Payment...............................46
         ---------------------------

         8.10 Restricted Payment...................................46
         -----------------------

         8.11 Minimum Consolidated Tangible Net Worth..............46
         --------------------------------------------

                                       v
<PAGE>

         8.12 Total Consolidated Funded Debt to EBITDA.............46
         ---------------------------------------------

         8.13 Current Ratio........................................46
         ------------------

         8.14 Change in Business...................................46
         -----------------------

         8.15 Accounting Changes...................................46
         -----------------------

         8.16 Derivative Contracts.................................47
         -------------------------

         8.17 ERISA Compliance.....................................47
         ---------------------

      ARTICLE IX  EVENTS OF DEFAULT                               48
      -----------------------------

         9.01 Event of Default....................................48
         ---------------------

              (a) Non-Payment.....................................48
              ---------------

              (b) Guaranties......................................48
              --------------

              (c) Representation or Warranty......................48
              ------------------------------

              (d) Specific Defaults...............................49
              ---------------------

              (e) Other Defaults..................................49
              -----------------

              (f) Cross-Default...................................49
              -----------------

              (g) Insolvency; Voluntary Proceedings...............49
              -------------------------------------

              (h) Involuntary Proceedings.........................49
              ---------------------------

              (i) Monetary Judgment...............................49
              ---------------------

              (j) Loss of Permit..................................50
              ------------------

              (k) Adverse Change..................................50
              ------------------

              (l) Change of Control, Change of Management.........50
              -------------------------------------------

         9.02 Remedies............................................50
         -------------

         9.03 Rights Not Exclusive................................51
         -------------------------

ARTICLE X  AGENTS.................................................51
-----------------

         10.01 Appointment and Authorization......................51
         -----------------------------------

         10.02 Delegation of Duties...............................51
         --------------------------

                                       vi

<PAGE>

         10.03 Liability of Administrative Agent..................51
         ---------------------------------------

         10.04 Reliance by Administrative Agent...................52
         --------------------------------------

         10.05 Notice of Default..................................52
         ----------------------

         10.06 Credit Decision....................................52
         ---------------------

         10.07 Indemnification....................................53
         ---------------------

         10.08 Administrative Agent in Individual Capacity........53
         -------------------------------------------------

         10.09 Successor Administrative Agent.....................53
         ------------------------------------

      ARTICLE XI  MISCELLANEOUS                                   54
      -------------------------

         11.01 Amendments and Waivers.............................54
         ----------------------------

         11.02 Notices............................................55
         -------------

         11.03 No Waiver; Cumulative Remedies.....................55
         ------------------------------------

         11.04 Costs and Expenses.................................56
         ------------------------

         11.05 Indemnity..........................................56
         ---------------

         11.06 Payments Set Aside.................................56
         -----------------------

         11.07 Successors and Assigns.............................57
         ----------------------------

         11.08 Assignments........................................57
         -----------------

         11.09 Set-off............................................58
         -------------

         11.10 Interest...........................................58
         --------------

         11.11 Automatic Debits of Fees...........................59
         ------------------------------

         11.12 Notification of Addresses, Lending Offices, Etc....59
         ------------------------------------------------------

         11.13 Counterparts.......................................59
         ------------------

         11.14 Severability.......................................59
         ------------------

         11.15 No Third Parties Benefited.........................59
         --------------------------------

         11.16 GOVERNING LAW......................................60
         --------------------

         11.17 ARBITRATION........................................61
         -----------------

                                      vii
<PAGE>

         (a) Arbitration.........................................61
         ---------------

              (b) Governing Rules................................61
              -------------------

              (c) No Waiver; Provisional Remedies, Self-Help and
              --------------------------------------------------
                  Foreclosure....................................61
                  -----------

              (d) Arbitrator Qualifications and Powers; Awards...61
              ------------------------------------------------

              (e) Judicial Review................................62
              -------------------

              (f) Miscellaneous..................................62
              ----------------

         11.18 Entire Agreement..................................62
         ----------------------

         11.19 NO ORAL AGREEMENTS................................62
         -----------------------

                                      viii

<PAGE>

SCHEDULES

Schedule 2.01           Commitments
Schedule 4.01           Security Documents
Schedule 5.01(c)        Released Liens and Security Interests
Schedule 6.05           Litigation
Schedule 6.19           Credit Parties
Schedule 8.05           Indebtedness

EXHIBITS

Exhibit A               Form of Note
Exhibit B               Form of Notice of Borrowing
Exhibit C               Form of Letter-in-Lieu
Exhibit D               Form of Compliance Certificate
Exhibit E               Form of Pricing Grid Certificate
Exhibit F               Form of Assignment and Acceptance Agreement
Exhibit G               Form of Subordination Agreement
Exhibit H               Form of Subsidiary Guaranty

                                       ix
<PAGE>

                                CREDIT AGREEMENT
                                ----------------

      This CREDIT  AGREEMENT (the  "Agreement") is dated as of November 7, 2002,
among QUEST RESOURCE CORPORATION, a Nevada corporation ("Borrower"), QUEST OIL &
GAS CORPORATION, a Kansas corporation ("QO&G"),  PONDEROSA GAS PIPELINE COMPANY,
INC., a Kansas  corporation  ("PGP") and STP CHEROKEE,  INC.  (formerly known as
"STP,  INC."),  an  Oklahoma   corporation   ("STP,"  and  with  QO&G  and  PGP,
collectively "Guarantors"), each of the banks which is or which may from time to
time become a signatory hereto  (individually,  a "Bank" and  collectively,  the
"Banks") and WELLS FARGO BANK TEXAS,  N.A., a national banking  association,  as
Issuing Bank (in such  capacity,  together with its  successors in such capacity
"Issuing  Bank")  and  Administrative  Agent for the  Banks  (in such  capacity,
together with its successors in such capacity "Administrative Agent").

                                    RECITALS
                                    --------

      In  consideration  of  the  representations,   warranties,  covenants  and
agreements  contained  herein,  and other good and valuable  consideration,  the
receipt and  adequacy of which are hereby  acknowledged,  Borrower,  Guarantors,
Administrative  Agent Issuing Bank and the Banks hereby agree that  effective as
of the Effective Date as follows:

                                   ARTICLE I.

                                  DEFINITIONS
                                  -----------

      1.01  Certain  Defined  Terms.  The  following  terms have  the following
meanings:

           Administrative  Agent  means  Wells  Fargo  Bank  Texas, N.A.,  a
national   banking   association,   in  its  capacity  as Administrative  Agent
for the  Banks  hereunder  or any  successor thereto.

           Administrative  Agent's Payment Office means the address for payments
as  Administrative  Agent may from time to time specify by giving prior  written
notice thereof to Borrower.

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

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

           Aggregate  LC  Obligation  Limitation  has the meaning  specified  in
Subsection 2.01(b).

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

           Applicable Margin means the amounts set forth on the Pricing Grid.

           Applicable Usury Laws has the meaning specified in Section 11.10.

<PAGE>

           Approved  Mezzanine  Borrowing  Base  means,  as of the date  hereof,
$7,500,000, and upon any redetermination of the Mezzanine Borrowing Base, as may
occur from time to time hereafter, the redetermined Mezzanine Borrowing Base, as
approved  by the Banks if such  approval  is  required  pursuant  to  Subsection
2.04(b).

           Assignee has the meaning specified in Section 11.08.

           Attorney   Costs  means  and   includes  all   reasonable   fees  and
disbursements of any law firm or other external counsel.

           Available  Borrowing Base means,  at the particular time in question,
the  Borrowing  Base amount then in effect  minus the  Effective  Amount at such
time.

           Bankruptcy Code means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C.ss. 101, et seq.), as amended, and regulations promulgated thereunder.

           Bank  means  any  financial  institution  a party  hereto as having a
Commitment,  and its  successors  and  assigns,  and Banks shall mean all Banks.
References to "Banks"  shall  include  Wells Fargo Bank Texas,  N.A., a national
banking  association,  and  such  other  lending  institutions  now a  party  or
hereafter a party to this Agreement.

           Base Rate means,  for any day,  the  fluctuating  rate of interest in
effect for such day which rate per annum shall be equal to the higher of (i) the
rate of interest as publicly announced from time to time by Wells Fargo Bank (or
any  successor to Wells Fargo Bank) at its  principal  office in San  Francisco,
California,  as its "Prime  Rate," or (ii)  one-half of one percent  (0.50%) per
annum  above the Federal  Funds Rate in effect from time to time.  Any change in
the Prime Rate  announced  by  Administrative  Agent  shall  take  effect at the
opening of  business on the day  specified  in the public  announcement  of such
change.

           Base Rate Loan  means a Loan that  bears  interest  based at the Base
Rate.

           Borrower  shall  have  the  meaning  set  forth  in the  introductory
paragraph hereto.

           Borrowing  means a borrowing  hereunder  consisting  of Loans made to
Borrower on the same day by any of the Banks under Article II.

           Borrowing Base means at the particular  time in question,  the amount
provided for in Section 2.04 provided,  however, in no event shall the Borrowing
Base ever exceed the Maximum Loan Amount.

           Borrowing Base Period means the period commencing on the day that the
conditions  to the initial loan under  Sections  5.01 and 5.02 are satisfied and
ending on March 31, 2003,  and each six months period  thereafter  commencing on
April 1 and October 1 of each year during the term hereof.

           Borrowing  Date  means  any date on which a  Borrowing  occurs  under
Section 2.01.

           Business Day means any day other than a Saturday, Sunday or other day
on which commercial banks in Dallas,  Texas are authorized or required by law to
close.

                                       2

<PAGE>

           Capital Adequacy Regulation means any guideline, request or directive
of any central bank or other Governmental  Authority,  or any other law, rule or
regulation,  whether  or not having  the force of law,  in each case,  regarding
capital adequacy of any bank or of any corporation controlling a bank.

           Capital Lease means a lease or other agreement conveying the right to
use  real  and/or  personal  Property,  which  obligations  are  required  to be
classified and accounted for as a capital lease under GAAP.

           Cash Equivalents  means: (a) securities issued or fully guaranteed or
insured by the United States  Government or any agency thereof and backed by the
full faith and credit of the United  States  having  maturities of not more than
twelve (12) months from the date of  acquisition;  (b)  certificates of deposit,
time deposits,  Eurodollar time deposits, or bankers' acceptances having in each
case a tenor of not more than  three  (3)  months  from the date of  acquisition
issued  by any U.S.  commercial  bank or any  branch  or  agency  of a  non-U.S.
commercial bank licensed to conduct business in the U.S. having combined capital
and surplus of not less than Five Hundred  Million Dollars  ($500,000,000);  and
(c)  commercial  paper  of an  issuer  rated  in one of the two  highest  rating
categories  of Standard and Poor's  Rating  Service,  a division of McGraw Hill,
Inc., or its successor, or Moody's Investor Services, Inc., or its successor, at
the time of  acquisition,  and in  either  case  having a tenor of not more than
twelve (12) months.

           Closing means the date on which this Agreement is signed by Borrower,
Guarantors, Administrative Agent and the Banks.

           Closing  Date means the date on which all  conditions  precedent  set
forth in Section 5.01 are satisfied or waived by the Banks.

           Code  means  the  Internal  Revenue  Code of 1986,  as  amended,  and
regulations promulgated thereunder.

           Collateral  means all Property of any kind which is subject to a Lien
granted by  Borrower  in favor of  Administrative  Agent for the  benefit of the
Banks or which  under the terms of any  Security  Document  is  purported  to be
subject to such Lien.

           Commitment  means as to each Bank,  such Bank's Pro Rata Share of the
lesser of the  current  Borrowing  Base and the  Maximum  Loan  Amount,  as such
Commitment may be terminated and/or reduced from time to time in accordance with
the provisions hereof.

           Compliance   Certificate  means  a  certificate substantially in the
form of Exhibit D.

           Consolidated  Interest  Expense  means,  for any fiscal  period,  the
aggregate amount of all costs,  fees and expenses,  including  capital expenses,
paid by the Borrower  and its  Subsidiaries  (other than QES) on a  consolidated
basis in such fiscal  period,  which are  classified as interest  expense on the
Borrower's consolidated financial statements.

           Consolidated Net Income means,  for any period,  the consolidated net
income (or net loss) of Borrower and its Subsidiaries  (other than QES) for such
period determined.

           Consolidated  Tangible Net Worth means,  at any date, an amount equal
to (i)  consolidated  assets of Borrower and its  Subsidiaries  (other than QES)
including all items which should
                                       3
<page>

be classified as assets on the consolidated financial statements of Borrower and
its Subsidiaries (other than QES) but excluding the amount of goodwill, patents,
trademarks,  service marks, trade names,  copyrights and organizational expenses
of Borrower and its  Subsidiaries  (other than QES) (to the extent  reflected in
determining  consolidated  assets of Borrower and its  Subsidiaries  (other than
QES)) less (ii) all items which should be classified as consolidated liabilities
on the consolidated financial statements of Borrower and its Subsidiaries (other
than QES).

           Contingent  Obligation means, as to any Person,  without duplication,
any direct or indirect  liability of that Person with or without  recourse,  (a)
with respect to any  Indebtedness,  dividend,  letter of credit or other similar
obligation  (the  "primary   obligations")   of  another  Person  (the  "primary
obligor"),  including any obligation of that Person (i) to purchase,  repurchase
or otherwise acquire such primary obligations or any security therefor,  (ii) to
advance  or  provide  funds for the  payment or  discharge  of any such  primary
obligation,  or to  maintain  working  capital or equity  capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance  sheet
item, level of income or financial  condition of the primary  obligor,  (iii) to
purchase Property,  securities or services primarily for the purpose of assuring
the owner of any such primary  obligation of the ability of the primary  obligor
to make payment of such primary obligation,  or (iv) otherwise to assure or hold
harmless  the  holder of any such  primary  obligation  against  loss in respect
thereof  (each,  a  "Guaranty  Obligation");  (b)  with  respect  to any  Surety
Instrument  issued for the  account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments;  (c) with respect to
any Derivative  Contract;  or (d) to purchase any  materials,  supplies or other
Property  from,  or to obtain the  services of,  another  Person if the relevant
contract or other related document or obligation  requires that payment for such
materials,  supplies  or other  Property,  or for such  services,  shall be made
regardless of whether delivery of such materials,  supplies or other Property is
ever made or  tendered,  or such  services are ever  performed or tendered.  The
amount of any Contingent  Obligation shall, in the case of Guaranty Obligations,
be deemed  equal to the  maximum  stated or  determinable  amount of the primary
obligation  in  respect  of which such  Guaranty  Obligation  is made or, if not
stated or if  indeterminable,  the maximum reasonably  anticipated  liability in
respect thereof, and in the case of other Contingent Obligations, shall be equal
to  the  maximum   reasonably   anticipated   liability   in  respect   thereof.
Notwithstanding  the foregoing,  the Warrant and Warrant Purchase  Agreement (as
defined in the  Mezzanine  Credit  Agreement)  shall not be  considered  to be a
Contingent Obligation.

           Contracts  and Records shall have the meaning set forth in Subsection
7.12(d)(ii).

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

           Credit  Parties  means  collectively  Borrower,  Guarantors  and each
Subsidiary of Borrower  (other than QES) now or hereafter  created,  and "Credit
Party" means any one of the foregoing.

           Current Consolidated Assets means, for any Person, all assets of such
Person that, in accordance  with GAAP,  would be included as current assets on a
consolidated  balance sheet as of the date of  calculation,  provided  that, for
purposes of calculating  Borrower's  Current Ratio (i) Available  Borrowing Base
under this  Facility and under the  Mezzanine  Loan shall be included as Current
Consolidated Assets, (ii) any non-cash gains pursuant to SFAS No. 133 Accounting
for Derivative  Instruments and Hedging  Activities,  effective January 1, 2001,
shall be excluded, and (iii) the assets of QES shall be excluded.

                                       4
<PAGE>

           Current   Consolidated   Liabilities   means,  for  any  Person,  all
liabilities of such Person that, in accordance  with GAAP,  would be included as
current  liabilities  on  a  consolidated  balance  sheet  as  of  the  date  of
calculation; provided that, for purposes of calculating Borrower's Current Ratio
(i)  aggregate  current  maturities  of Borrower's  Obligations  and  Borrower's
Indebtedness   under  the   Mezzanine   Loan  shall  be  deducted  from  Current
Consolidated Liabilities, (ii) any non-cash obligations pursuant to SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities,  effective January
1, 2001, shall be excluded as Current  Consolidated  Liabilities,  and (iii) the
liabilities of QES shall be excluded.

           Current  Ratio  means the  ratio of  Current  Consolidated  Assets to
Current Consolidated Liabilties.

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

           Default   Rate   shall  have  the   meaning   set  forth  in  Section
2.05(b)(iii).

           Derivative  Contracts means all future contracts,  forward contracts,
swap, cap or collar  contracts,  option  contracts,  hedging  contracts or other
derivative  contracts or similar agreements  covering Oil and Gas commodities or
prices or financial, monetary or interest rate instruments.

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

           EBITDA  means  for  any  fiscal  period,  without  duplication,   (i)
Consolidated  Net Income of the  Borrower,  plus (ii) income  taxes,  plus (iii)
depreciation,   depletion,   amortization  and  other  non-cash  items  reducing
Consolidated Net Income, plus (iv) Consolidated Interest Expense.

           Effective  Amount  means  on  any  date,  the  aggregate  outstanding
principal  amount  of all  Loans  after  giving  effect  to any  prepayments  or
repayments of Loans occurring on such date plus the LC Obligation,  after giving
effect to any reimbursement in respect thereof occurring on such date.

           Effective Date means the date on which the conditions set forth under
Section 5.01 are satisfied.

           Eligible  Assignee means (i) a commercial  bank  organized  under the
laws of the United States,  or any state thereof,  and having a combined capital
and surplus of at least $100,000,000.00;  (ii) a commercial bank organized under
the laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least  $100,000,000.00,
provided  that  such bank is acting  through a branch or agency  located  in the
United  States;  (iii) a Person with a combined  capital and surplus of at least
$100,000,000.00  that is primarily engaged in the business of commercial banking
and that is (A) a Subsidiary of a Bank,  (B) a Subsidiary of a Person of which a
Bank is a Subsidiary,  or (C) a Person of which a Bank is a  Subsidiary;  (iv) a
finance  company,  insurance  company  or other  financial  institution  or fund
(whether a corporation,  partnership,  trust or other entity) that is engaged in
making,  purchasing or otherwise  investing in commercial  loans in the ordinary
course of its business and having total assets in excess of $100,000,000.00; and
(v) any other Person approved by Administrative Agent.

                                       5

<PAGE>

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

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

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

           ERISA  Affiliate  means  any  trade  or  business   (whether  or  not
incorporated)  under common control with Borrower  within the meaning of Section
414(b) or (c) of the Code (and Sections  414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).

           ERISA Event means (a) a Reportable  Event with respect to a Plan; (b)
a withdrawal by Borrower or any ERISA  Affiliate  from a Plan subject to Section
4063 of ERISA  during a plan  year in which it was a  substantial  employer  (as
defined in Section  4001(a)(2) of ERISA) or a cessation of  operations  which is
treated as such a withdrawal  under Section 4062(e) of ERISA;  (c) a complete or
partial  withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in  reorganization;  (d) the filing
of a notice of intent to terminate  (other than  pursuant to Section  4041(b) of
ERISA), the treatment of a Plan amendment as a termination under Section 4041(c)
or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Plan or Multiemployer  Plan; (e) an event or condition which might reasonably be
expected to constitute  grounds under Section 4042 of ERISA for the  termination
of, or the  appointment  of a trustee to administer,  any Plan or  Multiemployer
Plan; or (f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA,  upon Borrower
or any ERISA Affiliate.

           Event of Default means any of the events or  circumstances  specified
in Section 9.01.

           Exchange Act means the  Securities  Exchange Act of 1934, as amended,
and regulations promulgated thereunder.

           Federal  Funds  Rate  means,  for any day,  the rate set forth in the
weekly   statistical   release   designated  as  H.15(519),   or  any  successor
publication,  published by the Federal  Reserve Bank of New York  (including any
such successor,  "H.15(519)") on the preceding Business Day opposite the caption
"Federal  Funds  (Effective)";  or, if for any  relevant day such rate is not so
published on any such preceding  Business Day, the rate for such day will be the
average  as  determined  by  Administrative  Agent  of the  rates  for the  last
transaction  in overnight  federal funds  arranged prior to 9:00 a.m. (New York,
New York time) on that day by each of three  leading  brokers  of federal  funds
transactions in New York, New York selected by Administrative Agent.

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

           GAAP means generally  accepted  accounting  principles set forth from
time to time in the opinions and  pronouncements  of the  Accounting  Principles
Board and the American Institute of Certified

                                       6
<page>

Public Accountants and statements and pronouncements of the Financial Accounting
Standards  Board (or agencies with similar  functions of comparable  stature and
authority within the U.S.  accounting  profession),  which are applicable to the
circumstances as of the date of determination.

           Guarantor means each of the Guarantors and any subsidiary of Borrower
(other  than  QES)  that may now or  hereafter  execute  a  Subsidiary  Guaranty
pursuant to the terms of this Agreement.

           Guarantors  shall  have the  meaning  set  forth in the  introductory
paragraph hereto.

           Governmental Authority means the United States government,  any state
or other political subdivision thereof, any central bank (or similar monetary or
regulatory  authority) thereof,  any entity exercising  executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government.

           Hazardous  Substances  means any  substances  defined  as  "hazardous
substances,"  "hazardous  materials,"  "hazardous wastes," or "toxic substances"
under Environmental Laws.

           Highest  Lawful Rate means,  for each Bank,  the maximum rate (or, if
the  context so  permits  or  requires,  an amount  calculated  at such rate) of
interest which, at the time in question would not cause the interest  charged on
the  portion  of the loan owed to such Bank at such time to exceed  the  maximum
amount which such Bank would be allowed to contract for, charge,  take, reserve,
or  receive  under  applicable  law after  taking  into  account,  to the extent
required by applicable  law, any and all relevant  payments or charges under the
Loan Documents.  To the extent Texas law is applicable,  the Banks hereby notify
and disclose to Borrower that, for purposes of Texas Finance Code ss.303.001, as
it may from  time to time be  amended,  the  "applicable  ceiling"  shall be the
"weekly  ceiling"  from time to time in effect as limited by Texas  Finance Code
ss.303.009; provided, however, that to the extent permitted by applicable law.

           Hydrocarbon Interests means leasehold and other interests in or under
Oil and Gas leases  with  respect  to the Oil and Gas  Properties,  mineral  fee
interests,  overriding  royalty and  royalty  interests,  net profit  interests,
production payment interests relating to Oil and Gas wherever located, including
any beneficial, reserved or residual interest of whatever nature.

           Indebtedness  of any  Person  means,  without  duplication,  (a)  all
indebtedness  for borrowed  money;  (b) all  obligations  issued,  undertaken or
assumed as the deferred purchase price of Property or services (other than trade
payables  entered into in the ordinary  course of business on ordinary terms not
more than 30 days past due);  (c) all  non-contingent  reimbursement  or payment
obligations with respect to Surety Instruments; (d) all obligations evidenced by
notes,  bonds,  debentures  or similar  instruments,  including  obligations  so
evidenced  incurred in connection  with the  acquisition of Property,  assets or
businesses;  (e) all indebtedness  created or arising under any conditional sale
or other title  retention  agreement,  or incurred as financing,  in either case
with  respect to  Property  acquired by the Person  (even  though the rights and
remedies of the seller or bank under such  agreement in the event of default are
limited to repossession or sale of such Property) including, without limitation,
production  payments,  net  profit  interests  and other  Hydrocarbon  Interests
subject to repayment out of future Oil and Gas  production;  (f) all obligations
with  respect  to  Capital  Leases;  (g) all net  obligations  with  respect  to
Derivative Contracts; (h) Contingent Obligations,  (i) all indebtedness referred
to in clauses (a) through (h) above  secured by (or for which the holder of such
Indebtedness has an existing right,  contingent or otherwise,  to be secured by)
any Lien upon or in Property  (including accounts and contracts rights) owned by
such  Person,  even though such Person has not assumed or become  liable for the
payment of

                                       7
<page>

such Indebtedness;  and (j) all Guaranty  Obligations in respect of indebtedness
or  obligations  of others of the kinds  referred  to in clauses (a) through (h)
above.

           Indemnified Liabilities has the meaning specified in Section 11.05.

           Indemnified Person has the meaning specified in Section 11.05.

           Independent Auditor has the meaning specified in Subsection 7.01(a).

           Initial Reserve Report has the meaning specified in Section 6.11.

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

           Intercompany  Debt means  debt owed by any Credit  Party to any other
Credit Party to the extent made expressly subordinate to the Obligations.

           Intercompany  Notes means the  promissory  notes executed to evidence
Intercompany Debt.

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

           Investment Company has the meaning specified in Section 6.16.

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

           Issue means with respect to any Letter of Credit,  to issue or extend
the expiry of, or to renew or increase the amount of, such Letter of Credit; and
the terms "Issued," "Issuing" and "Issuance" have corresponding meanings.

           Issuing Bank means Wells Fargo Bank Texas, N.A.

           LC Application means an application or agreement for a standby Letter
of Credit in the  current  form  promulgated  by Issuing  Bank with  appropriate
insertions  or in such other form as shall be  reasonably  acceptable to Issuing
Bank duly executed by Borrower pursuant to Section 2.09(a).

           LC Collateral means any amounts held by Issuing Bank, as security for
LC Obligations of Borrower.

           LC Collateral Account means a blocked deposit account held by Issuing
Bank.

           LC Obligation means, at the time in question,  the sum of the Matured
LC Obligations  plus the aggregate  amount available under all Letters of Credit
then outstanding.

                                       8
<PAGE>

           LC Related Document means the Letters of Credit,  LC Applications and
any other  document  relating to any Letter of Credit  including  any of Issuing
Bank's standard form documents for Letter of Credit issuances.

           Lending  Office means,  as to any bank, the office or offices of such
Bank specified as its "Lending  Office," or such other office or offices as such
Bank may from time to time notify Borrower and Administrative Agent.

           Letter of Credit means any standby letter of credit issued by Issuing
Bank pursuant to this Agreement and upon an LC Application.

           Letters in Lieu means the letters described under Section 4.04(a).

           Lien  means  with  respect  to any  Property,  any right or  interest
therein of a creditor to secure  Indebtedness owed to such creditor or any other
arrangement   with  such  creditor  which  provides  for  the  payment  of  such
Indebtedness  out of such  Property or which  allows such  creditor to have such
debt satisfied out of such Property prior to the general  creditors of any owner
thereof,  including  any security  interest,  mortgage,  deed of trust,  pledge,
hypothecation,  assignment,  charge or deposit  arrangement,  encumbrance,  lien
(statutory  or  other)  or  preferential  arrangement  of  any  kind  or  nature
whatsoever in respect of any Property (including those created by, arising under
or evidenced by any conditional sale or other title retention  agreement and the
interest  of a  lessor  under a  Capital  Lease),  any  financing  lease  having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor,  under the  Uniform  Commercial  Code or any  comparable  law and any
contingent or other agreement to provide any of the foregoing, but not including
the interest of a lessor under a lease on Oil and Gas Properties or the interest
of a lessor under an operating lease.

           Loan means an extension of credit by a Bank to Borrower under Article
II.

           Loan Documents means this Agreement,  the Notes, any Letter of Credit
Application,  any Letter of Credit,  the Security  Documents,  the Subordination
Agreement, the Derivative Contracts entered into between Borrower, Issuing Bank,
any of the  Banks,  or any  Affiliate  of the Banks,  and all other  agreements,
instruments, or documents delivered to Administrative Agent, Issuing Bank or any
Bank in connection herewith.

           Majority Banks means, at any time, Administrative Agent and the Banks
holding at least  sixty-six and  two-thirds  percent (66 2/3%) of the sum of the
Effective Amount or, if there is no Effective Amount,  Administrative  Agent and
the Banks holding at least sixty-six and two-thirds percent (66 2/3%) of the sum
of the Commitments of all of the Banks.

           Margin  Stock  means  "margin  stock"  as  such  term is  defined  in
Regulation T, U or X of the FRB.

           Marketable  Title means record  title free and clear from  reasonable
doubt as to matters of law and fact such that a prudent  operator of Oil and Gas
Properties,  advised of the facts and their legal significance,  would willingly
accept.

           Material  Adverse Effect means (a) a material adverse change in, or a
material adverse effect upon, the operations,  business, properties or financial
condition of any Credit Party;  (b) a material  impairment of the ability of any
Credit Party to perform under any Loan Document to which it is a party

                                       9
<page>

and to avoid any Default;  or (c) a material  adverse  effect upon the legality,
validity,  binding effect or enforceability against any Credit Party of any Loan
Document to which it is a party.

