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                                                                    Exhibit 4.14

                                     WARRANT
                       TO PURCHASE SHARES OF COMMON STOCK
                                       OF
                            CALLON PETROLEUM COMPANY

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), NOR HAS IT BEEN APPROVED BY THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORY AUTHORITY
OF ANY STATE. NEITHER THESE WARRANTS NOR ANY INTEREST THEREIN MAY BE OFFERED FOR
SALE, SOLD, MORTGAGED, PLEDGED, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

No. FRK[ ]                                    Warrant to Purchase [     ] Shares
December [ ] 2003                              of Common Stock, $0.01 Per Share

                        WARRANT TO PURCHASE COMMON STOCK
                                       of
                            CALLON PETROLEUM COMPANY,
                             a Delaware corporation
           Void after the date set forth in the first paragraph hereof

            This certifies that, for value received, [        ], a [      ],
or registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from Callon Petroleum Company, a Delaware corporation (the
"Company"), [     ] shares of Common Stock, $0.01 par value, of the Company
(such class of stock being referred to herein as "Common Stock"), as constituted
on December [ ], 2003 (the "Issue Date"), upon compliance with the exercise
provisions set forth in Section 1 hereof, at the price of $10.00 per share (the
"Exercise Price"). This Warrant must be exercised, if at all, prior to the
earlier to occur of (i) 3:00 p.m., Eastern Standard Time on December [ ], 2010
or (ii) the termination of the Warrant pursuant to Section 2. The shares of
Common Stock issued or issuable upon exercise of this Warrant are sometimes
referred to as the "Warrant Shares." The term "Warrants" as used herein shall
include this Warrant and any warrants delivered in substitution or exchange
therefor as provided herein.

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            1. Exercise of Warrant.

                  1.1 This Warrant may be exercised at any time or from time to
time, on any business day, for all or part of (in multiples of at least 1,000
shares) the full number of Warrant Shares during the period of time described
above, by (i) delivery of a written notice, in the form of the subscription
notice attached hereto or a reasonable facsimile thereof (the "Exercise
Notice"), to the Company, of Holder's election to exercise all or a portion of
this Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) (A) payment to the Company of an amount equal to the Exercise
Price multiplied by the number of Warrant Shares as to which this Warrant is
being exercised (the "Aggregate Exercise Price") in cash or delivery of a
certified check or bank draft payable to the order of the Company or wire
transfer of immediately available funds or (B) notification to the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1.2 of this Warrant), and (iii) the surrender of this Warrant to a
common carrier for overnight delivery to the Company on the date the Exercise
Notice is delivered to the Company (or evidence of lost Warrant, in accordance
with Section 7). No other form of consideration shall be acceptable for the
exercise of this Warrant. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of delivery of the
Exercise Notice, this Warrant and Aggregate Exercise Price referred to in clause
(ii)(A) above or notification to the Company of a Cashless Exercise referred to
in Section 1.2 of this Warrant, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the record holder of such shares as of the close of business on such date. As
soon as practicable on or after such date, and in any event within 10 days
thereof, the Company shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares of
Common Stock issuable upon such exercise. Upon any partial exercise, the Company
will issue and deliver to Holder a new Warrant with respect to the Warrant
Shares not previously purchased. No fractional shares of Common Stock shall be
issued upon exercise of a Warrant. In lieu of any fractional share to which
Holder would be entitled upon exercise, the Company shall pay cash equal to the
product of such fraction multiplied by the then current fair market value of one
share of Common Stock, as determined in good faith by the Company.

                  1.2 Notwithstanding anything contained herein to the contrary,
Holder may, at its election exercised in its sole discretion, exercise this
Warrant as to all or a portion of the Warrant Shares and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):

<TABLE>
<S>                                 <C>
                      Net Number =  (A x B) - (A x C)
                                    -----------------
                                            B
</TABLE>

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            For purposes of the foregoing formula:

            A=    the total number of shares with respect to which this Warrant
                  is then being exercised.

            B=    the closing sale price of the Common Stock on the trading day
                  immediately preceding the date of the Exercise Notice.

            C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.

            2. Mandatory Termination. At any time after the third anniversary of
the Issue Date, if the closing sale price per share of the Common Stock has
exceeded one hundred sixty percent (160%) of the Exercise Price then in effect
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days (the "Determination Period"), then the Company may, at its option,
terminate the Warrants. By following procedure set forth below, the Company may
exercise this right of termination only if, within ten (10) days following the
Determination Period, the Company shall mail or cause to be mailed a notice of
such termination (the "Termination Notice") to Holder. Such mailing shall be by
first class. Each such notice of termination shall identify the Warrant, the
Termination Date, as defined below, that the Warrants may not be exercised after
3:00 p.m., Eastern Standard Time on the Termination Date and the current
Exercise Price.

            If all the conditions described in the preceding paragraph have been
met, any Warrant not exercised before 3:00 p.m., Eastern Standard Time on the
sixtieth (60th) day after the mailing of Termination Notice (such sixtieth day,
the "Termination Date") shall automatically be deemed exercised in accordance
with Section 1.2 as of the Termination Date and the Company will deliver the
Warrant Shares to Holder upon receipt of a completed Exercise Notice along with
the original copy of the Warrant for cancellation (or evidence of lost Warrant,
in accordance with Section 7).

            3. Payment of Taxes. All shares of Common Stock issued upon the
exercise of a Warrant shall be duly authorized, validly issued and outstanding,
fully paid and non-assessable. Holder shall pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery thereof and any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock in any name other than that
of the registered Holder of the Warrant surrendered in connection with the
purchase of such shares, and in such case the Company shall not be required to
issue or deliver any stock certificate until such tax or other charge has been
paid or it has been established to the Company's satisfaction that no tax or
other charge is due.

            4. Transfer and Exchange. Subject to the restrictions set forth in
Section 10.1(d), this Warrant and all rights hereunder are transferable, in
whole or in part,

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but only in increments of not less than 5,000 shares. This Warrant is
transferable on the books of the Company maintained for such purpose at its
principal office by Holder in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Each taker
and holder of this Warrant, by taking or holding the same, consents and agrees
that this Warrant, when endorsed in blank, shall be deemed negotiable and that
when this Warrant shall have been so endorsed, the Holder hereof may be treated
by the Company and all other persons dealing with this Warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented hereby or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered Holder hereof as the owner for all
purposes.

            5. Certain Adjustments.

                  5.1 Adjustment for Reorganization, Consolidation, Merger. In
case of any reclassification of the Common Stock, or other securities issuable
upon exercise of this Warrant, or in case of any reorganization of the Company
(or, in each case, any other corporation, the stock or other securities of which
are at the time receivable on the exercise of this Warrant) after the Issue
Date, or in case, after such date, the Company (or any such other corporation)
shall consolidate with or merge into another corporation, then and in each such
case Holder, upon the exercise hereof as provided in Section 1 at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
shall be entitled to receive, in lieu of the stock receivable upon the exercise
of this Warrant prior to such consummation, the stock or other securities or
property to which such Holder would have been entitled upon such consummation if
such Holder had exercised this Warrant immediately prior thereto.

                  5.2 Adjustments for Dividends in Common Stock. If the Company
at any time or from time to time after the Issue Date makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend payable in additional shares of Common Stock, then and in each such
event the Exercise Price then in effect shall be decreased as of the time of
such issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (2) the denominator of which
shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend; provided, however, that if such record date is fixed and such
dividend is not fully paid on the date fixed therefor, the Exercise Price shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Exercise Price shall be adjusted pursuant to this Section 5.2 as
of the time of actual payment of such dividends.

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                  5.3 Stock Split and Reverse Stock Split. If the Company at any
time or from time to time after the Issue Date effects a subdivision of the
outstanding Common Stock, the Exercise Price then in effect immediately before
that subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time after
the Issue Date combines the outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price then in effect immediately before that
combination shall be proportionately increased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately decreased. Each adjustment under this Section 5.3 shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

                  5.4 Adjustments for Cash Dividends. If the Company at any time
or from time to time after the Issue Date makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend payable
in cash, then and in each such event the Exercise Price then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by reducing the Exercise
Price then in effect by the amount of such cash dividend per share of Common
Stock; provided, however, that if such record date is fixed and such dividend is
not fully paid on the date fixed therefor, the Exercise Price shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Exercise Price shall be adjusted pursuant to this Section 5.4 as
of the time of actual payment of such dividends.

            6. Registration of Warrant Shares.

                  6.1 Registration.

                        (a) Any time after September 30, 2004, the Holder or any
holder of other warrants the same series as the Warrant ("Other Holders" and
collectively with the Holder, "Holders"), with or without the joinder of other
Holders, may submit a written request (a "Registration Request") to the Company
at any time seeking the registration of not less than 300,000 Warrant Shares
(or, in the case of Other Holders, warrant shares issuable upon exercise of
warrants held by such Other Holders (collectively with the Warrant Shares, the
"Holders' Shares")) with the Securities and Exchange Commission (the "SEC");
provided that (x) the Holders, in the aggregate, may only submit three (3)
Registration Requests pursuant to this Section 6.1, and (y) only one
Registration Request may be made by Holders of less than 500,000 Holders' Shares
pursuant to this Section 6.1. The Company will promptly give written notice of
such a Registration Request by the Holder or Other Holders to all registered
Holders. Each of the Holders may elect to include its Holders' Shares any
registration under the Securities Act of 1933, as amended (the "Securities Act")
to be effected pursuant to a Registration Request by providing the Company with
written notice within ten (10) days of the

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Company's notice of receipt of a Registration Request ("Piggy-Back Notice"). The
Company will use its best efforts to effect the registration under the
Securities Act of the Holders' Shares which the Company has been so requested to
be registered pursuant to the Registration Request and the Piggy-Back Notices.
Within thirty (30) days of receipt of a Registration Request, the Company shall
prepare and file a registration statement on Form S-3 under the Securities Act,
covering the Holders' Shares specified in the Registration Request and the
Piggy-Back Notices and shall use its best efforts to cause such registration
statement to become effective as expeditiously as possible and to remain
effective until the earliest to occur of (i) the date the Holders' Shares
covered thereby have been sold or (ii) the date by which all Holders' Shares
covered thereby may be sold under Rule 144 without restriction as to volume.

                        (b) Following the effectiveness of a registration
statement filed pursuant to this section, the Company may, at any time, suspend
the effectiveness of such registration for up to forty-five (45) days, as
appropriate (a "Suspension Period"), by giving notice to Holders, if the Company
shall have determined that the Company may be required to disclose any material
corporate development which disclosure may have a material adverse effect on the
Company. Notwithstanding the foregoing, no more than two Suspension Periods may
occur during any twelve-month period. The Company shall use its best efforts to
limit the duration and number of any Suspension Periods. Holder agrees that,
upon receipt of any notice from the Company of a Suspension Period, Holder shall
forthwith discontinue disposition of Warrant Shares covered by such registration
statement or prospectus until Holder (i) is advised in writing by the Company
that the use of the applicable prospectus may be resumed, (ii) has received
copies of a supplemental or amended prospectus, if applicable, and (iii) has
received copies of any additional or supplemental filings which are incorporated
or deemed to be incorporated by reference into such prospectus.

                  6.2 Registration Procedures. When the Company effects the
registration of the Warrant Shares under the Securities Act pursuant to Section
6.1(a) hereof, the Company will, at its expense, as expeditiously as possible:

                        (a) In accordance with the Securities Act and the rules
and regulations of the SEC, prepare and file in accordance with Section 6.1(a),
with the SEC a registration statement with respect to the Holders' Shares and
use its best efforts to cause such registration statement to become and remain
effective for the period described herein, and prepare and file with the SEC
such amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective for such period and such registration statement and prospectus
accurate and complete for such period;

                        (b) Furnish to Holder such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other

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documents as Holder may reasonably request in order to facilitate the public
offering of the Warrant Shares;

                        (c) Use its best efforts to register or qualify the
Holders' Shares covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as Holder may reasonably
request within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;

                        (d) Notify Holder, promptly after it shall receive
notice thereof, of the date and time when such registration statement and each
post-effective amendment thereto has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;

                        (e) Notify Holder promptly of any request by the SEC for
the amending or supplementing of such registration statement or prospectus or
for additional information;

                        (f) Prepare and file with the SEC, promptly upon the
request of Holder, any amendments or supplements to such registration statement
or prospectus which, in the opinion of counsel for Holder, is required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of the Warrant Shares by Holder;

                        (g) Prepare and promptly file with the SEC, and promptly
notify Holder of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; and

                        (h) Advise Holder, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.

                  6.3 Expenses. With respect to any registration effected
pursuant to Section 6.1 hereof, all fees, costs and expenses of and incidental
to such registration and the public offering in connection therewith shall be
borne by the Company; provided, however, that, Holder shall bear its share of
any underwriting

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discounts or commissions, if any, related to a sale of Warrant Shares under the
registration statement.

                  6.4 Indemnification.

                        (a) The Company will indemnify and hold harmless Holder
pursuant to the provisions of Section 6 hereof and any underwriter (as defined
in the Securities Act) for Holder, and any person who controls Holder or such
underwriter within the meaning of the Securities Act, and any officer, director,
employee, agent, partner, member or affiliate of Holder (for purposes of this
Section 6.4(a), the "Indemnified Parties"), from and against, and will reimburse
Holder and each such Indemnified Party with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs and expenses to which
Holder or any such Indemnified Party may become subject under the Securities Act
or otherwise, insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any breach of
any representation, warranty, agreement or covenant of the Company contained
herein; provided, however, that the Company will not be liable in any such case
to the extent that any such claim, action, demand, loss, damage, liability, cost
or expense is caused by an untrue statement or alleged untrue statement or
omission or alleged omission based on information regarding any Holders
furnished by Holders or such Indemnified Party in writing specifically for use
in the preparation thereof. The indemnification contained in this paragraph
shall not inure to the benefit of any Holder (or to the benefit of any person
controlling such Holder) on account of any claim, action, demand, loss, damage,
liability, cost or expense caused by any untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus
provided in each case the Company has performed its obligations under Sections
6.2(a) and (b) if either (A) (i) such Holder failed to send or deliver a copy of
the prospectus with or prior to the delivery of written confirmation of the sale
by such Holder to the person asserting the claim from which such losses, claims,
damages or liabilities arise and (ii) the prospectus would have corrected such
untrue statement or alleged untrue statement or such omission or alleged
omission, or (B) (x) such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the prospectus
and (y) having previously been furnished by or on behalf of the Company with
copies of the prospectus as so amended or supplemented, such Holder thereafter
fails to deliver such prospectus as so amended or supplemented, with or prior to
the delivery of written confirmation of the sale of Warrant Shares to the person
asserting the claim from which such claim, action, demand, loss, damage,
liability, cost or expense arise

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                        (b) Holder will indemnify and hold harmless the Company,
and any Person who controls the Company within the meaning of the Securities
Act, from and against, and will reimburse the Company and such controlling
Persons with respect to, any and all losses, damages, liabilities, costs or
expenses to which the Company or such controlling Person may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made solely in reliance
upon written information furnished by Holder specifically for use in the
preparation thereof; provided, however, that the liability of Holder pursuant to
this subsection (b) shall be limited to an amount not to exceed the net proceeds
received by Holder pursuant to the registration statement which gives rise to
such obligation to indemnify.

                        (c) Promptly after receipt by a party indemnified
pursuant to the provisions of paragraph (a) or (b) of this Section 6.4 of notice
of the commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of paragraph (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6.4 and shall not relieve the indemnifying party from liability under
this Section 6.4 unless such indemnifying party is prejudiced by such omission.
In case such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of such paragraph
(a) or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.

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                        (d) If the indemnification provided for in subsection
(a) or (b) of this Section 6.4 is held by a court of competent jurisdiction to
be unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount Holder shall be obligated to
contribute pursuant to this subsection (d) shall be limited to an amount not to
exceed the net proceeds received by Holder pursuant to the registration
statement which gives rise to such obligation to contribute. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution hereunder from any person who
was not guilty of such fraudulent misrepresentation.

                  6.5 Reporting Requirements Under the Exchange Act. The Company
shall timely file such information, documents and reports as the SEC may require
or prescribe under Section 13 of the Securities Exchange Act of 1934. The
Company acknowledges and agrees that the purposes of the requirements contained
in this Section 6.5 are to enable Holder to comply with the current public
information requirement contained in paragraph (c) of Rule 144 should Holder
ever wish to dispose of any of the Warrant Shares without registration under the
Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision).

                  6.6 Stockholder Information. The Company may require Holder to
furnish the Company such information with respect to Holder and the distribution
of its Warrant Shares as the Company may from time to time reasonably request in
writing as shall be required by law or by the SEC in connection therewith.

            7. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of any Warrant and (in the
case of loss, theft or destruction) of indemnity satisfactory to it (in the
exercise of reasonable discretion), and (in the case of mutilation) upon
surrender and cancellation thereof, the Company will execute and deliver in lieu
thereof a new Warrant of like tenor.

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            8. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of the Warrant, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect exercise of the Warrant; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect such exercise,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.

            9. Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation (other
than a merger of a wholly owned subsidiary into the Company), or any transfer of
all or substantially all of the assets of the Company to any other person or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall provide to the Holder, at least ten (10) days prior to the
record date specified therein, a notice specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (3) the date, if
any, that is to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.

            10. Investment Representation and Restriction on Transfer.

                  10.1 Securities Law Requirements.

                        (a) By its acceptance of this Warrant, Holder hereby
represents and warrants to the Company that this Warrant and the Warrant Shares
will be acquired for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting participations in or otherwise
distributing the same. By acceptance of this Warrant, Holder further represents
and warrants that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to any
person, with respect to this Warrant or the Warrant Shares.

                        (b) By its acceptance of this Warrant, Holder
understands that this Warrant is not, and the Warrant Shares will not be,
registered under the Securities Act, on the basis that the issuance of this
Warrant and the Warrant Shares

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are exempt from registration under the Act pursuant to Section 4(2) thereof, and
that the Company's reliance on such exemption is predicated on Holder's
representations and warranties set forth herein.

                        (c) By its acceptance of this Warrant, Holder
understands that the Warrant and the Warrant Shares may not be sold,
transferred, or otherwise disposed of without registration under the Act, or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Warrant and the Warrant Shares or an available exemption
from registration under the Act, the Warrant and the Warrant Shares must be held
indefinitely. In particular, Holder is aware that the Warrant and the Warrant
Shares may not be sold pursuant to Rule 144 promulgated under the Act unless all
of the conditions of Rule 144 are satisfied. Among the conditions for use of
Rule 144 are the availability of current information about the Company to the
public, prescribed holding periods which will commence only upon Holder's
payment for the securities being sold, manner of sale restrictions, volume
limitations and certain other restrictions. By its acceptance of this Warrant,
Holder represents and warrants that, in the absence of an effective registration
statement covering the Warrant or the Warrant Shares, it will sell, transfer or
otherwise dispose of the Warrant and the Warrant Shares only in a manner
consistent with its representations and warranties set forth herein and then
only in accordance with the provisions of Section 10.1(d).

                        (d) By its acceptance of this Warrant, Holder agrees
that in no event will it transfer or dispose of any of the Warrants or the
Warrant Shares other than pursuant to an effective registration statement under
the Act, unless and until (i) Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the disposition, and (ii) if requested by the
Company, at the expense of the Holder or transferee, it shall have furnished to
the Company an opinion of counsel, reasonably satisfactory to the Company, to
the effect that (A) such transfer may be made without registration under the Act
and (B) such transfer or disposition will not cause the termination or the
non-applicability of any exemption to the registration and prospectus delivery
requirements of the Act or to the qualification or registration requirements of
the securities laws of any other jurisdiction on which the Company relied in
issuing the Warrant or the Warrant Shares.

                        (e) Holder represents and warrants that it is a
"qualified institutional buyer" as defined in Rule 144A promulgated under the
Securities Act.

                  10.2 Legends; Stop Transfer.

                        (a) All certificates evidencing the Warrant Shares shall
bear a legend in substantially the following form:

            The securities represented by this certificate have not been
            registered under the Securities Act of 1933 or under any

                                     - 12 -
<PAGE>

            state securities laws. These securities have been acquired for
            investment and not with a view to distribution and may not be
            offered for sale, sold, pledged or otherwise transferred in the
            absence of an effective registration statement for such securities
            under the Securities Act of 1933 and applicable state securities
            laws or an opinion of counsel reasonably satisfactory in form and
            content to the issuer that such registration is not required under
            such Act.

                        (b) The certificates evidencing the Warrant Shares shall
also bear any legend required by any applicable state securities law.

                        (c) In addition, the Company shall make, or cause its
transfer agent to make, a notation regarding the transfer restrictions of the
Warrant and the Warrant Shares in its stock books, and the Warrant and the
Warrant Shares shall be transferred on the books of the Company only if
transferred or sold pursuant to an effective registration statement under the
Securities Act covering the same or pursuant to and in compliance with the
provisions of Section 4 and Section 10.1(d).

            11. Notices. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by hand delivery, by telecopier,
by courier guaranteeing overnight delivery or by first-class mail, return
receipt requested, and shall be deemed given (i) when made, if made by hand
delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business
Day after being deposited with such courier, if made by overnight courier or
(iv) on the date indicated on the notice of receipt, if made by first-class
mail.

            12. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

            13. Headings. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.

            14. Governing Law. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of conflicts,
of the State of New York; provided however, that to the extent that an issue of
determination is one of corporation law, then Delaware General Corporation Law
shall govern.

                            [SIGNATURE PAGE FOLLOWS]

                                     - 13 -
<PAGE>

      This Warrant was executed as of the date first written above.

                           CALLON PETROLEUM COMPANY,
                           a Delaware corporation

                           By:
                               -------------------------------------------------
                               John S. Weatherly
                               Senior Vice President and Chief Financial Officer

<PAGE>

                               SUBSCRIPTION NOTICE
                 (To be executed only upon exercise of Warrant)

            The undersigned, registered owner of this Warrant, irrevocably
exercises this Warrant and purchases ____________ of the number of shares of
Common Stock, $0.01 par value ("Warrant Shares"), of Callon Petroleum Company, a
Delaware corporation (the "Company"), purchasable with the attached Warrant (the
"Warrant"). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.

            1. Form of Exercise Price: Holder intends that payment of the
Exercise Price shall be made as:

      _______     "Cash Exercise" with respect to ________ Warrant Shares;
                  and/or

      _______     "Cashless Exercise" with respect to ________ Warrant Shares
                  (to the extent permitted by the terms of the Warrant)

            2. Payment of Exercise Price: In the event that Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, Holder shall pay the sum of $________________ to the Company in
accordance with the terms of the Warrant.

DATED: ______________

                                      __________________________________________
                                      (Signature of Holder)

                                      __________________________________________
                                      (Street Address)

                                      __________________________________________
                                      (City)        (State)    (Zip)

<PAGE>

                               FORM OF ASSIGNMENT

            FOR VALUE RECEIVED the undersigned, registered owner of this
Warrant, hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock, $0.01 par value, set forth below:

Name of Assignee             Address                   No. of Shares
----------------             -------                   -------------

and does hereby irrevocably constitute and appoint _________________________
_________________________________________________ Attorney to make such transfer
on the books of Callon Petroleum Company, a Delaware corporation, maintained for
the purpose, with full power of substitution in the premises.

DATED: ___________________

                                      __________________________________________
                                      (Signature)

                                      __________________________________________
                                      (Witness)<PAGE>

================================================================================

                                                                   EXHIBIT 10.18

                      AMENDED AND RESTATED SENIOR UNSECURED
                                CREDIT AGREEMENT

                                      AMONG

                            CALLON PETROLEUM COMPANY,
                                  AS BORROWER,

                     WELLS FARGO BANK, NATIONAL ASSOCIATION
                            AS ADMINISTRATIVE AGENT,

                                       AND

                          THE LENDERS SIGNATORY HERETO

================================================================================

                              CONVERTIBLE TERM LOAN

================================================================================

                          DATED AS OF DECEMBER 8, 2003

                  AMENDED AND RESTATED AS OF DECEMBER 23, 2003

<PAGE>

                             TABLE OF CONTENTS

<TABLE>
<S>                                                                                                            <C>
                                                    ARTICLE I

                                        DEFINITIONS AND ACCOUNTING MATTERS

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

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

Section 1.03   Accounting Terms and Determinations......................................................       30

                                                    ARTICLE II

                                                   COMMITMENTS

Section 2.01   Loans....................................................................................       30

Section 2.02   Option to Issue Additional Notes.........................................................       30

Section 2.03   Notes....................................................................................       31

Section 2.04   Prepayments..............................................................................       33

                                                   ARTICLE III

                                        PAYMENTS OF PRINCIPAL AND INTEREST

Section 3.01   Repayment of Loans.......................................................................       34

Section 3.02   Interest.................................................................................       34

                                                    ARTICLE IV

                                 PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.

Section 4.01   Payments.................................................................................       34

Section 4.02   Pro Rata Treatment.......................................................................       35

Section 4.03   Computations.............................................................................       35

Section 4.04   Set-off, Sharing of Payments, Etc........................................................       35

Section 4.05   Taxes....................................................................................       36

                                                    ARTICLE V

                                               CONVERSION OF NOTES

Section 5.01   Conversion under Rule 144A...............................................................       39

Section 5.02   Remedies for Certain Events..............................................................       40
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                                                            <C>
                                                    ARTICLE VI

                                               CONDITIONS PRECEDENT

Section 6.01   Documents to be Delivered on Amendment and Restatement Date..............................       41

Section 6.02   Conditions Precedent to Funding..........................................................       42

Section 6.03   Conditions Precedent for the Benefit of Lenders..........................................       42

Section 6.04   No Waiver................................................................................       42

                                                   ARTICLE VII

                                          REPRESENTATIONS AND WARRANTIES

Section 7.01   Corporate Existence; Capitalization......................................................       42

Section 7.02   Financial Condition......................................................................       43

Section 7.03   Litigation...............................................................................       44

Section 7.04   No Breach................................................................................       44

Section 7.05   Authority................................................................................       44

Section 7.06   Approvals................................................................................       44

Section 7.07   Use of Loans.............................................................................       44

Section 7.08   ERISA....................................................................................       45

Section 7.09   Taxes....................................................................................       46

Section 7.10   Titles, Property, etc....................................................................       46

Section 7.11   No Material Misstatements................................................................       47

Section 7.12   Investment Company Act...................................................................       47

Section 7.13   Public Utility Holding Company Act.......................................................       47

Section 7.14   Subsidiaries.............................................................................       47

Section 7.15   Location of Business and Offices.........................................................       48

Section 7.16   Defaults.................................................................................       48

Section 7.17   Environmental Matters....................................................................       49

Section 7.18   Compliance with the Law..................................................................       50

Section 7.19   Insurance................................................................................       50

Section 7.20   Hedging Agreements.......................................................................       50

Section 7.21   Material Agreements......................................................................       51

Section 7.22   Gas Imbalances...........................................................................       51

Section 7.23   Labor Relations..........................................................................       51
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>                                                                                                            <C>
Section 7.24   Intellectual Property....................................................................       52

                                                   ARTICLE VIII

                                              AFFIRMATIVE COVENANTS

Section 8.01   Reporting Requirements...................................................................       52

Section 8.02   Litigation...............................................................................       54

Section 8.03   Maintenance, Etc.........................................................................       54

Section 8.04   Environmental Matters....................................................................       55

Section 8.05   Further Assurances.......................................................................       55

Section 8.06   Performance of Obligations...............................................................       56

Section 8.07   ERISA Information and Compliance.........................................................       56

Section 8.08   Restricted Subsidiaries..................................................................       56

Section 8.09   Use of Proceeds of Qualified Offering....................................................       56

Section 8.10   Rating...................................................................................       57

                                                    ARTICLE IX

                                                NEGATIVE COVENANTS

Section 9.01   Debt Incurrence..........................................................................       57

Section 9.02   Liens....................................................................................       57

Section 9.03   Restricted Investments; Restrictive Agreements...........................................       58

Section 9.04   Sales and Leasebacks.....................................................................       63

Section 9.05   Nature of Business.......................................................................       63

Section 9.06   Limitation on Leases.....................................................................       63

Section 9.07   Consolidation and Merger.................................................................       64

Section 9.08   Proceeds of Notes and Loans..............................................................       64

Section 9.09   ERISA Compliance.........................................................................       64

Section 9.10   Sale or Discount of Receivables..........................................................       65

Section 9.11   Sale of Property.........................................................................       65

Section 9.12   Environmental Matters....................................................................       68

Section 9.13   Transactions with Affiliates.............................................................       68

Section 9.14   Subordinated Debt........................................................................       68

Section 9.15   Issuance and Sale of Capital Stock.......................................................       68

Section 9.16   Modification of Agreements...............................................................       68
</TABLE>

                                      iii
<PAGE>

<TABLE>
<S>                                                                                                            <C>
Section 9.17   Guarantees...............................................................................       69

Section 9.18   Limitation on Additional Debt............................................................       69

Section 9.19   Permitted Medusa Transactions............................................................       69

                                                    ARTICLE X

                                           EVENTS OF DEFAULT; REMEDIES

Section 10.01  Events of Default........................................................................       69

Section 10.02  Remedies.................................................................................       71

                                                    ARTICLE XI

                                             THE ADMINISTRATIVE AGENT

Section 11.01  Appointment, Powers and Immunities.......................................................       71

Section 11.02  Reliance by Administrative Agent.........................................................       72

Section 11.03  Defaults.................................................................................       72

Section 11.04  INDEMNIFICATION..........................................................................       73

Section 11.05  Non-Reliance on Administrative Agent and other Lenders...................................       73

Section 11.06  Action by Administrative Agent...........................................................       73

Section 11.07  Resignation or Removal of Administrative Agent...........................................       74

                                                   ARTICLE XII

                                                  MISCELLANEOUS

Section 12.01  Waiver...................................................................................       74

Section 12.02  Notices..................................................................................       75

Section 12.03  Payment of Expenses, Indemnities, etc....................................................       75

Section 12.04  Amendments, Etc..........................................................................       78

Section 12.05  Successors and Assigns...................................................................       78

Section 12.06  Assignments and Participations...........................................................       78

Section 12.07  Invalidity...............................................................................       79

Section 12.08  Counterparts.............................................................................       79

Section 12.09  References...............................................................................       79

Section 12.10  Survival.................................................................................       79

Section 12.11  Captions.................................................................................       79

Section 12.12  No Oral Agreements.......................................................................       79
</TABLE>

                                       iv
<PAGE>

<TABLE>
<S>                                                                                                            <C>
Section 12.13  Governing Law; Submission To Jurisdiction................................................       80

Section 12.14  Interest.................................................................................       81

Section 12.15  Confidentiality..........................................................................       82

Section 12.16  Effectiveness............................................................................       83

Section 12.17  Exculpation Provisions...................................................................       83
</TABLE>

                                       v
<PAGE>

                         ANNEXES, EXHIBITS AND SCHEDULES

<TABLE>
Annex I            -     List of Commitments
<S>                      <C>
Exhibit A          -     Form of Note
Exhibit B          -     Form of Compliance Certificate
Exhibit C          -     Form of Responsible Officer's Certificate
Exhibit D          -     Form of Assignment Agreement
Exhibit E-1        -     Form of Maximum Credit Amount Increase Certificate
Exhibit E-2        -     Form of Additional Lender Certificate

Schedule 7.01(b)   -     Capitalization
Schedule 7.02      -     Liabilities
Schedule 7.03      -     Litigation
Schedule 7.09      -     Taxes
Schedule 7.10      -     Titles, Property, etc.
Schedule 7.14      -     Subsidiaries and Partnerships
Schedule 7.17      -     Environmental Matters
Schedule 7.19      -     Insurance
Schedule 7.20      -     Hedging Agreements
Schedule 7.21      -     Material Agreements
Schedule 7.22      -     Gas Imbalances
Schedule 9.01      -     Debt
Schedule 9.02      -     Liens
</TABLE>

                                       vi
<PAGE>

            THIS CREDIT AGREEMENT, dated as of December 8, 2003, and amended and
restated as of December 23, 2003, is made by and among CALLON PETROLEUM COMPANY,
a Delaware corporation (the "BORROWER"); each of the lenders that is a signatory
hereto or which becomes a signatory hereto pursuant to Section 2.02 or as
provided in SECTION 12.06 (individually, together with its successors and
assigns, a "LENDER" and, collectively, the "LENDERS"); each of the new lenders
that is a signatory hereto or which becomes a signatory hereto as provided in
SECTION 12.06 (individually, together with its successors and assigns, a "NEW
LENDER" and, collectively, the "NEW LENDERS"); and Wells Fargo Bank, National
Association, a national banking association, as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"ADMINISTRATIVE AGENT").

