Document:

EXHIBIT 4.1

                                     SECOND
                             RESTATED LOAN AGREEMENT

                                     BETWEEN

                              MAYNARD OIL COMPANY,
                                   AS BORROWER

                                       AND

                             BANK ONE, TEXAS, N.A.,
                                     AS BANK

                                NOVEMBER 12, 1999

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                                TABLE OF CONTENTS

                                                                           No.

1.       Certain Defined Terms...............................................2

2.       Term Commitment of the Bank........................................13

3.       Note Evidencing Loan...............................................13
         (a)      Form of Note .............................................13
         (b)      Interest Rate.............................................13
         (c)      Payment of Interest.......................................13
         (d)      Payment of Principal......................................13

4.       Interest Rates.....................................................13
         (a)      Options...................................................13
         (b)      Interest Rate Determination...............................14
         (c)      Conversion Option.........................................14
         (d)      Continuation Option.......................................15
         (e)      Recoupment................................................15
         (f)      Options Upon Default......................................15

5.       Special Provisions Relating to Fixed Rate Loans....................16
         (a)      Unavailability of Funds or Inadequacy of Pricing..........16
         (b)      Reserve Requirements......................................16
         (c)      Taxes.....................................................16
         (d)      Change in Laws............................................17
         (e)      Option to Fund............................................17
         (f)      Indemnity.................................................18
         (g)      Payments Not at End of Interest Period....................18
         (h)      Maximum Number of Loans...................................18

6.       Collateral Securities..............................................18

7.       Borrowing Base.....................................................19
         (a)      Initial Borrowing Base....................................19
         (b)      Subsequent Determinations of Borrowing Base...............19

8.       Prepayments........................................................20
         (a)      Voluntary Prepayments.....................................20
         (b)      Mandatory Prepayment For Borrowing Base Deficiency........20

                                      - i -

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9.       Representations and Warranties......................................21
         (a)      Creation and Existence.....................................21
         (b)      Power and Authority........................................21
         (c)      Binding Obligations........................................21
         (d)      No Legal Bar or Resultant Lien.............................21
         (e)      No Consent.................................................21
         (f)      Financial Condition........................................22
         (g)      Liabilities................................................22
         (h)      Litigation.................................................22
         (i)      Taxes; Governmental Charges................................22
         (j)      Titles, Etc................................................22
         (k)      Defaults...................................................22
         (l)      Casualties; Taking of Properties...........................23
         (m)      Use of Proceeds; Margin Stock..............................23
         (n)      Location of Business and Offices...........................23
         (o)      Compliance with the Law....................................23
         (p)      No Material Misstatements..................................23
         (q)      ERISA......................................................24
         (r)      Public Utility Holding Company Act.........................24
         (s)      Subsidiaries...............................................24
         (t)      Environmental Matters......................................24
         (u)      Liens......................................................24

10.      Conditions of Lending...............................................24

11.      Affirmative Covenants...............................................26
         (a)      Financial Statements and Reports...........................26
         (b)      Certificates of Compliance.................................27
         (c)      Accountants' Certificate...................................27
         (d)      Taxes and Other Liens......................................27
         (e)      Compliance with Laws.......................................28
         (f)      Further Assurances.........................................28
         (g)      Performance of Obligations.................................28
         (h)      Insurance..................................................28
         (i)      Accounts and Records.......................................29
         (j)      Right of Inspection........................................29
         (k)      Notice of Certain Events...................................29
         (l)      ERISA Information and Compliance...........................29
         (m)      Environmental Reports and Notices..........................30
         (n)      Compliance and Maintenance.................................30

                                     - ii -

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         (o)      Operation of Properties....................................30
         (p)      Compliance with Leases and Other Instruments...............31
         (q)      Certain Additional Assurances Regarding
                  Maintenance and Operations of Properties...................31
         (r)      Title Matters..............................................31
         (s)      Curative Matters...........................................31
         (t)      Change of Principal Place of Business......................32

12.      Negative Covenants..................................................32
         (a)      Negative Pledge............................................32
         (b)      Current Ratio..............................................32
         (c)      Fixed Charge Coverage Ratio................................32
         (d)      Minimum Net Worth..........................................32
         (e)      Debt to Worth Ratio........................................32
         (f)      Consolidations and Mergers.................................32
         (g)      Debts, Guaranties and Other Obligations....................33
         (h)      Dividends..................................................33
         (i)      Loans and Advances.........................................33
         (j)      Nature of Business.........................................34
         (k)      Transactions with Affiliates...............................34
         (l)      Hedging Transaction........................................34
         (m)      Investment.................................................34
         (n)      Amendment to Articles of Incorporation or Bylaws...........35
         (o)      Sale of Assets.............................................35

13.      Events of Default...................................................35

14.      Exercise of Rights..................................................37

15.      Notices.............................................................37

16.      Expenses............................................................37

17.      Indemnity...........................................................38

18.      Governing Law.......................................................38

19.      Invalid Provisions..................................................39

20.      Maximum Interest Rate...............................................39

                                     - iii -

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21.      Amendments..........................................................39

22.      Multiple Counterparts...............................................39

23.      Conflict............................................................40

24.      Survival............................................................40

25.      Parties Bound.......................................................40

26.      Participations......................................................40

27.      Other Agreements....................................................40

28.      Financial Terms.....................................................40

                                     - iv -

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Exhibits:

Exhibit "A"       -        Term Note
Exhibit "B"       -        Conversion/Continuation Notice
Exhibit "C"       -        Certificate of Compliance

Schedules:

Schedule 1        -        Liens
Schedule 2        -        Financial Condition
Schedule 3        -        Liabilities
Schedule 4        -        Litigation
Schedule 5        -        Subsidiaries
Schedule 6        -        Environmental Matters
Schedule 7        -        Title Matters
Schedule 8        -        Curative Matters

                                      - v -

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                         SECOND RESTATED LOAN AGREEMENT

         THIS SECOND  RESTATED LOAN  AGREEMENT  (hereinafter  referred to as the
"Agreement")  executed  as of the 12th day of  November,  1999,  by and  between
Maynard Oil Company,  a Delaware  corporation  ("Borrower") and BANK ONE, TEXAS,
N.A., a national banking association ("Bank").

                              W I T N E S S E T H:

         WHEREAS,  Borrower and First City,  Texas-Dallas ("First City") entered
into a Credit Agreement dated as of October 1, 1990 (the "Loan Agreement") under
the terms of which Bank agreed to provide a term loan  facility in the amount of
$10,000,000.00 to Borrower; and

         WHEREAS, Borrower and First City entered into a First Amendment to Loan
Agreement,  dated as of November 19, 1991 (the "First  Amendment")  amending the
Loan Agreement in certain respects as therein set forth; and

         WHEREAS,  on October 30, 1992, First City was taken over by the Federal
Deposit Insurance Corporation ("FDIC") in the FDIC's capacity as receiver; and

         WHEREAS,  the FDIC,  as receiver  of First City,  assigned to New First
City,  Texas-Dallas,  N.A. ("New First City") all of the rights of First City in
and to the  Loan  Agreement,  First  Amendment,  note  and the  liens,  security
interest and other collateral securing same (the "First City Debt"); and

         WHEREAS,  as of February 1, 1993,  New First City  assigned  all of its
right, title and interest in and to the First City Debt to Bank; and

         WHEREAS,  Borrower  and Bank  entered  into a Second  Amendment to Loan
Agreement,  dated as of February 1, 1993 (the "Second  Amendment")  amending the
Loan Agreement in certain respects as therein set forth; and

         WHEREAS,  Borrower  and Bank  entered  into a Third  Amendment  to Loan
Agreement,  dated as of December 22, 1994 (the "Third  Amendment")  amending the
Loan Agreement in certain respects as therein set forth; and

         WHEREAS,  Borrower  and Bank  entered  into a Fourth  Amendment to Loan
Agreement, dated as of March 29, 1995 (the "Fourth Amendment") amending the Loan
Agreement in certain respects as therein set forth; and

         WHEREAS, Borrower and Bank entered into a Restated Loan Agreement dated
as of December 20, 1995 (the "Restated Loan Agreement")  which restated the Loan
Agreement in its entirety; and

                                      - 1 -

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         WHEREAS,  Borrower and Bank have agreed to make certain  amendments  to
the Restated Loan Agreement and restate the same in its entirety.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:

         1. CERTAIN  DEFINED TERMS.  As used herein,  the following  terms shall
have the  following  meanings  (all terms  defined in this Section 1 or in other
provisions  of this  Agreement in the singular  shall have the same  meanings as
when used in the plural and vice versa):

                  "Affiliate"   shall  mean  any  Person   which,   directly  or
         indirectly,  controls, is controlled by or is under common control with
         the relevant  Person.  For the purposes of this  definition,  "control"
         (including,  with correlative  meanings,  the terms "controlled by" and
         "under common control with"), as used with respect to any Person, shall
         mean a member of the board of  directors,  a partner  or an  officer of
         such  Person,  or  any  other  Person  with  possession,   directly  or
         indirectly,  of the  power to  direct  or cause  the  direction  of the
         management  and  policies of such  Person,  through the  ownership  (of
         record,  as  trustee,  or  by  proxy)  of  voting  shares,  partnership
         interests or voting rights, through a management contract or otherwise.
         Any Person owning or controlling  directly or indirectly ten percent or
         more of the voting shares,  partnership  interests or voting rights, or
         other  equity  interest  of  another  Person  shall be  deemed to be an
         Affiliate of such Person.

                  "Agreement"  shall  mean  this  Agreement  as the  same may be
         amended, modified or restated from time to time.

                  "Bank" shall mean Bank One, Texas, N.A.

                  "Base Rate" shall mean the  fluctuating  rate of interest  per
         annum  established  from time to time by Bank as its Base  Rate  (which
         rate of interest may not be the lowest,  best or most favorable rate of
         interest which Agent may charge on loans to its customers). Each change
         in the Base  Rate  shall  become  effective  without  prior  notice  to
         Borrower  automatically  as of the  opening of  business on the date of
         such change in the Base Rate.

                  "Base Rate  Interest  Period"  shall mean with  respect to any
         Base Rate Loan, the period (i) beginning on the date the Base Rate Loan
         is made or the  conversion  of a CD  Loan  to a Base  Rate  Loan or any
         reborrowing of a Eurodollar Loan as a Base Rate Loan and (ii) ending on
         the date on which  Borrower  converts  such  portion  to a CD Loan or a
         Eurodollar Loan.

                  "Base Rate Loans"  shall mean any loan during any period which
         bears  interest  based upon the Base Rate or which would bear  interest
         based upon the Base Rate if the Maximum  Rate ceiling was not in effect
         at that particular time.

                                      - 2 -

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                  "Borrower"   shall  mean  Maynard  Oil  Company,   a  Delaware
         corporation.

                  "Borrowing  Base"  shall mean the value  assigned  by the Bank
         from time to time to the Oil and Gas  Properties  pursuant to Section 7
         hereof.  Until the next determination of the Borrowing Base pursuant to
         Section 7(b) hereof the Borrowing Base shall be $38,250,000.00.

                  "Business  Day" shall mean the normal banking hours during any
         day (other than  Saturdays or Sundays)  that banks are legally open for
         business in Dallas, Texas.

                  "CD Interest  Period"  shall mean with respect to any CD Loan,
         (i) initially,  the period  commencing on the date such CD Loan is made
         and ending 30, 60, 90 or 180 days (or 365/366  days, if consented to by
         Bank)   thereafter   as  selected   by  Borrower  in  its   irrevocable
         Conversion/Continuation Notice as provided in Sections 4(c) and (d) and
         (ii)  thereafter,  each period  commencing  on the last day of the next
         preceding  Interest Period  applicable to such CD Loan and in each case
         ending,  30, 60, 90 or 180 days (or 365/366  days,  if  consented to by
         Bank)   thereafter,   as  selected  by  Borrower  in  its   irrevocable
         Continuation/Conversion  Notice as provided  in Sections  4(c) and (d);
         provided, that if CD Interest Period would otherwise end on a day which
         is not a Business Day,  such  Interest  Period shall be extended to the
         next succeeding  Business Day unless the result of such extension would
         be to carry such interest period into another  calendar month, in which
         event  such  Interest  Period  shall end on the  immediately  preceding
         Business  Day; and  provided,  further,  there shall not at any time be
         more than five (5) CD Loans,  Base Rate Loans and Eurodollar  Tranches,
         in the aggregate outstanding. Any CD Interest period pertaining to a CD
         Loan that begins on the last Business Day of a calendar  month (or on a
         day  for  which  there  is  not  numerically  corresponding  day in the
         calendar  month at the end of such  Interest  Period)  shall end on the
         last  Business  Day of a  calendar  month,  and no CD  Interest  Period
         selected shall end after the Term Maturity Date.

                  "CD  Loans"  shall  mean those  portions  of the Loan  bearing
         interest at the CD Rate,  or which would bear  interest at such rate if
         the Maximum Rate ceiling was not in effect at a particular time.

                  "CD Margin" shall mean one and seven-eighths percent (1.875%).

                  "CD Quoted  Rate" shall mean with  respect to each CD Interest
         Period,  the  rate  of  interest  per  annum  determined  by  Bank  (in
         accordance with its customary  general  practices) to be the arithmetic
         simple average (rounded upwards, if necessary,  to the next highest .01
         of 1%) of the rates per annum  offered  to Bank at  approximately  9:00
         a.m.  (Dallas  time) on the first day of such CD  Interest  Period,  by
         three  certificate of deposit dealers of recognized  standing,  for the
         purchase at face value of a domestic  certificate  of deposit from Bank
         in the  amount  equal or  comparable  to the  principal  amount  of the
         corresponding  CD Loan as of such first  day,  and for a period of time
         equal or comparable to the length of such CD Interest Period.

                                      - 3 -

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                  "CD Rate"  shall  mean with  respect  to each CD Loan for each
         Interest Period, a rate per annum equal to the following:

                  [        CD Quoted Rate       ] + FDIC Percentage +CD Margin
                  [1.00 - CD Reserve Requirement]

                  "CD  Reserve   Requirement"   shall  mean  on  any  day,  that
         percentage  (expressed as a decimal) which is in effect on such day, as
         provided by the Board of  Governors of the Federal  Reserve  System (or
         any successor  governmental  body) applied for  determining the maximum
         reserve  requirements for Bank (including  without  limitation,  basic,
         supplemental,  marginal  and  emergency  reserves)  under  Regulation D
         applicable  to  three-month  nonpersonal  time  deposits  in  units  of
         $100,000 or more (issued by member banks of the Federal Reserve Bank of
         Dallas having time deposits  exceeding one billion  dollars) rounded to
         the  next  highest  .01% of 1%.  Each  determination  by Bank of the CD
         Reserve  Requirement  shall,  in the  absence  of  manifest  error,  be
         conclusive and binding.

                  "Chief  Financial  Officer"  shall  mean the  chief  financial
         officer of Borrower unless stated otherwise.

                  "Chief  Operating  Officer"  shall  mean the  chief  operating
         officer of Borrower unless stated otherwise.

                  "Collateral"  shall mean all  present  and future  tangible or
         intangible property or rights in which Bank is to be granted a security
         interest (whether  perfected or enforceable or not),  including without
         limitation  the items set forth in Section 6,  together  with any other
         collateral now or hereafter  securing payment of all or any part of the
         Obligations.

                  "Commitment" shall mean $38,250,000.00.

                  "Companies"  shall mean  Borrower  and all  present and future
         Subsidiaries of Borrower.

                  "Conversion/Continuation Notice" shall have the meaning stated
         in Section 4(c).

                  "Current  Assets"  shall  mean  the  total  of the  Borrower's
         consolidated current assets determined in accordance with GAAP.

                  "Current  Liabilities"  shall  mean the  total  of  Borrower's
         consolidated current obligations as determined in accordance with GAAP,
         excluding therefrom current maturities due on the Funded Debt.

                                      - 4 -

<PAGE>

                  "Default"  shall mean any of the events  specified  in Section
         13, regardless of whether there shall have occurred any passage of time
         or  giving  of  notice  or both  that  would be  necessary  in order to
         constitute such event an Event of Default.

                  "Dry Hole Expense"  shall mean all costs  incurred by Borrower
         in drilling unsuccessful wells (dry holes) under the successful-efforts
         costing method of accounting.

                  "EBITDA" shall mean for any period Net Income (excluding gains
         from  asset  sales)  plus the sum of (i)  Interest  Expense,  plus (ii)
         depreciation,  depletion and amortization  expense, plus (iii) non-cash
         write-downs  related  to  impairment  of  assets,  plus  (iv)  Dry Hole
         Expense.

                  "Effective Date" shall mean the date of this Agreement.

                  "Environmental    Laws"    shall   mean   the    Comprehensive
         Environmental  Response,  Compensation  and  Liability  Act of 1980, as
         amended by the Super Fund Amendments and  Reauthorization  Act of 1986,
         42  U.S.C.A.ss.9601,  et seq., the Resource  Conservation  and Recovery
         Act, as amended by the  Hazardous  Solid Waste  Amendment  of 1984,  42
         U.S.C.A.  ss.6901, et seq., the Clean Air Act, 42  U.S.C.A.ss.1251,  et
         seq., the Toxic Substances  Control Act, 15  U.S.C.A.ss.2601,  et seq.,
         The Oil Pollution Act of 1990, 33 U.S.G.ss.2701, et seq., and all other
         laws, statutes, codes, acts, ordinances,  orders,  judgments,  decrees,
         injunctions, rules, regulations, order and restrictions of any federal,
         state,   county,   municipal   and  other   governments,   departments,
         commissions,  boards,  agencies,  courts,  authorities,  officials  and
         officers,  domestic  or  foreign,  relating  to  air  pollution,  water
         pollution,  noise control and/or the handling,  discharge,  disposal or
         recovery of on-site or off-site  asbestos or "hazardous  substances" as
         defined  by 42  U.S.C.ss.9601,  et  seq.,  as  amended,  as each of the
         foregoing may be amended from time to time.

                  "Environmental   Liability"  shall  mean  any  claim,  demand,
         obligation,   cause  of  action,  order,  violation,   damage,  injury,
         judgment, penalty or fine, cost of enforcement, cost of remedial action
         or  any  other  costs  or  expense  whatsoever,   including  reasonable
         attorneys'  fees and  disbursements,  resulting  from the  violation or
         alleged  violation of any  Environmental  Law or the  imposition of any
         Environmental  Lien (as hereinafter  defined) which could reasonably be
         expected to  individually  or in the aggregate have a Material  Adverse
         Effect.

                  "Environmental  Lien" shall mean a Lien in favor of any court,
         governmental  agency or instrumentality or any other Person (i) for any
         Environmental  Liability  or  (ii)  for  damages  arising  from or cost
         incurred by such court or  governmental  agency or  instrumentality  or
         other person in response to a release or threatened release of asbestos
         or "hazardous substance" into the environment,  the imposition of which
         Lien could reasonably be expected to have a Material Adverse Effect.

                  "ERISA" shall mean the Employee Retirement Income Security Act
         of 1974, as amended.

                                      - 5 -

<PAGE>

                  "Eurodollar  Business  Day" shall mean a Business Day on which
         dealings in U.S. Dollar deposits are carried on in the London interbank
         market.