           Matured  LC  Obligation   means  the  aggregate  amount  of  payments
theretofore  made by  Issuing  Bank in  respect  to  Letters  of Credit  and not
theretofore  reimbursed by Borrower to Issuing Bank or deemed Loans  pursuant to
Section 2.01(b).

           Maximum Loan Amount means the amount of $20,000,000.

           Mezzanine  Borrowing Base means the "Borrowing  Base" as such term is
defined in the Mezzanine Loan Agreement.

           Mezzanine Debt means the  Indebtedness of Borrower owing
to Mezzanine Lender.

           Mezzanine  Lender  means  Wells Fargo  Energy,  Capital,
Inc., a Texas corporation.

           Mezzanine  Loan  means  the  credit  facility  between  Borrower  and
Mezzanine  Lender on terms and  conditions  satisfactory  to the  Administrative
Agent, as such credit facility is evidenced by the Mezzanine Loan Agreement.

           Mezzanine Loan Agreement means that certain Credit Agreement  between
Mezzanine  Lender,  Borrower  and  Guarantors  executed  of even date  herewith,
provided  however,  such term shall not include any  amendments,  supplements or
restatements  of such  Credit  Agreement  as may occur from time to time  unless
Administrative Agent has given its prior written consent thereto.

           Monthly  Status Report means a status report  prepared by Borrower in
form, scope and content acceptable to Administrative  Agent, setting forth as of
such month then ended (i) detailing  production  from the Mortgaged  Properties,
the volumes of Oil and Gas produced and saved,  the volumes of Oil and Gas sold,
gross revenue,  net income,  related  leasehold  operating  expenses,  severance
taxes, other taxes,  capital costs and any production  imbalances or take or pay
imbalances incurred during such period and (ii) such additional information with
respect to any of the Credit Parties' Mortgaged  Properties as may be reasonably
requested by Administrative  Agent,  including legal descriptions of any new Oil
and Gas  Properties  acquired  since  the  date of the most  recently  delivered
Monthly  Status  Report,  the  names  and  addresses  of any new  purchasers  of
production  not  previously  identified  to  Administrative  Agent and copies of
current  division  orders  from such  purchasers  showing  the  Credit  Parties'
interest in the subject wells and Oil and Gas Properties.

           Mortgages  means  the  Mortgages,  Deeds  of  Trust,  Assignments  of
Production,  Security  Agreements and Financing  Statements  from the respective
Credit Parties in favor of Administrative  Agent, for the ratable benefit of the
Banks, dated of even date herewith and all supplements,  assignments, amendments
and restatements thereto (or any agreement in substitution therefor).

           Mortgaged  Properties means the Oil and Gas Properties  including the
Undeveloped  Properties described in the Mortgages as the same may be amended or
supplemented from time to time, until released.

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

                                       10

<PAGE>

           Notes mean the promissory  notes  (whether one or more)  specified in
Section  2.01,  substantially  in the same form as Exhibit  "A,"  including  any
amendments, modifications, renewals or replacements of such promissory notes.

           Notice  of  Borrowing  means a notice  in  substantially  the form of
Exhibit "B."

           Obligations  means all  advances,  debts,  liabilities,  obligations,
covenants and duties  arising under any Loan Document  owing by any Credit Party
to any Bank (including  obligations under any Derivative  Contract by any Credit
Party to any of the  Banks or any of their  Affiliates),  Administrative  Agent,
Issuing Bank or any Indemnified  Person,  whether direct or indirect  (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising.

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

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

           Operating  Agreements  shall  have the  meaning  set forth in Section
5.01(q).

           Organization Documents means, for any corporation, the certificate or
articles of  incorporation,  the bylaws,  any  certificate of  determination  or
instrument  relating to the rights of the shareholders of such corporation,  any
shareholder  rights  agreement,  and all applicable  resolutions of the board of
directors (or any committee thereof) of such corporation necessary in connection
with the  authorization of the foregoing  documents or others in connection with
the due organization of such corporation;  for any limited liability company the
articles of organization,  certificate of  authorization,  operating  agreement,
organizational agreement, certificate of formation, regulations, certificates of
qualification,   joint  resolutions  of  members  (or  any  committee   thereof)
authorizing the foregoing; and for any partnership, the agreement of partnership
and any certificates of such partnership or instrument relating to the rights of
the partners of such partnership and all applicable resolutions of any corporate
partners of such partnerships authorizing the foregoing.

           Other  Taxes  means  any  present  or  future   mortgage,   stamp  or
documentary  taxes or any other  excise or  Property  taxes,  charges or similar
levies  (other  than  income  and  franchise  taxes)  which are  imposed  by any
Governmental  Authority  and arise from any payment  made  hereunder or from the
execution,  delivery or  registration  of, or  otherwise  with  respect to, this
Agreement or any other Loan Documents.

                                       11

<PAGE>

           Participant has the meaning set forth in Section 11.08(a).

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

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

           Permitted Liens has the meaning set forth in Section 8.01.

           Person means an individual, partnership, corporation, business trust,
joint  stock  company,  trust,  unincorporated  association,  joint  venture  or
Governmental Authority.

           PGP  means  Ponderosa  Gas  Pipeline  Company,  Inc.,  a
Kansas corporation and a wholly-owned Subsidiary of Borrower.

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

           Pledge and  Collateral  Agreement  means the  Pledge  and  Collateral
Agreement  executed by Borrower  in favor of  Administrative  Agent of even date
herewith.

           Pricing Grid means the annualized  variable rates (stated in terms of
basis points ("bps")) set forth below for the Applicable Margin,  Commitment Fee
and  Letter  of  Credit  Fee based  upon the  ratio of  Effective  Amount to the
Borrowing Base amount as follows:

  ------------------------------------------------------------------
   Effective Amount/
    Borrowing Base      Applicable   Commitment Fee    Letter of
        amount            Margin                       Credit Fee
  ------------------------------------------------------------------
      > 50%              0.50%           0.50%          0.625%
  ------------------------------------------------------------------
     <= 50%              0.25%           0.50%          0.375%
  ------------------------------------------------------------------

The Pricing Grid for any date shall be  determined  by reference to the ratio of
the daily average Effective Amount to the Borrowing Base over the fiscal quarter
most recently ended and any change (x) shall become  effective upon the delivery
to Administrative  Agent of a Pricing Grid Certificate (in the form of Exhibit E
hereto)  of a  Responsible  Officer  of  Borrower  (which  certificate  shall be
delivered (A) simultaneously  with the delivery of each Notice of Borrowing or a
request for  issuance of a Letter of Credit and (B)  promptly  after  receipt of
notice from  Administrative  Agent of any change in the amount of the  Borrowing
Base), and (y) shall apply to Base Rate Loans  outstanding on such delivery date
or made on and after such delivery date.  Notwithstanding the foregoing,  at any
time during which  Borrower  has failed to deliver the Pricing Grid  Certificate
when due, the ratio of Effective  Amount to the Borrowing  Base shall be deemed,
solely for the  purposes of this  definition,  to be greater than 50% until such
time as Borrower shall deliver such certificate.

           Prime  Rate means at any time,  the rate of  interest  most  recently
announced  by Wells Fargo Bank as its "prime  rate" (the "prime  rate" is a rate
set by Administrative Agent based upon various

                                       12

<PAGE>

actors including costs and desired return, general economic conditions and other
factors,  and is used as a reference point for pricing some loans,  which may be
priced at, above, or below such announced rate).

           Principal  Business  means  the  business  currently   maintained  by
Borrower  and  its  Subsidiaries  for  the  exploration  for,  and  development,
acquisition,  production,  gathering,  and  upstream  marketing  of Oil and Gas,
through joint venture, joint operating, farm-in, farm-out or other agreements or
arrangements.

           Property  means  property  of all  kinds,  real,  personal  or mixed,
tangible or  intangible  (including  without  limitation,  all rights  thereto),
whether owned or acquired on or after the date of this Agreement.

           Pro Rata Share means,  as to any Bank at any time, the percentage set
forth opposite its name on Schedule 2.01 hereto as same may be modified pursuant
to the terms hereof.

           QES  means  Quest   Energy   Service,   Inc.,  a  Kansas
corporation and a wholly-owned Subsidiary of Borrower;

           QO&G  means  Quest  Oil  &  Gas  Corporation,  a  Kansas
corporation and a wholly-owned Subsidiary of Borrower

           Reportable  Event  means,  any of the  events  set  forth in  Section
4043(b) of ERISA or the  regulations  thereunder,  other than any such event for
which the 30-day notice  requirement  under ERISA has been waived in regulations
issued by the PBGC.

           Requirement  of Law means,  as to any Person,  any law  (statutory or
common),  treaty,  rule or regulation or  determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its Property or to which the Person or any of its Property is subject.

           Reserve  Report  means a  report,  in form and  substance  reasonably
satisfactory  to  Administrative  Agent,  prepared in a manner  consistent  with
practices  of  reservoir   engineers   who  prepare  such  reports  for  use  in
reserve-based lending transactions, that sets forth the present discounted value
of the proven reserves attributable to the Oil and Gas Properties.

           Responsible  Officer  means,  for each Credit Party,  the  respective
president or any vice president,  treasurer,  chief  financial  officer or chief
accounting officer of such Credit Party.

           Restricted Payments has the same meaning set forth in Section 8.10.

           Scheduled  Borrowing Base  Determination has the meaning specified in
Subsection 2.04(a).

           Security  Documents  means  the  Mortgages;   Pledge  and  Collateral
Agreement,  Stock Powers and related financing statements as same may be amended
from time to time,  Letters in Lieu,  and any and all other  instruments  now or
hereafter  executed by the Credit Parties in connection  with or as security for
the payment of the Obligations secured by the Collateral.

           Senior  Credit  Facility  shall  mean this  Agreement  as same may be
amended, restated, modified or renewed from time to time.

                                       13
<PAGE>

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

           Stock Powers means the Stock Powers executed in blank by Borrower for
each of its Subsidiaries  (other than QES) pursuant to the Pledge and Collateral
Agreement.

           STP means STP Cherokee,  Inc.  (formerly  known as "STP,
Inc."),  an Oklahoma  corporation  and wholly owned  Subsidiary  of
Borrower.

           Subordination Agreement means that certain Subordination Agreement by
and among Borrower,  Administrative  Agent and Mezzanine Lender in substantially
the form  attached  hereto as Exhibit G, as same may be amended or restated from
time to time.

           Subsidiary  Guaranty  means a Guaranty  substantially  in the form of
Exhibit H hereto to be executed by each Guarantor and each future  Subsidiary of
Borrower  (other  than QES) in favor of the Banks  pursuant  to which  each such
Guarantor shall guaranty, unconditionally,  payment of the indebtedness, as same
may be amended, modified or supplemented from time to time.

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

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

           Taxes means any and all  present or future  taxes,  levies,  imposts,
deductions,  charges or  withholdings,  and all liabilities with respect thereto
imposed  by any  Governmental  Authority  as the  result  of  any  payment  made
hereunder, or the administration and enforcement of this Agreement excluding, in
the case of each Bank and Administrative  Agent, any of the foregoing (including
income  taxes or  franchise  taxes) as are imposed on or measured by each Bank's
net income,  gross  receipts or capital by the  jurisdiction  (or any  political
subdivision thereof) under the laws of which such Bank or Administrative  Agent,
as the case may be, is organized or maintains a Lending Office.

           Termination  Date means the earlier of (a) three (3) years  following
the Closing Date, or (b) the date on which the Banks'  Commitments  terminate in
accordance with this Agreement.

           Total Consolidated Funded Debt means, without duplication, the sum of
(a) all  obligations  of  Borrower  and its  Subsidiaries  (other  than QES) for
borrowed  money,  including,  but not  limited  to,  debt  incurred  under or in
connection  with the Senior Credit  Facility and the Mezzanine Debt, (b) Capital
Leases, and (c) issued and outstanding Letters of Credit.

                                       14
<PAGE>

           Undeveloped  Properties  means  all  rights,  titles  and  interests,
whether now held or hereafter acquired, by any Credit Party in and to any lease,
land or estate that has not, as of the date the  Mortgages  have been  executed,
amended  or  supplemented,   been  developed  to  the  extent  that  it  can  be
appropriately classified as Oil and Gas Properties for the purposes hereof.

           Unfunded  Pension  Liability  means the  excess  of a Plan's  benefit
liabilities  under Section  4001(a)(16) of ERISA, over the current value of that
Plan's assets,  determined in accordance with the  assumptions  used for funding
the Pension  Plan  pursuant to Section 412 of the Code for the  applicable  Plan
year.

           Uniform  Commercial  Code means the Texas Uniform  Commercial Code as
such is enacted in the Texas Business and Commerce Code.

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

           Wells Fargo Bank means Wells Fargo Bank Texas,  N.A.,  a
national  banking  association,  and any bank successor in interest
thereto.

           YCBB  means  Yates  Center   Branch  Bank,  a  Kansas  state  banking
institution.

      1.02 Other  Interpretive  Provisions.  The  meanings of defined  terms are
equally applicable to the singular and plural forms of the defined terms. Unless
otherwise  specified  or the  context  clearly  requires  otherwise,  the  words
"hereof,"  "herein,"  "hereunder" and similar words refer to this Agreement as a
whole and not to any particular  provision of this  Agreement;  and  Subsection,
Section,  Schedule  and  Exhibit  references  are to this  Agreement.  The  term
"documents"   includes   any  and  all   instruments,   documents,   agreements,
certificates,  indentures,  notices and other writings,  however evidenced.  The
term  "including" is not limiting and means "including  without  limitation." In
the  computation of periods of time from a specified  date to a later  specified
date,  the word "from"  means "from and  including;"  the words "to" and "until"
each mean "to but  excluding,"  and the word "through" means "to and including."
Unless  otherwise  expressly  provided  herein,  (i)  references  to  agreements
(including this Agreement) and other contractual  instruments shall be deemed to
include all subsequent  amendments and other modifications  thereto, but only to
the extent such  amendments  and other  modifications  are not prohibited by the
terms of any Loan Document, and (ii) references to any statute or regulation are
to  be  construed  as  including  all  statutory   and   regulatory   provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.  The captions and headings of this Agreement are for  convenience of
reference only and shall not affect the  interpretation of this Agreement.  This
Agreement and other Loan Documents may use several different limitations,  tests
or measurements to regulate the same or similar matters.  All such  limitations,
tests and  measurements are cumulative and shall each be performed in accordance
with their terms.  This Agreement and the other Loan Documents are the result of
negotiations  among and have been reviewed by counsel to  Administrative  Agent,
Borrower and the other parties and are the products of all parties. Accordingly,
they shall not be construed against Borrower,  the Banks or Administrative Agent
merely because of Borrower's,  Banks' or Administrative  Agent's  involvement in
their preparation.

      1.03 Accounting Principles. Unless the context otherwise clearly requires,
all accounting  terms not expressly  defined herein shall be construed,  and all
financial   computations  required  under  this  Agreement  shall  be  made,  in
accordance with GAAP, consistently applied.

                                       15
<PAGE>

                                   ARTICLE II.

                                   THE CREDIT
                                   ----------

      2.01 Amounts and Terms of the Commitment.

           (a) Each Bank severally agrees, on the terms and conditions set forth
herein,  to make Loans to Borrower  (each such loan, a "Loan") during the period
of time from and after the Closing Date up to the  Termination  Date, so long as
(i) all Loans by each  Bank do not  exceed  such  Bank's  Pro Rata  Share of the
aggregate  amount of Loans then requested from all Banks, and (ii) the aggregate
amount of such Bank's Loans and LC Obligation  outstanding  at any time does not
exceed such Bank's Pro Rata Share of the  Borrowing  Base  determined  as of the
date on which the requested  Loan is to be made.  The  obligation of Borrower to
repay to each Bank the aggregate amount of all Loans made by such Bank, together
with interest accruing in connection  therewith,  shall be evidenced by a single
promissory  note (herein called such Bank's "Note") made by Borrower  payable to
the order of such Bank in the form of Exhibit "A" with  appropriate  insertions.
The amount of principal  owing on any Bank's Note at any given time shall be the
aggregate  amount of all Loans  theretofore made by such Bank minus all payments
of principal  theretofore  received by such Bank on such Note.  Interest on each
Note  shall  accrue and be due and  payable as  provided  herein.  Borrower  may
borrow,  repay and reborrow any amounts  loaned  hereunder.  The  obligation  of
Borrower to repay the aggregate amount of all Loans made by the Banks,  together
with interest accruing in connection therewith, shall be evidenced by the Notes,
which  Notes,  in part,  are in  renewal,  extension  and  modification  but not
discharge or novation of the Assumed Debt.

           (b)  Subject to the terms and  conditions  of Section  2.09 below and
relying upon the representations  and warranties herein set forth,  Issuing Bank
agrees to issue  standby  Letters of Credit  upon the request of Borrower at any
time and from time to time on and after the Closing Date and up to five (5) days
prior to the  Termination  Date.  No Letter  of Credit  will be issued in a face
amount  which,  after  giving  effect to the  issuance of such Letter of Credit,
would cause either (i) the LC Obligation to exceed ten percent (10%) of the then
outstanding  Borrowing Base (the  "Aggregate LC Obligation  Limitation") or (ii)
the Effective Amount to exceed the Borrowing Base then in effect.  If any Letter
of Credit has been  drawn upon and the amount so drawn has not been  reimbursed,
for all  purposes  hereof to the  extent of the  Available  Borrowing  Base then
existing,  such funding shall be deemed a Loan in an amount equal to the matured
LC Obligations applicable thereto.

           (c) Each  Borrowing  (other than fundings of Letters of Credit deemed
to be Loans  under  Section  2.01(b))  shall be made  subject  to the  following
procedures:

                (i) Each  Borrowing  of  Loans  shall  be made  upon  Borrower's
      irrevocable  written notice delivered to Administrative  Agent in the form
      of a Notice of Borrowing duly completed;  which notice must be received by
      Administrative  Agent  prior to 11:00  a.m.  (Dallas,  Texas  time) on the
      requested Borrowing Date.

                (ii) Each Notice of  Borrowing  shall  specify (i) the amount of
      the Borrowing,  which shall be in an aggregate minimum amount equal to the
      lesser of (y)  $500,000 or any  multiple  integrals  of $100,000 in excess
      thereof or (z) the unadvanced portion of the Available Borrowing Base, and
      (ii) the requested Borrowing Date, which shall be a Business Day.

                                       16
<PAGE>

                (iii) Administrative Agent will promptly notify each Bank of its
      receipt of any Notice of  Borrowing  and of the amount of such  Bank's Pro
      Rata  Share of that  Borrowing,  and such  Notice of  Borrowing  shall not
      thereafter be revocable by Borrower.

                (iv)  Provided the  applicable  conditions in Article V are met,
      each  Bank will make the  amount of its Pro Rata  Share of each  Borrowing
      available  to  Administrative   Agent  for  the  account  of  Borrower  at
      Administrative  Agent's Payment Office by 12:30 p.m. (Dallas,  Texas time)
      on the Borrowing Date requested by Borrower in funds immediately available
      to Administrative  Agent. The proceeds of all such Loans will then be made
      available  to Borrower by  Administrative  Agent to  Borrower's  operating
      account   with   Administrative   Agent  of  like  funds  as  received  by
      Administrative Agent.

           (d) Borrower may, upon not less than twenty (20) Business Days' prior
notice to Administrative  Agent,  permanently terminate the Commitment or reduce
the  Maximum  Loan  Amount by an  aggregate  minimum  amount of  $500,000 or any
integral  multiple of $100,000 in excess  thereof;  unless,  after giving effect
thereto and to any prepayments of Loans made on the effective date thereof,  the
Effective  Amount of all Loans exceeds the Maximum Loan Amount,  then in effect.
Once reduced in accordance with this Section, the Maximum Loan Amount may not be
increased. All accrued commitment fees to, but not including, the effective date
of any reduction or termination of the Maximum Loan Amount, shall be paid on the
effective date of such reduction or termination.

      2.02 [Reserved].

      2.03 Optional Prepayments.  Borrower may, at any time or from time to time
prepay Base Rate Loans upon irrevocable  notice to  Administrative  Agent of not
less  than one (1)  Business  Day,  in whole or in part,  in  minimum  principal
amounts of  $100,000 or integral  multiples  thereof  (unless the portion of the
Effective Amount consisting of Base Rate Loans is less than $100,000,  then such
prepayments  shall be equal to the then outstanding  amount of Base Rate Loans).
Such notice of prepayment  shall specify the date and amount of such prepayment.
Administrative  Agent will promptly  notify each Bank of its receipt of any such
notice and of such Bank's Pro Rata Share of such prepayment.  The payment amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued  interest to each such date on the amount prepaid.  Except
as provided herein there shall be no penalty or premium for such prepayment.

      2.04 Borrowing Base Determinations, Mandatory Prepayments of
Loans.

           (a) Scheduled  Borrowing Base  Determinations.  At all times prior to
the  Termination  Date the Effective  Amount shall not exceed the Borrowing Base
then in effect.  The initial  Borrowing Base hereunder shall be $7,500,000.  The
Borrowing Base shall be  redetermined  by the Banks in their sole discretion for
each Borrowing Base Period (each such determination a "Scheduled  Borrowing Base
Determination")  commencing on April 1, 2003 and at any other time, from time to
time, in the Banks' sole  discretion,  and effective as of the date set forth in
such  notice  of  redetermination.   The  Borrowing  Base  shall  represent  the
determination  by the Banks, in accordance with the provisions  herein contained
and its lending  practices then in effect for loans of this nature,  of the loan
collateral  value  assigned to the  Mortgaged  Properties  and such other credit
factors  (including  without  limitation  the  assets,  liabilities,  cash flow,
current Derivative Contracts,  business, properties,  prospects,  management and
ownership of Borrower) which Banks in their sole  discretion  deem  significant.
Upon each  redetermination  of the Borrowing  Base,  Administrative  Agent shall
recommend to the Banks a new  Borrowing  Base and the Banks in  accordance  with
their customary policies and procedures for extending

                                       17
<PAGE>

credit  to Oil  and  Gas  reserve-based  customers shall (by unanimous agreement
in  the  case of Borrowing Base increases and by agreement of the Majority Banks
in the  case of  reaffirmations  or  Borrowing  Base  decreases) establish  the
redetermined Borrowing Base. If Borrower does not furnish the Reserve Reports or
all such  other  information  and  data  by the  date  required,  the  Banks may
nonetheless determine a new Borrowing Base.

           (b) Mezzanine  Borrowing  Base. To the extent that  Mezzanine  Lender
redetermines  the Mezzanine  Borrowing  Base from time to time,  Borrower  shall
promptly notify the Administrative Agent of any such  redetermination.  Pursuant
to the  Subordination  Agreement,  any  increase  over  the  existing  Mezzanine
Borrowing Base must be approved by the Banks.  Accordingly,  in connection  with
each  proposed  increase  over  the  existing  Mezzanine   Borrowing  Base,  the
Administrative  Agent shall promptly notify Borrower and Mezzanine Lender of the
Banks'  approval or disapproval of any such increase in the Mezzanine  Borrowing
Base. Until a notice of approval is delivered by the  Administrative  Agent, any
proposed increase in the Mezzanine Borrowing Base shall be deemed disapproved.

           (c) Banks' Sole  Discretion.  The Banks shall have no  obligation  to
determine the Borrowing Base at any particular amount, either in relation to the
Maximum Loan Amount or otherwise.  Furthermore,  Borrower  acknowledges (i) that
the Banks have no obligation  to increase the  Borrowing  Base or to approve any
increase over the existing Mezzanine Borrowing Base and may reduce the Borrowing
Base in accordance with Sections 2.04(a) and (b), in either case, at any time or
as a result of any circumstance and (ii) that any increase in the Borrowing Base
and the approval of any increase over the existing  Mezzanine  Borrowing Base is
subject to the individual credit approval  processes of each of the Banks, which
processes shall be conducted on a basis  consistent with each such Bank's credit
standards and assumptions then in effect.

           (d)  Mandatory  Prepayments  of Loans.  If on any date the  Effective
Amount shall exceed the Borrowing Base, then Borrower shall,  within thirty (30)
days' of Borrower's receipt of notice from Administrative Agent, exercise either
one or a combination  of the  following:  (i) commence  payment of the amount by
which  the  Effective  Amount  exceeds  the  Borrowing  Base in four  (4)  equal
successive monthly payments commencing thirty (30) days following Administrative
Agent's notice to the Borrower; or (ii) promptly pledge additional  unencumbered
assets of sufficient  value and  character (as  determined by the Banks in their
sole discretion) that when added to the Collateral will cause the Borrowing Base
to equal or exceed the Effective Amount.

      2.05 Repayment.

           (a) The Loans.  Borrower shall repay to Administrative  Agent for the
Banks'  respective Pro Rata Shares the Effective Amount (with the amount paid in
respect  of any  undrawn  Letters  of  Credit to be held as cash  collateral  by
Administrative  Agent in  accordance  with  Section  2.09(g))  on or before  the
Termination  Date,  on which date all accrued  unpaid  interest and  outstanding
expenses hereunder or under the Loan Documents shall be due and payable in full.

           (b)  Interest.

                (i) Each  Loan  shall  bear  interest  on the  Effective  Amount
      thereof from the applicable  Borrowing  Date, at a rate per annum equal to
      the lesser of (a) the Base Rate plus the Applicable Margin, if applicable,
      or (b) the Highest Lawful Rate.

                                       18

<PAGE>

                (ii)  Interest  on each Loan  shall be paid in  arrears  on each
      Interest  Payment  Date.  Interest  shall  also be paid on the date of any
      prepayment  of Loans  for the  portion  of the Loans so  prepaid  and upon
      payment  (including  prepayment) in full thereof and, during the existence
      of any  Event  of  Default  under  Section  9.01(a),  (f)  or (g) or  upon
      acceleration of any or all of the  Obligations,  interest shall be paid on
      demand of Administrative Agent.

                (iii)Notwithstanding  Subsection  (b)(i) of this  Section  2.05,
      while any Event of Default  exists,  Borrower shall pay interest (after as
      well as before entry of judgment  thereon to the extent  permitted by law)
      on the  principal  amount  of all  outstanding  Obligations  then  due and
      payable, at a rate per annum equal to the lesser of (x) the Highest Lawful
      Rate or (y) the Base Rate plus the  Applicable  Margin plus three  percent
      (3%) (the "Default Rate").

      2.06 Fees.

           (a)  Facility    Fee.    Borrower   shall   pay   to  Administrative
Agent a fee for the  ratable  account of the Banks, for the  facility  equal to
$75,000.00,  which  fee  shall  be deemed earned  by the Banks and fully due and
owing at Closing.

           (b) Increase in Borrowing Base.  Borrower shall pay to Administrative
Agent,  as a fee for the ratable  account of the Banks,  as a fee for  Borrowing
Base increases resulting from redeterminations  under Subsection 2.04(a) hereof,
a fee equal to one-quarter of one percent (0.25%) of each marginal increase over
the highest of any prior Borrowing Base during the term of this  Agreement.  Any
fee arising under this Subsection  2.06(b) is to be paid upon the effective date
of the related Borrowing Base increase.

           (c) Commitment Fees. Borrower shall pay to Administrative  Agent, for
the ratable benefit of each Bank, an aggregate  commitment fee calculated on the
average daily amount of the Available  Borrowing  Base at a per annum rate equal
to the amount set forth on the Pricing Grid.  Such  commitment  fee shall accrue
from the  Closing  Date to the  Termination  Date and  shall be due and  payable
quarterly in arrears on the last  Business Day of the last month of each quarter
commencing on December 31, 2002,  through the  Termination  Date, with the final
payment to be made on the  Termination  Date;  provided that, in connection with
any reduction in the Borrowing Base or  termination  of Commitment,  the accrued
commitment  fee calculated for the period ending on such date shall also be paid
on the date of such  reduction  or  termination,  with the  following  quarterly
payment  being  calculated  on the basis of the period  from such  reduction  or
termination  date to the following  quarterly  payment date.  Subject to Section
2.01(d),  the commitment  fees provided in this  subsection  shall accrue at all
times after the Closing Date up to the Termination  Date,  including at any time
during which one or more conditions in Section 5.02 are not met.

           (d)  Letter  of  Credit   Fees.   Borrower   agrees  to  pay  (i)  to
Administrative  Agent for the ratable  account of the Banks,  for each Letter of
Credit,  quarterly,  in arrears from the date of  Issuance,  an amount per annum
equal to the Applicable Margin, then in effect, multiplied by the face amount of
such Letter of  Credit (such fees  shall be prorated for any period less  than a
full  year but  shall not be  refunded in the event any such Letter of Credit is
terminated  prior to the expiry  date),  and (ii) to Issuing Bank (x) a fronting
fee of  12.5 basis points of the  original principal  amount of  each Letter of
Credit,  payable  at  Issuance, and  (y)  Issuing  Bank's  usual  and customary
fees for amendment to, transfer of, or  negotiation of the terms of each Letter
of Credit.