                                    RECITALS

            A. The Lenders have made certain loans subject to the terms and
conditions of the Credit Agreement between Borrower and the Lenders dated
December 8, 2003 in the amount of $100,000,000 (the "CREDIT AGREEMENT").

            B. The Borrower and the Lenders desire to amend and restate the
Credit Agreement and increase the amount of the loans to $185,000,000 by adding
New Lenders.

            C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree that the Credit Agreement is hereby amended and restated as
follows:

                                   ARTICLE I

                       DEFINITIONS AND ACCOUNTING MATTERS

            SECTION 1.01 TERMS DEFINED ABOVE. As used in this Agreement, the
terms "ADMINISTRATIVE AGENT," "BORROWER," "CREDIT Agreement," "LENDER,"
"LENDERS," "NEW LENDER" and "NEW LENDERS" shall have the meanings indicated
above and, unless the context otherwise requires, the terms Lender and Lenders
shall include the terms New Lender and New Lenders, respectively.

            SECTION 1.02 CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings (all terms defined in this ARTICLE I or
in other provisions of this Agreement in the singular to have equivalent
meanings when used in the plural and vice versa):

            "ADDITIONAL LENDER" shall have the meaning assigned to such term in
SECTION 2.02(a).

            "ADDITIONAL LENDER CERTIFICATE" shall have the meaning assigned to
such term in SECTION 2.02(b).

            "ADDITIONAL LOANS" shall have the meaning assigned to such term in
SECTION 2.01(a).

<PAGE>

            "ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" shall mean (without
duplication), as of the date of determination, the remainder of:

                  (a) the sum of:

                        (1) discounted future net revenue from proved oil and
            gas reserves of Borrower and its Restricted Subsidiaries calculated
            in accordance with SEC guidelines but (x) using average prices
            received by Borrower and its Restricted Subsidiaries during the
            preceding year ( or, for purposes of any calculation made pursuant
            to SECTION 9.01(b), NYMEX Strip Price on the date of such
            calculation) and (y) before any state, federal or foreign income
            taxes, as estimated by Borrower in a reserve report prepared as of
            the end of Borrower's most recently completed fiscal year for which
            audited financial statements are available, and any other Oil and
            Gas Property in which Borrower or any Restricted Subsidiary
            maintains an interest in oil and gas reserves, as increased by, as
            of the date of determination, the estimated discounted future net
            revenues from:

                              (A) estimated proved oil and gas reserves of
                  Borrower, its Restricted Subsidiaries and Borrower's and its
                  Restricted Subsidiaries' share of Oil and Gas Properties
                  acquired since such year end (including, for purposes of any
                  calculation made pursuant to SECTION 9.01(b) any Oil and Gas
                  Properties to be acquired in connection with such incurrence
                  of Debt), which reserves were not reflected in such year end
                  reserve report, and

                              (B) estimated oil and gas reserves of Borrower,
                  its Restricted Subsidiaries and Borrower's and its Restricted
                  Subsidiaries' share of Oil and Gas Properties attributable to
                  extensions, discoveries and other additions and upward
                  revisions of estimates of proved oil and gas reserves since
                  such year end due to exploration, development, exploitation or
                  production activities, in each case calculated in accordance
                  with SEC guidelines (utilizing the prices utilized in such
                  year end reserve report), and decreased by, as of the date of
                  determination, the estimated discounted future net revenues
                  from:

                              (C) estimated proved oil and gas reserves of
                  Borrower, its Restricted Subsidiaries and Borrower's and its
                  Restricted Subsidiaries' share of Oil and Gas Properties
                  produced or disposed of since such year end, and

                              (D) estimated oil and gas reserves of Borrower,
                  its Restricted Subsidiaries and Borrower's and its Restricted
                  Subsidiaries' share of Oil and Gas Properties attributable to
                  downward revisions of estimates of proved oil and gas reserves
                  since such year end due to changes in geological conditions or
                  other factors which would, in accordance with standard
                  industry practice, cause such revisions, in each

                                       2
<PAGE>

                  case calculated on a pre-tax basis and substantially in
                  accordance with SEC guidelines (utilizing the prices utilized
                  in such year end reserve report), in each case as estimated by
                  Borrower's petroleum engineers or any independent petroleum
                  engineers engaged by Borrower for that purpose;

                        (2) the capitalized costs that are attributable to Oil
            and Gas Properties of Borrower, its Restricted Subsidiaries and
            Borrower's and its Restricted Subsidiaries' share of Oil and Gas
            Properties to which no proved oil and gas reserves are attributable,
            based on Borrower's books and records as of a date no earlier than
            the date of Borrower's latest available annual or quarterly
            financial statements;

                        (3) the consolidated net working capital of Borrower and
            its Restricted Subsidiaries on a date no earlier than the date of
            Borrower's latest annual or quarterly financial statements; and

                        (4) the greater of:

                              (A) the net book value of other tangible assets of
                  Borrower and its Restricted Subsidiaries, as of a date no
                  earlier than the date of Borrower's latest annual or quarterly
                  financial statements, and

                              (B) the appraised value, as estimated by
                  independent appraisers (reasonably acceptable to the
                  Administrative Agent), of other tangible assets of Borrower
                  and its Restricted Subsidiaries, as of a date no earlier than
                  the date of Borrower's latest audited financial statements;
                  minus

                  (b) the sum of:

                        (1) minority interests;

                        (2) to the extent included in (a)(1) above, any net gas
            balancing liabilities of Borrower and its Restricted Subsidiaries
            reflected in Borrower's latest audited financial statements;

                        (3) to the extent included in (a)(1) above, the
            discounted future net revenues, calculated in accordance with SEC
            guidelines (utilizing the prices utilized in Borrower's most recent
            year end reserve report), attributable to reserves which are
            required to be delivered to third parties to fully satisfy the
            obligations of Borrower and its Restricted Subsidiaries with respect
            to Volumetric Production Payments (determined, if applicable, using
            the schedules specified with respect thereto); and

                        (4) the discounted future net revenues, calculated in
            accordance with SEC guidelines, attributable to reserves subject to
            Dollar-Denominated Production Payments which, based on the estimates
            of production

                                       3
<PAGE>

            and price assumptions included in determining the discounted future
            net revenues specified in (a)(1) above, would be necessary to fully
            satisfy the payment obligations of Borrower and its Restricted
            Subsidiaries with respect to Dollar-Denominated Production Payments
            (determined, if applicable, using the schedules specified with
            respect thereto).

            "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 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 15% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
corporation or 15% 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" shall mean this Amended and Restated Credit Agreement,
as the same may from time to time be amended or supplemented.

            "AMENDMENT AND RESTATEMENT DATE" shall mean December 23, 2003.

            "ASSET DISPOSITION" shall mean any direct or indirect sale, lease
(other than an operating lease entered into in the ordinary course of business),
transfer, issuance or other disposition, or a series of related sales, leases,
transfers, issuances or dispositions that are part of a common plan, of shares
of capital stock of a Subsidiary (other than directors' qualifying shares) or
other Property (each referred to for the purposes of this definition as a
"disposition") by Borrower or any of its Restricted Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction.

            Notwithstanding the preceding, the following items shall not be
deemed to be Asset Dispositions:

                  (a) a disposition by a Restricted Subsidiary to Borrower or by
      Borrower or a Restricted Subsidiary to a Wholly-Owned Subsidiary;

                  (b) the sale of Cash Equivalents in the ordinary course of
      business;

                  (c) a disposition of Hydrocarbons in the ordinary course of
      business;

                  (d) a disposition or abandonment of obsolete or worn out
      equipment or equipment that is no longer useful in the conduct of the
      business of Borrower and its Restricted Subsidiaries and that is disposed
      of in each case in the ordinary course of business;

                  (e) transactions permitted under SECTION 9.07;

                                       4
<PAGE>

                  (f) an issuance of capital stock by a Restricted Subsidiary of
      Borrower to Borrower or to a Wholly-Owned Subsidiary;

                  (g) for purposes of this definition only, the making of a
      Permitted Investment or a disposition subject to SECTION 9.03;

                  (h) dispositions of assets of Borrower designated by Borrower
      as not constituting an Asset Disposition with an aggregate fair market
      value since the Closing Date of less than $5,000,000;

                  (i) dispositions in connection with Liens permitted under
      SECTION 9.02;

                  (j) the licensing or sublicensing of intellectual property or
      other general intangibles and licenses, leases or subleases of other
      property in the ordinary course of business which do not materially
      interfere with the business of Borrower and its Restricted Subsidiaries;

                  (k) foreclosure on assets;

                  (l) sale, transfer or abandonment (whether or not in the
      ordinary course of business) of Oil and Gas Properties or direct or
      indirect interests in Property; provided that at the time of such sale or
      transfer such Properties do not have associated with them any material
      proved reserves;

                  (m) the abandonment, farm-out, lease or sublease of developed
      or undeveloped Oil and Gas Properties in the ordinary course of business;

                  (n) the trade or exchange by Borrower or any Restricted
      Subsidiary of any Oil and Gas Properties owned or held by Borrower or such
      Restricted Subsidiary for Oil and Gas Properties owned or held by another
      Person, including any cash or Cash Equivalents necessary in order to
      achieve an exchange of equivalent value; provided that any such cash or
      Cash Equivalents received by Borrower or such Restricted Subsidiary will
      be subject to the provisions described in SECTION 9.11, which the board of
      directors of Borrower determines in good faith by resolution to be of
      approximately equivalent value.

            "ASSET DISPOSITION OFFER" shall have the meaning assigned such term
in SECTION 9.11(b).

            "ASSET DISPOSITION OFFER AMOUNT" shall have the meaning assigned
such term in SECTION 9.11(b).

            "ASSET DISPOSITION OFFER PERIOD" shall have the meaning assigned
such term in SECTION 9.11(b).

            "ASSET DISPOSITION PURCHASE DATE" shall have the meaning assigned
such term in SECTION 9.11(b).

                                       5
<PAGE>

            "ASSIGNMENT" shall have the meaning assigned such term in SECTION
12.06(b).

            "BORROWER INTELLECTUAL PROPERTY" shall have the meaning assigned
such term in SECTION 7.24.

            "BUSINESS DAY" shall mean any day other than a day on which
commercial banks are authorized or required to close in Minnesota, Texas or New
York.

            "CASH EQUIVALENTS" shall mean:

                  (a) securities issued or directly and fully guaranteed or
      insured by the United States of America or any agency or instrumentality
      of the United States of America (provided that the full faith and credit
      of the United States of America is pledged in support thereof), having
      maturities of not more than one year from the date of acquisition; (b)
      marketable general obligations issued by any state of the United States of
      America or any political subdivision of any such state or any public
      instrumentality thereof maturing within one year from the date of
      acquisition and, at the time of acquisition of the United States of
      America (provided that the full faith and credit of the United States of
      America is pledged in support thereof), having a credit rating of "A" or
      better from either Standard & Poor's Ratings Services or Moody's Investors
      Service, Inc.;

                  (c) certificates of deposit, time deposits, eurodollar time
      deposits, overnight bank deposits or bankers' acceptances having
      maturities of not more than one year from the date of acquisition thereof
      issued by any commercial bank the long-term debt of which is rated at the
      time of acquisition thereof at least "A" or the equivalent thereof by
      Standard & Poor's Ratings Services, or "A" or the equivalent thereof by
      Moody's Investors Service, Inc., and having combined capital and surplus
      in excess of $500,000,000;

                  (d) repurchase obligations with a term of not more than seven
      (7) days for underlying securities of the types described in clauses (a),
      (b) and (c) above entered into with any bank meeting the qualifications
      specified in clause (c) above;

                  (e) commercial paper rated at the time of acquisition thereof
      at least "A-2" or the equivalent thereof by Standard & Poor's Ratings
      Services or "P-2" or the equivalent thereof by Moody's Investors Service,
      Inc., or carrying an equivalent rating by a nationally recognized rating
      agency, if both of the two named rating agencies cease publishing ratings
      of investments, and in any case maturing within one year after the date of
      acquisition thereof; and

                  (f) interests in any investment company or money market fund
      which invests solely in instruments of the type specified in clauses (a)
      through (e) above.

            "CHANGE IN CONTROL" shall mean (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities

                                       6
<PAGE>

Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the
date hereof) of shares representing more than 35% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of
Borrower; or (b) occupation of a majority of the seats on the board of directors
of Borrower by Persons who were neither (i) nominated by the board of directors
of Borrower nor (ii) appointed by directors so nominated.

            "CLOSING DATE" shall mean December 8, 2003.

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

            "COMMITMENT" shall mean, for any Lender party to the Credit
Agreement, its obligation to have made the Loan on the Closing Date under the
Credit Agreement and, for any new Lender, its obligation to make the Loan on the
Amendment and Restatement Date, or on a later date pursuant to SECTION 2.02 in
the amount set forth opposite such Lender's name on Annex I.

            "CONSOLIDATED NET INCOME" shall mean with respect to Borrower and
its Restricted Subsidiaries, for any period, the aggregate of the net income (or
loss) of Borrower and its Restricted Subsidiaries after allowances for taxes for
such period, determined on a consolidated basis in accordance with GAAP;
provided that there shall be excluded from the calculation of net income (to the
extent otherwise included in the calculation) the following: (i) the net income
of any Person in which Borrower or any Restricted Subsidiary has an interest
(which interest does not cause the net income of such other Person to be
consolidated with the net income of Borrower and its Restricted Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in such period by such other Person to Borrower or
to a Restricted Subsidiary, as the case may be; (ii) the net income (but not
loss) of any Restricted Subsidiary to the extent that the declaration or payment
of dividends or similar distributions or transfers or loans by that Restricted
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
Restricted Subsidiary, or is otherwise restricted or prohibited in each case
determined in accordance with GAAP; (iii) any extraordinary gains or losses,
including gains or losses attributable to Property sales not in the ordinary
course of business; (iv) the cumulative effect of a change in accounting
principles; and (v) any gains or losses attributable to write-ups or write downs
of assets.

            "CONSOLIDATED SUBSIDIARIES" shall mean each Subsidiary of 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 Borrower in accordance with GAAP.

            "DEBT" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property (except trade payables),
which payment is due more than

                                       7
<PAGE>

six months after the date of placing such Property in service; (iv) all
obligations under leases which shall have been, or should have been, in
accordance with GAAP, recorded as capital leases in respect of which such Person
is liable (whether contingent or otherwise); (v) all obligations under operating
leases which require such Person to make payments over the term of such lease
based on the purchase price or appraised value of the Property subject to such
lease plus a marginal interest rate, and used primarily as a financing vehicle
for, or to monetize, such Property; (vi) all Debt (as described in the other
clauses of this definition) and other obligations of others secured by a Lien on
any Property of such Person, whether or not such Debt is assumed by such Person;
(vii) all Debt (as described 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 debtor or obligations of
others; (viii) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (ix) obligations to deliver goods or
services including Hydrocarbons in consideration of advance payments; (x)
obligations to pay for goods or services whether or not such goods or services
are actually received or utilized by such Person; (xi) any capital stock of such
Person in which such Person has a mandatory obligation to redeem such stock
prior to the maturity of the Loans; (xii) any Debt of a Special Entity for which
such Person is liable either by agreement or because of a Governmental
Requirement; (xiii) the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or indirectly
received payment; and (xiv) all obligations of such Person under Hedging
Agreements; provided that Debt shall not include (i) any debt arising in
connection with the Permitted Medusa Transaction, or (ii) any asset retirement
obligations arising under Financial Accounting Standards Board Statement No.
143, Accounting for Asset Retirement Obligations.

            "DEBT COVERAGE RATIO" shall mean as of any date of determination,
with respect to Borrower and its Restricted Subsidiaries, the ratio of (x) the
aggregate amount of Debt to (y) EBITDA for such four calendar quarters;
provided, however, that:

                  (a) for purposes of clause (x) of the introductory paragraph
      of this definition, Debt shall only include the obligations listed in
      clauses (i) through (v), (vii), and (ix) through (xi) of the definition of
      Debt in this SECTION 1.02;

                  (b) if Borrower or any Restricted Subsidiary:

                        (1) has incurred any Debt since the beginning of such
            period that remains outstanding on such date of determination or if
            the transaction giving rise to the need to calculate the Debt
            Coverage Ratio is an incurrence of Debt, EBITDA and Interest Expense
            for such period will be calculated after giving effect on a pro
            forma basis to such Debt as if such Debt has been incurred on the
            first day of such period (except that in making such computation,
            the amount of Debt under any revolving credit facility existing on
            the date of such calculation will be computed based on the average
            daily balance of such Debt during such period; provided that, for
            purposes of SECTION 9.01(a), the average daily balance deemed
            outstanding during such period under a revolving credit facility
            being repaid in whole or in part with the proceeds of such Debt
            shall be the lesser of (i) the actual average daily balance of such
            revolving indebtedness outstanding during such period and (ii) the
            amount of such revolving indebtedness outstanding

                                       8
<PAGE>

            immediately before the application of the proceeds of such Debt to
            repay such revolving indebtedness) and the discharge of any other
            Debt repaid, repurchased, defeased or otherwise discharged with the
            proceeds of such new Debt as if such discharge had occurred on the
            first day of such period; or

                        (2) has repaid, repurchased, defeased or otherwise
            discharged any Debt since the beginning of the period that is no
            longer outstanding on such date of determination or if the
            transaction giving rise to the need to calculate the Debt Coverage
            Ratio involves a discharge of Debt, EBITDA and Interest Expense for
            such period will be calculated after giving effect on a pro forma
            basis to such discharge of such Debt, including with the proceeds of
            such new Debt, as if such discharge had occurred on the first day of
            such period;

                  (c) if since the beginning of such period Borrower or any
      Restricted Subsidiary will h3ave sold or otherwise disposed of any
      material Property or other asset or if the transaction giving rise to the
      need to calculate the Debt Coverage Ratio is such a sale or disposition:

                        (1) the EBITDA for such period will be reduced by an
            amount equal to the EBITDA (if positive) directly attributable to
            the assets which are the subject of such sale or disposition for
            such period or increased by an amount equal to the EBITDA (if
            negative) directly attributable thereto for such period; and

                        (2) Interest Expense for such period will be reduced by
            an amount equal to the Interest Expense directly attributable to any
            Debt of Borrower or any Restricted Subsidiary repaid, repurchased,
            defeased or otherwise discharged with respect to Borrower and its
            continuing Restricted Subsidiaries in connection with such sale or
            disposition for such period (or, if the capital stock of any
            Restricted Subsidiary is sold, the Interest Expense for such period
            directly attributable to the Debt of such Restricted Subsidiary to
            the extent Borrower and its continuing Restricted Subsidiaries are
            no longer liable for such Debt after such sale);

            (d) if since the beginning of such period Borrower or any Restricted
Subsidiary (by merger or otherwise) will have made an investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is
merged with or into Borrower) or an acquisition of material Properties or other
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, EBITDA and Interest
Expense for such period will be calculated after giving pro forma effect thereto
(including the incurrence of any Debt) as if such investment or acquisition
occurred on the first day of such period; and

            (e) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into Borrower
or any Restricted Subsidiary since the beginning of such period) will have sold
or otherwise disposed of any material property or other asset or any investment
or acquisition of assets that would

                                       9
<PAGE>

have required an adjustment pursuant to clause (b) or (c) above if made by
Borrower or a Restricted Subsidiary during such period, EBITDA and Interest
Expense for such period will be calculated after giving pro forma effect thereto
as if such asset disposition or investment or acquisition of assets occurred on
the first day of such period.

            For purposes of this definition, whenever pro forma effect is to be
given to any calculation under this definition, the pro forma calculations will
be determined in good faith by a responsible financial or accounting officer of
Borrower (including pro forma expense and cost reductions calculated in good
faith by Borrower). If any Debt bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Debt will be calculated as
if the rate in effect on the date of determination has been the applicable rate
for the entire period (taking into account any interest rate agreement
applicable to such Debt if such interest rate agreement has a remaining term in
excess of 12 months).

            For the purposes of this definition an imputed interest rate for any
outstanding or proposed production payment, project financing and other
non-recourse debt will be included in the calculation of Interest Expense and
the corresponding EBITDA, if any and to the extent lowered, will be grossed up,
in a corresponding manner.

            "DEFAULT" shall mean an Event of Default or an event which with
notice or lapse of time or both would become an Event of Default.

            "DEFERRED COMPENSATION PLAN" shall mean the Borrower Deferred
Compensation Plan dated as of December 1, 1996 and the letter to employees dated
December 13, 1996 relating thereto.

            "DISQUALIFIED STOCK" shall mean, with respect to any Person, any
capital stock of such Person which 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:

                  (a) matures or is mandatorily redeemable pursuant to a sinking
      fund obligation or otherwise;

                  (b) is convertible or exchangeable for Debt or Disqualified
      Stock (excluding capital stock which is convertible or exchangeable solely
      at the option of Borrower or a Restricted Subsidiary); or

                  (c) is redeemable at the option of the holder thereof, in
      whole or in part,

in each case on or prior to the date that is ninety-one (91) days after the date
(i) on which the Notes mature; provided that only the portion of capital stock
which so matures or is mandatorily redeemable, is so convertible or exchangeable
or is so redeemable at the option of the holder thereof prior to such date will
be deemed to be Disqualified Stock; provided, further, that any capital stock
that would constitute Disqualified Stock solely because the holders thereof have
the right to require Borrower to repurchase such capital stock upon the
occurrence of a change of control or asset disposition (each defined in a
substantially identical manner to the corresponding definitions herein) shall
not constitute Disqualified Stock if the terms of such capital stock (and all
such securities into which it is convertible or for which it is ratable or
exchangeable) provide that Borrower may not repurchase or redeem any such
capital stock (and

                                       10
<PAGE>

all such securities into which it is convertible or for which it is ratable or
exchangeable) pursuant to such provision prior to compliance by Borrower with
the provisions hereof described under SECTIONS 2.04(b), 9.03 and 9.11.

            "DOLLAR-DENOMINATED PRODUCTION PAYMENTS" shall mean production
payment obligations recorded as liabilities in accordance with GAAP, together
with all undertakings and obligations in connection therewith.

            "DOLLARS" and "$" shall mean lawful money of the United States of
America.

            "DUKE CREDIT FACILITY" shall mean that certain credit facility
pursuant to the Credit Agreement dated June 29, 2001, by and among the Borrower,
Duke Capital Partners, LLC, as Administrative Agent, and the lenders signatory
thereto, as amended from time to time.

            "EBITDA" shall mean, for the period of the most recent four
consecutive calendar quarters ending prior to the date of determination for
which financial statements are available, 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 Expense, taxes, depreciation,
depletion, amortization and non-cash compensation expense; for the purposes of
this definition (when used in the calculation of the Interest Coverage Ratio and
the Debt Coverage Ratio) EBITDA, if any and to the extent lowered, relating to
any production payment, project financing and other non-recourse debt and in
which an imputed interest rate has been calculated and used in the definition of
Interest Expense, will be grossed up by a corresponding amount.

            "ENVIRONMENTAL LAWS" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any and all
jurisdictions in which Borrower or any Subsidiary is conducting or at any time
has conducted business, or where any Property of Borrower or any Subsidiary is
located, including without limitation, the Oil Pollution Act of 1990 ("OPA"),
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 laws. 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
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA 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 (ii)
to the extent the laws of the state in which any Property of Borrower or any
Subsidiary is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.

                                       11
<PAGE>

            "EQUIPMENT FINANCING SUBSIDIARY" shall mean a Subsidiary of Borrower
formed for the sole purpose of owning equipment purchased in a Permitted
Equipment Financing and related assets and that has no substantial operations
and conducts no substantial activities other than those related to the ownership
of such equipment.

            "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and any successor statute.

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

            "ERISA EVENT" shall mean (i) a "reportable event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal
of Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan
year in which it was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA, (iii) 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, (iv)
the institution of proceedings to terminate a Plan by the PBGC or (v) 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" shall have the meaning assigned such term in
SECTION 10.01.

            "EXCESS PROCEEDS" shall have the meaning assigned such term in
SECTION 9.11(b).

            "EXCHANGED PROPERTIES" shall mean Properties used or useful in the
oil and gas business and received by Borrower or a Consolidated Subsidiary in
exchange for other Properties owned by it, whether directly or indirectly
through the acquisition of the capital stock of a Person holding such Properties
so that such Person becomes a Wholly-Owned and Consolidated Subsidiary of
Borrower, in trade or as a portion of the total consideration for such other
Properties.

            "EXISTING SUBORDINATED DEBT" shall mean the 2005 Senior Subordinated
Notes.

            "FINAL MATURITY DATE" shall mean December 8, 2010.

            "FINANCIAL STATEMENTS" shall have the meaning assigned such term in
SECTION 7.02.

            "FORM W-8BEN CERTIFICATION" shall have the meaning assigned such
term in SECTION 4.05(D)(1).

            "FORM W-8ECI CERTIFICATION" shall have the meaning assigned such
term in SECTION 4.05(D)(1).

            "FUNDING" shall mean the funding of the Loan upon satisfaction of
the conditions set forth in SECTION 6.01.

                                       12
<PAGE>

            "GAAP" shall mean generally accepted accounting principles in the
United States of America (i) as in effect on the date hereof with regard to
SECTIONS 9.01 and 9.03 (ii) otherwise as in effect from time to time.

            "GOVERNMENTAL AUTHORITY" shall mean the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, Borrower,
its Subsidiaries or any of their Property or the Administrative Agent or any
Lender.

            "GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.

            "HEDGING AGREEMENTS" shall mean any commodity, interest rate or
currency swap, cap, floor, collar, forward agreement or other exchange or
protection agreements or any option with respect to any such transaction.

            "HIGHEST LAWFUL RATE" shall mean, with respect to each Lender, the
maximum nonusurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged or received on the Notes under
laws applicable to such Lender which are currently 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 now
allow.

            "HYDROCARBON INTERESTS" shall mean 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" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom.

            "INDEMNIFIED PARTIES" shall have the meaning assigned such term in
SECTION 12.03(a)(2).

            "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

                                       13
<PAGE>

kind or nature whatsoever incurred by such Person whether caused by the sole or
concurrent negligence of such Person seeking indemnification.

            "INDENTURE" shall have the meaning assigned such term in SECTION
5.01(a).

            "INDENTURE NOTES" shall have the meaning assigned such term in
SECTION 5.01(a).

