Document:

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                                                                   EXHIBIT 10.22

            REVOLVING CREDIT AGREEMENT BETWEEN TELECOMUNICACIONES DE
               PUERTO RICO, INC. AND BANCO POPULAR DE PUERTO RICO

                           REVOLVING CREDIT AGREEMENT

                            Dated as of June 2, 2000

TELECOMUNICACIONES DE PUERTO RICO, INC., a Puerto Rico corporation (the
"Borrower"), PUERTO RICO TELEPHONE COMPANY, INC., a Puerto Rico corporation
("PRTC"), and CELULARES TELEFONICA, INC., a Puerto Rico corporation ("CTI" and,
collectively with PRTC, the "Guarantors"), the banks, financial institutions and
other institutional lenders listed on the signature pages hereof (the
"Lenders"), and Banco Popular de Puerto Rico ("BPPR" or "Lender"), as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), agree as follows:

                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

"Administrative Agent's Account" means the account of the Administrative Agent
maintained by the Administrative Agent at Banco Popular with its office at 209
Munoz Rivera Avenue, Account No. 1970, Attention: Corporate Banking.

"Advance" means a Revolving Credit Advance.

"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling", "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.

"Applicable Lending Office" means, with respect to each Lender, such Lender's
LIBOR Lending Office.

"Applicable Margin" means 0.50% per annum, for any Interest Period.

"Assignment and Acceptance" means an assignment and acceptance entered into by a
Lender and an Eligible Assignee, and accepted by the Administrative Agent, in
substantially the form of Exhibit C hereto.

"Base Rate" means, for any day, the simple average of the rates of interest
announced publicly on such day in the Wall Street Journal by the principal
commercial banks in New York, New York as their prime commercial lending rate,
which for purposes hereof is not intended to be the lowest or best rate of
interest charged by any Lender to a customer, with each change in such rate to
be effective for purposes hereof on the day in which any such change is
announced as herein provided, whether or not such change is notified to the
Borrower by the Administrative Agent. The Base Rate will be computed on the
basis of a 360 day year for the actual number of days elapsed occurring in the
period for which such interest is payable.

"Base Rate Advance" means a Revolving Credit Advance that bears interest based
upon the Base Rate as provided in Section 2.06(a)(i).

"Bonds" means the following series of senior notes issued by the Borrower: (a)
$300,000,000 of 6.15% Senior Notes due 2002; (b) $400,000,000 of 6.65% Senior
Notes due 2006; and (c) $300,000,000 of 6.80% Senior Notes due 2009.

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"Borrower" has the meaning specified in the recital of parties.

"Borrower's Account" means the account of the Borrower maintained by the
Borrower at Banco Popular de Puerto Rico with its office at Popular Center,
Account No. 030-303664.

"Borrowing" means a Revolving Credit Borrowing.

"Business Day" means a day of the year on which banks are not required or
authorized by law or executive order to close in New York City or San Juan,
Puerto Rico, provided that, if the applicable Business Day relates to any LIBOR
Rate Advances, "Business Day" means a day of the year on which banks are not
required or authorized by law or executive order to close in New York City or
San Juan, Puerto Rico and on which dealings are carried on in the London
interbank market.

"Citibank Indebtedness" means those certain revolving credit facilities in a
maximum aggregate principal amount of up to $500,000,000 extended to the
Borrower pursuant to that certain Five-Year Credit Agreement dated as of March
2, 1999 among the Borrower, Citibank, N.A., as administrative agent, the Lenders
party thereto, Bank of America National Trust and Savings Association, as
syndication agent, and The Chase Manhattan Bank and Morgan Guaranty Trust
Company of New York, as documentation agents, for working capital and other
general corporate purposes of the Borrower.

"Commitment" has the meaning specified in Section 2.01.

"Consolidated" refers to the consolidation of accounts in accordance with GAAP.

"Controlling Interest" means: (a) ownership of at least 40% plus one share of
the Voting Stock of the Borrower; and (b) the ability to appoint a majority of
the Board of Directors of the Borrower.

"Convert", "Conversion" and "Converted" each refers to a conversion of Revolving
Credit Advances of one Type into Revolving Credit Advances of the other Type
pursuant to Section 2.07 or 2.08.

"Debt" of any Person means, without duplication: (a) all indebtedness of such
Person for borrowed money; (b) all obligations of such Person for the deferred
purchase price of property or services (other than trade payables incurred in
the ordinary course of such Person's business for which collection proceedings
have not been commenced, provided that trade payables for which collection
proceedings have commenced shall not be included in the term "Debt" so long as
the payment of such trade payables is being contested in good faith and by
proper proceedings and for which appropriate reserves are being maintained); (c)
all obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments; (d) all obligations of such Person created or arising under
any conditional sale or other similar title retention agreement with respect to
Property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such Property); (e) all obligations of such Person as
lessee under leases that have been, in accordance with GAAP, recorded as capital
leases; (f) all obligations of such Person in respect of acceptances, letters of
credit or similar extensions of credit; (g) all net obligations of such Person
in respect of Hedge Agreements; (h) all Debt of others referred to in clauses
(a) through (g) above or clause (i) below guaranteed directly, or indirectly
through a Subsidiary, by such Person, or in effect guaranteed directly, or
indirectly through a Subsidiary, by such Person through a written agreement
either (1) to pay or purchase such Debt or to advance or supply funds for the
payment or purchase of such Debt; or (2) to purchase, sell or lease (as lessee
or lessor) Property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Debt or to assure the holder of
such Debt against loss and: (i) all Debt referred to in clauses (a) through (h)
above secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on Property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt.

"Debt to EBITDA Ratio" of any Person at any date means the ratio of: (a) Debt of
the types that, in accordance with GAAP, would be classified as indebtedness on
a Consolidated balance sheet of such Person on such date to (b) EBITDA for the
period of four fiscal quarters of such Person ended on or immediately prior to
such date, provided that for purposes of clause (a) of this definition, Debt
shall not include (1) the obligations specified in clause (g) of

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the definition thereof set forth above; or (2) with respect to the Borrower, any
obligations which may be assumed by the Borrower for guaranties of any
indebtedness of the Borrower's employee stock ownership plan up to an aggregate
principal amount of $26,100,000.

"Default" means any Event of Default or any event that would constitute an Event
of Default but for the requirement that notice be given or time elapse or both.

"Disclosed Litigation" has the meaning specified in Section 3.01(b).

"EBITDA" means the sum, determined on a Consolidated basis, of the Borrower's:
(a) net income (or net loss); (b) interest expense; (c) income tax expense; (d)
depreciation expense; (e) amortization expense; (f) non-cash severance charges
in an aggregate amount not to exceed $120,000,000 in calendar year 1999 and
$30,000,000 in calendar year 2001; and (g) non cash charges relating to the
contribution to an employee stock ownership plan in an aggregate amount not to
exceed $23,100,000 in calendar year 1999.

"EBITDA to Interest Ratio" of any Person on any date means the ratio of: (a)
EBITDA for the period of four fiscal quarters of such Person ended on or
immediately prior to such date to (b) interest payable on, and amortization of
debt discount in respect of, all Debt of such Person for the period of four
fiscal quarters of such Person ended on or immediately prior to such date,
provided that for purposes of clause (b) of this definition, Debt shall not
include the obligations specified in clause (g) of the definition thereof set
forth above.

"Effective Date" has the meaning specified in Section 3.01.

"Eligible Assignee" means: (a) a Lender; (b) an Affiliate of a Lender that is a
financial institution and is majority-owned by such Lender or such Lender's
holding company; (c) a commercial bank organized under the laws of the
Commonwealth of Puerto Rico, the United States, or any State thereof, and having
total assets in excess of $3,000,000,000; (d) a savings and loan association or
savings bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $3,000,000,000; or (e) any other
Person approved by the Administrative Agent and the Borrower, such approval not
to be unreasonably withheld; provided, however, that neither the Borrower nor
any Affiliate of the Borrower shall qualify as an Eligible Assignee.

"Environmental Action" means any action, suit, demand, demand letter, claim,
notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment, including, without limitation: (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial or
other actions or damages; and (b) by any governmental or regulatory authority or
any third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.

"Environmental Law" means any federal, state, local or foreign statute, law,
ordinance, rule, regulation, code, order, judgment, decree or judicial or agency
interpretation, policy or guidance relating to pollution or protection of the
environment, health, safety or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment, storage,
disposal, release or discharge of Hazardous Materials.

"Environmental Permit" means any permit, approval, identification number,
license or other authorization required under any Environmental Law.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.

"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a
member of the Loan Parties' controlled group, or under common control with the
Borrower, within the meaning of Section 414 of the Internal Revenue Code.

"ERISA Event" means: (a) the occurrence of a reportable event, within the
meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day
notice requirement with respect to such event has been waived by the PBGC; (b)
the application for a minimum funding waiver with respect to a Plan; (c) the
provision by the administrator of

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any Plan of a notice of intent to terminate such Plan pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a
facility of any of the Loan Parties or any ERISA Affiliate in the circumstances
described in Section 4062(e) of ERISA; (e) the withdrawal by any of the Loan
Parties or any ERISA Affiliate from a Multiple Employer Plan during a plan year
for which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (f) the imposition of a lien under Section 302(f) of ERISA with respect
to any Plan; (g) the adoption of an amendment to a Plan requiring the provision
of security to such Plan pursuant to Section 307 of ERISA; or (h) the
institution by the PBGC of proceedings to terminate a Plan pursuant to Section
4042 of ERISA, or the occurrence of any event or condition described in Section
4042 of ERISA that is reasonably expected to result in the termination of, or
the appointment of a trustee to administer, a Plan.

"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.

"Eurodollar Rate Reserve Percentage" for any Interest Period for all LIBOR Rate
Advances comprising part of the same Borrowing means the reserve percentage
applicable two Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of liabilities
that includes deposits by reference to which the interest rate on LIBOR Rate
Advances is determined) having a term equal to such Interest Period.

"Events of Default" has the meaning specified in Section 6.01.

"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.

"GAAP" means: (a) in the case of the preparation of all financial reporting
requirements, generally accepted accounting principles in the United States, as
in effect from time to time; and (b) in the case of the calculation,
certification and compliance with all financial tests and covenants, generally
accepted accounting principles in the United States, as in effect on the date of
the financial statements delivered to each Lender in accordance with Section
4.01(e), in each case applied on a consistent basis both as to classification of
items and amounts.

"GITI" means GTE International Telecommunications Incorporated, a Delaware
corporation.

"GTE" means GTE Corporation, a New York corporation, or its successor.

"GTE Holdings (Puerto Rico)" shall mean GTE Holdings (Puerto Rico) LLC, a
limited liability company organized under the laws of the State of Delaware and
a wholly owned subsidiary of GITI.

"Guaranteed Obligations" has the meaning specified in Section 7.01.

"Guarantors" has the meaning specified in the recital of parties to this
Agreement.

"Guaranty" has the meaning specified in Section 7.01.

"Hazardous Materials" means: (a) petroleum and petroleum products, byproducts or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas; and (b) any other chemicals, materials
or substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.

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"Hedge Agreements" means interest rate swap, cap or collar agreements, interest
rate future or option contracts, currency swap agreements, currency future or
option contracts and other similar agreements.

"Interest Period" means, for each LIBOR Rate Advance comprising part of the same
Revolving Credit Borrowing, the period commencing on the date of such LIBOR Rate
Advance or the date of the Conversion of any Base Rate Advance into such LIBOR
Rate Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below and, thereafter, with respect to such LIBOR
Rate Advances, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below. The duration of each
such Interest Period shall be one week or one, two, three or six months, as the
Borrower may, upon notice received by the Administrative Agent not later than
11:00 A.M. (Atlantic Standard Time) on the third Business Day prior to the first
day of such Interest Period, select; provided, however, that:

(i) the Borrower may not select any Interest Period that ends after the
Termination Date;

(ii) Interest Periods commencing on the same date for LIBOR Rate Advances
comprising part of the same Revolving Credit Borrowing shall be of the same
duration;

(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day, provided,
however, that, if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of such
Interest Period shall occur on the next preceding Business Day; and

(iv) whenever the first day of any Interest Period occurs on a day of an initial
calendar month for which there is no numerically corresponding day in the
calendar month that succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such Interest Period
shall end on the last Business Day of such succeeding calendar month.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.

"LIBOR Lending Office" means, with respect to any Lender, the office of such
Lender specified as its "LIBOR Lending Office" opposite its name on Schedule I
hereto or such other office of such Lender as such Lender may from time to time
specify to the Borrower and the Administrative Agent.

"LIBOR Rate" means, with respect to any LIBOR Rate Advance for any Interest
Period, the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or substitute
for such Service, providing rate quotations comparable to those currently
provided on such page of such Service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 A.M., Atlantic Standard Time, two Business Days prior to the commencement
of such Interest Period, as the rate for dollar deposits with a maturity
comparable to such Interest Period. In the event that such rate is not available
at such time for any reason, then the "LIBOR Rate" with respect to such LIBOR
Rate Advance for such Interest Period shall be the average of the rates (rounded
upward to the nearest whole multiple of 1/16 of 1%) per annum at which dollar
deposits approximately equal in principal amount to the aggregate principal
amount of such Advance and for a maturity comparable to such Interest Period are
quoted to the Administrative Agent by at least three (3) major international
commercial banks in immediately available funds in the London interbank market
at approximately 11:00 A.M., Atlantic Standard Time, two Business Days prior to
the commencement of such Interest Period, for delivery on the date of
commencement of such Interest Period.

"LIBOR Rate Advance" means a Revolving Credit Advance that bears interest based
upon the LIBOR Rate as provided in Section 2.06(a)(ii).

"Lenders" means BPPR and each Person that shall become a party hereto pursuant
to Section 9.07.

"Lien" means any lien, security interest or other charge or encumbrance of any
kind.

"Loan Party" means each of the Borrower and the Guarantors.

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"Material Adverse Change" means any material adverse change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Loan Party or any Loan Party and its Subsidiaries taken as a
whole.

"Material Adverse Effect" means a material adverse effect on: (a) the ability of
any Loan Party to conduct its business on substantially the same basis as
conducted on the Effective Date; (b) the rights and remedies of the
Administrative Agent or any Lender under any Loan Document; or (c) the ability
of any Loan Party to service its Debt obligations on a timely basis.

"Moody's" means Moody's Investors Service, Inc.

"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.

"Multiple Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that: (a) is maintained for employees of any Loan Party or
any ERISA Affiliate and at least one Person other than such Loan Party and the
ERISA Affiliates; or (b) was so maintained and in respect of which any Loan
Party or any ERISA Affiliate could have liability under Section 4064 or 4069 of
ERISA in the event such plan has been or were to be terminated.

"Note" means a Revolving Credit Note.

"Notice of Revolving Credit Borrowing" has the meaning specified in Section
2.02(a).

"Other Taxes" has the meaning specified in Section 2.13(b).

"PBGC" means the Pension Benefit Guaranty Corporation (or any successor).

"Permitted Liens" means, with respect to any Person: (a) Liens for taxes,
assessments and governmental charges and levies to the extent not required to be
paid under Section 5.01(b) hereof; (b) pledges or deposits to secure obligations
under workers' compensation laws or similar legislation; (c) pledges or deposits
to secure performance in connection with bids, tenders, contracts (other than
contracts for the payment of money) or leases to which such Person is a party;
(d) deposits to secure public or statutory obligations of such Person; (e)
materialmen's, mechanics', carriers', workers', repairmen's or other like Liens
in the ordinary course of business, or deposits to obtain the release of such
Liens to the extent such Liens, in the aggregate, would not have a Material
Adverse Effect; (f) deposits to secure surety and appeal bonds to which such
Person is a party; (g) other pledges or deposits for similar purposes in the
ordinary course of business; (h) Liens created by or resulting from any
litigation or legal proceeding which at the time is currently being contested in
good faith by appropriate proceedings; (i) leases made, or existing on Property
acquired, in the ordinary course of business; (j) landlord's Liens under leases
to which such Person is a party; (k) zoning restrictions, easements, licenses,
and restrictions on the use of real Property or minor irregularities in title
thereto, which do not materially impair the use of such Property in the
operation of the business of such Person or the value of such Property for the
purpose of such business; and (l) bankers' liens, rights of set-off or analogous
rights granted or arising by operation of law to any deposits held by or other
indebtedness owing by any lender or any affiliate thereof to or for the credit
or account of such person.

"Permitted Receivables Financing" means any financing pursuant to which the
Borrower or any Subsidiary of the Borrower may sell, convey, or otherwise
transfer to a Receivables Subsidiary or any other Person (in the case of
transfer by a Receivables Subsidiary), or grant a security interest in, any
accounts receivable (and related assets) of the Borrower or such Subsidiary,
provided that such financing shall be on customary market terms and shall
non-recourse to the Borrower and its Subsidiaries (other than the Receivables
Subsidiary) except to a limited extent customary for such transactions. The
grant of a security interest in any accounts receivable of the Borrower or any
Subsidiary of the Borrower (other than a Receivables Subsidiary) to secure Debt
under any credit facility shall not be deemed a Permitted Receivables Financing.

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"Person" means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture,
limited liability company or other entity, or a government or any political
subdivision or agency thereof.

"Plan" means a Single Employer Plan or a Multiple Employer Plan.

"Property" means with respect to any Person, any right or interest in or to
property of any kind whatsoever, whether real, personal (including, without
limitation, cash) or mixed and whether tangible or intangible of such Person.

"Purchase" means the acquisition by GITI, directly or indirectly, of the
Controlling Interest.

"Quarterly Date" means the last Business Day of March, June, September and
December of each year.

"Receivables Subsidiary" means a bankruptcy-remote, special-purpose wholly owned
Subsidiary formed in connection with a Permitted Receivables Financing.

"Required Lenders" means as at any time, Lenders having at least 66% of the sum
of: (a) the aggregate unused amount, if any, of the Commitments as at such time
plus (b) the aggregate outstanding principal amount of the Revolving Credit
Advances at such time.

"Revolving Credit Advance" means an advance by a Lender to the Borrower as part
of a Revolving Credit Borrowing and refers to a Base Rate Advance or a LIBOR
Rate Advance.

"Revolving Credit Borrowing" means a borrowing consisting of simultaneous
Revolving Credit Advances made by each of the Lenders pursuant to Section 2.01.

"Revolving Credit Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A hereto, evidencing
the aggregate indebtedness of the Borrower to such Lender resulting from the
Revolving Credit Advances made by such Lender.

"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc.

"Shareholders Agreement" means the Shareholders Agreement as defined in the
Stock Purchase Agreement, as amended from time to time.

"Single Employer Plan" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that: (a) is maintained for employees of the Borrower or
any ERISA Affiliate and no Person other than the Loan Parties and the ERISA
Affiliates; or (b) was so maintained and in respect of which any Loan Party or
any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.

"Solvent" and "Solvency" mean, with respect to any Person on a particular date,
that on such date: (a) the fair value of the Property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person; (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay such debts and
liabilities as they mature; and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's Property would constitute an unreasonably small capital. The
amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability after taking into account any indemnification pursuant to the
terms of the Stock Purchase Agreement and any other agreements entered into in
connection therewith.

"Stock Purchase Agreement" means the Amended and Restated Stock Purchase
Agreement dated as of May 27, 1998, as amended and restated as of July 21, 1998
and as further amended from time to time on or before the

<PAGE>   8

Effective Date, among Puerto Rico Telephone Authority, Puerto Rico Telephone
Company, GTE Holdings (Puerto Rico) and GITI.

"Subsidiary" of any Person means any corporation, partnership, joint venture,
limited liability company, trust or estate of which (or in which) more than 50%
of: (a) the issued and outstanding capital stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency); (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture; or (c) the beneficial interest
in such trust or estate, is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.

"Taxes" has the meaning specified in Section 2.13(a).

"Termination Date" means the earlier of the date that is 364 days after the
Effective Date and the date of termination in whole of the Commitments pursuant
to Section 2.04 or 6.01.

"Type" means, as to any Revolving Credit Advance, whether such Advance is a Base
Rate Advance or a LIBOR Rate Advance, each of which shall constitute a Type of
Advance under this Agreement.

"Voting Stock" means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.

         Computation of Time Periods. In this Agreement in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding".

         Accounting Terms. All terms of an accounting or financial nature not
specifically defined herein shall be construed in accordance with GAAP.

                        AMOUNTS AND TERMS OF THE ADVANCES

         The Revolving Credit Advances. Each Lender severally agrees, on the
terms and conditions hereinafter set forth, to make Revolving Credit Advances to
the Borrower from time to time on any Business Day during the period from the
Effective Date until the Termination Date in an aggregate amount not to exceed
at any time outstanding the amount set forth opposite such Lender's name on the
signature pages hereof or, if such Lender has entered into any Assignment and
Acceptance, set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 9.07(d), as such amount may be reduced
pursuant to Section 2.04 (such Lender's "Commitment"). Each Revolving Credit
Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple
of $1,000,000 in excess thereof and shall consist of Revolving Credit Advances
of the same Type made on the same day by the Lenders ratably according to their
respective Commitments. Within the limits of this Section 2.01, the Borrower may
borrow under this Section 2.01, prepay pursuant to Section 2.09, reborrow under
this Section 2.01 and may Convert Borrowings of one Type into Borrowings of
another Type as provided for in Section 2.08.

         Making the Revolving Credit Advances. c) Each Revolving Credit
Borrowing shall be made on notice, given not later than 11:00 A.M. (Atlantic
Standard Time) on the third Business Day prior to the date of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of LIBOR Rate Advances or on the Business Day of the proposed
Revolving Credit Borrowing in the case of a Revolving Credit Borrowing
consisting of Base Rate Advances, by the Borrower to the Administrative Agent,
which shall give to each Lender prompt notice thereof by telecopier or telex.
Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit
Borrowing") shall be by telephone, confirmed immediately in writing, or
telecopier or telex in substantially the form of Exhibit B hereto, specifying
therein the requested: (i) date of such Revolving Credit

<PAGE>   9

Borrowing; (ii) Type of Advances comprising such Revolving Credit Borrowing;
(iii) aggregate amount of such Revolving Credit Borrowing; and (iv) in the case
of a Revolving Credit Borrowing consisting of LIBOR Rate Advances, initial
Interest Period for each such Revolving Credit Advance. Each Lender shall,
before 12:00 noon (Atlantic Standard Time) on the date of such Revolving Credit
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's ratable portion of such Revolving Credit Borrowing. After
the Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Borrower at the Borrower's Account.

Anything in subsection (a) above to the contrary notwithstanding, the Borrower
may not select LIBOR Rate Advances for any Revolving Credit Borrowing if the
aggregate obligation of the Lenders to make LIBOR Rate Advances shall then be
suspended pursuant to Section 2.07 or 2.11.

Each Notice of Revolving Credit Borrowing shall be irrevocable and binding on
the Borrower. In the case of any Revolving Credit Borrowing consisting of LIBOR
Rate Advances, the Borrower shall indemnify each Lender against any loss, cost
or expense incurred by such Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Revolving Credit Borrowing for such
Revolving Credit Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Revolving Credit
Advance to be made by such Lender as part of such Revolving Credit Borrowing
when such Revolving Credit Advance, as a result of such failure, is not made on
such date.

Unless the Administrative Agent shall have received notice from a Lender prior
to the time of any Revolving Credit Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Revolving Credit Borrowing, the Administrative Agent may assume that such Lender
has made such portion available to the Administrative Agent on the date of such
Revolving Credit Borrowing in accordance with subsection (a) of this Section
2.02 and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such ratable portion available to
the Administrative Agent, such Lender and the Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent, at: (i) in the case of the Borrower, the interest rate
applicable at the time to Revolving Credit Advances comprising such Revolving
Credit Borrowing; and (ii) in the case of such Lender, the Federal Funds Rate.
If such Lender shall repay to the Administrative Agent such corresponding
amount, such amount so repaid shall constitute such Lender's Revolving Credit
Advance as part of such Revolving Credit Borrowing for purposes of this
Agreement and the Borrower shall be relieved of its obligations to repay such
amount under this Section 2.02(d).

The failure of any Lender to make the Revolving Credit Advance to be made by it
as part of any Revolving Credit Borrowing shall not relieve any other Lender of
its obligation hereunder to make its Revolving Credit Advance on the date of
such Revolving Credit Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Revolving Credit Advance to be made by
such other Lender on the date of any Revolving Credit Borrowing.

         Facility Fee. The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a facility fee on the aggregate amount of such
Lender's Commitment from the Effective Date until the Termination Date at a rate
per annum equal to 0.125%, payable quarterly in arrears on the last day of each
March, June, September and December, commencing on June 30, 2000, and on the
Termination Date.

         Termination or Reduction of the Commitments. (a) The Borrower shall
have the right, upon at least three Business Days' notice to the Administrative
Agent, to terminate in whole or reduce ratably in part the unused portions of
the respective Commitments of the Lenders, provided that each partial reduction
shall be in the aggregate amount of $10,000,000 or an integral multiple of
$1,000,000 in excess thereof.

The aggregate amount of the Commitments shall be automatically reduced to zero
on the Termination Date. The Commitments once terminated or reduced may not be
reinstated.

         Repayment of Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders on the Termination
Date the aggregate principal amount of the Revolving Credit Advances then
outstanding.

<PAGE>   10

         Interest. d) Scheduled Interest. The Borrower shall pay interest on the
unpaid principal amount of each Revolving Credit Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:

Base Rate Advances. During such periods as such Revolving Credit Advance is a
Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable in arrears on each Quarterly Date, and on the
date such Base Rate Advance shall be Converted or paid in full.

LIBOR Rate Advances: During such periods as such Revolving Credit Advance is a
LIBOR Rate Advance, a rate per annum equal at all times during each Interest
Period for such Revolving Credit Advance to the sum of (x) the LIBOR Rate for
such Interest Period for such Revolving Credit Advance, plus (y) the Applicable
Margin, payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day of such
Interest Period and on the date such LIBOR Rate Advance shall be Converted or
paid in full.

Default Interest. Upon the occurrence and during the continuance of an Event of
Default under Section 6.01(a), the Borrower shall pay interest on: (i) the
unpaid principal amount of each Revolving Credit Advance owing to each Lender,
payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Revolving Credit Advance pursuant to clause (a)(i)
or (a)(ii) above; and (ii) to the fullest extent permitted by law, the amount of
any interest, fee or other amount payable hereunder that is not paid when due,
from the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Revolving Credit Advances pursuant to clause (a)(i)
above.

         Interest Rate Determination. e) The Administrative Agent shall give
prompt notice to the Borrower and the Lenders of the applicable interest rate
determined by the Administrative Agent for purposes of Section 2.06(a)(i) or
(ii).

If, with respect to any LIBOR Rate Advances, the Required Lenders notify the
Administrative Agent that the LIBOR Rate for any Interest Period for such
Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective LIBOR Rate Advances for such
Interest Period, the Administrative Agent shall forthwith so notify the Borrower
and the Lenders, whereupon: (i) each LIBOR Rate Advance will automatically, on
the last day of the then existing Interest Period therefor, Convert into a Base
Rate Advance; and (ii) the obligation of the Lenders to make, or to Convert
Revolving Credit Advances into, LIBOR Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.

If the Borrower shall fail to select the duration of any Interest Period for any
LIBOR Rate Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Administrative Agent will
forthwith so notify the Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances. On the date on which the aggregate unpaid
principal amount of LIBOR Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $1,000,000, such
Advances shall automatically Convert into Base Rate Advances.

Upon the occurrence and during the continuance of any Event of Default under
Section 6.01: (i) each LIBOR Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance;
and (ii) the obligation of the Lenders to make, continue or to Convert Advances
into, LIBOR Rate Advances shall be suspended.

If on any date the Administrative Agent is unable to determine the LIBOR Rate
for any LIBOR Rate Advances to be made on such date: the Administrative Agent
shall forthwith notify the Borrower and the Lenders that the interest rate
cannot be determined for such LIBOR Rate Advances, with respect to LIBOR Rate
Advances, each such Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance (or if such
Advance is then a Base Rate Advance, will Continue as a Base Rate Advance), and
the obligation of the Lenders to make LIBOR Rate Advances or to Convert
Revolving Credit Advances into LIBOR

<PAGE>   11

Rate Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.

         Optional Conversion of Revolving Credit Advances. The Borrower may on
any Business Day, upon notice given to the Administrative Agent not later than
11:00 A.M. (Atlantic Standard Time) on the third Business Day prior to the date
of the proposed Conversion and subject to the provisions of Sections 2.08 and
2.12, Convert all Revolving Credit Advances of one Type comprising the same
Borrowing into Revolving Credit Advances of the other Type; provided, however,
that any Conversion of LIBOR Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such LIBOR Rate Advances and any
Conversion of Base Rate Advances into LIBOR Rate Advances shall be in an amount
not less than $1,000,000. Each such notice of a Conversion shall, within the
restrictions specified above, specify: (i) the date of such Conversion; (ii) the
Revolving Credit Advances to be Converted; and (iii) if such Conversion is into
LIBOR Rate Advances, the duration of the initial Interest Period for each such
Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower.

         Prepayments of Advances. The Borrower may, upon at least two Business
Days' notice to the Administrative Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding principal amount of the Revolving Credit Advances
comprising part of the same Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (x) each partial prepayment shall be in an aggregate
principal amount of $1,000,000 or an integral multiple of $1,000,000 in excess
thereof, and the Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to Section 9.04(c).

         Increased Costs. f) If, due to either: (i) the introduction of or any
change in or in the interpretation of any law or regulation; or (ii) the
compliance with any written guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining LIBOR Rate Advances (excluding for purposes of this Section 2.10 any
such increased costs resulting from: (i) Taxes or Other Taxes (as to which
Section 2.13 shall govern); and (ii) changes in the basis of taxation of overall
net income or overall gross income by the United States or by the foreign
jurisdiction or state under the laws of which such Lender is organized or has
its Applicable Lending Office or any political subdivision thereof), then the
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), pay to the Administrative Agent for
the account of such Lender additional amounts sufficient to compensate such
Lender for such increased cost (whether or not such increased costs arise prior
to the receipt of written notification from such central bank or other
governmental authority); provided that the Borrower shall not be required to pay
any such increased costs to the extent such increased costs accrued prior to the
date that is six months prior to such notice. A certificate as to the amount of
such increased cost, submitted to the Borrower and the Administrative Agent by
such Lender, shall be conclusive and binding for all purposes, absent error in
the calculation of such amount.

If any Lender determines that compliance with any law or regulation or any
written guideline or request from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender (excluding any reserves included in the
computation of the LIBOR Rate) and that the amount of such capital is increased
by or based upon the existence of such Lender's commitment to lend hereunder and
other commitments of this type, then, upon demand by such Lender (with a copy of
such demand to the Administrative Agent), the Borrower shall pay to the
Administrative Agent for the account of such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender or such corporation (whether or not such amounts arise prior to the
receipt of written notification from such central bank or other governmental
authority) in the light of such circumstances, to the extent that such Lender
reasonably determines such increase in capital to be allocable (in the
proportion that such Lender's Commitment hereunder bears to all of such Lender's
commitments of this type) to the existence of such Lender's commitment to lend
hereunder; provided that the Borrower shall not be required to compensate such
Lender to the extent such amounts arose prior to the date that is six months
prior to such notice. A certificate as to such amounts submitted to the Borrower
and the Administrative Agent by such Lender shall be conclusive and binding for
all purposes, absent error in the calculation of such amounts.

<PAGE>   12

Any Lender claiming any additional amounts payable pursuant to this Section 2.10
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to minimize such additional amounts and to change,
to the extent such Lender has at such time additional lending offices in
existence, the jurisdiction of its Applicable Lending Office if the making of
such a change would avoid the need for, or reduce the amount of, any additional
amounts that may thereafter accrue and would not, in the reasonable judgment of
such Lender, be otherwise notably disadvantageous to such Lender. The Borrower
shall reimburse such Lender for such Lender's reasonable expenses incurred in
connection with such change or in considering such a change in an amount not to
exceed the Borrower's pro rata share of such expenses based on such Lender's
Commitment and Advances and the total lending commitments and loans of such
Lender to its similarly situated customers.

         Illegality. Notwithstanding any other provision of this Agreement, if
any Lender shall notify the Administrative Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority having relevant jurisdiction
asserts that it is unlawful, for any Lender or its Applicable Office to perform
its obligations hereunder to make LIBOR Rate Advances or to fund or maintain
LIBOR Rate Advances hereunder: (i) each LIBOR Rate Advance made by such Lender
will automatically, upon such demand, Convert into a Base Rate Advance, as the
case may be; and (ii) the obligation of such Lender to make LIBOR Rate Advances
or to Convert Revolving Credit Advances into LIBOR Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.