                                       19
<PAGE>

      2.07 Computation of Fees and Interest.

           (a) All  computations of interest and fees shall be made on the basis
of a 360-day  year and actual days  elapsed,  except that  interest on Base Rate
Loans  shall be  computed  on the basis of a  365/366-day  year and actual  days
elapsed. Interest and fees shall accrue during each period during which interest
or such fees are  computed  from the first day  thereof to the last day  thereof
(including the first day but excluding such last day).

           (b) Each  determination of an interest rate by Administrative  Agent,
except in case of manifest error, shall be final,  conclusive and binding on the
parties.

      2.08 Payments by Borrower; Borrowings Pro Rata.

           (a) All  payments  to be  made  by  Borrower  shall  be made  without
set-off,  recoupment or counterclaim.  All payments by Borrower shall be made in
immediately  available funds to Administrative  Agent at Administrative  Agent's
Payment Office for the account of Administrative  Agent or the Bank to whom such
payment  is owed,  and shall be made in  dollars  and in  immediately  available
funds,  no later than  11:00 a.m.  (Dallas,  Texas  time) on the date  specified
herein.  Except to the extent  otherwise  provided  herein,  (i) each payment by
Borrower of fees payable to the Banks shall be made for the account of the Banks
pro rata in accordance with their respective Pro Rata Shares,  (ii) each payment
of  principal  of Loans  shall be made for the  account of the Banks pro rata in
accordance with their  respective  outstanding  principal  amount of Loans,  and
(iii) each  payment of  interest  on Loans  shall be made for the account of the
Banks pro rata in  accordance  with  their  respective  shares of the  aggregate
amount of interest due and payable to the Banks.  Notwithstanding the foregoing,
to the extent money is received by Administrative Agent pursuant to the exercise
of remedies under the Security  Documents such money shall be applied to the pro
rata payment of Obligations secured by such Security Document.

           (b)  Administrative  Agent will promptly  distribute to each Bank its
applicable share of such payment in like funds as received. Any payment received
by  Administrative  Agent  later than 11:00 a.m.  (Dallas,  Texas time) shall be
deemed to have been  received on the following  Business Day and any  applicable
interest or fee shall continue to accrue. When Administrative  Agent collects or
receives  money on account  of the  Obligations  or  otherwise  pursuant  to the
Security  Documents if such money is insufficient  to pay all such  Obligations,
such  money  shall be applied  first to any  reimbursements  due  Administrative
Agent.

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

           (d) Unless  Administrative  Agent receives notice from Borrower prior
to the date on which any payment is due to the Banks that Borrower will not make
such payment in full as and when required,  Administrative Agent may assume that
Borrower has made such payment in full to Administrative  Agent on such date in
immediately  available  funds and Administrative  Agent may (but shall not be so
required),  in reliance upon such assumption,  distribute  to each Bank on such
due date an  amount  equal  to  the amount  then  due such  Bank. If and to the
extent Borrower has not made such payment in full to Administrative Agent, each
Bank shall repay to Administrative Agent on demand such amount  distributed  to
such Bank,  together  with  interest  thereon  for each  day from the date such
amount is  distributed  to such  Bank at the  Federal  Funds  Rate for the first
three  (3)  days  following  demand  by  Administrative  Agent and for each day
thereafter until the date repaid at the Base Rate.

                                       20
<PAGE>

           (e) Except to the extent otherwise  expressly  provided herein,  each
Borrowing  hereunder  shall be from the Banks pro rata in accordance  with their
respective Pro Rata Shares.

           2.09 Issuing the Letters of Credit.

           (a) In order to effect the  issuance of a Letter of Credit,  Borrower
shall submit a Borrowing  Request and a LC Application in writing by telecopy to
Issuing Bank not later than 1:00 p.m.,  Dallas,  Texas time,  three (3) Business
Days before the requested  date of issuance of such Letter of Credit.  Each such
Borrowing  Request and LC Application  shall be signed by Borrower,  specify the
Business Day on which such Letter of Credit is to be issued, the purpose for the
requested Letter of Credit, specify the availability for Letters of Credit under
the Available  Borrowing  Base and the Aggregate LC Obligation  Limitation as of
the date of  issuance of such Letter of Credit,  the expiry date  thereof  which
shall not be later than the  earlier of (i) twelve  (12) months from the date of
issuance  of such  Letter  of  Credit  and  (ii)  five  (5)  days  prior  to the
Termination Date and be accompanied by a current Pricing Grid Certificate.

           (b) Upon  satisfaction  of the  applicable  terms and  conditions set
forth in  Article V,  Issuing  Bank  shall  issue  such  Letter of Credit to the
specified beneficiary not later than the close of business,  Dallas, Texas time,
on the date so specified. Issuing Bank shall provide Borrower and each Bank with
a copy of each Letter of Credit so issued.  Each such Letter of Credit shall (i)
provide  for the  payment  of  drafts,  presented  for honor  thereunder  by the
beneficiary in accordance with the terms thereon,  at sight when  accompanied by
the documents  described  therein and (ii) unless otherwise  expressly agreed by
Issuing  Bank and  Borrower  at the time such  Letter of  Credit is  issued,  be
subject to the rules of the "International Standby Practices 1998" or such later
version as may be published by the  Institute of  International  Banking Law and
Practice (the "ISP 1998") and shall, as to matters not governed by the ISP 1998,
be governed by, and construed and  interpreted  in accordance  with, the laws of
the State of Texas.

           (c) Upon the  issuance  date of each Letter of Credit,  Issuing  Bank
shall be deemed,  without  further  action by any party hereto,  to have sold to
each other Bank, and each other Bank shall be deemed,  without further action by
any party hereto,  to have purchased from Issuing Bank, a participation,  to the
extent of such  Bank's  Commitment  Percentage,  in such  Letter of Credit,  the
obligations  thereunder and in the reimbursement  obligations of Borrower due in
respect of drawings  made under such Letter of Credit.  If  requested by Issuing
Bank, the other Banks will execute any other documents  reasonably  requested by
Issuing Bank to evidence the purchase of such participation.

           (d) Upon the  presentment  of any draft for honor under any Letter of
Credit by the beneficiary thereof which Issuing Bank determines is in compliance
with the conditions for payment  thereunder,  Issuing Bank shall promptly notify
Borrower, and each Bank of the intended date of honor of such draft and Borrower
hereby promises and agrees,  at Borrower's  option, to either (i) pay to Issuing
Bank, by 2:00 p.m., Dallas,  Texas time, on the date payment is due as specified
in such notice, the full amount of such draft in immediately  available funds or
(ii)  request a Loan  pursuant to the  provisions  of  Sections  2.01(a) of this
Agreement in the full amount of such draft, which request shall specify that the
Borrowing  Date is to be the date  payment  is due under the Letter of Credit as
specified  in Issuing  Bank's  notice.  If  Borrower  fails  timely to make such
payment because a Loan cannot be made pursuant to Section 2.01(a) and/or Section
5.02,  each Bank shall,  notwithstanding  any other  provision of this Agreement
(including the occurrence and  continuance of a Default or an Event of Default),
make  available  to  Issuing  Bank an amount  equal to its Pro Rata Share of the
presented draft on the day Issuing Bank is required to honor such draft. If such
amount is not in fact made available to Administrative

                                       21

<PAGE>

Agent  by  such  Bank on  such  date,  such  Bank shall pay to Issuing  Bank, on
demand made by Issuing Bank, in addition to such amount, interest thereon at the
Federal Funds Rate for the first three (3) days following  demand and thereafter
until paid at the Base Rate. Upon receipt by Administrative Agent from the Banks
of the full amount of such draft,  notwithstanding  any other  provision of this
Agreement  (including the occurrence and continuance of a Default or an Event of
Default)  the full  amount of such draft  shall  automatically  and  without any
action  by  Borrower,  be deemed to have been a Base Rate Loan as of the date of
payment  of such  draft.  Nothing in this  paragraph  (d) or  elsewhere  in this
Agreement shall diminish  Borrower's  obligation under this Agreement to provide
the funds for the payment of, or on demand to reimburse Issuing Bank for payment
of, any draft  presented to, and duly honored by,  Issuing Bank under any Letter
of Credit,  and the automatic  funding of a Loan as in this  paragraph  provided
shall not  constitute  a cure or waiver of the Event of Default  for  failure to
provide timely such funds as in this paragraph agreed.

           (e) In order to induce the  issuance  of Letters of Credit by Issuing
Bank and the purchase of  participations  therein by the other  Banks,  Borrower
agrees with Issuing Bank and the other Banks that neither  Administrative  Agent
nor any Bank (including the Issuing Bank) shall be responsible or liable (except
as  provided  in the  following  sentence)  for,  and  Borrower's  unconditional
obligation  to  reimburse  Issuing  Bank for amounts  paid by Issuing  Bank,  as
provided in Subsection  2.09(d) above, on account of drafts so honored under the
Letters of Credit  shall not be  affected by any  circumstance,  act or omission
whatsoever (whether or not known to Administrative  Agent or any Bank (including
the Issuing Bank) other than a circumstance,  act or omission resulting from the
gross negligence or willful misconduct of the Issuing Bank. Borrower agrees that
any  action  taken  or  omitted  to be  taken by the  Issuing  Bank  under or in
connection with any Letter of Credit or any related draft,  document or Property
shall be  binding  on  Borrower  and shall not put the  Issuing  Bank  under any
resulting liability to Borrower, unless such action or omission is the result of
the gross negligence or willful misconduct of the Issuing Bank.  Borrower hereby
waives presentment for payment (except the presentment  required by the terms of
any Letter of Credit) and notice of dishonor, protest and notice of protest with
respect to drafts  honored  under the  Letters of Credit.  Issuing  Bank  agrees
promptly to notify  Borrower  whenever a draft is presented  under any Letter of
Credit, but failure to so notify Borrower shall not in any way affect Borrower's
obligations hereunder. Subject to Section 3.02, if while any Letter of Credit is
outstanding,  any law,  executive  order or regulation  is enforced,  adopted or
interpreted  by any  public  body,  governmental  agency  or court of  competent
jurisdiction so as to affect any of Borrower's  obligations or the  compensation
to Issuing  Bank in respect of the Letters of Credit or the cost to Issuing Bank
of establishing  and/or  maintaining the Letters of Credit (or any participation
therein),  Issuing Bank shall promptly  notify  Borrower  thereof in writing and
within ten (10)  Business  Days  after  receipt by  Borrower  of Issuing  Bank's
request (through  Administrative  Agent) for reimbursement or indemnification or
within  thirty (30) days after  receipt of a notice in respect of Taxes or Other
Taxes,  Borrower shall reimburse or indemnify  Issuing Bank, as the case may be,
with respect  thereto so that  Issuing Bank shall be in the same  position as if
there had been no such enforcement,  adoption or  interpretation.  The foregoing
agreement of Borrower to reimburse or indemnify  the Issuing Bank shall apply in
(but shall  not be limited to) the  following  situations:  an  imposition of or
change in reserve,  capital  maintenance  or  other similar  requirements  or in
excise or similar  taxes or  monetary  restraints, except a  change in franchise
taxes imposedon Issuing Bank or in tax on the net income of Issuing Bank.

           (f) In the event that any provision of a Letter of Credit Application
is  inconsistent  with,  or in conflict  of, any  provision  of this  Agreement,
including  provisions for the rate of interest applicable to drawings thereunder
or rights of setoff or any representations,  warranties, covenants or any events
of default set forth therein, the provisions of this Agreement shall govern.

                                       22
<PAGE>

           (g)  If the  Obligations,  or  any  part  thereof,  are  declared  or
otherwise  become  immediately  due and  payable  pursuant to Article IX of this
Agreement,  then all LC  Obligations  shall become  immediately  due and payable
without  regard for actual  drawings or  payments on the Letters of Credit,  and
Borrower shall be obligated to pay to Administrative Agent immediately an amount
equal to the LC Obligations.  All amounts made due and payable by Borrower under
this Section 2.09(g) may be applied as Issuing Bank elects to any of the various
LC Obligations;  provided, however, that such amounts applied by Issuing Bank to
the LC Obligations shall be (a) first applied to the Matured LC Obligations, and
(b) second held by Issuing Bank as LC Collateral  in the LC  Collateral  Account
until all remaining Obligations have been satisfied.  This Section 2.09(g) shall
not limit or impair any rights which  Administrative  Agent, the Issuing Bank or
any of the Banks may have under any other document or agreement  relating to any
Letter  of  Credit  or LC  Obligation,  including  without  limitation,  any  LC
Application.  Borrower  hereby grants a security  interest in and lien on the LC
Collateral Account to Administrative Agent for and on behalf of the Issuing Bank
and the Banks as security for the  Obligations.  Borrower  agrees to execute and
deliver  from  time to time  such  documentation  as  Administrative  Agent  may
reasonably request to further assure such security interest.

      2.10 Payments by the Banks to Administrative Agent.

           (a) Unless  Administrative  Agent  receives  notice from a Bank on or
prior  to the  Effective  Date or,  with  respect  to any  Borrowing  after  the
Effective  Date,  at  least  one (1)  Business  Day  prior  to the  date of such
Borrowing, that such Bank will not make available as and when required hereunder
to  Administrative  Agent for the account of Borrower  the amount of that Bank's
Pro Rata Share of the Borrowing,  Administrative Agent may assume that each Bank
has made such amount available to Administrative Agent in immediately  available
funds on the Borrowing  Date and  Administrative  Agent may (but shall not be so
required), in reliance upon such assumption,  make available to Borrower on such
date a corresponding  amount.  If and to the extent any Bank shall not have made
its full amount available to Administrative Agent in immediately available funds
and  Administrative  Agent in such  circumstances has made available to Borrower
such  amount,  that Bank  (the  "Defaulting  Bank")  shall on the  Business  Day
following  such  Borrowing  Date make such amount  available  to  Administrative
Agent,  together with interest at the Federal Funds Rate for the first three (3)
days  during  such  period  and  thereafter  at  the  Base  Rate.  A  notice  of
Administrative  Agent  submitted to any Bank with respect to amounts owing under
this  subsection (a) shall be conclusive,  absent manifest error. If such amount
is so made available, such payment to Administrative Agent shall constitute such
Bank's Loan on the date of Borrowing for all purposes of this Agreement and such
Bank shall no longer be in default  under this Section  2.10.  If such amount is
not made  available to  Administrative  Agent on the Business Day  following the
Borrowing  Date,  Administrative  Agent will notify  Borrower of such Defaulting
Bank's failure to fund and, upon demand by Administrative  Agent, Borrower shall
pay such  amount  in full to  Administrative  Agent for  Administrative  Agent's
account,  together with interest  thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans  comprising such Borrowing.  If Borrower is at any time during
the term of this Agreement required to remit any monies to Administrative  Agent
as the result of the  application  of this  subsection  (a),  then in connection
therewith (i) Borrower shall be entitled to a credit against Obligations owed by
Borrower to the Defaulting  Bank to the extent such Defaulting Bank breached its
Commitment  equal to the  Defaulting  Bank's  Pro Rata Share of any fees paid by
Borrower under Section 2.06(b) of this  Agreement,  which credit amount shall be
based  upon the  amount  of  monies  required  to be  remitted  by  Borrower  to
Administrative  Agent under this  subsection  (a);  (ii) the  Defaulting  Bank's
Commitment  shall be reduced by the amount  remitted as aforesaid by Borrower to
Administrative Agent (exclusive of the above-noted credit) and such amount shall
no longer be deemed a part of the Available  Borrowing  Base when  computing the
commitment  fee  otherwise  payable by Borrower  under  Section  2.06(c) of this
Agreement

                                       23

<PAGE>

and (iii) from  and  after the  date upon  which  such Bank shall  have become a
Defaulting Bank and for so long as such Bank continues as a Defaulting Bank, any
payment  made on account  of  principal  of or  interest  on the Loans  shall be
applied,  first for the account of the Banks other than the Defaulting Bank, pro
rata  according to the  Commitments  of such Banks,  until the  principal of and
interest on the Loans of such Banks shall have been paid in full and, second for
the account of such  Defaulting  Bank,  provided  that the  application  of such
payments in accordance  with this clause (iii) shall not  constitute an Event of
Default  and no  payment  of  principal  of or  interest  on the  Loans  of such
Defaulting Bank shall be considered to be overdue.

           (b) The  failure of any Bank to make any Loan on any  Borrowing  Date
shall not relieve any other Bank of any  obligation  hereunder to make a Loan on
such Borrowing  Date,  but no Bank shall be  responsible  for the failure of any
Defaulting Bank to make any such Loan on any Borrowing Date.

      2.11 Sharing of Payments,  Etc. If any Bank shall obtain on account of the
Obligations made by it any payment (whether voluntary,  involuntary, through the
exercise of any right of set-off,  or  otherwise)  or receive any  collateral in
respect  thereof  in excess of the  amount  such Bank was  entitled  to  receive
pursuant  to  the  terms  hereof,   such  Bank  shall   immediately  (a)  notify
Administrative  Agent of such fact,  and (b) purchase  from the other Banks such
participations  in the Loans  made by them as shall be  necessary  to cause such
purchasing  Bank to share the  excess  payment  according  to the terms  hereof;
provided,  however,  that  if all or any  portion  of  such  excess  payment  is
thereafter  recovered  from the  purchasing  Bank,  such purchase  shall to that
extent be rescinded and each other Bank shall repay to the  purchasing  Bank the
purchase  price paid  therefor,  together  with an amount  equal to such  paying
Bank's  ratable  share  (according  to the  proportion of (i) the amount of such
paying Bank's required  repayment to (ii) the total amount so recovered from the
purchasing  Bank)  of any  interest  or  other  amount  paid or  payable  by the
purchasing  Bank in respect of the total amount so  recovered.  Borrower  agrees
that any Bank so  purchasing  a  participation  from  another  Bank may,  to the
fullest extent permitted by law,  exercise all its rights of payment  (including
the right of  setoff,  but  subject  to  Section  12.07)  with  respect  to such
participation  as fully as if such Bank were the direct  creditor of Borrower in
the amount of such participation.  Administrative Agent will keep records (which
shall  be  conclusive  and  binding  in  the  absence  of  manifest   error)  of
participations  purchased  under this  Section  and will in each case notify the
Banks following any such purchases or repayments.

                                  ARTICLE III.

                     TAXES, YIELD PROTECTION AND ILLEGALITY
                     --------------------------------------

      3.01 Taxes.

           (a)  Any  and all  payments  by any  Credit  Party  to  each  Bank or
Administrative  Agent under this  Agreement and any other Loan Document shall be
made free and clear of, and without  deduction or withholding  for any Taxes. In
addition,  the Credit  Parties  shall pay all Other Taxes.  However,  the Credit
Parties may delay paying or discharging any Other Taxes so long as it is in good
faith  contesting the validity  thereof by appropriate  proceedings  and has set
aside on its books adequate reserve therefor.

           (b) The Credit  Parties  agrees to indemnify  and hold  harmless each
Bank and  Administrative  Agent  for the  full  amount  of Taxes or Other  Taxes
(including  any Taxes or Other  Taxes  imposed  by any  jurisdiction  on amounts
payable under this Section) paid by each Bank and

                                       24
<PAGE>

Administrative  Agent  to  the  extent  such  Bank or Administrative  Agent has
provided  Borrower  with five (5)  Business  Days'  notice of  its intent to pay
or discharge same and any liability (including penalties, interest, additions to
tax and reasonable expenses) arising therefrom or with respect thereto,  whether
or not such Taxes or Other Taxes were correctly or legally  asserted  (except to
the extent of Other Taxes contested by the Credit Parties provided in Subsection
3.01(a) above).  Payment under this indemnification  shall be made within thirty
(30) days after the date the Bank or  Administrative  Agent makes written demand
therefor.

           (c) If any  Credit  Party  shall  be  required  by law to  deduct  or
withhold  any  Taxes  or  Other  Taxes  from or in  respect  of any sum  payable
hereunder to any Bank or Administrative  Agent,  then: (i) the sum payable shall
be increased as  necessary  so that after  making all  required  deductions  and
withholdings  (including  deductions and  withholdings  applicable to additional
sums payable under this Section) such Bank or Administrative  Agent, as the case
may be,  receives an amount equal to the sum it would have  received had no such
deductions  or  withholdings  been made;  (ii) such Credit Party shall make such
deductions and  withholdings;  (iii) such Credit Party shall pay the full amount
deducted or withheld to the  relevant  taxing  authority  or other  authority in
accordance  with  applicable  law;  and (iv) such Credit Party shall also pay to
each Bank or  Administrative  Agent for the  account of such  Bank,  at the time
interest is paid, all additional  amounts which the respective Bank specifies as
necessary to preserve the after-tax yield Bank would have received if such Taxes
or Other Taxes had not been imposed.

           (d) Upon request of  Administrative  Agent,  Borrower  shall  furnish
Administrative  Agent the original or a certified  copy of a receipt  evidencing
payment by a Credit Party of Taxes or Other Taxes under  subsection  (c) of this
Section, or other evidence of payment satisfactory to Administrative Agent.

           (e) If any Credit Party is required to pay additional  amounts to any
Bank or  Administrative  Agent pursuant to subsection (c) of this Section,  then
upon written request of such Credit Party such Bank shall use reasonable efforts
(consistent  with legal and regulatory  restrictions) to change the jurisdiction
of its Lending  Office so as to eliminate  any such  additional  payment by such
Credit Party which may thereafter accrue, if such change in the judgment of such
Bank is not otherwise disadvantageous to such Bank.

      3.02 Increased Costs and Reduction of Return. If any Bank reasonably shall
have determined that (i) the  introduction of any Capital  Adequacy  Regulation,
(ii) any  change in any  Capital  Adequacy  Regulation,  (iii) any change in the
interpretation  or  administration  of any Capital  Adequacy  Regulation  by any
central bank or other Governmental  Authority charged with the interpretation or
administration  thereof,  or (iv) compliance by the Bank (or its Lending Office)
or  any  corporation  controlling  the  Bank  with  any  such  Capital  Adequacy
Regulation,  affects the amount of capital required to be maintained by the Bank
or any  corporation  controlling  the Bank and (taking into  consideration  such
Bank's or such  corporation's  policies  with  respect  to such  Bank's  capital
adequacy) reasonably  determines that the amount of such capital is increased as
a consequence  of its  Commitments,  loans,  credits or  obligations  under this
Agreement, then, upon demand of such Bank to Borrower which demand shall also be
made by such Bank to other  similarly  situated  borrowers  under similar credit
facilities,  through  Administrative Agent, Borrower shall pay to the Bank, from
time to  time  as  specified  by the  Bank,  additional  amounts  sufficient  to
compensate the Bank for such increase.

      3.03 Survival.  The  agreements  and  obligations of the Credit Parties in
this Article III shall survive the payment of all other Obligations.

                                       25

<PAGE>

      3.04 Foreign Lenders,  Participants, and Assignees. Each Bank, Participant
(by accepting a participation  interest under this Agreement),  and Assignee (by
executing an Assignment and Assumption  Agreement)  that is not organized  under
the laws of the United States of America or one of its states (a)  represents to
Administrative  Agent and Borrower that (i) no Taxes are required to be withheld
by  Administrative  Agent or Borrower with respect to any payments to be made to
it in respect of the  Obligations,  and (ii) it has furnished to  Administrative
Agent and Borrower two (2) duly completed copies of either U.S. Internal Revenue
Service  Form  4224,   Form  1001,   Form  W-8,  or  other  form  acceptable  to
Administrative   Agent  that  entitles  it  to  exemption  from  U.  S.  Federal
withholding  Tax on all  interest  payments  under the Loan  Documents,  and (b)
covenants to (i) provide Administrative Agent and Borrower a new Form 4244, Form
1001,  Form W-8,  or other  form  acceptable  to  Administrative  Agent upon the
expiration  or  obsolescence  of any  previously  delivered  form  according  to
applicable  laws and  regulations,  duly  executed and completed by it, and (ii)
comply from time to time with all applicable laws and regulations with regard to
the  withholding  Tax  exemption.  If any of the  foregoing  is not  true or the
applicable forms are not provided,  then Borrower and Administrative  Agent (but
without  duplication)  may deduct and withhold from interest  payments under the
Loan  Documents any United States  Federal-Income  Tax at the maximum rate under
the Code.

      3.05 Withholding Tax

           (a) If any Bank is a  "foreign  corporation,  partnership  or  trust"
within  the  meaning  of the Code and such  Bank  claims  exemption  from,  or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank  agrees  with  and  in  favor  of  Administrative   Agent,  to  deliver  to
Administrative Agent:

             (i) if such Bank  claims an  exemption  from,  or a  reduction  of,
      withholding tax under a United States tax treaty,  properly  completed IRS
      Forms  1001 and W-8  before  the  payment  of any  interest  in the  first
      calendar  year and  before  the  payment  of any  interest  in each  third
      succeeding  calendar  year during  which  interest  may be paid under this
      Agreement;

            (ii) if such Bank claims that interest paid under this  Agreement is
      exempt  from  United  States  withholding  tax  because it is  effectively
      connected  with a  United  States  trade or  business  of such  Bank,  two
      properly completed and executed copies of IRS Form 4224 before the payment
      of any interest is due in the first  taxable year of such Bank and in each
      succeeding  taxable  year of such Bank during  which  interest may be paid
      under this Agreement, and IRS Form W-9; and

           (iii) such other form or forms as may be  required  under the Code or
      other laws of the United  States as a  condition  to  exemption  from,  or
      reduction of, United States withholding tax.

      Such Bank agrees to promptly notify  Administrative Agent of any change in
circumstances  which would  modify or render  invalid any claimed  exemption  or
reduction.

           (b) If any Bank claims  exemption from, or reduction of,  withholding
tax under a United  States tax treaty by  providing  IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the   Obligations  of  Borrower  to  such  Bank,  such  Bank  agrees  to  notify
Administrative  Agent of the  percentage  amount  in which it is no  longer  the
beneficial owner of

                                       26
<PAGE>

Obligations  of  Borrower  to  such  Bank.  To  the  extent  of such  percentage
amount,  Administrative  Agent will treat such Bank's IRS Form 1001 as no longer
valid.

           (c) If any Bank claiming exemption from United States withholding tax
by filing  IRS Form 4224 with  Administrative  Agent  sells,  assigns,  grants a
participation  in, or  otherwise  transfers  all or part of the  Obligations  of
Borrower to such Bank,  such Bank agrees to undertake  sole  responsibility  for
complying with the  withholding  tax  requirements  imposed by Sections 1441 and
1442 of the Code.

           (d) If  any  Bank  is  entitled  to a  reduction  in  the  applicable
withholding tax,  Administrative Agent may withhold from any interest payment to
such Bank an amount  equivalent to the applicable  withholding  tax after taking
into account such  reduction.  If the forms or other  documentation  required by
subsection (a) of this Section are not delivered to  Administrative  Agent, then
Administrative  Agent may withhold  from any  interest  payment to such Bank not
providing  such  forms  or  other  documentation  an  amount  equivalent  to the
applicable withholding tax.

           (e) If the IRS or any  other  Governmental  Authority  of the  United
States or other jurisdiction  asserts a claim that Administrative  Agent did not
properly  withhold  tax  from  amounts  paid to or for the  account  of any Bank
(because the appropriate form was not delivered,  was not properly executed,  or
because  such  Bank  failed  to  notify  Administrative  Agent  of a  change  in
circumstances  which rendered the exemption  from, or reduction of,  withholding
tax   ineffective,   or  for  any  other  reason)  such  Bank  shall   indemnify
Administrative  Agent fully for all amounts  paid,  directly or  indirectly,  by
Administrative Agent as tax or otherwise,  including penalties and interest, and
including  any taxes  imposed  by any  jurisdiction  on the  amounts  payable to
Administrative  Agent under this  Section,  together with all costs and expenses
(including  Attorney  Costs).  The obligation of the Banks under this subsection
shall survive the payment of all  Obligations and the resignation or replacement
of Administrative Agent.

                                   ARTICLE IV.

                                    SECURITY
                                    --------

      4.01 Agreement to Deliver Security Documents.  At Closing, the appropriate
Credit Party shall execute (ii) such Mortgages,  financing  statements and other
Security  Documents in form and substance  satisfactory to Administrative  Agent
for the purpose of  granting  and  perfecting  first and prior liens or security
interests  (subject to any  Permitted  Liens having  priority) in the  Mortgaged
Properties  now owned by such Person or acquired on or after Closing by any such
Credit  Party  and  (ii)  such  Pledge  and  Collateral  Agreements,   financing
statements and other Security  Documents in form and substance  satisfactory  to
Administrative  Agent for the purpose of granting and perfecting first and prior
liens  or  security  interests  on  Borrower's  equity  interest  in  and to its
Subsidiaries.