            "INTEREST COVERAGE RATIO" shall mean as of any date of
determination, with respect to Borrower and its Restricted Subsidiaries, the
ratio of (x) the aggregate amount of EBITDA to (y) Interest Expense for such
four calendar quarters; provided, however, that:

                  (a) if Borrower or any Restricted Subsidiary:

                        (1) has incurred any Debt since the beginning of such
            period that remains outstanding on such date of determination or if
            the transaction giving rise to the need to calculate the Interest
            Coverage Ratio is an incurrence of Debt, EBITDA and Interest Expense
            for such period will be calculated after giving effect on a pro
            forma basis to such Debt as if such Debt has been incurred on the
            first day of such period (except that in making such computation,
            the amount of Debt under any revolving credit facility existing on
            the date of such calculation will be computed based on the average
            daily balance of such Debt during such period; provided that, for
            purposes of SECTION 9.01, the average daily balance deemed
            outstanding during such period under a revolving credit facility
            being repaid in whole or in part with the proceeds of such Debt
            shall be the lesser of (i) the actual average daily balance of such
            revolving indebtedness outstanding during such period and (ii) the
            amount of such revolving indebtedness outstanding immediately before
            the application of the proceeds of such Debt to repay such revolving
            indebtedness) and the discharge of any other Debt repaid,
            repurchased, defeased or otherwise discharged with the proceeds of
            such new Debt as if such discharge had occurred on the first day of
            such period; or

                        (2) has repaid, repurchased, defeased or otherwise
            discharged any Debt since the beginning of the period that is no
            longer outstanding on such date of determination or if the
            transaction giving rise to the need to calculate the Interest
            Coverage Ratio involves a discharge of Debt (in each case other than
            Debt incurred under any revolving credit facility unless such Debt
            has been permanently repaid and the related commitment terminated;
            provided, that for purposes of SECTION 9.01, this parenthetical
            clause shall not apply), EBITDA and Interest Expense for such period
            will be calculated after giving effect on a pro forma basis to such
            discharge of such Debt, including with the proceeds of such new
            Debt, as if such discharge had occurred on the first day of such
            period;

                  (b) if since the beginning of such period Borrower or any
      Restricted Subsidiary will have sold or otherwise disposed of any material
      Property or other asset or if the transaction giving rise to the need to
      calculate the Interest Coverage Ratio is such a sale or disposition:

                                       14
<PAGE>

                        (1) the EBITDA for such period will be reduced by an
            amount equal to the EBITDA (if positive) directly attributable to
            the assets which are the subject of such sale or disposition for
            such period or increased by an amount equal to the EBITDA (if
            negative) directly attributable thereto for such period; and

                        (2) Interest Expense for such period will be reduced by
            an amount equal to the Interest Expense directly attributable to any
            Debt of Borrower or any Restricted Subsidiary repaid, repurchased,
            defeased or otherwise discharged with respect to Borrower and its
            continuing Restricted Subsidiaries in connection with such sale or
            disposition for such period (or, if the capital stock of any
            Restricted Subsidiary is sold, the Interest Expense for such period
            directly attributable to the Debt of such Restricted Subsidiary to
            the extent Borrower and its continuing Restricted Subsidiaries are
            no longer liable for such Debt after such sale);

                  (c) if since the beginning of such period Borrower or any
      Restricted Subsidiary (by merger or otherwise) will have made an
      investment in any Restricted Subsidiary (or any Person which becomes a
      Restricted Subsidiary or is merged with or into Borrower) or an
      acquisition of material Properties or other assets, including any
      acquisition of assets occurring in connection with a transaction causing a
      calculation to be made hereunder, EBITDA and Interest Expense for such
      period will be calculated after giving pro forma effect thereto (including
      the incurrence of any Debt) as if such investment or acquisition occurred
      on the first day of such period; and

                  (d) if since the beginning of such period any Person (that
      subsequently became a Restricted Subsidiary or was merged with or into
      Borrower or any Restricted Subsidiary since the beginning of such period)
      will have sold or otherwise disposed of any material property or other
      asset or any investment or acquisition of assets that would have required
      an adjustment pursuant to clause (b) or (c) above if made by Borrower or a
      Restricted Subsidiary during such period, EBITDA and Interest Expense for
      such period will be calculated after giving pro forma effect thereto as if
      such asset disposition or investment or acquisition of assets occurred on
      the first day of such period.

            For purposes of this definition, whenever pro forma effect is to be
given to any calculation under this definition, the pro forma calculations will
be determined in good faith by a responsible financial or accounting officer of
Borrower (including pro forma expense and cost reductions calculated in good
faith by Borrower). If any Debt bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Debt will be calculated as
if the rate in effect on the date of determination has been the applicable rate
for the entire period (taking into account any interest rate agreement
applicable to such Debt if such interest rate agreement has a remaining term in
excess of 12 months).

            For the purposes of this definition an imputed interest rate for any
outstanding or proposed production payment, project financing and other
non-recourse debt will be included in the calculation of Interest Expense and
the corresponding EBITDA, if any and to the extent lowered, will be grossed up,
in a corresponding manner.

                                       15
<PAGE>

            "INTEREST EXPENSE" shall mean, for the period of the most recent
four consecutive calendar quarters ending prior to the date of determination for
which financial statements are available, the total cash interest expense of
Borrower and its Restricted Subsidiaries determined in accordance with GAAP,
plus, to the extent not included in such interest expense (without duplication):

                  (a) interest expense attributable to capitalized lease
      obligations and the interest portion of rent expense associated with Debt
      in respect of the relevant lease giving rise thereto, determined as if
      such lease were a capitalized lease in accordance with GAAP and the
      interest component of any deferred payment obligations to the extent not
      accrued in a prior period;

                  (b) imputed interest expense attributable to any production
      payment, project financing by vendors and other non-recourse debt, but not
      including any amounts arising out of the Permitted Medusa Transaction;

                  (c) interest actually paid by Borrower or any Restricted
      Subsidiary under any guarantee of Debt or other obligation of any other
      person;

                  (d) net costs associated with Hedging Agreements for the
      purpose of ameliorating interest rate fluctuation risk or any kind of
      interest rate agreement (excluding amortization of fees);

                  (e) the consolidated cash interest expense of Borrower and its
      Restricted Subsidiaries that was capitalized during such period; and

                  (f) the cash contributions to any employee stock ownership
      plan or similar trust to the extent such contributions are used by such
      plan or trust to pay interest or fees to any Person (other than Borrower
      or its Restricted Subsidiaries) in connection with Debt incurred by such
      plan or trust; provided, however, that there will be excluded therefrom
      any such interest expense of any Unrestricted Subsidiary to the extent the
      related Debt is not guaranteed or paid by Borrower or any Restricted
      Subsidiary.

            For purposes of the foregoing, total Interest Expense will be
determined after giving effect to any net payments made or received by Borrower
and its Restricted Subsidiaries with respect to interest rate agreements;
provided, however, that Interest Expense shall not include (a) to the extent
included in total Interest Expense, amortization or write-off of deferred
financial costs or discount accretion of such Person or (b) accretion of
interest charges on future plugging and abandonment obligations, future
retirement benefits and other obligations that do not constitute Debt.

            "INVESTMENT" shall mean, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the form of any direct
or indirect advance, loan (other than advances to customers in the ordinary
course of business) or other extension of credit (including by way of guarantee
or similar arrangement, but excluding any Debt or extension of credit
represented by a bank deposit other than a time deposit) or capital contribution
to (by means of any transfer of cash or other Property to others or any payment
for Property or services for the account or use of others), or any purchase or
acquisition of capital stock, Debt or other

                                       16
<PAGE>

similar instruments issued by, such Person and all other items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP; provided that none of the following will be deemed to be an Investment:

                  (a) Hedging Agreements entered into in the ordinary course of
      business and in compliance herewith;

                  (b) endorsements of negotiable instruments and documents in
      the ordinary course of business; and

                  (c) an acquisition of assets, capital stock or other
      securities by Borrower or a Subsidiary for consideration to the extent
      such consideration consists exclusively of common equity securities of
      Borrower.

For purposes of this definition:

                  (i) "INVESTMENT" shall mean the portion (proportionate to
      Borrower's equity interest in a Restricted Subsidiary to be designated as
      an Unrestricted Subsidiary) of the fair market value of the net assets of
      such Restricted Subsidiary of Borrower at the time that such Restricted
      Subsidiary is designated an Unrestricted Subsidiary; provided, however,
      that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
      Borrower will be deemed to continue to have a permanent "INVESTMENT" in an
      Unrestricted Subsidiary in an amount (if positive) equal to (a) Borrower's
      "INVESTMENT" in such Subsidiary at the time of such redesignation less (b)
      the portion (proportionate to Borrower's equity interest in such
      Subsidiary) of the fair market value of the net assets (as conclusively
      determined by the Board of Directors of Borrower in good faith) of such
      Subsidiary at the time that such Subsidiary is so redesignated a
      Restricted Subsidiary; and

                  (ii) any Property transferred to or from an Unrestricted
      Subsidiary will be valued at its fair market value at the time of such
      transfer, in each case as determined in good faith by the board of
      directors of Borrower.

            "LIEN" shall mean 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 (i)
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 (ii) production payments and the like payable
out of Oil and Gas Properties. The term "Lien" shall also mean reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property. For the purposes of this Agreement, Borrower or any Subsidiary shall
be deemed to be the owner of any Property which it has acquired or holds subject
to a conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.

            "LOAN INCREASE CERTIFICATE" shall have the meaning assigned to such
term in SECTION 2.02(b)(4).

                                       17
<PAGE>

            "LOAN DOCUMENTS" shall mean this Agreement, the Notes, any
Assignment and any other agreements or documents executed in connection
herewith.

            "LOAN" shall mean the loans as provided for by SECTION 2.01, and
unless the context otherwise requires, the term "Loans" shall include the
Additional Loans.

            "MAJORITY LENDERS" shall mean Lenders holding at least 75% of the
outstanding aggregate principal amount of the Loan.

            "MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect
on (i) the assets, liabilities, financial condition, business, operations or
affairs of Borrower and its Subsidiaries taken as a whole, or (ii) the ability
of Borrower and its Subsidiaries taken as a whole to carry out their business or
meet their obligations under the Loan Documents on a timely basis.

            "MATERIAL AGREEMENT" shall have the meaning assigned such term in
SECTION 7.21.

            "MULTIEMPLOYER PLAN" shall mean a Plan defined as such in Section
3(37) or 4001(a)(3) of ERISA.

            "NET AVAILABLE CASH" from an Asset Disposition shall mean cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring person of Debt or other obligations
relating to the Properties that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of:

                  (a) all legal, accounting, investment banking, title and
      recording tax expenses, commissions and other fees and expenses incurred,
      and all federal, state, provincial, foreign and local taxes required to be
      paid or accrued as a liability under GAAP (after taking into account any
      available tax credits or deductions and any tax sharing agreements), as a
      consequence of such Asset Disposition;

                  (b) all payments made on any Debt which is secured by any
      assets subject to such Asset Disposition, in accordance with the terms of
      any Lien upon such assets, or which must by its terms, or in order to
      obtain a necessary consent to such Asset Disposition, or by applicable law
      be repaid out of the proceeds from such Asset Disposition;

                  (c) all distributions and other payments required to be made
      to minority interest holders in Subsidiaries or joint ventures as a result
      of such Asset Disposition; and

                  (d) the deduction of appropriate amounts to be provided by the
      seller as a reserve, in accordance with GAAP, against any liabilities
      associated with the assets disposed of in such Asset Disposition and
      retained by Borrower or any Consolidated Subsidiary after such Asset
      Disposition.

                                       18
<PAGE>

            "NET CASH PROCEEDS," with respect to any issuance or sale of capital
      stock, shall mean the cash proceeds of such issuance or sale net of
      attorneys' fees, accountants' fees, underwriters' or placement agents'
      fees, listing fees, discounts or commissions and brokerage, consultant and
      other fees and charges actually incurred in connection with such issuance
      or sale and net of taxes paid or payable as a result of such issuance or
      sale (after taking into account any available tax credit or deductions and
      any tax sharing arrangements).

            "NOTES" shall mean the Notes described in and provided for by
SECTION 2.03, together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof.

            "NYMEX STRIP PRICE" shall mean the average closing price of
contracts for future delivery for the next occurring 24 months as of the close
of trading on the New York Mercantile Exchange ("NYMEX") on the date of any
calculation. For crude oil, the reference contract will be light sweet crude
oil, the NYMEX symbol for which is currently "CL." For natural gas, the
reference contract will be natural gas delivered at the Henry Hub in Louisiana,
the NYMEX symbol for which is currently "NG." To the extent that reference
prices are not available for the entire 24 month period, prices will be
determined on the average of the contracts which are available during such 24
month period.

            "OIL AND GAS PROPERTIES" shall mean Hydrocarbon Interests; the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; 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; all operating
agreements, contracts and other 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; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and 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 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. Unless otherwise indicated, Oil
and Gas Properties shall mean such Property of Borrower and its Restricted
Subsidiaries.

                                       19
<PAGE>

            "OTHER TAXES" shall have the meaning assigned such term in SECTION
4.05(b).

            "PARI PASSU NOTES" shall have the meaning assigned such term in
SECTION 9.11(b).

            "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
Person succeeding to any or all of its functions.

            "PERCENTAGE SHARE" shall mean the percentage of the aggregate Loans
to be provided by a Lender under this Agreement as indicated on Annex I hereto,
as modified from time to time to reflect any assignments permitted by SECTION
12.06(b).

            "PERMITTED BUSINESS INVESTMENT" shall mean any Investment made in
the ordinary course of, and of a nature that is or shall have become customary
in, the Related Business including investments or expenditures for exploiting,
exploring for, acquiring, developing, producing, processing, gathering,
marketing or transporting oil and gas through agreements, transactions,
interests or arrangements which permit one to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of the Related Business jointly with
third parties, including (i) ownership interests in oil and gas properties,
processing facilities, gathering systems, pipelines or ancillary real property
interests and (ii) Investments in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling agreements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
subscription agreements, stock purchase agreements and other similar agreements
(including for limited liability companies) with third parties, excluding,
however, Investments in corporations other than Restricted Subsidiaries.

            "PERMITTED CONSIDERATION" shall have the meaning assigned such term
in SECTION 9.11.

            "PERMITTED EQUIPMENT FINANCING" shall mean any Debt incurred by
Borrower or any Subsidiary of Borrower to finance or refinance the acquisition,
after the Closing Date, from a third party that is not an Affiliate of Borrower
of any equipment and related assets to be used in a Related Business; provided
that (i) the aggregate amount of all such Debt shall not exceed 50% of the
cumulative amount of capital expenditures made by Borrower and its Restricted
Subsidiaries after the Closing Date for capital equipment to be used in a
Related Business, together with any taxes, duties, installation costs or similar
costs related thereto, and (ii) such Debt shall be non-recourse to Borrower and
each Subsidiary of Borrower other than an Equipment Financing Subsidiary related
to such acquired equipment.

            "PERMITTED INDEBTEDNESS" shall mean:

                  (a) the Notes and any additional Notes under SECTION 2.02 or
      any guaranty of or suretyship arrangement for the Notes;

                                       20
<PAGE>

                  (b) Debt (other than that associated with the Senior Secured
      Credit Facility and the Duke Credit Facility) of Borrower existing on the
      Amendment and Restatement Date which is reflected in the Financial
      Statements or is disclosed in Schedule 9.01, and any renewals or
      extensions (but not increases) thereof;

                  (c) accounts payable (for the deferred purchase price of
      Property or services) from time to time incurred in the ordinary course of
      business which, if greater than ninety (90) days past the invoice or
      billing date, are being contested in good faith by appropriate proceedings
      if reserves adequate under GAAP shall have been established therefor;

                  (d) Debt under capital leases (as required to be reported on
      the financial statements of Borrower pursuant to GAAP) in addition to any
      obligations that are Debt as permitted under SECTION 9.06;

                  (e) Debt associated with bonds or surety obligations required
      by Governmental Requirements in connection with the operation of the Oil
      and Gas Properties;

                  (f) Hedging Agreements covering (A) oil and gas production of
      proved developed producing Oil and Gas Properties of Borrower or any
      Consolidated Subsidiary; provided, however, that such Hedging Agreements
      related to oil or gas production shall not, either individually or in the
      aggregate, cover more than 80% of estimated production on the date such
      hedges are entered into of oil or gas of Borrower and the Consolidated
      Subsidiaries for each individual period covered by the Hedging Agreements,
      (B) fluctuations in interest rates for notional principal amounts not to
      exceed at any time outstanding 80% of the Debt for borrowed money of
      Borrower and its Consolidated Subsidiaries, and (C) foreign exchange risk;

                  (g) Debt arising out of the Deferred Compensation Plan to the
      extent such Debt can be satisfied out of the investments held by such plan
      and the proceeds thereof;

                  (h) Debt arising under the Senior Secured Credit Facility in a
      total principal amount outstanding not greater than $125,000,000;

                  (i) Debt arising under the Duke Credit Facility in a total
      principal amount outstanding not greater than $95,000,000, less the amount
      of any repayment of principal required pursuant to SECTION 7.07 or 8.09;

                  (j) Debt of a Restricted Subsidiary incurred and outstanding
      on the date on which such Restricted Subsidiary is acquired by Borrower
      (other than Debt incurred (i) to provide all or any portion of the funds
      utilized to consummate the transaction or series of related transactions
      pursuant to which such Restricted Subsidiary became a Restricted
      Subsidiary or was otherwise acquired by Borrower or (ii) otherwise in
      connection with, or in contemplation of, such acquisition); provided,
      however, that at the time such Restricted Subsidiary is acquired by
      Borrower, Borrower would have been

                                       21
<PAGE>

      able to incur $1.00 of additional Debt pursuant to SECTION 9.01(a) after
      giving effect to the incurrence of such Debt pursuant to this clause (j);

                  (k) Debt incurred in respect of workers' compensation claims,
      self-insurance obligations, performance, bid, surety and similar bonds,
      letters of credit and guarantees supporting such performance, bid, surety
      and similar bonds and completion guarantees provided by Borrower or a
      Restricted Subsidiary in the ordinary course of business;

                  (l) Debt arising from agreements of Borrower or a Restricted
      Subsidiary providing for indemnification, adjustment of purchase price or
      similar obligations, in each case, incurred or assumed in connection with
      the disposition of any business, assets or capital stock of a Restricted
      Subsidiary, provided that the maximum aggregate liability in respect of
      all such Debt other than Debt related to environmental liabilities to
      governmental agencies shall at no time exceed the gross proceeds actually
      received by Borrower and its Restricted Subsidiaries in connection with
      such disposition;

                  (m) Debt arising from the honoring by a bank or other
      financial institution of a check, draft of similar instrument (except in
      the case of daylight overdrafts) drawn against insufficient funds in the
      ordinary course of business; provided, however, that such Debt is
      extinguished within five (5) Business Days of incurrence;

                  (n) obligations relating to net gas balancing positions
      arising in the ordinary course of business and consistent with past
      practice;

                  (o) non-recourse debt not to exceed $10,000,000 in the
      aggregate at any one time outstanding;

                  (p) the issuance of Debt issued in a Qualified Offering (other
      than Debt issued in exchange for Notes converted under ARTICLE V subject
      to SECTION 8.09), provided that the sum of any Debt issued pursuant to
      SECTION 2.02 plus all Debt issued in a Qualified Offering (other than Debt
      issued in exchange for Notes converted under ARTICLE V) shall not exceed
      $165,000,000;

                  (q) Permitted Equipment Financing;

                  (r) in addition to the items referred to in clauses (a)
      through (q) above, Debt of Borrower and its Restricted Subsidiaries in an
      aggregate outstanding principal amount which, when taken together with the
      principal amount of all other indebtedness incurred pursuant to this
      clause (s) and then outstanding, will not exceed $10,000,000; and

                  (s) renewals or extensions of any Debt referred to in clauses
      (a) through (f) above.

            "PERMITTED INVESTMENT" shall mean an Investment by Borrower or any
Restricted Subsidiary in:

                                       22
<PAGE>

                  (a) a Restricted Subsidiary or a Person which will, upon the
      making of such Investment, become a Restricted Subsidiary; provided,
      however, that the primary business of such Restricted Subsidiary is a
      Related Business;

                  (b) another Person if as a result of such Investment such
      other Person is merged or consolidated with or into, or transfers or
      conveys all or substantially all its assets to, Borrower or a Restricted
      Subsidiary; provided, however, that such Person's primary business is a
      Related Business;

                  (c) cash and Cash Equivalents;

                  (d) receivables owing to Borrower or any Restricted Subsidiary
      created or acquired in the ordinary course of business and payable or
      dischargeable in accordance with customary trade terms; provided, however,
      that such trade terms may include such concessionary trade terms as
      Borrower or any such Restricted Subsidiary deems reasonable under the
      circumstances;

                  (e) payroll, travel and similar advances to cover matters that
      are expected at the time of such advances ultimately to be treated as
      expenses for accounting purposes and that are made in the ordinary course
      of business;

                  (f) loans or advances to employees made in the ordinary course
      of business consistent with past practices of Borrower or such Restricted
      Subsidiary;

                  (g) stock, obligations or securities received in settlement of
      Debts created in the ordinary course of business and owing to Borrower or
      any Restricted Subsidiary or in satisfaction of judgments or pursuant to
      any plan of reorganization or similar arrangement upon the bankruptcy or
      insolvency of a debtor;

                  (h) Investments made as a result of the receipt of non-cash
      consideration from an Asset Disposition that was made pursuant to and in
      compliance with SECTION 9.11;

                  (i) Investments in existence on the date hereof;

                  (j) Hedging Agreements which transactions or obligations are
      incurred in compliance with SECTION 9.01;

                  (k) Investments by Borrower or any of its Restricted
      Subsidiaries, together with all other Investments pursuant to this clause
      (k), in an aggregate amount at the time of such Investment not to exceed
      $10,000,000; outstanding at any one time;

                  (l) guarantees issued in accordance with SECTION 9.01;

                  (m) Investments representing deferred compensation of
      employees and earnings thereon under Borrower's KEYSOP plan;

                                       23
<PAGE>

                  (n) any investment arising out of the Permitted Medusa
      Transaction; and

                  (o) Permitted Business Investments.

            "PERMITTED LIEN" shall mean with respect to any Person:

                  (a) Liens securing the obligations of Borrower under the
      Senior Secured Credit Facility, any other Senior Secured Debt permitted
      under SECTION 9.01(b) or the Duke Credit Facility and related Hedging
      Agreements and Liens on assets of Restricted Subsidiaries securing Debt
      and other obligations of Borrower or such Restricted Subsidiaries under
      the Senior Secured Credit Facility and the Duke Credit Facility;

                  (b) pledges or deposits by such Person under workmen's
      compensation laws, unemployment insurance laws or similar legislation, or
      good faith deposits in connection with bids, tenders, contracts or leases
      to which such Person is a party, or deposits to secure public or statutory
      obligations of such Person or deposits or cash or United States government
      bonds to secure surety or appeal bonds to which such Person is a party, or
      deposits as security for contested taxes or import or customs duties or
      for the payment of rent, in each case incurred in the ordinary course of
      business;

                  (c) Liens imposed by law, including carriers', warehousemen's,
      mechanics', materialmen's and operator's Liens, (including Liens arising
      pursuant to Article 9.319 of the Texas Uniform Commercial Code or other
      similar statutory provisions of other states with respect to production
      purchased from others) in each case for sums not yet due or being
      contested in good faith by appropriate proceedings if a reserve or other
      appropriate provisions, if any, as shall be required by GAAP shall have
      been made in respect thereof;

                  (d) Liens for taxes, assessments or other governmental charges
      not yet subject to penalties for non-payment or which are being contested
      in good faith by appropriate proceedings provided appropriate reserves
      required pursuant to GAAP have been made in respect thereof;

                  (e) Liens in favor of issuers of surety or performance bonds
      or letters of credit or bankers' acceptances issued pursuant to the
      request of and for the account of such Person in the ordinary course of
      its business; provided, however, that such letters of credit do not
      constitute Debt;

                  (f) encumbrances, easements or reservations of, or rights of
      others for, licenses, rights of way, sewers, electric lines, telegraph and
      telephone lines, pipelines and other similar purposes, or zoning or other
      restrictions as to the use of real properties or liens incidental to the
      conduct of the business of such Person or to the ownership of its
      properties which do not in the aggregate materially adversely affect the
      value of said properties or materially impair their use in the operation
      of the business of such Person;

                                       24
<PAGE>

                  (g) Liens securing Hedging Agreements so long as the related
      Debt is, and is permitted to be under this Agreement, secured by a Lien on
      the same property securing such Hedging Agreement;

                  (h) leases and subleases of real property which do not
      materially interfere with the ordinary conduct of the business of Borrower
      or any of its Restricted Subsidiaries;

                  (i) judgment Liens not giving rise to an Event of Default so
      long as such Lien is adequately bonded and any appropriate legal
      proceedings which may have been duly initiated for the review of such
      judgment have not been finally terminated or the period within which such
      proceedings may be initiated has not expired;

                  (j) Liens for the purpose of securing the payment of all or a
      part of the purchase price of, or capitalized lease obligations with
      respect to, assets or property acquired or constructed in the ordinary
      course of business, provided that:

                        (1) the aggregate principal amount of Debt secured by
            such Liens is otherwise permitted to be incurred hereunder and does
            not exceed the cost of the assets or property so acquired or
            constructed; and

                        (2) such Liens are created within one hundred eighty
            (180) days of construction or acquisition of such Property and do
            not encumber any other Property of Borrower or any Restricted
            Subsidiary other than such Property affixed or appurtenant thereto;

                  (k) Liens arising solely by virtue of any statutory or common
      law provisions relating to banker's Liens, rights of set-off or similar
      rights and remedies as to deposit accounts or other funds maintained with
      a depositary institution; provided that:

                        (1) such deposit account is not a dedicated cash
            collateral account and is not subject to restrictions against access
            by Borrower in excess of those set forth by regulations promulgated
            by the Federal Reserve Board; and

                        (2) such deposit account is not intended by Borrower or
            any Restricted Subsidiary to provide collateral to the depository
            institution;

                  (l) Liens arising from Uniform Commercial Code financing
      statement filings regarding operating leases entered into by Borrower and
      its Restricted Subsidiaries in the ordinary course of business;

                  (m) Liens existing on the Closing Date;

                  (n) Liens on property or shares of stock of a Person at the
      time such Person becomes a Restricted Subsidiary; provided, however, that
      such Liens are not created, incurred or assumed in connection with, or in
      contemplation of, such other Person becoming a Restricted Subsidiary;
      provided further, however, that any such Lien may not extend to any other
      property owned by Borrower or any Restricted Subsidiary;

                                       25
<PAGE>

                  (o) Liens on property at the time Borrower or a Restricted
      Subsidiary acquired the property, including any acquisition by means of a
      merger or consolidation with or into Borrower or any Restricted
      Subsidiary; provided, however, that such Liens are not created, incurred
      or assumed in connection with, or in contemplation of, such acquisition;
      provided further, however, that such Liens may not extend to any other
      property owned by Borrower or any Restricted Subsidiary;

                  (p) Liens securing Debt or other obligations of a Restricted
      Subsidiary owing to Borrower or a Wholly-Owned Subsidiary;

                  (q) Liens securing the Notes or the obligations under this
      Agreement;

                  (r) Liens securing refinancing indebtedness incurred to
      refinance Debt that was previously so secured, provided that any such Lien
      is limited to all or part of the same Property (plus improvements, future
      interests and additional acquired interests in the same Property
      apportionment thereto, accessions, proceeds or dividends or distributions
      in respect thereof) that secured (or, under the written arrangements under
      which the original Lien arose, could secure) the Debt being refinanced or
      is in respect of Property that is the security for a Permitted Lien
      hereunder;

                  (s) Liens upon specific Properties of Borrower or any of its
      Subsidiaries securing Debt incurred in the ordinary course of business to
      provide all or part of the funds for the exploration, drilling, production
      or development of those Properties;

                  (t) Liens in respect of production payments and reserve sales;

                  (u) farm-out, farm-in, seismic, carried working interests,
      areas of mutual interests, joint operating, joint exploration,
      unitization, gas balancing, royalty, overriding royalty, bonus, rental,
      sales and similar agreements relating to the exploration or development
      of, or production from, oil and gas properties and related facilities
      (production and transportation) entered into in the ordinary course of
      business;

                  (v) Liens on the capital stock or other equity interests of
      any Equipment Financing Subsidiary to secure Debt of such Equipment
      Financing Subsidiary incurred in connection with a Permitted Equipment
      Financing; and

                  (w) Liens with respect to Permitted Indebtedness on the
      capital stock or other equity interests of any Unrestricted Subsidiary to
      secure Debt of such Unrestricted Subsidiary which is non-recourse to
      Borrower or any Restricted Subsidiary.

            "PERMITTED MEDUSA TRANSACTION" shall have the meaning ascribed to
such term in the credit agreement for the Senior Secured Credit Facility in
effect on the date hereof.

            "PERSON" shall mean any individual, corporation, company,
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.

                                       26
<PAGE>

            "PLAN" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained
or contributed to by Borrower, any Subsidiary or an ERISA Affiliate or (ii) was
at any time during the preceding six calendar years sponsored, maintained or
contributed to, by Borrower, any Subsidiary or an ERISA Affiliate.

            "POST-DEFAULT RATE" shall mean, in respect of any principal of any
Loan or any other amount payable by Borrower under this Agreement or any other
Loan Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default then existing are cured or waived equal to 11.75% per annum,
but in no event to exceed the Highest Lawful Rate.

            "PREFERRED STOCK," as applied to the capital stock of any Person,
shall mean capital stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of capital stock of any other class of such Person.

            "PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.

            "QUARTERLY DATE" shall mean the last day of each March, June,
September, and December, in each year, the first of which shall be March 31,
2004; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.