         Payments and Computations. g) The Borrower shall make each payment
hereunder and under the Notes not later than 11:00 A.M. (Atlantic Standard Time)
on the day when due in U.S. dollars to the Administrative Agent at the
Administrative Agent's Account in same day funds. The Administrative Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal or interest or facility fees ratably (other than amounts payable
pursuant to Section 2.11 or 9.04(c)) to the Lenders for the account of their
respective Applicable Lending Offices, and like funds relating to the payment of
any other amount payable to any Lender to such Lender for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. All computations of interest based on the Base Rate,
LIBOR Rate and of facility fees shall be made by the Administrative Agent on the
basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or facility fees are payable. Each determination by the
Administrative Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent error in the calculation of such interest rate.

Whenever any payment hereunder or under the Notes shall be stated to be due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or facility fee, as the case may be;
provided, however, that, if such extension would cause payment of interest on or
principal of LIBOR Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.

Unless the Administrative Agent shall have received notice from the Borrower
prior to the time on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Administrative Agent may assume
that the Borrower has made such payment in full to the Administrative Agent on
such date and the Administrative Agent may, in reliance upon such assumption,
cause to be distributed to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower shall not have so
made such payment in full to the Administrative Agent, each Lender shall repay
to the Administrative Agent forthwith on demand such amount distributed to such
Lender together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Administrative Agent, at the Federal Funds Rate.

         Taxes. h) Subject to subsections (e) and (f) below, any and all
payments by the Borrower hereunder or under the Notes shall be made, in
accordance with Section 2.12, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto excluding, in the case of
each Lender and the Administrative Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it in lieu of net income taxes (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes being
hereinafter referred to as "Taxes"). Subject to subsections (e) and (f) below,
if the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender or the

<PAGE>   13

Administrative Agent: (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.13) such Lender or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made; (ii) the Borrower shall
make such deductions; and (iii) the Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance with
applicable law. Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.02, the original or a certified copy of a receipt evidencing
payment thereof.

In addition, the Borrower agrees to pay any stamp or documentary taxes or any
other excise or property taxes, charges or similar levies that arise from any
payment made hereunder or under the Notes or from the execution, delivery or
registration of, performing under, or otherwise with respect to, this Agreement
or the Notes as a result of the introduction of or any change in or in the
interpretation of any law or regulation after the Effective Date (hereinafter
referred to as "Other Taxes").

Subject to subsections (d), (e) and (f) below, the Borrower shall indemnify each
Lender and the Administrative Agent for the full amount of Taxes or Other Taxes
(to the extent not previously paid under subsection (a) or (b) above) imposed on
or paid by such Lender or the Administrative Agent (as the case may be) and any
liability (including penalties, interest and expenses but excluding any taxes
imposed by any jurisdiction on amounts payable under this Section 2.13) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender or the Administrative Agent (as the case may be)
makes written demand therefor.

Notwithstanding anything else contained in this Section 2.13, the Borrower shall
only be required to pay additional sums with respect to Taxes, to a Lender (or
the Administrative Agent, as the case may be) pursuant to subsection (a), (b) or
(c) above if the obligation to pay such Taxes results from such Lender being
subject to any Taxes as a result of: (i) any amendment to the laws (or any
regulations thereunder), or any amendment to, or change in, an interpretation or
application of any such laws or regulations by any legislative body, court,
governmental agency or regulatory authority adopted or enacted after the date
hereof (or in the case of an entity that becomes a Lender after the date hereof,
the date such entity becomes a Lender); (ii) an amendment, modification or
revocation of any existing applicable tax treaty ratified, enacted or amended
after the date hereof (or in the case of an entity that becomes a Lender after
the date hereof, the date such entity becomes a Lender); or (iii) the
ratification of a new tax treaty ratified after the date hereof (or in the case
of an entity that becomes a Lender after the date hereof, the date such entity
becomes a Lender).

In the event that the Borrower makes an additional payment under Section 2.13(a)
or 2.13(c) for the account of any Lender and such Lender, in its sole opinion,
determines that it has finally and irrevocably received or been granted a credit
against, or relief or remission from, or repayment of, any tax paid or payable
by it in respect of or calculated with reference to the deduction or withholding
giving rise to such additional payment, such Lender shall, to the extent that it
determines that it can do so without prejudice to the retention of the amount of
such credit, relief, remission or repayment, pay to the Borrower such amount as
such Lender shall, in its sole opinion, have determined is attributable to such
deduction or withholding and will leave such Lender (after such payment) in no
worse position than it would have been had the Borrower not been required to
make such deduction or withholding. Nothing contained herein shall: (i)
interfere with the right of a Lender to arrange its tax affairs in whatever
manner it thinks fit; or (ii) oblige any Lender to claim any tax credit or to
disclose any information relating to its tax affairs or any computations in
respect thereof; or (iii) require any Lender to take or refrain from taking any
action that would prejudice its ability to benefit from any other credits,
reliefs, remissions or repayments to which it may be entitled. Each Lender and
the Administrative Agent shall reasonably cooperate with the Borrower at the
Borrower's written request and sole expense, in contesting any Taxes or Other
Taxes the Borrower would bear pursuant to this Section 2.13, provided, however,
that: (i) no tax return of such Lender or the Administrative Agent is or would
be held open as a result of such contest; (ii) neither such Lender nor the
Administrative Agent is required to reopen a tax year that has already closed;
and (iii) such Lender and the Administrative Agent shall, in the sole opinion of
such Lender and the Administrative Agent, respectively, have determined that
such contest will leave such Lender and the Administrative Agent, respectively,
in no worse position than it would have been in had it not contested such Taxes
or Other Taxes. Nothing contained herein shall interfere with the right of a
Lender or the Administrative Agent to arrange its tax affairs in whatever manner
it thinks fit, if in the sole judgment of such Lender or the Administrative
Agent, such contest would be disadvantageous to such Lender or the
Administrative Agent. In pursuing a contest in the Lender's or the
Administrative Agent's name, such Lender or the Administrative Agent will be
represented by counsel of such Lender's or the Administrative Agent's choice,
and will defend against, settle or otherwise control the contest and will not
relinquish control or decision making over the contest.

<PAGE>   14

Any Lender claiming any additional amounts payable pursuant to this Section 2.13
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to minimize such additional amounts and to change,
to the extent such Lender has at such time additional lending offices in
existence, its Applicable Lending Office, if the making of such a change would
avoid the need for, or reduce the amount of, any additional amounts that may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
otherwise notably disadvantageous to such Lender. The Borrower shall reimburse
such Lender for such Lender's reasonable expenses incurred in connection with
such change or in considering such a change in an amount not to exceed the
Borrower's pro rata share of such expenses based on such Lender's Commitment and
Advances to the Borrower and the total lending commitments and loans of such
Lender to its similarly situated customers.

         Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Revolving Credit Advances owing to it (other
than pursuant to Section 2.10, 2.13, 9.01(b), 9.04(c) or 9.07) in excess of its
ratable share of payments on account of the Revolving Credit Advances obtained
by all the Lenders, such Lender shall forthwith purchase from the other Lenders
such participations in the Revolving Credit Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery together with an amount
equal to such Lender's ratable share (according to the proportion of: (i) the
amount of such Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender by
delivering payment pursuant to this Section 2.14 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.

         Use of Proceeds. The proceeds of the Advances shall be available (and
the Borrower agrees that it shall use such proceeds) solely for working capital
and general corporate purposes of the Borrower and its Subsidiaries, provided
that such proceeds shall not be used for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System).

CONDITIONS TO EFFECTIVENESS AND LENDING

         Conditions Precedent to Effectiveness of Section 2.01. Section 2.01 of
this Agreement shall become effective on and as of the first date (the
"Effective Date") on which the following conditions precedent have been
satisfied:

There shall have occurred no Material Adverse Change since December 31, 1999.

There shall exist no action, suit, investigation, litigation or proceeding
affecting any of the Loan Parties or any of their respective Subsidiaries
pending or threatened before any court, governmental agency or arbitrator that:
(i) could be reasonably likely to have a Material Adverse Effect other than the
matters described on Schedule 3.01(b) hereto (the "Disclosed Litigation"); or
(ii) is initiated by any Person other than a Lender in its capacity as a Lender
that purports to affect the legality, validity or enforceability of this
Agreement or any Note or the consummation of the transactions contemplated
hereby, and there shall have been no material adverse change in the status, or
financial effect on any Loan Party, of the Disclosed Litigation from that
described on Schedule 3.01(b) hereto.

All governmental and third party consents and approvals necessary in connection
with the execution, delivery and performance of this Agreement and the Notes
shall have been obtained (without the imposition of any conditions that could
reasonably be expected to materially adversely affect the ability of any Loan
Party to perform its obligations hereunder) and shall remain in effect, and no
law or regulation shall be applicable that restrains, prevents or imposes
adverse conditions upon the transactions contemplated hereby that could
reasonably be expected to materially adversely affect the ability of any Loan
Party to perform its obligations hereunder.

<PAGE>   15

The Borrower shall have notified each Lender and the Administrative Agent in
writing of the proposed Effective Date.

The Borrower shall have paid all invoiced fees and expenses of the
Administrative Agent and the Lenders (including the invoiced fees and expenses
of Martinez Odell & Calabria, counsel to the Administrative Agent).

On the Effective Date, the following statements shall be true and the
Administrative Agent shall have received for the account of each Lender a
certificate signed by a duly authorized officer of the Borrower, dated the
Effective Date, stating that:

The representations and warranties contained in Section 4.01 are correct on and
as of the Effective Date, and

No event has occurred and is continuing that constitutes a Default.

The Administrative Agent shall have received on or before the Effective Date the
following, each dated such day, in form and substance satisfactory to the
Administrative Agent and (except for the Revolving Credit Notes) in sufficient
copies for each Lender:

The Revolving Credit Notes to the order of the Lenders, respectively.

Certified copies of the resolutions of the Board of Directors of each Loan Party
approving the transactions contemplated by this Agreement and the Notes and of
all documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement and such Notes.

A certificate of the Secretary or an Assistant Secretary of each Loan Party
certifying the names and true signatures of the officers of each Loan Party
authorized to sign this Agreement and the Notes and the other documents to be
delivered hereunder.

A certificate, in substantially the form of Exhibit C hereto, attesting to the
Solvency of each Loan Party after giving effect to the Borrowings contemplated
hereunder, from the chief financial officer of each such Loan Party.

A favorable opinion of Jose Arroyo, Vice President and General Counsel for the
Loan Parties, substantially in the form of Exhibit D hereto.

         Conditions Precedent to Each Revolving Credit Borrowing. The obligation
of each Lender to make a Revolving Credit Advance on the occasion of each
Revolving Credit Borrowing shall be subject to the conditions precedent that the
Effective Date shall have occurred and on the date of such Revolving Credit
Borrowing the following statements shall be true (and each of the giving of the
applicable Notice of Revolving Credit Borrowing and the acceptance by the
Borrower of the proceeds of such Revolving Credit Borrowing shall constitute a
representation and warranty by the Borrower that on the date of such Borrowing
such statements are true): the representations and warranties contained in
Section 4.01 are correct in all material respects on and as of the date of such
Revolving Credit Borrowing, before and after giving effect to such Revolving
Credit Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date, and no event has occurred and is continuing, or
would result from such Revolving Credit Borrowing or from the application of the
proceeds therefrom, that constitutes a Default.

         Determinations Under Section 3.01. For purposes of determining
compliance with the conditions specified in Section 3.01, each Lender shall be
deemed to have consented to, approved or accepted or to be satisfied with each
document or other matter required thereunder to be consented to or approved by
or acceptable or satisfactory to the Lenders unless an officer of the
Administrative Agent responsible for the transactions contemplated by this
Agreement shall have received notice from such Lender prior to the date that the
Borrower, by notice to the Lenders, designates as the proposed Effective Date,
specifying its objection thereto. The Administrative Agent shall promptly notify
the Lenders of the occurrence of the Effective Date.

<PAGE>   16

REPRESENTATIONS AND WARRANTIES

         Representations and Warranties of the Borrower. The Borrower represents
and warrants as follows: (i) Each Loan Party is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (iii) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.

The execution, delivery and performance by each Loan Party of this Agreement and
the Notes executed by it and the consummation of the transactions contemplated
hereby, are within such Loan Party's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene: (i) such Loan Party's
charter or by-laws (or other equivalent organizational documents); or (ii) any
law or any material contractual restriction binding on or affecting such Loan
Party or, to the knowledge of the chief financial officer of the Borrower, any
other contract the breach of which would limit the ability of any Loan Party to
perform its obligations under this Agreement or the Notes; and (ii) will not
result in the creation or imposition of any Lien upon any Property of the
Borrower or any of its Subsidiaries pursuant to the terms of any agreement or
instrument.

No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body or any other third party is
required for the due execution, delivery and performance by any Loan Party of
this Agreement or the Notes.

This Agreement has been, and each of the Notes when delivered hereunder will
have been, duly executed and delivered by the Borrower. This Agreement has been
duly executed and delivered by each Guarantor. Assuming that this Agreement has
been duly executed by the Administrative Agent and each of the Lenders, this
Agreement is, and each of the Notes when delivered hereunder will be, the legal,
valid and binding obligation of the Borrower enforceable against the Borrower in
accordance with their respective terms. Assuming that this Agreement has been
duly executed by the Administrative Agent and each of the Lenders, this
Agreement is the legal, valid and binding obligation of each Guarantor
enforceable against each Guarantor in accordance with its terms.

The Consolidated balance sheet of the Borrower (or its predecessor entities) and
its Subsidiaries as at December 31, 1999, and the related Consolidated
statements of income and cash flows of the Borrower (or its predecessor
entities) and its Subsidiaries for the fiscal year then ended, accompanied by an
opinion of Deloitte & Touche LLP, independent public accountants, copies of
which have been furnished to each Lender, fairly present the Consolidated
financial condition of the Borrower (or its predecessor entities) and its
Subsidiaries as at such date and the Consolidated results of the operations of
the Borrower (or its predecessor entities) and its Subsidiaries for the periods
ended on such date, all in accordance with generally accepted accounting
principles consistently applied.

There is no pending or (to the knowledge of any Loan Party) threatened action or
proceeding, including, without limitation, any Environmental Action, affecting
any Loan Party or any of its Subsidiaries before any court, governmental agency
or arbitrator that is initiated by any Person other than a Lender in its
capacity as a Lender that purports to affect the legality, validity or
enforceability of this Agreement or any Note.

Neither the Borrower nor any of its Subsidiaries is an Investment Company, as
such term is defined in the Investment Company Act of 1940, as amended.

No Loan Party is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System), and no proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.

Each of the Loan Parties has obtained all environmental, health and safety
permits, licenses and other authorizations required under all Environmental Laws
to carry on its business as now being or as proposed to be conducted, except to
the extent failure to have any such permit, license or authorization would not
(either individually or in the aggregate) have a Material Adverse Effect. Each
of such permits, licenses and authorizations is in full force and effect and
each of the Borrower and its Subsidiaries is in compliance with the terms and
conditions thereof, and is

<PAGE>   17

also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
therewith would not (either individually or in the aggregate) have a Material
Adverse Effect.

The Loan Parties have exercised commercially reasonable efforts to ensure Year
2000 compliance of its computer systems and equipment so that the Year 2000
problem will not result in a Default or a Material Adverse Effect. (i) The
obligations of the Loan Parties hereunder and under the Notes, and the
obligations of the Loan Parties under the Citibank Indebtedness are of equal
priority (pari passu); and (ii) except for any rights to set-off in favor of the
agent(s) or the lenders under Section 9.05 of the Five-Year Credit Agreement (as
described in the definition of Citibank Indebtedness), no Lien over any Property
of the Loan Parties has been granted in favor of the lenders party to such
agreement, as security for the obligations of the Borrower and its Subsidiaries
under the Citibank Indebtedness.

No Agency Relationship. The Borrower understands and agrees that neither the
Administrative Agent nor any Lender is the agent or representative of the
Borrower, and this Agreement shall not be construed to make the Administrative
Agent or any such Lender liable to any third parties for any obligations of the
Borrower or any of its Subsidiaries in connection with the operation and
administration of their respective businesses.

COVENANTS OF THE LOAN PARTIES

         Affirmative Covenants. So long as any Advance shall remain unpaid or
any Lender shall have any Commitment hereunder, each Loan Party will:

Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply,
in all material respects, with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, compliance with ERISA
and Environmental Laws, except where the failure to so comply would not have a
Material Adverse Effect.

Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to
pay and discharge, before the same shall become delinquent: (i) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
Property; and (ii) all lawful claims that, if unpaid, might by law become a Lien
upon its Property; provided, however, that neither any Loan Party nor any of its
Subsidiaries shall be required to pay or discharge any such tax, assessment,
charge or claim that is being contested in good faith and by proper proceedings
and as to which appropriate reserves are being maintained, unless and until any
Lien resulting therefrom attaches to its Property and becomes enforceable
against its other creditors and the aggregate of such Liens would have a
Material Adverse Effect.

Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which such Loan Party or such Subsidiary operates;
provided, however, that such Loan Party and its Subsidiaries may self-insure to
the extent consistent with prudent business practice.

Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each
of its Subsidiaries to preserve and maintain, its corporate existence, rights
(charter and statutory), licenses and franchises; provided, however, that each
Loan Party and its Subsidiaries may consummate any transaction permitted under
Section 5.02(b) and provided further that neither any Loan Party nor any of its
Subsidiaries shall be required to preserve any license, right or franchise if
the senior management of such Loan Party or of such Subsidiary shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of such Loan Party or such Subsidiary, as the case may be, and that the
loss thereof is not disadvantageous in any material respect to such Loan Party
or such Subsidiary.

Visitation Rights. During normal business hours and upon reasonable notice from
time to time, permit the Administrative Agent or any of the Lenders or any
agents or representatives thereof, to examine and make copies of and abstracts
from the records and books of account of (excluding any confidential
information), and visit the properties of, such Loan Party and any of its
Subsidiaries, and to discuss the affairs, finances and accounts of such

<PAGE>   18

Loan Party and any of its Subsidiaries with the appropriate representatives of
such Loan Party and together with the appropriate representatives of such Loan
Party's independent certified public accountants.

Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books
of record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of such Loan Party and each
such Subsidiary in accordance with generally accepted accounting principles in
effect from time to time.

Maintenance of Properties, Etc. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, its material Properties that are used or
useful in the conduct of its business in good working order and condition,
ordinary wear and tear excepted.

Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to
conduct, all transactions otherwise permitted under this Agreement with any of
their Affiliates, other than another Loan Party: (i) on terms that are fair and
reasonable and no less favorable to such Loan Party or such Subsidiary than it
would obtain in a comparable arm's-length transaction with a Person not an
Affiliate except where the failure to do so, in the aggregate, would not have a
Material Adverse Effect; (ii) as required by the Federal Communications
Commission's rules and regulations for transactions among affiliates; or (iii)
as contemplated by the Management Agreement and the Technology Transfer
Agreement (each such agreement as defined in the Stock Purchase Agreement).

Reporting Requirements.  Furnish to the Lenders:

as soon as available and in any event within 60 days after the end of each of
the first three quarters of each fiscal year of the Borrower, the Consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such quarter
and the Consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, duly certified (subject to year-end
audit adjustments) by the chief financial officer, treasurer or controller of
the Borrower as having been prepared in accordance with generally accepted
accounting principles and certificates of the chief financial officer, treasurer
or controller of the Borrower as to compliance with the terms of this Agreement
and setting forth in reasonable detail the calculations necessary to demonstrate
compliance with Section 5.03, provided that in the event of any change in GAAP
used in the preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with Section 5.03, a
statement of reconciliation showing the calculations used for purposes of
Section 5.03; as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the annual audited report for
such year for the Borrower and its Subsidiaries, containing the Consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
year and the Consolidated statements of income and cash flows of the Borrower
and its Subsidiaries for such fiscal year, in each case accompanied by an
opinion acceptable to the Administrative Agent by Deloitte & Touche LLP or other
independent public accountants of nationally recognized standing, provided that
in the event of any change in GAAP used in the preparation of such financial
statements, the Borrower shall also provide, if necessary for the determination
of compliance with Section 5.03, a statement of reconciliation showing the
calculations used for purposes of Section 5.03; as soon as possible and in any
event within five Business Days after the occurrence of each Default continuing
on the date of such statement, a statement of the chief financial officer,
treasurer or controller of the Borrower setting forth details of such Default
and the action that the Borrower has taken and proposes to take with respect
thereto; promptly after the sending or filing thereof, copies of any quarterly
and annual reports and proxy solicitations that any Loan Party sends to any of
its security holders, and copies of any reports on Form 8-K that such Loan Party
files with the Securities and Exchange Commission (other than reports on Form
8-K filed solely for the purpose of incorporating exhibits into a registration
statement previously filed with the Securities and Exchange Commission); prompt
notice of all actions and proceedings before any court, governmental agency or
arbitrator affecting any Loan Party or any of its Subsidiaries of the type
described in Section 3.01(b); and such other information respecting any Loan
Party or any of its Subsidiaries as any Lender through the Administrative Agent
may from time to time reasonably request.

(j) Further Assurances. The Borrower will execute, acknowledge where
appropriate, and deliver, and cause to be executed, acknowledged where
appropriate, and delivered, from time to time, promptly at the request of the
Administrative Agent or any of the Lenders, all such instruments and documents
as in the reasonable opinion of the Administrative Agent or such Lender are
necessary to carry out the intent and purpose of this Agreement and the Notes.

(k) Performance of Agreements. The Borrower will take all action and do all
things which it is authorized by law or contract to take and to do in order to
perform and

<PAGE>   19

observe and to cause the Loan Parties to perform and observe, all covenants and
agreements on its or their part to be performed and observed under this
Agreement and the Notes.

(l) Pari Passu Status. So long as any Commitments are available, or any amounts
under the Notes are outstanding hereunder, the obligations of the Loan Parties
hereunder and under the Notes shall remain of equal priority (pari passu) with
the obligations of the Loan Parties under the Citibank Indebtedness.

(m) Certain Obligations Respecting Subsidiaries. The Borrower will take such
action, and will cause each of its Significant Subsidiaries and any Significant
Subsidiary formed with the intent of merging with or into a Person that will be
a Significant Subsidiary subject to this provision to take such action, from
time to time as shall be necessary to ensure that all Significant Subsidiaries
of the Borrower are party to, as Loan Parties, the Guaranty provided in Article
VII hereof. Without limiting the generality of the foregoing, in the event that
the Borrower or any of its Significant Subsidiaries shall form or acquire any
new Significant Subsidiary, the Borrower or the respective Significant
Subsidiary will cause such new Significant Subsidiary to (A) become a party
hereto and to the Guaranty pursuant to a written instrument in form and
substance satisfactory to the Administrative Agent; and (B) deliver such proof
of corporate action, incumbency of officers, opinions of counsel and other
documents relating to the foregoing as is consistent with those delivered by
each Loan Party pursuant to Article III hereof, or as any Lender or the
Administrative Agent shall have reasonably requested.

         Negative Covenants. So long as any Advance shall remain unpaid or any
Lender shall have any Commitment hereunder, the Borrower will not: Liens, Etc.
Create or suffer to exist, or permit any of its Subsidiaries to create or suffer
to exist, any Lien on or with respect to any of its properties, whether now
owned or hereafter acquired, or assign for security purposes (but not in
connection with a bona fide sale thereof), or permit any of its Subsidiaries to
assign for security purposes (but not in connection with a bona fide sale
thereof), any right to receive income; provided that nothing in this Section
5.02 shall be construed to prevent or restrict the following:

Permitted Liens, purchase money Liens upon or in any real Property or equipment
acquired or held by the Borrower or any of its Subsidiaries in the ordinary
course of business to secure the purchase price of such Property or equipment or
to secure Debt incurred solely for the purpose of financing the acquisition of
such Property or equipment, or Liens existing on such Property or equipment at
the time of its acquisition or conditional sales or other similar title
retention agreements with respect to Property hereafter acquired or extensions,
renewals or replacements of any of the foregoing for the same or a lesser
amount, provided, however, that no such Lien shall extend to or cover any
Properties of any character other than the real Property or equipment being
acquired, and no such extension, renewal or replacement shall extend to or cover
any properties not theretofore subject to the Lien being extended, renewed or
replaced, the Liens existing on the Effective Date and described on Schedule
5.02(a) hereto and other undisclosed Liens existing on the Effective Date
securing obligations in aggregate amount not to exceed $10,000,000, Liens on
Property of a Person existing at the time such Person is merged into or
consolidated with the Borrower or any of its Subsidiaries; provided that any
such Liens that were created during the period immediately prior to such merger,
consolidation or acquisition were created in the ordinary course of business of
such Person and the Debt secured by such Liens does not exceed the fair market
value of the assets (including intangible assets) of such Person so merged into
or consolidated with the Borrower or any of its Subsidiaries, the replacement,
extension or renewal of any Lien permitted by clauses (iii) and (iv) above upon
or in the same Property theretofore subject thereto or the replacement,
extension or renewal (without increase in the amount or extension of the final
maturity date) of the Debt secured thereby, Liens not otherwise permitted
pursuant to clauses (i) through (v) above securing obligations not to exceed at
any one time the amount of $10,000,000; and Liens on Property of a Receivables
Subsidiary created in connection with a Permitted Receivables Financing.

Mergers, Etc. Merge or consolidate with or into, or convey, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to, any Person, or permit any of its Subsidiaries to do so, except that: (i) any
Subsidiary of the Borrower may merge or consolidate with or into, or dispose of
its Property or assets to, any other Subsidiary of the Borrower; (ii) any
Subsidiary of the Borrower may merge into or dispose of assets to the Borrower;
and (iii) the Borrower may merge with any Subsidiary of GTE so long as the
surviving corporation assumes to the reasonable satisfaction of the
Administrative Agent all obligations of the Borrower hereunder and under the
Notes, and the Guarantors confirm in writing their guarantee obligations
hereunder upon the occurrence of and following such merger, and provided, in
each case, that no Default shall have occurred and be continuing at the time of
such proposed transaction or would result therefrom.

Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or
permit, any change in accounting policies or reporting practices, except: (i) as
required or permitted by generally accepted accounting principles; or

<PAGE>   20

(ii) where the effect of such change, together with all other changes in
accounting policies or reporting practices made pursuant to this clause (ii)
since the Effective Date, is immaterial to the Borrower and its Subsidiaries
taken as a whole.

Subsidiary Debt. Permit any of its Subsidiaries to create or suffer to exist,
any Debt other than:

Debt owed to the Borrower or to a wholly owned Subsidiary of the Borrower (it
being understood that such Debt includes any Debt incurred (A) in connection
with the Purchase; and (B) under any contribution agreement entered into by and
between the Guarantors in connection with the Purchase, the Bonds and any of the
Subsidiary Existing Debt), Debt which may be incurred in connection with the
Subsidiaries' guarantee of the Bonds or any refunding or refinancing, in whole
or in part, of the Bonds; Debt which may be borrowed and outstanding from time
to time under the credit agreements existing on and as of the Effective Date and
described on Schedule 5.02(d) hereto (the "Subsidiary Existing Debt"), and any
Debt extending the maturity of, or refunding or refinancing, in whole or in
part, the Subsidiary Existing Debt, provided that the principal amount of such
Subsidiary Existing Debt shall not be increased above the principal amount
thereof outstanding immediately prior to such extension, refunding or
refinancing, and the direct and contingent obligors therefor shall not be
changed, as a result of or in connection with such extension, refunding or
refinancing, unsecured Debt incurred in the ordinary course of business
aggregating for each of the Guarantors not more than $75,000,000 at any one time
outstanding, Debt in respect of operating leases, endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, and Debt incurred by a Receivables Subsidiary created in
connection with a Permitted Receivables Financing.

         Financial Covenants. So long as any Advance shall remain unpaid or any
Lender shall have any Commitment hereunder, the Borrower will:

Debt to EBITDA Ratio. Maintain a Debt to EBITDA Ratio, as at the end of each
fiscal quarter of the Borrower, of not more than 4.0:1.0.

EBITDA to Interest Ratio. Maintain an EBITDA to Interest Ratio, as at the end of
each fiscal quarter of the Borrower, of not less than 3.0:1.0.

EVENTS OF DEFAULT

         Events of Default. If any of the following events ("Events of Default")
shall occur and be continuing: The Borrower shall fail to pay any principal of
any Advance when the same becomes due and payable; or the Borrower shall fail to
pay any interest on any Advance within five Business Days after the same becomes
due and payable; or any fees or other amounts payable under this Agreement or
any Note are not paid within five Business Days after the same becomes due and
payable; or

Any representation or warranty made or deemed made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement shall
prove to have been incorrect in any material respect when made or deemed made;
or

(i) Any Loan Party shall fail to perform or observe any term, covenant or
agreement contained in Section 5.01(d), (e), (h), (i)(iii) or (i)(v), 5.02 or
5.03; (ii) any Loan Party shall fail to perform or observe any term, covenant or
agreement contained in Section 5.01(i) (other than clauses (iii); and (v)
thereof) if such failure shall remain unremedied for five Business Days after
written notice thereof shall have been given to such Loan Party by the
Administrative Agent or any Lender; or (iii) any Loan Party shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed if such failure shall remain
unremedied for 30 days after written notice thereof shall have been given to
such Loan Party by the Administrative Agent or any Lender; or

Article VII is breached by any Guarantor or shall cease to be in full force and
effect or any Guarantor shall so state in writing; or

The Borrower or any of its Subsidiaries shall fail to pay any principal of or
premium or interest on any Debt that is outstanding in a principal or, in the
case of Hedge Agreements net amount of at least $20,000,000 in the aggregate

<PAGE>   21

(but excluding Debt outstanding hereunder) of the Borrower or such Subsidiary
(as the case may be) (the "Requisite Amount"), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the later of five
Business Days and the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any such Debt aggregating the
Requisite Amount shall be declared due and payable in accordance with its terms
or any other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt aggregating the Requisite Amount and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such event or condition is to accelerate the
maturity of such Debt; or any such Debt aggregating the Requisite Amount shall
be required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased in accordance with its
terms, or any offer to prepay, redeem, purchase or defease such Debt shall be
required to be made in accordance with its terms, in each case prior to the
stated maturity thereof where the cause of such prepayment, redemption, purchase
or defeasance or offer therefor is the occurrence of an event or condition that
is premised on a material adverse deterioration of the financial condition,
results of operation or properties of the Borrower or any of its Subsidiaries,
provided that with respect to Debt aggregating the Requisite Amount of the types
described in clauses (h); or (i) of the definition of "Debt" and to the extent
such Debt relates to the obligations of any Person other than the Borrower or
any of its Subsidiaries, no Event of Default shall occur so long as the payment
of such Debt is being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained; or any event shall occur or
condition shall exist under any agreement or instrument relating to any Debt
that is outstanding in a principal or in the case of Hedge Agreements net amount
of at least $40,000,000 and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or permit the acceleration of, the maturity of such
Debt; or

The Borrower or any of its Subsidiaries shall generally not pay their respective
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its Property and, in the
case of any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for any
substantial part of its Property) shall occur; or the Borrower or its
Subsidiaries shall take any corporate action to authorize any of the actions set
forth in this subsection (f) under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors; or Any judgment or order for the payment of
money in excess of $30,000,000 shall be rendered against the Borrower or its
Subsidiaries and enforcement proceedings shall have been commenced by any
creditor upon such judgment or order for which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not be an Event
of Default under this Section 6.01(g) if and for so long as: (i): (A) the amount
of such judgment or order is covered by a valid and binding policy of insurance
between the defendant and the insurer or insurers covering payment thereof; (B)
such insurer shall be rated, or, if more than one insurer, at least 90% of such
insurers as measured by the amount of risk insured, shall be rated, at least
"A-" by A.M. Best Company or its successor or its successors; and (C) such
insurer(s) has been notified of, and has not disputed the claim made for payment
of, the amount of such judgment or order; or (ii) (A) the amount of such
judgment or order is covered by a valid and binding indemnification agreement
between the defendant and an indemnitor; (B) such indemnitor shall have a rating
for any class of its non-credit enhanced long-term senior unsecured debt of not
lower than BBB+ by S&P or Baa3 by Moody's; and (C) such indemnitor has been
notified of, and has not disputed the claim made for payment of, the amount of
such judgment or order; or

(i) After the Effective Date, GITI or any entity controlling GITI shall cease
for any reason to maintain, directly or indirectly, the Controlling Interest; or
(ii) any Person or two or more Persons acting in concert shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of Voting Stock of GITI or other Person holding the Controlling
Interest (or other securities convertible into such Voting Stock) representing
more of the combined voting power of all Voting Stock of GITI or such other
Person than that owned by GTE or its Subsidiaries or Bell Atlantic Corporation
as successor to or parent of GTE after the merger of GTE with Bell Atlantic
Corporation or any

<PAGE>   22

of its Subsidiaries; or (iii) GTE or its Subsidiaries or Bell Atlantic
Corporation as successor to or parent of GTE after the merger of GTE with Bell
Atlantic Corporation or any of its Subsidiaries shall fail to have the ability
to appoint a majority of the Board of Directors of GITI or other Person holding
the Controlling Interest or the business and affairs of GITI or such other
Person shall not be managed by or under the direction of such Board of
Directors; or (iv) the Borrower shall for any reason cease to own 100% of the
Voting Stock of either Guarantor; or

Any Loan Party or its ERISA Affiliates shall incur, or shall be reasonably
likely to incur, liability that would have a Material Adverse Effect as a result
of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the
partial or complete withdrawal of such Loan Party or its ERISA Affiliates from a
Multiemployer Plan; or (iii) the reorganization or termination of a
Multiemployer Plan; then, and in any such event, the Administrative Agent: (i)
shall at the request, or may with the consent, of the Required Lenders, by
notice to the Borrower, declare the obligation of each Lender to make Advances
to be terminated, whereupon the same shall forthwith terminate; and (ii) shall
at the request, or may with the consent, of the Required Lenders, by notice to
the Borrower, declare the Notes, all interest thereon and all other amounts
payable under this Agreement to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to the Borrower under the Federal Bankruptcy Code: (A) the obligation of
each Lender to make Advances shall automatically be terminated; and (B) the
Notes, all such interest and all such amounts shall automatically become and be
due and payable, without presentment, demand, protest or any notice of any kind,
all of which are hereby expressly waived by the Borrower.

