Document:

<PAGE>
                                                                    EXHIBIT 10.3

                                 $350,000,000.00

                  FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

                                      among

                            STONE ENERGY CORPORATION

                                  as Borrower,

                           THE FINANCIAL INSTITUTIONS
                         NAMED IN THIS CREDIT AGREEMENT

                                    as Banks,

                              BANK OF AMERICA, N.A.
                            as Administrative Agent,

                               FLEET NATIONAL BANK
                              as Syndication Agent,

                                  BANK ONE, NA
                           as Documentation Agent, and

                         U.S. BANK NATIONAL ASSOCIATION,
                            FORTIS CAPITAL CORP., and
                                BANK OF MONTREAL
                                  as Co-Agents

                                December 20, 2001

<PAGE>

<Table>
<S>                                                                         <C>
                                    ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

Section 1.1.          Certain Defined Terms...................................1
Section 1.2.          Computation of Time Periods............................12
Section 1.3.          Accounting Terms; Changes in GAAP......................12
Section 1.4.          Types of Advances......................................13
Section 1.5.          Miscellaneous..........................................13

                                   ARTICLE II
                                CREDIT FACILITIES

Section 2.1.          Commitment for Advances................................13
Section 2.2.          Borrowing Base.........................................14
Section 2.3.          Method of Borrowing....................................15
Section 2.4.          Prepayment of Advances.................................17
Section 2.5.          Repayment of Advances..................................19
Section 2.6.          Letters of Credit......................................20
Section 2.7.          Fees...................................................23
Section 2.8.          Interest...............................................24
Section 2.9.          Payments and Computations..............................25
Section 2.10.         Sharing of Payments, Etc...............................26
Section 2.11.         Breakage Costs.........................................26
Section 2.12.         Increased Costs........................................27
Section 2.13.         Taxes..................................................28

                                   ARTICLE III
                              CONDITIONS OF LENDING

Section 3.1.          Conditions Precedent to Amendment and Restatement......29
Section 3.2.          Conditions Precedent to All Borrowings.................31

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

Section 4.1.          Corporate Existence; Subsidiaries......................32
Section 4.2.          Corporate Power........................................32
Section 4.3.          Authorization and Approvals............................32
Section 4.4.          Enforceable Obligations................................32
Section 4.5.          Financial Statements...................................33
Section 4.6.          True and Complete Disclosure...........................33
Section 4.7.          Litigation.............................................33
Section 4.8.          Use of Proceeds........................................33
Section 4.9.          Investment Company Act.................................34
Section 4.10.         Public Utility Holding Company Act.....................34
Section 4.11.         Taxes..................................................34
Section 4.12.         Pension Plans..........................................34
</Table>

<PAGE>

<Table>
<S>                                                                         <C>
Section 4.13.         Condition of Property; Casualties......................35
Section 4.14.         No Burdensome Restrictions; No Defaults................35
Section 4.15.         Environmental Condition................................35
Section 4.16.         Permits, Licenses, Etc.................................36
Section 4.17.         Gas Contracts..........................................36

                                    ARTICLE V
                              AFFIRMATIVE COVENANTS

Section 5.1.          Compliance with Laws, Etc..............................36
Section 5.2.          Maintenance of Insurance...............................37
Section 5.3.          Preservation of Corporate Existence, Etc...............37
Section 5.4.          Payment of Taxes, Etc..................................37
Section 5.5.          Visitation Rights......................................37
Section 5.6.          Reporting Requirements.................................38
Section 5.7.          Maintenance of Property................................40
Section 5.8.          New Subsidiaries.......................................40

                                   ARTICLE VI
                               NEGATIVE COVENANTS

Section 6.1.          Liens, Etc.............................................41
Section 6.2.          Debts, Guaranties, and Other Obligations...............42
Section 6.3.          Agreements Restricting Liens and Distributions.........42
Section 6.4.          Merger or Consolidation; Asset Sales...................42
Section 6.5.          Restricted Payments....................................43
Section 6.6.          Investments............................................43
Section 6.7.          Limitation on Speculative Hedging......................43
Section 6.8.          Affiliate Transactions.................................43
Section 6.9.          Compliance with ERISA..................................44
Section 6.10.         Maintenance of Ownership of Subsidiaries...............44
Section 6.11.         Sale-and-Leaseback.....................................44
Section 6.12.         Change of Business.....................................44
Section 6.13.         Debt to EBITDA Ratio...................................44
Section 6.14.         Tangible Net Worth.....................................44
Section 6.15.         Subordinated Debt......................................45

                                   ARTICLE VII
                                    REMEDIES

Section 7.1.          Events of Default......................................45
Section 7.2.          Optional Acceleration of Maturity......................47
Section 7.3.          Automatic Acceleration of Maturity.....................47
Section 7.4.          Right of Set-off.......................................48
Section 7.5.          Actions Under Credit Documents.........................48
Section 7.6.          Non-exclusivity of Remedies............................48
</Table>

                                      -ii-
<PAGE>

<Table>
<S>                                                                         <C>
                                  ARTICLE VIII
                         THE AGENT AND THE ISSUING BANK

Section 8.1.          Authorization and Action...............................48
Section 8.2.          Agent's Reliance, Etc..................................49
Section 8.3.          The Agent and Its Affiliates...........................49
Section 8.4.          Bank Credit Decision...................................49
Section 8.5.          Indemnification........................................50
Section 8.6.          Successor Agent and Issuing Bank.......................50

                                   ARTICLE IX
                                  MISCELLANEOUS

Section 9.1.          Amendments, Etc........................................51
Section 9.2.          Notices, Etc...........................................51
Section 9.3.          No Waiver; Remedies....................................51
Section 9.4.          Costs and Expenses.....................................52
Section 9.5.          Binding Effect.........................................52
Section 9.6.          Bank Assignments and Participations....................52
Section 9.7.          Indemnification........................................54
Section 9.8.          Execution in Counterparts..............................54
Section 9.9.          Survival of Representations, Etc.......................54
Section 9.10.         Severability...........................................54
Section 9.11.         Business Loans.........................................55
Section 9.12.         Governing Law..........................................55
</Table>

                                      -iii-
<PAGE>

EXHIBITS:

         Exhibit A         -       Form of Assignment and Acceptance
         Exhibit B         -       Form of Compliance Certificate
         Exhibit C         -       Form of Guaranty
         Exhibit D         -       Form of Note
         Exhibit E         -       Form of Notice of Borrowing
         Exhibit F         -       Form of Notice of Conversion or Continuation
         Exhibit G         -       Form of Letter of Credit Application
         Exhibit H-1       -       Form of Borrower's General Counsel Opinion
         Exhibit H-2       -       Form of Agent's Counsel Opinion

SCHEDULES:

         Schedule 1        -       Commitments; Borrower, Agent, and Bank Notice
                                   Information; Lending Offices and Wire
                                     Instructions
         Schedule 4.7      -       Existing Litigation
         Schedule 4.15(a)  -       Existing Environmental Concerns
         Schedule 4.15(b)  -       Designated Environmental Sites
         Schedule 6.1      -       Permitted Existing Liens
         Schedule 6.2      -       Permitted Existing Debt
         Schedule 6.8      -       Affiliate Transactions

                                      -iv-
<PAGE>

                  FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

         This Fourth Amended and Restated Credit Agreement dated as of December
20, 2001 is among Stone Energy Corporation, a Delaware corporation, the Banks
(as defined below), and Bank of America, N.A., as administrative agent for the
Banks.

         The Borrower, the Banks, and the Agent agree as follows:

                                  INTRODUCTION

         A. The Borrower, the Agent, and the Banks are parties to the Third
Amended and Restated Credit Agreement dated as of July 30, 1997 (as the same has
been amended, supplemented, or otherwise modified from time to time, the
"Existing Credit Agreement").

         B. The Borrower, the Agent, and the Banks have agreed to amend and
restate the Existing Credit Agreement by entering into this Agreement.

                                   ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         Section 1.1. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

         "Acquired Company" means Conoco Offshore Inc. or, prior to any merger
of the Acquired Company with the Borrower, any successor entity.

         "Acquired Properties" means the properties acquired under the
Acquisition Agreement, including the stock of the Acquired Company.

         "Acquisition Agreement" means, collectively (a) the Purchase and Sale
Agreement by and between Conoco Inc. and Conoco Offshore Pipe Line Company as
assignors and the Borrower as assignee and (b) the Share and Pipeline Purchase
Agreement by and between Conoco Inc. and Conoco Offshore Pipe Line Company as
sellers and the Borrower as buyer, in form and substance satisfactory to the
Agent and the Majority Banks.

         "Adjusted Base Rate" means, for any day, the fluctuating rate per annum
of interest equal to the greater of (a) the Base Rate in effect on such day and
(b) the Federal Funds Rate in effect on such day plus 1.00%.

         "Advance" means any advance by a Bank to the Borrower as part of a
Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance.

         "Affiliate" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power

<PAGE>

to direct or cause the direction of the management and policies of a Person,
whether through ownership of Voting Securities, by contract, or otherwise.

         "Agent" means Bank of America, N.A., in its capacity as an
administrative agent pursuant to Article VIII and any successor administrative
agent pursuant to Section 8.6.

         "Agent's Fee Letter" has the meaning specified in Section 2.7(b).

         "Agreement" means this Fourth Amended and Restated Credit Agreement, as
the same may be amended, supplemented, and otherwise modified from time to time.

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

         "Applicable Margin" means, for any day, the following percentages based
upon the ratio of (a) the aggregate outstanding amount of Advances plus the
Letter of Credit Exposure to (b) the Borrowing Base as of such day:

<Table>
<Caption>
Ratio of Outstanding Advances   Applicable Margin Base       Applicable Margin            Applicable Margin
to Borrowing Base               Rate Advances                Eurodollar Rate Advances     Commitment Fees
-----------------------------   ----------------------       ------------------------     ---------------
<S>                             <C>                          <C>                          <C>
Less than .30                   0.00%                        1.250%                       0.50%
Greater than or equal to .30    0.00%                        1.375%                       0.50%
but less than .60
Greater than or equal to .60    0.00%                        1.500%                       0.50%
but less than .90
Greater than or equal to .90    0.00%                        1.750%                       0.500%
</Table>

         "Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of the attached Exhibit A.

         "Banks" means the lenders listed on the signature pages of this
Agreement and each Eligible Assignee that shall become a party to this Agreement
pursuant to Section 9.6.

         "Base Rate" means a fluctuating interest rate per annum as shall be in
effect from time to time equal to the rate of interest publicly announced by
Bank of America, N.A., as its base rate, whether or not the Borrower has notice
thereof.

         "Base Rate Advance" means an Advance which bears interest as provided
in Section 2.8(a).

                                       -2-
<PAGE>

         "Borrower" means Stone Energy Corporation, a Delaware corporation.

         "Borrowing" means, subject to Sections 2.3(c)(ii) and 2.4(e), a
borrowing consisting of simultaneous Advances of the same Type made by each Bank
pursuant to Section 2.3(a), continued by each Bank pursuant to Section 2.3(b),
or Converted by each Bank to Advances of a different Type pursuant to Section
2.3(b).

         "Borrowing Base" means, for any date of its determination by the
Majority Banks or all of the Banks, as the case may be, in accordance with
Section 2.2.

         "Business Day" means a day of the year on which banks are not required
or authorized to close in Dallas, Texas and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on by
banks in the London interbank market.

         "Capital Leases" means, as applied to any Person, any lease of any
Property by such Person as lessee which would, in accordance with GAAP, be
required to be classified and accounted for as a capital lease on the balance
sheet of such Person.

         "Cash Collateral Account" means a special interest bearing cash
collateral account pledged to the Agent for the ratable benefit of the Banks
containing cash deposited pursuant to Sections 2.4(b) or (c), 7.2(b), or 7.3(b)
to be maintained at the Agent's office in accordance with Section 2.6(g) and
bear interest or be invested in the Agent's reasonable discretion.

         "CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, state and local analogs, and all rules
and regulations and requirements thereunder in each case as now or hereafter in
effect.

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

         "Commitment" means, for any Bank, the amount set opposite such Bank's
name on the Schedule 1 as its Commitment, or if such Bank has entered into any
Assignment and Acceptance, as set forth for such Bank as its Commitment in the
Register maintained by the Agent pursuant to Section 9.6(c), as such amount may
be reduced or terminated pursuant to Article VII.

         "Compliance Certificate" means a compliance certificate in the form of
the attached Exhibit B signed by a Responsible Officer of the Borrower.

         "Controlled Group" means all members of a controlled group of
corporations and all trades (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Code.

         "Convert," "Conversion," and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 2.3(b).

                                       -3-
<PAGE>

         "Credit Documents" means this Agreement, the Notes, the Letter of
Credit Documents, the Guaranties, and each other agreement, instrument, or
document executed at any time in connection with this Agreement.

         "Debt," for any Person, means without duplication:

         (a) indebtedness of such Person for borrowed money, including, without
limitation, obligations under letters of credit and agreements relating to the
issuance of letters of credit or acceptance financing;

         (b) obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;

         (c) obligations of such Person to pay the deferred purchase price of
property or services;

         (d) obligations of such Person as lessee under Capital Leases;

         (e) obligations of such Person under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) of such Person to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(a) through (d) above;

         (f) indebtedness or obligations of others of the kinds referred to in
clauses (a) through (e) secured by any Lien on or in respect of any Property of
such Person; and

         (g) all liabilities of such Person in respect of unfunded vested
benefits under any Plan.

         "Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time or both would, unless cured or waived, become
an Event of Default.

         "Dollar Equivalent" means for all purposes of this Agreement, the
equivalent in another currency of an amount in Dollars to be determined by
reference to the rate of exchange quoted by Bank of America, N.A., at 10:00 a.m.
(Dallas, Texas, time) on the date of determination, for the spot purchase in the
foreign exchange market of such amount of Dollars with such other currency.

         "Dollars" and "$" means lawful money of the United States of America.

         "Domestic Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Domestic Lending Office" opposite its name on
Schedule 1 or such other office of such Bank as such Bank may from time to time
specify to the Borrower and the Agent.

         "EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated Net Income, excluding extraordinary items, of
such Person for such period, plus the consolidated interest expense, income
taxes, depreciation, depletion, and amortization of such Person for such period.

                                       -4-
<PAGE>

         "Effective Date" means the date on which each of the conditions
precedent in Section 3.1 have been met or waived.

         "Eligible Assignee" means any commercial bank organized under the laws
of any country which is a member of the Organization for Economic Cooperation
and Development and having primary capital (or its equivalent) of not less than
$250,000,000.00 (or its Dollar Equivalent) and approved by the Agent in its sole
discretion and the Borrower, which approval by the Borrower will not be
unreasonably withheld.

         "Environment" or "Environmental" shall have the meanings set forth in
43 U.S.C. Section 9601(8) (1988).

         "Environmental Claim" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) which seeks to impose liability under any
Environmental Law.

         "Environmental Law" means all Legal Requirements arising from, relating
to, or in connection with the Environment, health, or safety, including without
limitation CERCLA, relating to (a) pollution, contamination, injury,
destruction, loss, protection, cleanup, reclamation or restoration of the air,
surface water, groundwater, land surface or subsurface strata, or other natural
resources; (b) solid, gaseous or liquid waste generation, treatment, processing,
recycling, reclamation, cleanup, storage, disposal or transportation; (c)
exposure to pollutants, contaminants, hazardous, or toxic substances, materials
or wastes; (d) the safety or health of employees; or (e) the manufacture,
processing, handling, transportation, distribution in commerce, use, storage or
disposal of hazardous, or toxic substances, materials or wastes.

         "Environmental Permit" means any permit, license, order, approval or
other authorization under Environmental Law.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

         "Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Federal Reserve Board (or any successor), as in effect from
time to time.

         "Eurodollar Lending Office" means, with respect to any Bank, the office
of such Bank specified as its "Eurodollar Lending Office" opposite its name on
Schedule 1 (or, if no such office is specified, its Domestic Lending Office) or
such other office of such Bank as such Bank may from time to time specify to the
Borrower and the Agent.

         "Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Advance, the interest rate per annum (rounded upward to the nearest 1/100
of 1% per annum) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days before the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is

                                       -5-
<PAGE>
not available, the term "Eurodollar Rate" shall mean, for the Interest Period
for each Eurodollar Rate Advance, the interest rate per annum (rounded upward to
the nearest 1/100 of 1% per annum) appearing on Reuters Screen LIBO page as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days before the first day of such Interest
Period for a term comparable to such Interest Period; provided, however, if more
than one rate is specified on Reuters Screen LIBO page, the applicable rate
shall be the arithmetic mean of all such rates.

         "Eurodollar Rate Advance" means an Advance which bears interest as
provided in Section 2.8(b).

         "Eurodollar Rate Reserve Percentage" of any Bank for the Interest
Period for any Eurodollar Rate Advance means the reserve percentage applicable
during such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such Bank
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.

         "Event of Default" has the meaning specified in Section 7.1.

         "Existing Letters of Credit" means the letters of credit outstanding on
the date of this Agreement issued for the account of the Borrower or its
Subsidiaries which are described in the attached Schedule 6.2, as the same may
be amended, supplemented, and otherwise modified from time to time.

         "Existing Letter of Credit Exposure" means at any time, the sum of (a)
the aggregate undrawn maximum face amount of each Existing Letter of Credit at
such time, plus (b) the aggregate unpaid amount of all reimbursement obligations
for payments made under Existing Letters of Credit at such time.

         "Expiration Date" means, with respect to any Letter of Credit, the date
on which such Letter of Credit will expire or terminate in accordance with its
terms.

         "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 which is a Business Day, the average of the quotations for any such day on
such transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

         "Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.

                                       -6-
<PAGE>

         "Financial Statements" means the balance sheet and statements of
operations, stockholders' equity and cash flow dated December 31, 2000 referred
to in Section 4.5, copies of which have been delivered to the Agent and the
Banks.

         "GAAP" means United States generally accepted accounting principles as
in effect from time to time, applied on a basis consistent with the requirements
of Section 1.3.

         "Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority or instrumentality, bureau or court having jurisdiction over
any Bank, the Borrower, or the Borrower's Subsidiaries or any of their
respective Properties.

         "Guaranties" means each Guaranty in favor of the Agent for the ratable
benefit of the Banks in the form of the attached Exhibit C executed on the date
hereof or as required by Section 5.8, as the same may be amended, supplemented,
or otherwise modified from time to time.

         "Guarantors" means each Material Subsidiary of the Borrower which has
executed a Guaranty on the date hereof or as required by Section 5.8.

         "Hazardous Substance" means the substances identified as such pursuant
to CERCLA and those regulated under any other Environmental Law, including
without limitation pollutants, contaminants, petroleum, petroleum products,
radionuclides, radioactive materials, and medical and infectious waste.

         "Hazardous Waste" means the substances regulated as such pursuant to
any Environmental Law.

         "Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Advance or
the date of the Conversion of any Base Rate Advance into such an Advance and
ending on the last day of the period selected by the Borrower pursuant to the
provisions below or by Section 2.3 and, thereafter, 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 or by Section 2.3. The duration of each such Interest Period
shall be one, two, three, or six months, in each case as the Borrower may, upon
notice received by the Agent not later than 10:00 a.m. (Dallas, Texas, time) on,
the third Business Day prior to the first day of such Interest Period select;
provided, however, that:

         (a) the Borrower may not select any Interest Period for any Advance
which ends after the Maturity Date;

         (b) Interest Periods commencing on the same date for Advances
comprising part of the same Borrowing shall be of the same duration;

         (c) 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 that if such
extension would cause the last day of such

                                       -7-
<PAGE>
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

         (d) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month.

         "Interim Financial Statements" means the unaudited balance sheet and
statements of operations and cash flow dated as of September 30, 2001, referred
to in Section 4.5.

         "Issuing Bank" means Bank of America, N.A., and any successor issuing
bank pursuant to Section 8.6.

         "Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, including, but not limited to, Regulations T, U, and X.

         "Letter of Credit" means, individually, any letter of credit issued by
the Issuing Bank which is subject to this Agreement and "Letters of Credit"
means all such letters of credit collectively, provided that the Existing
Letters of Credit shall not be Letters of Credit hereunder until made Letters of
Credit under this Agreement by the Issuing Bank at the time such Existing
Letters of Credit are replaced or rolled over.

         "Letter of Credit Application" means the Issuing Bank's standard form
letter of credit application for either a commercial or standby letter of
credit, as the case may be, which has been executed by the Borrower and accepted
by the Issuing Bank in connection with the issuance of a Letter of Credit, which
form or forms as of the date of this Agreement are in the form of the attached
Exhibit G, as the same may be amended, supplemented, and otherwise modified from
time to time.

         "Letter of Credit Documents" means all Letters of Credit, Letter of
Credit Applications, and agreements, documents, and instruments entered into in
connection with or relating thereto.

         "Letter of Credit Exposure" means, at any time, the sum of (a) the
aggregate undrawn maximum face amount of each Letter of Credit at such time,
plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such
time.

         "Letter of Credit Obligations" means any obligations of the Borrower
under this Agreement in connection with the Letters of Credit, including the
Reimbursement Obligations.

         "Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, or encumbrance to secure or provide for the payment of any
obligation of any Person, whether arising by contract, operation of law, or
otherwise (including, without limitation, the interest of a vendor or lessor
under any conditional sale agreement, Capital Lease, or other title retention
agreement).

                                       -8-
<PAGE>

         "Liquid Investments" means:

         (a) debt securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof, with
maturities of no more than two years from the date of acquisition;

         (b) commercial paper of a domestic issuer rated at the date of
acquisition not less than P1 by Moody's Investor Service, Inc., or A1 by
Standard & Poor's Corporation;

         (c) certificates of deposit, demand deposits, Eurodollar time deposits,
overnight bank deposits, and bankers' acceptances, with maturities of no more
than two years from the date of acquisition, issued by any Bank or any bank or
trust company organized under the laws of the United States or any state thereof
whose deposits are insured by the Federal Deposit Insurance Corporation, and
having capital and surplus aggregating at least $100,000,000.00;

         (d) corporate bonds, mortgaged-backed securities, and municipal bonds
of a domestic issuer rated at the date of acquisition Aaa by Moody's Investor
Service, Inc., or AAA by Standard & Poor's Corporation, with maturities of no
more than two years from the date of acquisition;

         (e) repurchase agreements secured by debt securities of the type
described in part (a) above, the market value of which, including accrued
interest, is not less than 100% of the amount of the repurchase agreement, with
maturities of no more than two years from the date of acquisition, issued by or
acquired from or through any Bank or any bank or trust company organized under
the laws of the United States or any state thereof and having capital and
surplus aggregating at least $100,000,000.00; and

         (f) money market funds;

provided that (i) investments in any one issuer, excluding the United States
government or any agency or instrumentality thereof, shall not exceed 20% of
total fixed-income Liquid Investments based on market value at the time of
acquisition, (ii) fixed-income holdings shall not exceed 5% of all Investments
at any time, and (iii) certificates of deposit, commercial paper, corporate
bonds, mortgaged-backed securities, or municipal bonds issued by any one issuer
shall not exceed 5% of all Liquid Investments at any time.

         "Majority Banks" means, at any time and except as provided in the last
sentence of this definition, Banks holding at least 66-2/3% of the then
aggregate unpaid principal amount of the Notes held by the Banks and the Letter
of Credit Exposure of the Banks at such time, but in no event less than two
Banks at any time when there are three or more Banks; provided that if no such
principal amount or Letter of Credit Exposure is then outstanding, "Majority
Banks" shall mean Banks having at least 66-2/3% of the aggregate amount of the
Commitments at such time, but in no event less than two Banks at any time when
there are three or more Banks. For any determination under Section 2.2,
"66-2/3%" in the foregoing sentence shall be "75%."

         "Material Adverse Change" means (a) a material adverse change in the
business, financial condition, or results of operations of the Borrower or any
of its Subsidiaries, or (b) the occurrence and continuance of any event or
circumstance which could reasonably be expected

                                       -9-
<PAGE>
(i) to have a material adverse effect on the Borrower's or any Guarantor's
ability to perform its obligations under this Agreement, any Note, any Guaranty,
or any other Credit Document or (ii) to cause a Default.

         "Material Subsidiary" means, (a) in the case of Subsidiaries of the
Borrower existing on September 30, 2001, as of any date of its determination, a
Subsidiary of the Borrower (i) with assets constituting 10% or more of the
Borrower's consolidated assets on such date, (ii) that contributed more than 5%
of the Borrower's consolidated EBITDA for the four-quarter period ending on or
before such date, or (iii) the Borrower has designated to be Material Subsidiary
and (b) in the case of Subsidiaries of the Borrower created or acquired after
September 30, 2001, as of any date of its determination, a Subsidiary of the
Borrower (i) with assets constituting 5% or more of the Borrower's consolidated
assets on such date, (ii) that contributed more than 5% of the Borrower's
consolidated EBITDA for the four-quarter period ending on or before such date,
or (iii) the Borrower has designated to be Material Subsidiary.

         "Maturity Date" means the earlier of (a) December 20, 2004 or (b) the
earlier termination in whole of the Commitments pursuant to Section 2.1(b) or
Article VII.

         "Maximum Rate" means the maximum nonusurious interest rate under
applicable law.

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.

         "Net Income" means, for any Person and for any period of its
determination, the net income of such Person determined in accordance with GAAP
consistently applied.

         "Net Worth" means, for any Person that is a corporation and as of any
date of its determination, the consolidated total assets of such Person less the
total liabilities of such Person, determined in accordance with GAAP
consistently applied.

         "Note" means a promissory note of the Borrower payable to the order of
any Bank, in substantially the form of the attached Exhibit D, evidencing
indebtedness of the Borrower to such Bank resulting from Advances owing to such
Bank.

         "Notice of Borrowing" means a notice of borrowing in the form of the
attached Exhibit E signed by a Responsible Officer of the Borrower.

         "Notice of Conversion or Continuation" means a notice of conversion or
continuation in the form of the attached Exhibit F signed by a Responsible
Officer of the Borrower.

         "Obligations" means all principal, interest, fees, reimbursements,
indemnifications, and other amounts payable by the Borrower to the Agent or the
Banks under the Credit Documents.

         "Oil and Gas Properties" means fee, leasehold or other interests in or
under mineral estates or oil, gas, and other liquid or gaseous hydrocarbon
leases with respect to Properties situated in the United States or offshore from
any state of the United States, including overriding royalty and royalty
interests, leasehold estate interests, net profits interests, production payment

                                       -10-
<PAGE>

interests and mineral fee interests, together with contracts executed in
connection therewith and incidental rights belonging thereto.

         "Oil and Gas Reserve Report" means each engineering report covering the
Borrower's consolidated Oil and Gas Properties provided to the Agent pursuant to
Section 5.6(c).

         "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

         "Permitted Liens" means the Liens permitted to exist pursuant to
Section 6.1.

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

         "Plan" means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower or any member of the Controlled Group
and covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.

         "Property" of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.

         "Pro Rata Share" means, with respect to any Bank, either (a) the ratio
(expressed as a percentage) of such Bank's Commitments at such time to the
aggregate Commitments at such time or (b) if the Commitments have been
terminated, the ratio (expressed as a percentage) of such Bank's aggregate
outstanding Advances and Letter of Credit Exposure at such time to the aggregate
outstanding Advances and Letter of Credit Exposure of all the Banks at such
time.

         "Register" has the meaning set forth in paragraph (c) of Section 9.6.

         "Regulations T, U, and X" mean Regulations T, U, and X of the Federal
Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.

         "Reimbursement Obligations" means all of the obligations of the
Borrower to reimburse the Issuing Bank for amounts paid by the Issuing Bank
under Letters of Credit as established by the Letter of Credit Applications and
Section 2.6(d).

         "Release" shall have the meaning set forth in CERCLA or under any other
Environmental Law.

         "Response" shall have the meaning set forth in CERCLA or under any
other Environmental Law.

         "Responsible Officer" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, Chief Accounting
Officer, and Vice Presidents.

                                       -11-
<PAGE>

         "Restricted Payment" means, with respect to any Person, any dividends
or other distributions (in cash, property, or otherwise) on, or any payment for
the purchase, redemption, or other acquisition of, any shares of any capital
stock of such Person, other than dividends payable in such Person's stock.

         "Subsidiary" of a Person means any corporation or other entity of which
more than 50% of the outstanding capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
similar governing body of such corporation or other entity (irrespective of
whether at such time capital stock or other ownership interests of any other
class or classes of such corporation or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person, by such Person and one or more Subsidiaries of
such Person or by one or more Subsidiaries of such Person.

         "Tangible Net Worth" means, for any Person that is a corporation and as
of the date of its determination, the consolidated Net Worth of such Person,
excluding all consolidated intangible assets of such Person, as determined in
accordance with GAAP consistently applied.

         "Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a
Plan during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or
(e) any other event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.

         "Type" has the meaning set forth in Section 1.4.

         "Voting Securities" means with respect to any corporation, capital
stock of the corporation having general voting power under ordinary
circumstances to elect directors of such corporation (irrespective of whether at
the time stock of any other class or classes shall have or might have special
voting power or rights by reason of the happening of any contingency).

         Section 1.2. 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
means "to but excluding".

         Section 1.3. Accounting Terms; Changes in GAAP.

         (a) All accounting terms not specifically defined in this Agreement
shall be construed in accordance with GAAP applied on a consistent basis with
those applied in the preparation of the Financial Statements.

         (b) Unless otherwise indicated, all financial statements of the
Borrower, all calculations for compliance with covenants in this Agreement and
all calculations of any amounts to be calculated under the definitions in
Section 1.1 shall be based upon the

                                       -12-
<PAGE>
consolidated accounts of the Borrower and its Subsidiaries in accordance with
GAAP (or in compliance with the regulations promulgated by the United States
Securities and Exchange Commission regarding financial reporting) and consistent
with the principles applied in preparing the Financial Statements.

         Section 1.4. Types of Advances. Advances are distinguished by "Type."
The "Type" of an Advance refers to the determination whether such Advance is a
Eurodollar Rate Advance or Base Rate Advance.

         Section 1.5. Miscellaneous. Article, Section, Schedule, and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.

                                   ARTICLE II

                                CREDIT FACILITIES

         Section 2.1. Commitment for Advances.

         (a) Advances. Each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make Advances to the Borrower from time to time
on any Business Day during the period from the date of this Agreement until the
Maturity Date in an aggregate outstanding amount up to but not to exceed an
amount equal to (i) the lesser of such Bank's Commitment or such Bank's Pro Rata
Share of the Borrowing Base less (ii) the sum of (A) such Bank's Pro Rata Share
of the Letter of Credit Exposure, and (B) such Bank's Pro Rata Share of the
Existing Letter of Credit Exposure provided that the sum of (1) the outstanding
amount of all Advances made by such Bank, (2) such Bank's Pro Rata Share of the
Letter of Credit Exposure, and (3) such Bank's Pro Rata Share of the Existing
Letter of Credit Exposure shall not exceed such Bank's Commitment. Each
Borrowing shall, in the case of Borrowings consisting of Base Rate Advances, be
in an aggregate amount not less than $500,000.00 and in integral multiples of
$100,000.00 in excess thereof, and in the case of Borrowings consisting of
Eurodollar Rate Advances, be in an aggregate amount not less than $2,000,000.00
or in integral multiples of $1,000,000.00 in excess thereof, and in each case
shall consist of Advances of the same Type made on the same day by the Banks
ratably according to their respective Commitments. Within the limits of each
Bank's Commitment, and subject to the terms of this Agreement, the Borrower may
from time to time borrow, prepay, and reborrow Advances.

