Document:

Exhibit 4.1

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 1

                            Dated as of June 9, 2006

                                       to

                              AMENDED AND RESTATED
                             SENIOR CREDIT AGREEMENT

                          Dated as of February 7, 2006

            THIS AMENDMENT NO. 1 ("Amendment") is made as of June 9, 2006 by and
among Quest  Cherokee,  LLC and Quest  Resource  Corporation,  as borrowers (the
"Borrowers"),  the financial institutions from time to time parties thereto (the
"Lenders") and Guggenheim  Corporate Funding,  LLC, as administrative agent (the
"Administrative Agent") under that certain Amended and Restated Credit Agreement
dated as of  February  7, 2006 by and among the  Borrowers,  the Lenders and the
Administrative  Agent (as amended,  restated or otherwise  modified from time to
time,  the "Credit  Agreement").  Defined  terms used  herein and not  otherwise
defined  herein shall have the  respective  meanings given to them in the Credit
Agreement.

            WHEREAS,   the   Borrowers,   the  Lenders   party  hereto  and  the
Administrative  Agent have agreed to amend the Credit Agreement on the terms and
conditions set forth herein;

            NOW,  THEREFORE,  in  consideration of the premises set forth above,
the  terms  and  conditions  contained  herein,  and  other  good  and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers,  the Lenders party hereto and the Administrative Agent have agreed to
the following amendments to the Credit Agreement.

          1. Amendments to Credit Agreement. Subject to the satisfaction of the
     conditions precedent set forth in Section 2 below, the Credit Agreement is
     hereby amended as follows:

          (a) Exhibit F-4 of the Credit Agreement is hereby amended by deleting
     the Exhibit now contained therein and substituting therefor Exhibit F-4
     attached hereto.

          (b) Section 1.01 of the Credit Agreement is hereby amended by deleting
     the definition of "Approved Counterparty" now contained therein and to
     substitute the following therefor:

                        "Approved  Counterparty"  means (a) any revolving lender
            party to the Senior Credit Agreement or any Affiliate of such lender
            or (b) any other Person approved by the  Administrative  Agent whose
            long term senior unsecured debt rating is A/A2 by S&P or Moody's (or
            their   equivalent)   or  higher  or  (c)  any  other  Person  whose
            obligations under a Swap Agreement are guaranteed by a

                                       2
<PAGE>

            Person whose long term senior  unsecured  debt rating is A/A2 by S&P
            or Moody's (or their  equivalent  or higher) or (d) any other Person
            approved by the Administrative Agent".

          (c) Section 1.01 of the Credit Agreement is hereby amended to delete
     the definition of "Intercreditor Agreement" now contained therein and to
     substitute the following therefor:

                        "'Intercreditor  Agreement' means the Second Amended and
            Restated Intercreditor Agreement among the Administrative Agent, the
            Second Lien Term Loan Agreement administrative agent, the Third Lien
            Term  Loan  Agreement   administrative  agent,  the  Borrowers,  the
            Guarantors and BP Corporation  North America Inc.  substantially  in
            the form of Exhibit F-4 or an intercreditor  agreement substantially
            similar entered into in connection with Permitted Refinancing Debt."

          (d) Section 1.01 of the Credit Agreement is hereby further amended by
     adding a new defined term as follows:

                        "'Third  Lien Term Loan  Agreement'  means that  certain
            Third Lien Term Loan Agreement among the Borrowers, GCF as the Third
            Lien Term Loan Agreement administrative agent, and the lenders party
            thereto,  and any "Loan Documents" (as defined therein)  executed in
            connection   therewith,   in  each  case  as  hereafter  amended  or
            supplemented."

          (e) Section 7.09 of the Credit Agreement is hereby amended by deleting
     the heading and all of the language now contained therein and substituting
     therefor the following:

                           "[Intentionally omitted]".

          (f) Section 8.12(a) and (b) are hereby amended by deleting the
     reference currently contained therein to "January 1" and substituting
     therefor "December 31".

          (g) Section 9.02(f) of the Credit Agreement is hereby amended by
     adding the following immediately after the reference to "Wholly-Owned
     Subsidiaries": "or the Administrative Agent on behalf of the "Lenders" and
     "Swap Counterparties" (as such terms are defined in the Intercreditor
     Agreement)"; and is further amended to add the following immediately to the
     end thereof: "or the Intercreditor Agreement".

          (h) Section 9.02 of the Credit Agreement is hereby amended to add the
     following at the end of clause (h):

                        "and Debt under the Third Lien Term Loan  Agreement  and
            any guarantees thereof,  the principal amount of which Debt does not
            exceed $75,000,000 in the aggregate."

          (i) Section 9.03 of the Credit Agreement is hereby amended by adding a
     new clause (j) immediately after clause (i) as follows:

                        "(j) Liens on Property securing the Third Lien Term Loan
            Agreement permitted by Section 9.02(h), provided,  however, that (i)
            such  Liens  securing  the Third  Lien Term Loan  Agreement  and any
            guarantees  thereof are subordinated  pursuant to the  Intercreditor
            Agreement,  (ii) each and every  Lien  securing  the Third Lien Term
            Loan  Agreement  shall be  subordinate  to the  liens  securing  the
            Indebtedness, this Agreement and the other Loan Documents, and (iii)
            no Lien shall be granted  on any  Property  to secure the Third Lien
            Term Loan Agreement  unless the Lien is also being granted to secure
            the Indebtedness, this Agreement and the other Loan Documents."

          (j) Section 9.04(b) of the Credit Agreement is hereby amended by
     deleting the reference to "the Maturity Date" now contained therein and
     substutiting therefor the following: "the earlier of the Maturity Date or
     the payment in full of the Indebtedness".

          (k) Section 9.04 of the Credit Agreement is hereby amended by adding a
     new clause (c) as follows:

                        "(c)  Redemption  of Third  Lien  Term  Loan  Agreement;
            Amendment of Third Lien Term Loan Documents. The Borrowers will not,
            and will not permit  any  Subsidiary  to,  prior to the date that is
            ninety-one  (91) days after the earlier of the Maturity  Date or the
            payment in full of the Indebtedness: call, make or offer to make any
            optional or  voluntary  Redemption  of or  otherwise  optionally  or
            voluntarily Redeem (whether in whole or in part) the Third Lien Term
            Loan  Agreement  except in connection  with any Permitted  Financing
            Debt in respect thereof."

          (l) Section 9.16 of the Credit Agreement is hereby amended by
     inserting immediately after the reference to "the Second Lien Term Loan
     Agreement" the following: ", the Third Lien Term Loan Agreement".

          2. Conditions of Effectiveness. The effectiveness of this Amendment is
     subject to the satisfaction of the conditions precedent that the
     Administrative Agent shall have received (i) counterparts of this Amendment
     duly executed by the Borrowers, the Lenders and the Administrative Agent
     and the Reaffirmation attached hereto duly executed by the Guarantors, and
     (ii) such other instruments and documents as are reasonably requested by
     the Administrative Agent.

          3. Representations and Warranties of the Borrowers. The Borrowers
     hereby represent and warrant as follows:

          (a) This Amendment and the Credit Agreement as amended hereby,
     constitute legal, valid and binding obligations of the Borrowers and are
     enforceable against the Borrowers in accordance with their terms, subject
     to applicable bankruptcy, insolvency, reorganization, moratorium or other
     laws affecting creditors' rights generally and subject to general
     principles of equity, regardless of whether considered in a proceeding in
     equity or at law.

          (b) As of the date hereof and giving effect to the terms of this
     Amendment, (i)

                                       3
<PAGE>

     there exists no Default or Event of Default and (ii) the representations
     and warranties of the Borrowers set forth in the Credit Agreement and each
     other Loan Document shall be true and correct in all material respects as
     of the date hereof (except those representations and warranties which are
     limited to a specific date, which are true and correct in all material
     respects as of such date and those representations and warranties already
     qualified with respect to materiality, which shall be true and correct in
     all respects).

          4. Reference to and Effect on the Credit Agreement.

          (a) Upon the effectiveness of Section 1 hereof, each reference to the
     Credit Agreement in the Credit Agreement or any other Loan Document shall
     mean and be a reference to the Credit Agreement as amended hereby.

          (b) Except as specifically amended above, the Credit Agreement and all
     other documents, instruments and agreements executed and/or delivered in
     connection therewith shall remain in full force and effect and are hereby
     ratified and confirmed.

          (c) The execution, delivery and effectiveness of this Amendment shall
     not operate as a waiver of any right, power or remedy of the Administrative
     Agent or the Lenders, nor constitute a waiver of any provision of the
     Credit Agreement or any other documents, instruments and agreements
     executed and/or delivered in connection therewith.

          5. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
     AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

          6. Headings. Section headings in this Amendment are included herein
     for convenience of reference only and shall not constitute a part of this
     Amendment for any other purpose.

          7. Counterparts. This Amendment may be executed by one or more of the
     parties hereto on any number of separate counterparts, and all of said
     counterparts taken together shall be deemed to constitute one and the same
     instrument.

                            [Signature Pages Follow]

                                       4
<PAGE>

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

BORROWERS:                           QUEST CHEROKEE, LLC

                                     By:  /s/ Jerry D. Cash
                                          ---------------------------------
                                              Jerry D. Cash,
                                              Chief Executive Officer

                                     QUEST RESOURCE CORPORATION

                                     By:  /s/ Jerry D. Cash
                                          ---------------------------------
                                              Jerry D. Cash,
                                              Chief Executive Officer

<PAGE>

ADMINISTRATIVE AGENT:                GUGGENHEIM CORPORATE FUNDING,
                                     LLC, as Administrative Agent, Syndication
                                     Agent,
                                     Sole Lead Arranger and Sole Bookrunner

                                     By:  /s/ Stephen D. Sautel
                                          ---------------------------------
                                     Name:   Stephen D. Sautel
                                     Title:  Managing Director

<PAGE>

LENDERS:                            WELLS FARGO FOOTHILL, INC.

                                    By:   /s/ Stacy Yucht
                                          ---------------------------------
                                    Name:   Stacy Yucht
                                    Title:  Senior Vice President

<PAGE>

LENDERS:                            MIDLAND NATIONAL LIFE INSURANCE COMPANY
                                    By:  Midland Advisors Company as its Agent

                                    By:   /s/ Kaitlyn Trinh
                                          ---------------------------------
                                    Name:   Kaitlyn Trinh
                                    Title:  Director

<PAGE>

LENDERS:                            NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
                                    INSURANCE
                                    By:  Midland Advisors Company as its Agent

                                    By:   /s/  Kaitlyn Trinh
                                          ---------------------------------
                                    Name:    Kaitlyn Trinh
                                    Title:   Director

<PAGE>

LENDERS:                            ORPHEUS HOLDINGS LLC
                                    By:  Guggenheim Investment Management, LLC
                                    as Manager

                                    By:   /s/  Kaitlyn Trinh
                                          ---------------------------------
                                    Name:    Kaitlyn Trinh
                                    Title:   Director

<PAGE>

LENDERS:                            ORPHEUS FUNDING LLC
                                    By:  Guggenheim Investment Management, LLC
                                    as Manager

                                    By:   /s/  Kaitlyn Trinh
                                          ---------------------------------
                                    Name:    Kaitlyn Trinh
                                    Title:   Director

<PAGE>

LENDERS:                            KENNECOTT FUNDING LTD.
                                    By:  Guggenheim Investment Management, LLC
                                    as Collateral Manager

                                    By:   /s/  Kaitlyn Trinh
                                          ---------------------------------
                                    Name:    Kaitlyn Trinh
                                    Title:   Director

<PAGE>

LENDERS:                            SANDS POINT FUNDING LTD.
                                    By:  Guggenheim Investment Management, LLC
                                    as Collateral Manager

                                    By:   /s/  Kaitlyn Trinh
                                          ---------------------------------
                                    Name:    Kaitlyn Trinh
                                    Title:   Director

<PAGE>

                                  REAFFIRMATION

                            Dated as of June 9, 2006

      Reference  is hereby made to the Amended and  Restated  Credit  Agreement,
dated as of February 7, 2006 (as the same may be amended, restated, supplemented
or otherwise modified from time to time, the "Credit  Agreement"),  by and among
Quest   Cherokee,   LLC  and  Quest  Resource   Corporation  as  borrowers  (the
"Borrowers"),  the financial institutions from time to time parties thereto (the
"Lenders") and Guggenheim  Corporate Funding,  LLC, as administrative agent (the
"Administrative  Agent").  Capitalized  terms not otherwise defined herein shall
have the meaning ascribed thereto in the Credit Agreement.

      Each of the undersigned reaffirms the terms and conditions of the Guaranty
and each other Loan Document executed by it and acknowledges and agrees that the
Guaranty and each other Loan  Document  executed by it remains in full force and
effect and is hereby ratified,  reaffirmed and confirmed.  Each reference to the
Credit Agreement contained in the Guaranty and each other Loan Document shall be
a reference to the Credit  Agreement as the same may from time to time hereafter
be amended, modified, supplemented or restated.

                                    *******

<PAGE>

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

                                 J-W Gas Gathering, L.L.C.
                                 Ponderosa Gas Pipeline Company, Inc.
                                 Producers Service Incorporated
                                 Quest Energy Service, Inc.
                                 Quest Oil & Gas Corporation
                                 STP Cherokee, Inc.

                                 By:   /s/ Jerry D. Cash
                                       --------------------------------------
                                 Name:  Jerry D. Cash
                                 Title: Chief Executive Officer

                                 Bluestem Pipeline, LLC
                                 By:  Quest Cherokee, LLC, its sole member

                                 By:   /s/ Jerry D. Cash
                                       --------------------------------------
                                 Name:  Jerry D. Cash
                                 Title: Chief Executive Officer

                                 Quest Cherokee Oilfield Service, LLC
                                 By:  Quest Cherokee, LLC, its sole member

                                 By:   /s/ Jerry D. Cash
                                       --------------------------------------
                                 Name:  Jerry D. Cash
                                 Title: Chief Executive OfficerExhibit 4.2

                                                         EXECUTION COPY

              AMENDED AND RESTATED SECOND LIEN TERM LOAN AGREEMENT

                                   DATED AS OF
                                  JUNE 9, 2006

                                      AMONG

                               QUEST CHEROKEE, LLC
                           QUEST RESOURCE CORPORATION,
                                  AS BORROWERS,

                       GUGGENHEIM CORPORATE FUNDING, LLC,
                            AS ADMINISTRATIVE AGENT,

                                       AND

                            THE LENDERS PARTY HERETO

                        LEAD ARRANGER AND SOLE BOOKRUNNER

                        GUGGENHEIM CORPORATE FUNDING, LLC

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

                                    ARTICLE I
                       Definitions and Accounting Matters

Section 1.01    Terms Defined Above....................................... 1

Section 1.02    Certain Defined Terms..................................... 1

Section 1.03    Terms Generally; Rules of Construction....................19

Section 1.04    Accounting Terms and Determinations; GAAP.................20

                                   ARTICLE II
                                 The Term Loans

Section 2.01    Term Loans................................................20

Section 2.02    Loans.....................................................20

Section 2.03    Requests for the Loans....................................21

Section 2.04    Funding the Loans.........................................21

Section 2.05    Termination...............................................22

Section 2.06    [RESERVED]................................................22

Section 2.07    Intercreditor Agreement...................................22

                                   ARTICLE III
              Payments of Principal and Interest; Prepayments; Fees

Section 3.01    Repayment of the Loans....................................22

Section 3.02    Interest..................................................22

Section 3.03    Intercreditor Agreement...................................23

Section 3.04    Prepayments...............................................23

Section 3.05    Fees......................................................24

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

Section 4.01    Payments Generally; Pro Rata Treatment;
                Sharing of Set-offs.......................................25

                                       i

<PAGE>

Section 4.02    Presumption of Payment by the Borrowers...................26

Section 4.03    Certain Deductions by the Administrative Agent............26

Section 4.04    Disposition of Proceeds...................................26

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

Section 5.01    Increased Costs...........................................27

Section 5.02    Break Funding Payments....................................28

Section 5.03    Taxes.....................................................28

Section 5.04    Mitigation Obligations; Replacement of Lenders............29

Section 5.05    Illegality................................................30

                                   ARTICLE VI
                              Conditions Precedent

Section 6.01    Effective Date............................................30

Section 6.02    Each Credit Event.........................................33

                                   ARTICLE VII
                         Representations and Warranties

Section 7.01    Organization; Powers......................................34

Section 7.02    Authority; Enforceability.................................34

Section 7.03    Approvals; No Conflicts...................................34

Section 7.04    Financial Condition; No Material Adverse Change...........35

Section 7.05    Litigation................................................35

Section 7.06    Environmental Matters.....................................36

Section 7.07    Compliance with the Laws and Agreements;
                No Defaults...............................................37

Section 7.08    Investment Company Act....................................37

Section 7.09    [Intentionally Omitted]

Section 7.10    Taxes.....................................................37

                                       ii

<PAGE>

Section 7.11    ERISA.....................................................38

Section 7.12    Disclosure; No Material Misstatements.....................39

Section 7.13    Insurance.................................................39

Section 7.14    Restriction on Liens......................................39

Section 7.15    Subsidiaries..............................................40

Section 7.16    Location of Business and Offices..........................40

Section 7.17    Properties; Titles, Etc...................................40

Section 7.18    Maintenance of Properties.................................41

Section 7.19    Gas Imbalances, Prepayments...............................42

Section 7.20    Marketing of Production...................................42

Section 7.21    Swap Agreements...........................................42

Section 7.22    Use of Proceeds...........................................42

Section 7.23    Solvency..................................................42

Section 7.24    Operating Expenses........................................43

                                  ARTICLE VIII
                              Affirmative Covenants

Section 8.01    Financial Statements; Ratings Change;
                Other Information.........................................43

Section 8.02    Notices of Material Events................................46

Section 8.03    Existence; Conduct of Business............................47

Section 8.04    Payment of Obligations....................................47

Section 8.05    Performance of Obligations under Loan Documents...........47

Section 8.06    Operation and Maintenance of Properties...................48

Section 8.07    Insurance.................................................48

Section 8.08    Books and Records; Inspection Rights......................49

Section 8.09    Compliance with Laws......................................49

Section 8.10    Environmental Matters.....................................49

                                      iii

<PAGE>

Section 8.11    Further Assurances........................................50

Section 8.12    Reserve Reports...........................................51

Section 8.13    Title Information.........................................52

Section 8.14    Additional Collateral.....................................52

Section 8.15    ERISA Compliance..........................................53

Section 8.16    Swap Agreements...........................................54

Section 8.17    Marketing Activities......................................54

                                   ARTICLE IX
                               Negative Covenants

Section 9.01    Financial Covenants.......................................54

Section 9.02    Debt......................................................55

Section 9.03    Liens.....................................................56

Section 9.04    Dividends, Distributions and Redemptions..................57

Section 9.05    Investments, Loans and Advances...........................58

Section 9.06    Nature of Business; International Operations..............59

Section 9.07    Limitation on Leases......................................59

Section 9.08    Proceeds of Notes.........................................59

Section 9.09    ERISA Compliance..........................................59

Section 9.10    Sale or Discount of Receivables...........................61

Section 9.11    Mergers, Etc..............................................61

Section 9.12    Sale of Properties........................................61

Section 9.13    Environmental Matters.....................................62

Section 9.14    Transactions with Affiliates..............................62

Section 9.15    Subsidiaries..............................................63

Section 9.16    Negative Pledge Agreements; Dividend Restrictions.........63

Section 9.17    Gas Imbalances, Take-or-Pay or Other Prepayments..........63

                                       iv

<PAGE>

Section 9.18    Swap Agreements...........................................63

                                    ARTICLE X
                           Events of Default; Remedies

Section 10.01   Events of Default.........................................64

Section 10.02   Remedies..................................................66

                                   ARTICLE XI
                            The Administrative Agent

Section 11.01   Appointment; Powers.......................................67

Section 11.02   Duties and Obligations of Administrative Agent............67

Section 11.03   Action by Administrative Agent............................68

Section 11.04   Reliance by Administrative Agent..........................68

Section 11.05   Subagents.................................................69

Section 11.06   Resignation or Removal of Administrative Agent............69

Section 11.07   Administrative Agent as a Lender..........................69

Section 11.08   No Reliance...............................................69

Section 11.09   Authority of Administrative Agent to Release
                Collateral and Liens......................................70

Section 11.10   The Arranger..............................................70

                                   ARTICLE XII
                                  Miscellaneous

Section 12.01   Notices...................................................71

Section 12.02   Waivers; Amendments.......................................71

Section 12.03   Expenses, Indemnity; Damage Waiver........................72

Section 12.04   Successors and Assigns....................................75

Section 12.05   Survival; Revival; Reinstatement..........................78

Section 12.06   Counterparts; Integration; Effectiveness..................79

Section 12.07   Severability..............................................79

                                       v

<PAGE>

Section 12.08   Right of Setoff...........................................79

Section 12.09   GOVERNING LAW; JURISDICTION; CONSENT TO
                SERVICE OF PROCESS........................................80

Section 12.10   Headings..................................................81

Section 12.11   Confidentiality...........................................81

Section 12.12   Interest Rate Limitation..................................82

Section 12.13   EXCULPATION PROVISIONS....................................83

Section 12.14   Collateral Matters; Swap Agreements.......................83

Section 12.15   No Third Party Beneficiaries..............................83

Section 12.16   USA Patriot Act Notice....................................83

                                       vi

<PAGE>

                         ANNEXES, EXHIBITS AND SCHEDULES

Annex I         Commitments

Exhibit A       Form of Note
Exhibit B       Form of Borrowing Request
Exhibit C       Form of Compliance Certificate
Exhibit D-1     Form of Legal Opinion of Special Counsel to the Borrower
Exhibit D-2     Form of Legal Opinion of Local Counsel
Exhibit E-1     Security Instruments
Exhibit E-2     Form of Guaranty Agreement
Exhibit E-3     Form of Security Agreement
Exhibit E-4     Form of Intercreditor Agreement
Exhibit F       Form of Assignment and Assumption

Schedule 7.03   Approvals
Schedule 7.05   Litigation
Schedule 7.14   Liens
Schedule 7.15   Subsidiaries
Schedule 7.19   Gas Imbalances
Schedule 7.20   Marketing Contracts
Schedule 7.21   Swap Agreements
Schedule 9.05   Investments

                                      vii

<PAGE>

      THIS AMENDED AND RESTATED SECOND LIEN TERM LOAN AGREEMENT dated as of June
9, 2006, is among: Quest Cherokee,  LLC ("Cherokee") a limited liability company
duly  formed and  existing  under the laws of the State of  Delaware,  and Quest
Resource  Corporation,  a corporation duly formed and existing under the laws of
the  State of  Nevada  (the  "Company"  and,  collectively  with  Cherokee,  the
"Borrowers"); each of the Lenders from time to time party hereto; and Guggenheim
Corporate  Funding,   LLC  (in  its  individual  capacity,   "Guggenheim"),   as
administrative  agent  for the  Lenders  (in such  capacity,  together  with its
successors in such capacity, the "Administrative Agent").

                               R E C I T A L S

     A. The Borrowers,  the Lenders and the Administrative  Agent are parties to
that certain Second Lien Term Loan  Agreement  dated as of November 14, 2005 (as
amended,  restated or otherwise modified prior to the date hereof, the "Existing
Agreement"); and

     B. The Borrowers,  the Lenders and the Administrative  Agent have agreed to
amend and restate the Existing Agreement in its entirety;

     C.  Therefore,  in  consideration  of the mutual  covenants and  agreements
herein  contained  and other good and  valuable  consideration,  the receipt and
sufficiency of which are hereby acknowledged,  the Borrowers, the Administrative
Agent and the  Lenders,  hereby  agree  that the  Existing  Agreement  is hereby
amended and restated in its entirety as of the date hereof as follows:

                                   ARTICLE I
                       Definitions and Accounting Matters

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

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

      "Adjusted LIBO Rate" means,  with respect to Loan for any Interest Period,
an interest rate per annum (rounded upwards,  if necessary,  to the next 1/100th
of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the
Statutory Reserve Rate.

      "Administrative  Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.

      "Affiliate" of any Person shall mean (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person,  (ii)
any  director  or officer of such first  Person or of any Person  referred to in
clause (i) above and (iii) if any  Person in clause (i) above is an  individual,
any member of the immediate family (including  parents,  spouse and children) of
such individual and any trust whose

<PAGE>

principal  beneficiary  is  such  individual  or one or  more  members  of  such
immediate  family and any Person who is  controlled by any such member or trust.
For purposes of this  definition,  any Person which owns  directly or indirectly
10% or more of the securities  having  ordinary voting power for the election of
directors  or  other  governing  body  of a  corporation  or 10% or  more of the
partnership  or other  ownership  interests of any other Person (other than as a
limited  partner of such other  Person) will be deemed to "control"  (including,
with its correlative meanings,  "controlled by" and "under common control with")
such corporation or other Person.

      "Agreement"  means  this  Amended  and  Restated  Second  Lien  Term  Loan
Agreement, as the same may from time to time be amended, modified,  supplemented
or restated.

      "Applicable Margin" means a rate per annum equal to 5.50%.

      "Approved Counterparty" means (a) any revolving lender party to the Senior
Credit  Agreement  or any  Affiliate  of such  lender  or (b) any  other  Person
approved  by the  Administrative  Agent whose long term  senior  unsecured  debt
rating  is A/A2 by S&P or  Moody's  (or their  equivalent)  or higher or (c) any
other Person whose obligations under a Swap Agreement are guaranteed by a Person
whose long term senior unsecured debt rating is A/A2 by S&P or Moody's (or their
equivalent  or higher) or (d) any other  Person  approved by the  Administrative
Agent.

      "Approved  Fund" means any Person  (other than a natural  person)  that is
engaged in making,  purchasing,  holding or  investing in bank loans and similar
extensions  of  credit  in the  ordinary  course  of its  business  and  that is
administered or managed by (a) a Lender,  (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.

      "Approved Petroleum  Engineers" means Cawley Gillespie & Associates,  Inc.
or  any  other  independent   petroleum  engineers  selected  by  Borrowers  and
reasonably acceptable to the Administrative Agent.

      "ArcLight  Notes" means those certain  promissory notes of Cherokee in the
original principal amount of $66 million payable to the order of Cherokee Energy
Partners, LLC.