GUARANTY

         Guaranty; Limitation of Liability. i) Each Guarantor hereby
unconditionally and irrevocably, jointly and severally ("in solidum") guarantees
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of each other Loan Party now or hereafter existing
under this Agreement or any Note, whether for principal, interest, fees,
expenses or otherwise (such obligations, to the extent not paid by such Loan
Party or specifically waived in accordance with Section 9.01, being the
"Guaranteed Obligations"), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) incurred by the Administrative Agent or
the Lenders in enforcing any rights under this Article VII ("this Guaranty").
Without limiting the generality of the foregoing, each Guarantor's liability
shall extend to all amounts that constitute part of the Guaranteed Obligations
and would be owed by any Loan Party to the Administrative Agent or any Lender
under this Agreement or any Note but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving such Loan Party. j) Each Guarantor and, by its acceptance
of this Guaranty, the Administrative Agent and each other Lender, hereby
confirms that it is the intention of all such parties that this Guaranty not
constitute a fraudulent transfer or fraudulent conveyance for purposes of
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar Federal, state or Commonwealth of Puerto Rico law to
the extent applicable to this Guaranty. To effectuate the foregoing intention,
the Administrative Agent, each other Lender and each Guarantor hereby
irrevocably agrees that, notwithstanding the fact that this is a joint and
several Guaranty, the obligations of each Guarantor under this Guaranty shall
not exceed the greater of (A) the benefit realized by such Guarantor from the
proceeds of the Advances made from time to time by the Borrower to such
Guarantor; and (B) the maximum amount that will, after giving effect to such
maximum amount and all other probable contingent and fixed liabilities of such
Guarantor that are relevant under applicable law, and after giving effect to any
collections from, rights to receive contribution from, or payments made by or on
behalf of the other Guarantor in respect of the obligations of such other
Guarantor under this Guaranty, result in the obligations of such Guarantor under
this Guaranty not constituting a fraudulent transfer or fraudulent conveyance.
For purposes hereof, "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal, state or Commonwealth of Puerto Rico law for the relief of
debtors.

Each Guarantor agrees that in the event any payment shall be required to be made
to the Lenders under this Guaranty, such Guarantor will contribute, to the
maximum extent such that the contribution will not result in a fraudulent
transfer or fraudulent conveyance, such amounts to the other Guarantor so as to
maximize the aggregate amount paid to the Lenders under this Agreement and the
Notes.

<PAGE>   23

This is a guaranty of payment and not of collection, and is the primary
obligation of each of the Guarantors; and the Administrative Agent or any Lender
may, subject to the terms and conditions hereof, enforce this Guaranty against
either Guarantor without any prior enforcement of the Guaranteed Obligations
against the Borrower or the other Guarantor, and/or without any prior
enforcement of any other collateral security held by the Administrative Agent or
the Lenders as security for the payment and performance of the Borrower's
obligations to the Administrative Agent and/or the Lenders.

         Guaranty Absolute. Each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of this Agreement
and the Notes, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or the Lenders with respect thereto. The obligations of
each Guarantor under this Guaranty are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against such Guarantor to enforce this Guaranty, irrespective of whether any
action is brought against the Borrower or the other Guarantor or whether the
Borrower or the other Guarantor is joined in any such action or actions. The
liability of each Guarantor under this Guaranty shall be irrevocable, absolute
and unconditional irrespective of, and, to the maximum extent permitted by law,
each Guarantor hereby irrevocably waives, any defenses it may now or hereafter
have in any way relating to, any or all of the following:

any lack of validity or enforceability of this Agreement, the Notes or any
agreement or instrument relating hereto; any change in the time, manner or place
of payment of, or in any other term of, all or any of the Guaranteed
Obligations, or any other amendment or waiver of or any consent to departure
from this Agreement or any Note, including, without limitation, any increase in
the Guaranteed Obligations resulting from the extension of additional credit to
the Borrower or otherwise; any taking, exchange, release or non-perfection of
any collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed Obligations;
any change, restructuring or termination of the corporate structure or existence
of the Borrower; or any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any Lender that might otherwise constitute a defense
available to, or a discharge of, any Guarantor, the Borrower or any other
guarantor or surety other than payment when due.

This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or either Guarantor or
otherwise, all as though such payment had not been made.

         Waiver. k) Each Guarantor hereby waives the right to require
application (excusion de bienes) in respect of the Property of the Borrower or
the other Guarantor, promptness, diligence, notice of acceptance and any other
notice with respect to any of the Guaranteed Obligations and this Guaranty and
any requirement that the Administrative Agent or any Lender exhaust any right or
take any action against the Borrower or any other Person or any collateral. Each
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated herein and that the waiver set forth in
this Section 7.03 is knowingly made in contemplation of such benefits. Each
Guarantor hereby waives any right to revoke this Guaranty, and acknowledges that
this Guaranty is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.

So far as each of the Guarantors is concerned, the Lenders or the Administrative
Agent for the benefit of the Lenders, may, at any time and from time to time,
without the consent of or notice to the Guarantors, and without impairing or
releasing any of the obligations of the Guarantors hereunder, upon or without
any terms or conditions and in whole or in part:

exercise or refrain from exercising any rights against the Borrower or others
(including, without limitation, any other guarantor of payment of the Guaranteed
Obligations) or otherwise act or refrain from acting, whether under the Credit
Agreement or under rights and remedies that the Lenders may now or hereafter
have under any collateral given thereunder or henceforth; and when making any
demand hereunder against either or both the Guarantors, the Lenders or the
Administrative Agent for the benefit of the Lenders, may, but shall be under no
obligation to, make a similar demand on any other guarantor of payment of the
Guaranteed Obligations, and any failure by the Lenders or the Administrative
Agent to make any such demand or to collect any payments from any other
guarantor or any

<PAGE>   24

release of another guarantor of payment of the Guaranteed Obligations shall not
relieve the Guarantors of their obligations and liabilities hereunder, and shall
not release, impair or affect the rights and remedies, express or implied, or as
a matter of law, of the Lenders against the Guarantors (for the purposes hereof,
"demand" shall include the commencement and continuation of any legal
proceedings);

settle or compromise any of the Guaranteed Obligations, any security therefor or
any liability (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and subordinate the payment of all or any part
thereof to the payment of any liability (whether due or not) of the Borrower to
creditors of the Borrower other than the Lenders;

apply any sums by whomsoever paid or howsoever realized to any liability or
liabilities of the Borrower hereunder to the Administrative Agent and/or the
Lenders, regardless of what liability or liabilities of the Borrower remain
unpaid; and

amend or otherwise modify, consent to or waive any breach of, or any act,
omission or Default under, this Agreement and the Notes or any other agreements,
instruments or documents referred to therein or executed and delivered pursuant
thereto or in connection therewith, and this Guaranty shall apply to the
Guaranteed Obligations as set forth in each of such documents as so amended and
modified. Any such action taken by the Administrative Agent or the Lenders shall
not impair or release any of the obligations of the Guarantors hereunder.

         Continuing Guaranty; Assignments. This Guaranty is a continuing
guaranty and shall: (a) remain in full force and effect until the later of the
cash payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty and the Termination Date; (b) be binding upon each
Guarantor, its successors and assigns; and (c) inure to the benefit of and be
enforceable by the Lenders, the Administrative Agent and their successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), any Lender may assign or otherwise transfer all or any portion of its
rights and obligations hereunder (including, without limitation, all or any
portion of its Commitment, the Advances owing to it and the Note or Notes held
by it) to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to such Lender herein or
otherwise, in each case as provided in Section 9.07.

         Subrogation. Neither Guarantor will exercise any rights that it may now
or hereafter acquire against the Borrower or any other insider guarantor that
arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Guaranty, including, without limitation, any
right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the
Administrative Agent or any Lender against the Borrower, the other Guarantor or
any other insider guarantor or any collateral, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Borrower, the other
Guarantor or any other insider guarantor, directly or indirectly, in cash or
other Property or by set-off or in any other manner, payment or security solely
on account of such claim, remedy or right, unless and until all of the
Guaranteed Obligations and all other amounts payable under this Guaranty shall
have been paid in full in cash and the Termination Date shall have occurred. If
any amount shall be paid to either Guarantor in violation of the preceding
sentence at any time prior to the later of the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and the
Termination Date, such amount shall be held in trust for the benefit of the
Administrative Agent and the Lenders and shall forthwith be paid to the
Administrative Agent to be credited and applied to the Guaranteed Obligations
and all other amounts payable under this Guaranty, whether matured or unmatured,
in accordance with the terms of this Guaranty, or to be held as collateral for
any Guaranteed Obligations or other amounts payable under this Guaranty
thereafter arising. If: (i) either Guarantor shall make payment to the
Administrative Agent or any Lender of all or any part of the Guaranteed
Obligations; (ii) all of the Guaranteed Obligations and all other amounts
payable under this Guaranty shall be paid in full in cash; and (iii) the
Termination Date shall have occurred, the Administrative Agent and the Lenders
will, at such Guarantor's request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to such Guarantor of
an interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.

<PAGE>   25

THE ADMINISTRATIVE AGENT

         Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Administrative Agent to act as its agent hereunder
with such powers as are specifically delegated to the Administrative Agent by
the terms of this Agreement, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 8.05 and the first sentence of Section 8.06 hereof shall
include reference to its affiliates and its own and its affiliates' officers,
directors, employees and agents): (a) shall have no duties or responsibilities
except those expressly set forth in this Agreement , and shall not by reason of
this Agreement be a trustee for any Lender; (b) shall not be responsible to the
Lenders for any recitals, statements, representations or warranties contained in
this Agreement, or in any certificate or other document referred to or provided
for in, or received by any of them under, this Agreement or any other document
executed hereunder, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, any Note or any other document
referred to or provided for herein or therein or for any failure by the Borrower
or any other Person to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other document executed hereunder; and (d)
shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct. The Administrative Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
The Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a notice of the assignment or
transfer thereof shall have been filed with the Administrative Agent.

         Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement or any other documents, the Administrative Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or thereunder in accordance with instructions given by the Required Lenders or,
if provided herein, in accordance with the instructions given by all of the
Lenders as is required in such circumstance, and such instructions of such
Lenders and any action taken or failure to act pursuant thereto shall be binding
on all of the Lenders.

         Defaults. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has received notice from a Lender or any Loan Party specifying such
Default and stating that such notice is a "Notice of Default". In the event that
the Administrative Agent receives such a notice of the occurrence of a Default,
the Administrative Agent shall give prompt notice thereof to the Lenders. The
Administrative Agent shall (subject to Section 8.07 hereof) take such action
with respect to such Default as shall be directed by the Required Lenders,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interest of the Lenders except to
the extent that this Agreement expressly requires that such action be taken, or
not be taken, only with the consent or upon the authorization of the Required
Lenders, or all of the Lenders.

         Rights as a Lender. With respect to its Commitments and the Advances
made by it, the Administrative Agent (and any successor acting as Administrative
Agent) in its capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not acting as the Administrative Agent, and the term "Lender" or "Lenders"
shall, unless the context otherwise indicates, include the Administrative Agent
in its individual capacity. Banco Popular (and any successor acting as
Administrative Agent) and its affiliates may (without having to account therefor
to any Lender) accept deposits from, lend money to, make investments in and
generally engage in any kind of banking, trust or other business with the Loan
Parties (and any of their Subsidiaries or Affiliates) as if it were not acting
as the Administrative Agent, and Banco Popular and its affiliates may accept
fees and other consideration from the Loan Parties for services in connection
with this Agreement or otherwise without having to account for the same to the
Lenders.

         Indemnification. The Lenders agree to indemnify the Administrative
Agent (to the extent not reimbursed under Section 9.04 hereof, but without
limiting the obligations of the Borrower under said Section 9.04, ratably in

<PAGE>   26

accordance with the aggregate principal amount of the Advances held by the
Lenders (or, if no Loans are at the time outstanding, ratably in accordance with
their respective Commitments), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever that may be imposed on, incurred by or
asserted against the Administrative Agent (including by any Lender) arising out
of or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby (including,
without limitation, the costs and expenses that the Borrower is obligated to pay
under Section 9.04 hereof, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified.

         Non-Reliance on Administrative Agent and Other Lenders. Each Lender
agrees that it has, independently and without reliance on the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and its
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or under any other documents. The
Administrative Agent shall not be required to keep itself informed as to the
performance or observance by any Loan Party of this Agreement or any of the
other documents or any other document referred to or provided for herein or
therein or to inspect the Properties or books of the Borrower or any of its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder or under the documents, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or business of the
Borrower or any of its Subsidiaries (or any of their affiliates) that may come
into the possession of the Administrative Agent or any of its Affiliates.

         Failure to Act. Except for action expressly required of the
Administrative Agent hereunder and under the other documents, the Administrative
Agent shall in all cases be fully justified in failing or refusing to act
hereunder and thereunder unless it shall receive further assurances to its
satisfaction from the Lenders of their indemnification obligations under Section
8.05 hereof against any and all liability and expense that may be incurred by it
by reason of taking or continuing to take any such action.

         Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrower, and the Administrative Agent may be removed at
any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent with the prior consent of the Borrower (which
consent shall not be unreasonably withheld); provided that no such consent of
the Borrower shall be required if an Event of Default has occurred and is
continuing and the Commitments have been terminated and/or the Loans and other
amounts payable by the Loan Parties hereunder have been declared forthwith due
and payable. If no successor Administrative Agent shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent's giving of notice of resignation or the
Required Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, that shall be a bank with a combined capital and surplus
of at least $500,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. After any retiring Administrative Agent's resignation
or removal hereunder as Administrative Agent, the provisions of this Section 8
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Administrative Agent
hereunder.

MISCELLANEOUS

         Amendments, Etc. l) Any provision of this Agreement may be amended,
modified or supplemented only by an instrument in writing signed by the
Borrower, the Administrative Agent and the Required Lenders, or by the

<PAGE>   27

Borrower and the Administrative Agent acting with the consent of the Required
Lenders, and any provision of this Agreement may be waived by the Required
Lenders or by the Administrative Agent acting with the consent of the Required
Lenders; provided that: (x) no modification, supplement or waiver shall, unless
by an instrument signed by all of the Lenders or by the Administrative Agent
acting with the consent of all of the Lenders: (i) increase, or extend the term
of any of the Commitments, or extend the time or waive any requirement for the
reduction or termination of any of the Commitments; (ii) reduce or terminate,
other than reductions or termination of Commitments made by the Borrower as
permitted in Section 2.02 hereof, the Commitment(s) of any Lender; (iii) extend
the date fixed for the payment of principal of or interest on any Revolving
Credit Advance, or any fee hereunder; (iv) reduce the amount of any such payment
of principal; (v) reduce the rate at which interest is payable thereon or any
fee is payable hereunder; (vi) alter the rights or obligations of the Borrower
to prepay Loans; (vii) alter the terms of this Section 9.01; (viii) modify the
definition of the term "Required Lenders", or modify in any other manner the
number or percentage of the Lenders required to make any determinations or waive
any rights hereunder or to modify any provision hereof; (ix) release any
Guarantor from any of its guarantee obligations under Article VII hereof; or (x)
waive any of the conditions precedent set forth in Article III hereof; and (y)
any modification of any of the rights or obligations of the Administrative Agent
shall require the consent of the Administrative Agent.

Each Lender grants (x) to the Administrative Agent the right to purchase all
(but not less than all) of such Lender's Commitments and Advances owing to it
and the Notes held by it and all of its rights and obligations hereunder and
under the other documents at a price equal to the aggregate amount of
outstanding Advances owed to such Lender (together with all accrued and unpaid
interest and fees owed to such Lender); and (y) to the Borrower the right to
cause an assignment of all (but not less than all) of such Lender's Commitments
and Advances owing to it and the Notes held by it and all of its rights and
obligations hereunder and under the other documents to Eligible Assignees, which
right may be exercised by the Administrative Agent or the Borrower, as the case
may be, if such Lender refuses to execute any amendment, waiver or consent which
requires the written consent of all the Lenders and to which Lenders owed at
least 90% of the aggregate unpaid principal amount of Revolving Credit Advances
or, if no such principal amount is then outstanding, Lenders having at least 90%
of the Commitments, the Administrative Agent and the Borrower have agreed. Each
Lender agrees that if the Administrative Agent or the Borrower, as the case may
be, exercises its option hereunder, it shall promptly execute and deliver all
agreements and documentation necessary to effectuate such assignment as set
forth in Section 9.07.

         Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier communication) and mailed,
telecopied or delivered by hand or by courier,

if to the Borrower, at

Telecomunicaciones de Puerto Rico, Inc.
1515 Roosevelt Avenue
12th Floor,
Guaynabo, Puerto Rico 00968
or
P.O. Box 360998
San Juan, Puerto Rico 00936-0998,
Attention:  Frank Gatto, Chief Financial Officer
Facsimile No: (787) 749-9024

with a copy to

Jose Arroyo
Vice President and General Counsel
Telecomunicaciones de Puerto Rico, Inc.
1515 Roosevelt Avenue
12th Floor
Guaynabo, Puerto Rico 00968
Facsimile No: (787) 782-9545

<PAGE>   28

if to PRTC, at

Puerto Rico Telephone Company, Inc.
1515 Roosevelt Avenue
12th Floor,
Guaynabo, Puerto Rico 00968
or
P.O. Box 360998
San Juan, Puerto Rico 00936-0998,
Attention:  Frank Gatto, Chief Financial Officer
Facsimile No: (787) 749-9024

with a copy to

Jose Arroyo
Vice President and General Counsel
Telecomunicaciones de Puerto Rico, Inc.
1515 Roosevelt Avenue
12th Floor
Guaynabo, Puerto Rico 00968
Facsimile No: (787) 782-9545

if to CTI, at

Celulares Telefonica, Inc.
1515 Roosevelt Avenue
12th Floor,
Guaynabo, Puerto Rico 00968
or
P.O. Box 360998
San Juan, Puerto Rico 00936-0998,
Attention:  Frank Gatto, Chief Financial Officer
Facsimile No: (787) 749-9024

with a copy to

Jose Arroyo
Vice President and General Counsel
Telecomunicaciones de Puerto Rico, Inc.
1515 Roosevelt Avenue
12th Floor
Guaynabo, Puerto Rico 00968
Facsimile No: (787) 782-9545

if to any Lender, at its Applicable Lending Office specified opposite its name
on Schedule I hereto; and if to the Administrative Agent, at its address at 209
Munoz Rivera Avenue, Hato Rey, Puerto Rico, Attention: Manager - Structured
Finance Division; or, as to any Loan Party or the Administrative Agent, at such
other address as shall be designated by such party in a written notice to the
other parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed or
telecopied, be effective when deposited in the first class mails or, in the case
of international delivery, when deposited with mails or couriers that deliver
within two Business Days or telecopied, provided that notices and communications
to the Administrative Agent pursuant to Article II, III or VIII shall not be
effective until received by the Administrative Agent, and provided, further,
that notices and communications to any Person required to be provided hereunder
within five Business Days shall only be made by hand or via telecopy or courier.
Delivery by telecopier of an executed counterpart of any amendment or waiver of

<PAGE>   29

any provision of this Agreement or the Notes or of any Exhibit hereto to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.

         No Waiver; Remedies. No failure on the part of any Lender or the
Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

         Costs and Expenses. m) The Borrower agrees to pay on demand all
reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, the reasonable fees
and expenses of Martinez Odell & Calabria, counsel for the Administrative Agent.
Such expenses shall be paid by the Borrower upon presentation of an itemized
statement of account (after the Borrower has had reasonable time to review such
statement of account) following consummation of the transactions contemplated by
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses of the Administrative Agent and the Lenders, if any (including, without
limitation, reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for the
Administrative Agent and each Lender in connection with the enforcement of
rights under this Section 9.04(a).

The Borrower agrees to indemnify and hold harmless the Administrative Agent and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with: (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances; or (ii) the actual or alleged presence of Hazardous
Materials on any Property of the Borrower or any of their respective
Subsidiaries or any Environmental Action relating in any way to the Borrower or
any of their respective Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by any Loan Party, its
directors, shareholders or creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense (A) is found by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct; (B) arises from disputes among two or more Lenders (but not
including any such dispute that involves a Lender to the extent such Lender is
acting in any different capacity (i.e., Administrative Agent or Arranger) under
the Credit Agreement or the Notes or to the extent that it involves the
Administrative Agent's syndication activities); or (C) arises from or relates to
a breach by such Indemnified Party of its obligations under this Agreement. The
Borrower also agrees not to assert any claim against the Administrative Agent,
any Lender, any of their Affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise
relating to the Notes, this Agreement, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Advances.

If any payment of principal of, or Conversion of, any LIBOR Rate Advance is made
by the Borrower (or pursuant to Section 9.01(b)) to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment, prepayment or Conversion pursuant to this Agreement or
acceleration of the maturity of the Notes pursuant to Section 6.01, the Borrower
shall, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender any amounts required to compensate such Lender for any additional losses,
costs or expenses that it may reasonably incur as a result of such payment or
Conversion, including, without limitation, any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.

<PAGE>   30

Without prejudice to the survival of any other agreement of the Borrower
hereunder, the agreements and obligations of the Borrower contained in Sections
2.12 and 9.04 shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under the Notes.

         Right of Set-off. Upon: (i) the occurrence and during the continuance
of any Event of Default; and (ii) the making of the request or the granting of
the consent specified by Section 6.01 by the Required Lenders to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01 and notice to the Borrower as required under Section
6.01, each Lender and each of its Affiliates is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
or such Affiliate to or for the credit or the account of any Loan Party against
any and all of the obligations of such Loan Party now or hereafter existing
under this Agreement and the Note held by such Lender, whether or not such
Lender shall have made any demand under this Agreement or such Note and although
such obligations may be unmatured. Each Lender agrees promptly to notify the
applicable Loan Party after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender and its Affiliates under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender and its Affiliates may have.

         Binding Effect. This Agreement shall become effective (other than
Section 2.01, which shall only become effective upon satisfaction of the
conditions precedent set forth in Section 3.01) when it shall have been executed
by the Borrower and the Administrative Agent and when the Administrative Agent
shall have been notified by each Lender that such Lender has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Guarantors, the Administrative Agent and each Lender and their respective
successors and assigns, except that neither the Borrower nor the Guarantors
shall have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.

         Assignments and Participations. n) Each Lender may, with the consent of
the Administrative Agent (except as provided in clause (g) below) and the
Borrower (such consent not to be unreasonably withheld) and, if demanded by the
Borrower pursuant to Section 9.01(b) or following a request for a payment to or
on behalf of such Lender under Section 2.10 or Section 2.13 or following a
notice given by such Lender pursuant to Section 2.11, upon at least ten Business
Days' notice to such Lender and the Administrative Agent, will, assign to one or
more Persons all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the
Revolving Credit Advances owing to it and the Revolving Credit Note or Notes
held by it); provided, that the Borrower may make demand with respect to a
Lender that has given notice pursuant to Section 2.11 only if the Borrower makes
such demand of all Lenders similarly situated that have given such notice;
provided, further, that: (i) each such assignment shall be of a constant, and
not a varying, percentage of all rights and obligations under this Agreement and
the Revolving Credit Notes; (ii) except in the case of an assignment to a Person
that, immediately prior to such assignment, was a Lender, or an assignment of
all of a Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof; (iii) each such assignment
shall be to an Eligible Assignee; (iv) each such assignment made as a result of
a demand by the Borrower shall be arranged by the Borrower after consultation
with the Administrative Agent and shall be either an assignment of all of the
rights and obligations of the assigning Lender under this Agreement or an
assignment of a portion of such rights and obligations made concurrently with
another such assignment or other such assignments that together cover all of the
rights and obligations of the assigning Lender under this Agreement; (v) no
Lender shall be obligated to make any such assignment as a result of a demand by
the Borrower unless and until such Lender shall have received one or more
payments from either the Borrower or one or more Eligible Assignees in an
aggregate amount at least equal to the aggregate outstanding principal amount of
the Advances owing to such Lender, together with accrued interest thereon to the
date of payment of such principal and all other amounts payable to such Lender
under this Agreement; (vi) no Lender shall at any time have more than two (2)
assignees that were not Initial Lenders; and (vii) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Revolving Credit Notes subject to such assignment and a processing and
recordation fee of $2,500 (which shall be paid by Persons other than the
Borrower unless such assignment is made as a result of a demand by the
Borrower). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment

<PAGE>   31

and Acceptance; (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder; and (y) the Lender assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights other than rights of
indemnification under Section 9.04 or otherwise relating to a time prior to the
effective date of such Assignment and Acceptance and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).

By executing and delivering an Assignment and Acceptance, the Lender assignor
thereunder and the assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than as provided in such
Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.

Upon its receipt of an Assignment and Acceptance executed by an assigning
Lender, an assignee representing that it is an Eligible Assignee and the
Borrower, together with the Revolving Credit Note or Notes subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit C hereto: (i)
accept such Assignment and Acceptance; (ii) record the information contained
therein in the Register; and (iii) give prompt notice thereof to the Borrower.
Within five Business Days after its receipt of such notice, the Borrower, at its
own expense, shall execute and deliver to the Administrative Agent in exchange
for the surrendered Revolving Credit Note a new Note to the order of such
Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained a
Commitment hereunder a new Revolving Credit Note to the order of the assigning
Lender in an amount equal to the Commitment retained by it hereunder. Such new
Revolving Credit Note or Notes shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered Revolving Credit Note or
Notes, shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A-1 hereto.

The Administrative Agent shall maintain at its address referred to in Section
9.02 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Advances owing to, each Lender
from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.

(e) Each Lender may sell participations to one or more banks or other entities
(other than the Borrower or any of its Affiliates) in or to all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitment, the Advances owing to it and the Notes held
by it); provided, however, that: (i) such Lender's obligations under this
Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged; (ii) such Lender shall remain solely
responsible to the other

<PAGE>   32

parties hereto for the performance of such obligations; (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement; (iv) the
Borrower, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement; and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by the
Borrower therefrom, except that a Lender may agree with a participant as to the
manner in which the Lender shall exercise the Lender's rights to approve any
amendment, waiver or consent to the extent that such amendment, waiver or
consent would reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation.

(f) Any Lender may at any time, without the consent of the Administrative Agent
or the Borrower, create a security interest in all or any portion of its rights
under this Agreement (including, without limitation, the Advances owing to it
and the Note or Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System, provided, however, that no such assignment shall have the effect of
increasing the costs payable by the Borrower.

         Nondisclosure. None of the Administrative Agent, any Lender or any
Affiliate thereof shall disclose without the prior consent of the Borrower
(other than to the Administrative Agent, or another Lender or any such
Affiliate, their respective directors, employees, auditors, affiliates or
counsel who shall agree to be bound by the terms of this provision) any
information with respect to the Loan Parties or any Subsidiary thereof contained
in financial statements, projections or reports provided to the Administrative
Agent, any Lender or any Affiliate thereof by, or on behalf of, the Loan Parties
or any Subsidiary, provided that the Administrative Agent, any Lender or any
Affiliate thereof may disclose any such information: (a) as has become generally
available to the public in a manner, or through actions, which do not violate
the terms of this Section 9.08; (b) to, or as may be required or appropriate in
any report, statement or testimony submitted to, any municipal, state,
Commonwealth of Puerto Rico, or federal regulatory body having or claiming to
have jurisdiction over the Administrative Agent, any Lender or any Affiliate
thereof or to the Federal Reserve Board or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or elsewhere)
or their successors; (c) as may be required or appropriate in response to any
summons or subpoena or in connection with any litigation; (d) in order to comply
with any law, order, regulation or ruling applicable to the Administrative
Agent, any Lender or any Affiliate thereof; and (e) to a prospective co-lender
or participant in the amounts outstanding hereunder or under the Advances,
provided, however, that such prospective co-lender or participant executes an
agreement containing provisions substantially identical to those contained in
this Section 9.08 and which shall by its terms inure to the benefit of the
Borrower and provided, further, that to the extent practicable, the
Administrative Agent, each Lender and their respective Affiliates shall use
reasonable best efforts to provide prior written notice of such disclosure to
the Borrower.

         Governing Law. This Agreement and the Notes shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Puerto Rico.

         Jurisdiction, Etc. o) Each of the Loan Parties hereby agrees that any
suit, action or proceeding with respect to this Agreement or the Notes or any
other document executed hereunder to which it is a party or any judgment entered
by any court in respect thereof may be brought in the United States District
Court for the District of Puerto Rico or in the Court of First Instance of
Puerto Rico sitting in San Juan, as the party commencing such suit, action or
proceeding may elect in its sole discretion; and each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of such court for the
purpose of any such suit, action, proceeding or judgment. Each party hereto
further submits, for the purpose of any such suit, action, proceeding or
judgment brought or rendered against it, to the appropriate courts of the
jurisdiction of its domicile.

Each of the Loan Parties hereby irrevocably consents to the service of process
in any suit, action or proceeding in such courts by the mailing thereof by the
Administrative Agent or any Lender by registered or certified mail, postage
prepaid, at its address set forth beneath its signature hereto. Nothing herein
shall in any way be deemed to limit the ability of the Administrative Agent or
any Lender to serve any such writs, process or summonses in any other manner
permitted by applicable law or to obtain jurisdiction over the Loan Parties in
such other jurisdictions, and in such manner, as may be permitted by applicable
law.

<PAGE>   33

Each of the Loan Parties hereby irrevocably waives any objection that it may now
or hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement, the Notes or any document executed
hereunder brought in any such court and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

         Waiver of Jury Trial. Each of the Borrower, the Guarantor, the
Administrative Agent and the Lenders hereby irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Agreement or the
Notes or the actions of the Administrative Agent or any Lender in the
negotiation, administration, performance or enforcement thereof.

         Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.

         Exhibits and Schedules Incorporated. The Exhibits and Schedules annexed
hereto are hereby incorporated by reference herein as part of this Agreement
with the same effect as if set forth in the body hereof.

<PAGE>   34

IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.

