Document:

CREDIT AGREEMENT

                              among

                    MDU RESOURCES GROUP, INC.

                          as Borrower;

             WELLS FARGO BANK, NATIONAL ASSOCIATION,

                    as Administrative Agent;

                               and

          THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

                   Closing Date: June 21, 2005

             $100,000,000 Revolving Credit Facility

                           Arranged by

             WELLS FARGO BANK, NATIONAL ASSOCIATION

                      as Sole Lead Arranger

                        TABLE OF CONTENTS

ARTICLE I Definitions
  Section 1.1 Definitions
  Section 1.2 Rules of Construction

ARTICLE II Amount and Terms of the Credit Facilities
  Section 2.1 The Facility
  Section 2.2 Procedure for Borrowings
  Section 2.3 Interest on Notes
  Section 2.4 Principal and Interest Payment Dates
  Section 2.5 Level Status, Margins and Fee Rates
  Section 2.6 Fees
  Section 2.7 Prepayments
  Section 2.8 Termination of Facility or Reduction of the Aggregate Facility
              Amount
  Section 2.9 Payments
  Section 2.10 Increased Costs; Capital Adequacy; Funding Exceptions
  Section 2.11 Funding Losses
  Section 2.12 Discretion of Lenders as to Manner of Funding
  Section 2.13 Conclusiveness of Statements; Survival of Provisions
  Section 2.14 Computation of Interest and Fees
  Section 2.15 Purpose of Borrowings
  Section 2.16 Increase of Aggregate Facility Amount

ARTICLE III Conditions Precedent
  Section 3.1 Initial Conditions Precedent
  Section 3.2 Conditions Precedent to All Borrowings

ARTICLE IV Representations and Warranties
  Section 4.1 Existence and Power
  Section 4.2 Authorization of Borrowing; No Conflict as to Law or Agreements
  Section 4.3 Legal Agreements
  Section 4.4 Subsidiaries
  Section 4.5 Financial Condition
  Section 4.6 Adverse Change
  Section 4.7 Litigation
  Section 4.8 Environmental Matters
  Section 4.9 Regulation U
  Section 4.10 Taxes
  Section 4.11 Titles and Liens
  Section 4.12 Intellectual Property
  Section 4.13 ERISA.

ARTICLE V Affirmative Covenants
  Section 5.1 Reporting
  Section 5.2 Books and Records; Inspection and Examination
  Section 5.3 Compliance with Laws
  Section 5.4 Payment of Taxes and Other Claims
  Section 5.5 Maintenance of Properties
  Section 5.6 Insurance
  Section 5.7 Preservation of Corporate Existence

ARTICLE VI Negative Covenants
  Section 6.1 Liens
  Section 6.2 Investments
  Section 6.3 Distributions
  Section 6.4 Sale of Assets
  Section 6.5 Transactions with Affiliates
  Section 6.6 Consolidation and Merger
  Section 6.7 Environmental Laws
  Section 6.8 Restrictions on Nature of Business
  Section 6.9 Consolidated Total Leverage Ratio
  Section 6.10 Borrower Leverage Ratio
  Section 6.11 Interest Coverage Ratio

ARTICLE VII Events of Default, Rights and Remedies
  Section 7.1 Events of Default
  Section 7.2 Rights and Remedies

ARTICLE VIII The Agent
  Section 8.1 Authorization
  Section 8.2 Distribution of Payments and Proceeds
  Section 8.3 Expenses
  Section 8.4 Payments Received Directly by Lenders
  Section 8.5 Indemnification
  Section 8.6 Exculpation
  Section 8.7 Agent and Affiliates
  Section 8.8 Credit Investigation
  Section 8.9 Resignation and Assignment of Agent
  Section 8.10 Defaults
  Section 8.11 Obligations Several

ARTICLE IX Miscellaneous
  Section 9.1 No Waiver; Cumulative Remedies
  Section 9.2 Amendments, Etc
  Section 9.3 Notice
  Section 9.4 Costs and Expenses
  Section 9.5 Indemnification by Borrower
  Section 9.6 Execution in Counterparts
  Section 9.7 Binding Effect; Assignment and Participations
  Section 9.8 Disclosure of Information
  Section 9.9 Governing Law
  Section 9.10 Consent to Jurisdiction
  Section 9.11 Waiver of Jury Trial
  Section 9.12 Severability of Provisions
  Section 9.13 Prior Agreements
  Section 9.14 Other Financing
  Section 9.15 Termination of Existing Credit Facility
  Section 9.16 Headings

                        CREDIT AGREEMENT

                    Dated as of June 21, 2005

          MDU Resources Group, Inc., a Delaware corporation,
Wells Fargo Bank, National Association, a national banking
association, as administrative agent hereunder, and the Lenders,
as defined below, agree as follows:

                            ARTICLE I
                           Definitions

Section 1.1 Definitions.

As used in this Agreement:

          "Additional Lender" means a financial institution that
     becomes a Lender pursuant to the procedures set forth in
     Section 2.16 or 9.7(c).

          "Advance" means an advance by a Lender to the Borrower
     pursuant to Article II.

          "Affiliate" of any Person means any other Person
     directly or indirectly controlling, controlled by or under
     the common control with such Person.  A Person shall be
     deemed to control another Person if the controlling Person
     owns 10% or more of any class of voting securities (or other
     ownership interests) of the controlled Person or possesses,
     directly or indirectly, the power to direct or cause the
     direction of the management or policies of the controlled
     Person, whether through ownership of stock or other equity
     interests, by contract or otherwise.

          "Agent" means Wells Fargo acting in its capacity as
     administrative agent for itself and the other Lenders
     hereunder.

          "Aggregate Facility Amount" means $100,000,000, as such
     amount may be reduced pursuant to Section 2.8 or increased
     pursuant to Section 2.16.

          "Agreement" means this Credit Agreement.

          "Applicable Rating" means (i) with respect to S&P, the
     rating designated by S&P as its corporate credit rating of
     the Borrower, (ii) with respect to Moody's, the rating
     designated by Moody's as its issuer rating of the Borrower,
     and (iii) with respect to Fitch, the rating designated by
     Fitch as its rating of the Borrower's senior unsecured debt.

          "Assignment Certificate" has the meaning set forth in
     Section 9.7(e).

          "Authorizing Order" means any order of any public
     utilities commission or any other regulatory body having
     jurisdiction over the Borrower, authorizing and/or
     restricting the indebtedness that may be created from time
     to time hereunder (whether on account of Advances or
     otherwise).

           "Base LIBO Rate" means the rate per annum for United
     States dollar deposits quoted by the Agent as the Interbank
     Market Offered Rate, with the understanding that such rate
     is quoted by the Agent for the purpose of calculating
     effective rates of interest for loans making reference
     thereto, on the first day of an Interest Period for delivery
     of funds on said date for a period of time approximately
     equal to the number of days in such Interest Period and in
     an amount approximately equal to the principal amount to
     which such Interest Period applies. The Borrower understands
     and agrees that the Agent may base its quotation of the
     Interbank Market Offered Rate upon such offers or other
     market indicators of the Interbank Market as the Agent in
     its discretion deems appropriate including, but not limited
     to, the rate offered for U.S. dollar deposits on the London
     Interbank Market.

          "Borrower" means MDU Resources Group, Inc., a Delaware
     corporation.

          "Borrower Leverage Ratio" means the ratio of Funded
     Debt to Capitalization, determined with respect to the
     Borrower alone (excluding its Subsidiaries, but including
     any divisions of the Borrower not constituting separate
     Persons) as at the end of each fiscal quarter of the
     Borrower.

          "Borrowing" means a borrowing under Article II
     consisting of Advances made to the Borrower at the same time
     by each of the Lenders severally.

          "Business Day" means a day other than a Saturday,
     Sunday, United States national holiday or other day on which
     banks in Minnesota are permitted or required by law to
     close. Whenever the context relates to a LIBO Rate Funding
     or the fixing of a LIBO Rate, "Business Day" means a day
     (i) that meets the foregoing definition, and (ii) on which
     dealings in U.S. dollar deposits are carried on in the
     London interbank eurodollar market.

          "Capitalization" means, with respect to any Person as
     of any Covenant Compliance Date, (i) Funded Debt of that
     Person, plus (ii) shareholders' equity of that Person
     (excluding any non-cash gain or loss resulting from the
     requirements of Financial Accounting Standards Board
     Statement No. 133, "Accounting for Derivative Instruments
     and Hedging Activities"), all determined in accordance with
     GAAP. In determining Capitalization for purposes of
     calculating the Borrower Leverage Ratio, Funded Debt and
     equity attributable to any Subsidiary shall be excluded.

          "Capitalized Lease" means any lease that in accordance
     with GAAP should be capitalized on the balance sheet of the
     lessee thereunder or for which the amount of the asset and
     liability thereunder as if so capitalized should be
     disclosed in a note to such balance sheet. All obligations
     under any lease that is treated as an operating lease under
     GAAP but pursuant to which the lessee thereunder retains tax
     ownership of the leased property for federal income tax
     purposes shall be treated as a Capitalized Lease for
     purposes of this Agreement.

          "Change of Control" means, with respect to any
     corporation, either (i) the acquisition by any "person" or
     "group" (as those terms are used in Sections 13(d) and 14(d)
     of the Exchange Act) of beneficial ownership (as defined in
     Rules 13d-3 and 13d-5 of the Securities and Exchange
     Commission, except that a Person shall be deemed to have
     beneficial ownership of all securities that such Person has
     the right to acquire, whether such right is exercisable
     immediately or only after the passage of time), directly or
     indirectly, of 25% or more of the then-outstanding voting
     capital stock of such corporation; or (ii) a change in the
     composition of the board of directors of such corporation or
     any corporate parent of such corporation such that
     continuing directors cease to constitute more than 50% of
     such board of directors. As used in this definition,
     "continuing directors" means, as of any date, (i) those
     members of the board of directors of the applicable
     corporation who assumed office prior to such date, and
     (ii) those members of the board of directors of the
     applicable corporation who assumed office after such date
     and whose appointment or nomination for election by that
     corporation's shareholders was approved by a vote of at
     least 50% of the directors of such corporation in office
     immediately prior to such appointment or nomination.

          "Code" means the Internal Revenue Code of 1986, and the
     regulations promulgated thereunder, as amended, reformed or
     otherwise modified from time to time.

          "Commitment" means, with respect to each Lender, that
     Lender's commitment to make Advances pursuant to Article II.

          "Compliance Certificate" means a certificate in
     substantially the form of Exhibit C, or such other form as
     the Borrower and the Required Lenders may from time to time
     agree upon in writing, executed by the chief financial
     officer of the Borrower, stating (i) that any financial
     statements delivered therewith have been prepared in
     accordance with GAAP (or, in the case of statements prepared
     pursuant to Section 5.1(a)(iii), in accordance with FERC
     Accounting Principles), subject to year-end adjustments,
     (ii) whether or not such officer has knowledge of the
     occurrence of any Default or Event of Default hereunder not
     theretofore reported and remedied and, if so, stating in
     reasonable detail the facts with respect thereto and
     (iii) all relevant facts in reasonable detail to evidence,
     and the computations as to, whether or not the Borrower is
     in compliance with the Financial Covenants.

          "Consolidated Net Worth" means, at any time, the excess
     of total assets of the Borrower over total liabilities of
     the Borrower as of the last day of the fiscal quarter most
     recently then ended, determined on a consolidated basis in
     accordance with GAAP.

          "Consolidated Total Leverage Ratio" means, as of any
     Covenant Compliance Date, the ratio of Funded Debt to
     Capitalization, determined on a consolidated basis with
     respect to the Borrower and all of its Subsidiaries.

          "Covenant Compliance Date" means the last day of each
     fiscal quarter of the Borrower.

          "Credit Exposure" means, with respect to any Lender at
     any time, (i) such Lender's Facility Amount (whether used or
     unused) at such time, or (ii) if the Commitments have
     terminated in their entirety, the aggregate outstanding
     principal amount of its Note at such time.

          "Default" means an event that, with the giving of
     notice, the passage of time or both, would constitute an
     Event of Default.

          "Distribution" means any payment made by the Borrower
     on account of any equity interest in the Borrower, including
     but not limited to any dividend and any payment in purchase,
     redemption or other retirement of any stock or membership
     interest.
          "EBITDA" means, with respect to any period:
          (i)  (A) the after-tax net income of the Borrower for
               such period, determined on an unconsolidated basis
               in accordance with GAAP, excluding (B) non-
               operating gains and losses (including
               extraordinary or unusual gains and losses, gains
               and losses from discontinuance of operations,
               gains and losses arising from the sale of assets
               other than inventory, and other non-recurring
               gains and losses),
          plus
          (ii) the sum of the following to the extent
               deducted in arriving at the after-tax net income
               determined in clause (i)(A) of this definition
               (but without duplication for any item):
               (A)  Interest Expense,
               (B)  federal, state and local income taxes paid by
                    the Borrower, and
               (C)  depreciation and amortization.

          "Eligible Lender" means (a) a financial institution
     organized under the laws of the United States, or any state
     thereof, and having a combined capital and surplus of at
     least $100,000,000; (b) a commercial bank organized under
     the laws of any other country which is a member of the
     Organization for Economic Cooperation and Development, or a
     political subdivision of any such country, and having a
     combined capital and surplus of at least $100,000,000,
     provided that such bank is acting through a branch or agency
     located in the United States; and (c) a Person that is
     primarily engaged in the business of commercial banking and
     that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a
     Person of which a Lender is a Subsidiary, or (iii) a Person
     of which a Lender is a Subsidiary.

          "Environmental Claim" means a material claim, however
     asserted, by any governmental authority or other Person
     alleging potential liability or responsibility for violation
     of any Environmental Law, or for release or injury to the
     environment.

          "Environmental Law" means the Comprehensive
     Environmental Response, Compensation and Liability Act, 42
     U.S.C. Section 9601 et seq., the Resource Conservation and
     Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous
     Materials Transportation Act, 49 U.S.C. Section 1802 et seq., the
     Toxic  Substances Control Act, 15 U.S.C. Section 2601 et seq., the
     Federal Water Pollution Control Act, 33 U.S.C. Section 1252 et
     seq., the Clean Water Act, 33 U.S.C. Section 1321 et seq., the
     Clean Air Act, 42 U.S.C. Section 7401 et seq., and any other
     federal, state, county, municipal, local or other statute,
     law, ordinance or regulation which in each case relates to
     human health or the environment, all as may be from time to
     time amended.

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

          "ERISA Affiliate" means any trade or business (whether
     or not incorporated) that is, along with the Borrower, a
     member of a controlled group of corporations or a controlled
     group of trades or businesses, as described in sections
     414(b) and 414(c), respectively, of the Code.

          "ERISA Event" means (a) a Reportable Event with respect
     to a Pension Plan; (b) a withdrawal by the Borrower or any
     ERISA Affiliate from a Pension Plan subject to Section 4063
     of ERISA during a plan year in which it was a substantial
     employer (as defined in Section 4001(a)(2) of ERISA) or a
     cessation of operations which is treated as such a
     withdrawal under Section 4062(e) of ERISA; (c) a complete or
     partial withdrawal by the Borrower or any ERISA Affiliate
     from a Multiemployer Plan or notification that a
     Multiemployer Plan is in reorganization; (d) the
     commencement of proceedings by the PBGC to terminate a
     Pension Plan; (e) a failure by the Borrower or any ERISA
     Affiliate to make required contributions to a Pension Plan,
     Multiemployer Plan or other Plan subject to Section 412 of
     the Code; (f) an event or condition which might reasonably
     be expected to constitute grounds under Section 4042 of
     ERISA for the termination of, or the appointment of a
     trustee to administer, any Pension Plan; (g) the imposition
     of any liability under Title IV of ERISA, other than PBGC
     premiums due but not delinquent under Section 4007 of ERISA,
     upon the Borrower or any ERISA Affiliate; or (h) an
     application for a funding waiver or an extension of any
     amortization period pursuant to Section 412 of the Code with
     respect to any Plan.