         (b) Reduction of Commitment. The Borrower shall have the right, upon at
least three Business Days' irrevocable notice to the Agent, to terminate in
whole or reduce ratably in part the unused portion of the Commitments; provided
that each partial reduction of the Commitments shall be in the aggregate amount
of $5,000,000.00 or in integral multiples of $1,000,000.00 in excess thereof.
Any reduction or termination of the Commitments pursuant to this Section 2.1(b)
shall be permanent, with no obligation of the Banks to reinstate such
Commitments and the commitment fees provided for in Section 2.7(a) shall
thereafter be computed on the basis of the Commitments, as so reduced.

                                       -13-
<PAGE>

         (c) Notes. The indebtedness of the Borrower to each Bank resulting from
the Advances owing to such Bank shall be evidenced by a Note of the Borrower in
the maximum principal amount of such Bank's Commitment.

         Section 2.2. Borrowing Base.

         (a) The Borrowing Base has been set by the Majority Banks and
acknowledged by the Borrower as (i) as of the date hereof, $200,000,000.00, (ii)
as of the date of the acquisition of the Acquisition Properties,
$250,000,000.00.

         (b) From the date hereof through the Maturity Date and subject to the
further provisions of this Section 2.2, the Borrowing Base shall be redetermined
by the Majority Banks each May 1 and November 1 in accordance with Section
2.2(d) on the basis of information, including the Oil and Gas Reserve Reports
required to be delivered before each such date supplied by Borrower in
compliance with the provisions of this Agreement, such additional data
concerning pricing, quantities of production, purchasers of production, and
other information and engineering and geological data with respect thereto as
the Agent or any Bank may reasonably request, together with all other
information then available to the Agent and the Banks. Notwithstanding the
foregoing, the Majority Banks may, in the exercise of their good faith
discretion, make redeterminations of the Borrowing Base in accordance with
Section 2.2(d) (i) by providing written notice to the Borrower, but only two
such requests may be made during any calendar year, (ii) from time to time on
the basis of information then available to the Agent and the Banks regarding the
Borrower's and the Guarantors' Oil and Gas Properties, and (iii) from time to
time upon the occurrence of any Material Adverse Change.

         (c) The Borrower may request the Majority Banks to redetermine the
Borrowing Base (i) by providing a written request to the Agent, but only two
such requests may be made during any calendar year or (ii) in connection with
the Borrower's or any Guarantor's acquisition of Oil and Gas Properties with a
purchase price of $20,000,000 or more. In connection with any such request, the
Borrower shall provide the Agent and the Banks with an interim reserve report
prepared by the Borrower together with such other information, including
additional data concerning pricing, quantities of production, purchasers of
production, and other information and engineering and geological data, as the
Agent or any Bank may reasonably request. Within 30 days following the receipt
of such interim reserve report and other information, the Majority Banks shall
make a redetermination of the Borrowing Base in accordance with Section 2.2(d).

         (d) Upon a redetermination of the Borrowing Base, the Agent shall
propose a Borrowing Base to the Banks, and the Banks shall vote to approve or
disapprove such proposed Borrowing Base. If the Majority Banks do not approve
the proposed Borrowing Base, the Agent shall propose, and the Banks shall vote
to approve or disapprove, another Borrowing Base, until the Majority Banks
approve a Borrowing Base proposed by the Agent. Once the Majority Banks approve
the proposed Borrowing Base, the Agent shall notify the Borrower of such
redetermination. Until the Borrower receives such notification from the Agent,
the Borrowing Base most recently established shall remain in effect, and
thereafter the new Borrowing Base as set forth in such notification shall be in
effect.

                                       -14-
<PAGE>

         (e) (i) Upon any asset sale permitted under Section 6.4(b)(ii), the
Borrowing Base shall automatically be reduced on the date of such sale by
subtracting from the Borrowing Base the value of the assets sold as determined
from the most recent information compiled by the Agent and the Banks in
connection with the most recent redetermination of the Borrowing Base and (ii)
upon the issuance of any Debt permitted under Section 6.2(f), the Borrowing Base
shall automatically reduce by 75% of the principal amount of such Debt.

         (f) The Borrowing Base shall represent the determination by the
Majority Banks of the loan value of the Borrower's and the Guarantors'
unencumbered Oil and Gas Properties, but the Agent and the Majority Banks shall
make their determination and vote their approval, respectively, in accordance
with the applicable definitions and provisions herein contained, each such
Bank's standard policies regarding energy lending, industry lending practices,
consultation with the Agent and the other Banks (but without requiring the
approval of any such Bank), and consideration for the nature of the facilities
established hereunder. The Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by Borrower to be essential for the adequate
protection of the Agent and the Banks.

         (g) The Borrower shall also have the right to reduce the Borrowing Base
once during the period from October 1 to March 31 and once during the period
from April 1 to September 30 during each year by providing the Agent 30 days
advance written notice of such reduction. The Agent shall promptly send to each
Bank a copy of such notice and such reduction shall be effective on the date of
the Agent's receipt of such notice.

         (h) As of the date of this Agreement, the Agent has provided the
Borrower with the Agent's standard policies regarding energy lending. The Agent,
but not any other Bank, agrees to provide the Borrower with written notice of
any changes to such policies.

         Section 2.3. Method of Borrowing.

         (a) Notice. Each Borrowing shall be made pursuant to a Notice of
Borrowing (or by telephone notice promptly confirmed in writing by a Notice of
Borrowing), given not later than 10:00 a.m. (Dallas, Texas, time) (i) on the
third Business Day before the date of the proposed Borrowing, in the case of a
Eurodollar Rate Borrowing or (ii) on the Business Day of the proposed Borrowing,
in the case of a Base Rate Borrowing, by the Borrower to the Agent, which shall
in turn give to each Bank prompt notice of such proposed Borrowing by telecopier
or telex. Each Notice of a Borrowing shall be given by telecopier or telex,
confirmed immediately in writing specifying the information required therein. In
the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the
Agent shall promptly notify each Bank of the applicable interest rate under
Section 2.8(b). Each Bank shall (A) in the case of a Eurodollar Rate Borrowing,
before 10:00 a.m. (Dallas, Texas, time) on the date of such Borrowing and (B) in
the case of a Base Rate Borrowing, before 3:00 p.m. (Dallas, Texas, time) on the
date of such Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its address referred to in Section 9.2, or such other
location as the Agent may specify by notice to the Banks, in same day funds,
such Bank's Pro Rata Share of such Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in Article
III, the Agent shall make such funds available to the Borrower at its account
with the Agent.

                                       -15-
<PAGE>

         (b) Conversions and Continuations. The Borrower may elect to Convert or
continue any Borrowing under this Section 2.3 by delivering an irrevocable
Notice of Conversion or Continuation to the Agent at the Agent's office no later
than 10:00 a.m. (Dallas, Texas, time) (i) on the date which is at least three
Business Days in advance of the proposed Conversion or continuation date in the
case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar
Rate Advances and (ii) on the Business Day of the proposed conversion date in
the case of a Conversion to a Borrowing comprised of Base Rate Advances. Each
such Notice of Conversion or Continuation shall be in writing or by telex or
telecopier confirmed immediately in writing specifying the information required
therein. Promptly after receipt of a Notice of Conversion or Continuation under
this Section, the Agent shall provide each Bank with a copy thereof and, in the
case of a Conversion to or a Continuation of a Borrowing comprised of Eurodollar
Rate Advances, notify each Bank of the applicable interest rate under Section
2.8(b).

         (c) Certain Limitations. Notwithstanding anything in paragraphs (a) and
(b) above:

                  (i) at no time shall there be more than eight Interest Periods
         applicable to outstanding Eurodollar Rate Advances;

                  (ii) if any Bank shall, at least one Business Day before the
         date of any requested Borrowing, Conversion, or continuation, notify
         the Agent that the introduction of or any change in or in the
         interpretation of any law or regulation makes it unlawful, or that any
         central bank or other Governmental Authority asserts that it is
         unlawful, for such Bank or its Eurodollar Lending Office to perform its
         obligations under this Agreement to make Eurodollar Rate Advances or to
         fund or maintain Eurodollar Rate Advances, the right of the Borrower to
         select Eurodollar Rate Advances from such Bank shall be suspended until
         such Bank shall notify the Agent that the circumstances causing such
         suspension no longer exist, and the Advance made by such Bank in
         respect of such Borrowing, Conversion, or continuation shall be a Base
         Rate Advance;

                  (iii) if the Agent is unable to determine the Eurodollar Rate
         for Eurodollar Rate Advances comprising any requested Borrowing, the
         right of the Borrower to select Eurodollar Rate Advances for such
         Borrowing or for any subsequent Borrowing shall be suspended until the
         Agent shall notify the Borrower and the Banks that the circumstances
         causing such suspension no longer exist, and each Advance comprising
         such Borrowing shall be a Base Rate Advance;

                  (iv) if the Majority Banks shall, at least one Business Day
         before the date of any requested Borrowing, notify the Agent that the
         Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing
         will not adequately reflect the cost to such Banks of making or funding
         their respective Eurodollar Rate Advances, as the case may be, for such
         Borrowing, the right of the Borrower to select Eurodollar Rate Advances
         for such Borrowing or for any subsequent Borrowing shall be suspended
         until the Agent shall notify the Borrower and the Banks that the
         circumstances causing such suspension no longer exist, and each Advance
         comprising such Borrowing shall be a Base Rate Advance; and

                                       -16-
<PAGE>

                  (v) if the Borrower shall fail to select the duration or
         continuation of any Interest Period for any Eurodollar Rate Advances in
         accordance with the provisions contained in the definition of "Interest
         Period" in Section 1.1 and paragraph (b) above, the Agent shall
         forthwith so notify the Borrower and the Banks and such Advances shall
         be made available to the Borrower on the date of such Borrowing as Base
         Rate Advances or, if an existing Advance, Convert into Base Rate
         Advances.

         (d) Notices Irrevocable. Each Notice of Borrowing and Notice of
Conversion or Continuation shall be irrevocable and binding on the Borrower. In
the case of any Borrowing which the related Notice of Borrowing specifies is to
be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Bank
against any loss, out-of-pocket cost, or expense incurred by such Bank as a
result of any failure by the Borrower to fulfill on or before the date specified
in such Notice of Borrowing for such Borrowing the applicable conditions set
forth in Article III including, without limitation, any loss (including any loss
of anticipated profits), cost, or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Bank to fund the
Advance to be made by such Bank as part of such Borrowing when such Advance, as
a result of such failure, is not made on such date.

         (e) Agent Reliance. Unless the Agent shall have received notice from a
Bank before the date of any Borrowing that such Bank shall not make available to
the Agent such Bank's Pro Rata Share of such Borrowing, the Agent may assume
that such Bank has made its Pro Rata Share of such Borrowing available to the
Agent on the date of such Borrowing in accordance with paragraph (a) of this
Section 2.3 and the 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 Bank shall not have so made its Pro Rata Share of such Borrowing available
to the Agent, such Bank and the Borrower severally agree to immediately repay to
the Agent on demand such corresponding amount, together with interest on such
amount, for each day from the date such amount is made available to the Borrower
until the date such amount is repaid to the Agent, at (i) in the case of the
Borrower, the interest rate applicable on such day to Advances comprising such
Borrowing and (ii) in the case of such Bank, the Federal Funds Rate for such
day. If such Bank shall repay to the Agent such corresponding amount and
interest as provided above, such corresponding amount so repaid shall constitute
such Bank's Advance as part of such Borrowing for purposes of this Agreement
even though not made on the same day as the other Advances comprising such
Borrowing.

         (f) Bank Obligations Several. The failure of any Bank to make the
Advance to be made by it as part of any Borrowing shall not relieve any other
Bank of its obligation, if any, to make its Advance on the date of such
Borrowing. No Bank shall be responsible for the failure of any other Bank to
make the Advance to be made by such other Bank on the date of any Borrowing.

         Section 2.4. Prepayment of Advances.

         (a) Optional. The Borrower may prepay Advances, after giving by 10:00
a.m. (Dallas, Texas, time) (i) in the case of Eurodollar Rate Advances, at least
two Business Days' or (ii) in case of Base Rate Advances, same Business Day's,
irrevocable prior written notice to the Agent stating the proposed date and
aggregate principal amount of such prepayment. If any such

                                       -17-
<PAGE>
notice is given, the Borrower shall prepay Advances comprising part of the same
Borrowing in whole or ratably in part in an aggregate principal amount equal to
the amount specified in such notice, together with accrued interest to the date
of such prepayment on the principal amount prepaid and amounts, if any, required
to be paid pursuant to Section 2.11 as a result of such prepayment being made on
such date; provided, however, that each partial prepayment with respect to: (A)
any Borrowing comprised of Base Rate Advances shall be made in $100,000.00
multiples and in an aggregate principal amount such that after giving effect
thereto such Borrowing shall have a principal amount outstanding of at least
$500,000.00 and (B) any Borrowing comprised of Eurodollar Rate Advances shall be
made in $1,000,000.00 multiples and in an aggregate principal amount such that
after giving effect thereto such Borrowing shall have a principal amount
outstanding of at least $2,000,000.00. Full prepayments of any Borrowing are
permitted without restriction of amounts.

         (b) Borrowing Base Deficiency. Subject to Section 2.4.(d) below, if the
aggregate outstanding amount of Advances plus the Letter of Credit Exposure plus
the Existing Letter of Credit Exposure ever exceeds the Borrowing Base, the
Borrower shall, within ten days after receipt of written notice of such
condition from the Agent elect by written notice to the Agent to take one or
more of the following actions to remedy the Borrowing Base deficiency:

                  (i) prepay Advances and, if the Advances have been repaid in
         full, make deposits into the Cash Collateral Account to provide cash
         collateral for the Letter of Credit Exposure, such that the Borrowing
         Base deficiency is cured within ten days after the Borrower's written
         election;

                  (ii) add additional Oil and Gas Properties acceptable to the
         Majority Banks to the Borrowing Base such that the Borrowing Base
         deficiency is cured within 30 days after the Borrower's written
         election; or

                  (iii) pay the deficiency in monthly installments in amounts
         not greater than one-half of the deficiency in any one monthly payment
         or such lesser amounts satisfactory to the Majority Banks for the
         prepayment of Advances and, if the Advances have been repaid in full,
         make deposits into the Cash Collateral Account to provide cash
         collateral for the Letter of Credit Exposure such that the Borrowing
         Base deficiency is eliminated in a period of 90 days or such longer
         period satisfactory to the Majority Banks, but in no event to exceed
         six months, by irrevocably dedicating an amount of the monthly cash
         flow from the Borrower's and its Subsidiaries' Oil and Gas Properties
         to the prepayment of Advances and cash collateralization of the Letter
         of Credit Exposure;

Each prepayment pursuant to this Section 2.4(b) shall be accompanied by accrued
interest on the amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.11 as a result of such prepayment
being made on such date.

         (c) Reduction of Commitments. On the date of each reduction of the
aggregate Commitments pursuant to Section 2.1(b), the Borrower agrees to make a
prepayment in respect of the outstanding amount of the Advances and the Letter
of Credit Exposure to the extent, if any, that the aggregate unpaid principal
amount of all Advances plus the sum of the Letter of Credit Exposure and the
Existing Letter of Credit Exposure exceeds the Commitments, as so

                                       -18-
<PAGE>
reduced. Any amount paid under the preceding sentence in respect of Letter of
Credit Exposure and Existing Letter of Credit Exposure shall be held as cash
collateral under Section 2.6(g). Each prepayment pursuant to this Section 2.4(c)
shall be accompanied by accrued interest on the amount prepaid to the date of
such prepayment and amounts, if any, required to be paid pursuant to Section
2.11 as a result of such prepayment being made on such date.

         (d) Asset Sales; Debt Issuances. (i) If, after giving effect to the
sale, transfer or other disposition of any of the Borrower's or any of its
Subsidiaries' Oil and Gas Properties, the aggregate outstanding amount of
Advances plus the Letter of Credit Exposure plus the Existing Letter of Credit
Exposure exceeds the Borrowing Base, the Borrower shall repay the Advances by an
amount equal to such Borrowing Base deficiency, upon receipt of the proceeds of
such sale, transfer, or other disposition, whether at closing of such sale,
transfer, or other disposition or thereafter and (ii) upon the issuance of any
Debt permitted under Section 6.2(f), the Borrower shall prepay the Advances by
an amount equal to the net cash proceeds received from such Debt issuance. Each
prepayment pursuant to this Section 2.4(d) shall be accompanied by accrued
interest on the amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.11 as a result of such prepayment
being made on such date.

         (e) Illegality. If any Bank shall notify the Agent and the Borrower
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful for such Bank or its Eurodollar Lending
Office to perform its obligations under this Agreement to maintain any
Eurodollar Rate Advances of such Bank then outstanding hereunder, (i) the
Borrower shall, no later than 10:00 a.m. (Dallas, Texas, time) (A) if not
prohibited by law, on the last day of the Interest Period for each outstanding
Eurodollar Rate Advance made by such Bank or (B) if required by such notice, on
the second Business Day following its receipt of such notice prepay all of the
Eurodollar Rate Advances made by such Bank then outstanding, together with
accrued interest on the principal amount prepaid to the date of such prepayment
and amounts, if any, required to be paid pursuant to Section 2.11 as a result of
such prepayment being made on such date, (ii) such Bank shall simultaneously
make a Base Rate Advance to the Borrower on such date in an amount equal to the
aggregate principal amount of the Eurodollar Rate Advances prepaid to such Bank,
and (iii) the right of the Borrower to select Eurodollar Rate Advances from such
Bank for any subsequent Borrowing shall be suspended until such Bank gives
notice referred to above shall notify the Agent that the circumstances causing
such suspension no longer exist.

         (f) No Additional Right; Ratable Prepayment. The Borrower shall have no
right to prepay any principal amount of any Advance except as provided in this
Section 2.4, and all notices given pursuant to this Section 2.4 shall be
irrevocable and binding upon the Borrower. Each payment of any Advance pursuant
to this Section 2.4 shall be made in a manner such that all Advances comprising
part of the same Borrowing are paid in whole or ratably in part.

         Section 2.5. Repayment of Advances. The Borrower shall repay to the
Agent for the ratable benefit of the Banks the outstanding principal amount of
each Advance on the Maturity Date.

                                       -19-
<PAGE>

         Section 2.6. Letters of Credit.

         (a) Commitment. From time to time from the date of this Agreement until
the Maturity Date, at the request of the Borrower, the Issuing Bank shall, on
the terms and conditions hereinafter set forth, issue, increase, or extend the
expiration date of Letters of Credit for the account of the Borrower on any
Business Day or convert an Existing Letter of Credit to a Letter of Credit upon
its renewal. No Letter of Credit shall be issued, increased, or extended and no
Existing Letters of Credit shall convert to Letters of Credit:

                  (i) unless such issuance, increase, extension or conversion
         would not cause the Letter of Credit Exposure plus the Existing Letter
         of Credit Exposure to exceed the lesser of (A) $50,000,000.00 or (B)
         the lesser of (1) the aggregate Commitments less the aggregate
         outstanding principal amount of all Advances or (2) the Borrowing Base
         less the aggregate outstanding principal amount of all Advances;

                  (ii) unless such Letter of Credit has an Expiration Date not
         later than the earlier of (A) 12 months after the date of issuance
         thereof (or, if extendable beyond such period, unless such Letter of
         Credit is cancelable upon at least 30 days' notice given by the Issuing
         Bank to the beneficiary of such Letter of Credit) or (B) the Maturity
         Date;

                  (iii) unless such Letter of Credit Documents are in form and
         substance acceptable to the Issuing Bank in its sole discretion;

                  (iv) unless such Letter of Credit is a standby letter of
         credit not supporting the repayment of indebtedness for borrowed money
         of any Person; and

                  (v) unless the Borrower has delivered to the Issuing Bank a
         completed and executed Letter of Credit Application.

         (b) Participations. Upon the date of the issuance or increase of a
Letter of Credit or the conversion of an Existing Letter of Credit to a Letter
of Credit, the Issuing Bank shall be deemed to have sold to each other Bank and
each other Bank shall have been deemed to have purchased from the Issuing Bank a
participation in the related Letter of Credit Obligations equal to such Bank's
Pro Rata Share at such date and such sale and purchase shall otherwise be in
accordance with the terms of this Agreement. The Issuing Bank shall promptly
notify each such participant Bank by telex, telephone, or telecopy of each
Letter of Credit issued, increased, or extended or converted and the actual
dollar amount of such Bank's participation in such Letter of Credit.

         (c) Issuing. Each Letter of Credit shall be issued, increased, or
extended or converted from an Existing Letter of Credit pursuant to a Letter of
Credit Application (or by telephone notice promptly confirmed in writing by a
Letter of Credit Application), given not later than 10:00 a.m. (Dallas, Texas,
time) on the fifth Business Day before the date of the proposed issuance,
increase, or extension of the Letter of Credit or conversion of the Existing
Letter of Credit, and the Agent shall give to each Bank prompt notice of thereof
by telex, telephone, or telecopy. Each Letter of Credit Application shall be
given by telecopier or telex, confirmed immediately in writing, specifying the
information required therein. After the Agent's receipt of such Letter of Credit
Application and upon fulfillment of the applicable conditions set forth in
Article III, the Agent shall issue, increase, or extend such Letter of Credit or
convert such

                                       -20-
<PAGE>

Existing Letter of Credit for the account of the Borrower. Each Letter of Credit
Application shall be irrevocable and binding on the Borrower.

         (d) Reimbursement. The Borrower hereby agrees to pay on demand to the
Issuing Bank an amount equal to any amount paid by the Issuing Bank under any
Letter of Credit. In the event the Issuing Bank makes a payment pursuant to a
request for draw presented under a Letter of Credit and such payment is not
promptly reimbursed by the Borrower upon demand, the Issuing Bank shall give the
Agent notice of the Borrower's failure to make such reimbursement and the Agent
shall promptly notify each Bank of the amount necessary to reimburse the Issuing
Bank. Upon such notice from the Agent, each Bank shall promptly reimburse the
Issuing Bank for such Bank's Pro Rata Share of such amount, and such
reimbursement shall be deemed for all purposes of this Agreement to be a Advance
to the Borrower transferred at the Borrower's request to the Issuing Bank. If
such reimbursement is not made by any Bank to the Issuing Bank on the same day
on which the Agent notifies such Bank to make reimbursement to the Issuing Bank
hereunder, such Bank shall pay interest on its Pro Rata Share thereof to the
Issuing Bank at a rate per annum equal to the Federal Funds Rate. The Borrower
hereby unconditionally and irrevocably authorizes, empowers, and directs the
Agent and the Banks to record and otherwise treat such reimbursements to the
Issuing Bank as Base Rate Advances under a Borrowing requested by the Borrower
to reimburse the Issuing Bank which have been transferred to the Issuing Bank at
the Borrower's request.

         (e) Obligations Unconditional. The obligations of the Borrower under
this Agreement in respect of each Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:

                  (i) any lack of validity or enforceability of any Letter of
         Credit Documents;

                  (ii) any amendment or waiver of, or any consent to, departure
         from any Letter of Credit Documents;

                  (iii) the existence of any claim, set-off, defense, or other
         right which the Borrower may have at any time against any beneficiary
         or transferee of such Letter of Credit (or any Persons for whom any
         such beneficiary or any such transferee may be acting), the Issuing
         Bank, or any other person or entity, whether in connection with this
         Agreement, the transactions contemplated in this Agreement or in any
         Letter of Credit Documents, or any unrelated transaction;

                  (iv) any statement or any other document presented under such
         Letter of Credit proving to be forged, fraudulent, invalid, or
         insufficient in any respect or any statement therein being untrue or
         inaccurate in any respect to the extent the Issuing Bank would not be
         liable therefor pursuant to the following paragraph (f); or

                  (v) payment by the Issuing Bank under such Letter of Credit
         against presentation of a draft or certificate which does not comply
         with the terms of such Letter of Credit;

                                       -21-
<PAGE>

provided, however, that nothing contained in this paragraph (e) shall be deemed
to constitute a waiver of any remedies of the Borrower in connection with the
Letters of Credit or the Borrower's rights under Section 2.6(f) below.

         (f) Liability of Issuing Bank. The Borrower assumes all risks of the
acts or omissions of any beneficiary or transferee of any Letter of Credit with
respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of
its officers or directors shall be liable or responsible for:

                  (i) the use which may be made of any Letter of Credit or any
         acts or omissions of any beneficiary or transferee in connection
         therewith;

                  (ii) the validity, sufficiency, or genuineness of documents,
         or of any endorsement thereon, even if such documents should prove to
         be in any or all respects invalid, insufficient, fraudulent, or forged;

                  (iii) payment by the Issuing Bank against presentation of
         documents which do not comply with the terms of a Letter of Credit,
         including failure of any documents to bear any reference or adequate
         reference to the relevant Letter of Credit; or

                  (iv) any other circumstances whatsoever in making or failing
         to make payment under any Letter of Credit (INCLUDING THE ISSUING
         BANK'S OWN NEGLIGENCE),

except that the Borrower shall have a claim against the Issuing Bank, and the
Issuing Bank shall be liable to the Borrower, to the extent of any direct, as
opposed to consequential, damages suffered by the Borrower which the Borrower
proves were caused by (A) the Issuing Bank's willful misconduct or gross
negligence in determining whether documents presented under a Letter of Credit
comply with the terms of such Letter of Credit or (B) the Issuing Bank's willful
failure to make lawful payment under any Letter of Credit after the presentation
to it of a draft and certificate strictly complying with the terms and
conditions of such Letter of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank may accept documents that appear on their face to be
in order, without responsibility for further investigation, regardless of any
notice or information to the contrary.

         (g) Cash Collateral Account.

                  (i) If the Borrower is required to deposit funds in the Cash
         Collateral Account pursuant to Sections 2.4(b) or (c), 7.2(b), or
         7.3(b), then the Borrower and the Agent shall establish the Cash
         Collateral Account and the Borrower shall execute any documents and
         agreements, including the Agent's standard form assignment of deposit
         accounts, that the Agent requests in connection therewith to establish
         the Cash Collateral Account and grant the Agent a first priority
         security interest in such account and the funds therein. The Borrower
         hereby pledges to the Agent and grants the Agent a security interest in
         the Cash Collateral Account, whenever established, all funds held in
         the Cash Collateral Account from time to time, and all proceeds thereof
         as security for the payment of the Obligations.

                                       -22-
<PAGE>

                  (ii) So long as no Event of Default exists, (A) the Agent may
         apply the funds held in the Cash Collateral Account only to the
         reimbursement of any Letter of Credit Obligations, and (B) the Agent
         shall release to the Borrower at the Borrower's written request any
         funds held in the Cash Collateral Account in an amount up to but not
         exceeding the excess, if any (immediately prior to the release of any
         such funds), of the total amount of funds held in the Cash Collateral
         Account over the Letter of Credit Exposure. During the existence of any
         Event of Default, the Agent may apply any funds held in the Cash
         Collateral Account to the Obligations in any order determined by the
         Agent, regardless of any Letter of Credit Exposure which may remain
         outstanding. The Agent may in its sole discretion at any time release
         to the Borrower any funds held in the Cash Collateral Account.

                  (iii) The Agent shall exercise reasonable care in the custody
         and preservation of any funds held in the Cash Collateral Account and
         shall be deemed to have exercised such care if such funds are accorded
         treatment substantially equivalent to that which the Agent accords its
         own property, it being understood that the Agent shall not have any
         responsibility for taking any necessary steps to preserve rights
         against any parties with respect to any such funds.

         Section 2.7. Fees.

         (a) Commitment Fees.

                  (i) The Borrower agrees to pay to the Agent for the account of
         each Bank a commitment fee per annum equal to the Applicable Margin for
         commitment fees in effect from time to time on the average daily amount
         by which such Bank's Pro Rata Share of the Borrowing Base exceeds the
         sum of such Bank's outstanding Advances and such Bank's Pro Rata Share
         of the Letter of Credit Exposure, from the Effective Date until the
         Maturity Date.

                  (ii) The commitment fees shall be due and payable quarterly in
         arrears on the last day of each March, June, September, and December
         during the term of this Agreement and on the Maturity Date.

         (b) Agent Fees. The Borrower agrees to pay to the Agent for the benefit
of the Agent the fees described in the letter dated November 5, 2001, from the
Agent to the Borrower (the "Agent's Fee Letter").

         (c) Bank Fees. The Borrower agrees to pay to the Agent for the ratable
benefit of the Banks on the Effective Date, the fees agreed to between the
Borrower and the Banks.

         (d) Letter of Credit Fees. The Borrower agrees to pay (i) to the Agent
for the pro rata benefit of the Banks a per annum fee for each Letter of Credit
issued hereunder equal to the Applicable Margin for Eurodollar Advances on the
face amount of such Letter of Credit, but with minimum annual fee of $500.00 on
each Letter of Credit and (ii) to the Agent for the benefit of the Issuing Bank
a fee for each Letter of Credit equal to 0.125% per annum of the face amount of
such Letter of Credit. Each such fee shall be payable quarterly in arrears after
the date of the

                                       -23-
<PAGE>
issuance, increase or extension of the Letter of Credit, but, in the case of an
increase or extension only, on the amount of such increase or for the period of
such extension.

         Section 2.8. Interest. The Borrower shall pay interest on the unpaid
principal amount of each Advance made by each Bank from the date of such Advance
until such principal amount shall be paid in full, at the following rates per
annum:

         (a) Base Rate Advances. If such Advance is a Base Rate Advance, a rate
per annum equal at all times to the Adjusted Base Rate in effect from time to
time plus the Applicable Margin in effect from time to time, payable in arrears
on the last day of March, June, September, and December and on the date such
Base Rate Advance shall be paid in full, provided that any amount of principal
which is not paid when due (whether at stated maturity, by acceleration, or
otherwise) shall bear interest from the date on which such amount is due until
such amount is paid in full, payable on demand, at a rate per annum equal at all
times to the Adjusted Base Rate in effect from time to time plus the Applicable
Margin plus 2.00% per annum.

         (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate
Advance, a rate per annum equal at all times during the Interest Period for such
Advance to the Eurodollar Rate for such Interest Period plus the Applicable
Margin in effect from time to time, payable on the last day of such Interest
Period, and, in the case of six-month Interest Periods, on the day which occurs
during such Interest Period three months from the first day of such Interest
Period, provided that any amount of principal which is not paid when due
(whether at stated maturity, by acceleration, or otherwise) shall bear interest
from the date on which such amount is due until such amount is paid in full,
payable on demand, at a rate per annum equal at all times to the Adjusted Base
Rate in effect from time to time plus the Applicable Margin plus 2.00% per
annum.

         (c) Additional Interest on Eurodollar Rate Advances. The Borrower shall
pay to each Bank, so long as any such Bank shall be required under regulations
of the Federal Reserve Board to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities, additional interest
on the unpaid principal amount of each Eurodollar Rate Advance of such Bank,
from the effective date of such Advance until such principal amount is paid in
full, at an interest rate per annum equal at all times to the remainder obtained
by subtracting (A) the Eurodollar Rate for the Interest Period for such Advance
from (B) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for such
Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest payable to any Bank shall be determined by
such Bank and notified to the Borrower through the Agent (such notice to include
the calculation of such additional interest, which calculation shall be
conclusive in the absence of manifest error).

         (d) Usury.