                  "Eurodollar  Interest  Period"  shall mean with respect to any
         Eurodollar Loan (i) initially,  the period  commencing on the date such
         Eurodollar  Loan is made and ending one (1), two (2),  three (3) or six
         (6) months (or twelve (12) months,  if consented to by Bank) thereafter
         as selected by the Borrower in its irrevocable  Conversion/Continuation
         Notice as provided in Sections 4(c) and (d), and (ii)  thereafter  each
         period  commencing  on the  day  following  the  last  day of the  next
         preceding Interest Period applicable to such Eurodollar Loan and ending
         one (1),  two (2),  three (3) or six (6) months (or twelve (12) months,
         if  consented  to by Bank)  thereafter  as  selected by Borrower in its
         irrevocable Conversion/Continuation Notice as provided in Sections 4(c)
         and (d); provided,  however, that (i) if any Eurodollar Interest Period
         would otherwise expire on a day which is not a Eurodollar Business Day,
         such  Interest  Period shall expire on the next  succeeding  Eurodollar
         Business  Day unless the  result of such  extension  would be to extend
         such Interest  Period into the next calendar  month, in which case such
         Interest  Period  shall  end on the  immediately  preceding  Eurodollar
         Business Day, (ii) if any Eurodollar Interest Period begins on the last
         Eurodollar  Business  Day of a  calendar  month  (or on a day for which
         there is no numerically  corresponding day in the calendar month at the
         end of such Interest Period) such Interest Period shall end on the last
         Eurodollar  Business Day of a calendar month,  and (iii) any Eurodollar
         Interest  Period which would  otherwise  expire after the Maturity Date
         shall end on such  Maturity  Date.  There shall not at any time be more
         than five (5) Eurodollar  Loans,  CD Loans and Base Rate Loans,  in the
         aggregate outstanding.

                  "Eurodollar  Loan" shall mean any loan during any period which
         bears interest at the Eurodollar  Rate, or which would bear interest at
         such rate if the Maximum Rate ceiling was not in effect at a particular
         time.

                  "Eurodollar  Margin" shall mean one and  five-eighths  percent
         (1.625%).

                  "Eurodollar  Rate" shall mean with respect to each  Eurodollar
         Interest  Period,  the rate of interest per annum at which  deposits in
         immediately available and freely transferable funds in U.S. Dollars are
         offered to the Bank (at approximately  10:00 a.m.,  Dallas,  Texas time
         three  Eurodollar  Business  Days  prior  to  the  first  day  of  each
         Eurodollar Interest Period) in the London interbank market for delivery
         on the first day of such Eurodollar  Interest Period in an amount equal
         to or  comparable  to the principal  amount of the  Eurodollar  Loan to
         which such Eurodollar  Interest Period relates.  Each  determination of
         the  Eurodollar  Rate by the Bank shall,  in the  absence of error,  be
         conclusive and binding.

                                      - 6 -

<PAGE>

                  "Facility  Fee" shall mean a facility fee due from Borrower to
         Bank on the Effective Date in the amount of $120,000.

                  "FDIC  Percentage" shall mean, on any date, the net assessment
         rate  (expressed as a percentage  rounded to the next highest point .01
         of 1%) which is in effect on such day  (under  the  regulations  of the
         Federal Deposit Insurance Corporation or any successor) for determining
         the  assessments  paid  by  Bank  to  the  Federal  Deposit   Insurance
         Corporation  (or any  successor)  for insuring  time  deposits  made in
         dollars at Bank's principal offices in Dallas, Texas.

                  "Financial  Statements"  shall  mean  balance  sheets,  income
         statements,  statements  of cash  flow and  appropriate  footnotes  and
         schedules, prepared in accordance with GAAP.

                  "Fiscal  Quarter"  and  "Fiscal  Year"  shall  mean the fiscal
         quarter and fiscal year of Borrower.

                  "Fixed Charge  Coverage  Ratio" shall mean the ratio of EBITDA
         for the period  being  measured to the sum of (i)  Interest  Expense on
         Funded  Debt  for the  quarter  being  measured,  plus  (ii)  principal
         payments due on Funded Debt for the period being  measured,  plus (iii)
         cash capital  distributions to shareholders for such quarter, plus (iv)
         capital  lease  expenses for such  quarter,  plus (v) income taxes paid
         during such quarter.

                  "Fixed Rate Loan" shall mean a Eurodollar Loan or a CD Loan or
         both.

                  "Funded  Debt"  shall  mean,  as of any  date,  the sum of the
         following (without duplication):  (i) the aggregate of all Indebtedness
         for borrowed money of the Companies as of such date, other than Current
         Liabilities, (ii) all Indebtedness which would be classified as "funded
         indebtedness"   or   "long-term   indebtedness"   (or   other   similar
         classification)  on a  consolidated  balance  sheet  of  the  Companies
         prepared  as  of  such  date  in  accordance   with  GAAP,   (iii)  all
         Indebtedness,  whether secured or unsecured, of the Companies, having a
         final  maturity (or which is renewable or  extendable  at the option of
         the obligor for a period  ending)  more than one year after the date of
         creation  thereof,  notwithstanding  the fact that  payments in respect
         thereof  (whether  installment,   serial,   maturity  or  sinking  fund
         payments,  or  otherwise)  are  required to be made by the obligor less
         than one year after the date of the creation, (iv) the aggregate of all
         Indebtedness of the Companies outstanding under any revolving credit or
         similar agreement providing for borrowings (and renewals and extensions
         thereof) over a period of more than one year,  notwithstanding the fact
         that any such Indebtedness is created within one year of the expiration
         of such agreement and (v) the present value (discounted at the implicit
         rate,  if known,  or 10% per annum  otherwise)  of all  obligations  in
         respect of Capital Leases of the Companies.

                  "GAAP" shall mean generally  accepted  accounting  principles,
         consistently applied.

                                      - 7 -

<PAGE>

                  "Indebtedness"  shall mean,  with  respect to any Person,  all
         indebtedness,  obligations and  liabilities of such Person,  including,
         without limitation and without duplication (i) all liabilities,  except
         deferred  taxes,  which would be reflected  on a balance  sheet of such
         Person,  prepared in accordance with GAAP; (ii) all obligations of such
         Person in  respect  of any  guaranty  or letter  of  credit;  (iii) all
         obligations  of such Person in respect of any capital  lease;  and (iv)
         all obligations,  indebtedness  and liabilities  secured by any Lien on
         any property or assets of any Person; except that, "Indebtedness" shall
         not include trade payables  incurred in the ordinary course of business
         for the purchase of goods or services.

                  "Interest Expense" shall mean for any period, the consolidated
         interest  charges paid or accrued by the  Companies  during such period
         (including  imputed  interest  on  capital  lease  obligations  and  on
         Indebtedness of the Companies).

                  "Interest Payment Date" shall mean the earlier of (i) the last
         day of each  Interest  Period or,  (ii) the first day of each  calendar
         quarter.

                  "Interest Period" shall mean any Base Rate Interest Period, CD
         Interest Period or Eurodollar Interest Period.

                  "Lien" shall mean any lien,  mortgage,  deed of trust, pledge,
         security interest, assignment, encumbrance, Environmental Lien or other
         lien (statutory or otherwise) of every kind and character.

                  "Loans"  shall  mean the Loan  made to  Borrower  pursuant  to
         Section 2 hereof.

                  "Loan  Documents"  shall mean this  Agreement,  the Note,  the
         Security  Instruments  and all other  documents  (and any amendments or
         supplements thereto or modifications or restatements  thereof) executed
         in connection with the transaction described in this Agreement.

                  "Material  Adverse  Effect " shall  mean any  circumstance  or
         event which (i) could have a material  adverse  effect on the assets or
         properties,  liabilities,  financial condition,  business,  operations,
         affairs or circumstances of the Borrower from the facts  represented or
         warranted in this Agreement or any other Security  Instrument,  or (ii)
         could  materially  impair the ability of the  Borrower to carry out its
         business as of the date of this Agreement or as proposed at the date of
         this  Agreement to be conducted  or to meet its  obligations  under the
         Note,  this  Agreement or the other Loan Documents on a timely basis or
         (iii) is material  and adverse to the  financial  condition or business
         operations  of  Borrower,  or (iv) may  result in or cause a Default or
         Event of Default.

                  "Maximum Rate" shall mean at any particular  time in question,
         the maximum  non-usurious  rate of interest which under  applicable law
         may then be charged on the Note. If such Maximum Rate changes after the
         date hereof, the Maximum Rate shall be automatically increased or

                                      - 8 -

<PAGE>

         decreased,  as the case may be, without notice to Borrower from time to
         time as the effective date of each change in such Maximum Rate.

                  "Net Income"  shall mean  Borrower's  consolidated  Net Income
         before any income tax, calculated in accordance with GAAP.

                  "Net   Worth"   shall  mean,   as  of  any  date,   the  total
         shareholders'  equity (including common stock and preferred stock other
         than mandatorily redeemable stock) at stated value,  additional paid-in
         capital and retained  earnings (after  deducting  treasury stock) which
         would appear on a consolidated  balance sheet of the Companies prepared
         as of such date in accordance with GAAP.

                  "Non-Recourse  Debt" shall mean any  Indebtedness  of Borrower
         created after the date hereof,  provided that (a) such Indebtedness has
         been  incurred by borrowing or  constitutes  an  obligation  to pay the
         deferred  purchase price of property;  (b) such Indebtedness is secured
         only by the  assets so  purchased;  and (c) the  creditor  to whom such
         Indebtedness  is owed has no  recourse  against  Borrower,  other  than
         foreclosure of the Liens securing such Indebtedness,  to satisfy claims
         of such  creditor  with respect to  Borrower,  such  Indebtedness,  the
         assets or properties securing such Indebtedness,  or any other features
         of the transactions in which such Indebtedness was incurred.

                  "Note" shall mean the $38,250,000.00 Note described in Section
         3 hereof, together with all renewals and extensions thereof or any part
         thereof.

                  "Obligations" shall mean all present and future  indebtedness,
         obligations  and  liabilities of Borrower to Bank, and all renewals and
         extensions  thereof,  or any part  thereof,  arising  pursuant  to this
         Agreement or any other Loan  Document,  or represented by the Note, and
         all interest accruing thereon (including, without limitation), interest
         which,  but for the filing of a petition in bankruptcy  with respect to
         Borrower,  would  accrue  on such  Obligations),  and  attorneys'  fees
         incurred  in the  enforcement  or  collection  thereof,  regardless  of
         whether such  indebtedness,  obligations  and  liabilities  are direct,
         indirect, fixed, contingent, joint, several or joint and several.

                  "Oil and Gas  Properties"  shall mean any and all oil, gas and
         mineral  properties  and  interests  in which  Borrower has granted and
         hereafter grants to Bank first perfected liens.

                  "Permitted   Dividends  and   Redemptions"   shall  mean:  (i)
         dividends  from any  Subsidiary of any Company (other than Borrower) to
         Borrower or such Company,  (ii)  dividends  from Borrower to holders of
         equity  securities  of  Borrower  payable  solely  in  common  stock or
         preferred stock (without  mandatory  redemption  features) of Borrower,
         and (iii)  redemptions of the common stock of Borrower in an amount not
         to exceed  $3,000,000.00 in the aggregate for all such Redemptions made
         from and after December 22, 1994.

                                      - 9 -

<PAGE>

                  "Permitted   Liens"  shall  mean  (i)  royalties,   overriding
         royalties,  reversionary  interests,  production  payments  and similar
         burdens;  (ii) sales  contracts or other  arrangements  for the sale of
         production  of oil, gas or  associated  liquid or gaseous  hydrocarbons
         which  would  not  (when  considered   cumulatively  with  the  matters
         discussed in clause (i) above)  deprive  Borrower of any material right
         in  respect  of  Borrower's  assets or  properties  (except  for rights
         customarily  granted with respect to such contracts and  arrangements);
         (iii) statutory Liens for taxes or other  assessments  that are not yet
         delinquent (or that, if delinquent,  are being  contested in good faith
         by  appropriate  proceedings,  levy and execution  thereon  having been
         stayed and  continue to be stayed and for which  Borrower has set aside
         on  its  books  adequate   reserves  in  accordance  with  GAAP);  (iv)
         easements, rights of way, servitudes, permits, surface leases and other
         rights in respect to surface operations,  pipelines,  grazing, logging,
         canals,  ditches,  reservoirs  or the like,  conditions,  covenants and
         other  restrictions,   and  easements  of  streets,  alleys,  highways,
         pipelines,  telephone lines, power lines,  railways and other easements
         and  rights  of way on,  over or in  respect  of  Borrower's  assets or
         properties and that do not  individually  or in the aggregate,  cause a
         Material Adverse Effect;  (v) materialmen's,  mechanic's,  repairman's,
         employee's,   warehousemen's,    landlord's,   carrier's,   pipeline's,
         contractor's,  sub-contractor's,  operator's,  non-operator's  (arising
         under  operating  or  joint  operating  agreements),  and  other  Liens
         (including  any  financing   statements   filed  in  respect   thereof)
         incidental to obligations  incurred by Borrower in connection  with the
         construction,  maintenance,  development,  transportation,  storage  or
         operation  of  Borrower's  assets  or  properties  to  the  extent  not
         delinquent (or which, if delinquent,  are being contested in good faith
         by appropriate  proceedings and for which Borrower has set aside on its
         books adequate  reserves in accordance with GAAP);  (vi) all contracts,
         agreements  and  instruments,  and all defects and  irregularities  and
         other matters affecting  Borrower's assets and properties which were in
         existence at the time Borrower's  assets and properties were originally
         acquired by Borrower  and all routine  operational  agreements  entered
         into in the ordinary course of business,  which contracts,  agreements,
         instruments,  defects,  irregularities  and other  matters  and routine
         operational  agreements  are  not  such as to,  individually  or in the
         aggregate,  interfere  materially  with the operation,  value or use of
         Borrower's  assets and properties,  considered in the aggregate;  (vii)
         liens in connection with workmen's compensation, unemployment insurance
         or  other  social  security,   old  age  pension  or  public  liability
         obligations;  (viii) legal or equitable encumbrances deemed to exist by
         reason of the existence of any litigation or other legal  proceeding or
         arising out of a judgment  or award with  respect to which an appeal is
         being prosecuted in good faith and levy and execution thereon have been
         stayed and continue to be stayed;  (ix) rights reserved to or vested in
         any municipality,  governmental, statutory or other public authority to
         control or regulate Borrower's assets and properties in any manner, and
         all applicable laws, rules and orders from any governmental  authority;
         (x) landlord's liens; (xi) Liens created by or pursuant to the Security
         Instruments;  and (xii) Liens  existing  at the date of this  Agreement
         which have been disclosed to Bank in the Borrower's  September 30, 1999
         Financial Statements or identified in Schedule "1" hereto.

                                     - 10 -

<PAGE>

                  "Permitted   Purchase  Money   Indebtedness"  shall  mean  (i)
         purchase money  Indebtedness of Borrower  created after the date hereof
         secured by a Permitted  Purchase  Money Lien,  and (ii) purchase  money
         indebtedness existing on the date hereof described on Schedule "1".

                  "Permitted  Purchase Money Lien" shall mean any purchase money
         Lien on real estate,  motor vehicles,  equipment and other fixed assets
         acquired or built by  Borrower (a  "Purchase  Money  Lien");  provided,
         however,  that: (i) the transaction in which any Purchase Money Lien is
         proposed to be created is not then prohibited by this  Agreement;  (ii)
         any  Purchase  Money Lien shall  attach  only to the asset  acquired or
         built in such  transaction  and shall not  extend to or cover any other
         assets of Borrower;  (iii) the  Indebtedness  secured or covered by any
         Purchase  Money Lien shall not exceed the cost to Borrower of the asset
         acquired or built;  and (iv) such  Indebtedness  is either (x) incurred
         within  twelve (12) months  following  the date of the  acquisition  or
         completion of the property or asset so acquired or (y) incurred for the
         purpose  of  refinancing  or  refunding  of any  existing  Indebtedness
         secured by a Permitted  Purchase Money Lien provided the unpaid balance
         is not increased.

                  "Person"   shall  mean  an  individual,   a   corporation,   a
         partnership,   an   association,   a  trust  or  any  other  entity  or
         organization,  including a government  or political  subdivision  or an
         agency or instrumentality thereof.

                  "Plan"  shall  mean any plan  subject to Title IV of ERISA and
         maintained by Borrower,  or any such plan to which Borrower is required
         to contribute on behalf of its employees.

                  "Principal  Payment  Date"  shall  mean the  first day of each
         January, April, July and October commencing April 1, 2000.

                  "Rate Management Transaction" means any transaction (including
         an agreement  with respect  thereto) now existing or hereafter  entered
         into between  Borrowers  and Agent or the Lenders which is a rate swap,
         basis swap, forward rate transaction, commodity swap, commodity option,
         equity or equity  index  swap,  equity or  equity  index  option,  bond
         option,  interest  rate  option,  forward  exchange  transaction,   cap
         transaction,   floor   transaction,    collar   transaction,    forward
         transaction,  currency  swap  transaction,   cross-currency  rate  swap
         transaction,   currency   option  or  any  other  similar   transaction
         (including any option with respect to any of these transactions) or any
         combination  thereof,  whether  linked to one or more  interest  rates,
         foreign currencies,  commodity prices, equity prices or other financial
         measures.

                  "Reborrowing"  shall  mean the  reborrowing  of any CD Loan or
         Eurodollar Loan upon the expiration of the Interest Period with respect
         to each such Loan.

                  "Redemptions"  shall mean, in respect of any corporation,  any
         and  all  funds,  cash  or  other  payments  made  in  respect  of  the
         redemption, repurchase or acquisition of any class of capital stock

                                     - 11 -

<PAGE>

         of such corporation,  unless such stock is redeemed or acquired through
         the exchange of such stock with stock of the same class.

                  "Security   Instruments"   shall  mean,   collectively,   this
         Agreement,   all  Deeds  of  Trust,  Mortgages,   Security  Agreements,
         Assignments   of  Production  and  Financing   Statements,   and  other
         collateral  documents  covering  Borrower's  Oil and Gas Properties and
         related  personal  property  and  interests  and  the  proceeds  of the
         foregoing,  all such documents to be in form and substance satisfactory
         to Bank.

                  "Subsidiary"  shall mean any  corporation  or other  entity of
         which  securities or other ownership  interests  having ordinary voting
         power to elect a majority of the board of  directors  or other  persons
         performing  similar  functions  are at the time  directly or indirectly
         owned by Borrower or another subsidiary.

                  "Temporary Cash  Investment"  shall mean any investment in (i)
         direct  obligations  of the  United  States or any agency  thereof,  or
         obligations fully guaranteed by the United States or any agency thereof
         (including indirect  investments in such obligations through repurchase
         agreements with commercial  banks or nationally  recognized  investment
         banks),  provided that such obligations  mature within ninety (90) days
         of the date of acquisition  thereof,  (ii) commercial paper rate in the
         highest  grade  by two or more  national  credit  rating  agencies  and
         maturing  not more than ninety  (90) days from the date of  acquisition
         thereof,  (iii) time deposits  with,  and  certificates  of deposit and
         bank's acceptances issued by, Bank or any United States commercial bank
         having  capital,  surplus and undivided  profits  aggregating  at least
         $250,000,000,  (iv) money market funds  acceptable  to Bank in its sole
         and absolute  discretion,  and (v)  commercial  paper maturing not more
         than ninety (90) days from the acquisition thereof issued by Bank.