      "ArcLight  Transaction"  means the  purchase  by certain of the  Company's
Subsidiaries  of all of the  outstanding  Class A Units  of  Cherokee  owned  by
Cherokee  Energy  Partners  LLC and the  repayment  by Cherokee of the  ArcLight
Notes.

      "Arranger" means Guggenheim Corporate Funding, LLC, in its capacity as the
lead arranger and sole bookrunner hereunder.

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

                                       2
<PAGE>

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

      "Board of Directors" means, with respect to any Person, (i) in the case of
any  corporation,  the  board  of  directors,  (ii) in the  case of any  limited
liability company, the board of managers,  (iii) in the case of any partnership,
the board of  directors of the general  partner and (iv) in any other case,  the
functional equivalent of the forgoing.

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

      "Business  Day" means any day that is not a Saturday,  Sunday or other day
on which  commercial banks in The City of New York are authorized or required by
law or  executive  order to  close;  and if such day  relates  to a  payment  or
prepayment of principal of or interest on, or the Interest Period for, a Loan or
a notice  by the  Borrower  with  respect  to any such  payment,  prepayment  or
Interest  Period,  any day  which  is also a day on  which  dealings  in  Dollar
deposits are carried out in the London interbank market.

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

      "Cash  Equivalent"  means cash held in dollars and all  Investments of the
type identified in Section 9.05(c) through 9.05(f) inclusive.

      "Casualty  Event" means any loss,  casualty or other insured damage to, or
any nationalization,  taking under power of eminent domain or by condemnation or
similar   proceeding  of,  any  Property  of  the  Borrowers  or  any  of  their
Subsidiaries having a fair market value in excess of $1,000,000.

      "Change in Control" means (a) the  acquisition  of ownership,  directly or
indirectly,  beneficially  or of  record,  by any  Person or group  (within  the
meaning  of the  Securities  Exchange  Act of  1934  and  the  rules  of the SEC
thereunder as in effect on the date thereof),  of Equity Interests  representing
more than 35% of the aggregate  ordinary voting power  represented by the issued
and  outstanding  Equity  Interests of either  Borrower,  or (b) occupation of a
majority of the seats  (other than vacant  seats) on the Board of  Directors  of
either  Borrower  by Persons  who were  neither  (i)  nominated  by the Board of
Directors of such Borrower nor (ii) appointed by the directors so nominated.

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

                                       3
<PAGE>

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

      "Commitment"  means,  with respect to each Lender,  the commitment of such
Lender to make a Loan  hereunder on the Effective  Date,  expressed as an amount
representing  the  principal  amount  of the  Loan to be  made  by  such  Lender
hereunder and "Commitments" means the aggregate amount of the Commitments of all
Lenders.  The amount of each  Lender's  Commitment  is set forth on Annex I. The
aggregate amount of the Lenders' Commitments is $100,000,000.

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

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

      "Control"  means the possession,  directly or indirectly,  of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes  of  this  definition,  and  without  limiting  the  generality  of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests  having  ordinary  voting power for the  election of the  directors or
other  governing body of a Person (other than as a limited partner of such other
Person)  will be  deemed to  "control"  such  other  Person.  "Controlling"  and
"Controlled" have meanings correlative thereto.

                                       4
<PAGE>

      "Debt"  means,  for  any  Person,   the  sum  of  the  following  (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances,  debentures,  notes or other similar instruments
(including  principal and due but unpaid  interest  fees and  charges);  (b) all
obligations  of such Person  (whether  contingent  or  otherwise)  in respect of
bankers'  acceptances,  letters of  credit,  surety or other  bonds and  similar
instruments;  (c) all accounts payable and all accrued expenses,  liabilities or
other  obligations of such Person to pay the deferred purchase price of Property
or services (excluding trade accounts payable and accrued  obligations  incurred
in the  ordinary  course of business on normal trade terms that are not past due
by more than ninety (90) days);  (d) the  principal  portion of all  obligations
under  Capital  Leases;  (e) the  principal  portion  of all  obligations  under
Synthetic  Leases;  (f) all  Debt  (as  defined  in the  other  clauses  of this
definition) and other  obligations of others secured by (or for which the holder
of such Debt has an existing right, contingent or otherwise, to be secured by) a
Lien on any Property of such Person, whether or not such Debt is assumed by such
Person but limited to the fair market value of such  Property;  (g) all Debt (as
defined in the other clauses of this definition) and other obligations of others
guaranteed by such Person or in which such Person  otherwise  assures a creditor
against loss of the Debt or  obligations  of others  (howsoever  such  assurance
shall be made) to the  extent of the  lesser of the  amount of such Debt and the
maximum  stated  amount of such  guarantee or assurance  against  loss;  (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the  financial  position  or  covenants  of  others or to  purchase  the Debt or
Property  (excluding  obligations  to purchase  equipment  or  inventory  in the
ordinary course of business) of others; (i) obligations to deliver  commodities,
goods or services, including, without limitation, Hydrocarbons, in consideration
of one or more advance  payments,  other than gas balancing  arrangements in the
ordinary  course of  business;  (j)  obligations  to pay for  goods or  services
whether or not such goods or services are actually  received or utilized by such
Person (excluding trade accounts payable and accrued obligations incurred in the
ordinary  course of business on normal trade terms that are not past due by more
than ninety (90) days);  (k) any Debt of any entity  (including  for purposes of
this  clause  (k),  a  partnership)  for which such  Person is liable  either by
agreement, by operation of law or by a Governmental  Requirement but only to the
extent  of  such  liability;   (l)  Disqualified  Capital  Stock;  and  (m)  the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment.  The Debt
of any Person  shall  include all  obligations  of such Person of the  character
described  above to the extent such  Person  remains  legally  liable in respect
thereof  notwithstanding that any such obligation is not included as a liability
of such Person under GAAP.

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

      "Disqualified  Capital Stock" means any Equity Interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable)  or upon the  happening  of any event,  matures or is  mandatorily
redeemable for any consideration  other than other Equity Interests (which would
not  constitute   Disqualified  Capital  Stock),  pursuant  to  a  sinking  fund
obligation  or  otherwise,  or  is  convertible  or

                                       5
<PAGE>

exchangeable  for Debt or  redeemable  for any  consideration  other  than other
Equity Interests (which would not constitute  Disqualified Capital Stock) at the
option of the holder thereof,  in whole or in part, on or prior to the date that
is one year after the earlier of (a) the Maturity Date and (b) the date on which
there are no Loans or other obligations hereunder outstanding.

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

      "EBITDA" means,  for any period,  the sum of  Consolidated  Net Income for
such period plus the following  expenses or charges to the extent  deducted from
Consolidated Net Income in such period:  interest,  income taxes,  depreciation,
depletion,  amortization and other noncash charges (including  unrealized losses
on Swap  Agreements),  plus costs and expenses  directly  incurred in connection
with  the  Transactions   and  including  the  Equity  Offering,   the  ArcLight
Transaction  and  any  write-off  of  transaction   closing  costs  relating  to
Cherokee's  prior credit  facility  with UBS, AG,  Stamford  Branch and ArcLight
Notes, minus all noncash income (including  unrealized gains on Swap Agreements)
added to Consolidated Net Income.

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

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

                                       6
<PAGE>

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

      "Equity Offering" has the meaning assigned such term in Section 6.01(o).

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

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

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

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

      "Excepted  Liens"  means:  (a)  Liens  for  Taxes,  assessments  or  other
governmental  charges  or  levies  which are not  delinquent  or which are being
contested in good faith by appropriate  action and for which  adequate  reserves
have been  maintained in  accordance  with GAAP;  (b) Liens in  connection  with
workers' compensation,  unemployment insurance or other social security, old age
pension or public  liability  obligations  which are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been maintained in accordance with GAAP; (c) statutory  landlord's
liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics',
suppliers', workers', materialmen's, construction or other like Liens arising by
operation  of law  in  the  ordinary  course  of  business  or  incident  to the
exploration,  development,  operation and  maintenance of Oil and Gas Properties
each of which is in respect of obligations  that are not delinquent or which are
being  contested  in good faith by  appropriate  action  and for which  adequate
reserves have been  maintained in accordance  with GAAP; (d)  contractual  Liens
which  arise  in the  ordinary  course  of  business  and  which  do not  secure
obligations  for  borrowed  money  under  operating  agreements,  joint  venture
agreements,  oil and gas partnership  agreements,  oil and gas leases,  farm-out
agreements,  division orders, contracts for the sale, transportation or physical
exchange of oil and  natural  gas,  unitization  and  pooling  declarations  and
agreements, area of mutual interest agreements,  royalty agreements,  overriding
royalty

                                       7
<PAGE>

agreements, marketing agreements, processing agreements, net profits agreements,
development  agreements,   gas  balancing  or  deferred  production  agreements,
injection,  repressuring and recycling agreements,  salt water or other disposal
agreements,  seismic  or other  geophysical  permits  or  agreements,  and other
agreements which are usual and customary in the oil and gas business and are for
claims which are not  delinquent  or which are being  contested in good faith by
appropriate  action and for which  adequate  reserves  have been  maintained  in
accordance  with GAAP,  provided  that any such Lien  referred to in this clause
does not materially  impair the use of the Property covered by such Lien for the
purposes for which such Property is held by either Borrower or any Subsidiary or
materially impair the value of such Property subject thereto;  (e) Liens arising
solely by virtue of any statutory,  common law  provisions or contractual  Liens
contained in standard  deposit  account  agreements  relating to banker's liens,
rights of set-off or similar  rights and  remedies  and  burdening  only deposit
accounts  or other  funds  maintained  with a creditor  depository  institution,
provided that no such deposit account is a dedicated cash collateral  account or
is subject to  restrictions  against  access by the depositor in excess of those
set forth by regulations promulgated by the Board and no such deposit account is
intended by the Borrowers or any of their  Subsidiaries to provide collateral to
the depository institution; (f) easements,  restrictions,  servitudes,  permits,
conditions,  covenants,  exceptions  or  reservations  in any Property of either
Borrower or any  Subsidiary  for the purpose of roads,  pipelines,  transmission
lines,  transportation  lines,  distribution  lines for the removal of gas, oil,
coal or other minerals or timber,  and other like purposes,  or for the joint or
common use of real estate, rights of way, facilities and equipment,  that do not
secure any monetary  obligations  and which in the  aggregate do not  materially
impair the use of such  Property for the purposes of which such Property is held
by such  Borrower  or any  Subsidiary  or  materially  impair  the value of such
Property  subject  thereto;  (g) Liens on cash or  securities  pledged to secure
performance  of  tenders,   surety  and  appeal  bonds,   government  contracts,
performance and return of money bonds, bids, trade contracts,  leases, statutory
obligations, regulatory obligations, insurance premiums and other obligations of
a like nature  incurred in the ordinary  course of business and (h) judgment and
attachment  Liens not  giving  rise to an Event of  Default,  provided  that any
appropriate  legal proceedings which may have been duly initiated for the review
of such  judgment  shall not have been finally  terminated  or the period within
which such  proceeding may be initiated  shall not have expired and no action to
enforce such Lien has been commenced;  provided, further that Liens described in
clauses  (a) through (e) shall  remain  "Excepted  Liens" only for so long as no
action to enforce such Lien has been  commenced and no intention to  subordinate
the first  priority  Lien granted in favor of the  Administrative  Agent and the
Lenders is to be hereby implied or expressed by the permitted  existence of such
Excepted Liens.

      "Excluded  Taxes" means,  with respect to the  Administrative  Agent,  any
Lender, or any other recipient of any payment to be made by or on account of any
obligation of either Borrower or any Guarantor hereunder or under any other Loan
Document,  (a) income or  franchise  taxes  imposed on (or  measured by) its net
income by the United States of America or such other jurisdiction under the laws
of which such recipient is organized or in which its principal office is located
or,  in the case of any  Lender,  in which  its  applicable  lending  office  is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other  jurisdiction  in which

                                       8
<PAGE>

either  Borrower  or any  Guarantor  is located and (c) in the case of a Foreign
Lender (other than an assignee  pursuant to a request by either  Borrower  under
Section 5.04(b)), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender's
failure to comply with Section  5.03(e),  except to the extent that such Foreign
Lender (or its assignor,  if any) was entitled,  at the time of designation of a
new lending office (or assignment),  to receive  additional amounts with respect
to such withholding tax pursuant to Section 5.03.

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

      "Fee Letter" shall mean that certain letter agreement  between  Guggenheim
and the Borrowers dated October 31, 2005,  concerning certain fees in connection
with this  Agreement and any  agreements or  instruments  executed in connection
therewith, as the same may be amended or replaced from time to time.

      "Financial  Officer" means, for any Person,  the chief financial  officer,
principal  accounting  officer,  treasurer or controller of such Person.  Unless
otherwise  specified,  all  references  herein to a  Financial  Officer  means a
Financial Officer of the Borrower.

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

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

      "GAAP" means generally accepted accounting principles in the United States
of America as in effect  from time to time  subject to the terms and  conditions
set forth in Section 1.04.

      "Gas Balancing  Obligations" means those obligations set forth on Schedule
7.19.

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

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

                                       9
<PAGE>

      "Guarantors"  means,  collectively  as of the Effective  Date, each of the
following:  STP  Cherokee,  Inc.,  Quest  Oil & Gas  Corporation,  Quest  Energy
Service,   Inc.,  Ponderosa  Gas  Pipeline  Company,  Inc.,  Producers  Service,
Incorporated,  J-W Gas Gathering, LLC, Bluestem Pipeline, LLC and Quest Cherokee
Oilfield Service, LLC, and any future Subsidiaries of either Borrower.

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

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

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

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

      "Indebtedness"  means any and all  amounts  owing or to be owing by either
Borrower or any  Guarantor (a) to the  Administrative  Agent or any Lender under
any Loan  Document and (b) to any lender or any  Affiliate of a lender under any
Swap  Agreement  between  either  Borrower or any  Subsidiary and such lender or
Affiliate  of a lender while such Person (or in the case of its  Affiliate,  the
Person  affiliated  therewith)  is a  lender  thereunder,  (c) to  any  Approved
Counterparty under any Swap Agreement to which either Borrower or any Subsidiary
is a party if such Swap  Agreement by its terms states that it is secured by the
Security Instruments and (d) all renewals,  extensions and/or  rearrangements of
any of the above.

      "Indemnitee"  shall  have  the  meaning  assigned  such  term  in  Section
12.03(b).

                                       10
<PAGE>

      "Indemnity  Matters"  shall mean any and all actions,  suits,  proceedings
(including any  investigations,  litigation or inquiries),  claims,  demands and
causes  of  action  made or  threatened  against  a Person  and,  in  connection
therewith,  all losses,  liabilities,  damages  (including,  without limitation,
consequential  damages) or  reasonable  costs and expenses of any kind or nature
whatsoever  incurred by such  Person  whether  caused by the sole or  concurrent
negligence of such Person seeking indemnification.

      "Indemnified Taxes" means Taxes other than Excluded Taxes.

      "Initial  Reserve  Report"  means  the  report  prepared  by the  Approved
Petroleum  Engineers  with  respect to  certain  Oil and Gas  Properties  of the
Borrowers  and their  Subsidiaries  as of July 1, 2005, a copy of which has been
delivered to the Administrative Agent.

      "Intercreditor   Agreement"   means  the  Second   Amended  and   Restated
Intercreditor Agreement among the Administrative Agent, the administrative agent
under  the  Senior  Credit  Agreement,  and the Third  Lien Term Loan  Agreement
administrative   agent,   substantially  in  the  form  of  Exhibit  E-4  or  an
intercreditor  agreement  substantially  similar entered into in connection with
Permitted Refinancing Debt.

       "Interest  Payment  Date"  means,  with  respect  to any  Loan,  the date
immediately  following the last day of each Interest  Period  applicable to such
Loan,  provided that if any Interest Payment Date would fall on a day other than
a Business Day, such Interest Payment Date shall be the next succeeding Business
Day unless such next  succeeding  Business  Day would fall in the next  calendar
month,  in which case such Interest  Payment Date shall be on the next preceding
Business Day.

      "Interest  Period" means, with respect to each Loan, the period commencing
on and including the Effective Date or the numerically  corresponding day in any
month,   as  applicable,   and  ending  on,  but  excluding,   the   numerically
corresponding  day in the  immediately  succeeding  month.  Notwithstanding  the
foregoing:  (i) no Interest  Period may end after the Final Maturity Date;  (ii)
each Interest  Period which would otherwise end on a day which is not a Business
Day shall end on the next  succeeding  Business Day (or, if such next succeeding
Business Day falls in the next succeeding  calendar month, on the next preceding
Business Day);  and (iii) no Interest  Period shall have a duration of less than
one month.

      "Investment" means, for any Person: (a) the acquisition (whether for cash,
Property,  services or securities or otherwise) of Equity Interests of any other
Person  or any  agreement  to make  any  such  acquisition  (including,  without
limitation,  any "short sale" or any sale of any  securities at a time when such
securities are not owned by the Person  entering into such short sale);  (b) the
making of any deposit  with, or advance,  loan or other  extension of credit to,
any other Person (including the purchase of Property from another Person subject
to an  understanding  or  agreement,  contingent  or  otherwise,  to resell such
Property to such Person,  but excluding  any such advance,  loan or extension of
credit having a term not exceeding  ninety (90) days  representing  the purchase
price of  inventory or supplies  sold by such Person in the  ordinary  course of
business)  or (c) the

                                       11
<PAGE>

entering into of any guarantee  of, or other  contingentobligation  with respect
to, Debt of any other Person and (without  duplication)  any amount committed to
be advanced, lent or extended to such Person.

      "Knowledge"  means,  with  respect  to an  individual,  his or her  actual
knowledge  and with  respect  to any  corporation,  limited  liability  company,
partnership  or other  business  entity,  the actual  knowledge of any executive
officer,  general  partner  or  individual  being  a  member  of  the  executive
management of such entity.

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

      "LIBO Rate" means,  with respect to any Loan for any Interest Period,  the
rate per annum (rounded  upwards,  if necessary,  to the nearest  1/100th of 1%)
equal to the average of the offered quotations for 30-day LIBO appearing on Page
3750 of the Dow Jones Market Service (or on any successor or substitute  page of
such Service, or any successor to or substitute for such Service, providing rate
quotations  comparable to those currently provided on such page of such Service,
as  determined  by the  Administrative  Agent from time to time for  purposes of
providing  quotations of interest  rates  applicable  to dollar  deposits in the
London interbank market) at approximately  11:00 a.m., London time, two Business
Days prior to the commencement of such Interest  Period.  In the event that such
rate is not  available  at such time for any  reason,  then the "LIBO Rate" with
respect  to such  Loan  for such  Interest  Period  shall be the rate per  annum
(rounded  upwards,  if  necessary,   to  the  next  1/100th  of  1%)  quoted  by
Administrative  Agent at or before 11:00 a.m.,  New York,  New York time (or, as
soon thereafter as  practicable),  two (2) Business Days before the first day of
such Interest Period,  to be the arithmetic  average of the prevailing rates per
annum at the time of  determination  and in  accordance  with the then  existing
practice in the applicable market,  for the offering to Administrative  Agent by
one or more prime banks selected by Administrative Agent in its sole discretion,
in the London interbank market, of deposits in dollars for delivery on the first
day of such Interest  Period and having a maturity  equal (or as nearly equal as
may be) to the  length of such  Interest  Period  and in an amount  equal (or as
nearly equal as may be) to the Loans to which such Interest Period relates. Each
determination by  Administrative  Agent of the LIBO Rate shall be conclusive and
binding,  absent  manifest  error,  and may be  computed  using  any  reasonable
averaging and attribution method.

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

                                       12
<PAGE>

or holds subject to a conditional  sale  agreement,  or leases under a financing
lease or other  arrangement  pursuant  to which title to the  Property  has been
retained by or vested in some other Person in a transaction intended to create a
financing.

      "Loan" means the term loan made by each Lender to the  Borrowers  pursuant
to this Agreement.

      "Loan  Documents"  means this Agreement,  the Notes,  the Fee Letter,  the
Security Instruments and the Intercreditor Agreement.

      "Majority Lenders" means the Administrative Agent and Lenders having Loans
representing  at least a majority  of the  outstanding  principal  amount of the
Loans  (without  regard to any sale by a Lender of a  participation  in any Loan
under Section 12.04(c)).

      "Material  Adverse  Effect"  means a  material  adverse  effect on (a) the
business, operations,  Property, condition (financial or otherwise) or prospects
of each of the Borrowers and its Subsidiaries  taken as a whole, (b) the ability
of either  Borrower,  any  Subsidiary  or any  Guarantor  to perform  any of its
obligations  under any Loan Document,  (c) the validity or enforceability of any
Loan  Document or (d) the rights and  remedies of or benefits  available  to the
Administrative Agent or any Lender under any Loan Document.

      "Material  Indebtedness" means Debt (other than the Loans), or obligations
in respect of one or more Swap  Agreements,  of any one or more of the Borrowers
and their  Subsidiaries in an aggregate  principal amount exceeding  $2,500,000.
For purposes of determining Material Indebtedness, the "principal amount" of the
obligations  of a Borrower or any Subsidiary in respect of any Swap Agreement at
any time shall be the maximum  aggregate  amount  (giving  effect to any netting
agreements)  that such Borrower or such  Subsidiary  would be required to pay if
such Swap Agreement were terminated at such time.

      "Maturity Date" means November 14, 2011.

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

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

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

      "Net Cash  Proceeds"  means (a) in  connection  with any asset  sale,  the
proceeds  thereof in the form of cash and Cash  Equivalents  (including any such
proceeds received by way of deferred payment of principal  pursuant to a note or
installment receivable or purchase price adjustment receivable or otherwise, but
only  as and  when  received)  of  such  asset  sale,  net of  attorneys'  fees,
accountants' fees,  investment banking fees,

                                       13
<PAGE>

broker's or finder's  fees,  amounts  required to be applied to the repayment of
Indebtedness  secured by a Lien expressly  permitted hereunder on any asset that
is the subject of such asset sale  (other  than any Lien  pursuant to a Security
Instrument)  and  other  customary  fees  and  expenses   actually  incurred  in
connection therewith and net of taxes paid or reasonably estimated to be payable
as a result  thereof  (after  taking into account any  available  tax credits or
deductions related to such asset sale and any tax sharing  arrangements) and (b)
in connection with any issuance or sale of equity  securities or debt securities
or instruments or the incurrence of loans, the cash proceeds  received from such
issuance  or  incurrence,  net of  attorneys'  fees,  investment  banking  fees,
accountants'  fees,  underwriting  discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.

      "Notes"  means the  promissory  notes of the  Borrowers  as requested by a
Lender and described in Section 2.02(b) and being  substantially  in the form of
Exhibit A, together with all amendments, modifications, replacements, extensions
and rearrangements thereof.

      "Oil  and  Gas  Properties"  means  (a)  Hydrocarbon  Interests;  (b)  the
Properties now or hereafter pooled or unitized with Hydrocarbon  Interests;  (c)
all  presently   existing  or  future   unitization,   pooling   agreements  and
declarations  of pooled units and the units created thereby  (including  without
limitation  all  units  created  under  orders,  regulations  and  rules  of any
Governmental  Authority)  which may affect all or any portion of the Hydrocarbon
Interests;  (d)  all  operating  agreements,  contracts  and  other  agreements,
including  production  sharing contracts and agreements,  which relate to any of
the  Hydrocarbon  Interests  or the  production,  sale,  purchase,  exchange  or
processing of Hydrocarbons  from or attributable to such Hydrocarbon  Interests;
(e) all  Hydrocarbons  in and  under  and  which  may be  produced  and saved or
attributable to the Hydrocarbon  Interests,  including all oil in tanks, and all
rents, issues, profits, proceeds,  products,  revenues and other incomes from or
attributable to the  Hydrocarbon  Interests;  (f) all tenements,  hereditaments,
appurtenances and Properties in any manner appertaining,  belonging,  affixed or
incidental to the Hydrocarbon Interests and (g) all Properties,  rights, titles,
interests  and estates  described  or referred to above,  including  any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used,  held for use or useful  in  connection  with the  operating,  working  or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs,  automotive  equipment,  rental equipment or other personal Property which
may be on such  premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells,  injection wells
or other  wells,  buildings,  structures,  fuel  separators,  liquid  extraction
plants, plant compressors,  pumps, pumping units, field gathering systems, tanks
and tank batteries,  fixtures,  valves, fittings,  machinery and parts, engines,
boilers, meters, apparatus,  equipment,  appliances, tools, implements,  cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and  servitudes  together  with  all  additions,  substitutions,   replacements,
accessions and attachments to any and all of the foregoing. The term Oil and Gas
Properties shall not include the Pipeline.

      "Other  Taxes"  means any and all present or future  stamp or  documentary
taxes or any other excise or Property  taxes,  charges or similar levies arising
from any payment

                                       14
<PAGE>

made hereunder or from the execution,  delivery or enforcement  of, or otherwise
with respect to, this Agreement and any other Loan Document.

      "Participant"  has  the  meaning  assigned  to such  term  in  Section
12.04(c)(i).

      "PBGC" means the Pension Benefit  Guaranty  Corporation,  or any successor
thereto.

      "Percentage Share" means with respect to any Lender, the percentage of the
aggregate Commitments represented by such Lender's Commitment as such percentage
is set  forth  on  Annex  I as  such  amount  may be  adjusted  pursuant  to any
Assignment and Assumption under Section 12.04.

      "Permitted  Refinancing Debt" means Debt (for purposes of this definition,
"new  Debt")  incurred  in  exchange  for,  or  proceeds  of  which  are used to
refinance, all of any other Debt (the "Refinanced Debt"); provided that (a) such
new Debt is in an aggregate principal amount not in excess of the sum of (i) the
aggregate  principal  amount then outstanding of the Refinanced Debt (or, if the
Refinanced  Debt is exchanged or acquired for an amount less than the  principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
such lesser  amount) and (ii) an amount  necessary to pay any fees and expenses,
including premiums,  related to such exchange or refinancing;  (b) such new Debt
has a stated maturity no earlier than the stated maturity of the Refinanced Debt
and an average life no shorter than the average life of the Refinanced Debt; (c)
such new Debt  does not have a stated  interest  rate in  excess  of the  stated
interest  rate of the  Refinanced  Debt;  (d) such new Debt does not contain any
covenants  which are more onerous to the Borrowers and their  Subsidiaries  than
those imposed by the  Refinanced  Debt and (e) such new Debt (and any guarantees
thereof)  is  subordinated  in right of  payment  to the  Indebtedness  (or,  if
applicable,  the  Guaranty  Agreement)  to at  least  the  same  extent  as  the
Refinanced Debt.