      4.02  Perfection  and  Protection  of Security  Interests  and Liens.  The
appropriate Credit Party will from time to time deliver to Administrative  Agent
such  additional   Mortgages,   security   agreements,   Pledge  and  Collateral
Agreements,  financing  statements,   amendments,  assignment  and  continuation
statements,  extension  agreements and other documents,  properly  completed and
executed (and acknowledged when required) by Borrower or the appropriate  Credit
Party,  as the case may be, in form and  substance  reasonably  satisfactory  to
Administrative  Agent,  which the Banks  reasonably  request  for the purpose of
perfecting,  confirming,  or  protecting  any  Liens  or  other  rights  in  the
Collateral securing any Obligations.

                                       27

<PAGE>

      4.03 Offset. To secure the repayment of the Obligations, each Credit Party
hereby grants  Administrative  Agent and each Bank a security interest,  a lien,
and a  right  of  offset,  each of  which  shall  be in  addition  to all  other
interests,  liens, and rights of  Administrative  Agent at common law, under the
Loan  Documents,  or otherwise,  and each of which shall be upon and against (a)
any and all moneys, securities or other Property (and the proceeds therefrom) of
such  Credit  Party  now or  hereafter  held or  received  by or in  transit  to
Administrative  Agent or any Bank from or for the account of such Credit  Party,
whether for safekeeping, custody, pledge, transmission, collection or otherwise,
and (b) any and all deposits (general or special, time or demand, provisional or
final) of such Credit  Party with  Administrative  Agent or any Bank,  including
certificates  of deposit.  Upon the  occurrence  of any Default,  Administrative
Agent or any Bank is hereby  authorized to foreclose upon and apply, at any time
and from time to time,  without  notice to Borrower  or any Credit  Party to the
extent permitted by law, any and all items  hereinabove  referred to against the
Obligations then due and payable.

      4.04 Letters in Lieu/Power of Attorney.

           (a)  Borrower  shall  provide  to  Administrative   Agent  sufficient
counterparts  of undated  letters,  in form of Exhibit C attached  hereto,  from
Borrower or the  appropriate  Credit Party, as the case may be, in blank to each
purchaser  of  production  and  disburser  of  proceeds  of  production  from or
attributable  to the  Mortgaged  Properties,  with the  addressees  left  blank,
authorizing and directing the addressees to make future payments attributable to
production from the Mortgaged  Properties  directly to Administrative  Agent for
the ratable benefit of the Banks.

           (b) Each Credit Party hereby designates  Administrative  Agent as its
agent  and  attorney-in-fact,  to act in their  name,  place,  and stead for the
purpose  of  completing  and  delivering  any and all of the  Letters in Lieu of
transfer  orders  delivered  by  such  Credit  Party  to  Administrative  Agent,
including,  without  limitation,  completing any blanks contained in such letter
and attaching exhibits thereto describing the relevant  Collateral.  Each Credit
Party hereby ratifies and confirms all that Administrative  Agent shall lawfully
do or cause  to be done by  virtue  of this  power of  attorney  and the  rights
granted  with  respect to such power of  attorney.  This  power of  attorney  is
coupled  with the  interest of  Administrative  Agent in the  Collateral,  shall
commence and be in full force and effect as of the Closing Date and shall remain
in full  force and  effect and shall be  irrevocable  so long as any  Obligation
remains  outstanding  or unpaid or any Commitment  exists,  but in each case may
only be  exercised  upon the  occurrence  of and  during  the  continuance  of a
Default.  The powers conferred on  Administrative  Agent by this appointment are
solely to protect the  interests of  Administrative  Agent and each of the Banks
under the Loan Documents and shall not impose any duty upon Administrative Agent
to exercise any such powers.  Administrative Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and
shall not be responsible  to Borrower,  any Credit Party or any other Person for
any act or  failure  to act  with  respect  to such  powers,  except  for  gross
negligence or willful misconduct.

      4.05 Assignment of Runs.  Notwithstanding  that,  under Article III of the
Mortgages,  each  Credit  Party has  assigned  to  Administrative  Agent for the
ratable  benefit  of the  Banks  all of the  proceeds  of runs  accruing  to the
Mortgaged Properties covered thereby:

           (a)  Until  such  time  as  Administrative  Agent  shall  notify  the
appropriate Credit Party to the contrary, such Credit Party shall be entitled to
receive from the  purchasers or  disbursers  of production  all such proceeds of
runs, subject however to the liens created under the Mortgages,  which liens are
hereby affirmed and ratified.  Upon the occurrence and during the continuance of
a   Default,   Administrative   Agent  may   deliver  to  the   addressees   the
Letters-in-Lieu described in Section 4.04 above

                                       28

<PAGE>

and  may  exercise   all  rights  and  remedies  granted  under  the  Mortgages,
including  the right to obtain  possession  of all proceeds of runs then held by
the Credit  Parties or to receive  directly  from the  purchaser or disburser of
production all other proceeds of runs.

           (b)  In  no  case  shall  (i)  any  failure,   whether   purposed  or
inadvertent,  by  Administrative  Agent to collect directly any such proceeds of
runs  constitute in any way a waiver,  remission or release of any of its rights
under  the  Mortgages,  (ii)  any  release  of any  other  proceeds  of  runs by
Administrative Agent constitute in any way a waiver, remission or release of any
of  its  rights  to  collect  other  proceeds  of  runs  thereafter,   or  (iii)
Administrative  Agent's failure or delay to exercise any of its rights hereunder
constitute,  in any way, a waiver, remission or release of its right to exercise
such rights thereafter.

           (c) Upon the  occurrence  and  during the  continuance  of a Default,
Borrower  or the  appropriate  Credit  Party,  as the case may be, will upon the
instruction of Administrative  Agent join with Administrative Agent in notifying
in writing, and accompanied (if necessary) by certified copies of the Mortgages,
the  purchasers  or  disbursers  of  production   produced  from  the  Mortgaged
Properties of the existence of the Mortgages,  and instructing that all proceeds
of runs be paid directly to Administrative  Agent for the ratable benefit of the
Banks.

           4.06  Authorization to File Financing  Statements.  Each Credit Party
hereby authorizes  Administrative Agent to file, in any applicable  jurisdiction
where Administrative Agent deems it reasonably necessary,  a financing statement
or statements,  and at the request of  Administrative  Agent,  such Credit Party
will join  Administrative  Agent in executing one or more  financing  statements
pursuant to the  applicable  Uniform  Commercial  Code in form  satisfactory  to
Administrative  Agent,  and  will  pay the  cost of  filing  or  recording  this
instrument, as a financing statement, in all public offices at any time and from
time to time whenever filing or recording of any financing  statement or of this
instrument  is deemed by  Administrative  Agent to be  reasonably  necessary  or
desirable.

                                   ARTICLE V.

                              CONDITIONS PRECEDENT
                              --------------------

      5.01 Conditions of Initial Loan. The  effectiveness  of this Agreement and
the  obligation  of  each  Bank to  make  its  initial  Loan  hereunder  and the
obligation of the Issuing Bank to issue its initial Letter of Credit  hereunder,
are subject to the condition that  Administrative  Agent shall have received all
of the following, in form and substance satisfactory to Administrative Agent and
each Bank, and in sufficient copies for each Bank:

           (a)  Subsidiary  Mergers  and  Acquisitions.  Evidence  in  form  and
substance  satisfactory to  Administrative  Agent and the Banks,  that (i) "STP,
Inc." has legally and effectively changed its named to STP Cherokee,  Inc.; such
evidence  shall  include  sufficient   documentation,   in  form  and  substance
satisfactory  to the various  county  clerks and recorders of mortgages in which
the Mortgages to which STP is a party may be recorded,  for  recordation  in the
various  counties and  jurisdictions;  (ii)  Borrower and Jerry Cash shall have,
upon terms satisfactory to Administrative Agent, completed their stock-for-stock
exchange  by which  STP  shall  have  been  made a wholly  owned  subsidiary  of
Borrower; (iii) PGP shall have, upon terms satisfactory to Administrative Agent,
completed its acquisition of the gas marketing  business of Bonanza Energy Corp.
of Kansas,  including  the assets,  properties,  rights,  contracts,  interests,
obligations, commitments of associated with

<PAGE>

such gas marketing business; and (iv) all requisite approvals and consents
for such exchange have been duly obtained.

           (b)  Credit   Agreement,  Notes  and   Security  Documents.    This
Agreement,  the  Notes and  the  Security   Documents  executed  by  each party
thereto and, where  appropriate,  properly  acknowledged and notarized.

           (c)  Releases of Existing  Liens.  Releases of all liens and security
interests  in  favor  of YCBB and in favor  of  Mezzanine  Lender  described  on
Schedule  5.01(c)  hereto shall be duly  executed by YCBB and  Mezzanine  Lender
releasing liens and security interests in Mortgaged  Properties held by QOG, PGP
and STP, and releases of any guarantees,  pledges,  liens or encumbrances by any
Credit Party  securing the  obligations of QES to YCBB shall be duly executed by
YCBB and delivered to Administrative Agent.

           (d)  Subsidiary  Guaranties.   Subsidiaries  Guaranties in  favor  of
Administrative  Agent for the ratable  benefit  of the Banks,  in  substantially
the form of Exhibit H, duly  executed by each Guarantor.

           (e) Simultaneous  Closing.  The Mezzanine  Agreement duly executed by
Borrower and Mezzanine  Lender by which Mezzanine Lender shall have committed to
fund to Borrower at least $7,500,000 under the Mezzanine Loan.

           (f)  Subordination    Agreement.    The Subordination  Agreement,  to
which  Borrower  is  a  party,  duly  executed   by  Mezzanine  Lender in  form
satisfactory to  Administrative  Agent and the Banks.

           (g) Resolutions;  Incumbency;  Organization Documents.  (i) Copies of
the corporate  resolutions of each Credit Party authorizing (x) the transactions
described in the Agreement and Plan of Reorganization  between Borrower, STP and
Jerry D. Cash, (y) PGP's  acquisition  of the gas marketing  business of Bonanza
Energy Corp. of Kansas, and (z) the respective transactions contemplated hereby,
certified as of the Closing Date by a Responsible Officer;  (ii) Certificates of
each Credit Party  certifying  the names and true  signatures of the officers or
such Person  authorized to execute,  deliver and perform,  as  applicable,  this
Agreement,  the  Notes  and all  other  Loan  Documents  to be  delivered  by it
hereunder and the current officers and major  shareholders of Borrower's  equity
(owning five percent (5%) or more of any class of Borrower's  stock);  and (iii)
the  Organization  Documents  of each  Credit  Party as in effect on the Closing
Date.

           (h)  Certificates.  A current  certificate  for each Credit Party (i)
from its respective state of formation,  evidencing its proper registration as a
corporation  and good standing,  and (ii) from each state wherein such Person is
qualified under the laws of such  jurisdiction  wherein its ownership,  lease or
operation  of such  Credit  Party's  Property  or the  conduct  of its  business
requires such registration or qualification where the failure to be so qualified
would reasonably be expected to result in a Material Adverse Effect.

           (i)  Payment of Fees.  Payment by  Borrower of all accrued and unpaid
fees,  costs and expenses  owed  pursuant to this  Agreement  including  (i) the
Facility Fee and any fees payable to Administrative Agent payable on the Closing
Date,  (ii) any such costs,  fees and expenses due under  Section  11.04 and for
which  Borrower  has  received  an invoice at least  three (3) days prior to the
Closing Date as  supplemented  by Closing and (iii)  estimated fees and expenses
associated with the filing of the

                                       30

<PAGE>

Security  Documents  including,  without  limitation,  the  full  amount of such
mortgage tax due in connection therewith.

           (j)  Opinions  of Counsel.  An opinion of counsel for  Borrower as to
matters described in Sections 6.01, 6.02, 6.03, 6.04, 6.16 and 6.19, in the form
satisfactory to Administrative Agent dated as of the Closing Date.

           (k) Title.  Borrower  shall have evidence of (i) each Credit  Party's
good and  Marketable  Title,  on at least 50% of the net  present  value of such
Credit  Party's Oil and Gas  Properties  constituting a portion of the Mortgaged
Properties  subject to no other liens,  other than Permitted Liens, as evidenced
by opinions  of title or other  title  information  reasonably  satisfactory  to
Administrative  Agent and the  Banks,  and (ii)  each  Credit  Party's  good and
Marketable  Title,  on at least  50% of the net  present  value  of such  Credit
Party's interest in and to any and all gathering systems, flow lines,  pipelines
and  associated  equipment  constituting  a portion of the Mortgaged  Properties
subject to no other liens, other than the Permitted Liens.

           (l)  Environmental.  Borrower shall provide a modified  environmental
Phase I report, in form and scope  satisfactory to Administrative  Agent and the
Banks  covering the  Mortgaged  Properties,  and (ii) an  environmental  Phase I
report,  in form and scope  satisfactory to  Administrative  Agent and the Banks
covering any and all gathering  systems,  flow lines,  pipelines and  associated
equipment owned by any Credit Party. Administrative Agent and the Banks shall be
satisfied  with  the  condition  of the Oil and Gas  Properties  and the  Credit
Parties' compliance with Environmental Laws.

           (m)  Company  Due  Diligence.   Due  diligence   review satisfactory
to Administrative Agent and the Banks including,  but not  limited  to,  review
of and  satisfaction  with  the  Credit Parties' legal structures and formation
documents.

           (n) Insurance Certificates.  Borrower shall provide to Administrative
Agent  within  seven (7) days of  Closing,  insurance  certificates  in form and
substance  reasonably  satisfactory  to  Administrative  Agent,  from Borrower's
insurance  carriers  reflecting the current  insurance  policies  required under
Section 7.06  including any  necessary  endorsements  to reflect  Administrative
Agent as "loss payee" or "additional  insured," as  applicable,  for the ratable
benefit of the Banks.

           (o)  Derivative Contracts.  Borrower shall  provide to Administrative
Agent  and  the  Banks  a copy  of  all  Derivative  Contracts, if any, executed
by any Credit Party.

           (p) Operating Agreements. Administrative Agent and the Banks shall be
satisfied with the terms of the Credit Parties'  existing and proposed  material
operating, processing, transportation, marketing and other agreements applicable
to the Credit  Parties'  interests  in the  Mortgaged  Properties  (collectively
herein, the "Operating Agreements").

           (q)  Contingent Liabilities.  Review satisfactory  to Administrative
Agent and the Banks  of  the  Credit   Parties' Contingent Liabilities, if any.

           (r)  Other Documents.  Such other  approvals, opinions, documents or
materials  as  Administrative  Agent or any Bank may reasonably require.

                                       31

<PAGE>

      5.02 Conditions to All Loans. The obligation of each Bank to make any Loan
(including  the initial  Loan) is subject to the  satisfaction  of the following
conditions precedent on the relevant Borrowing Date:

           (a)  Notice.  Administrative Agent shall  have  received a Notice of
Borrowing;

           (b)   Continuation   of   Representations    and   Warranties.    The
representations and warranties in Article VI shall be true and correct on and as
of  such  Borrowing  Date  with  the  same  effect  as if made on and as of such
Borrowing  Date  (except  to the  extent  such  representations  and  warranties
expressly  refer to an earlier or other  date,  in which case they shall be true
and correct as of such earlier or other date);

           (c)  No  Existing  Default.   No  Default or  Event of  Default shall
exist or shall result from such Borrowing; and

           (d)  No Material Adverse  Effect.  No Material Adverse  Effect  shall
have occurred.

                                   ARTICLE VI.

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

      Each Credit Party represents and warrants to Administrative Agent and each
of the Banks that:

      6.01 Existence and Authority. Such Credit Party: (i) is a corporation duly
formed and validly  existing  under the laws of the  respective  state set forth
next to such Person's name on Schedule 6.19 attached hereto;  (ii) has the power
and authority and all material governmental licenses,  authorizations,  consents
and approvals to own its assets, carry on its business and to execute,  deliver,
and perform its obligations  under the Loan Documents;  (iii) is duly registered
as a foreign corporation, and is licensed and in good standing under the laws of
each  jurisdiction  where its  ownership,  lease or operation of Property or the
conduct of its business requires such qualification or license, except where the
failure to be so  qualified  would not  reasonably  be  expected  to result in a
Material Adverse Effect; and (iv) is in compliance in all material respects with
all Requirements of Law.

      6.02  Organizational  Authorization;  No  Contravention.   The  execution,
delivery and  performance  by such Credit Party of this Agreement and each other
Loan Document to which such Person is a party,  have been duly authorized by all
necessary  corporate,  company, and partnership action, and do not and will not:
(a) contravene  the terms of any of that Person's  Organization  Documents;  (b)
conflict  with or result in any breach or  contravention  of, or the creation of
any Lien under, any document evidencing any material  Contractual  Obligation to
which  such  Person is a party or any order,  injunction,  writ or decree of any
Governmental  Authority to which such Person or its Property is subject;  or (c)
violate any Requirement of Law.

      6.03  Governmental  Authorization.  Except for  recordations  and  filings
relating  to  the  Security   Documents,   no  approval,   consent,   exemption,
authorization,   or  other  action  by,  or  notice  to,  or  filing  with,  any
Governmental   Authority  is  necessary  or  required  in  connection  with  the
execution, delivery or performance by, or enforcement against, such Credit Party
of this Agreement or any other Loan Document to which such Person is a party.

      6.04 Binding  Effect.   This   Agreement  and  each  other  Loan  Document
to  which  such  Credit  Party  is  a  party   constitute  the legal,  valid and
binding  obligations of such Person to the extent it is a party

                                       32
<PAGE>

thereto,   enforceable   against   such   Person   in   accordance   with  their
respective  terms,  except  as  enforceability  may  be  limited  by  applicable
bankruptcy,  insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.

      6.05 Litigation.  Except as otherwise  disclosed in Schedule 6.05 attached
hereto [Borrower needs to provide schedule ASAP],  there are no actions,  suits,
proceedings, claims or disputes pending, or to the best knowledge of such Credit
Party, threatened,  at law, in equity, in arbitration or before any Governmental
Authority,  against any Credit  Party,  or any of their  respective  Properties,
directors or officers which:  (i) purport to affect or pertain to this Agreement
or any other Loan Document,  or any of the transactions  contemplated  hereby or
thereby;  or (ii) if determined  adversely to any Credit Party, would reasonably
be expected to have a Material Adverse Effect.  No injunction,  writ,  temporary
restraining  order or any order of any  nature  has been  issued by any court or
other  Governmental  Authority  purporting  to  enjoin  or  restrain  execution,
delivery  or  performance  of this  Agreement  or any other  Loan  Document,  or
directing  that  the  transactions   provided  for  herein  or  therein  not  be
consummated as herein or therein provided.

      6.06 No  Default.  No  Default  or Event  of  Default  exists  or would be
reasonably  expected to result from the incurring of any of the  Obligations  by
any Credit Party. As of the Closing Date, no Credit Party is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, would reasonably be expected to have a Material
Adverse  Effect,  or that would,  if such default had occurred after the Closing
Date, create an Event of Default under Subsection 9.01(e).

      6.07 ERISA.

           (a) No Credit Party other than Borrower sponsors or maintains a Plan.
Borrower has 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 Borrower (whether directly or indirectly) of (i) either a civil
penalty  assessed  pursuant  to  section  502(c),  (i) or (1) 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  Borrower  has been or is  expected  by Borrower 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 Borrower
is  required  under  the terms of each  Plan or  applicable  law to have paid as
contributions to such Plan, and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived, exists
with respect to any Plan.

           (f) The actuarial present value of the benefit liabilities under each
Plan  which is  subject  to Title IV of ERISA  does  not,  as of the end of each
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

                                       33
<PAGE>

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) Borrower does not sponsor,  maintain or contribute to an employee
welfare  benefit plan, as defined in section 3(l) of ERISA,  including,  without
limitation,  any such plan maintained to provide benefits to former employees of
such entities,  that may not be terminated by Borrower in its sole discretion at
any time without any material liability.

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

           (i) Borrower is not 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.

      6.08 Margin  Regulations.  The  proceeds of the Loans shall be used solely
for the purposes set forth in and  permitted by Section 7.11. No Credit Party is
generally  engaged in the  business of  purchasing  or selling  Margin  Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.

      6.09  Title to Oil and Gas  Properties.  Each  Credit  Party  has good and
Marketable  Title  to its  respective  Oil and Gas  Properties,  subject  to the
Permitted  Liens, and has good title to all other Property which is necessary or
used in the  ordinary  conduct of its  business.  No consents or rights of first
refusal  exist  or  remain  outstanding  with  respect  to such  Credit  Party's
interests  in  its  Oil  and  Gas  Properties  assigned  to it  pursuant  to any
acquisition of Oil and Gas Properties other than Permitted Liens.

      6.10 Oil and Gas Operations.  The   Hydrocarbon  Interests  and  Operating
Agreements  attributable  to the Oil and Gas  Properties are in force and effect
in accordance with their terms.

      6.11  Initial  Reserve  Report.   Borrower  has  heretofore  delivered  to
Administrative  Agent true and  complete  copies of reports  prepared by Cawley,
Gillespie & Associates,  Inc.  dated as of March 1, 2002 (the  "Initial  Reserve
Report")  relating to an evaluation of the Oil and Gas attributable to STP's Oil
and Gas Properties and to QO&G's Oil and Gas Properties  effective as of January
1, 2002. To the knowledge of each Credit Party,  (i) the  assumptions  stated or
used in the preparation of the Initial  Reserve Report are reasonable,  (ii) all
information  furnished  by any Credit Party to Cawley,  Gillespie &  Associates,
Inc., taken as a whole, for use in the preparation of the Initial Reserve Report
was accurate in all material respects,  (iii) there has been no material adverse
change in the amount of the estimated  Oil and Gas shown in the Initial  Reserve
Report  since the date  thereof,  except for  changes  which have  occurred as a
result of  production in the ordinary  course of business,  and (iv) the Initial
Reserve Report does not omit any statement or information necessary to cause the
same not to be misleading to Administrative  Agent and the Banks in any material
respect.

      6.12 Gas  Imbalances.  There are no gas  imbalances,  take or pay or other
prepayments with respect to any of the Mortgaged Properties in excess of $50,000
which would require any Credit Party to deliver Oil and Gas produced from any of
the  Mortgaged  Properties  at some  future  time  without  then  or  thereafter
receiving full payment therefor.

      6.13  Taxes.  The Credit  Parties  have filed all  federal tax returns and
reports required to be filed, or appropriate  extensions  thereof,  and has paid
all federal taxes,  assessments,  fees and other governmental  charges levied or
imposed upon such Person or such Person's Properties, income or assets

                                       34

<PAGE>

otherwise  due  and  payable,  except  those  which  are being contested in good
faith by  appropriate  proceedings  and for which  adequate  reserves  have been
provided.  The Credit  Parties  have filed all state and other  non-federal  tax
returns and reports required to be filed, or appropriate extensions thereof, and
has paid all state  and other  non-federal  taxes,  assessments,  fees and other
governmental  charges  levied or imposed  upon it or its  Properties,  income or
assets otherwise due and payable, except those which are being contested in good
faith by  appropriate  proceedings  and for which  adequate  reserves  have been
provided.  To the Credit Parties'  knowledge,  there is no proposed audit or tax
assessment against any Credit Party that would, if made,  reasonably be expected
to have a Material Adverse Effect.

      6.14  Financial  Condition.  The  most  recent,   pre-merger  (i)  audited
consolidated  fiscal year-end  financial  statements of Borrower dated as of May
31, 2002 and (ii) reviewed (1) year-end financial  statements of STP, Inc. dated
as of  December  31,  2001,  (2)  year-end,  "carved  out" pro  forma  financial
statements for STP dated as of December 31, 2001, and (3) year-end  consolidated
pro forma  financial  statements  for STP and Borrower  dated as of December 31,
2001 delivered to Administrative Agent fairly present the information  contained
therein and the pro forma  financial  position and the results of  operations of
Borrower,  STP  and  Borrower's  other  Subsidiaries.  Since  the  date  of such
financial statements, there has been no Material Adverse Effect in the pro forma
consolidated  financial  conditions of Borrower,  STP or any of Borrower's other
Subsidiaries.

      6.15  Environmental  Matters.  The Oil and Gas  Properties are operated in
accordance with all applicable  Environmental  Laws. No Credit Party is aware of
any Environmental Claims that are or would be, individually or in the aggregate,
reasonably expected to have a Material Adverse Effect on any Credit Party or any
of the Oil and Gas Properties. Each Credit Party conducts in the ordinary course
of business a review of the effect of existing  Environmental  Laws and existing
Environmental Claims on its business, operations, and such properties which such
Person is acquiring or planning to acquire including Oil and Gas Properties.

      6.16 Regulated  Entities.  No Credit Party nor any Person controlling such
Credit Parties, is an "Investment  Company" within the meaning of the Investment
Company Act of 1940. No Credit Party is subject to  regulation  under the Public
Utility  Holding  Company Act of 1935,  the Federal  Power Act,  the  Interstate
Commerce  Act, any state public  utilities  code,  or any other federal or state
statute or regulation limiting its ability to incur Indebtedness.

      6.17 No Burdensome Restrictions. No Credit Party is a party to or bound by
any Contractual  Obligation,  or subject to any restriction in any  Organization
Document,  or any Requirement of Law, which would reasonably be expected to have
a Material Adverse Effect.

      6.18 Copyrights,  Patents, Trademarks and Licenses, etc. Each Credit Party
owns or is  licensed  or  otherwise  has the  right  to use all of the  material
patents,  trademarks,  service  marks,  trade  names,  copyrights,   contractual
franchises,  authorizations  and other rights that are reasonably  necessary for
the operation of its businesses,  without  conflict with the rights of any other
Person.

      6.19  Subsidiary.  As of  the  Closing  Date,  Borrower  has  neither  any
Subsidiary  nor  any  material  equity  investments  in any  other  corporation,
partnership,  limited  liability  company  or other  entity,  other  than  those
entities specifically identified on Schedule 6.19 attached hereto.

      6.20 Insurance.  Borrower has previously identified the insurance policies
covering the Mortgaged  Properties and the underwriters  thereof,  such policies
and  underwriters  being acceptable to  Administrative  Agent. The Properties of
each Credit Party are insured with financially sound and

                                       35
<PAGE>

reputable  insurance  companies  not  Affiliates  of  any  Credit Party, in such
amounts,  with such  deductibles  and  covering  such  risks as are  customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where such Person's Properties are located.

      6.21 Full Disclosure.  None of the  representations  or warranties made by
any  Credit   Party  in  any  of  the  Loan   Documents  as  of  the  date  such
representations  and  warranties  are  made  or  deemed  made,  and  none of the
statements  contained in any exhibit,  report,  written statement or certificate
furnished  by or on  behalf  of any  Credit  Party in  connection  with the Loan
Documents  (including the offering and disclosure  materials  delivered by or on
behalf of  Borrower  to  Administrative  Agent or any of the Banks  prior to the
Closing Date), taken as whole,  contains any untrue statement of a material fact
known to any Credit Party or any Responsible  Officer or omits any material fact
known to any  Credit  Party or any  Responsible  Officer  required  to be stated
therein  or  necessary  to make the  statements  made  therein,  in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.

      6.22 Solvency.  As of the Closing Date,  each Credit Party is Solvent.

      6.23  Capitalization and Subsidiaries.  The authorized  securities of each
Credit  Party  consist  of the  number of  shares  of common  stock set forth on
Schedule  6.19,  and all issued and  outstanding  shares of such stock have been
validly issued and are fully paid and  nonassessable and are owned by and issued
as set forth on Schedule 6.19.

      6.24  Relationship  of Credit  Parties.  The Credit Parties are engaged in
related  businesses and each Credit Party is directly and  indirectly  dependent
upon  each  other  Credit  Party  for  and in  connection  with  their  business
activities  and their  financial  resources.  Each Credit Party has  determined,
reasonably  and in good faith,  that such Credit Party will receive  substantial
direct and indirect  economic and  financial  benefits  from the  extensions  of
credit and  guarantees,  as  applicable,  made under  this  Agreement,  and such
extensions  of credit are in the best  interests  of such Credit  Party,  having
regard to all relevant facts and circumstances.

                                  ARTICLE VII.