                  "Term Loan" shall mean the loan described in Section 2 hereof.

                  "Term Maturity Date" shall mean January 1, 2005.

                  "Total  Liabilities"  shall mean  Funded  Debt,  plus  Current
         Liabilities,   minus  Permitted  Purchase  Money  Indebtedness   minus,
         Non-Recourse Debt minus deferred taxes plus all other liabilities which
         would be reflected in a balance sheet prepared in accordance with GAAP,
         of Borrower.

                  "Unscheduled Redeterminations" shall mean a redetermination of
         the Borrowing Base made at any time other than on the dates set for the
         regular  semi-annual  redetermination  of the Borrowing  Base which are
         made (A) at the  reasonable  request  of  Borrower,  (B) at any time it
         appears to the Bank,  in the exercise of their  reasonable  discretion,
         that  either (i) there has been a decrease  in the value of the Oil and
         Gas  Properties,  or (ii) an event  has  occurred  which is  reasonably
         expected to have a Material Adverse Effect.

                                     - 12 -

<PAGE>

         2. TERM COMMITMENT OF THE BANK. As of the Effective Date, there will be
outstanding on the existing Term Loan the principal amount of $6,250,000.00.  On
the terms and conditions hereinafter set forth, the Bank agrees on the Effective
Date to  advance  an  additional  $32,000,000  on the Term Loan and to renew and
extend the outstanding balance into a new $38,250,000 Term Loan.

         3. NOTE EVIDENCING LOAN. The loan described above in Section 2 shall be
evidenced by a promissory note of Borrower as follows:

                  (a) Form of Note - The Term Loan shall be  evidenced by a Note
         in the  face  amount  of  $38,250,000.00,  and  shall be in the form of
         Exhibit "A" hereto with appropriate insertions.

                  (b) Interest Rate - The unpaid  principal  balance of the Note
         shall bear interest from time to time as set forth in Section 4 hereof.

                  (c)  Payment  of  Interest  -  Interest  on the Note  shall be
         payable on each Interest Payment Date.

                  (d) Payment of Principal - The unpaid principal balance of the
         Note shall be  payable in  nineteen  (19) equal  consecutive  quarterly
         installments  of  $1,912,500  each due and  payable  on each  Principal
         Payment  Date,  commencing  April  1,  2000  and  continuing  regularly
         thereafter, with one (1) final principal installment due and payable on
         the Term  Maturity  Date in an  amount  equal to the  entire  remaining
         principal balance plus all accrued but unpaid interest.

         4.       INTEREST RATES.

                  (a)      Options.

                            (i) Base Rate Loans. Borrower agrees to pay interest
                  on the Note calculated on the basis of the actual days elapsed
                  in a year consisting of 365 or, if appropriate,  366 days with
                  respect to the unpaid  principal amount of each Base Rate Loan
                  from the date  the  proceeds  thereof  are made  available  to
                  Borrower   until   maturity   (whether  by   acceleration   or
                  otherwise), at a varying rate per annum equal to the lesser of
                  (i) the Maximum Rate (defined herein),  or (ii) the sum of the
                  Base Rate.  Subject to the  provisions of this Agreement as to
                  prepayment,  the principal of the Note  representing Base Rate
                  Loans shall be payable as specified in Section 3(d) hereof and
                  the  interest  in  respect  of each Base  Rate  Loan  shall be
                  payable on each Interest Payment Date. Past due principal and,
                  to the extent  permitted by law,  past due interest in respect
                  to each  Base Rate  Loan,  shall  bear  interest,  payable  on
                  demand, at a rate per annum equal to the Maximum Rate.

                                     - 13 -

<PAGE>

                           (ii)  Eurodollar   Loans.   Borrower  agrees  to  pay
                  interest  calculated on the basis of a year  consisting of 360
                  days  with  respect  to the  unpaid  principal  amount of each
                  Eurodollar  Loan from the date the  proceeds  thereof are made
                  available to Borrower until maturity  (whether by acceleration
                  or otherwise), at a varying rate per annum equal to the lesser
                  of (i) the Maximum Rate, or (ii) the Eurodollar  Rate plus the
                  Eurodollar Margin. Subject to the provisions of this Agreement
                  with respect to prepayment, the principal of the Note shall be
                  payable as  specified  in Section 3(d) hereof and the interest
                  with respect to each  Eurodollar Loan shall be payable on each
                  Interest  Payment Date.  Past due principal and, to the extent
                  permitted  by law,  past due  interest  shall  bear  interest,
                  payable on demand,  at a rate per annum  equal to the  Maximum
                  Rate.  If Bank  shall  not have  received  timely  notice of a
                  designation  of  such  Interest  Period  as  herein  provided,
                  Borrower  shall be  deemed  to have  elected  to  convert  all
                  maturing Eurodollar Loans to Base Rate Loans.

                           (iii)  CD  Loans.  Borrower  agrees  to pay  interest
                  calculated  on the  basis of  actual  days  elapsed  in a year
                  consisting  of 360 days with  respect to the unpaid  principal
                  amount of each CD Loan from the day the  proceeds  thereof are
                  made  available  to  Borrower   until  maturity   (whether  by
                  acceleration  or otherwise),  at a rate per annum equal to the
                  lesser of (i) the Maximum Rate, or (ii) the CD Rate.  Interest
                  with  respect  to  each  CD  Loan  shall  be  payable  on  the
                  expiration date of each Interest Period  applicable to such CD
                  Loan.

                  (b) Interest Rate Determination. The Bank shall determine each
         interest  rate  applicable to the Term Loan  hereunder.  The Bank shall
         give  prompt  notice  to the  Borrower  of  each  rate of  interest  so
         determined  and its  determination  thereof shall be conclusive  absent
         error.

                  (c)  Conversion  Option.  Borrower may elect from time to time
         (i) to  convert  all or any part of its  Eurodollar  Loans to Base Rate
         Loans or CD Loans by giving Bank irrevocable notice of such election at
         least two (2)  Eurodollar  Business  Days prior to 10:00 a.m.  (Dallas,
         Texas  time) in the form of Exhibit  "B" (the  "Conversion/Continuation
         Notice")  to be  received on the  conversion  date and such  conversion
         shall be made on the requested  conversion date, provided that any such
         conversion of Eurodollar Loan shall only be made on the last day of the
         Eurodollar Interest Period with respect thereof, (ii) to convert all or
         any part of its Base  Rate  Loans  to  Eurodollar  Loans or CD Loans by
         giving the Bank an irrevocable  Conversion/Continuation Notice at least
         three (3)  Eurodollar  Business  Days (in the case of a  conversion  to
         Eurodollar Loans) or two (2) Business Days (in the case of a conversion
         to  CD  Loans)  prior  to  the  proposed  conversion,   specifying  the
         Eurodollar  Interest Period or the CD Interest Period,  as the case may
         be  therefore,  and  such  conversion  shall  be made on the  requested
         conversion  date  or,  if  such  requested  conversion  date  is  not a
         Eurodollar  Business Day or a Business  Day, as the case may be, on the
         next  succeeding  Eurodollar  Business Day or Business Day, as the case
         may be, and

                                     - 14 -

<PAGE>

         (iii) to convert all or any part of its CD Loans to Eurodollar Loans or
         Base    Rate    Loans   by    giving    the    Bank   an    irrevocable
         Conversion/Continuation  Notice at least three (3) Eurodollar  Business
         Days  (in the  case  of  conversion  to  Eurodollar  Loans)  or two (2)
         Business  Days (in the case of  conversion to Base Rate Loans) prior to
         the proposed conversion,  specifying the Eurodollar Interest Period, if
         any  therefore,  and such  conversion  shall  be made on the  requested
         conversion  date  or,  if  such  requested  conversion  date  is  not a
         Eurodollar  Business Day or a Business  Day, as the case may be, on the
         next  succeeding  Eurodollar  Business  Day,  as the case may be.  Each
         change in an Interest  Option made  pursuant to this Section 4(c) shall
         be deemed a  reborrowing  (notwithstanding  that the  unpaid  principal
         amount  of the  Term  Loan is not  thereby  changed)  of a CD  Loan,  a
         Eurodollar  Loan or a Base Rate Loan into which such change was made on
         the date of such change. If no Conversion/Continuation  Notice is given
         with respect to all or any portion of a Loan,  Borrower shall be deemed
         to have  elected to  reborrow  such  portion of the Loan as a Base Rate
         Loan.

                  (d) Continuation  Option.  Prior to the termination of each CD
         Interest Period or Eurodollar  Interest  Period,  Borrower may give the
         Bank a Conversion/Continuation  Notice electing to continue all or part
         of the  loan  related  thereto  as the  same  type  of  loan  upon  the
         expiration of such CD Interest  Period or Eurodollar  Interest  Period.
         Such  Conversion/Continuation  Notice  shall  be given to Bank at least
         three (3)  Eurodollar  Business Days prior to the  termination  of such
         Eurodollar  Interest Period and at least two (2) Business Days prior to
         the termination of such CD Interest Period and shall specify the length
         of the succeeding CD Interest Period or Eurodollar  Interest Period, as
         the case may be (subject to the  provisions of the  definitions of such
         term),  selected  by  Borrower  with  respect  to such  portion.  If no
         Conversion/Continuation  Notice  is given  with  respect  to all or any
         portion of a Loan, Borrower shall be deemed to have elected to reborrow
         such portion of the Loan as a Base Rate Loan.

                  (e) Recoupment. If at any time the applicable rate of interest
         selected  pursuant to Sections  4(a)(i),  4(a)(ii) or  4(a)(iii)  above
         shall exceed the Maximum Rate, thereby causing the interest on the Note
         to be limited to the Maximum Rate, then any subsequent reduction in the
         interest rate so selected or subsequently selected shall not reduce the
         rate of  interest  on the Note below the  Maximum  Rate until the total
         amount of  interest  accrued on the Note  equals the amount of interest
         which  would  have  accrued  on the Note if the rate or rates  selected
         pursuant to Sections 4(a)(i), (ii) or (iii), as the case may be, had at
         all times been in effect.

                  (f) Options  Upon  Default.  Notwithstanding  anything in this
         Section  4 to the  contrary,  no CD  Loan  or  Eurodollar  Loan  may be
         continued  as such when any Default or Event of Default  has  occurred,
         but  each  such CD Loan  or  Eurodollar  Loan  shall  be  automatically
         converted to a Base Rate Loan on the last day of each  Interest  Period
         applicable to such CD Loan or Eurodollar Loan.

                                     - 15 -

<PAGE>

         5.       SPECIAL PROVISIONS RELATING TO FIXED RATE LOANS.

                  (a)  Unavailability of Funds or Inadequacy of Pricing.  In the
         event that, in connection  with any proposed Fixed Rate Loan,  Bank (i)
         shall have  determined that either (A) that U.S. Dollar deposits of the
         relevant  amount and for the relevant  Eurodollar  Interest  Period for
         Eurodollar  Loans are not  available  to Bank in the  London  interbank
         market,  or (B) that no timely quotation of the applicable rate offered
         to Bank for  Certificates  of  Deposit  for the CD  Interest  Period is
         available;  or  (ii) in  good  faith  determines  that  the  Eurodollar
         Interest Rate or the CD Interest Rate will not  adequately  reflect the
         cost to the Bank of  maintaining  or  funding  the Fixed Rate Loans for
         such  Interest  Period,  the  obligations  of  the  Bank  to  make  the
         Eurodollar  Loans or CD Loans,  as the case may be,  shall be suspended
         until such time such Bank in its sole discretion  reasonably  exercised
         determines  that the event  resulting in such  suspension has ceased to
         exist. If Bank shall make such  determination  it shall promptly notify
         Borrower in writing,  and Borrower  shall either repay the  outstanding
         Eurodollar Loans or CD Loans, as the case may be, owed to Bank, without
         penalty,  on the last day of the current Interest Period or convert the
         same to Base Rate or CD Loans in the case of  Eurodollar  Loans or Base
         Rate or Eurodollar Loans in the case of CD Loans on the last day of the
         then current Interest Period for such Fixed Rate Loan.

                  (b)  Reserve  Requirements.  In the event of any change in any
         applicable  law,  treaty  or  regulation  or in the  interpretation  or
         administration  thereof,  or in the  event  any  central  bank or other
         fiscal monetary or other authority having jurisdiction over the Bank or
         the loans  contemplated by this Agreement shall impose,  modify or deem
         applicable  any reserve  requirement  of the Board of  Governors of the
         Federal  Reserve  System on any Fixed Rate Loan or loans,  or any other
         reserve,  special  deposit,  or some  requirements  against  assets to,
         deposits with or for the account of, or credit extended by, the Bank or
         shall impose on the Bank or the London  interbank  market,  as the case
         may be, any other condition  affecting this Agreement or the Fixed Rate
         Loans and the result of any of the foregoing is to increase the cost to
         the Bank in making or maintaining its Fixed Rate Loans or to reduce any
         amount (or the  effective  return on any  amount)  received by the Bank
         hereunder,  then Borrower shall pay to the Bank upon demand of the Bank
         as additional interest on the Note evidencing the Fixed Rate Loans such
         additional  amount  or  amounts  as will  reimburse  the  Bank for such
         additional  cost or such  reduction.  The Bank  shall  give  notice  to
         Borrower upon becoming aware of any such change or imposition which may
         result in any such increase or reduction. A certificate of Bank setting
         forth the basis  for the  determination  of such  amount  necessary  to
         compensate  Bank as aforesaid  shall be delivered to Borrower and shall
         be conclusive as to such determination and such amount, absent error.

                  (c) Taxes.  Both principal and interest on the Note evidencing
         the Fixed Rate Loans are payable  without  withholding or deduction for
         or on account  of any  taxes.  If any taxes are levied or imposed on or
         with  respect  to the Note  evidencing  the Fixed  Rate Loans or on any
         payment on the Note  evidencing  the Fixed Rate Loans made to the Bank,
         then, and in any such

                                     - 16 -

<PAGE>

         event,  Borrower  shall  pay to the Bank  upon  demand of the Bank such
         additional  amounts as may be  necessary  so that every net  payment of
         principal  and  interest on the Note  evidencing  the Fixed Rate Loans,
         after  withholding  or  deduction  for or on account of any such taxes,
         will not be less than any amount provided for herein.  In addition,  if
         at any time when the Fixed Rate Loans are  outstanding any laws enacted
         or promulgated,  or any court of law or governmental  agency interprets
         or administers any law, which, in any such case, materially changes the
         basis of taxation of payments to the Bank of  principal  of or interest
         on the Note  evidencing  the Fixed Rate  Loans by reason of  subjecting
         such  payments  to double  taxation  or  otherwise  (except  through an
         increase  in the rate of tax on the  overall  net  income of Bank) then
         Borrower  will pay the amount of loss to the  extent  that such loss is
         caused by such a change.  The Bank shall give notice to  Borrower  upon
         becoming  aware of the amount of any loss  incurred by the Bank through
         enactment or promulgation of any such law which materially  changes the
         basis of taxation  of  payments  to the Bank.  The Bank shall also give
         notice on becoming  aware of any such enactment or  promulgation  which
         may result in such  payments  becoming  subject to double  taxation  or
         otherwise.  A  certificate  of any Bank setting forth the basis for the
         determination of such loss and the computation of such amounts shall be
         delivered to Borrower and shall be conclusive of such determination and
         such amount, absent error.

                  (d)  Change in Laws.  If at any time any new law or any change
         in existing laws or in the  interpretation  of any new or existing laws
         shall make it unlawful  for the Bank to maintain or fund any Fixed Rate
         Loans  hereunder,  then the Bank  shall  promptly  notify  Borrower  in
         writing and Borrower shall either repay the  outstanding  Eurodollar or
         CD Loans, as the case may be, owed to the Bank, without penalty, on the
         last  day of the  current  Interest  Periods  (or,  if the Bank may not
         lawfully  continue to maintain  and fund such  Eurodollar  or CD Loans,
         immediately),  or Borrower may convert such  Eurodollar  or CD Loans at
         such appropriate time to Base Rate Loans.

                  (e)  Option to Fund.  The Bank  shall  have the  option if the
         Borrower  elect a Fixed Rate Loan,  to purchase one or more deposits in
         order to fund or maintain its funding of the  principal  balance of the
         Note to which such Fixed Rate Loan is  applicable  during the  Interest
         Period in question;  it being  understood  that the  provisions of this
         Agreement relating to such funding are included only for the purpose of
         determining  the rate of interest to be paid under such Fixed Rate Loan
         and any amounts owing  hereunder and under the Note.  The Bank shall be
         entitled  to fund and  maintain  its funding of all or any part of that
         portion of the principal balance of the Note in any manner it sees fit,
         but all such determinations hereunder shall be made as if the Bank have
         actually funded and maintained that portion of the principal balance of
         the Note to which a Fixed Rate Loan is applicable during the applicable
         Interest  Period through the purchase of deposits in an amount equal to
         the  principal  balance  of the Note to which  such  Fixed Rate Loan is
         applicable and having a maturity corresponding to such Interest Period.
         The Bank may fund the outstanding  principal  balance of the Note which
         is to be  subject  to any Fixed  Rate Loan from any branch or office of
         the Bank as the Bank may designate from time to time.

                                     - 17 -

<PAGE>

                  (f) Indemnity.  Borrower shall indemnify and hold harmless the
         Bank  against all  reasonable  and  necessary  out-of-pocket  costs and
         expenses which the Bank may sustain (i) as a consequence of any default
         by Borrower under this Agreement,  or (ii) as a result of the making of
         any loan or loans as a Fixed Rate Loan.

                  (g)  Payments Not at End of Interest  Period.  If the Borrower
         make any payment of  principal  with  respect to any Fixed Rate Loan on
         any day other than the last day of the Interest  Period  applicable  to
         such Fixed Rate Loan,  then Borrower shall reimburse the Bank on demand
         for any loss,  cost or expense  incurred by the Bank as a result of the
         timing  of such  payment  or in  redepositing  such  principal  amount,
         including  the sum of (i) the cost of funds to the Bank in  respect  of
         such principal amount so paid, for the remainder of the Interest Period
         applicable to such sum, reduced,  if the Bank is able to redeposit such
         principal amount so paid for the balance of the Interest Period, by the
         interest earned by Bank as a result of so  redepositing  such principal
         amount,  plus  (ii) any  expense  or  penalty  incurred  by the Bank in
         redepositing such principal amount. A certificate of Bank setting forth
         the basis for the determination of the amount owed by Borrower pursuant
         to this  Section  5(g) shall be  delivered to the Borrower and shall be
         conclusive in the absence of manifest error.

                  (h) Maximum  Number of Loans.  The total number of Loans which
         may be outstanding  at any time hereunder  shall never exceed five (5),
         whether such Loans are Base Rate Loans, CD Loans, Eurodollar Loans or a
         combination thereof.