                  (i) If, with respect to any Bank, the effective rate of
         interest contracted for under the Credit Documents, including the
         stated rates of interest and fees contracted for hereunder and any
         other amounts contracted for under the Credit Documents which are
         deemed to be interest, at any time exceeds the Maximum Rate, then the
         outstanding

                                       -24-
<PAGE>
         principal amount of the loans made by such Bank hereunder shall bear
         interest at a rate which would make the effective rate of interest for
         such Bank under the Credit Documents equal the Maximum Rate until the
         difference between the amounts which would have been due at the stated
         rates and the amounts which were due at the Maximum Rate (the "Lost
         Interest") has been recaptured by such Bank.

                  (ii) If, when the loans made hereunder are repaid in full, the
         Lost Interest has not been fully recaptured by such Bank pursuant to
         the preceding paragraph, then, to the extent permitted by law, for the
         loans made hereunder by such Bank the interest rates charged under
         Section 2.8 hereunder shall be retroactively increased such that the
         effective rate of interest under the Credit Documents was at the
         Maximum Rate since the effectiveness of this Agreement to the extent
         necessary to recapture the Lost Interest not recaptured pursuant to the
         preceding sentence and, to the extent allowed by law, the Borrower
         shall pay to such Bank the amount of the Lost Interest remaining to be
         recaptured by such Bank.

                  (iii) NOTWITHSTANDING the foregoing or any other term in this
         Agreement and the Credit Documents to the contrary, it is the intention
         of each Bank and the Borrower to conform strictly to any applicable
         usury laws. Accordingly, if any Bank contracts for, charges, or
         receives any consideration which constitutes interest in excess of the
         Maximum Rate, then any such excess shall be canceled automatically and,
         if previously paid, shall at such Bank's option be applied to the
         outstanding amount of the loans made hereunder by such Bank or be
         refunded to the Borrower.

         Section 2.9. Payments and Computations.

         (a) Payment Procedures. The Borrower shall make each payment under this
Agreement and under the Notes not later than 10:00 a.m. (Dallas, Texas, time) on
the day when due in Dollars to the Agent at 901 Main Street, 49th Floor, Dallas,
Texas 75202 (or such other location as the Agent shall designate in writing to
the Borrower), in same day funds. The Agent shall promptly thereafter cause to
be distributed like funds relating to the payment of principal, interest or fees
ratably (other than amounts payable solely to the Agent, the Issuing Bank, or a
specific Bank pursuant to Section 2.7(b), 2.8(c), 2.11, 2.12, 2.13, 8.5, or 9.7,
but after taking into account payments effected pursuant to Section 9.4) to the
Banks for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Bank or the
Issuing Bank to such Bank for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement.

         (b) Computations. All computations of interest based on the Base Rate
shall be made by the Agent on the basis of a year of 365 or 366 days, as the
case may be, and all computations of interest based on the Eurodollar Rate and
the Federal Funds Rate and of fees shall be made by the 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 fees are payable. Each determination by the Agent of an interest
rate or fee shall be conclusive and binding for all purposes, absent manifest
error.

                                       -25-
<PAGE>

         (c) Non-Business Day Payments. Whenever any payment 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 fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.

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

         Section 2.10. Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances or Letter of Credit
Obligations made by it in excess of its Pro Rata Share of payments on account of
the Advances or Letter of Credit Obligations obtained by all the Banks, such
Bank shall notify the Agent and forthwith purchase from the other Banks such
participations in the Advances made by them or Letter of Credit Obligations held
by them as shall be necessary to cause such purchasing Bank 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 Bank, such
purchase from each Bank shall be rescinded and such Bank shall repay to the
purchasing Bank the purchase price to the extent of such Bank's ratable share
(according to the proportion of (a) the amount of the participation sold by such
Bank to the purchasing Bank as a result of such excess payment to (b) the total
amount of such excess payment) of such recovery, together with an amount equal
to such Bank's ratable share (according to the proportion of (a) the amount of
such Bank's required repayment to the purchasing Bank to (b) the total amount of
all such required repayments to the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.10 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 Bank were the direct creditor
of the Borrower in the amount of such participation.

         Section 2.11. Breakage Costs. If (a) any payment of principal of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, whether as a result of any payment pursuant to Section
2.4, the acceleration of the maturity of the Notes pursuant to Article VII, or
otherwise, or (b) the Borrower fails to make a principal or interest payment
with respect to any Eurodollar Rate Advance on the date such payment is due and
payable, the Borrower shall, within 10 days of any written demand sent by any
Bank to the Borrower through the Agent, pay to the Agent for the account of such
Bank any amounts required to compensate such Bank for any additional losses,
out-of-pocket costs or expenses which it may reasonably incur as a result of
such payment or nonpayment, including, without

                                       -26-
<PAGE>

limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Bank to fund or maintain such Advance.

         Section 2.12. Increased Costs.

         (a) Eurodollar Rate Advances. If, due to either (i) the introduction of
or any change (other than any change by way of imposition or increase of reserve
requirements included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation of any law or regulation or (ii) the compliance with any
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 Bank of agreeing to make or making, funding, or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand
by such Bank (with a copy of such demand to the Agent), immediately pay to the
Agent for the account of such Bank additional amounts sufficient to compensate
such Bank for such increased cost. A certificate as to the amount of such
increased cost and detailing the calculation of such cost submitted to the
Borrower and the Agent by such Bank shall be conclusive and binding for all
purposes, absent manifest error.

         (b) Capital Adequacy. If any Bank or the Issuing Bank determines in
good faith that compliance with any law or regulation or any 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 Bank or the Issuing Bank or any corporation
controlling such Bank or the Issuing Bank and that the amount of such capital is
increased by or based upon the existence of such Bank's commitment to lend or
the Issuing Bank's commitment to issue the Letters of Credit and other
commitments of this type, then, upon 30 days' prior written notice by such Bank
or the Issuing Bank (with a copy of any such demand to the Agent), the Borrower
shall immediately pay to the Agent for the account of such Bank or to the
Issuing Bank, as the case may be, from time to time as specified by such Bank or
the Issuing Bank, additional amounts sufficient to compensate such Bank or the
Issuing Bank, in light of such circumstances, (i) with respect to such Bank, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend under this
Agreement and (ii) with respect to the Issuing Bank, to the extent that the
Issuing Bank reasonably determines such increase in capital to be allocable to
the issuance or maintenance of the Letters of Credit for such increased cost. A
certificate as to such amounts and detailing the calculation of such amounts
submitted to the Borrower by such Bank or the Issuing Bank shall be conclusive
and binding for all purposes, absent manifest error.

         (c) Letters of Credit. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or Governmental Authority
charged with the administration thereof shall either (i) impose, modify, or deem
applicable any reserve, special deposit, or similar requirement against letters
of credit issued by, or assets held by, or deposits in or for the account of,
the Issuing Bank or (ii) impose on the Issuing Bank any other condition
regarding the provisions of this Agreement relating to the Letters of Credit or
any Letter of Credit Obligations, and the result of any event referred to in the
preceding clause (i) or (ii) shall be to increase the cost to the Issuing Bank
of issuing or maintaining any Letter of Credit (which increase in cost shall be
determined by the Issuing Bank's reasonable allocation of the aggregate of such
cost increases resulting from such event), then, upon demand by the Issuing
Bank, the

                                       -27-
<PAGE>
Borrower shall pay to the Issuing Bank, from time to time as specified by the
Issuing Bank, additional amounts which shall be sufficient to compensate the
Issuing Bank for such increased cost. A certificate as to such increased cost
incurred by the Issuing Bank, as a result of any event mentioned in clause (i)
or (ii) above, and detailing the calculation of such increased costs submitted
by the Issuing Bank to the Borrower, shall be conclusive and binding for all
purposes, absent manifest error.

         Section 2.13. Taxes.

         (a) No Deduction for Certain Taxes. Any and all payments by the
Borrower shall be made, in accordance with Section 2.9, 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 Bank, the Issuing Bank, and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank, the Issuing Bank, or the Agent (as the case
may be) is organized or any political subdivision of the jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") and, in the case of each
Bank and the Issuing Bank, Taxes by the jurisdiction of such Bank's Applicable
Lending Office or any political subdivision of such jurisdiction. If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable to any Bank, the Issuing Bank, or the 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 Bank, the Issuing Bank, or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made; provided, however, that if the Borrower's obligation to
deduct or withhold Taxes is caused solely by such Bank's, the Issuing Bank's, or
the Agent's failure to provide the forms described in paragraph (d) of this
Section 2.13 and such Bank, the Issuing Bank, or the Agent could have provided
such forms, no such increase shall be required; (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.

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

         (c) Indemnification. THE BORROWER INDEMNIFIES EACH BANK, THE ISSUING
BANK, AND THE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING,
WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON
AMOUNTS PAYABLE UNDER THIS SECTION 2.13) PAID BY SUCH BANK, THE ISSUING BANK, OR
THE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES
OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE
MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE
AGENT FOR THE BENEFIT OF ANY

                                       -28-
<PAGE>
PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE BORROWER
RECEIVES WRITTEN DEMAND THEREFOR FROM THE AGENT ON BEHALF OF ITSELF AS AGENT,
THE ISSUING BANK, OR ANY SUCH BANK. IF ANY BANK, THE AGENT, OR THE ISSUING BANK
RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID BY THE BORROWER UNDER THIS
PARAGRAPH (C), SUCH BANK, THE AGENT, OR THE ISSUING BANK, AS THE CASE MAY BE,
SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER'S SHARE OF SUCH REFUND.

         (d) Foreign Bank Withholding Exemption. Each Bank and Issuing Bank that
is not incorporated under the laws of the United States of America or a state
thereof agrees that it will deliver to the Borrower and the Agent on the date of
this Agreement or upon the effectiveness of any Assignment and Acceptance and
from time to time thereafter if requested in writing by the Borrower (i)
Internal Revenue Service Form W-8ECI, W-8BEN, W-8EXP, or W-8IMY as appropriate,
or any successor form prescribed by the Internal Revenue Service, certifying
that such Bank is entitled to benefits under an income tax treaty to which the
United States is a party which exempts such Bank from 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-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 Bank is entitled to an exemption from tax on
payments pursuant to this Agreement or any of the other Credit Documents If an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any delivery required by the preceding
sentence would otherwise be required which renders all such forms inapplicable
or which would prevent any Bank from duly completing and delivering any such
letter or form with respect to it and such Bank advises the Borrower and the
Agent that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and, in the case of a Form W-9,
establishing an exemption from United States backup withholding tax, such Bank
shall not be required to deliver such letter or forms.

                                  ARTICLE III

                              CONDITIONS OF LENDING

         Section 3.1. Conditions Precedent to Amendment and Restatement. This
Agreement shall be effective and the Existing Credit Agreement shall be amended
and restated as provided in this Agreement on the date the following conditions
precedent are met.

         (a) Documentation. On or before the day on which the initial Borrowing
is made or the initial Letters of Credit are issued, the Agent shall have
received the following duly executed by all the parties thereto, in form and
substance satisfactory to the Agent and the Banks, and, where applicable, in
sufficient copies for each Bank:

                  (i) This Agreement and the Notes;

                                       -29-
<PAGE>

                  (ii) A favorable opinion of the Borrower's general counsel,
         dated as of The Effective Date, and substantially in the form of the
         attached Exhibit H-1 covering the matters discussed in such Exhibit and
         such other matters as any Bank through the Agent may reasonably
         request;

                  (iii) A favorable opinion of Bracewell & Patterson, L.L.P.,
         counsel to the Agent, dated as of the Effective Date, and substantially
         in the form of the attached Exhibit H-2;

                  (iv) A certificate of the Secretary or an Assistant Secretary
         of the Borrower certifying the existence of the Borrower, a certificate
         of good standing for the Borrower, the certificate of incorporation of
         the Borrower, the bylaws of the Borrower, the resolutions of the Board
         of Directors of the Borrower authorizing this Agreement and related
         transactions, and the incumbency and signatures of the officers of the
         Borrower authorized to execute this Agreement and related documents;

                  (v) A certificate of the Secretary or an Assistant Secretary
         of each Guarantor certifying the existence of such Guarantor, a
         certificate of good standing for such Guarantor, if applicable, the
         certificate of incorporation, limited liability company agreement,
         limited partnership agreement, or other charter document of the
         Borrower, the bylaws, if any, of the Borrower, the resolutions of the
         Board of Directors, management committee or general partner of such
         Guarantor authorizing this Agreement and related transactions, and the
         incumbency and signatures of the officers of such Guarantor authorized
         to execute its Guaranty and related documents; and

                  (vi) Such other documents, governmental certificates,
         agreements, and lien searches as the Agent or any Bank may reasonably
         request.

         (b) Payment of Fees. On the date of this Agreement, the Borrower shall
have paid the fees required by Section 2.7(b) and (c) and all costs and expenses
which have been invoiced and are payable pursuant to Section 9.4.

         (c) Financial Statements. The Agent shall have reviewed and be
satisfied with the consolidated financial statements of the Borrower and its
Subsidiaries for the fiscal years ended 1998, 1999, and 2000, including balance
sheets, income and cash flow statements audited by independent public
accountants and prepared in conformity with GAAP and such other financial
information as the Agent may request.

         (d) No Material Adverse Change. There shall not have occurred a
Material Adverse Change since December 31, 2000.

         (e) No Material Litigation. The absence of any action, suit,
investigation or proceeding pending or threatened in any court or before any
arbitrator or governmental authority that purports (i) to materially and
adversely affect the Borrower or its Subsidiaries taken as a whole, or (ii) to
adversely affect any transaction contemplated hereby or the ability of the
Borrower and the Guarantors to perform their respective obligations under the
Credit Documents.

                                       -30-
<PAGE>

         (f) Due Diligence. Receipt and review, with results satisfactory to the
Agent and its counsel, of information regarding litigation, tax, capital
budgets, accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt agreements, property
ownership, environmental matters, contingent liabilities and management of the
Borrower and its subsidiaries.

         (g) Engineering Reports. The Agent shall have received Engineering
Reports for the Oil and Gas Properties included in the Borrowing Base, including
the Acquired Properties.

         (h) Environmental Condition. The Agent shall be satisfied with the
environmental condition of the Borrower and its Subsidiaries' Oil and Gas
Properties.

         Section 3.2. Conditions Precedent to All Borrowings. The obligation of
each Bank to make an Advance on the occasion of each Borrowing and of the
Issuing Bank to issue, increase, or extend any Letter of Credit or to convert an
Existing Letter of Credit to a Letter of Credit shall be subject to the further
conditions precedent that on the date of such Borrowing or the issuance,
increase, or extension of such Letter of Credit or conversion of such Existing
Letter of Credit:

         (a) the following statements shall be true (and each of the giving of
the applicable Notice of Borrowing or Letter of Credit Application and the
acceptance by the Borrower of the proceeds of such Borrowing or the issuance,
increase, or extension of such Letter of Credit or the conversion of such
Existing Letter of Credit shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing, the issuance, increase, or
extension of such Letter of Credit or the conversion of such Existing Letter of
Credit, such statements are true):

                  (i) the representations and warranties contained in Article IV
         and the Guaranties are correct in all material respects on and as of
         the date of such Borrowing or the date of the issuance, increase, or
         extension of such Letter of Credit or the conversion of such Existing
         Letter of Credit, before and after giving effect to such Borrowing or
         to the issuance, increase, or extension of such Letter of Credit or the
         conversion of such Existing Letter of Credit and to the application of
         the proceeds from such Borrowing, as though made on and as of such date
         and

                  (ii) no Default has occurred and is continuing or would result
         from such Borrowing or from the application of the proceeds therefrom,
         from the issuance, increase, or extension of such Letter of Credit or
         from the conversion of such Existing Letter of Credit;

         (b) the Agent shall have received such other approvals, opinions, or
documents reasonably deemed necessary or desirable by any Bank as a result of
circumstances occurring after the date of this Agreement, as any Bank through
the Agent may reasonably request; and

         (c) in the case of the any Borrowing made or the issuance, increase, or
extension of a Letter of Credit in connection with the closing of the
acquisition of the Acquired Properties, (i) the Borrower shall have acquired the
Acquired Properties under the Acquisition Agreement simultaneously with such
Borrowing or issuance, increase, or extension and (ii) any preferential rights
issues with respect to the Acquired Properties shall have been resolved so as
include such properties in the Borrowing Base in a manner satisfactory to the
Agent.

                                       -31-
<PAGE>

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants as follows:

         Section 4.1. Corporate Existence; Subsidiaries. The Borrower is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware and in good standing and qualified to do business in each
jurisdiction where its ownership or lease of property or conduct of its business
requires such qualification and where a failure to be qualified could reasonably
be expected to cause a Material Adverse Change. Each Guarantor is a corporation
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation and in good standing and qualified to do business
in each jurisdiction where its ownership or lease of property or conduct of its
business requires such qualification and where a failure to be qualified could
reasonably be expected to cause a Material Adverse Change. Each Material
Subsidiary of the Borrower has executed a Guaranty except as specified in the
exception to Section 5.8.

         Section 4.2. Corporate Power. The execution, delivery, and performance
by the Borrower of this Agreement, the Notes, and the other Credit Documents to
which it is a party and by the Guarantors of the Guaranties and the consummation
of the transactions contemplated hereby and thereby (a) are within the
Borrower's and the Guarantor's corporate powers, (b) have been duly authorized
by all necessary corporate action, (c) do not contravene (i) the Borrower's or
any Guarantor's certificate or articles, as the case may be, of incorporation or
by-laws or (ii) any law or any contractual restriction binding on or affecting
the Borrower or any Guarantor, and (d) will not result in or require the
creation or imposition of any Lien prohibited by this Agreement. At the time of
each Borrowing, such Borrowing and the use of the proceeds of such Borrowing
will be within the Borrower's corporate powers, will have been duly authorized
by all necessary corporate action, (a) will not contravene (i) the Borrower's
certificate of incorporation or by-laws or (ii) any law or any contractual
restriction binding on or affecting the Borrower and (b) will not result in or
require the creation or imposition of any Lien prohibited by this Agreement.

         Section 4.3. Authorization and Approvals. No authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
is required for the due execution, delivery, and performance by the Borrower of
this Agreement, the Notes, or the other Credit Documents to which the Borrower
is a party or by each Guarantor of its Guaranty or the consummation of the
transactions contemplated thereby. At the time of each Borrowing, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required for such Borrowing or the use of the
proceeds of such Borrowing.

         Section 4.4. Enforceable Obligations. This Agreement, the Notes, and
the other Credit Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower and the Guaranties have been duly
executed and delivered by the Guarantors. Each Credit Document is the legal,
valid, and binding obligation of the Borrower and each Guarantor which is a
party to it enforceable against the Borrower and each such Guarantor in
accordance with its terms, except as such enforceability may be limited by any
applicable bankruptcy,

                                       -32-
<PAGE>
insolvency, reorganization, moratorium, or similar law affecting creditors'
rights generally and by general principles of equity.

         Section 4.5. Financial Statements. The audited consolidated balance
sheet of the Borrower and its Subsidiaries as at December 31, 2000 and the
related audited consolidated statements of operations, cash flow, and
stockholders' equity of the Borrower and its Subsidiaries for the fiscal year
then ended, copies of which have been furnished to each Bank, and the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as at September
30, 2001, and the related unaudited consolidated statements of operations and
cash flow of the Borrower and its Subsidiaries for the nine months then ended,
copies of which have been furnished to the Agent, fairly present, subject, in
the case of the balance sheet as at September 30, 2001 and said statements of
operations and cash flow for the nine months then ended, to year-end audit
adjustments, the consolidated financial condition of the Borrower and its
Subsidiaries as at such dates and the consolidated results of the operations of
the Borrower and its Subsidiaries for the periods ended on such dates, and such
consolidated balance sheets and consolidated statements of operations, cash
flow, and stockholders' equity were prepared in accordance with GAAP (or in
compliance with the regulations promulgated by the United States Securities and
Exchange Commission). Since the date of the Financial Statements, no Material
Adverse Change has occurred.

         Section 4.6. True and Complete Disclosure. All factual information
(excluding estimates) heretofore or contemporaneously furnished by or on behalf
of the Borrower or any of its Subsidiaries in writing to any Bank or the Agent
for purposes of or in connection with this Agreement, any other Credit Document
or any transaction contemplated hereby or thereby is (taken as a whole) true and
accurate in all material respects on the date as of which such information is
dated or certified and does not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements contained
therein not misleading as of the date of this Agreement. All projections,
estimates, and pro forma financial information furnished by the Borrower were
prepared on the basis of assumptions, data, information, tests, or conditions
believed to be reasonable at the time such projections, estimates, and pro forma
financial information were furnished.

         Section 4.7. Litigation. Set forth on Schedule 4.7 is an accurate
description of all of the Borrower's and its Subsidiaries' pending litigation
existing on the date of this Agreement which could reasonably be expected to
cause a Material Adverse Change. There is no pending or, to the best knowledge
of the Borrower, threatened action or proceeding affecting the Borrower or any
of its Subsidiaries before any court, Governmental Agency or arbitrator, which
could reasonably be expected to cause a Material Adverse Change or which
purports to affect the legality, validity, binding effect, or enforceability of
this Agreement, any Note, or any other Credit Document.

         Section 4.8. Use of Proceeds. All Advances and Letters of Credit shall
be used to finance the acquisition of oil and gas reserves and for general
corporate purposes of the Borrower and its Subsidiaries, but in no event for the
payment of dividends or other distributions or advances to the shareholders of
the Borrower. The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of

                                       -33-
<PAGE>

Regulation U). No proceeds of any Advance will be used to purchase or carry any
margin stock in violation of Regulation T, U or X.

         Section 4.9. Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

         Section 4.10. Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company," or a "Subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"Subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

         Section 4.11. Taxes. Proper and accurate (in all material respects)
federal, state, local, and foreign tax returns, reports and statements required
to be filed (after giving effect to any extension granted in the time of filing)
by or on behalf of the Borrower, its Subsidiaries, or any member of the
Controlled Group (hereafter collectively called the "Tax Group") have been duly
filed on a timely basis or appropriate extensions have been obtained with
appropriate governmental agencies in all jurisdictions in which such returns,
reports, and statements are required to be filed, except where the failure to so
file would not be reasonably expected to cause a Material Adverse Change; and
all taxes (which are material in amount) and other impositions due and payable
have been timely paid prior to the date on which any fine, penalty, interest,
late charge, or loss may be added thereto for non-payment thereof, except where
contested in good faith by appropriate proceedings. The reserves for accrued
taxes reflected in the financial statements delivered to the Banks under this
Agreement are adequate in the aggregate for the payment of all unpaid taxes,
whether or not disputed, for the period ended as of the date thereof and for any
period prior thereto, and for which the Tax Group may be liable in its own
right, as withholding agent or as a transferee of the assets of, or successor
to, any Person, except for such taxes or reserves therefor, the failure to pay
or provide for which does not and could not cause a Material Adverse Change.
Timely payment of all material sales and use taxes required by applicable law
has been made by the Borrower and all other members of the Tax Group.

         Section 4.12. Pension Plans. All Plans are in compliance in all
material respects with all applicable provisions of ERISA. No Termination Event
has occurred with respect to any Plan, and each Plan has complied with and been
administered in all material respects with applicable provisions of ERISA and
the Code. No "accumulated funding deficiency" (as defined in Section 302 of
ERISA) has occurred and there has been no excise tax imposed under Section 4971
of the Code. No Reportable Event has occurred with respect to any Multiemployer
Plan, and each Multiemployer Plan has complied with and been administered in all
material respects with applicable provisions of ERISA and the Code. The present
value of all benefits vested under each Plan (based on the assumptions used to
fund such Plan) did not, as of the last annual valuation date applicable
thereto, exceed the value of the assets of such Plan allocable to such vested
benefits. Neither the Borrower nor any member of the Controlled Group has had a
complete or partial withdrawal from any Multiemployer Plan for which there is
any withdrawal liability. As of the most recent valuation date applicable
thereto, neither the Borrower nor any member of the Controlled Group would
become subject to any liability under ERISA if the Borrower or any member of the
Controlled Group has received notice that any Multiemployer Plan is insolvent or
in reorganization. Based upon GAAP existing as of the date of this

                                       -34-
<PAGE>
Agreement and current factual circumstances, the Borrower has no reason to
believe that the annual cost during the term of this Agreement to the Borrower
or any member of the Controlled Group for post-retirement benefits to be
provided to the current and former employees of the Borrower or any member of
the Controlled Group under Plans that are welfare benefit plans (as defined in
Section 3(a) of ERISA) could, in the aggregate, reasonably be expected to cause
a Material Adverse Change.

         Section 4.13. Condition of Property; Casualties. The Borrower and each
of the Guarantors has good and indefeasible title to all of its Properties as is
customary in the oil and gas industry in all material respects, free and clear
of all Liens except for Permitted Liens. The material Properties used or to be
used in the continuing operations of the Borrower and each of its Subsidiaries
are in good repair, working order and condition. Since the date of the Financial
Statements, neither the business nor the material properties of the Borrower and
each of its Subsidiaries, taken as a whole, has been materially and adversely
affected as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of property or cancellation of contracts, permits, or concessions by a
Governmental Authority, riot, activities of armed forces, or acts of God or of
any public enemy.

         Section 4.14. No Burdensome Restrictions; No Defaults. Neither the
Borrower nor any of its Subsidiaries is a party to any indenture, loan, or
credit agreement or any lease or other agreement or instrument or subject to any
charter or corporate restriction or provision of applicable law or governmental
regulation which could reasonably be expected to cause a Material Adverse
Change. The Borrower and the Guarantors are not in default under or with respect
to any contract, agreement, lease, or other instrument to which the Borrower or
any Guarantor is a party and which could reasonably be expected to cause a
Material Adverse Change. Neither the Borrower nor any Guarantor has received any
notice of default under any material contract, agreement, lease, or other
instrument to which the Borrower or such Guarantor is a party. No Default has
occurred and is continuing.

         Section 4.15. Environmental Condition.

         (a) Permits, Etc. Except as set forth on Schedule 4.15(a), the Borrower
and its Subsidiaries (i) have obtained all Environmental Permits necessary for
the ownership and operation of their respective Properties and the conduct of
their respective businesses; (ii) have been and are in material compliance with
all terms and conditions of such Environmental Permits and with all other
material requirements of applicable Environmental Laws; (iii) have not received
notice of any material violation or alleged violation of any Environmental Law
or Environmental Permit; and (iv) are not subject to any actual or contingent
Environmental Claim, which could reasonably be expected to cause a Material
Adverse Change.

         (b) Certain Liabilities. Except as set forth on Schedule 4.15(b), to
the Borrower's actual knowledge, none of the present or previously owned or
operated Property of the Borrower or of any of its present or former
Subsidiaries, wherever located, (i) has been placed on or proposed to be placed
on the National Priorities List, the Comprehensive Environmental Response
Compensation Liability Information System list, or their state or local analogs,
or have been otherwise investigated, designated, listed, or identified as a
potential site for removal,

                                       -35-
<PAGE>
remediation, cleanup, closure, restoration, reclamation, or other response
activity under any Environmental Laws; (ii) is subject to a Lien, arising under
or in connection with any Environmental Laws, that attaches to any revenues or
to any Property owned or operated by the Borrower or any of its Subsidiaries,
wherever located, which could reasonably be expected to cause a Material Adverse
Change; or (iii) has been the site of any Release of Hazardous Substances or
Hazardous Wastes from present or past operations which has caused at the site or
at any third-party site any condition that has resulted in or could reasonably
be expected to result in the need for Response that would cause a Material
Adverse Change.

         (c) Certain Actions. Without limiting the foregoing, (i) all necessary
notices have been properly filed, and no further action is required under
current Environmental Law as to each Response or other restoration or remedial
project undertaken by the Borrower, or its present or former Subsidiaries on any
of their presently or formerly owned or operated Property and (ii) the present
and, to the Borrower's best knowledge, future liability, if any, of the Borrower
and its Subsidiaries which could reasonably be expected to arise in connection
with requirements under Environmental Laws will not result in a Material Adverse
Change.

         Section 4.16. Permits, Licenses, Etc. The Borrower and its Subsidiaries
possess all permits, licenses, patents, patent rights or licenses, trademarks,
trademark rights, trade names rights and copyrights which are material to the
conduct of its business. The Borrower and its Subsidiaries manage and operate
their business in all material respects in accordance with all applicable Legal
Requirements and good industry practices.

         Section 4.17. Gas Contracts. Neither the Borrower nor any of its
Subsidiaries, as of the date hereof, (a) is obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Borrower's consolidated Oil and Gas
Properties at some future date without receiving full payment therefor at the
time of delivery, or (b) has produced gas, in any material amount, subject to,
and none of the Borrower's consolidated Oil and Gas Properties is subject to,
balancing rights of third parties or subject to balancing duties under
governmental requirements, except as to such matters for which the Borrower or
its relevant Subsidiary has established monetary reserves adequate in amount in
accordance with GAAP to satisfy such obligations.

                                   ARTICLE V

                              AFFIRMATIVE COVENANTS

         So long as any Note or any amount under any Credit Document shall
remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall
have any Commitment hereunder, the Borrower agrees, unless the Majority Banks
shall otherwise consent in writing, to comply with the following covenants.

         Section 5.1. Compliance with Laws, Etc. The Borrower shall comply, and
cause each of its Subsidiaries to comply, in all material respects with all
Legal Requirements. Without limiting the generality and coverage of the
foregoing, the Borrower shall comply, and shall cause each of its Subsidiaries
to comply, in all material respects, with all Environmental Laws and all

                                       -36-
<PAGE>
laws, regulations, or directives with respect to equal employment opportunity
and employee safety in all jurisdictions in which the Borrower, or any of its
Subsidiaries do business; provided, however, that this Section 5.1 shall not
prevent the Borrower, or any of its Subsidiaries from, in good faith and with
reasonable diligence, contesting the validity or application of any such laws or
regulations by appropriate legal proceedings.

         Section 5.2. Maintenance of Insurance. The Borrower shall 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 are usually carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Borrower or
such Subsidiary operates, provided that the Borrower or such Subsidiary may
self-insure to the extent and in the manner normal for similarly situated
companies of like size, type and financial condition that are part of a group of
companies under common control.

         Section 5.3. Preservation of Corporate Existence, Etc. The Borrower
shall preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights, franchises, and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified, and cause
each such Subsidiary to qualify and remain qualified, as a foreign corporation
in each jurisdiction in which qualification is necessary or desirable in view of
its business and operations or the ownership of its properties, and, in each
case, where failure to qualify or preserve and maintain its rights and
franchises could reasonably be expected to cause a Material Adverse Change;
provided, however, that nothing herein contained shall prevent any transaction
permitted by Section 6.4.

         Section 5.4. Payment of Taxes, Etc. The Borrower shall pay and
discharge, and cause each of its Subsidiaries to pay and discharge, before the
same shall become delinquent, (a) all taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits or Property that
are material in amount, prior to the date on which penalties attach thereto and
(b) all lawful claims that are material in amount which, if unpaid, might by law
become a Lien upon its Property; provided, however, that neither the Borrower
nor any such Subsidiary shall be required to pay or discharge any such tax,
assessment, charge, levy, or claim which is being contested in good faith and by
appropriate proceedings, and with respect to which reserves in conformity with
GAAP have been provided.