                              AFFIRMATIVE COVENANTS
                              ---------------------

      So  long as the  Issuing  Bank  or any  Bank  shall  have  any  Commitment
hereunder,  or any Loan or other  Obligation shall remain unpaid or unsatisfied,
unless the Banks and the Issuing Bank waive compliance in writing:

      7.01  Financial  Statements.  Borrower  shall  maintain for itself and its
Subsidiaries a system of accounting  established and  administered in accordance
with GAAP  consistently  applied,  and  deliver to  Administrative  Agent,  with
sufficient copies for each Bank:

           (a) As soon as  available,  but not later than ninety (90) days after
the end of each year a copy of the audited annual consolidated and consolidating
financial statements of Borrower and its Subsidiaries as of the end of such year
including the related  balance sheet and  statements of income,  equity and cash
flows for such year,  setting forth in each case in comparative form the figures
for  the  previous  fiscal  year  (on a  proforma  basis  for  the  2002  annual
financials)  accompanied,  in  the  case  of  the  financial  statements,  by an
unqualified   opinion  from  an  independent   accounting   firm  acceptable  to
Administrative  Agent (the  "Independent  Auditor")  along with a certificate of
Borrower's and its

                                       36
<PAGE>

Subsidiaries'  Derivative Contract positions, Borrower's calculations confirming
no  Event of  Default  and   Borrower's compliance with  all financial covenants
herein,  all  as  certified  by  a  Responsible  Officer  of Borrower as  fairly
presenting   the   financial   position   and  the  results  of   operations  of
Borrower in accordance with GAAP; and

           (b) As soon as  available,  but not later  than sixty (60) days after
the  close of each of the  first  three  quarters  of each  year,  a copy of the
unaudited consolidated and consolidating  quarterly balance sheet of Borrower as
of the end of such quarter and the related  statements  of income,  equity,  and
cash flows for the period commencing on the first day and ending on the last day
of such quarter,  and  certified by a Responsible  Officer of Borrower as fairly
presenting,  in  accordance  with  GAAP,  consistently  applied,  the  financial
position and the results of operations  of Borrower  together with a certificate
regarding  Borrower's and its Subsidiaries'  Derivative  Contract  positions and
calculations  confirming no Event of Default and Borrower's  compliance with all
financial covenants herein.

      7.02 Certificates;  Other  Production  and  Reserve  Information. Borrower
shall furnish to  Administrative  Agent,  with  sufficient copies for each Bank:

           (a)  commencing as of November 30, 2002, and  thereafter,  as soon as
available but in any event no later than thirty (30) days  following  each month
during the term of this Agreement,  a Monthly Status Report in a form reasonably
acceptable to the Banks, as of the calendar month then ended;

           (b)  concurrently  with the delivery of the statements and reports of
Borrower  referred to in Subsections  7.01 (a) and (b) a Compliance  Certificate
executed by a Responsible Officer;

           (c) during the term of this Agreement, Reserve Reports prepared by an
independent petroleum engineer reasonably acceptable to the Administrative Agent
and  the  Banks  covering  the Oil and Gas  Properties,  to be  delivered  every
September  1st,  effective  as of July 1st of such  year,  and  every  March 1st
effective as of January 1st of such year, commencing March 1, 2003;

           (d)  promptly  upon the  request of the  Administrative  Agent,  such
copies of all  geological,  engineering and related data contained in Borrower's
or its Subsidiaries  files or otherwise readily  accessible to Borrower relating
to the Mortgaged Properties as may reasonably be requested;

           (e) on or before 180 days following Closing,  each Credit Party shall
provide  to  Administrative  Agent  evidence  of the  Credit  Party's  good  and
Marketable Title to at least 80% of the net present value of such Credit Party's
Mortgaged  Properties  subject to no other liens, other than Permitted Liens, as
evidenced  by  opinion  of  title  or  other  title  or  information  reasonably
satisfactory to Administrative  Agent and the Banks,  thereafter,  on request by
Administrative  Agent,  or if required by  regulations  to which  Administrative
Agent or any of the Banks is subject,  the Credit  Parties  shall  provide  such
title opinions from legal counsel reasonably acceptable to Administrative Agent,
in form and substance reasonably  acceptable to Administrative  Agent, as may be
necessary  to cover at least 80% by value of the  Mortgaged  Property  as may be
designated by Administrative Agent, and Administrative Agent; and

           (f) promptly,  such  additional  information  regarding the business,
financial  or  business  affairs of  Borrower as  Administrative  Agent,  at the
request of any Bank, may from time to time reasonably request.

      7.03 Notices.  Borrower shall promptly notify  Administrative Agent:

                                       37
<PAGE>

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

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

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

           (d)  of the formation or acquisition of any Subsidiary.

           Each notice  under this  Section  shall be  accompanied  by a written
statement by a  Responsible  Officer  setting  forth  details of the  occurrence
referred to  therein,  and stating  what action  Borrower  proposes to take with
respect  thereto and at what time.  Each notice under  Subsection  7.03(a) shall
describe with  particularity any and all clauses or provisions of this Agreement
or other Loan  Document  that have been (or  foreseeably  will be)  breached  or
violated.

      7.04 Preservation  of  Company Existence,  Etc.  Borrower shall, and shall
ensure that each of its Subsidiaries shall:

           (a)  preserve  and  maintain in full force and effect its  corporate,
partnership or limited  liability  company  existence as appropriate,  and shall
maintain its good standing under the laws of each state wherein it is registered
to transact  business  except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect;

           (b) preserve  and maintain in full force and effect all  governmental
rights, privileges,  qualifications,  permits, licenses and franchises necessary
or desirable in the normal  conduct of its business  except where the failure to
do so would not reasonably be expected to have a Material Adverse Effect;

           (c) preserve its business  organization and goodwill except where the
failure to do so would not  reasonably  be expected  to have a Material  Adverse
Effect; and

           (d)  preserve  or renew all of its  registered  patents,  trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.

      7.05 Maintenance of Mortgaged Properties.

           Borrower  shall,  and shall cause its  Subsidiaries  to, maintain and
preserve all its Mortgaged  Properties in the ordinary  course of Borrower's and
its Subsidiaries' Principal Businesses and in a manner consistent with a prudent
operator in the oil and gas industry.

                                       38

<PAGE>

      7.06 Insurance.

           (a) The Credit Parties shall  maintain,  with  financially  sound and
reputable  independent  insurers,   insurance  with  respect  to  such  Person's
Properties  and  business  against  loss or damage  reasonably  satisfactory  to
Administrative  Agent, naming  Administrative  Agent, for the ratable benefit of
the Banks,  as "loss payee" under its property loss policies and as  "additional
insured" on its comprehensive and general policies,  which policies shall not be
amended  or  changed  without  at least  thirty  (30)  days  written  notice  to
Administrative  Agent.  So long as no Event of Default exists and is continuing,
proceeds of any insurance  policies  shall be applied first to the  restoration,
repair or  replacement  of the  Properties  to the extent such actions  would be
reasonably  prudent  and  the  remainder,  if  any,  shall  be  applied  to  the
Obligations  to prepay  the  Obligations  in any  manner or order as  elected by
Administrative Agent at the time of such prepayments.  Upon an Event of Default,
and for so long as same is continuing,  proceeds of any insurance policies shall
be applied to the  Obligations  in such  manner and order as the  Administrative
Agent and Majority Banks may elect.

           (b) The Credit Parties shall renew the insurance policies  identified
pursuant to Section 6.20 on terms no less favorable to Administrative  Agent for
the  ratable  benefit  of the  Banks  during  the  term of this  Agreement.  Any
substitute  underwriter  shall be as  financially  sound as Borrower's  existing
underwriters.

      7.07 Payment of Obligations.  Each Credit Party shall pay and discharge as
the  same  shall  become  due  and  payable,   such  Person's   obligations  and
liabilities,  including:  (a) all Tax liabilities,  assessments and governmental
charges or levies upon it or its Properties or assets, unless the same are being
contested in good faith by  appropriate  proceedings  and  adequate  reserves in
accordance with GAAP are being maintained by such Person;  (b) all lawful claims
prior to the time at  which,  if such  claims  remain  unpaid,  a Lien upon such
Person's Property would be imposed by law; and (c) all Indebtedness, as and when
due and payable,  but subject to any subordination  provisions  contained in any
instrument or agreement evidencing such Indebtedness.

      7.08  Compliance  with Laws.  Each  Credit  Party  shall  comply  with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business, except where the failure to do so would not reasonably be expected
to result in a Material  Adverse  Effect.  The Oil and Gas  attributable  to the
Credit  Parties'  interests in the Oil and Gas  Properties  will be produced and
marketed in accordance  with all applicable  laws and  regulations.  Each Credit
Party shall comply with all material terms of any and all  applicable  Operating
Agreements  and other  agreements  and documents  pertaining to or affecting the
Hydrocarbon Interests during the term of this Agreement.

      7.09 Inspection of Property and Books and Records. Each Credit Party shall
maintain proper books of record and account, in which, in all material respects,
full,  true and correct  entries in accordance  with GAAP  consistently  applied
shall be made of all financial transactions and matters involving the assets and
business of such  Person.  Each Credit Party shall  permit  representatives  and
independent contractors of Administrative Agent or any Bank to visit and inspect
any of its Properties,  to examine its Organizational  Documents,  and financial
and operating records,  and make copies thereof or abstracts  therefrom,  and to
discuss their  respective  affairs,  finances and accounts with their respective
directors, officers, and, in the presence of one or more Responsible Officers of
such Person, independent public accountants,  all at the expense of Borrower and
at such  reasonable  times during normal  business  hours and as often as may be
reasonably  desired;  provided,   however,  when  an  Event  of  Default  exists
Administrative  Agent or any Bank may do any of the  foregoing at the expense of
Borrower at any time during normal business hours and without advance notice.

                                       39

<PAGE>

      7.10 Environmental Laws.

           (a) Each Credit  Party  shall  conduct  its  operations  and keep and
maintain its Property in material compliance with all Environmental Laws;

           (b) Each Credit Party will promptly furnish to  Administrative  Agent
all written notices of violation, orders, claims, citations, complaints, penalty
assessments,  suits or other  proceedings  received by such Credit Party,  or of
which such Credit  Party has notice,  pending or  threatened  against any Credit
Party by any Governmental  Authority with respect to any alleged violation of or
non-compliance  with  any  Environmental  Laws  or  any  permits,   licenses  or
authorizations  in  connection  with  its  ownership  or  use of  such  Person's
Properties or the operation of its business.

           (c) Each Credit Party will promptly furnish to  Administrative  Agent
all  requests  for  information,  notices of claim,  demand  letters,  and other
notifications,  received by such  Credit  Party in  connection  with such Credit
Party's  ownership  or use of its  Properties  or the  conduct of its  business,
relating  to  potential  responsibility  with  respect to any  investigation  or
clean-up of Hazardous Substances at any location.

      7.11 Use of Proceeds.  Borrower shall use the proceeds of the Loans (i) to
refinance the Assumed Debt,  (ii) for the  acquisition  and  development  by the
Credit Parties of Oil and Gas  Properties,  (iii) to finance  standby letters of
credit  up to the  Aggregate  LC  Obligation  Limitation,  and (iv) for  general
corporate purposes.

      7.12 Additional Collateral.

           (a) Lien in Oil and Gas  Properties.  At all times hereunder that the
Obligations remain unpaid, the Credit Parties agree to update and supplement the
Mortgages  each quarter in order to reflect any new  acquisitions  of additional
Oil  and  Gas  Properties,   additional  Undeveloped  Properties  or  additional
interests in existing Oil and Gas Properties or existing Undeveloped Properties,
and such Credit Party shall grant to the Administrative Agent for the benefit of
the Banks as security  for the  Indebtedness,  a  first-priority  Lien  interest
(subject only to Permitted  Liens)  covering such Credit Party's  additional Oil
and Gas Properties. Such Lien will be created and perfected by and in accordance
with the  provisions  of  mortgages,  deeds of trust,  security  agreements  and
financing  statements,  or other Security  Documents,  all in form and substance
satisfactory  to  Administrative  Agent in its sole discretion and in sufficient
executed (and  acknowledged  where  necessary or appropriate)  counterparts  for
recording purposes.

           (b) Title Information.  Concurrently with the granting of the Lien or
other  action  referred to in Section  7.12(a)  above,  such  Credit  Party will
provide to the  Administrative  Agent title  information  in form and  substance
satisfactory to the Administrative  Agent in its sole discretion with respect to
such Person's interests in such Oil and Gas Properties.

           (c) Legal  Opinions.  Promptly  after the filing of any new  Security
Document  in any  state,  upon the  request  of the  Administrative  Agent,  the
Borrower will provide, or cause to be provided,  to the Administrative  Agent an
opinion  addressed to the  Administrative  Agent for the benefit of the Banks in
form and substance  satisfactory to the  Administrative  Agent in its reasonable
discretion from counsel reasonably  acceptable to Administrative  Agent, stating
that the new Security  Document is valid,  binding and enforceable in accordance
with its terms and in legally sufficient form for such jurisdiction.

                                       40
<PAGE>

           (d)  Subordination of Obligor's Liens.

                (i) Each Credit Party hereby  subordinates  and assigns in favor
of  Administrative  Agent  for the  benefit  of the  Banks  any  and all  liens,
statutory or otherwise and any rights of offset  contractual or otherwise it has
or may have in the future against such Credit Party's interests in the Mortgaged
Properties or in the Oil and Gas  Properties  and revenues  attributable  to its
interest therein, including the Contracts and Records (defined below).

                 (ii)Any  officer  or  employee  of   Administrative   Agent  is
expressly  granted the right at its option  upon not less than one (1)  Business
Day's notice,  to visit and inspect (a) each Credit Party's  offices,  including
all books and records,  farmout agreements,  area of mutual interest agreements,
development  agreements,  geologic and geophysical survey agreements,  operating
agreements,  contracts and other  agreements that relate to any of the Mortgaged
Properties  or  in  the  Oil  and  Gas  Properties,   seismic,   geological  and
geophysical,  drilling and production data and records,  all accounting records,
joint  interest  billing  records,  division  order  records,  land  files,  and
contracts and records referring to the production,  sale, purchase,  exchange or
processing of Hydrocarbons  whether such data,  information or agreements are in
written form or electronic format (the "Contracts and Records"), and to examine,
take copies and extracts therefrom, and (b) any of the Mortgaged Properties.

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

                (iv) In the  event  of a  foreclosure,  deed in  lieu,  or other
transfer  of record or  beneficial  ownership  or  operations  of the  Mortgaged
Properties,  each  Credit  Party,  as  bailee,  agrees to  cooperate  and assist
Administrative  Agent and its  officers,  agents  and  counsel  in the  peaceful
transfer and delivery of such  Contracts and Records to such party or parties as
Administrative Agent may in writing direct.

                (v) Following the  occurrence  and during the  continuance  of a
Default or Event of Default and within  thirty (30) days after receipt of notice
from  Administrative  Agent, the Credit Parties will relinquish their respective
rights to operate the  Properties of such Credit  Parties to the  Administrative
Agent or its designee.

           (f)  Subordination of Intercompany  Debt. Any  Intercompany  Notes or
advances of any Credit Party howsoever evidenced by journal entries or otherwise
now or  hereafter  owed  to or  held  by  any  other  Credit  Party  are  hereby
subordinated to the Obligations of such other Credit Party to the Banks, and any
document or instrument  evidencing such loans or advances shall contain a legend
giving notice of such  subordination.  Any Intercompany Notes or advances of any
other  Credit Party due to such Credit  Party,  if the  Administrative  Agent so
requests,  shall be  collected,  enforced  and  received by such Credit Party as
trustee  for the  Banks  and be paid  over to the  Administrative  Agent for the
account of the Banks on account of the Obligations but without  affecting in any
manner the  liability  of such Credit Party under the other  provisions  of this
Agreement  or  any  other  Loan  Document.  Any  Lien,  claim,  right  or  other
encumbrance  on any  property of any Credit  Party in favor of any other  Credit
Party is  hereby  subordinated  in all  respects  to the  Liens  granted  to the
Administrative Agent for the benefit of the Banks.

                                       41

<PAGE>

           7.13 Further  Assurances.  Each Credit Party will  promptly  cure any
defects in the creation and issuance of the Notes and the execution and delivery
of this Agreement,  the Security Documents or any other instruments  referred to
or  mentioned  herein or  therein.  Further,  each Credit  Party  will,  at such
Person's expense,  promptly do all acts and things, and will execute and file or
record  all  instruments   reasonably  requested  by  Administrative  Agent,  to
establish,  perfect,  maintain and continue the perfected  security  interest of
Administrative  Agent in or the Lien of  Administrative  Agent on the  Mortgaged
Properties.  Borrower will pay the reasonable  costs and expenses of all filings
and recordings and all searches  reasonably  deemed necessary by  Administrative
Agent to  establish  and  determine  the  validity and the priority of the Liens
created or intended  to be created by the  Security  Documents;  and each Credit
Party will satisfy all other claims and charges which in the reasonable  opinion
of  Administrative  Agent  might  prejudice  or  impair  any  of  the  Mortgaged
Properties or any Liens thereon in favor of Administrative Agent for the benefit
of the Issuing Bank and the Banks.

      7.14  Subsidiary  Guaranties.  Payment and  performance of the Obligations
shall  be  fully  guaranteed  by  each  Subsidiary  of  Borrower,  whether  such
Subsidiary now exists or is hereafter created or acquired,  in substantially the
form of Exhibit I attached  hereto.  On the date of creation or  acquisition  by
Borrower of any direct or indirect wholly owned Subsidiary, Borrower shall cause
such  Subsidiary  to execute and deliver to  Administrative  Agent a  Subsidiary
Guaranty.

      7.15 Mandatory Hedging Program.  Within sixty (60) days following Closing,
Borrower shall enter into, or cause its  Subsidiaries  to enter into,  commodity
Derivative  Contracts with counterparties  satisfactory to Administrative  Agent
covering at least sixty percent (60%) of, but not more than  eight-five  percent
(85%) of,  Borrower's  or such  Subsidiary's  projected  Hydrocarbon  production
volumes over the next  succeeding  twelve (12) months  following  such date on a
rolling,  weighted  average basis  satisfactory to the Banks and  Administrative
Agent, until the Termination Date.

      7.16 Phase I Reports.  As soon as available,  and in any case within three
(3) Business  Days prior to closing any  acquisition  of Oil and Gas  Properties
where  the  Borrower's  or  its   Subsidiaries'   liability  for   environmental
remediation  potentially  associated with the ownership  and/or operation of all
such Oil and Gas  Properties  is  expected  to exceed  $50,000,  Borrower  shall
deliver to Administrative Agent an environmental site assessment report covering
such Oil and Gas Properties to be acquired in form and substance satisfactory to
Administrative Agent and the Banks.

      7.17 ERISA  Information and Compliance.  Borrower will promptly furnish to
the Administrative  Agent with sufficient copies to the Banks (i) promptly after
the filing  thereof  with the United  States  Secretary  of Labor,  the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect
to each Plan or any trust created  thereunder,  (ii)  immediately  upon becoming
aware of the occurrence of any ERISA Event or of any  "prohibited  transaction,"
as  described  in  section  406 of  ERISA or in  section  4975 of the  Code,  in
connection  with any Plan or any trust  created  thereunder,  a  written  notice
signed by a Responsible  Officer specifying the nature thereof,  what action the
Borrower 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 PBGCs  intention to terminate or to have a
trustee  appointed to administer any Plan. With respect to each Plan (other than
a Multiemployer Plan), Borrower will (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

                                       42

<PAGE>

payment  or  underpayment  charge  or  penalty,  all  premiums required pursuant
to sections 4006 and 4007 of ERISA.

                                  ARTICLE VIII.

                               NEGATIVE COVENANTS
                               ------------------

      So  long as the  Issuing  Bank  or any  Bank  shall  have  any  Commitment
hereunder,  or any Loan or other  Obligation shall remain unpaid or unsatisfied,
unless the Issuing Bank or the Banks waive compliance in writing:

      8.01 Limitation on Liens.  Each Credit Party agrees that it shall not, and
will not, directly or indirectly, make, create, incur, assume or suffer to exist
any Lien upon or with respect to any part of its or its Subsidiaries'  Property,
whether now owned or hereafter  acquired,  other than the following  ("Permitted
Liens"):

           (a)  any Lien  created  under  the  Security  Documents or any other
Loan Document;

           (b)  Liens  securing the Mezzanine Debt that are subject
to the terms and conditions of the Subordination Agreement;

           (c) any usual and  customary  liens  arising under Oil and Gas leases
for royalty  payments not yet due and payable and reciprocal liens arising under
operating  agreements  for joint  interest  billings  not yet due and payable or
which are being  contested in good faith and by appropriate  proceedings,  which
proceedings have the effect of preventing the forfeiture or sale of the Property
subject thereto with adequate reserves set aside therefor;

           (d) Liens for taxes, fees,  assessments or other governmental charges
which are not delinquent or remain  payable  without  penalty,  or to the extent
that  non-payment  thereof  is  permitted  by  Section  7.07 or which  are being
contested in good faith and by appropriate  proceedings,  which proceedings have
the effect of preventing the forfeiture or sale of the Property  subject thereto
with adequate reserves set aside therefor;

           (e) carrier, warehousemen, mechanic, landlord, materialmen, repairmen
or other  similar  statutory  Liens  arising in the ordinary  course of business
which are not  delinquent or remain payable  without  penalty or which are being
contested in good faith and by appropriate  proceedings,  which proceedings have
the effect of preventing the forfeiture or sale of the Property  subject thereto
with adequate reserves set aside therefor;

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

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

                                       43

<PAGE>

           (h) Liens created by QES and covering the rights,  title,  interests,
property and assets of QES, provided however, that such Liens shall not create a
security interest in or to any rights, titles, interests or property of Borrower
or any of Borrower's other Subsidiaries;

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

      8.02 Disposition of Assets. No Credit Party shall, directly or indirectly,
nor shall such Credit Party allow its  Subsidiaries  to directly or  indirectly,
sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or
a series of transactions)  (collectively,  "Dispositions")  any Property used or
useful by any Credit Party or any of their  Subsidiaries  in connection with the
Oil and Gas Properties (including accounts and notes receivable, with or without
recourse  attributable to the Mortgaged  Properties) or enter into any agreement
to do any of the foregoing, except:

           (a)  Dispositions  of  inventory  including  Oil and Gas produced in
the ordinary course of business;

           (b)  Liens permitted under Section 8.01(b) hereof; and

           (c)  Dispositions  of obsolete or worn-out  equipment in
the ordinary course of business.

      Provided, that at the time of any Disposition under (c) above, no Event of
Default shall exist or shall result from such Disposition.

      8.03 Consolidations and Mergers.  Except for (i) Borrower's acquisition of
STP as a  wholly  owned  Subsidiary,  and  (ii)  PGP's  acquisition  of the  gas
marketing  business of Bonanza  Energy  Corp.  of Kansas,  no Credit Party shall
merge, amalgamate or consolidate with or into, or permit any of its Subsidiaries
to  merge,  amalgamate  or  consolidate  with or into,  any  Person  or  convey,
transfer,  lease or  otherwise  dispose of (whether in one  transaction  or in a
series of  transactions),  or permit any such  Subsidiary  to convey,  transfer,
lease or  otherwise  dispose of  (whether in one  transaction  or in a series of
transactions), all or substantially all of its assets to any Person.

      8.04 Loans and  Investments.  Each Credit  Party  agrees that it shall not
purchase or acquire or make any commitment  therefor,  any capital stock, equity
interest,  or any  obligations  or other  securities of, or any interest in, any
Person,  or make or commit to make any  acquisitions,  or make or commit to make
any advance,  loan,  extension of credit or capital contribution to or any other
investment  in, any Person  including QES or any other  Affiliate of such Credit
Party, except for:

           (a)  investments in Cash Equivalents;

           (b)  extensions  of credit in the nature of  accounts  receivable  or
notes  receivable  arising  from the sale or lease of goods or  services  in the
ordinary course of business;

           (c)  investments  in  Derivative   Contracts   permitted
under Section 8.16;

                                       44

<PAGE>

           (d)  Intercompany Debt; and

           (e) investments  with third parties that are (i) customary in the Oil
and Gas  business,  (ii)  made in the  ordinary  course of such  Credit  Party's
business,  and (iii) made in the form of or  pursuant to  Operating  Agreements,
farm-in agreements,  farm-out agreements,  development  agreements,  unitization
agreements,  joint  bidding  agreements,  service  contracts  and other  similar
agreements.

      8.05  Limitation on  Indebtedness.  No Credit Party shall  create,  incur,
 assume,  suffer to exist, or otherwise  become or remain directly or indirectly
 liable with respect to, any Indebtedness, except:

           (a)  Indebtedness incurred pursuant to this Agreement;

           (b) Mezzanine Debt owed to the Mezzanine  Lender, in an amount not to
exceed the Approved Mezzanine Borrowing Base in the aggregate outstanding at any
time  provided  such  Indebtedness  is at all  times  subject  to the  terms and
conditions of the Subordination Agreement;

           (c)   Indebtedness   scheduled  on  Schedule  8.05  attached  hereto;
provided,  such  Indebtedness  is acceptable to the Banks, is subordinate to the
Senior  Indebtedness,  the principal  amount  thereof is not increased  from the
amounts in effect as of the date hereof,  and such  Indebtedness  is not prepaid
and scheduled payments  thereunder are not accelerated from the payment dates in
effect as of the date hereof;

           (d)  the Warrant or the Warrant  Purchase  Agreement  as
defined in the Mezzanine Credit Agreement;

           (e)  Indebtedness  consisting of Contingent  Obligations
permitted pursuant to Section 8.08; and

           (f)  current  liabilities  for  lease  operating  expenses,   capital
expenditures, accounts payable, expense accruals, taxes and assessments incurred
or assumed in the ordinary course of business.

      No Credit Party shall create, incur, assume, guaranty, suffer to exist, or
otherwise  become or remain  directly or  indirectly  liable with respect to any
Indebtedness of QES.

      8.06 Transactions with Affiliates.  Each Credit Party agrees that it shall
not, and shall not allow any of its Subsidiaries,  to enter into any transaction
with or make any  payment or transfer  to any  Affiliate  of Borrower or of such
Subsidiary,  except  in the  ordinary  course  of  business  and  upon  fair and
reasonable  terms no less  favorable to Borrower or such  Subsidiary  than would
obtain in a comparable  arm's-length  transaction with a Person not an Affiliate
of Borrower or such Subsidiary.

      8.07  Margin  Stock.  Borrower  shall  not use  any  portion  of the  Loan
proceeds, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or  otherwise  refinance  Indebtedness  of Borrower or others  incurred to
purchase  or carry  Margin  Stock,  (iii) to extend  credit  for the  purpose of
purchasing or carrying any Margin Stock,  or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.

      8.08 Contingent  Obligations.  Each  Credit Party agrees that it shall not
 create, incur, assume or suffer  to  exist  any Contingent Obligations except:

           (a) endorsements for collection or deposit in the ordinary course of
business;

                                       45

<PAGE>

           (b) obligations under plugging bonds,  performance bonds and fidelity
bonds issued for the account of Borrower, obligations to indemnify or make whole
any surety and similar agreements incurred in the ordinary course of; and

           (c)  this  Agreement,  Derivative  Contracts  permitted  or  required
pursuant to Section  8.16 with any of the Banks or any  Affiliates  of the Banks
and the Mezzanine Debt permitted under Section 8.05(b).

      8.09 Mezzanine Debt Payment.  Borrower  agrees that principal  payments on
the Mezzanine  Debt shall not be made without the express,  written  approval of
the  Banks  and  that  all  payments  on the  Mezzanine  Debt  shall  be made in
compliance with the Subordination Agreement.

      8.10 Restricted Payment.  Borrower shall not purchase, redeem or otherwise
acquire  for value any  shares of its  equity  interests,  rights or  options to
acquire  such  interests,  or the  Warrants or Warrant  Purchase  Agreement  (as
defined under the Mezzanine  Loan  Agreement) now or hereafter  outstanding  and
will not  declare  or pay any  dividend,  distribution,  return  capital  to its
shareholders, or make any distribution of assets or Property to its shareholders
(collectively "Restricted Payments");  provided however, unless a Borrowing Base
deficiency  or Event of Default has occurred and is continuing to occur or would
occur as a  result  of such  Restricted  Payment,  the  Credit  Parties  may pay
principal and interest due on Intercompany Debt.

      8.11 Minimum Consolidated Tangible Net Worth.  Commencing January 1, 2003,
Borrower  shall  maintain  at all times  Consolidated  Tangible  Net Worth in an
amount not less than the sum of (a) $5,000,000, plus (b) Borrower's Consolidated
Net  Income  commencing  January  1, 2003 on a  cumulative  basis  (provided  no
negative  adjustment  will be made in the event such amount is a deficit  figure
for such period) multiplied by fifty percent (50%), plus (c) one hundred percent
(100%) of the net proceeds of any capital contribution or equity offering.

      8.12 Total Consolidated Funded Debt to EBITDA. Commencing January 1, 2003,
Borrower  shall  maintain a ratio of Total  Consolidated  Funded  Debt to EBITDA
throughout  the term hereof that does not exceed (i)  4.50:1.00 for each quarter
commencing January 1, 2003 through December 31, 2003 and (ii) 3.50:1.00 for each
quarter  thereafter.  The ratio  shall be  calculated  at the end of each fiscal
quarter,  for the four-fiscal quarter period then ended,  provided for the first
four quarters  following  Closing the ratio shall be  annualized  based upon the
number of quarters then ended following Closing.