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

      "Pipeline"  means the pipeline  owned and  operated by Bluestem  Pipeline,
LLC.

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

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

      "Proved Mineral Interests" means,  collectively,  Proved Producing Mineral
Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral
Interests.

                                       15
<PAGE>

      "Proved  Nonproducing  Mineral Interests" means all Hydrocarbon  Interests
which  constitute  proved developed  nonproducing  reserves as classified by the
Society of Petroleum Engineers.

      "Proved Producing Mineral Interests" means all Hydrocarbon Interests which
constitute proved developed  producing  reserves as classified by the Society of
Petroleum Engineers.

      "Proved  Undeveloped  Mineral  Interests" means all Hydrocarbon  Interests
which  constitute  proved  undeveloped  reserves as classified by the Society of
Petroleum Engineers.

      "PV-10  Value" shall mean,  as of any date of  determination,  the present
value of future  cash flows from  Proved  Mineral  Interests  on the  Borrowers'
Hydrocarbon  Interests as set forth in the most recent Reserve Report  delivered
pursuant to Section 8.12,  utilizing the Three-Year  Strip Price for natural gas
(Henry Hub), quoted in the New York Mercantile  Exchange (or its successor),  as
of the date as of which  the  information  set forth in such  Reserve  Report is
provided  (as  adjusted for basis  differentials)  and  utilizing a 10% discount
rate.  PV-10 Value shall be  adjusted  to give effect to the  commodity  hedging
agreements of the Borrowers then in effect.

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

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

      "Regulation  D"  means  Regulation  D of the  Board,  as the  same  may be
amended, supplemented or replaced from time to time.

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

      "Remedial Work" has the meaning assigned such term in Section 8.10(a).

     "Reserve  Report"  means the Initial  Reserve  Report and each other report
setting  forth,  as of each December 31st or June 30th (or such other  specified
"as of"  date  contemplated  by  Section  8.12(d)),  the  oil  and gas  reserves
attributable  to  the  Oil  and  Gas  Properties  of  the  Borrowers  and  their
Subsidiaries,  together with a projection  of the rate of production  and future
net income,  taxes,  operating  expenses and capital  expenditures  with respect
thereto as of such date, consistent with SEC reporting  requirements at the time
and reflecting (and conforming to the definition of) PV-10 Value,  provided that
each  such  report  hereafter  delivered  must (a)  separately  report on Proved
Mineral  Interests,  Proved Producing  Mineral  Interests,  Proved  Nonproducing
Mineral  Interests  and Proved  Undeveloped  Mineral  Interests  and  separately
calculate the PV-10 Value of each such

                                       16
<PAGE>

category of Proved Mineral Interests for the Borrowers' and their  Subsidiaries'
interests,  (b)  take  into  account  the  Borrowers'  actual  experiences  with
leasehold operating expenses and other costs in determining  projected leasehold
operating  expenses  and other  costs,  (c)  identify  and take into account any
"over-produced" or "under-produced" status under gas balancing arrangements, and
(d) contain  information  and analysis  comparable in scope to that contained in
the Initial Reserve Report.

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

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

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

      "Secured  Parties"  has the meaning  assigned to such term in the Security
Agreement.

      "Security  Agreement" means an agreement executed by the Borrowers and the
Guarantors in  substantially  the form of Exhibit F, as the same may be amended,
restated, modified or supplemented from time to time.

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

      "Senior Credit  Agreement"  means that certain Amended and Restated Senior
Credit  Agreement  dated as of February 7, 2006 among the Borrowers,  Guggenheim
Corporate Funding,  LLC, as administrative agent for the revolving lenders party
thereto and the other  agents and  revolving  lenders  from time to time parties
thereto and any "Loan  Documents"  (as defined  therein)  executed in connection
therewith, in each case, as hereafter amended or supplemented from time to time,
subject to Section 9.03(g) and Section 9.02(h).

                                       17
<PAGE>

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

      "Statutory  Reserve Rate" means a fraction  (expressed as a decimal),  the
numerator of which is the number one and the  denominator of which is the number
one minus the  aggregate  of the  maximum  reserve  percentages  (including  any
marginal,  special,  emergency or supplemental  reserves) expressed as a decimal
established  by the  Board to which the  Administrative  Agent is  subject  with
respect to the LIBO Rate, for  eurocurrency  funding  (currently  referred to as
"Eurocurrency   Liabilities"  in  Regulation  D  of  the  Board).  Such  reserve
percentages  shall include those  imposed  pursuant to such  Regulation D. Loans
shall be deemed to  constitute  eurocurrency  funding  and to be subject to such
reserve requirements  without benefit of or credit for proration,  exemptions or
offsets  that  may be  available  from  time to time to any  Lender  under  such
Regulation D or any comparable  regulation.  The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any such
reserve percentage.

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

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

      "Synthetic Leases" means, in respect of any Person, all leases which shall
have been, or should have been, in  accordance  with GAAP,  treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness  for borrowed money for purposes of U.S.  federal income taxes,  if
the lessee in respect  thereof is obligated to either  purchase for an amount in
excess  of, or pay upon  early  termination  an amount in excess  of, 80% of the
residual value of the Property  subject to such operating  lease upon expiration
or early termination of such lease.

                                       18
<PAGE>

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

      "Third Lien Term Loan  Agreement"  means that certain Third Lien Term Loan
Agreement  among  the  Borrowers,  GCF as the Third  Lien  Term  Loan  Agreement
administrative  agent,  and the lenders party thereto,  and any "Loan Documents"
(as defined therein) executed in connection therewith, in each case as hereafter
amended or supplemented.

      "Three-Year Strip Price" shall mean, as of any date of determination,  (a)
for the 36-month  period  commencing  with the month  immediately  following the
month in which the date of  determination  occurs,  the monthly futures contract
prices for crude oil and natural gas for the 36  succeeding  months as quoted on
the  applicable   commodities  exchange  or  other  price  quotation  source  as
contemplated  in the  definition of "PV-10 Value" and (b) for periods after such
36-month  period,  the  average of such  quoted  prices for the period  from and
including the 25th month in such 36-month  period through the 36th month in such
period.

      "Total Debt" means,  at any date,  all Debt  (exclusive of Debt related to
Swap Agreements) of either of the Borrowers and its Consolidated Subsidiaries on
a consolidated basis, less (i) Cash Equivalents,  (ii) undrawn letters of credit
issued for the  account of such  Borrower  and/or any of its  Subsidiaries,  and
(iii) surety bonds permitted under Section 9.02(e).

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

      "Wholly-Owned  Subsidiary"  means  any  Subsidiary  of  which  all  of the
outstanding  Equity  Interests  (other  than any  directors'  qualifying  shares
mandated by applicable  law), on a fully-diluted  basis, are owned by one of the
Borrowers or by one or more of the  Wholly-Owned  Subsidiaries  or by one of the
Borrowers and one or more of the Wholly-Owned Subsidiaries.

     Section 1.03 Terms  Generally;  Rules of  Construction.  The definitions of
terms herein  shall apply  equally to the singular and plural forms of the terms
defined.  Whenever  the  context may  require,  any  pronoun  shall  include the
corresponding  masculine,  feminine  and  neuter  forms.  The  words  "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation".  The word "will"  shall be  construed  to have the same meaning and
effect as the word  "shall".  Unless  the  context

                                       19
<PAGE>

requires  otherwise  (a)  any  definition  of or  reference  to  any  agreement,
instrument  or other  document  herein  shall be  construed as referring to such
agreement,   instrument  or  other  document  as  from  time  to  time  amended,
supplemented  or  otherwise  modified  (subject  to  any  restrictions  on  such
amendments,  supplements or modifications  set forth herein),  (b) any reference
herein  to any law  shall be  construed  as  referring  to such law as  amended,
modified, codified or reenacted, in whole or in part, and in effect from time to
time, (c) any reference  herein to any Person shall be construed to include such
Person's successors and assigns (subject to the restrictions  contained herein),
(d) the words "herein",  "hereof" and "hereunder",  and words of similar import,
shall be  construed  to refer to this  Agreement  in its entirety and not to any
particular  provision hereof,  (e) with respect to the determination of any time
period,  the word "from" means "from and  including" and the word "to" means "to
and  including"  and (f) any reference  herein to Articles,  Sections,  Annexes,
Exhibits and Schedules  shall be construed to refer to Articles and Sections of,
and Annexes,  Exhibits and  Schedules to, this  Agreement.  No provision of this
Agreement or any other Loan Document shall be  interpreted or construed  against
any Person solely because such Person or its legal  representative  drafted such
provision.

     Section 1.04 Accounting Terms and  Determinations;  GAAP.  Unless otherwise
specified  herein,  all accounting  terms used herein shall be interpreted,  all
determinations  with respect to accounting  matters hereunder shall be made, and
all financial  statements and certificates  and reports as to financial  matters
required to be furnished to the  Administrative  Agent or the Lenders  hereunder
shall be prepared,  in accordance with GAAP,  applied on a basis consistent with
the  Financial  Statements  except for changes in which  Borrower's  independent
registered   public   accounting   firm  concurs  and  which  are  disclosed  to
Administrative Agent on the next date on which financial statements are required
to be  delivered  to the Lenders  pursuant to Section  8.01(a);  provided  that,
unless the Borrowers and the Majority  Lenders shall otherwise agree in writing,
no such change  shall modify or affect the manner in which  compliance  with the
covenants  contained herein is computed such that all such computations shall be
conducted  utilizing  financial  information  presented  consistently with prior
periods.

                                   ARTICLE II
                                 The Term Loans

     Section  2.01 Term  Loans.  Subject to the terms and  conditions  set forth
herein, each Lender severally agrees to make on the Effective Date a Loan to the
Borrowers in a principal amount equal to the amount of such Lender's Commitment,
provided  that the aggregate  principal  amount of all such Loans by all Lenders
hereunder shall equal $100,000,000. The Commitments are not revolving in nature,
and amounts repaid or prepaid may not be reborrowed under any circumstance.

     Section 2.02 Loans.

     (a) Several  Obligations.  Each Loan shall be made on the Effective Date by
the Lenders ratably in accordance with their respective Commitments. The failure
of any  Lender  to fund its Loan  shall  not  relieve  any  other  Lender of its
obligations

                                       20
<PAGE>

hereunder;  provided  that the  Commitments  are several and no Lender  shall be
responsible for any other Lender's failure to fund its Loan as required.

     (b) Notes. Each Lender shall maintain in accordance with its usual practice
an account or  accounts  evidencing  the  indebtedness  of the  Borrower to such
Lender  resulting  from each Loan made by such Lender,  including the amounts of
principal  and  interest  payable  and  paid to such  Lender  from  time to time
hereunder.  The  Administrative  Agent shall maintain accounts in which it shall
record  (i) the  amount  of each  Loan made  hereunder,  (ii) the  amount of any
principal  or interest  due and  payable or to become due and  payable  from the
Borrowers to each Lender  hereunder  and (iii) the amount of any sum received by
the  Administrative  Agent  hereunder  for the  account of the  Lenders and each
Lender's share thereof.  The entries made in the accounts maintained pursuant to
this Section  2.02(b) shall be prima facie evidence of the existence and amounts
of the obligations recorded therein;  provided that the failure of any Lender or
the  Administrative  Agent to maintain  such accounts or any error therein shall
not in any manner  affect the  obligation of the Borrowers to repay the Loans in
accordance with the terms of this  Agreement.  Any Lender may request that Loans
made by it be evidenced by a Note. In such event,  the Borrowers  shall prepare,
execute  and  deliver to such  Lender one or more Notes  payable to the order of
such Lender and  substantially in the form of Exhibit A.  Thereafter,  the Loans
evidenced by such Note and interest  thereon shall at all times (including after
assignment  pursuant to Section  12.04) be  represented  by one or more Notes in
such form payable to the order of the payee named therein (or, if such Note is a
registered note, to such payee and its registered assigns).

     Section 2.03  Requests for the Loans.  Not later than 12:00 noon,  New York
City time,  on the  Effective  Date,  the  Borrowers  shall request the Loans by
notifying   the   Administrative   Agent  by  telephone,   fax  (or   electronic
communication,   if  arrangements  for  doing  so  have  been  approved  by  the
Administrative  Agent),  and shall  confirm  such request by  delivering  to the
Administrative   Agent  and  the   Lenders  a  written   Borrowing   Request  in
substantially  the  form  of  Exhibit  B  and  signed  by  the  Borrowers.  Such
telephonic,   electronic   or  written   request  shall  specify  the  following
information in compliance with Section 2.02:

               (i) the aggregate amount of each requested Loan; and

               (ii) the location and number of the applicable Borrower's account
          to which  funds  are to be  disbursed,  which  shall  comply  with the
          requirements of Section 2.04.

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

     Section 2.04 Funding the Loans.

     (a) Each Lender shall make its Loan on the Effective  Date by wire transfer
of  immediately  available  funds by 2:00 p.m.,  New York, New York time, to the

                                       21

<PAGE>

account of the  Administrative  Agent most  recently  designated  by it for such
purpose by notice to the Lenders.

     (b) Funding to the Borrower. With respect to any Loans made hereunder,  the
Administrative  Agent will make such Loans  available to the  Borrowers no later
than  3:00  p.m.  New York City time by  promptly  paying by wire  transfer  the
amounts so received,  in like funds,  to one or more accounts  designated by the
Borrowers in the applicable Borrowing Request.

     Section 2.05 Termination. The Commitments shall terminate at 3.00 p.m., New
York,  New York time on the  Effective  Date.  At the close of  business  on the
Effective  Date,  any portion of the  Commitments  not utilized by the Borrowers
shall be permanently canceled.

     Section 2.06 [RESERVED]

     Section 2.07  Intercreditor  Agreement.  The Loans, the Notes, if any, this
Agreement and the other Loan  Documents;  the rights and remedies of the Lenders
and the  Administrative  Agent  hereunder and  thereunder  and the Liens created
thereby are subject to the Intercreditor Agreement.

                                  ARTICLE III
              Payments of Principal and Interest; Prepayments; Fees

     Section 3.01  Repayment of the Loans.  On the Maturity  Date, the Borrowers
shall repay the outstanding principal amount of the Loans in full.

     Section 3.02 Interest.

     (a) Interest Rate.  Except as otherwise  provided in Section  3.02(b),  the
Loans shall bear  interest at the Adjusted  LIBO Rate for each  Interest  Period
plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.

     (b) Post-Default Rate.  Notwithstanding the foregoing,  if any principal of
or interest on any Loan or any fee or other amount  payable by the  Borrowers or
any  Guarantor  hereunder or under any other Loan Document is not paid when due,
whether at stated  maturity,  upon  acceleration or otherwise,  the Indebtedness
shall bear interest, after as well as before judgment, at a rate per annum equal
to two and one-half  percent  (2.5%) plus the Interest  Rate provided in Section
3.02(a), but in no event to exceed the Highest Lawful Rate.

     (c) Interest Payment Dates.  Accrued interest on each Loan shall be payable
in arrears on each  Interest  Payment Date;  provided that (i) interest  accrued
pursuant to Section  3.02(b) shall be payable on demand and (ii) in the event of
any  prepayment of any Loan,  accrued  interest on the principal  amount prepaid
shall be payable on the date of such prepayment.

                                       22

<PAGE>

     (d) Interest Rate Computations. All interest hereunder shall be computed on
the  basis of a year of 360 days,  unless  such  computation  would  exceed  the
Highest  Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year),  payable for the actual number of
days  elapsed  (including  the  first  day but  excluding  the  last  day).  The
applicable  Adjusted  LIBO  Rate  or  LIBO  Rate  shall  be  determined  by  the
Administrative Agent, and such determination shall be conclusive absent manifest
error, and be binding upon the parties hereto.

     Section  3.03  Intercreditor  Agreement.  All terms of this Article III are
subject to the terms of the Intercreditor Agreement.

     Section 3.04 Prepayments.

     (a) Optional  Prepayments.  To the extent permitted under the Intercreditor
Agreement and subject to any breakage  funding costs payable pursuant to Section
5.02 and  subject  to prior  notice in  accordance  with  Section  3.04(b),  the
Borrowers shall have the right to prepay the Loans, in whole on any Business Day
or in part on the last day of any Interest Period, as follows:

     (i) at any time during the period  commencing on the Effective  Date to and
including the first  anniversary of the Effective  Date, no optional  prepayment
shall be permitted; and

     (ii) at any  time  after  the  first  anniversary  of the  Effective  Date,
optional  prepayments  shall be made at the prices  (expressed as percentages of
the  outstanding  principal  amount)  set forth  below,  if prepaid  during each
successive  12-month  period  beginning  on November  15 of each year  indicated
below:

                                                  Prepayment
                            Year                     Price
                    --------------------        ----------------
                    2006                             103%

                    2007                             102%

                    2008                             101%

                    2009 and thereafter              100%

provided that, in any event, each prepayment is in an amount that is an integral
multiple of $1,000,000 and not less than  $1,000,000,  or if such amount is less
than  $1,000,000,  the outstanding  principal  amount of the Loans.  Accrued and
unpaid interest on the principal amount prepaid, all outstanding and unpaid fees
and expenses,  and the prepayment price set forth in this Section 3.04(a), shall
be paid on the prepayment date.

     (b) Notice and Terms of Optional Prepayment.  The Borrower shall notify the
Administrative   Agent  by  telephone,   electronic   communication  and/or  fax
(confirmed by telecopy) of any  prepayment  hereunder not later than 12:00 noon,
New

                                       23
<PAGE>

York City time, seven (7) Business Days before the date of prepayment. Each such
notice shall be  irrevocable  and effective  upon receipt by the  Administrative
Agent and shall  specify the  prepayment  date and the  principal  amount of the
Loans or portion thereof to be prepaid.  Promptly  following receipt of any such
notice,  the  Administrative  Agent  shall  advise the  Lenders of the  contents
thereof. Each prepayment shall be applied ratably to the Loans of all Lenders in
accordance with their  Percentage  Shares.  Prepayments  shall be accompanied by
accrued and unpaid interest to the extent required by Section 3.02.

     (c)  Mandatory  Prepayment.  The Net Cash  Proceeds of any asset sale under
Section  9.12(d),  to the extent not  applied in the manner  specified  therein,
shall be used to repay the  Loans.  Such  payment  shall be due on the 121st day
after the asset sale giving rise to such Net Cash Proceeds.

     Section 3.05 Fees.

     (a)  Administrative   Agent  Fees.  The  Borrowers  agree  to  pay  to  the
Administrative  Agent,  for its own account,  fees payable in the amounts and at
the times  separately  agreed upon between the Borrowers and the  Administrative
Agent.

     (b) Payment of Fees. All fees payable  hereunder shall be paid on the dates
due, in immediately  available  funds, to the  Administrative  Agent.  Fees paid
shall not be refundable under any circumstances.

                                       24
<PAGE>

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

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

     (a) Payments.  The Borrowers shall make each payment required to be made by
them hereunder  (whether of principal,  interest or fees, or of amounts  payable
under Section  5.01,  Section  5.02,  Section 5.03 or otherwise)  prior to 12:00
noon, New York City time, on the date when due, in immediately  available funds,
without defense,  deduction,  recoupment,  set-off or counterclaim.  Any amounts
received   after  such  time  on  any  date  may,  in  the   discretion  of  the
Administrative  Agent,  be deemed to have been  received on the next  succeeding
Business Day for purposes of  calculating  interest  thereon.  All such payments
shall be made to the  Administrative  Agent at its offices  specified in Section
12.01, as expressly provided herein and except that payments pursuant to Section
5.01, Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the
Persons entitled  thereto.  The  Administrative  Agent shall distribute any such
payments  received by it for the account of any other Person to the  appropriate
recipient promptly following receipt thereof as provided in Section 4.01(d).  If
any payment  hereunder  shall be due on a day that is not a Business Day, except
as otherwise set forth herein the date for payment shall be extended to the next
succeeding  Business  Day,  and, in the case of any payment  accruing  interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

     (b) Application of Insufficient Payments. If at any time insufficient funds
are  received  by and  available  to the  Administrative  Agent to pay fully all
amounts of principal,  interest and fees then due  hereunder,  such funds shall,
subject to Section  4.01(d),  be applied (i) first,  towards payment of interest
and fees then due  hereunder,  ratably  among the  parties  entitled  thereto in
accordance  with the amounts of interest and fees then due to such parties,  and
(ii) second, towards payment of principal then due hereunder,  ratably among the
parties entitled thereto in accordance with the amounts of principal then due to
such parties.

     (c) Sharing of Payments by Lenders.  If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise,  obtain payment in respect of any
principal of or interest on its Loan resulting in such Lender receiving  payment
of a greater proportion of the aggregate amount of its Loan and accrued interest
thereon  to  which  such  Lender  is  entitled  under  this  Agreement  than the
proportion  received by any other Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value)  participations  in the Loans
of  other  Lenders  to the  extent  necessary  so that the  benefit  of all such
payments  shall be  shared by the  Lenders  ratably  in  accordance  with  their
Percentage  Shares of the aggregate  amount of principal of and accrued interest
on their  respective  Loans;  provided that (i) if any such  participations  are
purchased  and  all or any  portion  of  the  payment  giving  rise  thereto  is
recovered,  such  participations  shall  be  rescinded  and the  purchase  price
restored  to the  extent  of such  recovery,  without  interest,  and  (ii)  the
provisions  of this  Section  4.01(c)  shall  not be  construed  to apply to any
payment made by the  Borrowers  pursuant to and in  accordance  with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the  assignment

                                       25
<PAGE>

of or sale of a participation in its Loan to any assignee or participant,  other
than to the Borrowers or any  Subsidiary  or Affiliate  thereof (as to which the
provisions of this Section  4.01(c) shall apply).  The Borrowers  consent to the
foregoing and agree,  to the extent it may  effectively  do so under  applicable
law,  that any  Lender  acquiring  a  participation  pursuant  to the  foregoing
arrangements  may exercise  against each of the Borrowers  rights of set-off and
counterclaim with respect to such  participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.

     (d) Notwithstanding anything contained herein to the contrary, all payments
in respect of  Indebtedness  and all proceeds of collateral  shall be applied in
the manner and order set forth in the Intercreditor Agreement.

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

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

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

                                       26
<PAGE>

take such actions as may be  necessary to cause such  proceeds to be paid to the
Borrowers and/or such Subsidiaries.

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

     Section 5.01 Increased Costs.

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

     (i) impose,  modify or deem  applicable  any  reserve,  special  deposit or
similar  requirement  against assets of, deposits with or for the account of, or
credit extended by, any Lender (except any such reserve requirement reflected in
the Adjusted LIBO Rate); or

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

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

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

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

     (d) Effect of Failure or Delay in Requesting Compensation. Failure or delay
on the part of any Lender to demand  compensation  pursuant to this Section 5.01
shall  not   constitute  a  waiver  of  such  Lender's   right  to  demand  such
compensation;  provided that the Borrowers shall not be required to compensate a
Lender  pursuant to this  Section  5.01 for any  increased  costs or  reductions
incurred  more than 180 days  prior to the date that such  Lender  notifies  the
Borrowers of the Change in Law giving rise to such increased costs or reductions
and of such Lender's intention to claim compensation

                                       27
<PAGE>

therefor;  provided  further  that,  if the  Change in Law  giving  rise to such
increased costs or reductions is  retroactive,  then the 180-day period referred
to above shall be extended to include the period of retroactive effect thereof.

     Section 5.02 Break Funding Payments. In the event of (a) the payment of any
principal  of any  Loan  other  than  on the  last  day  of an  Interest  Period
applicable  thereto  (including  as a result  of an Event of  Default),  (b) the
failure  to  prepay  any  Loan on the date  specified  in any  notice  delivered
pursuant hereto, or (c) the assignment of any Loan other than on the last day of
the Interest Period applicable thereto as a result of a request by the Borrowers
pursuant to Section  5.04(b),  then,  in any such  event,  the  Borrowers  shall
compensate  each  Lender for the loss,  cost and  expense  attributable  to such
event.  Such loss,  cost or expense to any Lender  shall be deemed to include an
amount  determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal  amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such  Loan,  for the  period  from the date of such event to the last day of the
then current  Interest  Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such  Loan),  over  (ii) the  amount  of  interest  which  would  accrue on such
principal  amount for such period at the  interest  rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market.

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

     Section 5.03 Taxes.

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

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

                                       28
<PAGE>

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

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

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

     Section 5.04 Mitigation Obligations; Replacement of Lenders.

     (a)  Designation  of  Different  Lending  Office.  If any  Lender  requests
compensation  under  Section  5.01,  or if the Borrowers are required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender  pursuant  to Section  5.03,  then such Lender  shall use  reasonable
efforts to designate a different  lending office for funding or booking its Loan
hereunder  or to assign its rights and  obligations  hereunder to another of its
offices,  branches  or  affiliates,  if, in the  judgment of such  Lender,  such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to  Section  5.01 or  Section  5.03,  as the case may be, in the future and (ii)
would not subject such Lender to any unreimbursed  cost or expense and would not
otherwise be  disadvantageous  to such Lender. The Borrowers hereby agree to pay
all reasonable costs and expenses  incurred by any Lender in connection with any
such designation or assignment.