            "QUALIFIED OFFERING" shall mean each of the following transactions
(or any combination thereof), provided that no Debt incurred in such Qualified
Offering shall be amortized or mature on a date earlier than the date on which
the Loans are paid in full:

                  (a) an offering by Borrower (which may be guaranteed by one or
      more Subsidiaries) of debt securities of Borrower that are registered with
      the SEC under the Securities Act pursuant to an effective registration
      statement; or

                  (b) an offering by Borrower (which may be guaranteed by one or
      more Subsidiaries) of debt securities of Borrower to "qualified
      institutional buyers," without registration under the Securities Act in
      reliance on Rule 144A (provided that a Qualified Offering may also include
      a simultaneous offering of such debt securities to Persons outside of the
      United States in reliance on Regulation S promulgated under the Securities
      Act and to a limited number of institutional accredited investors in
      reliance on Regulation D promulgated under the Securities Act); provided,
      that such securities sold to qualified institutional buyers in the United
      States shall be eligible for trading on The PORTAL Market.

            "RELATED BUSINESS" shall mean any business which is the same as or
related, ancillary or complementary to any of the businesses of Borrower and its
Restricted Subsidiaries on the date hereof.

                                       27
<PAGE>

            "RESPONSIBLE OFFICER" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person and, with
respect to financial matters, the term "RESPONSIBLE OFFICER" shall include the
Chief Financial Officer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible Officer of
Borrower.

            "RESTRICTED INVESTMENT" shall mean any Investment other than a
Permitted Investment.

            "RESTRICTED PAYMENT" shall have the meaning assigned such term in
SECTION 9.03(a).

            "RESTRICTED SUBSIDIARY" shall mean any Subsidiary identified as a
Restricted Subsidiary on Schedule 7.14 and any Subsidiary created after the date
hereof that Borrower does not designate as an Unrestricted Subsidiary.

            "RULE 144A" shall mean Rule 144A as promulgated under the Securities
Act (including any successor rule thereof), as the same may be amended from time
to time, or any similar rule or regulation hereafter adopted by the SEC.

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

            "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

            "SENIOR INDEBTEDNESS" shall mean, whether outstanding on the date
hereof or thereafter issued, created, incurred or assumed, the Senior Secured
Credit Facility Debt, the Duke Credit Facility Debt, and all other Debt of
Borrower, including accrued and unpaid interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to Borrower at the rate specified in the documentation with respect thereto
whether or not a claim for post filing interest is allowed in such proceeding)
and fees relating thereto; provided, however, that Senior Indebtedness will not
include:

                  (a) any Debt which, in the instrument creating or evidencing
      the same or pursuant to which the same is outstanding, it is provided that
      the obligations in respect of such Debt are subordinate to payment of the
      Notes;

                  (b) any obligation of Borrower to any Subsidiary;

                  (c) any liability for federal, state, foreign, local or other
      taxes owed or owing by Borrower;

                  (d) any accounts payable or other liability to trade creditors
      arising in the ordinary course of business (including guarantees thereof
      or instruments evidencing such liabilities);

                                       28
<PAGE>

                  (e) any Debt, guarantee or obligation of Borrower that is
      expressly subordinate or junior in right of payment to any other Debt,
      guarantee or obligation of Borrower, including, without limitation, any
      Subordinated Debt; or

                  (f) any capital stock.

            "SENIOR SECURED CREDIT FACILITY" shall mean Borrower's primary
senior revolving credit facility or facilities as constituted, amended, modified
or restated from time to time which allow Borrower to borrow and reborrow
amounts up to a borrowing base determined by the lenders thereunder, which is
currently the $75,000,000 Senior Secured Credit Facility among Borrower,
Wachovia Bank, National Association, as Administrative Agent and the other
lenders thereto.

            "SENIOR SECURED DEBT" shall mean, whether outstanding on the date
hereof or thereafter issued, created, incurred or assumed, any Senior
Indebtedness of the Borrower or any Restricted Subsidiary secured by a Lien,
including, but not limited to the Senior Secured Credit Facility Debt.

            "SPECIAL ENTITY" shall mean, with regard to a Person, any joint
venture, limited liability company or partnership, general or limited
partnership or any other type of partnership or company other than a corporation
in which such first Person or one or more of its other Subsidiaries is a member,
owner, partner or joint venturer and owns, directly or indirectly, at least a
majority of the equity of such entity or controls such entity, but excluding any
tax partnerships that are not classified as partnerships under state law.

            "SUBORDINATED DEBT" shall mean any Debt of Borrower expressly
subordinated to the Loans, on terms including, without limitation, that payments
on such Debt shall be prohibited if a Default exists or would result from such
payment, and other terms and conditions substantially similar to those found in
the Existing Subordinated Debt.

            "SUBORDINATED OBLIGATION" shall mean any Debt of Borrower (whether
outstanding on the date hereof or thereafter incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.

            "SUBSIDIARY" shall mean, with regard to a Person, (i) any
corporation of which at least a majority of the outstanding shares of stock
having by the terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation 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 such Person or one or more of its
Subsidiaries and (ii) any Special Entity of which at least a majority of the
equity interests are owned directly or indirectly or controlled by such Person.
Unless otherwise indicated herein, each reference to the term "Subsidiary" shall
mean a Subsidiary of Borrower.

            "SUBSIDIARY SECURITIES" shall have the meaning assigned such term in
SECTION 7.14.

            "TAXES" shall have the meaning assigned such term in SECTION
4.05(a).

                                       29
<PAGE>

            "UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary of Borrower that
is not a Restricted Subsidiary.

            "VOLUMETRIC PRODUCTION PAYMENTS" shall mean production payment
obligations recorded as defined revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.

            "WHOLLY-OWNED SUBSIDIARY" shall mean a Restricted Subsidiary of
Borrower, all of the capital stock of which (other than director's qualifying
shares) is owned by Borrower or one or more other Wholly-Owned Subsidiaries.

            "2005 SENIOR SUBORDINATED NOTES" shall mean the 11% Senior
Subordinated Notes due 2005 issued by Borrower pursuant to that certain
Supplemental Indenture, dated as of October 26, 2000, to the Indenture dated
October 26, 2000 between Borrower and American Stock Transfer and Trust Company.

            SECTION 1.03 ACCOUNTING TERMS AND DETERMINATIONS. 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 audited financial statements of Borrower referred to in SECTION 7.02 (except
for changes concurred with by Borrower's independent public accountants).

                                   ARTICLE II

                                   COMMITMENTS

            SECTION 2.01 LOANS.

                  (a) COMMITMENT TO MAKE THE LOANS AND THE AMENDED AND RESTATED
      NOTES. Each Lender party to the Credit Agreement has made Loans to the
      Borrower in the respective amount for each such Lender indicated on Annex
      I as of the Closing Date in the aggregate principal amount of $100,000,000
      and each New Lender severally agrees, subject to the terms and conditions
      of this Agreement, to make the Loans to Borrower, on the Amendment and
      Restatement Date, in the aggregate principal amount of $85,000,000 and in
      the respective amount for each such Lender indicated on Annex I (the
      "ADDITIONAL LOANS").

                  (b) TRANSFER OF FUNDS ON AMENDMENT AND RESTATEMENT DATE.
      Subject to the terms and conditions of this Agreement, the Additional
      Loans shall be made available to Borrower by the New Lenders by wire
      transfer or other immediately available funds to the account of Borrower
      in accordance with Borrower's wiring instructions provided prior to the
      Amendment and Restatement Date.

            SECTION 2.02 OPTION TO ISSUE ADDITIONAL NOTES.

                                       30
<PAGE>

                  (a) Subject to the conditions set forth in subsection (b)
      below, the Borrower may issue additional Notes to a Lender or a Person
      that at such time is not a Lender, provided such Person becomes a Lender
      (an "ADDITIONAL LENDER").

                  (b) Any such new Notes shall be subject to the following
      additional conditions:

                        (1) such additional Notes shall have a principal amount
            of not less than $5,000,000, and no such increase shall be permitted
            if after giving effect thereto the aggregate principal of all Notes
            would exceed $200,000,000;

                        (2) no Default shall have occurred and be continuing at
            the effective date of such increase;

                        (3) no Lender shall be required to issue additional
            Notes without such Lender's consent;

                        (4) if a Lender elects to increase the amount of its
            Loan pursuant to this SECTION 2.02, the Borrower and such Lender
            shall execute and deliver to the Administrative Agent a certificate
            substantially in the form of Exhibit E-1 (a "LOAN INCREASE
            CERTIFICATE"), and the Borrower shall deliver a new Note in exchange
            for the existing Note held by such Lender payable to the order of
            such Lender in a principal amount equal to the sum of the principal
            amount of the existing Note and the principal amount of additional
            Debt the Lender has agreed to issue; and

                        (5) if the Borrower elects to issue additional Notes by
            causing an Additional Lender to become a party to this Agreement,
            then the Borrower and such Additional Lender shall execute and
            deliver to the Administrative Agent a certificate substantially in
            the form of Exhibit E-2 (an "ADDITIONAL LENDER CERTIFICATE"), and
            the Borrower shall deliver a Note payable to the order of such
            Additional Lender in a principal amount equal to the Notes such
            Additional Lender has agreed to issue to Borrower.

                  (c) Subject to acceptance and recording thereof pursuant to
      subsection (b) above, from and after the effective date specified in the
      Loan Increase Certificate or the Additional Lender Certificate: (a) the
      amount of the aggregate Commitments shall be increased as set forth
      therein, and (b) in the case of an Additional Lender Certificate, any
      Additional Lender party thereto shall be a party to this Agreement and the
      other Loan Documents and have the rights and obligations of a Lender under
      this Agreement and the other Loan Documents. Upon its receipt of a duly
      completed Loan Increase Certificate or an Additional Lender Certificate,
      executed by the Borrower and the Lender or the Borrower and the Additional
      Lender party thereto, as applicable, the Administrative Agent shall accept
      such Loan Increase Certificate or Additional Lender Certificate and record
      the information contained therein in Annex I pursuant to SECTION 12.06(b).

            SECTION 2.03 NOTES.

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<PAGE>

                  (a) The Loan made by each Lender shall be evidenced by a
      single promissory note (each a "NOTE") of Borrower in substantially the
      form of Exhibit A, dated as of the Closing Date, or in the case of a New
      Lender, such later date of issuance after the Amendment and Restatement
      Date, payable to the order of such Lender for the principal amount of all
      Loan outstanding and due such Lender, and otherwise duly completed.

                  (b) Restrictive Legends. Each of the Notes shall bear a legend
      in substantially the following form:

            THE ISSUANCE AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ITS
ACCEPTANCE OF THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE THERETO UNDER RULE 144(k) UNDER THE
SECURITIES ACT WHICH IS APPLICABLE TO THIS NOTE (THE "RESALE RESTRICTION
TERMINATION DATE") OTHER THAN (1) TO THE COMPANY OR THEIR RESPECTIVE
SUBSIDIARIES, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" WITHIN THE MEANING OF
RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER, IN EACH CASE TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT), (4) TO A NON-"U.S. PERSON"
IN AN "OFFSHORE TRANSACTION" (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER
THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(5) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, INCLUDING THE EXEMPTION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, IF AVAILABLE, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO
ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF
SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL,
AND SUBJECT TO THE RIGHT OF THE ADMINISTRATIVE AGENT OR THE COMPANY PRIOR TO ANY
SUCH SALE, PLEDGE OR OTHER TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF

                                       32
<PAGE>

THEM. THIS LEGEND WILL BE REMOVED UPON REQUEST OF THE HOLDER ON OR AFTER THE
RESALE RESTRICTION TERMINATION DATE.

            SECTION 2.04 PREPAYMENTS.

                  (a) Voluntary Prepayments.

                        (1) Subject to the prepayment premiums provided for in
            clause (2) of this SECTION 2.04(a), at any time after December 8,
            2007, Borrower may prepay the Loans without premium or penalty upon
            not less than one Business Day's prior notice to the Administrative
            Agent (which shall promptly notify the Lenders), which notice shall
            specify the prepayment date (which shall be a Business Day) and the
            amount of the prepayment (which shall be at least $1,000,000 or the
            remaining aggregate principal balance outstanding on the Notes) and
            shall be irrevocable and effective only upon receipt by the
            Administrative Agent, provided that interest on the principal
            prepaid, accrued to the prepayment date, shall be paid on the
            prepayment date.

                        (2) Voluntary prepayments made by Borrower pursuant to
            SECTION 2.04(a)(1) shall be subject to the following prepayment
            premiums:

                              (A) For any voluntary prepayment made after
                  December 8, 2007, but before December 8, 2008, Borrower shall
                  pay a prepayment premium equal to 5% of the amount prepaid;

                              (B) For any voluntary prepayment made after
                  December 8, 2008, but before December 8, 2009, Borrower shall
                  pay a prepayment premium equal to 3% of the amount prepaid;
                  and

                              (C) For any voluntary prepayment made after
                  December 8, 2009 but before the Final Maturity Date, Borrower
                  shall pay a prepayment premium equal to 1% of the amount
                  prepaid.

                  (b) Mandatory Prepayments. Upon the occurrence of a Change in
      Control, each Lender shall have the right to require Borrower to prepay
      the aggregate principal amount of its Loan outstanding on the date such
      prepayment is made, together with accrued and unpaid interest, if any,
      thereon to the date of such prepayment, plus a prepayment premium of 1% of
      the principal amount prepaid. If a Lender elects to require such
      prepayment, such Lender shall instruct the Administrative Agent to deliver
      written notice thereof to Borrower, such prepayment to be made on or
      before the date (which must be a Business Day at least two (2) days
      following receipt of such notice) specified in such written notice.

                  (c) Generally. Any prepayment made pursuant to this SECTION
      2.04 may not be reborrowed and shall be applied to the aggregate
      outstanding principal amount of the Loans.

                                       33
<PAGE>

                                  ARTICLE III

                       PAYMENTS OF PRINCIPAL AND INTEREST

            SECTION 3.01 REPAYMENT OF LOANS. On the Final Maturity Date,
Borrower shall repay the outstanding aggregate principal and accrued and unpaid
interest under the Notes and any other amounts due under the Loan Documents.
Such payment shall be made to the Administrative Agent, for the account of each
Lender.

            SECTION 3.02 INTEREST.

                  (a) Interest on Notes. Borrower will pay to the Administrative
      Agent, for the account of each Lender, interest on the unpaid principal
      amount of the Loan made by such Lender for the period commencing on the
      date such Loan was made (being either the Closing Date or, with respect to
      the New Lenders, the date of the Notes issued to the New Lenders) up to,
      but excluding the date such Loan shall be paid in full, at the simple rate
      per annum equal to nine and seventy-five one-hundredths percent (9.75%),
      but in no event to exceed the Highest Lawful Rate.

                  (b) Post-Default Rate. Notwithstanding the foregoing, Borrower
      will pay to the Administrative Agent, for the account of each Lender,
      interest at the applicable Post-Default Rate on any principal of the Loan
      made by such Lender to the extent such principal is past due and owing for
      the period commencing on the date of notice to Borrower of an Event of
      Default until the same is paid in full or all Events of Default are cured
      or waived.

                  (c) Due Dates. Accrued and unpaid interest on the Loans shall
      be payable on each Quarterly Date commencing on March 31, 2004, and on the
      Final Maturity Date.

                                   ARTICLE IV

                PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.

            SECTION 4.01 PAYMENTS. Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by
Borrower under this Agreement and the Notes shall be made in Dollars, in
immediately available funds, to the Administrative Agent at such account as the
Administrative Agent shall specify by notice to Borrower at least three (3)
Business Days prior to the date such payment is due from time to time, not later
than 11:00 a.m. New York, New York time on the date on which such payments shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). Such payments shall be
made without (to the fullest extent permitted by applicable law) defense,
set-off or counterclaim. Each payment received by the Administrative Agent under
this Agreement or any Note for account of a Lender shall be paid promptly to
such Lender in immediately available funds. If the due date of any payment under
this Agreement or any Note would otherwise fall on a day which is not a Business
Day such date

                                       34
<PAGE>

shall be extended to the next succeeding Business Day and interest shall be
payable for any principal so extended for the period of such extension.

            SECTION 4.02 PRO RATA TREATMENT. Except to the extent otherwise
provided herein each Lender agrees that: (a) the borrowing from the Lenders
hereunder shall be made from the Lenders pro rata in accordance with their
Percentage Share; (b) each payment of principal of the Loan by Borrower shall be
made for account of the Lenders pro rata in accordance with the respective
unpaid principal amount of the Loan held by the Lenders; and (c) each payment of
interest on the Loan by Borrower shall be made for account of the Lenders pro
rata in accordance with the amounts of interest due and payable to the
respective Lenders.

            SECTION 4.03 COMPUTATIONS. Interest shall be computed on the basis
of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which such interest is payable.

            SECTION 4.04 SET-OFF, SHARING OF PAYMENTS, ETC.

                  (a) Borrower agrees that, in addition to (and without
      limitation of) any right of set-off, bankers' lien or counterclaim a
      Lender may otherwise have, each Lender shall have the right and be
      entitled, at its option, to offset balances held by it or by any of its
      Affiliates for account of Borrower or any Subsidiary at any of its
      offices, in Dollars or in any other currency, against any principal of or
      interest on any of such Lender's Loan, or any other amount payable to such
      Lender hereunder, which is not paid when due (regardless of whether such
      balances are then due to Borrower), in which case it shall promptly notify
      Borrower and the Administrative Agent thereof, provided that such Lender's
      failure to give such notice shall not affect the validity thereof.

                  (b) If any Lender shall obtain payment of any principal of or
      interest on the Loan made by it to Borrower under this Agreement through
      the exercise of any right of set-off, banker's lien or counterclaim or
      similar right or otherwise, and, as a result of such payment, such Lender
      shall have received a greater percentage of the principal or interest then
      due hereunder by Borrower to such Lender than the percentage received by
      any other Lenders, it shall promptly (1) notify the Administrative Agent
      and each other Lender thereof and (2) purchase from such other Lenders
      participations in (or, if and to the extent specified by such Lender,
      direct interests in) the Loans made by such other Lenders (or in interest
      due thereon, as the case may be) in such amounts, and make such other
      adjustments from time to time as shall be equitable, to the end that all
      the Lenders shall share the benefit of such excess payment (net of any
      expenses which may be incurred by such Lender in obtaining or preserving
      such excess payment) pro rata in accordance with the unpaid principal
      and/or interest on the Loan held by each of the Lenders. To such end all
      the Lenders shall make appropriate adjustments among themselves (by the
      resale of participations sold or otherwise) if such payment is rescinded
      or must otherwise be restored. Borrower agrees that any Lender so
      purchasing a participation (or direct interest) in the Loan made by other
      Lenders (or in interest due thereon, as the case may be) may exercise all
      rights of set-off, banker's lien, counterclaim or similar rights with
      respect to such participation as fully as if such Lender were a direct
      holder of Loans in the amount of such participation. Nothing contained
      herein shall

                                       35
<PAGE>

      require any Lender to exercise any such right or shall affect the right of
      any Lender to exercise, and retain the benefits of exercising, any such
      right with respect to any other indebtedness or obligation of Borrower. If
      under any applicable bankruptcy, insolvency or other similar law, any
      Lender receives a secured claim in lieu of a set-off to which this SECTION
      4.04 applies, such Lender shall, to the extent practicable, exercise its
      rights in respect of such secured claim in a manner consistent with the
      rights of the Lenders entitled under this SECTION 4.04 to share the
      benefits of any recovery on such secured claim.

      SECTION 4.05 TAXES.

                  (a) Payments Free and Clear. Any and all payments by Borrower
      hereunder shall be made, in accordance with SECTION 4.01, free and clear
      of and without deduction for any and all present or future taxes, levies,
      imposts, deductions, charges or withholdings, and all liabilities with
      respect thereto, excluding, in the case of each Lender and the
      Administrative Agent, taxes imposed on its income, and franchise or
      similar taxes imposed on it, by (1) any jurisdiction (or political
      subdivision thereof) of which the Administrative Agent or such Lender, as
      the case may be, is a citizen or resident or in which such Lender has an
      office, (2) the jurisdiction (or any political subdivision thereof) in
      which the Administrative Agent or such Lender is organized, or (3) any
      jurisdiction (or political subdivision thereof) in which such Lender or
      the Administrative Agent is presently doing business which taxes are
      imposed solely as a result of doing business in such jurisdiction (all
      such non-excluded taxes, levies, imposts, deductions, charges,
      withholdings and liabilities being hereinafter referred to as "TAXES"). If
      Borrower shall be required by law to deduct any Taxes from or in respect
      of any sum payable hereunder to the Lenders or the Administrative Agent
      (i) the sum payable shall be increased by the amount necessary so that
      after making all required deductions (including deductions applicable to
      additional sums payable under this SECTION 4.05) such Lender or the
      Administrative Agent (as the case may be) shall receive an amount equal to
      the sum it would have received had no such deductions been made, (ii)
      Borrower shall make such deductions and (iii) Borrower shall pay the full
      amount deducted to the relevant taxing authority or other Governmental
      Authority in accordance with applicable law.

                  (b) Other Taxes. In addition, to the fullest extent permitted
      by applicable law, Borrower agrees to pay any present or future stamp or
      documentary taxes or any other excise or property taxes, charges or
      similar levies that arise from any payment made hereunder or from the
      execution, delivery or registration of, or otherwise with respect to, this
      Agreement or any other Loan Document (hereinafter referred to as "OTHER
      TAXES").

                  (c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
      APPLICABLE LAW, BORROWER WILL INDEMNIFY EACH LENDER AND THE ADMINISTRATIVE
      AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
      LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY
      ON AMOUNTS PAYABLE UNDER THIS SECTION 4.05) PAID BY SUCH LENDER OR THE
      ADMINISTRATIVE AGENT (ON THEIR BEHALF OR ON BEHALF OF

                                       36
<PAGE>

      ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES,
      INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER
      OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS
      SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS
      GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
      INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY
      LENDER OR THE ADMINISTRATIVE AGENT, AS THE CASE MAY BE, MAKES WRITTEN
      DEMAND THEREFOR. IF ANY LENDER OR THE ADMINISTRATIVE AGENT RECEIVES A
      REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH
      LENDER OR THE ADMINISTRATIVE AGENT HAS RECEIVED PAYMENT FROM BORROWER IT
      SHALL PROMPTLY NOTIFY BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO
      DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER
      RECEIPT OF A REQUEST BY BORROWER (OR PROMPTLY UPON RECEIPT, IF BORROWER
      HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY
      AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO BORROWER WITHOUT INTEREST (BUT
      WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT BORROWER, UPON
      THE REQUEST OF SUCH LENDER OR THE ADMINISTRATIVE AGENT, AGREES TO RETURN
      SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH
      LENDER OR THE ADMINISTRATIVE AGENT IN THE EVENT SUCH LENDER OR THE
      ADMINISTRATIVE AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.

                  (d) Lender Representations and Actions.

                        (1) Each Lender represents that it is either (A) a
            banking association or corporation organized under the laws of the
            United States of America or any state thereof or (B) it is entitled
            to complete exemption from United States withholding tax imposed on
            or with respect to any payments, including fees, to be made to it
            pursuant to this Agreement (i) under an applicable provision of a
            tax convention to which the United States of America is a party or
            (ii) because it is acting through a branch, agency or office in the
            United States of America and any payment to be received by it
            hereunder is effectively connected with a trade or business in the
            United States of America. Each Lender that is not a banking
            association or corporation organized under the laws of the United
            States of America or any state thereof agrees to provide to Borrower
            and the Administrative Agent on the Amendment and Restatement Date,
            or on the date of its delivery of the Assignment pursuant to which
            it becomes a Lender, and at such other times as required by United
            States law or as Borrower or the Administrative Agent shall
            reasonably request, two accurate and complete original signed copies
            of either (a) Internal Revenue Service Form W-8ECI (or successor
            form) certifying that all payments to be made to it hereunder will
            be effectively connected to a United States trade or business (the
            "FORM W-8ECI CERTIFICATION") or (b) Internal Revenue Service Form
            W-8BEN (or successor

                                       37
<PAGE>

            form) certifying that it is entitled to the benefit of a provision
            of a tax convention to which the United States of America is a party
            which completely exempts from United States withholding tax all
            payments to be made to it hereunder (the "FORM W-8BEN
            CERTIFICATION"). In addition, each Lender agrees that if it
            previously filed a Form W-8ECI Certification, it will deliver to
            Borrower and the Administrative Agent a new Form W-8ECI
            Certification prior to the first payment date occurring in each of
            its subsequent taxable years; and if it previously filed a Form
            W-8BEN Certification, it will deliver to Borrower and the
            Administrative Agent a new certification prior to the first payment
            date falling in the third year following the previous filing of such
            certification. Each Lender also agrees to deliver to Borrower and
            the Administrative Agent such other or supplemental forms as may at
            any time be required as a result of changes in applicable law or
            regulation in order to confirm or maintain in effect its entitlement
            to exemption from United States withholding tax on any payments
            hereunder, provided that the circumstances of such Lender at the
            relevant time and applicable laws permit it to do so. If a Lender
            determines, as a result of any change in either (i) a Governmental
            Requirement or (ii) its circumstances, that it is unable to submit
            any form or certificate that it is obligated to submit pursuant to
            this SECTION 4.05, or that it is required to withdraw or cancel any
            such form or certificate previously submitted, it shall promptly
            notify Borrower and the Administrative Agent of such fact. If a
            Lender is organized under the laws of a jurisdiction outside the
            United States of America, unless Borrower and the Administrative
            Agent have received a Form W-8BEN Certification or Form W-8ECI
            Certification satisfactory to them indicating that all payments to
            be made to such Lender hereunder are not subject to United States
            withholding tax, Borrower shall withhold taxes from such payments at
            the applicable statutory rate. Each Lender agrees to indemnify and
            hold harmless Borrower or Administrative Agent, as applicable, from
            any United States taxes, penalties, interest and other expenses,
            costs and losses incurred or payable by (i) the Administrative Agent
            as a result of such Lender's failure to submit any form or
            certificate that it is required to provide pursuant to this SECTION
            4.05 or (ii) Borrower or the Administrative Agent as a result of
            their reliance on any such form or certificate which such Lender has
            provided to them pursuant to this SECTION 4.05.

                        (2) For any period with respect to which a Lender has
            failed to provide Borrower with the form required pursuant to this
            SECTION 4.05, if any, (other than if such failure is due to a change
            in a Governmental Requirement occurring subsequent to the date on
            which a form originally was required to be provided), such Lender
            shall not be entitled to indemnification under SECTION 4.05 with
            respect to taxes imposed by the United States which taxes would not
            have been imposed but for such failure to provide such forms;
            provided, however, that if a Lender, which is otherwise exempt from
            or subject to a reduced rate of withholding tax, becomes subject to
            taxes because of its failure to deliver a form required hereunder,
            Borrower shall take such steps as such Lender shall reasonably
            request to assist such Lender to recover such taxes.

                                       38
<PAGE>

                        (3) Any Lender claiming any additional amounts payable
            pursuant to this SECTION 4.05 shall use reasonable efforts
            (consistent with legal and regulatory restrictions) to file any
            certificate or document requested by Borrower or the Administrative
            Agent or to change the jurisdiction of its applicable lending office
            or to contest any tax imposed if the making of such a filing or
            change or contesting such tax would avoid the need for or reduce the
            amount of any such additional amounts that may thereafter accrue and
            would not, in the sole determination of such Lender, be otherwise
            disadvantageous to such Lender. The Administrative Agent, at the
            written request of Borrower, shall use its commercially reasonable
            best efforts to replace any Lender claiming such additional amounts.
            No Lender may claim reimbursement for incurred costs more than
            ninety (90) days from the date of written request to Borrower.

                                   ARTICLE V

                               CONVERSION OF NOTES

            SECTION 5.01 CONVERSION UNDER RULE 144A.

                  (a) Subject to the terms and conditions of this SECTION 5.01,
      the Notes shall automatically be converted into notes ("INDENTURE NOTES")
      issued pursuant to an indenture entered into between Borrower and a
      designated trustee selected by Borrower and reasonably acceptable to the
      Administrative Agent (the "INDENTURE"). Borrower will initiate the
      conversion of the Notes under this SECTION 5.01 on or before January 31,
      2004.

                  (b) Except as discussed below, the terms of the Indenture will
      reflect substantially the same terms and conditions as this Agreement,
      except that the limitations on additional Debt specified in SECTION 9.18
      will not be incorporated and the Indenture Notes will have the same
      ranking, interest rate, maturity and redemption terms as the Notes. The
      Indenture will be acceptable to Borrower and the Majority Lenders, acting
      reasonably, and will include the following additional provisions:

                        (1) the Indenture Notes will be issued without coupons,
            in denominations of $1,000 and integral multiples thereof, and will
            initially be issued as global securities in book-entry form. The
            global securities shall be deposited with a custodian for the
            Depository Trust Company ("DTC") and registered in the name of DTC
            or a nominee for DTC (qualified institutional buyers shall be able
            to hold their interests in a Rule 144A global security directly
            through DTC, if they are DTC participants, or indirectly through
            organizations that are DTC participants);

                        (2) the Indenture Notes shall be eligible for trading on
            the PORTAL Market;

                        (3) Borrower shall furnish to the Lenders, upon their
            request, the information required to be delivered pursuant to Rule
            144A(d)(4) if, at any

                                       39
<PAGE>

            time while the Indenture Notes are restricted securities within the
            meaning of the Securities Act, Borrower is not subject to the
            informational requirements of the Securities Exchange Act of 1934;

                        (4) Borrower and Lenders shall enter into a registration
            rights agreement on or prior to the conversion of the Notes to
            Indenture Notes. Pursuant to the registration rights agreement,
            Borrower will agree (i) to file with the SEC within ninety (90) days
            of the date on which it issues the Indenture Notes either (x) a
            shelf registration statement on Form S-1 or Form S-3, if the use of
            such form is then available, to cover resales of registrable
            securities by the holders thereof who satisfy certain conditions
            relating to the provision of information in connection with the
            shelf registration statement or (y) an exchange offer registration
            statement on Form S-4, (ii) to use its reasonable best efforts to
            cause the registration statement to be declared effective by the SEC
            within 180 days of the date on which it issues the Indenture Notes,
            and (iii) to use its reasonable best efforts to keep (x) such shelf
            registration statement continuously effective under the Securities
            Act, subject to the Borrower's right to impose commercially
            reasonable trading blackouts until such time as there are no longer
            any registrable securities covered thereby or (y) such exchange
            offer registration statement effective until the completion of the
            exchange offer contemplated thereby; and

                        (5) such other terms and conditions as are usual and
            customary for indentures related to offerings of notes pursuant to
            Rule 144A including, without limitation, provisions related to the
            transfer and redemption procedures applicable to the Indenture Notes
            and delivery of customary legal opinions, including assurances as to
            the adequacy of information provided to investors.