         6. COLLATERAL SECURITIES.  To secure the performance by Borrower of its
obligations hereunder, and under the Note and Security Instruments,  whether now
or hereafter  incurred,  matured or unmatured,  direct or  contingent,  joint or
several, or joint and several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore,  Borrower has previously granted
and assigned to Bank a first and prior security  interest and Lien on certain of
its  Oil and Gas  Properties,  and on  certain  related  equipment,  oil and gas
inventory and proceeds of the foregoing.  To further  secure the  performance by
Borrower of the aforesaid obligations,  Borrower shall contemporaneously with or
prior to the execution of this  Agreement,  grant and assign to the Bank a first
and  prior  security  interest  and  Lien  on  certain  additional  Oil  and Gas
Properties and on certain additional  related  equipment,  oil and gas inventory
and proceeds of the foregoing.  Obligations arising from agreements arising from
Rate Management  Transactions  between Borrower and the Bank or any Affiliate of
the Bank  providing  for the  hedging,  forward  sale or swap of  crude  oil and
natural gas or interest rate  protection  shall be secured by the Collateral (as
hereinafter defined) on a pari passu basis with the indebtedness and obligations
of the Borrower under the Loan  Documents.  All Oil and Gas Properties and other
collateral in which Borrower has heretofore  granted or hereafter  grants to the
Bank a first and prior Lien (to the satisfaction of the Bank) in accordance with
this  Section  6,  as  such  properties  and  interests  are  from  time to time
constituted, are hereinafter collectively called the "Collateral."

                                     - 18 -

<PAGE>

         The granting  and  assigning of such  security  interests  and Liens by
Borrower  shall be  pursuant  to  Security  Instruments  in form  and  substance
reasonably  satisfactory to the Bank.  Concurrently with the delivery of each of
the Security Instruments,  Borrower shall furnish to the Bank mortgage and title
opinions and other title  information  satisfactory  to Bank with respect to the
title and Lien  status of  Borrower's  interests  in the Oil and Gas  Properties
covered by the Security Instruments as Bank shall have designated. Borrower will
cause to be  executed  and  delivered  to the Bank,  in the  future,  additional
Security  Instruments if the Bank reasonably  deems such are necessary to insure
perfection or maintenance of Bank's security  interests and Liens in the Oil and
Gas Properties or any part thereof.

         7.       BORROWING BASE.

                  (a) Initial  Borrowing  Base.  During the period from the date
         hereof to the first  Determination Date (as hereinafter  defined),  the
         Borrowing Base shall be $38,250,000.00.

                  (b) Subsequent  Determinations  of Borrowing Base.  Subsequent
         determinations of the Borrowing Base shall be made by the Bank at least
         semi-annually  on May 1 and  November 1 of each year  beginning  May 1,
         2000 or as Unscheduled Redeterminations.  The Borrower shall furnish to
         the Bank as soon as possible  but in any event no later than April 1 of
         each year,  beginning  April 1, 2000,  or within thirty (30) days after
         either (i) receipt of notice from Bank that it requires an  Unscheduled
         Redetermination,  or (ii) the  Borrower  give  notice  to Bank of their
         desire  to  have  an  Unscheduled  Redetermination  performed,  with an
         engineering report in form and substance  satisfactory to Bank prepared
         by Borrower and audited by a petroleum  engineering  firm acceptable to
         Bank, valuing the Oil and Gas Properties utilizing economic and pricing
         parameters used by Bank as established from time to time, together with
         such other information, report and data concerning the value of the Oil
         and Gas Properties as Bank shall deem reasonably necessary to determine
         the value of such Oil and Gas  Properties.  Bank shall by notice to the
         Borrower no later than May 1 and  November 1 of each year,  or within a
         reasonable time thereafter  (herein called the  "Determination  Date"),
         designate  a new  Borrowing  Base  for  the  period  beginning  on such
         Determination  Date and continuing  until, but not including,  the next
         Determination  Date. If an Unscheduled  Redetermination  is made by the
         Bank, the Bank shall notify the Borrower within a reasonable time after
         receipt of all requested  information  of the new Borrowing  Base,  and
         such new Borrowing  Base shall  continue  until the next  Determination
         Date. If the Borrower do not furnish all such information,  reports and
         data by the date specified in this Section 7(b), unless such failure is
         of no fault of the  Borrower,  the Bank may  nonetheless  designate the
         Borrowing  Base  at  any  amounts  which  the  Bank  determines  in its
         discretion  and may  redesignate  the Borrowing  Base from time to time
         thereafter  until the Bank receives all such  information,  reports and
         data,  whereupon  the Bank  shall  designate  a new  Borrowing  Base as
         described  above.  The Bank shall determine the amount of the Borrowing
         Base based upon the loan collateral  value which Bank in its discretion
         (using  such  methodology,  assumptions  and  discounts  rates  as Bank
         customarily  uses  in  assigning   collateral  value  to  oil  and  gas
         properties,  oil and gas gathering  systems,  gas  processing and plant
         operations)  assigns to such Oil and Gas  Properties of the Borrower at
         the time in question and

                                     - 19 -

<PAGE>

         based upon such other credit factors  consistently  applied (including,
         without  limitation,  the  assets,  liabilities,  cash flow,  business,
         properties, prospects, management and ownership of the Borrower and its
         affiliates) as Bank customarily considers in evaluating similar oil and
         gas credits. If at any time any of the Oil and Gas Properties are sold,
         the Borrowing Base then in effect shall  automatically  be reduced by a
         sum equal to the loan  collateral  value of the Oil and Gas  Properties
         being sold by  Borrower  which the Bank in its  discretion  (using such
         methodology,  assumptions  and discount  rates as the Bank  customarily
         uses in assigning  collateral value to oil and gas properties) assigned
         to such Oil and Gas Properties at the time in question. It is expressly
         understood  that the Bank has no  obligation to designate the Borrowing
         Base at any  particular  amounts,  except  in the  exercise  of  Bank's
         discretion.  Provided, however, that Bank shall not have the obligation
         to  designate a  Borrowing  Base in an amount in excess of its legal or
         internal lending limits.

         8.       PREPAYMENTS.

                  (a)  Voluntary  Prepayments.  The Borrower may at any time and
         from time to time,  without  penalty or  premium,  prepay the Note,  in
         whole or in part. Each such  prepayment  shall be made on at least five
         (5) Business Days' notice to Bank and shall be in an amount of $500,000
         or more in  increments  of $250,000 or the unpaid  balance on the Note,
         whichever  is  less,  plus  accrued  interest  thereon  to the  date of
         prepayment.  If Borrower  shall prepay the  principal of any CD Loan or
         Eurodollar  Loan on any date  other  than the last day of the  Interest
         Period applicable thereto, Borrower shall make the payments required by
         Section 5(g).

                  (b) Mandatory Prepayment For Borrowing Base Deficiency. In the
         event the  outstanding  principal  balance of the Note ever  exceed the
         Borrowing  Base as  determined by Bank pursuant to Section 7(b) hereof,
         the  Borrower  shall,  within  sixty (60) days  thereof,  either (A) by
         instruments reasonably  satisfactory in form and substance to the Bank,
         provide  the Bank with  collateral  with  value and  quality in amounts
         satisfactory  to the Bank in its  discretion  in order to increase  the
         Borrowing  Base by an  amount  at least  equal to such  excess,  or (B)
         prepay, without premium or penalty, the principal amount of the Note in
         an amount at least equal to such excess plus accrued  interest  thereon
         to the date of prepayment. Each prepayment required to be made pursuant
         to this  Section  8(b) is subject  to the  provisions  of Section  5(g)
         hereof,  provided that, if and to the extent the amount  required to be
         prepaid  hereunder  exceeds the aggregate  principal amount of the Base
         Rate Loans then  outstanding,  Borrower  may,  at its  option,  pay the
         amount of principal of the CD and/or  Eurodollar  Loans  required to be
         prepaid  pursuant to this Section 8(b) to Bank for deposit in a special
         collateral  account to be  established  for this  purpose.  Such amount
         shall  be held by Bank in such  collateral  account  subject  to and in
         accordance  with the  provisions  of this Section 8(b) until the end of
         the  relevant  Interest  Period  or  Periods  for such CD Loans  and/or
         Eurodollar  Loans and  thereupon  applied to the  prepayment of such CD
         Loans and/or Eurodollar  Loans.  Borrower hereby directs Bank to apply,
         and Bank shall apply,  any amounts so deposited in any such  collateral
         account to prepay such CD Loans and/or  Eurodollar  Loans at the end of
         such relevant Interest Period or Periods.

                                     - 20 -

<PAGE>

         9. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this  Agreement,  the Borrower  hereby  represents and warrants to the Bank
(which  representations  and  warranties  will survive the delivery of the Note)
that:

                  (a) Creation and  Existence.  Borrower is a  corporation  duly
         organized,  validly existing and in good standing under the laws of the
         jurisdiction  in  which  it was  formed  and is duly  qualified  in all
         jurisdictions  wherein  failure  to  qualify  may  result in a Material
         Adverse  Effect.  Borrower  has  all  power  and  authority  to own its
         properties  and  assets and to  transact  the  business  in which it is
         engaged.

                  (b) Power  and  Authority.  Borrower  is duly  authorized  and
         empowered to create and issue the Note; and Borrower is duly authorized
         and  empowered  to execute,  deliver  and  perform the Loan  Documents,
         including this Agreement;  and all corporate  action on each Borrower's
         part  requisite  for the due  creation and issuance of the Note and for
         the due  execution,  delivery and  performance  of the Loan  Documents,
         including this Agreement, has been duly and effectively taken.

                  (c) Binding Obligations. This Agreement does, and the Note and
         other Loan  Documents  upon their  creation,  issuance,  execution  and
         delivery will,  constitute  valid and binding  obligations of Borrower,
         enforceable  in  accordance  with its  respective  terms  (except  that
         enforcement may be subject to any applicable bankruptcy, insolvency, or
         similar  debtor  relief laws now or hereafter in effect and relating to
         or affecting the enforcement of creditors rights generally).

                  (d) No  Legal  Bar or  Resultant  Lien.  The Note and the Loan
         Documents,  including this Agreement,  do not and will not, violate any
         provisions  of  any  contract,   agreement,  law,  regulation,   order,
         injunction,  judgment,  decree or writ to which Borrower is subject, or
         result in the creation or imposition  of any lien or other  encumbrance
         upon  any  assets  or   properties   of  Borrower,   other  than  those
         contemplated by this Agreement.

                  (e) No Consent. The execution, delivery and performance by the
         Borrower of the Note and the Loan Documents,  including this Agreement,
         does not require the consent or approval of any other person or entity,
         including without  limitation any regulatory  authority or governmental
         body  of the  United  States  or any  state  thereof  or any  political
         subdivision  of the  United  States or any  state  thereof  except  for
         consents  required for federal,  state and, in some instances,  private
         leases,  right of ways and other conveyances or encumbrances of oil and
         gas leases (all of which consents have been obtained by the Borrower).

                  (f) Financial  Condition.  The audited Financial Statements of
         Borrower dated December 31, 1998 and the unaudited Financial Statements
         of Borrower dated September 30, 1999, which have been delivered to Bank
         are  complete  and  correct  in all  material  respects,  and fully and
         accurately reflect in all material respects the financial condition and
         results of the

                                     - 21 -

<PAGE>

         operations  of the  Borrower as of the date or dates and for the period
         or periods  stated.  No change  has since  occurred  in the  condition,
         financial or otherwise, of the Borrower which is reasonably expected to
         have a Material  Adverse  Effect,  except as  disclosed  to the Bank in
         Schedule "2" attached hereto.

                  (g)   Liabilities.   Borrower   does  not  have  any  material
         (individually  or in the  aggregate)  liability,  direct or contingent,
         except as  disclosed  to the Bank in the  Financial  Statements  and on
         Schedule  "3"  attached  hereto.   No  unusual  or  unduly   burdensome
         restrictions,   restraint,   or  hazard  exists  by  contract,  law  or
         governmental  regulation or otherwise relative to the business,  assets
         or  properties  of  Borrower  which is  reasonably  expected  to have a
         Material Adverse Effect.

                  (h)   Litigation.   Except  as  described  in  the   Financial
         Statements,  or as  otherwise  disclosed  to the Bank in  Schedule  "4"
         attached  hereto,  there  is no  litigation,  legal  or  administrative
         proceeding,  investigation or other action of any nature pending or, to
         the  knowledge  of the  officers  of  Borrower  threatened  against  or
         affecting  Borrower which  involves the  possibility of any judgment or
         liability  not fully  covered  by  insurance,  and which is  reasonably
         expected to have a Material Adverse Effect.

                  (i) Taxes;  Governmental  Charges.  Borrower has filed all tax
         returns  and  reports  required  to be filed  and has  paid all  taxes,
         assessments,  fees and other governmental charges levied upon it or its
         assets,  properties  or  income  which are due and  payable,  including
         interest and penalties, the failure of which to pay could reasonably be
         expected to have a Material  Adverse  Effect,  except such as are being
         contested  in good  faith  by  appropriate  proceedings  and for  which
         adequate  reserves for the payment thereof as required by GAAP has been
         provided and levy and  execution  thereon have been stayed and continue
         to be stayed.

                  (j) Titles, Etc. Borrower has good and defensible title to all
         of its respective assets, including without limitation, the Oil and Gas
         Properties,  free and clear of all liens or other  encumbrances  except
         Permitted Liens.

                  (k)  Defaults.  Borrower  is not in  default  and no  event or
         circumstance  has  occurred  which,  but for the passage of time or the
         giving of notice, or both, would constitute a default under any loan or
         credit  agreement,   indenture,   mortgage,  deed  of  trust,  security
         agreement or other agreement or instrument to which Borrower is a party
         in any  respect  that would be  reasonably  expected to have a Material
         Adverse  Effect.  No Event of Default  hereunder  has  occurred  and is
         continuing.

                  (l) Casualties;  Taking of Properties.  Since the dates of the
         latest Financial  Statements of the Borrower delivered to Bank, neither
         the  business  nor the  assets  or  properties  of  Borrower  have been
         affected  (to the  extent it is  reasonably  likely to cause a Material
         Adverse Effect), as a result of any fire, explosion, earthquake, flood,
         drought, windstorm, accident, strike or other labor

                                     - 22 -

<PAGE>

         disturbance, embargo, requisition or taking of property or cancellation
         of  contracts,  permits  or  concessions  by any  domestic  or  foreign
         government or any agency thereof,  riot,  activities of armed forces or
         acts of God or of any public enemy.

                  (m) Use of Proceeds;  Margin  Stock.  The  $32,000,000  in new
         proceeds of the Loan  hereunder  will be used by the  Borrower  for the
         purposes of acquiring oil and gas properties  from Questar  Exploration
         and   Development   Company   ("Questar").   Borrower  is  not  engaged
         principally  or as one of its  important  activities in the business of
         extending  credit for the purpose of purchasing or carrying any "margin
         stock" as  defined in  Regulation  U of the Board of  Governors  of the
         Federal  Reserve  System (12 C.F.R.  Part 221),  or for the  purpose of
         reducing or retiring any indebtedness which was originally  incurred to
         purchase or carry a margin stock or for any other  purpose  which might
         constitute  this  transaction a "purpose  credit" within the meaning of
         said Regulation U.

                  Neither  Borrower nor any person or entity acting on behalf of
         Borrower  has taken or will take any action which might cause the loans
         hereunder or any of the Loan Documents,  including this  Agreement,  to
         violate  Regulation U or any other regulation of the Board of Governors
         of the Federal Reserve System or to violate the Securities Exchange Act
         of 1934 or any rule or  regulation  thereunder,  in each case as now in
         effect or as the same may hereafter be in effect.

                  (n) Location of Business and Offices.  The principal  place of
         business and chief  executive  office of the Borrower is located at the
         address stated in Section 15 hereof.

                  (o)  Compliance  with  the  Law.  To the  best  of  Borrower's
         knowledge, Borrower:

                         (i) is not in violation of any law,  judgment,  decree,
                    order,  ordinance,  or  governmental  rule or  regulation to
                    which  Borrower,  or any of its  assets  or  properties  are
                    subject; or

                         (ii) has not  failed to  obtain  any  license,  permit,
                    franchise or other governmental  authorization  necessary to
                    the  ownership  of any of its  assets or  properties  or the
                    conduct of its business;

         which  violation or failure  is reasonably expected  to have a Material
         Adverse Effect.

                  (p) No  Material  Misstatements.  No  information,  exhibit or
         report  furnished  by  Borrower  to the  Bank 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.

                                     - 23 -

<PAGE>

                  (q) ERISA.  Borrower is in compliance in all material respects
         with the applicable  provisions of ERISA, and no "reportable event", as
         such term is defined in Section 403 of ERISA, has occurred with respect
         to any Plan of Borrower.

                  (r) Public  Utility  Holding  Company  Act.  Borrower is not a
         "holding company",  or "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.

                  (s)  Subsidiaries.  All of  the  Borrower's  Subsidiaries  are
         listed on Schedule "5" hereto.

                  (t)  Environmental  Matters.  Except as  disclosed on Schedule
         "6",  Borrower (i) has not received notice or otherwise  learned of any
         Environmental   Liability   which   would  be   reasonably   likely  to
         individually or in the aggregate have a Material Adverse Effect arising
         in  connection  with (A) any  non-compliance  with or  violation of the
         requirements of any  Environmental Law or (B) the release or threatened
         release of any toxic or hazardous waste into the environment,  (ii) has
         not received notice of any threatened or actual liability in connection
         with the  release or notice of any  threatened  release of any toxic or
         hazardous waste into the environment  which would be reasonably  likely
         to individually  or in the aggregate have a Material  Adverse Effect or
         (iii) has not received  notice or  otherwise  learned of any federal or
         state investigation evaluating whether any remedial action is needed to
         respond to a release or  threatened  release of any toxic or  hazardous
         waste into the environment for which Borrower is or may be liable which
         may reasonably be expected to result in a Material Adverse Effect.

                  (u) Liens.  Except (i) as disclosed on Schedule "1" hereto and
         (ii) for Permitted  Liens, the assets and properties of the Borrower is
         free and clear of all liens and encumbrances.