         Section 5.5. Visitation Rights. At any reasonable time and from time to
time, upon reasonable notice, the Borrower shall, and shall cause its
Subsidiaries to, permit the Agent and any Bank or any of its agents or
representatives thereof, to (a) examine and make copies of and abstracts from
the records and books of account of, and visit and inspect at its reasonable
discretion the properties of, the Borrower and any such Subsidiary, and (b)
discuss the affairs, finances and accounts of the Borrower and any such
Subsidiary with any of their respective officers or directors; provided however,
the Agent or the Bank for whose benefit such inspection and visitation is made
assumes sole responsibility for the condition of any property of the Borrower or
its Subsidiaries so visited and inspected, the access and egress thereto
(including, but not limited to wharves, docks, and helicopter landing areas),
and any vice or defect therein or thereon, and assumes all responsibility for
and hereby releases and indemnifies the Borrower, its Affiliates, and their
officers, directors, employees, and agents against any claim for damage or
injury to or by the Agent or such Bank (or the representatives thereof) or to
the Borrower's or its

                                       -37-
<PAGE>
Subsidiaries' property which may be occasioned by such inspection and visitation
of the Borrower's or its Subsidiaries' property.

         Section 5.6. Reporting Requirements. The Borrower shall furnish to the
Agent and each Bank:

         (a) Annual Financials. As soon as available and in any event not later
than 120 days after the end of each fiscal year of the Borrower, (i) a copy of
the annual audit report for such year for the Borrower and its Subsidiaries,
including therein consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and consolidated statements of
operations, cash flows, and stockholders' equity of the Borrower and its
Subsidiaries for such fiscal year, in each case certified by Arthur Andersen
L.L.P. or other independent certified public accountants of national standing
and including any management letters delivered by such accountants to the
Borrower in connection with such audit, (ii) a Compliance Certificate executed
by the Chief Financial Officer or Chief Accounting Officer of the Borrower, and
(iii) a copy of the annual financial budget for the current fiscal year;

         (b) Quarterly Financials. As soon as available and in any event not
later than 90 days after the end of each of the first three quarters of each
fiscal year of the Borrower, the unaudited consolidated balance sheet of
Borrower and its Subsidiaries as of the end of such quarter and the consolidated
statements of operations and cash flows of the Borrower and its Subsidiaries for
the period commencing at the end of the previous year and ending with the end of
such quarter, all in reasonable detail and duly certified with respect to such
consolidated statements (subject to year-end audit adjustments) by the Chief
Financial Officer or Chief Accounting Officer of the Borrower as having been
prepared in accordance with GAAP (or in compliance with the regulations
promulgated by the United States Securities and Exchange Commission), together
with a Compliance Certificate executed by the Chief Financial Officer or Chief
Accounting Officer of the Borrower;

         (c) Oil and Gas Reserve Reports.

                  (i) As soon as available but in any event on or before March
         31 of each year, an engineering report in form and substance meeting
         the requirements of the Securities and Exchange Commission for
         financial reporting purposes, certified by Atwater Consultants, Ltd.,
         Cawley, Gillespie and Associates, Inc., or other firm of independent
         consulting petroleum engineers approved by the Agent, as fairly setting
         forth (A) the proved and producing, shut in, behind pipe, and
         undeveloped oil and gas reserves (separately classified as such)
         attributable to the Borrower's consolidated Oil and Gas Properties as
         of the last day of the previous year, (B) the aggregate present value,
         determined on the basis of stated pricing assumptions, of the future
         net income with respect to such Oil and Gas Properties, discounted at a
         stated per annum discount rate, and (C) projections of the annual rate
         of production, gross income, and net income with respect to such Oil
         and Gas Properties.

                  (ii) As soon as available but in any event on or before
         September 30 of each year beginning with September 30, 2002, an
         internal engineering report in form and substance satisfactory to the
         Agent setting forth (A) the proved and producing, shut in,

                                       -38-
<PAGE>
         behind pipe, and undeveloped oil and gas reserves (separately
         classified as such) attributable to the Borrower's consolidated Oil and
         Gas Properties as of June 30 of such year (B) the aggregate present
         value, determined on the basis of stated pricing assumptions, of the
         future net income with respect to such Oil and Gas Properties,
         discounted at a stated per annum discount rate and (C) projections of
         the annual rate of production, gross income, and net income with
         respect to such Oil and Gas Properties.

                  (iii) The Agent and the Banks acknowledge that the Oil and Gas
         Reserve Reports contain certain proprietary information including
         geological and geophysical data, maps, models, and interpretations
         necessary for determining the Borrowing Base and the creditworthiness
         of the Borrower and the Guarantors. The Agent and the Banks agree to
         maintain the confidentiality of such information except as required by
         law. The Agent and the Banks may share such information with potential
         transferees of their interests under this Agreement if such transferees
         agree to maintain the confidentiality of such information.

         (d) Defaults. As soon as possible and in any event within five days
after the occurrence of each Default known to a Responsible Officer of the
Borrower or any of its Subsidiaries which is continuing on the date of such
statement, a statement of the Chief Financial Officer of the Borrower setting
forth the details of such Default and the actions which the Borrower has taken
and proposes to take with respect thereto;

         (e) Securities Law Filings. Except as provided in paragraphs (a) and
(b) above, promptly and in any event within 15 days after the sending or filing
thereof, copies of all proxy material, reports and other information which the
Borrower or any of its Subsidiary sends to or files with the United States
Securities and Exchange Commission or sends to any shareholder of the Borrower;

         (f) Termination Events. As soon as possible and in any event (i) within
30 days after the Borrower or any member of the Controlled Group knows or has
reason to know that any Termination Event described in clause (a) of the
definition of Termination Event with respect to any Plan has occurred, and (ii)
within 10 days after the Borrower or any of its Affiliates knows or has reason
to know that any other Termination Event with respect to any Plan has occurred,
a statement of the Chief Financial Officer of the Borrower describing such
Termination Event and the action, if any, which the Borrower or such Affiliate
proposes to take with respect thereto;

         (g) Termination of Plans. Promptly and in any event within two Business
Days after receipt thereof by the Borrower or any member of the Controlled Group
from the PBGC, copies of each notice received by the Borrower or any such member
of the Controlled Group of the PBGC's intention to terminate any Plan or to have
a trustee appointed to administer any Plan;

         (h) Other ERISA Notices. Promptly and in any event within five Business
Days after receipt thereof by the Borrower or any member of the Controlled Group
from a Multiemployer Plan sponsor, a copy of each notice received by the
Borrower or any member of the Controlled Group concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA;

                                       -39-
<PAGE>

         (i) Environmental Notices. Promptly upon the receipt thereof by the
Borrower or any of its Subsidiaries, a copy of any form of notice, summons or
citation received from the EPA, or any other Governmental Authority, concerning
(i) violations or alleged violations of Environmental Laws, which seeks to
impose liability therefor, (ii) any action or omission on the part of the
Borrower or any of its present or former Subsidiaries in connection with
Hazardous Waste or Hazardous Substances which could reasonably result in the
imposition of liability therefor, including without limitation any notice of
potential responsibility under CERCLA, or (iii) concerning the filing of a Lien
upon, against or in connection with the Borrower, its present or former
Subsidiaries, or any of their leased or owned Property, wherever located;

         (j) Other Governmental Notices. Promptly and in any event within five
Business Days after receipt thereof by the Borrower or any Subsidiary, a copy of
any notice, summons, citation, or proceeding seeking to modify in any material
respect, revoke, or suspend any material contract, license, or Agreement with
any Governmental Authority;

         (k) Material Changes. Prompt written notice of any condition or event
of which the Borrower has knowledge, which condition or event has resulted or
may reasonably be expected to result in (i) a Material Adverse Change or (ii) a
breach of or noncompliance with any material term, condition, or covenant of any
material contract to which the Borrower or any of its Subsidiaries is a party or
by which they or their properties may be bound;

         (l) Disputes, Etc. Prompt written notice of any claims, proceedings, or
disputes, or to the knowledge of the Borrower threatened, or affecting the
Borrower, or any of its Subsidiaries which, if adversely determined, could
reasonably be expected to cause a Material Adverse Change, or any material labor
controversy of which the Borrower or any of its Subsidiaries has knowledge
resulting in or reasonably considered to be likely to result in a strike against
the Borrower or any of its Subsidiaries; and

         (m) Other Information. Such other information respecting the business
or Properties, or the condition or operations, financial or otherwise, of the
Borrower, or any of its Subsidiaries, as any Bank through the Agent may from
time to time reasonably request. The Agent agrees to provide the Banks with
copies of any material notices and information delivered solely to the Agent
pursuant to the terms of this Agreement.

         Section 5.7. Maintenance of Property. Borrower shall, and shall cause
each of its Subsidiaries to, maintain their owned, leased, or operated property,
equipment, buildings, and fixtures in good condition and repair; and shall
abstain, and cause each of its Subsidiaries to abstain from, and not knowingly
or willfully permit the commission of waste or other injury, destruction, or
loss of natural resources, or the occurrence of pollution, contamination, or any
other condition in, on or about the owned or operated property involving the
Environment that could reasonably be expected to result in Response activities
the costs of which would exceed the accrual established by Borrower or by any of
its Subsidiaries for those purposes.

         Section 5.8. New Subsidiaries. Upon the creation or acquisition of any
Material Subsidiary after the date of this Agreement or if an existing
Subsidiary becomes a Material Subsidiary after the date of this Agreement, the
Borrower shall cause such Subsidiary to execute and deliver to the Agent (a) a
Guaranty with such changes as the Agent may reasonably request

                                       -40-
<PAGE>

and (b) evidence of corporate authority to enter into such Guaranty as the Agent
may reasonably request, including, without limitation, a legal opinion regarding
the enforceability of such Guaranty; except that Conoco Offshore Inc. or its
successor shall not be required to execute and deliver a Guaranty until March
15, 2002.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

         So long as any Note or any amount under any Credit Document shall
remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall
have any Commitment, the Borrower agrees, unless the Majority Banks otherwise
consent in writing, to comply with the following covenants.

         Section 6.1. Liens, Etc. The Borrower shall not create, assume, incur,
or suffer to exist, or permit any of its Subsidiaries to create, assume, incur,
or suffer to exist, any Lien on or in respect of any of its Property whether now
owned or hereafter acquired, or assign any right to receive income, except that
the Borrower and its Subsidiaries may create, incur, assume, or suffer to exist:

         (a) Liens securing the Obligations;

         (b) Liens specified in the attached Schedule 6.1 on the Property owned
by the Borrower and its Subsidiaries which is specified therein securing only
the Debt disclosed to be secured by such Liens therein;

         (c) Liens securing purchase money indebtedness permitted under Section
6.2(c), provided that each such Lien encumbers only the property acquired in
connection with the creation of any such purchase money indebtedness;

         (d) Liens for taxes, assessments, or other governmental charges or
levies not yet due or that (provided foreclosure, distraint, sale, or other
similar proceedings shall not have been initiated) are being contested in good
faith by appropriate proceedings, and such reserve as may be required by GAAP
shall have been made therefor;

         (e) Liens in favor of vendors, carriers, warehousemen, repairmen,
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of obligations
that are not yet due or that are being contested in good faith by appropriate
proceedings, provided such reserve as may be required by GAAP shall have been
made therefor;

         (f) Liens to operators and non-operators under joint operating
agreements arising in the ordinary course of the business of the Borrower or the
relevant Subsidiary to secure amounts owing, which amounts are not yet due or
are being contested in good faith by appropriate proceedings, if such reserve as
may be required by GAAP shall have been made therefor;

         (g) easements, rights-of-way, restrictions, and other similar
encumbrances, and minor defects in the chain of title that are customarily
accepted in the oil and gas financing industry,

                                       -41-
<PAGE>
none of which interfere with the ordinary conduct of the business of Borrower or
the relevant Subsidiary or materially detract from the value or use of the
Property to which they apply;

         (h) Liens of record under terms and provisions of the leases, unit
agreements, assignments, and other transfer of title documents in the chain of
title under which the Borrower or the relevant Subsidiary acquired the Property,
which have been disclosed to the Agent;

         (i) Liens to secure plugging and abandonment obligations; and

         (j) Liens to secure surety bonds in an aggregate amount not to exceed
$5,000,000.

         Section 6.2. Debts, Guaranties, and Other Obligations. The Borrower
shall not, and shall not permit any of its Subsidiaries to, create, assume,
suffer to exist, or in any manner become or be liable in respect of, any Debt
except:

         (a) Debt of the Borrower and its Subsidiaries under the Credit
Documents;

         (b) Debt of the Borrower existing on the date hereof and disclosed in
the attached Schedule 6.2 and any extensions, rearrangements, and modifications
thereof which do not increase the principal amount thereof or the interest rate
charged thereon above a market rate of interest;

         (c) Debt existing in connection with Property or assets acquired by the
Borrower after date of this Agreement not to exceed $5,000,000.00 in outstanding
principal amount (excluding gas balancing liabilities assumed in the acquisition
of Oil and Gas Properties);

         (d) Debt for borrowed money owed by any Subsidiary of the Borrower to
the Borrower;

         (e) Debt in the form of obligations for the deferred purchase price of
property or services incurred in the ordinary course of business which are not
yet due and payable or are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
established; and

         (f) in addition to any Debt permitted under paragraph (b) of this
Section 6.2, up to $50,000,000.00 of unsecured senior subordinated notes with
terms satisfactory to the Agent and the Majority Banks.

         Section 6.3. Agreements Restricting Liens and Distributions. The
Borrower shall not, nor shall it permit any of its Subsidiaries to, enter into
any agreement (other than a Credit Document) which (a) except with respect to
specific Property encumbered to secure payment of Debt related to such Property,
imposes restrictions upon the creation or assumption of any Lien upon its
Properties, revenues or assets, whether now owned or hereafter acquired or (b)
limits Restricted Payments to or any advance by any of the Borrower's
Subsidiaries to the Borrower.

         Section 6.4. Merger or Consolidation; Asset Sales. The Borrower shall
not, and shall not permit any of its Subsidiaries to:

                                       -42-
<PAGE>

         (a) merge or consolidate with or into any other Person, except that the
Borrower may merge with any of its wholly-owned Subsidiaries and any of the
Borrower's wholly-owned Subsidiaries may merge with another of the Borrower's
wholly-owned Subsidiaries, provided that immediately after giving effect to any
such proposed transaction no Default would exist and, in the case of any such
merger to which the Borrower is a party, the Borrower is the surviving
corporation; or

         (b) sell, lease, transfer, or otherwise dispose of any of its Property
outside of the ordinary course of business, except (i) sales of assets outside
the ordinary course of business in an aggregate amount for any fiscal year not
to exceed $5,000,000.00 and (ii) sales of assets outside the ordinary course of
business which the Borrower has provided the Agent and the Banks with 10 days'
advance notice of, provided that such proposed sales will not in the judgment of
the Majority Banks cause the aggregate outstanding amount of the Advances plus
the sum of the Letter of Credit Exposure and the Existing Letter of Credit
Exposure to exceed the Borrowing Base after removing such assets from the
Borrowing Base under Section 2.2(e).

         Section 6.5. Restricted Payments. The Borrower shall not, and shall not
permit any of its Subsidiaries to, make or pay any Restricted Payment other than
Restricted Payments from a Subsidiary of the Borrower to the Borrower.

         Section 6.6. Investments. The Borrower shall not, and shall not permit
any of its Subsidiaries to, make or permit to exist any loans, advances, or
capital contributions to, or make any investment in, or purchase or commit to
purchase any stock or other securities or evidences of indebtedness of or
interests in any Person, except:

         (a) Liquid Investments;

         (b) trade and customer accounts receivable which are for goods
furnished or services rendered in the ordinary course of business and are
payable in accordance with customary trade terms;

         (c) ordinary course of business contributions, loans, or advances to,
or investments in, (i) a directly or indirectly wholly-owned Subsidiary of the
Borrower, or (ii) the Borrower;

         (d) oil and gas farm-ins, oil and gas development joint ventures and
limited partnerships, and similar transactions, in each case in the ordinary
course of business; and

         (e) investments not covered by clauses (a) through (d) above in an
aggregate outstanding amount not to exceed $2,000,000.00.

         Section 6.7. Limitation on Speculative Hedging. The Borrower shall not,
and shall not permit any of its Subsidiaries to, purchase, assume, or hold a
speculative position in any commodities market or futures market. Borrower may
continue its current production hedging program policy, including swaps, puts,
and collars, to reduce price risk on quantities less than its total production.

         Section 6.8. Affiliate Transactions. Except as expressly permitted
elsewhere in this Agreement or otherwise approved in writing by the Agent, and
except as described in

                                       -43-
<PAGE>
Schedule 6.8, the Borrower shall not, and shall not permit any of its
Subsidiaries to, make, directly or indirectly: (a) any investment in any
Affiliate (other than a wholly-owned Subsidiary of the Borrower); (b) any
transfer, sale, lease, assignment, or other disposal of any assets to any such
Affiliate or any purchase or acquisition of assets from any such Affiliate; or
(c) any arrangement or other transaction directly or indirectly with or for the
benefit of any such Affiliate (including without limitation, guaranties and
assumptions of obligations of an Affiliate); provided that the Borrower and its
Subsidiaries may enter into any arrangement or other transaction with any such
Affiliate providing for the leasing of property, the rendering or receipt of
services or the purchase or sale of inventory and other assets in the ordinary
course of business if the monetary or business consideration arising therefrom
would be substantially as advantageous to the Borrower and its Subsidiaries as
the monetary or business consideration which it would obtain in a comparable
arm's length transaction with a Person not such an Affiliate.

         Section 6.9. Compliance with ERISA. The Borrower shall not, and shall
not permit any of its Subsidiaries to, (a) terminate, or permit any Affiliate to
terminate, any Plan so as to result in any material (in the opinion of the
Majority Banks) liability of the Borrower or any of its Affiliates to the PBGC
or (b) permit to exist any occurrence of any Reportable Event (as defined in
Title IV of ERISA), or any other event or condition, which presents a material
(in the opinion of the Majority Banks) risk of such a termination by the PBGC of
any Plan.

         Section 6.10. Maintenance of Ownership of Subsidiaries. Except as
permitted by Section 6.4, the Borrower shall not, and shall not permit any of
its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of
any of the Borrower's Subsidiaries or permit any Subsidiary to issue, sell, or
otherwise dispose of any shares of its capital stock or the capital stock of any
of the Borrower's Subsidiaries.

         Section 6.11. Sale-and-Leaseback. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, sell or transfer to a Person (other than the
Borrower or a Subsidiary of the Borrower) any property, whether now owned or
hereafter acquired, if at the time or thereafter the Borrower or a Subsidiary of
the Borrower shall lease as lessee such property or any part thereof or other
property which the Borrower or a Subsidiary of the Borrower intends to use for
substantially the same purpose as the property sold or transferred except such
transactions (a) incident to transactions permitted by Section 6.4(b), and (b)
from which arise lease obligations and other rental obligations not exceeding
$3,000,000.00 during any fiscal year of the Borrower.

         Section 6.12. Change of Business. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, materially change the character of their
business as presently and normally conducted or engage in any type of business
not related to their business as presently and normally conducted.

         Section 6.13. Debt to EBITDA Ratio. The Borrower shall not permit the
ratio of the Borrower's (a) consolidated Debt at any time to (b) consolidated
EBITDA for the four-quarter-period ending on or immediately preceding such time
to be greater than 3.25 to 1.00.

         Section 6.14. Tangible Net Worth. The Borrower shall not permit the
consolidated Tangible Net Worth of the Borrower to be less than the sum of (a)
$350,000,000.00, plus (b) an

                                       -44-
<PAGE>
amount equal to 50% of the cumulative consolidated quarterly Net Income of the
Borrower from October 1, 2001, through the end of the Borrower's most recently
ended fiscal quarter, but excluding consolidated Net Income for any fiscal
quarter in which consolidated Net Income is not positive, plus (c) an amount
equal to 100% of the net cash proceeds from any sale of stock or other equity
interests in the Borrower since October 1, 2001.

         Section 6.15. Subordinated Debt. The Borrower (a) shall not violate the
subordination terms governing any Debt which is by its terms subordinated to the
Obligations and (b) shall not amend the subordination terms governing any such
Debt without prior written consent of the Majority Banks.

                                  ARTICLE VII

                                    REMEDIES

         Section 7.1. Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" under any Credit Document:

         (a) Payment. The Borrower shall fail to pay when due (i) any interest
or fees payable hereunder or under the Notes within five days after the same
becomes due and payable or (ii) any principal, reimbursements, indemnifications,
or other amounts (other than interest and fees described in clause (i)) payable
hereunder or under any other Credit Document;

         (b) Representation and Warranties. Any representation or warranty made
or deemed to be made (i) by the Borrower in this Agreement or in any other
Credit Document, (ii) by the Borrower (or any of its officers) in connection
with this Agreement or any other Credit Document, or (iii) by any Subsidiary of
the Borrower in any Credit Document shall prove to have been incorrect in any
material respect when made or deemed to be made;

         (c) Covenant Breaches. (i)The Borrower shall (A) fail to perform or
observe any covenant contained in Section 5.1, 5.2, 5.5, 5.6, 5.7, or 5.8 or
Article VI of this Agreement or (B) fail to perform or observe any other term or
covenant set forth in this Agreement or in any other Credit Document which is
not covered by clause (i)(A) above or any other provision of this Section 7.1 if
such failure shall remain unremedied for 30 days after the earlier of written
notice of such default shall have been given to such Person by the Agent or any
Bank or such Person's actual knowledge of such default or (ii) any Guarantor
shall fail to perform or observe any covenant contained in its Guaranty;

         (d) Cross-Defaults. (i) The Borrower or any its Subsidiaries shall fail
to pay any principal of or premium or interest on its Debt which is outstanding
in a principal amount of at least $2,500,000.00 individually or when aggregated
with all such Debt of the Borrower or its Subsidiaries so in default (but
excluding Debt evidenced by the Notes) when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; (ii) any
other event shall occur or condition shall exist under any agreement or
instrument relating to Debt which is outstanding in a principal amount of at
least $2,500,000.00 individually or when aggregated with all such Debt of the

                                       -45-
<PAGE>

Borrower and its Subsidiaries so in default, 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 to permit the
acceleration of, the maturity of such Debt; or (iii) any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;

         (e) Insolvency. The Borrower or any of its Subsidiaries shall generally
not pay its 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 any of 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 or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against the Borrower
or any such Subsidiary, either such proceeding shall remain undismissed for a
period of 30 days or any of the actions sought in such proceeding shall occur;
or the Borrower or any of its Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this paragraph (e);

         (f) Judgments. Any judgment or order for the payment of money in excess
of $2,500,000.00 shall be rendered against the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;

         (g) Termination Events. Any Termination Event with respect to a Plan
shall have occurred, and, 30 days after notice thereof shall have been given to
the Borrower by the Agent, (i) such Termination Event shall not have been
corrected and (ii) the then present value of such Plan's vested benefits exceeds
the then current value of assets accumulated in such Plan by more than the
amount of $2,500,000.00 (or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount);

         (h) Plan Withdrawals. The Borrower or any member of the Controlled
Group as employer under a Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$2,500,000.00;

         (i) Borrowing Base. Any failure to cure any Borrowing Base deficiency
in accordance with Section 2.4, including any failure of the dedicated cash flow
from the production of the Borrower's and its Subsidiaries' Oil and Gas
Properties to cure the Borrowing Base deficiency within the time period
specified by and in accordance with Section 2.4(b);

         (j) Guaranties. Any provision of any Guaranty shall for any reason
cease to be valid and binding on the applicable Guarantor or the applicable
Guarantor shall so state in writing; or

                                       -46-
<PAGE>

         (k) Change of Control. (i) As a result of one or more transactions
after the date of this Agreement, any "person" or "group" of persons shall have
"beneficial ownership" of more than 20% of the outstanding common stock of the
Borrower (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended, and the applicable rules and regulations
thereunder), provided that the relationships among the officers and directors of
the Borrower and among the respective shareholders of the Borrower on the date
of this Agreement shall not be deemed to constitute all or any combination of
them as a "group" or (ii) during any period of 12 consecutive months, beginning
with and after the date of this Agreement, individuals who at the beginning of
such 12-month period were directors of the Borrower shall cease for any reason
to constitute a majority of the board of directors of the Borrower at any time
during such period.

         Section 7.2. Optional Acceleration of Maturity. If any Event of Default
(other than an Event of Default pursuant to paragraph (e) of Section 7.1) shall
have occurred and be continuing, then, and in any such event,

         (a) the Agent (i) shall at the request, or may with the consent, of the
Majority Banks, by notice to the Borrower, declare the obligation of each Bank
and the Issuing Bank to make extensions of credit hereunder, including making
Advances and issuing Letters of Credit, to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Majority Banks, by notice to the Borrower, declare all
principal, interest, fees, reimbursements, indemnifications, and all other
amounts payable under this Agreement, the Notes, and the other Credit Documents
to be forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable in full, without notice of intent to demand, demand,
presentment for payment, notice of nonpayment, protest, notice of protest,
grace, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and all other notices, all of which are hereby expressly waived by
the Borrower;

         (b) the Borrower shall, on demand of the Agent at the request or with
the consent of the Majority Banks, deposit with the Agent into the Cash
Collateral Account an amount of cash equal to the Letter of Credit Exposure as
security for the Obligations; and

         (c) the Agent shall at the request of, or may with the consent of, the
Majority Banks proceed to enforce its rights and remedies under the Guaranties
and any other Credit Document for the ratable benefit of the Banks by
appropriate proceedings.

         Section 7.3. Automatic Acceleration of Maturity. If any Event of
Default pursuant to paragraph (e) of Section 7.1 shall occur,

         (a) (i) the obligation of each Bank and the Issuing Bank to make
extensions of credit hereunder, including making Advances and issuing Letters of
Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements,
indemnifications, and all other amounts payable under this Agreement, the Notes,
and the other Credit Documents shall become and be forthwith due and payable in
full, without notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices,
all of which are hereby expressly waived by the Borrower;

                                       -47-
<PAGE>

         (b) the Borrower shall deposit with the Agent into the Cash Collateral
Account an amount of cash equal to the outstanding Letter of Credit Exposure as
security for the Obligations; and

         (c) the Agent shall at the request of, or may with the consent of, the
Majority Banks proceed to enforce its rights and remedies under the Guaranties
and any other Credit Document for the ratable benefit of the Banks by
appropriate proceedings.

         Section 7.4. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Agent and each Bank 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 the Agent or such Bank to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or hereafter
existing under this Agreement, the Notes held by the Agent or such Bank, and the
other Credit Documents, irrespective of whether or not the Agent or such Bank
shall have made any demand under this Agreement, such Notes, or such other
Credit Documents, and although such obligations may be unmatured. The Agent and
each Bank agrees to promptly notify the Borrower after any such set-off and
application made by the Agent or such Bank, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of the Agent and each Bank under this Section 7.4 are in addition to any
other rights and remedies (including, without limitation, other rights of
set-off) which the Agent or such Bank may have. Notwithstanding the foregoing,
Bank One, NA may not set off and apply any accounts held by the Affiliate of
Bank One, NA in Lafayette so long as the funds in such accounts represent unpaid
amounts due to royalty and working interest holders (including limited
partnerships sponsored by the Borrower and its Subsidiaries) and other
segregated funds of the Borrower and its Subsidiaries (but not any general
corporate funds of the Borrower or its Subsidiaries).

         Section 7.5. Actions Under Credit Documents. Following an Event of
Default, the Agent shall at the request, or may with the consent, of the
Majority Banks, take any and all actions permitted under the other Credit
Documents, including enforcing it rights under the Guaranties for the ratable
benefit of the Banks.

         Section 7.6. Non-exclusivity of Remedies. No remedy conferred upon the
Agent is intended to be exclusive of any other remedy, and each remedy shall be
cumulative of all other remedies existing by contract, at law, in equity, by
statute or otherwise.

                                  ARTICLE VIII

                         THE AGENT AND THE ISSUING BANK

         Section 8.1. Authorization and Action. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof and of the other Credit Documents, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Credit Document (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any

                                       -48-
<PAGE>
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks and all holders of Notes; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement, any other Credit
Document, or applicable law.

         Section 8.2. Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents, or employees shall be liable for any action taken
or omitted to be taken (INCLUDING THE AGENT'S OWN NEGLIGENCE) by it or them
under or in connection with this Agreement or the other Credit Documents, except
for its or their own gross negligence or willful misconduct. Without limitation
of the generality of the foregoing, the Agent: (a) may treat the payee of any
Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (b) may consult with legal counsel (including counsel for the
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 Bank and shall not be responsible to
any Bank for any statements, warranties, or representations made in or in
connection with this Agreement or the other Credit 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 this Agreement or any other Credit
Document on the part of the Borrower or its Subsidiaries or to inspect the
property (including the books and records) of the Borrower or its Subsidiaries;
(e) shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency, or value of this Agreement
or any other Credit Document; and (f) shall incur no liability under or in
respect of this Agreement or any other Credit Document by acting upon any
notice, consent, certificate, or other instrument or writing (which may be by
telecopier or telex) believed by it to be genuine and signed or sent by the
proper party or parties.

         Section 8.3. The Agent and Its Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, the Agent shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Agent. The term "Bank" or "Banks"
shall, unless otherwise expressly indicated, include the Agent in its individual
capacity. The Agent and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, and generally engage in any kind of business
with, the Borrower or any of its Subsidiaries, and any Person who may do
business with or own securities of the Borrower or any such Subsidiary, all as
if the Agent were not an agent hereunder and without any duty to account
therefor to the Banks.

         Section 8.4. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the Financial Statements and the Interim Financial Statements and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it shall, independently and without reliance upon the Agent or any other
Bank 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.

                                       -49-
<PAGE>

         Section 8.5. Indemnification. THE BANKS SEVERALLY AGREE TO INDEMNIFY
THE AGENT AND THE ISSUING BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (TO THE EXTENT NOT REIMBURSED BY THE
BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT
AND THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY ACTION TAKEN OR OMITTED BY THE AGENT OR THE ISSUING BANK UNDER THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT (INCLUDING THE AGENT'S AND THE ISSUING
BANK'S OWN NEGLIGENCE), PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF
SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE AGENT'S AND THE
ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE
FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS
RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY
THE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT,
TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH BY THE BORROWER.

         Section 8.6. Successor Agent and Issuing Bank. The Agent or the Issuing
Bank may resign at any time by giving written notice thereof to the Banks and
the Borrower and may be removed at any time with or without cause by the
Majority Banks upon receipt of written notice from the Majority Banks to such
effect. Upon receipt of notice of any such resignation or removal, the Majority
Banks shall have the right to appoint a successor Agent or Issuing Bank only
with the consent of the Borrower, which consent shall not be unreasonably
withheld. If no successor Agent or Issuing Bank shall have been so appointed by
the Majority Banks with the consent of the Borrower, and shall have accepted
such appointment, within 30 days after the retiring Agent's or Issuing Bank's
giving of notice of resignation or the Majority Banks' removal of the retiring
Agent or Issuing Bank, then the retiring Agent or Issuing Bank may, on behalf of
the Banks and the Borrower, appoint a successor Agent or Issuing Bank, which
shall be, in the case of a successor agent, a commercial bank organized under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $500,000,000.00 and, in the case of the
Issuing Bank, a Bank. Upon the acceptance of any appointment as Agent or Issuing
Bank by a successor Agent or Issuing Bank, such successor Agent or Issuing Bank
shall thereupon succeed to and become vested with all the rights, powers,
privileges, and duties of the retiring Agent or Issuing Bank, and the retiring
Agent or Issuing Bank shall be discharged from its duties and obligations under
this Agreement and the other Credit Documents, except that the retiring Issuing
Bank shall remain the Issuing Bank with respect to any Letters of Credit
outstanding on the effective date of its resignation or removal and the
provisions affecting the Issuing Bank with respect to such Letters of Credit
shall inure to the

                                       -50-
<PAGE>

benefit of the retiring Issuing Bank until the termination of all such Letters
of Credit. After any retiring Agent's or Issuing Bank's resignation or removal
hereunder as Agent or Issuing Bank, the provisions of this Article VIII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent or Issuing Bank under this Agreement and the other Credit
Documents.