          "ERISA Termination Event" means the filing of a notice
     of intent to terminate a Pension Plan, or the treatment of a
     plan amendment as the termination of a Pension Plan, under
     Section 4041 or 4041A of ERISA.

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

          "Exchange Act" means the Securities Exchange Act of
     1934, as amended.

          "Existing Credit Agreement" means the Credit Agreement
     dated July 18, 2003 among the Borrower, Wells Fargo Bank,
     National Association, as Administrative Agent, and the
     Lenders, as defined therein, together with all amendments,
     modifications and restatements thereof.

          "Existing Credit Facility" means the revolving credit
     facility arising under the Existing Credit Agreement.

          "Facility" means the revolving credit facility
     established under Section 2.1.

          "Facility Amount" means, (i) with respect to each
     original Lender hereunder, the amount set forth opposite
     that Lender's name in Exhibit A, (ii) with respect to each
     Additional Lender, the amount so designated on the
     applicable Assignment Certificate, or (iii) in the case of
     any Incremental Lender, such Incremental Lender's Facility
     Amount as determined pursuant to Section 2.16, in each case
     as such amount may be adjusted pursuant to Section 2.8, 2.16
     or any Assignment Certificate.

          "Facility Fee Rate" means a percentage, determined as
     set forth in Section 2.5.

          "Federal Funds Rate" means at any time an interest rate
     per annum equal to the weighted average of the rates for
     overnight federal funds transactions with members of the
     Federal Reserve System arranged by federal funds brokers, as
     published for such 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 such
     day for such transactions received by the Agent from three
     federal funds brokers of recognized standing selected by it,
     it being understood that the Federal Funds Rate for any day
     which is not a Business Day shall be the Federal Funds Rate
     for the next preceding Business Day.

          "Fee Letters" means one or more separate agreements
     between the Borrower and the Agent, setting forth the terms
     of certain fees to be paid by the Borrower to the Agent for
     the Agent's own behalf or for the benefit of the Lenders, as
     more fully set forth therein.

          "FERC Accounting Principles" means the accounting
     requirements of the Federal Energy Regulatory Commission as
     set forth in its applicable Uniform System of Accounts and
     published accounting releases.

          "Financial Covenant" means any of the Borrower's
     obligations set forth in Sections 6.9, 6.10 and 6.11 of this
     Agreement

          "Fitch" means Fitch, Inc.

          "Floating Rate" means, at any time, an annual rate
     equal to the sum of the Floating Rate Margin and the greater
     of:

               (a) the Prime Rate,

               or

               (b) the Federal Funds Rate, plus 50 basis points
          (0.50%).

     The Floating Rate shall change when and as the Prime Rate or
     Federal Funds Rate, as the case may be, or Floating Rate
     Margin changes.

          "Floating Rate Funding" means any Borrowing, or any
     portion of the principal balance of the Notes, bearing
     interest at the Floating Rate.

          "Floating Rate Margin" means a percentage, determined
     as set forth in Section 2.5.

           "Funded Debt" of any Person means (without
     duplication) (i) all indebtedness of such Person for
     borrowed money (which shall, in the case of the Borrower,
     include but not be limited to all indebtedness under this
     Agreement, all indebtedness arising under the Mortgage
     Indentures, and all Subordinated Debt); (ii)  indebtedness
     of such Person evidenced by bonds, notes or similar written
     instruments, whether or not representing obligations for
     borrowed money; (iii) all liabilities required to appear on
     such Person's balance sheet with respect to Capitalized
     Lease obligations of such Person; (iv) all indebtedness
     secured by a Lien on any property owned by such Person,
     whether or not such indebtedness has been assumed by such
     Person or is nonrecourse to such Person; (v) the face amount
     of all letters of credit and bankers' acceptances issued for
     the account of such Person, and without duplication, all
     drafts drawn thereunder; (vi) all obligations of such Person
     with respect to leases constituting part of a sale and
     leaseback arrangement; (vii) all net obligations of such
     Person under interest rate agreements or currency
     agreements; and (viii) guaranty obligations of such Person
     with respect to indebtedness for borrowed money of another
     Person (including affiliates).

          "Funding" means a Floating Rate Funding or a LIBO Rate
     Funding.

          "GAAP" means generally accepted accounting principles
     as in effect from time to time applied on a basis consistent
     with the accounting practices applied in the financial
     statements of the Borrower and its Subsidiaries referred to
     in Section 4.5.

          "Incremental Lender" has the meaning set forth in
     Section 2.16(b).

          "Insolvency Proceeding" means, with respect to a
     Person, (a) any case, action or proceeding with respect to
     such Person before any court or other governmental authority
     relating to bankruptcy, reorganization, insolvency,
     liquidation, receivership, dissolution, winding-up or relief
     of debtors, or (b) any general assignment for the benefit to
     creditors, composition, marshalling of assets for creditors,
     or other similar arrangement in respect of its creditors
     generally or any substantial portion of its creditors,
     undertaken under U.S. federal, state or foreign law,
     including the Federal Bankruptcy Reform Act of 1978 (11
     U.S.C. Section 101, et seq.).

          "Interest Coverage Ratio" means, as of any Covenant
     Compliance Date, the ratio of (i) EBITDA during the period
     of 12 months ending on that Covenant Compliance Date, to
     (ii) Interest Expense during such period.

          "Interest Expense" means, with respect to any period,
     the aggregate interest expense (including capitalized
     interest) of the Borrower alone (i.e., on an unconsolidated
     basis) for such period, including but not limited to the
     interest portion of any Capitalized Lease; provided,
     however, that the foregoing shall be adjusted to reflect
     only the net effect of any interest rate swap, interest
     hedging transaction or other similar arrangement entered
     into by the Borrower to reduce or eliminate variations in
     its interest expenses.

          "Interest Period" means, with respect to any LIBO Rate
     Funding, a period of one, two, three or six months beginning
     on a Business Day, as elected by the Borrower.

          "Lenders" means Wells Fargo, acting on its own behalf
     and not as Agent, each of the undersigned lenders, and any
     financial institution that becomes a Lender pursuant to
     Section 2.16 or 9.7(c), collectively.

          "Level Status" means Level I, Level II, Level III,
     Level IV or Level V, each as determined pursuant to Section 2.5.

          "LIBO Rate" means the rate per annum (rounded upward,
     if necessary, to the nearest whole 1/8 of 1%) and determined
     pursuant to the following formula:

      LIBO Rate       Base LIBO Rate        +  LIBO Rate Margin
              =
                   100% - LIBOR Reserve
                        Percentage

          "LIBO Rate Funding" means any Borrowing, or any portion
     of the principal balance of the Notes, bearing interest at a
     LIBO Rate.

          "LIBO Rate Margin" means a percentage, determined as
     set forth in Section 2.5.

           "LIBOR Reserve Percentage" means the reserve
     percentage prescribed by the Board of Governors of the
     Federal Reserve System (or any successor) for "Eurocurrency
     Liabilities" (as defined in Regulation D of the Federal
     Reserve Board, as amended), adjusted by the Agent for
     expected changes in such reserve percentage during the
     applicable Interest Period.

           "Lien" means any mortgage, deed of trust, lien,
     pledge, security interest or other charge or encumbrance, of
     any kind whatsoever, including but not limited to the
     interest of the lessor or titleholder under any Capitalized
     Lease, title retention contract or similar agreement.

          "Loan Documents" means this Agreement, the Notes and
     the Fee Letters.

          "Margin" means the Floating Rate Margin or the LIBO
     Rate Margin, as the case may be.

          "Material Adverse Effect" means a material adverse
     effect on (i) the condition (financial or otherwise),
     properties, or operations of the Borrower, (ii) the ability
     of the Borrower to perform its obligations under the Loan
     Documents, or (iii) the validity or enforceability of any of
     the Loan Documents or the rights or remedies of the Agent or
     any Lender thereunder.

          "Maturity Date" means the Revolving Period Termination
     Date.

          "Maximum Aggregate Facility Amount" means $125,000,000,
     unless said amount is reduced pursuant to Section 2.8, in
     which event it means the amount to which said amount is
     reduced.

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

          "Mortgage Indentures" means (i) the Indenture of
     Mortgage dated as of May 1, 1939 executed by the Borrower
     and delivered to The New York Trust Company and A.C.
     Downing, as trustees thereunder, as heretofore amended and
     supplemented and as hereafter amended and/or supplemented
     from time to time, and (ii) the Indenture, dated as of
     December 15, 2003, executed by the Borrower and delivered to
     the Bank of New York, as trustee thereunder, as heretofore
     amended and supplemented and as hereafter amended and/or
     supplemented from time to time.

          "Multiemployer Plan" means a "multiemployer plan"
     (within the meaning of Section 4001(a)(3) of ERISA) to which
     the Borrower or any ERISA Affiliate makes, is making, or is
     obligated to make contributions or, during the preceding
     three calendar years, has made, or been obligated to make,
     contributions.

          "Note" means a promissory note of the Borrower in the
     form of Exhibit B.

          "Obligations" means each and every debt, liability and
     obligation of every type and description arising under or in
     connection with any of the Loan Documents which the Borrower
     may now or at any time hereafter owe to any Lender or the
     Agent, whether such debt, liability or obligation now exists
     or is hereafter created or incurred, whether it is direct or
     indirect, due or to become due, absolute or contingent,
     primary or secondary, liquidated or unliquidated, or sole,
     joint, several or joint and several, and including but not
     limited to principal of and interest on the Notes, all fees
     due under this Agreement, any Fee Letter or any related
     agreement, and any obligation of the Borrower to the Agent
     or any Lender under any hedging arrangement entered into
     with the Agent or any Lender with respect to the Borrower's
     obligations arising under this Agreement.

          "PBGC" means the Pension Benefit Guaranty Corporation.

          "Pension Plan" means a pension plan (as defined in
     Section 3(2) of ERISA) subject to Title IV of ERISA which
     the Borrower or any ERISA Affiliate sponsors, maintains, or
     to which it makes, is making, or is obligated to make
     contributions, or in the case of a multiple employer plan
     (as described in Section 4064(a) of ERISA) has made
     contributions at any time during the immediately preceding
     five (5) plan years but excluding any Multiemployer Plan.

          "Percentage" means, with respect to each Lender, the
     ratio of (i) that Lender's Credit Exposure, to (ii) the
     aggregate Credit Exposure of all of the Lenders.

          "Person" means any individual, corporation,
     partnership, limited liability company, joint venture,
     association, joint-stock company, trust, unincorporated
     organization or government or any agency or political
     subdivision thereof.

          "Plan" means an employee benefit plan (as defined in
     Section 3(3) of ERISA) which the Borrower or any ERISA
     Affiliate sponsors or maintains or to which the Borrower or
     any ERISA Affiliate makes, is making, or is obligated to
     make contributions and includes any Pension Plan but
     excluding any Multiemployer Plan.

          "Prime Rate" means, at any time, the rate of interest
     most recently announced within the Agent at its principal
     office as its "prime rate" or, if the Agent ceases to
     announce a rate so designated, any similar successor rate
     designated by the Agent. Such rate is one of the Agent's
     base rates and serves as the basis upon which effective
     rates of interest are calculated for those loans making
     reference thereto, and is evidenced by the recording thereof
     in such internal publication or publications as the Agent
     may designate.

          "Principal Payment Date" means the first Business Day
     preceding each anniversary hereof.

          "Rating Agencies" means Fitch, Moody's and S&P,
     collectively.

          "Reportable Event" means any of the events set forth in
     Section 4043(c) of ERISA or the regulations thereunder,
     other than any such event for which the 30-day notice
     requirement under ERISA has been waived in regulations
     issued by the PBGC.

          "Required Lenders" means one or more Lenders
     (including, where relevant, Additional Lenders and
     Incremental Lenders) having an aggregate Percentage in
     excess of 50%.

          "Revolving Period Termination Date" means June 21,
     2010.

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

          "Solvent" means as to any Person at any time (a) the
     fair value of the property of such Person is greater than
     the amount of such Person's liabilities (including the
     probable liability of such Person on disputed, contingent
     and unliquidated liabilities) as such value is established
     and liabilities evaluated for purposes of Section 101(32) of
     the Bankruptcy Code; (b) the present fair saleable value of
     the property of such Person is not less than the amount that
     will be required to pay the probable liability of such
     Person on its debts as they become absolute and matured; (c)
     such Person is able to realize upon its property and pay its
     debts and other liabilities (including the probable
     liability of such Person on disputed, contingent and
     unliquidated liabilities) as they mature in the normal
     course of business; (d) such Person does not intend to, and
     does not believe that it will, incur debts or liabilities
     beyond such Person's ability to pay as such debts and
     liabilities mature; and (e) such Person is not engaged in
     business or a transaction, and is not about to engage in
     business or a transaction, for which such Person's property
     would constitute unreasonably small capital.

          "Subordinated Debt" means all indebtedness and other
     obligations of the Borrower which are subordinated in right
     of payment to all indebtedness of the Borrower to any
     Lender, on terms that have been approved in writing by the
     Required Lenders and that have been noted by appropriate
     legend on all instruments evidencing the Subordinated Debt.

          "Subsidiary" of a Person means any corporation,
     association, partnership, limited liability company, joint
     venture or other business entity of which more than 50% of
     the voting stock, membership interests or other equity
     interests (in the case of Persons other than corporations),
     is owned  or controlled directly or indirectly by the
     Person, by one of more of the Subsidiaries of the Person, or
     by a combination thereof.  Unless the context otherwise
     clearly requires, references herein to a "Subsidiary" refer
     to a Subsidiary of the Borrower.

          "Unfunded Pension Liability" means the excess of a
     Pension Plan's benefit liabilities under Section 302(d)(7)
     of ERISA over the current value of that Plan's assets,
     determined in accordance with the assumptions used for
     funding the Pension Plan pursuant to Section 412 of the Code
     for the applicable plan year.

          "Utilization Fee Rate" means a percentage, determined
     as set forth in Section 2.5.

          "Wells Fargo" means Wells Fargo Bank, National
     Association, a national banking association and a party to
     this Agreement.

Section 1.2 Rules of Construction

For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:

          (a)  The terms defined in this Article have the
     meanings assigned to them in this Article, and include the
     plural as well as the singular.

          (b)  All accounting terms not otherwise defined herein
     have the meanings assigned to them in accordance with GAAP.

          (c)  All references to times of day in this Agreement
     shall be references to Minneapolis, Minnesota time unless
     otherwise specifically provided.

                           ARTICLE II
            Amount and Terms of the Credit Facilities

Section 2.1 The Facility.

Each Lender agrees, severally but not jointly, on the terms and
subject to the conditions hereinafter set forth, to make Advances
to the Borrower from time to time during the period from the date
hereof to and including the Revolving Period Termination Date in
an aggregate amount not to exceed at any time outstanding that
Lender's Facility Amount. Each Borrowing shall be in an amount
equal to an integral multiple of $500,000 and not less than
$1,000,000 (or such greater amount as may be required pursuant to
Section 2.3(b) if any part of such Borrowing will constitute a
LIBO Rate Funding). Through the Revolving Period Termination
Date, the facility established hereby shall be a revolving
facility; within the limits of the Aggregate Facility Amount, the
Borrower may borrow, prepay pursuant to Section 2.7 and reborrow
under this Section 2.1. The Advances made by each Lender shall be
evidenced by a Note, payable to the order of that Lender in the
face principal amount of that Lender's Facility Amount.
Notwithstanding any other provision of this Agreement to the
contrary, no Borrowing shall be effected on any Principal Payment
Date.