         10.      CONDITIONS OF LENDING.

                  (a) The  effectiveness of this Agreement and the obligation of
         the Bank to make the  additional  advances  in the Term  Loan  shall be
         subject to the following conditions precedent:

                         (i)  Execution and  Delivery.  The Borrower  shall have
                    executed  and  delivered  the  Note,  this  Agreement,   the
                    Security  Instruments and other required  documents,  all in
                    form and substance satisfactory to the Bank;

                         (ii) Legal  Opinion.  The Bank shall have received from
                    Borrower's  legal counsel a favorable  legal opinion in form
                    and  substance  satisfactory  to the Bank,  generally in the
                    form  of  the  opinion  furnished  in  connection  with  the
                    execution  of the  Restated  Loan  Agreement on December 20,
                    1995;

                                     - 24 -

<PAGE>

                         (iii)  Corporate  Resolutions.   The  Bank  shall  have
                    received  appropriate  certified  corporate  resolutions  of
                    Borrower;

                         (iv)  Good  Standing.  The  Bank  shall  have  received
                    evidence of existence and good standing for Borrower, except
                    for the State of Mississippi;

                         (v)  Incumbency.  The Bank shall have received a signed
                    certificate  of  Borrower,   certifying  the  names  of  the
                    officers of Borrower  authorized  to sign loan  documents on
                    behalf of Borrower,  together  with the true  signatures  of
                    each such officer.  The Bank may  conclusively  rely on such
                    certificate until the Bank receives a further certificate of
                    Borrower  canceling  or amending the prior  certificate  and
                    submitting  signatures of the officers named in such further
                    certificate;

                         (vi)  Articles of  Incorporation  and Bylaws.  The Bank
                    shall have received copies of the Articles of  Incorporation
                    of Borrower  and all  amendments  thereto,  certified by the
                    Secretary of State of the State of  Delaware,  and a copy of
                    the bylaws of Borrower and all amendments thereto, certified
                    by an  officer  of  Borrower  as  being  true,  correct  and
                    complete;

                         (vii) Title. The Bank shall have received  satisfactory
                    evidence  to the  state  of the  title  to the  Oil  and Gas
                    Properties  being  mortgaged  to the Bank  contemporaneously
                    herewith;

                         (viii)  Questar   Acquisition.   The  Bank  shall  have
                    received  satisfactory  evidence that the acquisition of the
                    Oil and Gas Properties from Questar has closed or is closing
                    simultaneously  with the  closing  of the  loan  transaction
                    described in this Agreement.

                         (ix)  Payment  of  Facility  Fee.  The Bank  shall have
                    received  payment  of the  Facility  Fee in  the  amount  of
                    $120,000.

                         (x) Representation and Warranties.  The representations
                    and warranties of Borrower under this Agreement are true and
                    correct in all material respects as of such date, as if then
                    made  (except to the extent  that such  representations  and
                    warranties related solely to an earlier date);

                         (xi) No Event of  Default.  No Event of  Default  shall
                    have  occurred  and be  continuing  nor shall any event have
                    occurred or failed to occur which,  with the passage of time
                    or service of notice,  or both, would constitute an Event of
                    Default;

                         (xii) Other  Documents.  Bank shall have  received such
                    other  instruments and documents  incidental and appropriate
                    to the transaction provided for herein as Bank or its

                                     - 25 -

<PAGE>

                    counsel may reasonably request, and all such documents shall
                    be  in  form and  substance reasonably  satisfactory to  the
                    Bank; and

                         (xiii) Legal  Matters  Satisfactory.  All legal matters
                    incident   to   the   consummation   of   the   transactions
                    contemplated  hereby  shall be  reasonably  satisfactory  to
                    special  counsel  for Bank  retained  at the  expense of the
                    Borrower.

         11.  AFFIRMATIVE  COVENANTS.  A deviation  from the  provisions of this
Section 11 shall not constitute an Event of Default under this Agreement if such
deviation is consented to in writing by Bank.  Without the prior written consent
of Bank,  the Borrower will at all times comply with the covenants  contained in
this  Section  11 from the date  hereof  and for so long as any part of the Term
Loan is outstanding.

                  (a) Financial Statements and Reports.  Borrower shall promptly
         furnish  to the Bank from time to time upon  request  such  information
         regarding the business and affairs and financial condition of Borrower,
         as the Bank may reasonably request, and will furnish to the Bank:

                         (i) Annual  Audited  Financial  Statements.  As soon as
                    available,  and in any event within one hundred twenty (120)
                    days after the close of each fiscal year  beginning with the
                    fiscal year ended  December  31,  1999,  the annual  audited
                    consolidated  and  consolidating   Financial  Statements  of
                    Borrower, prepared in accordance with GAAP accompanied by an
                    unqualified  opinion  rendered by an independent  accounting
                    firm reasonably acceptable to the Bank;

                         (ii)  Quarterly  Financial   Statements.   As  soon  as
                    available, and in any event within sixty (60) days after the
                    end of each  calendar  quarter of each year (except the last
                    calendar  quarter of any fiscal  year),  beginning  with the
                    fiscal quarter ended March 31, 2000, the quarterly unaudited
                    consolidated  and  consolidating   Financial  Statements  of
                    Borrower  prepared in accordance with GAAP,  certified to by
                    the Chief  Financial  Officer of  Borrower as being true and
                    correct;

                         (iii) Report on Properties. As soon as available and in
                    any event on or before April 1 of each calendar year, and at
                    such  other  times as Bank,  in  accordance  with  Section 7
                    hereof, may request,  the engineering reports required to be
                    furnished  to the Bank under  such  Section 7 on the Oil and
                    Gas Properties;

                         (iv)  SEC  Reports.  As soon as  available,  and in any
                    event within five (5) days of filing,  copies of all filings
                    by Borrower with the Securities and Exchange Commission;

                                     - 26 -

<PAGE>

                         (v) Audit Reports.  Promptly upon receipt thereof,  one
                    (1) copy of each  written  report  submitted  to Borrower by
                    independent accountants and any annual, quarterly or special
                    audit, review or examination;

                         (vi) Additional  Information.  Promptly upon request of
                    the  Bank  from  time  to  time  any  additional   financial
                    information   or  other   information   that  the  Bank  may
                    reasonably request.

         All such reports, information,  balance sheets and Financial Statements
         referred  to in  Subsection  11(a) above shall be in such detail as the
         Bank  may  reasonably  request  and  shall  be  prepared  in  a  manner
         consistent with the Financial Statements.

                  (b)   Certificates  of  Compliance.   Concurrently   with  the
         furnishing  of the annual  audited  Financial  Statements  pursuant  to
         Subsection  11(a)(i)  hereof  and  the  quarterly  unaudited  Financial
         Statements  pursuant to  Subsection  11(a)(ii)  hereof,  Borrower  will
         furnish or cause to be furnished to the Bank a certificate  in the form
         of Exhibit "C" attached hereto,  signed by the Chief Financial  Officer
         of Borrower,  (i) stating that  Borrower has  fulfilled in all material
         respects  its  obligations  under  the  Note  and the  Loan  Documents,
         including this Agreement,  and that all  representations and warranties
         made  herein and  therein  continue  (except to the extent  they relate
         solely  to an  earlier  date) to be true and  correct  in all  material
         respects (or  specifying  the nature of any change),  or if an Event of
         Default has  occurred,  specifying  the Event of Default and the nature
         and status thereof;  (ii) to the extent  requested from time to time by
         the Bank, specifically affirming compliance of Borrower in all material
         respects  with any of its  representations  (except to the extent  they
         relate   solely  to  an  earlier  date)  or   obligations   under  said
         instruments;  (iii) setting forth the computation, in reasonable detail
         as of the end of each period covered by such certificate, of compliance
         with  Sections  12(b),  (c),  (d)  and  (e);  and  (iv)  containing  or
         accompanied  by  such  financial  or  other  details,  information  and
         material  as  the  Bank  may   reasonably   request  to  evidence  such
         compliance.

                  (c) Accountants' Certificate. Concurrently with the furnishing
         of the annual audited Financial  Statement pursuant to Section 11(a)(i)
         hereof,  Borrower will furnish a statement from the firm of independent
         public  accountants  which  prepared  such  Financial  Statement to the
         effect  that  nothing  has come to  their  attention  to cause  them to
         believe that there existed on the date of such  statements any Event of
         Default.

                  (d) Taxes and Other Liens. The Borrower will pay and discharge
         promptly  all taxes,  assessments  and  governmental  charges or levies
         imposed  upon the Borrower or upon the income or any assets or property
         of  Borrower  as well as all claims of any kind  (including  claims for
         labor,  materials,  supplies and rent) which, if unpaid, might become a
         Lien or other  encumbrance upon any or all of the assets or property of
         Borrower and which could reasonably be expected to result in a Material
         Adverse Effect; provided,  however, that Borrower shall not be required
         to pay any such tax,  assessment,  charge, levy or claim if the amount,
         applicability or validity thereof shall currently

                                     - 27 -

<PAGE>

         be  contested  in good  faith  by  appropriate  proceedings  diligently
         conducted,  levy and execution thereon have been stayed and continue to
         be stayed and if Borrower shall have set up adequate reserves therefor,
         if required, under GAAP.

                  (e) Compliance with Laws. Borrower will observe and comply, in
         all material respects, with all applicable laws, statutes, codes, acts,
         ordinances,    orders,   judgments,   decrees,   injunctions,    rules,
         regulations,   orders  and   restrictions   relating  to  environmental
         standards or controls or to energy  regulations of all federal,  state,
         county,  municipal  and other  governments,  departments,  commissions,
         boards, agencies, courts, authorities, officials and officers, domestic
         or foreign.

                  (f) Further  Assurances.  The Borrower  will cure promptly any
         defects in the creation and issuance of the Note and the  execution and
         delivery of the Note and the Loan Documents,  including this Agreement.
         The Borrower at its sole expense will  promptly  execute and deliver to
         Bank upon its reasonable  request all such other and further documents,
         agreements and instruments in compliance with or  accomplishment of the
         covenants and agreements in this Agreement, or to correct any omissions
         in the Note or more fully to state the obligations set out herein.

                  (g) Performance of Obligations. The Borrower will pay the Note
         and  other  obligations  incurred  by it  hereunder  according  to  the
         reading,  tenor and effect thereof and hereof; and Borrower will do and
         perform every act and discharge all of the  obligations  provided to be
         performed  and  discharged  by the Borrower  under the Loan  Documents,
         including  this  Agreement,  at the  time or  times  and in the  manner
         specified.

                  (h) Insurance.  The Borrower now maintain and will continue to
         maintain  insurance with financially sound and reputable  insurers with
         respect to its assets  against  such  liabilities,  fires,  casualties,
         risks and  contingencies  and in such types and amounts as is customary
         in the case of persons  engaged in the same or similar  businesses  and
         similarly situated. Upon request of the Bank, the Borrower will furnish
         or cause to be furnished to the Bank from time to time a summary of the
         respective  insurance  coverage of each  Borrower in form and substance
         satisfactory  to the Bank,  and, if  requested,  will  furnish the Bank
         copies of the  applicable  policies.  Upon demand by Bank any insurance
         policies  covering any such  property  shall be endorsed (i) to provide
         that such  policies  may not be  canceled,  reduced or  affected in any
         manner for any reason  without  fifteen (15) days prior notice to Bank,
         (ii) to provide for insurance against fire,  casualty and other hazards
         normally  insured  against,  in the  amount of the full  value  (less a
         reasonable  deductible not to exceed amounts  customary in the industry
         for  similarly  situated  business  and  properties)  of  the  property
         insured,  and (iii) to provide  for such other  matters as the Bank may
         reasonably  require.  The Borrower shall at all times maintain adequate
         insurance  with  respect  to all of  their  assets,  including  but not
         limited to, the Oil and Gas  Properties or any  collateral  against its
         liability for injury to persons or property,  which  insurance shall be
         by  financially   sound  and  reputable   insurers  and  shall  without
         limitation  provide  the  following  coverages:  comprehensive  general
         liability  (including coverage for damage to underground  resources and
         equipment, damage caused by blowouts or

                                     - 28 -

<PAGE>

         cratering,  damage caused by explosion,  damage to underground minerals
         or resources  caused by saline  substances,  broad form property damage
         coverage, broad form coverage for contractually assumed liabilities and
         broad form  coverage  for acts of  independent  contractors),  worker's
         compensation and automobile liability. Additionally, the Borrower shall
         at all times  maintain  adequate  insurance  with respect to all of its
         other assets and wells in accordance with prudent business practices.

                  (i)  Accounts  and  Records.  The  Borrower  will keep  books,
         records and  accounts in which full,  true and correct  entries will be
         made of all  dealings or  transactions  in relation to its business and
         activities,  prepared in a manner consistent with prior years,  subject
         to changes suggested by Borrower's auditors.

                  (j) Right of Inspection. The Borrower will permit any officer,
         employee or agent of the Bank to examine Borrower's books,  records and
         accounts,  and  take  copies  and  extracts  therefrom,   all  at  such
         reasonable  times during normal business hours and as often as the Bank
         may  reasonably  request.  The Bank  will  keep  all  such  information
         confidential  and will not without  prior written  consent  disclose or
         reveal the information or any part thereof to any person other than the
         Bank's officers,  employees,  legal counsel,  regulatory authorities or
         advisors to whom it is  necessary  to reveal such  information  for the
         purpose of  effectuating  the  agreements  and  undertakings  specified
         herein  or as  otherwise  required  by law or in  connection  with  the
         enforcement  of  Bank's  rights  and  remedies  under  the  Note,  this
         Agreement and the other Loan Documents.

                  (k) Notice of Certain  Events.  The  Borrower  shall  promptly
         notify the Bank if Borrower  learns of the  occurrence of (i) any event
         which  constitutes  an  Event  of  Default  together  with  a  detailed
         statement  by  Borrower  of the steps  being taken to cure the Event of
         Default;  or  (ii)  any  legal,  judicial  or  regulatory   proceedings
         affecting  Borrower,  or any of the assets or  properties  of  Borrower
         which, if adversely determined,  could reasonably be expected to have a
         Material Adverse Effect;  or (iii) any dispute between Borrower and any
         governmental or regulatory body or any other person or entity which, if
         adversely determined,  might reasonably be expected to cause a Material
         Adverse Effect; or (iv) any other matter which in Borrower's reasonable
         opinion could have a Material Adverse Effect.

                  (l)  ERISA  Information  and  Compliance.  The  Borrower  will
         promptly  furnish to the Bank  immediately  upon becoming  aware of the
         occurrence  of any  "reportable  event",  as such  term is  defined  in
         Section 4043 of ERISA, or of any "prohibited transaction", as such term
         is defined in Section  4975 of the Internal  Revenue  Code of 1954,  as
         amended, in connection with any Plan or any trust created thereunder, a
         written  notice  signed  or the chief  financial  officer  of  Borrower
         specifying  the  nature  thereof,  what  action  Borrower  is taking or
         proposes to take with  respect  thereto,  and,  when known,  any action
         taken by the Internal Revenue Service with respect thereto.

                                     - 29 -

<PAGE>

                  (m)  Environmental  Reports and  Notices.  The  Borrower  will
         deliver to the Bank (i) promptly upon its becoming available,  one copy
         of each report sent by  Borrower to any court,  governmental  agency or
         instrumentality  pursuant to any  Environmental  Law,  (ii) notice,  in
         writing,  promptly  upon  Borrower's  receipt  of notice  or  otherwise
         learning of any claim,  demand,  action,  event,  condition,  report or
         investigation  indicating any potential or actual liability  arising in
         connection  with  (x)  the  non-compliance  with  or  violation  of the
         requirements  of  any  Environmental  Law  which  reasonably  could  be
         expected  to  have a  Material  Adverse  Effect;  (y)  the  release  or
         threatened release of any toxic or hazardous waste into the environment
         which reasonably could be expected to have a Material Adverse Effect or
         which  release  Borrower  would  have a duty to  report to any court or
         government  agency or  instrumentality,  or (iii) the  existence of any
         Environmental  Lien  on any  properties  or  assets  of  Borrower,  and
         Borrower shall immediately deliver a copy of any such notice to Bank.

                  (n) Compliance and Maintenance.  The Borrower will (i) observe
         and comply in all material respects with all  Environmental  Laws; (ii)
         except as provided in Subsections  11(o) and 11(p) below,  maintain the
         Oil and Gas  Properties  and other  assets and  properties  in good and
         workable  condition  at all times and make all  repairs,  replacements,
         additions,  betterments and  improvements to the Oil and Gas Properties
         and other  assets and  properties  as are needed and proper so that the
         business carried on in connection  therewith may be conducted  properly
         and  efficiently at all times in the opinion of the Borrower  exercised
         in good  faith;  (iii) take or cause to be taken  whatever  actions are
         necessary  or  desirable to prevent an event or condition of default by
         Borrower  under the provisions of any gas purchase or sales contract or
         any other contract, agreement or lease comprising a part of the Oil and
         Gas Properties or other  collateral  security  hereunder  which default
         could  reasonably be expected to result in a Material  Adverse  Effect;
         and (iv) furnish Bank upon request  evidence  satisfactory to Bank that
         there  are no  Liens,  claims  or  encumbrances  on  the  Oil  and  Gas
         Properties,  except  laborers',  vendors',   repairmen's,   mechanics',
         worker's,  or  materialmen's  liens  arising  by  operation  of  law or
         incident  to  the  construction  or  improvement  of  property  if  the
         obligations  secured  thereby are not yet due or are being contested in
         good faith by appropriate legal proceedings or Permitted Liens.

                  (o) Operation of Properties.  Except as provided in Subsection
         11(p) and (q) below,  the  Borrower  will  operate,  or use  reasonable
         efforts  to  cause  to be  operated,  all Oil and Gas  Properties  in a
         careful and  efficient  manner in  accordance  with the practice of the
         industry and in compliance in all material respects with all applicable
         laws,  rules,  and  regulations,  and in  compliance  in  all  material
         respects with all  applicable  proration and  conservation  laws of the
         jurisdiction  in which the properties are situated,  and all applicable
         laws, rules, and regulations,  of every other agency and authority from
         time to time  constituted to regulate the  development and operation of
         the properties and the  production and sale of  hydrocarbons  and other
         minerals therefrom; provided, however, that the Borrower shall have the
         right  to  contest  in  good  faith  by  appropriate  proceedings,  the
         applicability or lawfulness of any such law, rule or regulation and

                                     - 30 -

<PAGE>

         pending such contest may defer  compliance  therewith,  as long as such
         deferment  shall not  subject  the  properties  or any part  thereof to
         foreclosure or loss.

                  (p) Compliance with Leases and Other Instruments. The Borrower
         will pay or cause to be paid and discharge all rentals,  delay rentals,
         royalties,  production payment, and indebtedness required to be paid by
         Borrower (or required to keep  unimpaired in all material  respects the
         rights of  Borrower  in Oil and Gas  Properties)  accruing  under,  and
         perform or cause to be  performed  in all  material  respects  each and
         every act, matter, or thing required of Borrower by each and all of the
         assignments, deeds, leases, subleases, contracts, and agreements in any
         way  relating to Borrower or any of the Oil and Gas  Properties  and do
         all other  things  necessary  of  Borrower  to keep  unimpaired  in all
         material respects the rights of Borrower  thereunder and to prevent the
         forfeiture  thereof  or default  thereunder;  provided,  however,  that
         nothing  in this  Agreement  shall be deemed  to  require  Borrower  to
         perpetuate  or renew any oil and gas lease or other lease by payment of
         rental or delay rental or by commencement or continuation of operations
         nor to prevent  Borrower  from  abandoning or releasing any oil and gas
         lease or other lease or well thereon  when,  in any of such events,  in
         the opinion of Borrower  exercised in good faith, it is not in the best
         interest of the Borrower to perpetuate the same.

                  (q) Certain Additional  Assurances  Regarding  Maintenance and
         Operations of Properties.  With respect to those Oil and Gas Properties
         which are being  operated by  operators  other than the  Borrower,  the
         Borrower   shall  not  be   obligated   to  perform  any   undertakings
         contemplated  by the covenants and agreement  contained in  Subsections
         11(o) or 11(p) hereof which are performable  only by such operators and
         are beyond the control of the Borrower; however, the Borrower agrees to
         promptly  take all  reasonable  actions  available  under any operating
         agreements  or  otherwise  to bring about the  performance  of any such
         material undertakings required to be performed thereunder.