      8.13 Current Ratio. Commencing January 1, 2003, Borrower shall maintain at
all times a current ratio of Current Consolidated Assets to Current Consolidated
Liabilities of not less than 1.00:1.00.

      8.14 Change in Business.  Each Credit Party shall not, and shall not allow
its  Subsidiaries  to,  engage  in any  business  or  activity  other  than  its
respective Principal Business.

      8.15 Accounting   Changes.   Borrower   shall  not  make  any significant
change in accounting treatment or reporting  practices,  except as  required by
GAAP, or change the fiscal year of Borrower or any Subsidiary.

                                       46
<PAGE>

      8.16  Derivative  Contracts.  Each Credit  Party shall not,  and shall not
allow its  Subsidiaries  to,  enter  into or in any  manner be liable  under any
Derivative Contract  attributable to Mortgaged Properties except such Derivative
Contracts as may be required under Section 7.15 and:

           (a) Derivative  Contracts entered into with the purpose and effect of
fixing  prices  on Oil and Gas  attributable  to the  Mortgaged  Properties  and
expected to be produced by a Credit Party  provided  that at all times:  (i) the
aggregate of all such Derivative  Contracts  limits or reduces such market price
risk for a term of no less than six (6)  and/or no more  than  twenty-four  (24)
months;  (ii) no such contract,  when aggregated  with all Derivative  Contracts
permitted under this Section 8.16(a) and/or required under Section 7.15 requires
such  Person  to  deliver  more  than 85% of total  estimated  Oil and Gas to be
produced  during the twelve (12)  months  from the date of each such  Derivative
Contract  becomes  effective  from the proved  developed  producing  Oil and Gas
Properties  as so  designated  in the most recent  Reserve  Report  furnished by
Borrower under Section  7.02(c),  and (iii) each such contract shall be with any
of the Banks or any Affiliates of the Banks, or with a  counter-party  or have a
guarantor of the obligation of the  counter-party  who, at the time the contract
is made, has long-term obligations rated BBB or Baa2 or better, respectively, by
Standard & Poor's  Rating  Group,  a division of McGraw Hill,  Inc.,  or Moody's
Investors Service, Inc. (or a successor credit rating agency).

           (b) Derivative  Contracts entered into with the purpose and effect of
fixing  interest rates on a principal  amount of  Indebtedness of a Credit Party
that is accruing  interest at a variable  rate,  provided  that (i) the floating
rate index of each such contract  generally  matches the index used to determine
the floating rates of interest on the corresponding  Indebtedness of such Credit
Party to be hedged by such contract;  (ii) no such contract with a counter-party
other than a Bank or its  Affiliate  requires such Credit Party to put up money,
assets,  letters  of  credit,  or  other  security  against  the  event  of  its
nonperformance  prior to  actual  default  by such  Credit  Party in  performing
obligations thereunder; and (iii) each such contract shall be with a Bank or its
Affiliate or with a  counter-party  or have a guarantor of the obligation of the
counter-party  who, at the time the contract is made, has long-term  obligations
rated AA or Aa2 or better,  respectively,  by Standard & Poor's Rating Group,  a
division  of McGraw  Hill,  Inc.,  or  Moody's  Investors  Service,  Inc.  (or a
successor credit rating agency).

           (c) In the event  Borrower or any of its  Subsidiaries  enters into a
Derivative  Contract  with any of the Banks or any  Affiliate of the Banks,  the
Contingent  Obligation  evidenced  under such  Derivative  Contract shall not be
applied  against such Bank's  Commitment nor against the Effective  Amount.  Any
Indebtedness  to any Bank or any  Affiliate  of the  Banks  incurred  under  any
Derivative Contract shall be treated as an Obligation pari passu and secured pro
rata  under the  Security  Documents  with all  Obligations  otherwise  incurred
hereunder or under the other Loan Documents.  Borrower  covenants and agrees the
payment on each and all of such  Derivative  Contracts  with any of the Banks or
their  Affiliates is and shall be secured by liens on the  Collateral  under the
Security Documents.

      8.17 ERISA Compliance.  Borrower will not at any time:

           (a) Engage in any transaction in connection with which Borrower could
be subjected to either a civil penalty assessed pursuant to section 502(c),  (i)
or (1) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code;

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

                                       47
<page>

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

           (d) 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 the  actuarial  present  value of the benefit  liabilities
under any Plan  maintained by Borrower that 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 any
Multiemployer Plan;

           (g)  Acquire an  interest  in any Person  that  causes such Person to
become an ERISA  Affiliate  with  respect to Borrower  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 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 any
employee  welfare benefit plan, as defined in section 3(l) of ERISA,  including,
without  limitation,  any such plan  maintained  to provide  benefits  to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability; or

           (j) Amend a Plan  resulting in an increase in current  liability such
that  Borrower is required  to provide  security to such Plan under  section 401
(a)(29) of the Code.

                                   ARTICLE IX.

                                EVENTS OF DEFAULT
                                -----------------

      9.01 Event of Default. Any of  the  following  shall constitute an "Event
of Default":

           (a)  Non-Payment.  Borrower  fails to pay, when and as required to be
paid  herein,  any amount of principal or interest of any Loan or any Matured LC
Obligation,  or fails to pay  within  five (5) days of when due any fee or other
amount payable hereunder or under any other Loan Document; or

           (b)  Guaranties.  Any Guarantor fails to pay, when and as required to
be paid under its Subsidiary Guaranty,  the "Guaranteed  Obligations" as defined
therein or any other default by any Guarantor under its Subsidiary Guaranty.

           (c)  Representation or Warranty.  Any  representation or warranty by
any  Credit  Party  made   herein,  in  any  other  Loan  Document, or which is
contained in any certificate, document or

                                       48
<PAGE>

financial  or   other  statement  by  any   Credit  Party  or  any  Responsible
Officer,  furnished at any time under this  Agreement,  or in or under any other
Loan Document,  is incorrect in any material  respect on or as of the date made;
or

           (d)  Specific  Defaults.   Any  Credit   Party  fails  to perform or
observe any  term,  covenant or  agreement  contained  in any of Section 7.03(a)
or in Article VIII, or

           (e) Other Defaults.  Any Credit Party fails to perform or observe any
other term or covenant contained in this Agreement to which it is subject (other
than  described  in  Subsections  9.01(a),  (b),  (c) or (d)) or any other  Loan
Document to which it is a party, and such default shall continue  unremedied for
a period of thirty (30) days after the date upon which written notice thereof is
given to such Credit Party by Administrative Agent; or

           (f) Cross-Default.  Any Credit Party (i) defaults under the Mezzanine
Debt,  (ii) fails to make any payment when due  (whether by scheduled  maturity,
required  prepayment,  acceleration,  demand,  or  otherwise)  and such  failure
continues after the applicable grace or notice period, if any,  specified in the
relevant  document  on the  date  of  such  failure  in  respect  of  any  other
Indebtedness or Contingent Obligation in excess of $100,000 principal amount; or
(iii) fails to perform or observe any other condition or covenant,  or any other
event shall occur or condition exist, under any agreement or instrument relating
to the Mezzanine Debt or any other such Indebtedness or Contingent Obligation in
excess of $100,000 principal amount, but in each case only if the effect of such
failure,  event or condition is to cause,  or to permit the holder or holders of
such  Indebtedness or beneficiary or  beneficiaries  of such  Indebtedness (or a
trustee  or  agent on  behalf  of such  holder  or  holders  or  beneficiary  or
beneficiaries)  to cause such  Indebtedness to be declared to be due and payable
prior to its stated maturity, or such Contingent Obligation to become payable or
cash collateral in respect thereof to be demanded; or

           (g) Insolvency; Voluntary Proceedings. Any Credit Party (i) generally
fails to pay,  or admits in  writing  its  inability  to pay,  its debts as they
become due,  subject to  applicable  grace  periods,  if any,  whether at stated
maturity or otherwise;  (ii) commences any Insolvency Proceeding with respect to
itself,  or (iii)  takes  any  action  to  effectuate  or  authorize  any of the
foregoing; or

           (h)  Involuntary   Proceedings.   (i)  Any   involuntary   Insolvency
Proceeding  is  commenced  or filed  against  any  Credit  Party,  or any  writ,
judgment,  warrant of  attachment,  execution or similar  process,  is issued or
levied against all or a substantial part of such Credit Party's Properties,  and
any such proceeding or petition shall not be dismissed,  or such writ, judgment,
warrant of  attachment,  execution or similar  process  shall not be released or
vacated  within  sixty (60) days after  commencement,  filing or levy;  (ii) any
Credit  Party admits the material  allegations  of a petition  against it in any
Insolvency  Proceeding,  or an order for  relief is  ordered  in any  Insolvency
Proceeding;  or (iii)  any  Credit  Party  acquiesces  in the  appointment  of a
receiver, trustee, custodian,  conservator,  liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its Property or business; or

           (i)  Monetary  Judgment.  One or  more  non-interlocutory  judgments,
non-interlocutory  orders,  decrees or arbitration awards is entered against any
Credit Party  involving  in the  aggregate a liability in excess of $100,000 (to
the extent not  covered by  independent  third-party  insurance  as to which the
insurer  does not  dispute  coverage),  and the same shall  remain  unsatisfied,
unvacated or unstayed  pending appeal for a period of thirty (30) days after the
entry thereof; or

                                       49

<PAGE>

           (j) Loss of Permit.  Any Governmental  Authority  revokes or fails to
renew any material  license,  permit or franchise  of any Credit  Party,  or any
Credit Party, for any reason,  loses any material license,  permit or franchise,
or any Credit Party suffers the  imposition of any  restraining  order,  escrow,
suspension or impounding of funds in connection with any proceeding (judicial or
administrative) with respect to any material license, permit or franchise;  and,
in each case such  revocation,  failure or loss could  reasonably be expected to
have a Material Adverse Effect; and such default remains unremedied for a period
of thirty (30) days after the  earlier of (i) the date upon which a  Responsible
Officer knew of such default or (ii) the date upon which written  notice thereof
is given to such Credit Party by Administrative Agent; or

           (k)  Adverse  Change.  There  occurs a Material  Adverse Effect.

           (l) Change of Control, Change of Management.  Any of Jerry D. Cash or
Doug Lamb  shall  cease or fail for any  reason to serve and  function  in their
current capacity as an executive  officer of Borrower and shall not be succeeded
in such position by a person reasonably  acceptable to the Administrative  Agent
and the Majority Banks. Jerry D. Cash and Doug Lamb shall cease to own, directly
or through their immediate  family  members,  trusts or entities wholly owned by
them, more than 40% of the equity interest in Borrower.  Borrower shall cease to
own all of the capital stock of PGP, QO&G, or STP.

      9.02 Remedies.   If  any  Event  of  Default  occurs  and  is continuing:

           (a) Upon the  occurrence of any event  specified in Subsection (g) or
(h) of Section  9.01,  the unpaid  principal  amount of all  outstanding  Loans,
interest,  LC  Obligations  and other amounts  payable under the Loan  Documents
shall automatically become due and payable without further act of Administrative
Agent, and in each case under 9.02(a),  without  presentment,  demand,  protest,
notice of intention to accelerate, notice of acceleration or any other notice of
any kind, all of which are hereby expressly waived by the Credit Parties;

           (b)  Administrative  Agent shall, at the request of, or may, with the
consent of, the Banks,  declare the Commitment,  if any, of each of the Banks to
make  Loans  or  issue  Letters  of  Credit  to be  terminated  and (i) upon the
occurrence  of any event  specified in  Subsections  9.01(a)  through (f) or (i)
through (l) may declare  all or any part of the unpaid  principal  of the Loans,
all interest  accrued and unpaid thereon,  all outstanding LC Obligations  (with
any  amounts  in  respect  of  undrawn  Letters  of  Credit  to be  held as cash
collateral  therefor in accordance  with Section  2.09(g)) and all other amounts
payable under the Loan Documents to be immediately due and payable; and

           (c) The Credit Parties acknowledge and understand that under the laws
of the State of Texas,  unless  waived,  the  Credit  Parties  have the right to
notice of the Banks' intent to accelerate the Obligations evidenced by the Note,
the right to notice of the actual  acceleration of the Obligations  evidenced by
the Note,  and the right to  presentment  of the Note by the  Banks'  demand for
payment.  The Credit Parties acknowledge that they each understand that they can
waive these rights and by the execution by each Credit Party of this  Agreement,
agree to waive  their  right to notice of intent to  accelerate,  their right to
notice of  acceleration,  and their  right to  presentment  or other  demand for
payment.

           (d)  Administrative  Agent may  exercise  on behalf of itself and the
Banks all  rights  and  remedies  available  to it and the Banks  under the Loan
Documents and applicable law.

                                       50

<PAGE>

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

                                   ARTICLE X.

                              ADMINISTRATIVE AGENT
                              --------------------

      10.01  Appointment and Authorization.

           (a) Each Bank hereby irrevocably (subject to Section 10.09) appoints,
designates and authorizes Administrative Agent to take such action on its behalf
under the  provisions  of this  Agreement  and each other Loan  Document  and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this  Agreement  or any other  Loan  Document,  together  with such
powers as are reasonably  incidental  thereto.  Notwithstanding any provision to
the  contrary  contained  elsewhere  in  this  Agreement  or in any  other  Loan
Document,  Administrative Agent shall have only such duties or responsibilities,
as expressly set forth herein,  Administrative Agent shall not have or be deemed
to have any  fiduciary  relationship  with any Bank,  and no implied  covenants,
functions,  responsibilities,  duties,  obligations or liabilities shall be read
into this  Agreement  or any other Loan  Document  or  otherwise  exist  against
Administrative Agent.

           (b) The Issuing Bank shall act on behalf of the Banks with respect to
any Letters of Credit Issued by it and the documents  associated therewith until
such  time and  except  for so long as  Administrative  Agent  may  agree at the
request of any of the Banks to act for such Issuing  Bank with respect  thereto;
provided,  however,  that the Issuing  Bank shall have all of the  benefits  and
immunities (i) provided to  Administrative  Agent in this Article X with respect
to any acts taken or omissions  suffered by the Issuing Bank in connection  with
Letters  of  Credit  Issued  by it  or  proposed  to be  Issued  by it  and  the
application  and agreements  for letters of credit  pertaining to the Letters of
Credit as fully as if the term  "Administrative  Agent," as used in this Article
X, included the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing Bank.

      10.02Delegation  of Duties.  Administrative  Agent may  execute any of its
duties  under this  Agreement or any other Loan  Document by or through  agents,
employees  or  attorneys-in-fact  and shall be  entitled  to  advice of  counsel
concerning all matters pertaining to such duties. Administrative Agent shall not
be responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.

     10.03 Liability of  Administrative Agent. None of the Agent-Related Persons
shall (i) be liable for  any action taken  or omitted to be taken by any of them
under or in  connection  with this Agreement or any  other Loan  Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct),  or  (ii) be  responsible in  any manner to any of the Banks or any
Affiliate  of  the Banks for any  recital, statement, representation or warranty
made by any Credit Party, or any officer thereof, contained in this Agreement or
in  any  other Loan Document, or in  any certificate, report, statement or other
document  referred to  or  provided  for in, or received by Administrative Agent
under  or in  connection with, this Agreement or any other Loan Document, or the
validity,  effectiveness (other   than   such  Agent-Related  Person's  own due
execution  and  delivery), genuineness,  enforceability  or  sufficiency of this
Agreement or any other Loan Document, or for  any failure of any Credit Party to
perform its obligations  hereunder or under any other Loan Documents to which it
is a party. No

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Agent-Related   Person   shall   be  under   any   obligation  to  any  Bank  to
ascertain  or to  inquire  as to the  observance  or  performance  of any of the
agreements  contained  in, or  conditions  of, this  Agreement or any other Loan
Document, or to inspect the properties, books or records of any Credit Party.

      10.04 Reliance by Administrative Agent.

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

           (b) For  purposes  of  determining  compliance  with  the  conditions
specified in Section 5.01,  each Bank that has made available to  Administrative
Agent its Pro Rata Share of the initial Loan or subsequent Loan, as the case may
be,  shall be  deemed  to have  consented  to,  approved  or  accepted  or to be
satisfied  with,  each  document or other matter  either sent by  Administrative
Agent  to such  Bank for  consent,  approval,  acceptance  or  satisfaction,  or
required  thereunder  to  be  consented  to or  approved  by  or  acceptable  or
satisfactory  to the  Bank as a  condition  precedent  to such  initial  Loan or
subsequent Loan, as applicable.

      10.05 Notice of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be  paid to  Administrative  Agent  for  the  account  of the  Banks,  unless
Administrative  Agent shall have received written notice from a Bank or a Credit
Party referring to this  Agreement,  describing such Default or Event of Default
and stating that such notice is a "notice of default". Administrative Agent will
notify  the Banks of its  receipt  of any such  notice.  Subject  to  Subsection
10.04(a),  Administrative  Agent  shall take such  action  with  respect to such
Default or Event of Default as may be requested by the Banks in accordance  with
Article IX; provided,  however,  that unless and until  Administrative Agent has
received any such request,  Administrative Agent may (but shall not be obligated
to) take such action,  or refrain from taking such action,  with respect to such
Default or Event of Default as it shall deem  advisable or in the best  interest
of the Banks.

      10.06 Credit   Decision.   Each   Bank   acknowledges  that  none  of  the
Agent-Related Persons has made any representation or warranty to it, and that no
act by any  Agent-Related  Person hereafter  taken,  including any review of the
affairs of the Credit Parties,  shall be deemed to constitute any representation
or warranty by any  Agent-Related  Person to any Bank.  Each Bank  represents to
Administrative  Agent that it has,  independently  and without reliance upon any
Agent-Related  Person  and based on such  documents  and  information  as it has
deemed  appropriate,  made  its own  appraisal  of and  investigation  into  the
business,  prospects,  operations,  property,  financial and other condition and
creditworthiness of the Credit Parties,  and all applicable bank regulatory laws
relating to the transactions  contemplated  hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower hereunder. Each

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<PAGE>

Bank  also  represents  that  it  will,  independently and without reliance upon
any Agent-Related Person and based on such documents and information as it shall
deem  appropriate  at the  time,  continue  to  make  its own  credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such investigations as it deems necessary
to inform itself as to the business, prospects,  operations, property, financial
and other  condition  and  creditworthiness  of the Credit  Parties.  Except for
notices,  reports and other documents  expressly herein required to be furnished
to the Banks by Administrative  Agent,  Administrative  Agent shall not have any
duty or  responsibility to provide any Bank with any credit or other information
concerning the business,  prospects,  operations,  property, financial and other
condition  or  creditworthiness  of the Credit  Parties  which may come into the
possession of any of the Agent-Related Persons.

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

     10.08 Administrative Agent in Individual Capacity. Wells Fargo Bank and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from,  acquire equity  interests in and generally engage in any kind of
banking,  trust,  financial  advisory,  underwriting  or other business with the
Credit  Parties  as  though  Wells  Fargo  Bank  were not  Administrative  Agent
hereunder and without notice to or consent of the Banks.  The Banks  acknowledge
that,  pursuant  to such  activities,  Wells  Fargo Bank or its  Affiliates  may
receive information regarding Borrower or its Affiliates (including  information
that may be  subject  to  confidentiality  obligations  in  favor of the  Credit
Parties)  and  acknowledge  that  the  Agent-Related  Persons  shall be under no
obligation to provide such information to them. With respect to its Loans, Wells
Fargo Bank shall have the same  rights and powers  under this  Agreement  as any
other Bank and may exercise the same as though it were not Administrative  Agent
or the Issuing Bank.

     10.09 Successor  Administrative  Agent.  Administrative Agent may resign as
Administrative  Agent upon 30 days' notice to the Banks. If Administrative Agent
resigns  under this  Agreement,  the Banks shall  appoint from among the Banks a
successor   administrative   agent  in  the  same   capacity  as  the   retiring
Administrative  Agent for the Banks.  If no  successor  administrative  agent is
appointed  prior  to the  effective  date of the  resignation  of such  retiring
Administrative  Agent,  such retiring  Administrative  Agent may appoint,  after
consulting with the Banks, a successor administrative agent from among the

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<PAGE>

Banks.  Upon  the  acceptance  of  its appointment  as successor  administrative
agent hereunder,  such successor  administrative  agent shall succeed to all the
rights,  powers and  duties of the  retiring  Administrative  Agent and the term
"Administrative  Agent" shall mean such successor  administrative  agent and the
retiring Administrative Agent's appointment, powers and duties as Administrative
Agent shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Article X and Sections
11.05 and 11.06 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was  Administrative  Agent under this  Agreement.  If no
successor  administrative agent has accepted appointment as Administrative Agent
in the same capacity as the retiring  Administrative  Agent by the date which is
30 days following a retiring  Administrative Agent's notice of resignation,  the
retiring  Administrative  Agent shall  either  withdraw its  resignation  or may
appoint as a successor  administrative  agent a commercial  bank organized under
the laws of the  United  States  of  America  or of any State  thereof  having a
commercial capital surplus of at least $500,000,000.

                                   ARTICLE XI.

                                  MISCELLANEOUS
                                  -------------

      11.01 Amendments and Waivers.  No amendment or waiver of any  provision of
this  Agreement or any other Loan  Document,  and no consent with respect to any
departure by any Credit  Party  therefrom,  shall be  effective  unless the same
shall be in writing and signed by the Majority Banks (or by Administrative Agent
at the  written  request of the  Majority  Banks) and the Credit  Parties  party
thereto and  acknowledged by  Administrative  Agent, and then any such waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which  given;  provided  however,  that no such  waiver,  amendment,
modification,  termination or consent shall, unless in writing and signed by all
of  the  Banks  and  the  Credit  Parties  party  thereto  and  acknowledged  by
Administrative Agent, do any of the following:

           (a) increase or extend the  Commitment  of any Bank (or reinstate any
Commitment  terminated pursuant to Section 9.02), or increase the maximum amount
of Letters of Credit;

           (b)  postpone  the final  maturity  date of any Loan,  or postpone or
delay any date  fixed by this  Agreement  or any  other  Loan  Document  for any
payment of principal,  interest,  fees or other amounts due to the Banks (or any
of them) hereunder or under any other Loan Document;

           (c) reduce the principal of, or the rate of interest specified herein
on any Loan, or any fees or other amounts  payable  hereunder or under any other
Loan Document;

           (d) change the definition of Majority  Banks,  the Pro Rata Shares or
change in any manner the  percentage of Banks  required to take any action under
this Agreement;

           (e) amend  this  Section  11.01 or any  provision  of this  Agreement
which,  by its terms,  expressly  requires  the approval or  concurrence  of all
Banks;

           (f) release all,  substantially  all, or any material  portion of the
Collateral  (except for releases in connection with  dispositions of assets that
are permitted hereunder or under any Loan Document);

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<PAGE>

           (g) reduce the amount or postpone the due date of any amount  payable
in respect of, or extend the required  expiration date of, any Letter of Credit,
or change in any manner the  obligations  of Banks  relating to the  purchase of
participations in Letters of Credit;

           (h) increase the  Borrowing  Base pursuant to Section 2.04 or approve
any increase in the Mezzanine Borrowing Base,  provided,  the Majority Banks may
maintain or decrease the Borrowing Base pursuant to Section 2.04; or

           (i)  amend or modify the Subordination Agreement;

and;  provided  further,  that (i) any amendment,  modification,  termination or
waiver of any of the  provisions  contained in Article V shall be effective only
if evidenced by a writing signed by or on behalf of Administrative Agent and all
of the Banks, (ii) no amendment,  waiver or consent shall, unless in writing and
signed by the Issuing Bank in addition to any or all the Banks,  as the case may
be, affect the rights or duties of the Issuing Bank under this  Agreement or any
LC Related  Document  relating to any Letter of Credit Issued or to be Issued by
it, and (iii) no  amendment,  waiver or  consent  shall,  unless in writing  and
signed by  Administrative  Agent in addition to the any or all of the Banks,  as
the case may be, affect the rights or duties of Administrative  Agent under this
Agreement or any other Loan Document.

      11.02 Notices.

           (a) All  notices,  requests  and  other  communications  shall  be in
writing and mailed by  certified  mail,  electronically  transmitted  by e-mail,
faxed or delivered,  to the address or facsimile number specified for notices on
the signature page hereof,  or, as directed to the Credit Parties,  the Banks or
Administrative  Agent at such other address as shall be designated by such party
in a written notice to the Credit Parties, the Banks and Administrative Agent.

           (b) All such notices,  requests and communications,  when transmitted
by delivery,  certified mail,  e-mail, or fax, shall be effective when delivered
or transmitted in legible form.

           (c) Any  agreement  of  Administrative  Agent and the Banks herein to
receive  certain  notices by  telephone,  e-mail or  facsimile is solely for the
convenience and at the request of the Credit Parties.  Administrative  Agent and
the Banks shall be entitled to rely on the authority of any Person purporting to
be  a  Person  authorized  by  the  Credit  Parties  to  give  such  notice  and
Administrative  Agent and the Banks shall not have any  liability  to the Credit
Parties  or  other  Person  on  account  of any  action  taken  or not  taken by
Administrative  Agent or any of the  Banks in  reliance  upon  such  telephonic,
e-mail or facsimile  notice.  The  obligation of the Credit Parties to repay the
Loans  shall  not be  affected  in any way or to any  extent by any  failure  by
Administrative  Agent  and the  Banks to  receive  written  confirmation  of any
telephonic,  e-mail or facsimile notice or the receipt by  Administrative  Agent
and the Banks of a confirmation  which is at variance with the terms  understood
by  Administrative  Agent and the Banks to be  contained  in the  telephonic  or
facsimile notice.

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

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<PAGE>

      11.04 Costs and Expenses. Borrower shall:

          (a) whether  or   not  the  transactions   contemplated   hereby   are
consummated, pay or reimburse Administrative Agent within five (5) Business Days
after reasonably detailed written demand for all reasonable  out-of-pocket costs
and  expenses   incurred  by   Administrative   Agent  in  connection  with  the
development,  preparation,  delivery,  administration  and execution of, and any
amendment,  supplement,  waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection  herewith or therewith,  and the  consummation of the transactions
contemplated   hereby  and  thereby,   including   Attorney  Costs  incurred  by
Administrative Agent with respect thereto; and

           (b) pay or  reimburse  Administrative  Agent within five (5) Business
Days after written demand for all costs and expenses  (including Attorney Costs)
incurred by it in connection with the  enforcement,  attempted  enforcement,  or
preservation  of any rights or remedies  under this  Agreement or any other Loan
Document  during the existence of an Event of Default or after  acceleration  of
the Loans (including in connection with any "workout" or restructuring regarding
the Loans, and including in any Insolvency Proceeding or appellate proceeding).

      11.05 Indemnity. Whether or not the transactions  contemplated  hereby are
consummated,  each Credit Party shall jointly and  severally  indemnify and hold
the  Agent-Related  Persons,  the  Issuing  Bank,  each  Bank,  and  each of its
officers,  directors,   employees,  counsel,  and  attorneys-in-fact  (each,  an
"Indemnified  Person")  harmless  from  and  against  any and  all  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
charges,  expenses and disbursements  (including  Attorney Costs) of any kind or
nature  whatsoever  which  may at any  time  (including  at any  time  following
repayment of the Loans,  and the  termination,  resignation  or  replacement  of
Administrative  Agent or replacement of any Bank), be imposed on, incurred by or
asserted  against any such Person in any way  relating to or arising out of this
Agreement  or  any  document  contemplated  by or  referred  to  herein,  or the
transactions  contemplated  hereby,  or any action  taken or omitted by any such
Person under or in connection with any of the foregoing,  including with respect
to  any  investigation,  litigation  or  proceeding  (including  any  Insolvency
Proceeding or appellate  proceeding) related to or arising out of this Agreement
or the Loans or the use of the proceeds thereof,  whether or not any Indemnified
Person is a party thereto (all the  foregoing,  collectively,  the  "Indemnified
Liabilities")  WHETHER OR NOT SUCH INDEMNIFIED  LIABILITIES ARISE OUT OF OR AS A
RESULT OF ANY  INDEMNIFIED  PARTY'S  NEGLIGENCE IN WHOLE OR IN PART,  INCLUDING,
WITHOUT LIMITATION,  THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT,  CONCURRENT
OR COMPARATIVE  NEGLIGENCE OF THE INDEMNIFIED PARTY, OR ANY ONE OR MORE OF THEM;
provided,  that no Credit  Party  shall  have any  obligation  hereunder  to any
Indemnified  Person with respect to  Indemnified  Liabilities to the extent same
arise  from the gross  negligence  or  willful  misconduct  of such  Indemnified
Person.  The  agreements  in this  Section  shall  survive  payment of all other
Obligations.