TELECOMUNICACIONES DE PUERTO RICO, INC., as Borrower
By:
   ----------------------------------
     Jon Slater
     President

PUERTO RICO TELEPHONE COMPANY, INC., as Guarantor
By:
   ----------------------------------
     Jon Slater
     President

CELULARES TELEFONICA, INC., as
Guarantor
By:
   ----------------------------------
     Jon Slater
     President

BANCO POPULAR DE PUERTO RICO, INC., as Lender
By:
   ----------------------------------
     Raul H. Cacho
     Vice President

BANCO POPULAR DE PUERTO RICO, INC., as Administrative Agent
By:
   ----------------------------------
     Raul H. Cacho
     Vice President

<PAGE>   35

The Lenders

Commitment: $50,000,000        BANCO POPULAR DE PUERTO RICO

By:
   ----------------------------------
     Raul H. Cacho
     Vice President

Applicable Lending Office(s):          209 Munoz Rivera Avenue
                                       Hato Rey, Puerto Rico
                                       Attention:  Structured Finance Division
                                       Telecopier:  (787) 756-3909<PAGE>   1

                                                                     EXHIBIT 4.7
================================================================================

                      AMENDED AND RESTATED CREDIT AGREEMENT

             -------------------------------------------------------

                   CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,

                                   as Borrower

                          CHESAPEAKE ENERGY CORPORATION

                                       and

                          CERTAIN OF ITS SUBSIDIARIES,

                                  as Guarantors

                                       and

                         UNION BANK OF CALIFORNIA, N.A.,

                                    as Agent

                       and CERTAIN FINANCIAL INSTITUTIONS,

                                   as Lenders

             -------------------------------------------------------

                                  $100,000,000

                                  May 30, 2000

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

<PAGE>   2

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
AMENDED AND RESTATED CREDIT AGREEMENT........................................................6

ARTICLE I - Definitions and References.......................................................6
         Section 1.1.   Defined Terms........................................................6
         Section 1.2.   Exhibits and Schedules; Additional Definitions......................21
         Section 1.3.   Amendment of Defined Instruments....................................22
         Section 1.4.   References and Titles...............................................22
         Section 1.5.   Calculations and Determinations.....................................22
         Section 1.6.   Joint Preparation; Construction of Indemnities and Releases.........22

ARTICLE II - The Loans......................................................................23
         Section 2.1.   Commitments to Lend; Notes..........................................23
         Section 2.2.   Requests for New Loans..............................................23
         Section 2.3.   Interest Rates; Continuations and Conversions of Existing Loans.....24
         Section 2.4.   Use of Proceeds.....................................................25
         Section 2.5.   Fees................................................................26
         Section 2.6.   Optional Prepayments................................................26
         Section 2.7.   Mandatory Prepayments...............................................26
         Section 2.8.   Initial Borrowing Base..............................................27
         Section 2.9.   Subsequent Determinations of Borrowing Base.........................27
         Section 2.10.  Borrower's Reduction of the Borrowing Base..........................28
         Section 2.11.  Letters of Credit...................................................28
         Section 2.12.  Requesting Letters of Credit........................................29
         Section 2.13.  Reimbursement and Participations....................................29
         Section 2.14.  Letter of Credit Fees...............................................31
         Section 2.15.  No Duty to Inquire..................................................31
         Section 2.16.  LC Collateral.......................................................32

ARTICLE III - Payments to Lenders...........................................................33
         Section 3.1.   General Procedures..................................................33
         Section 3.2.   Increased Cost and Reduced Return...................................34
         Section 3.3.   Limitation on Types of Loans........................................35
         Section 3.4.   Illegality..........................................................36
         Section 3.5.   Treatment of Affected Loans.........................................36
         Section 3.6.   Compensation........................................................37
         Section 3.7.   Taxes...............................................................37
         Section 3.8.   Compensation Procedure..............................................38
         Section 3.9.   Change of Applicable Lending Office.................................39

ARTICLE IV - Conditions Precedent to Lending................................................39
         Section 4.1.   Documents to be Delivered...........................................39
         Section 4.2.   Additional Conditions Precedent.....................................40
</TABLE>

                                       2
<PAGE>   3

<TABLE>
<S>                                                                                        <C>
ARTICLE V - Representations and Warranties..................................................41
         Section 5.1.   No Default..........................................................41
         Section 5.2.   Organization and Good Standing......................................41
         Section 5.3.   Authorization.......................................................42
         Section 5.4.   No Conflicts or Consents............................................42
         Section 5.5.   Enforceable Obligations.............................................42
         Section 5.6.   Initial Financial Statements........................................42
         Section 5.7.   Other Obligations and Restrictions. ................................42
         Section 5.8.   Full Disclosure.....................................................43
         Section 5.9.   Litigation..........................................................43
         Section 5.10.  Labor Disputes and Acts of God......................................43
         Section 5.11.  ERISA Plans and Liabilities.........................................43
         Section 5.12.  Environmental and Other Laws........................................44
         Section 5.13.  Names and Places of Business........................................44
         Section 5.14.  Borrower's Subsidiaries.............................................44
         Section 5.15.  Title to Properties; Licenses.......................................45
         Section 5.16.  Government Regulation...............................................45
         Section 5.17.  Insider.............................................................45
         Section 5.18.  Officers, Directors and Shareholders................................46
         Section 5.19.  Solvency............................................................46

ARTICLE VI - Affirmative Covenants of Borrower..............................................46
         Section 6.1.   Payment and Performance.............................................46
         Section 6.2.   Books, Financial Statements and Reports.............................46
         Section 6.3.   Other Information and Inspections...................................48
         Section 6.4.   Notice of Material Events and Change of Address.....................48
         Section 6.5.   Maintenance of Properties...........................................49
         Section 6.6.   Maintenance of Existence and Qualifications.........................50
         Section 6.7.   Payment of Trade Liabilities, Taxes, etc............................50
         Section 6.8.   Insurance...........................................................50
         Section 6.9.   Performance on Borrower's Behalf....................................51
         Section 6.10.  Interest............................................................51
         Section 6.11.  Compliance with Agreements and Law..................................51
         Section 6.12.  Environmental Matters; Environmental Reviews........................51
         Section 6.13.  Evidence of Compliance..............................................51
         Section 6.14.  Agreement to Deliver Security Documents.............................52
         Section 6.15.  Perfection and Protection of Security Interests and Liens...........52
         Section 6.16.  Bank Accounts; Offset...............................................52
         Section 6.17.  Guaranties of Borrower's Subsidiaries...............................53
         Section 6.18.  Production Proceeds.................................................53

ARTICLE VII - Negative Covenants of Borrower................................................54
         Section 7.1.   Indebtedness........................................................54
         Section 7.2.   Limitation on Liens.................................................54
         Section 7.3.   Hedging Contracts...................................................55
         Section 7.4.   Limitation on Mergers, Issuances of Securities......................56
</TABLE>

                                       3
<PAGE>   4

<TABLE>
<S>                                                                                        <C>
         Section 7.5.   Limitation on Sales of Property.....................................56
         Section 7.6.   Limitation on Dividends and Redemptions.............................57
         Section 7.7.   Limitation on Investments and New Businesses........................57
         Section 7.8.   Limitation on Credit Extensions.....................................58
         Section 7.9.   Transactions with Affiliates........................................58
         Section 7.10.  Certain Contracts; Amendments; Multiemployer ERISA Plans............58
         Section 7.11.  Current Ratio.......................................................58
         Section 7.12.  Fixed Charge Coverage Ratio.........................................59

ARTICLE VIII - Events of Default and Remedies...............................................59
         Section 8.1.   Events of Default...................................................59
         Section 8.2.   Remedies............................................................61

ARTICLE IX - Agent..........................................................................61
         Section 9.1.   Appointment and Authority...........................................61
         Section 9.2.   Exculpation, Agent's Reliance, Etc..................................62
         Section 9.3.   Credit Decisions....................................................62
         Section 9.4.   Indemnification.....................................................62
         Section 9.5.   Rights as Lender....................................................63
         Section 9.6.   Sharing of Set-Offs and Other Payments..............................63
         Section 9.7.   Investments.........................................................64
         Section 9.8.   Benefit of Article IX...............................................64
         Section 9.9.   Resignation.........................................................64

ARTICLE X - Miscellaneous...................................................................65
         Section 10.1.  Waivers and Amendments; Acknowledgments.............................65
         Section 10.2.  Survival of Agreements; Cumulative Nature...........................66
         Section 10.3.  Notices.............................................................67
         Section 10.4.  Payment of Expenses; Indemnity......................................67
         Section 10.5.  Joint and Several Liability; Parties in Interest; Assignments.......68
         Section 10.6.  Confidentiality.....................................................70
         Section 10.7.  Governing Law; Submission to Process................................70
         Section 10.8.  Limitation on Interest..............................................71
         Section 10.9.  Termination; Limited Survival.......................................72
         Section 10.10. Severability........................................................72
         Section 10.11. Counterparts........................................................72
         Section 10.12. Waiver of Jury Trial, Punitive Damages, etc.........................72
         Section 10.13. Amendment and Restatement...........................................73
</TABLE>

                                       4
<PAGE>   5

Schedules and Exhibits:
----------------------

Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 2-A - Properties to be Mortgaged at Closing
Schedule 3 - Insurance Schedule
Schedule 4 - Existing Investments
Schedule 5 - Additional Mortgaged Properties

Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Letter of Credit Application and Agreement
Exhibit F - Opinion of Counsel for Restricted Persons
Exhibit G - Assignment and Assumption Agreement

                                       5
<PAGE>   6

                      AMENDED AND RESTATED CREDIT AGREEMENT

         THIS AMENDED AND RESTATED CREDIT AGREEMENT is made as of May 30, 2000,
by and among Chesapeake Exploration Limited Partnership, an Oklahoma limited
partnership (herein called "Borrower"), Chesapeake Energy Corporation, an
Oklahoma corporation (herein called "Parent"), certain Subsidiaries of Parent,
as Guarantors, Union Bank of California, N.A., individually and as agent (herein
called "Agent") and the Lenders referred to below. In consideration of the
mutual covenants and agreements contained herein the parties hereto agree as
follows:

                     ARTICLE I - Definitions and References

         Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:

         "Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power

                  (a) to vote 20% or more of the securities (on a fully diluted
         basis) having ordinary voting power for the election of directors or
         managing general partners; or

                  (b) to direct or cause the direction of the management and
         policies of such Person whether by contract or otherwise.

         "Agent" means Union Bank of California, N.A., as Agent hereunder, and
its successors in such capacity; provided, however, that until such time as a
Lender other than Union Bank of California, N.A. becomes a party hereto, "Agent"
shall mean Union Bank of California, N.A., individually.

         "Agreement" means this Amended and Restated Credit Agreement.

         "Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.

         "Applicable Utilization Level" means on any date the level set forth
below that corresponds to the percentage, at the close of business on such day,
equivalent to the (i) Facility Usage divided by (ii) the Borrowing Base (the
"Utilization Percent"):

                                       6
<PAGE>   7

<TABLE>
<CAPTION>
                       Applicable Utilization Level                Utilization Percent
                   -------------------------------------- --------------------------------------
<S>                                                       <C>
                                Level I                               less than 20%

                                Level II                    equal to or greater than 20% but
                                                                      less than 40%

                                Level III                   equal to or greater than 40% but
                                                                      less than 60%

                                Level IV                      equal to or greater than 60%
</TABLE>

         "Bank Parties" means Agent, LC Issuer, and all Lenders.

         "Base Rate" means the Base Rate Margin plus the higher of (a) Agent's
Reference Rate and (b) the Federal Funds Rate plus one-half percent (0.5%) per
annum. As used in this paragraph, Agent's "Reference Rate" means that variable
rate of interest per annum established by Agent from time to time as its
"reference rate" (which rate of interest may not be the lowest rate charged on
similar loans). 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. The Base Rate shall in no event, however,
exceed the Highest Lawful Rate.

         "Base Rate Loan" means a Loan which bears interest at the Base Rate.

         "Base Rate Margin" means, on any date, with respect to each Base Rate
portion of a Loan, the number of basis points per annum set forth below based on
the Applicable Utilization Level on such date:

<TABLE>
<CAPTION>
                          Applicable Utilization Level            Base Rate Margin
                     ---------------------------------------- --------------------------
<S>                                                           <C>
                                    Level I                              50

                                    Level II                             75

                                    Level III                            100

                                    Level IV                             125
</TABLE>

Changes in the applicable Base Rate Margin will occur automatically without
prior notice as changes in the Applicable Utilization Level occur. Agent will
give notice promptly to Borrower and the Lenders of changes in the Base Rate
Margin.

         "Borrower" means Chesapeake Exploration Limited Partnership, an
Oklahoma limited partnership.

         "Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a Continuation or Conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.

                                       7
<PAGE>   8

         "Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.8 or the amount determined by Agent and
Required Lenders in accordance with the provisions of Section 2.9, as reduced by
Borrower pursuant to Section 2.10 or as reduced pursuant to Section 7.5;
provided, however, that in no event shall the Borrowing Base ever exceed the
Maximum Loan Amount.

         "Borrowing Base Deficiency" has the meaning given it in Section 2.7(b).

         "Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.

         "Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Los Angeles,
California. Any Business Day in any way relating to Eurodollar Loans (such as
the day on which an Interest Period begins or ends) must also be a day on which,
in the judgment of Agent, significant transactions in dollars are carried out in
the interbank eurocurrency market.

         "Cash Equivalents" means investments in:

         (a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America.

         (b) demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any Lender or with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have at least the third
highest credit rating given by either Rating Agency.

         (c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any commercial bank meeting the specifications of clause (b) above

         (d) open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating given
by either Rating Agency.

         (e) money market or other mutual funds substantially all of whose
assets comprise securities of the types described in clauses (a) through (d)
above.

         "Change of Control" means the occurrence of any of the following
events: (i) any Person other than Parent or one of its wholly-owned Subsidiaries
shall acquire or hold any legal or beneficial ownership of Borrower or any
Guarantor, (ii) any Person or two or more Persons acting as a group shall
acquire beneficial ownership (within the meaning of Rule 13d-3 of the SEC under
the Securities Act of 1934, as amended, and including holding proxies to vote
for the

                                       8
<PAGE>   9

election of directors other than proxies held by Parent's management or their
designees to be voted in favor of Persons nominated by Parent's Board of
Directors) of 35% or more of the outstanding voting securities of Parent,
measured by voting power (including both common stock and any preferred stock or
other equity securities entitling the holders thereof to vote with the holders
of common stock in elections for directors of Parent), (iii) one-third or more
of the directors of Parent shall consist of Persons not nominated by Parent's
Board of Directors (not including as Board nominees any directors which the
Board is obligated to nominate pursuant to shareholders agreements, voting trust
arrangements or similar arrangements) or (iv) neither Aubrey K. McClendon nor
Tom Ward shall be executive officers and directors of Parent.

         "Chesapeake Canada" means Chesapeake Canada Corporation, an Alberta
corporation.

         "Chesapeake Marketing" means Chesapeake Marketing, Inc., an Oklahoma
corporation.

         "Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.

         "Commitment Period" means the period from and including the date hereof
until and including the Maturity Date (or, if earlier, the day on which the
commitments of the Lenders are terminated pursuant to Section 8.1, or the day
the Notes first become due and payable in full).

         "Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.

         "Consolidated EBITDA" means, with respect to any period, the sum of (a)
the Consolidated Net Income of Parent and its Subsidiaries during such period,
plus (b) Consolidated interest expense which was deducted in determining such
Consolidated Net Income, plus (c) all income taxes which were deducted in
determining such Consolidated Net Income, plus (d) all depreciation,
amortization (including amortization of good will and debt issue costs) and
other non-cash charges (including any provision for the reduction in the
carrying value of assets recorded in accordance with GAAP) which were deducted
in determining such Consolidated Net Income, minus (e) all non-cash items of
income which were included in determining such Consolidated Net Income. Revenues
and expenses derived from Hedging Contracts related to interest rates or
dividend rates will be treated as adjustments to interest expense for purposes
of this definition.

         "Consolidated Fixed Charges" means, with respect to any period, the sum
(without duplication) of the following (in each case, eliminating all offsetting
debits and credits between Parent and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of Consolidated
financial statements of Parent and its Subsidiaries in accordance with GAAP):
(a) all Consolidated Interest Expense during such period, plus (b) all
scheduled, required and actual payments or prepayments of principal on
Indebtedness (other than revolving

                                       9
<PAGE>   10

credit Indebtedness) of Parent and its Subsidiaries during such period, plus (c)
all dividends (other than dividend payable in common stock) declared by Parent
and attributable to such period. For purposes of this Agreement a dividend is
"attributed" to the Fiscal Quarter immediately preceding the Fiscal Quarter in
which such dividend is actually declared by Parent.

         "Consolidated Interest Expense" means, with respect to any period, the
sum (without duplication) of the following (in each case, eliminating all
offsetting debits and credits between Parent and its Subsidiaries and all other
items required to be eliminated in the course of the preparation of Consolidated
financial statements of Parent and its Subsidiaries in accordance with GAAP):
(a) all interest, commitment fees and loan fees in respect of Indebtedness of
Parent or any of its Subsidiaries (including imputed interest on Capital Lease
Obligations) deducted in determining Consolidated Net Income for such period,
together with all interest capitalized or deferred during such period and not
deducted in determining Consolidated Net Income for such period, plus (b) all
fees, expenses and charges in respect of letters of credit issued for the
account of Parent or any of its Subsidiaries deducted in determining
Consolidated Net Income for such period, together with all such fees, expenses
and charges in respect of letters of credit capitalized or deferred during such
period and not deducted in determining Consolidated Net Income for such period.
Revenues and expenses derived from Hedging Contracts related to interest rates
or dividend rates will be treated as adjustments to interest expense for
purposes of this definition.

         "Consolidated Net Income" means, with respect to any period, Parent 's
and its Subsidiaries' gross revenues for such period, including any cash
dividends or distributions actually received from any other Person during such
period, minus Parent's and its Subsidiaries' expenses and other proper charges
against income (including but not limited to income taxes), determined on a
Consolidated basis after eliminating earnings or losses attributable to
outstanding minority interests and excluding the net earnings of any Person
other than a Subsidiary in which Parent or any of its Subsidiaries has an
ownership interest

         "Continuation/Conversion Notice" means a written or telephonic request,
or a written confirmation, made by Borrower which meets the requirements of
Section 2.3.

         "Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.3 hereof of a Eurodollar Loan as a Eurodollar
Loan from one Interest Period to the next Interest Period.

         "Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.3 or Article III of one Type of Loan into another Type of
Loan.

         "Default" means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.

         "Default Rate" means, at the time in question, three percent (3.0%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Default

                                       10
<PAGE>   11

Rate" shall mean three percent (3.0%) per annum plus the related Eurodollar
Rate. The Default Rate shall never exceed the Highest Lawful Rate.

         "Deficiency Notice" has the meaning given it in Section 2.7.

         "Determination Date" has the meaning given it in Section 2.9.

         "Disclosure Report" means either a notice given by Borrower or Parent
under Section 6.4 or a certificate given by Borrower's or Parent's chief
financial officer under Section 6.2(b).

         "Disclosure Schedule" means Schedule 1 hereto.

         "Distribution" means (a) any dividend or other distribution made by a
Restricted Person on or in respect of any stock, partnership interest, or other
equity interest in such Restricted Person (including any option or warrant to
buy such an equity interest), or (b) any payment made by a Restricted Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Restricted Person (including any such option or
warrant).

         "Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" below its name on the
Lender Schedule attached hereto, or such other office as such Lender may from
time to time specify to Borrower and Agent; and, with respect to Agent, the
office, branch, or agency through which it administers this Agreement.

         "Eligible Transferee" means a Person which either (a) is a Lender or
Lender Affiliate or (b) is consented to as an Eligible Transferee by Agent and,
so long as no Event of Default is continuing, by Borrower, which consents in
each case will not be unreasonably withheld (provided that no Person organized
outside the United States may be an Eligible Transferee if Borrower would be
required to pay withholding taxes on interest or principal owed to such Person).

         "Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2.

         "Environmental Laws" means any and all Laws relating to the environment
or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.

         "ERISA Affiliate" means Restricted Persons and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control

                                       11
<PAGE>   12
that, together with Restricted Persons, are treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended.

         "ERISA Plan" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.

         "Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" below its
name on the Lender Schedule attached hereto (or, if no such office is specified,
its Domestic Lending Office), or such other office of such Lender as such Lender
may from time to time specify to Borrower and Agent.

         "Eurodollar Loan" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.

         "Eurodollar Margin" means, on any date, with respect to each Eurodollar
Loan, the number of basis points per annum set forth below based on the
Applicable Utilization Level on such date:

<TABLE>
<CAPTION>
                          Applicable Utilization Level            Eurodollar Margin
                     ---------------------------------------- --------------------------
<S>                                                           <C>
                                     Level I                             200
                                    Level II                             225
                                    Level III                            250
                                    Level IV                             275
</TABLE>

Changes in the applicable Eurodollar Margin will occur automatically without
prior notice as changes in the Applicable Utilization Level occur. Agent will
give notice promptly to Borrower and the Lenders of changes in the Eurodollar
Margin.

         "Eurodollar Rate" means, with respect to each particular Eurodollar
Loan and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:

         Eurodollar Rate =

         LIBOR Rate                  + Eurodollar Margin
         100.0% - Reserve Percentage

The Eurodollar Rate for any Eurodollar Loan shall change whenever the Eurodollar
Margin or the Reserve Percentage changes. No Eurodollar Rate shall ever exceed
the Highest Lawful Rate.

         "Evaluation Date" means each of the following:

                                       12
<PAGE>   13

         (a) January 1 and July 1 of each year, beginning July 1, 2000;

         (b) Each other date which either Borrower or Required Lenders, at their
respective options, specifies as a date as of which the Borrowing Base is to be
redetermined, provided that each such date must be the first or last date of a
current calendar month and that Borrower shall not be entitled to request any
such redetermination more than once during any six (6) month period beginning
with any January 1 or July 1.

         "Event of Default" has the meaning given it in Section 8.1.

         "Facility Usage" means, at the time in question, the aggregate amount
of outstanding Loans and existing LC Obligations at such time.

         "Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.

         "Fiscal Quarter" means the fiscal quarter of Parent.

         "Fiscal Year" means the fiscal year of Parent.

         "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Parent
and its Consolidated Subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Parent or with respect to Parent and its Consolidated Subsidiaries may be
prepared in accordance with such change, but all calculations and determinations
to be made hereunder may be made in accordance with such change only after
notice of such change is given to each Lender and Majority Lenders agree to such
change insofar as it affects the accounting of Parent or of Parent and its
Consolidated Subsidiaries.

         "Guarantor" means any Person who has guaranteed some or all of the
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor or any

                                       13
<PAGE>   14

Subsidiary of Borrower which now or hereafter executes and delivers a guaranty
to Agent pursuant to Section 6.17.

         "Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.

         "Hedging Contract" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds, or
indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement.

         "Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately for
each Lender as appropriate to assure that the Loan Documents are not construed
to obligate any Person to pay interest to any Lender at a rate in excess of the
Highest Lawful Rate applicable to such Lender.

         "Indebtedness" of any Person means Liabilities (without duplication) in
any of the following categories:

         (a) Liabilities for borrowed money,

         (b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,

         (c) Liabilities evidenced by a bond, debenture, note or similar
instrument,

         (d) Liabilities which (i) would under GAAP be shown on such Person's
balance sheet as a liability, and (ii) are payable more than one year from the
date of creation thereof (other than reserves for taxes and reserves for
contingent obligations),

         (e) Liabilities arising under Hedging Contracts,

         (f) Liabilities constituting principal under leases capitalized in
accordance with GAAP or arising under operating leases,

         (g) Liabilities arising under conditional sales or other title
retention agreements,

         (h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase

                                       14
<PAGE>   15

Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection,

         (i) Liabilities (for example, repurchase agreements, mandatorily
redeemable preferred stock and sale/leaseback agreements) consisting of an
obligation to purchase or redeem securities or other property, if such
Liabilities arises out of or in connection with the sale of or issuance of the
same or similar securities or property,

         (j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,

         (k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment),

         (l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor, or

         (m) Liabilities in respect of banker's acceptances or similar
instruments issued or accepted by banks;

provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 120 days past the original invoice or
billing date therefor (but excluding such Liabilities so outstanding which are
contested in good faith by appropriate proceedings and for which adequate
reserves are maintained on the books of such Person in accordance with GAAP).

         "Indentures" means (i) that certain Indenture dated April 1, 1996 among
Parent, as Issuer, the Subsidiary Guarantors, as Guarantors, and United States
Trust Company of New York, as Trustee, providing for $120,000,000 in principal
amount of 9.125% Senior Notes due 2006, as supplemented prior to the date hereof
(the "`96 Indenture"), (ii) that certain Indenture dated March 15, 1997 among
Parent, as Issuer, the Subsidiary Guarantors, as Guarantors, and United States
Trust Company of New York, as Trustee, providing for $150,000,000 in principal
amount of 7.875% Senior Notes due 2004, as supplemented prior to the date
hereof, and that certain Indenture dated March 15, 1997 among Parent, as Issuer,
the Subsidiary Guarantors, as Guarantors, and United States Trust Company of New
York, as Trustee, providing for $150,000,000 in principal amount of 8.5% Senior
Notes due 2012, as supplemented prior to the date hereof (the "`97 Indenture"),
and (iii) that certain Indenture dated April 1, 1998 among Parent, as Issuer,
the Subsidiary Guarantors, as Guarantors, and United States Trust Company of New
York, as Trustee, providing for $500,000,000 in principal amount of 9 5/8%
Senior Notes due 2005 (the "`98 Indenture").

                                       15
<PAGE>   16

         "Initial Engineering Report" means the following engineering reports
concerning oil and gas properties of Restricted Persons:

         (i) Report dated January 1, 2000 prepared by Williamson Petroleum
         Consultants, Inc.;

         (ii) Report dated January 1, 2000 prepared by Ryder Scott Company; and

         (iii) Report dated January 1, 2000 prepared by Parent's employee
         engineers.

         "Initial Financial Statements" means (i) the audited annual
Consolidated financial statements of Parent dated as of December 31, 1999, and
(ii) the unaudited quarterly Consolidated financial statements of Parent dated
as of March 31, 2000.

         "Insurance Schedule" means Schedule 3 attached hereto.

         "Interest Period" means, with respect to each particular Eurodollar
Loan in a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the
Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning
on and including the date specified in such Borrowing Notice or
Continuation/Conversion Notice (which must be a Business Day), and ending on but
not including the same day of the month as the day on which it began (e.g., a
period beginning on the third day of one month shall end on but not include the
third day of another month), provided that each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (unless such next succeeding Business Day is the first
Business Day of a calendar month, in which case such Interest Period shall end
on the immediately preceding Business Day). No Interest Period may be elected
which would extend past the date on which the associated Note is due and payable
in full.

         "Investment" means any investment, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise.

         "Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.

         "LC Application" means any application for a Letter of Credit hereafter
made by Borrower to LC Issuer.

         "LC Collateral" has the meaning given to such term in Section 2.16(a).

         "LC Issuer" means Union Bank of California, N.A. in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity.
Agent may, with the consent of Borrower and the Lender in question, appoint any
Lender hereunder as the LC Issuer in place of or in addition to Union Bank of
California, N.A.

                                       16
<PAGE>   17
         "LC Obligations" means, at the time in question, the sum of all Matured
LC Obligations plus the maximum amounts which LC Issuer might then or thereafter
be called upon to advance under all Letters of Credit then outstanding.

         "Lenders" means each signatory hereto (other than Borrower and
Restricted Persons that are party hereto), including Union Bank of California,
N.A. in its capacity as a Lender hereunder rather than as Agent or LC Issuer,
and the successors of each such party as holder of a Note.

         "Lender Affiliate" means, with respect to a Lender, any Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by or is under the common control with such Lender;
control meaning the power to vote more than 50% of the securities having
ordinary voting power for election of directors.

         "Lending Office" means, with respect to any Lender, such Lender's
Domestic Lending Office or Eurodollar Lending Office, as applicable; with
respect to LC Issuer, the office, branch, or agency through which it issues
Letters of Credit; and, with respect to Agent, the office, branch, or agency
through which it administers this Agreement.

         "Letter of Credit" means any letter of credit issued by LC Issuer
hereunder at the application of Borrower.

         "Letter of Credit Fee Rate" means, on any date the number of basis
points per annum set forth below based on the Applicable Utilization Level on
such date:

<TABLE>
<CAPTION>
                      Applicable Utilization Level          Letter of Credit Fee Rate
                 --------------------------------------- ---------------------------------
<S>                                                      <C>
                                Level I                                200
                                Level II                               225
                                Level III                              250
                                Level IV                               275
</TABLE>

Changes in the applicable Letter of Credit Fee Rate will occur automatically
without prior notice as changes in the Applicable Utilization Level occur. Agent
will give notice promptly to Borrower and the Lenders of changes in the Letter
of Credit Fee Rate.

         "Liabilities" means, as to any Person, all indebtedness, liabilities
and obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent.

         "LIBOR Rate" means, with respect to each particular Eurodollar Loan and
the related Interest Period, the rate of interest per annum determined by Agent
in accordance with its

                                       17
<PAGE>   18

customary general practices to be representative of the rates at which deposits
of dollars are offered to Agent at approximately 9:00 a.m. New York, New York
time two Business Days prior to the first day of such Interest Period (by prime
banks in the interbank eurocurrency market which have been selected by Agent in
accordance with its customary general practices) for delivery on the first day
of such Interest Period in an amount equal or comparable to the amount of the
applicable Eurodollar Loan and for a period of time equal or comparable to the
length of such Interest Period. The LIBOR Rate determined by Agent with respect
to a particular Eurodollar Loan shall be fixed at such rate for the duration of
the associated Interest Period. If Agent is unable so to determine the LIBOR
Rate for any Eurodollar Loan, Borrower shall be deemed not to have elected such
Eurodollar Loan.

         "Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to it or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows such creditor to have
such Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by Law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would serve
to perfect a Lien described in the preceding sentence, regardless of whether
such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.

         "Loan" has the meaning given to such term in Section 2.1.

         "Loan Documents" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the LC Applications, and all other agreements,
certificates, documents, instruments and writings at any time delivered in
connection herewith or therewith (exclusive of term sheets, commitment letters,
correspondence and similar documents used in the negotiation hereof, except to
the extent the same contain information about Borrower or its Affiliates,
properties, business or prospects).

         "Majority Lenders" means Agent and Lenders whose aggregate Percentage
Shares equal or exceed sixty-six and two-thirds percent (66 2/3%).

         "Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements or as represented
or warranted in any Loan Document, to (a) Restricted Persons' Consolidated
financial condition, (b) the operations or properties of Restricted Persons,
considered as a whole, (c) Borrower's or any other Restricted Persons' ability
to timely pay the Obligations, or (d) the enforceability of the material terms
of any Loan Documents.

                                       18
<PAGE>   19

         "Matured LC Obligations" means all amounts paid by LC Issuer on drafts
or demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).

         "Maturity Date" means July 15, 2002.

         "Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.

         "Maximum Loan Amount" means the amount of $75,000,000.

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

         "Mortgaged Properties" means all properties subject to the Security
Documents.

         "Note" has the meaning given it in Section 2.1.

         "Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Bank Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "Obligation" means any part of the
Obligations.

         "Parent" means Chesapeake Energy Corporation, an Oklahoma corporation.

         "Percentage Share" means, with respect to any Lender (a) when used in
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on Lender
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question plus the Matured LC Obligations which such Lender has
funded pursuant to Section 2.13(c) plus the portion of the Maximum Drawing
Amount which such Lender might be obligated to fund under Section 2.13(c), by
(ii) the sum of the aggregate unpaid principal balance of all Loans at such time
plus the aggregate amount of LC Obligations outstanding at such time.

         "Permitted Investments" means:

         (i) Cash Equivalents,

         (ii) Investments by any Restricted Person in any of its Subsidiaries
(other than Chesapeake Canada) provided that such Subsidiary is a Guarantor,

         (iii) additional capital contributions to or other investments in
Chesapeake Canada not in excess of the aggregate amount of $60,000,000 after
August 27, 1998,

                                       19
<PAGE>   20

         (iv) the entry into operating agreements, joint ventures, processing
agreements, farm-out agreements, development agreements, area of mutual interest
agreements, contracts for the sale, transportation or exchange of oil and
natural gas, unitization agreements, pooling arrangements, joint bidding
agreements, service contracts, partnership agreements (whether general or
limited) or other similar customary agreements, transactions, properties,
interests or arrangements, and investments and expenditures in connection
therewith or pursuant thereto, in each case made or entered into in the ordinary
course of the oil and gas business,

         (v) Investments consisting of loans or credit extensions permitted
under Section 7.8, and

         (vi) Investments existing on the date hereof listed on Schedule 4
hereto.

         "Permitted Lien" has the meaning given to such term in Section 7.2.

         "Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture,
Tribunal, or any other legally recognizable entity.

         "Rating Agency" means either S&P or Moody's or their respective
successors.

         "Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.

         "Required Lenders" means Agent and Lenders whose aggregate Percentage
Shares equal or exceed seventy-five percent (75%).

         "Reserve Percentage" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $1,000,000 or more. If
such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.

         "Restricted Person" means Parent, Borrower, and each Subsidiary of
Parent, (whether or not such Subsidiary is a Guarantor).

         "S&P" means Standard & Poor's Ratings Group and any successor thereto
that is a nationally-recognized rating agency.

         "SEC" means the Securities and Exchange Commission.

         "Security Documents" means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing

                                       20
<PAGE>   21

statements, continuation statements, extension agreements and other agreements
or instruments now, heretofore, or hereafter delivered by any Restricted Person
to Agent in connection with this Agreement or any transaction contemplated
hereby to secure or guarantee the payment of any part of the Obligations or the
performance of any Restricted Person's other duties and obligations under the
Loan Documents.

         "Security Schedule" means Schedule 2 hereto.