Section 2.2 Procedure for Borrowings.

Each Borrowing shall occur on prior written request from the
Borrower to the Agent or telephonic request from any person
purporting to be authorized to request Borrowings on behalf of
the Borrower, which request shall specify the date of the
requested Borrowing and the amount thereof. Except as set forth
in Section 2.3(b), each such request by the Borrower shall be
made not less than one Business Day before the date of the
requested Borrowing.  Promptly upon receipt of such request, the
Agent shall advise each Lender of the proposed Borrowing. At or
before 2:00 p.m. on the date of the requested Borrowing, each
Lender shall provide the Agent at the principal office of the
Agent in Minneapolis, Minnesota with immediately available funds
covering such Lender's Percentage of such Borrowing.  The Agent
shall disburse the amount of the requested Borrowing by crediting
the same to the Borrower's demand deposit account maintained with
the Agent or in such other manner as the Agent and the Borrower
may from time to time agree; provided, however, that the Agent
shall have no obligation to disburse the requested Borrowing if
any condition set forth in Article III has not been satisfied on
the day of the requested Borrowing or if any Lender has failed to
fund its Percentage of the requested Borrowing. The Borrower
shall promptly confirm each telephonic request for a Borrowing by
executing and delivering an appropriate confirmation certificate
to the Agent. The Borrower shall be obligated to repay all
Advances notwithstanding the failure of the Agent to receive such
confirmation and notwithstanding the fact that the person
requesting same was not in fact authorized to do so.  Any request
for a Borrowing shall be deemed to be a representation that the
statements set forth in Section 3.2 are correct.

Section 2.3 Interest on Notes.

          (a)  Floating Rate Fundings. Unless the Borrower elects
     a LIBO Rate pursuant to this Section, the principal balance
     of the Notes shall bear interest at the Floating Rate.

          (b)  LIBO Rate Fundings. So long as no Default or Event
     of Default exists, the Borrower may request that a portion
     of any requested Borrowing constitute a LIBO Rate Funding,
     or may convert all or any part of any outstanding Floating
     Rate Funding into a LIBO Rate Funding, or may request that a
     LIBO Rate Funding be converted at the end of the applicable
     Interest Period to another LIBO Rate Funding, by giving
     notice to the Agent of such request or conversion not later
     than 10:30 a.m. on a Business Day which is at least three
     Business Days prior to the date of the requested Borrowing
     or conversion. Each such notice shall be effective upon
     receipt by the Agent, shall be in writing or by telephone or
     telecopy transmission, shall specify the date and amount of
     such Borrowing or conversion, and the Interest Period
     therefor. The Interest Period applicable to each LIBO Rate
     Funding shall begin on a Business Day, and the amount of
     each LIBO Rate Funding shall be an integral multiple of
     $1,000,000 and not less than $5,000,000. Subject to the
     terms and conditions hereof, the principal amount specified
     by the Borrower in the applicable request for a LIBO Rate
     Funding shall bear interest from and including the first day
     of the Interest Period specified therein to but not
     including the last day of such Interest Period, at the LIBO
     Rate applicable thereto, determined as set forth herein,
     (subject to fluctuations in the applicable Margin). Unless
     the Borrower requests a new LIBO Rate Funding in accordance
     with the procedures set forth above, or prepays the
     principal of an outstanding LIBO Rate Funding at the
     expiration of an Interest Period, the Lenders shall
     automatically and without request of the Borrower convert
     each LIBO Rate Funding to a Floating Rate Funding on the
     last day of the relevant Interest Period.

          (c)  Setting of LIBO Rates. The applicable LIBO Rate
     for each Interest Period shall be determined by the Agent
     between the opening of business and 12:00 noon on the second
     Business Day prior to the beginning of such Interest Period,
     whereupon notice thereof (which may be by telephone) shall
     be given by the Agent to the Borrower and each Lender. Each
     such determination of the applicable LIBO Rate shall be
     conclusive and binding upon the parties hereto, in the
     absence of demonstrable error. The Agent, upon written
     request of the Borrower, shall deliver to the Borrower a
     statement showing the computations used by the Agent in
     determining the applicable LIBO Rate hereunder.

          (d)  Limitations on LIBO Rate Fundings. In no event
     shall more than 6 LIBO Rate Fundings be outstanding at any
     one time. In no event may the Borrower request a LIBO Rate
     Funding if, after giving effect to such LIBO Rate Funding,
     the Borrower would be required to prepay a LIBO Rate Funding
     in order to make any regularly scheduled principal payment.

Section 2.4 Principal and Interest Payment Dates.

          (a)  Interest. Interest accruing on Floating Rate
     Fundings shall be due and payable on the last day of each
     calendar quarter. Interest on any LIBO Rate Funding shall be
     due and payable on the last day of the applicable Interest
     Period or, if such Interest Period is in excess of three
     months, on the last day of each three-month period during
     such Interest Period and on the last day of such Interest
     Period.

          (b)  Principal. The Borrower shall pay the principal
     balance of all Borrowings then outstanding in full on each
     Principal Payment Date.

Section 2.5 Level Status, Margins and Fee Rates.

          (a)  The Borrower's Level Status shall be determined on
     the basis of the Applicable Ratings established by the
     Rating Agencies, in accordance with the following table:

        Level I   Level II  Level III  Level IV Level V

        A or      A- or     BBB+ or    BBB or   Less
S&P     better    better,   better,    better,  than BBB
                  but less  but less   but less
                  than A    than A-    than
                                       BBB+
        A2 or     A3 or     Baa1 or    Baa2 or  Less
Moody's better    better,   better,    better,  than
                  but less  but less   but less Baa2
                  than A2   than A3    than
                                       Baa1
Fitch   A or      A- or     BBB+ or    BBB or   Less
        better    better,   better,    better,  than BBB
                  but less  but less   but less
                  than A    than A-    than
                                       BBB+

     If the Applicable Ratings established by the Rating Agencies
     differ such that they do not fall within a single column in
     the table set forth above, the Borrower's Level Status shall
     be determined as follows:

          (i)  If the Applicable Ratings applied by any two of
               the Rating Agencies are in the same column, the
               Borrower's Level Status shall be determined by
               that column.

          (ii) If the Applicable Ratings are each in separate
               columns, the highest and lowest columns shall be
               excluded, and the Borrower's Level Status shall be
               determined by the remaining Applicable Rating.

          (b)  In making the determinations under paragraph (a):

          (i)  If any of the Rating Agencies changes the meaning
               or designation for its Applicable Ratings
               referenced in paragraph (a), the criteria for
               Level Status in the table in paragraph (a) shall
               be adjusted in such manner as the Required Lenders
               may reasonably determine to correspond with the
               applicable rating designations used by the
               applicable Rating Agency in effect on the date
               hereof.

          (ii) If one of the Rating Agencies ceases to rate the
               Borrower's long-term unsecured debt such that only
               two of the Rating Agencies are providing such
               Applicable Ratings, the Borrower's Level Status
               shall be determined as follows:

               (A)  If the Applicable Ratings provided by both of
                    the remaining Rating Agencies are in the same
                    column, the Borrower's Level Status shall be
                    determined by that column.

               (B)  If the Applicable Ratings provided by the
                    remaining Rating Agencies are in adjacent
                    columns, the Borrower's Level Status shall be
                    based on the leftmost of the columns.

               (C)  If the Applicable Ratings provided by the
                    remaining Rating Agencies are separated by
                    one or more columns, the Borrower's Level
                    Status shall be based on the column to the
                    immediate right of the leftmost applicable
                    column.

               Notwithstanding the foregoing, if the Applicable
               Rating established by either of the remaining
               Rating Agencies is in the rightmost column above,
               the Borrower shall be deemed to be at Level Status
               V.

          (iii)If any two of the Rating Agencies ceases to
               establish its Applicable Rating, the Borrower
               shall be deemed to be at Level Status V.

          (c)  The Floating Rate Margin, LIBO Rate Margin,
     Facility Fee Rate and Utilization Fee Rate at any time shall
     be determined from time to time on the basis of the
     Borrower's Level Status, in accordance with the following
     table:

                   Level I   Level II   Level III Level IV   Level V
Floating Rate
Margin             0%        0%         0%        0%         0%
LIBO Rate Margin
                   0.295%    0.400%     0.500%    0.600%     0.750%
Facility Fee Rate
                   0.080%    0.100%     0.125%    0.150%     0.200%
Utilization Fee
Rate               0.100%    0.100%     0.125%    0.125%     0.200%

          (d)  Upon the occurrence of any Default or Event of
     Default, and so long as such Default or Event of Default
     continues without written waiver thereof by the Lenders, a
     default increment equal to 200 basis points (2.00%) shall be
     added to the Floating Rate Margin and LIBO Rate Margin.
     Inclusion of such default increment shall not be deemed a
     waiver or excuse of any such Default or Event of Default.

Section 2.6 Fees.

          (a)  Facility Fee. The Borrower shall pay to the Agent,
     for the ratable benefit of the Lenders, a facility fee
     determined at an annual rate equal to the then-applicable
     Facility Fee Rate applied to the average Aggregate Facility
     Amount outstanding during such calendar quarter (or during
     such shorter period ending on the Revolving Period
     Termination Date). The facility fee shall be due and payable
     quarterly in arrears on the last day of each calendar
     quarter, and on the Maturity Date. The facility fee shall
     accrue at all times, including at any time during which any
     condition in Article III has not been satisfied.

          (b)  Utilization Fee. The Borrower shall pay to the
     Agent, for the ratable benefit of the Lenders, a utilization
     fee determined at an annual rate equal to the then-
     applicable Utilization Fee Rate applied to the actual daily
     aggregate principal balance of the Notes on each day that
     such aggregate principal balance exceeds 50% of the
     Aggregate Facility Amount in effect on such day. The
     utilization fee shall be due and payable quarterly in
     arrears on the last day of each calendar quarter, and on the
     Maturity Date. The utilization fee shall accrue at all
     times, including at any time during which any condition in
     Article III has not been satisfied.

          (c)  Fee Letters. The Borrower shall pay to the Agent
     all fees required to be paid pursuant to any Fee Letters.

          (d)  Audit Fees. Upon the occurrence of an Event of
     Default or at any time thereafter until such Event of
     Default is cured, the Borrower shall pay to the Agent, on
     written demand, reasonable fees charged by the Agent in
     connection with any audits or inspections by the Agent of
     any collateral or the operations or businesses of the
     Borrower, together with actual out-of-pocket costs and
     expenses incurred in conducting any such audit or
     inspection. All such audits and inspections shall be for the
     sole benefit of the Agent and the Lenders.

Section 2.7 Prepayments.

          (a)  Voluntary Prepayments. The Borrower from time to
     time may voluntarily prepay the Notes in whole or in part;
     provided that (i) prepayment of any Lender's Note must be
     accompanied by pro rata prepayment of each other Lender's
     Note, (ii) any prepayment of the full amount of any Note
     shall include accrued interest thereon, (iii) partial
     prepayment of any Floating Rate Funding shall be in an
     aggregate amount not less than $1,000,000, (iv) partial
     prepayment of any LIBO Rate Funding shall be in an aggregate
     amount not less than $5,000,000, and (v) any prepayment of
     any LIBO Rate Funding shall be made only upon three Business
     Days' notice to the Agent.

          (b)  Application of Prepayments. So long as no Default
     or Event of Default has occurred and is continuing
     hereunder, all prepayments hereunder shall be applied in
     such order of application as the Borrower may direct in
     writing. In all other cases, all prepayments hereunder shall
     be applied in the following order:

          (i)  First, to the principal installments of the Notes
               (and, if such Notes are payable in installments,
               will be applied to such installments in inverse
               order of their maturities).

          (ii) Second, to accrued but unpaid interest on the
               Notes.

          (iii)Third, to any remaining Obligations, in such
               order as the Agent may in its sole discretion
               designate.

     Notwithstanding the foregoing, interest on any LIBO Rate
     Funding prepaid hereunder and any compensation due under
     Section 2.11 on account of prepayment of a LIBO Rate Funding
     shall be paid with the same priority as the related
     principal prepayment.

Section 2.8 Termination of Facility or Reduction of the Aggregate
Facility Amount.

The Borrower may at any time and from time to time upon three
Business Days' prior notice to the Agent permanently terminate
the Facility in whole or permanently reduce the Aggregate
Facility Amount in part, provided that (i) the Facility may not
be terminated while any Borrowings remain outstanding, (ii) each
partial reduction shall be in the amount of $5,000,000 or a
multiple thereof, (iii) no reduction shall reduce the Aggregate
Facility Amount to an amount less than the aggregate principal
balance of the Notes outstanding at the time, (iv) any partial
reduction of the Aggregate Facility Amount shall be applied pro
rata as to each Lender's Facility Amount in accordance with that
Lender's Percentage, and (v) each reduction in the Aggregate
Facility Amount shall constitute a corresponding reduction in the
Maximum Aggregate Facility Amount.

Section 2.9 Payments.

          (a)  Making of Payments. All payments of principal of
     and interest due under the Notes shall be made to the Agent
     at its principal office in Minneapolis, Minnesota, not later
     than 12:00 noon on the date due, in immediately available
     funds, and funds received after that hour shall be deemed to
     have been received by the Agent on the next following
     Business Day. The Borrower hereby authorizes the Agent to
     charge the Borrower's demand deposit account maintained with
     the Agent for the amount of any such payment on its due
     date, or (at the option of the Agent) to effect a Borrowing
     in such amount, all without receipt of any request for such
     charge or Borrowing, but the Lender's failure to so charge
     such account or effect such Borrowing shall in no way affect
     the obligation of the Borrower to make any such payment.

          (b)  Assumed Payments. Unless the Agent has been
     notified by a Lender or the Borrower prior to the date on
     which such Lender or the Borrower is scheduled to make
     payment to the Agent of (in the case of a Lender) the
     proceeds of an Advance to be made by it hereunder or (in the
     case of the Borrower) a payment to the Agent for the account
     of one or more of the Lenders hereunder (such payment by a
     Lender or the Borrower (as the case may be) being herein
     called a "Required Payment"), which notice shall be
     effective upon receipt, that it does not intend to make the
     Required Payment to the Agent, the Agent may assume that the
     Required Payment has been made and may (but shall not be
     required to), in reliance upon such assumption, make the
     amount thereof available to the intended recipient on such
     date and, if such Lender or the Borrower (as the case may
     be) has not in fact made the Required Payment to the Agent,
     the recipient of such payment shall, on demand, repay to the
     Agent the amount so made available together with interest
     thereon for each day during the period commencing on the
     date such amount was so made available by the Agent until
     the date the Agent recovers such amount at a rate (i) equal
     to the Federal Funds Rate for such day, in the case of a
     Required Payment owing by a Lender, or (ii) equal to the
     applicable rate of interest as provided in this Agreement,
     in the case of a Required Payment owing by the Borrower.

          (c)  Setoff. The Borrower agrees that each Lender shall
     have all rights of setoff and bankers' lien provided by
     applicable law, and in addition thereto, the Borrower agrees
     that if at any time any amount is due and owing by the
     Borrower under this Agreement to any Lender at a time when
     an Event of Default has occurred and is continuing
     hereunder, any Lender may apply any and all balances,
     credits, and deposits, accounts or moneys of the Borrower
     then or thereafter in the possession of that Lender
     (excluding, however, any trust or escrow accounts held by
     the Borrower for the benefit of any third party) to the
     payment thereof.