     (b)  Replacement  of Lenders.  If any Lender  requests  compensation  under
Section 5.01, or if the Borrowers are required to pay any  additional  amount to
any Lender or any Governmental  Authority for the account of any Lender pursuant
to Section

                                       29
<PAGE>

5.03, or if any Lender defaults in its obligation to fund its Loan hereunder, or
if any Lender is prevented  from making its Loan under  Section  5.05, or if any
Lender declines to vote in favor of an amendment,  waiver or other  modification
recommended by the  Administrative  Agent, then the Borrowers may, at their sole
expense and effort,  upon  notice to such Lender and the  Administrative  Agent,
require such Lender to assign and delegate, without recourse (in accordance with
and  subject  to the  restrictions  contained  in  Section  12.04(b)),  all  its
interests, rights and obligations under this Agreement to an assignee that shall
assume such  obligations  (which  assignee  may be another  Lender,  if a Lender
accepts such  assignment);  provided that (i) the Borrowers  shall have received
the prior written consent of the  Administrative  Agent, which consent shall not
unreasonably  be withheld,  (ii) such Lender shall have  received  payment of an
amount equal to the outstanding principal of its Loan, accrued interest thereon,
accrued fees and all other amounts  payable to it  hereunder,  from the assignee
(to the extent of such  outstanding  principal and accrued interest and fees) or
the  Borrowers  (in the case of all other  amounts) and (iii) in the case of any
such assignment  resulting from a claim for  compensation  under Section 5.01 or
payments  required to be made pursuant to Section  5.03,  such  assignment  will
result in a reduction in such  compensation  or payments.  A Lender shall not be
required to make any such  assignment and  delegation  if, prior  thereto,  as a
result of a waiver by such Lender or otherwise,  the circumstances entitling the
Borrowers to require such assignment and delegation cease to apply.

     Section  5.05  Illegality.  Notwithstanding  any  other  provision  of this
Agreement,  in the  event  that  it  becomes  unlawful  for  any  Lender  or its
applicable  lending  office to honor its obligation to make or maintain its Loan
hereunder,  then  such  Lender  shall  promptly  notify  the  Borrowers  and the
Administrative  Agent  thereof and such Lender  promptly  shall assign such Loan
pursuant to Section 12.04 hereunder.

                                   ARTICLE VI
                              Conditions Precedent

     Section 6.01  Effective  Date.  The  obligations of each Lender to make its
Loans hereunder  shall not become  effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):

     (a) The Administrative  Agent and the Arranger shall have received all fees
and other amounts due and payable on or prior to the Effective Date,  including,
to the extent invoiced,  reimbursement or payment of all out-of-pocket  expenses
required to be reimbursed or paid by the Borrowers hereunder.

     (b) The  Administrative  Agent  shall have  received a  certificate  of the
Secretary or an Assistant  Secretary of each of the Borrowers and each Guarantor
setting  forth (i)  resolutions  of its Board of  Directors  with respect to the
authorization of such Borrower or such Guarantor to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions contemplated
in those documents, (ii) the officers of such Borrower or such Guarantor (y) who
are  authorized  to sign  the Loan  Documents  to which  such  Borrower  or such
Guarantor  is a party and (z) who will,  until  replaced  by another  officer or
officers duly  authorized for that purpose,  act as its  representative  for

                                       30
<PAGE>

the purposes of signing documents and giving notices and other communications in
connection with this Agreement and the transactions  contemplated  hereby, (iii)
specimen  signatures  of such  authorized  officers,  and (iv) the  articles  or
certificate of incorporation and bylaws (or other  organizational  documents) of
such  Borrower and such  Guarantor,  certified as being true and  complete.  The
Administrative  Agent and the Lenders may conclusively  rely on such certificate
until the Administrative  Agent receives notice in writing from such Borrower or
such Guarantor to the contrary.

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

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

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

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

     (g) The  Administrative  Agent shall have received an aged trial balance of
trade payables, acceptable in substance to the Administrative Agent.

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

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

          (ii)  be  reasonably  satisfied  that  it has a Lien  on all  Property
     constituting security for the Senior Credit Agreement.

     (i) The  Administrative  Agent  shall  have  received  a  certificate  of a
Responsible  Officer of each of the Borrower  certifying  that (i) such Borrower
shall be contemporaneously closing the Senior Credit Agreement pursuant to which
such Borrowers shall have not less than  $100,000,000 of cash, Cash  Equivalents
and availability under the Senior Credit Agreement.

                                       31
<PAGE>

     (j) The Administrative  Agent shall have received an opinion of (i) Stinson
Morrison Hecker LLP, special counsel to each of the Borrowers,  substantially in
the form of Exhibit D-1 hereto, and (ii) local counsel in Oklahoma and any other
jurisdictions  requested by the Administrative Agent,  substantially in the form
of Exhibit D-2.

     (k) The Administrative Agent shall have received a certificate of insurance
coverage  of each of the  Borrowers  evidencing  that such  Borrower is carrying
insurance in accordance  with Section 7.13  including  loss payable and standard
mortgagee  provisions or  endorsements on the Borrowers'  insurance  policies in
accordance with Section 8.07.

     (l) The  Administrative  Agent shall have received  title opinions or other
evidence  of  title  acceptable  to  the  Administrative   Agent  on  Properties
representing  at least 80% of the total  proved value in the July 1, 2005 Cawley
Gillespie  Reserve Report and shall be satisfied with the status of title to the
Oil and Gas Properties evaluated in the Initial Reserve Report.

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

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

     (o) The Administrative  Agent shall have received the financial  statements
referred to in Section 7.04(a) and the Initial  Reserve Report  accompanied by a
certificate covering the matters described in Section 8.12(c).

     (p) The  Administrative  Agent shall have received  appropriate  UCC search
certificates  reflecting  no  prior  Liens  encumbering  the  Properties  of the
Borrowers,  the Subsidiaries for Kansas and Oklahoma and any other  jurisdiction
requested  by the  Administrative  Agent;  other than those  being  assigned  or
released on or prior to the Effective Date or Liens permitted by Section 9.03.

     (q) The Administrative  Agent shall have received evidence that Cherokee or
one of its Subsidiaries has in place one or more commodity price floors, collars
or price  swaps with one or more  Approved  Counterparties,  on terms  which are
satisfactory to the Administrative Agent and Borrowers.

     (r)  The  Administrative  Agent  shall  have  received  evidence  that  the
Borrowers  have  received  Net Cash  Proceeds of not less than  $175,000,000  in
connection with the issuance of Equity Interests simultaneously with the closing
of  the  facility  evidenced  by  this  Agreement  on  terms  acceptable  to the
Administrative Agent (the "Equity Offering").

                                       32
<PAGE>

     (s) The Intercreditor  Agreement shall have been duly executed and shall be
in full force and effect.

     (t) The  Administrative  Agent shall have received evidence that (i) Credit
Agreement  dated as of July 22,  2004 by and among  Cherokee,  UBS AG,  Stamford
Branch, as Administrative  Agent, and the lenders party thereto, as amended, has
been, or will  simultaneously  be,  terminated  and the  obligations  thereunder
satisfied  and (ii) the ArcLight  Transaction  has been or will  simultaneously,
closed.

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

      The Administrative Agent shall have notified the Borrowers and the Lenders
of the  Effective  Date,  and such  notice  shall  be  conclusive  and  binding.
Notwithstanding the foregoing,  the obligations of the Lenders to make its Loans
hereunder shall not become effective unless each of the foregoing  conditions is
satisfied  (or waived  pursuant to Section  12.02) at or prior to 2:00 p.m.  New
York City time, on November 14, 2005 (and , in the event such conditions are not
so satisfied or waived, the Commitments shall terminate at such time).

     Section 6.02 Each Credit Event.  The  obligation of each Lender to fund its
Loan is subject to the satisfaction of the following conditions:

     (a) At the time of and  immediately  after giving  effect to the Loans,  no
Default shall have occurred and be continuing.

     (b) At the time of and  immediately  after giving  effect to the Loans,  no
event,  development  or  circumstance  has occurred or shall then exist that has
resulted in, or could reasonably be expected to have, a Material Adverse Effect.

     (c) The  representations and warranties of the Borrowers and the Guarantors
set forth in this  Agreement and in the other Loan  Documents  shall be true and
correct in all material  respects on and as of the Effective Date, except to the
extent any such  representations  and  warranties  are  expressly  limited to an
earlier  date,  in  which  case,  on  and  as  of  the  Effective   Date,   such
representations  and  warranties  shall  continue  to be true and correct in all
material respects as of such specified earlier date.

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

     (e) The receipt by the  Administrative  Agent of the  applicable  Borrowing
Request in accordance with Section 2.03.

                                       33
<PAGE>

                                   ARTICLE VII
                         Representations and Warranties

      The Borrower represents and warrants to the Lenders that:

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

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

     Section 7.03 Approvals; No Conflicts. Except as set forth on Schedule 7.03,
the Transactions (a) do not require any consent or approval of,  registration or
filing  with,  or any other action by, any  Governmental  Authority or any other
third Person, nor is any such consent, approval,  registration,  filing or other
action necessary for the validity or  enforceability of any Loan Document or the
consummation of the Transactions,  except such as have been obtained or made and
are in full force and  effect  other  than (i) the  recording  and filing of the
Security  Instruments  as required by this  Agreement and (ii) those third party
approvals or consents which, if not made or obtained,  would not cause a Default
hereunder, could not reasonably be expected to have a Material Adverse Effect or
do not have an adverse effect on the  enforceability of the Loan Documents,  (b)
will not violate any  applicable  law or regulation  or the charter,  by-laws or
other organizational  documents of either of the Borrowers or any Subsidiary or,
except as could not  reasonably be expected to have a Material  Adverse  Effect,
any order of any  Governmental  Authority,  (c) will not  violate or result in a
default under any indenture,  agreement or other instrument  binding upon either
Borrower or any Subsidiary or its Properties, or give rise to a right thereunder
to require any payment to be made by such  Borrower or such  Subsidiary,  except
any  violation  or  default  that could not  reasonably  be  expected  to have a
Material Adverse Effect and (d) will not result in the creation or

                                       34
<PAGE>

imposition  of any Lien on any  Property of either  Borrower  or any  Subsidiary
(other than the Liens created by the Loan Documents).

     Section 7.04 Financial Condition; No Material Adverse Change.

     (a) Each of the Borrowers has  heretofore  furnished to the Lenders (i) its
consolidated  balance sheet and  statements of income,  stockholders  equity and
cash flows (x) as of and for the seven month  transition  period ended  December
31,  2004,  reported  on by  Murrell,  Hall,  McIntosh & Co.  PLLP,  independent
registered  public accounting firm, and (y) as of and for the fiscal quarter and
the portion of the fiscal year ended June 30, 2005,  reviewed by Murrell,  Hall,
McIntosh & Co PLLP. Such financial  statements  present fairly,  in all material
respects,  the financial  position and results of  operations  and cash flows of
such Borrower and its  Consolidated  Subsidiaries  as of such dates and for such
periods in accordance with GAAP,  subject to year-end audit  adjustments and the
absence  of  footnotes  in  the  case  of  the  unaudited   quarterly  financial
statements.  The Company has heretofore  furnished to the Lenders the unaudited,
pro forma  consolidated  balance sheet and  statements  of income,  stockholders
equity and cash flows as of and for the  six-month  period  ended June 30,  2005
adjusted  to  give  effect  to  this  Agreement,   and  the  other  transactions
contemplated by Section  6.01(h),  certified by its chief  financial  officer as
presenting  fairly,  in  all  material  respects,  the  consolidated  pro  forma
financial  position and results of operations  and cash flows of the Company and
its Consolidated  Subsidiaries as of such date and for such period in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the unaudited quarterly financial statements.

     (b) Since  December 31, 2004,  (i) there has been no event,  development or
circumstance  that has had or could  reasonably  be  expected to have a Material
Adverse  Effect and (ii) the  business  of the  Borrowers  and their  respective
Subsidiaries has been conducted only in the ordinary course consistent with past
business  practices,  in each case, except as disclosed in the filings made with
the SEC as of October 31, 2005 by the Company.

     (c) Neither of the Borrowers nor any of their  respective  Subsidiaries has
on the date hereof any material Debt (including  Disqualified  Capital Stock) or
any contingent  liabilities,  off-balance  sheet  liabilities  or  partnerships,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated  losses  from  any  unfavorable  commitments  (other  than  the  Gas
Balancing Obligations and the Swap Agreements listed on Schedule 7.21) which are
not referred to or reflected or provided for in the Financial Statements.

     Section 7.05 Litigation. Except as set forth on Schedule 7.05, there are no
actions,  suits,  investigations  or  proceedings by or before any arbitrator or
Governmental  Authority  pending  against or, to the  Knowledge of either of the
Borrowers,  threatened  against or affecting such Borrower or any Subsidiary (i)
not fully covered by insurance (except for normal deductibles) as to which there
is a  reasonable  possibility  of an adverse  determination  that,  if adversely
determined,  could reasonably be expected,  individually or

                                       35
<PAGE>

in the  aggregate,  to result in a Material  Adverse Effect or (ii) that involve
any Loan Document or the Transactions.

     Section  7.06  Environmental  Matters.  Except as could  not be  reasonably
expected to have a Material  Adverse Effect (or with respect to (c), (d) and (e)
below,  where the failure to take such actions could not be reasonably  expected
to have a Material Adverse Effect):

     (a) neither  any  Property of either  Borrower  or any  Subsidiary  nor the
operations  conducted  thereon  violate any order or requirement of any court or
Governmental Authority or any Environmental Laws.

     (b) no Property of either  Borrower or any  Subsidiary  nor the  operations
currently  conducted  thereon or, to the  Knowledge of either  Borrower,  by any
prior owner or operator of such  Property or  operation,  are in violation of or
subject to any existing,  pending or  threatened  action,  suit,  investigation,
inquiry or proceeding by or before any court or Governmental Authority or to any
remedial obligations under Environmental Laws.

     (c) all  notices,  permits,  licenses,  exemptions,  approvals  or  similar
authorizations,  if any, required to be obtained or filed in connection with the
operation or use of any and all Property of each  Borrower and each  Subsidiary,
including,  without limitation, past or present treatment,  storage, disposal or
release  of a  hazardous  substance,  oil and gas waste or solid  waste into the
environment,  have  been duly  obtained  or filed,  and each  Borrower  and each
Subsidiary is in compliance  with the terms and  conditions of all such notices,
permits, licenses and similar authorizations.

     (d) all hazardous  substances,  solid waste and oil and gas waste,  if any,
generated  by the  Borrowers  or any  Subsidiary  at any and all Property of the
Borrowers  or any  Subsidiary  have in the past been  transported,  treated  and
disposed  of in  accordance  with  Environmental  Laws  and so as not to pose an
imminent  and  substantial  endangerment  to  public  health or  welfare  or the
environment, and, to the Knowledge of the Borrowers, all such transport carriers
and treatment and disposal  facilities have been and are operating in compliance
with  Environmental  Laws  and so as not to pose  an  imminent  and  substantial
endangerment  to public  health or welfare or the  environment,  and are not the
subject of any existing, pending or threatened action,  investigation or inquiry
by any Governmental Authority in connection with any Environmental Laws.

     (e) each of the  Borrowers  has  taken all steps  reasonably  necessary  to
determine and have determined that no oil, hazardous substances,  solid waste or
oil and gas waste,  have been  disposed of or  otherwise  released and there has
been no threatened release of any oil, hazardous substances,  solid waste or oil
and gas waste on or to any Property of such Borrower or any of its  Subsidiaries
except in compliance with  Environmental  Laws and so as not to pose an imminent
and substantial endangerment to public health or welfare or the environment.

                                       36
<PAGE>

     (f) to the  extent  applicable,  all  Property  of each  Borrower  and each
Subsidiary currently satisfies all design, operation, and equipment requirements
imposed by the OPA, and such  Borrower  does not have any reason to believe that
such  Property,  to the extent  subject to the OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement.

     (g) neither Borrower and no Subsidiary has any known  contingent  liability
or Remedial  Work in connection  with any release or  threatened  release of any
oil, hazardous substance, solid waste or oil and gas waste into the environment.

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

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

     (b) Neither of the  Borrowers  and no  Subsidiary is in default nor has any
event or circumstance  occurred which,  but for the expiration of any applicable
grace  period or the giving of notice,  or both,  would  constitute a default or
would require  either  Borrower or any Subsidiary to Redeem or make any offer to
Redeem under any indenture,  note,  credit  agreement or instrument  pursuant to
which any Material  Indebtedness  is  outstanding  or by which a Borrower or any
Subsidiary or any of their Properties is bound.

     (c) No Default has occurred and is continuing.

     Section  7.08  Investment  Company  Act.  Neither of the  Borrowers  and no
Subsidiary  is an  "investment  company"  within the  meaning  of, or subject to
regulation under, the Investment Company Act of 1940, as amended.

     Section 7.09 [Intentionally Omitted]

     Section 7.10 Taxes. Each of the Borrowers and their respective Subsidiaries
has timely  filed or caused to be filed all Tax returns and reports  required to
have been  filed and has paid or  caused to be paid all Taxes  required  to have
been paid by it,  except  (a) Taxes  that are being  contested  in good faith by
appropriate  proceedings  and for which such  Borrower  or such  Subsidiary,  as
applicable, has set aside on its books adequate reserves in accordance with GAAP
or (b) to the extent that the failure to do so could not  reasonably be expected
to result in a Material  Adverse Effect.  The charges,  accruals and reserves on
the books of each of the Borrowers and its respective Subsidiaries in respect of
Taxes and other  governmental  charges  are, in the  reasonable  opinion of such
Borrower,  adequate.  No Tax Lien has been filed and,  to the  Knowledge  of the
Borrower,  no claim is being asserted with respect to any such Tax or other such
governmental charge.

                                       37
<PAGE>

     Section 7.11 ERISA.

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

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

     (c) No act,  omission or  transaction  has  occurred  which could result in
imposition on either of the  Borrowers,  any  Subsidiary or any ERISA  Affiliate
(whether directly or indirectly) of (i) either a material civil penalty assessed
pursuant to  subsections  (c),  (i) or (l) of section 502 of ERISA or a material
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 material
liability to the PBGC (other than for the payment of current  premiums which are
not past due) by either of the Borrowers,  any Subsidiary or any ERISA Affiliate
has been or is expected by either of the Borrowers,  any Subsidiary or any ERISA
Affiliate to be incurred  with respect to any Plan.  No ERISA Event with respect
to any Plan has occurred.

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

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

     (g) Neither of the Borrowers,  any of their respective  Subsidiaries or any
ERISA  Affiliate  sponsors,  maintains,  or contributes  to an employee  welfare
benefit  plan,  as  defined  in  section  3(1)  of  ERISA,  including,   without
limitation,  any such plan maintained to provide benefits to former employees of
such entities,  that may not be terminated by either  Borrower,  a Subsidiary or
any ERISA  Affiliate  in its sole  discretion  at any time  without any material
liability.

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

                                       38
<PAGE>

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

     Section 7.12  Disclosure;  No Material  Misstatements.  The Borrowers  have
disclosed  to  the   Administrative   Agent  and  the  Lenders  all  agreements,
instruments  and corporate or other  restrictions  to which they or any of their
respective  Subsidiaries  is subject as of the date of this  Agreement,  and all
other matters known to either of them,  as of the date of this  Agreement  that,
individually  or in the aggregate,  could  reasonably be expected to result in a
Material Adverse Effect. None of the reports, financial statements, certificates
or  other  information  furnished  by or on  behalf  of  the  Borrowers  or  any
Subsidiary to the Administrative  Agent or any Lender or any of their Affiliates
in connection  with the negotiation of this Agreement or any other Loan Document
or  delivered  hereunder  or under any  other  Loan  Document  (as  modified  or
supplemented  by other  information so furnished),  when taken together with all
other  such  furnished   documents  and   information,   contains  any  material
misstatement  of fact or omits to state any material fact  necessary to make the
statements  therein,  in the light of the  circumstances  under  which they were
made,  not  misleading;  provided  that,  with  respect to  projected  financial
information,  the Borrowers represent only that such information was prepared in
good faith based upon  assumptions  believed to be reasonable at the time. There
is no fact peculiar to the Borrowers or any Subsidiary which could reasonably be
expected to have a Material Adverse Effect or in the future is reasonably likely
to have a  Material  Adverse  Effect  and  which  has not been set forth in this
Agreement  or the  Loan  Documents  or the  other  documents,  certificates  and
statements  furnished to the Administrative Agent or the Lenders by or on behalf
of the  Borrowers  or any  Subsidiary  prior  to,  or on,  the  date  hereof  in
connection  with  the  transactions   contemplated   hereby.  No  statements  or
conclusions  exist  in any  Reserve  Report  which  are  based  upon or  include
misleading  information or which fail to take into account material  information
regarding  the  matters  reported  therein  to  the  extent  such  misstatement,
misleading  information  or  failure  could  reasonably  be  expected  to have a
Material Adverse Effect.

     Section  7.13  Insurance.  The  Borrowers  have,  and have caused all their
Subsidiaries to have, (a) all insurance  policies  sufficient for the compliance
by each of them with all  material  Governmental  Requirements  and all material
agreements and (b) insurance  coverage in at least amounts and against such risk
(including,  without  limitation,  public  liability)  that are usually  insured
against by  companies  similarly  situated  and engaged in the same or a similar
business for the assets and operations of the Borrowers and their  Subsidiaries.
The Administrative  Agent and the Lenders have been named as additional insureds
in respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to Property loss insurance.

     Section  7.14  Restriction  on Liens.  Other than as set forth in  Schedule
7.14,  neither of the Borrowers or any of their  Subsidiaries  is a party to any
material  agreement or arrangement  (other than Liens for secured debt permitted
by Section  9.03),  or subject to any  order,  judgment,  writ or decree,  which
either  restricts  or  purports  to  restrict  its

                                       39
<PAGE>

ability  to grant  Liens to the  Administrative  Agent and the  Lenders on or in
respect of their Properties to secure the Indebtedness and the Loan Documents.

     Section  7.15  Subsidiaries.  Except  as set forth on  Schedule  7.15 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the  Lenders),  which  shall  be a  supplement  to  Schedule  7.15,  the
Borrowers have no Subsidiaries.

     Section  7.16  Location  of  Business  and  Offices.  The  jurisdiction  of
organization of Quest Resource  Corporation is Nevada; its name as listed in the
public  records  of  its   jurisdiction   of   organization  is  Quest  Resource
Corporation; and its organizational identification number in its jurisdiction of
organization is C4082-1982,  the jurisdiction of organization of Quest Cherokee,
LLC is Delaware; its name as listed in the public records of its jurisdiction of
organization  is Quest  Cherokee,  LLC;  and its  organizational  identification
number is 3739332 (or, in each case,  as set forth in a notice  delivered to the
Administrative  Agent  pursuant to Section  8.01(m) in  accordance  with Section
12.01).  The Borrowers'  principal place of business and chief executive offices
are  located at the  address  specified  in Section  12.01 (or as set forth in a
notice  delivered  pursuant  to Section  8.01(n)  and  Section  12.01(c)).  Each
Subsidiary's jurisdiction of organization,  name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction  of  organization,  and the  location  of its  principal  place  of
business and chief executive  office is stated on Schedule 7.15 (or as set forth
in a notice delivered pursuant to Section 8.01(n)).

     Section 7.17 Properties; Titles, Etc.

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

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

     (c) The rights and Properties  presently  owned,  leased or licensed by the
Borrowers and the Subsidiaries including,  without limitation, all easements and
rights

                                       40
<PAGE>

of way, include all rights and Properties  necessary to permit the Borrowers and
the Subsidiaries to conduct their business in all material  respects in the same
manner as its business has been conducted prior to the date hereof.

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

     (e) Each of the Borrowers and each Subsidiary  owns, or is licensed to use,
all trademarks,  tradenames, copyrights, patents and other intellectual Property
material  to its  business,  and  the use  thereof  by such  Borrower  and  such
Subsidiary does not infringe upon the rights of any other Person, except for any
such infringements that, individually or in the aggregate,  could not reasonably
be expected to result in a Material  Adverse  Effect.  The  Borrowers  and their
Subsidiaries  either  own or have  valid  licenses  or other  rights  to use all
databases,  geological data,  geophysical data,  engineering data, seismic data,
maps,  interpretations and other technical  information used in their businesses
as presently conducted,  subject to the limitations  contained in the agreements
governing  the use of the same,  which  limitations  are customary for companies
engaged in the business of the exploration and production of Hydrocarbons,  with
such  exceptions as could not reasonably be expected to have a Material  Adverse
Effect.

     Section 7.18 Maintenance of Properties. Except for such acts or failures to
act as could not be reasonably  expected to have a Material Adverse Effect,  the
Oil and Gas Properties (and Properties  unitized therewith) of the Borrowers and
their  Subsidiaries  have been maintained,  operated and developed in a good and
workmanlike  manner and in conformity  with all Government  Requirements  and in
conformity  with the  provisions  of all leases,  subleases  or other  contracts
comprising  a  part  of  the  Hydrocarbon  Interests  and  other  contracts  and
agreements  forming a part of the Oil and Gas  Properties  of the  Borrowers and
their  Subsidiaries.  Specifically in connection with the foregoing,  except for
those as could not be reasonably expected to have a Material Adverse Effect, (i)
no Oil and Gas Property of either of the Borrowers or any  Subsidiary is subject
to having  allowable  production  reduced  below the full and regular  allowable
(including  the maximum  permissible  tolerance)  because of any  overproduction
(whether or not the same was permissible at the time) and (ii) none of the wells
comprising  a part  of the  Oil  and  Gas  Properties  (or  Properties  unitized
therewith)  of either of the  Borrowers or any  Subsidiary  is deviated from the
vertical more than the maximum  permitted by Government  Requirements,  and such
wells are, in fact,  bottomed  under and are producing  from, and the well bores
are wholly  within,  the Oil and Gas Properties (or in the case of wells located
on Properties unitized therewith,  such unitized Properties) of such Borrower or
such  Subsidiary.  All pipelines,  wells, gas processing  plants,  platforms and
other material improvements, fixtures and equipment owned in whole or in part by
the  either of the  Borrowers  or any of its  Subsidiaries  that are  reasonably
necessary to conduct normal  operations are being maintained in a state adequate
to conduct normal  operations,  and with respect to such of the foregoing  which
are operated by either of the Borrowers or any of its Subsidiaries,  in a manner
consistent with such Borrower's or such Subsidiaries'

                                       41
<PAGE>

past practices  (other than those the failure of which to maintain in accordance
with this  Section  7.18 could not  reasonably  be  expected  to have a Material
Adverse Effect).

     Section 7.19 Gas Imbalances,  Prepayments.  Except as set forth on Schedule
7.19 or on the most recent certificate delivered pursuant to Section 8.12(b), on
a net basis there are no gas imbalances,  take or pay or other prepayments which
would  require  either of the  Borrowers or any of its  Subsidiaries  to deliver
Hydrocarbons  produced  from  the Oil and Gas  Properties  at some  future  time
without then or thereafter  receiving full payment therefor exceeding 1.0 bcf of
gas (on an mcf equivalent basis) in the aggregate.