         "Senior Debt Limit" means on any day (a) the maximum amount of
Indebtedness that Parent and its Subsidiaries may incur and secure pursuant to
the terms of each of the following: (I) clause (i) of the definition of
"Permitted Indebtedness" and clause (ii) of the definition of "Permitted Liens"
under the `96 Indenture, (II) clause (i) of Section 4.8 of the `97 Indentures
and (III) clause (i) of the definition of "Permitted Indebtedness" and clause
(ii) of the definition of "Permitted Liens" under the `98 Indenture minus (b)
the amount of Indebtedness (other than Indebtedness under the Borrowing Base)
that Parent or any of its Subsidiaries have incurred and/or secured by Liens on
such day that counts against the restrictions on the maximum amount of
Indebtedness referred to in clause (a).

         "Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.

         "Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.

         "Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted or existing.

         "Type" means, with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.

         Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the

                                       21
<PAGE>   22

Security Schedule for the meaning of certain terms defined therein and used but
not defined herein, which definitions are incorporated herein by reference.

         Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.

         Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.

         Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Bank Party of amounts to be
paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Bank Party (such as any Eurodollar Rate, LIBOR Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Majority Lenders otherwise consent all financial statements and
reports furnished to any Bank Party hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.

         Section 1.6. Joint Preparation; Construction of Indemnities and
Releases. This Agreement and the other Loan Documents have been prepared through
the joint efforts of the various parties hereto and their counsel, and all such
parties shall equally be considered to be the drafters hereof and thereof. All
indemnification and release provisions of this Agreement shall be construed
broadly (and not narrowly) in favor of the Persons receiving indemnification
from or being released.

                                       22
<PAGE>   23

                  ARTICLE II - The Loans and Letters of Credit

         Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Lenders are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, (b) after giving
effect to such Loans, the Facility Usage does not exceed the Borrowing Base in
effect as of the date on which the requested Loans are to be made, (c) after
giving effect to such Loans, the Facility Usage does not exceed the Senior Debt
Limit in effect as of the date on which the requested Loans are to be made, and
(d) after giving effect to such Loans, the outstanding principal amount of each
Lender's Loans, plus such Lender's Percentage Share of LC Obligations does not
exceed such Lender's Percentage Share of the Borrowing Base in effect as of the
date on which the requested Loans are to be made. The aggregate amount of all
Loans in any Borrowing must be greater than or equal to $2,500,000 or must equal
the remaining availability under the Borrowing Base. Borrower may have no more
than five Borrowings of Eurodollar Loans outstanding at any time. The obligation
of Borrower to repay to each Lender the aggregate amount of all Loans made by
such Lender, together with interest accruing in connection therewith, shall be
evidenced by a single promissory note (herein called such Lender's "Note") made
by Borrower payable to the order of such Lender in the form of Exhibit A with
appropriate insertions. It is expressly understood that Lenders' commitment to
make Loans is determined only by reference to the Borrowing Base from time to
time in effect, and the aggregate face amount of the Notes and the amount
specified in the Security Documents are specified at a greater amount only for
the convenience of the parties to avoid the necessity of preparing and recording
supplements to the Security Documents. The amount of principal owing on any
Lender's Note at any given time shall be the aggregate amount of all Loans
theretofore made by such Lender minus all payments of principal theretofore
received by such Lender on such Note. Interest on each Note shall accrue and be
due and payable as provided herein and therein, with Eurodollar Loans bearing
interest at the Eurodollar Rate and Base Rate Loans bearing interest at the Base
Rate (subject to the applicability of the Default Rate and limited by the
provisions of Section 10.7). On the last day of the Commitment Period, unless
sooner paid as provided herein, all Loans shall be paid in full. Subject to the
terms and conditions hereof, Borrower may borrow, repay, and reborrow hereunder.

         Section 2.2. Requests for New Loans. Borrower must give to Agent
written notice (or telephonic notice promptly confirmed in writing) of any
requested Borrowing of new Loans to be advanced by Lenders. Each such notice
constitutes a "Borrowing Notice" hereunder and must:

                  (a) specify (i) the aggregate amount of any such Borrowing of
         new Base Rate Loans and the date on which such Base Rate Loans are to
         be advanced, or (ii) the aggregate amount of any such Borrowing of new
         Eurodollar Loans, the date on which such Eurodollar Loans are to be
         advanced (which shall be the first day of the Interest Period which is
         to apply thereto), and the length of the applicable Interest Period;
         and

                  (b) be received by Agent not later than 8:00 a.m., Los
         Angeles, California time, on (i) the day on which any such Base Rate
         Loans are to be made, or (ii) the third Business Day preceding the day
         on which any such Eurodollar Loans are to be made.

                                       23
<PAGE>   24

Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Borrowing
Notice, Agent shall give each Lender prompt notice of the terms thereof. If all
conditions precedent to such new Loans have been met, each Lender will on the
date requested promptly remit to Agent at Agent's office in Los Angeles,
California the amount of such Lender's new Loan in immediately available funds,
and upon receipt of such funds, unless to its actual knowledge any conditions
precedent to such Loans have been neither met nor waived as provided herein,
Agent shall promptly make such Loans available to Borrower. Unless Agent shall
have received prompt notice from a Lender that such Lender will not make
available to Agent such Lender's new Loan, Agent may in its discretion assume
that such Lender has made such Loan available to Agent in accordance with this
section and Agent may if it chooses, in reliance upon such assumption, make such
Loan available to Borrower. If and to the extent such Lender shall not so make
its new Loan available to Agent, such Lender and Borrower severally agree to pay
or repay to Agent within three days after demand the amount of such Loan
together with interest thereon, for each day from the date such amount was made
available to Borrower until the date such amount is paid or repaid to Agent,
with interest at (i) the Federal Funds Rate, if such Lender is making such
payment and (ii) the interest rate applicable at the time to the other new Loans
made on such date, if Borrower is making such repayment. If neither such Lender
nor Borrower pay or repay to Agent such amount within such three-day period,
Agent shall in addition to such amount be entitled to recover from such Lender
and from Borrower, on demand, interest thereon at the Default Rate, calculated
from the date such amount was made available to Borrower. The failure of any
Lender to make any new Loan to be made by it hereunder shall not relieve any
other Lender of its obligation hereunder, if any, to make its new Loan, but no
Lender shall be responsible for the failure of any other Lender to make any new
Loan to be made by such other Lender.

         Section 2.3. Interest Rates; Continuations and Conversions of Existing
Loans.

         (a) Interest Rates. Unless the Default Rate shall be applicable, Base
Rate Loans from time to time outstanding shall bear interest on each day
outstanding at the sum of the Base Rate in effect on such day, but in no event
in excess of the Highest Lawful Rate. Unless the Default Rate shall be
applicable, each Eurodollar Loan shall bear interest on each day during the
related Interest Period at the related Eurodollar Rate in effect on such day,
but in no event in excess of the Highest Lawful Rate. Such interest shall be
payable on the dates specified in the Note. After the occurrence and during the
continuance of an Event of Default and a notice to the Borrower by Agent that
the Default Rate shall apply, all Loans shall bear interest on each day at the
Default Rate in effect on such day, and such interest shall be due and payable
daily as it accrues.

         (b) Continuations and Conversions. Borrower may make the following
elections with respect to Loans already outstanding: to Convert Base Rate Loans
to Eurodollar Loans, to Convert Eurodollar Loans to Base Rate Loans on the last
day of the Interest Period applicable thereto, or to Continue Eurodollar Loans
beyond the expiration of such Interest Period by designating a new Interest
Period to take effect at the time of such expiration. In making such

                                       24
<PAGE>   25

elections, Borrower may combine existing Loans made pursuant to separate
Borrowings into one new Borrowing or divide existing Loans made pursuant to one
Borrowing into separate new Borrowings, provided that Borrower may have no more
than five Borrowings of Eurodollar Loans outstanding at any time. To make any
such election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such Conversion or Continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "Continuation/Conversion Notice" hereunder and must:

                  (i) specify the existing Loans which are to be Continued or
         Converted;

                  (ii) specify (A) the aggregate amount of any Borrowing of Base
         Rate Loans into which such existing Loans are to be Continued or
         Converted and the date on which such Continuation or Conversion is to
         occur, or (B) the aggregate amount of any Borrowing of Eurodollar Loans
         into which such existing Loans are to be Continued or Converted, the
         date on which such Continuation or Conversion is to occur (which shall
         be the first day of the Interest Period which is to apply to such
         Eurodollar Loans), and the length of the applicable Interest Period;
         and

                  (iii) be received by Agent not later than 8:00 a.m., Los
         Angeles, California time, on (A) the day on which any such Continuation
         or Conversion to Base Rate Loans is to occur, or (B) the third Business
         Day preceding the day on which any such Continuation or Conversion to
         Eurodollar Loans is to occur.

Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Continuation/Conversion Notice, Agent shall give each Lender prompt notice of
the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and
binding on Borrower. During the continuance of any Default, Borrower may not
make any election to Convert existing Loans into Eurodollar Loans or Continue
existing Loans as Eurodollar Loans. If (due to the existence of a Default or for
any other reason) Borrower fails to timely and properly give any notice of
Continuation or Conversion with respect to a Borrowing of existing Eurodollar
Loans at least three days prior to the end of the Interest Period applicable
thereto, such Eurodollar Loans shall automatically be Converted into Base Rate
Loans at the end of such Interest Period. No new funds shall be repaid by
Borrower or advanced by any Lender in connection with any Continuation or
Conversion of existing Loans pursuant to this section, and no such Continuation
or Conversion shall be deemed to be a new advance of funds for any purpose; such
Continuations and Conversions merely constitute a change in the interest rate
applicable to already outstanding Loans.

         Section 2.4. Use of Proceeds. Borrower shall use all Loans to finance
capital expenditures, to refinance existing Indebtedness of Borrower to Agent,
and provide working capital for its operations and for other general business
purposes. Borrower shall use all Letters of Credit for its general corporate
purposes. In no event shall the funds from any Loan or any Letter of Credit be
used directly or indirectly by any Person for personal, family, household or

                                       25
<PAGE>   26

agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term
is defined in Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit to others directly
or indirectly for the purpose of purchasing or carrying any such margin stock.
Borrower represents and warrants that Borrower is not engaged principally, or as
one of Borrower's important activities, in the business of extending credit to
others for the purpose of purchasing or carrying such margin stock.

         Section 2.5. Fees.

         (a) Commitment Fees. In consideration of each Lender's commitment to
make Loans, Borrower will pay to Agent for the account of each Lender a
commitment fee determined on a daily basis at the rate of one-half of one
percent (.50%) per annum times such Lender's Percentage Share of the unused
portion of the Borrowing Base on each day during the Commitment Period,
determined for each such day by deducting the Facility Usage from the amount of
the Borrowing Base at the end of such day. This commitment fee shall be due and
payable in arrears on the last day of each September, December, March, and June,
and at the end of the Commitment Period.

         (b) Agent's Fees. In addition to all other amounts due to Agent under
the Loan Documents, Borrower will pay fees to Agent as described in a letter
agreement of even date herewith between Agent and Borrower.

         Section 2.6. Optional Prepayments. Borrower may, upon three Business
Days' notice to each Lender, from time to time and without premium or penalty
prepay the Notes, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Notes equals $1,000,000 or any higher
integral multiple of $1,000,000, so long as Borrower does not prepay any
Eurodollar Loan, and so long as Borrower does not make any prepayments which
would reduce the unpaid principal balance of any Loan to less than $100,000
without first either (a) terminating this Agreement or (b) providing assurance
satisfactory to Agent in its discretion that Lenders' legal rights under the
Loan Documents are in no way affected by such reduction. Each prepayment of
principal under this section shall be accompanied by all interest then accrued
and unpaid on the principal so prepaid. Any principal or interest prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment.

         Section 2.7. Mandatory Prepayments.

         (a) If at any time the Facility Usage exceeds the Maximum Loan Amount
(whether due to a reduction in the Maximum Loan Amount in accordance with this
Agreement, or otherwise), Borrower shall immediately prepay the principal of the
Loans in an amount at least equal to such excess.

         (b) If at any time the Facility Usage is less than the Maximum Loan
Amount but in excess of the Borrowing Base (such excess being herein called a
"Borrowing Base Deficiency"),

                                       26
<PAGE>   27

Agent shall give notice of such fact to Borrower (herein called a "Deficiency
Notice"), and Borrower shall:

                  (i) within thirty (30) days after the Deficiency Notice give
         notice to Agent electing to prepay the principal of the Loans in a
         single payment, in which event Borrower shall prepay the principal of
         the Loans in an aggregate amount at least equal to such Borrowing Base
         Deficiency (or, if the Loans have been paid in full, pay to LC Issuer
         LC Collateral as required under Section 2.16(a)) on or before the date
         which is sixty (60) days after the Deficiency Notice, or

                  (ii) within 30 days after the Deficiency Notice give notice to
         Agent electing to prepay the principal of the Loans in installments, in
         which event Borrower shall prepay the principal of the Loans in six
         consecutive monthly installments, in an aggregate amount at least equal
         to such Borrowing Base Deficiency (or, if the Loans have been paid in
         full, pay to LC Issuer LC Collateral as required under Section
         2.16(a)), with the first such installment due 30 days after the
         Deficiency Notice, the next five such installments due on the same day
         of each consecutive month, each such installment being in the amount of
         one-sixth of such Borrowing Base Deficiency, or

                  (iii) within 30 days after the Deficiency Notice, certify to
         Agent that Borrower has marketable title, free of any Liens, to oil and
         gas properties not included in such existing Borrowing Base, which
         properties are not subject to any Liens except Permitted Liens, in an
         amount which eliminates such Borrowing Base Deficiency, and provide to
         each Lender the same information regarding such property as would be
         required for an evaluation by Required Lenders under Section 2.9. If
         Required Lenders determine that such properties will not serve to
         eliminate such Borrowing Base Deficiency, then, within five Business
         Days after receiving notice of such determination, Borrower will elect
         to make, and thereafter make, the prepayments specified in either of
         the preceding subsections (i) or (ii) of this subsection (b).

         (c) Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so prepaid.
Any principal or interest prepaid pursuant to this section shall be in addition
to, and not in lieu of, all payments otherwise required to be paid under the
Loan Documents at the time of such prepayment.

         Section 2.8. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date, the Borrowing Base shall be $75,000,000.

         Section 2.9. Subsequent Determinations of Borrowing Base. Within 90
days after each Evaluation Date commencing October 1, 2000, Borrower shall
furnish to each Lender all information, reports and data which Agent has then
requested concerning Restricted Persons' businesses and properties (including
their oil and gas properties and interests and the reserves and production
relating thereto), together with the Engineering Report described in Section
6.2. Within forty-five days after receiving such information, reports and data,
or as promptly thereafter as practicable, Required Lenders shall agree upon an
amount for the Borrowing Base (provided that all Lenders must agree to any
increase in the Borrowing Base) and Agent shall by

                                       27
<PAGE>   28

notice to Borrower designate such amount as the new Borrowing Base available to
Borrower hereunder, which designation shall take effect immediately on the date
such notice is sent (herein called a "Determination Date") and shall remain in
effect until but not including the next date as of which the Borrowing Base is
redetermined. If Borrower does not furnish all such information, reports and
data by the date specified in the first sentence of this section, Agent may
nonetheless designate the Borrowing Base at any amount which Required Lenders
determine and may redesignate the Borrowing Base from time to time thereafter
until each Lender receives all such information, reports and data, whereupon
Required Lenders shall designate a new Borrowing Base as described above.
Required Lenders shall determine the amount of the Borrowing Base based (i) upon
the total debt of Restricted Persons and upon the loan value which they in their
discretion assign to the various oil and gas properties of Restricted Persons at
the time in question and (ii) based upon such other credit factors (including
without limitation the assets, liabilities, cash flow, hedged and unhedged
exposure to price, foreign exchange rate, and interest rate changes, business,
properties, prospects, management and ownership of Restricted Persons) as they
in their discretion deem significant. It is expressly understood that Lenders
and Agent have no obligation to agree upon or designate the Borrowing Base at
any particular amount, whether in relation to the Maximum Loan Amount or
otherwise, and that Lenders' commitments to advance funds hereunder is
determined by reference to the Borrowing Base from time to time in effect, which
Borrowing Base shall be used for calculating commitment fees under Section 2.5
and, to the extent permitted by Law and regulatory authorities, for the purposes
of capital adequacy determination and reimbursements under Section 3.2.

         Section 2.10. Borrower's Reduction of the Borrowing Base.

Until the termination of the Commitment Period Borrower may, during the
fifteen-day period beginning on each Determination Date (each such period being
called in this section an "Option Period"), reduce the Borrowing Base from the
amount designated by Agent to any lesser amount. To exercise such option
Borrower must within an Option Period send notice to Agent of the amount of the
Borrowing Base chosen by Borrower. If Borrower does not affirmatively exercise
this option during an Option Period, the Borrowing Base shall be the amount
designated by Agent. Any choice by Borrower of a Borrowing Base shall be
effective as of the first day of the Option Period during which such choice was
made and shall continue in effect until the next date as of which the Borrowing
Base is redetermined.

         Section 2.11. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Commitment Period request LC Issuer to issue one
or more Letters of Credit, provided that, after taking such Letter of Credit
into account:

                  (a) the Facility Usage does not exceed the Borrowing Base at
         such time;

                  (b) the aggregate amount of LC Obligations at such time does
         not exceed $15,000,000;

                  (c) the expiration date of such Letter of Credit is prior to
         the earlier of (i) twelve (12) months after the date of issuance of
         such Letter of Credit or (ii) 30 days before the Maturity Date;

                                       28
<PAGE>   29

                  (d) such Letter of Credit is to be used for general corporate
         purposes of Borrower;

                  (e) such Letter of Credit is not directly or indirectly used
         to assure payment of or otherwise support any Indebtedness of any
         Person, except for Liabilities of any Restricted Person in respect of
         Hedging Contracts permitted pursuant to Section 7.3;

                  (f) the issuance of such Letter of Credit will be in
         compliance with all applicable governmental restrictions, policies, and
         guidelines and will not subject LC Issuer to any cost which is not
         reimbursable under Article III;

                  (g) the form and terms of such Letter of Credit are acceptable
         to LC Issuer in its sole discretion; and

                  (h) all other conditions in this Agreement to the issuance of
         such Letter of Credit have been satisfied.

LC Issuer will honor any such request if the foregoing conditions (a) through
(h) (in the following Section 2.12 called the "LC Conditions") have been met as
of the date of issuance of such Letter of Credit. LC Issuer may choose to honor
any such request for any other Letter of Credit but has no obligation to do so
and may refuse to issue any other requested Letter of Credit for any reason
which LC Issuer in its sole discretion deems relevant.

         Section 2.12. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit at least five Business Days before the date
on which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such written application Borrower shall be deemed to have represented
and warranted that the LC Conditions described in Section 2.11 will be met as of
the date of issuance of such Letter of Credit. Each such written application for
a Letter of Credit must be made in writing in the form and substance of Exhibit
E, the terms and provisions of which are hereby incorporated herein by reference
(or in such other form as may mutually be agreed upon by LC Issuer and
Borrower). Two Business Days after the LC Conditions for a Letter of Credit have
been met as described in Section 2.11 (or if LC Issuer otherwise desires to
issue such Letter of Credit), LC Issuer will issue such Letter of Credit at LC
Issuer's office in Los Angeles, California. If any provisions of any LC
Application conflict with any provisions of this Agreement, the provisions of
this Agreement shall govern and control.

         Section 2.13. Reimbursement and Participations.

         (a) Reimbursement by Borrower. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC
Obligation, together with interest thereon at the Base Rate from the date such
matured LC obligation accrues until the third Business Day after demand, and
thereafter at the Default Rate until paid, but in no event in excess of the
Highest Lawful Rate.

                                       29
<PAGE>   30

         (b) Letter of Credit Advances. If the beneficiary of any Letter of
Credit makes a draft or other demand for payment thereunder then Borrower may,
during the interval between the making thereof and the honoring thereof by LC
Issuer, request Lenders to make Loans to Borrower in the amount of such draft or
demand, which Loans shall be made concurrently with LC Issuer's payment of such
draft or demand and shall be immediately used by LC Issuer to repay the amount
of the resulting Matured LC Obligation. Such a request by Borrower shall be made
in compliance with all of the provisions hereof, provided that for the purposes
of the first sentence of Section 2.1 the amount of such Loans shall be
considered but the amount of the Matured LC Obligation to be concurrently paid
by such Loans shall not be considered.

         (c) Participation by Lenders. LC Issuer irrevocably agrees to grant and
hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of
Credit hereunder -- each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from LC Issuer, on the terms and conditions
hereinafter stated and for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of LC Issuer's obligations and
rights under each Letter of Credit issued hereunder and the amount of each
Matured LC Obligation paid by LC Issuer thereunder. Each Lender unconditionally
and irrevocably agrees with LC Issuer that, if a Matured LC Obligation is paid
under any Letter of Credit for which LC Issuer is not reimbursed in full by
Borrower in accordance with the terms of this Agreement and the related LC
Application (including any reimbursement by means of concurrent Loans or by the
application of LC Collateral), such Lender shall (in all circumstances and
without set-off or counterclaim) pay to LC Issuer on demand, in immediately
available funds at LC Issuer's address for notices hereunder, such Lender's
Percentage Share of such Matured LC Obligation (or any portion thereof which has
not been reimbursed by Borrower). Each Lender's obligation to pay LC Issuer
pursuant to the terms of this subsection is irrevocable and unconditional. If
any amount required to be paid by any Lender to LC Issuer pursuant to this
subsection is paid by such Lender to LC Issuer within three Business Days after
the date such payment is due, LC Issuer shall in addition to such amount be
entitled to recover from such Lender, on demand, interest thereon calculated
from such due date at the Federal Funds Rate. If any amount required to be paid
by any Lender to LC Issuer pursuant to this subsection is not paid by such
Lender to LC Issuer within three Business Days after the date such payment is
due, LC Issuer shall in addition to such amount be entitled to recover from such
Lender, on demand, interest thereon calculated from such due date at the Default
Rate.

         (d) Distributions to Participants. Whenever LC Issuer has in accordance
with this section received from any Lender payment of such Lender's Percentage
Share of any Matured LC Obligation, if LC Issuer thereafter receives any payment
of such Matured LC Obligation or any payment of interest thereon (whether
directly from Borrower or by application of LC Collateral or otherwise, and
excluding only interest for any period prior to LC Issuer's demand that such
Lender make such payment of its Percentage Share), LC Issuer will distribute to
such Lender its Percentage Share of the amounts so received by LC Issuer;
provided, however, that if any such payment received by LC Issuer must
thereafter be returned by LC Issuer, such Lender shall return to LC Issuer the
portion thereof which LC Issuer has previously distributed to it.

                                       30
<PAGE>   31

         (e) Calculations. A written advice setting forth in reasonable detail
the amounts owing under this section, submitted by LC Issuer to Borrower or any
Lender from time to time, shall be conclusive, absent manifest error, as to the
amounts thereof.

         Section 2.14. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay (a) to Agent, for the
account of all Lenders, a letter of credit fee determined on a daily basis by
applying the Letter of Credit Fee Rate to such Lender's Percentage Share of the
face amount of the Letter of Credit (but in no event less than $500 per annum),
and (b) to such LC Issuer for its own account, a letter of credit fronting fee
at a rate equal to one-eighth percent (.125%) per annum times the face amount of
such Letter of Credit (but in no event less than $250 per annum). The letter of
credit fee and the letter of credit fronting fee will be calculated on the face
amount of each Letter of Credit outstanding on each day at the above-applicable
rates and will be due and payable in arrears on the last day of each March,
June, September and December.

         Section 2.15. No Duty to Inquire.

         (a) Drafts and Demands. LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit without
requiring, and without responsibility for, any determination as to the existence
of any event giving rise to said draft, either at the time of acceptance or
payment or thereafter. LC Issuer is under no duty to determine the proper
identity of anyone presenting such a draft or making such a demand (whether by
tested telex or otherwise) as the officer, representative or agent of any
beneficiary under any Letter of Credit, and payment by LC Issuer to any such
beneficiary when requested by any such purported officer, representative or
agent is hereby authorized and approved. Borrower agrees to hold LC Issuer and
each other Bank Party harmless and indemnified against any liability or claim in
connection with or arising out of the subject matter of this section, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.

         (b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, if any extension of the
maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of any Restricted Person,
or if the amount of any Letter of Credit is increased at the request of any
Restricted Person, this Agreement shall be binding upon all Restricted Persons
with respect to such Letter of Credit as so extended, increased or otherwise
modified, with respect to drafts and property covered thereby, and with respect
to any action taken by LC Issuer, LC Issuer's correspondents, or any Bank Party
in accordance with such extension, increase or other modification.

         (c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
LC Issuer be charged with responsibility of any

                                       31
<PAGE>   32

nature or character for the validity or correctness of any transfer or
successive transfers, and payment by LC Issuer to any purported transferee or
transferees as determined by LC Issuer is hereby authorized and approved, and
Borrower further agrees to hold LC Issuer and each other Bank Party harmless and
indemnified against any liability or claim in connection with or arising out of
the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR
CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY, provided only that no
Bank Party shall be entitled to indemnification for that portion, if any, of any
liability or claim which is proximately caused by its own individual gross
negligence or willful misconduct, as determined in a final judgment.

         Section 2.16. LC Collateral.

         (a) LC Obligations in Excess of Borrowing Base. If, after the making of
all mandatory prepayments required under Section 2.7, the principal balance of
the Loans is zero, but the outstanding LC Obligations will exceed the Borrowing
Base, then in addition to such prepayment of the entire principal balance of the
Loans Borrower will immediately pay to LC Issuer an amount equal to such excess.
LC Issuer will hold such amount as security for the remaining LC Obligations
(all such amounts held as security for LC Obligations being herein collectively
called "LC Collateral") until (i) such LC Obligations become Matured LC
Obligations, at which time such LC Collateral may be applied to such Matured LC
Obligations or (ii) such LC Obligations expire at which time any LC Collateral
in excess of any remaining LC Obligations will be returned to Borrower. Neither
this subsection nor the following subsection shall, however, limit or impair any
rights which LC Issuer may have under any other document or agreement relating
to any Letter of Credit, LC Collateral or LC Obligation, including any LC
Application, or any rights which any Bank Party may have to otherwise apply any
payments by Borrower and any LC Collateral under Section 3.1.

         (b) Acceleration of LC Obligations. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then, unless
Majority Lenders otherwise specifically elect to the contrary (which election
may thereafter be retracted by Majority Lenders at any time), all LC Obligations
shall become immediately due and payable without regard to whether or not actual
drawings or payments on the Letters of Credit have occurred, and Borrower shall
be obligated to pay to LC Issuer immediately an amount equal to the aggregate LC
Obligations which are then outstanding. All amounts so paid shall first be
applied to Matured LC Obligations and then held by LC Issuer as LC Collateral
until such LC Obligations become Matured LC Obligations, at which time such LC
Collateral shall be applied to such Matured LC Obligations.

         (c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such investments as LC Issuer may
choose in its sole discretion. All interest on such investments shall be
reinvested or applied to Matured LC Obligations. When all Obligations have been
satisfied in full, including all LC Obligations, all Letters of Credit have
expired or been terminated, and all of Borrower's reimbursement obligations in
connection therewith have been satisfied in full, LC Issuer shall release any
remaining LC Collateral. Borrower hereby assigns and grants to LC Issuer a
continuing security interest in all LC

                                       32
<PAGE>   33

Collateral paid by it to LC Issuer, all investments purchased with such LC
Collateral, and all proceeds thereof to secure its Matured LC Obligations and
its Obligations under this Agreement, each Note, and the other Loan Documents,
and Borrower agrees that such LC Collateral and investments shall be subject to
all of the terms and conditions of the Security Documents. Borrower further
agrees that LC Issuer shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code as adopted in the State of Texas with
respect to such security interest and that an Event of Default under this
Agreement shall constitute a default for purposes of such security interest.

         (d) Payment of LC Collateral. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC Issuer
may without notice to Borrower or any other Restricted Person provide such LC
Collateral (whether by application of proceeds of other Collateral, by transfers
from other accounts maintained with LC Issuer, or otherwise) using any available
funds of Borrower or any other Person also liable to make such payments. Any
such amounts which are required to be provided as LC Collateral and which are
not provided on the date required shall, for purposes of each Security Document,
be considered past due Obligations owing hereunder, and LC Issuer is hereby
authorized to exercise its respective rights under each Security Document to
obtain such amounts.

                        ARTICLE III - Payments to Lenders

         Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Bank Party to
whom such payment is owed. Each such payment must be received by Agent not later
than 10:00 a.m., Los Angeles, California time, on the date such payment becomes
due and payable, in lawful money of the United States of America, without
set-off, deduction or counterclaim, and in immediately available funds. Any
payment received by Agent after such time will be deemed to have been made on
the next following Business Day. Should any such payment become due and payable
on a day other than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of a payment of
principal or past due interest, interest shall accrue and be payable thereon for
the period of such extension as provided in the Loan Document under which such
payment is due. Each payment under a Loan Document shall be due and payable at
the place provided therein and, if no specific place of payment is provided,
shall be due and payable at the place of payment of Agent's Note. When Agent
collects or receives money on account of the Obligations, Agent shall distribute
all money so collected or received, and each Bank Party shall apply all such
money so distributed, as follows:

                  (a) first, for the payment of all Obligations which are then
         due (and if such money is insufficient to pay all such Obligations,
         first to any reimbursements due Agent under Section 6.9 or 10.4 and
         then to the partial payment of all other Obligations then due in
         proportion to the amounts thereof, or as Bank Parties shall otherwise
         agree);

                  (b) then for the prepayment of amounts owing under the Loan
         Documents (other than principal on the Notes) if so specified by
         Borrower;

                                       33
<PAGE>   34

                  (c) then for the prepayment of principal on the Notes,
         together with accrued and unpaid interest on the principal so prepaid;
         and

                  (d) last, for the payment or prepayment of any other
         Obligations.

All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Section
2.6. All distributions of amounts described in any of subsections (b), (c) or
(d) above shall be made by Agent pro rata to each Bank Party then owed
Obligations described in such subsection in proportion to all amounts owed to
all Bank Parties which are described in such subsection; provided that if any
Lender then owes payments to LC Issuer for the purchase of a participation under
Section 2.13(c) or to Agent under Article II or Section 9.4, any amounts
otherwise distributable under this section to such Lender shall be deemed to
belong to LC Issuer or Agent, respectively, to the extent of such unpaid
payments, and Agent shall apply such amounts to make such unpaid payments rather
than distribute such amounts to such Lender.

         Section 3.2. Increased Cost and Reduced Return.

         (a) If, after the date hereof, the adoption of any applicable Law,
rule, or regulation, or any change in any applicable Law, rule, or regulation,
or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of Law) of any such governmental authority, central bank, or
comparable agency:

                  (i) shall subject such Lender (or its Applicable Lending
         Office) to any tax, duty, or other charge with respect to any
         Eurodollar Loans, its Notes, or its obligation to make Eurodollar
         Loans, or change the basis of taxation of any amounts payable to such
         Lender (or its Applicable Lending Office) under this Agreement or its
         Notes in respect of any Eurodollar Loans (other than taxes imposed on
         the overall net income of such Lender by the jurisdiction in which such
         Lender has its principal office or such Applicable Lending Office);

                  (ii) shall impose, modify, or deem applicable any reserve,
         special deposit, assessment, or similar requirement (other than the
         Reserve Requirement utilized in the determination of the Eurodollar
         Rate) relating to any extensions of credit or other assets of, or any
         deposits with or other liabilities or commitments of, such Lender (or
         its Applicable Lending Office), including the Commitment of such Lender
         hereunder; or

                  (iii) shall impose on such Lender (or its Applicable Lending
         Office) or the London interbank market any other condition affecting
         this Agreement or its Notes or any of such extensions of credit or
         liabilities or commitments;

and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or

                                       34
<PAGE>   35

to reduce any sum received or receivable by such Lender (or its Applicable
Lending Office) under this Agreement or its Notes with respect to any Eurodollar
Loans, then Borrower shall pay to such Lender on demand such amount or amounts
as will compensate such Lender for such increased cost or reduction. If any
Lender requests compensation by Borrower under this Section 3.2(a), Borrower
may, by notice to such Lender (with a copy to Agent), suspend the obligation of
such Lender to make or Continue Loans of the Type with respect to which such
compensation is requested, or to Convert Loans of any other Type into Loans of
such Type, until the event or condition giving rise to such request ceases to be
in effect (in which case the provisions of Section 3.5 shall be applicable);
provided that such suspension shall not affect the right of such Lender to
receive the compensation so requested.

         (b) If, after the date hereof, any Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for such
reduction but only to the extent that such Lender has not been compensated
therefor by an increase in the Eurodollar Rate.