          (d)  Due Date Extension. If any payment of principal of
     or interest on any Floating Rate Funding or any fees payable
     hereunder falls due on a day which is not a Business Day,
     then such due date shall be extended to the next following
     Business Day, and (in the case of principal) additional
     interest shall accrue and be payable for the period of such
     extension.

          (e)  Application of Payments. Except as otherwise
     provided herein, so long as no Default or Event of Default
     has occurred and is continuing hereunder, each payment
     received from the Borrower shall be applied to such
     obligation as the Borrower shall specify by notice received
     by the Agent on or before the date of such payment, or in
     the absence of such notice, as the Required Lenders shall
     determine in their discretion. Except as otherwise provided
     herein, after the occurrence of a Default or Event of
     Default, the Lenders shall have the right to apply all
     payments received by the Lender from the Borrower as the
     Required Lenders may determine in their discretion. The
     Borrower agrees that the amount shown on the books and
     records of the Agent and the Lenders as being the principal
     balance of and interest on the Notes shall be conclusive
     absent demonstrable error.

Section 2.10 Increased Costs; Capital Adequacy; Funding
Exceptions.

          (a)  Increased Costs on LIBO Rate Fundings. If
     Regulation D of the Board of Governors of the Federal
     Reserve System or after the date of this Agreement the
     adoption of any applicable law, rule or regulation, or any
     change in any existing law, or any change in the
     interpretation or administration thereof by any governmental
     authority, central bank or comparable agency charged with
     the interpretation or administration thereof, or compliance
     by any Lender with any request or directive (whether or not
     having the force of law) of any such authority, central bank
     or comparable agency, shall:

          (i)  subject that Lender to or cause the withdrawal or
               termination of any exemption previously granted to
               that Lender with respect to, any tax, duty or
               other charge with respect to its LIBO Rate
               Fundings or its obligation to make LIBO Rate
               Fundings, or shall change the basis of taxation of
               payments to that Lender of the principal of or
               interest under this Agreement in respect of its
               LIBO Rate Fundings or its obligation to make LIBO
               Rate Fundings (except for changes in the rate of
               tax on the overall net income of that Lender
               imposed by the jurisdictions in which that
               Lender's principal executive office is located);
               or

          (ii) impose, modify or deem applicable any reserve
               (including, without limitation, any reserve
               imposed by the Board of Governors of the Federal
               Reserve System, but excluding any reserve included
               in the determination of interest rates pursuant to
               Section 2.3), special deposit or similar
               requirement against assets of, deposits with or
               for the account of, or credit extended by, that
               Lender; or

          (iii)impose on that Lender any other condition
               affecting its making, maintaining or funding of
               its LIBO Rate Fundings or its obligation to make
               LIBO Rate Fundings;

     and the result of any of the foregoing is to increase the
     cost to that Lender of making or maintaining any LIBO Rate
     Funding, or to reduce the amount of any sum received or
     receivable by that Lender under this Agreement or under its
     Notes with respect to a LIBO Rate Funding, then that Lender
     will notify the Borrower of such increased cost and within
     fifteen (15) days after demand by that Lender (which demand
     shall be accompanied by a statement setting forth the basis
     of such demand and representing that that Lender has made
     similar demand on one or more other commercial borrowers
     with revolving or term loans in excess of $1,000,000) the
     Borrower shall pay to that Lender such additional amount or
     amounts as will compensate that Lender for such increased
     cost or such reduction; provided, however, that no such
     increased cost or such reduction shall be payable by the
     Borrower for any period longer than ninety (90) days prior
     to the date on which notice thereof is delivered to the
     Borrower. Each Lender will promptly notify the Borrower of
     any event of which it has knowledge, occurring after the
     date hereof, which will entitle that Lender to compensation
     pursuant to this Section 2.10. If the Borrower receives
     notice from any Lender of any event which will entitle that
     Lender to compensation pursuant to this Section 2.10, the
     Borrower may prepay any then outstanding LIBO Rate Fundings
     or notify that Lender that any pending request for a LIBO
     Rate Funding shall be deemed to be a request for a Floating
     Rate Funding, in each case subject to the provisions of
     Section 2.11.

          (b)  Capital Adequacy. If any Lender determines at any
     time that its Return has been reduced as a result of any
     Capital Adequacy Rule Change, that Lender may require the
     Borrower to pay it the amount necessary to restore that
     Lender's Return to what it would have been had there been no
     Capital Adequacy Rule Change. For purposes of this 2.10, the
     following definitions shall apply:

          (i)  "Return", for any calendar quarter or shorter
               period, means the percentage determined by
               dividing (A) the sum of interest and ongoing fees
               earned by a Lender under this Agreement during
               such period by (B) the average capital that Lender
               is required to maintain during such period as a
               result of its being a party to this Agreement, as
               determined by that Lender based upon its total
               capital requirements and a reasonable attribution
               formula that takes account of the Capital Adequacy
               Rules then in effect. Return may be calculated for
               each calendar quarter and for the shorter period
               between the end of a calendar quarter and the date
               of termination in whole of this Agreement.

          (ii) "Capital Adequacy Rule" means any law, rule,
               regulation or guideline regarding capital adequacy
               that applies to any Lender, or the interpretation
               thereof by any governmental or regulatory
               authority. Capital Adequacy Rules include rules
               requiring financial institutions to maintain total
               capital in amounts based upon percentages of
               outstanding loans, binding loan commitments and
               letters of credit.

          (iii)"Capital Adequacy Rule Change" means any
               change in any Capital Adequacy Rule occurring
               after the date of this Agreement, but does not
               include any changes in applicable requirements
               that at the date hereof are scheduled to take
               place under the existing Capital Adequacy Rules or
               any increases in the capital that any Lender is
               required to maintain to the extent that the
               increases are required due to a regulatory
               authority's assessment of that Lender's financial
               condition.

          (iv) "Lender" includes (but is not limited to) the
               Agent, the Lenders, as defined elsewhere in this
               Agreement, and any assignee of any interest of any
               Lender hereunder and any participant in the loans
               made hereunder.

     The initial notice sent by a Lender shall be sent as
     promptly as practicable after that Lender learns that its
     Return has been reduced, shall include a demand for payment
     of the amount necessary to restore that Lender's Return for
     the quarter in which the notice is sent, shall state in
     reasonable detail the cause for the reduction in that
     Lender's Return and that Lender's calculation of the amount
     of such reduction, and shall include that Lender's
     representation that it has made similar demand on one or
     more other commercial borrowers with revolving or term loans
     in excess of $1,000,000. Thereafter, that Lender may send a
     new notice during each calendar quarter setting forth the
     calculation of the reduced Return for that quarter and
     including a demand for payment of the amount necessary to
     restore that Lender's Return for that quarter. A Lender's
     calculation in any such notice shall be conclusive and
     binding absent demonstrable error.

          (c)  Basis for Determining Interest Rate Inadequate or
     Unfair. If with respect to any Interest Period:

          (i)  any Lender determines that deposits in U.S.
               dollars (in the applicable amounts) are not being
               offered in the London interbank eurodollar market
               for such Interest Period; or

          (ii) any Lender otherwise determines that by reason of
               circumstances affecting the London interbank
               eurodollar market adequate and reasonable means do
               not exist for ascertaining the applicable LIBO
               Rate; or

          (iii)any Lender determines that the LIBO Rate as
               determined by the Agent will not adequately and
               fairly reflect the cost to that Lender of
               maintaining or funding a LIBO Rate Funding for
               such Interest Period, or that the making or
               funding of LIBO Rate Fundings has become
               impracticable as a result of an event occurring
               after the date of this Agreement which in the
               opinion of that Lender materially affects such
               LIBO Rate Fundings;

     then that Lender shall promptly notify the Borrower and (A)
     upon the occurrence of any event described in the foregoing
     clause (i) the Borrower shall enter into good faith
     negotiations with that Lender in order to determine an
     alternate method to determine the LIBO Rate for that Lender,
     and during the pendency of such negotiations with that
     Lender, the Lenders shall be under no obligation to make any
     new LIBO Rate Fundings, and (B) upon the occurrence of any
     event described in the foregoing clauses (ii) or (iii), for
     so long as such circumstances shall continue, the Lenders
     shall be under no obligation to make any new LIBO Rate
     Fundings.

          (d)  Illegality. If any change in (including the
     adoption of any new) applicable laws or regulations, or any
     change in the interpretation of applicable laws or
     regulations by any governmental authority, central bank,
     comparable agency or any other regulatory body charged with
     the interpretation, implementation or administration
     thereof, or compliance by any Lender with any request or
     directive (whether or not having the force of law) of any
     such authority, central bank, comparable agency or other
     regulatory body, should make it or, in the good faith
     judgment of that Lender, shall raise a substantial question
     as to whether it is unlawful for that Lender to make,
     maintain or fund LIBO Rate Fundings, then (i) that Lender
     shall promptly notify the Borrower and the Agent, (ii) the
     obligation of the Lenders to make, maintain or convert into
     LIBO Rate Fundings shall, upon the effectiveness of such
     event, be suspended for the duration of such unlawfulness,
     and (iii) for the duration of such unlawfulness, any notice
     by the Borrower requesting the Lenders to make or convert
     into LIBO Rate Fundings shall be construed as a request to
     make or to continue making Floating Rate Fundings.

Section 2.11 Funding Losses.

Upon demand by any Lender (which demand shall be accompanied by a
statement setting forth the basis for the calculations of the
amount being claimed), the Borrower shall indemnify that Lender
against any loss or expense which that Lender may have sustained
or incurred (including, without limitation, any net loss or
expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by that Lender to fund or
maintain LIBO Rate Fundings) or which that Lender may be deemed
to have sustained or incurred, as reasonably determined by that
Lender, (i) as a consequence of any failure by the Borrower to
make any payment when due of any amount due hereunder in
connection with any LIBO Rate Fundings, (ii) due to any failure
of the Borrower to borrow or convert any LIBO Rate Fundings on a
date specified therefor in a notice thereof or (iii) due to any
payment or prepayment of any LIBO Rate Funding on a date other
than the last day of the applicable Interest Period for such LIBO
Rate Funding. For this purpose, all notices under Section 2.3(b)
shall be deemed to be irrevocable.

Section 2.12 Discretion of Lenders as to Manner of Funding.

Notwithstanding any provision of this Agreement to the contrary,
each Lender shall be entitled to fund and maintain all or any
part of its LIBO Rate Fundings in any manner it deems fit, it
being understood, however, that for the purposes of this
Agreement (specifically including, without limitation, Section
2.11 hereof) all determinations hereunder shall be made as if
that Lender had actually funded and maintained each LIBO Rate
Funding during each Interest Period for such LIBO Rate Funding
through the purchase of deposits having a maturity corresponding
to such Interest Period and bearing an interest rate equal to the
appropriate LIBO Rate for such Interest Period.

Section 2.13 Conclusiveness of Statements; Survival of
Provisions.

Determinations and statements of any Lender pursuant to Sections
2.10 and 2.11 shall be conclusive absent demonstrable error.
Without limiting the generality of the foregoing, the Borrower
shall have no right to review any records of any Lender or its
other customers to determine the accuracy of any statement by
that Lender under Section 2.10(a) or 2.10(b) regarding that
Lender's demands upon other customers of that Lender.  Each
Lender may use reasonable averaging and attribution methods in
determining compensation pursuant to such Sections 2.10 and 2.11
and the provisions of Sections 2.10 and 2.11 shall survive
termination of this Agreement.

Section 2.14 Computation of Interest and Fees.

All interest determined at the Floating Rate will be calculated
based on the actual days elapsed in a year of 365 or 366 days, as
the case may be. All interest determined at the LIBO Rate and all
fees hereunder shall be computed on the basis of actual number of
days elapsed in a year of 360 days.

Section 2.15 Purpose of Borrowings.

The proceeds of the initial Borrowing hereunder shall be used to
pay in full all obligations of the Borrower outstanding under the
Existing Credit Facility, if any. The proceeds of each other
Borrowing (including the initial Borrowing, if no obligations
described in the preceding sentence are outstanding on the date
thereof) shall be used solely (i) to pay the Borrower's
obligations under (A) its commercial paper program, (B) other
short-term credit facilities, and (C) maturing long-term
obligations, and (ii) for the general corporate purposes of the
Borrower in the ordinary course of business.

Section 2.16 Increase of Aggregate Facility Amount.

          (a)  So long as no Default or Event of Default has
     occurred and is continuing, the Borrower may, upon at least
     25 days' written notice to the Agent, propose to increase
     the Aggregate Facility Amount by a multiple of $5,000,000
     that is not less than $15,000,000 and not greater than
     $25,000,000 (the amount of any such increase, the
     "Additional Facility Amount"). In no event shall any such
     increase cause the Aggregate Facility Amount to exceed the
     Maximum Aggregate Facility Amount. The Agent will promptly
     provide a copy of any such notice to each Lender. Each
     Lender may, not more than 20 days following such notice,
     elect by written notice to the Borrower and the Agent to
     increase its Facility Amount by a principal amount equal to
     its Percentage of the Additional Facility Amount.  No Lender
     (or any successor thereto) shall have any obligation to
     increase its Facility Amount or its other obligations under
     this Agreement and the other Loan Documents, and any
     decision by a Lender to increase its Facility Amount shall
     be made in its sole discretion independently from any other
     Lender.

          (b)  If any Lender elects not to increase its Facility
     Amount pursuant to paragraph (a), the Borrower may designate
     another Eligible Lender (which may be, but need not be, one
     or more of the existing Lenders) that will, in the case of
     any such Person that is an existing Lender, increase its
     Facility Amount and in the case of any other such Person (an
     "Incremental Lender"), become a party to this Agreement;
     provided, however, that any Incremental Lender must in all
     respects be acceptable to the Agent, which acceptance will
     not be unreasonably withheld. The sum of the increases in
     the Facility Amounts of the existing Lenders pursuant to
     this paragraph (b) plus the Facility Amounts of the
     Incremental Lenders shall not in the aggregate exceed the
     unsubscribed amount of the Maximum Aggregate Facility
     Amount.

          (c)  An increase in the Aggregate Facility Amount
     pursuant to this Section 2.16 shall become effective upon
     the receipt by the Agent of an agreement in form and
     substance satisfactory to the Agent signed by the Borrower,
     by each Incremental Lender and by each other Lender whose
     Aggregate Facility Amount is to be increased, setting forth
     the new Facility Amounts of such Lenders and setting forth
     the agreement of each Incremental Lender to become a party
     to this Agreement and to be bound by all the terms and
     provisions hereof (a "Facility Increase Agreement"),
     together with a replacement or additional Note, as
     applicable, evidencing the new Facility Amount of each
     affected Lender, duly executed and delivered by the Borrower
     and such evidence of appropriate corporate authorization on
     the part of the Borrower with respect to the increase in the
     Aggregate Facility Amount and such opinions of counsel for
     the Borrower with respect to the increase in the Aggregate
     Facility Amount as the Agent may reasonably request.

          (d)  Upon the acceptance of the Facility Increase
     Agreement by the Agent, the Aggregate Facility Amount shall
     automatically be increased by the amount of the Facility
     Amounts added through such Facility Increase Agreement.

          (e)  Upon any increase in the Aggregate Facility Amount
     pursuant to this Section 2.16 that is not pro rata among all
     Lenders, within 5 Business Days, the Borrower shall prepay
     all Borrowings hereunder in their entirety and, to the
     extent the Borrower elects to do so and subject to the
     conditions specified in Section 3.2, the Borrower shall
     effect new Borrowings from the Lenders in proportion to
     their respective Facility Amounts after giving effect to
     such increase.