                                   ARTICLE IX

                                  MISCELLANEOUS

         Section 9.1. Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Majority Banks
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver, or consent shall, unless in writing and
signed by all the Banks, do any of the following: (a) waive any of the
conditions specified in Section 3.1 or 3.2, (b) increase the Commitment of the
Banks, (c) reduce the principal of, or interest on, the Notes or any fees or
other amounts payable hereunder or under any other Credit Document, (d) postpone
any date fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder or extend the Maturity Date, (e) change
the percentage of Banks which shall be required for the Banks or any of them to
take any action hereunder or under any other Credit Document, (f) amend Section
2.10 or this Section 9.1, (g) amend the definition of "Majority Banks," (h)
release any Guarantor from its obligations under any Guaranty, or (i) release
any collateral securing the Obligations; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the Agent or
the Issuing Bank in addition to the Banks required above to take such action,
affect the rights or duties of the Agent or the Issuing Bank, as the case may
be, under this Agreement or any other Credit Document.

         Section 9.2. Notices, Etc. All notices and other communications shall
be in writing (including, without limitation, telecopy or telex) and mailed by
certified mail, return receipt requested, telecopied, telexed, hand delivered,
or delivered by a nationally recognized overnight courier, at the address for
the appropriate party specified in Schedule 1 or at such other address as shall
be designated by such party in a written notice to the other parties. All such
notices and communications shall, when so mailed, telecopied, telexed, or hand
delivered or delivered by a nationally recognized overnight courier, be
effective when received if mailed, when telecopy transmission is completed, when
confirmed by telex answer-back, or when delivered by such messenger or courier,
respectively, except that notices and communications to the Agent pursuant to
Article II or VIII shall not be effective until received by the Agent.

         Section 9.3. No Waiver; Remedies. No failure on the part of any Bank,
the Agent, or the Issuing Bank 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.

                                       -51-
<PAGE>

         Section 9.4. Costs and Expenses. The Borrower agrees to pay on demand
(a) all reasonable out-of-pocket costs and expenses of the Agent in connection
with the preparation, execution, delivery, administration, modification, and
amendment of this Agreement, the Notes, the Guaranties, and the other Credit
Documents including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect to advising the Agent as to its
rights and responsibilities under this Agreement, and (b) all out-of-pocket
costs and expenses, if any, of the Agent, the Issuing Bank, and each Bank
(including, without limitation, reasonable counsel fees and expenses of the
Agent, the Issuing Bank, and each Bank) in connection with the enforcement
(whether through negotiations, legal proceedings, or otherwise) of this
Agreement, the Notes, the Guaranties, and the other Credit Documents.

         Section 9.5. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Borrower and the Agent, and when the Agent
shall have, as to each Bank, either received a counterpart hereof executed by
such Bank or been notified by such Bank that such Bank has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent, the Issuing Bank, and each Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
or delegate its duties under this Agreement or any interest in this Agreement
without the prior written consent of each Bank.

         Section 9.6. Bank Assignments and Participations.

         (a) Assignments. Any Bank may assign to one or more banks or other
entities all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Advances owing to it, the Notes held by it, and the participation interest in
the Letter of Credit Obligations held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of all of
such Bank's rights and obligations under this Agreement, (ii) the amount of the
Commitments and Advances of such Bank being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall be, if to an entity other than a Bank, not
less than $5,000,000.00 and shall be an integral multiple of $1,000,000.00,
(iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to
each such assignment shall execute and deliver to the Agent, for its acceptance
and recording in the Register, an Assignment and Acceptance, together with the
Notes subject to such assignment, and (v) each Eligible Assignee (other than the
Eligible Assignee of the Agent) shall pay to the Agent a $3,500.00
administrative fee. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least three Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto for all purposes
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 Bank hereunder and (B) such Bank thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights 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 such Bank's rights and
obligations under this Agreement, such Bank shall cease to be a party hereto).

                                       -52-
<PAGE>

         (b) Term of Assignments. By executing and delivering an Assignment and
Acceptance, the Bank 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 Bank 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 of
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
Guarantors or the performance or observance by the Borrower or the Guarantors of
any of their 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 4.5 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 Agent, such Bank or any other Bank
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 appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Bank.

         (c) The Register. The Agent shall maintain at its address referred to
in Section 9.2 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 Banks and the Commitments of, and principal amount of the Advances owing to,
each Bank 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 Agent, the Issuing Bank, and the Banks may treat each Person whose
name is recorded in the Register as a Bank hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Bank at any reasonable time and from time to time upon reasonable prior notice.

         (d) Procedures. Upon its receipt of an Assignment and Acceptance
executed by a Bank and an Eligible Assignee, together with the Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of the attached Exhibit A, (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 shall execute and
deliver to the Agent in exchange for the surrendered Notes (A) 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 (B) if such Bank has retained
any Commitment hereunder, a new Note to the order of such Bank in an amount
equal to the Commitment retained by it hereunder. Such new Notes shall be dated
the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the attached Exhibit D.

                                       -53-
<PAGE>

         (e) Participations. Each Bank may sell participations to one or more
banks or other entities in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitments, the Advances owing to it, its participation interest in the Letter
of Credit Obligations, and the Notes held by it); provided, however, that (i)
such Bank's obligations under this Agreement (including, without limitation, its
Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Bank shall remain the holder of any such Notes
for all purposes of this Agreement, (iv) the Borrower, the Agent, and the
Issuing Bank and the other Banks shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement, and (v) such Bank shall not require the participant's consent to any
matter under this Agreement, except for change in the principal amount of the
Notes, reductions in fees or interest, releasing any collateral, or extending
the Maturity Date. The Borrower hereby agrees that participants shall have the
same rights under Sections 2.11, 2.12, 2.13(c), and 9.7 as a Bank to the extent
of their respective participations.

         Section 9.7. Indemnification. THE BORROWER SHALL INDEMNIFY THE AGENT,
THE BANKS, THE ISSUING BANK, AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM, AND DISCHARGE, RELEASE, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, OR
DAMAGES WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THEM IN ANY
WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED
BY THEM UNDER THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT (INCLUDING ANY SUCH
LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF THE
PERSON BEING INDEMNIFIED'S OWN NEGLIGENCE), BUT EXCLUDING ANY SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES INCURRED BY REASON OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED.

         Section 9.8. 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.

         Section 9.9. Survival of Representations, Etc. All representations and
warranties contained in this Agreement or made in writing by or on behalf of the
Borrower in connection herewith shall survive the execution and delivery of this
Agreement and the Credit Documents, the making of the Advances and any
investigation made by or on behalf of the Banks, none of which investigations
shall diminish any Bank's right to rely on such representations and warranties.
All obligations of the Borrower provided for in Sections 2.11, 2.12, 2.13(c),
9.4, and 9.7 and all of the obligations of the Banks in Section 8.5 shall
survive any termination of this Agreement and repayment in full of the
Obligations.

         Section 9.10. Severability. In case one or more provisions of this
Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable in any respect under any

                                       -54-
<PAGE>
applicable law, the validity, legality, and enforceability of the remaining
provisions contained herein or therein shall not be affected or impaired
thereby.

         Section 9.11. Business Loans. The Borrower warrants and represents that
the Loans evidenced by the Notes are and shall be for business, commercial,
investment, or other similar purposes and not primarily for personal, family,
household, or agricultural use, as such terms are used in Chapter One ("Chapter
One") of the Texas Credit Code. At all such times, if any, as Chapter One shall
establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling"
(as such term is defined in Chapter One) from time to time in effect.

         Section 9.12. Governing Law. This Agreement, the Notes and the other
Credit Documents shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas. Without limiting the intent of the parties
set forth above, Chapter 346 the Texas Finance Code, as amended, shall not apply
to this Agreement, the Notes, or the transactions contemplated hereby. Each
Letter of Credit shall be governed by the Uniform Customs and Practice for
Documentary Credits, International Chamber of Commerce Publication No. 500 (1993
version).

         THE BORROWER, THE BANKS, THE ISSUING BANK AND THE AGENT HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER CREDIT
DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND IRREVOCABLY SUBMIT
TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF HARRIS COUNTY, TEXAS, AND THE
SOUTHERN DISTRICT OF TEXAS FOR THE RESOLUTION OF ANY DISPUTES UNDER THIS
AGREEMENT AND THE CREDIT DOCUMENTS, AND HEREBY IRREVOCABLY WAIVE ANY CLAIM THAT
SUCH JURISDICTION IS IMPRACTICAL OR INCONVENIENT.

         THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG 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 AMONG THE PARTIES.

                                       -55-
<PAGE>

         EXECUTED as of the date first above written.

                                    BORROWER:

                                    STONE ENERGY CORPORATION

                                    By: /s/ D. PETER CANTY
                                        ----------------------------------------
                                    Name:   D. Peter Canty
                                         ---------------------------------------
                                    Title:  President and
                                            Chief Executive Officer
                                          --------------------------------------

                                    By: /s/ JAMES H. PRINCE
                                        ----------------------------------------
                                    Name:   James H. Prince
                                         ---------------------------------------
                                    Title:  Vice President and
                                            Chief Financial Officer
                                          --------------------------------------

<PAGE>

                                    AGENT:

                                    BANK OF AMERICA, N.A.

                                    By:  /s/ RICHARD L. STEIN
                                       ----------------------------------------
                                    Name:    Richard L. Stein
                                         --------------------------------------
                                    Title:   Vice President
                                          -------------------------------------

                                    BANKS:

                                    BANK OF AMERICA, N.A.

                                    By:  /s/ RICHARD L. STEIN
                                       ----------------------------------------
                                    Name:    Richard L. Stein
                                         --------------------------------------
                                    Title:   Vice President
                                          -------------------------------------

<PAGE>

                                    BANK ONE, NA

                                    By:  /s/ CHUCK KINGSWELL-SMITH
                                       ----------------------------------------
                                    Name:    Chuck Kingswell-Smith
                                         --------------------------------------
                                    Title:   First Vice President
                                          -------------------------------------

<PAGE>

                                    FLEET NATIONAL BANK

                                    By:  /s/ TERRANCE RONAN
                                       ----------------------------------------
                                    Name:    Terrance Ronan
                                         --------------------------------------
                                    Title:   Managing Director
                                          -------------------------------------

<PAGE>

                                    U.S. BANK NATIONAL ASSOCIATION

                                    By:  /s/ KATHRYN A. GAITER
                                       ----------------------------------------
                                    Name:    Kathryn A. Gaiter
                                         --------------------------------------
                                    Title:   Vice President
                                          -------------------------------------

<PAGE>

                                    FORTIS CAPITAL CORP.

                                    By: /s/ DAVID MONTGOMERY
                                       ----------------------------------------
                                    Name:   David Montgomery
                                         --------------------------------------
                                    Title:  Vice President
                                          -------------------------------------

                                    By: /s/ DARRELL HOLLEY
                                       ----------------------------------------
                                    Name:   Darrell Holley
                                         --------------------------------------
                                    Title:  Managing Director
                                          -------------------------------------

<PAGE>

                                    BANK OF MONTREAL

                                    By: /s/ JAMES V. DUCOTE
                                       ----------------------------------------
                                    Name:   James V. Ducote
                                         --------------------------------------
                                    Title:  Director
                                          -------------------------------------

<PAGE>

                                    WHITNEY NATIONAL BANK

                                    By: /s/ ROBERT C. STONE
                                       ----------------------------------------
                                    Name:   Robert C. Stone
                                         --------------------------------------
                                    Title:  Senior Vice President
                                          -------------------------------------

<PAGE>

                                    THE FUJI BANK, LIMITED

                                    By: /s/ MASATOSHI ABE
                                       ----------------------------------------
                                    Name:   Masatoshi Abe
                                         --------------------------------------
                                    Title:  Vice President and Manager
                                          -------------------------------------

<PAGE>

                                    HIBERNIA NATIONAL BANK

                                    By: /s/ DAVID R. REID
                                       ----------------------------------------
                                    Name:   David R. Reid
                                         --------------------------------------
                                    Title:  Senior Vice President
                                          -------------------------------------

<PAGE>

                                   SCHEDULE 1

                                  COMMITMENTS;
                  BORROWER, AGENT, AND BANK NOTICE INFORMATION;
                      LENDING OFFICES AND WIRE INSTRUCTIONS

I.       COMMITMENTS

Bank of America, N.A.               $70,000,000.00
Bank One, NA                        $52,500,000.00
Fleet National Bank                 $52,500,000.00
U.S. Bank National Association      $35,000,000.00
Bank of Montreal                    $35,000,000.00
Fortis Capital Corp.                $35,000,000.00
Whitney National Bank               $25,000,000.00
The Fuji Bank, Limited              $25,000,000.00
Hibernia National Bank              $20,000,000.00

Total Commitments                   $350,000,000.00

         [REMAINDER OF SCHEDULE 1 DELETED]<PAGE>

                                                                     Exhibit 4.1

                                  OPTIKA INC.

                                      and

                         EQUISERVE TRUST COMPANY, N.A.

                                as Rights Agent

                             AMENDED AND RESTATED
                               RIGHTS AGREEMENT

                         Dated as of January 23, 2002
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
SECTION                                                                                        PAGE
-------                                                                                        ----
<S>                                                                                            <C>
Section  1.   Certain Definitions......................................................         1
Section  2.   Appointment of Rights Agent..............................................         5
Section  3.   Issue of Rights Certificates.............................................         6
Section  4.   Form of Rights Certificates..............................................         7
Section  5.   Countersignature and Registration........................................         7
Section  6.   Transfer, Split Up, Combination and Exchange of Rights Certificates;
              Mutilated, Destroyed, Lost or Stolen Rights Certificates.................         8
Section  7.   Exercise of Rights; Purchase Price; Expiration Date of Rights............         9
Section  8.   Cancellation and Destruction of Rights Certificates......................        10
Section  9.   Reservation and Availability of Capital Stock............................        11
Section 10.   Preferred Stock Record Date..............................................        12
Section 11.   Adjustment of Purchase Price, Number and Kind of Shares or
              Number of Rights.........................................................        12
Section 12.   Certificate of Adjusted Purchase Price or Number of Shares...............        20
Section 13.   Consolidation, Merger or Sale or Transfer of Assets or Earning Power.....        20
Section 14.   Fractional Rights and Fractional Shares..................................        24
Section 15.   Rights of Action.........................................................        25
Section 16.   Agreement of Rights Holders..............................................        25
Section 17.   Rights Certificate Holder Not Deemed a Stockholder.......................        26
Section 18.   Concerning the Rights Agent..............................................        26
Section 19.   Merger or Consolidation or Change of Name of Rights Agent................        26
Section 20.   Duties of Rights Agent...................................................        27
Section 21.   Change of Rights Agent...................................................        29
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                            <C>
Section 22.   Issuance of New Rights Certificates......................................        30
Section 23.   Redemption and Termination...............................................        30
Section 24.   Notice of Certain Events.................................................        31
Section 25.   Notices..................................................................        32
Section 26.   Supplements and Amendments...............................................        32
Section 27.   Successors...............................................................        33
Section 28.   Determinations and Actions by the Board of Directors, etc................        33
Section 29.   Benefits of this Agreement...............................................        33
Section 30.   Severability.............................................................        34
Section 31.   Governing Law............................................................        34
Section 32.   Counterparts.............................................................        34
Section 33.   Descriptive Headings.....................................................        34
Section 34.   Exchange.................................................................        34

Exhibit A     Form of Rights Certificate...............................................        A-1
Exhibit B     Form of Summary of Rights................................................        B-1
Exhibit C     Certificate of Designation...............................................        C-1
</TABLE>

                                      ii
<PAGE>

                     AMENDED AND RESTATED RIGHTS AGREEMENT

     AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of January 23, 2002 (the
"Agreement"), between Optika Inc., a Delaware corporation (the "Company"), and
 ---------                                                      -------
EquiServe Trust Company, N.A. (the "Rights Agent").
                                    ------------

     WHEREAS, the Company and Fleet National Bank, as predecessor to the Rights
Agent, entered into a Rights Agreement dated as of July 18, 2001; and

     WHEREAS, effective July 18, 2001 (the "Rights Dividend Declaration Date"),
                                            --------------------------------
the Board of Directors of the Company (i) authorized and declared a dividend
distribution of one Right for each share of the Company's common stock, par
value $.001 per share (the "Company Common Stock") outstanding at the Close of
                            --------------------
Business on July 18, 2001 (the "Record Date"), and (ii) authorized the issuance
                                -----------
of one Right (as such number may hereinafter be adjusted pursuant hereto) for
each share of Company Common Stock issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and, except as
otherwise provided in Section 22, the Distribution Date, each Right initially
representing the right to purchase upon the terms and subject to the conditions
hereinafter set forth one Unit of Series B Preferred Stock (the "Rights"); and
                                                                 ------

     WHEREAS, Section 26 of the Rights Agreement provides that prior to the
Distribution Date (as defined in the Rights Agreement), the Company may
supplement or amend the Rights Agreement in any respect without the approval of
holders of Rights; and

     WHEREAS, the Board of Directors of the Company has determined that it is in
the best interest of the Company and the holders of the Company Common Stock to
amend and restate the Rights Agreement as set forth herein, and in connection
therewith the Company is entering into this Amended and Restated Rights
Agreement and directing the Rights Agent to enter into this Amended and Restated
Rights Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

     Section 1.  Certain Definitions. For purposes of this Agreement, the
                 -------------------
following terms have the meanings indicated:

          (a)  "Acquiring Person" shall mean any Person who or which, together
                ----------------
     with all Affiliates or Associates of such Person, shall be the Beneficial
     Owner of 15% or more of the shares of Company Common Stock then
     outstanding.  Notwithstanding the foregoing:  (i) an "Acquiring Person"
     shall not include: (A) the Company; (B) any Subsidiary of the Company; (C)
     any employee benefit plan maintained by the Company or any of its
     Subsidiaries; (D) any trustee or fiduciary with respect to such employee
     benefit plan acting in such capacity or a trustee or fiduciary holding
     shares of Company Common Stock for the purpose of funding any such plan or
     employee benefits; (E) any Person if the Board of Directors of the Company
     determines in good faith that such Person who would otherwise be an
     "Acquiring Person" became such inadvertently (including, without
     limitation, because (x) such Person was unaware that it beneficially owned
     a percentage

                                       1
<PAGE>

     of Company Common Stock that would otherwise cause such Person to be an
     "Acquiring Person" or (y) such Person was aware of the extent of its
     Beneficial Ownership of Company Common Stock but had no actual knowledge of
     the consequences of such Beneficial Ownership under this Agreement) and
     without any intention of changing or influencing control of the Company,
     and if such Person does not acquire any additional shares of Company Common
     Stock and as promptly as practicable divested or divests itself of
     Beneficial Ownership of a sufficient number of shares of Company Common
     Stock so that such Person would no longer be an "Acquiring Person;" or (F)
     any Person who is or becomes the Beneficial Owner of 15% or more of the
     then outstanding shares of Company Common Stock as a result of the
     acquisition of shares of Company Common Stock in one or more transactions
     approved by a majority of the Board of Directors, and (ii) no Person shall
     be deemed an "Acquiring Person" as a result of the acquisition of shares of
     Company Common Stock by the Company which, by reducing the number of shares
     of Company Common Stock outstanding, increases the proportional number of
     shares beneficially owned by such Person; provided, however, that if (x) a
                                               --------  -------
     Person would become an Acquiring Person (but for the operation of this
     subclause (ii)) as a result of the acquisition of shares of Company Common
     Stock by the Company and (y) after such share acquisition by the Company,
     such Person becomes the Beneficial Owner of any additional shares of
     Company Common Stock, then such Person shall be deemed an Acquiring Person
     unless upon becoming the Beneficial Owner of such additional shares such
     Person is the Beneficial Owner of less than 15% of the then outstanding
     shares of Company Common Stock.  Each Person identified in subclauses (A),
     (B), (C) and (D) of this Section (1)(a) is individually an "Exempt Person"
     and collectively "Exempt Persons."

          (b)  "Affiliate" and "Associate" shall have the respective meanings
                ---------       ---------
     ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
     under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
                                                                 ------------
     as in effect on the date hereof.

          (c)  A Person shall be deemed the "Beneficial Owner" of, and shall be
                                             ----------------
     deemed to have "Beneficial Ownership" of and to "beneficially own", any
     securities:

               (i)   of which such Person or any of such Person's Affiliates or
          Associates is considered to be a "beneficial owner" under Rule 13d-3
          of the General Rules and Regulations under the Exchange Act (the
          "Exchange Act Regulations") as in effect on the date hereof; provided,
           ------------------------                                    --------
          however, that a Person shall not be deemed the "Beneficial Owner" of,
          -------
          or to "beneficially own", any securities under this subparagraph (i)
          as a result of an agreement, arrangement or understanding to vote such
          securities if such agreement, arrangement or understanding (A) arises
          solely from a revocable proxy or consent given in response to a public
          proxy or consent solicitation made pursuant to, and in accordance
          with, the applicable provisions of the Exchange Act and the Exchange
          Act Regulations, and (B) is not reportable by such Person on Schedule
          13D under the Exchange Act (or any comparable or successor report);

               (ii)  which are beneficially owned, directly or indirectly, by
          any other Person (or any Affiliate or Associate of such other Person)
          with which such Person (or any of such Person's Affiliates or
          Associates) has any agreement,

                                       2
<PAGE>

          arrangement or understanding (whether or not in writing), for the
          purpose of acquiring, holding, voting (except pursuant to a revocable
          proxy or consent as described in the proviso to subparagraph (i) of
          this paragraph (c)) or disposing of such securities; or

               (iii)  which such Person or any of such Person's Affiliates or
          Associates, directly or indirectly, has the right to acquire (whether
          such right is exercisable immediately or only after the passage of
          time or upon the satisfaction of conditions) pursuant to any
          agreement, arrangement or understanding (whether or not in writing) or
          upon the exercise of conversion rights, exchange rights, rights,
          warrants or options, or otherwise;

     provided, however, that under this paragraph (c) a Person shall not be
     --------  -------
     deemed the "Beneficial Owner" of, to have "Beneficial Ownership" of, or to
     "beneficially own", (A) securities tendered pursuant to a tender or
     exchange offer made in accordance with Exchange Act Regulations by such
     Person or any of such Person's Affiliates or Associates until such tendered
     securities are accepted for purchase or exchange, (B) securities that may
     be issued upon exercise of Rights at any time prior to the occurrence of a
     Triggering Event, or (C) securities that may be issued upon exercise of
     Rights from and after the occurrence of a Triggering Event, which Rights
     were acquired by such Person or any of such Person's Affiliates or
     Associates prior to the Distribution Date or pursuant to Section 3(c) or
     Section 22 hereof (the "Original Rights") or pursuant to Section  11(i)
                             ---------------
     hereof in connection with an adjustment made with respect to any Original
     Rights; and further provided, however, that (x) nothing in this paragraph
                 ------- --------  -------
     (c) shall cause a Person engaged in business as an underwriter of
     securities to be the "Beneficial Owner" of, or to "beneficially own," any
     securities acquired through such Person's participation in good faith in a
     firm commitment underwriting until the expiration of forty days after the
     date of such acquisition, (y) no decision reached, or action taken, by the
     Board of Directors of the Company or any committee thereof shall cause any
     Person (or any Affiliate or Associate of such Person) who is a member of
     the Board of Directors of the Company or such committee to be deemed, for
     the purposes of this Agreement, to be a Beneficial Owner of any securities
     beneficially owned by any other Person (or any Affiliate or Associate of
     such Person) who is a member of the Board of Directors of the Company or
     any committee thereof solely by reason of such membership of the Board of
     Directors or any committee thereof or participation in the decisions or
     actions thereof on the part of either or both of such Persons and (z) no
     Person who is an officer, director or employee of an Exempt Person shall be
     deemed, solely by reason of such Person's status or authority as such, to
     be the "Beneficial Owner" of, to have "Beneficial Ownership" of or to
     "beneficially own" any securities that are "beneficially owned" (as defined
     in this paragraph (c)), including, without limitation, in a fiduciary
     capacity, by an Exempt Person or by any other such officer, director or
     employee of an Exempt Person.

          (d)  "Business Day" shall mean any day other than a Saturday, Sunday
                ------------
     or a day on which banking institutions in the Commonwealth of Massachusetts
     are authorized or obligated by law or executive order to close.

                                       3
<PAGE>

          (e)  "Close of Business" on any given date shall mean 5:00 P.M.,
                -----------------
     Massachusetts time, on such date; provided, however, that if such date is
                                       --------  -------
     not a Business Day it shall mean 5:00 P.M., Massachusetts time, on the next
     succeeding Business Day.

          (f)  "Common Stock" of any Person other than the Company shall mean
                ------------
     the capital stock of such Person with the greatest voting power, or, if
     such Person shall have no capital stock, the equity securities or other
     equity interest having power to control or direct the management of such
     Person.

          (g)  "Company" means Optika Inc., a Delaware corporation, and also
                -------
     means a Principal Party to the extent provided in Section 13(a).

          (h)  "Company Common Stock" has the meaning set forth in the Whereas
                --------------------
     Clause.

          (i)  "Distribution Date" has the meaning set forth in Section 3(a).
                -----------------

          (j)  "Expiration Date" has the meaning set forth in Section 7(a).
                ---------------

          (k)  "Person" shall mean any individual, partnership, firm,
                ------
     corporation, association, trust, unincorporated organization or other
     entity, as well as any syndicate or group deemed to be a person under
     Section 14(d)(2) of the Exchange Act as in effect on the date hereof.

          (l)  "Preferred Stock" shall mean the Series B Preferred Stock, par
                ---------------
     value $.001 per share, of the Company having the voting powers,
     designation, preferences and relative, participating, optional or other
     special rights and qualifications, limitations and restrictions described
     in the Certificate of Designation set forth as Exhibit C hereto and as
     amended from time to time.

          (m)  "Purchase Price" has the meaning set forth in Section 7(b).
                --------------

          (n)  "Record Date" has the meaning set forth in the Whereas Clause.
                -----------

          (o)  "Right" has the meaning set forth in the Whereas Clause.
                -----

          (p)  "Rights Certificate" has the meaning set forth in Section 3(a).
                ------------------

          (q)  "Rights Dividend Declaration Date" has the meaning set forth in
                --------------------------------
     the Whereas Clause.

          (r)  "Section 11(a)(ii) Event" shall mean the event described in
                -----------------------
     Section 11(a)(ii) hereof.

          (s)  "Section 13 Event" shall mean any event described in clause (x),
                ----------------
     (y) or (z) of Section 13(a) hereof.

          (t)  "Stock Acquisition Date" shall mean the first date of public
                ----------------------
     announcement (including, without limitation, the filing of any report
     pursuant to Section 13(d) of the

                                       4
<PAGE>

     Exchange Act (or any comparable or successor report)) by the Company or an
     Acquiring Person that an Acquiring Person has become such.

          (u)  "Subsidiary" shall mean, with reference to any Person, any other
                ----------
     Person of which an amount of voting securities or equity interests
     sufficient to elect at least a majority of the directors or equivalent
     governing body of such other Person is beneficially owned, directly or
     indirectly, by such Person, or otherwise controlled by such first-mentioned
     Person.

          (v)  "Summary of Rights" has the meaning set forth in Section 3(b).
                -----------------

          (w)  "Triggering Event" shall mean any Section 11(a)(ii) Event or any
                ----------------
     Section 13 Event.

          (x)  "Unit" has the meaning set forth in Section 7(b).
                ----

          In addition, the following terms are defined in the Sections indicated
     below:

                 Defined Term                     Section Number
                 ------------                     --------------

                 Adjustment Shares                     11(a)(ii)
                 common stock equivalents             11(a)(iii)
                 Current Value                        11(a)(iii)
                 Depositary Agent                           7(c)
                 Equivalent Preferred Stock                11(b)
                 Exchange Act                               1(b)
                 Exchange Act Regulations                   1(c)
                 Exchange Ratio                            34(a)
                 Exempt Person                              1(a)
                 Expiration Date                            7(a)
                 Final Expiration Date                      7(a)
                 Nasdaq                                 11(d)(i)
                 Original Rights                            1(c)
                 Purchase Price                             7(b)
                 Redemption Price                          23(a)
                 Registered Common Stock               13(b)(ii)
                 Registration Date                          9(c)
                 Registration Statement                     9(c)
                 Rights Certificates                        3(a)
                 Section 11(a)(iii) Trigger Date      11(a)(iii)
                 Securities Act                             9(c)
                 Spread                               11(a)(iii)
                 Trading Day                            11(d)(i)

     Section 2.  Appointment of Rights Agent.  The Company hereby appoints the
                 ---------------------------
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. With
the consent of the Rights Agent, the Company may from time to time appoint such
co-rights agents as it may deem necessary or desirable, upon ten (10) days'
prior written notice to the Rights Agent.  The Rights Agent shall

                                       5
<PAGE>

have no duty to supervise, and in no event be liable for, the acts or omissions
of any such co-Rights Agent.

     Section 3.  Issue of Rights Certificates.  (a) Until the earlier of (i) the
                 ----------------------------
Close of Business on the tenth Business Day after the Stock Acquisition Date,
and (ii) the Close of Business on the tenth Business Day (or such later date as
may be determined by action of a majority of the Board of Directors of the
Company prior to the occurrence of a Section 11(a)(ii) Event) after the date
that a tender or exchange offer by any Person (other than an Exempt Person) is
first published or sent or given within the meaning of Rule 14d-4(a) of the
Exchange Act Regulations or any successor rule, if upon consummation thereof
such Person would be an Acquiring Person (including, in the case of both clause
(i) and (ii), any such date which is after the date of this Agreement and prior
to the issuance of the Rights)(the earlier of (i) and (ii) above being the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
 -----------------
provisions of paragraph (b) of this Section 3) by the certificates for shares of
Company Common Stock registered in the names of the holders of shares of Company
Common Stock as of and subsequent to the Record Date (which certificates for
shares of Company Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Company Common Stock including a transfer to the Company; provided, however,
                                                          --------  -------
that if a tender or exchange offer is terminated prior to the occurrence of a
Distribution Date, then no Distribution Date shall occur as a result of such
tender or exchange offer.  As soon as practicable after the Distribution Date,
the Rights Agent will send by first-class, insured, postage prepaid mail, to
each record holder of shares of Company Common Stock as of the Close of Business
on the Distribution Date, at the address of such holder shown on the records of
the Company, one or more rights certificates, in substantially the form of
Exhibit A hereto (the "Rights Certificates"), evidencing one Right for each
                       -------------------
share of Company Common Stock so held, subject to adjustment as provided herein.

     In the event that an adjustment in the number of Rights per share of
Company Common Stock has been made pursuant to Section 11(p) hereof, at the time
of distribution of the Rights Certificates, the Company may make the necessary
and appropriate rounding adjustments (in accordance with Section 14(a) hereof)
so that Rights Certificates representing only whole numbers of Rights are
distributed and cash is paid in lieu of any fractional Rights. As of and after
the Distribution Date, the Rights will be evidenced solely by such Rights
Certificates.