                  (c) In the event that a conversion of the Notes is initiated
      under this SECTION 5.01, the Borrower and each Lender will use
      commercially reasonable efforts to cause the conversion to be completed
      within forty-five (45) days of its initiation.

                  (d) In connection with a conversion of the Notes under this
      SECTION 5.01, prior to the issuance of Indenture Notes to a Lender, each
      Lender will (i) represent and warrant that such Lender is an "accredited
      investor" as such term is defined in Section 501 of Regulation D
      promulgated under the Securities Act of 1933, as amended, and (ii) will
      surrender its Notes to the Borrower.

            SECTION 5.02 REMEDIES FOR CERTAIN EVENTS. If Borrower fails to
initiate conversion of the Notes on or before the date specified for such in
SECTION 5.01(a), (b) Borrower fails to use reasonable best efforts to cause the
conversion of the Notes on or before the date specified in SECTION 5.01(c), (c)
Borrower fails to file a registration statement with the SEC on or before the
date specified in SECTION 5.01(b), (d) Borrower fails to cause such registration
statement to be declared effective by the SEC on or prior to September 30, 2004,
or Borrower fails to use its reasonable best efforts to keep such registration
statement effective if the registration statement with respect to the Notes is
declared effective, then the interest rate on the Notes will increase
immediately following the occurrence of any default referred to in clauses (a)

                                       40
<PAGE>

through (e) above by 0.25% per annum. Following the cure of all such defaults,
the accrual of such additional interest will cease and the interest rate will
revert to the original rate.

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

            SECTION 6.01 DOCUMENTS TO BE DELIVERED ON AMENDMENT AND RESTATEMENT
DATE. The obligation of the New Lenders to fund the Additional Loans and of the
Lenders to execute this Agreement on the Amendment and Restatement Date is
subject to the receipt by the Administrative Agent of the following documents
and satisfaction of the other conditions provided for in SECTION 6.02 and this
SECTION 6.01, each of which shall be satisfactory to the Administrative Agent in
form and substance:

                  (a) A certificate of the Secretary or an Assistant Secretary
      of Borrower setting forth (i) resolutions of its board of directors with
      respect to the authorization of Borrower to execute and deliver this
      Agreement and the Loan Documents and to enter into the transactions
      contemplated thereby, (ii) the officers of Borrower (y) who are authorized
      to sign the Loan Documents to which Borrower is a party and (z) who will,
      until replaced by another officer or officers duly authorized for that
      purpose, act as its representative for the purposes of signing documents
      and giving notices and other communications in connection with this
      Agreement and the transactions contemplated hereby, (iii) specimen
      signatures of the authorized officers, and (iv) the articles or
      certificate of incorporation and bylaws of Borrower, 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 Borrower to the contrary.

                  (b) Certificates of the appropriate state agencies with
      respect to the existence, qualification and good standing of Borrower in
      its state of incorporation and each jurisdiction where it is qualified as
      a foreign corporation.

                  (c) A compliance certificate, which shall be substantially in
      the form of Exhibit B, duly and properly executed by a Responsible Officer
      and dated as of the date of the Amendment and Restatement Date.

                  (d) The Notes, duly completed and executed.

                  (e) An opinion of Haynes and Boone, LLP, counsel to Borrower,
      in form and substance reasonably acceptable to the Majority Lenders as to
      such matters incident to the transactions herein contemplated.

                  (f) Third Amendment to Senior Secured Credit Facility by
      Wachovia Bank, National Association, as Administrative Agent, consenting
      to the transactions contemplated by this Agreement.

                  (g) Waiver letter with respect to the Duke Credit Facility by
      Ingalls & Snyder LLC, as Administrative Agent thereunder, consenting to
      the transactions contemplated by this Agreement.

                                       41
<PAGE>

                  (h) The seven year warrants for the purchase of 15,000 shares
      of Borrower's Common Stock at a purchase price of $10.00 per share for
      each $1,000,000.00 in Notes to be issued to the New Lenders on the
      Amendment and Restatement Date and on the date any Additional Lenders
      purchase additional Notes pursuant to SECTION 2.02, issued to the Lenders
      in proportion to each Lender's Loan as originally in effect, in form
      reasonably acceptable to the Lenders. For the avoidance of doubt, warrants
      to purchase 1,500,000 shares of Borrower's Common Stock have already been
      issued to the Lenders party to the Credit Agreement and, assuming the
      aggregate principal amount of Notes to be issued to New Lenders on the
      Amendment and Restatement Date is $85,000,000.00, warrants to purchase
      1,275,000 shares of the Borrower's Common Stock will be issued to the New
      Lenders on the Amendment and Restatement Date.

                  (i) Such other documents as the Administrative Agent or any
      Lender or special counsel to the Administrative Agent may reasonably
      request.

                  (j) Executed guarantees of the Notes by each of Callon
      Petroleum Operating Company, Callon Offshore Production, Inc. and
      Mississippi Marketing, Inc.

            SECTION 6.02 CONDITIONS PRECEDENT TO FUNDING. The obligation of the
New Lenders to make the Additional Loans to Borrower and of the Lenders to enter
into this Agreement on the Amendment and Restatement Date is subject to the
further conditions precedent that, as of the date of such Loans and after giving
effect thereto:

                  (a) no Default shall have occurred and be continuing; and

                  (b) the representations and warranties made by Borrower in
      ARTICLE VII shall be true on and as of the Amendment and Restatement Date.

            SECTION 6.03 CONDITIONS PRECEDENT FOR THE BENEFIT OF LENDERS. All
conditions precedent to the obligations of the Lenders to make the Loans are
imposed hereby solely for the benefit of the Lenders, and no other Person may
require satisfaction of any such condition precedent or be entitled to assume
that the Lenders will refuse to make the Loans in the absence of strict
compliance with such conditions precedent.

            SECTION 6.04 NO WAIVER. No waiver of any condition precedent shall
preclude the Administrative Agent or the Lenders from thereafter declaring that
the failure of Borrower to satisfy such condition precedent constitutes a
Default.

                                  ARTICLE VII

                         REPRESENTATIONS AND WARRANTIES

            Borrower represents and warrants to the Administrative Agent and the
Lenders each of the following matters.

            SECTION 7.01 CORPORATE EXISTENCE; CAPITALIZATION.

                                       42
<PAGE>

                  (a) Each of Borrower and each Restricted Subsidiary: (i) is a
      corporation duly organized, legally existing and in good standing under
      the laws of the jurisdiction of its incorporation or legal existence; (ii)
      has all requisite corporate power, and has all material governmental
      permits, licenses, authorizations, consents and approvals necessary to own
      its Property and carry on its business as now being or as proposed to be
      conducted; and (iii) is qualified to do business in all jurisdictions in
      which the nature of the business conducted by it makes such qualification
      necessary and where failure so to qualify would have a Material Adverse
      Effect.

                  (b) As of the Amendment and Restatement Date, the authorized
      capital stock of Borrower consists solely of 20,000,000 shares of common
      stock, par value $0.01 per share (the "COMMON STOCK"), of which 13,935,311
      shares are issued and outstanding and 28,578 shares of which are held in
      treasury, and 2,500,000 shares of preferred stock, par value $0.01 per
      share, of which 600,861 shares of $2.125 Convertible Exchangeable
      Preferred Stock, Series A, are issued and outstanding. Other than as set
      forth on Schedule 7.01(b) or the certificate of designation for Borrower's
      $2.125 Convertible Exchangeable Preferred Stock as of the Amendment and
      Restatement Date, no subscription, warrant, option, convertible security,
      stock appreciation or other rights (contingent or other) to purchase or
      acquire any shares of any class of capital stock or, or any other equity
      interest in, Borrower is authorized or outstanding, and there is not
      outstanding any commitment of Borrower or any of its Subsidiaries to issue
      any shares, warrants, options or other such rights or to distribute to
      holders of any class of its capital stock any evidences of indebtedness or
      assets. Except as set forth on SCHEDULE 7.01(b) or the certificate of
      designation for Borrower's $2.125 Convertible Exchangeable Preferred Stock
      as of the Amendment and Restatement Date, Borrower does not have any
      contingent or other obligation to purchase, redeem or otherwise acquire
      any shares of its capital stock or any interest therein or to pay any
      dividend or make any other distribution in respect thereof, and neither
      Borrower nor any of its Subsidiaries is a party to any voting agreement,
      voting trust or similar agreement or arrangement relating to its capital
      stock or any agreement or arrangement relating to or providing for
      registration rights with respect to its capital stock.

            SECTION 7.02 FINANCIAL CONDITION. The audited consolidated balance
sheet of Borrower and its Consolidated Subsidiaries as at December 31, 2002 and
the related consolidated statement of income, stockholders' equity and cash flow
of Borrower and its Consolidated Subsidiaries for the fiscal year ended on said
date, with the opinion thereon of Ernst & Young LLP heretofore furnished to each
of the Lenders and the unaudited consolidated balance sheet of Borrower and its
Consolidated Subsidiaries as at September 30, 2003 and their related
consolidated statements of income, stockholders' equity and cash flow of
Borrower and its Consolidated Subsidiaries for the three and nine month period
ended on such date heretofore furnished to the Administrative Agent
(collectively, the "FINANCIAL STATEMENTS"), are complete and correct and fairly
present the consolidated financial condition of Borrower and its Consolidated
Subsidiaries as at said dates and the results of its operations for the fiscal
year and the three month period on said dates, all in accordance with GAAP, as
applied on a consistent basis (subject, in the case of the interim financial
statements, to normal year-end adjustments). Neither Borrower nor any Subsidiary
has on the Amendment and Restatement Date any material Debt, contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or

                                       43
<PAGE>

unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements or in
Schedule 7.02. Since September 30, 2003, there has been no change or event
having a Material Adverse Effect. Since the date of the Financial Statements,
neither the business nor the Properties of Borrower or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.

            SECTION 7.03 LITIGATION. Except as disclosed to the Lenders in
SCHEDULE 7.03 hereto, at the Amendment and Restatement Date there is no
litigation, legal, administrative or arbitral proceeding, investigation or other
action of any nature pending or, to the knowledge of Borrower threatened against
or affecting Borrower or any Subsidiary which involves the possibility of any
judgment or liability against Borrower or any Subsidiary not fully covered by
insurance (except for normal deductibles), and which would be reasonably likely
to have a Material Adverse Effect.

            SECTION 7.04 NO BREACH. Neither the execution and delivery of the
Loan Documents, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent which has not
been obtained as of the Amendment and Restatement Date under, the respective
charter or by-laws of Borrower or any Restricted Subsidiary, or any Governmental
Requirement or any agreement or instrument to which Borrower or any Restricted
Subsidiary is a party or by which it is bound or to which it or its Properties
are subject, or constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the revenues or
assets of Borrower or any Restricted Subsidiary pursuant to the terms of any
such agreement or instrument other than the Liens created by the Loan Documents.

            SECTION 7.05 AUTHORITY. Borrower has all necessary corporate power
and authority to execute, deliver and perform its obligations under the Loan
Documents to which it is a party; and the execution, delivery and performance by
Borrower of the Loan Documents to which it is a party, have been duly authorized
by all necessary corporate action on its part; and the Loan Documents constitute
the legal, valid and binding obligations of Borrower, enforceable in accordance
with their terms.

            SECTION 7.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are necessary
for the execution, delivery or performance by Borrower of the Loan Documents or
for the validity or enforceability thereof.

            SECTION 7.07 USE OF LOANS. The net proceeds of the Additional Loans
shall be used (a) first to repay up to $95,000,000.00 in outstanding principal
amount under the Duke Credit Facility, and (b) any remainder following the
repayment of the entire outstanding principal amount under the Duke Credit
Facility, for general corporate purposes. Borrower is 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 of
Governors of the Federal Reserve

                                       44
<PAGE>

System) and no part of the proceeds of any Loan hereunder will be used to buy or
carry any margin stock.

            SECTION 7.08 ERISA.

                  (a) Borrower, each Subsidiary 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 Borrower, any Subsidiary or any ERISA Affiliate
      (whether directly or indirectly) of (i) either a civil penalty assessed
      pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant
      to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty
      liability damages under section 409 of ERISA.

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

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

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

                  (g) None of Borrower, any Subsidiary 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 Borrower, a Subsidiary or any
      ERISA Affiliate in its sole discretion at any time without any material
      liability.

                  (h) None of Borrower, any Subsidiary or any ERISA Affiliate
      sponsors, maintains or contributes to, or has at any time in the preceding
      six calendar years, sponsored, maintained or contributed to, any
      Multiemployer Plan.

                                       45
<PAGE>

                  (i) None of Borrower, any Subsidiary or 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 7.09 TAXES. Except as set out in SCHEDULE 7.09, each of
      Borrower and its Subsidiaries has filed all United States Federal income
      tax returns and all other tax returns which are required to be filed by
      them and have paid all taxes due pursuant to such returns or pursuant to
      any assessment received by Borrower or any Subsidiary. The charges,
      accruals and reserves on the books of Borrower and its Subsidiaries in
      respect of taxes and other governmental charges are, in the opinion of
      Borrower, adequate. No tax lien has been filed and, to the knowledge of
      Borrower, no claim is being asserted with respect to any such tax, fee or
      other charge. There is no ongoing audit or examination or, to the
      knowledge of Borrower, other investigation by any Governmental Authority
      of the tax liability of Borrower or any of its Subsidiaries, and there is
      no unresolved claim by any Governmental Authority concerning the tax
      liability of Borrower or any Subsidiary for any period for which tax
      returns have been or were required to have been filed, other than
      unsecured claims for which adequate reserves have been established in
      accordance with GAAP.

            SECTION 7.10 TITLES, PROPERTY, ETC.

                  (a) Except as set out in SCHEDULE 7.10, each of Borrower and
      its Restricted Subsidiaries has good and defensible title to its material
      (individually or in the aggregate) Properties, free and clear of all
      Liens, except Liens permitted by SECTION 9.02. Except as set forth in
      SCHEDULE 7.10, after giving full effect to the Permitted Liens, Borrower
      owns the net interests in production attributable to the Hydrocarbon
      Interests reflected in the most recent balance sheet included with the
      Financial Statements, and the ownership of such Properties shall not in
      any material respect obligate Borrower 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.

                  (b) All leases and agreements necessary for the conduct of the
      business of Borrower and its Restricted Subsidiaries are valid and
      existing, 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
      would affect in any material respect the conduct of the business of
      Borrower and its Restricted Subsidiaries.

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

                  (d) All of the assets and Properties of Borrower and its
      Restricted Subsidiaries which are necessary for the operation of its
      business are in good working

                                       46
<PAGE>

      condition, normal wear and tear excepted, and are maintained in accordance
      with prudent business standards.

                  (e) Borrowers' and its Restricted Subsidiaries' Oil and Gas
      Properties (and properties unitized therewith) have been maintained,
      operated and developed in a good and workmanlike manner and in conformity
      with all applicable laws and all rules, regulations and orders of all duly
      constituted authorities having jurisdiction 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; specifically in this connection, (i)
      after the Amendment and Restatement Date, no Oil and Gas Property 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) prior
      to the Amendment and Restatement Date and (ii) none of the wells
      comprising a part of the Oil and Gas Properties (or properties unitized
      therewith) are deviated from the vertical more than the maximum permitted
      by applicable laws, regulations, rules and orders, 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).

            SECTION 7.11 NO MATERIAL MISSTATEMENTS. No written information,
statement, exhibit, certificate, document or report furnished to the
Administrative Agent and the Lenders (or any of them) by Borrower or any
Subsidiary in connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statement contained therein not materially misleading in
the light of the circumstances in which made and with respect to Borrower and
its Subsidiaries taken as a whole. There is no fact peculiar to Borrower or any
Subsidiary which has a Material Adverse Effect or in the future is reasonably
likely to have (so far as Borrower can now foresee) a Material Adverse Effect.

            SECTION 7.12 INVESTMENT COMPANY ACT. Neither Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

            SECTION 7.13 PUBLIC UTILITY HOLDING COMPANY ACT. Neither Borrower
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

            SECTION 7.14 SUBSIDIARIES.

                  (a) Except as set forth on SCHEDULE 7.14, as of the Amendment
      and Restatement Date, Borrower has no Subsidiaries or Unrestricted
      Subsidiaries.

                  (b) With respect to each Subsidiary of Borrower existing as of
      the Amendment and Restatement Date, SCHEDULE 7.14 sets forth the following
      information:

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<PAGE>

                        (1) the jurisdiction of formation and headquarters of
            such Subsidiary;

                        (2) the identity of each other jurisdiction wherein such
            Subsidiary is qualified to do business;

                        (3) the identity of each class of authorized capital
            stock of such Subsidiary;

                        (4) the amount and ownership of the capital stock of
            such Subsidiary that is issued and outstanding (collectively, the
            "SUBSIDIARY SECURITIES"); and

                        (5) the identity of each Person or joint venture entity
            in which such Subsidiary has an equity or similar interest.

All of the Subsidiary Securities have been duly authorized and validly issued
and are fully paid and nonassessable, to the extent such term is applicable
under local law. None of the Subsidiary Securities have been issued in violation
of any shareholder's preemptive rights.

                  (c) As of the Amendment and Restatement Date, and except as
      disclosed on SCHEDULE 7.14, there are no contracts obligating Borrower or
      any of its Affiliates to issue, sell, pledge, dispose of or encumber, nor
      any options, warrants or rights of any kind to acquire, nor any securities
      that are convertible into or exercisable or exchangeable for, any shares
      of any class of capital stock of any Subsidiary. There are no contracts
      obligating Borrower or any of its Affiliates to redeem, purchase or
      acquire or offer to acquire any shares of any class of capital stock of
      any Subsidiary. As of the Amendment and Restatement Date, and except as
      disclosed on SCHEDULE 7.14, there are no contracts obligating any
      Subsidiary to make any dividend or distribution of any kind.

                  (d) As of the Amendment and Restatement Date, and except as
      disclosed on SCHEDULE 7.14, there are no shareholder agreements, voting
      agreements, management agreements, proxies or other similar agreements or
      understandings with respect to Borrower or any Subsidiary to which
      Borrower or any of its Affiliates is a party. Except as described in the
      Material Agreements listed on SCHEDULE 7.21, as of the Amendment and
      Restatement Date there are no outstanding or authorized stock
      appreciation, phantom stock, profit participation or similar rights
      affecting the capital stock of Borrower or any Subsidiary with respect to
      which Borrower or any of its Affiliates is a party or issuer.

            SECTION 7.15 LOCATION OF BUSINESS AND OFFICES. As of the Amendment
and Restatement Date, Borrower's principal place of business and chief executive
offices are located at the address stated on the signature page of this
Agreement. As of the Amendment and Restatement Date, the principal place of
business and chief executive office of each Subsidiary are located at the
addresses stated on SCHEDULE 7.14.

            SECTION 7.16 DEFAULTS. Neither Borrower nor any Restricted
Subsidiary is in default nor has any event or circumstance occurred which, but
for the expiration of any

                                       48
<PAGE>

applicable grace period or the giving of notice, or both, would constitute a
default under any material agreement or instrument to which Borrower or any
Restricted Subsidiary is a party or by which Borrower or any Restricted
Subsidiary is bound which default would be reasonably likely to have a Material
Adverse Effect. No Default hereunder has occurred and is continuing.

            SECTION 7.17 ENVIRONMENTAL MATTERS. Except (i) as provided in
SCHEDULE 7.17 or (ii) as would not be reasonably likely to have a Material
Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to
take such actions would not be reasonably likely to have a Material Adverse
Effect):

                  (a) Neither any Property now or previously owned or leased or
      in the possession of or operated by or under the direction of Borrower or
      any Subsidiary nor the operations now or previously conducted thereon
      violate any order or requirement of any court or Governmental Authority or
      any Environmental Laws;

                  (b) Without limitation of clause (a) above, no Property now or
      previously owned or leased or in the possession of or operated by or under
      the direction of Borrower or any Subsidiary nor the operations currently
      conducted thereon or previously conducted thereon while in the ownership
      of or under the operation, possession or direction of Borrower or any
      Subsidiary, or, to the best knowledge of 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 or similar authorizations,
      if any, required to be obtained or filed in connection with the operation
      or use of any and all Property now or previously owned or leased or in the
      possession of or operated by or under the direction of Borrower and each
      Subsidiary, including without limitation all permits for the treatment,
      storage, disposal or release of a hazardous substance or solid waste, have
      been duly obtained or filed, and Borrower and each Subsidiary are 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
      exploration and production wastes, if any, generated at any and all
      Property now or previously owned or leased or in the possession of or
      operated by or under the direction of Borrower or any Subsidiary have in
      the past been transported, treated or disposed of in accordance with
      Environmental Laws, and, to the knowledge of Borrower, all such transport
      carriers and treatment and disposal facilities are in compliance with
      Environmental Laws, 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) Borrower has taken steps reasonably necessary to determine
      and has determined that no hazardous substances, solid waste, or oil and
      gas exploration and production wastes, have been disposed of or otherwise
      released and there has been no threatened release of any hazardous
      substances on or to any Property now or previously

                                       49
<PAGE>

      owned or leased or in the possession of or operated by or under the
      direction of Borrower or any Subsidiary except in compliance with
      Environmental Laws;

                  (f) To the extent applicable, all Property owned, leased, in
      the possession of or operated by or under the direction of Borrower and
      each Subsidiary currently satisfies all design, operation, and equipment
      requirements currently imposed by the OPA (as defined in the definition of
      "ENVIRONMENTAL LAWS" herein), and Borrower does not have any reason to
      believe that such Property, to the extent subject to OPA, will not be able
      to maintain compliance with the OPA requirements during the term of this
      Agreement; and

                  (g) To Borrower's knowledge, neither Borrower nor any
      Subsidiary has any known contingent liability in connection with any
      release or threatened release of any oil, hazardous substance or solid
      waste into the environment.

            SECTION 7.18 COMPLIANCE WITH THE LAW. Neither Borrower nor any
Restricted Subsidiary has violated any Governmental Requirement in any material
respect or failed to obtain any license, permit, franchise or other governmental
authorization reasonably necessary for the ownership of any of its Properties or
the conduct of its business as it is currently being conducted or proposed to be
conducted in the future. All such licenses, permits, franchises or other
governmental authorizations are currently in full force and effect.

            SECTION 7.19 INSURANCE. SCHEDULE 7.19 attached hereto contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by Borrower
and each Subsidiary as of the Amendment and Restatement Date. All such policies
are in full force and effect, all premiums with respect thereto covering all
periods up to and including the Amendment and Restatement Date have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which Borrower or any Restricted
Subsidiary is a party; are valid, outstanding and enforceable policies; provide
adequate insurance coverage in at least such amounts and against at least such
risks (but including in any event public liability) as are usually insured
against in the same general area by companies engaged in the same or a similar
business for the assets and operations of Borrower and each Restricted
Subsidiary; will remain in full force and effect through the respective dates
set forth in SCHEDULE 7.19 without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. As of the Amendment and Restatement
Date, neither Borrower nor any Restricted Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited below usual and customary policy limits, by an insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance during the last three years.

            SECTION 7.20 HEDGING AGREEMENTS. SCHEDULE 7.20 sets forth, as of the
Amendment and Restatement Date, a true and complete list of all Hedging
Agreements (including commodity price swap agreements, insurance swap or option
agreements, forward agreements for terms in excess of thirty (30) days or
contracts of sale which provide for prepayment for deferred shipment or delivery
of oil, gas or other commodities) of Borrower and

                                       50
<PAGE>

each Subsidiary, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark to market
value thereof, all credit support agreements relating thereto (including any
margin required or supplied), and the counter party to each such agreement.

            SECTION 7.21 MATERIAL AGREEMENTS. Set forth on SCHEDULE 7.21 hereto
is a complete and correct list of all material agreements, contracts, leases,
indentures, purchase agreements, obligations in respect of letters of credit,
guarantees, joint venture agreements, and other instruments in effect or to be
in effect as of the Amendment and Restatement Date (other than Hedging
Agreements and agreements relating to Debt of the type described in clause (iii)
in the definition of Debt or clause (vii) in the definition of Debt to the
extent relating to primary obligations of the type described in clause (iii) in
the definition of Debt) providing for, evidencing, securing or otherwise
relating to any Debt of Borrower or any of its Subsidiaries to the extent such
instrument evidences Debt in excess of $5,000,000, and all obligations of
Borrower or any of its Subsidiaries to issuers of surety or appeal bonds issued
for account of Borrower or any such Subsidiary in excess of $5,000,000
(collectively, the "MATERIAL AGREEMENTS"), and such list correctly sets forth
the names of the debtor or lessee and creditor or lessor with respect to the
Debt or lease obligations outstanding or to be outstanding and the Property
subject to any Lien securing such Debt or lease obligation. Borrower has
heretofore delivered to the Administrative Agent a complete and correct copy of
all such material credit agreements, indentures, purchase agreements, contracts,
letters of credit, guarantees, joint venture agreements, or other instruments,
including any modifications or supplements thereto, as in effect on the
Amendment and Restatement Date, which the Administrative Agent has requested.
Each Material Agreement is in full force and effect and is enforceable by
Borrower in accordance with its terms, and none of Borrower nor, to the
knowledge of Borrower, any other party thereto is in breach of or default under
any Material Agreement that would reasonably be likely to have a Material
Adverse Effect or has given notice of termination or cancellation of any
Material Agreement.

            SECTION 7.22 GAS IMBALANCES. As of the Amendment and Restatement
Date, except as set forth on SCHEDULE 7.22, on a net basis, there are no gas
imbalances, take or pay or other prepayments with respect to Borrower's Oil and
Gas Properties which would require Borrower to deliver, in the aggregate, five
percent or more of the quarterly production from Hydrocarbons produced from
Borrower's Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor.

            SECTION 7.23 LABOR RELATIONS. None of Borrower or any Subsidiary is
engaged in any unfair labor practice within the meaning of the National Labor
Relations Act of 1947, as amended. There is (a) no unfair labor practice
complaint before the National Labor Relations Board, or grievance or arbitration
proceeding arising out of or under any collective bargaining agreement, pending
or, to the knowledge of Borrower, threatened, against Borrower or any
Subsidiary, (b) no strike, lock-out, slowdown, stoppage, walkout or other labor
dispute pending or, to the knowledge of Borrower, threatened, against Borrower
or any Subsidiary, nor has any such action occurred within the last five years,
and (c) to the knowledge of Borrower, no petition for certification or union
election or union organizing activities taking place with respect to Borrower.

                                       51
<PAGE>

            SECTION 7.24 INTELLECTUAL PROPERTY. Each of Borrower and its
Subsidiaries owns, or has the legal right to use, all intellectual property
necessary for each of them to conduct its business as currently conducted
("BORROWER INTELLECTUAL Property"). Borrower has not received notice of any
claim challenging or questioning the use of any Borrower Intellectual Property
or the validity or effectiveness of any Borrower Intellectual Property, and to
the knowledge of Borrower, the use of such Borrower Intellectual Property by
Borrower or any Restricted Subsidiary does not infringe on the rights of any
Person, except for such claims and infringements that in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

                                  ARTICLE VIII

                              AFFIRMATIVE COVENANTS

            Borrower covenants and agrees that, until payment in full of all
Loans hereunder, all interest thereon and all other amounts payable by Borrower
hereunder and under the other Loan Documents:

            SECTION 8.01 REPORTING REQUIREMENTS. Borrower shall deliver, or
shall cause to be delivered, to the Administrative Agent with sufficient copies
of each for the Lenders:

                  (a) Annual Financial Statements. As soon as available and in
      any event within ninety (90) days after the end of each fiscal year of
      Borrower, the audited consolidated (and if Borrower ever has any
      Unrestricted Subsidiaries, the unaudited consolidating) statements of
      income, stockholders' equity, changes in financial position and cash flow
      of Borrower and its Consolidated Subsidiaries for such fiscal year, and
      the related consolidated (and if Borrower ever has any Consolidated,
      Unrestricted Subsidiaries, the consolidating) balance sheets of Borrower
      and its Consolidated Subsidiaries as at the end of such fiscal year, and
      setting forth in each case in comparative form the corresponding figures
      for the preceding fiscal year, and accompanied by the related opinion of
      independent public accountants of recognized national standing acceptable
      to the Administrative Agent which opinion shall state that said financial
      statements fairly present the consolidated financial condition and results
      of operations of Borrower and its Consolidated Subsidiaries as at the end
      of, and for, such fiscal year and that such financial statements have been
      prepared in accordance with GAAP, except for such changes in such
      principles with which the independent public accountants shall have
      concurred and such opinion shall not contain a "going concern" or like
      qualification or exception, and a certificate of such accountants stating
      that, in making the examination necessary for their opinion, they obtained
      no knowledge, except as specifically stated, of any Default.