         (c) Each Lender shall promptly notify Borrower and Agent of any event
of which it has knowledge, occurring after the date hereof, which will entitle
such Lender to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming compensation
under this Section shall furnish to Borrower and Agent a statement setting forth
the additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In determining such amount, such
Lender shall act in good faith and may use any reasonable averaging and
attribution methods.

         Section 3.3. Limitation on Types of Loans. If on or prior to the first
day of any Interest Period for any Eurodollar Loan:

         (a) Agent determines (which determination shall be conclusive) that by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such Interest
Period; or

         (b) the Majority Lenders determine (which determination shall be
conclusive) and notify Agent that the Eurodollar Rate will not adequately and
fairly reflect the cost to Lenders of funding Eurodollar Loans for such Interest
Period;

                                       35
<PAGE>   36

then Agent shall give Borrower prompt notice thereof specifying the relevant
Type of Loans and the relevant amounts or periods, and so long as such condition
remains in effect, Lenders shall be under no obligation to make additional Loans
of such Type, Continue Loans of such Type, or to Convert Loans of any other Type
into Loans of such Type and Borrower shall, on the last day(s) of the then
current Interest Period(s) for the outstanding Loans of the affected Type,
either prepay such Loans or Convert such Loans into another Type of Loan in
accordance with the terms of this Agreement.

         Section 3.4. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to make, maintain, or fund Eurodollar Loans hereunder,
then such Lender shall promptly notify Borrower thereof and such Lender's
obligation to make or Continue Eurodollar Loans and to Convert other Types of
Loans into Eurodollar Loans shall be suspended until such time as such Lender
may again make, maintain, and fund Eurodollar Loans (in which case the
provisions of Section 3.5 shall be applicable).

         Section 3.5. Treatment of Affected Loans. If the obligation of any
Lender to make a particular Type of Eurodollar Loan or to continue, or to
Convert Loans of any other Type into, Loans of a particular Type shall be
suspended pursuant to Section 3.2 or 3.4 hereof (Loans of such Type being herein
called "Affected Loans" and such Type being herein called the "Affected Type"),
such Lender's Affected Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Affected
Loans (or, in the case of a Conversion required by Section 3.4 hereof, on such
earlier date as such Lender may specify to Borrower with a copy to Agent) and,
unless and until such Lender gives notice as provided below that the
circumstances specified in Section 3.2 or 3.4 hereof that gave rise to such
Conversion no longer exist:

         (a) to the extent that such Lender's Affected Loans have been so
Converted, all payments and prepayments of principal that would otherwise be
applied to such Lender's Affected Loans shall be applied instead to its Base
Rate Loans; and

         (b) all Loans that would otherwise be made or Continued by such Lender
as Loans of the Affected Type shall be made or Continued instead as Base Rate
Loans, and all Loans of such Lender that would otherwise be Converted into Loans
of the Affected Type shall be Converted instead into (or shall remain as) Base
Rate Loans.

If such Lender gives notice to Borrower (with a copy to Agent) that the
circumstances specified in Section 3.2 or 3.4 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 3.5 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their Percentage Shares of the
Commitment.

                                       36
<PAGE>   37

         Section 3.6. Compensation. Upon the request of any Lender, Borrower
shall pay to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost, or
expense (including loss of anticipated profits) incurred by it as a result of:

         (a) any payment, prepayment, or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the Loans pursuant to
Section 8.1) on a date other than the last day of the Interest Period for such
Loan; or

         (b) any failure by Borrower for any reason (including, without
limitation, the failure of any condition precedent specified in Article IV to be
satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Loan on the date
for such borrowing, Conversion, Continuation, or prepayment specified in the
relevant notice of borrowing, prepayment, Continuation, or Conversion under this
Agreement.

         Section 3.7. Taxes.

         (a) Any and all payments by Borrower to or for the account of any
Lender or Agent hereunder or under any other Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the Laws of which such Lender (or its Applicable Lending
Office) or Agent (as the case may be) is organized or any political subdivision
thereof (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If Borrower shall be required by Law to deduct any Taxes from or in
respect of any sum payable under this Agreement or any other Loan Document to
any Lender or Agent, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 3.7) such Lender or Agent receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable Law.

         (b) In addition, Borrower agrees to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").

         (c) Borrower agrees to indemnify each Lender and Agent for the full
amount of Taxes and Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 3.7) paid by such Lender or Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.

                                       37
<PAGE>   38

         (d) Each Lender organized under the Laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by Borrower or
Agent (but only so long as such Lender remains lawfully able to do so), shall
provide Borrower and Agent with (i) Internal Revenue Service Form 1001 or 4224,
as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which reduces the rate of
withholding tax on payments of interest or certifying that the income receivable
pursuant to this Agreement is effectively connected with the conduct of a trade
or business in the United States, (ii) Internal Revenue Service Form W-8 or W-9,
as appropriate, or any successor form prescribed by the Internal Revenue
Service, and (iii) any other form or certificate required by any taxing
authority (including any certificate required by Sections 871(h) and 881(c) of
the Internal Revenue Code), certifying that such Lender is entitled to an
exemption from or a reduced rate of tax on payments pursuant to this Agreement
or any of the other Loan Documents.

         (e) For any period with respect to which a Lender has failed to provide
Borrower and Agent with the appropriate form pursuant to Section 3.7(d) (unless
such failure is due to a change in treaty, Law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 3.7(a) or
3.7(b) with respect to Taxes imposed by the United States; provided, however,
that should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of its failure to
deliver a form required hereunder, Borrower shall take such steps as such Lender
shall reasonably request to assist such Lender to recover such Taxes.

         (f) If Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 3.7, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender and in the event Lender is reimbursed
for an amount paid by Borrower pursuant to this Section 3.7, it shall promptly
return such amount to Borrower.

         (g) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Agent the original or a certified copy of a receipt
evidencing such payment.

         (h) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in this
Section 3.7 shall survive the termination of the Commitment and the payment in
full of the Notes.

         Section 3.8. Compensation Procedure. Any Lender or LC Issuer notifying
Borrower of the incurrence of additional costs under Sections 3.2 through 3.7
shall in such notice to Borrower and Agent set forth in reasonable detail the
basis and amount of its request for compensation.

                                       38
<PAGE>   39

Determinations and allocations by each Lender or LC Issuer for purposes of
Sections 3.2 through 3.7 of the effect of any change in applicable laws,
treaties, rules or regulations or in the interpretation or administration
thereof, any losses or expenses incurred by reason of the liquidation or
reemployment of deposits or other funds, any Taxes imposed, or the effect of
capital maintained on its costs or rate of return of maintaining Loans or its
obligation to make Loans, or on amounts receivable by it in respect of Loans,
and of the amounts required to compensate such Lender under Sections 3.2 through
3.7, shall be conclusive and binding for all purposes, absent manifest error.
Any request for compensation under this Section 3.8 shall be paid by Borrower
within thirty (30) Business Days of the receipt by Borrower of the notice
described in this Section 3.8.

         Section 3.9. Change of Applicable Lending Office. Each Bank Party
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2 through 3.6 with respect to such Bank Party, it will, if requested
by Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank Party) to designate another Lending Office, provided that such
designation is made on such terms that such Bank Party and its Lending Office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section. Nothing in this section shall affect or postpone any of the obligations
of Borrower or the rights of any Bank Party provided in Sections 3.2 through
3.6.

                  ARTICLE IV - Conditions Precedent to Lending

         Section 4.1. Documents to be Delivered. No Lender has any obligation to
make its first Loan, and LC Issuer has no obligation to issue the first Letter
of Credit unless Agent shall have received all of the following, at Agent's
office in Los Angeles, California, duly executed and delivered and in form,
substance and date satisfactory to Agent:

                  (a) This Agreement and any other documents that Lenders are to
         execute in connection herewith.

                  (b) Each Note.

                  (c) Each Security Document listed in the Security Schedule.

                  (d) Certain certificates of Borrower including:

                           (i) An "Omnibus Certificate" of the Secretary and of
                  the Chairman of the Board or President of the general partner
                  of Borrower, which shall contain the names and signatures of
                  the officers of the general partner of Borrower authorized to
                  execute Loan Documents and which shall certify to the truth,
                  correctness and completeness of the following exhibits
                  attached thereto: (1) a copy of resolutions duly adopted by
                  the Board of Directors of the general partner of Borrower and
                  in full force and effect at the time this Agreement is entered
                  into, authorizing the execution of this Agreement and the
                  other Loan Documents delivered or to be

                                       39
<PAGE>   40

                  delivered in connection herewith and the consummation of the
                  transactions contemplated herein and therein, (2) a copy of
                  the charter documents of Borrower and all amendments thereto,
                  certified by the appropriate official of Borrower's and
                  general partner's state of organization, and (3) a copy of any
                  bylaws of the general partner of Borrower; and

                           (ii) A "Compliance Certificate" of the Chairman of
                  the Board or President and of the Treasurer of Parent, of even
                  date with such Loan or such Letter of Credit, in which such
                  officers certify to the satisfaction of the conditions set out
                  in subsections (a), (b), (c) and (d) of Section 4.2.

                  (e) A certificate (or certificates) of the due formation,
         valid existence and good standing of Borrower in its state of
         organization, issued by the appropriate authorities of such
         jurisdiction, and certificates of Borrower's good standing and due
         qualification to do business, issued by appropriate officials in any
         states in which Borrower owns property subject to Security Documents.

                  (f) Documents similar to those specified in subsections (d)(i)
         and (e) of this Section with respect to each Guarantor and the
         execution by it of its guaranty of Borrower's Obligations.

                  (g) A favorable opinion of Messrs. Self, Giddens and Lees,
         counsel for Restricted Persons, substantially in the form set forth in
         Exhibit F.

                  (h) The Initial Engineering Report and the Initial Financial
         Statements.

                  (i) Certificates or binders evidencing Restricted Persons'
         insurance in effect on the date hereof.

                  (j) Payment of all commitment, facility, agency and other fees
         required to be paid to any Bank Party pursuant to any Loan Documents or
         any commitment agreement heretofore entered into.

         Section 4.2. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:

                  (a) All representations and warranties made by any Restricted
         Person in any Loan Document shall be true on and as of the date of such
         Loan or the date of issuance of such Letter of Credit (except to the
         extent that the facts upon which such representations are based have
         been changed by the extension of credit hereunder) as if such
         representations and warranties had been made as of the date of such
         Loan or the date of issuance of such Letter of Credit.

                  (b) No Default shall exist at the date of such Loan or the
         date of issuance of such Letter of Credit.

                                       40
<PAGE>   41

                  (c) After giving effect to all Loans and Letters of Credit
         requested to be issued on such day (i) the Facility Usage does not
         exceed the Borrowing Base in effect on such day and (ii) the Facility
         Usage does not exceed the Senior Debt Limit in effect on such day.

                  (d) No Material Adverse Change shall have occurred to, and no
         event or circumstance shall have occurred that could cause a Material
         Adverse Change to Parent's Consolidated financial condition or
         businesses or Borrower's financial condition or businesses since the
         date of this Agreement.

                  (e) Each Restricted Person shall have performed and complied
         with all agreements and conditions required in the Loan Documents to be
         performed or complied with by it on or prior to the date of such Loan
         or the date of issuance of such Letter of Credit.

                  (f) The making of such Loan or the issuance of such Letter of
         Credit shall not be prohibited by any Law and shall not subject any
         Lender or any LC Issuer to any penalty or other onerous condition under
         or pursuant to any such Law.

                  (g) Agent shall have received all documents and instruments
         which Agent has then requested, in addition to those described in
         Section 4.1 (including opinions of legal counsel for Restricted Persons
         and Agent; corporate documents and records; documents evidencing
         governmental authorizations, consents, approvals, licenses and
         exemptions; and certificates of public officials and of officers and
         representatives of Borrower and other Persons), as to (iii) the
         accuracy and validity of or compliance with all representations,
         warranties and covenants made by any Restricted Person in this
         Agreement and the other Loan Documents, (iv) the satisfaction of all
         conditions contained herein or therein, and (v) all other matters
         pertaining hereto and thereto. All such additional documents and
         instruments shall be satisfactory to Agent in form, substance and date.

                   ARTICLE V - Representations and Warranties

         To confirm each Bank Party's understanding concerning Restricted
Persons and Restricted Persons' businesses, properties and obligations and to
induce each Bank Party to enter into this Agreement and to extend credit
hereunder, Parent and Borrower represents and warrants to each Bank Party that:

         Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.

         Section 5.2. Organization and Good Standing. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having

                                       41
<PAGE>   42

all powers required to carry on its business and enter into and carry out the
transactions contemplated hereby. Each Restricted Person is duly qualified, in
good standing, and authorized to do business in all other jurisdictions within
the United States wherein the character of the properties owned or held by it or
the nature of the business transacted by it makes such qualification necessary.
Each Restricted Person has taken all actions and procedures customarily taken in
order to enter, for the purpose of conducting business or owning property, each
jurisdiction outside the United States wherein the character of the properties
owned or held by it or the nature of the business transacted by it makes such
actions and procedures desirable.

         Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.

         Section 5.4. No Conflicts or Consents. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person, or (3) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (ii) result in the acceleration of any Indebtedness owed by any
Restricted Person, (iii) result in or require the creation of any Lien upon any
assets or properties of any Restricted Person, (iv) result in or require the
creation of any guaranty by any Restricted Person of any Indebtedness of any
other Person except for the guaranties listed in the Security Schedule or (v)
violate the restrictions imposed by any of the Indentures. Except as expressly
contemplated in the Loan Documents no consent, approval, authorization or order
of, and no notice to or filing with, any Tribunal or third party is required in
connection with the execution, delivery or performance by any Restricted Person
of any Loan Document or to consummate any transactions contemplated by the Loan
Documents.

         Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.

         Section 5.6. Initial Financial Statements. Borrower has heretofore
delivered to each Bank Party true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Parent's
Consolidated financial position at the respective dates thereof and the
Consolidated results of Parent's operations and Parent's Consolidated cash flows
for the respective periods thereof. Since the date of the annual Initial
Financial Statements no Material Adverse Change has occurred, except as
reflected in the Disclosure Schedule. All Initial Financial Statements were
prepared in accordance with GAAP.

         Section 5.7. Other Obligations and Restrictions. No Restricted Person
has any outstanding Liabilities of any kind (including contingent obligations,
tax assessments, and

                                       42
<PAGE>   43

unusual forward or long-term commitments) which are, in the aggregate, material
to such Restricted Person or material with respect to Restricted Persons'
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report.
Except as shown in the Initial Financial Statements or disclosed in the
Disclosure Schedule or a Disclosure Report, no Restricted Person is subject to
or restricted by any franchise, contract, deed, charter restriction, or other
instrument or restriction which could cause a Material Adverse Change.

         Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Bank Party in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact known to any Restricted Person
(other than industry-wide risks normally associated with the types of businesses
conducted by Restricted Persons) necessary to make the statements contained
herein or therein not misleading as of the date made or deemed made. There is no
fact known to any Restricted Person (other than industry-wide risks normally
associated with the types of businesses conducted by Restricted Persons) that
has not been disclosed to each Bank Party in writing which could cause a
Material Adverse Change. There are no statements or conclusions in any
Engineering Report which are based upon or include misleading information or
fail to take into account material information regarding the matters reported
therein, it being understood that each Engineering Report is necessarily based
upon professional opinions, estimates and projections and that no Restricted
Person warrants that such opinions, estimates and projections will ultimately
prove to have been accurate. Borrower has heretofore delivered to each Bank
Party true, correct and complete copies of the Initial Engineering Report.

         Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (ii) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's directors or
officers which could cause a Material Adverse Change.

         Section 5.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.

         Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed in the Disclosure Schedule or a Disclosure Report. Except as
disclosed in the Initial Financial Statements or in the Disclosure Schedule or a
Disclosure Report, no Termination Event has occurred with respect to any ERISA
Plan and all ERISA Affiliates are in compliance with ERISA in all material
respects. No ERISA Affiliate is required to contribute to, or has any other
absolute or contingent liability in respect of, any "multiemployer plan" as
defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule
or a Disclosure Report: (i) no

                                       43
<PAGE>   44

"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended) exists with respect to any ERISA Plan, whether
or not waived by the Secretary of the Treasury or his delegate, and (ii) the
current value of each ERISA Plan's benefits does not exceed the current value of
such ERISA Plan's assets available for the payment of such benefits by more than
$500,000.

         Section 5.12. Environmental and Other Laws. Except as disclosed in the
Disclosure Schedule or a Disclosure Report: (a) Restricted Persons are
conducting their businesses in material compliance with all applicable Laws,
including Environmental Laws, and have and are in compliance with all licenses
and permits required under any such Laws; (b) none of the operations or
properties of any Restricted Person is the subject of federal, state or local
investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) no Restricted Person (and to the best
knowledge of Borrower, no other Person) has filed any notice under any Law
indicating that any Restricted Person is responsible for the improper release
into the environment, or the improper storage or disposal, of any material
amount of any Hazardous Materials or that any Hazardous Materials have been
improperly released, or are improperly stored or disposed of, upon any property
of any Restricted Person; (d) no Restricted Person has transported or arranged
for the transportation of any Hazardous Material to any location which is (i)
listed on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, listed for
possible inclusion on such National Priorities List by the Environmental
Protection Agency in its Comprehensive Environmental Response, Compensation and
Liability Information System List, or listed on any similar state list or (ii)
the subject of federal, state or local enforcement actions or other
investigations which may lead to claims against any Restricted Person for
clean-up costs, remedial work, damages to natural resources or for personal
injury claims (whether under Environmental Laws or otherwise); and (e) no
Restricted Person otherwise has any known material contingent liability under
any Environmental Laws or in connection with the release into the environment,
or the storage or disposal, of any Hazardous Materials.

         Section 5.13. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the chief
executive office and principal place of business of each Restricted Person are
(and for the preceding five years have been) located at the address of Borrower
set out in Section 10.3. Except as indicated in the Disclosure Schedule or a
Disclosure Report, no Restricted Person has any other office or place of
business.

         Section 5.14. Borrower's Subsidiaries. Parent does not presently have
any Subsidiary or own any stock in any other corporation or association except
those listed in the Disclosure Schedule or a Disclosure Report. No Restricted
Person is a member of any general or limited partnership, joint venture or
association of any type whatsoever except those listed in the Disclosure
Schedule or a Disclosure Report and except those associations, joint ventures or
other relationships (a) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships for purposes
of federal income taxation only, (b)

                                       44
<PAGE>   45

which are not corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state Law, and (c) whose businesses are
limited to the exploration, development and operation of oil, gas or mineral
properties and interests owned directly by the parties in such associations,
joint ventures or relationships. Except as otherwise revealed in a Disclosure
Report, Borrower owns, directly or indirectly, the equity interest in each of
its Subsidiaries which is indicated in the Disclosure Schedule.

         Section 5.15. Title to Properties; Licenses. Each Restricted Person has
good and defensible title to all of its material properties and assets, free and
clear of all Liens other than Permitted Liens and of all impediments to the use
of such properties and assets in such Restricted Person's business, except that
no representation or warranty is made with respect to any oil, gas or mineral
property or interest to which no proved oil or gas reserves are properly
attributed. Other than Liens permitted under Section 7.2, each Restricted Person
will respectively own in the aggregate, in all material respects, the net
interests in production attributable to the wells and units evaluated in the
Initial Engineering Reports. The ownership of such Properties shall not in the
aggregate in any material respect obligate such Restricted Person to bear the
costs and expenses relating to the maintenance, development and operations of
such Properties in an amount materially in excess of the working interest of
such Properties set forth in the Initial Engineering Reports. Each Restricted
Person has paid all royalties payable under the oil and gas leases to which it
is operator, except those contested in accordance with the terms of the
applicable joint operating agreement or otherwise contested in good faith by
appropriate proceedings. Upon delivery of each Engineering Report furnished to
the Lenders pursuant to Section 6.2, the statements made in the preceding
sentences of this Section 5.15 shall be true with respect to such Engineering
Reports. All information contained in the Initial Engineering Reports is true
and correct in all material respects as of the date thereof and as of the date
of the first Loan hereunder. Each Restricted Person possesses all licenses,
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out its business as presently conducted and as presently
proposed to be conducted hereafter, and no Restricted Person is in violation in
any material respect of the terms under which it possesses such intellectual
property or the right to use such intellectual property.

         Section 5.16. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.

         Section 5.17. Insider. No Restricted Person, nor any Person having
"control" (as that term is defined in 12 U.S.C. Section 375b(9) or in
regulations promulgated pursuant thereto) of any Restricted Person, is a
"director" or an "executive officer" or "principal shareholder" (as those terms
are defined in 12 U.S.C. Section 375b(8) or (9) or in regulations promulgated
pursuant thereto) of any Bank Party, of a bank holding company of which any Bank
Party is a Subsidiary or of any Subsidiary of a bank holding company of which
any Bank Party is a Subsidiary.

                                       45
<PAGE>   46

         Section 5.18. Officers, Directors and Shareholders. The officers and
directors of Parent are those persons disclosed in the definitive proxy
statement prepared by Parent and filed with the SEC in connection with Parent's
most recent annual meeting, copies of which proxy statement have been previously
furnished in connection with the negotiation hereof.

         Section 5.19. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, each Restricted Person will be "solvent"
on the date hereof (as such term is used in applicable bankruptcy, liquidation,
receivership, insolvency or similar Laws). Each Restricted Person's capital is
adequate for the businesses in which such Restricted Person is engaged and
intends to be engaged. No Restricted Person has incurred (whether hereby or
otherwise), nor does any Restricted Person intend to incur or believe that it
will incur, debts which will be beyond its ability to pay as such debts mature.

                 ARTICLE VI - Affirmative Covenants of Borrower

         To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party to
enter into this Agreement and extend credit hereunder, Parent, Borrower and each
Guarantor warrants, covenants and agrees that until the full and final payment
of the Obligations and the termination of this Agreement, unless Majority
Lenders have previously agreed otherwise:

         Section 6.1. Payment and Performance. Each Restricted Person will pay
all amounts due under the Loan Documents in accordance with the terms thereof
and will observe, perform and comply with every covenant, term and condition
expressed or implied in the Loan Documents. Borrower will cause each other
Restricted Person to observe, perform and comply with every such term, covenant
and condition.

         Section 6.2. Books, Financial Statements and Reports. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Parent will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to each Bank Party at Parent's expense:

                  (a) As soon as available, and in any event within ninety (90)
         days after the end of each Fiscal Year, complete Consolidated and
         consolidating financial statements of Parent together with all notes
         thereto, prepared in reasonable detail in accordance with GAAP,
         together with an unqualified opinion, based on an audit using generally
         accepted auditing standards, by Price Waterhouse Coopers or another of
         the five nationally recognized firms of, or other independent certified
         public accountants selected by Borrower and acceptable to Agent,
         stating that such Consolidated financial statements have been so
         prepared. These financial statements shall contain a Consolidated and
         consolidating balance sheet as of the end of such Fiscal Year and
         Consolidated and consolidating statements of earnings, of cash flows,
         and of changes in owners' equity for such Fiscal Year, each setting
         forth in comparative form the corresponding figures for the preceding
         Fiscal Year. In addition, within ninety (90) days after the end of each
         Fiscal

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<PAGE>   47

         Year Borrower will furnish a report signed by such accountants (i)
         stating that they have read this Agreement, (ii) containing
         calculations showing compliance (or non-compliance) at the end of such
         Fiscal Year with the requirements of Sections 7.11 and 7.12, and (iii)
         further stating that in making their examination and reporting on the
         Consolidated financial statements described above they did not conclude
         that any Default existed at the end of such Fiscal Year or at the time
         of their report, or, if they did conclude that a Default existed,
         specifying its nature and period of existence.

                  (b) As soon as available, and in any event within forty-five
         (45) days after the end of each Fiscal Quarter, Parent's Consolidated
         and consolidating balance sheet as of the end of such Fiscal Quarter
         and Consolidated and consolidating statements of Parent's earnings and
         cash flows for the period from the beginning of the then current Fiscal
         Year to the end of such Fiscal Quarter, all in reasonable detail and
         prepared in accordance with GAAP, subject to changes resulting from
         normal year-end adjustments. In addition Borrower will, together with
         each such set of financial statements and each set of financial
         statements furnished under subsection (a) of this section, furnish a
         certificate in the form of Exhibit D signed by the chief financial
         officer or treasurer of Parent stating that such financial statements
         are accurate and complete (subject to normal year-end adjustments),
         stating that he has reviewed the Loan Documents, containing
         calculations showing compliance (or non-compliance) at the end of such
         Fiscal Quarter with the requirements of Sections 7.11 and 7.12 and
         stating that no Default exists at the end of such Fiscal Quarter or at
         the time of such certificate or specifying the nature and period of
         existence of any such Default.

                  (c) Promptly upon their becoming available, copies of all
         financial statements, reports, notices and proxy statements sent by any
         Restricted Person to its stockholders and all registration statements,
         periodic reports and other statements and schedules filed by any
         Restricted Person with any securities exchange, the SEC or any similar
         governmental authority.

                  (d) By April 15 of each year, an Engineering Report prepared
         by independent petroleum engineers chosen by Borrower and acceptable to
         Majority Lenders, concerning all oil and gas properties and interests
         owned by any Restricted Person which are located in or offshore of the
         United States and which have attributable to them proved oil or gas
         reserves. This report shall be satisfactory to Agent, shall contain
         sufficient information to enable Borrower to meet the reporting
         requirements concerning oil and gas reserves contained in Regulations
         S-K and S-X promulgated by the SEC, shall take into account any
         "over-produced" status under gas balancing arrangements, and shall
         contain information and analysis comparable in scope to that contained
         in the Initial Engineering Report. Accompanying such report, Borrower
         shall deliver a report reflecting, since the date reflected in the most
         recent report delivered pursuant to this clause (d) or pursuant to the
         following clause (e), the following (i) all property sales and pending
         property sales identifying the property and sale price therefor, (ii)
         all property purchases and pending property purchases identifying the
         property and the purchase price therefor, and (iii) additional changes
         in properties in each category from such previous report (i.e.: proven
         undeveloped, proven developed non-producing, or proven producing). This
         report shall

                                       47
<PAGE>   48

         distinguish (or shall be delivered together with a certificate from an
         appropriate officer of Borrower which distinguishes) those properties
         treated in the report which are Collateral from those properties
         treated in the report which are not Collateral.

                  (e) By September 15 of each year, and promptly following
         notice of an additional Evaluation Date, an engineering report prepared
         as of the preceding July 1 (or the first day of the second preceding
         calendar month in the case of an additional redetermination) by
         petroleum engineers who are employees of Borrower (or Chesapeake
         Operating Inc. under the management services agreement), together with
         an accompanying report on property sales, property purchases and
         changes in categories, both in the same form and scope as the reports
         in (d) above.

                  (f) As soon as available, and in any event within ninety (90)
         days after the end of each Fiscal Year, a business and financial plan
         for Restricted Persons (in form reasonably satisfactory to Agent),
         prepared by the chief financial officer thereof, setting forth for the
         first year thereof, quarterly financial projections and budgets for
         Restricted Persons, and thereafter yearly financial projections and
         budgets during the Commitment Period.

                  (g) As soon as available, and in any event within sixty (60)
         days after the end of each month, a report describing by lease or unit
         the gross volume of production and sales attributable to production
         during such month from the properties described in subsection (d) above
         and describing the related severance taxes, other taxes, leasehold
         operating expenses and capital costs attributable thereto and incurred
         during such month.

                  (h) As soon as available, and in any event within sixty (60)
         days after the end of each Fiscal Quarter, a report setting forth
         volumes, prices and margins for all marketing activities of Borrower
         and the other Restricted Persons and a report of all Hedging Contracts
         in such detail as Agent may request.

         Section 6.3. Other Information and Inspections. Each Restricted Person
will furnish to each Bank Party any information which Agent may from time to
time request in writing concerning any covenant, provision or condition of the
Loan Documents or any matter in connection with Restricted Persons' businesses
and operations. Each Restricted Person will permit representatives appointed by
Agent (including independent accountants, auditors, agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person's property, including its books of account,
other books and records, and any facilities or other business assets, and to
make extra copies therefrom and photocopies and photographs thereof, and to
write down and record any information such representatives obtain, and each
Restricted Person shall permit Agent or its representatives to investigate and
verify the accuracy of the information furnished to Agent or any Lender in
connection with the Loan Documents and to discuss all such matters with its
officers, employees and representatives.

         Section 6.4. Notice of Material Events and Change of Address. Borrower
will promptly notify each Bank Party in writing, stating that such notice is
being given pursuant to this Agreement, of:

                                       48
<PAGE>   49

                  (a) the occurrence of any Material Adverse Change,

                  (b) the occurrence of any Default,

                  (c) the acceleration of the maturity of any Indebtedness owed
         by any Restricted Person or of any default by any Restricted Person
         under any indenture, mortgage, agreement, contract or other instrument
         to which any of them is a party or by which any of them or any of their
         properties is bound, if such acceleration or default could cause a
         Material Adverse Change,

                  (d) the occurrence of any Termination Event,

                  (e) any claim of $1,000,000 or more, any notice of potential
         liability under any Environmental Laws which might exceed such amount,
         or any other material adverse claim asserted against any Restricted
         Person or with respect to any Restricted Person's properties, and

                  (f) the filing of any suit or proceeding against any
         Restricted Person in which an adverse decision could cause a Material
         Adverse Change.

Upon the occurrence of any of the foregoing Borrower and Guarantors will take
all necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that Borrower or any Guarantor changes its name or the location of its
chief executive office or principal place of business or the place where it
keeps its books and records concerning the Collateral, furnishing with such
notice any necessary financing statement amendments or requesting Agent and its
counsel to prepare the same.

         Section 6.5.  Maintenance of Properties.

         (a) Each Restricted Person will (i) do or cause to be done all things
reasonably necessary to preserve and keep in good repair, working order and
efficiency (ordinary wear and tear excepted) all of the properties owned by each
Restricted Person, including without limitation, all equipment, machinery and
facilities, and (ii) make all the reasonably necessary repairs, renewals and
replacements so that at all times the state and condition of the properties
owned by each Restricted Person will be fully preserved and maintained, except
to the extent a portion of such properties are oil and gas properties no longer
capable of producing hydrocarbons in economically reasonable amounts.

         (b) Each Restricted Person will promptly pay and discharge or cause to
be paid and discharged all delay rentals, royalties, expenses and indebtedness
accruing under, and perform or cause to be performed each and every act, matter
or thing required by, each and all of the assignments, deeds, leases,
sub-leases, contracts and agreements affecting its interests in its

                                       49
<PAGE>   50

properties and will do all other things necessary to keep unimpaired each
Restricted Person's rights with respect thereto and prevent any forfeiture
thereof or a default thereunder, except to the extent a portion of oil and gas
properties is no longer capable of producing hydrocarbons in economically
reasonable amounts.

         (c) Each Restricted Person will operate its properties or cause or use
commercially reasonably efforts to cause such properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
in all material respects with all laws.

         Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except (i) for any
Restricted Person which ceases to exist as a result of a merger, consolidation
or other transaction permitted under Section 7.4 or (ii) where the failure so to
qualify will not cause a Material Adverse Change.

         Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted
Person will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within one hundred twenty (120) days after
the original invoice or billing date therefor pay all Liabilities owed by it on
ordinary trade terms to vendors, suppliers and other Persons providing goods and
services used by it in the ordinary course of its business; (d) pay and
discharge when due all other Liabilities now or hereafter owed by it; and (e)
maintain appropriate accruals and reserves for all of the foregoing in
accordance with GAAP. Each Restricted Person may, however, delay paying or
discharging any of the foregoing so long as it is in good faith contesting the
validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.

         Section 6.8. Insurance. Each Restricted Person will keep or cause to be
kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule. Borrower will maintain the additional
insurance coverage as described in the respective Security Documents. Upon
demand by Agent any insurance policies covering Collateral shall be endorsed (a)
to provide for payment of losses to Agent as its interests may appear, (b) to
provide that such policies may not be canceled or reduced or affected in any
material manner for any reason without fifteen days prior notice to Agent, (c)
to provide for any other matters specified in any applicable Security Document
or which Agent may reasonably require; and (d) to provide for insurance against
fire, casualty and any 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 businesses and properties) of the property
insured. Each Restricted Person shall at all times maintain insurance against
its liability for injury to persons or property in accordance with the Insurance
Schedule, which insurance shall be by financially sound and reputable insurers.
Without limiting the foregoing, each Restricted Person shall at all times
maintain liability insurance in accordance with the Insurance Schedule.

                                       50
<PAGE>   51

         Section 6.9. Performance on Borrower's Behalf. If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each amount
paid by Agent shall constitute an Obligation owed hereunder which is due and
payable on the date such amount is paid by Agent.