     Section 7.20  Marketing of Production.  Except for contracts  listed and in
effect on the date hereof on Schedule 7.20, and thereafter  either  disclosed in
writing to the  Administrative  Agent or included in the most recently delivered
Reserve Report (with respect to all of which  contracts the Borrowers  represent
that they or their  Subsidiaries  are receiving a price for all production  sold
thereunder  which is computed  substantially in accordance with the terms of the
relevant contract and are not having deliveries  curtailed  substantially  below
the subject Property's  delivery  capacity),  no material agreements exist which
are not  cancelable  on 60 days notice or less without  penalty or detriment for
the sale of production from the Borrowers' or their  Subsidiaries'  Hydrocarbons
(including, without limitation, calls on or other rights to purchase production,
whether or not the same are currently  being  exercised) that (a) pertain to the
sale of  production  at a fixed  price and (b) have a maturity or expiry date of
longer than six (6) months, from the date hereof.

     Section 7.21 Swap  Agreements.  Schedule  7.21, as of the date hereof,  and
after the date  hereof,  each report  required to be  delivered by either of the
Borrowers  pursuant to Section 8.01(e),  sets forth, a true and complete list of
all Swap Agreements of the Borrowers and each of their  Subsidiaries,  the type,
term, effective date,  termination date and notional amounts or volumes, the net
mark to market value  thereof as of the most recent date  available,  all credit
support agreements  relating thereto (including any margin required or supplied)
and the counterparty to each such agreement.

     Section  7.22 Use of  Proceeds.  The  proceeds  of the Loans  shall be used
first, to repay, except as otherwise set forth herein with respect to letters of
credit and Swap  Agreements,  all outstanding Debt of the Borrowers and, second,
to provide working capital for exploration and production  operations,  pipeline
construction,  oil and gas lease  acquisition,  permitted  acquisitions  and for
general business purposes.  The Borrowers and their Subsidiaries are not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate,  incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board).
No part of the proceeds of any Loan will be used for any purpose which  violates
the provisions of Regulations T, U or X of the Board.

     Section 7.23 Solvency. After giving effect to the transactions contemplated
hereby,  (a) the  aggregate  assets  (after  giving effect to amounts that could
reasonably be received by reason of indemnity,  offset, insurance or any similar
arrangement), at a fair valuation, of the Borrowers and the Guarantors, taken as
a whole, will exceed the

                                       42
<PAGE>

aggregate Debt of the Borrowers and the Guarantors on a consolidated  basis,  as
the  Debt  becomes  absolute  and  matures,  (b) each of the  Borrowers  and the
Guarantors  will not have  incurred or  intended to incur,  and will not believe
that it will incur,  Debt beyond its ability to pay such Debt (after taking into
account the timing and  amounts of cash to be received by each of the  Borrowers
and the  Guarantors  and the  amounts  to be  payable  on or in  respect  of its
liabilities,  and giving effect to amounts that could  reasonably be received by
reason of indemnity,  offset, insurance or any similar arrangement) as such Debt
becomes  absolute and matures and (c) each of the Borrowers  and the  Guarantors
will not have (and will have no reason to believe that it will have  thereafter)
unreasonably small capital for the conduct of its business.

     Section 7.24 Operating Expenses. As of the date of this Agreement:

     (a) Borrowers have no unpaid bills with an invoice date earlier than August
1, 2005 for improvements to their Oil and Gas Properties that could give rise to
mechanics',  materialmen's  or other  similar  liens  arising  by  operation  of
applicable law.

     (b) With respect to the Operating Agreements relating to Borrowers' Working
Interest  and  Net  Revenue  Interest  in  the  Properties:

     (i) there are no  outstanding  calls for payments  under any  Authority for
Expenditure  or  payments  which are due or which  Borrowers  or, to the best of
Borrowers'  knowledge,   any  predecessor  or  predecessors  of  Borrowers  have
committed  to make which  have not been or are not being  paid  within the terms
required; and

     (ii) there are no  operations  under any of the Operating  Agreements  with
respect to which Borrowers have become a non-consenting  party nor are there any
non-consenting penalties binding or that will become binding upon Borrowers that
are not reflected in the Net Revenue  Interest or Working  Interest as set forth
on Exhibit A to the Mortgage.

                                  ARTICLE VIII
                              Affirmative Covenants

      Until the  principal  of and  interest  on each Loan and all fees  payable
hereunder and all other amounts  payable  under the Loan  Documents  (other than
contingent  indemnity  obligations)  shall have been paid in full, the Borrowers
covenant and agree with the Lenders that:

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

     (a) Annual Financial Statements. As soon as available, but in any event not
later than 90 days after the end of each fiscal year of the Company, its audited
consolidated  balance sheet and related statements of operations,  stockholders'
equity and cash flows as of the end of and for such year,  setting forth in each
case in comparative  form the figures for the previous fiscal year, all reported
on by  Murrell,  Hall,  McIntosh & Co.  PLLP or another  independent  registered
public  accounting  firm  (without a "going

                                       43
<PAGE>

concern" or like  qualification  or exception and without any  qualification  or
exception  as to the scope of such audit) to the effect  that such  consolidated
financial  statements  present  fairly in all material  respects  the  financial
condition  and  results  of  operations  of the  Company  and  its  Consolidated
Subsidiaries  on a  consolidated  basis in  accordance  with  GAAP  consistently
applied.

     (b) Quarterly Financial Statements.  As soon as available, but in any event
not later than 45 days after the end of each of the first three fiscal  quarters
of each fiscal year of the Company,  its consolidated  balance sheet and related
statements of operations,  stockholders'  equity and cash flows as of the end of
and for such fiscal  quarter and the then  elapsed  portion of the fiscal  year,
setting forth in each case in comparative form the figures for the corresponding
period or periods of (or,  in the case of the balance  sheet,  as of the end of)
the previous  fiscal year,  all  certified by one of its  Financial  Officers as
presenting fairly in all material  respects the financial  condition and results
of operations of the Company and its Consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently  applied,  subject to normal year-end
audit adjustments and the absence of footnotes.

     (c) Certificate of Financial  Officer -- Compliance.  Concurrently with any
delivery of financial  statements  under Section 8.01(a) or Section  8.01(b),  a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i)  certifying  as to whether a Default  has  occurred  and,  if a Default  has
occurred,  specifying the details thereof and any action taken or proposed to be
taken with respect thereto,  (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating
whether any change in GAAP or in the application  thereof has occurred since the
date of the most  recent  audited  financial  statements  delivered  pursuant to
Section  8.01(a) and, if any such change has occurred,  specifying the effect of
such change on the financial statements accompanying such certificate.

     (d) Certificate of Financial Officer -- Consolidating  Information.  If, at
any  time,  all  of  the  Subsidiaries  of  the  Company  are  not  Consolidated
Subsidiaries,  then concurrently with any delivery of financial statements under
Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer setting
forth consolidating  spreadsheets that show all unconsolidated  Subsidiaries and
the eliminating entries, in such form as would be presentable to the auditors of
the Company.

     (e) Certificate of Financial  Officer - Swap Agreements.  Concurrently with
any delivery of financial  statements under Section 8.01(a) and Section 8.01(b),
a certificate of a Financial Officer, in form and substance  satisfactory to the
Administrative  Agent,  setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap  Agreements of each
of the Borrowers and each Subsidiary,  listing the type,  term,  effective date,
termination date and notional amounts or volumes,  the net mark-to-market  value
therefor to the extent  available,  any new credit support  agreements  relating
thereto not listed on Schedule 7.21,  any margin  required or supplied under any
credit support document, and the counterparty to each such agreement.

                                       44
<PAGE>

     (f)  Certificate of Insurer -- Insurance  Coverage.  Concurrently  with any
delivery of  financial  statements  under  Section  8.01(a),  a  certificate  of
insurance  coverage from each insurer with respect to the insurance  required by
Section 8.07, in form and substance  satisfactory to the  Administrative  Agent,
and, if  requested  by the  Administrative  Agent or any  Lender,  copies of all
applicable policies.

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

     (h) SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly  available,  and upon the request of the Lenders,  copies of all
periodic and other reports, proxy statements and other materials filed by either
of the Borrowers or any Subsidiary with the SEC, or with any national securities
exchange and distributed by either of the Borrowers to its shareholders.

     (i) Notices  Under  Material  Instruments.  Promptly  after the  furnishing
thereof,  copies of any  financial  statement  or report  furnished to or by any
Person or notices  furnished by the Borrowers to any other  Person,  pursuant to
the terms of any preferred stock designation, indenture, loan or credit or other
similar  agreement,  other than this Agreement and not otherwise  required to be
furnished to the Lenders pursuant to any other provision of this Section 8.01.

     (j) Lists of  Purchasers.  Concurrently  with the  delivery  of any Reserve
Report to the  Administrative  Agent pursuant to Section 8.12, a list of Persons
who  purchase  (or did  purchase  in the last six  months)  at least  80% of the
Hydrocarbons from the Borrowers and the Subsidiaries, taken as a whole.

     (k) Notice of Sales of Oil and Gas Properties.  In the event that either of
the Borrowers or any Subsidiary intends to sell,  transfer,  assign or otherwise
dispose of at least  $500,000  worth of any Oil or Gas  Properties or any Equity
Interests in any  Subsidiary  in  accordance  with Section  9.12,  prior written
notice  of such  disposition,  the price  thereof  and the  anticipated  date of
closing.

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

     (m) Certificate of Responsible  Officer--Total Debt. At the times specified
in Section  8.12(d)  and  promptly  following  any change to PV-10  pursuant  to
Section  8.12(a) or Section 9.12, the Borrowers will promptly,  but in any event
within  fifteen  (15) days  after any such  event,  deliver a  certificate  of a
Responsible  Officer of the Borrowers  setting forth the PV-10 both prior to and
after giving effect to such event.

                                       45
<PAGE>

     (n) Information  Regarding Borrowers and Guarantors.  Prompt written notice
(and in any event  within  thirty (30) days prior  thereto) of any change (i) in
the  Borrowers' or any  Guarantor's  corporate name or in any trade name used to
identify  such Person in the conduct of its business or in the  ownership of its
Properties,  (ii) in the  location of the  Borrowers  or any  Guarantor's  chief
executive  office or  principal  place of  business  if either  Borrower  or any
Guarantor is not a registered  organization  under the Uniform  Commercial Code,
(iii) in the Borrowers' or any Guarantor's identity or corporate structure, (iv)
in the  Borrowers'  or any  Guarantor's  jurisdiction  of  organization  or such
Person's   organizational   identification   number  in  such   jurisdiction  of
organization,  and (v) in the  Borrowers' or any  Guarantor's  federal  taxpayer
identification number.

     (o) Production Report and Lease Operating Statements.  With the delivery of
quarterly  financial  statements under Section 8.01(b),  a report setting forth,
for each  calendar  month  during  the  then  current  fiscal  year to date on a
production  date  basis,  the volume of  production  and sales  attributable  to
production  (and the  prices at which  such  sales  were  made and the  revenues
derived  from such  sales)  for each such  calendar  month  from the Oil and Gas
Properties,  and setting forth the related ad valorem,  severance and production
taxes and lease operating  expenses  attributable  thereto and incurred for each
such calendar month.

     (p) Notices of Certain Changes.  Promptly, but in any event within five (5)
Business Days after the execution thereof, copies of any amendment, modification
or supplement to the  certificate  or articles of  incorporation,  by-laws,  any
preferred  stock  designation  or any other  organic  document  of either of the
Borrowers or any Subsidiary that would reasonably be expected to have a Material
Adverse  Effect on the ability of either of the  Borrowers or any  Subsidiary to
perform its obligations hereunder or under any Loan Documents.

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

     (r) Delivery of Information  Electronically.  Notices to the Administrative
Agent and the Lenders  under this  Section 8.01 may be delivered or furnished by
electronic  communications pursuant to procedures approved by the Administrative
Agent.

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

     (a) the occurrence of any Default;

     (b) the filing or commencement of, or the threat in writing of, any action,
suit,  proceeding,  investigation  or arbitration by or before any arbitrator or

                                       46
<PAGE>

Governmental  Authority  against or  affecting  either of the  Borrowers  or any
Affiliate  thereof  not  previously  disclosed  in writing to the Lenders or any
material adverse development in any action, suit,  proceeding,  investigation or
arbitration  previously disclosed to the Lenders that, if adversely  determined,
could  reasonably be expected to result in liability in excess of $1,000,000 not
fully covered by insurance, subject to normal deductibles;

     (c) the  occurrence  of any ERISA  Event that,  alone or together  with any
other ERISA Events that have occurred, could reasonably be expected to result in
liability of either of the Borrowers and its Subsidiaries in an aggregate amount
exceeding $1,000,000; and

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

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

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

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

     Section 8.05 Performance of Obligations under Loan Documents. The Borrowers
will pay the Loans  according to the terms thereof,  and the Borrowers will, and
will cause each Subsidiary to, do and perform every act and discharge all of the
obligations  to be performed and  discharged  by them under the Loan  Documents,
including,  without limitation,  this Agreement, at the time or times and in the
manner specified.

                                       47
<PAGE>

     Section  8.06  Operation  and  Maintenance  of  Properties.   Each  of  the
Borrowers, at its own expense, will, and will cause each Subsidiary to:

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

     (b) keep and maintain all Property  material to the conduct of its business
in good working order and condition,  ordinary wear and tear excepted, preserve,
maintain and keep in good repair,  working order and  efficiency  (ordinary wear
and tear  excepted)  all of its Oil and Gas  Properties  and  other  Properties,
including,  without limitation, all equipment,  machinery and facilities except,
in each case,  where the  failure to do so could not  reasonably  be expected to
have a Material Adverse Effect.

     (c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and  discharged,  all delay  rentals,  royalties,  expenses and
indebtedness  accruing  under  the  leases  or  other  agreements  affecting  or
pertaining to its Oil and Gas Properties and will do all other things  necessary
to keep unimpaired  their rights with respect thereto and prevent any forfeiture
thereof or default  thereunder  except, in each case, where the failure to do so
could not reasonably be expected to have a Material Adverse Effect.

     (d) promptly  perform or make reasonable and customary  efforts to cause to
be performed, in accordance with industry standards, the obligations required by
each  and all of the  assignments,  deeds,  leases,  sub-leases,  contracts  and
agreements  affecting  its  interests  in its Oil and Gas  Properties  and other
material  Properties  except, in each case, where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

     (e) to the extent one of the Borrowers is not the operator of any Property,
the Borrowers shall use reasonable  efforts to cause the operator to comply with
this Section 8.06.

     Section 8.07 Insurance.  The Borrowers will, and will cause each Subsidiary
to,  maintain,   with  financially  sound  and  reputable  insurance  companies,
insurance in such amounts and against such risks as are  customarily  maintained
by companies engaged in the same or similar businesses  operating in the same or
similar  locations.  The loss payable  clauses or provisions  in said  insurance
policy  or  policies  insuring  any of the  collateral  for the  Loans  shall be
endorsed  in  favor  of and  made  payable  to the  Administrative  Agent as its
interests  may appear,  shall  include a standard  mortgagee

                                       48
<PAGE>

provision and such policies shall name the Administrative  Agent and the Lenders
as  "additional  insureds" and provide that the insurer will endeavor to give at
least 30 days prior notice of any cancellation to the Administrative Agent.

     Section 8.08 Books and Records;  Inspection Rights. The Borrowers will, and
will cause each  Subsidiary to, keep proper books of record and account in which
full,  true and correct  entries are made of all  dealings and  transactions  in
relation to its business and activities. The Borrowers will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or  any  Lender,  upon  reasonable  prior  notice,  to  visit  and  inspect  its
Properties,  to examine and make  extracts  from its books and  records,  and to
discuss its affairs,  finances and condition  with its officers and  independent
accountants, all at such reasonable times and as often as reasonably requested.

     Section 8.09  Compliance with Laws. The Borrowers will, and will cause each
Subsidiary  to,  comply  with all laws,  rules,  regulations  and  orders of any
Governmental  Authority  applicable  to it or its  Property,  except  where  the
failure to do so,  individually  or in the  aggregate,  could not  reasonably be
expected to result in a Material Adverse Effect.

     Section 8.10 Environmental Matters.

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

                                       49
<PAGE>

Subsidiary to establish and  implement,  such  procedures as may be necessary to
continuously  determine and assure that the Borrowers'  and their  Subsidiaries'
obligations  under this Section  8.10(a) are timely and fully  satisfied,  which
failure to  establish  and  implement  could  reasonably  be  expected to have a
Material Adverse Effect.

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

     (c) The  Borrowers  will,  and  will  cause  each  Subsidiary  to,  provide
environmental  audits and tests in accordance  with American  Society of Testing
Materials  standards (i) upon the  occurrence  and during the  continuance of an
Event of Default if requested by the Administrative  Agent, (ii) upon request by
the  Administrative  Agent and the  Lenders if  required  to be  obtained by the
Administrative Agent or the Lenders by any Governmental  Authority,  or (iii) in
connection with any future  acquisitions of Oil and Gas Properties or other real
estate  Properties  with a fair  market  value in excess of  $2,000,000,  unless
waived by the Administrative Agent.

     Section 8.11 Further Assurances.

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

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

                                       50
<PAGE>

     Section 8.12 Reserve Reports.

     (a) On or before March 1st and September 1st of each year, commencing March
1, 2006, the Borrowers shall furnish to the Administrative Agent and the Lenders
a  Reserve  Report.  The  Reserve  Report  as of  December  31 of each year (and
delivered  on or before  March 1 of the  immediately  following  year)  shall be
prepared by one or more Approved  Petroleum  Engineers,  and the June 30 Reserve
Report  (delivered  on or before  September  1) of each year  shall be  prepared
either by or under the  supervision  of the chief  engineer of the Borrowers who
shall  certify  such  Reserve  Report to be true and  accurate  and to have been
prepared in accordance  with the procedures  used in the  immediately  preceding
December 31 Reserve Report or by one or more Approved Petroleum Engineers.

     (b) In the event of a  determination  of the PV-10 as of a  specified  date
other  than  January  1  and  July  1,  the  Borrowers   shall  furnish  to  the
Administrative  Agent and the  Lenders a Reserve  Report  prepared  either by or
under the  supervision  of the chief engineer of the Borrowers who shall certify
such  Reserve  Report  to be true and  accurate  and to have  been  prepared  in
accordance  with the procedures used in the  immediately  preceding  December 31
Reserve Report or by one or more Approved Petroleum Engineers.

     (c) With the delivery of each Reserve  Report,  the Borrowers shall provide
to the Administrative  Agent and the Lenders 1) a certificate from a Responsible
Officer certifying that in all material respects:  (i) the information contained
in the  Reserve  Report  and  any  other  information  delivered  in  connection
therewith is true and correct,  and no statements or  conclusions  exist in such
Reserve Report which are based upon or include  misleading  information or which
fail to take into account  material  information  regarding the matters reported
therein to the extent such misstatement, misleading information or failure could
reasonably be expected to have a Material Adverse Effect,  (ii) the Borrowers or
the  Subsidiaries  own good and  defensible  title to, or valid and  enforceable
leasehold  interests  in, the Oil and Gas  Properties  evaluated in such Reserve
Report and such  Properties are free of all Liens except for Liens  permitted by
Section 9.03, (iii) except as set forth on an exhibit to the  certificate,  on a
net  basis  there are no gas  imbalances,  take or pay or other  prepayments  in
excess of the volume  specified  in Section 7.19 with respect to its Oil and Gas
Properties  evaluated in such Reserve  Report which would require  either of the
Borrowers or any Subsidiary to deliver Hydrocarbons either generally or produced
from such Oil and Gas  Properties at some future time without then or thereafter
receiving full payment therefor,  (iv) none of their Oil and Gas Properties have
been sold since the date of the last PV-10 determination  except as set forth on
an exhibit to the certificate,  which  certificate shall list all of its Oil and
Gas  Properties  sold  and  in  such  detail  as  reasonably   required  by  the
Administrative  Agent,  and (v)  attached  to the  certificate  is a list of all
marketing  agreements entered into subsequent to the later of the date hereof or
the most recently  delivered Reserve Report which the Borrowers could reasonably
be expected to have been  obligated to list on Schedule 7.20 had such  agreement
been in effect on the date hereof and 2)  electronically,  a schedule of the Oil
and  Gas  Properties  evaluated  by  such  Reserve  Report  that  are  Mortgaged
Properties and certifying that each Oil and Gas Property that constitutes

                                       51
<PAGE>

collateral for the Senior Credit Agreement also  constitutes  collateral for the
Indebtedness  outstanding  under  this  Agreement  and  demonstrating  that  the
percentage of value of such Mortgaged Properties complies with Section 8.14.

     Section 8.13 Title Information.

     (a) On or before the delivery to the  Administrative  Agent and the Lenders
of each Reserve Report required by Section  8.12(a),  the Borrowers will deliver
title information in form and substance  acceptable to the Administrative  Agent
covering enough of the Oil and Gas Properties (excluding the Pipeline) evaluated
by such  Reserve  Report  that were not  included in the  immediately  preceding
Reserve Report, so that the Administrative  Agent shall be reasonably  satisfied
with the status of title to or leasehold interests in the Oil and Gas Properties
evaluated by such  Reserve  Report  representing  not less than 80% of the total
value of such Properties, provided the Borrowers will not be required to deliver
any  title  opinions  on Oil and Gas  Properties  that  are not  Proved  Mineral
Interests.

     (b) If  the  Borrowers  have  provided  title  information  for  additional
Properties under Section 8.13(a),  the Borrowers shall, within 90 days of notice
from the  Administrative  Agent that  title  defects  or  exceptions  exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions  (including  defects  or  exceptions  as to  priority)  which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable
Mortgaged  Properties  with no title defects or  exceptions  except for Excepted
Liens (other than Excepted  Liens  described in clauses (e), (g) and (h) of such
definition)  having an equivalent  value or (iii) deliver title  information  in
form  and  substance   acceptable  to  the  Administrative  Agent  so  that  the
Administrative  Agent shall be reasonably  satisfied with the status of title to
the Oil and Gas Properties evaluated by such Reserve Report.

     (c) If the Borrowers  are unable to cure any title defect  requested by the
Administrative  Agent or the Lenders to be cured within the 90-day period or the
Borrowers  do not  comply  with the  requirements  to provide  acceptable  title
information on the Oil and Gas  Properties  evaluated in the most recent Reserve
Report,  such  default  shall not be a Default,  but instead the  Administrative
Agent and/or the Majority Lenders shall have the right to exercise the following
remedy  in their  sole  discretion  from  time to time,  and any  failure  to so
exercise this remedy at any time shall not be a waiver as to future  exercise of
the remedy by the  Administrative  Agent or the Lenders.  To the extent that the
Administrative Agent or the Majority Lenders are not satisfied with title to any
Mortgaged Property after the 90-day period has elapsed, the Administrative Agent
may send a notice to the  Borrowers  and the Lenders  that the then  outstanding
PV-10 shall be reduced by an amount as  determined  by the  Majority  Lenders to
cause  the  Borrower  to  be in  compliance  with  the  requirement  to  provide
acceptable title information to the Oil and Gas Properties. This new PV-10 shall
become effective immediately after receipt of such notice.

     Section 8.14 Additional Collateral.

                                       52
<PAGE>

      In connection with each  redetermination of the PV-10, the Borrowers shall
review  the  Reserve  Report and the list of current  Mortgaged  Properties  (as
described in Section  8.12(c)(vi)) to ascertain whether the Mortgaged Properties
represent  at  least  80% of the  total  value  of the Oil  and  Gas  Properties
(excluding the Pipeline) evaluated in the most recently completed Reserve Report
after giving effect to  exploration  and  production  activities,  acquisitions,
dispositions and production.  In the event that the Mortgaged  Properties do not
represent at least 80% of such total value,  then each of the  Borrowers  shall,
and shall  cause  their  Subsidiaries  to,  grant,  within  thirty  (30) days of
delivery  of  the   certificate   required   under  Section   8.12(c),   to  the
Administrative  Agent as security for the  Indebtedness  a  first-priority  Lien
interest (subject only to Excepted Liens of the type described in clauses (a) to
(d) and (f) of the definition thereof, but subject to the provisos at the end of
such  definition) on additional Oil and Gas Properties  (excluding the Pipeline)
not already subject to a Lien of the Security Instruments such that after giving
effect  thereto,  the Mortgaged  Properties  will represent at least 80% of such
total value.  All such Liens 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  Instruments,  all in form and substance
reasonably  satisfactory to the Administrative  Agent and in sufficient executed
(and  acknowledged  where necessary or appropriate)  counterparts  for recording
purposes.  The  Borrowers  agree  that they will not,  and will not  permit  any
Subsidiary  to,  grant  a Lien on any  Property  to  secure  the  Senior  Credit
Agreement  or the Third Lien Term Loan  Agreement  without  (i)  giving  written
notice to the Administrative Agent and (ii) granting to the Administrative Agent
to secure the Indebtedness a second-priority Lien on this same Property.

     Section 8.15 ERISA Compliance.  Each of the Borrowers will promptly furnish
and will cause the  Subsidiaries  and any ERISA Affiliate to promptly furnish to
the  Administrative  Agent (i) promptly after the filing thereof with the United
States Secretary of Labor,  the Internal Revenue Service or the PBGC,  copies of
each  annual and other  report  with  respect to each Plan or any trust  created
thereunder,  (ii) promptly upon  becoming  aware of the  occurrence of any ERISA
Event or of any "prohibited  transaction,"  as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder,  a written notice signed by the President or the principal Financial
Officer of the applicable Borrower,  Subsidiary or ERISA Affiliate,  as the case
may be, specifying the nature thereof, what action such Borrower,  Subsidiary or
the ERISA  Affiliate  is taking or proposes to take with respect  thereto,  and,
when known, any action taken or proposed by the Internal  Revenue  Service,  the
Department of Labor or the PBGC with respect  thereto,  and (iii)  promptly upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee  appointed  to  administer  any Plan.  With  respect to each Plan
(other than a  Multiemployer  Plan),  each of the Borrowers will, and will cause
each  Subsidiary  and ERISA  Affiliate  to, (i)  satisfy in full and in a timely
manner, without incurring any late payment or underpayment charge or penalty and
without  giving  rise  to  any  Lien,  all  of  the   contribution  and  funding
requirements  of  section  412  of  the  Code  (determined   without  regard  to
subsections  (d),  (e),  (f)  and  (k)  thereof)  and of  section  302 of  ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner,  without incurring any late
payment or

                                       53
<PAGE>

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

     Section 8.16 Swap  Agreements.  The  Borrowers  shall or shall cause one or
more of their  Subsidiaries to maintain the hedged  position  established by the
Swap  Agreements  required  under Section  6.01(q)  during the period  specified
therein and shall neither  assign,  terminate or unwind any such Swap Agreements
nor sell any Swap  Agreements if the effect of such action (when taken  together
with any other Swap  Agreements  executed  contemporaneously  with the taking of
such action) would have the effect of canceling  its  positions  under such Swap
Agreements required hereby.