      11.06 Payments Set Aside.  To the extent that Borrower  makes a payment to
Administrative Agent or the Banks, or Administrative Agent or the Banks exercise
their rights of set-off, and such payment or the proceeds of such set-off or any
part  thereof  are  subsequently  invalidated,  declared  to  be  fraudulent  or
preferential,  set  aside or  required  (including  pursuant  to any  settlement
entered  into by  Administrative  Agent or such  Bank in its  discretion)  to be
repaid  to a  trustee,  receiver  or any other  party,  in  connection  with any
Insolvency Proceeding or otherwise,  then (a) to the extent permitted by law and
to the  extent  of such  recovery  the  obligation  or part  thereof  originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not  occurred,  and (b)
each Bank severally  agrees to pay to  Administrative  Agent upon demand its Pro
Rata Share of any amount so recovered from or repaid by Administrative Agent.

                                       56
<PAGE>

      11.07 Successors and Assigns.  The provisions of this  Agreement  shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors  and assigns,  except that no Credit Party may assign or transfer any
of its rights or  obligations  under this  Agreement  without the prior  written
consent of Administrative Agent, Issuing Bank and each Bank.

      11.08 Assignments.  No  Bank  may  transfer,   pledge,  assign,  sell  any
participation in, or otherwise encumber its portion of the Obligations except as
permitted by clauses (a) or (b) below.

           (a) Any Bank may  (subject  to the  provisions  of this  section,  in
accordance with  applicable law, in the ordinary course of its business,  and at
any time), with Borrower's  consent and acceptance (that may not be unreasonably
withheld and which  consent shall not be required at any time that a Default has
occurred and is continuing)  sell to one or more Persons (each a  "Participant")
participating  interests  in its portion of the  Obligations.  The selling  Bank
remains a "Bank" under the Loan  Documents,  the  Participant  does not become a
"Bank" under the Loan Documents,  and the selling Bank's  obligations  under the
Loan Documents remain unchanged. The selling Bank remains solely responsible for
the  performance of its  obligations  and remains the holder of its share of the
outstanding  Loan for all  purposes  under  the  Loan  Documents.  Borrower  and
Administrative Agent shall continue to deal solely and directly with the selling
Bank in  connection  with that  Bank's  rights  and  obligations  under the Loan
Documents,  and each Bank must  retain  the sole  right  and  responsibility  to
enforce due obligations of the Credit Parties. Participants have no rights under
the Loan Documents  except certain voting rights as provided  below.  Subject to
the following, each Bank may obtain (on behalf of its Participants) the benefits
of this  Article  XI  with  respect  to all  participations  in its  part of the
Obligations  outstanding  from time to time so long as Borrower is not obligated
to pay any amount in excess of the  amount  that would be due to that Bank under
this Article XI calculated as though no  participations  have been made. No Bank
may sell any  participating  interest under which the Participant has any rights
to approve any amendment, modification, or waiver of any Loan Document except as
to matters in Section 11.01.

           (b) Each Bank may make  assignments to the Federal Reserve Bank. Each
Bank may also assign to one or more Eligible  Assignees (each an "Assignee") all
or any part of its rights and  obligations  under the Loan  Documents so long as
(i) the assignor Bank and Assignee execute and deliver to  Administrative  Agent
for its consent and acceptance (that may not be unreasonably  withheld and which
consent  shall not be  required  for any  assignment  to  another  Bank or to an
affiliate  of a Bank) and deliver to Borrower  for its consent  (that may not be
unreasonably withheld and which consent shall not be required at any time that a
Default has occurred and is continuing)  an assignment and assumption  agreement
in  substantially   the  form  of  Exhibit  F  (an  "Assignment  and  Acceptance
Agreement") and pay to Administrative Agent a processing fee of $3,000, (ii) the
Assignee  acquires an identical  percentage  interest in the  Commitment  of the
assignor Bank and an identical  percentage  of the interests in the  outstanding
Loan held by such  assignor  Bank,  (iii) except in the case of an assignment to
another Bank or an assignment of all of a Bank's  rights and  obligations  under
this Agreement, any partial assignment shall be in an amount equal to $5,000,000
or an integral multiple of $100,000 in excess thereof, (iv) Borrower consents to
such  assignment,  provided,  however,  that  Borrower's  consent  shall  not be
required upon the occurrence and during the continuance of a Default and (v) the
conditions  (including,  without  limitation,  minimum amounts of the Commitment
that may be assigned or that must be retained) for that  assignment set forth in
the applicable Assignment and Acceptance Agreement are satisfied. The "Effective
Date" in each Assignment and Acceptance  Agreement must (unless a shorter period
is agreeable to Borrower and Administrative Agent) be at least five (5) Business
Days after it is executed and  delivered  by the  assignor  Bank and Assignee to
Administrative  Agent and  Borrower for  acceptance.  Once that  Assignment  and
Acceptance  Agreement is accepted by  Administrative  Agent and Borrower,  then,
from and after the

                                       57

<PAGE>

Effective  Date  stated  in  it (i)  Assignee  automatically becomes a party to
this   Agreement  and,  to  the   extent  provided   in   that  Assignment  and
Acceptance  Agreement,  has the rights and  obligations of a Bank under the Loan
Documents, (ii) the assignor Bank, to the extent provided in that Assignment and
Acceptance Agreement,  is released from its obligations to fund Borrowings under
this Agreement and its  reimbursement  obligations  under this Agreement and, in
the case of an Assignment and Acceptance Agreement covering all of the remaining
portion of the assignor Bank's rights and obligations  under the Loan Documents,
that  Bank  ceases to be a party to the Loan  Documents,  (iii)  Borrower  shall
execute and deliver to the assignor Bank and Assignee the  appropriate  Notes in
accordance with this Agreement following the transfer, (iv) upon delivery of the
Notes under clause (iii)  preceding,  the assignor Bank shall return to Borrower
all Notes  previously  delivered  to that Bank  under  this  Agreement,  and (v)
Schedule  2.01 is  automatically  deemed  to be  amended  to  reflect  the name,
address,   telecopy  number,  and  Commitment  of  Assignee  and  the  remaining
Commitment (if any) of the assignor Bank, and Administrative Agent shall prepare
and circulate to Borrower and Banks an amended  Schedule 2.01  reflecting  those
changes.

      11.09 Set-off.  In  addition to any rights and remedies of  Administrative
Agent and each of the Banks provided by law, if an Event of Default exists, each
Bank is  authorized  at any time and from time to time,  without prior notice to
Borrower,  to the extent  permitted  by law,  any such  notice  being  waived by
Borrower 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 by, and other  Indebtedness  at any time owing by, such Bank to or for
the credit or the account of Borrower  against any and all Obligations  owing to
such Bank, now or hereafter  existing,  irrespective  of whether such Bank shall
have made demand  under this  Agreement or any Loan  Document and although  such
Obligations may be contingent or unmatured.  Each Bank agrees promptly to notify
Borrower after any such setoff and application made by such Bank,  provided that
the failure to give such notice shall not affect the validity of such setoff and
applications.  The rights of each Bank under this Section  12.10 are in addition
to other rights and remedies  (including,  without  limitation,  other rights of
setoff) which such Bank may have.

      11.10 Interest. It is the  intention  of the  parties  hereto  to  conform
strictly to Applicable Usury Laws regarding the use, forbearance or detention of
the  indebtedness  evidenced  by this  Agreement,  the Notes and the other  Loan
Documents,  whether such laws are now or hereafter in effect, including the laws
of the  United  States of  America  or any  other  jurisdiction  whose  laws are
applicable,   and   including   any   subsequent   revisions   to  or   judicial
interpretations of those laws, in each case to the extent they are applicable to
this Agreement,  the Notes and the other Loan Documents (the  "Applicable  Usury
Laws").  Accordingly,  if any  acceleration  of the maturity of the Notes or any
payment by Borrower or any other Person produces a rate in excess of the Highest
Lawful Rate or  otherwise  results in Borrower or such other Person being deemed
to have paid any  interest  in  excess of the  Maximum  Amount,  as  hereinafter
defined,  or if  Administrative  Agent or any of the Banks  shall for any reason
receive any unearned  interest in violation of any Applicable  Usury Laws, or if
any  transaction  contemplated  hereby  would  otherwise  be usurious  under any
Applicable  Usury  Laws,  then,  in  that  event,  regardless  of any  provision
contained  in this  Agreement or any other Loan  Document or other  agreement or
instrument executed or delivered in connection herewith,  the provisions of this
Section  11.10 shall  govern and  control,  and neither  Borrower  nor any other
Person  shall be  obligated  to pay,  or apply in any manner to, any amount that
would be excessive  interest.  Administrative  Agent or the Banks shall never be
deemed to have  contracted  for or be  entitled  to  receive,  collect,  charge,
reserve or apply as interest on any Loan  (whether  termed  interest  therein or
deemed to be interest by judicial determination or operation of law), any amount
in excess of the Highest  Lawful  Rate,  and,  in the event that  Administrative
Agent or any of the Banks ever receive,  collect,  or apply as interest any such
excess,  such amount  which would be  excessive  interest  shall be applied as a
partial  prepayment  of principal  and treated  hereunder  as such,  and, if the
principal amount of

                                       58
<PAGE>

the   applicable   Loans   are   paid  in  full,  any  remaining   excess  shall
forthwith  be paid to  Borrower.  In  determining  whether  or not the  interest
contracted  for,  received,   collected,  charged  reserved,  paid  or  payable,
including  under any  specific  contingency,  exceeds the Highest  Lawful  Rate,
Borrower,  Administrative  Agent  and the Banks  shall,  to the  maximum  extent
permitted  under  applicable law, (a)  characterize  any  non-principal  payment
(other  than  payments  which are  expressly  designated  as  interest  payments
hereunder) as an expense or fee rather than as interest,  (b) exclude  voluntary
pre-payments  and the  effect  thereof,  and (c)  amortize  and spread the total
amount of interest  throughout  the entire  stated term of the Loans so that the
interest rate is uniform  throughout  such term;  provided that if the Loans are
paid in full prior to the end of the full contemplated  term hereof,  and if the
interest received for the actual period of existence thereof exceeds the Highest
Lawful  Rate,  if any,  then  Administrative  Agent or the Banks shall refund to
Borrower the amount of such excess,  or credit the amount of such excess against
the aggregate unpaid principal balance of all Loans made by Administrative Agent
or the Banks.  As used  herein,  the term  "Maximum  Amount"  means the  maximum
nonusurious  amount of interest which may be lawfully  contracted for, reserved,
charged,  collected  or  received  by  Administrative  Agent  or  such  Bank  in
connection  with the  indebtedness  evidenced by this  Agreement,  the Notes and
other Loan  Documents  under all  Applicable  Usury Laws.  Texas  Finance  Code,
Chapter 346,  which  regulates  certain  revolving  loan  accounts and revolving
tri-party  accounts,  shall not apply to any  revolving  loan  accounts  created
under,  or apply in any manner to, the Notes,  this  Agreement or the other Loan
Documents.

      11.11 Automatic Debits of Fees.With respect to any arrangement fee, letter
of credit fee or other fee,  or any other  cost or expense  (including  Attorney
Costs) past due and payable to  Administrative  Agent under the Loan  Documents,
Borrower hereby irrevocably  authorizes  Administrative Agent, after giving five
(5) Business  Days' prior notice to  Borrower,  to debit any deposit  account of
Borrower with  Administrative  Agent in an amount such that the aggregate amount
debited from all such deposit accounts does not exceed such fee or other cost or
expense.  If there are insufficient  funds in such deposit accounts to cover the
amount  of the fee or other  cost or  expense  then  due,  such  debits  will be
reversed (in whole or in part, in  Administrative  Agent's sole  discretion) and
such amount not debited  shall be deemed to be unpaid.  No such debit under this
Section shall be deemed a set-off.

      11.12 Notification of Addresses,  Lending  Offices,  Etc. Each  Bank shall
notify  Administrative  Agent in writing of any  changes in the address to which
notices to the Bank should be directed,  of addresses of any Lending Office,  of
payment  instructions  in respect of all payments to be made to it hereunder and
of  such  other   administrative   information  as  Administrative  Agent  shall
reasonably request.

      11.13 Counterparts. This  Agreement  may  be  executed  in any  number  of
separate  counterparts,  each of  which,  when so  executed,  shall be deemed an
original,  and all of said  counterparts  taken  together  shall  be  deemed  to
constitute but one and the same instrument and, any signed  counterpart shall be
deemed  delivered by the party signing it if sent to the other parties hereto by
electronic facsimile transmission.

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

      11.15 No Third Parties  Benefited. This Agreement is made and entered into
for the sole protection and legal benefit of the Credit Parties,  the Banks, the
Issuing  Bank,  Administrative  Agent and the  Agent-Related  Persons  and their
permitted successors and assigns, and no other Person shall be a

                                       59
<PAGE>

direct  or  indirect  legal  beneficiary  of, or  have  any  direct  or indirect
cause of action or claim in connection  with, this Agreement or any of the other
Loan Documents.

      11.16 GOVERNING LAW. THIS AGREEMENT, THE NOTES, THE SECURITY DOCUMENTS AND
THE OTHER LOAN  DOCUMENTS  SHALL BE GOVERNED BY,  CONSTRUED AND  INTERPRETED  IN
ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT REQUIRED BY
FEDERAL LAWS OF THE UNITED STATES OF AMERICA THAT MAY APPLY; AND  ADMINISTRATIVE
AGENT,  THE ISSUING  BANK AND THE BANKS SHALL  RETAIN ALL RIGHTS  ARISING  UNDER
FEDERAL LAW.

           (a) EACH CREDIT PARTY IRREVOCABLY  CONSENTS TO THE SERVICE OF PROCESS
IN ANY LEGAL ACTION OR  PROCEEDING  WITH RESPECT TO THIS  AGREEMENT OR ANY OTHER
LOAN DOCUMENT BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED  MAIL,
POSTAGE  PREPAID,  TO IT AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE  BELOW.
SUCH SERVICE TO BECOME  EFFECTIVE  TEN DAYS AFTER SUCH MAILING.  NOTHING  HEREIN
SHALL AFFECT THE RIGHT OF ADMINISTRATIVE  AGENT, THE ISSUING BANK OR ANY BANK TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

           (b) ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF
THE UNITED  STATES FOR THE  NORTHERN  DISTRICT OF TEXAS,  AND BY  EXECUTION  AND
DELIVERY  OF THIS  AGREEMENT,  EACH  CREDIT  PARTY  CONSENTS,  FOR ITSELF AND IN
RESPECT OF ITS PROPERTY,  TO THE  NON-EXCLUSIVE  JURISDICTION OF THOSE COURTS TO
THE EXTENT PERMITTED BY LAW. EACH CREDIT PARTY IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING  ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH  JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED  HERETO.  EACH CREDIT  PARTY  WAIVES  PERSONAL  SERVICE OF ANY  SUMMONS,
COMPLAINT OR OTHER  PROCESS,  AND CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
LEGAL ACTION OR  PROCEEDING  BY THE MAILING OF COPIES  THEREOF BY  REGISTERED OR
CERTIFIED  MAIL,  POSTAGE  PREPAID,  TO IT AT ITS  ADDRESS FOR NOTICES SET FORTH
HEREIN,  SUCH SERVICE TO BECOME  EFFECTIVE TEN DAYS AFTER SUCH MAILING.  NOTHING
HEREIN SHALL AFFECT THE RIGHT OF  ADMINISTRATIVE  AGENT, THE ISSUING BANK OR ANY
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

           (c) TO THE EXTENT PERMITTED BY LAW, EACH CREDIT PARTY, THE BANKS, THE
ISSUING BANK AND  ADMINISTRATIVE  AGENT EACH WAIVES ITS  RESPECTIVE  RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION  BASED UPON OR  ARISING  OUT OF OR
RELATED  TO THIS  AGREEMENT,  THE  OTHER  LOAN  DOCUMENTS,  OR THE  TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY  TYPE  BROUGHT  BY  ANY  OF THE  PARTIES  AGAINST  ANY  OTHER  PARTY  OR ANY
AGENT-RELATED PERSON,  PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS,  TORT CLAIMS,  OR OTHERWISE.  EACH CREDIT PARTY,  THE BANKS, THE ISSUING
BANK AND ADMINISTRATIVE AGENT EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE

                                       60
<PAGE>

FOREGOING, THE  PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL  BY
JURY  IS WAIVED BY OPERATION OF THIS SECTION  AS TO ANY  ACTION, COUNTERCLAIM OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY  PROVISION
HEREOF  OR  THEREOF.  THIS  WAIVER  SHALL  APPLY  TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS,  SUPPLEMENTS  OR   MODIFICATIONS  TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

      11.17 ARBITRATION.

           (a)  Arbitration.  Upon the demand of any party, any dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement.  A "dispute"  shall mean any action,  dispute,
claim or  controversy  of any kind,  whether in contract or tort,  statutory  or
common law,  legal or equitable,  now existing or hereafter  arising under or in
connection with, or in any way pertaining to, any of the Loan Documents,  or any
past, present or future extensions of credit and other activities,  transactions
or  obligations  of any kind related  directly or  indirectly to any of the Loan
Documents,  including  without  limitation,  any of  the  foregoing  arising  in
connection  with the  exercise of any  self-help,  ancillary  or other  remedies
pursuant  to any of the Loan  Documents.  Any party may by  summary  proceedings
bring an action in court to compel arbitration of a dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and  expenses  incurred by such other  party in  compelling
arbitration of any dispute.

           (b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration  Association ("AAA") or such other administrator as the
parties  shall  mutually  agree  upon in  accordance  with  the  AAA  commercial
arbitration  rules. All disputes  submitted to arbitration  shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding  any  conflicting  choice  of law  provision  in any of the Loan
Documents. The arbitration shall be conducted at a location in Texas selected by
the AAA or other administrator.  If there is any inconsistency between the terms
hereof and any such  rules,  the terms and  procedures  set forth  herein  shall
control. All statutes of limitation applicable to any dispute shall apply to any
arbitration  proceeding.  All discovery activities shall be expressly limited to
matters  directly  relevant to the dispute being  arbitrated.  Judgment upon any
award  rendered  in  an   arbitration   may  be  entered  in  any  court  having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any  party  that is a lender of the  protections  afforded  to it
under 12 U.S.C. 91 or any similar applicable state law.

           (c) No Waiver;  Provisional Remedies,  Self-Help and Foreclosure.  No
provision  hereof  shall  limit  the right of any  party to  exercise  self-help
remedies  such as set-off,  foreclosure  against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including  without  limitation  injunctive  relief,  sequestration,  attachment,
garnishment  or the  appointment  of a  receiver,  from  a  court  of  competent
jurisdiction  before,  after or during the pendency of any  arbitration or other
proceeding.  The  exercise of any such  remedy  shall not waive the right of any
party to compel arbitration hereunder.

           (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active  members of the Texas State Bar with  expertise in the  substantive  laws
applicable to the subject  matter of the dispute.  Arbitrators  are empowered to
resolve  disputes by summary  rulings in response to motions  filed prior to the
final  arbitration  hearing.  Arbitrators  (i) shall  resolve  all  disputes  in
accordance with the  substantive  law of the state of Texas,  (ii) may grant any
remedy or relief that a court of the state of Texas

                                       61

<PAGE>

could  order or  grant  within  the scope  hereof  and suc  ancillary relief as
is  necessary  to make  effective  any award,  and (iii) shall have the power to
award  recovery  of  all  costs  and  fees,  to  impose  sanctions  and  to take
such  other  actions as they deem  necessary  to the same  extent a judge  could
pursuant  to the  Federal  Rules of Civil  Procedure,  the Texas  Rules of Civil
Procedure  or  other  applicable  law.  Any  dispute  in  which  the  amount  in
controversy  is $5,000,000 or less shall be decided by a single  arbitrator  who
shall not render an award of greater than $5,000,000 (including damages,  costs,
fees and expenses).  By submission to a single arbitrator,  each party expressly
waives any right or claim to recover more than $5,000,000.  Any dispute in which
the amount in controversy  exceeds  $5,000,000 shall be decided by majority vote
of a panel of three  arbitrators;  provided however,  that all three arbitrators
must actively participate in all hearings and deliberations.

           (e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds  $25,000,000,  the
arbitrators  shall be required to make  specific,  written  findings of fact and
conclusions of law. In such  arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial  evidence or which
is based on legal  error,  (ii) an award  shall not be binding  upon the parties
unless the  findings  of fact are  supported  by  substantial  evidence  and the
conclusions of law are not erroneous  under the  substantive law of the state of
Texas,  and (iii) the parties shall have in addition to the grounds  referred to
in the Federal  Arbitration  Act for vacating,  modifying or correcting an award
the right to judicial review of (a) whether the findings of fact rendered by the
arbitrators  are  supported  by  substantial  evidence,   and  (b)  whether  the
conclusions  of law are  erroneous  under  the  substantive  law of the state of
Texas.  Judgment confirming an award in such a proceeding may be entered only if
a court determines the award is supported by substantial  evidence and not based
on legal error under the substantive law of the state of Texas.

           (f) Miscellaneous.  To the maximum extent  practicable,  the AAA, the
arbitrators  and the parties  shall take all action  required  to  conclude  any
arbitration  proceeding  within 180 days of the filing of the  dispute  with the
AAA. No arbitrator or other party to an arbitration  proceeding may disclose the
existence,  content or results thereof, except for disclosures of information by
a party  required in the ordinary  course of its business,  by applicable law or
regulation,  or to the extent  necessary to exercise any judicial  review rights
set forth herein.  If more than one agreement for  arbitration by or between the
parties  potentially  applies  to a  dispute,  the  arbitration  provision  most
directly  related to the Loan  Documents  or the  subject  matter of the dispute
shall control. This arbitration  provision shall survive termination,  amendment
or  expiration  of any of the Loan  Documents  or any  relationship  between the
parties.

      11.18 Entire  Agreement.  This  Agreement, together  with the  other  Loan
Documents,  embodies the entire  agreement  and  understanding  among the Credit
Parties,  the Banks, the Issuing Bank and  Administrative  Agent, and supersedes
all prior or  contemporaneous  agreements and any other  understandings  of such
Persons, verbal or written, relating to the subject matter hereof and thereof.

      11.19 NO ORAL  AGREEMENTS. THIS WRITTEN LOAN AGREEMENT,  TOGETHER WITH THE
OTHER WRITTEN LOAN  DOCUMENTS  EXECUTED IN CONNECTION  HEREWITH,  REPRESENTS THE
FINAL  AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

      THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                                       62

<PAGE>

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

                                  -  BORROWER  -

Address for Notice:               QUEST  RESOURCE   CORPORATION,   a Nevada
------------------                corporation,  as  Borrower and a Credit Party
5901 N. Western, Suite 200
Oklahoma City, Oklahoma 73118
Attn:  Jerry Cash
Phone:  (405) 840-9894
Fax:  (405) 840-9897
Email: jcash@stpokc.com           By: /s/ Douglas L. Lamb
                                     --------------------
                                       Douglas L. Lamb
                                       President

                                  By:  /s/ Jerry D. Cash
                                     ---------------------
                                       Jerry D. Cash
                                       Treasurer and Chief Financial Officer

                                  -  GUARANTORS  -

Address for Notice:               PONDEROSA  GAS  PIPELINE  COMPANY, INC.,
------------------                a Kansas  corporation,  as a Guarantor
5901 N. Western, Suite 200        and a Credit Party
Oklahoma City, Oklahoma 73118
Attn:  Jerry Cash
Phone:  (405) 840-9894
Fax:  (405) 840-9897
Email: jcash@stpokc.com           By: /s/ Douglas L. Lamb
                                     --------------------
                                       Douglas L. Lamb
                                       President

                                  By:  /s/ Jerry D. Cash
                                     ---------------------
                                       Jerry D. Cash
                                       Treasurer and Chief Financial Officer

                                      S-0-
<page>

Address for Notice:               QUEST  OIL  & GAS  CORPORATION,  a
------------------                Kansas    corporation,     as    a
5901 N. Western, Suite 200        Guarantor and a Credit Party
Oklahoma City, Oklahoma 73118
Attn:  Jerry Cash
Phone:  (405) 840-9894
Fax:  (405) 840-9897
Email: jcash@stpokc.com           By: /s/ Douglas L. Lamb
                                     --------------------
                                       Douglas L. Lamb
                                       President

                                  By:  /s/ Jerry D. Cash
                                     --------------------
                                       Jerry D. Cash
                                       Treasurer and Chief Financial Officer

Address for Notice:               STP  CHEROKEE,  INC.,  an Oklahoma
------------------                corporation,  as a Guarantor and a
5901 N. Western, Suite 200        Credit Party
Oklahoma City, Oklahoma 73118
Attn:  Jerry Cash
Phone:  (405) 840-9894
Fax:  (405) 840-9897
Email: jcash@stpokc.com           By: /s/ Douglas L. Lamb
                                     --------------------
                                       Douglas L. Lamb
                                       President

                                  By:  /s/ Jerry D. Cash
                                     --------------------
                                       Jerry D. Cash
                                       Treasurer and Chief Financial Officer

                                      S-1-
<PAGE>

                                    -  ADMINISTRATIVE AGENT AND
                                    ISSUING BANK  -

Address for Notice:                 WELLS FARGO BANK TEXAS, N.A.,
------------------                  as   Administrative   Agent   and
1445 Ross Avenue, Suite 2360        Issuing Bank
MAC:  T5303-233
Dallas, Texas 75202
Attn: J. Alan Alexander, Jr.        By:  /s/ J. Alan Alexander, Jr.
Telephone: (214) 661-1237               ----------------------------
Facsimile: (214) 661-1242                J. Alan Alexander, Jr.
E-mail: alexana@wellsfargo.com           Vice President

                                   -  THE BANKS -

Address for Notice:                 WELLS FARGO BANK TEXAS, N.A.,
------------------                  a national banking association
1445 Ross Avenue, Suite 2360
MAC:  T5303-233
Dallas, Texas 75202
Attn: J. Alan Alexander, Jr.        By:  /s/ J. Alan Alexander, Jr.
Telephone: (214) 661-1237               ----------------------------
Facsimile: (214) 661-1242               J. Alan Alexander, Jr.
E-mail: alexana@wellsfargo.com          Vice President

                                      S-2-SUBORDINATION AGREEMENT
                             -----------------------

      This  Subordination  Agreement  (this  "Agreement")  is entered into as of
November  7, 2002,  by and among  WELLS  FARGO  ENERGY  CAPITAL,  INC.,  a Texas
corporation  (the  "Subordinated  Lender"),  WELLS  FARGO BANK  TEXAS,  N.A.,  a
national   banking   association   ("Administrative   Agent"),   QUEST  RESOURCE
CORPORATION, a Nevada corporation ("Borrower"), and QUEST OIL & GAS CORPORATION,
Kansas corporation,  PONDEROSA GAS PIPELINE COMPANY, INC., a Kansas corporation,
and STP CHEROKEE, INC., an Oklahoma corporation (individually, a "Guarantor" and
a "Credit Party" and collectively with Borrower, the "Credit Parties").

                                    RECITALS
                                    --------

      WHEREAS,  Administrative  Agent,  and the  Banks  named  therein  as party
thereto  (collectively "Senior Lender") and the Credit Parties have entered into
that certain  Credit  Agreement  dated as of even date  herewith (as same may be
hereafter  renewed,  extended,  amended,  or  restated  from time to time not in
violation of the terms of this Agreement, the "Senior Credit Agreement"); and

      WHEREAS,  it is proposed that Borrower and Subordinated  Lender enter into
that certain Credit Agreement dated of even date herewith (as renewed, extended,
amended, or restated from time to time, the "Subordinated Credit Agreement"), to
provide Borrower with up to $20,000,000 subordinated revolving line of credit to
refinance existing debt of the Borrower,  Ponderosa Gas Pipeline Company,  Inc.,
Quest Oil & Gas Corporation and STP Cherokee,  Inc., and to fund development and
acquisition activities of the Borrower and such other entities; and

      WHEREAS, in order to induce Senior Lender to consent to Borrower incurring
subordinated secured  indebtedness,  Subordinated Lender has agreed to limit its
rights to receive  payments from Borrower on the terms and  conditions set forth
herein,  and the  Credit  Parties  have  agreed  to comply  with such  terms and
conditions.