                           ARTICLE III
                      Conditions Precedent

Section 3.1 Initial Conditions Precedent.

The obligation of the Lenders to effect any Borrowing is subject
to the condition precedent that each Lender shall have received
on or before the day of the first Borrowing all of the following,
each dated (unless otherwise indicated) as of the date hereof, in
form and substance satisfactory to each Lender:

          (a)  The Notes, properly executed on behalf of the
     Borrower.

          (b)  A certificate of the secretary of the Borrower
     (i) certifying that the execution, delivery and performance
     of the Loan Documents and other documents contemplated
     hereunder to which such corporation is a party have been
     duly approved by all necessary action of the Board of
     Directors of the Borrower, and attaching true and correct
     copies of the applicable resolutions granting such approval,
     (ii) certifying that attached to such certificate are true
     and correct copies of the articles of incorporation and
     bylaws of the Borrower and all Authorizing Orders, together
     with such copies, and (iii) certifying the names of the
     officers of the Borrower that are authorized to sign the
     Loan Documents and other documents contemplated hereunder,
     including requests for Borrowings, together with the true
     signatures of such officers. The Lenders may conclusively
     rely on such certificate until they shall receive a further
     certificate of the Secretary or Assistant Secretary of the
     Borrower canceling or amending the prior certificate and
     submitting the signatures of the officers named in such
     further certificate.

          (c)  Certificates of good standing of the Borrower,
     dated not more than ten days before such date.

          (d)  A signed copies of an opinion of Paul K. Sandness,
     general counsel for the Borrower, substantially in the form
     of Exhibit E-1, and the opinion of Thelen Reid & Priest LLP,
     special counsel to the Borrower, substantially in the form
     of Exhibit E-2, each addressed to the Lenders.

          (e)  All fees required to be paid as of the date hereof
     pursuant to this Agreement or any Fee Letter.

Section 3.2 Conditions Precedent to All Borrowings.

The obligation of the Lenders to effect any Borrowing shall be
subject to the further conditions precedent that on the date of
such Borrowing:

          (a)  the representations and warranties contained in
     Article IV (other than Section 4.6) are correct on and as of
     the date of such Borrowing as though made on and as of such
     date, except to the extent that such representations and
     warranties relate solely to an earlier date;

          (b)  the Borrower has delivered to the Agent an opinion
     in the form of Exhibit F hereto, duly executed by the
     general counsel or associate general counsel of the
     Borrower; and

          (c)  no event has occurred and is continuing, or would
     result from such Borrowing, which constitutes a Default or
     an Event of Default.

                           ARTICLE IV
                 Representations and Warranties

The Borrower represents and warrants to the Lenders as follows:

Section 4.1 Existence and Power.

The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware, and is duly
licensed or qualified to transact business in all jurisdictions
where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or
qualification necessary, except where the failure to be so
licensed or qualified (i) will not permanently preclude the
Borrower from maintaining any material action in any such
jurisdiction even though such action arose in whole or in part
during the period of such failure, and (ii) will not result in
any other Material Adverse Effect. The Borrower has all requisite
power and authority, corporate or otherwise, to conduct its
business, to own its properties and to execute and deliver, and
to perform all of its obligations under, the Loan Documents.

Section 4.2 Authorization of Borrowing; No Conflict as to Law or
Agreements.

The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder
have been duly authorized by all necessary corporate action and
by all necessary public utilities commissions and any other
regulatory bodies having jurisdiction over the Borrower (except
as noted in Schedule 4.2 to the Agreement with respect to
Borrowings made after December 31, 2006), and do not and will not
(i) require any consent or approval of the stockholders of the
Borrower, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, other than Authorizing
Orders set forth in Schedule 4.2 that (except as noted therein
with respect to Borrowings made after December 31, 2006) have
been obtained and copies of which have been delivered to the
Agent pursuant to Section 3.1, (ii) violate any provision of any
law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the articles of
incorporation or bylaws of the Borrower, (iii) result in a breach
of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be
bound or affected, or (iv) result in, or require, the creation or
imposition of any Lien or other charge or encumbrance of any
nature (other than those in favor of the Agent to secure one or
more of the Obligations) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.

Section 4.3 Legal Agreements.

This Agreement and the other Loan Documents constitute, the
legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms,
except to the extent that such enforcement may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally or by general equitable
principles.

Section 4.4 Subsidiaries.

Schedule 4.4 hereto is a complete and correct list of all present
Subsidiaries and of the percentage of the ownership of the
Borrower or any other Subsidiary in each case as of the date of
this Agreement. Except as otherwise indicated in that Schedule,
all shares of each Subsidiary owned by the Borrower or by any
such other Subsidiary are validly issued and fully paid and
nonassessable.

Section 4.5 Financial Condition.

The Borrower has heretofore furnished to the Lenders its audited
consolidated financial statement as of December 31, 2004, and its
unaudited interim financial statement as of March 31, 2005. Those
financial statements fairly present the financial condition of
the Borrower and its Subsidiaries on the dates thereof and the
results of their operations and cash flows for the periods then
ended, and were prepared in accordance with GAAP, except as
expressly noted therein.

Section 4.6 Adverse Change.

There has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrower
since the date of the latest financial statement referred to in
Section 4.5.

Section 4.7 Litigation.

Except as set forth in the Borrower's Annual Report on Form 10-K
for the year ended December 31, 2004, or in any document
subsequently filed pursuant to Section 13, 14 or 15(d) of the
Exchange Act, there are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or the properties of the Borrower, before
any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which, if
determined adversely to the Borrower, would have a Material
Adverse Effect.

Section 4.8 Environmental Matters.

The Borrower conducts in the ordinary course of business a review
of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties
and, as a result thereof, the Borrower has reasonably concluded
that such Environmental Laws and Environmental Claims could not,
individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, exclusive of Environmental Claims as
set forth in the Borrower's Annual Report on Form 10-K for the
year ended December 31, 2004, or in any document subsequently
filed pursuant to Section 13, 14 or 15(d) of the Exchange Act.

Section 4.9 Regulation U.

The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any
Borrowing will be used to purchase or carry any margin stock or
to extend credit to others for the purpose of purchasing or
carrying any margin stock.

Section 4.10 Taxes.

The Borrower has filed all federal and other tax returns and
reports required to be filed, and has paid all federal and other
taxes, assessments, fees and other governmental charges levied or
imposed upon it or its properties, income or assets otherwise due
and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have
been provided in accordance with GAAP and except those the
failure to file or pay which would not have a Material Adverse
Effect. There is no proposed tax assessment against the Borrower
that would, if made, have a Material Adverse Effect.

Section 4.11 Titles and Liens.

To the Borrower's knowledge, without having undertaken any search
of real property records for this purpose, the Borrower has good
and sufficient title to, or valid leasehold interests in, all
real property necessary or used in the ordinary conduct of its
business, and good title to all other property and assets
reflected in the Borrower's most recent consolidated financial
statements provided to the Lenders as owned by the Borrower,
except for such defects in title as could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse
Effect and other than any sold, as permitted by Section 6.4. As
of the date of this Agreement, the property of the Borrower is
subject to no Liens other than a permitted pursuant to Section 6.1.

Section 4.12 Intellectual Property.

The Borrower owns or is licensed or otherwise has the right to
use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other
rights that are reasonably necessary for the operation of its
business, without conflict with the rights of any other Person,
except to the extent that noncompliance would not have a Material
Adverse Effect. To the knowledge of the Borrower, no slogan or
other advertising device, product, process, method, substance,
part or other material now employed, or now contemplated to be
employed, by the Borrower infringes upon any rights held by any
other Person, except to the extent that noncompliance would not
have a Material Adverse Effect. No claim or litigation regarding
any of the foregoing is pending or threatened, and no patent,
invention, device, application, principle or any statute, law,
rule, regulation, standard or code is pending or, to the
knowledge of the Borrower, proposed, which, in either case, could
reasonably be expected to have a Material Adverse Effect.

Section 4.13 ERISA.

          (a)  Each Plan is in compliance in all material
     respects with ERISA, the Code and other applicable federal
     or state law. Each Plan which is intended to qualify under
     Section 401(a) of the Code has received a favorable
     determination letter from the Internal Revenue Service and,
     to the best knowledge of the Borrower, nothing has occurred
     which would or could reasonably be expected to cause the
     loss of such qualification of any such Plan or related
     trust.

          (b)  There are no pending or, to the best knowledge of
     the Borrower, threatened claims (other than routine claims
     for benefits in the ordinary course), actions or lawsuits,
     or action by any governmental authority, with respect to any
     Plan which has resulted or could reasonably be expected to
     result in a Material Adverse Effect. To the best knowledge
     of the Borrower, there has been no prohibited transaction
     within the meaning of Section 4975 of the Code or Section
     406 ERISA or other material violation of the fiduciary
     responsibility rules with respect to any Plan which has
     resulted or could reasonably be expected to result in a
     Material Adverse Effect.

          (c)  No Reportable Event has occurred or is reasonably
     expected to occur with respect to any Pension Plan.

          (d)  The aggregate Unfunded Pension Liability for all
     Pension Plans (calculated based on the most recent actuarial
     report for each Pension Plan) does not exceed $15,000,000.

          (e)  Neither the Borrower nor any ERISA Affiliate has
     incurred nor does it reasonably expect to incur, any
     liability under Title IV of ERISA with respect to any
     Pension Plan (other than premiums due and not delinquent
     under Section 4007 of ERISA).

          (f)  Neither the Borrower nor any ERISA Affiliate has
     transferred any Unfunded Pension Liability to any Person or
     otherwise engaged in a transaction that could be subject to
     Section 4069 of ERISA.

          (g)  Neither the Borrower nor any ERISA Affiliate has
     incurred nor reasonably expects to incur any liability,
     other than Acquisition Liability (and no event has occurred
     which, with the giving of notice under Section 4219 of
     ERISA, would result in such liability), under Section 4201
     or 4243 of ERISA with respect to a Multiemployer Plan. As
     used in this paragraph, "Acquisition Liability" means
     liability immaterial to the Borrower, its business and
     operations when taken as a whole that is incurred in
     connection with an acquisition by the Borrower or any ERISA
     Affiliate.

                            ARTICLE V
                      Affirmative Covenants

So long as any Note shall remain unpaid or the Facility shall be
outstanding, the Borrower will comply with the following
requirements, unless the Required Lenders shall otherwise consent
in writing:

Section 5.1 Reporting.

The Borrower will deliver to each Lender:

          (a)  As soon as available, and in any event within 120
     days after the end of each fiscal year of the Borrower:

          (i)  A copy of the annual audit report of the Borrower
               and its Subsidiaries prepared on a consolidated
               basis with an unqualified opinion of independent
               certified public accountants selected by the
               Borrower and acceptable to the Required Lenders,
               which annual report shall include the consolidated
               balance sheets of the Borrower and its
               Subsidiaries as of the end of such fiscal year and
               the related consolidated statements of income,
               common stockholders' equity and cash flows of the
               Borrower and its Subsidiaries for the fiscal year
               then ended, all in reasonable detail and all
               prepared in accordance with GAAP.

          (ii) A copy of the unaudited nonconsolidated balance
               sheets of the Borrower at the end of such fiscal
               year and the related unaudited nonconsolidated
               statements of income, retained earnings and cash
               flows of the Borrower for such fiscal year, in
               reasonable detail, all prepared in accordance with
               GAAP.

          (iii)A copy of the annual audit report-regulatory
               basis of the Borrower with an unqualified opinion
               of independent certified public accountants
               selected by the Borrower and acceptable to the
               Required Lenders, which annual report shall
               include a copy of the balance sheet-regulatory
               basis of the Borrower as the end of such fiscal
               year and the related statements of income-
               regulatory basis, retained earnings-regulatory
               basis and cash flows-regulatory basis of the
               Borrower for the fiscal year then ended, all
               prepared in accordance with FERC Accounting
               Principles.

          (b)  As soon as available and in any event within 60
     days after the end of each fiscal quarter of the Borrower:

          (i)  A copy of (A) the unaudited consolidated balance
               sheets of the Borrower and its Subsidiaries as of
               the end of such quarter, (B) the related unaudited
               consolidated statements of income for such
               quarter, and (C) the related unaudited
               consolidated statements of income and cash flows
               of the Borrower and its Subsidiaries for the year
               to date, all in reasonable detail and prepared in
               accordance with GAAP, subject to year-end audit
               adjustments.

          (ii) A copy of (A) the unaudited nonconsolidated
               balance sheets of the Borrower at the end of such
               quarter, (B) the related unaudited nonconsolidated
               statements of income for such quarter, and (C) the
               related unaudited nonconsolidated statements of
               income, retained earnings and cash flows of the
               Borrower for the year to date, all in reasonable
               detail and prepared in accordance with GAAP,
               subject to year-end adjustments.

          (c)  Concurrently with the delivery of any financial
     statements under paragraph (a) or (b), a Compliance
     Certificate, duly executed by the chief financial officer of
     the Borrower.

          (d)  Promptly following the issuance thereof, a copy of
     any Authorizing Order not previously delivered to the Agent.

          (e)  Promptly upon their distribution, copies of all
     financial statements, reports and proxy statements which the
     Borrower shall have sent to its stockholders.

          (f)  Promptly after the sending or filing thereof,
     copies of all regular and periodic financial reports which
     the Borrower shall file with the Securities and Exchange
     Commission or any national securities exchange.

          (g)  Promptly upon becoming available, copies of any
     reports or applications filed by the Borrower with any
     governmental body if such reports indicate any material
     change in the business, operations, affairs or condition of
     the Borrower, or if copies thereof are requested by any
     Lender.

          (h)  Immediately after the commencement thereof, notice
     in writing of all litigation and of all proceedings before
     any governmental or regulatory agency affecting the Borrower
     of the type described in Section 4.7 or which seek a
     monetary recovery against the Borrower in excess of
     $1,000,000.

          (i)  As promptly as practicable (but in any event not
     later than five business days) after an officer of the
     Borrower obtains knowledge of the occurrence of any Default
     or Event of Default, notice of such occurrence, together
     with a detailed statement by a responsible officer of the
     Borrower of the steps being taken by the Borrower to cure
     the effect of such event.

          (j)  Promptly upon becoming aware of an ERISA Event
     (other than an event described in clause (c) of the
     definition of "ERISA Event" which has not resulted and would
     not reasonably be expected to result in a Material Adverse
     Effect), a written notice specifying the nature thereof,
     what action the Borrower has taken, is taking or proposes to
     take with respect thereto, and, when known, any action taken
     or threatened by the Internal Revenue Service, the PBGC or
     the Department of Labor with respect thereto.

          (k)  Promptly upon (i) the adoption of any Plan subject
     to Section 412 of the Code, or (ii) the adoption of any
     amendment to a Pension Plan or other Plan subject to Section
     412 of the Code, if such amendment results in a material
     increase in contributions or Unfunded Pension Liability,
     written notice specifying the nature thereof.

          (l)  Upon request of any Lender, copies of the most
     recent annual report (Form 5500 Series), including any
     supporting schedules, filed by the Borrower or any ERISA
     Affiliate with the Internal Revenue Service with respect to
     any Plan.

          (m)  Such information (in addition to that specified
     elsewhere in this Section) respecting the financial
     condition and results of operations of the Borrower as any
     Lender may from time to time reasonably request.

Section 5.2 Books and Records; Inspection and Examination.