     Section 8.17  Marketing  Activities.  The Borrowers  will not, and will not
permit any of their  Subsidiaries  to,  engage in marketing  activities  for any
Hydrocarbons  or  enter  into  any  contracts  related  thereto  other  than (i)
contracts for the sale of Hydrocarbons  scheduled or reasonably  estimated to be
produced  from  their  proved Oil and Gas  Properties  during the period of such
contract,  (ii) contracts for the sale of  Hydrocarbons  scheduled or reasonably
estimated to be produced  from proved Oil and Gas  Properties  of third  parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrowers and their  Subsidiaries that either of the Borrowers or one of its
Subsidiaries  has the right to market  pursuant to joint  operating  agreements,
unitization  agreements or other similar  contracts that are usual and customary
in the oil and gas business and (iii) other  contracts  for the purchase  and/or
sale of  Hydrocarbons  of third  parties  (A) which  have  generally  offsetting
provisions (i.e. corresponding pricing mechanics,  delivery dates and points and
volumes) such that no "position" is taken and (B) for which  appropriate  credit
support  has  been  taken  to  alleviate  the  material   credit  risks  of  the
counterparty thereto.

                                   ARTICLE IX
                              Negative Covenants

      Until the  principal  of and  interest  on each Loan and all fees  payable
hereunder and all other amounts  payable  under the Loan  Documents  (other than
contingent  indemnification  obligations)  have been paid in full, the Borrowers
covenant and agree with the Lenders that:

     Section 9.01 Financial Covenants.

     (a) The Borrowers  will have net sales of natural gas on  commercial  terms
customary in the local market of not less than 1,890 mmcf for the quarter ending
March 31, 2006;  2,380 mmcf for the quarter ending June 30, 2006; 3,080 mmcf for
the quarter  ending  September 30, 2006;  and 3,430 mmcf for the quarter  ending
December 31, 2006.

     (b) For  purposes of this Section  9.01(b),  "EBITDA"  shall be  calculated
using  EBITDA for such  quarter  multiplied  by four (4).  The  Borrowers  shall
maintain a ratio of Total Debt to EBITDA of not more than the  following  ratios
for the quarters ending on the dates indicated below:

                                       54
<PAGE>

                 Ratio               Period

                 4.5 to 1.0          for the quarter ending March 31, 2007,

                 4.25 to 1.0         for the quarter ending June 30, 2007,

                 4.00 to 1.0         for the quarter ending September 30, 2007,

                 3.75 to 1.0         for the quarter ending December 31, 2007,

                 3.50 to 1.0         for the quarter ending March 31, 2008,

                 3.25 to 1.0         for the quarter ending June 30, 2008, and

                 3.0 to 1.0          for each quarter ending on or after
                                     September 30, 2008

     (c) The Borrowers  shall not permit the ratio of (i) PV-10, as set forth on
the most recent Reserve Report delivered  pursuant to Section 8.12 to (ii) Total
Debt to be less than 1.5 to 1.0.

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

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

     (b) Debt of the  Borrowers  and  their  Subsidiaries  existing  on the date
hereof that is reflected in the Financial Statements.

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

     (d) Debt  (including  guarantees)  under Capital  Leases and purchase money
obligations not to exceed $2,500,000 in the aggregate.

     (e) Debt (including guarantees) associated with bonds or surety obligations
required by Governmental Requirements or any other Person in connection with the
operation of the Oil and Gas Properties.

     (f)  intercompany  Debt  between  the  Borrowers,  between  either  of  the
Borrowers and any Subsidiary or between  Subsidiaries to the extent permitted by
Section  9.05(g);  provided that such Debt is not held,  assigned,  transferred,
negotiated or pledged to any Person other than either of the Borrowers or one of
their  Wholly-Owned  Subsidiaries or the  Administrative  Agent on behalf of the
"Lenders"  and  "Swap   Counterparties"  (as  such  terms  are  defined  in  the
Intercreditor  Agreement),  and,  provided  further,  that any such Debt owed by
either a Borrower or a Guarantor shall be

                                       55
<PAGE>

subordinated to the Indebtedness on terms set forth in the Security Agreement or
the Intercreditor Agreement.

     (g)  endorsements of negotiable  instruments for collection in the ordinary
course of business.

     (h) Debt  under the  Senior  Credit  Agreement  that does not exceed in the
aggregate  $100,000,000  minus the aggregate amount of the net proceeds received
from any sale of assets that is applied as described in Section 9.12(d) to repay
or retire term loan debt under the Senior Credit Agreement or permanently reduce
the  revolving  commitments  thereunder  and (ii) Debt under the Third Lien Term
Loan Agreement and any guarantees  thereof,  the principal  amount of which Debt
does not exceed $75,000,000 in the aggregate.

     (i) Debt in  connection  with Swap  Agreements  and permitted in accordance
with Section 9.18.

     (j) reimbursement  obligations  under (i) letters of credit  outstanding on
the date of this  Agreement  and (ii)  other  letters  of  credit  provided  the
aggregate  undrawn  face amount of such other  letters of credit does not exceed
$20,000,000.

     (k) guarantees of Debt otherwise permitted under Section 9.02.

     (l) Permitted Refinancing Debt.

     (m) other Debt, not otherwise  permitted above, not to exceed $2,000,000 in
the aggregate at any one time outstanding.

     Section 9.03 Liens.  Neither of the Borrowers will, and will not permit any
Subsidiary to, create,  incur,  assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:

     (a) Liens securing the payment of any Indebtedness.

     (b) Excepted Liens.

     (c) Liens securing Capital Leases and purchase money obligations  permitted
by Section 9.02(d) but only on the Property under lease or purchased.

     (d)  Liens to secure  obligations  under any Swap  Agreement  permitted  by
Section 9.18.

     (e) Liens in existence on the date of this  Agreement and shown on Schedule
7.14.

     (f) Liens securing reimbursement  obligations in connection with letters of
credit  outstanding  on the date of this  Agreement  and other letters of credit

                                       56
<PAGE>

provided the aggregate  undrawn face amount of such other letters of credit does
not exceed $20,000,000.

     (g) Liens securing Permitted Refinancing Debt.

     (h) Liens on Property  securing the Senior  Credit  Agreement  permitted by
Section 9.02(h) provided; however, that no Lien shall be granted on any Property
to secure the Senior Credit  Agreement  unless the Lien is also being granted to
secure the Indebtedness, this Agreement and the other Loan Documents.

     (i) Liens on Property securing the Third Lien Term Loan Agreement permitted
by Section 9.02(h),  provided,  however,  that (i) such Liens securing the Third
Lien Term Loan Agreement and any guarantees thereof are subordinated pursuant to
the  Intercreditor  Agreement,  (ii) each and every Lien securing the Third Lien
Term Loan Agreement shall be subordinate to the liens securing the Indebtedness,
this Agreement and the other Loan Documents,  and (iii) no Lien shall be granted
on any Property to secure the Third Lien Term Loan Agreement  unless the Lien is
also being granted to secure the Indebtedness, this Agreement and the other Loan
Documents.

     (j) Liens on Property not constituting  collateral for the Indebtedness and
not otherwise  permitted by the foregoing clauses of this Section 9.03; provided
that the  aggregate  principal  or face  amount of all Debt  secured  under this
Section 9.03(j) shall not exceed $2,000,000 at any time.

     Section 9.04 Dividends, Distributions and Redemptions.

     (a) Restricted  Payments.  Neither of the Borrowers will or will permit any
of their Subsidiaries to, declare or make, or agree to pay or make,  directly or
indirectly,  any Restricted  Payment,  return any capital to its stockholders or
make any distribution of its Property to its Equity Interest holders, except (i)
the Company may declare and pay dividends  with respect to its Equity  Interests
payable  solely  in  additional  shares  of its  Equity  Interests  (other  than
Disqualified Capital Stock), (ii) Subsidiaries  (including Cherokee) may declare
and pay  dividends  ratably with respect to their Equity  Interests,  (iii) such
Borrower may make Restricted  Payments  pursuant to and in accordance with stock
option plans or other benefit plans for  management or employees of the Borrower
and its  Subsidiaries,  (iv) such  Borrower  may  terminate  its  directors'  or
employees'  option  agreements or restricted  stock agreements under any of such
Borrower's incentive stock plans provided;  however,  that the aggregate amounts
paid by the Borrower in respect thereof do not exceed $1,000,000.

     (b) Redemption of Third Lien Term Loan  Agreement;  Amendment of Third Lien
Term Loan Documents.  The Borrowers will not, and will not permit any Subsidiary
to,  prior to the date that is  ninety-one  (91) days  after the  earlier of the
Maturity Date or the payment in full of the Indebtedness: call, make or offer to
make  any  optional  or  voluntary  Redemption  of or  otherwise  optionally  or
voluntarily  Redeem  (whether  in whole or in part)  the  Third  Lien  Term Loan
Agreement  except in connection with any Permitted  Refinancing  Debt in respect
thereof.

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<PAGE>

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

     (a)  Investments  reflected  in  the  Financial  Statements  or  which  are
disclosed to the Lenders in Schedule 9.05;

     (b) accounts receivable arising in the ordinary course of business;

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

     (d) commercial  paper maturing within one year from the date of acquisition
thereof rated in the highest grade by S&P or Moody's;

     (e) demand  deposits,  deposits  maturing  within one year from the date of
acquisition  thereof  with,  including  certificates  of deposit  issued by, any
Lender or any office  located  in the  United  States of any other bank or trust
company  which is  organized  under the laws of the  United  States or any state
thereof,  has  capital,  surplus  and  undivided  profits  aggregating  at least
$100,000,000  (as of the  date  of such  bank or  trust  company's  most  recent
financial  reports) and has a short term  deposit  rating of no lower than A2 or
P2,  as  such  rating  is set  forth  from  time  to  time,  by S&P or  Moody's,
respectively;

     (f) deposits in money market funds  investing  exclusively  in  Investments
described in Section 9.05(c), Section 9.05(d) or Section 9.05(e);

     (g) Investments  (i) made by either  Borrower in or to any  Subsidiary,  or
(ii) made by any Subsidiary in or to either Borrower or any other Subsidiary, or
(iii) made by either  Borrower or any  Subsidiary  in or to any entity that upon
the making of such Investment would become a Subsidiary;

     (h) subject to the limits in Section 9.07,  Investments in direct ownership
interests in additional Oil and Gas Properties and gas gathering systems related
thereto or related to farm-out,  farm-in, joint operating, joint venture or area
of mutual interest  agreements,  gathering  systems,  pipelines or other similar
arrangements  which are usual and customary in the oil and gas  exploration  and
production  business  located  within the  geographic  boundaries  of the United
States of America;

     (i) loans or advances to  employees,  officers or directors in the ordinary
course of business of either Borrower or any of its  Subsidiaries,  in each case
only as permitted by applicable law, including Section 402 of the Sarbanes Oxley
Act of 2002,  but in any event not to exceed  $100,000 in the  aggregate  at any
time; and

     (j) Investments in stock,  obligations or securities received in settlement
of debts  arising from  Investments  permitted  under this Section 9.05 owing to
either  Borrower  or  any  Subsidiary  as a  result  of a  bankruptcy  or  other
insolvency

                                       58
<PAGE>

proceeding  of the obligor in respect of such debts or upon the  enforcement  of
any Lien in favor of either Borrower or any of its  Subsidiaries;  provided that
such Borrower shall give the  Administrative  Agent prompt written notice in the
event that the aggregate  amount of all  Investments  held at any one time under
this Section 9.05(j) exceeds $1,000,000;

     (k) consideration received in connection with permitted asset sales.

     (l) lease, utility and similar deposits in the ordinary course of business.

     (m) Investments in permitted Swap Agreements.

     Section 9.06 Nature of Business;  International Operations.  Neither of the
Borrowers nor any  Subsidiary  will allow any material  change to be made in the
character of its business as an independent oil and gas exploration,  production
and  gathering  company or will acquire or make any other  expenditure  (whether
such  expenditure is capital,  operating or otherwise) in or related to, any Oil
and Gas Properties not located within the geographical  boundaries of the United
States.

     Section 9.07 Limitation on Leases. Neither Borrower nor any Subsidiary will
create,  incur, assume or suffer to exist any obligation for the payment of rent
or hire of  Property of any kind  whatsoever  (real or  personal  but  excluding
Capital  Leases  and  leases  of  Hydrocarbon  Interests,   pipeline  leases  or
compressor  leases),  under  leases or lease  agreements  which  would cause the
aggregate  amount of all payments  made by the  Borrowers  and the  Subsidiaries
pursuant to all such leases or lease agreements,  including, without limitation,
any  residual  payments  at the end of any lease,  to exceed  $5,000,000  in any
period of twelve consecutive calendar months during the life of such leases.

     Section 9.08 Proceeds of Notes.  The Borrowers will not permit the proceeds
of the Loans to be used for any purpose  other than those  permitted  by Section
7.22.  Neither the Borrowers nor any Person acting on behalf of either  Borrower
has taken or will take any action which might cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section  7 of the  Securities  Exchange  Act of 1934 or any  rule or  regulation
thereunder,  in each case as now in effect or as the same may  hereinafter be in
effect. If requested by the Administrative  Agent, the Borrowers will furnish to
the Administrative  Agent and each Lender a statement to the foregoing effect in
conformity  with the  requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.

     Section 9.09 ERISA  Compliance.  None of the Borrowers and the Subsidiaries
will at any time:

     (a) engage in, or permit any ERISA  Affiliate to engage in, any transaction
in connection  with which either  Borrower,  a Subsidiary or any ERISA Affiliate
could be  subjected  to either a material  civil  penalty  assessed  pursuant to

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<PAGE>

subsections (c), (i) or (l) of section 502 of ERISA or a material tax imposed by
Chapter 43 of Subtitle D of the Code.

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

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

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

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

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

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

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

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

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<PAGE>

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

     Section  9.10 Sale or  Discount  of  Receivables.  Except  for  receivables
obtained by either  Borrower or any  Subsidiary  out of the  ordinary  course of
business or the  settlement of joint interest  billing  accounts in the ordinary
course of  business  or  discounts  granted  to settle  collection  of  accounts
receivable or the sale of defaulted  accounts  arising in the ordinary course of
business in connection  with the  compromise  or  collection  thereof and not in
connection with any financing  transaction,  neither Borrower nor any Subsidiary
will discount or sell (with or without  recourse) any of its notes receivable or
accounts receivable.

     Section  9.11  Mergers,  Etc.  Neither  Borrower  will,  or will permit any
Subsidiary  to, merge into or consolidate  with any other Person,  or permit any
other Person to merge into or consolidate with it, or sell,  transfer,  lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially  all of its Property to any other Person (whether now owned
or hereafter acquired) (any such transaction,  a "consolidation"),  or liquidate
or dissolve;  provided that any  Subsidiary may  participate in a  consolidation
with either  Borrower  (provided  that such Borrower  shall be the continuing or
surviving  entity) or any other Subsidiary and if one of such  Subsidiaries is a
Wholly-Owned  Subsidiary,  then the  surviving  Person  shall be a  Wholly-Owned
Subsidiary.

     Section  9.12 Sale of  Properties.  The  Borrowers  will not,  and will not
permit any Subsidiary to, sell, assign,  farm-out,  convey or otherwise transfer
any Property  except for (a) the sale of  Hydrocarbons in the ordinary course of
business; (b) farmouts of undeveloped acreage and assignments in connection with
such farmouts; (c) the sale or transfer of equipment that is no longer necessary
for the  business  of either  Borrower  or such  Subsidiary  or is  replaced  by
equipment  of at  least  comparable  value  and  use;  (d) the  sale,  or  other
disposition  (including  Casualty  Events)  of any Oil and Gas  Property  or any
interest therein or any Subsidiary owning Oil and Gas Properties;  provided that
(i) the  consideration  received  in respect  of such sale or other  disposition
shall be cash, (ii) the consideration  received in respect of such sale or other
disposition  shall be equal to or greater  than the fair market value of the Oil
and Gas Property  interest therein or Subsidiary  subject of such sale, lease or
other disposition (as reasonably  determined by the Board of Directors of either
Borrower and, if requested by the  Administrative  Agent,  the  Borrowers  shall
deliver a certificate of a Responsible  Officer of either Borrower certifying to
that effect);  provided that if a "Borrowing  Base"  deficiency under the Senior
Credit  Agreement  shall  exist,  then the Lenders  agree that fair market value
shall have been  obtained if any of the  following  conditions  are met: (1) the
Majority Lenders have consented, such consent not to be unreasonably withheld or
delayed, to such sale, lease or other disposition,  (2) the sale, lease or other
disposition  occurs  pursuant to an auction held in accordance  with  procedures
that are  ordinary  and  customary  in the oil and gas industry or (3) the sale,
lease  or  other  disposition  occurs  pursuant  to a  non-binding  bid  process
conducted by the Borrowers or a regionally or nationally  recognized oil and gas

                                       61
<PAGE>

asset  disposition  advisory  company in  accordance  with  procedures  that are
customary  in the oil and gas  industry,  (iii) at such  time and  after  giving
effect to such sale,  lease or other  disposition,  no Borrowing Base deficiency
under the Senior Credit Agreement shall exist, provided, that the condition that
no Borrowing Base  deficiency  under the Senior Credit  Agreement shall exist at
the time of any such  sale,  lease or other  disposition  shall not apply if the
Borrowers notify the  Administrative  Agent that proceeds of such sale, lease or
other  disposition shall be used to remedy a Borrowing Base deficiency under the
Senior  Credit  Agreement  and the Borrowers in fact use such proceeds to remedy
such Borrowing Base deficiency, to the extent thereof, with any surplus proceeds
being  used for one or more of the  purposes  permitted  by  clause  (v) of this
Section 9.12(d),  (iv) if such sale or other disposition of Oil and Gas Property
or  Subsidiary  owning  Oil and Gas  Properties  included  in the most  recently
delivered Reserve Report during any period between two successive determinations
of PV-10 is sold for a price in excess of 5% of the Borrowing Base of the Senior
Credit  Agreement,  individually  or in the  aggregate,  then the PV-10 shall be
reduced, effective immediately upon such sale or disposition, by an amount equal
to the value,  if any,  assigned such  Property in the most  recently  delivered
Reserve Report and (v) an amount equal to 100% of the net proceeds received from
such  sale,  lease or other  disposition  shall be used  within 120 days of such
disposition: (1) to acquire Property, plant and equipment or any business entity
used  or  useful  in  carrying  on the  business  of  the  Borrowers  and  their
Subsidiaries  and having a fair  market  value at least equal to the fair market
value of the Properties sold,  leased or otherwise  disposed of or to improve or
replace any existing  Property of the Borrowers and their  Subsidiaries  used or
useful in carrying on the business of the Borrowers and their Subsidiaries,  (2)
to repay or retire  Debt under the Senior  Credit  Agreement  (with a  permanent
reduction in the  commitments  thereunder)  or (3) to prepay the Loans;  and (e)
sales and other  dispositions  of Properties not regulated by Section 9.12(a) to
(d) having a fair  market  value not to exceed  $1,000,000  during any  12-month
period.

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

     Section 9.14 Transactions with Affiliates. The Borrowers will not, and will
not permit any Subsidiary  to, enter into any  transaction,  including,  without
limitation,  any purchase,  sale, lease or exchange of Property or the rendering
of any service,  with any Affiliate  (other than between and among Borrowers and
Wholly-Owned  Subsidiaries  of either  Borrower)  unless such  transactions  are
otherwise  permitted under this Agreement and are upon fair and reasonable terms
no less  favorable  to it than it would  obtain  in a  comparable  arm's  length
transaction  with a Person not an  Affiliate  other than (a)  Investments  under
Section  9.05(i),  (b) reasonable and customary  director,  officer and employee
compensation  (including  bonuses)  and other  benefits  (including  retirement,
health, stock option and other benefit plans) and indemnification  arrangements,
in each

                                       62
<PAGE>

case  approved  by the  Board  of  Directors,  and (c) any  transaction  with an
Affiliate  where  the  only  consideration  paid is  capital  stock  that is not
Disqualified Capital Stock.

     Section 9.15 Subsidiaries.  The Borrowers will not, and will not permit any
Subsidiary  to,  create or acquire  any  Subsidiary  unless the  Borrowers  give
written notice to the  Administrative  Agent of such creation or acquisition and
complies  with Section 8.14.  The Borrowers  shall not, and shall not permit any
Subsidiary to, sell,  assign or otherwise dispose of any Equity Interests in any
Subsidiary except in compliance with Section 9.12(d).

     Section  9.16  Negative  Pledge  Agreements;   Dividend  Restrictions.  The
Borrower will not, and will not permit any Subsidiary to, create,  incur, assume
or suffer to exist any  contract,  agreement or  understanding  (other than this
Agreement,  the Security  Instruments,  Liens permitted by Section 9.03(c),  the
Intercreditor  Agreement  and the Senior Credit  Agreement,  the Third Lien Term
Loan  Agreement  or listed  on  Schedule  7.14)  which in any way  prohibits  or
restricts the granting,  conveying, creation or imposition of any Lien on any of
its Property in favor of the  Administrative  Agent and the Lenders or restricts
any Subsidiary from paying  dividends or making  distributions  to a Borrower or
any  Guarantor,  or which  requires the consent of or notice to other Persons in
connection therewith.

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

     Section 9.18 Swap  Agreements.  The Borrowers will not, and will not permit
any Subsidiary to, enter into any Swap Agreements with any Person other than (a)
Swap Agreements in respect of commodities (i) with an Approved  Counterparty and
(ii) the notional  volumes for which (when  aggregated with other commodity Swap
Agreements then in effect other than basis differential swaps on volumes already
hedged  pursuant to other Swap  Agreements)  do not exceed,  as of the date such
Swap  Agreement  is  executed,  85%  of  the  reasonably  anticipated  projected
production (as shown in the Borrowers'  most recent Reserve Report) from proved,
developed,  producing  Oil and Gas  Properties  for each month during the period
during which such Swap  Agreement is in effect for each of crude oil and natural
gas,  calculated  separately,  (b) Swap  Agreements in respect of interest rates
with an Approved  Counterparty,  as  follows:  (i) Swap  Agreements  effectively
converting interest rates from fixed to floating,  the notional amounts of which
(when  aggregated  with all other Swap  Agreements  of the  Borrowers  and their
Subsidiaries then in effect effectively  converting interest rates from fixed to
floating)  do not exceed  50% of the then  outstanding  principal  amount of the
Borrowers' Debt for borrowed money which bears interest at a fixed rate and (ii)
Swap Agreements  effectively  converting  interest rates from floating to fixed,
the notional amounts of which (when aggregated with all other Swap Agreements of
the  Borrowers  and their  Subsidiaries  then in effect  effectively  converting
interest rates from floating to fixed) do

                                       63
<PAGE>

not exceed 75% of the then  outstanding  principal amount of the Borrowers' Debt
for  borrowed  money  which  bears  interest  at a floating  rate,  and (c) Swap
Agreements  required under Section 6.01(q) or as provided in the Swap Agreements
listed on  Schedule  7.21.  In no event  shall any Swap  Agreement  contain  any
requirement,  agreement or covenant for the Borrowers or any  Subsidiary to post
collateral or margin to secure their obligations under such Swap Agreement or to
cover market exposures, except to the extent permitted by Section 9.03(d).

                                   ARTICLE X
                           Events of Default; Remedies

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

     (a) the  Borrowers  shall fail to pay any principal of any Loan when and as
the same shall become due and  payable,  whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise.

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

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

     (d) the  Borrowers or any  Subsidiary  shall fail to observe or perform any
covenant,  condition or agreement contained in Section 8.01(i), Section 8.01(m),
Section 8.02, Section 8.03, Section 8.15 or in ARTICLE IX.

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

     (f) the Borrowers or any Subsidiary shall fail to make any payment (whether
of principal or interest  and  regardless  of amount) in respect of any Material
Indebtedness  prior to the longer of (i) three (3) Business  Days after the same
shall become due and payable or (ii) the expiration of any  applicable  grace or
notice and cure

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period,  except  that  with  respect  to trade  payables,  Borrowers  and  their
Subsidiaries shall have 60 days after due date to make payment.

     (g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without  the giving of notice,  the lapse of time or both) the holder or holders
of any Material  Indebtedness  or any trustee or agent on its or their behalf to
cause any  Material  Indebtedness  to become due,  or to require the  Redemption
thereof  or any  offer to  Redeem to be made in  respect  thereof,  prior to its
scheduled maturity or require either Borrower or any Subsidiary to make an offer
in respect  thereof,  except that with respect to trade payables,  Borrowers and
their Subsidiaries shall have 60 days after due date to make payment.

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

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

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

     (k) one or more  judgments for the payment of money in an aggregate  amount
in excess of $2,250,000  (to the extent not covered by  independent  third party
insurance provided by insurers as to which the insurer does not dispute coverage
and is not subject to an insolvency proceeding) shall be rendered against either
Borrower,  any Subsidiary or any  combination  thereof and the same shall remain
undischarged  for a period of 30 consecutive  days during which  execution shall
not be  effectively  stayed,  or any action shall be legally taken by a judgment
creditor to attach or levy upon any assets of either  Borrower or any Subsidiary
to enforce any such judgment.

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<PAGE>

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

     (m) the  Intercreditor  Agreement,  after  delivery  thereof  shall for any
reason, except to the extent permitted by the terms thereof, cease to be in full
force and effect and valid, binding and enforceable in accordance with its terms
against the Borrowers,  any party thereto or holder of the Debt governed thereby
or shall be repudiated by any of them.