                  (b) Quarterly Financial Statements. As soon as available and
      in any event within forty-five (45) days after the end of each of the
      first three fiscal quarterly periods of each fiscal year of Borrower,
      consolidated (and if Borrower ever has any Consolidated, Unrestricted
      Subsidiaries, the consolidating) statements of income, stockholders'
      equity, changes in financial position and cash flow of Borrower and its
      Consolidated Subsidiaries for such period and for the period from the
      beginning of the

                                       52
<PAGE>

      respective fiscal year to the end of such period, and the related
      consolidated (and if Borrower ever has any Unrestricted Subsidiaries, the
      consolidating) balance sheets as at the end of such period, and setting
      forth in each case in comparative form the corresponding figures for the
      corresponding period in the preceding fiscal year, accompanied by the
      certificate of a Responsible Officer, which certificate shall state that
      said financial statements fairly present the consolidated financial
      condition and results of operations of Borrower and its Consolidated
      Subsidiaries in accordance with GAAP, as at the end of, and for, such
      period (subject to normal year-end audit adjustments).

                  (c) Notice of Default, Etc. Promptly after Borrower knows that
      any Default or any Material Adverse Effect has occurred, a notice of such
      Default or Material Adverse Effect, describing the same in reasonable
      detail and the action Borrower proposes to take with respect thereto.

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

                  (e) SEC Filings, Etc. Promptly upon its becoming available,
      each financial statement, report, notice or proxy statement sent by
      Borrower to stockholders generally and each regular or periodic report and
      any registration statement, prospectus or written communication (other
      than transmittal letters) in respect thereof filed by Borrower with or
      received by Borrower in connection therewith from any securities exchange
      or the SEC.

                  (f) Notices Under Other Loan Agreements. Promptly after the
      furnishing thereof, copies of any statement, report or notice furnished to
      any Person pursuant to the terms of any 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.

                  (g) Other Matters. From time to time such other information
      regarding the business, affairs or financial condition of Borrower or any
      Subsidiary (including, without limitation, any Plan or Multiemployer Plan
      and any reports or other information required to be filed under ERISA) as
      any Lender or the Administrative Agent may reasonably request.

                  (h) Hedging Agreements. As soon as available and in any event
      within forty-five (45) days after the last day of each calendar quarter, a
      report, in form and substance reasonably satisfactory to the
      Administrative Agent, setting forth as of the last Business Day of such
      calendar quarter a true and complete list of all Hedging Agreements
      (including commodity price swap agreements, insurance swap or option
      agreements, forward agreements with terms in excess of thirty (30) days or
      contracts of sale which provide for prepayment for deferred shipment or
      delivery of oil, gas or other

                                       53
<PAGE>

      commodities) of Borrower and each Restricted Subsidiary, the material
      terms thereof (including the type, term, effective date, termination date
      and notional amounts or volumes), the net mark to market value therefor,
      any new credit support agreements relating thereto not listed on SCHEDULE
      7.20, any margin required or supplied under any credit support document,
      and the counter party to each such agreement.

                  (i) Responsible Officer's Certificate. Borrower will furnish
      to the Administrative Agent, at the time it furnishes each set of
      financial statements pursuant to paragraph (a) or (b) above, a certificate
      substantially in the form of Exhibit C executed by a Responsible Officer
      (1) certifying as to the matters set forth therein and stating that no
      Default has occurred and is continuing (or, if any Default has occurred
      and is continuing, describing the same in reasonable detail), and (2)
      setting forth in reasonable detail the computations necessary to determine
      whether Borrower is in compliance with SECTION 9.01(a) as of the end of
      the respective calendar quarter or fiscal year.

            SECTION 8.02 LITIGATION. Borrower shall promptly give to the
Administrative Agent notice of: (i) all legal or arbitral proceedings, and of
all proceedings before any Governmental Authority against or adversely affecting
Borrower or any Restricted Subsidiary, except proceedings which, if adversely
determined, could not reasonably be expected to have a Material Adverse Effect,
and (ii) of any litigation or proceeding against or adversely affecting in any
material respect Borrower or any Restricted Subsidiary in which the amount
involved is not covered in full by insurance (subject to normal and customary
deductibles and for which the insurer has not assumed the defense), or in which
injunctive or similar relief is sought. Borrower will, and will cause each of
its Restricted Subsidiaries to, promptly notify the Administrative Agent and
each of the Lenders of any claim, judgment, Lien (other than those permitted
under SECTION 9.02) or other encumbrance affecting any Property of Borrower or
any Restricted Subsidiary if the value of the claim, judgment, Lien, or other
encumbrance affecting such Property shall exceed $500,000.

            SECTION 8.03 MAINTENANCE, ETC.

                  (a) Generally. Borrower shall and shall cause each Restricted
      Subsidiary to: preserve and maintain its corporate existence and all of
      its material rights, privileges and franchises; keep books of record and
      account in which full, true and correct entries will be made of all
      dealings or transactions in relation to its business and activities;
      comply with all Governmental Requirements if failure to comply with such
      requirements would be reasonably likely to have a Material Adverse Effect;
      pay and discharge all taxes, assessments and governmental charges or
      levies imposed on it or on its income or profits or on any of its Property
      prior to the date on which penalties attach thereto, except for any such
      tax, assessment, charge or levy the payment of which is being contested in
      good faith and by proper proceedings and against which adequate reserves
      are being maintained; upon reasonable notice, permit representatives of
      the Administrative Agent or any Lender, during normal business hours, to
      examine, copy and make extracts from its books and records, to inspect its
      Properties, and to discuss its business and affairs with its officers, all
      to the extent reasonably requested by such Lender or the Administrative
      Agent (as the case may be); and keep, or cause to be kept, insured by
      financially sound and reputable insurers all Property of a character
      usually

                                       54
<PAGE>

      insured by Persons engaged in the same or similar business similarly
      situated against loss or damage of the kinds and in the amounts
      customarily insured against by such Persons and carry such other insurance
      as is usually carried by such Persons including, without limitation,
      environmental risk insurance to the extent reasonably available. Subject
      to SECTION 9.14, Borrower will, and will cause each Restricted Subsidiary,
      to pay, discharge or otherwise satisfy at or before maturity all
      liabilities and obligations as and when due (subject to any applicable
      subordination provisions), and any additional costs that are imposed as a
      result of any failure to so pay, discharge or otherwise satisfy such
      obligations, except to the extent failure to do so would not, individually
      or in the aggregate be reasonably likely to have a Material Adverse
      Effect.

                  (b) Oil and Gas Properties. Borrower will and will cause each
      Restricted Subsidiary to maintain all of its Oil and Gas Properties as a
      reasonably prudent operator. Borrower will and will cause each Restricted
      Subsidiary to keep unimpaired, except for Liens described in SECTION 9.02,
      its rights with respect to its Oil and Gas Properties and other material
      Properties and prevent any forfeiture thereof or a default thereunder.
      Borrower will cause and cause each Restricted Subsidiary to 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.

            SECTION 8.04 ENVIRONMENTAL MATTERS.

                  (a) Compliance with Environmental Laws. Borrower will and will
      cause each Subsidiary to maintain and operate all Property of Borrower and
      its Subsidiaries in compliance with applicable Environmental Laws in all
      material respects.

                  (b) Notice of Action. Borrower will promptly notify the
      Administrative Agent and the Lenders in writing of any threatened action,
      investigation or inquiry by any Governmental Authority of which Borrower
      has knowledge in connection with any Environmental Laws, excluding routine
      testing and corrective action, which if adversely determined could have a
      Material Adverse Effect.

                  (c) Future Acquisitions. Borrower will and will cause each
      Subsidiary to provide environmental audits and tests in accordance with
      industry standards as reasonably requested by the Majority Lenders (or as
      otherwise required to be obtained by the Lenders by any Governmental
      Authority) in connection with any future acquisitions of Oil and Gas
      Properties.

            SECTION 8.05 FURTHER ASSURANCES. Borrower will cure promptly any
defects in the creation and issuance of the Notes and the execution and delivery
of this Agreement. Borrower at its expense will promptly execute and deliver to
the Administrative Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and agreements of
Borrower this Agreement, or to correct any omissions in, or to state more fully
the obligations set out herein or to make any recordings, to

                                       55
<PAGE>

file any notices or obtain any consents, all as may be necessary or appropriate
in connection therewith.

            SECTION 8.06 PERFORMANCE OF OBLIGATIONS. Borrower will pay the Notes
according to the reading, tenor and effect thereof; and Borrower will do and
perform every act and discharge all of the obligations to be performed and
discharged by it under this Agreement and the Notes, at the time or times and in
the manner specified.

            SECTION 8.07 ERISA INFORMATION AND COMPLIANCE. Borrower will
promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to
promptly furnish to the Administrative Agent with sufficient copies to the
Lenders (i) promptly after the filing thereof with the United States Secretary
of Labor, the Internal Revenue Service or the PBGC, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (ii)
immediately upon becoming aware of the occurrence of any ERISA Event or of any
"prohibited transaction," as described in section 406 of ERISA or in section
4975 of the Code, in connection with any Plan or any trust created thereunder, a
written notice signed by a Responsible Officer specifying the nature thereof,
what action Borrower, the Subsidiary or the ERISA Affiliate is taking or
proposes to take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto, and (iii) immediately upon receipt thereof, copies of any
notice of the PBGC's intention to terminate or to have a trustee appointed to
administer any Plan. With respect to each Plan (other than a Multiemployer
Plan), Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i)
satisfy in full and in a timely manner, without incurring any late payment or
underpayment charge or penalty and without giving rise to any lien, all of the
contribution and funding requirements of section 412 of the Code (determined
without regard to subsections (d), (e), (f) and (k) thereof) and of section 302
of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and
(ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring
any late payment or underpayment charge or penalty, all premiums required
pursuant to sections 4006 and 4007 of ERISA.

            SECTION 8.08 RESTRICTED SUBSIDIARIES.

                  (a) Borrower shall ensure that each Restricted Subsidiary is
      at all times a Consolidated Subsidiary.

                  (b) Borrower shall cause all Restricted Subsidiaries created
      or acquired after the date hereof to execute a subsidiary guarantee of the
      Notes and to provide legal opinions and such other documents as the
      Majority Lenders may reasonably request.

            SECTION 8.09 USE OF PROCEEDS OF QUALIFIED OFFERING. If the Borrower
issues Debt in a Qualified Offering, the Borrower shall use the net proceeds of
such offering to repay or redeem Debt, including Debt under the Senior Secured
Credit Facility (which may be reborrowed from time to time as Permitted
Indebtedness). If the aggregate net proceeds from Qualified Offerings equals or
exceeds $150,000,000, Borrower shall repay in full all Debt under the Duke
Credit Facility.

                                       56
<PAGE>

            SECTION 8.10 RATING. Prior to September 30, 2004, the Borrower will
cause the Notes to be rated by Standard & Poor's, Moody's Investor Services or
Fitch Ratings.

                                   ARTICLE IX

                               NEGATIVE COVENANTS

            Borrower covenants and agrees that, until payment in full of all
Loans hereunder, all interest thereon and all other amounts payable by Borrower
hereunder and under the other Loan Documents, without the prior written consent
of the Majority Lenders:

            SECTION 9.01 DEBT INCURRENCE.

                  (a) Borrower will not, and will not permit any Restricted
      Subsidiary to, incur, create or assume any Debt, other than Permitted
      Indebtedness, if (i) the Interest Coverage Ratio after giving effect to
      the incurrence, creation or assumption of such Debt is less than 2.5 to
      1.0, or (ii) the Debt Coverage Ratio after giving effect to the
      incurrence, creation or assumption of such Debt is more than 4.0 to 1.0.

                  (b) Borrow will not, and will not permit any Restricted
      Subsidiary to, incur, create or assume more than $175,000,000 in aggregate
      principal amount of Senior Secured Debt unless the Ratio of Borrower's
      Adjusted Consolidated Net Tangible Assets to Senior Secured Debt is equal
      to, or greater than, 2.5 to 1.0.

            SECTION 9.02 LIENS. Unless the Loans are secured equally and
ratably, Borrower will not, and will not permit any Restricted Subsidiary to,
create, incur or assume any Lien securing pari passu or subordinated Debt on any
of its Properties (now owned or hereafter acquired), except:

                  (a) Liens securing the payment of the Loans;

                  (b) Permitted Liens;

                  (c) Liens securing leases allowed under clause (d) in the
      definition of Permitted Indebtedness, but only on the Property under
      lease;

                  (d) Liens disclosed on SCHEDULE 9.02;

                  (e) Liens on cash or securities of Borrower securing Debt
      described in clause (e) of the definition of Permitted Indebtedness; and

                  (f) any Lien on any Property acquired after the date hereof
      existing prior to the acquisition thereof by Borrower or any Restricted
      Subsidiary or existing on any Property of any Person that becomes a
      Restricted Subsidiary after the date hereof prior to the time such Person
      becomes a Restricted Subsidiary; provided that (i) such Lien is not
      created in contemplation of or in connection with such acquisition or such
      Person becoming a Restricted Subsidiary, as the case may be, (ii) such
      Lien shall not apply to any other Property of Borrower or any Restricted
      Subsidiary and (iii) such Lien shall

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      secure only those obligations which it secures on the date of such
      acquisition or the date such Person becomes a Restricted Subsidiary, as
      the case may be and extensions, renewals and replacements thereof that do
      not increase the outstanding principal amount thereof.

            SECTION 9.03 RESTRICTED INVESTMENTS; RESTRICTIVE AGREEMENTS.

                  (a) Borrower will not, and will not permit any of its
      Restricted Subsidiaries, directly or indirectly, to:

                        (1) declare or pay any dividend or make any distribution
            on or in respect of its capital stock (including any payment in
            connection with any merger or consolidation involving Borrower or
            any of its Restricted Subsidiaries) except:

                              (A) dividends or distributions payable in capital
                  stock of Borrower (other than Disqualified Stock) or in
                  options, warrants or other rights to purchase such capital
                  stock;

                              (B) dividends or distributions payable to Borrower
                  or a Restricted Subsidiary of Borrower (and if such Restricted
                  Subsidiary is not a Wholly-Owned Subsidiary, to its other
                  holders of common capital stock on a pro rata basis); and

                              (C) dividends on Borrower's $2.125 Convertible
                  Exchangeable Preferred Stock, Series A currently outstanding;

                        (2) purchase, redeem, retire or otherwise acquire for
            value any capital stock of Borrower or any direct or indirect parent
            of Borrower held by Persons other than Borrower or a Restricted
            Subsidiary of Borrower (other than in exchange for capital stock of
            Borrower (other than Disqualified Stock));

                        (3) purchase, repurchase, redeem, defease or otherwise
            acquire or retire for value, prior to scheduled maturity, scheduled
            repayment or scheduled sinking fund payment, any Subordinated Debt
            (other than the purchase, repurchase or other acquisition of
            Subordinated Debt purchased in anticipation of satisfying a sinking
            fund obligation, principal installment or final maturity, in each
            case due within one year of the date of purchase, repurchase or
            acquisition); or

                        (4) make any Restricted Investment in any Person;

(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Restricted Investment referred to in clauses
(1) through (4) only shall be referred to herein as a "RESTRICTED PAYMENT"), if
at the time Borrower or such Restricted Subsidiary makes such Restricted
Payment:

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<PAGE>

                              (A) a Default shall have occurred and be
                  continuing (or would result therefrom); or

                              (B) Borrower is not able to incur an additional
                  $1.00 of Debt pursuant to SECTION 9.01(a) after giving effect,
                  on a pro forma basis, to such Restricted Payment; or

                              (C) the aggregate amount of such Restricted
                  Payment and all other Restricted Payments declared or made
                  subsequent to the date hereof would exceed the sum of:

                                    (i) 50% of Consolidated Net Income for the
                        period (treated as one accounting period) from the
                        beginning of the first calendar quarter commencing after
                        the date of this Agreement to the end of the most recent
                        calendar quarter ending prior to the date of such
                        Restricted Payment for which financial statements are in
                        existence (or, in case such Consolidated Net Income is a
                        deficit, minus 100% of such deficit); provided, however,
                        that writedowns of oil and gas properties due to the
                        application of the full-cost method of accounting will
                        not be deducted in calculating Consolidated Net Income
                        for purposes of this paragraph;

                                    (ii) the aggregate Net Cash Proceeds
                        received by Borrower from the issue or sale of its
                        capital stock (other than Disqualified Stock) or other
                        capital contributions subsequent to the date hereof
                        (other than Net Cash Proceeds received from an issuance
                        or sale of such capital stock to a Subsidiary of
                        Borrower or an employee stock ownership plan, option
                        plan or similar trust to the extent such sale to an
                        employee stock ownership plan, option plan or similar
                        trust is financed by loans from or guaranteed by
                        Borrower or any Restricted Subsidiary unless such loans
                        have been repaid with cash on or prior to the date of
                        determination);

                                    (iii) the amount by which Debt of Borrower
                        is reduced on Borrower's balance sheet upon the
                        conversion or exchange (other than by a Subsidiary of
                        Borrower) subsequent to the date hereof of any Debt of
                        Borrower convertible or exchangeable for capital stock
                        (other than Disqualified Stock) of Borrower (less the
                        amount of any cash, or other property, distributed by
                        Borrower upon such conversion or exchange); and

                                    (iv) the amount equal to the net reduction
                        in Restricted Investments made by Borrower or any of its
                        Restricted Subsidiaries in any Person resulting from:

                                    (a) repurchases or redemptions of such
                              Restricted Investments by such Person, proceeds
                              realized

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<PAGE>

                              upon the sale of such Restricted Investment to an
                              unaffiliated purchaser, repayments of loans or
                              advances or other transfers of assets (including
                              by way of dividend or distribution) by such Person
                              to Borrower or any Restricted Subsidiary of
                              Borrower; or

                                    (b) the redesignation of Unrestricted
                              Subsidiaries as Restricted Subsidiaries (valued in
                              each case as provided in the definition of
                              "INVESTMENT") not to exceed, in the case of any
                              Unrestricted Subsidiary, the amount of Investments
                              previously made by Borrower or any Restricted
                              Subsidiary in such Unrestricted Subsidiary,

                        which amount in each case under this clause (iv) was
                        included in the calculation of the amount of Restricted
                        Payments; provided, however, that no amount will be
                        included under this clause (iv) to the extent it is
                        already included in Consolidated Net Income.

                  The provisions of the preceding paragraph will not prohibit:

                        (1) any purchase or redemption of capital stock or
            Subordinated Debt of Borrower made by exchange for, or out of the
            proceeds of the substantially concurrent sale of, capital stock of
            Borrower or Subordinated Debt with a maturity after December 31,
            2010; provided, however, that (a) such purchase or redemption will
            be excluded in subsequent calculations of the amount of Restricted
            Payments and (b) the Net Cash Proceeds from such sale will be
            excluded from clause (c)(ii) of the preceding paragraph;

                        (2) any purchase or redemption of Subordinated
            Obligations of Borrower made by exchange for, or out of the proceeds
            of the substantially concurrent sale of, Subordinated Debt of
            Borrower that is refinanced in compliance with this Agreement;
            provided, however, that such purchase or redemption will be excluded
            in subsequent calculations of the amount of Restricted Payments;

                        (3) so long as no Default or Event of Default has
            occurred and is continuing, any purchase or redemption of
            Subordinated Debt from Net Available Cash to the extent permitted
            under SECTION 9.11 below; provided, however, that such purchase or
            redemption will be excluded in subsequent calculations of the amount
            of Restricted Payments;

                        (4) dividends paid within sixty (60) days after the date
            of declaration if at such date of declaration such dividend would
            have complied with this provision; provided, however, that such
            dividends will be included in subsequent calculations of the amount
            of Restricted Payments;

                        (5) so long as no Default or Event of Default has
            occurred and is continuing,

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<PAGE>

                              (A) the purchase, redemption or other acquisition,
                  cancellation or retirement for value of capital stock, or
                  options, warrants, equity appreciation rights or other rights
                  to purchase or acquire capital stock of Borrower or any
                  Restricted Subsidiary of Borrower or any parent of Borrower
                  held by any existing or former directors, employees or
                  management of Borrower or any Subsidiary of Borrower or their
                  assigns, estates or heirs, in each case in connection with the
                  repurchase provisions under employee or director stock option
                  or stock purchase agreements or other agreements to compensate
                  management employees or directors; provided that such
                  redemptions or repurchases pursuant to this clause will not
                  exceed $2,000,000 in the aggregate during any calendar year
                  and $10,000,000 in the aggregate for all such redemptions and
                  repurchases; provided, however, that the amount of any such
                  repurchase or redemption will be included in subsequent
                  calculations of the amount of Restricted Payments; and

                              (B) loans or advances to employees or directors of
                  Borrower or any Subsidiary of Borrower the proceeds of which
                  are used to purchase capital stock of Borrower, in an
                  aggregate amount not in excess of $2,000,000 at any one time
                  outstanding; provided, however, that the amount of such loans
                  and advances will be included in subsequent calculations of
                  the amount of Restricted Payments;

                        (6) repurchases of capital stock deemed to occur upon
            the exercise of stock options if such capital stock represents a
            portion of the exercise price thereof; provided, however, that such
            repurchases will be excluded from subsequent calculations of the
            amount of Restricted Payments; and

                        (7) Restricted Payments in an amount not to exceed
            $10,000,000; provided that the amount of such Restricted Payments
            will be included in the calculation of the amount of Restricted
            Payments pursuant to SECTION 9.03(a)(4)(c).

The amount of all Restricted Payments (other than cash) shall be the fair market
value on the date of such Restricted Payment of the Property or securities
proposed to be paid, transferred or issued by Borrower or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair
market value of any cash Restricted Payment shall be its face amount and any
non-cash Restricted Payment shall be determined conclusively by the board of
directors of Borrower acting in good faith.

                  (c) Borrower will not, and will not permit any Restricted
      Subsidiary to, create or otherwise cause or permit to exist or become
      effective any consensual encumbrance or consensual restriction on the
      ability of any Restricted Subsidiary to:

                        (1) pay dividends or make any other distributions on its
            capital stock or pay any Debt or other obligations owed to Borrower
            or any Restricted Subsidiary;

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<PAGE>

                        (2) make any loans or advances to Borrower or any
            Restricted Subsidiary; or

                        (3) transfer any of its Property to Borrower or any
            Restricted Subsidiary.

      The preceding provisions will not prohibit:

                              (A) any encumbrance or restriction pursuant to
                  this Agreement, the Senior Secured Credit Facility, the Duke
                  Credit Facility or an agreement in effect on the date hereof;

                              (B) any encumbrance or restriction with respect to
                  a Restricted Subsidiary pursuant to an agreement relating to
                  any Debt incurred by a Restricted Subsidiary on or before the
                  date on which such Restricted Subsidiary was acquired by
                  Borrower (other than Debt incurred as consideration in, or to
                  provide all or any portion of the funds utilized to
                  consummate, the transaction or series of related transactions
                  pursuant to which such Restricted Subsidiary became a
                  Restricted Subsidiary or was acquired by Borrower or in
                  contemplation of the transaction) and outstanding on such
                  date;

                              (C) any encumbrance or restriction with respect to
                  a Restricted Subsidiary pursuant to an agreement effecting a
                  refunding, replacement or refinancing of Debt incurred
                  pursuant to an agreement referred to in clause (a) or (b) of
                  this paragraph or this clause (c) or contained in any
                  amendment to an agreement referred to in clause (a) or (b) of
                  this paragraph or this clause (c); provided, however, that the
                  encumbrances and restrictions with respect to such Restricted
                  Subsidiary contained in any such agreement are no less
                  favorable in any material respect to the holders of the Notes
                  than the encumbrances and restrictions contained in such
                  agreements referred to in clauses (a) or (b) of this paragraph
                  on the date hereof or the date such Restricted Subsidiary
                  became a Restricted Subsidiary, whichever is applicable:

                              (D) in the case of clause (3) of this covenant,
                  any encumbrance or restriction;

                                    (i) that restricts in a customary manner the
                        subletting, assignment or transfer of any Property that
                        is subject to a lease, license or similar contract, or
                        the assignment or transfer of any such lease, license or
                        other contract;

                                    (ii) contained in mortgages, pledges or
                        other security agreements permitted under this Agreement
                        securing Debt of Borrower or a Restricted Subsidiary to
                        the extent such encumbrances or restrictions restrict
                        the transfer of the Property subject to such mortgages,
                        pledges or other security agreements; or

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<PAGE>

                                    (iii) pursuant to customary provisions
                        regarding preferential rights or rights of first refusal
                        or restricting dispositions of real property interests
                        set forth in any reciprocal easement agreements of
                        Borrower or any Restricted Subsidiary;

                              (E) purchase money obligations for Property
                  acquired in the ordinary course of business that impose
                  encumbrances or restrictions of the nature described in clause
                  (3) of this covenant on the Property so acquired;

                              (F) any restriction with respect to a Restricted
                  Subsidiary (or any of its Property) imposed pursuant to an
                  agreement entered into for the direct or indirect sale or
                  disposition of all or substantially all the capital stock or
                  Property of such Restricted Subsidiary (or the Property that
                  is subject to such restriction) pending the closing of such
                  sale or disposition;

                              (G) encumbrances or restrictions arising or
                  existing by reason of applicable law or any applicable rule,
                  regulation or order;

                              (H) any encumbrance or restriction arising out of
                  any Permitted Lien; and

                              (I) customary provisions with respect to the
                  distribution of assets or property in joint venture
                  agreements.

            SECTION 9.04 SALES AND LEASEBACKS. Other than in connection with
Permitted Equipment Financings, neither Borrower nor any Restricted Subsidiary
will enter into any arrangement, directly or indirectly, with any Person whereby
Borrower or any Restricted Subsidiary shall sell or transfer any of its
Property, whether now owned or hereafter acquired, and whereby Borrower or any
Restricted Subsidiary shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which Borrower or any Restricted
Subsidiary intends to use for substantially the same purpose or purposes as the
Property sold or transferred.

            SECTION 9.05 NATURE OF BUSINESS. Neither Borrower nor any Restricted
Subsidiary will allow any material change to be made in the character of its
business.

            SECTION 9.06 LIMITATION ON LEASES. Other than in connection with
Permitted Equipment Financings, neither Borrower nor any Restricted Subsidiary
will create, incur, assume or permit to exist any obligation for the payment of
rent or hire of Property of any kind whatsoever (real or personal including
capital leases, but excluding leases of Hydrocarbon Interests), under leases or
lease agreements for terms in excess of, or that are non-cancelable by Borrower
or such Subsidiary within, twelve months which would cause all payments made by
Borrower and its Restricted Subsidiaries pursuant to all such leases or lease
agreements to exceed (i) $2,000,000 per annum during the calendar years 2004 and
2005 or (ii) $4,000,000 per annum during calendar years 2006 through 2010.

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<PAGE>

            SECTION 9.07 CONSOLIDATION AND MERGER. Borrower shall not merge into
or consolidate with or sell all or substantially all of its Property to any
Person or group of affiliated Persons unless (a) either (1) Borrower survives,
or (2) survivor is an entity organized under United States law or any state
thereof or the District of Columbia and assumes, in writing, the Loans; (b) no
Default or Event of Default shall have occurred and be continuing; (c) except in
the case of the consolidation or merger of any Restricted Subsidiary with or
into Borrower, the consolidated net worth of Borrower (or the surviving entity)
does not decrease; Borrower could incur $1.00 of additional Debt (excluding
Permitted Indebtedness) under SECTION 9.01(a); and (e) if any of Borrower's
assets become subject to any Lien, the imposition of such Lien shall have been
in compliance with SECTION 9.02. Notwithstanding the preceding clause (D), (i)
any Restricted Subsidiary of Borrower may consolidate with, merge into or
transfer all or part of its properties and assets to Borrower, (ii) Borrower may
merge with an Affiliate incorporated solely for the purpose of reincorporating
Borrower in another jurisdiction to realize tax or other benefits and (iii) any
Wholly-Owned Subsidiary can consolidate with or merge into any other
Wholly-Owned Subsidiary, except Restricted Subsidiaries cannot merge with
Unrestricted Subsidiaries.

            SECTION 9.08 PROCEEDS OF NOTES AND LOANS. Borrower will not permit
the proceeds of the Notes and Loans to be used for any purpose other than those
permitted by SECTION 7.07. Neither Borrower nor any Person acting on behalf of
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulation T, U or X or any other regulation of the Board
of Governors of the Federal Reserve System 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.

            SECTION 9.09 ERISA COMPLIANCE. Borrower will not at any time:

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

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

                  (c) fail to make, or permit any Subsidiary or 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,
      Borrower, a Subsidiary or any ERISA Affiliate is required to pay as
      contributions thereto;

                  (d) permit to exist, or allow any Subsidiary or 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 Subsidiary or ERISA Affiliate to
      permit, the actuarial present value of the benefit liabilities under any
      Plan maintained by Borrower,

                                       64
<PAGE>

      any 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 Subsidiary or ERISA Affiliate to contribute to or assume an
      obligation to contribute to, any Multiemployer Plan;

                  (g) acquire, or permit any Subsidiary or ERISA Affiliate to
      acquire, an interest in any Person that causes such Person to become an
      ERISA Affiliate with respect to Borrower, any Subsidiary or any ERISA
      Affiliate 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 Subsidiary or 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 Subsidiary or 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; or

                  (j) amend or permit any Subsidiary or ERISA Affiliate to
      amend, a Plan resulting in an increase in current liability such that
      Borrower, any 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. Neither Borrower nor
any Restricted Subsidiary will discount or sell (with or without recourse) any
of its notes receivable or accounts receivable other than settlement of any past
due accounts in the ordinary course of business and in accordance with prudent
commercial practices.

            SECTION 9.11 SALE OF PROPERTY.

                  (a) Borrower shall not, and shall not permit any Restricted
      Subsidiary to, sell, assign, convey or otherwise transfer any Property
      unless (i) consideration equal to the fair market value of the Property
      sold is received, (ii) the sale is an arm's length transaction; (iii) all
      of the consideration received consists of cash, Cash Equivalents, liquid
      securities or Exchanged Properties ("PERMITTED CONSIDERATION"); provided,

                                       65
<PAGE>

      however, that Borrower and its Restricted Subsidiaries may receive
      Property that does not constitute Permitted Consideration, so long as the
      aggregate fair market value of all Property received pursuant to this
      proviso shall not exceed 10.0% of Adjusted Consolidated Net Tangible
      Assets, as determined by the Borrower's Board of Directors.