The Borrower will keep accurate books of record and account for
itself in which true and complete entries will be made in
accordance with GAAP and, upon request of any Lender, will give
any representative of that Lender access to, and permit such
representative to examine, copy or make extracts from, any and
all books, records and documents in its possession, to inspect
any of its properties and to discuss its affairs, finances and
accounts with any of its principal officers, all at such times
during normal business hours and as often as any Lender may
reasonably request.

Section 5.3 Compliance with Laws.

The Borrower will comply with the requirements of applicable laws
and regulations, except any law and regulation (i) the compliance
with which is contested in good faith or the subject of a bona
fide dispute, and (ii) the noncompliance with which would not
have a Material Adverse Effect.

Section 5.4 Payment of Taxes and Other Claims.

The Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or
upon its income or profits, or upon any properties belonging to
it, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien or charge upon any properties
of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim so long
as (x) the amount, applicability or validity of such tax,
assessment, charge or claim is being contested in good faith by
appropriate proceedings or is the subject of a bona fide dispute,
and (y) the Borrower has provided adequate reserves therefor in
accordance with GAAP, except (with respect to any of the
foregoing) to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

Section 5.5 Maintenance of Properties.

Subject to transactions permitted by Sections 6.4, the Borrower
shall maintain and preserve all its property which is used or
useful in its business in good working order and condition,
ordinary wear and tear excepted, except to the extent that
noncompliance would not have a Material Adverse Effect.

Section 5.6 Insurance.

The Borrower shall maintain with financially sound and reputable
independent insurers, insurance with respect to its properties
and business against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar
business, of such types and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as are customarily
carried under similar circumstances by such other Persons, except
to the extent that noncompliance would not have a Material
Adverse Effect, and the Borrower will furnish any Lender upon
request full information as to the insurance carried within 15
Business Days.

Section 5.7 Preservation of Corporate Existence.

Subject to transactions permitted by Section 6.4, the Borrower
shall (i) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state
or jurisdiction of incorporation; (ii) preserve and maintain in
full force and effect all governmental rights, privileges,
qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business; and
(iii) preserve its business organization and goodwill; and
(iv) preserve or renew all of its registered patents, trademarks,
trade names and service marks; except, in each case, to the
extent that failure to do so does not have a Material Adverse
Effect.

                           ARTICLE VI
                       Negative Covenants

So long as any Note shall remain unpaid or the Facility shall be
outstanding, the Borrower agrees that, without the prior written
consent of the Required Lenders:

Section 6.1 Liens.

The Borrower will not create, incur or suffer to exist any Lien
in, of or on the property of the Borrower, except:

          (a)  Liens for taxes, assessments of governmental
     charges or levies on its property if the same shall not at
     the time be delinquent or thereafter can be paid without
     penalty, or are being contested in good faith and by
     appropriate proceedings.

          (b)  Liens imposed by law, such as carriers',
     warehousemen's and mechanics' liens and other similar liens
     arising in the ordinary course of business which secure
     payment of obligations not yet due and payable or remaining
     payable without penalty or which are being contested in good
     faith by appropriate proceedings.

          (c)  Liens arising out of pledges or deposits under
     worker's compensation laws, unemployment insurance, old age
     pensions, or other social security or retirement benefits,
     or similar legislation.

          (d)  Utility easements, buildings restrictions and such
     other encumbrances or charges against real property as are
     of a nature generally existing with respect to properties of
     a similar character and which do not in any material way
     affect the marketability of the same or interference with
     the use thereof in the business of the Borrower.

          (e)  Purchase money Liens upon or in any property
     acquired or held by the Borrower in the ordinary course of
     business, provided that (i) no such Lien is created later
     than the 90th day following the acquisition or completion of
     construction of such property by the Borrower, and (ii) no
     such Lien extends or shall extend to or cover any property
     of the Borrower other than the property then being acquired,
     fixed improvements then or thereafter erected thereon and
     improvements and modifications thereto necessary to maintain
     such properties in working order.

          (f)  Liens incurred or deposits made in the ordinary
     course of business to secure (or to obtain letters of credit
     that secure) the performance of tenders, statutory
     obligations, surety bonds, appeal bonds, bids, leases (other
     than Capitalized Leases), performance bonds, purchase,
     construction or sales contracts and other similar
     obligations, in each case not incurred or made in connection
     with the incurrence of any Obligation.

          (g)  Liens resulting from judgments, unless such
     judgments are not discharged within 45 days; are not stayed
     pending appeal or otherwise being appropriately contested in
     good faith; or are not discharged within 45 days after
     expiration of any such stay.

          (h)  Liens created under or in connection with the
     Mortgage Indentures as such Mortgage Indentures exist on the
     date hereof, without regard to any waiver, amendment,
     modification or restatement thereof.

          (i)  Liens permitted under the Mortgage Indentures as
     such Mortgage Indentures exist on the date hereof, without
     regard to any waiver, amendment, modification or restatement
     thereof.

          (j)  Liens on any property of the Borrower (other than
     those described in subsection (e)) securing any indebtedness
     for borrowed money in existence on the date hereof and
     listed in Schedule 6.1 hereto.

Section 6.2 Investments.

The Borrower will not purchase or hold beneficially any stock or
other securities or evidence of indebtedness of, make or permit
to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, except:

          (a)  Investments in cash equivalents and short-term
     marketable securities pursuant to and in accordance with the
     terms of the Borrower's then-current investment policy duly
     adopted by the Board of Directors of the Borrower.

          (b)  Investments in the MDU Resources Group, Inc.
     Benefits Protection Trust in accordance with the Borrower's
     historical practices.

          (c)  Any existing investment by the Borrower in the
     voting stock, membership interests or other equity interests
     of any Subsidiary.

          (d)  Any investment by the Borrower in any Subsidiary
     after the date hereof, so long as (i) the entire amount of
     such investment is obtained from (A) the issuance of equity
     interests by the Borrower and/or (B) dividends or similar
     distributions paid to the Borrower by any other Subsidiary
     of the Borrower, in each case concurrent with the Borrower's
     investment in such Subsidiary, and (ii) no Default or Event
     of Default has occurred and is continuing when such
     investment is actually made. In the case of any investment
     funded as described in clause (i)(B), the applicable
     dividend or distribution and the corresponding investment
     shall be accurately and completely reflected on the books
     and records of the Borrower and the applicable Subsidiaries.

          (e)  Consolidations, mergers and acquisitions not
     prohibited by Section 6.6.

          (f)  Travel, relocation and similar advances made to
     officers and employees of the Borrower in anticipation of
     expenses to be incurred by such officers and employees, in
     each case in the ordinary course of the Borrower's business
     consistent with the Borrower's past practices.

          (g)  Advances in the form of progress payments, prepaid
     rent or security deposits.

          (h)  Evidences of indebtedness in the nature of
     accounts receivable or notes receivable arising from the
     sale or lease of goods or services in the ordinary course of
     business.

          (i)  Investments made for the purpose of economic
     development, so long as the aggregate value of the
     investments permitted by this clause (i) does not exceed
     $10,000,000.

Section 6.3 Distributions.

The Borrower will not make any Distribution at any time following
and during the continuance of any Default or Event of Default
arising under paragraph (a), (b), (g) or (h) of Section 7.1.

Section 6.4 Sale of Assets.

The Borrower will not lease, sell or otherwise dispose of all, or
a substantial portion of, its property, assets or business
(whether in one transaction or in a series of transactions) to
any other Person except for sales of inventory in the ordinary
course of business. For purposes of this Section, "substantial
portion" means assets (including other Persons) (i) representing
more than 20% of the consolidated assets of the Borrower as
reflected in the most recent consolidating financial statement of
the Borrower referred to in Section 4.5, or (ii) responsible for
more than 10% of the consolidated net sales or the consolidated
net income of the Borrower as reflected in the financial
statement referred to in clause (i) above.

Section 6.5 Transactions with Affiliates.

The Borrower shall not enter into any material transaction or
arrangement or series of related transactions or arrangements
that in the aggregate would be material with any Affiliate of the
Borrower, except (i) transactions upon terms no less favorable to
the Borrower than would obtain, taking into account all facts and
circumstances, in a comparable arm's-length transaction with a
Person not an Affiliate of the Borrower, (ii) investments in
Subsidiaries to the extent not prohibited by Section 6.2,
(iii) Distributions to the extent not prohibited by Section 6.3,
and (iv) payments required by regulatory rule or order; in the
case of clauses (i), (ii) and (iii), to the extent that such
payments are (x) made in the ordinary course of the Borrower's
business, (y) consistent with the Borrower's past practices, and
(z) fair and reasonable.

Section 6.6 Consolidation and Merger.

The Borrower will not consolidate with or merge into any Person,
or permit any other Person to merge into it, or acquire (in a
transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all of the assets of any other
Person or any existing business (whether existing as a separate
entity, subsidiary, division, unit, line of business or
otherwise) of any Person; provided, however, that the
restrictions contained in this Section shall not apply to or
prevent the consolidation or merger of any Person with, or a
conveyance or transfer of its assets to, the Borrower so long as
(i) no Default or Event of Default exists at the time of, or will
be caused by, such consolidation, merger, conveyance or transfer,
(ii) the Borrower shall be the continuing or surviving
corporation, and (iii) the prior, effective written consent or
approval of the board of directors or equivalent governing body
of the other party to such consolidation, merger, conveyance or
transfer is obtained.

Section 6.7 Environmental Laws.

The Borrower will not cause or permit the conduct of its
operations or the maintenance of any of its property to violate
any Environmental Law, except to the extent that noncompliance
would not have a Material Adverse Effect.

Section 6.8 Restrictions on Nature of Business.

The Borrower will not engage in any material line of business
that is significantly different from that presently engaged in by
the Borrower.

Section 6.9 Consolidated Total Leverage Ratio.

The Borrower will not at any time permit its Consolidated Total
Leverage Ratio, determined as of any Covenant Compliance Date, to
be greater than 0.65 to 1.

Section 6.10 Borrower Leverage Ratio.

The Borrower will not at any time permit the Borrower Leverage
Ratio, determined as of any Covenant Compliance Date, to be
greater than 0.65 to 1.

Section 6.11 Interest Coverage Ratio.

The Borrower will not at any time permit its Interest Coverage
Ratio, determined as of any Covenant Compliance Date, to be less
than 2.50 to 1.

                           ARTICLE VII
             Events of Default, Rights and Remedies

Section 7.1 Events of Default.

"Event of Default", wherever used herein, means any one of the
following events:

          (a)  Default in the payment of any principal of any
     Note when it becomes due and payable.

          (b)  Default in the payment of any interest on any Note
     when the same becomes due and payable and the continuance of
     such default for a period of two calendar days; or default
     in the payment of any fees required under Section 2.6 when
     the same become due and payable and the continuance of such
     default for a period of five calendar days.

          (c)  Default in the performance, or breach, of any
     covenant or agreement on the part of the Borrower contained
     in Article VI.

          (d)  Default in the performance, or breach, of any
     covenant or agreement of the Borrower in this Agreement
     (other than a covenant or agreement a default in whose
     performance or whose breach is elsewhere in this Section
     specifically dealt with), and the continuance of such
     default or breach for a period of 30 days after the Lenders
     have given notice to the Borrower specifying such default or
     breach and requiring it to be remedied.

          (e)  Any representation or warranty made by the
     Borrower in this Agreement or by the Borrower (or any of its
     officers) in any certificate, instrument, or statement
     contemplated by or made or delivered pursuant to or in
     connection with this Agreement, shall prove to have been
     incorrect or misleading in any material respect when made.

          (f)  A default under either Mortgage Indenture or with
     respect to any other Funded Debt (other than any default
     dealt with elsewhere in this Section) and the expiration of
     the applicable period of grace, if any, specified in the
     applicable evidence of indebtedness, indenture or other
     instrument; provided, however, that no Event of Default
     shall be deemed to have occurred under this paragraph if the
     aggregate amount owing as to all such indebtedness as to
     which such defaults have occurred and are continuing is less
     than $15,000,000; provided further that if such default
     shall be cured by the Borrower, or waived by the holders of
     such indebtedness, in each case prior to the commencement of
     any action under Section 7.2 and as may be permitted by such
     evidence of indebtedness, indenture or other instrument,
     then the Event of Default hereunder by reason of such
     default shall be deemed likewise to have been thereupon
     cured or waived.

          (g)  The Borrower (i) ceases or fails to be Solvent, or
     generally fails to pay, or admits in writing its inability
     to pay, its debts as they become due, subject to applicable
     grace periods, if any, whether at stated maturity or
     otherwise; (ii) voluntarily ceases to conduct its business
     in the ordinary course; (iii) commences any Insolvency
     Proceeding with respect to itself; or (iv) takes any action
     to effectuate or authorize any of the foregoing.

          (h)  (i) Any involuntary Insolvency Proceeding is
     commenced or filed against the Borrower, or any writ,
     judgment, warrant of attachment, execution or similar
     process is issued or levied against a substantial part of
     the Borrower's properties, and any such proceeding or
     petition shall not be dismissed, or such writ, judgment,
     warrant of attachment, execution or similar process shall
     not be released, vacated or fully bonded within 60 days
     after commencement, filing or levy; or (ii) the Borrower
     admits the material allegations of a petition against it in
     any Insolvency Proceeding, or an order for relief (or
     similar order under non-U.S. law) is ordered in any
     Insolvency Proceeding; or (iii) the Borrower acquiesces in
     the appointment of a receiver, trustee, custodian,
     conservator, liquidator, mortgagee in possession (or agent
     therefor), or similar Person for itself or a substantial
     portion of its property or business.

          (i)  A Change of Control shall occur with respect to
     the Borrower.

          (j)  The Borrower shall fail within 45 days to pay,
     bond or otherwise discharge any judgment or order for the
     payment of money in excess of $10,000,000, which is not
     stayed on appeal or otherwise being appropriately contested
     in good faith.

          (k)  (i) An ERISA Event or ERISA Termination Event
     which has resulted or would reasonably be expected to result
     in liability of the Borrower under Title IV of ERISA to the
     Pension Plan, Multiemployer Plan or the PBGC in an aggregate
     amount in excess of 10% of Consolidated Net Worth; (ii) the
     commencement or increase of contributions to, or the
     adoption of or the amendment of, a Pension Plan by the
     Borrower or an ERISA Affiliate which has resulted or could
     reasonably be expected to result in an increase in Unfunded
     Pension Liability among all Pension Plans in an aggregate
     amount in excess of 10% of Consolidated Net Worth; or (iii)
     the Borrower's or an ERISA Affiliate's failure to pay when
     due, after the expiration of any applicable grace period,
     any installment payment with respect to its withdrawal
     liability under Section 4201 of ERISA under a Multiemployer
     Plan which has resulted or could reasonably be expected to
     result in a Material Adverse Effect.

          (l)  Any governmental authority or other administrative
     or legal authority having regulatory jurisdiction over the
     Borrower takes any action which has a Material Adverse
     Effect on the Borrower.

Section 7.2 Rights and Remedies.

Upon the occurrence of an Event of Default or at any time
thereafter until such Event of Default is cured to the written
satisfaction of the Required Lenders, the Agent may, with the
consent of the Required Lenders, and shall, at the request of the
Required Lenders, exercise any or all of the following rights and
remedies:

          (a)  The Agent may, by notice to the Borrower, declare
     the Facility to be terminated, whereupon the same shall
     forthwith terminate.

          (b)  The Agent may, by notice to the Borrower, declare
     the entire unpaid principal amount of the Notes then
     outstanding, all interest accrued and unpaid thereon, and
     all other amounts payable under this Agreement to be
     forthwith due and payable, whereupon the Notes, all such
     accrued interest and all such amounts shall become and be
     forthwith due and payable, without presentment, demand,
     protest or further notice of any kind, all of which are
     hereby expressly waived by the Borrower.