     (n) an ERISA Event shall have occurred that, in the opinion of the Majority
Lenders,  when taken  together  with all other ERISA Events that have  occurred,
could  reasonably  be expected to result in liability of either  Borrower or any
Subsidiary in an aggregate amount exceeding $1,750,000.

     (o) a Change in Control shall occur.

     Section 10.02 Remedies.

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

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<PAGE>

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

     (c) All proceeds  realized from the  liquidation  or other  disposition  of
collateral  or  otherwise  received  after  maturity  of the  Loans,  whether by
acceleration or otherwise, shall be applied as provided in Section 4.01(d).

                                   ARTICLE XI
                            The Administrative Agent

     Section 11.01 Appointment;  Powers.  Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to enter into the  Intercreditor  Agreement on behalf of such Lender (each
Lender hereby agreeing to be bound by the terms of the  Intercreditor  Agreement
as if it were a party  thereto) and to take such other actions on its behalf and
to exercise  such powers as are  delegated  to the  Administrative  Agent by the
terms hereof and the other Loan Documents, together with such actions and powers
as are reasonably incidental thereto.

     Section  11.02  Duties  and  Obligations  of   Administrative   Agent.  The
Administrative  Agent  shall not have any  duties or  obligations  except  those
expressly set forth in the Loan  Documents.  Without  limiting the generality of
the  foregoing,  (a)  the  Administrative  Agent  shall  not be  subject  to any
fiduciary or other implied duties,  regardless of whether a Default has occurred
and is continuing,  (b) the Administrative Agent shall not have any duty to take
any  discretionary  action  or  exercise  any  discretionary  powers,  except as
provided in Section  11.03,  and (c) except as expressly set forth  herein,  the
Administrative  Agent  shall  not have any duty to  disclose,  and  shall not be
liable for the failure to disclose, any information relating to the Borrowers or
any of  their  Subsidiaries  that is  communicated  to or  obtained  by the bank
serving as  Administrative  Agent or any of its Affiliates in any capacity.  The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative  Agent by either
Borrower  or a  Lender,  and shall  not be  responsible  for or have any duty to
ascertain or inquire into (i) any statement,  warranty or representation made in
or in  connection  with this  Agreement  or any other  Loan  Document,  (ii) the
contents of any  certificate,  report or other document  delivered  hereunder or
under any other Loan Document or in connection herewith or therewith,  (iii) the
performance or observance of any of the covenants,  agreements or other terms or
conditions  set forth herein or in any other Loan  Document,  (iv) the validity,
enforceability,  effectiveness or genuineness of this Agreement,  any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction of
any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative  Agent
or  as  to  those  conditions   precedent   expressly  required  to  be  to  the
Administrative Agent's satisfaction,  (vi) the existence,  value,  perfection or
priority of any collateral  security or the financial or other  condition of the
Borrowers and their Subsidiaries or any other obligor or guarantor, or (vii) any
failure by either  Borrower or any other  Person  (other than itself) to perform
any of its  obligations  hereunder  or under  any  other  Loan  Document  or the
performance  or

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<PAGE>

observance of any  covenants,  agreements or other terms or conditions set forth
herein or therein.

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

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

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Note, if any, as the holder  thereof for all purposes  hereof unless and until a
written notice of the assignment or transfer thereof  permitted  hereunder shall
have been filed with the Administrative Agent.

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

     Section 11.06  Resignation or Removal of Administrative  Agent.  Subject to
the appointment and acceptance of a successor  Administrative  Agent as provided
in this  Section  11.06,  the  Administrative  Agent  may  resign at any time by
notifying the Lenders,  and the Borrowers,  and the Administrative  Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any such
resignation  or removal,  the Majority  Lenders  shall have the right,  with the
consent of the Borrowers,  which consent shall not be  unreasonably  withheld or
delayed,  to appoint a successor.  If no successor  shall have been so appointed
and shall have  accepted  such  appointment  within 30 days  after the  retiring
Administrative  Agent gives notice of its resignation or removal of the retiring
Administrative  Agent, then the retiring  Administrative Agent may, on behalf of
the Lenders,  appoint a successor  Administrative  Agent. Upon the acceptance of
its appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights,  powers,  privileges and
duties of the retiring  Administrative  Agent,  and the retiring  Administrative
Agent shall be discharged  from its duties and obligations  hereunder.  The fees
payable by the Borrowers to a successor  Administrative  Agent shall be the same
as  those  payable  to its  predecessor  unless  otherwise  agreed  between  the
Borrowers  and such  successor.  After the  Administrative  Agent's  resignation
hereunder, the provisions of this ARTICLE XI and Section 12.03 shall continue in
effect  for the  benefit  of such  retiring  Agent,  its  sub-agents  and  their
respective  Related  Parties in respect  of any  actions  taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

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

     Section  11.08  No  Reliance.   Each  Lender   acknowledges  that  it  has,
independently  and without reliance upon the  Administrative  Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit  analysis and decision to enter into this Agreement and each
other Loan

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<PAGE>

Document to which it is a party.  Each Lender  also  acknowledges  that it will,
independently  and without reliance upon the  Administrative  Agent or any other
Lender and based on such documents and information as it shall from time to time
deem  appropriate,  continue to make its own  decisions  in taking or not taking
action under or based upon this Agreement,  any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.  The Administrative
Agent shall not be required to keep themselves informed as to the performance or
observance by either Borrower or any of its Subsidiaries of this Agreement,  the
Loan  Documents or any other  document  referred to or provided for herein or to
inspect the Properties or books of the Borrower or its Subsidiaries.  Except for
notices,  reports and other documents and information  expressly  required to be
furnished  to the Lenders by the  Administrative  Agent  hereunder,  neither the
Administrative  Agent nor the Arranger shall have any duty or  responsibility to
provide any Lender with any credit or other information  concerning the affairs,
financial  condition or business of the Borrowers  (or any of their  Affiliates)
which may come into the  possession of such  Administrative  Agent or any of its
Affiliates.  In this regard, each Lender acknowledges that each of Sidley Austin
Brown & Wood LLP and  Haynes  and Boone,  LLP is acting in this  transaction  as
special counsel to the Arranger only in respect of the Senior Credit  Agreement.
Each other party hereto will  consult  with its own legal  counsel to the extent
that it deems  necessary in connection  with the Loan  Documents and the matters
contemplated therein.

     Section 11.09 Authority of Administrative  Agent to Release  Collateral and
Liens.  Each Lender hereby  authorizes the  Administrative  Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan  Documents.  Each Lender  hereby  authorizes  the  Administrative  Agent to
execute and deliver to the Borrowers,  at the Borrowers'  sole cost and expense,
any and all  releases of Liens,  termination  statements,  assignments  or other
documents  reasonably  requested by the Borrowers in connection with any sale or
other  disposition  of Property to the extent such sale or other  disposition is
permitted by the terms of Section 9.12 or is otherwise  authorized  by the terms
of the Loan Documents. The Lenders hereby authorize the Administrative Agent, at
its option and in its discretion,  to release any Lien granted to or held by the
Administrative   Agent  upon  any  Mortgaged   Property  (i)  upon  payment  and
satisfaction  of  all of  the  Indebtedness  (other  than  contingent  indemnity
obligations and  Indebtedness in respect of Swap Agreements) at any time arising
under or in respect of this Agreement or the Loan Documents or the  transactions
contemplated  hereby or thereby;  (ii) as permitted  by, but only in  accordance
with,  the  terms  of the  applicable  Loan  Document;  or  (iii)  if  approved,
authorized or ratified in writing by the Majority  Lenders,  unless such release
is required to be approved by all of the Lenders hereunder.

     Section   11.10  The   Arranger.   The  Arranger   shall  have  no  duties,
responsibilities  or  liabilities  under  this  Agreement  and  the  other  Loan
Documents.

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                                  ARTICLE XII
                                  Miscellaneous

     Section 12.01 Notices.

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

     (i) if to the Borrowers, to them at Quest Resource Corporation,  9520 North
May Avenue,  Suite 300, Oklahoma City,  Oklahoma 73120,  Attention:  David Grose
(Telecopy No. (405) 488-1156),  with a copy to Stinson Morrison Hecker LLP, 1201
Walnut, Kansas City, Missouri 64106, Attention:  Patrick J. Respeliers (Telecopy
No. (888) 215-7160);

     (ii) if to the Administrative Agent, to it at Guggenheim Partners, 135 East
57th  Street,  7th Floor,  New York,  New York 10022,  Attention:  Tony  Minella
(Telecopy No. (212) 644-8396); and

     (iii) if to any Lender, to it at its address (or telecopy number) set forth
in its Administrative Questionnaire.

     (b)  Notices  and other  communications  to the  Lenders  hereunder  may be
delivered or  furnished  by  electronic  communications  pursuant to  procedures
approved by the  Administrative  Agent;  provided that the  foregoing  shall not
apply to notices  pursuant to ARTICLE II, ARTICLE III,  ARTICLE IV and ARTICLE V
unless otherwise agreed by the  Administrative  Agent and the applicable Lender.
The  Administrative  Agent or the Borrowers may, in their  discretion,  agree to
accept  notices  and  other   communications   to  it  hereunder  by  electronic
communications  pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.

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

     Section 12.02 Waivers; Amendments.

     (a) No  failure  on the part of the  Administrative  Agent or any Lender to
exercise and no delay in  exercising,  and no course of dealing with respect to,
any right, power or privilege,  or any abandonment or discontinuance of steps to
enforce such right,  power or privilege,  under any of the Loan Documents  shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
right,  power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of the  Administrative  Agent and

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<PAGE>

the Lenders  hereunder and under the other Loan Documents are cumulative and are
not  exclusive  of any rights or remedies  that they would  otherwise  have.  No
waiver of any provision of this  Agreement or any other Loan Document or consent
to any  departure  by the  Borrowers  therefrom  shall in any event be effective
unless the same shall be permitted by Section 12.02(b),  and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.  Without limiting the generality of the foregoing,  the making of a
Loan shall not be construed as a waiver of any  Default,  regardless  of whether
the Administrative  Agent or any Lender may have had notice or knowledge of such
Default at the time.

     (b)  Neither  this  Agreement  nor any  provision  hereof nor any  Security
Instrument nor any provision  thereof may be waived,  amended or modified except
pursuant to an agreement or agreements in writing  entered into by the Borrowers
and the Majority Lenders or by the Borrowers and the  Administrative  Agent with
the consent of the Majority  Lenders;  provided that no such agreement shall (i)
increase  the  Commitment  of any Lender  without  the  written  consent of such
Lender,  (ii) modify the definition of PV-10 without the consent of each Lender,
(iii)  reduce the  principal  amount of the Loan or reduce the rate of  interest
thereon, or reduce any fees payable hereunder,  or reduce any other Indebtedness
hereunder or under any other Loan Document,  without the written consent of each
Lender  affected  thereby,  (iv)  postpone  the  scheduled  date of  payment  or
prepayment of the principal amount of the Loan, or any interest thereon,  or any
fees payable hereunder,  or any other Indebtedness  hereunder or under any other
Loan  Document,  or reduce the amount of, waive or excuse any such  payment,  or
postpone or extend the Maturity Date without the written  consent of each Lender
affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a manner that
would  alter the pro rata  sharing of  payments  required  thereby,  without the
written consent of each Lender,  (vi) waive or amend Section 6.01, Section 8.14,
or Section 10.02(c), or change the definition of the term "Subsidiary",  without
the written consent of each Lender,  (vii) release any Guarantor  (except as set
forth  in  the  Guaranty  Agreement),  release  a  substantial  portion  of  the
collateral  (other than as provided in Section 11.09),  or reduce the percentage
set forth in Section 8.14 to less than 80%,  without the written consent of each
Lender,  or (viii) change any of the provisions of this Section  12.02(b) or the
definition of "Majority  Lenders" or any other provision  hereof  specifying the
number or  percentage of Lenders  required to waive,  amend or modify any rights
hereunder or under any other Loan Documents or make any  determination  or grant
any consent  hereunder or any other Loan Documents,  without the written consent
of each Lender;  provided further that no such agreement shall amend,  modify or
otherwise affect the rights or duties of the  Administrative  Agent hereunder or
under  any  other  Loan  Document  without  the  prior  written  consent  of the
Administrative Agent.  Notwithstanding the foregoing, any supplement to Schedule
7.15   (Subsidiaries)   shall  be  effective   simply  by   delivering   to  the
Administrative  Agent a supplemental  schedule  clearly marked as such and, upon
receipt,  the  Administrative  Agent will promptly deliver a copy thereof to the
Lenders.

     Section 12.03 Expenses, Indemnity; Damage Waiver.

     (a) The  Borrowers  jointly and severally  agree to pay (i) all  reasonable
out-of-pocket  expenses incurred by the Administrative Agent and its Affiliates,
including,

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

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

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

     (c) To the extent that the Borrowers fail to pay any amount  required to be
paid by it to the  Administrative  Agent under  Section  12.03(a)  or (b),  each
Lender  severally  agrees  to pay  to the  Administrative  Agent  such  Lender's
Percentage  Share

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<PAGE>

(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim,  damage,  liability or related expense,  as the case
may be, was  incurred by or asserted  against  the  Administrative  Agent in its
capacity as such.

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

     (e) All  amounts  due under this  Section  12.03 shall be payable not later
than 10 Business Days after written demand therefor.

Section 12.04  Successors and Assigns.

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

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

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

          (B)  the  Administrative  Agent,  provided  that  no  consent  of  the
     Administrative  Agent shall be required  for an  assignment  to an assignee
     that is a Lender, an Affiliate of a Lender or an Approved Fund.

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

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<PAGE>

               (A) except in the case of an assignment to a Lender, an Affiliate
          of a  Lender  or an  Approved  Fund  or an  assignment  of the  entire
          remaining  amount of the assigning  Lender's  Commitment or Loans, the
          amount of the  Commitment or Loans of the assigning  Lender subject to
          each such  assignment  (determined  as of the date the  Assignment and
          Assumption  with  respect  to  such  assignment  is  delivered  to the
          Administrative Agent) shall not be less than $5,000,000 unless each of
          the Borrowers and the Administrative Agent otherwise consent, provided
          that no such consent of the Borrowers shall be required if an Event of
          Default has occurred and is continuing;

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

               (C) the parties to each  assignment  shall execute and deliver to
          the Administrative Agent an Assignment and Assumption, together with a
          processing and recordation fee of $3,500; provided, that no processing
          and  recording  fee  shall be due or  payable  in  connection  with an
          assignment to a Lender,  an Affiliate of a Lender or an Approved Fund;
          and

               (D) the assignee,  if it shall not be a Lender,  shall deliver to
          the Administrative Agent an Administrative Questionnaire.

     (iii)  Subject to Section  12.04(b)(iv)  and the  acceptance  and recording
thereof,  from and after the effective  date  specified in each  Assignment  and
Assumption the assignee thereunder shall be a party hereto and, to the extent of
the interest  assigned by such  Assignment and  Assumption,  have the rights and
obligations  of  a  Lender  under  this  Agreement,  and  the  assigning  Lender
thereunder  shall, to the extent of the interest assigned by such Assignment and
Assumption,  be released from its obligations  under this Agreement (and, in the
case of an Assignment  and  Assumption  covering all of the  assigning  Lender's
rights and  obligations  under this  Agreement,  such Lender shall cease to be a
party hereto but shall  continue to be entitled to the benefits of Section 5.01,
Section  5.02,  Section  5.03 and Section  12.03 and subject to the  obligations
under  Section  5.04).  Any  assignment  or  transfer  by a Lender  of rights or
obligations  under this  Agreement  that does not comply with this Section 12.04
shall be treated for  purposes of this  Agreement  as a sale by such Lender of a
participation  in  such  rights  and  obligations  in  accordance  with  Section
12.04(c).

     (iv) The Administrative  Agent,  acting for this purpose as an agent of the
Borrowers,  shall  maintain at one of its offices a copy of each  Assignment and
Assumption  delivered to it and a register for the  recordation of the names and
addresses of the Lenders,  and  Commitments  and principal  amount of the Loans,
each Lender pursuant to the terms hereof from time to time (the "Register"). The
entries  in  the  Register   shall  be  conclusive,   and  the  Borrowers,   the
Administrative  Agent,  and the  Lenders  may treat  each  Person  whose name is
recorded in the Register  pursuant to the terms hereof as a Lender hereunder for
all purposes of this  Agreement,  notwithstanding  notice to the  contrary.  The
Register shall be available for  inspection by the Borrowers

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<PAGE>

and any Lender,  at any  reasonable  time and from time to time upon  reasonable
prior notice.

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

     (c) (i) Any  Lender  may,  without  the  consent  of the  Borrowers  or the
Administrative Agent, sell participations to one or more banks or other entities
(a  "Participant")  in all or a portion of such Lender's  rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it);  provided that (A) such Lender's  obligations under this Agreement
shall remain unchanged,  (B) such Lender shall remain solely  responsible to the
other  parties  hereto  for  the  performance  of such  obligations  and (C) the
Borrowers,  the  Administrative  Agent,  and the other Lenders shall continue to
deal solely and  directly  with such  Lender in  connection  with such  Lender's
rights and  obligations  under  this  Agreement.  Any  agreement  or  instrument
pursuant to which a Lender sells such a  participation  shall  provide that such
Lender shall retain the sole right to enforce this  Agreement and to approve any
amendment,  modification or waiver of any provision of this Agreement;  provided
that such agreement or instrument may provide that such Lender will not, without
the consent of the Participant,  agree to any amendment,  modification or waiver
described  in the proviso to Section  12.02 that affects  such  Participant.  In
addition  such  agreement  must  provide  that the  Participant  be bound by the
provisions  of Section  12.03.  Subject to Section  12.04(c)(ii),  the Borrowers
agree that each  Participant  shall be entitled to the benefits of Section 5.01,
Section  5.02 and Section 5.03 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to Section 12.04(b).  To the extent
permitted  by law,  each  Participant  also shall be entitled to the benefits of
Section 12.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 4.01(c) as though it were a Lender.

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

     (iii) In the event that any Lender  sells  participations  in a Loan,  such
Lender shall  maintain a register,  acting for this  purpose as a  non-fiduciary
agent of

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<PAGE>

the Borrowers, on which it enters the name of all participants in the Loans held
by it and the principal  amount (and stated interest  thereon) of the portion of
the Loan that is the subject of the participation (the "Participant  Register").
A  Loan  (and  the  registered  note,  if  any,  evidencing  the  same)  may  be
participated in whole or in part only by registration of such  participation  on
the Participant  Register (and each registered note shall expressly so provide).
Any participation of such Loan (and the registered note, if any,  evidencing the
same) may be effected  only by the  registration  of such  participation  on the
Participant Register. The Participant Register shall be available for inspection
by the  Borrowers  and any Lender at any  reasonable  time and from time to time
upon reasonable prior notice.

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

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

     Section 12.05 Survival; Revival; Reinstatement.

     (a) All covenants,  agreements,  representations and warranties made by the
Borrowers  herein and in the  certificates  or other  instruments  delivered  in
connection  with or pursuant to this  Agreement or any other Loan Document shall
be  considered  to have been relied upon by the other  parties  hereto and shall
survive  the  execution  and  delivery of this  Agreement  and the making of any
Loans,  regardless of any  investigation  made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, or any Lender may have
had notice or knowledge of any Default or incorrect  representation  or warranty
at the time any credit is extended  hereunder,  and shall continue in full force
and effect as long as the  principal  of or any accrued  interest on any Loan or
any fee or any other amount  payable  under this  Agreement is  outstanding  and
unpaid.  The provisions of Section 5.01,  Section 5.02, Section 5.03 and Section
12.03  and  ARTICLE  XI shall  survive  and  remain  in full  force  and  effect
regardless of the  consummation of the  transactions  contemplated  hereby,  the
repayment  of the  Loans,  the  termination  of this  Agreement,  any other Loan
Document or any provision hereof or thereof.

     (b) To the extent that any payments on the  Indebtedness or proceeds of any
collateral  are   subsequently   invalidated,   declared  to  be  fraudulent  or
preferential,  set  aside or  required  to be  repaid  to a  trustee,  debtor in
possession,  receiver or other Person under any  bankruptcy  law,  common law or
equitable  cause,  then to such extent,  the  Indebtedness so satisfied shall be
revived and continue as if such  payment or proceeds

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<PAGE>

had not been  received and the  Administrative  Agent's and the Lenders'  Liens,
security  interests,  rights,  powers and remedies under this Agreement and each
Loan Document shall continue in full force and effect.  In such event, each Loan
Document shall be  automatically  reinstated  and the Borrowers  shall take such
action  as may be  reasonably  requested  by the  Administrative  Agent  and the
Lenders to effect such reinstatement.

     Section 12.06 Counterparts; Integration; Effectiveness.

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

     (b) THIS  AGREEMENT,  THE OTHER  LOAN  DOCUMENTS  AND ANY  SEPARATE  LETTER
AGREEMENTS WITH RESPECT TO FEES PAYABLE TO THE  ADMINISTRATIVE  AGENT CONSTITUTE
THE ENTIRE CONTRACT AMONG THE PARTIES  RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF AND SUPERSEDE ANY AND ALL PREVIOUS AGREEMENTS AND  UNDERSTANDINGS,  ORAL
OR WRITTEN,  RELATING TO THE SUBJECT  MATTER HEREOF AND THEREOF.  THIS AGREEMENT
AND THE OTHER LOAN  DOCUMENTS  REPRESENT THE FINAL  AGREEMENT  AMONG THE PARTIES
HERETO  AND  THERETO  AND  MAY  NOT  BE   CONTRADICTED  BY  EVIDENCE  OF  PRIOR,
CONTEMPORANEOUS  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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

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

     Section  12.08 Right of Setoff.  If an Event of Default shall have occurred
and be continuing,  each Lender and each of its Affiliates is hereby  authorized
at any time and from time to time,  to the fullest  extent  permitted by law, to
set off and apply any and all  deposits  (general  or  special,  time or demand,
provisional  or final) at any time held and  other  obligations  (of  whatsoever
kind, including,  without limitations  obligations under Swap Agreements) at any
time owing by such  Lender or  Affiliate  to or for the credit or

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<PAGE>

the  account  of the  Borrowers  or any  Subsidiary  against  any of and all the
obligations  of the  Borrowers  or any  Subsidiary  owed to such  Lender  now or
hereafter existing under this Agreement or any other Loan Document, irrespective
of whether or not such Lender shall have made any demand under this Agreement or
any other Loan Document and although  such  obligations  may be  unmatured.  The
rights of each Lender under this  Section  12.08 are in addition to other rights
and  remedies  (including  other  rights of  setoff),  which such  Lender or its
Affiliates may have.

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

     (a) THIS  AGREEMENT  AND THE  NOTES,  IF ANY,  SHALL BE  GOVERNED  BY,  AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

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

     (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED  COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL,  POSTAGE PREPAID,  TO IT AT THE ADDRESS
SPECIFIED IN SECTION  12.01 OR SUCH OTHER  ADDRESS AS IS  SPECIFIED  PURSUANT TO
SECTION  12.01  (OR ITS  ASSIGNMENT  AND  ASSUMPTION),  SUCH  SERVICE  TO BECOME
EFFECTIVE  TEN (10) DAYS AFTER SUCH  MAILING.  NOTHING  HEREIN  SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF ANY NOTE TO SERVE  PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL  PROCEEDINGS OR OTHERWISE  PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.

     (d) EACH PARTY HEREBY (i) IRREVOCABLY AND  UNCONDITIONALLY  WAIVES,  TO THE
FULLEST EXTENT PERMITTED BY

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<PAGE>

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

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

     Section 12.11  Confidentiality.  Each of the  Administrative  Agent and the
Lenders agrees to maintain the  confidentiality  of the  Information (as defined
below),  except that Information may be disclosed (a) to its and its Affiliates'
directors,  officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be  informed of the  confidential  nature of such  Information  and
instructed to keep such Information  confidential),  (b) to the extent requested
by any regulatory  authority,  (c) to the extent  required by applicable laws or
regulations or by any subpoena or similar legal process,  (d) to any other party
to this  Agreement  or any  other  Loan  Document,  (e) in  connection  with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or  proceeding  relating to this  Agreement or any other Loan Document or
the enforcement of rights  hereunder or thereunder,  (f) subject to an agreement
containing provisions  substantially the same as those of this Section 12.11, to
(i) any  assignee  of or  Participant  in,  or any  prospective  assignee  of or
Participant in, any of its rights or obligations  under this Agreement (it being
understood  that the Persons to whom such disclosure is made will be informed of
the  confidential  nature  of such  Information  and  instructed  to  keep  such
Information confidential) or (ii) any actual or prospective counterparty (or its
advisors) to any Swap Agreement  relating to the Borrowers and their obligations
(it being  understood  that the Persons to whom such  disclosure is made will be
informed of the  confidential  nature of such Information and instructed to keep
such Information confidential),  (g) with the consent of the Borrowers or (h) to
the extent such  Information  (i)  becomes  publicly  available  other than as a
result  of a breach  of this  Section  12.11 or (ii)  becomes  available  to the
Administrative  Agent or any  Lender on a  nonconfidential  basis  from a source
other than the Borrowers. For the purposes of this Section 12.11,  "Information"
means all information  received from the Borrowers or any Subsidiary relating to
the  Borrowers  or any  Subsidiary  and their  businesses,  other  than any such
information  that is  available to

                                       81
<PAGE>

the  Administrative  Agent or any  Lender on a  nonconfidential  basis  prior to
disclosure by the Borrowers or a Subsidiary. Any Person required to maintain the
confidentiality  of  Information  as  provided  in this  Section  12.11 shall be
considered  to have  complied  with its  obligation  to do so if such Person has
exercised  the same  degree  of care to  maintain  the  confidentiality  of such
Information as such Person would accord to its own confidential information.