          (b)  As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit B (the "Summary of Rights"),
                                                          -----------------
by first-class, postage prepaid mail, to each record holder of shares of Company
Common Stock as of the Close of Business on the Record Date, at the address of
such holder shown on the records of the Company.  With respect to certificates
for Company Common Stock outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with the Summary of Rights.  Until
the Distribution Date (or, if earlier, the Expiration Date), the surrender for
transfer of any such certificate for Company Common Stock outstanding as of the
Record Date, with or without a copy of the Summary of Rights, shall also
constitute the transfer of the Rights associated with the Company Common Stock
represented thereby.

                                       6
<PAGE>

          (c)  Rights shall, without any further action, be issued in respect of
all shares of Company Common Stock which are issued (including any shares of
Company Common Stock held in treasury) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date. Certificates,
representing such shares of Company Common Stock, issued after the Record Date
shall bear the following legend:

     This certificate also evidences and entitles the holder hereof to certain
     Rights as set forth in the Amended and Restated Rights Agreement between
     Optika Inc. (the "Company") and EquiServe Trust Company, N.A. (the "Rights
     Agent") dated as of January 23, 2002, as amended from time to time (the
     "Rights Agreement"), the terms of which are hereby incorporated herein by
     reference and a copy of which is on file at the principal office of the
     stock transfer administration office of the Rights Agent. Under certain
     circumstances, as set forth in the Rights Agreement, such Rights will be
     evidenced by separate certificates and will no longer be evidenced by this
     certificate. The Company will mail to the holder of this certificate a copy
     of the Rights Agreement, as in effect on the date of mailing, without
     charge promptly after receipt of a written request therefor. UNDER CERTAIN
     CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD
     BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE
     OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT),
     WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT
     HOLDER, MAY BECOME NULL AND VOID.

With respect to certificates representing shares of Company Common Stock that
bear the foregoing legend until the earlier of the Distribution Date and the
Expiration Date, the Rights associated with the shares of Company Common Stock
represented by such certificates shall be evidenced by such certificates alone
and registered holders of the shares of Company Common Stock shall also be the
registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the shares of Company Common Stock represented by such certificates.

     Section 4.  Form of Rights Certificates.  (a) The Rights Certificates (and
                 ---------------------------
the forms of election to purchase, assignment and certificate to be printed on
the reverse thereof) shall each be substantially in the form set forth in
Exhibit A hereto and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or any rule or
regulation thereunder or with any rule or regulation of any stock exchange or
automated quotation system on which the Rights may from time to time be listed
or to conform to usage. Subject to the provisions of Section 11 and Section 22
hereof, the Rights Certificates, whenever distributed, shall be dated as of the
Record Date and on their face shall entitle the holders thereof to purchase such
number of Units of Preferred Stock as shall be set forth therein at the price
set forth therein, but the amount and type of securities, cash or other assets
that may be acquired upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.

     Section 5.  Countersignature and Registration . (a) Rights Certificates
                 ----------------------------------
shall be executed on behalf of the Company by its Chairman, its President or one
of its Vice Presidents under its

                                       7
<PAGE>

corporate seal reproduced thereon attested by its Secretary, its Treasurer or
one of its Assistant Secretaries. The signature of any of these officers on the
Rights Certificates may be manual or facsimile. Rights Certificates bearing the
manual or facsimile signatures of the individuals who were at any time the
proper officers of the Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
countersignature of such Rights Certificates or did not hold such offices at the
date of such Rights Certificates. No Rights Certificate shall be entitled to any
benefit under this Agreement or be valid for any purpose unless there appears on
such Rights Certificate a countersignature duly executed by the Rights Agent by
manual signature of an authorized signatory, and such countersignature upon any
Rights Certificate shall be conclusive evidence, and the only evidence, that
such Rights Certificate has been duly countersigned as required hereunder.

          (b)  Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its office designated for surrender of Rights Certificates
upon exercise or transfer, books for registration and transfer of the Rights
Certificates issued hereunder. Such books shall show the name and address of
each holder of the Rights Certificates, the number of Rights evidenced on its
face by each Rights Certificate and the date of each Rights Certificate.

     Section 6.  Transfer, Split Up, Combination and Exchange of Rights
                 ------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.  (a)
----------------------------------------------------------------------
Subject to the provisions of Sections 4, 7(e) and 14 hereof, at any time after
the Close of Business on the Distribution Date, and at or prior to the Close of
Business on the Expiration Date, any Rights Certificate or Certificates may be
transferred, split up, combined or exchanged for another Rights Certificate or
Certificates, entitling the registered holder to purchase a like number of Units
of Preferred Stock (or, following a Triggering Event, other securities, cash or
other assets, as the case may be) as the Rights Certificate or Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate or
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Certificates to be transferred,
split up, combined or exchanged at the office of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and executed
the certificate set forth in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) of the Rights
represented by such Rights Certificate or Affiliates or Associates thereof as
the Company shall reasonably request; whereupon the Rights Agent shall, subject
to the provisions of Section 7(e) and Section 14 hereof, countersign and deliver
to the Person entitled thereto a Rights Certificate or Rights Certificates, as
the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.

          (b)  Subject to Section 7(e) hereof, if a Rights Certificate shall be
mutilated, lost, stolen or destroyed, upon request by the registered holder of
the Rights represented thereby and upon payment to the Company and the Rights
Agent of all reasonable expenses incident thereto, there shall be issued, in
exchange for and upon cancellation of the mutilated Rights Certificate, or in
substitution for the lost, stolen or destroyed Rights Certificate, a new Rights
Certificate, in

                                       8
<PAGE>

substantially the form of the prior Rights Certificate, of like tenor and
representing the equivalent number of Rights, but, in the case of loss, theft or
destruction, only upon receipt of evidence satisfactory to the Company and the
Rights Agent of such loss, theft or destruction of such Rights Certificate and,
if requested by the Company or the Rights Agent, indemnity also satisfactory to
it.

     Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.
                 -------------------------------------------------------------
(a) Prior to the earlier of (i) the Close of Business on the tenth anniversary
hereof (the "Final Expiration Date"), (ii) the time at which the Rights are
             ---------------------
redeemed as provided in Section 23 hereof and (iii) the time at which the Rights
are exchanged as provided in Section 34 hereof (the earlier of (i), (ii) and
(iii) being the "Expiration Date"), the registered holder of any Rights
                 ---------------
Certificate may, subject to the provisions of Sections 7(e) and 9(c) hereof,
exercise the Rights evidenced thereby, in whole or in part, at any time after
the Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price (as
hereinafter defined) for the number of Units of Preferred Stock (or, following a
Triggering Event, other securities, cash or other assets, as the case may be)
for which such surrendered Rights are then exercisable.

          (b)  The purchase price for each one one-hundredth of a share (each
such one one-hundredth of a share being a "Unit") of Preferred Stock upon
                                           ----
exercise of Rights shall be $30, subject to adjustment from time to time as
provided in Sections 11 and 13(a) hereof (such purchase price, as so adjusted,
being the "Purchase Price"), and shall be payable in accordance with paragraph
           --------------
(c) below.

          (c)  As promptly as practicable following the occurrence of the
Distribution Date, the Company shall deposit with the Rights Agent or other
corporation in good standing organized under the laws of the United States or
any State of the United States, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority (such institution being the
"Depositary Agent"), certificates representing the shares of Preferred Stock
 ----------------
that may be acquired upon exercise of the Rights and shall cause such Depositary
Agent to enter into an agreement pursuant to which the Depositary Agent shall
issue receipts representing interests in the shares of Preferred Stock so
deposited. Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price for the Units of Preferred Stock (or, following a Triggering Event, other
securities, cash or other assets, as the case may be) to be purchased thereby as
set forth below and an amount equal to any applicable transfer tax or evidence
satisfactory to the Company of payment of such tax, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) requisition from the
Depositary Agent depositary receipts representing such number of Units of
Preferred Stock as are to be purchased and the Company will direct the
Depositary Agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, and (iv) after receipt thereof, deliver such cash, if
any, to or upon the order of the registered holder of such Rights Certificate.
In the event that the Company

                                       9
<PAGE>

is obligated to issue Company Common Stock, other securities of the Company, pay
cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such Company Common Stock,
other securities, cash and/or other property are available for distribution by
the Rights Agent, if and when appropriate. The payment of the Purchase Price (as
such amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in
cash or by certified or bank check or money order payable to the order of the
Company.

          (d)  In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing the Rights remaining unexercised shall be issued by the Rights Agent
and delivered to, or upon the order of, the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, subject to the provisions of Section 14 hereof.

          (e)  Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of any Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) which becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) which becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and which receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person (or any such Associate or Affiliate) to holders of equity interests in
such Acquiring Person (or any such Associate or Affiliate) or to any Person with
whom the Acquiring Person (or such Associate or Affiliate) has any continuing
agreement, arrangement or understanding regarding the transferred Rights, shares
of Company Common Stock or the Company or (B) a transfer which the Board of
Directors has determined to be part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall be null and void without any further action, and no holder of such Rights
shall have any rights whatsoever with respect to such Rights, whether under any
provision of this Agreement or otherwise. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 7(e) hereof are complied
with, but shall have no liability to any holder of Rights or any other Person as
a result of its failure to make any determination under this Section 7(e) with
respect to an Acquiring Person or its Affiliates, Associates or transferees.

          (f)  Notwithstanding anything in this Agreement or any Rights
Certificate to the contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise by such registered holder unless such
registered holder shall have (i) completed and executed the certificate
following the form of election to purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) of the Rights represented by such Rights Certificate or
Affiliates or Associates thereof as the Company shall reasonably request.

     Section 8.  Cancellation and Destruction of Rights Certificates.  All
                 ---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it,

                                      10
<PAGE>

and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any Rights Certificates acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Rights Certificates to the
Company, or shall, at the written request of the Company, destroy such cancelled
Rights Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.

     Section 9.  Reservation and Availability of Capital Stock.  (a) The Company
                 ---------------------------------------------
shall at all times prior to the Expiration Date cause to be reserved and kept
available, out of its authorized and unissued shares of preferred stock, the
number of shares of Preferred Stock that, as provided in this Agreement, will be
sufficient to permit the exercise in full of all outstanding Rights. Upon the
occurrence of any events resulting in an increase in the aggregate number of
shares of Preferred Stock (or other equity securities of the Company) issuable
upon exercise of all outstanding Rights above the number then reserved, the
Company shall make appropriate increases in the number of shares so reserved to
the extent practicable.

          (b)  If the shares of Preferred Stock to be issued and delivered upon
the exercise of the Rights may be listed on any national securities exchange or
automated quotation system, the Company shall during the period from the
Distribution Date through the Expiration Date use its best efforts to cause all
securities reserved for such issuance to be listed on such exchange upon
official notice of issuance upon such exercise.

          (c)  The Company shall use its best efforts (i) as soon as practicable
following the occurrence of a Section 11(a)(ii) Event and a determination by the
Company in accordance with Section 11(a)(iii) hereof of the consideration to be
delivered by the Company upon exercise of the Rights or, if so required by law,
as soon as practicable following the Distribution Date (such date being the
"Registration Date"), to file a registration statement on an appropriate form
 -----------------
under the Securities Act of 1933, as amended (the "Securities Act"), with
                                                   --------------
respect to the securities that may be acquired upon exercise of the Rights (the
"Registration Statement"), (ii) to cause the Registration Statement to become
 ----------------------
effective as soon as practicable after such filing, (iii) to cause the
Registration Statement to continue to be effective (and to include a prospectus
complying with the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for the securities
covered by the Registration Statement, and (B) the Expiration Date, and (iv) to
take as soon as practicable following the Registration Date such action as may
be required to ensure that any acquisition of securities upon exercise of the
Rights complies with any applicable state securities or "blue sky" laws.  The
Company may temporarily suspend, for a period of time not to exceed one hundred
twenty (120) days after the date set forth in clause (i) of the first sentence
of this Section 9(c), the exercisability of the Rights in order to prepare and
file such registration statement and permit it to become effective.  Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.  In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a registration statement has
been declared effective.  Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have

                                      11
<PAGE>

been obtained, the exercise thereof shall not be permitted under applicable law
or a registration statement shall not have been declared effective.

          (d)  The Company shall take such action as may be necessary to ensure
that all shares of Preferred Stock (and, following the occurrence of a
Triggering Event, any other securities that may be delivered upon exercise of
Rights) shall be, at the time of delivery of the certificates or depositary
receipts for such securities (subject to payment of the Purchase Price), duly
and validly authorized and issued and fully paid and non-assessable.

          (e)  The Company shall pay any documentary, stamp or transfer tax
imposed in connection with the issuance or delivery of the Rights Certificates
or upon the exercise of Rights; provided, however, the Company shall not be
                                --------  -------
required to pay any such tax imposed in connection with the issuance or delivery
of Units of Preferred Stock, or any certificates or depositary receipts for such
Units of Preferred Stock (or, following the occurrence of a Triggering Event,
any other securities, cash or assets, as the case may be) to any person other
than the registered holder of the Rights Certificates evidencing the Rights
surrendered for exercise. The Company shall not be required to issue or deliver
any certificates or depositary receipts for Units of Preferred Stock (or,
following the occurrence of a Triggering Event, any other securities, cash or
assets, as the case may be) to, or in a name other than that of, the registered
holder upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Rights Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.

     Section 10.  Preferred Stock Record Date.  Each Person in whose name any
                  ---------------------------
certificate or depositary receipt for Units of Preferred Stock (or, following
the occurrence of a Triggering Event, other securities) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of the Units of Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
                                     --------  -------
surrender and payment is a date upon which the Preferred Stock (or, following
the occurrence of a Triggering Event, other securities) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such securities on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Stock (or, following the occurrence of a
Triggering Event, other securities) transfer books of the Company are open and,
further provided, however, that if delivery of Units of Preferred Stock is
------- --------  -------
delayed pursuant to Section 9(c) hereof, such Persons shall be deemed to have
become the record holders of such Units of Preferred Stock only when such Units
first become deliverable. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to securities for which the Rights shall
be exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.

     Section 11.  Adjustment of Purchase Price, Number and Kind of Shares or
                  ----------------------------------------------------------
Number of Rights. The Purchase Price, the number and kind of securities
----------------
purchasable upon exercise of each

                                      12
<PAGE>

Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.

                (a) (i)  In the event the Company shall at any time after the
     date of this Agreement (A) declare a dividend on the Preferred Stock
     payable in shares of Preferred Stock, (B) subdivide the outstanding
     Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller
     number of shares, or (D) issue any shares of its capital stock in a
     reclassification of the Preferred Stock (including any such
     reclassification in connection with a consolidation or merger in which the
     Company is the continuing or surviving corporation), except as otherwise
     provided in this Section 11(a), the Purchase Price in effect at the time of
     the record date for such dividend or of the effective date of such
     subdivision, combination or reclassification, and the number and kind of
     shares of Preferred Stock or capital stock, as the case may be, issuable on
     such date upon exercise of the Rights, shall be proportionately adjusted so
     that the holder of any Right exercised after such time shall be entitled to
     receive, upon payment of the Purchase Price then in effect, the aggregate
     number and kind of shares of Preferred Stock or capital stock, as the case
     may be, which, if such Right had been exercised immediately prior to such
     date, such holder would have owned upon such exercise and been entitled to
     receive by virtue of such dividend, subdivision, combination or
     reclassification; provided, however, that in no event shall the
                       --------  -------
     consideration to be paid upon the exercise of one Right be less than the
     aggregate par value of the shares of capital stock of the Company issuable
     upon the exercise of one Right. If an event occurs which would require an
     adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof,
     the adjustment provided for in this Section 11(a)(i) shall be in addition
     to, and shall be made prior to, any adjustment required pursuant to Section
     11(a)(ii) hereof.

          (ii)  In the event any Person shall become an Acquiring Person, other
     than pursuant to any transaction set forth in Section 13(a) hereof, then,
                                                                         ----
     immediately upon the occurrence of such event (a "Section 11(a)(ii)
                                                       -----------------
     Event"), proper provision shall be made so that each holder of a Right
     (except as provided below and in Section 7(e) hereof) shall, subject to
     Section 34 hereof, thereafter have the right to receive, upon exercise of
     such Right at the then current Purchase Price in accordance with the terms
     of this Agreement, in lieu of the number of Units of Preferred Stock for
     which a Right was exercisable immediately prior to the first occurrence of
     a Section 11(a)(ii) Event (whether or not such Right was then exercisable),
     such number of Units of Preferred Stock as shall equal the result obtained
     by (x) multiplying the then current Purchase Price by the then number of
     Units of Preferred Stock for which a Right was exercisable immediately
     prior to the first occurrence of a Section 11(a)(ii) Event (whether or not
     such Right was then exercisable) (such product thereafter being, for all
     purposes of this Agreement, other than Section 13 hereof, the "Purchase
                                                                    --------
     Price"), and (y) dividing that product by 50% of the then current market
     -----
     price (determined pursuant to Section 11(d) hereof) per Unit of Preferred
     Stock on the date of such first occurrence (such Units of Preferred Stock
     being the "Adjustment Shares"); provided, however, that the Purchase Price
                -----------------    --------  -------
     and the number of Units of Preferred Stock so receivable upon exercise of a
     Right shall, following the Section 11(a)(ii) Event, be subject to further
     adjustment as appropriate in accordance with Section 11 hereof.
     Notwithstanding the foregoing, the Rights shall not be exercisable

                                      16
<PAGE>

     pursuant to this Section 11(a)(ii) until the time period during which the
     Rights may be redeemed pursuant to Section 23 hereof shall have expired.

          (iii) The Company, by the vote of a majority of the Board of
     Directors, may at its option substitute for a Unit of Preferred Stock
     issuable upon the exercise of Rights in accordance with the foregoing
     subparagraph (ii), shares of Company Common Stock or fractions thereof
     having a current market price (as determined by Section 11(d) hereof) equal
     to the current market price of a Unit of Preferred Stock on the date of the
     Section 11(a)(ii) Event.  In the event that the number of shares of
     Preferred Stock which are authorized by the Company's Amended and Restated
     Certificate of Incorporation but not outstanding or reserved for issuance
     for purposes other than upon exercise of the Rights is not sufficient to
     permit the exercise in full of the Rights in accordance with the foregoing
     subparagraph (ii) of this Section 11(a), the Company, by the vote of a
     majority of the Board of Directors, shall to the extent permitted by
     applicable law and any material agreements then in effect to which the
     Company is a party or by which it is bound: (A) determine the excess of (1)
     the value of the Adjustment Shares issuable upon the exercise of a Right
     (the "Current Value") over (2) the Purchase Price (such excess being the
           -------------
     "Spread"), and (B) with respect to each Right (other than Rights which have
      ------
     become void pursuant to Section 7(e)), make adequate provision to
     substitute, in whole or in part, for such Adjustment Shares, upon exercise
     of a Right and payment of the applicable Purchase Price, (1) cash, (2) a
     reduction in the Purchase Price, (3) shares of Company Common Stock or
     other equity securities of the Company (including, without limitation,
     shares, or units of shares, of preferred stock (such other shares being
     "common stock equivalents")), (4) debt securities of the Company, (5) other
      ------------------------
     assets, or (6) any combination of the foregoing, having an aggregate value
     which, when added to the value of the Units of Preferred Stock actually
     issued upon exercise of such Right, shall have an aggregate value equal to
     the Current Value (less the amount of any reduction in such Purchase
     Price), where such aggregate value has been determined by a majority of the
     Board of Directors, after receiving advice from a nationally recognized
     investment banking firm; provided, however, that if the Company shall not
                              --------  -------
     have made adequate provision to deliver value pursuant to clause (B) above
     within thirty days following the later of (x) the first occurrence of a
     Section 11(a)(ii) Event and (y) the date on which the Company's right of
     redemption pursuant to Section 23(a) expires (the later of (x) and (y)
     being referred to herein as the "Section 11(a)(iii) Trigger Date"), then,
                                      -------------------------------
     subject to Section 34 hereof, the Company shall be obligated (to the extent
     permitted by applicable law and any material agreements then in effect to
     which the Company is a party or by which it is bound) to deliver, upon the
     surrender for exercise of a Right and without requiring payment of the
     Purchase Price, Units of Preferred Stock (to the extent available) and
     then, if necessary, shares (or fractions of shares, at the discretion of
     the Board of Directors) of Company Common Stock, cash or a combination
     thereof, which Units of Preferred Stock, shares (or fractions of shares) of
     Company Common Stock and/or cash shall have an aggregate value equal to the
     Spread; further provided, however, that if the Company is unable to comply
             ------- --------  -------
     with the immediately foregoing provision within such thirty day period,
     then the Company shall (to the extent permitted by law) take all such
     action as may be necessary to comply with such provision, including the
     calling of a meeting of stockholders to authorize additional shares of
     Preferred Stock or Company Common Stock. To the extent that the Company
     determines that some action need be

                                      14
<PAGE>

     taken pursuant to the first sentence of this Section 11(a)(iii), the
     Company shall provide, subject to Section 7(e) hereof, that such action
     shall apply uniformly to all outstanding Rights. For purposes of this
     Section 11(a)(iii), the value of a Unit of Preferred Stock or share of
     Company Common Stock shall be the current market price (as determined
     pursuant to Section 11(d) hereof) per Unit of Preferred Stock or share of
     Company Common Stock, as the case may be, on the Section 11(a)(iii) Trigger
     Date and the value of any common stock equivalent shall be deemed to have
     the same value as the Preferred Stock on such date.

          (b)  In case the Company shall fix a record date for the issuance of
     rights, options or warrants to all holders of Preferred Stock entitling
     them to subscribe for or purchase (for a period expiring within forty-five
     calendar days after such record date) shares of Preferred Stock (or shares
     having substantially the same rights, privileges and preferences as shares
     of Preferred Stock ("Equivalent Preferred Stock")) or securities
                          --------------------------
     convertible into Preferred Stock or Equivalent Preferred Stock at a price
     per share of Preferred Stock or per share of Equivalent Preferred Stock (or
     having a conversion price per share, if a security convertible into
     Preferred Stock or Equivalent Preferred Stock) less than the current market
     price (as determined pursuant to Section l1(d) hereof) per share of
     Preferred Stock on such record date, the Purchase Price to be in effect
     after such record date shall be determined by multiplying the Purchase
     Price in effect immediately prior to such record date by a fraction, the
     numerator of which shall be the sum of the number of shares of Preferred
     Stock outstanding on such record date plus the number of shares of
     Preferred Stock which the aggregate offering price of the total number of
     shares of Preferred Stock and/or Equivalent Preferred Stock so to be
     offered (and/or the aggregate initial conversion price of the convertible
     securities so to be offered) would purchase at such current market price,
     and the denominator of which shall be the number of shares of Preferred
     Stock outstanding on such record date plus the number of additional shares
     of Preferred Stock and/or Equivalent Preferred Stock to be offered for
     subscription or purchase (or into which the convertible securities so to be
     offered are initially convertible). In case such subscription price may be
     paid by delivery of consideration part or all of which may be in a form
     other than cash, the value of such consideration shall be as determined in
     good faith by a majority of the Board of Directors, whose determination
     shall be described in a statement filed with the Rights Agent and shall be
     binding on the Rights Agent and the holders of the Rights. Shares of
     Preferred Stock owned by or held for the account of the Company or any
     Subsidiary shall not be deemed outstanding for the purpose of any such
     computation. Such adjustment shall be made successively whenever such a
     record date is fixed, and in the event that such rights, options or
     warrants are not so issued, the Purchase Price shall be adjusted to be the
     Purchase Price which would then be in effect if such record date had not
     been fixed.

          (c)  In case the Company shall fix a record date for a distribution to
     all holders of shares of Preferred Stock (including any such distribution
     made in connection with a consolidation or merger in which the Company is
     the continuing or surviving corporation) of evidences of indebtedness, cash
     (other than a regular quarterly cash dividend paid out of funds legally
     available therefor), assets (other than a dividend payable in shares of
     Preferred Stock, but including any dividend payable in stock other than
     Preferred Stock) or subscription rights, options or warrants (excluding
     those referred

                                      15
<PAGE>

     to in Section 11(b) hereof), the Purchase Price to be in effect after such
     record date shall be determined by multiplying the Purchase Price in effect
     immediately prior to such record date by a fraction, the numerator of which
     shall be the current market price (as determined pursuant to Section 11(d)
     hereof) per share of Preferred Stock on such record date less the fair
     market value (as determined in good faith by a majority of the Board of
     Directors, whose determination shall be described in a statement filed with
     the Rights Agent and shall be binding on the Rights Agent and the holder of
     the Rights) of the cash, assets or evidences of indebtedness so to be
     distributed or of such subscription rights, options or warrants
     distributable in respect of a share of Preferred Stock and the denominator
     of which shall be such current market price (as determined pursuant to
     Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall
     be made successively whenever such a record date is fixed, and in the event
     that such distribution is not so made, the Purchase Price shall be adjusted
     to be the Purchase Price which would have been in effect if such record
     date had not been fixed.

          (d) (i)  For the purpose of any computation hereunder, the "current
     market price" per share of Company Common Stock or Common Stock on any date
     shall be deemed to be the average of the daily closing prices per share of
     such shares for the ten consecutive Trading Days (as such term is
     hereinafter defined) immediately prior to such date; provided, however, if
                                                          --------  -------
     prior to the expiration of such requisite ten Trading Day period the issuer
     announces either (A) a dividend or distribution on such shares payable in
     such shares or securities convertible into such shares (other than the
     Rights), or (B) any subdivision, combination or reclassification of such
     shares, then, following the ex-dividend date for such dividend or the
     record date for such subdivision, combination or reclassification, as the
     case may be, the "current market price" shall be properly adjusted to take
     into account such event. The closing price for each day shall be, if the
     shares are listed and admitted to trading on a national securities
     exchange, as reported in the principal consolidated transaction reporting
     system with respect to securities listed on the principal national
     securities exchange on which such shares are listed or admitted to trading
     or, if such shares are not listed or admitted to trading on any national
     securities exchange, the last quoted price or, if not so quoted, the
     average of the high bid and low asked prices in the over-the-counter
     market, as reported by the Nasdaq National Market ("Nasdaq") or such other
                                                         ------
     system then in use, or, if on any such date such shares are not quoted by
     any such organization, the average of the closing bid and asked prices as
     furnished by a professional market maker making a market in such shares
     selected by a majority of the Board of Directors. If on any such date no
     market maker is making a market in such shares, the fair value of such
     shares on such date as determined in good faith by a majority of the Board
     of Directors shall be used. If such shares are not publicly held or not so
     listed or traded, "current market price" per share shall mean the fair
     value per share as determined in good faith by a majority of the Board of
     Directors, whose determination shall be described in a statement filed with
     the Rights Agent and shall be conclusive for all purposes. The term
     "Trading Day" shall mean, if such shares are listed or admitted to trading
      -----------
     on any national securities exchange, a day on which the principal national
     securities exchange on which such shares are listed or admitted to trading
     is open for the transaction of business or, if such shares are not so
     listed or admitted, a Business Day.

                                      16
<PAGE>

               (ii)  For the purpose of any computation hereunder, the "current
     market price" per share of Preferred Stock shall be determined in the same
     manner as set forth above for Company Common Stock in clause (i) of this
     Section 11(d) (other than the fourth sentence thereof). If the current
     market price per share of Preferred Stock cannot be determined in the
     manner provided above or if the Preferred Stock is not publicly held or
     listed or traded in a manner described in clause (i) of this Section 11(d),
     the "current market price" per share of Preferred Stock shall be
     conclusively deemed to be an amount equal to 100 (as such amount may be
     appropriately adjusted for such events as stock splits, stock dividends and
     recapitalizations with respect to Company Common Stock occurring after the
     date of this Agreement) multiplied by the current market price per share of
     Company Common Stock. If neither Company Common Stock nor Preferred Stock
     is publicly held or so listed or traded, "current market price" per share
     of the Preferred Stock shall mean the fair value per share as determined in
     good faith by a majority of the Board of Directors whose determination
     shall be described in a statement filed with the Rights Agent and shall be
     binding on the Rights Agent and the holders of the Rights. For all purposes
     of this Agreement, the "current market price" of a Unit of Preferred Stock
     shall be equal to the "current market price" of one share of Preferred
     Stock divided by 100.

          (e)  Anything herein to the contrary notwithstanding, no adjustment in
     the Purchase Price shall be required unless such adjustment would require
     an increase or decrease of at least 1% in the Purchase Price; provided,
                                                                   --------
     however, that any adjustments which by reason of this Section 11(e) are not
     -------
     required to be made shall be carried forward and taken into account in any
     subsequent adjustment. All calculations under this Section 11 shall be made
     to the nearest cent or to the nearest one-hundredth of a share of Company
     Common Stock or Common Stock or other share or ten-thousandth of a share of
     Preferred Stock, as the case may be. Notwithstanding the first sentence of
     this Section 11(e), any adjustment required by this Section 11 shall be
     made no later than the earlier of (i) three years from the date of the
     transaction which mandates such adjustment and (ii) the Expiration Date.

          (f)  If as a result of an adjustment made pursuant to Section
     11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised
     shall become entitled to receive any shares of capital stock other than
     Preferred Stock, thereafter the number of such other shares so receivable
     upon exercise of any Right and the Purchase Price thereof shall be subject
     to adjustment from time to time in a manner and on terms as nearly
     equivalent as practicable to the provisions with respect to the Preferred
     Stock contained in Sections 11(a), (b), (c), (d), (e), (g), (h), (i), (j),
     (k), (l) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof
     with respect to the Preferred Stock shall apply on like terms to any such
     other shares.

          (g)  All Rights originally issued by the Company subsequent to any
     adjustment made to the Purchase Price hereunder shall evidence the right to
     purchase, at the adjusted Purchase Price, the number of Units of Preferred
     Stock (or other securities or amount of cash or combination thereof) that
     may be acquired from time to time hereunder upon exercise of the Rights,
     all subject to further adjustment as provided herein.

                                      17
<PAGE>

          (h)  Unless the Company shall have exercised its election as provided
     in Section 11(i), upon each adjustment of the Purchase Price as a result of
     the calculations made in Sections 11(b) and (c), each Right outstanding
     immediately prior to the making of such adjustment shall thereafter
     evidence the right to purchase, at the adjusted Purchase Price, that number
     of Units of Preferred Stock (calculated to the nearest one ten-thousandth
     of a Unit) obtained by (i) multiplying (x) the number of Units of Preferred
     Stock covered by a Right immediately prior to this adjustment by (y) the
     Purchase Price in effect immediately prior to such adjustment of the
     Purchase Price and (ii) dividing the product so obtained by the Purchase
     Price in effect immediately after such adjustment of the Purchase Price.