                  (r) Title  Matters.  Within  sixty  (60)  days  after the date
         hereof with  respect to the Oil and Gas  Properties  listed on Schedule
         "7",  and,  thereafter,  as to any  Oil and  Gas  Properties  hereafter
         mortgaged to Bank,  Borrower  will  promptly (but in no event more than
         sixty (60) days  following  such  mortgaging),  furnish Bank with title
         opinions  and/or  title  information  reasonably  satisfactory  to Bank
         showing  good  and  defensible  title of  Borrower  to such Oil and Gas
         Properties subject only to Permitted Liens.

                  (s) Curative  Matters.  Within ninety (90) days after the date
         hereof with respect to matters listed on Schedule "8" and,  thereafter,
         within  sixty (60) days  after  receipt  by  Borrower  from Bank or its
         counsel of written notice of title defects the Bank reasonably requires
         to  be  cured,   Borrower   shall  either  (i)  provide  such  curative
         information,  in form  and  substance  satisfactory  to  Bank,  or (ii)
         substitute Oil and Gas Properties of value and quality  satisfactory to
         the  Bank  for all of Oil and  Gas  Properties  for  which  such  title
         curative was requested but upon which  Borrower  elected not to provide
         such title curative information, and, within sixty (60) days of such

                                     - 31 -

<PAGE>

         substitution,  provide title opinions or title information satisfactory
         to the Bank covering the Oil and Gas Properties so substituted.

                  (t) Change of Principal Place of Business. Borrower shall give
         Bank at least thirty (30) days prior written notice of its intention to
         move its  principal  place of  business  from the  address set forth in
         Section 15 hereof.

         12. NEGATIVE COVENANTS. A deviation from the provisions of this Section
12 shall  not  constitute  an Event of  Default  under  this  Agreement  if such
deviation is consented to in writing by Bank.  Without the prior written consent
of Bank,  the Borrower will at all times comply with the covenants  contained in
this Section 12 from the date hereof and for so long as the Term  Commitment  is
in existence or any part of the Term Loan is outstanding.

                  (a)  Negative  Pledge.  Borrower  will not (i) grant,  create,
         incur,  permit or suffer to exist any Lien upon any of its  property or
         assets,  including,  without limitation,  the Collateral,  now owned or
         hereafter  acquired,  except  for  Permitted  Liens and Liens  given to
         secure   Non   Recourse   Debt  of   Borrower,   (ii)  enter  into  any
         sale-and-lease-back  transaction, or (iii) agree with any Person (other
         than in the Loan  Documents)  that  Borrower  will not  grant,  create,
         incur,  permit or suffer to exist any Lien upon any of its  property or
         assets. Anything of the foregoing or elsewhere in the Loan Documents to
         the contrary  notwithstanding,  it is understood  that no Liens,  other
         than  Permitted  Liens,  are permitted on or with respect to any of the
         Collateral.

                  (b) Current  Ratio.  The Borrower  will not allow its ratio of
         Current Assets to Current  Liabilities to be less than 1.0 to 1.0 as of
         the end of any fiscal quarter.

                  (c) Fixed Charge Coverage  Ratio.  Borrower will not allow its
         Fixed Charge Coverage Ratio to ever be less than 1.2 to 1.0.

                  (d) Minimum Net Worth.  The Borrower's Net Worth will not ever
         be less than the sum of (i)  $39,000,000  plus, (ii) after December 31,
         1999,  fifty  percent  (50%) of Net  Income,  if  positive,  plus (iii)
         seventy-five  percent  (75%) of the net  cash  proceeds  of any  equity
         offering.

                  (e) Debt to Worth Ratio.  Borrower will not allow its ratio of
         (i) the aggregate of Total Liabilities to (ii) Net Worth at any time to
         be greater than 1.5 to 1.0.

                  (f) Consolidations and Mergers.  Borrower will not consolidate
         or merge with or into any other Person,  except that Borrower may merge
         with another Person if Borrower is the surviving  entity in such merger
         and if, after  giving  effect  thereto,  no Default or Event of Default
         shall have occurred and be continuing.

                                     - 32 -

<PAGE>

                  (g) Debts, Guaranties and Other Obligations. Borrower will not
         incur,  create,  assume or in any manner become or be liable in respect
         of any  indebtedness,  nor will Borrower  guarantee or otherwise in any
         manner become or be liable in respect of any indebtedness,  liabilities
         or  other  obligations  of any  other  Person  or  Entity,  whether  by
         agreement to purchase the indebtedness of any other Person or Entity or
         agreement  for the  furnishing  of funds to any other  Person or Entity
         through the purchase or lease of goods, supplies or services (or by way
         of stock  purchase,  capital  contribution,  advance  or loan)  for the
         purpose of paying or discharging  the  indebtedness of any other Person
         or Entity, or otherwise,  except that the foregoing  restrictions shall
         not apply to:

                         (i) the Note and any  renewal or increase  thereof,  or
                    other indebtedness of the Borrower  heretofore  disclosed to
                    Bank in the Borrower's  Financial  Statements or on Schedule
                    "3" hereto; or

                         (ii) taxes,  assessments  or other  government  charges
                    which are not yet due or are being  contested  in good faith
                    by  appropriate  action  promptly  initiated and  diligently
                    conducted,  if such  reserve  as shall be  required  by GAAP
                    shall have been made therefor and levy and execution thereon
                    have been stayed and continue to be stayed; or

                         (iii)  indebtedness  (other than in  connection  with a
                    loan or lending transaction) incurred in the ordinary course
                    of business,  including, but not limited to indebtedness for
                    drilling,  completing,  leasing  and  reworking  oil and gas
                    wells; or

                         (iv) Permitted Purchase Money Indebtedness; or

                         (v) Non-Recourse Debt.

                  (h) Dividends.  Borrower will not declare or pay any dividend,
         purchase, redeem or otherwise acquire for value any of its stock now or
         hereafter outstanding,  return any capital to its stockholders, or make
         any  distribution  of its assets to its  stockholders  as such,  except
         Permitted  Dividends  and  Redemptions,   provided,  however,  that  no
         Dividend  or  Redemption  which  would  be  a  Permitted  Dividend  and
         Redemption  may be paid if  immediately  before and after giving effect
         thereto a Default or Event of  Default  shall  exist,  unless and until
         such Dividend or Redemption is consented to by the Bank.

                  (i) Loans and Advances.  Borrower  shall not make or permit to
         remain outstanding any loans or advances to or in any Person or Entity,
         except that the foregoing restriction shall not apply to:

                         (i)  loans or  advances  to any  Person,  the  material
                    details  of  which  have  been set  forth  in the  Financial
                    Statements of the Borrower heretofore furnished to Bank; or

                                     - 33 -

<PAGE>

                         (ii) advances made in the ordinary course of Borrower's
                    oil and gas business; or

                         (iii) loans or advances not  exceeding in the aggregate
                    outstanding at any time the amount of $250,000.

                  (j) Nature of Business.  Borrower will not permit any material
         change to be made in the character of its business as carried on at the
         date hereof.

                  (k) Transactions with Affiliates. Borrower will not enter into
         any transaction with any Affiliate, except transactions upon terms that
         are no less  favorable  to it than would be obtained  in a  transaction
         negotiated at arm's length with an unrelated third party.

                  (l) Hedging Transaction. Borrower will not enter into any Rate
         Management  Transactions,  except the foregoing  prohibition  shall not
         apply  to any Rate  Management  Transactions  (i)  designed  to  hedge,
         forward sell or swap crude oil or natural gas or  otherwise  sell up to
         seventy-five  percent (75%) of the  Borrower's  anticipated  production
         from  proved,   developed   producing  reserves  of  crude  oil  and/or
         seventy-five  percent (75%) of the  Borrower's  anticipated  production
         from proved,  developed  producing  reserves of natural gas, during the
         period  from   immediately   preceding  the  settlement  date  (or  the
         commencement of the term of such hedge transaction if there is no prior
         settlement  date) to said  settlement  date,  (ii) with a  maturity  of
         eighteen  (18) months or less,  (iii) with  "strike  prices" per barrel
         greater than the Bank's forecasted price in the most recent engineering
         evaluation  of  Borrower's  Oil and Gas  Properties,  adjusted  for the
         difference  between  the  forecasted  price and the  Borrower's  actual
         production as determined by the Bank, (iv) with  counterparties  to the
         hedging agreement which are approved by the Bank or (v) Rate Management
         Transactions otherwise consented to in writing by the Bank.

                  (m)  Investments.  Borrower shall not make any  investments in
         any person or entity, except such restriction shall not apply to:

                         (i) Temporary Cash Investments;

                         (ii)  investments  contemplated  or  permitted by other
                    provisions of this Agreement; or

                         (iii) investments in wholly-owned Subsidiaries which
                  are such on the  Effective  Date or which  become  such  after
                  consent or waiver is granted by the Bank.

                  (n) Amendment to Articles of Incorporation or Bylaws. Borrower
         will not permit any amendment to, or any alteration of, its Articles of
         Incorporation or Bylaws.

                                     - 34 -

<PAGE>

                  (o) Sale of  Assets.  Borrower  shall  not sell,  transfer  or
         otherwise  dispose of any of the Collateral,  except for (i) production
         from oil,  gas and  mineral  properties  and other  assets  sold in the
         ordinary  course of  Borrower's  business,  or (ii)  during  the period
         between  each  Determination  Date,  Oil  and  Gas  Properties  with an
         aggregate  PW 10 value of  $500,000  or less,  or (iii)  sales or other
         dispositions of obsolete  equipment which is either no longer needed in
         the  ordinary  course of business  of Borrower or is being  replaced by
         equipment of at least comparable value and utility.

         13.      EVENTS OF DEFAULT.   Any one  or more  of the following events
shall be considered an "Event of Default" as that term is used herein:

                  (a) The  Borrower  shall fail to pay when due or declared  due
         the  principal  of, and the  interest  on, the Note,  or any fee or any
         other  indebtedness of the Borrower incurred pursuant to this Agreement
         or any other Loan Document; or

                  (b) Any representation or warranty made by Borrower under this
         Agreement, or in any certificate or statement furnished or made to Bank
         pursuant hereto, or in connection  herewith,  or in connection with any
         document furnished hereunder,  shall prove to be untrue in any material
         respect as of the date on which such representation or warranty is made
         (or deemed made), or any representation, statement (including financial
         statements),  certificate,  report  or other  data  furnished  or to be
         furnished or made by Borrower under any Loan  Document,  including this
         Agreement,  proves to have been untrue in any material  respect,  as of
         the date as of which  the  facts  therein  set  forth  were  stated  or
         certified; or

                  (c) Default shall be made in the due observance or performance
         of any of the covenants or agreements of the Borrower  contained in the
         Loan Documents, including this Agreement (excluding covenants contained
         in Section 12 of the Agreement for which there is not cure period), and
         such default shall continue for more than thirty (30) days; or

                  (d) Default shall be made in the due observance or performance
         of the covenants of Borrower contained in Section 12 of this Agreement;
         or

                  (e)  Default  shall be made in respect of any  obligation  for
         borrowed money in excess of $1,000,000,  other than the Note, for which
         Borrower  is  liable   (directly,   by  assumption,   as  guarantor  or
         otherwise), or any obligations secured by any mortgage, pledge or other
         security interest, lien, charge or encumbrance with respect thereto, on
         any asset or  property  of  Borrower  or in  respect  of any  agreement
         relating to any such obligations unless Borrower is not liable for same
         (i.e.,  unless remedies or recourse for failure to pay such obligations
         is limited to foreclosure of the collateral security therefor),  and if
         such default shall continue beyond the applicable grace period, if any;
         or

                                     - 35 -

<PAGE>

                  (f)  Borrower   shall  commence  a  voluntary  case  or  other
         proceedings  seeking  liquidation,  reorganization or other relief with
         respect  to itself or its debts  under any  bankruptcy,  insolvency  or
         other similar law now or hereafter in effect or seeking an  appointment
         of a trustee, receiver, liquidator, custodian or other similar official
         of it or any substantial part of its property,  or shall consent to any
         such relief or to the  appointment of or taking  possession by any such
         official in an involuntary case or other proceeding  commenced  against
         it, or shall make a general assignment for the benefit of creditors, or
         shall fail generally to pay its debts as they become due, or shall take
         any corporate action authorizing the foregoing; or

                  (g)  An  involuntary  case  or  other  proceeding,   shall  be
         commenced against Borrower seeking liquidation, reorganization or other
         relief with respect to it or its debts under any bankruptcy, insolvency
         or similar law now or hereafter in effect or seeking the appointment of
         a trustee, receiver, liquidator, custodian or other similar official of
         it or any substantial  part of its property,  and such involuntary case
         or other proceeding shall remain  undismissed and unstayed for a period
         of sixty (60) days;  or an order for  relief  shall be entered  against
         Borrower  under the federal  bankruptcy  laws as now or  hereinafter in
         effect; or

                  (h) A final  judgment  or order  for the  payment  of money in
         excess of $1,000,000  (or judgments or orders  aggregating in excess of
         $1,000,000)  shall be rendered  against  Borrower and such judgments or
         orders shall continue  unsatisfied  and unstayed for a period of thirty
         (30) days; or

                  (i) In the event the aggregate  principal  amount  outstanding
         under the Note shall at any time exceed the Borrowing Base  established
         for the Note, and the Borrower shall fail to comply with the provisions
         of Section 8(b) hereof; or

         Upon occurrence of any Event of Default  specified in Subsections 13(f)
and (g) hereof,  the entire principal amount due under the Note and all interest
then accrued thereon, and any other liabilities of the Borrower hereunder, shall
become  immediately due and payable all without notice and without  presentment,
demand, protest, notice of protest or dishonor or any other notice of default of
any kind, all of which are hereby expressly waived by the Borrower. In any other
Event of Default, the Bank shall by notice to the Borrower declare the principal
of,  and all  interest  then  accrued  on,  the Note and any  other  liabilities
hereunder to be forthwith due and payable,  whereupon  the same shall  forthwith
become due and payable without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which the
Borrower hereby expressly waive, anything contained herein or in the Note to the
contrary  notwithstanding.  Nothing  contained  in  this  Section  13  shall  be
construed to limit or amend in any way the Events of Default  enumerated  in the
Note,  or any  other  document  executed  in  connection  with  the  transaction
contemplated herein.

         Upon the occurrence and during the continuance of any Event of Default,
the Bank are hereby authorized at any time and from time to time, without notice
to the Borrower (any such notice being

                                     - 36 -

<PAGE>

expressly  waived by the  Borrower),  to set-off and apply any and all  deposits
(general or special, time or demand,  provisional or final) at any time held and
other  indebtedness at any time owing by any of the Bank to or for the credit or
the  account of the  Borrower  against  any and all of the  indebtedness  of the
Borrower  under  the Note  and the Loan  Documents,  including  this  Agreement,
irrespective  of whether  or not the Bank  shall have made any demand  under the
Loan  Documents,  including  this  Agreement  or  the  Note  and  although  such
indebtedness  may be unmatured.  Any amount  set-off by any of the Bank shall be
applied against the indebtedness  owed the Bank by the Borrower pursuant to this
Agreement and the Note.  The Bank agrees  promptly to notify the Borrower  after
any such setoff and  application,  provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Bank  under  this  Section  13 are in  addition  to other  rights  and  remedies
(including,  without  limitation,  other  rights of set- off) which the Bank may
have.

         14.  EXERCISE  OF  RIGHTS.  No  failure  to  exercise,  and no delay in
exercising,  on the part of the Bank,  any right  hereunder  shall  operate as a
waiver thereof,  nor shall any single or partial  exercise  thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of the Bank hereunder  shall be in addition to all other rights provided by law.
No modification or waiver of any provision of the Loan Documents, including this
Agreement,  or the Note nor consent to departure  therefrom,  shall be effective
unless in  writing,  and no such  consent  or waiver  shall  extend  beyond  the
particular  case and  purpose  involved.  No notice or demand  given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other circumstances without such notice or demand.

         15. NOTICES. Any notices or other communications  required or permitted
to be given by this Agreement or any other documents and instruments referred to
herein must be given in writing  (which may be by  facsimile  transmission)  and
must be personally  delivered or mailed by prepaid  certified or registered mail
to the party to whom such notice or  communication is directed at the address of
such party as follows:  (a)  BORROWER:  MAYNARD  OIL  COMPANY,  8080 N.  Central
Expressway,  Dallas, Texas 75206, Attention:  Glenn R. Moore, President; and (b)
BANK: BANK ONE,  TEXAS,  N.A., 1717 Main Street,  4th Floor,  TX1-2448,  Dallas,
Texas 75201,  Facsimile No.  214-290-2332,  Attention:  Reed V.  Thompson,  Vice
President.  Any such notice or other  communication shall be deemed to have been
given (whether actually  received or not) on the day it is personally  delivered
or delivered by facsimile as aforesaid or, if mailed,  on the third day after it
is mailed as  aforesaid.  Any party may change its address for  purposes of this
Agreement  by giving  notice of such change to the other party  pursuant to this
Section 15.

         16.  EXPENSES.  The Borrower shall pay (i) all reasonable and necessary
out-of-pocket  expenses of the Bank, including reasonable fees and disbursements
of special  counsel for the Bank, in  connection  with the  preparation  of this
Agreement,  any  waiver or  consent  hereunder  or any  amendment  hereof or any
default or Event of Default  or alleged  default or Event of Default  hereunder,
(ii) all reasonable and necessary  out-of-pocket expenses of the Bank, including
reasonable fees and  disbursements of special counsel for the Bank in connection
with  the  preparation  of any  participation  agreement  for a  participant  or
participants  requested by the Borrower or any amendment  thereof and (iii) if a
default  or  an  Event  of  Default   occurs,   all   reasonable  and  necessary
out-of-pocket expenses incurred by the Bank, including fees

                                     - 37 -

<PAGE>

and  disbursements  of counsel,  in  connection  with such  default and Event of
Default and collection and other enforcement  proceedings  resulting  therefrom.
The Borrower  shall  indemnify  the Bank against any  transfer  taxes,  document
taxes,  assessments or charges made by any  governmental  authority by reason of
the execution, delivery and filing of the Loan Documents.