     Section 12.12 Interest Rate Limitation.  It is the intention of the parties
hereto that each Lender shall conform  strictly to usury laws  applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws  applicable to it (including  the laws of the United States of
America  and the State of New York or any other  jurisdiction  whose laws may be
mandatorily  applicable to such Lender  notwithstanding  the other provisions of
this Agreement),  then, in that event,  notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security  for the Loans,  it is agreed as follows:  (i) the  aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan  Documents or agreements or otherwise in connection  with the Loans,
shall  under  no  circumstances  exceed  the  maximum  amount  allowed  by  such
applicable  law,  and  any  excess  shall  be  canceled   automatically  and  if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness  (or, to the extent that the principal  amount of the  Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrowers); and (ii) in the event that the maturity of the Loans, is accelerated
by reason of an  election  of the  holder  thereof  resulting  from any Event of
Default under this  Agreement or  otherwise,  or in the event of any required or
permitted  prepayment,  then such consideration that constitutes  interest under
law  applicable  to any Lender may never  include  more than the maximum  amount
allowed by such applicable  law, and excess  interest,  if any,  provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such  acceleration or prepayment and, if theretofore  paid, shall be
credited by such Lender on the principal amount of the Indebtedness  (or, to the
extent that the principal  amount of the  Indebtedness  shall have been or would
thereby be paid in full,  refunded  by such Lender to the  Borrowers).  All sums
paid or agreed to be paid to any Lender for the use, forbearance or detention of
sums due  hereunder  shall,  to the extent  permitted by law  applicable to such
Lender, be amortized,  prorated, allocated and spread throughout the stated term
of the Loans  until  payment in full so that the rate or amount of  interest  on
account of any Loans  hereunder  does not exceed the maximum  amount  allowed by
such  applicable  law.  If at any time and from  time to time (i) the  amount of
interest  payable  to any Lender on any date shall be  computed  at the  Highest
Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (ii) in
respect of any  subsequent  interest  computation  period the amount of interest
otherwise  payable  to such  Lender  would be less than the  amount of  interest
payable to such Lender  computed at the Highest  Lawful Rate  applicable to such
Lender,  then the amount of  interest  payable to such Lender in respect of such
subsequent  interest  computation  period  shall  continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been

                                       82
<PAGE>

payable to such Lender if the total amount of interest had been computed without
giving effect to this Section 12.12.

     Section  12.13   EXCULPATION   PROVISIONS.   EACH  OF  THE  PARTIES  HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS  AND AGREES THAT IT IS CHARGED WITH NOTICE AND  KNOWLEDGE OF THE TERMS
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY  INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS  AND  EFFECTS  OF THIS  AGREEMENT;  THAT IT HAS BEEN  REPRESENTED  BY
INDEPENDENT  LEGAL COUNSEL OF ITS CHOICE  THROUGHOUT THE NEGOTIATIONS  PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN  DOCUMENTS;  AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING  INTO THIS  AGREEMENT  AND THE OTHER LOAN
DOCUMENTS;  AND THAT IT RECOGNIZES  THAT CERTAIN OF THE TERMS OF THIS  AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME  ASPECTS  OF THE  TRANSACTION  AND  RELIEVING  THE  OTHER  PARTY  OF ITS
RESPONSIBILITY  FOR SUCH LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY  PROVISION
OF THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO  NOTICE  OR  KNOWLEDGE  OF  SUCH  PROVISION  OR  THAT  THE  PROVISION  IS NOT
"CONSPICUOUS."

     Section  12.14  Collateral  Matters;  Swap  Agreements.  The benefit of the
Security  Instruments  and of the provisions of this  Agreement  relating to any
collateral  securing the  Indebtedness  shall also extend to and be available to
those Lenders or their Affiliates and other Persons which are  counterparties to
any Swap Agreement with either Borrower or any of its Subsidiaries on a pro rata
basis  in  respect  of  any  obligations  of  the  Borrowers  or  any  of  their
Subsidiaries  which arise under any such Swap Agreement  entered into while such
Person or its Affiliate is a Lender,  including any Swap Agreements between such
Persons in existence  prior to the date hereof.  No Lender or any Affiliate of a
Lender shall have any voting  rights under any Loan  Document as a result of the
existence of obligations owed to it under any such Swap Agreements.

     Section 12.15 No Third Party Beneficiaries.  This Agreement, the other Loan
Documents,  and the agreement of the Lenders to make Loans  hereunder are solely
for the  benefit  of the  Borrowers,  and no other  Person  (including,  without
limitation, any Subsidiary, any obligor, contractor,  subcontractor, supplier or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent or any Lender for
any reason whatsoever. There are no third party beneficiaries.

     Section  12.16 USA Patriot Act Notice.  Each  Lender  hereby  notifies  the
Borrower that pursuant to the  requirements of the USA Patriot Act (Title III of
Pub. L. 107-56  (signed into law October 26, 2001)) (the "Act"),  it is required
to obtain,  verify

                                       83
<PAGE>

and record information that identifies the Borrowers, which information includes
the name and address of the Borrowers and other information that will allow such
Lender to identify the Borrowers in accordance with the Act.

                                  ARTICLE XIII

     Section 13.01 No Novation.  It is the express  intent of the parties hereto
that this Agreement (i) shall re-evidence the Borrowers'  indebtedness under the
Existing Agreement, (ii) is entered into in substitution for, and not in payment
of, the obligations of the Borrowers under the Existing  Agreement,  (iii) is in
no way intended to constitute a novation of any of the  Borrowers'  indebtedness
which was evidenced by the Existing Agreement or any of the other Loan Documents
and (iv) the parties  hereto as Lenders  that were not  parties to the  Existing
Agreement are acquiring  their  interests in the Loans from the Lenders party to
the Existing  Agreement to the extent  necessary to reflect the  Commitments and
Percentage  Shares  set  forth  on  Annex I to this  Agreement  which  as of the
Effective Date will replace the Commitments  and Percentage  Shares set forth on
Annex I to the Existing Agreement, and this Agreement shall automatically effect
assignments to accomplish the foregoing.

     Section 13.02  References  to This  Agreement In Loan  Documents.  Upon the
effectiveness of this Agreement, on and after the date hereof, each reference in
any other Loan  Document to the  Existing  Agreement  (including  any  reference
therein to "the Agreement,"  "thereunder," "thereof," "therein" or words of like
import referring thereto) shall mean and be a reference to this Agreement.

                         [SIGNATURES BEGIN NEXT PAGE]

                                       84
<PAGE>

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

BORROWER:                         QUEST RESOURCE CORPORATION

                                  By:  /s/ Jerry D. Cash
                                      --------------------------------------
                                      Name: Jerry D. Cash
                                      Title: Chief Executive Officer

                                  QUEST CHEROKEE, LLC

                                  By:  /s/ Jerry D. Cash
                                      --------------------------------------
                                      Name: Jerry D. Cash
                                      Title: Chief Executive Officer

<PAGE>

ADMINISTRATIVE AGENT:             GUGGENHEIM CORPORATE FUNDING, LLC
                                  as Administrative Agent

                                  By: /s/ Stephen D. Sautel
                                     --------------------------------------
                                     Name:  Stephen D. Sautel
                                     Title  Managing Director

<PAGE>

LENDERS:                          MIDLAND NATIONAL LIFE INSURANCE COMPANY
                                  By:  Midland Advisors Company as its Agent

                                  By: /s/ Kaitlyn Trinh
                                      -------------------------------------
                                      Name:  Kaitlyn Trinh
                                      Title: Director

<PAGE>

LENDERS:                         NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
                                 INSURANCE
                                 By:  Midland Advisors Company as its Agent

                                 By: /s/  Kaitlyn Trinh
                                     --------------------------------------
                                     Name:   Kaitlyn Trinh
                                     Title:  Director

<PAGE>

LENDERS:                         SADDLE ROCK ONSHORE FUNDING, L.L.C.
                                 By:  Farallon Capital Management, L.L.C.
                                 as its Manager

                                 By: /s/ Derek Schrier
                                     --------------------------------------
                                     Name:  Derek Schrier
                                     Title: Managing Member

<PAGE>

LENDERS:                         ABLECO FINANCE LLC

                                 By: /s/ Kevin Genda
                                     --------------------------------------
                                     Name:  Kevin Genda
                                     Title: Senior Vice President

<PAGE>

LENDERS:                         A3 FUNDING LP
                                 By:  A3 Fund Management LLC, its General
                                 Partner

                                 By: /s/ Kevin Genda
                                     --------------------------------------
                                     Name:  Kevin Genda
                                     Title: Vice President

<PAGE>

LENDERS:                         DEL MAR MASTER FUND LTD.

                                 By: /s/ Marc Simons
                                     --------------------------------------
                                     Name:  Marc Simons
                                     Title: Director

<PAGE>

LENDERS:                         SPF CDO I, LLC

                                 By: /s/ Fred Fogel
                                     --------------------------------------
                                     Name:  Fred Fogel
                                     Title: General Counsel

<PAGE>

LENDERS:                         FIELD POINT II, LTD.

                                 By: /s/ Fred Fogel
                                     --------------------------------------
                                     Name:  Fred Fogel
                                     Title: General Counsel

<PAGE>

LENDERS:                          FIELD POINT III, LTD.

                                 By: /s/ Fred Fogel
                                     --------------------------------------
                                     Name:  Fred Fogel
                                     Title: General Counsel

<PAGE>

LENDERS:                          FIELD POINT IV, LTD.

                                 By: /s/ Fred Fogel
                                     --------------------------------------
                                     Name:  Fred Fogel
                                     Title: General Counsel

<PAGE>

LENDERS:                          DELLACAMERA CAPITAL MASTER FUND, LTD.

                                  By: /s/ Vincent J. Spinnato
                                      --------------------------------------
                                      Name:  Vincent J. Spinnato
                                      Title: Managing Member

<PAGE>

                                   ANNEX I

COMMITMENTS

          Name of Lender            Percentage Share   Commitment Amount

Ableco Finance LLC                       15.21%           $15,210,000

Field Point III, Ltd.                      12%            $12,000,000

Field Point IV, Ltd.                       11%            $11,000,000

Midland National Life Insurance            10%            $10,000,000
Company

SPF CDO I, LLC                             10%            $10,000,000

Saddle Rock Onshore Funding, L.L.C.        10%            $10,000,000

A3 Funding LP                             9.79%            $9,790,000

Del Mar Master Fund Ltd.                  7.5%             $7,500,000

Field Point II, Ltd.                       7%              $7,000,000

North American Company for Life            5%              $5,000,000
and Health Insurance

DellaCamera Capital Master Fund,          2.5%             $2,500,000
Ltd.

TOTAL                                    100.00%      $100,000,000.00

<PAGE>

                                    EXHIBIT A
                             FORM OF TERM LOAN NOTE

$[      ]                                                     [          ], 2006

     FOR VALUE  RECEIVED,  QUEST  CHEROKEE,  LLC, a Delaware  limited  liability
company and QUEST RESOURCE  CORPORATION,  a Nevada corporation (the "Borrowers")
hereby jointly and severally  promise to pay to the order of [ ] (the "Lender"),
at the principal office of Guggenheim Corporate Funding,  LLC, as administrative
agent (the "Administrative Agent"), at [ ], the principal sum of [ ] Dollars ($[
]), in lawful money of the United States of America and in immediately available
funds,  on the  dates  and in  the  principal  amounts  provided  in the  Credit
Agreement,  and to pay interest on the unpaid  principal amount of such Loan, at
such office,  in like money and funds, for the period  commencing on the date of
such Loan until  such Loan shall be paid in full,  at the rates per annum and on
the dates provided in the Amended and Restated Second Lien Term Loan Agreement.

     The date, amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the  Borrowers,  and each  payment made on account of
the principal  thereof,  shall be recorded by the Lender on its books and, prior
to any  transfer of this Note,  may be  endorsed by the Lender on the  schedules
attached hereto or any continuation thereof or on any separate record maintained
by the Lender.  Failure to make any such notation or to attach a schedule  shall
not affect any Lender's or the  Borrowers'  rights or  obligations in respect of
such Loans or affect the validity of such transfer by any Lender of this Note.

     This Note is one of the  Notes  referred  to in the  Amended  and  Restated
Second Lien Term Loan  Agreement  dated as of June 9, 2006 among the  Borrowers,
the  Administrative  Agent, and the other agents and lenders  signatory  thereto
(including the Lender),  and evidences Loans made by the Lender thereunder (such
Amended and Restated Second Lien Term Loan Agreement as the same may be amended,
supplemented  or  restated  from  time to  time,  the  "Second  Lien  Term  Loan
Agreement").  Capitalized  terms used in this Note have the respective  meanings
assigned to them in the Credit Agreement.

     This Note is issued  pursuant to the Second Lien Term Loan Agreement and is
entitled to the benefits provided for in the Second Lien Term Loan Agreement and
the other Loan Documents.  The Second Lien Term Loan Agreement  provides for the
acceleration of the maturity of this Note upon the occurrence of certain events,
for  prepayments  of Loans upon the terms and conditions  specified  therein and
other provisions relevant to this Note.

<PAGE>

      THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.

                                    QUEST CHEROKEE, LLC

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

                                    QUEST RESOURCE CORPORATION

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

<PAGE>

                                    EXHIBIT B
                            FORM OF BORROWING REQUEST

                                   [ ], 200[ ]

     QUEST  CHEROKEE,  LLC,  a  Delaware  limited  liability  company  and QUEST
RESOURCE  CORPORATION,  a Nevada  corporation  (the  "Borrowers"),  pursuant  to
Section 2.03 of the Amended and Restated  Second Lien Term Loan Agreement  dated
as of June 9, 2006 (together with all amendments,  restatements,  supplements or
other  modifications  thereto,  the  "Credit  Agreement")  among the  Borrowers,
Guggenheim Corporate Funding,  LLC, as Administrative Agent and the other agents
and  lenders  (the  "Lenders")  which  are or  become  parties  thereto  (unless
otherwise  defined herein,  each  capitalized term used herein is defined in the
Credit Agreement), hereby requests a Borrowing as follows:

      (i)   Aggregate amount of the requested Loan is $[         ];

      (ii)  Date of such Loan is [ ], 200[ ];

      (iii) Location and number of the Borrowers' account to which funds are to
be disbursed, which shall comply with the requirements of Section 2.05 of the
Credit Agreement, is as follows:

      [                   ]
      [                   ]
      [                   ]
      [                   ]
      [                   ]

<PAGE>

     The undersigned certifies that he/she is the [ ] of the Borrowers, and that
as such  he/she is  authorized  to  execute  this  certificate  on behalf of the
Borrowers. The undersigned further certifies,  represents and warrants on behalf
of the  Borrowers  that the  Borrowers  is  entitled  to receive  the  requested
Borrowing under the terms and conditions of the Credit Agreement.

                                    QUEST CHEROKEE, LLC

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

                                    QUEST RESOURCE CORPORATION

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

<PAGE>

                                    EXHIBIT C
                                     FORM OF
                             COMPLIANCE CERTIFICATE

     The undersigned  hereby certifies that he/she is the [ ] of QUEST CHEROKEE,
LLC, a Delaware  limited  liability  company and QUEST RESOURCE  CORPORATION,  a
Nevada corporation (the  "Borrowers"),  and that as such he/she is authorized to
execute  this  certificate  on behalf of the  Borrowers.  With  reference to the
Amended and Restated  Second Lien Term Loan  Agreement  dated as of June 9, 2006
(together with all amendments, restatements,  supplements or other modifications
thereto being the "Credit Agreement") among the Borrowers,  Guggenheim Corporate
Funding,  LLC, as  Administrative  Agent,  and the other agents and lenders (the
"Lenders") which are or become a party thereto,  the undersigned  represents and
warrants as follows (each  capitalized  term used herein having the same meaning
given to it in the Credit Agreement unless otherwise specified):

     (a) The  representations  and  warranties  of the  Borrowers  contained  in
Article VII of the Credit Agreement and in the Loan Documents and otherwise made
in writing by or on behalf of the Borrowers pursuant to the Credit Agreement and
the Loan Documents were true and correct in all material respects when made, and
are  repeated at and as of the time of delivery  hereof and are true and correct
in all material respects at and as of the time of delivery hereof, except to the
extent such  representations  and warranties are expressly limited to an earlier
date  or the  Majority  Lenders  have  expressly  consented  in  writing  to the
contrary.

     (b) The  Borrowers  have  performed and complied  with all  agreements  and
conditions  contained in the Credit Agreement and in the Loan Documents required
to be  performed  or  complied  with by it prior  to or at the time of  delivery
hereof [or specify default and describe].

     (c) Since [December 31, 2005],  no change has occurred,  either in any case
or in the aggregate, in the condition,  financial or otherwise, of the Borrowers
or any Subsidiary  which could reasonably be expected to have a Material Adverse
Effect [or specify event].

     (d) There  exists no Default or Event of Default  [or  specify  Default and
describe].

     (e) Attached  hereto are the detailed  computations  necessary to determine
whether the Borrowers  are in compliance  with Section 9.01 as of the end of the
[fiscal quarter][fiscal year] ending [ ].

<PAGE>

      EXECUTED AND DELIVERED this [          ] day of [          ].

                                    QUEST CHEROKEE, LLC

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

                                    QUEST RESOURCE CORPORATION

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

<PAGE>

                                   EXHIBIT D-1
              FORM OF LEGAL OPINION OF STINSON MORRISON HECKER LLP

                                    Attached.

<PAGE>

                                   EXHIBIT D-2
                     FORM OF LEGAL OPINION OF LOCAL COUNSEL

                                    Attached.

<PAGE>

                                   EXHIBIT E-1
                              SECURITY INSTRUMENTS

1) Guaranty dated as of November 14, 2005 by the Borrowers and the Subsidiaries
party thereto as Guarantors, in favor of the Administrative Agent and the
Lenders.

2) Amended and Restated Security Agreement dated as of June 9, 2006 by the
Borrowers and the Subsidiaries party thereto, in favor of the Administrative
Agent and the Lenders.

3)    Financing Statements in respect of items 1 and 2, by:

         a) the Borrowers; and

         b) the Subsidiary Guarantors.

4) Mortgages and fixture filings required under Section 8.14.

<PAGE>

                                   EXHIBIT E-2
                                FORM OF GUARANTY

                                    Attached.

<PAGE>

                                   EXHIBIT E-3
                           FORM OF SECURITY AGREEMENT

                                    Attached.

<PAGE>

                                   EXHIBIT E-4
                         FORM OF INTERCREDITOR AGREEMENT

                                    Attached.

<PAGE>

                                    EXHIBIT F
                        FORM OF ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (the  "Assignment and  Assumption") is dated
as of the  Effective  Date set forth  below and is entered  into by and  between
[Insert name of Assignor]  (the  "Assignor")  and [Insert name of Assignee] (the
"Assignee").  Capitalized  terms  used but not  defined  herein  shall  have the
meanings  given to them in the  Amended  and  Restated  Second  Lien  Term  Loan
Agreement identified below (as amended,  the "Credit  Agreement"),  receipt of a
copy of which is hereby  acknowledged  by the Assignee.  The Standard  Terms and
Conditions  set  forth in Annex 1  attached  hereto  are  hereby  agreed  to and
incorporated  herein  by  reference  and  made a part  of  this  Assignment  and
Assumption as if set forth herein in full.

     For an agreed  consideration,  the Assignor  hereby  irrevocably  sells and
assigns to the  Assignee,  and the Assignee  hereby  irrevocably  purchases  and
assumes from the Assignor,  subject to and in accordance with the Standard Terms
and  Conditions and the Credit  Agreement,  as of the Effective Date inserted by
the Administrative  Agent as contemplated below (i) all of the Assignor's rights
and  obligations in its capacity as a Lender under the Credit  Agreement and any
other documents or instruments  delivered pursuant thereto to the extent related
to  the  amount  and  percentage  interest  identified  below  of  all  of  such
outstanding  rights  and  obligations  of  the  Assignor  under  the  respective
facilities  identified  below  (including  any letters of credit and  guarantees
included in such  facilities)  and (ii) to the extent  permitted  to be assigned
under applicable law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person,  whether known or
unknown,  arising under or in connection  with the Credit  Agreement,  any other
documents or instruments  delivered  pursuant  thereto or the loan  transactions
governed  thereby  or in any way based on or  related  to any of the  foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations  sold
and assigned  pursuant to clause (i) above (the rights and obligations  sold and
assigned  pursuant  to  clauses  (i) and (ii)  above  being  referred  to herein
collectively  as the "Assigned  Interest").  Such sale and assignment is without
recourse to the Assignor and,  except as expressly  provided in this  Assignment
and Assumption, without representation or warranty by the Assignor.

1.    Assignor:      ______________________________

2.    Assignee:      ______________________________
                     [and is an Affiliate/Approved Fund of [identify Lender](1)]

3.    Borrowers:     Quest Cherokee, LLC and Quest Resource Corporation

4.    Administrative Guggenheim Corporate Funding, LLC, as the administrative
      Agent:         agent under the Credit Agreement

5.    Credit         The Amended and Restated Second Lien Term Loan Agreement
      Agreement:     dated as of June 9, 2006 among Quest Cherokee, LLC and
                     Quest Resource Corporation, the Lenders parties thereto,
                     Guggenheim Corporate Funding, LLC, as Administrative
                     Agent, and the other agents parties thereto

____________________________
(1) Select as applicable.

<PAGE>

6. Assigned Interest:

--------------------------------------------------------------------------------
     Aggregate Amount of              Amount of          Percentage Assigned of
   Commitment/Loans for all        Commitment/Loans     Commitment/Loans(2)
           Lenders                     Assigned
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$                              $                                    %
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$                              $                                    %
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$                              $                                    %
--------------------------------------------------------------------------------

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

                                    ASSIGNOR

                                    [NAME OF ASSIGNOR]

                                    By:______________________________
                                       Title:

                                    ASSIGNEE

                                    [NAME OF ASSIGNEE]

                                    By:______________________________
                                       Title:

_______________________

(2) Set forth, to at least 9 decimals,  as a percentage of the Commitment/Loans
    of all Lenders thereunder.

<PAGE>

Consented to and Accepted:

GUGGENHEIM CORPORATE FUNDING, LLC, as
  Administrative Agent

By_________________________________
  Title:

By_________________________________
  Title:

[Consented to:](3)

QUEST CHEROKEE, LLC

By_________________________________
  Title:

QUEST RESOURCE CORPORATION

By_________________________________
  Title:

___________________________
(3) To be added only if the consent of the Borrowers and/or other parties (e.g.
Issuing Bank) is required by the terms of the Credit Agreement.

<PAGE>

                                                                         ANNEX 1

               QUEST CHEROKEE, LLC AND QUEST RESOURCE CORPORATION
              AMENDED AND RESTATED SECOND LIEN TERM LOAN AGREEMENT

                        STANDARD TERMS AND CONDITIONS FOR
                            ASSIGNMENT AND ASSUMPTION

            1. Representations and Warranties.

     1.1 Assignor.  The Assignor (a)  represents and warrants that (i) it is the
legal and beneficial owner of the Assigned Interest,  (ii) the Assigned Interest
is free and clear of any lien,  encumbrance  or other adverse claim and (iii) it
has full power and authority, and has taken all action necessary, to execute and
deliver this  Assignment  and  Assumption  and to  consummate  the  transactions
contemplated  hereby; and (b) assumes no responsibility  with respect to (i) any
statements,  warranties or  representations  made in or in  connection  with the
Credit  Agreement  or any other Loan  Document,  (ii) the  execution,  legality,
validity,  enforceability,   genuineness,  sufficiency  or  value  of  the  Loan
Documents or any  collateral  thereunder,  (iii) the financial  condition of the
Borrowers, any of their Subsidiaries or Affiliates or any other Person obligated
in respect of any Loan  Document or (iv) the  performance  or  observance by the
Borrowers, any of their Subsidiaries or Affiliates or any other Person of any of
their respective obligations under any Loan Document.

     1.2.  Assignee.  The Assignee (a)  represents  and warrants that (i) it has
full power and  authority,  and has taken all action  necessary,  to execute and
deliver this  Assignment  and  Assumption  and to  consummate  the  transactions
contemplated  hereby and to become a Lender under the Credit Agreement,  (ii) it
satisfies the requirements,  if any,  specified in the Credit Agreement that are
required to be  satisfied  by it in order to acquire the  Assigned  Interest and
become a Lender,  (iii) from and after the Effective  Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of the Assigned  Interest,  shall have the  obligations of a Lender  thereunder,
(iv) it has received a copy of the Credit Agreement, together with copies of the
most recent financial  statements delivered pursuant to Section 7.04(a) thereof,
as  applicable,  and such  other  documents  and  information  as it has  deemed
appropriate  to make its own credit  analysis  and  decision  to enter into this
Assignment and Assumption and to purchase the Assigned  Interest on the basis of
which it has made such analysis and decision  independently and without reliance
on the  Administrative  Agent or any  other  Lender,  and (v) if it is a Foreign
Lender,  attached to the Assignment and Assumption is any documentation required
to be  delivered  by it  pursuant  to the terms of the  Credit  Agreement,  duly
completed  and  executed  by the  Assignee;  and (b)  agrees  that  (i) it will,
independently and without reliance on the Administrative  Agent, the Assignor or
any other Lender,  and based on such documents and  information as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not  taking  action  under  the  Loan  Documents,  and (ii) it will  perform  in
accordance  with their  terms all of the  obligations  which by the terms of the
Loan Documents are required to be performed by it as a Lender.

     2. Payments.  From and after the Effective Date, the  Administrative  Agent
shall make all payments in respect of the Assigned Interest  (including payments
of  principal,  interest,  fees and other  amounts) to the  Assignor for amounts
which have accrued to but excluding  the Effective  Date and to the Assignee for
amounts which have accrued from and after the Effective Date.

<PAGE>

     3. General  Provisions.  This  Assignment and  Assumption  shall be binding
upon,  and inure to the  benefit  of, the  parties  hereto and their  respective
successors  and assigns.  This  Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of New York.

<PAGE>

                                  SCHEDULE 7.04
                                    APPROVALS

[Company to provide]

<PAGE>

                                  SCHEDULE 7.05
                                   LITIGATION

[Company to provide]

<PAGE>

                                  SCHEDULE 7.14
                                      LIENS

[Company to provide]

<PAGE>

                                  SCHEDULE 7.15
                                  SUBSIDIARIES

[Company to provide]

<PAGE>

                                 SCHEDULE 7.19
                                 GAS IMBALANCES

[Company to provide.]

<PAGE>

                                  SCHEDULE 7.20
                               MARKETING CONTRACTS

[Company to provide.]

<PAGE>

                                  SCHEDULE 7.21
                                 SWAP AGREEMENTS

[Company to provide.]

<PAGE>

                                  SCHEDULE 9.05
                                   INVESTMENTS

[Company to provide.]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]