          (i)  The Company may elect on or after the date of any adjustment of
     the Purchase Price to adjust the number of Rights, in lieu of any
     adjustment in the number of Units of Preferred Stock that may be acquired
     upon the exercise of a Right. Each of the Rights outstanding after the
     adjustment in the number of Rights shall be exercisable for the number of
     Units of Preferred Stock for which a Right was exercisable immediately
     prior to such adjustment. Each Right held of record prior to such
     adjustment of the number of Rights shall become that number of Rights
     (calculated to the nearest one ten-thousandth) obtained by dividing the
     Purchase Price in effect immediately prior to adjustment of the Purchase
     Price by the Purchase Price in effect immediately after adjustment of the
     Purchase Price. The Company shall make a public announcement of its
     election to adjust the number of Rights, indicating the record date for the
     adjustment, and, if known at the time, the amount of the adjustment to be
     made. This record date may be the date on which the Purchase Price is
     adjusted or any day thereafter, but, if the Rights Certificates have been
     issued, shall be at least ten days later than the date of such public
     announcement. If Rights Certificates have been issued, upon each adjustment
     of the number of Rights pursuant to this Section 11(i), the Company shall,
     as promptly as practicable, cause to be distributed to holders of record of
     Rights Certificates on such record date Rights Certificates evidencing,
     subject to Section 14 hereof, the additional Rights to which such holders
     shall be entitled as a result of such adjustment, or, at the option of the
     Company, shall cause to be distributed to such holders of record in
     substitution and replacement for the Rights Certificates held by such
     holders prior to the date of adjustment, and upon surrender thereof, if
     required by the Company, new Rights Certificates evidencing all the Rights
     to which such holders shall be entitled after such adjustment. Rights
     Certificates to be so distributed shall be issued, executed and
     countersigned in the manner provided for herein (and may bear, at the
     option of the Company, the adjusted Purchase Price) and shall be registered
     in the names of the holders of record of Rights Certificates on the record
     date specified in the public announcement.

          (j)  Irrespective of any adjustment or change in the Purchase Price or
     the number of Units of Preferred Stock issuable upon the exercise of the
     Rights, the Rights Certificates theretofore and thereafter issued may
     continue to express the Purchase Price per Unit and the number of Units of
     Preferred Stock which were expressed in the Initial Rights Certificates
     issued hereunder.

          (k)  Before taking any action that would cause an adjustment reducing
     the Purchase Price below the then par value of the number of Units of
     Preferred Stock

                                      18
<PAGE>

     issuable upon exercise of the Rights, the Company shall take any corporate
     action which may, in the opinion of its counsel, be necessary in order that
     the Company may validly and legally issue such fully paid and non-
     assessable number of Units of Preferred Stock at such adjusted Purchase
     Price.

          (1)  In any case in which this Section 11 shall require that an
     adjustment in the Purchase Price be made effective as of a record date for
     a specified event, the Company may elect to defer until the occurrence of
     such event the issuance to the holder of any Right exercised after such
     record date of that number of Units of Preferred Stock and shares of other
     capital stock or securities of the Company, if any, issuable upon such
     exercise over and above the number of Units of Preferred Stock and shares
     of other capital stock or securities of the Company, if any, issuable upon
     such exercise on the basis of the Purchase Price in effect prior to such
     adjustment; provided, however, that the Company shall deliver to such
                 --------  -------
     holder a due bill or other appropriate instrument evidencing such holder's
     right to receive such additional shares (fractional or otherwise) or
     securities upon the occurrence of the event requiring such adjustment.

          (m)  Anything in this Section 11 to the contrary notwithstanding, the
     Company shall be entitled to make such reductions in the Purchase Price, in
     addition to those adjustments expressly required by this Section 11, as and
     to the extent that in their good faith judgment a majority of the Board of
     Directors shall determine to be advisable in order that any (i)
     consolidation or subdivision of the Preferred Stock, (ii) issuance wholly
     for cash of any shares of Preferred Stock at less than the current market
     price, (iii) issuance wholly for cash of shares of Preferred Stock or
     securities which by their terms are convertible into or exchangeable for
     shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights,
     options or warrants referred to in this Section 11, hereafter made by the
     Company to holders of its Preferred Stock, shall not be taxable to such
     holders or shall reduce the taxes payable by such holders.

          (n)  The Company shall not, at any time after the Distribution Date,
     (i) consolidate with any other Person (other than a wholly owned Subsidiary
     of the Company in a transaction which complies with Section 11(o) hereof),
     (ii) merge with or into any other Person (other than a wholly owned
     Subsidiary of the Company in a transaction which complies with Section
     11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell
     or transfer), in one transaction, or a series of transactions, assets or
     earning power aggregating more than 50% of the assets or earning power of
     the Company and its Subsidiaries (taken as a whole) to any other Person or
     Persons (other than the Company and/or any of its Subsidiaries in one or
     more transactions each of which complies with Section 11(o) hereof), if (x)
     at the time of or immediately after such consolidation, merger or sale
     there are any rights, warrants or other instruments or securities
     outstanding or agreements in effect which would substantially diminish or
     otherwise eliminate the benefits intended to be afforded by the Rights or
     (y) prior to, simultaneously with or immediately after such consolidation,
     merger or sale, the Person which constitutes, or would constitute, the
     "Principal Party" for purposes of Section 13(a) hereof shall have
     distributed or otherwise transferred to its shareholders or other persons
     holding an equity interest in such Person Rights previously owned by such
     Person or any of its Affiliates and Associates; provided, however, this
                                                     --------  -------
     Section 11(n) shall not affect the ability of any

                                      19
<PAGE>

     wholly owned Subsidiary of the Company to consolidate with, merge with or
     into, or sell or transfer assets or earning power to, any other wholly
     owned Subsidiary of the Company.

          (o)  After the Distribution Date, the Company shall not, except as
     permitted by Section 23, Section 26 or Section 34 hereof, take (or permit
     any Subsidiary to take) any action if at the time such action is taken it
     is reasonably foreseeable that such action will diminish substantially or
     otherwise eliminate the benefits intended to be afforded by the Rights.

          (p)  Anything in this Agreement to the contrary notwithstanding, in
     the event that the Company shall at any time after the Rights Dividend
     Declaration Date and prior to the Distribution Date (i) declare a dividend
     on the outstanding shares of Company Common Stock payable in shares of
     Company Common Stock, (ii) subdivide the outstanding shares of Company
     Common Stock, (iii) combine the outstanding shares of Company Common Stock
     into a smaller number of shares, or (iv) issue any shares of its capital
     stock in a reclassification of Company Common Stock (including any such
     reclassification in connection with a consolidation or merger in which the
     Company is the continuing or surviving corporation), the number of Rights
     associated with each share of Company Common Stock then outstanding, or
     issued or delivered thereafter prior to the Distribution Date or in
     accordance with Section 22 hereof, shall be proportionately adjusted so
     that the number of Rights thereafter associated with each share of Company
     Common Stock following any such event shall equal the result obtained by
     multiplying the number of Rights associated with each share of Company
     Common Stock immediately prior to such event by a fraction the numerator of
     which shall be the total number of shares of Company Common Stock
     outstanding immediately prior to the occurrence of the event and the
     denominator of which shall be the total number of shares of Company Common
     Stock outstanding immediately following the occurrence of such event.

     Section 12.  Certificate of Adjusted Purchase Price or Number of Shares.
                  ----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 or Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Company Common Stock, a copy of such certificate, and
(c) mail a brief summary thereof to each holder of a Rights Certificate (or, if
prior to the Distribution Date, to each holder of a certificate representing
shares of Company Common Stock) in accordance with Section 25 hereof. The Rights
Agent shall be fully protected in relying on any such certificate and on any
adjustment therein contained and shall not be deemed to have knowledge of any
such adjustment unless and until it shall have received such certificate.

     Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earning
                  --------------------------------------------------------------
Power.  (a) In the event that, following the first occurrence of a Section
-----
11(a)(ii) Event, directly or indirectly, either (x) the Company shall
consolidate with, or merge with and into, any other Person (other than a wholly
owned Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (y) any Person (other than a wholly
owned Subsidiary of the Company

                                      20
<PAGE>

in a transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Company Common Stock shall be changed into or exchanged for stock or
other securities of the Company or any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer) to any Person or Persons
(other than the Company or any of its wholly owned Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) and such
transaction shall not have received the approval of a majority of the Board of
Directors (any such event being a "Section 13 Event"), then, and in each such
                                   ----------------
case, proper provision shall be made so that: (i) each holder of a Right, (other
than Rights which have become void as provided in Section 7(e) hereof), shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price, in accordance with this Agreement and in lieu of Units
of Preferred Stock or shares of Company Common Stock, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), which
shares shall not be subject to any liens, encumbrances, rights of call or first
refusal, transfer restrictions or other adverse claims, as shall be equal to the
result obtained by (1) multiplying the then current Purchase Price by the number
of Units of Preferred Stock for which a Right is exercisable immediately prior
to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event
has occurred prior to the first occurrence of a Section 13 Event, multiplying
the number of such Units for which a Right would be exercisable hereunder but
for the occurrence of such Section 11(a)(ii) Event by the Purchase Price which
would be in effect hereunder but for such first occurrence) and (2) dividing
that product (which, following the first occurrence of a Section 13 Event, shall
be the "Purchase Price" for all purposes of this Agreement) by 50% of the
current market price (determined pursuant to Section 11(d) hereof) per share of
the Common Stock of such Principal Party on the date of consummation of such
Section 13 Event, provided, however, that the Purchase Price (as theretofore
                  --------  -------
adjusted in accordance with Section 11(a)(ii) hereof) and the number of shares
of Common Stock of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with Section
11(f) hereof to reflect any events occurring in respect of the Common Stock of
such Principal Party after the occurrence of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such Section 13 Event, all the obligations and duties of the Company pursuant to
this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party in all respects; (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with Section 9 hereof) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions of this Agreement shall thereafter be applicable, as nearly as
reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights, to its shares of Common Stock;
provided, however, that, upon the subsequent occurrence of any merger,
--------  -------
consolidation, sale of all or substantially all of the assets, recapitalization,
reclassification of shares, reorganization or other extraordinary transaction in
respect of such Principal Party, each holder of a Right shall thereupon be
entitled to receive, upon exercise of a Right and payment of the Purchase Price,
such cash, shares, rights, warrants and other property which such holder

                                      21
<PAGE>

would have been entitled to receive had it, at the time of such transaction,
owned the shares of Common Stock of the Principal Party purchasable upon the
exercise of a Right, and such Principal Party shall take such steps (including,
but not limited to, reservation of shares of stock) as may be necessary to
permit the subsequent exercise of the Rights in accordance with the terms hereof
for such cash, shares, rights, warrants and other property; and (v) the
provisions of Section 11(a)(ii) hereof shall be of no further effect following
the first occurrence of any Section 13 Event.

          (b)  "Principal Party" shall mean:

               (i)  in the case of any transaction described in clause (x) or
          (y) of the first sentence of Section 13(a), (A) the Person that is the
          issuer of any securities into which shares of Company Common Stock are
          converted in such merger or consolidation, or, if there is more than
          one such issuer, the issuer of Common Stock that has the highest
          aggregate current market price (determined pursuant to Section 11(d)
          hereof) and (B) if no securities are so issued, the Person that is the
          other party to such merger or consolidation, or, if there is more than
          one such Person, the Person the Common Stock of which has the highest
          aggregate current market price (determined pursuant to Section 11(d)
          hereof); and

               (ii) in the case of any transaction described in clause (z) of
          the first sentence of Section 13(a) hereof, the Person that is the
          party receiving the largest portion of the assets or earning power
          transferred pursuant to such transaction or transactions, or, if each
          Person that is a party to such transaction or transactions receives
          the same portion of the assets or earning power transferred pursuant
          to such transaction or transactions or if the Person receiving the
          largest portion of the assets or earning power cannot be determined,
          whichever Person the Common Stock of which has the highest aggregate
          current market price (determined pursuant to Section 11(d) hereof);
          provided, however, that in any such case, (1) if the Common Stock of
          --------  -------
          such Person is not at such time and has not been continuously over the
          preceding twelve-month period registered under Section 12 of the
          Exchange Act ("Registered Common Stock"), or such Person is not a
                         -----------------------
          corporation, and such Person is a direct or indirect Subsidiary of
          another Person that has Registered Common Stock outstanding,
          "Principal Party" shall refer to such other Person; (2) if the Common
          Stock of such Person is not Registered Common Stock or such Person is
          not a corporation, and such Person is a direct or indirect Subsidiary
          of another Person but is not a direct or indirect Subsidiary of
          another Person which has Registered Common Stock outstanding,
          "Principal Party" shall refer to the ultimate parent entity of such
          first-mentioned Person; (3) if the Common Stock of such Person is not
          Registered Common Stock or such Person is not a corporation, and such
          Person is directly or indirectly controlled by more than one Person,
          and one or more of such other Persons has Registered Common Stock
          outstanding, "Principal Party" shall refer to whichever of such other
          Persons is the issuer of the Registered Common Stock having the
          highest aggregate current market price (determined pursuant to Section
          11(d) hereof); and (4) if the Common Stock of such Person is not
          Registered Common Stock or such Person is not a corporation, and such
          Person is directly or indirectly controlled by

                                      22
<PAGE>

          more than one Person, and none of such other Persons have Registered
          Common Stock outstanding, "Principal Party" shall refer to whichever
          ultimate parent entity is the corporation having the greatest
          shareholders equity or, if no such ultimate parent entity is a
          corporation, shall refer to whichever ultimate parent entity is the
          entity having the greatest net assets.

          (c)  The Company shall not consummate any such consolidation, merger,
     sale or transfer unless the Principal Party shall have a sufficient number
     of authorized shares of its Common Stock which have not been issued or
     reserved for issuance to permit the exercise in full of the Rights in
     accordance with this Section 13, and unless prior thereto the Company and
     such Principal Party shall have executed and delivered to the Rights Agent
     a supplemental agreement providing for the terms set forth in paragraphs
     (a) and (b) of this Section 13 and further providing that the Principal
     Party, at its own expense, shall:

               (i)  (A) file on an appropriate form, as soon as practicable
          following the execution of such agreement, a registration statement
          under the Securities Act with respect to the Common Stock that may be
          acquired upon exercise of the Rights, (B) cause such registration
          statement to remain effective (and to include a prospectus complying
          with the requirements of the Securities Act) until the Expiration
          Date, and (C) as soon as practicable following the execution of such
          agreement, take such action as may be required to assure that any
          acquisition of such Common Stock upon the exercise of the Rights
          complies with any applicable state securities or "blue sky" laws; and

               (ii) as soon as practicable following the execution of such
          agreement, deliver to holders of the Rights historical financial
          statements for the Principal Party and each of its Affiliates which
          comply in all respects with the requirements for registration on Form
          10 under the Exchange Act.

          (d)  In case the Principal Party which is to be a party to a
     transaction referred to in this Section 13 has a provision in any of its
     authorized securities or in its Certificate of Incorporation or By-laws or
     other instrument governing its corporate affairs, which provision would
     have the effect of (i) causing such Principal Party to issue, in connection
     with, or as a consequence of, the consummation of a transaction referred to
     in this Section 13, shares of Common Stock of such Principal Party at less
     than the then current market price per share (determined pursuant to
     Section 11(d) hereof) or securities exercisable for, or convertible into,
     Common Stock of such Principal Party at less than such then current market
     price (other than to holders of Rights pursuant to this Section 13) or (ii)
     providing for any special payment, tax or similar provisions in connection
     with the issuance of the Common Stock of such Principal Party pursuant to
     the provisions of this Section 13; then, in such event, the Company shall
     not consummate any such transaction unless prior thereto the Company and
     such Principal Party shall have executed and delivered to the Rights Agent
     a supplemental agreement providing that the provision in question of such
     Principal Party shall have been cancelled, waived or amended, or that the
     authorized securities shall be redeemed, so that the applicable

                                      23
<PAGE>

     provision will have no effect in connection with, or as a consequence of,
     the consummation of the proposed transaction.

          (e)  The provisions of this Section 13 shall similarly apply to
     successive mergers or consolidations or sales or other transfers. In the
     event that a Section 13 Event shall occur at any time after the occurrence
     of a Section 11(a)(ii) Event, the Rights which have not theretofore been
     exercised shall thereafter become exercisable, in the manner and for the
     securities described in Section 13(a).

     Section 14.  Fractional Rights and Fractional Shares.  (a) The Company
                  ---------------------------------------
shall not be required to issue fractions of Rights or to distribute Rights
Certificates which evidence fractional Rights. In lieu of issuing such
fractional Rights, there shall be paid to the Persons to which such fractional
Rights would otherwise be issuable, an amount in cash equal to such fraction of
the market value of a whole Right. For purposes of this Section 14(a), the
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price of the Rights for any day shall
be, if the Rights are listed or admitted to trading on a national securities
exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by a majority
of the Board of Directors. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by a majority of the Board of Directors shall be used and such
determination shall be described in a statement filed with the Rights Agent and
the holders of the Rights.

     (b)  The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence such fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock); provided, however, that in lieu of fractions of
                           --------  -------
shares of Preferred Stock which are integral multiples of one one-hundredth of a
share of Preferred Stock, the Company may provide for the issuance of depositary
receipts pursuant to Section 7(c) hereof.  In lieu of such fractional shares of
Preferred Stock that are not integral multiples of one one-hundredth of a share,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the then current market price of a share of Preferred Stock on the
day of exercise, determined in accordance with Section 11(d) hereof.

     (c)  The holder of a Right by the acceptance of the Rights expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.

                                      24
<PAGE>

     Section 15.  Rights of Action.  All rights of action in respect of this
                  ----------------
Agreement, other than rights of action vested in the Rights Agent pursuant to
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
certificates representing shares of Company Common Stock); and any registered
holder of a Rights Certificate (or, prior to the Distribution Date, of a
certificate representing shares of Company Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to
the Distribution Date, of a certificate representing shares of Company Common
Stock), may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company or any
other Person to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.

     Section 16.  Agreement of Rights Holders.  Every holder of a Right by
                  ---------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:

          (a)  prior to the Distribution Date, the Rights will be transferable
     only in connection with the transfer of Company Common Stock;

          (b)  after the Distribution Date, the Rights Certificates are
     transferable only on the registry books of the Rights Agent if surrendered
     at the office of the Rights Agent designated for such purposes, duly
     endorsed or accompanied by a proper instrument of transfer and with the
     appropriate forms and certificates duly executed;

          (c)  subject to Section 6(a) and Section 7(f) hereof, the Company and
     the Rights Agent may deem and treat the person in whose name a Rights
     Certificate (or, prior to the Distribution Date, the associated Company
     Common Stock certificate) is registered as the absolute owner thereof and
     of the Rights evidenced thereby (notwithstanding any notations of ownership
     or writing on the Rights Certificates or the associated Company Common
     Stock certificate made by anyone other than the Company or the Rights
     Agent) for all purposes whatsoever, and neither the Company nor the Rights
     Agent, subject to the last sentence of Section 7 (e) hereof, shall be
     affected by any notice to the contrary; and

          (d)  notwithstanding anything in this Agreement to the contrary,
     neither the Company nor the Rights Agent shall have any liability to any
     holder of a Right or any other Person as a result of its inability to
     perform any of its obligations under this Agreement by reason of any
     preliminary or permanent injunction or other order, decree or ruling issued
     by a court of competent jurisdiction or by a governmental, regulatory or
     administrative agency or commission, or any statute, rule, regulation or
     executive order promulgated or enacted by any governmental authority,
     prohibiting or otherwise restraining performance of such obligation;
     provided, however, the Company must use its
     --------  -------

                                      25
<PAGE>

     best efforts to have any such order, decree or ruling lifted or otherwise
     overturned as promptly as practicable.

     Section 17.  Rights Certificate Holder Not Deemed a Stockholder.  No
                  --------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of shares of
Preferred Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby, nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or, except as provided in Section 24 hereof, to
receive notice of meetings or other actions affecting stockholders, or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof. This Section 17 shall also apply to
holders, as such, of Rights prior to the issuance of Rights Certificates.

     Section 18.  Concerning the Rights Agent.  (a) The Company agrees to pay to
                  ---------------------------
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses, including reasonable fees and disbursements of its counsel, incurred
in connection with the execution and administration of this Agreement and the
exercise and performance of its duties hereunder. The Company shall indemnify
the Rights Agent for, and hold it harmless against, any loss, liability, or
expense, incurred without gross negligence, bad faith or willful misconduct on
the part of the Rights Agent, for anything done or omitted by the Rights Agent
in connection with the acceptance and administration of this Agreement,
including the reasonable costs and expenses of defending against any claim of
liability hereunder.

          (b)  The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Preferred Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to have been signed, executed
and, where necessary, verified or acknowledged by the proper Person or Persons.

          (c)  The indemnity provided herein shall survive the expiration of the
Rights and the termination of this Agreement.  In no case will the Rights Agent
be liable for special, indirect, incidental or consequential loss or damage of
any kind whatsoever (including but not limited to lost profits), even if the
Rights Agent has been advised of the possibility of such loss or damage.

     Section 19.  Merger or Consolidation or Change of Name of Rights Agent.
                  ---------------------------------------------------------
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust or shareholder services businesses of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any document or any further act on the part
of any of the parties hereto;

                                      26
<PAGE>

provided, however, that such corporation would be eligible for appointment as a
--------  -------
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so countersigned;
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

          (b)  In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.

     Section 20.  Duties of Rights Agent. The Rights Agent undertakes the duties
                  ----------------------
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:

          (a)  The Rights Agent may consult with legal counsel (who may be legal
     counsel for the Company), and the opinion of such counsel shall be full and
     complete authorization and protection to the Rights Agent as to any action
     taken or omitted by it in good faith and in accordance with such opinion.

          (b)  Whenever in the performance of its duties under this Agreement
     the Rights Agent shall deem it necessary or desirable that any fact or
     matter (including, without limitation, the identity of any Acquiring Person
     and the determination of "current market price") be proved or established
     by the Company prior to taking or suffering any action hereunder, such fact
     or matter (unless other evidence in respect thereof be specified herein)
     may be deemed to be conclusively proved and established by a certificate
     signed by the Chairman of the Board, the Chief Executive Officer, the
     President, any Vice President, the Treasurer, any Assistant Treasurer, the
     Secretary or any Assistant Secretary of the Company and delivered to the
     Rights Agent; provided, however, that so long as any Person is an Acquiring
                   --------  -------
     Person hereunder, such certificate shall be signed and delivered by a
     majority of the Board of Directors; and such certificate shall be full
     authorization to the Rights Agent for any action taken or suffered in good
     faith by it under the provisions of this Agreement in reliance upon such
     certificate.

          (c)  The Rights Agent shall be liable hereunder only for its own gross
     negligence, bad faith or willful misconduct.

          (d)  The Rights Agent shall not be liable for or by reason of any of
     the statements of fact or recitals contained in this Agreement or in the
     Rights Certificates or be required

                                      27
<PAGE>

     to verify the same (except as to its countersignature on such Rights
     Certificates), but all such statements and recitals are and shall be deemed
     to have been made by the Company only.

          (e)  The Rights Agent shall not have any responsibility for the
     validity of this Agreement or the execution and delivery hereof (except the
     due execution hereof by the Rights Agent) or for the validity or execution
     of any Rights Certificate (except its countersignature thereof); nor shall
     it be responsible for any breach by the Company of any covenant or failure
     by the Company to satisfy conditions contained in this Agreement or in any
     Rights Certificate; nor shall it be responsible for any adjustment required
     under the provisions of Section 11 or Section 13 hereof or for the manner,
     method or amount of any such adjustment or the ascertaining of the
     existence of facts that would require any such adjustment (except with
     respect to the exercise of Rights evidenced by Rights Certificates after
     receipt by the Rights Agent of the certificate describing any such
     adjustment contemplated by Section 12); nor shall it by any act hereunder
     be deemed to make any representation or warranty as to the authorization or
     reservation of any shares of Preferred Stock or any other securities to be
     issued pursuant to this Agreement or any Rights Certificate or as to
     whether any shares of Preferred Stock or any other securities will, when so
     issued, be validly authorized and issued, fully paid and non-assessable.

          (f)  The Company shall perform, execute, acknowledge and deliver or
     cause to be performed, executed, acknowledged and delivered all such
     further acts, instruments and assurances as may reasonably be required by
     the Rights Agent for the performance by the Rights Agent of its duties
     under this Agreement.

          (g)  The Rights Agent is hereby authorized and directed to accept
     instructions with respect to the performance of its duties hereunder from
     the Chairman of the Board, the Chief Executive Officer, the President, any
     Vice President, the Secretary, any Assistant Secretary, the Treasurer or
     any Assistant Treasurer of the Company, and to apply to such officers for
     advice or instructions in connection with its duties, and it shall not be
     liable for any action taken or suffered to be taken by it in good faith in
     accordance with instructions of any such officer; provided, however, that
                                                       --------  -------
     so long as any Person is an Acquiring Person hereunder, the Rights Agent
     shall accept such instructions and advice only from a majority of the Board
     of Directors and shall not be liable for any action taken or suffered to be
     taken by it in good faith in accordance with such instructions of the
     majority of the Board of Directors. Any application by the Rights Agent for
     written instructions from the Company may, at the option of the Rights
     Agent, set forth in writing any action proposed to be taken or omitted by
     the Rights Agent under this Rights Agreement and the date on and/or after
     which such action shall be taken or such omission shall be effective. The
     Rights Agent shall not be liable for any action taken by, or omission of,
     the Rights Agent in accordance with a proposal included in any such
     application on or after the date specified in such application (which date
     shall not be less than five Business Days after the date any such officer
     of the Company actually receives such application, unless any such officer
     shall have consented in writing to an earlier date) unless, prior to taking
     any such action (or the effective date in the case of an omission), the
     Rights Agent shall have received written instructions in response to such
     application specifying the action to be taken or omitted.

                                      28
<PAGE>

          (h)  The Rights Agent and any shareholder, director, officer or
     employee of the Rights Agent may buy, sell or deal in any of the Rights or
     other securities of the Company or have a pecuniary interest in any
     transaction in which the Company may be interested, or contract with or
     lend money to the Company or otherwise act as fully and freely as though it
     were not Rights Agent under this Agreement. Nothing herein shall preclude
     the Rights Agent from acting in any other capacity for the Company or for
     any other legal entity.

          (i)  The Rights Agent may execute and exercise any of the rights or
     powers hereby vested in it or perform any duty hereunder either itself or
     by or through its attorneys or agents.

          (j)  No provision of this Agreement shall require the Rights Agent to
     expend or risk its own funds or otherwise incur any financial liability in
     the performance of any of its duties or in the exercise of its rights
     hereunder if the Rights Agent shall have reasonable grounds for believing
     that repayment of such funds or adequate indemnification against such risk
     or liability is not reasonably assured to it.

          (k)  If, with respect to any Rights Certificate surrendered to the
     Rights Agent for exercise or transfer, the certificate attached to the form
     of assignment or form of election to purchase, as the case may be, has
     either not been completed, not signed or indicates an affirmative response
     to clause 1 and/or 2 thereof, the Rights Agent shall not take any further
     action with respect to such requested exercise or transfer without first
     consulting with the Company. If such certificate has been completed and
     signed and shows a negative response to clauses 1 and 2 of such
     certificate, unless previously instructed otherwise in writing by the
     Company (which instructions may impose on the Rights Agent additional
     ministerial responsibilities, but no discretionary responsibilities), the
     Rights Agent may assume without further inquiry that the Rights Certificate
     is not owned by a Person described in Section 7(e) hereof and shall not be
     charged with any knowledge to the contrary.

     Section 21.  Change of Rights Agent.  The Rights Agent or any successor
                  ----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty days' prior notice in writing mailed to the Company, and to each
transfer agent of the Preferred Stock and the Company Common Stock, by
registered or certified mail, and to the holders of the Rights Certificates by
first-class mail.  In the event the Transfer Agency and Services Agreement
terminates, the Rights Agent will be deemed to resign automatically on the
effective date of such termination, and any required notice will be sent by the
Company.  The Company may remove the Rights Agent or any successor Rights Agent
upon thirty days' prior notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Stock and the Company Common Stock, by registered or certified mail,
and to the holders of the Rights Certificates by first-class mail. If the Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty days after giving notice
of such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by

                                      29
<PAGE>

the Company), then any registered holder of any Rights Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or any state of the United States in good standing, shall be
authorized under applicable laws to exercise corporate trust or stock transfer
powers and shall be subject to supervision or examination by federal or state
authorities or (b) an Affiliate of a corporation described in clause (a). After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Preferred Stock and the
Company Common Stock, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent.

     Section 22.  Issuance of New Rights Certificates.  Notwithstanding any of
                  -----------------------------------
the provisions of this Agreement or the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by a majority of the Board of Directors to reflect any
adjustment or change made in accordance with the provisions of this Agreement in
the Purchase Price or the number or kind or class of shares or other securities
or property that may be acquired under the Rights Certificates. In addition, in
connection with the issuance or sale of shares of Company Common Stock following
the Distribution Date and prior to the Expiration Date, the Company (a) shall,
with respect to shares of Company Common Stock so issued or sold pursuant to the
exercise of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by a
majority of the Board of Directors, issue Rights Certificates representing the
appropriate number of Rights in connection with such issuance or sale; provided,
                                                                       --------
however, that (i) no such Rights Certificate shall be issued if, and to the
-------
extent that, the Company shall be advised by counsel that such issuance would
create a significant risk of material adverse tax consequences to the Company or
the Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.

     Section 23.  Redemption and Termination.  (a) Subject to Section 30 hereof,
                  --------------------------
the Company may, at its option, by action of a majority of the Board of
Directors, at any time prior to the earlier of (i) the Close of Business on the
tenth Business Day following the Stock Acquisition Date or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $.001 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being the "Redemption
                                                                  ----------
Price").  The Company may, at its option, by action of a majority of the Board
-----
of Directors, pay the Redemption Price either in shares of Company Common Stock
(based on the "current market price", as defined in Section 11(d) hereof, of the
shares of Company Common Stock at the time of redemption) or cash and

                                      30
<PAGE>

the redemption of the Rights shall be effective on the basis and with such
conditions as the Board of Directors may in its sole discretion establish.

          (b)  Immediately upon the action of a majority of the Board of
Directors ordering the redemption of the Rights, evidence of which shall be
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. The Company shall promptly give public notice of any such
redemption; provided, however, that the failure to give, or any defect in, any
            --------  -------
such notice shall not affect the validity of such redemption. Promptly after the
action of a majority of the Board of Directors ordering the redemption of the
Rights, the Company shall give notice of such redemption to the Rights Agent and
the holders of the then outstanding Rights by mailing such notice to all such
holders at each holder's last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the transfer agent for the Company Common Stock. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made.

     Section 24.  Notice of Certain Events.  (a) In case the Company shall
                  ------------------------
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend paid out of funds legally available therefor), (ii) to
offer to the holders of Preferred Stock rights or warrants to subscribe for or
to purchase any additional shares of Preferred Stock or shares of stock of any
class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding shares of Preferred Stock), (iv) to effect
any consolidation or merger into or with any other Person, or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one or more transactions, of more than 50% of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person or Persons (other than a transfer by the Company and/or any
of its wholly owned Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier; provided, however, no such notice shall be
                                      --------  -------
required pursuant to this Section 24, if any wholly owned Subsidiary of the
Company effects a consolidation or merger with or into, or effects a sale or
other transfer of assets or earnings power to, any other wholly owned Subsidiary
of the Company.

                                      31
<PAGE>

          (b)  In case any Triggering Event shall occur, then, in any such case,
(i) the Company shall as soon as practicable thereafter give to each holder of a
Rights Certificate, to the extent feasible and in accordance with Section 25
hereof, a notice of the occurrence of such event, which shall specify the event
and the consequences of the event to holders of Rights under Section 11(a)(ii)
or Section 13 hereof, as the case may be.

     Section 25.  Notices.  All notices and other communications provided for
                  -------
hereunder shall, unless otherwise stated herein, be in writing (including by
telex, telegram or cable) and mailed or sent or delivered, if to the Company, at
its address at:

     Optika Inc.
     7450 Campus Drive, 2/nd/ Floor
     Colorado Springs, Colorado 80920
     Attn: Chief Financial Officer
     Facsimile: (719) 531-0119

     and if to the Rights Agent, at its address at:

     EquiServe Trust Company, N.A.
     150 Royall Street
     Canton, Massachusetts 02021
     Attn: Client Administration

     Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Company Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.