         17.  INDEMNITY.  The Borrower agrees to indemnify and hold harmless the
Bank  and  its   respective   officers,   employees,   agents,   attorneys   and
representatives  (singularly,  an "Indemnified  Party",  and  collectively,  the
"Indemnified  Parties") from and against any loss,  cost,  liability,  damage or
expense (including the reasonable fees and out-of-pocket  expenses of counsel to
the Bank,  including all local counsel hired by such counsel) ("Claim") incurred
by the Bank in investigating or preparing for, defending  against,  or providing
evidence,  producing  documents  or taking  any other  action in  respect of any
commenced or threatened litigation,  administrative  proceeding or investigation
under any federal  securities law,  federal or state  environmental  law, or any
other  statute  of any  jurisdiction,  or any  regulation,  or at common  law or
otherwise, which is alleged to arise out of or is based upon any acts, practices
or  omissions or alleged  acts,  practices or omissions of the Borrower or their
agents or arises in connection  with the duties,  obligations  or performance of
the  Indemnified  Parties  in  negotiating,   preparing,  executing,  accepting,
keeping, completing,  countersigning,  issuing, selling, delivering,  releasing,
assigning,  handling,  certifying,  processing  or receiving or taking any other
action with respect to the Loan Documents and all documents, items and materials
contemplated  thereby even if any of the foregoing  arises out of an Indemnified
Party's ordinary negligence. The indemnity set forth herein shall be in addition
to any other obligations or liabilities of the Borrower to the Bank hereunder or
at common law or otherwise, and shall survive any termination of this Agreement,
the expiration of the Loan and the payment of all  indebtedness  of the Borrower
to the Bank hereunder and under the Note,  provided that the Borrower shall have
no  obligation  under  this  Section  to the  Bank  with  respect  to any of the
foregoing arising out of the gross negligence or willful misconduct of the Bank.
If any Claim is asserted against any Indemnified  Party,  the Indemnified  Party
shall  endeavor to notify the Borrower of such Claim (but failure to do so shall
not affect the  indemnification  herein  made except to the extent of the actual
harm  caused by such  failure).  The  Indemnified  Party shall have the right to
employ, at the Borrower's expense,  counsel of the Indemnified Parties' choosing
and to control the defense of the Claim.  The  Borrower may at their own expense
also participate in the defense of any Claim.  Each Indemnified Party may employ
separate  counsel in  connection  with any Claim to the extent such  Indemnified
Party  believes it reasonably  prudent to protect such  Indemnified  Party.  THE
PARTIES  INTEND FOR THE  PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT EACH
INDEMNIFIED  PARTY FROM THE  CONSEQUENCES OF ITS OWN NEGLIGENCE,  WHETHER OR NOT
THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM.

         18. GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED,  AND
IS  INTENDED  TO  BE  PERFORMED,  IN  DALLAS,  DALLAS  COUNTY,  TEXAS,  AND  THE
SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY,  CONSTRUCTION,  ENFORCEMENT
AND  INTERPRETATION  OF THIS AGREEMENT AND ALL OTHER  DOCUMENTS AND  INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.

                                     - 38 -

<PAGE>

         19. INVALID  PROVISIONS.  If any provision of this Agreement is held to
be illegal,  invalid,  or  unenforceable  under present or future laws effective
during the term of this Agreement,  such provisions shall be fully severable and
this  Agreement  shall be construed and enforced as if such illegal,  invalid or
unenforceable  provision had never comprised a part of this  Agreement,  and the
remaining  provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal,  invalid or unenforceable  provision or by
its severance from this Agreement.

         20. MAXIMUM  INTEREST RATE.  Regardless of any provisions  contained in
this Agreement or in any other documents and instruments referred to herein, the
Bank shall  never be deemed to have  contracted  for or be  entitled to receive,
collect or apply as  interest  on the Note any  amount in excess of the  Maximum
Rate, and in the event Bank ever  receives,  collects or applies as interest any
such  excess,  of if an  acceleration  of the  maturities  of any Note or if any
prepayment  by the Borrower  result in the Borrower  having paid any interest in
excess of the Maximum Rate, such amount which would be excessive  interest shall
be applied to the  reduction  of the  unpaid  principal  balance of the Note for
which such excess was  received,  collected  or applied,  and, if the  principal
balance of such Note is paid in full,  any remaining  excess shall  forthwith be
paid to the  Borrower.  All sums  paid or  agreed to be paid to the Bank for the
use,  forbearance or detention of the indebtedness  evidenced by the Note and/or
this Agreement  shall, to the extent  permitted by applicable law, be amortized,
prorated,  allocated and spread  throughout  the full term of such  indebtedness
until  payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Maximum Rate
of interest  permitted by law,  the Borrower and the Bank shall,  to the maximum
extent  permitted  under  applicable  law, (i)  characterize  any  non-principal
payment as an expense, fee or premium, rather than as interest; and (ii) exclude
voluntary prepayments and the effect thereof; and (iii) compare the total amount
of  interest  contracted  for,  charged  or  received  with the total  amount of
interest  which could be  contracted  for,  charged or received  throughout  the
entire contemplated term of the Note at the Maximum Rate.

         21. AMENDMENTS.  This Agreement may be amended only by an instrument in
writing  executed  by an  authorized  officer  of the  party  against  whom such
amendment is sought to be enforced.

         22. MULTIPLE  COUNTERPARTS.  This Agreement may be executed in a number
of  identical  separate  counterparts,  each of which for all  purposes is to be
deemed  an  original,  but all of  which  shall  constitute,  collectively,  one
agreement.  No party to this Agreement shall be bound hereby until a counterpart
of this Agreement has been executed by all parties hereto.

         23. CONFLICT. In the event any term or provision hereof is inconsistent
with or  conflicts  with any  provision  of the  Loan  Documents,  the  terms or
provisions contained in this Agreement shall be controlling.

                                                     - 39 -

<PAGE>

         24. SURVIVAL. All covenants, agreements, undertakings,  representations
and warranties made in the Loan Documents, including this Agreement, the Note or
other  documents and  instruments  referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.

         25.  PARTIES BOUND.  This Agreement  shall be binding upon and inure to
the  benefit of the parties  hereto and their  respective  successors,  assigns,
heirs, legal representatives and estates,  provided,  however, that the Borrower
may not,  without  the prior  written  consent of the Bank,  assign any  rights,
powers, duties or obligations hereunder.

         26. PARTICIPATIONS.  The Bank shall have the right at any time and from
time to time to sell  one or  more  participations  in the  Note or any  Advance
thereunder.  To the  extent of any such  participation  the  provisions  of this
Agreement  shall inure to the  benefit of, and be binding on, each  participant,
including,  but not limited to, any  indemnity  from  Borrower to the Bank.  The
Borrower shall have no obligation or liability to and no obligation to negotiate
or confer with,  any  participant,  and Borrower  shall be entitled to treat the
Bank as the sole owners of the Note without regard to notice or actual knowledge
of any such  participation.  Upon the  occurrence  of a  default  or an Event of
Default,  each  participant  will have and is hereby granted the right to setoff
against and to appropriate and apply from time to time,  without prior notice to
the Borrower or any other party, any such notice being hereby expressly  waived,
any and all deposits (general or special or other indebtedness or claims, direct
or  indirect,  contingent  or  otherwise),  at any  time  held or  owing  by the
participant  to or for the credit or account of Borrower  against the payment of
the note and any other obligations of the Borrower hereunder, provided, however,
none of the rights  granted in this Section 26 shall apply to any deposits  held
by  any  participant   constituting  trust  funds  and  so  identified  to  such
participant at the time the applicable  deposit account is created.  Within five
(5) Business  Days after such setoff or  appropriation  by a  participant,  that
participant  shall give Borrower and Bank written  notice  thereof.  However,  a
failure  to give such  notice  will not affect the  validity  of this  setoff or
appropriation.

         27.      OTHER AGREEMENTS.  THIS WRITTEN LOAN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

         28.  FINANCIAL TERMS. All accounting terms used in this Agreement which
are not specifically defined herein shall be construed in accordance with GAAP.

                                     - 41 -

<PAGE>

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

                                              BORROWER:

                                              MAYNARD OIL COMPANY,
                                              a Delaware corporation

                                       By:______________________________________
                                               Glenn R. Moore, President

                                      BANK:

                                              BANK ONE, TEXAS, N.A.,
                                              a national banking association

                                       By:______________________________________
                                              Reed V. Thompson, Vice President

                                     - 42 -

<PAGE>

                                   EXHIBIT "A"

                                    TERM NOTE

$38,250,000.00                     Dallas, Texas               November 12, 1999

         FOR VALUE RECEIVED, the undersigned MAYNARD OIL COMPANY, a Delaware
corporation (referred to herein as "Borrower") hereby  unconditionally  promises
to pay to the order of BANK ONE,  TEXAS,  N.A., a national  banking  association
(referred to herein as "Bank"), at its banking offices in Dallas County,  Texas,
the principal sum of THIRTY-EIGHT  MILLION TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS  ($38,250,000.00),  in lawful  money of the  United  States  of  America
together with interest from the date hereof until paid at the rates specified in
the Loan  Agreement  (as  hereinafter  defined).  All payments of principal  and
interest due  hereunder  are payable at the offices of Bank at 1717 Main Street,
4th Floor, TX1-2448,  Dallas, Texas 75201, attention:  Energy Department,  or at
such other address as Bank shall designate in writing to Borrower.

         The principal  and all accrued  interest on this Term Note shall be due
and payable in accordance with the terms and provisions of the Loan Agreement.

         This Term Note is executed  pursuant to that  certain  Second  Restated
Loan Agreement dated of even date herewith  between Borrower and Bank (the "Loan
Agreement"), and is the Term Note referred to therein. This Term Note is secured
by certain Security  Instruments (as such term is defined in the Loan Agreement)
of even date herewith between  Borrower and Bank.  Reference is made to the Loan
Agreement and the Security Instruments for a statement of prepayment, rights and
obligations of Borrower,  description of the properties  mortgaged and assigned,
the nature and extent of such  security and the rights of the parties  under the
Security  Instruments  in respect to such  security  and for a statement  of the
terms  and  conditions  under  which  the  due  date of this  Term  Note  may be
accelerated. Upon the occurrence of an Event of Default, as that term is defined
in the Loan  Agreement  and  Security  Instruments,  the  holder  hereof (i) may
declare  forthwith to be entirely and  immediately due and payable the principal
balance hereof and the interest  accrued hereon,  and (ii) shall have all rights
and remedies of the Bank under the Loan Agreement and Security Instruments. This
Term Note may be prepaid in accordance with the terms and provisions of the Loan
Agreement.

         Regardless  of any  provision  contained in this Term Note,  the holder
hereof shall never be entitled to receive, collect or apply, as interest on this
Term Note,  any amount in excess of the Maximum Rate,  and, if the holder hereof
ever receives,  collects, or applies as interest, any such amount which would be
excessive  interest,  it shall be deemed a partial  prepayment  of principal and
treated hereunder as such; and, if the indebtedness  evidenced hereby is paid in
full, any remaining  excess shall forthwith be paid to Borrower.  In determining
whether or not the interest  paid or payable,  under any  specific  contingency,
exceeds the Maximum Rate,  Borrower and the holder hereof shall,  to the maximum
extent permitted under applicable law (i) characterize any non-principal payment
as an expense,  fee or premium rather than as interest,  (ii) exclude  voluntary
prepayments  and the  effects  thereof,  and (iii)  spread  the total  amount of
interest throughout the entire contemplated term of the obligations evidenced by
this Term Note and/or

<PAGE>

referred  to in the  Loan  Agreement  so  that  the  interest  rate  is  uniform
throughout  the entire term of this Term Note;  provided that, if this Term Note
is paid and  performed  in full prior to the end of the full  contemplated  term
thereof; and if the interest received for the actual period of existence thereof
exceeds the Maximum Rate,  the holder hereof shall refund to Borrower the amount
of such  excess or credit the amount of such  excess  against  the  indebtedness
evidenced hereby,  and, in such event, the holder hereof shall not be subject to
any  penalties  provided  by any laws for  contracting  for,  charging,  taking,
reserving or receiving interest in excess of the Maximum Rate.

         If any payment of  principal or interest on this Term Note shall become
due on a  Saturday,  Sunday or public  holiday or while the Bank is not open for
business,  such payment  shall be made on the next  succeeding  business day and
such  extension of time shall in such case be included in computing  interest in
connection with such payment.

         If this Term Note is placed in the hands of an attorney for collection,
or if it is  collected  through any legal  proceeding  at law or in equity or in
bankruptcy,  receivership or other court proceedings, Borrower agrees to pay all
costs of collection,  including,  but not limited to, court costs and reasonable
attorneys' fees.

         Borrower  and each  surety,  endorser,  guarantor  and other party ever
liable for payment of any sums of money  payable on this Term Note,  jointly and
severally  waive  presentment  and demand for  payment,  notice of  intention to
accelerate the maturity, notice of acceleration of the maturity, protest, notice
of  protest  and  nonpayment,  as to  this  Term  Note  and as to  each  and all
installments  hereof,  and agree that their liability under this Term Note shall
not be affected by any renewal or extension in the time of payment hereof, or in
any indulgences,  or by any release or change in any security for the payment of
this  Term  Note,  and  hereby  consent  to any  and all  renewals,  extensions,
indulgences, releases or changes.

         This Term Note shall be governed by and  construed in  accordance  with
the applicable laws of the United States of America and the laws of the State of
Texas.

         THIS WRITTEN  NOTE,  THE LOAN  AGREEMENT  AND THE OTHER LOAN  DOCUMENTS
REPRESENT THE FINAL  AGREEMENTS  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.

         This Term Note is given in renewal,  increase and extension of, and not
in  extinguishment  of, that  certain Term Note,  in the amount of  $26,062,500,
executed by Borrower and payable to the order of Bank,  dated December 20, 1995,
which Note renewed,  extended and increased, but did not extinguish that certain
Renewal  Term Note,  in the amount of  $16,062,500,  executed  by  Borrower  and
payable to the order of Bank, dated March 29, 1995, which Note renewed, extended
and increased, but did not extinguish that certain note dated December 22, 1994,
executed by Borrower and payable to the order of Bank,  which  December 22, 1994
note renewed and extended but did not extinguish, that certain note

                                       -2-

<PAGE>

dated  October 1, 1990,  executed by Borrower  and payable to the order of First
City, Dallas-Texas,  which October 1, 1990 note was assigned to Bank on February
1, 1993.

         EXECUTED as of the 12th day of November, 1999.

                                         BORROWER:
                                         --------

                                         MAYNARD OIL COMPANY,
                                         a Delaware corporation

                                         By:____________________________________
                                                  Glenn R. Moore, President

                                       -3-

<PAGE>

                                   EXHIBIT "B"

                         CONVERSION/CONTINUATION NOTICE

         The undersigned  hereby  certifies that he is the __________ of Maynard
Oil  Company,  a  Delaware  corporation  ("Borrower")  and  that  as  such he is
authorized  to  execute  this  Conversion/Continuation  Notice  on behalf of the
Borrower.  Pursuant to Section 4 of the Second  Restated Loan Agreement dated as
of November 12, 1999 (as same may be amended, modified, increased,  supplemented
and/or restated from time to time (the "Agreement")  entered into by and between
Borrower and Bank One, Texas, N.A. ("Bank"), this Conversion/Continuation Notice
("Notice")  represents  Borrower's  election  to  [insert  one  or  more  of the
following]:

[1.      Use if converting Eurodollar Loans to Base Rate Loans.]

         Convert  $_______________  in aggregate  principal amount of Eurodollar
         Loans with a current  Eurodollar  Interest  Period  ending on ________,
         19__, to Base Rate Loans on ________________, 19__. [and]

[2.      Use if converting Eurodollar Loans to CD Loans.]

         Convert  $_______________  in aggregate  principal amount of Eurodollar
         Loans with a current  Eurodollar  Interest  Period  ending on ________,
         19__, to CD Loans on  ________________,  19__.  The initial CD Interest
         Period  for such CD Loans is  requested  to be a [30] [60]  [90]  [180]
         [365/366] day period. [and]

[3.      Use if converting Base Rate Loans to Eurodollar Loans.]

         Convert  $  in  aggregate  principal  amount  of  Base  Rate  Loans  to
         Eurodollar Loans on , 19 . The initial  Eurodollar  Interest Period for
         such  Eurodollar  Loans is requested to be a [one] [two]  [three] [six]
         [twelve] month period. [and]

[4.      Use if converting Base Rate Loans to CD Loans.]

         Convert  $_______________  in aggregate  principal  amount of Base Rate
         Loans to CD Loans on ________,  19 . The initial CD Interest Period for
         such CD Loans is requested to be a [30] [60] [90] [180]  [365/366]  day
         period. [and]

[5.      Use if converting CD Loans to Eurodollar Loans.]

         Convert $ in aggregate  principal  amount of CD Loans with a current CD
         Interest  Period  ending on , 19 , to Eurodollar  Loans on , 19__.  The
         initial  Eurodollar  Interest  Period  for  such  Eurodollar  Loans  is
         requested to be a [one] [two]  [three]  [six]  [twelve]  month  period.
         [and]

<PAGE>

[6.      Use if converting CD Loans to Base Rate Loans.]

         Convert $_______________ in aggregate principal amount of CD Loans with
         a current CD Interest  Period ending on  _________,  19__, to Base Rate
         Loans on _________, 19__. [and]

[7.a.    Use if continuing CD Loans] or
[7.b.    Use with  [number  5] and/or  [number  6],  and [and] if  converting  a
         portion  of CD Loans to  Eurodollar  Loans  and/or  Base Rate Loans and
         continuing the balance as CD Loans.]

         Continue as CD Loans $ in aggregate principal amount of CD Loans with a
         current CD Interest  Period ending , 19__.  The  succeeding CD Interest
         Period is requested to be a [30] [60] [90] [180] [365/366] day period.

[8.a.    Use if continuing Eurodollar Loans] or
[8.b.    Use with  [number  1] and/or  [number  2],  and [and] if  converting  a
         portion of Eurodollar Loans to Base Rate Loans and/or CD Rate Loans and
         continuing the balance as Eurodollar Loans.]

         Continue  as  Eurodollar  Loans  $ in  aggregate  principal  amount  of
         Eurodollar  Loans with a current  Eurodollar  Interest  Period ending ,
         19__. The succeeding  Interest  Period is requested to be a [one] [two]
         [three] [six] [twelve] month period.

[9.      Use if converting to or continuing CD Loans and/or Eurodollar Loans.]

         Borrower  hereby  certifies  that no Default  or Event of  Default  has
         occurred and is continuing under the Credit Agreement.

         Unless otherwise  defined herein,  terms defined in the Agreement shall
have the same meanings in this Notice.

         Dated:                     , 19      .
                --------------------     -----

                                             MAYNARD OIL COMPANY
                                             a Delaware corporation

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

                                       -2

<PAGE>

                                   EXHIBIT "C"

                            CERTIFICATE OF COMPLIANCE

         The  undersigned  hereby  certifies  that he is the  ______________  of
MAYNARD OIL COMPANY (the "Company") and that as such he is authorized to execute
this Certificate of Compliance on behalf of the Company.  With reference to that
certain Second Restated Loan Agreement,  dated as of November 12, 1999, (as same
may be amended, modified,  increased,  supplemented and/or restated from time to
time, the "Agreement")  entered into between Company and BANK ONE, TEXAS,  N.A.,
the  undersigned  further  certifies,  represents  and warrants on behalf of the
Company that as of  __________________  all of the following statements are true
and correct (each  capitalized term used herein having the same meaning given to
it in the Agreement unless otherwise specified):

                  (a) The Company has  fulfilled  in all  material  respects its
         obligations under the Note and Loan Documents, including the Agreement,
         and all representations and warranties made herein and therein continue
         (except to the extent they relate solely to an earlier date) to be true
         and  correct  in all  material  respects  [if the  representations  and
         warranties are not true and correct, the party signing this certificate
         shall except from the  foregoing  statement  the matters for which such
         representations and warranties are no longer true specifying the nature
         of any such change.]

                  (b) No Event of Default has occurred under the Loan Documents,
         including the Agreement [if an Event of Default has occurred, the party
         certifying  hereto shall  specify the facts  constituting  the Event of
         Default and the nature and status thereof].