                  (b) Within 365 days following the receipt of Net Available
      Cash, an amount equal to 100% of the Net Available Cash from such Asset
      Disposition shall be applied by Borrower or such Restricted Subsidiary, as
      the case may be:

                        (1) to apply all or any of the Net Available Cash
            therefrom to repay indebtedness under the Senior Secured Credit
            Facility, or

                        (2) invest all or any part of the Net Available Cash in
            Property that will be used in the oil and gas business of Borrower
            or its Restricted Subsidiaries.

            Any Net Available Cash from Asset Dispositions that are not applied
or invested as provided in the preceding paragraph will be deemed to constitute
"EXCESS PROCEEDS." On the 366th day after an Asset Disposition, if the aggregate
amount of Excess Proceeds exceeds $5,000,000.00, Borrower will be required to
make an offer ("ASSET DISPOSITION OFFER") to all holders of Notes and to the
extent required by the terms of other Senior Indebtedness, to all holders of
other Senior Indebtedness outstanding with similar provisions requiring Borrower
to make an offer to purchase such Senior Indebtedness with the proceeds from any
Asset Disposition ("PARI PASSU NOTES"), to purchase the maximum principal amount
of Notes and any such Pari Passu Notes to which the Asset Disposition Offer
applies that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount of the Notes and Pari
Passu Notes plus accrued and unpaid interest to the date of purchase, in
accordance with the procedures set forth herein or in the agreements governing
the Pari Passu Notes, as applicable, and subject to the prepayment provisions of
SECTION 2.04 (the term "voluntary" therein being deleted). To the extent that
the aggregate amount of Notes and Pari Passu Notes so validly tendered and not
properly withdrawn pursuant to an Asset Disposition Offer is less than the
Excess Proceeds, Borrower may use any remaining Excess Proceeds for general
corporate purposes, subject to the other covenants contained herein. If the
aggregate principal amount of Notes surrendered by holders thereof and other
Pari Passu Notes surrendered by holders or lenders, collectively, exceeds the
amount of Excess Proceeds, Borrower shall select the Notes and Pari Passu Notes
to be purchased on a pro rata basis on the basis of the aggregate principal
amount of tendered Notes and Pari Passu Notes. Upon completion of such Asset
Disposition Offer, the amount of Excess Proceeds shall be reset at zero.

            The Asset Disposition Offer will remain open for a period of twenty
(20) Business Days following its commencement, except to the extent that a
longer period is required by applicable law (the "ASSET DISPOSITION OFFER
PERIOD"). No later than five (5) Business Days after the termination of the
Asset Disposition Offer Period (the "ASSET DISPOSITION PURCHASE DATE"), Borrower
will purchase the principal amount of Notes and Pari Passu Notes required to be
purchased pursuant to this covenant (the "ASSET DISPOSITION OFFER AMOUNT") or,
if less than

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<PAGE>

the Asset Disposition Offer Amount has been so validly tendered, all Notes and
Pari Passu Notes validly tendered in response to the Asset Disposition Offer.

            Any accrued and unpaid interest will be paid to the Person in whose
name a Note is registered at the close of business on such date, and no
additional interest will be payable to holders of the Notes who tender Notes
pursuant to the Asset Disposition Offer.

            On or before the Asset Disposition Purchase Date, Borrower will, to
the extent lawful, accept for payment, on a pro rata basis to the extent
necessary, the Asset Disposition Offer Amount of Notes and Pari Passu Notes or
portions of Notes and Pari Passu Notes so validly tendered and not properly
withdrawn pursuant to the Asset Disposition Offer, or if less than the Asset
Disposition Offer Amount has been validly tendered and not properly withdrawn,
all Notes and Pari Passu Notes so validly tendered and not properly withdrawn.
Borrower will deliver all certificates and notes required, if any, by this
Agreement or the agreements governing the Pari Passu Notes. Borrower will
promptly (but in any case not later than the Asset Disposition Purchase Date)
mail or deliver to each tendering holder of Notes or holder or lender of Pari
Passu Notes, as the case may be, an amount equal to the purchase price of the
Notes or Pari Passu Notes so validly tendered and not properly withdrawn by such
holder or lender, as the case may be, and accepted by Borrower for purchase, and
Borrower will promptly issue a new Note and will deliver such new Note to such
holder, in a principal amount equal to any unpurchased portion of the Note
surrendered. In addition, Borrower will take any and all other actions required
by the agreements governing the Pari Passu Notes. Any Note not so accepted will
be promptly mailed or delivered by Borrower to the holder thereof. Borrower will
publicly announce the results of the Asset Disposition Offer on the Asset
Disposition Purchase Date.

            For the purposes of this covenant, the following will be deemed to
be cash:

                        (1) the assumption by the transferee of Debt (other than
            Subordinated Obligations or Disqualified Stock) of Borrower or Debt
            (other than Preferred Stock) of any Restricted Subsidiary of
            Borrower and the release of Borrower or such Restricted Subsidiary
            from all liability on such Debt in connection with such Asset
            Disposition (in which case Borrower will, without further action, be
            deemed to have applied such deemed cash to Debt in accordance with
            SECTION 9.11(b) above); and

                        (2) securities, notes or other obligations received by
            Borrower or any Restricted Subsidiary of Borrower from the
            transferee that are promptly converted by Borrower or such
            Restricted Subsidiary into cash or Cash Equivalents.

            Borrower will comply, to the extent applicable, with the
requirements of securities laws or regulations in connection with the repurchase
of Notes pursuant to this Agreement. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant,
Borrower will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this Agreement by
virtue of complying with such securities laws and regulations.

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            SECTION 9.12 ENVIRONMENTAL MATTERS. Neither Borrower nor any
Restricted Subsidiary will cause or, to the extent within its control, permit
any of its Property to be in violation of, or do anything or, to the extent
within its control, permit anything to be done which will subject any such
Property to any remedial obligations 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 would have a Material Adverse Effect.

            SECTION 9.13 TRANSACTIONS WITH AFFILIATES. Neither Borrower nor any
Restricted Subsidiary will enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate unless such transactions are otherwise
permitted under this Agreement, are in the ordinary course of its business 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;
provided, however, that notwithstanding the provisions of SECTION 9.12, Borrower
may engage in the Permitted Medusa Transaction.

            SECTION 9.14 SUBORDINATED DEBT. If a Default exists or would result
therefrom, Borrower shall not make any payment in respect of any Subordinated
Debt or the Existing Subordinated Debt. Borrower will not amend, supplement or
otherwise modify any instruments evidencing, or agreements relating to or
executed in connection with, any Existing Subordinated Debt, in any manner which
would have the effect of (i) accelerating the timing or amount of any scheduled
payments of principal or interest thereon, (ii) increasing the rate of interest
payable thereon or (iii) resulting in a Material Adverse Effect.

            SECTION 9.15 ISSUANCE AND SALE OF CAPITAL STOCK. Borrower (a) shall
not permit any Restricted Subsidiary to issue any capital stock (other than to
Borrower or a Wholly-Owned Subsidiary of Borrower) and (b) shall not permit any
Person (other than Borrower or a wholly-owned Restricted Subsidiary of Borrower)
to own any capital stock of any Restricted Subsidiary, except, in each case, for
(1) directors' qualifying shares, (2) capital stock of a Restricted Subsidiary
organized in a foreign jurisdiction required to be issued to, or owned by, the
government of such foreign jurisdiction or individual or corporate citizens of
such foreign jurisdiction in order for such Restricted Subsidiary to transact
business in such foreign jurisdiction, (3) a sale of all or substantially all
the capital stock of a Restricted Subsidiary effected in connection with a
Property sale in accordance with SECTION 9.11, and (4) the capital stock of a
Restricted Subsidiary owned by a Person at the time such Restricted Subsidiary
became a Restricted Subsidiary or acquired by such Person in connection with the
formation of the Restricted Subsidiary; provided, however, that any capital
stock retained by Borrower or a Restricted Subsidiary shall be treated as an
Investment for purposes of SECTION 9.03, if the amount of such capital stock
represents less than a majority of the voting stock of such Restricted
Subsidiary.

            SECTION 9.16 MODIFICATION OF AGREEMENTS. Borrower shall not, and
shall not permit any Subsidiary to, amend, modify or change any provision of its
articles, certificate of incorporation, bylaws, partnership agreement,
certificate of formation or operating agreement, as applicable, or the terms of
any class or series of its capital stock, other than in a manner that would not
be reasonably likely to have a Material Adverse Effect or to adversely affect
the right

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or ability of Borrower to receive dividend payments or other distributions from
its Subsidiaries, or amend, modify, cancel or terminate or fail to renew or
extend or permit the amendment, modification, cancellation or termination of any
Material Agreement, except to the extent that such amendments, modifications,
cancellations or terminations would not be reasonably likely to have a Material
Adverse Effect.

            SECTION 9.17 GUARANTEES. Borrower shall not, and shall not permit
any Restricted Subsidiary to, guarantee, directly or indirectly, any Debt of any
Unrestricted Subsidiary.

            SECTION 9.18 LIMITATION ON ADDITIONAL DEBT. Borrower shall not incur
any Debt other than (i) Permitted Debt or (ii) Debt incurred under the Senior
Secured Credit Facility. For purposes of this SECTION 9.18, Debt shall only
include the obligations listed in clauses (i) through (v), (vii), and (ix)
through (xi) of the definition of Debt in SECTION 1.02.

            SECTION 9.19 PERMITTED MEDUSA TRANSACTIONS. Notwithstanding anything
in this Agreement or any other Loan Document to the contrary, so long as no
Default or Event of Default has occurred and is continuing at the time Borrower
or any of its Subsidiaries enters into any Permitted Medusa Transaction, the
entering into and carrying out of such Permitted Medusa Transaction shall be
allowed hereunder and shall not in itself constitute a breach of, non-compliance
with, or Default or Event of Default under this Agreement or any other Loan
Document.

                                   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) Borrower shall default in the payment or prepayment when
      due of any principal of or interest on any Loan or any fees payable by it
      hereunder or under any Loan Document and such default, other than a
      default of a payment or prepayment of principal (which shall have no cure
      period), shall continue unremedied for a period of thirty (30) days; or

                  (b) Borrower or any Restricted Subsidiary shall default in the
      payment when due of any principal of or interest on any of its other Debt
      (other than Debt owed to Borrower or any Restricted Subsidiary)
      aggregating $10,000,000 or more ($15,000,000 in the case of non-recourse
      Debt), or any event specified in any note, agreement, indenture or other
      document evidencing or relating to any such Debt shall occur if the effect
      of such event is to cause, or (with the giving of any notice or the lapse
      of time or both) to permit the holder or holders of such Debt (or a
      trustee or administrative agent on behalf of such holder or holders) to
      cause, such Debt to become due prior to its stated maturity; or

                  (c) any representation, warranty or certification made or
      deemed made herein, in any Loan Document by Borrower, or any certificate
      furnished to any Lender or the Administrative Agent pursuant to the
      provisions hereof, or any Loan Document, shall

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      prove to have been false or misleading as of the time made or furnished in
      any material respect; or

                  (d) Borrower shall default in the performance of any of its
      obligations under SECTION 9.07 of this Agreement; (ii) Borrower shall
      default in the performance of any of its obligations under SECTION
      2.04(b), ARTICLE VIII or ARTICLE IX (other than the payment of amounts due
      which shall be governed by SECTION 10.01(a) or SECTION 9.07 which shall be
      governed by SECTION 10.01(D)(I)) and such default shall continue
      unremedied for a period of thirty (30) days after the earlier to occur of
      (a) notice thereof to Borrower by the Administrative Agent or any Lender
      (through the Administrative Agent), or (b) Borrower otherwise becoming
      aware of such default; or (iii) Borrower shall default in the performance
      of any of its other obligations under this Agreement and such default
      shall continue unremedied for a period of sixty (60) days after the
      earlier to occur of (a) notice thereof to Borrower by the Administrative
      Agent or any Lender (through the Administrative Agent), or (b) Borrower
      otherwise becoming aware of such default; or

                  (e) Borrower or any Restricted Subsidiary shall admit in
      writing its inability to, or be generally unable to, pay its debts as such
      debts become due; or

                  (f) Borrower or any Restricted Subsidiary shall (i) apply for
      or consent to the appointment of, or the taking of possession by, a
      receiver, custodian, trustee or liquidator of itself or of all or a
      substantial part of its property, (ii) make a general assignment for the
      benefit of its creditors, (iii) commence a voluntary case under the
      Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a
      petition seeking to take advantage of any other law relating to
      bankruptcy, insolvency, reorganization, winding-up, liquidation or
      composition or readjustment of debts, (v) fail to controvert in a timely
      and appropriate manner, or acquiesce in writing to, any petition filed
      against it in an involuntary case under the Federal Bankruptcy Code, or
      (vi) take any corporate action for the purpose of effecting any of the
      foregoing; or

                  (g) a proceeding or case shall be commenced, without the
      application or consent of Borrower or any Restricted Subsidiary, in any
      court of competent jurisdiction, seeking (i) its liquidation,
      reorganization, dissolution or winding-up, or the composition or
      readjustment of its debts, (ii) the appointment of a trustee, receiver,
      custodian, liquidator or the like of such Person of all or any substantial
      part of its assets, or (iii) similar relief in respect of such Person
      under any law relating to bankruptcy, insolvency, reorganization,
      winding-up, or composition or adjustment of debts, and such proceeding or
      case shall continue undismissed, or an order, judgment or decree approving
      or ordering any of the foregoing shall be entered and continue unstayed
      and in effect, for a period of sixty (60) days; or (iv) an order for
      relief against such Person shall be entered in an involuntary case under
      the Federal Bankruptcy Code;

                  (h) a judgment or judgments for the payment of money in excess
      of $10,000,000 in the aggregate (net of any amounts that a reputable and
      creditworthy insurance company has acknowledged liability for in writing)
      shall be rendered by a court against Borrower or any Restricted Subsidiary
      and the same shall not be discharged (or

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      provision shall not be made for such discharge), or a stay of execution
      thereof shall not be procured, within sixty (60) days from the date of
      entry thereof and Borrower or such Subsidiary shall not, within said
      period of sixty (60) days, or such longer period during which execution of
      the same shall have been stayed, appeal therefrom and cause the execution
      thereof to be stayed during such appeal; or

                  (i) any Subsidiary takes, suffers or permits to exist any of
      the events or conditions referred to in clauses (e), (f), (g) or (h), and
      such event or condition has a Material Adverse Effect.

            SECTION 10.02 REMEDIES.

                  (a) In the case of an Event of Default other than one referred
      to in clauses (e), (f) or (g)of SECTION 10.01, or in clause (i) to the
      extent it relates to clauses (e), (f) or (g), the Administrative Agent,
      upon request of the Majority Lenders, shall, by notice to Borrower declare
      the principal amount then outstanding of, and the accrued interest on, the
      Loans and all other amounts payable by Borrower hereunder and under the
      other Loan Documents and the Notes to be forthwith due and payable,
      whereupon such amounts shall be immediately due and payable without
      presentment, demand, protest, notice of intent to accelerate, notice of
      acceleration or other formalities of any kind, all of which are hereby
      expressly waived by Borrower.

                  (b) In the case of the occurrence of an Event of Default
      referred to in clauses (e), (f) or (g) of SECTION 10.01, or in clause (i)
      to the extent it relates to clauses (e), (f) or (g), the principal amount
      then outstanding of, and the accrued interest on, the Loans and all other
      amounts payable by Borrower hereunder and under the other Loan Documents
      and the Notes shall become automatically immediately due and payable
      without presentment, demand, protest, notice of intent to accelerate,
      notice of acceleration or other formalities of any kind, all of which are
      hereby expressly waived by Borrower.

                  (c) All proceeds received after maturity of the Notes, whether
      by acceleration or otherwise shall be applied first to reimbursement of
      expenses and indemnities provided for in this Agreement and the other Loan
      Documents; second to accrued interest on the Notes; third to fees; fourth
      pro rata to principal outstanding on the Notes; and any excess shall be
      paid to Borrower or as otherwise required by any Governmental Requirement.

                                   ARTICLE XI

                            THE ADMINISTRATIVE AGENT

            SECTION 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its
Administrative Agent hereunder with such powers as are specifically delegated to
the Administrative Agent by the terms of this Agreement, together with such
other powers as are reasonably incidental thereto. The Administrative Agent
(which term as used in this sentence and in SECTION 11.04 and the first

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sentence of SECTION 11.05 shall include reference to its Affiliates and its and
its Affiliates' officers, directors, employees, attorneys, accountants, experts
and administrative agents): (i) shall have no duties or responsibilities except
those expressly set forth in the Loan Documents, and shall not by reason of the
Loan Documents be a trustee or fiduciary for any Lender; (ii) makes no
representation or warranty to any Lender and shall not be responsible to the
Lenders for any recitals, statements, representations or warranties contained in
the Loan Documents, this Agreement, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness, genuineness, execution,
effectiveness, legality, enforceability or sufficiency of this Agreement, the
Loan Documents, any Note or any other document referred to or provided for
herein or for any failure by Borrower or any other Person (other than the
Administrative Agent) to perform any of its obligations hereunder or thereunder
or for the existence, value, perfection or priority of any collateral security
or the financial or other condition of Borrower, its Subsidiaries or any other
obligor or guarantor; (iii) except pursuant to SECTION 11.06 shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder; and (iv) shall not be responsible for any action taken or omitted to
be taken by it hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith including its own ordinary
negligence, except for its own gross negligence or willful misconduct. The
Administrative Agent may employ administrative agents, accountants, attorneys
and experts and shall not be responsible for the negligence or misconduct of any
such administrative agents, accountants, attorneys or experts selected by it in
good faith or any action taken or omitted to be taken in good faith by it in
accordance with the advice of such administrative agents, accountants, attorneys
or experts. The Administrative Agent shall not be required to expend or risk its
own funds or otherwise incur personal financial liability in the performance of
its duties hereunder. The Administrative Agent may deem and treat the payee of
any Note as the holder thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent. The Administrative Agent is
authorized to release any collateral that is permitted to be sold or released
pursuant to the terms of the Loan Documents.

            SECTION 11.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telex, telecopier, telegram
or cable) believed by it to be genuine and correct and to have been signed or
sent by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel, independent accountants and other experts selected
by the Administrative Agent.

            SECTION 11.03 DEFAULTS. The Administrative Agent shall not be deemed
to have knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees) unless the Administrative Agent
has received written notice from a Lender or Borrower specifying such Default
and stating that such notice is a "Notice of Default." In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt written notice thereof to the Lenders. In
the event of a payment Default, the Administrative Agent shall give each Lender
prompt written notice of each such payment Default.

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            SECTION 11.04 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY AND
HOLD HARMLESS THE ADMINISTRATIVE AGENT AND ITS AFFILIATES AND EACH OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, PRINCIPALS, MEMBERS, MANAGERS, SHAREHOLDERS,
EMPLOYEES, FAMILY MEMBERS AND AGENTS RATABLY IN ACCORDANCE WITH EACH LENDER'S
PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE
EXTENT NOT INDEMNIFIED OR REIMBURSED BY BORROWER UNDER SECTION 12.03, BUT
WITHOUT LIMITING THE OBLIGATIONS OF BORROWER UNDER SAID SECTION 12.03 AND FOR
ANY AND ALL OTHER INDEMNITY MATTERS WHICH MAY BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT
OF: (i) THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED
BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING,
UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND
EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (ii) THE
ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS;
WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.04 ARISES FROM
THE SOLE OR CONCURRENT NEGLIGENCE OF THE ADMINISTRATIVE AGENT, PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE AGENT.

            SECTION 11.05 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER
LENDERS. Each Lender acknowledges and agrees that it has, independently and
without reliance on the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and its decision to enter into this Agreement, and 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 deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Administrative Agent shall
not be required to keep itself informed as to the performance or observance by
Borrower of this Agreement, the Notes or any Loan Document or other document
referred to or provided for herein or to inspect the properties or books of
Borrower. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of Borrower (or any of its Affiliates) which may
come into the possession of the Administrative Agent or any of its Affiliates.

            SECTION 11.06 ACTION BY ADMINISTRATIVE AGENT. Except for action or
other matters expressly required of the Administrative Agent hereunder, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall (i) receive written instructions from
the Majority Lenders (or all of the Lenders as expressly required by SECTION
12.04) specifying the action to be taken, and (ii) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of

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taking or continuing to take any such action. The instructions of the Majority
Lenders (or all of the Lenders as expressly required by SECTION 12.04) 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, the Administrative Agent shall take such action with respect to such
Default as shall be directed by the Majority Lenders (or all of the Lenders as
required by SECTION 12.04) in the written instructions (with indemnities
satisfactory to the Administrative Agent) described in this SECTION 11.07,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent shall not be obligated to take any
such action with respect to such Default. 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 or applicable law.

            SECTION 11.07 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT.
Subject to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving at
least thirty (30) days' written notice thereof to the Lenders and Borrower, 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 to appoint a successor Administrative Agent with consent of
Borrower (such consent not to be unreasonably withheld), except no such consent
shall be necessary if an Event of Default has occurred and is continuing. If no
successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Administrative Agent's giving of notice of resignation or the
Majority Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent with consent of Borrower (such consent not to be
unreasonably withheld), except no such consent shall be necessary if an Event of
Default has occurred and is continuing. Upon the acceptance of such appointment
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon 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. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this ARTICLE XI and SECTION
12.03 shall continue in effect for its benefit in respect of any actions taken
or omitted to be taken by it while it was acting as the Administrative Agent.

                                  ARTICLE XII

                                  MISCELLANEOUS

            SECTION 12.01 WAIVER. 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 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 remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

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            SECTION 12.02 NOTICES. All notices and other communications provided
for herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, courier (including
overnight delivery service with delivery confirmation) or U.S. Mail or in
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof or, as to any party, at such other address as shall be designated by such
party in a notice to each other party pursuant to the terms hereof. Except as
otherwise provided in this Agreement or in the other Loan Documents, all such
communications shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next
succeeding Business Day) by telex or telecopier and evidence or confirmation of
receipt is obtained, or personally delivered (including overnight delivery
service with delivery confirmation) or, in the case of a mailed notice, three
(3) Business Days after the date deposited in the mails, postage prepaid, in
each case given or addressed as aforesaid.

            SECTION 12.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC.

                  (a) Borrower agrees:

                        (1) to pay the reasonable fees and disbursements of
            counsel to the Majority Lenders in connection with this Agreement
            and related matters (not to exceed $100,000), together with all of
            the Administrative Agent's and Majority Lenders' reasonable legal
            fees and expenses in connection with any amendment, waiver or
            consent relating to this Agreement and related matters, and, in the
            case of enforcement pursuant to or in connection with this
            Agreement, the reasonable fees and disbursements of counsel for the
            Administrative Agent and any of the Lenders; and promptly reimburse
            the Administrative Agent for all amounts expended, advanced or
            incurred by the Administrative Agent or the Lenders to satisfy any
            obligation of Borrower under this Agreement or any other Loan
            Document, including without limitation, all costs and expenses of
            foreclosure;

                        (2) TO INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH
            LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR RESPECTIVE
            OFFICERS, MEMBERS, MANAGERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES,
            AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES")
            FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND
            PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY
            BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER
            OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF,
            ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED
            USE BY BORROWER OF THE PROCEEDS OF ANY OF THE LOANS, (II) THE
            EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE
            OPERATIONS OF THE BUSINESS OF BORROWER AND ITS SUBSIDIARIES, (IV)
            THE FAILURE OF BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS
            OF

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            THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY
            INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF
            BORROWER SET FORTH IN ANY OF THE LOAN DOCUMENTS, OR (VI) ANY OTHER
            ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE
            REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES
            INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
            DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY
            INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL
            INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF
            ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING
            SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE
            ADMINISTRATIVE AGENT OR A LENDER'S SHAREHOLDERS OR OWNERS AGAINST
            THE ADMINISTRATIVE AGENT OR LENDER OR BY REASON OF THE GROSS
            NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED
            PARTY; AND

                        (3) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
            INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS,
            COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES
            AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I)
            UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO BORROWER OR ANY SUBSIDIARY
            OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE
            TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR
            PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY
            BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO
            BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY BORROWER
            OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY
            OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT
            THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE,
            RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON
            OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY BORROWER OR ANY
            SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
            CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED, HOWEVER,
            NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(a)(3) IN
            RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
            OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE
            PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE
            OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED
            IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).

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                  (b) No Indemnified Party may settle any claim to be
      indemnified without the consent of the indemnitor, such consent not to be
      unreasonably withheld; provided, that the indemnitor may not reasonably
      withhold consent to any settlement that an Indemnified Party proposes, if
      the indemnitor does not have the financial ability to pay all its
      obligations outstanding and asserted against the indemnitor at that time,
      including the maximum potential claims against the Indemnified Party to be
      indemnified pursuant to this Section 12.03. No indemnitor shall, without
      the prior written consent of the Indemnified Party, effect any settlement
      of any pending or threatened proceeding in respect of which any
      Indemnified Party is or could have been a party and indemnity could have
      been sought hereunder by such Indemnified Party, unless such settlement
      (1) includes an unconditional release of such Indemnified Party in form
      and substance satisfactory to such Indemnified Party from all liability on
      claims that are the subject matter of such proceeding and (2) does not
      include any statement as to an admission of fault, culpability or failure
      to act by or on behalf of any Indemnified Party.

                  (c) In the case of any indemnification hereunder, the
      Administrative Agent or Lender, as appropriate shall give notice to
      Borrower of any such claim or demand being made against the Indemnified
      Party and Borrower shall have the non-exclusive right to join in the
      defense against any such claim or demand provided that if Borrower
      provides a defense (such defense counsel to be reasonably acceptable to
      the Administrative Agent and the Indemnified Party), the Indemnified Party
      shall bear its own cost of defense unless there is a conflict between
      Borrower and such Indemnified Party.

                  (d) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
      PARTIES 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 INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
      FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN
      INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR
      WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL
      CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED
      TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR
      WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.

                  (e) Borrower's obligations under this SECTION 12.03 shall
      survive any termination of this Agreement and the Loan Documents and the
      payment of the Notes and shall continue for a period of three years and
      one day thereafter in full force and effect.

                  (f) Borrower shall pay any amounts due under this SECTION
      12.03 within thirty (30) days of the receipt by Borrower of notice of the
      amount due.

                                       77
<PAGE>

            SECTION 12.04 AMENDMENTS, ETC. Any provision of this Agreement or
any Loan Document may be amended, modified or waived with Borrower's and the
Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the final maturity of the Loans, forgives
the principal amount of any Loans outstanding under this Agreement or reduces
the interest rate applicable to the Loans or the fees payable to the Lenders
generally, affects this SECTION 12.04 or SECTIONS 12.03 or 12.06(a) or modifies
the definition of "Majority Lenders" shall be effective without the consent of
all Lenders; (ii) no amendment, modification or waiver which modifies the
rights, duties or obligations of the Administrative Agent shall be effective
without the consent of the Administrative Agent.

            SECTION 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. SECTION 12.06 ASSIGNMENTS AND PARTICIPATIONS.

                  (a) Borrower may not assign its rights or obligations
      hereunder or under the Notes without the prior written consent of all of
      the Lenders and the Administrative Agent.

                  (b) Any Lender may, upon the written consent of the
      Administrative Agent and, if no Event of Default has occurred and is
      continuing, Borrower (which consent will not be unreasonably withheld),
      assign to one or more assignees all or a portion of its rights and
      obligations under this Agreement pursuant to an Assignment Agreement
      substantially in the form of Exhibit D (an "ASSIGNMENT"); provided,
      however, that any such assignment shall be in the amount of at least
      $5,000,000 or such lesser amount to which Borrower has consented. Any such
      assignment will become effective upon the execution and delivery to the
      Administrative Agent of the Assignment and the consent of the
      Administrative Agent. Promptly after receipt of an executed Assignment,
      the Administrative Agent shall send to Borrower a copy of such executed
      Assignment. Upon receipt of such executed Assignment, Borrower, will, at
      its own expense, execute and deliver new Notes to the assignor and/or
      assignee, as appropriate, in accordance with their respective interests as
      they appear. Upon the effectiveness of any assignment pursuant to this
      SECTION 12.06(b), the assignee will become a "Lender," if not already a
      "Lender," for all purposes of this Agreement. The assignor shall be
      relieved of its obligations hereunder to the extent of such assignment
      (and if the assigning Lender no longer holds any rights or obligations
      under this Agreement, such assigning Lender shall cease to be a "Lender"
      hereunder except that its rights under SECTIONS 4.05 and 12.03 shall not
      be affected). The Administrative Agent will prepare on the last Business
      Day of each month during which an assignment has become effective pursuant
      to this SECTION 12.06(b), a new ANNEX I giving effect to all such
      assignments effected during such month, and will promptly provide the same
      to Borrower and each of the Lenders.

                  (c) The Lenders may furnish any information concerning
      Borrower in the possession of the Lenders from time to time to assignees
      and participants (including prospective assignees and participants);
      provided that, such Persons agree to be bound by the provisions of SECTION
      12.15.

                                       78
<PAGE>

                  (d) Notwithstanding anything in this SECTION 12.06 to the
      contrary, any Lender may assign and pledge its Note to any Federal Reserve
      Bank as collateral security pursuant to Regulation A of the Board of
      Governors of the Federal Reserve System and any operating circular issued
      by such Federal Reserve System and/or such Federal Reserve Bank. No such
      assignment and/or pledge shall release the assigning and/or pledging
      Lender from its obligations hereunder.