          (c)  The Lenders may exercise any other rights and
     remedies available to them by law or agreement.

Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in Section 7.1(g) or 7.1(h) hereof, the entire
unpaid principal amount of the Notes then outstanding, all
interest accrued and unpaid thereon, and all other amounts
payable under this Agreement shall be immediately due and payable
without presentment, demand, protest or notice of any kind.

                          ARTICLE VIII
                            The Agent

Section 8.1 Authorization.

Each Lender and the holder of each Note irrevocably appoints and
authorizes the Agent to act on behalf of such Lender or holder to
the extent provided herein or in any document or instrument
delivered hereunder or in connection herewith, and to take such
other action as may be reasonably incidental thereto. In
furtherance of the foregoing, and not in limitation thereof, each
Lender irrevocably (i) authorizes the Agent to execute and
deliver and perform its obligations under this Agreement and each
of the Loan Documents to which the Agent is a party, and to
exercise all rights, powers and remedies that the Agent may have
hereunder or thereunder, (ii) appoints the Agent as nominal
beneficiary or nominal secured party, as the case may be, under
the Loan Documents and all related UCC-1 financing statements,
and (iii) authorizes the Agent to act as agent of and for such
Lender for purposes of holding, perfecting and disposing of any
collateral under the Loan Documents. As to any matters not
expressly provided for by this Agreement or the Loan Documents,
the Agent shall not be required to exercise any 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 Required Lenders or, if
so required pursuant to Section 9.2, upon the instructions of all
Lenders; provided, however, that except for action expressly
required of the Agent hereunder, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it
shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action, and the
Agent shall not in any event be required to take any action which
is contrary to this Agreement, the Loan Documents or applicable
law. The Agent shall not have a fiduciary relationship in respect
of the Borrower or any Lender by reason of this Agreement.

Section 8.2 Distribution of Payments and Proceeds.

          (a)  After deduction of any costs of collection, as
     provided in this Agreement and the other Loan Documents, and
     any fee payable to the Agent in its capacity as such under
     this Agreement, any Fee Letter or any other agreement, the
     Agent shall remit to each Lender that Lender's Percentage of
     all payments of principal and interest and of all fees and
     other amounts payable hereunder for the benefit of the
     Lenders that are received by the Agent under the Loan
     Documents. Each Lender's interest in the Loan Documents
     shall be payable solely from payments, collections and
     proceeds actually received by the Agent under the Loan
     Documents; and the Agent's only liability to the Lenders
     hereunder shall be to account for each Lender's Percentage
     of such payments, collections and proceeds in accordance
     with this Agreement. If the Agent is ever required for any
     reason to refund any such payments, collections or proceeds,
     each Lender will refund to the Agent, upon demand, its
     Percentage of such payments, collections or proceeds,
     together with its Percentage of interest or penalties, if
     any, payable by the Agent in connection with such refund.

          (b)  Notwithstanding the foregoing, if any Lender has
     wrongfully refused to fund its Percentage of any Borrowing
     or other Advance as required hereunder, or if the principal
     balance of any Lender's Note is for any other reason less
     than its Percentage of the aggregate principal balances of
     the Notes then outstanding, the Agent may remit all payments
     received by it to the other Lenders until such payments have
     reduced the aggregate amounts owed by the Borrower to the
     extent that the aggregate amount owing to such Lender
     hereunder is equal to its Percentage of the aggregate amount
     owing to all of the Lenders hereunder. The provisions of
     this paragraph are intended only to set forth certain rules
     for the application of payments, proceeds and collections in
     the event that a Lender has breached its obligations
     hereunder and shall not be deemed to excuse any Lender from
     such obligations.

Section 8.3 Expenses.

All payments, collections and proceeds received or effected by
the Agent may be applied, first, to pay or reimburse the Agent
for all costs, expenses, damages and liabilities at any time
incurred by or imposed upon the Agent in connection with this
Agreement or any other Loan Document (including but not limited
to all reasonable attorney's fees, foreclosure expenses and
advances made to protect the security of any collateral). If the
Agent does not receive payments, collections or proceeds
sufficient to cover any such costs, expenses, damages or
liabilities within 30 days after their incurrence or imposition,
each Lender shall, upon demand, remit to the Agent its Percentage
of the difference between (i) such costs, expenses, damages and
liabilities, and (ii) such payments, collections and proceeds,
together with interest on such amount for each day following the
thirtieth day after demand therefor until so remitted at a rate
equal to the Federal Funds Rate for each such day.

Section 8.4 Payments Received Directly by Lenders.

If any Lender or other holder of a Note shall obtain any payment
or other recovery (whether voluntary, involuntary, by application
of offset or otherwise) on account of the Obligations other than
through distributions made in accordance with Section 8.2, such
Lender or holder shall promptly give notice of such fact to the
Agent and shall purchase from the other Lenders or holders such
participations in the Obligations held by them as shall be
necessary to cause the purchasing Lender or holder to share the
excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such
purchasing Lender or holder, the purchase shall be rescinded and
the purchasing Lender restored to the extent of such recovery
(but without interest thereon).

Section 8.5 Indemnification.

Each Lender severally (but not jointly) hereby agrees to
indemnify and hold harmless the Agent, as well as the Agent's
agents, employees, officers and directors, ratably according to
their respective Percentages from and against any and all losses,
liabilities (including liabilities for penalties), actions,
suits, judgment, demands, damages, costs, disbursements, or
expenses (including attorneys' fees and expenses) of any kind or
nature whatsoever, which are imposed on, incurred by, or asserted
against the Agent or its agents, employees, officers or directors
in any way relating to or arising out of this Agreement or the
Loan Documents, or as a result of any action taken or omitted to
be taken by the Agent; provided, however, that no Lender shall be
liable for any portion of any such losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands,
damages, costs disbursements, or expenses resulting from the
gross negligence or willful misconduct of the Agent.
Notwithstanding any other provision of the Loan Documents, the
Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall be indemnified to its
satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or
continuing to take any such action.

Section 8.6 Exculpation.

The Agent shall not be liable for any action taken or omitted to
be taken by the Agent in connection with this Agreement or the
Loan Documents, except for its own gross negligence or willful
misconduct. The Agent shall be entitled to rely upon advice of
counsel concerning legal matters, the advice of independent
public accountants with respect to accounting matters and advice
of other experts as to any other matters, and upon this
Agreement, any Loan Document and any schedule, certificate,
statement, report, notice or other writing which it believes to
be genuine or to have been presented by a proper person. Neither
the Agent nor any of its directors, officers, employees or agents
shall (a) be responsible for any recitals, representations or
warranties contained in, or for the execution, validity,
genuineness, effectiveness or enforceability of this Agreement,
any Loan Document, or any other instrument or document delivered
hereunder or in connection herewith, (b) be responsible for the
validity, genuineness, perfection, effectiveness, enforceability,
existence, value or enforcement of any collateral security, (c)
be under any duty to inquire into or pass upon any of the
foregoing matters, or to make any inquiry concerning the
performance by the Borrower or any other obligor of its
obligations, or (d) in any event, be liable as such for any
action taken or omitted by it or them, except for its or their
own gross negligence or willful misconduct. The agency hereby
created shall in no way impair or affect any of the rights and
powers of, or impose any duties or obligations upon, the Agent in
its individual capacity.

Section 8.7 Agent and Affiliates.

The Agent shall have the same rights and powers hereunder in its
individual capacity as any other Lender, and may exercise or
refrain from exercising the same as though it were not the Agent,
and the Agent and its affiliates may accept deposits from and
generally engage in any kind of business with the Borrower as
fully as if the Agent were not the Agent hereunder.

Section 8.8 Credit Investigation.

Each Lender acknowledges that it has made such inquiries and
taken such care on its own behalf as would have been the case had
its obligations hereunder been incurred and the Advances made
directly by such Lender to the Borrower without the intervention
of the Agent or any other Lender. Each Lender agrees and
acknowledges that the Agent makes no representations or
warranties about the creditworthiness of the Borrower or any
other party to this Agreement or with respect to the legality,
validity, sufficiency or enforceability of this Agreement, any
Loan Document, or any other instrument or document delivered
hereunder or in connection herewith.

Section 8.9 Resignation and Assignment of Agent.

          (a)  The Agent may resign as such at any time upon at
     least 30 days' prior notice to the Borrower and the Lenders.
     In the event of any resignation of the Agent, the Required
     Lenders shall as promptly as practicable appoint a successor
     Agent. If no such successor Agent shall have been so
     appointed by the Required Lenders and shall have accepted
     such appointment within 30 days after the resigning Agent's
     giving of notice of resignation, then the resigning Agent
     may, on behalf of the Lenders, appoint a successor Agent,
     which shall be a commercial bank organized under the laws of
     the United States of America or of any State thereof. Any
     such successor Agent shall have capital and retained
     earnings of at least $100,000,000.

          (b)  The Agent may, without the consent of the Borrower
     or the other Lenders, assign its rights and obligations as
     Agent hereunder and under the other Loan Documents to its
     parent or to any wholly owned subsidiary of its parent, and
     upon such assignment, the former Agent shall be deemed to
     have retired, and such wholly owned subsidiary shall be
     deemed to be a successor Agent. Any such successor Agent
     shall have capital and retained earnings of at least
     $100,000,000.

          (c)  Upon the acceptance of any appointment as Agent
     hereunder by a successor Agent, such successor Agent shall
     thereupon be entitled to receive from the prior Agent such
     documents of transfer and assignment as such successor Agent
     may reasonably request and the resigning or assigning Agent
     shall be discharged from its duties and obligations under
     this Agreement. After any resignation or assignment pursuant
     to this Section, the provisions of this Section shall inure
     to the benefit of the retiring Agent as to any actions taken
     or omitted to be taken by it while it was acting as Agent
     hereunder.

Section 8.10 Defaults.

The Agent shall not be deemed to have knowledge of the occurrence
of a Default or an Event of Default unless the Agent has received
notice from a Lender or the Borrower specifying the occurrence of
such Default or Event of Default. In the event that the Agent
receives such a notice of the occurrence of a Default or an Event
of Default, the Agent shall give prompt notice thereof to the
Lenders. The Agent shall (subject to Section 8.5 hereof) take
such actions with respect to such Default as shall be directed by
the Required Lenders; provided that, unless and until the Agent
shall have received such directions, the Agent may take any
action, or refrain from taking any action, with respect to such
Default as it shall deem advisable in the best interest of the
Lenders.

Section 8.11 Obligations Several.

The obligations of each Lender hereunder are the several
obligations of such Lender, and neither any Lender nor the Agent
shall be responsible for the obligations of any other Lender
hereunder, nor will the failure by the Agent or any Lender to
perform any of its obligations hereunder relieve the Agent or any
other Lender from the performance of its respective obligations
hereunder. Nothing contained in this Agreement, and no action
taken by any Lender or the Agent pursuant hereto or in connection
herewith or pursuant to or in connection with the Loan Documents
shall be deemed to constitute the Lenders, together or with or
without the Agent, as a partnership, association, joint venture,
or other entity.

                           ARTICLE IX
                          Miscellaneous

Section 9.1 No Waiver; Cumulative Remedies.

No failure or delay on the part of the Lenders in exercising any
right, power or remedy under the Loan Documents shall operate as
a waiver thereof; nor shall any Lender's acceptance of payments
while any Default or Event of Default is outstanding operate as a
waiver of such Default or Event of Default, or any right, power
or remedy under the Loan Documents; nor shall any single or
partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy under the Loan Documents. The remedies
provided in the Loan Documents are cumulative and not exclusive
of any remedies provided by law.

Section 9.2 Amendments, Etc.

No amendment or waiver of any provision of any Loan Document or
consent to any departure by the Borrower therefrom shall be
effective unless the same shall be in writing and signed by the
Required Lenders (or by the Agent with the consent or at the
request of the Required Lenders), and any such waiver shall be
effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.

Notwithstanding the foregoing:

          (a)  No such amendment or waiver shall be effective to
     do any of the following unless signed by each of the Lenders
     (or by the Agent with the consent or at the request of each
     of the Lenders):

          (i)  Increase the Facility Amount of any Lender or
               extend the Revolving Period Termination Date.

          (ii) Permit the Borrower to assign its rights under
               this Agreement.

          (iii)     Amend this Section, the definition of
               "Required Lenders" in Section 1.1, or any
               provision herein providing for consent or other
               action by all Lenders.

          (b)  No such amendment or waiver shall be effective to
     do any of the following unless signed by each of the Lenders
     affected thereby (or by the Agent with the consent or at the
     request of each of such Lenders):

           (i) Forgive any indebtedness of the Borrower arising
               under this Agreement or the Notes, or reduce the
               rate of interest or any fees charged under this
               Agreement or the Notes.

          (ii) Postpone or delay any date fixed by this Agreement
               or any other Loan Document for any payment of
               principal, interest, facility fees or other
               material amounts due to the Lenders (or any of
               them) hereunder or under any other Loan Document.

          (c)  No amendment, waiver or consent shall affect the
     rights or duties of the Agent under this Agreement or any
     other Loan Document unless in writing and signed by the
     Agent.

          (d)  No amendment, modification or (except as provided
     elsewhere herein) termination of this Agreement or waiver of
     any rights of the Borrower or obligations of any Lender or
     the Agent hereunder shall be effective unless the Borrower
     shall have consented thereto in writing.

Section 9.3 Notice.

Except as otherwise expressly provided herein, all notices and
other communications hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by registered mail,
postage prepaid, (iii) sent by Federal Express or similar
expedited delivery service, or (iv) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at
its address or telecopier number (as the case may be) as set
forth in Exhibit A or in any applicable Assignment Certificate;
or, as to each party, at such other address or telecopier number
as may hereafter be designated in a notice by that party to the
other party complying with the terms of this Section. All such
notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally or by
mail, (ii) the date of receipt, if delivered by Federal Express
or similar expedited delivery service, or (iii) the date of
transmission if delivered by telecopy, except that notices or
requests to the Agent or any Lender pursuant to any of the
provisions of Article II shall not be effective until received.

Section 9.4 Costs and Expenses.

The Borrower agrees to pay on demand all reasonable costs and
expenses incurred by the Agent in connection with the
negotiation, preparation, execution, administration, amendment or
enforcement of the Loan Documents and the other instruments and
documents to be delivered hereunder and thereunder, including the
reasonable fees and out-of-pocket expenses of counsel for any
Lender with respect thereto, whether paid to outside counsel or
allocated to the Agent by in-house counsel.

Section 9.5 Indemnification by Borrower.

The Borrower hereby agrees to indemnify the Agent and the Lenders
and each officer, director, employee and agent thereof (herein
individually each called an "Indemnitee" and collectively called
the "Indemnitees") from and against any and all losses, claims,
damages, reasonable expenses (including, without limitation,
reasonable attorneys' fees) and liabilities incurred by an
Indemnitee in connection with or arising out of the execution or
delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of
their respective obligations hereunder or the use of the proceeds
of any Borrowing hereunder (including but not limited to any such
loss, claim, damage, expense or liability arising out of any
claim in which it is alleged that any Environmental Law has been
breached with respect to any activity or property of the
Borrower), except to the extent that such loss, claim, damage,
expense or liability was incurred as a result of the gross
negligence or willful misconduct of the applicable Indemnitee.
All obligations provided for in this Section shall survive any
termination of this Agreement.

Section 9.6 Execution in Counterparts.

This Agreement and the other Loan Documents may be executed in
any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
counterparts of this Agreement or such other Loan Document, as
the case may be, taken together, shall constitute but one and the
same instrument.