         Section 6.10. Interest. Borrower hereby promises to each Bank Party to
pay interest at the Default Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Bank Party) which Borrower has in this
Agreement promised to pay to such Bank Party and which are not paid when due.
Such interest shall accrue from the date such Obligations become due until they
are paid.

         Section 6.11. Compliance with Agreements and Law. Each Restricted
Person will perform all material obligations it is required to perform under the
terms of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Restricted Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.

         Section 6.12. Environmental Matters; Environmental Reviews.

         (a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted Person, as
well as all contractual obligations and agreements with respect to environmental
remediation or other environmental matters and shall obtain, at or prior to the
time required by applicable Environmental Laws, all environmental, health and
safety permits, licenses and other authorizations necessary for its operations
and will maintain such authorizations in full force and effect.

         (b) Each Restricted Person will promptly furnish to Agent all written
notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by any Restricted Person, or of
which it has notice, pending or threatened against any Restricted Person, by any
governmental authority with respect to any alleged violation of or
non-compliance in any material respect with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use of
its properties or the operation of its business.

         (c) Each Restricted Person will promptly furnish to Agent all requests
for information, notices of claim, demand letters, and other notifications,
received by any Restricted Person in connection with its ownership or use of its
properties or the conduct of its business, relating to potential responsibility
which could if adversely determined result in fines or liability of a material
amount with respect to any investigation or clean-up of Hazardous Material at
any location.

         Section 6.13. Evidence of Compliance. Each Restricted Person will
furnish to each Bank Party at such Restricted Person's or Borrower's expense all
evidence which Agent from time to

                                       51
<PAGE>   52

time reasonably requests in writing as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.

         Section 6.14. Agreement to Deliver Security Documents. Borrower agrees
to deliver and to cause each other Restricted Person to deliver, to further
secure the Obligations whenever requested by Agent in its sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Agent for the purpose of granting, confirming, and perfecting
first and prior liens or security interests in any properties now owned or
hereafter acquired by any Restricted Person which are Proved Developed
Properties, as that term is defined in the `96 Indenture and the `98 Indenture.
Without limiting the foregoing, Borrower also agrees to deliver deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security Documents in form and substance satisfactory to Agent for the
purpose of granting, confirming, and perfecting first and prior liens or
security interests on Proved Developed Properties (as that term is defined in
the '96 Indenture and the '98 Indenture) owned by Borrower which have a value
(determined by Agent, by the application of a 10% discount factor to determine
the net present value of projected future net revenues attributable to the
portion of reserves properly categorized as "Producing" under the Definitions
for Oil and Gas Reserves promulgated by the Society of Petroleum Engineers (or
any generally recognized successor), as of the most recent Evaluation Date) of
at least 300% of the Borrowing Base. Borrower also agrees to deliver, whenever
requested by Agent in its sole and absolute discretion, favorable title opinions
from legal counsel acceptable to Agent with respect to any Restricted Person's
properties and interests designated by Agent, based upon abstract or record
examinations to dates acceptable to Agent and (i) stating that such Restricted
Person has good and defensible title to such properties and interests, free and
clear of all Liens other than Permitted Liens, (ii) confirming that such
properties and interests are subject to Security Documents securing the
Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
to such properties and interests and the proceeds thereof, and (iii) covering
such other matters as Agent may request. Without limiting the foregoing, within
ten (10) days following the date of this Agreement, Borrower shall execute and
deliver to Agent Security Documents in form and substance satisfactory to Agent,
granting to Agent first perfected Liens on and in the properties described on
Schedule 5 attached hereto.

         Section 6.15. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.

         Section 6.16. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower hereby grants to each Bank Party a security interest, a
lien, and a right of offset, each of

                                       52
<PAGE>   53

which shall be in addition to all other interests, liens, and rights of any Bank
Party at common law, under the Loan Documents, or otherwise, and each of which
shall be upon and against (a) any and all moneys, securities or other property
(and the proceeds therefrom) of Borrower now or hereafter held or received by or
in transit to any Bank Party from or for the account of Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of
Borrower with any Bank Party, and (c) any other credits and claims of Borrower
at any time existing against any Bank Party, including claims under certificates
of deposit. At any time and from time to time after the occurrence of any
Default, each Bank Party is hereby authorized to foreclose upon, or to offset
against the Obligations then due and payable (in either case without notice to
Borrower), any and all items hereinabove referred to. The remedies of
foreclosure and offset are separate and cumulative, and either may be exercised
independently of the other without regard to procedures or restrictions
applicable to the other.

         Section 6.17. Guaranties of Borrower's Subsidiaries. Each Subsidiary of
Parent other than the Borrower, Chesapeake Marketing, Chesapeake Canada, and
Chesapeake Acquisitions, Ltd., an Alberta corporation (the "Required
Guarantors") now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by Agent, execute and deliver to
Agent an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Agent in form and substance.
Parent will cause each of the Required Guarantors to deliver to Agent,
simultaneously with its delivery of such a guaranty, written evidence
satisfactory to Agent and its counsel that such Required Guarantors has taken
all corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute.

         Section 6.18. Production Proceeds. Notwithstanding that, by the terms
of the various Security Documents, Restricted Persons are and will be assigning
to Agent and Lenders all of the "Production Proceeds" (as defined therein)
accruing to the property covered thereby, so long as no Default has occurred
Restricted Persons may continue to receive from the purchasers of production all
such Production Proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of a Default, Agent and Lenders may exercise all rights and remedies
granted under the Security Documents, including the right to obtain possession
of all Production Proceeds then held by Restricted Persons or to receive
directly from the purchasers of production all other Production Proceeds. In no
case shall any failure, whether purposed or inadvertent, by Agent or Lenders to
collect directly any such Production Proceeds constitute in any way a waiver,
remission or release of any of their rights under the Security Documents, nor
shall any release of any Production Proceeds by Agent or Lenders to Restricted
Persons constitute a waiver, remission, or release of any other Production
Proceeds or of any rights of Agent or Lenders to collect other Production
Proceeds thereafter.

                                       53
<PAGE>   54

                  ARTICLE VII - Negative Covenants of Borrower

         To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party to
enter into this Agreement and make the Loans, Parent, Borrower and each
Guarantor warrants, covenants and agrees that until the full and final payment
of the Obligations and the termination of this Agreement, unless Majority
Lenders have previously agreed otherwise:

         Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:

         (a) the Obligations.

         (b) obligations under operating leases entered into in the ordinary
course of such Restricted Person's business in arm's length transactions at
competitive market rates under competitive terms and conditions in all respects,
provided that the obligations required to be paid in any Fiscal Year under any
such operating leases do not in the aggregate exceed $500,000.

         (c) unsecured Indebtedness among the Restricted Persons arising in the
ordinary course of business.

         (d) Indebtedness outstanding under the instruments and agreements
described on the Disclosure Schedule, including any renewals or extensions of
such Liabilities which (i) extend the maturity date thereof but not increase the
principal amount thereof, (ii) provide for an interest rate at then prevailing
market rates, and (iii) provide no additional restrictive covenants, negative
covenants, defaults, or events of default than contained in the original of such
documents.

         (e) Indebtedness arising under Hedging Contracts permitted under
Section 7.3.

         (f) Indebtedness of Chesapeake Marketing, in respect of Letters of
Credit issued for the Account of Chesapeake Marketing for use in the ordinary
course of its marketing business in an aggregate principal amount at any one
time outstanding not to exceed $10,000,000.

         (g) Liabilities with respect to accrued revenues and royalties due to
others during the period the payment thereof has been properly suspended in
accordance with applicable agreements and applicable law.

         Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except, to the extent not otherwise forbidden by
the Security Documents the following ("Permitted Liens"):

         (a) Liens which secure Obligations only.

         (b) statutory Liens for taxes, statutory or contractual mechanics' and
materialmen's Liens incurred in the ordinary course of business, and other
similar Liens incurred in the ordinary course of business, provided such Liens
do not secure Indebtedness and secure only obligations which are not delinquent
or which are being contested as provided in Section 6.7.

                                       54
<PAGE>   55

         (c) as to property which is Collateral, any Liens expressly permitted
to encumber such Collateral under any Security Document covering such
Collateral.

         (d) margins consisting of letters of credit or cash required to be put
up pursuant to any Hedging Contract not to exceed at any time the actual
liquidation liability of the Restricted Person thereon.

         (e) Liens existing on the date hereof and listed on the Disclosure
Schedule.

         (f) Liens on accounts receivable and cash of Chesapeake Marketing
securing Indebtedness permitted by Section 7.1(f).

         Section 7.3. Hedging Contracts. No Restricted Person will be a party to
or in any manner be liable on any Hedging Contract, except:

         (a) Hedging Contracts entered into with the purpose and effect of
fixing prices on oil or gas expected to be produced by Restricted Persons,
provided that at all times: (1) no such contract fixes a price for a term of
more than eighteen (18) months; (2) the aggregate monthly production covered by
all such contracts (determined, in the case of contracts that are not settled on
a monthly basis, by a monthly proration acceptable to Agent) for any single
month does not in the aggregate exceed seventy-five percent (75%) of Restricted
Persons' aggregate Projected Oil and Gas Production anticipated to be sold in
the ordinary course of Restricted Persons' businesses for such month, and (3)
each such contract is with a counterparty or has a guarantor of the obligation
of the counterparty who (unless such counterparty is a Bank Party or one of its
Affiliates) at the time the contract is made has long-term obligations rated AA
or Aa2 or better, respectively, by either Rating Agency or is an investment
grade-rated industry participant. As used in this subsection, the term
"Projected Oil and Gas Production" means the projected production of oil or gas
(measured by volume unit or BTU equivalent, not sales price) for the term of the
contracts or a particular month, as applicable, from properties and interests
owned by any Restricted Person which are located in or offshore of the United
States and which have attributable to them proved oil or gas reserves, as such
production is projected in the most recent report delivered pursuant to Section
6.2(d), after deducting projected production from any properties or interests
sold or under contract for sale that had been included in such report and after
adding projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
reports meeting the requirements of such Section 6.3(d) above and otherwise are
satisfactory to Agent.

         (b) Hedging Contracts entered into by a Restricted Person with the
purpose and effect of (i) fixing interest rates on a principal amount of
indebtedness of such Restricted Person that is accruing interest at a variable
rate, provided that the aggregate notional amount of such contracts never
exceeds seventy-five percent (75%) of the anticipated outstanding principal
balance of the indebtedness to be hedged by such contracts or an average of such
principal balances calculated using a generally accepted method of matching
interest swap contracts to declining principal balances, and the floating rate
index of each such contract generally matches the index used to determine the
floating rates of interest on the corresponding indebtedness to be hedged by
such

                                       55
<PAGE>   56

contract, or (ii) contracting for variable interest rates on a principal amount
of indebtedness or liquidation preference on preferred stock of such Restricted
Person that is accruing interest or dividends at a fixed rate, provided that the
aggregate notional amount of such contracts never exceeds the amount of the then
liquidation preference on the Parent's 7% Cumulative Convertible Preferred Stock
(to the extent issued prior to the date hereof); and the fixed rate index of
each such contract generally matches the interest on the corresponding
obligation to be hedged by such contract; provided further that in either (i) or
(ii) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Bank Party or
one of its Affiliates) at the time the contract is made has long-term
obligations rated AA or Aa2 or better, respectively, by either Rating Agency.

         Section 7.4. Limitation on Mergers, Issuances of Securities. Except as
expressly provided in this subsection no Restricted Person will merge or
consolidate with or into any other business entity. Any Subsidiary of Parent
may, however, be merged into or consolidated with (i) another Subsidiary of
Parent (other than Borrower), so long as a Guarantor is the surviving business
entity, (ii) Borrower, so long as Borrower is the surviving business entity, or
(iii) Parent, so long as Parent is the surviving business entity and Borrower
shall not be a party to such merger or consolidation. Parent will not issue any
securities or any option, warrant or other right to acquire shares or other
securities other than (a) shares of its common stock and any options or warrants
giving the holders thereof only the right to acquire such shares and (b) the
Parent's 7% Cumulative Convertible Preferred Stock outstanding on the date of
this Agreement. No Subsidiary of Parent will issue any additional shares of its
capital stock or other securities or any options, warrants or other rights to
acquire such additional shares or other securities except to Parent and only to
the extent not otherwise forbidden under the terms hereof. No Subsidiary of
Borrower which is a partnership will allow any diminution of Borrower's interest
(direct or indirect) therein.

         Section 7.5. Limitation on Sales of Property. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:

         (a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.

         (b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms.

         (c) interests in oil and gas properties, or portions thereof, to which
no proved reserves of oil, gas or other liquid or gaseous hydrocarbons are
properly attributed.

         (d) other property which is sold for fair consideration to a Person who
is not an Affiliate not to exceed, in the aggregate with respect to all sales of
property after the date of this Agreement, the amount of $100,000,000; provided
that to the extent the aggregate net proceeds of all such sales after the date
of this Agreement exceeds $25,000,000 (i) so long as no Default or Event of
Default shall have occurred and be continuing, the amount of such excess shall
be placed in a segregated account (and, in the case of proceeds of Proved
Developed Properties as

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<PAGE>   57

that term is defined in the `96 Indenture and the `98 Indenture, subject to a
perfected, first-priority Lien to secure the Obligations) and within four months
following the receipt of such proceeds by the Restricted Person, shall be either
applied to permanently repay outstanding Indebtedness of any Restricted Person
or to pay the purchase price of proved oil and gas properties acquired by a
Restricted Person or to pay development costs with respect to proved oil and gas
properties then owned by a Restricted Person, or (ii) if a Default or Event of
Default shall have occurred and be continuing, the amount of such excess shall
be applied to repay the Obligations and the Borrowing Base shall be reduced by
the amount so applied; provided however no such sale shall include Collateral
unless, in connection with such sale, the Borrowing Base has been redetermined
by Required Lenders pursuant to Section 2.9 giving effect to such transaction
and the Facility Usage will not exceed such Borrowing Base after giving effect
to such transaction. The value of sales under this clause shall be the greater
of the sale price or the discounted present value of the projected future net
revenues (at 10% discount rate) reflected in the most recently delivered
Engineering Report under Section 6.2. Any sale of property, other than as
provided above, shall be subject to the prior written approval of Majority
Lenders, in their sole discretion, which approval may be conditioned upon a
redetermination and reduction of the Borrowing Base after giving effect to such
sale.

No Restricted Person will sell, transfer or otherwise dispose of capital stock
of any of Parent's Subsidiaries. No Restricted Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income
except to the extent expressly permitted under the Loan Documents.

         Section 7.6. Limitation on Dividends and Redemptions. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the capital
stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person, except as expressly provided in this section. Dividends, distributions,
contributions, purchases, redemptions, acquisitions, retirements or reductions
may be made by any Restricted Person to another Restricted Person. No other
dividends of any type to any Person shall be paid without the prior written
consent of the Agent and Required Lenders.

         Section 7.7. Limitation on Investments and New Businesses. No
Restricted Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business, (ii) engage directly or indirectly in any business or
conduct any operations except in connection with or incidental to its present
businesses and operations, (iii) make any acquisitions of or capital
contributions to or other investments in any Person, other than Permitted
Investments, or (iv) make any acquisitions or investments in any properties or
assets (other than a Person) other than: (a) oil and gas properties, (b) gas
gathering, treating and processing assets and assets directly related thereto,
(c) inventory and equipment incidental to its business, (d) general and
administrative assets such as vehicles, offices and office equipment, and (e)
other types of assets not in excess of $500,000 in the aggregate; provided,
however, Restricted Persons may make acquisitions of, capital contributions

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<PAGE>   58

to, or other investments in any Person or make acquisitions of or investments in
any properties or assets, in each case which are not otherwise permitted by the
foregoing, so long as the aggregate amount thereof made after the date of this
Agreement does not exceed $2,500,000.

         Section 7.8. Limitation on Credit Extensions. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than (i) normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business, which extensions shall
not be for longer periods than those extended by similar businesses operated in
a normal and prudent manner, (ii) loans to Borrower or to any Guarantor (iii)
extensions of credit to executive officers pursuant to board of directors'
authorizations so long as the aggregate amount of all such loans made by all
Restricted Persons does not exceed the principal amount of such credit extended
as of the date of this Agreement, and (iv) other extensions of credit to
employees of any Restricted Person, so long as the aggregate amount of such
loans to any single employee does not exceed $100,000 and the aggregate amount
of all such loans made by all Restricted Persons does not exceed $500,000.

         Section 7.9. Transactions with Affiliates. No Restricted Person will
engage in any material transaction with any of its Affiliates on terms which are
less favorable to it than those which would have been obtainable at the time in
arm's-length dealing with Persons other than such Affiliates, provided that such
restriction shall not apply to transactions among the Restricted Persons.

         Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans.
Except as expressly provided for in the Loan Documents, no Restricted Person
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Subsidiary of
Borrower to: (i) pay dividends or make other distributions to Borrower, (ii) to
redeem equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Restricted Person will enter into any "take-or-pay" contract or
other contract or arrangement for the purchase of goods or services which
obligates it to pay for such goods or service regardless of whether they are
delivered or furnished to it. No Restricted Person will amend or permit any
amendment to any contract or lease which releases, qualifies, limits, makes
contingent or otherwise detrimentally affects the rights and benefits of Agent
or any Lender under or acquired pursuant to any Security Documents. No ERISA
Affiliate will incur any obligation to contribute to any "multiemployer plan" as
defined in Section 4001 of ERISA.

         Section 7.11. Current Ratio. The ratio of (i) the sum of Consolidated
current assets of Parent and the other Restricted Persons plus the portion, if
any, of the Borrowing Base which exceeds the Facility Usage to (ii) Consolidated
current liabilities of Parent and the other Restricted Persons will never be
less than 1.0 to 1.0. For purposes of this section, all LC Obligations shall be
included as current liabilities, regardless of whether or not contingent (but
without duplication) and current liabilities shall exclude current maturities of
long term debt and current maturities of the Loans.

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<PAGE>   59

         Section 7.12. Fixed Charge Coverage Ratio. The ratio of (a)
Consolidated EBITDA for any Fiscal Quarter to (b) Consolidated Fixed Charges for
such Fiscal Quarter shall never be less than 2.0 to 1.0.

                  ARTICLE VIII - Events of Default and Remedies

         Section 8.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:

         (a) Borrower or any Guarantor fails to pay the principal component of
any Obligation when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable or
as a result of acceleration or otherwise;

         (b) Borrower or any Guarantor fails to pay any Obligation (other than
the Obligations in subsection (a) above) when due and payable, whether at a date
for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within
three Business Days after the same becomes due;

         (c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;

         (d) Borrower or any Guarantor fails to duly observe, perform or comply
with any covenant, agreement or provision of Section 6.4 or Article VII;

         (e) Borrower or any Guarantor fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of such
failure is given by Agent to Borrower;

         (f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Restricted Person in connection with any
Loan Document shall prove to have been false or incorrect in any material
respect on any date on or as of which made, or any Loan Document at any time
ceases to be valid, binding and enforceable as warranted in Section 5.5 for any
reason other than its release or subordination by Agent;

         (g) Any Restricted Person fails to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument, if
such agreement or instrument is materially significant to Parent or to Parent
and its Subsidiaries on a Consolidated basis or materially significant to any
Guarantor, and such failure is not remedied within the applicable period of
grace (if any) provided in such agreement or instrument;

         (h) Any Restricted Person (i) fails to pay any portion, when such
portion is due, of any of its Indebtedness in excess of $1,000,000, or (ii)
breaches or defaults in the performance of any agreement or instrument by which
any such Indebtedness is issued, evidenced, governed, or

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<PAGE>   60

secured, and any such failure, breach or default continues beyond any applicable
period of grace provided therefor;

         (i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$100,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount); and

         (j) Any Restricted Person:

                  (i) suffers the entry against it of a judgment, decree or
         order for relief by a Tribunal of competent jurisdiction in an
         involuntary proceeding commenced under any applicable bankruptcy,
         insolvency or other similar Law of any jurisdiction now or hereafter in
         effect, including the federal Bankruptcy Code, as from time to time
         amended, or has any such proceeding commenced against it which remains
         undismissed for a period of thirty days; or

                  (ii) commences a voluntary case under any applicable
         bankruptcy, insolvency or similar Law now or hereafter in effect,
         including the federal Bankruptcy Code, as from time to time amended; or
         applies for or consents to the entry of an order for relief in an
         involuntary case under any such Law; or makes a general assignment for
         the benefit of creditors; or fails generally to pay (or admits in
         writing its inability to pay) its debts as such debts become due; or
         takes corporate or other action to authorize any of the foregoing; or

                  (iii) suffers the appointment of or taking possession by a
         receiver, liquidator, assignee, custodian, trustee, sequestrator or
         similar official of all or a substantial part of its assets or of any
         part of the Collateral in a proceeding brought against or initiated by
         it, and such appointment or taking possession is neither made
         ineffective nor discharged within thirty days after the making thereof,
         or such appointment or taking possession is at any time consented to,
         requested by, or acquiesced to by it; or

                  (iv) suffers the entry against it of a final judgment for the
         payment of money in excess of $1,000,000 (not covered by insurance
         satisfactory to Majority Lenders in their discretion), unless the same
         is discharged within thirty days after the date of entry thereof or an
         appeal or appropriate proceeding for review thereof is taken within
         such period and a stay of execution pending such appeal is obtained; or

                  (v) suffers a writ or warrant of attachment or any similar
         process to be issued by any Tribunal against all or any substantial
         part of its assets or any part of the Collateral, and such writ or
         warrant of attachment or any similar process is not stayed or

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<PAGE>   61

         released within thirty days after the entry or levy thereof or after
         any stay is vacated or set aside; and

         (k) Any Change in Control occurs; and

         (l) Any Material Adverse Change occurs.

Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Guarantor who at any time ratifies
or approves this Agreement. Upon any such acceleration, any obligation of any
Lender to make any further Loans and any obligation of LC Issuer to issue
Letters of Credit hereunder shall be permanently terminated. During the
continuance of any other Event of Default, Agent at any time and from time to
time may (and upon written instructions from Majority Lenders, Agent shall),
without notice to Borrower or any Guarantor, do either or both of the following:
(1) terminate any obligation of Lenders to make Loans hereunder and any
obligation of LC Issuer to issue Letters of Credit hereunder, and (2) declare
any or all of the Obligations immediately due and payable, and all such
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Guarantor who at any time ratifies
or approves this Agreement.

         Section 8.2. Remedies. If any Default shall occur and be continuing,
each Bank Party may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and each Bank Party
may enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Bank Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.

                               ARTICLE IX - Agent

         Section 9.1. Appointment and Authority. Each Bank Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Bank Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute Agent a trustee or other fiduciary for any holder of any
of the Notes or of any participation therein nor to impose on Agent duties and
obligations other than those expressly provided for in the Loan Documents.

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<PAGE>   62

With respect to any matters not expressly provided for in the Loan Documents and
any matters which the Loan Documents place within the discretion of Agent, Agent
shall not be required to exercise any discretion or take any action, and it may
request instructions from Lenders with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Lenders in so acting or refraining from
acting) upon the instructions of Majority Lenders (including itself), provided,
however, that Agent shall not be required to take any action which exposes it to
a risk of personal liability that it considers unreasonable or which is contrary
to the Loan Documents or to applicable Law. Upon receipt by Agent from Borrower
of any communication calling for action on the part of Lenders or upon notice
from any other Bank Party to Agent of any Default or Event of Default, Agent
shall promptly notify each other Bank Party thereof.

         Section 9.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof in accordance with this Agreement, signed by such payee and
in form satisfactory to Agent; (b) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any other Bank Party and
shall not be responsible to any other Bank Party for any statements, warranties
or representations made in or in connection with the Loan Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of the Loan Documents on the part
of any Restricted Person or to inspect the property (including the books and
records) of any Restricted Person; (e) shall not be responsible to any other
Bank Party for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document or any instrument or
document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person and the Lenders in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (including any facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or Persons.

         Section 9.3. Credit Decisions. Each Bank Party acknowledges that it
has, independently and without reliance upon any other Bank Party, made its own
analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Bank Party also acknowledges that it will, independently and without
reliance upon any other Bank Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.

         Section 9.4. Indemnification. Each Lender agrees to indemnify Agent (to
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Lender's

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<PAGE>   63

Percentage Share of any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
experts and advisors) of any kind or nature whatsoever (in this section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against Agent growing out of,
resulting from or in any other way associated with any of the Collateral, the
Loan Documents and the transactions and events (including the enforcement
thereof) at any time associated therewith or contemplated therein (whether
arising in contract or in tort or otherwise and including any violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment).

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,

provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing, each
Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage Share of any costs and expenses to be paid to Agent by Borrower under
Section 10.4(a) to the extent that Agent is not timely reimbursed for such
expenses by Borrower as provided in such section. As used in this section the
term "Agent" shall refer not only to the Person designated as such in Section
1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.

         Section 9.5. Rights as Lender. In its capacity as a Lender, Agent shall
have the same rights and obligations as any Lender and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as Trustee under indentures of, and generally engage in any kind of business
with any Restricted Person or their Affiliates, all as if it were not Agent
hereunder and without any duty to account therefor to any other Lender.

         Section 9.6. Sharing of Set-Offs and Other Payments. Each Bank Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section 3.1,
causes such Bank Party to have received more than it would have received had
such payment been received by Agent and distributed pursuant to Section 3.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Bank Parties to share all payments as provided for in Section 3.1, and (b) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lenders share all payments of Obligations as provided
in Section 3.1; provided, however, that nothing herein contained shall in any
way affect the right of any Bank Party to obtain payment (whether by exercise of
rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness
other than the Obligations. Borrower expressly consents to the foregoing
arrangements and agrees that any holder of any such interest or other

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<PAGE>   64

participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to the order of a Tribunal to be paid on
account of the possession of such funds prior to such recovery.

         Section 9.7. Investments. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Lenders (other than to the Person who is Agent in its separate capacity as a
Lender) shall be held by Agent pending such distribution solely as Agent for
such Lenders, and Agent shall have no equitable title to any portion thereof.

         Section 9.8. Benefit of Article IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Bank Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Bank
Party. Bank Parties may waive or amend such provisions as they desire without
any notice to or consent of Borrower or any Restricted Person.

         Section 9.9. Resignation. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Each such notice shall set forth
the date of such resignation. Upon any such resignation, Majority Lenders shall
have the right to appoint a successor Agent. A successor must be appointed for
any retiring Agent, and such Agent's resignation shall become effective when
such successor accepts such appointment. If, within thirty days after the date
of the retiring Agent's resignation, no successor Agent has been appointed and
has accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a commercial bank organized or licensed to conduct a
banking or trust business under the Laws of the United States of America or of
any state thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder the provisions of this Article IX shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under the Loan Documents.

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                            ARTICLE X - Miscellaneous

         Section 10.1. Waivers and Amendments; Acknowledgments.

         (a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by any Bank Party in exercising any right, power or remedy
which such Bank Party may have under any of the Loan Documents shall operate as
a waiver thereof or of any other right, power or remedy, nor shall any single or
partial exercise by any Bank Party of any such right, power or remedy preclude
any other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section, and then such waiver or consent shall be effective only
in the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on Borrower or any Guarantor
shall in any case of itself entitle Borrower or any Guarantor to any other or
further notice or demand in similar or other circumstances. This Agreement and
the other Loan Documents set forth the entire understanding between the parties
hereto with respect to the transactions contemplated herein and therein and
supersede all prior discussions and understandings with respect to the subject
matter hereof and thereof, and no waiver, consent, release, modification or
amendment of or supplement to this Agreement or the other Loan Documents shall
be valid or effective against any party hereto unless the same is in writing and
signed by (i) if such party is Borrower, by Borrower, (ii) if such party is
Agent or LC Issuer, by such party, and (iii) if such party is a Lender, by such
Lender or by Agent on behalf of Lenders with the written consent of Majority
Lenders (which consent has already been given as to the termination of the Loan
Documents as provided in Section 10.9). Notwithstanding the foregoing or
anything to the contrary herein, Agent shall not, without the prior consent of
each individual Lender, execute and deliver on behalf of such Lender any waiver
or amendment which would: (1) waive any of the conditions specified in Article
IV (provided that Agent may in its discretion withdraw any request it has made
under Section 4.2(e)), (2) increase the Borrowing Base above the Maximum Loan
Amount which requires the agreement of all Lenders pursuant to Section 2.9, (3)
increase the Maximum Loan Amount of such Lender or subject such Lender to any
additional obligations, (4) reduce any fees payable to such Lender hereunder, or
the principal of, or interest on, such Lender's Note, (5) postpone any date
fixed for any payment of any such fees, principal or interest, (6) amend the
definition herein of "Majority Lenders" or otherwise change the aggregate amount
of Percentage Shares which is required for Agent, Lenders or any of them to take
any particular action under the Loan Documents, or (7) release Borrower from its
obligation to pay such Lender's Note or any Guarantor from its guaranty of such
payment.

         (b) Acknowledgments and Admissions. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Lender,
whether written, oral or implicit, other than as expressly set out in this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there are no representations, warranties, covenants, undertakings or
agreements by any Bank Party as to the Loan Documents except as expressly set
out in this Agreement or in another Loan Document delivered on or after the date
hereof, (iv) no Bank Party has any fiduciary obligation toward Borrower with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower and the Guarantors,
on one hand, and each Bank Party, on the

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other hand, is and shall be solely that of debtor and creditor, respectively,
(vi) no partnership or joint venture exists with respect to the Loan Documents
between any Restricted Person and any Bank Party, (vii) Agent is not Borrower's
Agent, but Agent for Lenders, (viii) should an Event of Default or Default occur
or exist, each Bank Party will determine in its sole discretion and for its own
reasons what remedies and actions it will or will not exercise or take at that
time, (ix) without limiting any of the foregoing, Borrower is not relying upon
any representation or covenant by any Bank Party, or any representative thereof,
and no such representation or covenant has been made, that any Bank Party will,
at the time of an Event of Default or Default, or at any other time, waive,
negotiate, discuss, or take or refrain from taking any action permitted under
the Loan Documents with respect to any such Event of Default or Default or any
other provision of the Loan Documents, and (x) all Bank Parties have relied upon
the truthfulness of the acknowledgments in this section in deciding to execute
and deliver this Agreement and to become obligated hereunder.

         (c) Representation by Lenders. Each Lender hereby represents that it
will acquire its Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of such Lender's property
shall at all times be and remain within its control and, in particular and
without limitation, such Lender may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other rights
and obligations under the Loan Documents, subject, however, to the provisions of
Section 10.5.

         (d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

           THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

         Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Bank Party and all of Bank Parties'
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by Borrower or any Guarantor to
any Bank Party under any Loan Document shall be deemed representations and
warranties by Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Bank Parties in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to
any Bank Party of any such representation, warranty, indemnity, covenant, right,
power or privilege. In particular and without limitation, no exception set out
in this Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or

                                       66
<PAGE>   67

covenant shall be subject only to those exceptions which are expressly made
applicable to it by the terms of the various Loan Documents.

         Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Bank Parties), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
facsimile or other electronic transmission, by delivery service with proof of
delivery, or by registered or certified United States mail, postage prepaid, to
Borrower and Restricted Persons at the address of Borrower specified on the
signature pages hereto and to each Bank Party at its address specified on the
signature pages hereto (unless changed by similar notice in writing given by the
particular Person whose address is to be changed). Any such notice or
communication shall be deemed to have been given (a) in the case of personal
delivery or delivery service, as of the date of first attempted delivery during
normal business hours at the address provided herein, (b) in the case of
facsimile or other electronic transmission, upon receipt, or (c) in the case of
registered or certified United States mail, three days after deposit in the
mail; provided, however, that no Borrowing Notice shall become effective until
actually received by Agent.

         Section 10.4. Payment of Expenses; Indemnity.

         (a) Payment of Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (i) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on
behalf of Agent (including, without limitation, attorneys' fees, consultants'
fees and engineering fees, travel costs and miscellaneous expenses) in
connection with (1) the negotiation, preparation, execution and delivery of the
Loan Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (2) the filing, recording, refiling and
re-recording of any Loan Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or re-recorded by
the terms of any Loan Document, (3) the borrowings hereunder and other action
reasonably required in the course of administration hereof, (4) monitoring or
confirming (or preparation or negotiation of any document related to) Borrower's
compliance with any covenants or conditions contained in this Agreement or in
any Loan Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of any Bank Party (including, without limitation, attorneys' fees,
consultants' fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this section) or the defense
of any Bank Party's exercise of its rights thereunder. In addition to the
foregoing, until and all Obligations have been paid in full, Borrower will also
pay or reimburse Agent for all reasonable out-of-pocket costs and expenses of
Agent or its agents or employees in connection with the continuing
administration of the Loans and the related due diligence of Agent, including
travel and miscellaneous expenses and fees and expenses of Agent's outside
counsel, reserve engineers and consultants engaged in connection with the Loan
Documents.