     Section 26.  Supplements and Amendments.  Prior to the Distribution Date
                  --------------------------
and subject to the penultimate sentence of this Section 26, the Company may, in
its sole and absolute discretion, and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement in any respect
without the approval of any holders of certificates representing shares of
Company Common Stock. From and after the Distribution Date and subject to the
penultimate sentence of this Section 26, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder, or (iv) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person); provided, however, that this Agreement may not be
                         --------  -------
supplemented or amended to lengthen, pursuant to clause (iii) of this sentence,
(A) subject to Section 30 hereof, a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the

                                      32
<PAGE>

benefits to, the holders of Rights. Without limiting the foregoing, the Company
may at any time prior to such time as any Person becomes an Acquiring Person
amend this Agreement to lower the thresholds set forth in Section 1(a) to not
less than the greater of (i) the sum of .001% and the largest percentage of the
outstanding shares of Company Common Stock then known by the Company to be
beneficially owned by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Company Common Stock for or pursuant to the terms
of any such plan), and (ii) 10%. Upon the delivery of a certificate from an
appropriate officer of the Company or, so long as any Person is an Acquiring
Person hereunder, from the majority of the Board of Directors which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 26, the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Agreement to the contrary, (i) no
supplement or amendment shall be made which changes the Redemption Price, the
Purchase Price, the Expiration Date or the number of Units of Preferred Stock or
other securities or assets for which a Right is exercisable without the approval
of a majority of the Board of Directors, and (ii) following the occurrence of a
Section 11(a)(ii) Event, no supplement or amendment whatsoever shall be made
without the approval of the Board of Directors. Prior to the Distribution Date,
the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Company Common Stock.

     Section 27.  Successors. All the covenants and provisions of this Agreement
                  ----------
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.

     Section 28.  Determinations and Actions by the Board of Directors, etc.
                  ---------------------------------------------------------
For all purposes of this Agreement, any calculation of the number of shares of
Company Common Stock outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding shares of Company
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the Exchange Act
Regulations as in effect on the date hereof. Except as otherwise specifically
provided herein, the Board of Directors of the Company shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board of Directors or to the Company, or as
may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power (i) to interpret the
provisions of this Agreement, and (ii) to make all determinations deemed
necessary or advisable for the administration of this Agreement. All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board of Directors in good faith shall (x) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties, and (y) not subject the Board or any member
thereof to any liability to the holders of the Rights.

     Section 29.  Benefits of this Agreement.  Nothing in this Agreement shall
                  --------------------------
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of shares of Company Common Stock) any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the Rights
Agent and the

                                      33
<PAGE>

registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of shares of Company Common Stock).

     Section 30. Severability. If any term, provision, covenant or restriction
                 ------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
--------  -------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and a majority of the
Board of Directors determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement and the Rights shall not then be redeemable, the right
of redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the Close of Business on the tenth Business Day following the date
of such determination by a majority of the Board of Directors.

     Section 31.  Governing Law.  This Agreement, each Right and each Rights
                  -------------
Certificate issued hereunder shall be governed by, and construed in accordance
with, the laws of the State of Delaware applicable to contracts executed in and
to be performed entirely in such State.

     Section 32.  Counterparts.  This Agreement may be executed (including by
                  ------------
facsimile) in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original, but all of which taken together shall constitute one and the same
instrument.

     Section 33.  Descriptive Headings.  The headings contained in this
                  --------------------
Agreement are for descriptive purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

     Section 34.  Exchange.  (a) The Company, upon resolution of a majority of
                  --------
the Board of Directors may, at its option, at any time after the first
occurrence of a Section 11(a)(ii) Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to Section 7(e) hereof) for Units of Preferred Stock or
shares of Company Common Stock (at the election of the Board of Directors) at an
exchange ratio of one Unit of Preferred Stock or one share of Company Common
Stock, as the case may be, per Right, as appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being the "Exchange Ratio").  Notwithstanding the
                                       --------------
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than an Exempt Person), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of shares
of Company Common Stock aggregating 50% or more of the shares of Company Common
Stock then outstanding.  From and after the occurrence of a Section 13(a) Event,
any Rights that theretofore have not been exchanged pursuant to this Section
34(a) shall thereafter be exercisable only in accordance with Section 13 and may
not be exchanged pursuant to this Section 34(a).  The exchange of the Rights by
the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.

                                      34
<PAGE>

          (b)  Immediately upon the action of a majority of the Board of
Directors ordering the exchange of any Rights pursuant to Section 34(a) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Units of Preferred Stock or shares of Company
Common Stock, as the case may be, equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. The Company shall promptly give
public notice of any such exchange; provided, however, that the failure to give,
                                    --------  -------
or any defect in, such notice shall not affect the validity of such exchange.
The Company promptly shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange shall state the method by which the exchange of
Units of Preferred Stock or shares of Company Common Stock, as the case may be,
for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.

          (c)  In the event that the number of shares of Preferred Stock or
Company Common Stock, as the case may be, which are authorized by the Company's
Amended and Restated Certificate of Incorporation but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights are
not sufficient to permit any exchange of Rights as contemplated in accordance
with this Section 34, the Company, upon a resolution of a majority of the Board
of Directors, shall take all such action as may be necessary to authorize
additional shares of Preferred Stock or Company Common Stock, as the case may
be, for issuance upon exchange of the Rights or make adequate provision to
substitute, in whole or in part, (1) cash, (2) other equity securities of the
Company, (3) debt securities of the Company, (4) other assets, or (5) any
combination of the foregoing, having an aggregate value for each Right to be
exchanged equal to the per share market price of one Unit of Preferred Stock or
share of Company Common Stock, as the case may be (determined pursuant to
Section 11(d) hereof) as of the date of a Section 11(a)(ii) Event, where such
aggregate value has been determined by a majority of the Board of Directors.

          (d)  The Company shall not be required to issue fractions of Units of
Preferred Stock or fractions of shares of Company Common Stock or to distribute
certificates which evidence fractional Units or fractional shares.  In lieu of
issuing fractional Units or fractional shares, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exchanged
as herein provided an amount in cash equal to the same fraction of the current
market price (determined pursuant to Section 11(d) hereof) of one Unit of
Preferred Stock or one share of Company Common Stock, as the case may be, on the
Trading Day immediately prior to the date of exchange pursuant to this Section
34.

                                      35
<PAGE>

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

OPTIKA INC.

By: /s/ Mark Ruport                   By: /s/ Steven M. Johnson
   --------------------------            ----------------------------
Name:   Mark Ruport                   Name:   Steven M. Johnson
Title:  Chairman, President and       Title:  Chief Financial Officer and
         Chief Executive Officer               Secretary

EQUISERVE TRUST COMPANY, N.A.

By:  /s/  Carol Mulvey-Eori
   ----------------------------
Name: Carol Mulvey-Eori
Title: Managing Director

                                      36
<PAGE>

                                   EXHIBIT A
                                   ---------

                          FORM OF RIGHTS CERTIFICATE

Certificate No. ______                                         ______ Rights

NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS DEFINED IN THE RIGHTS AGREEMENT
REFERRED TO BELOW). THE RIGHTS ARE SUBJECT TO REDEMPTION OR EXCHANGE, AT THE
OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.  UNDER
CERTAIN CIRCUMSTANCES (SPECIFIED IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY
OWNED BY ACQUIRING PERSONS (AS DEFINED IN THE RIGHTS AGREEMENT) OR ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.

                              Rights Certificate

                                  OPTIKA INC.

     This certifies that ______________________, or registered assigns, is the
registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms and conditions of
the Amended and Restated Rights Agreement dated as of January 23, 2002, as
amended from time to time (the "Rights Agreement''; terms defined therein are
used herein with the same meaning unless otherwise defined herein) between
Optika Inc., a Delaware corporation (the "Company"), and EquiServe Trust
Company, N.A., as Rights Agent (which term shall include any successor Rights
Agent under the Rights Agreement), to purchase from the Company at any time
after the Distribution Date and prior to the Expiration Date at the office of
the Rights Agent, one one-hundredth of a fully paid and nonassessable share of
Series B Preferred Stock, par value $.001 per share (the ''Preferred Stock"), of
the Company at the Purchase Price initially of $30 per one one-hundredth share
of Preferred Stock (each such one one-hundredth of a share being a "Unit"), upon
presentation and surrender of this Rights Certificate with the Election to
Purchase and related certificate duly executed. The number of Rights evidenced
by this Rights Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price per Unit set forth
above, and the Purchase Price per share set forth above, are the number and
Purchase Price as of July 18, 2001 based on the Preferred Stock as constituted
at such date.  The Company reserves the right to require prior to the occurrence
of a Triggering Event (as such term is defined in the Rights Agreement) that a
number of Rights be exercised so that only whole shares of Preferred Stock will
be issued.

     Upon the occurrence of a Section 11(a)(ii) Event, if the Rights evidenced
by this Rights Certificate are beneficially owned by an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person or, under certain
circumstances described in the Rights Agreement, a transferee of any such
Acquiring Person, Associate or Affiliate, such Rights shall become null and void
and no holder hereof shall have any right with respect to such Rights from and
after the occurrence of such Section 11(a)(ii) Event.

                                       1

<PAGE>

     In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase capital
stock of an entity other than the Company or receive common stock, cash or other
assets, all as provided in the Rights Agreement.

     As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including a
Triggering Event.

     This Rights Certificate is subject to all of the terms and conditions of
the Rights Agreement, which terms and conditions are hereby incorporated herein
by reference and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Rights Certificates, which limitations of rights include
the temporary suspension of the exercisability of such Rights under the specific
circumstances set forth in the Rights Agreement.  Copies of the Rights Agreement
are on file at the principal office of the Rights Agent and are available from
the Rights Agent upon written request.

     This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing an aggregate number of Rights equal to the aggregate number
of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered.  If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company under certain circumstances at
its option at a redemption price of $.001 per Right, at any time prior to the
earlier of the close of business on (i) the tenth business day following the
Stock Acquisition Date (as such time period may be extended pursuant to the
Rights Agreement), and (ii) the Final Expiration Date.  In addition, the Rights
may be exchanged, in whole or in part, for shares of the Company Common Stock or
Units of Preferred Stock.  Immediately upon the action of the Board of Directors
of the Company authorizing any such exchange, and without any further action or
any notice, the Rights (other than Rights which are not subject to such
exchange) will terminate and the Rights will only enable holders to receive the
shares issuable upon such exchange.

     No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock or depositary
receipts representing such fractions), but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.

     No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Stock or
of any other securities which may at any time be issuable on the exercise
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a

                                       2
<PAGE>

stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends of subscription rights, or otherwise, until
the Rights evidenced by this Rights Certificate shall have been exercised as
provided in the Rights Agreement.

                                       3
<PAGE>

     This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

     WITNESS the facsimile signature of the proper officers of the Company.
Dated as of ____________.

                                      OPTIKA INC.

                                      By:______________________
                                         Name:_________________
                                         Title:________________

                                      By:______________________
                                         Name:_________________
                                         Title:________________

Countersigned:

EQUISERVE TRUST COMPANY, N.A.
     as Rights Agent

     By:__________________
        Name:_____________
        Title:____________

                                       4
<PAGE>

                 [Form of Reverse Side of Rights Certificate]

                              FORM OF ASSIGNMENT

      (To be executed by the registered holder if such holder desires to
                       transfer the Rights Certificate.)

     FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers
unto:_________________________________________________ (Please print name and
address of transferee) ___________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _____________________ Attorney, to
transfer the within Rights Certificate on the books of the within-named Company,
with full power of substitution.

                                       Dated __________________

                                       ________________________________
                                       Signature

                                       Signature Guaranteed:

                                  Certificate
                                  -----------

     The undersigned hereby certifies by checking the appropriate boxes in (1)
and (2) that:

     (1) this Rights Certificate [  ] is [  ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement); and

     (2) after due inquiry and to the best knowledge of the undersigned, it [  ]
did [  ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.

                                       Dated ___________________
                                       _________________________________
                                       Signature

                                       Signature Guaranteed:

                                       5
<PAGE>

                                    NOTICE
                                    ------

     The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.

     Signatures must be guaranteed by an approved eligible financial institution
acceptable to the Rights Agent in its sole discretion or by a participant in the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange Medallion Program.

     In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.

                                       6
<PAGE>

                         FORM OF ELECTION TO PURCHASE

         (To be executed if the registered holder desires to exercise
                Rights represented by the Rights Certificate.)

To:  OPTIKA INC.

         The undersigned hereby irrevocably elects to exercise ________________
Rights represented by this Rights Certificate to purchase the Units of Preferred
Stock issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person or other property which may be issuable upon the
exercise of the Rights) and requests that certificates for such Units be issued
in the name of and delivered to: _______________________________________________
(Please print name and address) _______________________________ (Please insert
social security or other identifying number).

         If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
__________________________________________________________ (Please print name
and address) ______________________________________________ (Please insert
social security or other identifying number).

                                       Dated ___________________

                                       _________________________________
                                       Signature

                                       Signature Guaranteed:

                                  Certificate
                                  -----------

         The undersigned hereby certifies by checking the appropriate boxes in
(1) and (2) that:

         (1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof (as defined in the Rights Agreement); and

         (2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [  ] did [  ] did not acquire the Rights evidenced by this Rights
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.

                                       Dated: ___________________

                                       _______________________________
                                       Signature

                                       Signature Guaranteed:

                                       7
<PAGE>

                                    NOTICE

     The signature in the foregoing Election to Purchase and Certificate must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.

     Signatures must be guaranteed by an approved eligible financial institution
acceptable to the Rights Agent in its sole discretion or by a participant in the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange Medallion Program.

     In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.

                                       8
<PAGE>

                                   EXHIBIT B
                                   ---------

                 SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

                          UNDER CERTAIN CIRCUMSTANCES
                     (SPECIFIED IN THE RIGHTS AGREEMENT),
                RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS
                     (AS DEFINED IN THE RIGHTS AGREEMENT)
                    OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS
                           MAY BECOME NULL AND VOID.

     On July 12, 2001 the Board of Directors of Optika Inc. (the "Company")
authorized and declared a dividend distribution of one Right for each
outstanding share of its Common Stock, par value $.001 per share (the "Company
Common Stock"), to stockholders of record at the close of business on July 18,
2001 (the "Record Date"), and authorized the issuance of one Right with each
share of Company Common Stock issued (including shares distributed from
Treasury) by the Company thereafter between the Record Date and the Distribution
Date (as defined below). Each Right entitles the registered holder, subject to
the terms of the Rights Agreement (as defined below), to purchase from the
Company one one-hundredth of a share (a "Unit") of Series B Preferred Stock, par
value $.001 per share (the "Preferred Stock"), at a purchase price of $30 per
Unit, subject to adjustment. The purchase price is payable in cash or by
certified or bank check or money order payable to the order of the Company. The
description and terms of the Rights are set forth in the Amended and Restated
Rights Agreement between the Company and EquiServe Trust Company, N.A., as
Rights Agent, dated as of January 23, 2002, as amended from time to time (the
"Rights Agreement").

     A copy of the Rights Agreement, including the Certificate of Designation
for the Preferred Stock, has been filed by the Company with the Securities and
Exchange Commission as an exhibit to the Company's Current Report on Form 8-K
dated January 23, 2002. Copies of the Rights Agreement and the Certificate of
Designation are available free of charge from the Company. This summary
description of the Rights and the Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to all of the provisions
of the Rights Agreement and the Certificate of Designation, including the
definitions therein of certain terms, which Rights Agreement and Certificate of
Designation are incorporated herein by reference.

     The Rights Agreement
     --------------------

     Initially, the Rights will attach to all certificates representing shares
of outstanding Company Common Stock, and no separate Rights Certificates will be
distributed. The Rights will separate from the Company Common Stock and the
"Distribution Date" will occur upon the earlier of (i) ten business days
following a public announcement (the date of such announcement being the "Stock
Acquisition Date") that a person or group of affiliated or associated persons
has acquired or otherwise obtained beneficial ownership of 15% or more of the
then outstanding shares of Company Common Stock (an "Acquiring Person"), and
(ii) ten business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person becomes an Acquiring Person)
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 15% or more of the

                                       1
<PAGE>

then outstanding shares of Company Common Stock. Until the Distribution Date,
(i) the Rights will be evidenced by Company Common Stock certificates and will
be transferred with and only with such Company Common Stock certificates, (ii)
new Company Common Stock certificates issued after the Record Date (also
including shares distributed from Treasury) will contain a notation
incorporating the Rights Agreement by reference, and (iii) the surrender for
transfer of any certificates representing outstanding Company Common Stock will
also constitute the transfer of the Rights associated with the Company Common
Stock represented by such certificates.

     An "Acquiring Person" does not include (A) the Company; (B) any Subsidiary
of the Company; (C) any employee benefit plan maintained by the Company or any
of its Subsidiaries; (D) any trustee or fiduciary with respect to such employee
benefit plan acting in such capacity or a trustee or fiduciary holding shares of
Company Common Stock for the purpose of funding any such plan or employee
benefits; (E) any Person if the Board of Directors of the Company determines in
good faith that such Person who would otherwise be an "Acquiring Person" became
such inadvertently (including, without limitation, because (x) such Person was
unaware that it beneficially owned a percentage of Company Common Stock that
would otherwise cause such Person to be an "Acquiring Person" or (y) such Person
was aware of the extent of its Beneficial Ownership of Company Common Stock but
had no actual knowledge of the consequences of such Beneficial Ownership under
this Agreement) and without any intention of changing or influencing control of
the Company, and if such Person does not acquire any additional shares of
Company Common Stock and as promptly as practicable divested or divests itself
of Beneficial Ownership of a sufficient number of shares of Company Common Stock
so that such Person would no longer be an "Acquiring Person;" or (F) any Person
who is or becomes the Beneficial Owner of 15% or more of the then outstanding
shares of Company Common Stock as a result of the acquisition of shares of
Company Common Stock in one or more transactions approved by a majority of the
Board of Directors, and (ii) no Person shall be deemed an "Acquiring Person" as
a result of the acquisition of shares of Company Common Stock by the Company
which, by reducing the number of shares of Company Common Stock outstanding,
increases the proportional number of shares beneficially owned by such Person;
provided, however, that if (A) a Person would become an Acquiring Person (but
--------  -------
for the operation of this subclause (ii)) as a result of the acquisition of
shares of Company Common Stock by the Company and (B) after such share
acquisition by the Company, such Person becomes the Beneficial Owner of any
additional shares of Company Common Stock, then such Person shall be deemed an
Acquiring Person unless upon becoming the Beneficial Owner of such additional
shares such Person is the Beneficial Owner of less than 15% of the then
outstanding shares of Company Common Stock.

     The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the Rights Agreement unless
earlier redeemed or exchanged by the Company as described below. Under certain
circumstances the exercisability of the Rights may be suspended. In no event,
however, will the Rights be exercisable prior to the expiration of the period in
which the Rights may be redeemed.

     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Company Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights.

                                       2
<PAGE>

     In the event that a person becomes an Acquiring Person, then, in such case,
each holder of a Right will thereafter have the right to receive, upon exercise,
shares of Company Common Stock (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right. The exercise price is the purchase price multiplied by the
number of Units of Preferred Stock issuable upon exercise of a Right prior to
the event described in this paragraph. Notwithstanding any of the foregoing,
following the occurrence of the event set forth in this paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void.

     In the event that, at any time following the date that any person becomes
an Acquiring Person, (i) the Company is acquired in a merger or other business
combination transaction and the Company is not the surviving corporation, (ii)
any person merges with the Company and all or part of the Company Common Stock
is converted or exchanged for securities, cash or property of the Company or any
other person or (iii) 50% or more of the Company's assets or earning power is
sold or transferred, each holder of a Right (except Rights which previously have
been voided as described above) shall thereafter have the right to receive, upon
exercise, common stock of the Acquiring Person having a value equal to two times
the exercise price of the Right unless such transaction is approved by the Board
of Directors.

     The purchase price payable, and the number of Units of Preferred Stock
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred Stock, (ii) if
holders of the Preferred Stock are granted certain rights or warrants to
subscribe for Preferred Stock or convertible securities at less than the current
market price of the Preferred Stock, or (iii) upon the distribution to the
holders of the Preferred Stock of evidences of indebtedness, cash or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).

     With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments amount to at least 1% of the purchase
price. The Company is not required to issue fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock which may be evidenced by depositary receipts). In lieu
thereof, an adjustment in cash may be made based on the current market price of
a share of Preferred Stock on the day of exercise.

     At any time until ten business days following the Stock Acquisition Date, a
majority of the Board of Directors may redeem the Rights in whole, but not in
part, at a price of $.001 per Right (subject to adjustment in certain events)
(the "Redemption Price") payable, at the election of the majority of the Board
of Directors, in cash or shares of Company Common Stock. Immediately upon the
action of a majority of the Board of Directors ordering the redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.

     The Company may at any time after there is an Acquiring Person, by action
of a majority of the Board of Directors, exchange all or part of the then
outstanding and exercisable Rights

                                       3
<PAGE>

(other than Rights that shall have become null and void) for shares of Company
Common Stock pursuant to a one-for-one exchange ratio, as adjusted.

     Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Units of Preferred Stock (or other consideration).

     Any of the provisions of the Rights Agreement may be amended without the
approval of the holders of Company Common Stock at any time prior to the
Distribution Date, including an amendment to lower certain thresholds described
above to not less than the greater of (i) the sum of .001% and the largest
percentage of the outstanding shares of Company Common Stock then known to the
Company to be beneficially owned by any person or group of affiliated or
associated persons, and (ii) 10%. After the Distribution Date, the provisions of
the Rights Agreement may be amended in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
                                                                --------
however, that no amendment to adjust (i) the time period governing redemption
-------
shall be made at such time as the Rights are not redeemable or (ii) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the Rights of and/or benefiting, the holders of Rights. In
addition, after a person becomes an Acquiring Person, no amendment or supplement
may be made without the approval of a majority of the Board of Directors.

     Description of Preferred Stock
     ------------------------------

     The Units of Preferred Stock that may be acquired upon exercise of the
Rights will be nonredeemable and subordinate to any other shares of preferred
stock that may be issued by the Company.

     Each Unit of Preferred Stock will have a minimum preferential quarterly
dividend of $.01 per Unit or any higher per share dividend declared on the
Company Common Stock.

     In the event of liquidation, the holder of a Unit of Preferred Stock will
receive a preferred liquidation payment equal to the greater of $.01 per Unit
and the per share amount paid in respect of a share of the Company Common Stock.

     Each Unit of Preferred Stock will have one vote, voting together with the
Company Common Stock.

     In the event of any merger, consolidation or other transaction in which
shares of Company Common Stock are exchanged, each Unit of Preferred Stock will
be entitled to receive the per share amount paid in respect of each share of
Company Common Stock.

     The rights of holders of the Preferred Stock with respect to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.

                                       4
<PAGE>

     Because of the nature of the Preferred Stock's dividend, liquidation and
voting rights, the economic value of one Unit of Preferred Stock that may be
acquired upon the exercise of each Right should approximate the economic value
of one share of Company Common Stock.

                                       5
<PAGE>

                                   EXHIBIT C
                                   ---------

                          CERTIFICATE OF DESIGNATION

                                  OPTIKA INC.
                          CERTIFICATE OF DESIGNATION
                                    OF THE
                           SERIES B PREFERRED STOCK

                     _____________________________________

Pursuant to Section 151 of the General Corporation Law of the State of Delaware

                     _____________________________________

     The undersigned officers of Optika Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:

     That, pursuant to the authority conferred upon the Board of Directors of
the Corporation by its Second Amended and Restated Certificate of Incorporation
(the "Certificate"), the said Board of Directors, at a duly called meeting held
on July 12, 2001, at which a quorum was present and acted throughout, adopted
the following resolution, which resolution remains in full force and effect on
the date hereof creating a series of Series B shares of preferred stock having a
par value of $.001 per share, designated as Series B Preferred Stock (the
"Series B Preferred Stock") out of the class of 2,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"):

     RESOLVED, that pursuant to the authority vested in the Board of Directors
in accordance with the provisions of its Certificate, the Board of Directors
does hereby create, authorize and provide for the issuance of 200,000 shares of
its authorized Preferred Stock to be designated and issued as the Series B
Preferred Stock, having the voting powers, designation, relative, participating,
optional and other special rights, preferences and qualifications, limitations
and restrictions that are set forth as follows:

     1.   Dividends and Distributions.   (A) Subject to the prior and superior
          ---------------------------
rights of the holders of any shares of any other series of Preferred Stock or
any other shares of stock of the Corporation ranking prior and superior to the
shares of Series B Preferred Stock with respect to dividends, each holder of one
one-hundredth (1/100) of a share (a "Unit") of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, (i) quarterly dividends payable in
cash on the first day of March, June, September and December in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of such Unit of Series
B Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to
the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, the aggregate per share amount of all cash dividends
declared on shares of the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of a Unit of Series B Preferred

                                       1
<PAGE>

Stock, and (ii) subject to the provision for adjustment hereinafter set forth,
quarterly distributions (payable in kind) on each Quarterly Dividend Payment
Date in an amount per Unit equal to the aggregate per share amount of all non-
cash dividends or other distributions (other than a dividend payable in shares
of Common Stock or a subdivision of the outstanding shares of Common Stock, by
reclassification or otherwise) declared on shares of Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or with respect to the
first Quarterly Dividend Payment Date, since the first issuance of a Unit of
Series B Preferred Stock. In the event that the Corporation shall at any time
after July 18, 2001 (the "Rights Declaration Date") (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case the
amount to which the holder of a Unit of Series B Preferred Stock was entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which
shall be the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock that were outstanding immediately prior to such event.

     (B)  The Corporation shall declare a dividend or distribution on Units of
Series B Preferred Stock as provided in paragraph (A) above immediately after it
declares a dividend or distribution on the shares of Common Stock (other than a
dividend payable in shares of Common Stock); provided, however, that, in the
                                             --------  -------
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per Unit on the
Series B Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

     (C)  Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series B Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series B Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series B Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on Units of Series B Preferred
Stock in an amount less than the aggregate amount of all such dividends at the
time accrued and payable on such Units shall be allocated pro rata on a unit-by-
unit basis among all Units of Series B Preferred Stock at the time outstanding.
The Board of Directors may fix a record date for the determination of holders of
Units of Series B Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.

     2.   Voting Rights.  The holders of Units of Series B Preferred Stock shall
          -------------
have the following voting rights:

                                       2
<PAGE>

     (A)  Subject to the provision for adjustment hereinafter set forth, each
Unit of Series B Preferred Stock shall entitle the holder thereof to one vote on
all matters submitted to a vote of the stockholders of the Corporation. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, then in
each such case the number of votes per Unit to which holders of Units of Series
B Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator of which shall
be the number of shares of Common Stock outstanding immediately after such event
and the denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event; and

     (B)  Except as otherwise provided herein, in the Certificate or the Bylaws
of the Corporation or as required by law, the holders of Units of Series B
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation,
and such holders shall have no special voting rights and their consents shall
not be required for taking any corporate action.

     3.   Certain Restrictions.  (A)  Whenever quarterly dividends or other
          --------------------
dividends or distributions payable on Units of Series B Preferred Stock as
provided herein are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding Units of
Series B Preferred Stock shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of junior stock; (ii)
declare or pay dividends on or make any other distributions on any shares of
parity stock, except dividends paid ratably on Units of Series B Preferred Stock
and shares of all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of such Units and all
such shares are then entitled; (iii) redeem or purchase or otherwise acquire for
consideration shares of any parity stock, provided, however, that the
                                          --------  -------
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any junior stock; (iv) purchase or
otherwise acquire for consideration any Units of Series B Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such Units.

     (B)  The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 3,
purchase or otherwise acquire such shares at such time and in such manner.

     4.   Reacquired Shares.  Any Units of Series B Preferred Stock purchased or
          -----------------
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such Units shall, upon
their cancellation, become authorized but unissued shares (or fractions of
shares) of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.

                                       3
<PAGE>

     5.   Liquidation, Dissolution or Winding Up.  (A) Upon any voluntary or
          --------------------------------------
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the holders of shares of junior stock unless
the holders of Units of Series B Preferred Stock shall have received, subject to
adjustment as hereinafter provided in paragraph (B), the greater of either (a)
$.01 per Unit plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not earned or declared, to the date of such
payment, or (b) the amount equal to the aggregate per share amount to be
distributed to holders of shares of Common Stock, or (ii) to the holders of
shares of parity stock, unless simultaneously therewith distributions are made
ratably on Units of Series B Preferred Stock and all other shares of such parity
stock in proportion to the total amounts to which the holders of Units of Series
B Preferred Stock are entitled under clause (i)(a) of this sentence and to which
the holders of shares of such parity stock are entitled, in each case upon such
liquidation, dissolution or winding up.

     (B)  In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series B Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.

     6.   Consolidation, Merger, etc.  In case the Corporation shall enter into
          --------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or converted into other stock or securities,
cash and/or any other property, then in any such case Units of Series B
Preferred Stock shall at the same time be similarly exchanged for or converted
into an amount per Unit (subject to the provision for adjustment hereinafter set
forth) equal to the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is converted or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock, or (iii) combine outstanding
Common Stock into a smaller number of shares, then in each such case the amount
set forth in the immediately preceding sentence with respect to the exchange or
conversion of Units of Series B Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which shall be the number of shares
of Common Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.

     7.   Redemption.  The Units of Series B Preferred Stock and shares of
          ----------
Series B Preferred Stock shall not be redeemable.

     8.   Ranking.  The Units of Series B Preferred Stock and shares of Series B
          -------
Preferred Stock shall rank junior to all other series of the Preferred Stock and
to any other class of Preferred Stock that hereafter may be issued by the
Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.

                                       4
<PAGE>

     9.   Fractional Shares.  The Series B Preferred Stock may be issued in
          -----------------
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's units or fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series B Preferred Stock.

     10.  Certain Definitions.  As used in this resolution with respect to the
          -------------------
Series B Preferred Stock, the following terms shall have the following meanings:

     (A)  The term "Common Stock" shall mean the class of stock designated as
the common stock, par value $.001 per share, of the Corporation at the date
hereof or any other class of stock resulting from successive changes or
reclassification of the common stock.

     (B)  The term "junior stock" (i) as used in Section 3 shall mean the Common
Stock and any other class or series of capital stock of the Corporation
hereafter authorized or issued over which the Series B Preferred Stock has
preference or priority as to the payment of dividends and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of capital
stock of the Corporation over which the Series B Preferred Stock has preference
or priority in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.

     (C)  The term "parity stock" (i) as used in Section 3 shall mean any class
or series of stock of the Corporation hereafter authorized or issued ranking
pari passu with the Series B Preferred Stock as to dividends and (ii) as used in
---- -----
Section 5, shall mean any class or series of capital stock ranking pari passu
                                                                   ---- -----
with the Series B Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding up.

                                       5
<PAGE>

          IN WITNESS WHEREOF, Optika Inc. has caused this Certificate to be
signed by its Chairman, President and Chief Executive Officer and its Chief
Financial Officer and Secretary this 18th day of July, 2001.

                              OPTIKA INC.

                              By:/s/ Mark K. Ruport
                                 ---------------------------
                              Name:  Mark K. Ruport
                              Title: Chairman, President and Chief
                                     Executive Officer

                              By:/s/Steven M. Johnson
                                 ---------------------------
                              Name:  Steven M. Johnson
                              Title: Chief Financial Officer and Secretary

                                       6

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