                  (e) Notwithstanding any other provisions of this SECTION
      12.06, 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 Borrower to file a
      registration statement with the SEC or to qualify the Loans under the
      "Blue Sky" laws of any state.

            SECTION 12.07 INVALIDITY. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any other Loan Document.

            SECTION 12.08 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.

            SECTION 12.09 REFERENCES. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a section shall be deemed to refer to the applicable
section of this Agreement unless otherwise stated herein. Any reference herein
to an annex, exhibit or schedule shall be deemed to refer to the applicable
annex, exhibit or schedule attached hereto unless otherwise stated herein.

            SECTION 12.10 SURVIVAL. The obligations of the parties under SECTION
4.05 and SECTIONS 11.04 and 12.03 shall survive the termination of this
Agreement and the repayment of the Loans. To the extent that any payments on the
Loans 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 portion of the Loans so satisfied shall be revived and continue
as if such payment or proceeds had not been received and the Administrative
Agent's and the Lenders' Liens, security interests, rights, powers and remedies
under this Agreement and each Loan Document shall continue in full force and
effect. In such event, each Loan Document shall be automatically reinstated and
Borrower shall take such action as may be reasonably requested by the
Administrative Agent and the Lenders to effect such reinstatement.

            SECTION 12.11 CAPTIONS. Captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.

            SECTION 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE

                                       79
<PAGE>

PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

            SECTION 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.

                  (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE NOTES
      (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF AND
      THEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
      OF THE STATE OF NEW YORK INCLUDING SECTION 5-1401 OF THE GENERAL
      OBLIGATIONS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT GIVING EFFECT
      TO PRINCIPLES OF CONFLICTS OF LAWS.

                  (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN
      DOCUMENTS SHALL BE BROUGHT IN ANY FEDERAL OR STATE COURT OF COMPETENT
      JURISDICTION LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK, AND
      ANY APPELLATE COURT AUTHORIZED TO HEAR APPEALS THEREFROM, AND, BY
      EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER, THE
      ADMINISTRATIVE AGENT AND EACH LENDER HEREBY ACCEPTS FOR ITSELF AND (TO THE
      EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
      UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH
      OF BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER 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
      EXCLUSIVE AND IS INTENDED TO AND DOES PRECLUDE THE PARTIES FROM OBTAINING
      JURISDICTION OVER OTHER PARTIES IN ANY OTHER COURT.

                  (c) BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION
      LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS THE DESIGNEE,
      APPOINTEE AND AGENT OF BORROWER TO RECEIVE, FOR AND ON BEHALF OF BORROWER,
      SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR
      PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A
      COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY
      OVERNIGHT COURIER TO BORROWER AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE
      BELOW, BUT THE FAILURE OF

                                       80
<PAGE>

      BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF
      SUCH PROCESS. BORROWER FURTHER 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 BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO
      BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.

                  (d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
      ADMINISTRATIVE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE
      PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

                  (e) BORROWER AND EACH LENDER HEREBY (I) IRREVOCABLY AND
      UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY
      JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY
      LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, 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) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
      ADMINISTRATIVE 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) ACKNOWLEDGE
      THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT OR ANY OTHER LOAN
      DOCUMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
      OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
      SECTION 12.13.

            SECTION 12.14 INTEREST. 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 Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Loans (or, to the extent that the principal amount of the Loans shall have been
or would thereby be paid in full, refunded by such Lender to Borrower); and (ii)
in the event that the maturity of the Notes is accelerated by reason of an

                                       81
<PAGE>

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 Loans (or, to the extent that the
principal amount of the Loans shall have been or would thereby be paid in full,
refunded by such Lender to Borrower). All sums paid or agreed to be paid to any
Lender for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by law applicable to such Lender, be amortized, prorated,
allocated and spread throughout the full term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account of
any Loans hereunder does not exceed the maximum amount allowed by such
applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this SECTION 12.14 and (ii) in respect of
any subsequent interest computation period the amount of interest otherwise
payable to such Lender would be less than the amount of interest payable to such
Lender computed at the Highest Lawful Rate applicable to such Lender, then the
amount of interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this SECTION 12.14.

            SECTION 12.15 CONFIDENTIALITY. In the event that Borrower provides
to the Administrative Agent or the Lenders written confidential information
belonging to Borrower, the Administrative Agent and the Lenders shall thereafter
maintain such information in confidence in accordance with the standards of care
and diligence that each utilizes in maintaining its own confidential
information. This obligation of confidence shall not apply to such portions of
the information which (i) are in the public domain, (ii) hereafter become part
of the public domain without the Administrative Agent or the Lenders breaching
their obligation of confidence to Borrower, (iii) are previously known by the
Administrative Agent or the Lenders from some source other than Borrower, (iv)
are hereafter developed by the Administrative Agent or the Lenders without using
Borrower's information, (v) are hereafter obtained by or available to the
Administrative Agent or the Lenders from a third party who owes no obligation of
confidence to Borrower with respect to such information or through any other
means other than through disclosure by Borrower, (vi) are disclosed with
Borrower's consent, (vii) must be disclosed either pursuant to any Governmental
Requirement or to Persons regulating the activities of the Administrative Agent
or the Lenders, or (viii) as may be required by law or regulation or order of
any Governmental Authority in any judicial, arbitration or governmental
proceeding. Further, the Administrative Agent or a Lender may disclose any such
information to any other Lender, any independent certified public accountants,
any legal counsel employed by such Person in connection with this Agreement or
any Loan Document, including without limitation, the enforcement or exercise of
all rights and remedies thereunder, or any assignee or participant (including
prospective assignees and participants) in the Loans; provided, however, that
the Administrative Agent or the Lenders shall ensure that the Person to whom
such information is disclosed shall have the same obligation to maintain the
confidentiality of such information as is imposed upon the Administrative Agent
or the Lenders hereunder. Notwithstanding anything to

                                       82
<PAGE>

the contrary provided herein, this obligation of confidence shall cease three
years from the date all Loans are paid in full, unless Borrower requests in
writing at least thirty (30) days prior to the expiration of such three (3) year
period, to maintain the confidentiality of such information for an additional
three year period. Borrower waives any and all other rights it may have to
confidentiality as against the Administrative Agent and the Lenders arising by
contract, agreement, statute or law except as expressly stated in this SECTION
12.15.

            SECTION 12.16 EFFECTIVENESS. This Agreement shall be effective on
the Amendment and Restatement Date.

            SECTION 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND EACH LOAN
DOCUMENT AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF
THIS AGREEMENT AND EACH LOAN DOCUMENT; THAT IT HAS IN FACT READ THIS AGREEMENT
AND EACH LOAN DOCUMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE
OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT AND EACH LOAN DOCUMENT;
THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND EACH
LOAN DOCUMENT; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND EACH LOAN DOCUMENT; AND THAT IT RECOGNIZES THAT CERTAIN OF THE
TERMS OF THIS AGREEMENT AND EACH LOAN DOCUMENT 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 EACH LOAN DOCUMENT ON THE BASIS THAT
THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS
NOT "CONSPICUOUS."

                                       83
<PAGE>

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

BORROWER:                         CALLON PETROLEUM COMPANY

                                  By:    _______________________________________
                                  Name:  John S. Weatherly
                                  Title: Senior Vice President and
                                         Chief Financial Officer

                                  Address for Notices:

                                  200 North Canal Street
                                  Natchez, Mississippi 39120

                                  Telecopier No.: (601) 446-1374
                                  Telephone No.: (601) 442-1601
                                  Attention:  John S. Weatherly

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

ADMINISTRATIVE AGENT:             WELLS FARGO BANK, NATIONAL
                                  ASSOCIATION

                                  By:    _______________________________________
                                  Name:  Melissa Scott
                                  Title: Vice President

                                  Address for Notices:

                                  505 Main Street, Suite 301
                                  Fort Worth, TX 76102
                                  Telecopier No.: (817) 885-8650
                                  Telephone No.: (817) 334-7065

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          FTVIPT-INCOME SECURITIES FUND

                                  By:    _______________________________________
                                  Name:  David P. Goss
                                  Title: Vice President

                                  Address for Notices:

                                  1 Franklin Parkway
                                  San Mateo, CA 94403

                                  With copy to:

                                  Paul, Hastings, Janofsky & Walker
                                  55 Second St., 24th Floor
                                  San Francisco, CA 94105

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          FTIF INCOME FUND

                                  By:    _______________________________________
                                  Name:  Greg McGowan
                                  Title: Director

                                  Address for Notices:

                                  1 Franklin Parkway
                                  San Mateo, CA 94403

                                  With copy to:

                                  Paul, Hastings, Janofsky & Walker
                                  55 Second St., 24th Floor
                                  San Francisco, CA 94105

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          FRANKLIN CUSTODIAN FUNDS - INCOME
                                  SERIES

                                  By:    _______________________________________
                                  Name:  David P. Gross
                                  Title: Vice President

                                  Address for Notices:

                                  1 Franklin Parkway
                                  San Mateo, CA 94403

                                  With copy to:

                                  Paul, Hastings, Janofsky & Walker
                                  55 Second St., 24th Floor
                                  San Francisco, CA 94105

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          MERRILL LYNCH PCG, INC.

                                  By:    _______________________________________
                                  Name:  Martin McInerney
                                  Title: _______________________________________

                                  Address for Notices:

                                  4 World Financial Center
                                  9th Floor
                                  New York, NY 10080
                                  ATTN: Larry First

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          DB DISTRESSED OPPORTUNITIES FUND,
                                  L.P., AS ASSIGNEE

                                  BY:  POST ADVISORY GROUP, LLC, AS
                                       INVESTMENT MANAGER

                                       By:    __________________________________
                                       Name:  Carl Goldsmith
                                       Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          HFR ASSET MANAGEMENT, L.L.C.,
                                  AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:_______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          THE OPPORTUNITY FUND, LLC, AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:_______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO
<PAGE>

LENDERS:                          POST BALANCED FUND, L.P., AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:_______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          POST OPPORTUNITY FUND, L.P., AS ASSIGNEE

                                  BY:  POST ADVISORY GROUP, LLC, AS
                                       INVESTMENT MANAGER

                                       By:______________________________________
                                       Name:  Carl Goldsmith
                                       Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          MW POST OPPORTUNITY OFFSHORE
                                  FUND, LTD., AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:_______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          POST TOTAL RETURN FUND, L.P.,
                                  AS ASSIGNEE

                                  BY:  POST ADVISORY GROUP, LLC, AS
                                       INVESTMENT MANAGER

                                       By:______________________________________
                                       Name:  Carl Goldsmith
                                       Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          SOUTH DAKOTA INVESTMENT COUNCIL,
                                  AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          SPHINX DISTRESSED FUND SPC, AS ASSIGNEE

                                  BY: POST ADVISORY GROUP, LLC, AS
                                      INVESTMENT MANAGER

                                      By:_______________________________________
                                      Name:  Carl Goldsmith
                                      Title: Executive Vice President

                                  Address for Notices:

                                  Post Advisory Group, LLC
                                  11755 Wilshire Blvd., Suite 1400
                                  Los Angeles, CA 90025
                                  ATTN: Mark Porrazzo

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          DEUTSCH BANK AG, LONDON BRANCH

                                  By:    _______________________________________
                                  Name:  Tracy Fu
                                  Title: _______________________________________

                                  Address for Notices:

                                  31 West 52nd Street
                                  New York, NY 10019
                                  ATTN: Tracy Fu

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          CREDIT SUISSE FIRST BOSTON
                                  INTERNATIONAL

                                  By:    _______________________________________
                                  Name:  _______________________________________
                                  Title: _______________________________________

                                  By:    _______________________________________
                                  Name:  _______________________________________
                                  Title: _______________________________________

                                  Address for Notices:

                                  11 Madison Avenue
                                  4th Floor
                                  New York, NY 10010
                                  ATTN: Jeff Tuck

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          DOUBLE BLACK DIAMOND OFFSHORE LDC

                                  By: Carlson Capital, L.P., Investment Advisor

                                      By:  Asgard Investment Corp., its
                                           General Partner

                                           By:    ______________________________
                                           Name:  Clint D. Carlson
                                           Title: President

                                  Address for Notices:

                                  210 McKinney Avenue
                                  Suite 1600
                                  Dallas, TX 75201
                                  ATTN: Don Kendall

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          BLACK DIAMOND OFFSHORE LTD.

                                  By: Carlson Capital, L.P., Investment Advisor

                                      By:  Asgard Investment Corp., its
                                           General Partner

                                           By:    ______________________________
                                           Name:  Clint D. Carlson
                                           Title: President

                                  Address for Notices:

                                  210 McKinney Avenue
                                  Suite 1600
                                  Dallas, TX 75201
                                  ATTN: Don Kendall

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

LENDERS:                          JEFFERIES & COMPANY, INC.

                                  By:    _______________________________________
                                  Name:  Robert J. Welch
                                  Title: Senior Vice President

                                  Address for Notices:

                                  The Metro Center
                                  One Station Place, Three North
                                  Stamford, CT 06902
                                  ATTN: Robert J. Welch

                                -SIGNATURE PAGE-
             AMENDED AND RESTATED SENIOR UNSECURED CREDIT AGREEMENT,
                      DATED AS OF DECEMBER 23, 2003, AMONG
                     CALLON PETROLEUM COMPANY, AS BORROWER,
         WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT
                        AND THE LENDERS SIGNATORY HERETO

<PAGE>

                                     ANNEX I

                               LIST OF COMMITMENTS

<TABLE>
<CAPTION>
LENDER                                                                           COMMITMENTS
                                                                              -----------------
<S>                                                                           <C>
Franklin Custodian Funds-Income Series, A Maryland corporation ........       U.S. $ 92,500,000

FTVIPT-Income Securities Fund, A Massachusetts Business Trust..........       U.S. $  6,000,000

FTIF Income Fund, A Luxembourg corporation.............................       U.S. $  1,500,000
                                                                              -----------------

                                                                              U.S. $100,000,000

NEW LENDER

Merrill Lynch PCG, Inc.................................................       U.S. $ 20,000,000

DB Distressed Opportunities Fund, L.P..................................       U.S. $    300,000

HFR Asset Management, L.L.C............................................       U.S. $    700,000

The Opportunity Fund, LLC..............................................       U.S. $  2,000,000

Post Balanced Fund, L.P................................................       U.S. $  1,500,000

Post Opportunity Fund, L.P.............................................       U.S. $  3,800,000

MW Post Opportunity Offshore Fund, Ltd.................................       U.S. $  3,500,000

Post Total Return Fund, L.P............................................       U.S. $  1,250,000

South Dakota Investment Council........................................       U.S. $  1,650,000

Sphinx Distressed Fund SPC.............................................       U.S. $    300,000

Deutsch Bank AG, London Branch.........................................       U.S. $  5,000,000

Credit Suisse First Boston International...............................       U.S. $  5,000,000

Double Black Diamond Offshore LDC......................................       U.S. $ 14,280,000

Black Diamond Offshore Ltd.............................................       U.S. $  2,720,000

Black Diamond Energy Offshore LDC......................................       U.S. $  3,000,000

Jefferies & Company, Inc...............................................       U.S. $ 10,000,000

Franklin Custodian Funds - Income Series, a Maryland corporation.......       U.S. $ 10,000,000
                                                                              -----------------

                                                                              U.S. $ 85,000,000

TOTAL                                                                         U.S. $185,000,000
                                                                              =================
</TABLE>

                                     Annex I
<PAGE>

                                    EXHIBIT A

                                    [FORM OF]
                                      NOTE

      THE ISSUANCE AND SALE OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAWS. THE HOLDER HEREOF, BY ITS
ACCEPTANCE OF THIS NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE
EXPIRATION OF THE HOLDING PERIOD APPLICABLE THERETO UNDER RULE 144(k) UNDER THE
SECURITIES ACT WHICH IS APPLICABLE TO THIS NOTE (THE "RESALE RESTRICTION
TERMINATION DATE") OTHER THAN (1) TO THE COMPANY OR THEIR RESPECTIVE
SUBSIDIARIES, (2) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" WITHIN THE MEANING OF
RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER, IN EACH CASE TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT), (4) TO A NON-"U.S. PERSON"
IN AN "OFFSHORE TRANSACTION" (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER
THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(5) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, INCLUDING THE EXEMPTION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, IF AVAILABLE, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO
ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF
SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL,
AND SUBJECT TO THE RIGHT OF THE ADMINISTRATIVE AGENT OR THE COMPANY PRIOR TO ANY
SUCH SALE, PLEDGE OR OTHER TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON REQUEST OF THE HOLDER ON OR AFTER THE RESALE
RESTRICTION TERMINATION DATE.

                                      A-1
<PAGE>

$____________________                                          December 23, 2003

            CALLON PETROLEUM COMPANY, a Delaware corporation (the "BORROWER"),
for value received, promises and agrees to pay to __________________________
(the "LENDER"), or order, at the account of Wells Fargo Bank, National
Association, a national banking association, as Administrative Agent, maintained
at _______________, or such other account as the Administrative Agent may from
time to time specify by written notice to Borrower, the principal sum of
[__________________________] ($_________________), or such lesser amount as
shall equal the aggregate unpaid principal amount of the Loans owed to the
Lender under the Credit Agreement, as hereafter defined, in lawful money of the
United States of America and in immediately available funds, on the dates and in
the principal amounts provided for in the Credit Agreement, and to pay interest
on the unpaid principal amount as provided for in the Credit Agreement, at such
account, in like money and funds, for the period commencing on the date of each
such Loan until such Loan shall be paid in full, at the rate per annum equal to
9.75% or as otherwise specified in the Credit Agreement, but in no event to
exceed the Highest Lawful Rate, and on the dates provided in the Amended and
Restated Credit Agreement..

            This note evidences the Loan owed to the Lender under that certain
Amended and Restated Credit Agreement dated as of December 8, 2003 and amended
and restated as of December 23, 2003, by and among Borrower, Wells Fargo Bank,
National Association, a national banking association, as Administrative Agent,
and the other lenders signatory thereto (including the Lender) (such Credit
Agreement, together with all modifications, amendments, supplements or
successors thereto, being the "CREDIT AGREEMENT"), and shall be governed by the
Credit Agreement. Capitalized terms used in this note and not defined in this
note, but which are defined in the Credit Agreement, have the respective
meanings herein as are assigned to them in the Credit Agreement.

            Each payment made on account of the principal and interest hereof
shall be recorded by the Lender on its books, provided that any failure by the
Lender to make any such record shall not affect the obligations of Borrower
under the Credit Agreement or under this note in respect of such Loans.

            Except only for any notices which are specifically required by the
Credit Agreement or the other Loan Documents, Borrower and any and all
co-makers, endorsers, guarantors and sureties severally waive notice (including
but not limited to notice of intent to accelerate and notice of acceleration,
notice of protest and notice of dishonor), demand, presentment for payment,
protest, diligence in collecting and the filing of suit for the purpose of
fixing liability, and consent that the time of payment hereof may be extended
and re-extended from time to time without notice to any of them. Each such
person agrees that his, her or its liability on or with respect to this note
shall not be affected by any release of or change in any guaranty or security at
any time existing or by any failure to perfect or maintain perfection of any
lien against or security interest in any such security or the partial or
complete unenforceability of any guaranty or other surety obligation, in each
case in whole or in part, with or without notice and before or after maturity.

                                      A-2
<PAGE>

            The Credit Agreement provides for the acceleration of the maturity
of this note upon the occurrence of certain events and for prepayment of Loans
upon the terms and conditions specified therein. Reference is made to the Credit
Agreement for all other pertinent purposes. This note may not be assigned,
transferred, sold or indorsed except in accordance with the Credit Agreement.

            This note is issued pursuant to and is entitled to the benefits of
the Credit Agreement.

            THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS AND THE UNITED STATES OF AMERICA FROM TIME TO
TIME IN EFFECT.

                                      CALLON PETROLEUM COMPANY

                                      By:   ____________________________________
                                      Name: ____________________________________
                                      Title:____________________________________

                                      A-3
<PAGE>

                                    EXHIBIT B

                                     FORM OF
                             COMPLIANCE CERTIFICATE

            The undersigned hereby certifies that he is the
_______________________ of CALLON PETROLEUM COMPANY, a Delaware corporation (the
"BORROWER"), and that as such he is authorized to execute and deliver this
certificate on behalf of Borrower. This certificate is being delivered pursuant
to that certain Amended and Restated Credit Agreement dated as of December 8,
2003 and amended and restated as of December 23, 2003 (as restated, amended,
modified, supplemented and in effect from time to time, the "AGREEMENT"), among
Borrower, the Lenders signatory thereto, and Wells Fargo Bank, National
Association, a national banking association, as Administrative Agent for the
Lenders.

            The undersigned represents and warrants as follows (each capitalized
term used herein having the same meaning given to it in the Agreement unless
otherwise specified);

            (a)______[There currently does not exist any Default under the
Agreement.] [Attached hereto is a schedule specifying the reasonable details of
[a] certain Default[s] which exist under the Agreement and the action taken or
proposed to be taken with respect thereto.]

            (b)______All of the representations and warranties of Borrower set
forth in the Agreement are true and correct as of the date hereof, unless such
representations and warranties speak as to a certain date.

            EXECUTED AND DELIVERED this ____ day of _____________, 20__.

                                          CALLON PETROLEUM COMPANY

                                          By:    _______________________________
                                          Name:  _______________________________
                                          Title: _______________________________

                                      B-1
<PAGE>

                                    EXHIBIT C

                                     FORM OF
                        RESPONSIBLE OFFICER'S CERTIFICATE

      Pursuant to SECTION 8.01(I) of that certain Amended and Restated Credit
Agreement dated as of December 8, 2003 and amended and restated as of December
23, 2003 (the "CREDIT AGREEMENT") among Callon Petroleum Company, a Delaware
corporation (the "Borrower"), the Lenders signatory thereto, and Wells Fargo
Bank, National Association, a national banking association, as Administrative
Agent for the Lenders, the undersigned hereby certifies, as of the date hereof,
that:

      1.    He is the duly appointed ____________________ of Borrower and is
            duly authorized to make, execute and deliver this certificate.

      2.    The matters set forth in the financial statements attached hereto
            are accurate and correctly reflect the financial condition of the
            Corporation for the respective calendar quarter or fiscal year of
            the statements.

      3.    No Default has occurred and is continuing (or, if any Default has
            occurred and is continuing, such Default is described in reasonable
            detail in a document attached hereto).

      4.    Attached hereto, in reasonable detail, are the computations
            necessary to determine whether Borrower is in compliance with
            SECTION 9.01(a) of the Credit Agreement as of the end of the
            respective calendar quarter or fiscal year of the financial
            statements attached hereto.

IN WITNESS HEREOF, the undersigned has executed this certificate as of the ___
day of ____________, 20__.

                                             By: _______________________________
                                                 Name:
                                                 Title:

                                      C-1
<PAGE>

                                    EXHIBIT D

                                     FORM OF
                              ASSIGNMENT AGREEMENT

            This Assignment Agreement ("Assignment") between Assignor and
Assignee is executed and delivered pursuant to that certain Amended and Restated
Credit Agreement dated as of December 8, 2003 and amended and restated as of
December 23, 2003 (as amended, modified, supplemented and in effect on the date
hereof, (the "CREDIT AGREEMENT"), among Callon Petroleum Company, a Delaware
corporation, the Lenders signatory thereto and Wells Fargo Bank, National
Association, a national banking association, as Administrative Agent for the
Lenders. Capitalized terms used but not defined herein are as defined in the
Credit Agreement.

            The Assignor named herein hereby sells and assigns, without
recourse, to the Assignee named herein, and the Assignee hereby purchases and
assumes, without recourse, from the Assignor, effective as of the Assignment
Date (defined below) the interests set forth herein (the "Assigned Interest") in
the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the Loans which are outstanding on the Assignment Date, but
excluding accrued interest and fees to and excluding the Assignment Date. The
Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and
after the Assignment Date (i) the Assignee shall be a party to and be bound by
the provisions of the Credit Agreement and, to the extent of the Assigned
Interest, have the rights and obligations of a Lender thereunder and (ii) the
Assignor shall, to the extent of the Assigned Interest, relinquish its rights
and be released from its obligations under the Credit Agreement.

            This Assignment is being delivered to the Administrative Agent
together with (i) if the Assignee is a foreign lender, any documentation
required to be delivered by the Assignee pursuant to SECTION 4.05(D) of the
Credit Agreement, duly completed and executed by the Assignee, and (ii) if the
Assignee is not already a Lender under the Credit Agreement, any other
documentation required by the Credit Agreement or any Loan Document, duly
completed by the Assignee, to Borrower, the Administrative Agent and each
Lender, as applicable. The Assignee shall pay the fee payable to the
Administrative Agent pursuant to SECTION 12.06(b) of the Credit Agreement.

            This Assignment shall be governed by and construed in accordance
with the laws of the State of New York including section 5-1401 of the General
Obligations Law of the State of New York, but otherwise without giving effect to
principles of conflicts of laws.

Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee's Address for Notices:

Effective Date of Assignment ("Assignment Date"):

                                      D-1
<PAGE>

<TABLE>
<CAPTION>
                                                                                         Percentage Assigned of
                                                                                   Facility/Commitment (set forth, to
                                                                                 at least 8 decimals, as a percentage
                                                                                   of the Facility and the aggregate
                                                                                       Commitments of all Lenders
           Facility                         Principal Amount Assigned                          thereunder)
<S>                                       <C>                                    <C>

_____________________________             ______________________________           _________________________________

Commitment Assigned:

_____________________________             $_____________________________           _________________________________

Loans:

_____________________________             ______________________________           _________________________________
</TABLE>

The terms set forth above are hereby agreed to:

                                            [NAME OF ASSIGNEE], AS ASSIGNEE

                                            By:   ______________________________
                                            Name: ______________________________
                                            Title:______________________________

                                            [NAME OF ASSIGNOR], AS ASSIGNOR

                                            By:   ______________________________
                                            Name: ______________________________
                                            Title:______________________________

The undersigned hereby consent to this Assignment:

CALLON PETROLEUM COMPANY

By:    ____________________________________________
Name:  ____________________________________________
Title: ____________________________________________

WELLS FARGO BANK, NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT

By:    ____________________________________________
Name:  ____________________________________________
Title: ____________________________________________

                                      D-2
<PAGE>

                                   EXHIBIT E-1
                        FORM OF LOAN INCREASE CERTIFICATE

                              [_________], 200[__]

To:   Wells Fargo Bank, National Association,
      as Administrative Agent

      The Borrower, the Administrative Agent and the other Agents and certain
Lenders have heretofore entered into that certain Amended and Restated Credit
Agreement, dated as of December 8, 2003 and amended and restated as of December
23, 2003, as amended from time to time (the "CREDIT AGREEMENT"). Capitalized
terms not otherwise defined herein shall have the meaning given to such terms in
the Credit Agreement.

      This Commitment Increase Certificate is being delivered pursuant to
SECTION 2.02 of the Credit Agreement.

      Please be advised that the undersigned has agreed to increase its
Commitment under the Credit Agreement effective [ ], 200[ ] from $[ ] to $[ ]
and (b) that it shall continue to be a party in all respect to the Credit
Agreement and the other Loan Documents.

      [The [Borrower/Lender] shall pay the fee payable to the Administrative
Agent pursuant to SECTION ____ of the Credit Agreement.]

                                          Very truly yours,

                                          [                                    ]

                                          By:    _______________________________
                                          Name:  _______________________________
                                          Title: _______________________________

                                      E-1-1
<PAGE>

Accepted and Agreed:

Wells Fargo Bank, National Association,
as Administrative Agent

By:    ________________________________
Name:  ________________________________
Title: ________________________________

Accepted and Agreed:

Callon Petroleum Company

By:    ________________________________
Name:  ________________________________
Title: ________________________________

                                      E-1-2
<PAGE>

                                   EXHIBIT E-2
                      FORM OF ADDITIONAL LENDER CERTIFICATE

                              [_________], 200[___]

To:   Wells Fargo Bank, National Association,
      as Administrative Agent

      The Borrower, the Administrative Agent and the other Lenders have
heretofore entered into that certain Amended and Restated Credit Agreement,
dated as of December 8, 2003 and amended and restated as of December 23, 2003,
as amended from time to time (the "Credit Agreement"). Capitalized terms not
otherwise defined herein shall have the meaning given to such terms in the
Credit Agreement.

      This Additional Lender Certificate is being delivered pursuant to SECTION
___ of the Credit Agreement.

      Please be advised that the undersigned has agreed (a) to become a Lender
under the Credit Agreement effective [ ], 200[ ] with a Commitment of $[ ] and
(b) that it shall be a party in all respect to the Credit Agreement and the
other Loan Documents.

      This Additional Lender Certificate is being delivered to the
Administrative Agent together with (i) if the Additional Lender is a Foreign
Lender, any documentation required to be delivered by such Additional Lender
pursuant to SECTION 4.05(D) of the Credit Agreement, duly completed and executed
by the Additional Lender[, and (ii) an Administrative Questionnaire in the form
supplied by the Administrative Agent, duly completed by the Additional Lender].
[The [Borrower/Additional Lender] shall pay the fee payable to the
Administrative Agent pursuant to SECTION ___ of the Credit Agreement.]

                                           Very truly yours,

                                           [                                   ]

                                           By:   _______________________________
                                           Name: _______________________________
                                           Title:_______________________________

                                      F-1
<PAGE>

Accepted and Agreed:

Wells Fargo Bank, National Association,
as Administrative Agent

By:    ________________________________
Name:  ________________________________
Title: ________________________________

Accepted and Agreed:

Callon Petroleum Company

By:    ________________________________
Name:  ________________________________
Title: ________________________________

                                      F-2

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