                  (c) To the extent requested from time to time by the Bank, the
         certifying party shall specifically affirm compliance of the Company in
         all material  respects with any of its  representations  and warranties
         (except  to the  extent  they  relate  solely  to an  earlier  date) or
         obligations under said instruments.

                  (d)      Financial Computations (provide calculation as of the
          most recently ended fiscal quarter):

                           (i)      Current Ratio;

                           (ii)     Fixed Charge Coverage Ratio;

                           (iii)    Net Worth; and

                           (iv)     Debt to Worth Ratio.

<PAGE>

         EXECUTED, DELIVERED AND CERTIFIED TO this ____ day of __________, 19__.

                                                 MAYNARD OIL COMPANY
                                                 a Delaware corporation

                                                 By:____________________________
                                                 Name:__________________________
                                                 Title:_________________________

                                       -2-

<PAGE>

                                  SCHEDULE "1"

                                      LIENS
                                      -----

                                      NONE

<PAGE>

                                  SCHEDULE "2"

                               FINANCIAL CONDITION
                               -------------------

                                      NONE

<PAGE>

                                  SCHEDULE "3"

                                   LIABILITIES
                                   -----------

                                      NONE

<PAGE>

                                  SCHEDULE "4"

                                   LITIGATION
                                   ---------

                                      NONE

<PAGE>

                                  SCHEDULE "5"

                                  SUBSIDIARIES
                                  ------------

                               MOC Resources, Inc.

<PAGE>

                                  SCHEDULE "6"

                              ENVIRONMENTAL MATTERS
                              ---------------------

                                      NONE

<PAGE>

                                  SCHEDULE "7"

                                  TITLE MATTERS
                                  -------------

1.       Provide title opinions satisfactory to Bank covering the interests of
         Borrower in the following
         properties:

         Duval & Webb Counties, Texas
         ----------------------------

         Guerra  G-1
         Guerra  G-3
         Guerra  G-4
         Guerra G-5
         Guerra G-6
         Guerra G-7
         Guerra G-8
         Herrera 2

         Hardeman County, Texas
         ----------------------

         Grange A
         Grange D

         Eddy County, New Mexico
         -----------------------

         Roche Federal #1
         Roche Federal #2
         Roche Federal #4

         Lea County, New Mexico
         ----------------------

         R.H. Huston, Jr. #1
         R.H. Huston, Jr. #2
         R.H. Huston, Jr. #3
         R.H. Huston, Jr. #4

<PAGE>

                                  SCHEDULE "8"

                                CURATIVE MATTERS
                                ----------------

1.       Jerry Cowden Property, Crane County, Texas. Provide Bank with a release
         of State Tax Lien  encumbering  this  property  pursuant  to Comment 4,
         Requirement b, on Exhibit "B" to John L. Roach, Inc. Title Report dated
         November 1, 1999.

2.       Jameson Property,  Gaines County,  Texas.  Provide Bank with correction
         Deed from PMC Group  which  effectively  conveys  the mineral fee under
         subject lands to Borrower  pursuant to Comment II Requirement on page 2
         of John L. Roach, Inc. Title Report dated November 1, 1999.

3.       Norman #5U,  Gaines County,  Texas.  Provide Bank with  correction Deed
         from PMC Group which effectively  conveys the mineral fee under subject
         lands to Borrower  pursuant to Comment II Requirement on page 2 of John
         L. Roach, Inc. Title Report dated November 1, 1999.

4.       Terrell #1 & #2, Gaines  County,  Texas.  Provide Bank with  Correction
         Deed from PMC Group  which  effectively  conveys  the mineral fee under
         subject lands to Borrower pursuant to Comment III Requirement on page 2
         of John L. Roach, Inc. Title Report dated November 1, 1999.

5.       Wharton Unit 1-A,  Gaines County,  Texas.  Provide Bank with release of
         $70,000,000  production  payment from Anderson Prichard Oil Corporation
         pursuant to Comment 12  Requirement  D on Exhibit "B" to John L. Roach,
         Inc. Title Report dated November 1, 1999.

6.       Pruett,  T.B.  et al. GU #3,  Ward  County,  Texas.  Provide  Bank with
         Correction  Deed from PMC Group which  effectively  conveys the mineral
         fee under subject lands to Borrower  pursuant to Comment II Requirement
         on page 2 of John L. Roach, Inc. Title Report dated November 1, 1999.

7.       Crump  Wells,  Gaines  County,  Texas.  Provide  Bank  with  Correction
         Assignment and  Conveyance  from  Petroleum,  Inc. and Bruce E. Roberts
         pursuant to Comments 6, 7 & 9 of T. Michael  Harrell Title Report dated
         November 1, 1999.

8.       Mayme K. Martin GU, Terrell County, Texas. Provide Bank with Correction
         Deed from the PMC Group which effectively conveys the mineral fee under
         subject lands to Borrower  pursuant to Comment II Requirement on page 2
         of John L. Roach, Inc. Title Report dated November 1, 1999.

9.       Allied Federal No. 7 Wells 1-4, Eddy County,  New Mexico.  Provide Bank
         with title materials which satisfy Comment 6 Requirement C, and Comment
         10 Requirement E on Exhibit B to T. Michael  Harrell Title Report dated
         November 1, 1999.

10.      Berry EE Com No. 2, Eddy County, New Mexico.  Provide Bank with consent
         to assign to Maynard and to encumber the property with Bank One,  Texas
         Mortgage pursuant to Comment IV

<PAGE>

         on page 3, and Comment 13  Requirement  E on Exhibit "B" of T.  Michael
         Harrell Title Report dated November 1, 1999.

11.      Provide copies of Assignments to Maynard from Questar.

                                       -2-Exhibit 10.12

                         ARCH COMMUNICATIONS GROUP, INC.

                        1999 EMPLOYEE STOCK PURCHASE PLAN

                                January 26, 1999

The purpose of this Plan is to provide eligible employees of Arch Communications
Group, Inc. (the "Company") and certain of its subsidiaries  with  opportunities
to purchase  shares of the Company's  common stock,  $.01 par value (the "Common
Stock"), commencing either (i) promptly after the Special Meeting approving this
Plan if such  commencement  date is on or before  March 31, 1999 or (ii) July 1,
1999. One Million Five Hundred  Thousand  (1,500,000)  shares of Common Stock in
the aggregate have been approved for this purpose.

   1.  Administration.  The Plan will be  administered by the Company's Board of
Directors  (the  "Board")  or by the  Executive  Compensation  and Stock  Option
Committee  of the  Board  (the  "Committee").  The  Board or the  Committee  has
authority to make rules and regulations for the  administration  of the Plan and
its  interpretation  and  decisions  with  regard  thereto  shall be  final  and
conclusive.

   2.  Eligibility.  Participation  in the Plan will  neither be  permitted  nor
denied contrary to the  requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations  promulgated  thereunder.  All
employees  of the  Company,  including  Directors  who  are  employees,  and all
employees of any  subsidiary of the Company (as defined in Section 424(f) of the
Code) at the  time  this  Plan is  adopted  and any  future  subsidiary  if such
subsidiary is specifically  included by the Board or the Committee (an "Eligible
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options  (as  defined in  Section 9) to  purchase  Common  Stock  under the Plan
provided that:

      (a) they are customarily employed by the Company or an Eligible Subsidiary
   for more  than 20 hours a week and for more than  five  months in a  calendar
   year; and

      (b) they have been employed by the Company or an Eligible  Subsidiary  for
   at least three months prior to enrolling in the Plan; and

      (c) they are  employees  of the Company or an Eligible  Subsidiary  on the
   first day of the applicable Plan Period (as defined below).

No employee  may be granted an option  hereunder if such  employee,  immediately
after the option is granted,  owns 5% or more of the total combined voting power
or value of the stock of the  Company or any  subsidiary.  For  purposes  of the
preceding  sentence,  the attribution  rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual  right to purchase shall be treated as stock owned by
the employee.

   3. Offerings.  The Company will make one or more offerings  ("Offerings")  to
employees to purchase  stock under this Plan.  The first  Offering will commence
either (i) promptly after the Special Meeting approving the Plan and run through
June 30, 1999 if such

<PAGE>

commencement  date is on or before  March 31,  1999 or (ii) July 1, 1999 and run
through  December 31, 1999.  Subsequent  Offerings will begin each January 1 and
July 1,  or the  first  business  day  thereafter  (the  "Offering  Commencement
Dates").  Each Offering Commencement Date will begin a six-month period (a "Plan
Period") during which payroll  deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period.

   4. Participation.  An employee eligible on the Offering  Commencement Date of
any Offering may  participate  in such Offering by completing  and  forwarding a
payroll  deduction   authorization   form  prior  to  the  applicable   Offering
Commencement Date to the employee's  appropriate  human resources  department no
later than the date  specified  on the form.  The form will  authorize a regular
payroll deduction from the Compensation received by the employee during the Plan
Period.  Unless an employee  files a new form or withdraws from the Plan, his or
her deductions and purchases will continue at the same rate for future Offerings
under the Plan as long as the Plan  remains in effect.  The term  "Compensation"
means the  amount of money  reportable  on the  employee's  Federal  Income  Tax
Withholding Statement,  including overtime,  bonuses and sales commissions,  but
excluding  allowances and  reimbursements  for expenses,  income or gains on the
exercise of Company stock options and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement.

   5. Deductions.  The Company will maintain payroll deduction  accounts for all
participating  employees.  With respect to any Offering made under this Plan, an
employee may authorize a payroll  deduction equal to any whole number percentage
between 1% and 10% of the Compensation he or she receives during the Plan Period
or such shorter period during which deductions from payroll are made. Any change
in Compensation during the Plan Period will result in an automatic corresponding
change in the dollar amount withheld.

No employee may be granted an Option (as defined in Section 9) which permits his
or her rights to purchase  Common  Stock under this Plan and any other  employee
stock  purchase  plan (as defined in Section  423(b) of the Code) of the Company
and its  subsidiaries,  to accrue at a rate  which  exceeds  $25,000 of the fair
market value of such Common Stock (determined at the Offering  Commencement Date
of the Plan Period) for each calendar year in which the Option is outstanding at
any time.

   6.  Deduction  Changes.  An employee may decrease or  discontinue  his or her
payroll  deduction once during any Plan Period by filing a new payroll deduction
authorization  form.  However,  an employee  may not increase his or her payroll
deduction during a Plan Period.  If an employee elects to discontinue his or her
payroll  deductions during a Plan Period,  but does not elect to withdraw his or
her funds  pursuant  to  Section 8 hereof,  funds  deducted  prior to his or her
election to  discontinue  will be applied to the purchase of Common Stock on the
Exercise Date (as defined below).

   7. Interest. Interest will not be paid on any employee accounts.

   8.  Withdrawal  of Funds.  An employee  may at any time prior to the close of
business  on  the  last  business  day in a  Plan  Period  and  for  any  reason
permanently  draw out the  balance  accumulated  in the  employee's  account and
thereby withdraw from participation in an Offering.  Partial withdrawals are not
permitted. The employee may not begin participation again during

                                   - 2 -
<PAGE>

the remainder of the Plan Period. The employee may participate in any subsequent
Offering in accordance with terms and conditions established by the Board or the
Committee.

   9. Purchase of Shares. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible  employee who is then a  participant  in
the Plan an option  ("Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for, such
number of whole shares of Common Stock of the Company  reserved for the purposes
of the Plan as does not exceed the number of shares which can be purchased under
the limit on accruals in any calendar year set forth in Section 5.

The purchase price for each share  purchased will be 85% of the closing price of
the Common  Stock on (i) the first  business day of such Plan Period or (ii) the
Exercise Date,  whichever  closing price shall be less. Such closing price shall
be (a) the closing price on any national securities exchange on which the Common
Stock is  listed,  (b) the  closing  price  of the  Common  Stock on the  Nasdaq
National  Market or (c) the average of the  closing bid and asked  prices in the
over-the-counter-market,  whichever  is  applicable,  as  published  in The Wall
Street  Journal.  If no sales of Common Stock were made on such a day, the price
of the  Common  Stock for  purposes  of clauses  (a) and (b) above  shall be the
reported price for the next preceding day on which sales were made.

Each employee who continues to be a participant in the Plan on the Exercise Date
shall be deemed to have  exercised his or her Option at the Option Price on such
date and shall be deemed to have  purchased  from the Company the number of full
shares of Common  Stock  reserved  for the  purpose  of the Plan that his or her
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth  above  (but not in excess of the  maximum  number  determined  in the
manner set forth above).

Any balance remaining in an employee's payroll deduction account at the end of a
Plan Period will be  automatically  refunded  to the  employee,  except that any
balance which is less than the purchase  price of one share of Common Stock will
be  carried  forward  into the  employee's  payroll  deduction  account  for the
following  Offering,  unless  the  employee  elects  not to  participate  in the
following  Offering  under the Plan, in which case the balance in the employee's
account shall be refunded.

   10.  Issuance of  Certificates.  Certificates  representing  shares of Common
Stock  purchased  under the Plan may be issued only in the name of the employee,
in the name of the  employee  and another  person of legal age as joint  tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a  brokerage  firm,  bank or  other  nominee  holder  designated  by the
employee.  The  Company  may,  in its sole  discretion  and in  compliance  with
applicable laws,  authorize the use of book entry registration of shares in lieu
of issuing stock certificates.

   11. Rights on Retirement, Death or Termination of Employment. In the event of
a participating  employee's termination of employment prior to the last business
day of a Plan Period,  no payroll  deduction shall be taken from any pay due and
owing to an employee and the balance in the employee's  account shall be paid to
the  employee or, in the event of the  employee's  death,  (a) to a  beneficiary
previously designated in a revocable notice signed by the

                                     - 3 -
<PAGE>

employee  (with any  spousal  consent  required  under  state law) or (b) in the
absence of such a designated  beneficiary,  to the executor or  administrator of
the  employee's  estate or (c) if no such  executor  or  administrator  has been
appointed  to the  knowledge  of the  Company,  to such other  person(s)  as the
Company may, in its discretion, designate. If, prior to the last business day of
the Plan Period, the Eligible  Subsidiary by which an employee is employed shall
cease to be a subsidiary of the Company,  or if the employee is transferred to a
subsidiary of the Company that is not an Eligible Subsidiary, the employee shall
be deemed to have terminated employment for the purposes of this Plan.

   12.  Optionees  Not  Stockholders.  Neither  the  granting of an Option to an
employee nor the deductions from his or her pay shall constitute such employee a
stockholder  of the shares of Common Stock  covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.

   13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating   employee  other  than  by  will  or  the  laws  of  descent  and
distribution,  and are  exercisable  during the employee's  lifetime only by the
employee.

   14.  Application  of Funds.  All funds  received or held by the Company under
this Plan may be  combined  with other  corporate  funds and may be used for any
corporate purpose.

   15.  Adjustment in Case of Changes  Affecting Common Stock. In the event of a
subdivision of outstanding  shares of Common Stock, or the payment of a dividend
in Common  Stock,  the number of shares  approved  for this Plan,  and the share
limitation set forth in Section 9, shall be increased proportionately,  and such
other  adjustment  shall be made as may be deemed  equitable by the Board or the
Committee.  In the event of any other change  affecting the Common  Stock,  such
adjustment  shall  be  made  as may be  deemed  equitable  by the  Board  or the
Committee to give proper effect to such event.

   16.  Merger.  If the  Company  shall at any time  merge or  consolidate  with
another  corporation  and  the  holders  of the  capital  stock  of the  Company
immediately prior to such merger or consolidation  continue to hold at least 80%
by voting power of the capital stock of the surviving  corporation  ("Continuity
of  Control"),  the holder of each Option then  outstanding  will  thereafter be
entitled to receive at the next  Exercise  Date upon the exercise of such Option
for each share as to which such Option  shall be  exercised  the  securities  or
property  which a holder of one share of the Common  Stock was  entitled to upon
and at the time of such merger or consolidation,  and the Board or the Committee
shall take such steps in  connection  with such merger or  consolidation  as the
Board or the  Committee  shall deem  necessary to assure that the  provisions of
Paragraph 15 shall thereafter be applicable,  as nearly as reasonably may be, in
relation  to the said  securities  or  property  as to which such holder of such
Option might thereafter be entitled to receive thereunder.

In the event of a merger or  consolidation  of the Company  with or into another
corporation which does not involve Continuity of Control, or of a sale of all or
substantially all of the assets of the Company while unexercised  Options remain
outstanding  under the Plan,  (a) subject to the  provisions  of clauses (b) and
(c), after the effective date of such transaction, each holder of an outstanding
Option shall be entitled,  upon  exercise of such Option,  to receive in lieu of
shares of

                                     - 4 -
<PAGE>

Common Stock,  shares of such stock or other securities as the holders of shares
of Common Stock received pursuant to the terms of such  transaction;  or (b) all
outstanding  Options may be cancelled by the Board or the Committee as of a date
prior to the effective date of any such  transaction and all payroll  deductions
shall be paid out to the participating employees; or (c) all outstanding Options
may be cancelled by the Board or the Committee as of the  effective  date of any
such transaction,  provided that notice of such  cancellation  shall be given to
each holder of an Option,  and each holder of an Option  shall have the right to
exercise such Option in full based on payroll deductions then credited to his or
her account as of a date  determined by the Board or the  Committee,  which date
shall  not be less  than ten (10)  days  preceding  the  effective  date of such
transaction.

   17.  Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any  respect,  except  that (a) if the  approval  of any such
amendment by the  stockholders  of the Company is required by Section 423 of the
Code, such amendment shall not be effected without such approval,  and (b) in no
event may any  amendment  be made which  would  cause the Plan to fail to comply
with Section 423 of the Code.

   18.  Insufficient  Shares.  In the event  that the total  number of shares of
Common Stock  specified in elections to be purchased under any Offering plus the
number of shares purchased under previous  Offerings under this Plan exceeds the
maximum  number of shares  issuable  under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.

   19.  Termination of the Plan.  This Plan may be terminated at any time by the
Board.   Upon   termination  of  this  Plan  all  amounts  in  the  accounts  of
participating employees shall be promptly refunded.

   20. Governmental  Regulations.  The Company's  obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national  stock exchange
or quotation on the Nasdaq National Market and the approval of all  governmental
authorities  required in connection with the authorization,  issuance or sale of
such stock.

The Plan shall be governed by  Massachusetts  law except to the extent that such
law is preempted by federal law.

   21. Issuance of Shares.  Shares may be issued upon exercise of an Option from
authorized  but unissued  Common Stock,  from shares held in the treasury of the
Company, or from any other proper source.

   22.  Notification upon Sale of Shares.  Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition  occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.

   23. Effective Date and Approval of  Stockholders.  The Plan shall take effect
on either (i) a date promptly after the Special  Meeting  approving such Plan if
such  commencement  date is on or  before  March  31,  1999 or (ii) July 1, 1999
subject to  approval by the  stockholders  of the Company as required by Section
423 of the Code,  which approval must occur within twelve months of the adoption
of the Plan by the Board.

                                      - 5 -
<PAGE>

                                        Adopted by the Board of Directors
                                        on September 1, 1998

                                        Approved by the Stockholders on
                                        January 26, 1999

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