      NOW, THEREFORE, in consideration of the foregoing,  and for other good and
valuable   consideration,   the  receipt   and   adequacy  of  which  is  hereby
acknowledged, the parties hereto hereby agree as follows:

      1.   Definitions.  Capitalized  terms  used  but  not   otherwise  defined
herein  shall have the  meanings  ascribed  to such  terms in the Senior  Credit
Agreement.  The  following  terms in the  Agreement  shall  have  the  following
meanings:

           "Blockage  Period"  means that period of time  commencing on the date
that Subordinated Lender receives notice from Senior Lender of the occurrence of
a Default under the Senior Credit Agreement and ending on the earlier of (i) the
date such Default shall have been cured or waived in writing by Senior Lender in
its sole  discretion,  (ii) the  date  180  days  from the date of  Subordinated
Lender's receipt of such notice, or (iii) the Termination Date.  Notwithstanding
anything to the contrary herein, no more than 180 days in any 365-day period may
fall within one or more Blockage Periods.

           "Consolidated  Interest  Expense" means,  for any fiscal period,  the
aggregate amount of all costs,  fees and expenses,  including  capital expenses,
paid by the Credit Parties on a  consolidated  basis in such fiscal period which
are  classified as interest  expense on the  Borrower's  consolidated  financial
statements.

                                       1

<PAGE>

           "Guarantors"  means any person or entity  whether one or more, now or
hereafter  guaranteeing  payment  in full or in part of  Senior  Debt to  Senior
Lender or pledging any collateral as security therefor.

           "Lien  Enforcement  Action"  shall mean any  action,  whether  legal,
equitable,  judicial,  non-judicial,  or otherwise,  to enforce any  assignment,
lien, security interest,  or other encumbrance now or in the future securing all
or  any  Subordinated  Debt,  including,  without  limitation,  exercise  of any
assignments  of production or the right to receive  proceeds  thereof,  division
orders or letters in lieu of division  orders,  any  repossession,  foreclosure,
public sale, private sale, or retention of all or any part of the Collateral for
the Subordinated Debt.

           "Senior Debt" means all indebtedness, liabilities, and obligations of
every kind or nature, absolute or contingent, now existing or hereafter arising,
of the Credit  Parties  owed to Senior  Lender  under the Senior  Note and other
Senior Loan  Documents,  including,  without  limitation,  the principal of, and
interest on  (including  any interest  accruing  after the  commencement  of any
bankruptcy,  insolvency,  or similar proceeding with respect to any Credit Party
whether or not allowed as a claim in such  proceeding) all loans, and letters of
credit  reimbursement  obligations,  and all derivative  obligations,  premiums,
fees, charges, expenses, and indemnities arising under or in connection with the
Senior Loan  Documents  as same may be amended,  modified,  extended or restated
from time to time (to the extent any such  amendment or  modification  is not in
violation of the terms of this Agreement).

           "Senior  Lender"  means  the  Administrative   Agent,  the  financial
institutions  party to the Senior Loan Documents,  their affiliates,  successors
and  assigns,  and any person or entity  who  refinances  or refunds  all or any
portion of the Senior Debt.

           "Senior Loan  Documents"  means the Senior  Credit  Agreement and the
Loan  Documents  entered into in connection  therewith as same may be amended or
modified from time to time (to the extent any such amendment or  modification is
not in violation of the terms of this Agreement).

           "Senior Note" means that certain  promissory  note dated of even date
herewith in the original  principal amount of $20,000,000,  executed by Borrower
in favor of Wells Fargo Bank Texas,  N.A., as such note may from time to time be
supplemented,  amended or  modified,  and all other notes given in  substitution
therefor or in modification, renewal or extension thereof in whole or in part.

           "Subordinated  Debt" means all indebtedness and other obligations now
and from time to time  hereafter  owing by the Credit  Parties  to  Subordinated
Lender,  including,   without  limitation,   the  indebtedness  and  obligations
evidenced  by  the  Subordinated   Credit  Agreement,   the  Subordinated  Note,
Subordinated  Security  Agreements,  Warrant  and  Warrant  Purchase  Agreement,
including principal, interest, fees, brokers fees for sale of any Credit Party's
property and charges and all other present or future liabilities,  indebtedness,
or  obligations  of any  Credit  Party  to  Subordinated  Lender  as same may be
amended,  modified,  extended  or  restated  from time to time.  Notwithstanding
anything to the contrary herein, Subordinated Debt shall not include any amounts
received by Subordinated  Lender in repayment of the  Indebtedness  evidenced by
that certain  Promissory  Note in the  principal  face amount of  $15,000,000.00
dated August 30, 2001 executed by STP, Inc. to the order of Subordinated  Lender
or the $600,000  consideration  received by Subordinated  Lender for waiving its
rights to receive a net profits  interest in certain oil and gas  properties  as
set forth in Section 2.11 of that certain Credit Agreement dated August 30, 2001
by and between STP, Inc. and Subordinated Lender.

           "Subordinated  Lender" means  Subordinated  Lender, its successor and
assigns,  including  any person or entity who  refinances  or refunds all or any
portion of the Subordinated Debt.

                                       2

<PAGE>

           "Subordinated Loan Documents" means the Subordinated Credit Agreement
and the Loan Documents (as defined in the Subordinated Credit Agreement) entered
into in connection therewith as the same may be amended or modified from time to
time.

           "Subordinated  Note" means that certain promissory note dated of even
date herewith, executed by Borrower in favor of Subordinated Lender.

           "Subordinated   Security  Agreements"  means  any  and  all  security
agreements,  mortgages, assignments, or pledges from the Credit Parties in favor
of Subordinated Lender securing all or any portion of the Subordinated Debt.

      2.   Subordination to Senior Debt.  Notwithstanding any other provision of
any note,  document,  or  instrument  executed by any Credit Party in connection
therewith,   or  any  Collateral  now  or  hereafter   securing  the  same,  all
Subordinated Debt is and shall be subordinate and junior in right of payment, to
the extent and in the manner  hereinafter set forth,  to the prior  indefeasible
payment in full of all Senior  Debt.  Except as and to the  extent  provided  in
Section 4 below,  Subordinated  Lender will not ask,  demand,  sue for, take, or
receive  from any Credit  Party,  by set-off or in any other  manner,  direct or
indirect  payment  (whether in cash or property) of the whole or any part of the
Subordinated  Debt, or any transfer of any property in payment of or as security
therefor, unless and until Senior Lender has no further commitment to extend any
credit to Borrower  pursuant to the terms of the Senior Credit Agreement and all
Senior  Debt has been paid in full (or with  respect  solely  to LC  Obligations
shall be cash collateralized on a dollar for dollar basis).

      3.   Distributions in  Liquidation  and  Bankruptcy.  In the  event of any
distribution,  division,  or  application,  partial or  complete,  voluntary  or
involuntary,  by operation of law or otherwise, of all or any part of the assets
of any  Credit  Party or the  proceeds  thereof  (including  any  assets  now or
hereafter  securing any Subordinated  Debt) to creditors of such Credit Party or
upon any  indebtedness  of such Credit  Party,  as a result of the  liquidation,
dissolution,  or other winding up, partial or complete,  or any Credit Party, or
as a result  of any  receivership,  insolvency,  or  bankruptcy  proceeding,  or
assignment for the benefit of creditors or marshaling of assets,  or as a result
of any  proceeding  by or  against  any Credit  Party for any  relief  under any
bankruptcy  or  insolvency  law or  laws  relating  to the  relief  of  debtors,
readjustment of indebtedness,  arrangements,  reorganizations,  compositions, or
extensions, or as a result of the sale of all or substantially all of the assets
of any Credit Party, then and in any such event:

           (a)    Senior Lender shall be  entitled  to  receive  payment in full
of all Senior Debt before  Subordinated  Lender shall be entitled to receive any
payment or other distributions on, or with respect to, the Subordinated Debt;

           (b)    Any payment or distribution of any kind or character,  whether
in cash,  securities,  real,  personal,  mixed or other property,  which but for
these  provisions  would be payable or  deliverable  upon or with respect to the
Subordinated  Debt, shall instead be paid or delivered directly to Senior Lender
for the benefit of the holders of the Senior Debt for  application on the Senior
Debt,  whether then due or not due,  until the Senior Debt shall have first been
fully and  indefeasibly  paid in full and  Senior  Lender  shall have no further
commitment to extend any credit to Borrower;

           (c)    Subordinated Lender  shall duly  and promptly take such action
as may  reasonably be requested by Senior Lender to assist in the  collection of
the  Subordinated  Debt  for the  account  of any  holder  of the  Senior  Debt,
including,  without  limitation,  the filing of appropriate proofs of claim with
respect to the Subordinated Debt and the voting of such claims;

                                       3

<PAGE>

           (d)    In the event that Subordinated  Lender  shall not have filed a
claim in any bankruptcy,  insolvency,  or similar proceeding with respect to any
Credit  Party at least  sixty (60) days prior to the  expiration  of the time to
file such claims, then Senior Lender, on behalf of Subordinated Lender, shall be
authorized to file a claim with respect to the Subordinated Debt; and

           (e)    Should any direct or indirect payment be made to  Subordinated
Lender  upon or with  respect to the  Subordinated  Debt prior to the payment in
full of the Senior Debt as provided herein,  Subordinated  Lender will forthwith
deliver the same to Senior Lender in precisely the form received (except for the
endorsement  or  assignment  by   Subordinated   Lender  where   necessary)  for
application on the Senior Debt, whether then due or not due. Until so delivered,
the payment or  distribution  shall be held in trust by  Subordinated  Lender as
property  of the  holders  of the  Senior  Debt.  In the  event  of  failure  of
Subordinated  Lender to make any such  endorsement or assignment,  Senior Lender
and each of its officers and employees are hereby irrevocably authorized to make
the same.

      4.   Permitted Payments and Borrowing Base Determinations.

           (a)    Subordinated Lender shall not receive or  accept  any  payment
from any Credit Party with respect to the  Subordinated  Debt including  without
limitation  payment of principal,  default interest,  or other fees and expenses
unless  such  payments  are  approved  in writing by the  Administrative  Agent;
provided,  Subordinated Lender may receive from Borrower the Warrant (as defined
in the Subordinated  Credit Agreement) and so long as no Blockage Period exists,
Borrower may pay and Subordinated Lender may accept regularly scheduled interest
payments  equal to (i) all interest  accruing on the principal  evidenced by the
Subordinated  Note,  (ii) all facility fees,  (iii) all commitment fees and (iv)
all fees  related  to an  increase  in the  borrowing  base  established  in the
Subordinated  Credit Agreement pursuant to the terms of the Subordinated  Credit
Agreement.  In  the  event  Subordinated  Lender  receives  any  payment  on the
Subordinated Debt in violation of the foregoing,  Subordinated  Lender will hold
any such payment in trust for Senior Lender and forthwith turn it over to Senior
Lender, in precisely the form received (except for the endorsement or assignment
by  Subordinated  Lender where  necessary),  for application on the Senior Debt,
whether then due or not due. In the event of failure of  Subordinated  Lender to
make any such endorsement or assignment,  Senior Lender and each of its officers
and employees are hereby irrevocably authorized to make the same.

           (b)    Subordinated Lender agrees that it shall not set the Borrowing
Base  under the  Subordinated  Credit  Agreement  above the  Approved  Mezzanine
Borrowing  Base,  and shall not honor any  requests by Borrower for an "Advance"
which, if made,  would cause the sum of all  outstanding  Advances to exceed the
"Commitment  Limit" (as such  capitalized  terms are defined in the Subordinated
Loan Documents).

      5.   Modifications.

           (a)    Subordinated  Lender  covenants  and  agrees  not to modify or
amend, or to permit the  modification  or amendment of, any of the  Subordinated
Loan Documents without the prior written consent of the Administrative Agent, on
behalf of Senior Lender, other than:

           (i)    any and all ratifications,  amendments,  supplements or  other
           modifications  of, or  additions  to, any of the  security  documents
           securing  the  Subordinated  Debt  to  the  extent  that  any  of the
           foregoing   arises  under  the  provisions  of  Section  5.8  of  the
           Subordinated  Credit  Agreement,  and so long as any liens,  security
           interests  or rights with  respect to such  ratification,  amendment,
           supplement, modification or addition are and remain

                                       4

<PAGE>

           subordinate  to   the  liens,    security   interest  and  rights  of
           Administrative Agent or the Senior Lenders;

           (ii)   releases of collateral granted by Subordinated Lender;

           (iii)  any  increase  in  the  fee  applicable  to  increases  in the
           Borrowing  Base (as  defined in the  Subordinated  Credit  Agreement)
           provided,  any  increase  in the  commitment  fee to the  extent  the
           corresponding  fee in the Senior Loan Documents has been increased by
           a similar or greater amount; and

           (iv)   any  increase  in  the  Facility   Rate  (as  defined  in  the
           Subordinated  Credit  Agreement)  to the extent  that the  Applicable
           Margin has been increased by a similar or greater amount;

           provided  that  the  Administrative   Agent  shall  not  unreasonably
withhold its consent to any such other  modification  or amendment of any of the
Subordinated Loan Documents if such modification or amendment: (A) would be made
at a time when no "Default" or "Event of Default" has occurred and is continuing
or would be caused thereby (as defined in the Senior Credit Agreement),  and (B)
would not adversely affect the position of Administrative Agent or Senior Lender
with respect to either the subordination  provisions of this Agreement or have a
material adverse effect on the rights or interests of the  Administrative  Agent
or Senior Lender; provided further that this Subsection 5(a) shall not be deemed
to limit the ability of Subordinated Lender to forbear, grant temporary waivers,
to give consents,  to take unilateral  actions  contemplated by the terms of the
Subordinated  Loan  Documents  or to take  other  actions  with  respect  to the
Subordinated  Loan Documents to the extent not in violation of the terms of this
Agreement which do not have the effect of amending or modifying the terms of the
Subordinated Loan Documents.

           (b)    Administrative Agent and Senior Lender may modify or amend any
of the Senior Loan Documents  without the prior written  consent of Subordinated
Lender, except as specifically set forth below with respect to the Senior Credit
Agreement:

                  (i)    any extension  of the Termination Date to a  date later
      than three years and thirty (30) days following the Closing Date;

                  (ii)   any increase in the Maximum  Loan  Amount  to more than
      $20,000,000;

                  (iii)  any increase in the fee applicable  to increases in the
      Borrowing  Base  to a  percentage  more  than  1% or  increase  in the fee
      applicable  to the  commitment  fee to a percentage  more than 1% when the
      Effective Amount is greater than 50% of the Borrowing Base amount and to a
      percentage  not more than 0.50% when the  Effective  Amount is equal to or
      less than 50% of the Borrowing Base;

                  (iv)   any releases of Mortgaged Properties with an  aggregate
      market value in excess of $250,000 during any Borrowing Base Period;

                  (v)    any increase in the Applicable  Margin by more than 200
      basis points above the amounts set forth on the Pricing Grid;

                  (vi)   any modification to the following financial covenants:

                                       5

<PAGE>

                         (x)   any change in minimum Consolidated  Tangible  Net
                         Worth that would  result in a  calculated  amount  less
                         than zero (i.e., negative net worth),

                         (y)   any change  in  the  ratio of  Total Consolidated
                         Funded Debt to EBITDA ratio beyond 6.0:1.0, or

                         (z)   any change in the ratio of  Current  Consolidated
                         Assets to Current Consolidated Liabilities to less than
                         0.50; and

                  (vii)  any modification  in  the  definitions  of  Termination
      Date, Maximum Loan Amount, Applicable Margin,  Pricing Grid,  Consolidated
      Tangible Net  Worth,  Effective  Amount,  EBITDA,   Consolidated  Interest
      Expense,  Current Consolidated Assets, Current  Consolidated  Liabilities,
      Consolidated Net Income or  Total Consolidated Funded Debt  (other than as
      expressly permitted under this Subsection 5(b));

provided  that,  the  Subordinated  Lender shall not  unreasonably  withhold its
consent to any such  modification  or amendment of the Senior  Credit  Agreement
above if such  modification  or  amendment:  (A)  would  be made at a time  when
neither an Event of Default (as defined in the Subordinated  Loan Agreement) nor
an Unmatured  Event of Default (as defined in the  Subordinated  Loan Agreement)
has occurred and is  continuing  or would be caused  thereby,  and (B) would not
adversely affect the position of Subordinated  Lender with respect to either the
subordination  provisions of this Agreement or have a material adverse effect on
the rights or interests of the Subordinated  Lender;  provided further that this
Subsection 5(b) shall not be deemed to limit the ability of Administrative Agent
or the Senior Lender to forbear,  grant temporary waivers, to give consents,  to
take unilateral  actions  contemplated by the terms of the Senior Loan Documents
or to take other actions with respect to the Senior Loan Documents to the extent
not in violation of the terms of this Agreement  which do not have the effect of
amending or modifying the terms of the Senior Loan Documents.

      6.   Limitation on Acceleration or Exercise of Remedies.

           (a)    Except as  set  forth  below  in  Subsection 6(b)  during  any

Blockage  Period, Subordinated Lender shall be prohibited from taking any action
towards the  collection  of the  Subordinated  Debt or the payment of  any other
amounts in  respect  of  the Subordinated  Debt,   including  without limitation
(i)  accelerating the maturity of the Subordinated  Debt, (ii) suing for payment
of the  Subordinated Debt  (including, without limitation,  the  commencement or
joining with any other creditors of any Credit Party in the commencement of  any
bankruptcy, reorganization, receivership, or insolvency proceeding of any Credit
Party), except  as provided  in  Section 7 below, (iii) exercising  any right of
set-off for  the collection of  any amounts due in  respect of the  Subordinated
Debt, or  (iv)  commencing  or prosecuting a Lien  Enforcement Action.  Any Lien
Enforcement Action taken by Subordinated  Lender shall be expressly  undertaken,
prosecuted, settled, compromised, or otherwise  effected at all times subject to
the senior and prior rights of the Senior Lender in and to any such  Collateral,
and all such Collateral or proceeds  thereof, or rights  obtained  with  respect
thereto, shall be subject to the senior and prior rights of Senior Lender.

           (b)    Notwithstanding anything in Subsection  6(a) to the  contrary,
during any Blockage Period, the Subordinated  Lender may (i) declare any default
pursuant to the terms of the Subordinated Credit Agreement, (ii) accrue interest
at the default  rate of  interest as set forth and  pursuant to the terms of the
Subordinated  Credit  Agreement,  and (iii)  file  proofs of claim to the extent
necessary to protect that status of the Subordinated Lender's claims.

                                       6

<PAGE>

      7.   Bankruptcy.   Until Senior Lender  has no further commitments to lend
to Borrower  and  the  Senior Debt shall  have been indefeasibly  paid  in full,
during any Blockage  Period  Subordinated Lender  may  not,  without  the  prior
written consent  of Senior Lender,  commence,  or join with any  other person or
entity in commencing, any proceeding against any person or entity  with  respect
to the Subordinated Debt under any bankruptcy   reorganization,  readjustment of
debt, dissolution,  receivership, liquidation, or insolvency law  or statute now
or  hereafter   in   effect   in   any   jurisdiction.     Subordinated   Lender
authorizes   Senior  Lender  as  its   attorney-in-fact to vote  and  prove  the
Subordinated Debt in any of the above-described proceedings or in any meeting of
creditors of any Credit Party related thereto.

      8.   Continuing  Subordination.   The  subordination   effected  by  these
provisions is a continuing  subordination  and may not be modified or terminated
by Subordinated Lender or any other holder of any Subordinated Debt until Senior
Lender has no further commitments to lend to Borrower and all of the Senior Debt
shall have been  indefeasibly  paid in full.  At any time and from time to time,
without  consent  of or notice  to  Subordinated  Lender or any other  holder of
Subordinated  Debt, and without impairing or affecting the obligations of any of
them hereunder:

           (a)    Senior Lender  may  exercise or  refrain from   exercising any
rights under the Senior Loan Documents, or any other agreement,  instrument,  or
document relating to the Senior Debt;

           (b)    The maturity of the  Senior Debt may be  accelerated,  and any
Collateral  security  therefor  or any  other  rights or  Senior  Lender  may be
exchanged,  sold, surrendered,  released, or otherwise dealt with, in accordance
with the terms of any present or future  agreement with any Credit Party and any
other  agreement  of  subordination  (and  the  debt  covered  thereby)  may  be
surrendered, released, or discharged; and

           (c)    Any person or entity liable in any  manner for  payment of any
Senior Debt may be released by holders of Senior Debt.

      9.   Waivers.  Subordinated Lender  hereby  waives,   and  agrees  not  to
assert:  (a) any right, now or hereafter  existing,  to require Senior Lender to
proceed  against or exhaust any Collateral at any time securing the Senior Debt,
or to marshal any assets in favor of Subordinated  Lender or any other holder of
Subordinated Debt; and (b) any notice of the incurrence of Senior Debt, it being
understood  that  Senior  Lender  may,  in  reliance  upon  these  subordination
provisions,  make  advances  under  the  Senior  Loan  Documents,  or any  other
agreement, document, or instrument now or hereafter relating to the Senior Debt,
without notice to or authorization of Subordinated Lender.

      10.  Lien  Subordination  and  Standby.   Any  lien,   security  interest,
encumbrance,  charge, or claim of Subordinated  Lender on any assets or property
of any Credit party or any  proceeds or revenues  therefrom  which  Subordinated
Lender may have at any time as security for any Subordinated  Debt shall be, and
hereby is, subordinated to all liens, security interests, or encumbrances now or
hereafter   granted  to  Senior   Lender  by  such  Credit   Party  or  by  law,
notwithstanding  the date or order of attachment or perfection of any such lien,
security  interest,  encumbrance,  or claim or  charge or the  provision  of any
applicable law. During any Blockage  Period,  whether one or more,  Subordinated
Lender  agrees  that  Subordinated  Lender  will not  assert or seek to  enforce
against  any Credit  Party any  interest of  Subordinated  Lender in any and all
Collateral for the  Subordinated  Debt and that Senior Lender may dispose of any
or all of the  Collateral  for the  Senior  Debt  free  of any and all  security
interests and liens, including, but not limited to, security interests and liens
created  in  favor  of  Subordinated  Lender  through  judicial  or  nonjudicial
proceedings,  in accordance with applicable law,  including taking title,  after
notice to Subordinated Lender.  Subordinated Lender agrees that any such sale or
other disposition by Senior

                                       7

<PAGE>

Lender of so much of the  Collateral  for the  Senior  Debt as is  necessary  to
satisfy in full all of the principal  of,  interest on and  reasonable  costs of
collection  of the  Senior  Debt  shall be made free and  clear of any  security
interest  and liens  granted  to holder  provided  the  entire  proceeds  (after
deducting  reasonable  expenses of sale) are applied in  reduction of the Senior
Debt. Consistent with the foregoing, upon Senior Lender's request,  Subordinated
Lender shall execute and deliver any releases or other  documents and agreements
that Senior Lender, in its reasonable discretion,  deems necessary to dispose of
the Collateral  for the Senior Debt free of  Subordinated  Lender's  interest in
same. Subordinated Lender retains all of its rights as a junior secured creditor
with respect to the surplus,  if any,  arising from any such  disposition of the
Collateral for the Senior Debt.

      11.  Subrogation.  Until  Senior  Lender  has  no  further  commitments to
extend credit to Borrower and the Senior Debt shall have been  indefeasibly paid
in full,  Subordinated  Lender  hereby  waives  all rights of  subrogation  with
respect to the rights of Senior Lender to receive payments or distributions  and
with respect to any rights to any Collateral  for the Senior Debt.  Upon payment
in full of the Senior  Debt,  Subordinated  Lender  shall be  subrogated  to the
extent permitted by law, to all rights of the holders of Senior Debt.

      12.  Subordination  Not  Impaired by  Borrower.  No right of any holder of
Senior  Debt to enforce  the  subordination  of the  Subordinated  Debt shall be
impaired  by any act or  failure to act by any  Credit  Party or by such  Credit
Party's failure to comply with these provisions.

      13.  No Third Party  Beneficiaries.  This  Agreement  is  not  intended to
give or confer  any rights to any  person  other than the  holders of the Senior
Debt.  No other party,  including  any Credit  Party,  is intended to be a third
party beneficiary of this Agreement.

      14.  Representations  and  Warranties.     Subordinated    Lender   hereby
represents  and warrants  that: (a) the execution and delivery of this Agreement
and the  performance by Subordinated  Lender of its  obligations  hereunder have
received all necessary  approvals,  corporate or otherwise,  and do not and will
not  contravene  or conflict  with any  provision of law or any provision of any
indenture,  instrument,  or other  agreement to which  Subordinated  Lender is a
party or by which it or its property may be bound or affected;  (b) Subordinated
Lender has full  power,  authority,  and legal  right to make and  perform  this
Agreement;   (c)  Subordinated  Lender  has  not  assigned  or  transferred  any
indebtedness  owing  by  any  Credit  Party  or any  of  the  Collateral  of the
Subordinated  Debt and  Subordinated  Lender  will not assign or  transfer  same
without at least ten (10) days' prior written notice to Senior  Lender;  and (d)
this  Agreement is the legal,  valid,  and binding  obligation  of  Subordinated
Lender, enforceable against Subordinated Lender in accordance with its terms.

      15.  No Waiver.  No failure on the part of Senior Lender to  exercise,  no
delay in  exercising,  and no course of  dealing  with  respect  to any right or
remedy  hereunder  will  operate  as a waiver  thereof;  nor will any  single or
partial exercise of any right or remedy hereunder  preclude any other or further
exercise  thereof or the exercise of any other right or remedy.  This  Agreement
may not be amended or modified  except by written  agreement  of Senior  Lender,
Subordinated Lender, Borrower and Guarantors, and no consent or waiver hereunder
shall be valid unless in writing and signed by Senior Lender.

      16.  Successor and Assigns.  This  Agreement,  and  the terms,  covenants,
and  conditions  hereof,  shall be binding upon and inure to the benefit of the
parties  hereto,   and  their  respective  heirs,   personal   representatives,
successors, and assigns.

                                       8

<PAGE>

      17.  Arbitration.   The  Parties  hereto  incorporate  by  reference   the
Arbitration  provisions  set  forth  in  Section  11.19  of the  Senior  Credit
Agreement.  Any and all Disputes shall be resolved by the terms thereof.

      18.  GOVERNING LAW.  THIS  AGREEMENT WILL BE CONSTRUED IN ACCORDANCE  WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.

      IN WITNESS  WHEREOF,  this  Agreement has been duly executed as of the day
and year first above written.

                               ADMINISTRATIVE AGENT AND SENIOR LENDER:
                               --------------------------------------

                               WELLS FARGO BANK TEXAS, N.A.,
                               a national banking association

                               By:        /s/ J. Alan Alexander, Jr.
                                    --------------------------------------
                                    J. Alan Alexander, Jr.
                                    Vice President

                               SUBORDINATED LENDER:
                               -------------------

                               WELLS FARGO ENERGY CAPITAL, INC.,
                               a Texas corporation

                               By:        /s/ Clayton Taylor
                                    --------------------------------------
                                    Clayton Taylor
                                    Assistant Vice President

                                       9

<PAGE>

      The  undersigned,  being the Credit  Parties  referred to in the foregoing
Subordination Agreement, hereby (i) acknowledges receipt of a copy thereof, (ii)
agrees to all of the terms and provisions thereof,  (iii) agrees to and with the
Senior Lender that is shall make no payments on the  Subordinated  Debt that the
Subordinated Lender would not be entitled to receive under the provisions of the
Subordination  Agreement,  (iv) agrees that any such payment  will  constitute a
default  under  the  Senior  Loan  Documents,  and (v)  agrees to mark its books
conspicuously to evidence the  subordination  of the Subordinated  Debt affected
hereby.

                               QUEST RESOURCE CORPORATION,
                               a Nevada corporation

                               By:  /s/ Douglas L. Lamb
                                   ---------------------------------------
                                    Douglas L. Lamb
                                    President

                               By:  /s/ Jerry D. Cash
                                   ---------------------------------------
                                    Jerry D. Cash
                                    Treasurer and Chief Financial Officer

                               QUEST OIL & GAS CORPORATION,
                               a Kansas Corporation

                               By:  /s/ Douglas L. Lamb
                                   ---------------------------------------
                                    Douglas L. Lamb
                                    President

                               By:  /s/ Jerry D. Cash
                                   ---------------------------------------
                                    Jerry D. Cash
                                    Treasurer and Chief Financial Officer

<PAGE>

                               PONDEROSA GAS PIPELINE COMPANY, INC.,
                               a Kansas Corporation

                               By:  /s/ Douglas L. Lamb
                                   ---------------------------------------
                                    Douglas L. Lamb
                                    President

                               By:  /s/ Jerry D. Cash
                                   ---------------------------------------
                                    Jerry D. Cash
                                    Treasurer and Chief Financial Officer

                               STP CHEROKEE, INC.,
                               an Oklahoma Corporation

                               By:  /s/ Douglas L. Lamb
                                   ---------------------------------------
                                    Douglas L. Lamb
                                    President

                               By:  /s/ Jerry D. Cash
                                   ---------------------------------------
                                    Jerry D. Cash
                                    Treasurer and Chief Financial Officer

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