                                       67
<PAGE>   68

         (b) Indemnity. Borrower agrees to indemnify each Bank Party, upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
experts and advisors) of any kind or nature whatsoever (in this section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against such Bank Party
growing out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents and the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein (whether arising in contract or in tort or otherwise and including any
violation or noncompliance with any Environmental Laws by any Restricted Person
or any liabilities or duties of any Restricted Person or any Bank Party with
respect to Hazardous Materials found in or released into the environment).

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY,

provided only that no Bank Party shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by any
Bank Party, the indemnification provided for in this section shall nonetheless
be paid upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as to the
extent and effect of the alleged gross negligence or willful misconduct. As used
in this section the term "Bank Parties" shall refer not only to the Persons
designated as such in Section 1.1 but also to each director, officer, agent,
attorney, employee, representative and Affiliate of such Persons.

         Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments. All Obligations which are incurred by Borrower and/or two or more
Guarantors shall be their joint and several obligations and liabilities. All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Borrower or Guarantor may assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of all of the Lenders. Neither Borrower nor
any Affiliates of Borrower shall directly or indirectly purchase or otherwise
retire any Obligations owed to any Lender nor will any Lender accept any offer
to do so, unless each Lender shall have received substantially the same offer
with respect to the same Percentage Share of the Obligations owed to it. If
Borrower or any Affiliate of Borrower at any time purchases some but less than
all of the Obligations owed to all Bank Parties, such purchaser shall not be
entitled to any rights of any Bank Party under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.

         (b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person only if the agreement

                                       68
<PAGE>   69

between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Borrower or Guarantor under Sections 3.2 through 3.7 of amounts in
excess of those payable to such Lender under such sections (determined without
regard to the sale of such participation), and (iii) unless such participant is
an Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to obtain the
consent of such participant prior to taking any action under any Loan Document,
except for actions which would require the consent of all Lenders under the
next-to-last sentence of subsection (a) of Section 10.1. No Lender selling such
a participation shall, as between the other parties hereto and such Lender, be
relieved of any of its obligations hereunder as a result of the sale of such
participation. Each Lender which sells any such participation to any Person
(other than an Affiliate of such Lender) shall give prompt notice thereof to
Agent and Borrower.

         (c) Except for sales of participations under the immediately preceding
subsection (b), no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:

                  (i) Each such assignment shall apply to all Obligations owing
         to the assignor Lender hereunder and to the unused portion of the
         assignor Lender's commitments, so that after such assignment is made
         the assignor Lender shall have a fixed (and not a varying) Percentage
         Share in its Loans and Note and be committed to make that Percentage
         Share of all future Loans, the assignee shall have a fixed Percentage
         Share in such Loans and Note and be committed to make that Percentage
         Share of all future Loans, and the Percentage Share of the Maximum Loan
         Amount of both the assignor and assignee shall equal or exceed
         $5,000,000.

                  (ii) The parties to each such assignment shall execute and
         deliver to Agent, for its acceptance and recording in the "Register"
         (as defined below in this section), an Assignment and Acceptance in the
         form of Exhibit G, appropriately completed, together with the Note
         subject to such assignment and a processing fee payable to Agent of
         $3,500. Upon such execution, delivery, and payment and upon the
         satisfaction of the conditions set out in such Assignment and
         Acceptance, then (i) Borrower shall issue new Notes to such assignor
         and assignee upon return of the old Notes to Borrower, and (ii) as of
         the "Settlement Date" specified in such Assignment and Acceptance the
         assignee thereunder shall be a party hereto and a Lender hereunder and
         Agent shall thereupon deliver to Borrower and each Lender a schedule
         showing the revised Percentage Shares of such assignor Lender and such
         assignee Lender and the Percentage Shares of all other Lenders.

                  (iii) Each assignee Lender which is not a United States person
         (as such term is defined in Section 7701(a)(30) of the Internal Revenue
         Code of 1986, as amended) for

                                       69
<PAGE>   70

         Federal income tax purposes, shall (to the extent it has not already
         done so) provide Agent and Borrower with the "Prescribed Forms"
         referred to in Section 3.6(d).

         (d) Nothing contained in this section shall prevent or prohibit any
Lender from assigning or pledging all or any portion of its Loans and Note to
any Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Lender from its obligations hereunder.

         (e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Agent and each other Lender hereunder that such assignee understands and agrees
to the terms hereof, including Article IX hereof.

         (f) Agent shall maintain a copy of each Assignment and Acceptance and a
register for the recordation of the names and addresses of Lenders and the
Percentage Shares of, and principal amount of the Loans owing to, each Lender
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower and
each Bank Party may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Bank Party at any reasonable time and from time to
time upon reasonable prior notice.

         Section 10.6. Confidentiality. Each Bank Party agrees that it will take
all reasonable steps to keep confidential any proprietary information given to
it by any Restricted Person, provided, however, that this restriction shall not
apply to information which (i) has at the time in question entered the public
domain, (ii) is required to be disclosed by Law (whether valid or invalid) of
any Tribunal, (iii) is disclosed to any Bank Party's Affiliates, auditors,
attorneys, or agents, (iv) is furnished to any other Bank Party or to any
purchaser or prospective purchaser of participations or other interests in any
Loan or Loan Document, or (v) is disclosed in the course of enforcing its rights
and remedies during the existence of an Event of Default.

         Section 10.7. Governing Law; Submission to Process. EXCEPT TO THE
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE
UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF
THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) DOES NOT APPLY TO THIS AGREEMENT
OR TO THE NOTES. BORROWER AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS ITSELF
TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF
TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY
LEGAL PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS
ALLOWED UNDER TEXAS OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN
ANY WAY RELATED TO ANY OF THE LOAN DOCUMENTS SHALL BE BROUGHT AND LITIGATED
EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF

                                       70
<PAGE>   71

TEXAS, DALLAS DIVISION, TO THE EXTENT IT HAS SUBJECT MATTER JURISDICTION, AND
OTHERWISE IN THE TEXAS DISTRICT COURTS SITTING IN DALLAS COUNTY, TEXAS. THE
PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREE TO A TRANSFER OF
ANY SUCH PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF TEXAS TO THE
EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT
IN DALLAS, TEXAS. IN FURTHERANCE THEREOF, BORROWER AND BANK PARTIES EACH HEREBY
ACKNOWLEDGE AND AGREE THAT IT WAS NOT INCONVENIENT FOR THEM TO NEGOTIATE AND
RECEIVE FUNDING OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN SUCH
COUNTY AND THAT IT WILL BE NEITHER INCONVENIENT NOR UNFAIR TO LITIGATE OR
OTHERWISE RESOLVE ANY DISPUTES OR CLAIMS IN A COURT SITTING IN SUCH COUNTY.

         Section 10.8. Limitation on Interest. Bank Parties, Borrower,
Guarantors and any other parties to the Loan Documents intend to contract in
strict compliance with applicable usury Law from time to time in effect. In
furtherance thereof such Persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by applicable
Law from time to time in effect. Neither any Borrower or Guarantors nor any
present or future guarantors, endorsers, or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be Lawfully charged under applicable Law from time to
time in effect, and the provisions of this section shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith. Bank Parties expressly disavow any intention to charge or collect
excessive unearned interest or finance charges in the event the maturity of any
Obligation is accelerated. If (a) the maturity of any Obligation is accelerated
for any reason, (b) any Obligation is prepaid and as a result any amounts held
to constitute interest are determined to be in excess of the legal maximum, or
(c) any Bank Party or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that permitted to be charged by applicable Law then in effect, then
all sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at such Bank Party's or holder's option, promptly
returned to Borrower or the other payor thereof upon such determination. In
determining whether or not the interest paid or payable, under any specific
circumstance, exceeds the maximum amount permitted under applicable Law, Bank
Parties and Borrower and Guarantors (and any other payors thereof) shall to the
greatest 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) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable Law in order to
Lawfully charge the maximum amount of interest permitted under applicable Law.
In the event applicable Law provides for an interest ceiling under Section 303
of the Texas Finance Code (the "Texas Finance Code") for that day, the ceiling
shall

                                       71
<PAGE>   72

be the "weekly ceiling" as defined in the Texas Finance Code, provided that if
any applicable Law permits greater interest, the Law permitting the greatest
interest shall apply. As used in this section the term "applicable Law" means
the Laws of the State of Texas or the Laws of the United States of America,
whichever Laws allow the greater interest, as such Laws now exist or may be
changed or amended or come into effect in the future.

         Section 10.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Borrower or any Guarantor in any Loan Document, any Obligations under
Sections 3.2 through 3.6, and any obligations which any Person may have to
indemnify or compensate any Bank Party shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrower,
Agent shall prepare and execute all necessary instruments to reflect and effect
such termination of the Loan Documents. Agent is hereby authorized to execute
all such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.

         Section 10.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.

         Section 10.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.

         Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. BORROWER
AND EACH BANK PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED
THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.

                                       72
<PAGE>   73

         Section 10.13. Amendment and Restatement. This Agreement amends and
restates in its entirety that certain Credit Agreement dated as of August 27,
1998, by Borrower, Parent, certain Subsidiaries of Parent, Agent and certain
financial institutions, as "Lenders", as amended, restated, or supplemented to
the date hereof (the "Existing Agreement"). Borrower and Parent hereby represent
and warrant that as of the date hereof all conditions under Section 4.1 of this
Agreement have been met. Borrower and Parent hereby agree that (i) the Loans
outstanding under the Existing Agreement and all accrued and unpaid interest
thereon, (ii) all Letters of Credit issued and outstanding under the Existing
Agreement, and (iii) all accrued and unpaid fees under the Existing Agreement
shall be deemed to be outstanding under and governed by this Agreement.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       73
<PAGE>   74

         IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.

                     CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,
                     BORROWER

                              By:      Chesapeake Operating, Inc.,
                                       its general partner

                              By:
                                 -----------------------------------------
                                       Martha A. Burger
                                       Treasurer

                     CHESAPEAKE ENERGY CORPORATION,
                     GUARANTOR

                              By:
                                 -----------------------------------------
                                       Martha A. Burger
                                       Treasurer

                     CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP,
                     GUARANTOR

                              By:      Chesapeake Operating, Inc.,
                                       its general partner

                              By:
                                 -----------------------------------------
                                       Martha A. Burger
                                       Treasurer

                     CHESAPEAKE LOUISIANA, L.P.,
                     GUARANTOR

                              By:      Chesapeake Operating, Inc.,
                                       its general partner

                              By:
                                 -----------------------------------------
                                       Martha A. Burger
                                       Treasurer

                                       74
<PAGE>   75

                         CHESAPEAKE ACQUISITION CORPORATION,
                         GUARANTOR

                                  By:
                                     -----------------------------------------
                                           Martha A. Burger
                                           Treasurer

                         CHESAPEAKE OPERATING, INC.,
                         GUARANTOR

                                  By:
                                     -----------------------------------------
                                           Martha A. Burger
                                           Treasurer

                         CHESAPEAKE ENERGY LOUISIANA CORPORATION,
                         GUARANTOR

                                  By:
                                     -----------------------------------------
                                           Martha A. Burger
                                           Treasurer

                         CHESAPEAKE ROYALTY COMPANY,
                         GUARANTOR

                                  By:
                                     -----------------------------------------
                                           Martha A. Burger
                                           Treasurer

                         ARKOMA PITTSBURG HOLDING CORPORATION,
                         GUARANTOR

                                  By:
                                     -----------------------------------------
                                           Martha A. Burger
                                           Treasurer

                                       75
<PAGE>   76

                                            Address for Borrower and Guarantors:

                                            6100 North Western
                                            Oklahoma City, Oklahoma
                                            Attention: Treasurer

                                            Telephone:        (405) 848-8000
                                            Telecopy:         (405) 879-9587

                                            With copy to:

                                            Self, Giddens & Lees, Inc.
                                            2725 Oklahoma Tower
                                            210 Park Avenue
                                            Oklahoma City, Oklahoma 73102
                                            Attention: C. Ray Lees

                                            Telephone:        (405) 232-3001
                                            Telecopy:         (405) 232-5553

                                       76
<PAGE>   77

                                UNION BANK OF CALIFORNIA, N.A.,
                                Agent, LC Issuer and Lender

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

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

                                         Address:

                                         500 North Akard
                                         4200 Lincoln Center
                                         Dallas, Texas 75201

                                         Telephone:        (214) 922-4200
                                         Telecopy:         (214) 922-4209

                                       77
<PAGE>   78
                                                                      SCHEDULE 2

                                SECURITY SCHEDULE

         1.       Guaranty dated May 30, 2000, executed by Parent in favor of
                  Agent.

         2.       Guaranty dated May 30, 2000, executed by the Subsidiary
                  Guarantors in favor of Agent.

         3.       Second Amendment to that certain Deed of Trust, Mortgage, Line
                  of Credit Mortgage, Assignment, Security Agreement, Fixture
                  Filing and Financing Statement dated August 27, 1998, executed
                  by Borrower in favor of Agent.

         4.       First Amendment to that certain Mortgage, Assignment, Security
                  Agreement,         Fixture Filing and Financing Statement
                  dated December 16, 1998, executed by Borrower in favor of
                  Agent.

         5.       First Amendment to that certain Mortgage, Assignment, Security
                  Agreement,           Fixture Filing and Financing Statement
                  dated April 30, 1999, executed by Borrower in favor of Agent
                  (which shall include, without limitation, the addition of the
                  properties referenced on Schedule 2-A attached hereto).

                                       78
<PAGE>   79

                                                                       EXHIBIT A

                                 PROMISSORY NOTE

$100,000,000                                                        May _, 2000

         FOR VALUE RECEIVED, the undersigned, Chesapeake Exploration Limited
Partnership, an Oklahoma limited partnership (herein called "Borrower"), hereby
promises to pay to the order of Union Bank of California, N.A., a national
banking association (herein called "Lender"), the principal sum of One Hundred
Million Dollars ($100,000,000), or, if less, the aggregate unpaid principal
amount of the Loan made under this Note by Lender to Borrower pursuant to the
terms of the Credit Agreement (as hereinafter defined), together with interest
on the unpaid principal balance thereof as hereinafter set forth, both principal
and interest payable as herein provided in lawful money of the United States of
America at the offices of the Agent, 445 South Figueroa Street, Los Angeles,
California 90071, or at such other place, as from time to time may be designated
by the Agent.

         This Note (a) is issued and delivered under that certain Amended and
Restated Credit Agreement dated May _, 2000, among Chesapeake Energy
Corporation, Borrower, certain Guarantors and Union Bank of California, N.A., as
Agent, and the lenders (the "Credit Agreement"), and is a Note as defined
therein, (b) is subject to the terms and provisions of the Credit Agreement,
which contains provisions for payments and prepayments hereunder and
acceleration of the maturity hereof upon the happening of certain stated events,
and (c) is secured by and entitled to the benefits of certain Security Documents
(as identified and defined in the Credit Agreement). Payments on this Note shall
be made and applied as provided herein and in the Credit Agreement. Reference is
hereby made to the Credit Agreement for a description of certain rights,
limitations of rights, obligations and duties of the parties hereto and for the
meanings assigned to terms used and not defined herein and to the Security
Documents for a description of the nature and extent of the security thereby
provided and the rights of the parties thereto. This Note is given in
replacement and renewal of (but not in extinguishment or novation of) that
certain Promissory Note dated May 11, 2000, made by Borrower payable to the
order of Lender in the original principal amount of $50,000,000. Any interest
accrued and unpaid on such Promissory Note dated May 11, 2000 shall not be
extinguished but shall be carried forward hereby and shall be payable on the
applicable date provided for herein.

         For the purposes of this Note, the following terms have the meanings
assigned to them below:

                  "Base Rate Payment Date" means (i) the last day of each March,
         June, September and December, beginning June 30, 2000, and (ii) any day
         on which past due interest or principal is owed hereunder and is
         unpaid. If the terms hereof or of the Credit Agreement provide that
         payments of interest or principal hereon shall be deferred from one
         Base Rate Payment Date to another day, such other day shall also be a
         Base Rate Payment Date.

                                       79
<PAGE>   80

                  "Eurodollar Rate Payment Date" means, with respect to any
         Eurodollar Loan: (i) the day on which the related Interest Period ends
         and, if such Interest Period is three months or longer, the three-month
         anniversary of the first day of such Interest Period, and (ii) any day
         on which past due interest or past due principal is owed hereunder with
         respect to such Eurodollar Loan and is unpaid. If the terms hereof or
         of the Credit Agreement provide that payments of interest or principal
         with respect to such Eurodollar Loan shall be deferred from one
         Eurodollar Rate Payment Date to another day, such other day shall also
         be a Eurodollar Rate Payment Date.

         The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on July 15, 2002.

         Unless the Default Rate shall be applicable, Base Rate Loans from time
to time outstanding shall bear interest on each day outstanding at the Base Rate
in effect on such day. On each Base Rate Payment Date Borrower shall pay to the
holder hereof all unpaid interest which has accrued on each Base Rate Loan to
but not including such Base Rate Payment Date. Unless the Default Rate shall be
applicable, each Eurodollar Loan shall bear interest on each day during the
related Interest Period at the related Eurodollar Rate in effect on such day. On
each Eurodollar Rate Payment Date relating to such Eurodollar Loan, Borrower
shall pay to the holder hereof all unpaid interest which has accrued on such
Eurodollar Loan to but not including such Eurodollar Rate Payment Date. After
the occurrence and during the continuance of an Event of Default and a notice to
Borrower by Agent that the Default Rate shall apply, all Loans shall bear
interest on each day outstanding at the Default Rate in effect on such day, and
such interest shall be due and payable daily as it accrues. Notwithstanding the
foregoing provisions of this paragraph: (a) this Note shall never bear interest
in excess of the Highest Lawful Rate, and (b) if at any time the rate at which
interest is payable on this Note is limited by the Highest Lawful Rate (by the
foregoing clause (a) or by reference to the Highest Lawful Rate in the
definitions of Base Rate, Eurodollar Rate and Default Rate), this Note shall
bear interest at the Highest Lawful Rate and shall continue to bear interest at
the Highest Lawful Rate until such time as the total amount of interest accrued
hereon equals (but does not exceed) the total amount of interest which would
have accrued hereon had there been no Highest Lawful Rate applicable hereto.

         Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum amount of interest which, under applicable
law, may be charged on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon. In the event applicable law provides for a ceiling
under Section 303 of the Texas Finance Code, that ceiling shall be the weekly
ceiling and shall be used in this Note for calculating the Highest Lawful Rate
and for all other purposes. The term "applicable law" as used in this Note shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.

         If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable

                                       80
<PAGE>   81

attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.

         Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.

                                       81
<PAGE>   82

         THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.

                                         CHESAPEAKE EXPLORATION LIMITED
                                 PARTNERSHIP

                                            By:      Chesapeake Operating, Inc.,
                                                     its general partner

                                            By:
                                               ---------------------------------
                                                     Martha A. Burger
                                                     Treasurer

                                       82
<PAGE>   83

                                                                       EXHIBIT B

                               REQUEST FOR ADVANCE

         Reference is made to that certain Amended and Restated Credit Agreement
dated as of May _, 2000, among Chesapeake Energy Corporation, Chesapeake
Exploration Limited Partnership ("Borrower"), certain Guarantors, Union Bank of
California, N.A., as Agent ("Agent"), and Lenders from time to time party
thereto (herein, as from time to time supplemented, amended or restated called
the "Agreement"). Terms which are defined in the Agreement are used herein with
the meanings given them in the Agreement. Pursuant to the terms of the Agreement
Borrower hereby requests Lenders to make an Advance to Borrower in the principal
amount of $ __________ and specifies ____________, 20__, as the date Borrower
desires for Lenders to make such Advance and to deliver to Borrower the proceeds
thereof.

         To induce Lenders to make such Advance, Parent and Borrower hereby
represent, warrant, acknowledge, and agree that:

                  (a) The officer of Parent and Borrower signing this instrument
         is the duly elected, qualified and acting officer of Parent and
         Borrower as indicated below such officer's signature hereto having all
         necessary authority to act for Parent and Borrower in making the
         request herein contained.

                  (b) The representations and warranties of Restricted Persons
         set forth in the Agreement and the other Loan Documents are true and
         correct on and as of the date hereof (except to the extent that the
         facts on which such representations and warranties are based have been
         changed by the extension of credit under the Agreement), with the same
         effect as though such representations and warranties had been made on
         and as of the date hereof.

                  (c) There does not exist on the date hereof any condition or
         event which constitutes a Default which has not been waived in writing
         as provided in Section 10.1(a) of the Agreement; nor will any such
         Default exist upon Borrower's receipt and application of the Advance
         requested hereby. Borrower will use the Advance hereby requested in
         compliance with Section 2.4 of the Agreement.

                  (d) Except to the extent waived in writing as provided in
         Section 10.1(a) of the Agreement, each Restricted Person has performed
         and complied with all agreements and conditions in the Agreement
         required to be performed or complied with by such Restricted Person on
         or prior to the date hereof, and each of the conditions precedent to
         Advances contained in the Agreement remains satisfied.

                  (e) The unpaid principal balance of the Loan, after the making
         of the Advance requested hereby, will not be in excess of the Borrowing
         Base on the date requested for the making of such Advance.

                                       83
<PAGE>   84

                  (f) The Loan Documents have not been modified, amended or
         supplemented by any unwritten representations or promises, by any
         course of dealing, or by any other means not provided for in Section
         10.1(a) of the Agreement. The Agreement and the other Loan Documents
         are hereby ratified, approved, and confirmed in all respects.

         The officers of Parent and Borrower signing this instrument hereby
certify that, to the best of their knowledge after due inquiry, the above
representations, warranties, acknowledgments, and agreements of Parent and
Borrower are true, correct and complete.

         IN WITNESS WHEREOF, this instrument is executed as of ____________,
20__.

                          CHESAPEAKE ENERGY CORPORATION

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

                          CHESAPEAKE EXPLORATION LIMITED
                    PARTNERSHIP

                          By: Chesapeake Operating, Inc.,
                              its general partner

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

                                       84
<PAGE>   85

                                                                       EXHIBIT C

                         CONTINUATION/CONVERSION NOTICE

         Reference is made to that certain Amended and Restated Credit Agreement
dated May _, 2000 among CHESAPEAKE ENERGY CORPORATION, CHESAPEAKE EXPLORATION
LIMITED PARTNERSHIP ("Borrower"), certain Guarantors and UNION BANK OF
CALIFORNIA, as Agent ("Agent"), and Lenders from time to time party thereto
(herein, as from time to time supplemented, amended or restated, called the
"Agreement"). Terms which are defined in the Agreement and which are used but
not defined herein are used herein with the meanings given them in the
Agreement. Pursuant to the terms of the Agreement Borrower hereby elects to
[Continue the following Eurodollar Loan][Convert a Base Rate Loan to a
Eurodollar Loan][in the amount of $ __________ with an Interest Period beginning
on __________________ and continuing for a period of __________________]
[Convert the following Eurodollar Loan to a Base Rate Loan]:

         To meet the conditions set out in the Agreement for the making of such
election, Parent and Borrower hereby represent, warrant, acknowledge and agree
that:

                  (a) The officer of Parent and Borrower signing this instrument
         is the duly elected, qualified and acting officer of Parent and
         Borrower as indicated below such officer's signature hereto having all
         necessary authority to act for Parent and Borrower in making the
         election herein contained.

                  (b) There does not exist on the date hereof any condition or
         event which constitutes a Default which has not been waived in writing
         as provided in Section 10.1(a) of the Agreement.

                  (c) The Loan Documents have not been modified, amended or
         supplemented by any unwritten representations or promises, by any
         course of dealing, or by any other means not provided for in Section
         10.1(a) of the Agreement. The Agreement and the other Loan Documents
         are hereby ratified, approved, and confirmed in all respects.

         The officers of Parent and Borrower signing this instrument hereby
certifies that, to the best of their knowledge after due inquiry, the above
representations, warranties, acknowledgments, and agreements of Parent and
Borrower are true, correct and complete.

                                       1
<PAGE>   86

         IN WITNESS WHEREOF this instrument is executed as of _______________.

                          CHESAPEAKE ENERGY CORPORATION

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

                          CHESAPEAKE EXPLORATION LIMITED
                          PARTNERSHIP

                          By: Chesapeake Operating, Inc.,
                              its general partner

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

                                       2
<PAGE>   87

                                                                       EXHIBIT D

                            CERTIFICATE ACCOMPANYING
                              FINANCIAL STATEMENTS

         Reference is made to that certain Amended and Restated Credit Agreement
dated as of May _, 2000, among Chesapeake Energy Corporation, Chesapeake
Exploration Limited Partnership ("Borrower"), certain Guarantors, Union Bank of
California, N.A., as Agent ("Agent"), and Lenders from time to time party
thereto (herein, as from time to time supplemented, amended or restated called
the "Agreement"), which Agreement is in full force and effect on the date
hereof. Terms which are defined in the Agreement are used herein with the
meanings given them in the Agreement.

         This Certificate is furnished pursuant to Section 6.2(b) of the
Agreement. Together herewith Parent and Borrower are furnishing to Lenders
[Parent's][Borrower's] financial statements (the "Financial Statements") as at
____________ (the "Reporting Date"). Parent and Borrower hereby represent,
warrant, and acknowledge to Lenders that:

         (a) the officer of Parent and Borrower signing this instrument is the
duly elected, qualified and acting [Chief Financial Officer][Treasurer] of
Parent and Borrower;

         (b) the Financial Statements are accurate and complete and satisfy, the
requirements of the Agreement, and fairly present the consolidated financial
conditions and results of operations of [Parent and its Subsidiaries][Borrower];

         (c) a review of the activities of each Restricted Person during *[the
Fiscal Quarter ending on the Reporting Date and during the portion of the Fiscal
Year Ending on the Reporting Date]* *[the Fiscal Year Ending on the Reporting
Date] has been made under the supervision of the undersigned and to the
knowledge of the undersigned, each Restricted Person is in full compliance with
the disclosure requirements of Section 6.2(d) of the Agreement and has observed,
performed and fulfilled each and every other obligation and covenant contained
in each of the Loan Documents (except to the extent properly waived as provided
herein) and no Restricted Person was in Default under the Loan Documents as of
the Reporting Date nor is in default as of the date hereof *[except for
Default(s) under Section(s) ____________ of the Agreement, which *[is/are] more
fully described on a schedule attached hereto].

         The officer of Parent and Borrower signing this instrument hereby
certifies that he has reviewed the Loan Documents and the Financial Statements
and has otherwise undertaken such inquiry as is in his opinion necessary to
enable him to express an informed opinion with respect to the above
representations, warranties and acknowledgments of Borrower and, to the best of
his knowledge, such representations, warranties, and acknowledgments are true,
correct and complete.

                                       1

<PAGE>   88

         IN WITNESS WHEREOF, this instrument is executed as of ____________,
20__.

                           CHESAPEAKE ENERGY CORPORATION

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

                          CHESAPEAKE EXPLORATION LIMITED
                          PARTNERSHIP

                          By: Chesapeake Operating, Inc.,
                              its general partner

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

                                       2

<PAGE>   89

                                                                       EXHIBIT G

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

                                                     Date _______________, 200__

         Reference is made to that certain Amended and Restated Credit Agreement
dated as of May _, 2000 (as from time to time amended, the "Agreement"), by and
among Chesapeake Energy Corporation, Chesapeake Exploration Limited Partnership,
as Borrower, certain Guarantors, Union Bank of California, N.A., as Agent, and
certain financial institutions, as Lenders, which Agreement is in full force and
effect on the date hereof. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.

         ____________________ ("Assignor") and ____________________ ("Assignee")
hereby agree as follows:

         1. Assignor hereby sells and assigns to Assignee without recourse and
without representation or warranty (other than as expressly provided herein),
and Assignee hereby purchases and assumes from Assignor, that interest in and to
all of Assignor's rights and duties under the Agreement as of the date hereof
which represents the percentage interest specified in Item 3 of Annex I hereto
(the "Assigned Share") of all of the outstanding rights and obligations of all
Lenders under the Agreement, including, without limitation, all rights and
obligations with respect to the Assigned Share in Assignor's Loans and Note.
After giving effect to such sale and assignment, Assignee's Percentage Share
[(and Assignor's remaining Percentage Share)] will be as set forth in Item 3 of
Annex I hereto.

         2. Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement, the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the other Loan Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any other Related Person or the performance or
observance by any of them of any of their respective obligations under the
Agreement, the other Loan Documents, or any other instrument or document
furnished pursuant thereto.

         3. Assignee: (i) confirms that it has received a copy of the Agreement,
together with copies of the financial statements most recently delivered
thereunder and such other Loan Documents and other documents and information as
it has deemed appropriate to make its own analysis of Borrower and the
transactions contemplated by the Agreement and its own independent decision to
enter into this Assignment and Assumption Agreement; (ii) agrees that it will,
independently and without reliance upon Assignor or any other Bank Party and
based on such documents and information as it shall deem appropriate at the
time, continue to make its

                                       3
<PAGE>   90

own credit decisions in taking or not taking action under the Agreement; (iii)
confirms that it is a an Eligible Transferee under the Agreement; (iv) appoints
and authorizes Agent to take such action as agent on its behalf and to exercise
such powers under the Agreement and the other Loan Documents as are specifically
delegated to them, together with all other powers reasonably incidental thereto;
and (v) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Agreement are required to be performed by
it as a Lender (including the obligation to make future Loans). [; and (vi)
attaches the "Prescribed Forms" described in Section 3.7(d) of the Agreement.]

         4. Following the execution of this Assignment and Assumption Agreement
by Assignor and Assignee, an executed original hereof (together with all
attachments) will be delivered to Agent. The effective date of this Assignment
and Assumption Agreement (the "Settlement Date") shall be the date specified in
Item 4 of Annex I hereto; provided that this Assignment and Assumption Agreement
shall not be deemed to have taken effect unless (i) the consent hereto of Agent
and Borrower has been obtained (to the extent required in the Agreement), (ii)
Agent has received a fully executed original hereof, and (iii) Agent has
received the processing fee referred to in Section 10.5(c)(ii) of the Agreement.

         5. Upon the satisfaction of the foregoing conditions, then as of the
Settlement Date: (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Assumption Agreement, have the rights and
obligations of a Lender thereunder and under the other Loan Documents and (ii)
Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its duties under the
Agreement and the other Loan Documents.

         6. All interest, fees and other amounts that would otherwise accrue
pursuant to the Agreement and Assignor's Note for the account of Assignor from
and after the Settlement Date shall, instead accrue for the account of, and be
payable to, Assignor and Assignee, as the case may be, in accordance with their
respective interests as reflected in Item 3 to Annex I hereto. All payments of
principal that would otherwise be payable from and after the Settlement Date to
or for the account of Assignor pursuant to the Agreement and Assignor's Note
shall, instead, be payable to or for the account of Assignor and Assignee, as
the case may be, in accordance with their respective interests as reflected in
Item 3 to Annex I hereto. On the Settlement Date, Assignee shall pay to Assignor
an amount specified by Assignor in writing which represents the portion of
Assignor's Loans which is being assigned and which is outstanding on the
Settlement Date, net of any closing costs. Assignor and Assignee shall make all
appropriate adjustments in payments under the Agreement for periods prior to the
Settlement Date directly between themselves on the Settlement Date.

         7. Each of the parties to this Assignment and Assumption Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment and Assumption Agreement.

         8. This Assignment and Assumption Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Texas.

                                       4
<PAGE>   91

         IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Assumption
Agreement, as of the date first above written, such execution also being made on
Annex I hereto.

                                               [NAME OF ASSIGNOR]
                                               as Assignor

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

                                               [NAME OF ASSIGNEE]

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

CONSENTED TO AND ACKNOWLEDGED:

UNION BANK OF CALIFORNIA, N.A.
as Agent

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

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

                                       5
<PAGE>   92

                  ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT

                                     ANNEX I

1.       Borrower: Chesapeake Energy Corporation and Chesapeake Exploration
         Limited Partnership

2.       Date of Assignment Agreement:

3.       Amounts (as of date of item #2 above):

<TABLE>
<CAPTION>
                                            [Assignor             Assignee
                                           (as Revised)]           (New)
                                           -------------         ---------

<S>                                        <C>                  <C>
         a.  Percentage Share              [__________%]         __________%

         b.  Percentage Share of
              Borrowing Base:              [$__________]         $__________
</TABLE>

4.       Settlement Date:

5.       Notices:

         ASSIGNEE:

         ------------------------
         ------------------------
         ------------------------
         ------------------------
         Attention:
                   --------------
         Telephone:
                   --------------
         Telecopy:
                   --------------

6.       Wiring Instructions:

         ------------------------
         ------------------------
         ------------------------

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