Section 9.7 Binding Effect; Assignment and Participations.

          (a)  Generally. The Loan Documents shall be binding
     upon and inure to the benefit of the Borrower and the
     Lenders and their respective successors and assigns, except
     that (i) the Borrower shall not have the right to assign its
     rights thereunder or any interest therein without the prior
     written consent of each of the Lenders, and (ii) except as
     set forth in this Section 9.7, no Lender may assign or grant
     any participation in any of its rights or obligations under
     any Loan Document.

          (b)  Participations. Any Lender may, at any time, grant
     participations in a portion of its Note and Commitment to
     any institutional investor on any date selected by such
     Lender. Any Lender proposing a participation hereunder shall
     give notice of such participation to the Agent at least ten
     Business Days prior to such participation (unless the Agent
     consents to a shorter period of time). Such notice shall
     specify the identity of the proposed purchaser of the
     participation and the amount of the proposed participation.
     No such partial participation shall be permitted if the
     principal amount thereof would be less than $5,000,000. No
     holder of any such participation, other than an affiliate of
     such Lender, shall be entitled to require such Lender to
     take or omit to take any action hereunder, except that such
     Lender may agree with such participant that such Lender will
     not, without such participant's consent, (i) forgive any
     indebtedness of the Borrower under this Agreement or the
     Notes, (ii) agree to reduce the rate of interest charged
     under this Agreement, or (iii) agree to extend the final
     maturity of any indebtedness evidenced by the Notes, except
     as expressly provided by the terms of the Loan Documents. No
     Lender shall, as between the Borrower and such Lender, be
     relieved of any of its obligations hereunder as a result of
     any such granting of a participation. The Borrower hereby
     acknowledges and agrees that any participant described in
     this Section will, for purposes of Section 2.10(b), be
     considered to be a Lender hereunder (provided that such
     participant shall not be entitled to receive any more than
     the Lender selling such participation would have received
     had such sale not taken place) and may rely on, and possess
     all rights under, any opinions, certificates, or other
     instruments or documents delivered under or in connection
     with any Loan Document (it being understood that each
     opinion delivered hereunder speaks only as of the date
     thereof).

          (c)  Assignments. Any Lender may, at any time, assign a
     portion of its Note and Commitment to an Eligible Lender (an
     "Applicant") on any date (the "Adjustment Date") selected by
     such Lender. Any Lender proposing an assignment hereunder
     shall give notice of such assignment to the Agent at least
     ten Business Days prior to such assignment (unless the Agent
     consents to a shorter period of time). Such notice shall
     specify the identity of such Applicant and the Percentage
     which it proposes that such Applicant acquire (which
     Percentage shall be the same for the Commitment and the Note
     held by the assigning Lender). No such partial assignment
     shall be permitted if, immediately after giving effect to
     such assignment, either the Credit Exposure of the Applicant
     or the Credit Exposure of the assigning Lender would be less
     than $5,000,000. The notice of assignment shall contain a
     representation by the Applicant to the effect that none of
     the consideration used to make the purchase of the Note and
     Commitment under the applicable assignment agreement
     constitutes "plan assets" as defined under ERISA and that
     the rights and interests of the Applicant in and under the
     Loan Documents will not be "plan assets" under ERISA. Any
     Lender making an assignment under this Section shall pay the
     Agent a transfer fee in the amount of $3,500 simultaneously
     with such assignment.

          (d)  Consents. Any assignment hereunder may be made,
     and any participation granted, only with the prior written
     consent of the Agent and the Borrower; provided, however,
     that (i) in no event shall such consent be unreasonably
     withheld, (ii) the consent of the Borrower shall not be
     required if any Default or Event of Default has occurred and
     is continuing at the time of such assignment or grant of
     participation, (iii) no such consent of the Borrower and the
     Agent shall be required for the assignment by any Lender of,
     or grant of a participation in, all or any part of its
     Commitment and Note to one or more other Persons that are
     Lenders immediately prior to such assignment, and (iv) no
     such consent of the Borrower and the Agent shall be required
     for the assignment by any Lender of, or grant of a
     participation in, all or any part of its Commitment and Note
     to one or more affiliates of such Lender, provided that,
     unless consented to by the Borrower and the Agent (which
     consent shall not be unreasonably withheld), no such
     assignment under this clause (iv) shall relieve the
     transferring Lender from its obligations hereunder.

          (e)  Assignment Certificate and Notes. To confirm the
     status of each Additional Lender as a party to this
     Agreement and to evidence the assignment in accordance
     herewith:

           (i) the Borrower, such Lender, such Applicant, and the
               Agent shall, on or before the Adjustment Date,
               execute and deliver to the Agent an Assignment
               Certificate in substantially the form of Exhibit D
               (an "Assignment Certificate") (provided that the
               assignment will be effective without the signature
               of the Borrower or the Agent to the extent that
               the consent of the Borrower or the Agent, as the
               case may be, is not required hereunder); and

          (ii) the Borrower will, at its own expense, execute and
               deliver to the Additional Lender a new Note,
               payable to the order of the Additional Lender in
               an amount corresponding to the applicable interest
               in the assigning Lender's rights and obligations
               acquired by such Applicant pursuant to such
               assignment, and, if the assigning Lender has
               retained interests in such rights and obligations,
               a new Note, payable to the order of that Lender in
               an amount corresponding to such retained
               interests. Such new Notes shall be in an aggregate
               principal amount equal to the aggregate principal
               amount of the applicable Note to be replaced by
               such new Notes, shall be dated the effective date
               of such assignment and shall otherwise be in the
               form of the Note to be replaced thereby. Such new
               Notes shall be issued in substitution for, but not
               in satisfaction or payment of, the Notes being
               replaced thereby.

     Upon the execution and delivery of such Assignment
     Certificate and such Notes, (a) this Agreement shall be
     deemed to be amended to the extent, and only to the extent,
     necessary to reflect the addition of such Additional Lender
     and the resulting adjustment of Percentages arising
     therefrom, (b) the assigning Lender shall be relieved of all
     obligations hereunder to the extent of the reduction of all
     obligations hereunder and to the extent of the reduction of
     such Lender's Percentage, and (c) the Additional Lender
     shall become a party hereto and shall be entitled to all
     rights, benefits and privileges accorded to a Lender herein
     and in each other document or instrument executed pursuant
     hereto and subject to all obligations of a Lender hereunder,
     including the right to approve or disapprove actions which,
     in accordance with the terms hereof, require the approval of
     the Required Lenders or all Lenders, and the obligations to
     make Advances hereunder.

          (f)  Federal Reserve Bank Security Interests.
     Notwithstanding the foregoing, each Lender may at any time
     grant a security interest in all or any portion of its
     rights under this Agreement and that Lender's Note in favor
     of any Federal Reserve Bank in accordance with Regulation A
     of the Board of Governors of the Federal Reserve System.

          (g)  Borrower Cooperation. In order to facilitate the
     addition of Additional Lenders hereto, the Borrower shall
     cooperate fully with each Lender and the Agent in connection
     therewith and shall provide all reasonable assistance
     requested by each Lender and the Agent relating thereto,
     including, without limitation, the furnishing of such
     written materials and financial information regarding the
     Borrower as any Lender or the Agent may reasonably request,
     the execution of such documents as any Lender or the Agent
     may reasonably request with respect thereto, and the
     participation by officers of the Borrower in a meeting or
     teleconference call with any Applicant upon the reasonable
     request of any Lender or the Agent.

Section 9.8 Disclosure of Information.

The Agent and the Lenders shall keep confidential (and cause
their respective officers, directors, employees, agents and
representatives to keep confidential) all information, materials
and documents furnished by the Borrower, the Agent or the Lenders
(the "Disclosed Information"). Notwithstanding the foregoing, the
Agent and each Lender may disclose Disclosed Information (i) to
the Agent, any other Lender or any Affiliate of any Lender;
(ii) to legal counsel, accountants and other professional
advisors to the Agent or such Lender; (iii) to any regulatory
body having jurisdiction over any Lender or the Agent; (iv) to
the extent required by applicable laws and regulations or by any
subpoena or similar legal process, or requested by any
governmental agency or authority; (v) to the extent such
Disclosed Information (A) becomes publicly available other than
as a result of a breach of this Agreement, (B) becomes available
to the Agent or such Lender on a non-confidential basis from a
source other than the Borrower or a Subsidiary, or (C) was
available to the Agent or such Lender on a non-confidential basis
prior to its disclosure to the Agent or such Lender by the
Borrower or a Subsidiary; (vi) to the extent the Borrower or such
Subsidiary shall have consented to such disclosure in writing;
(vii) to the extent reasonably deemed necessary by the Agent or
any Lender in the enforcement of the remedies of the Agent and
the Lenders provided under the Loan Documents; or (viii) in
connection with any potential assignment or participation in the
interest granted hereunder, provided that any such potential
assignee or participant shall have executed a confidentiality
agreement imposing on such potential assignee or participant
substantially the same obligations as are imposed on the Agent
and the Lenders under this Section 9.8.

Section 9.9 Governing Law.

The Loan Documents shall be governed by, and construed in
accordance with, the laws of the State of New York.

Section 9.10 Consent to Jurisdiction.

Each of the Borrower, the Agent and the Lenders irrevocably
(i) agrees that any suit, action or other legal proceeding
arising out of or relating to this Agreement or any other Loan
Document shall be brought in a court of record in Hennepin County
in the State of Minnesota or in the courts of the United States
located in such State, (ii) consents to the jurisdiction of each
such court in any suit, action or proceeding, (iii) waives any
objection which it may have to the laying of venue of any such
suit, action or proceeding in any such courts and any claim that
any such suit, action or proceeding has been brought in an
inconvenient forum, and (iv) agrees that a final judgment in any
such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law after all appeals have been
exhausted.

Section 9.11 Waiver of Jury Trial.

THE BORROWER, THE AGENT AND THE LENDERS HEREBY WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED
WITH THIS AGREEMENT AND THE NOTES OR THE RELATIONSHIPS
ESTABLISHED HEREUNDER.

Section 9.12 Severability of Provisions.

Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof.

Section 9.13 Prior Agreements.

This Agreement and the other Loan Documents and related documents
described herein restate and supersede in their entirety any and
all prior agreements and understandings, oral or written, between
the Lenders and the Borrower.

Section 9.14 Other Financing.

If at any time from and after the effective date of this
Agreement, the Borrower shall enter into any trust indenture,
credit agreement or other agreement for, relating to, or amending
any terms or conditions applicable to any unsecured indebtedness
in an amount not less than $15,000,000, the Borrower shall
promptly so advise the Agent. Thereupon, if the Required Lenders
shall determine that such trust indenture, credit agreement or
other agreement includes covenants or defaults reasonably
determined by the Required Lenders to be more restrictive than
those provided for in Articles V and VI and shall request by
notice to the Borrower, the Borrower shall enter into an
amendment to this Agreement providing for substantially the same
such covenants and defaults as those provided for in such trust
indenture, credit agreement or other agreement, to the extent
required and as may be selected by the Required Lenders, such
amendment to remain in effect for the entire duration of the term
to maturity of such indebtedness (to and including the date to
which the same may be extended); provided, however, that if any
such trust indenture, credit agreement or other agreement shall
be modified, supplemented, amended or terminated so as to modify,
amend or eliminate such trust indenture or other agreement or any
such covenant, term, condition or default so made a part of this
Agreement, then, the Borrower shall give the Agent and the
Lenders prompt notice thereof and such modification, supplement
or amendment shall operate to modify, amend or eliminate such
covenants, term, condition or default as so made a part of this
Agreement. Notwithstanding the foregoing, in no event shall this
Section 9.14 be construed so as to require the Borrower at any
time to grant any Lien in favor of the Agent or the Lenders
hereunder.

Section 9.15 Termination of Existing Credit Facility.

Upon execution and delivery of this Agreement by each of the
parties hereto and satisfaction of the conditions precedent set
forth in Section 3.1, (i) the Existing Credit Facility shall be
deemed terminated, and (ii) no Lender (as defined in the Existing
Credit Agreement) shall have any further obligation with respect
to the Existing Credit Facility. Notwithstanding the foregoing,
the Borrower shall continue to have the obligation to pay any
principal, interest, fees and other amounts remaining unpaid
under the Existing Credit Facility, and the Lenders shall have no
obligation to effect any Borrowing hereunder until such amounts
have been paid in full or unless such amounts are paid in full by
the proceeds of the first Borrowing hereunder.

Section 9.16 Headings.

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

     (The balance of this page is intentionally left blank.)

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

                                   MDU RESOURCES GROUP, INC.

                                   By /s/WARREN L. ROBINSON

                                   Its Executive Vice President
                                       and Chief Financial Officer

                                   WELLS FARGO BANK, NATIONAL
                                   ASSOCIATION, as Agent and as
                                   a Lender

                                   By /s/MARK H. HALLDORSON

                                   Its Vice President

                                   And By /s/JENNIFER D. BARRETT

                                   Its Vice President & Loan Team Manager

                                   ABN AMRO BANK N.V.

                                   By /s/R. SCOTT DONALDSON

                                   Its Vice President

                                   By /s/TODD D. VAUBEL
                                   Its Assistant Vice President

                                   U.S. BANK NATIONAL ASSOCIATION

                                   By /s/CHRISTINE GEER

                                   Its Assistant Vice President

                                   UNION BANK OF CALIFORNIA, N.A.

                                   By /s/ROBERT J. COLE

                                   Its  Vice PresidentPURCHASE AND SALE AGREEMENT

                           BETWEEN

                    SMITH PRODUCTION INC.

                          AS SELLER

                             AND

          FIDELITY EXPLORATION & PRODUCTION COMPANY

                        AS PURCHASER

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

                      Table of Contents

Exhibits

Definitions

Article 1 Purchase and Sale

     Section 1.1  Purchase and Sale

     Section 1.2  Assets

     Section 1.3 Excluded Assets

     Section 1.4 Effective Time

     Section 1.5 Delivery and Maintenance of Records

     Section 1.6 Proration of Costs and Revenues

Article 2 Purchase Price

     Section 2.1  Purchase Price

     Section 2.2  Adjustments to Purchase Price

     Section 2.3  Allocation of Purchase Price

     Section 2.4  Deposit

Article 3 Title Matters

     Section 3.1 Seller's Title

     Section 3.2 Defensible Title

     Section 3.3 Permitted Encumbrances

     Section 3.4 Notice of Title Defects

     Section 3.5 Consents to Assignment and Preferential Rights to Purchase

     Section 3.6 Casualty Loss

     Section 3.7 Condemnation Loss

     Section 3.8 Limitations on Applicability

Article 4 Environmental Matters

     Section 4.1 Environmental Assessment

     Section 4.2 Notice of Material Adverse Environmental Condition

     Section 4.3 Environmental Remedies

     Section 4.4 Limitations

Article 5 Representations and Warranties of Seller

     Section 5.1 Disclaimers

     Section 5.2 Existence and Qualification

     Section 5.3 Power

     Section 5.4 Authorization and Enforceability

     Section 5.5 No Conflicts

     Section 5.6 Purchaser's Liability for Brokers' Fees

     Section 5.7 Litigation

     Section 5.8 Taxes and Assessments

     Section 5.9 Outstanding Capital Commitments

     Section 5.10 Compliance with Laws

     Section 5.11 Contracts

     Section    5.12 Payments

     Section 5.13 Gas Imbalances

     Section 5.14 Governmental Authorizations

     Section 5.15 Consents to Assignments and Preferential Purchase Rights

     Section 5.16 Non-foreign Person

     Section 5.17 Payout Balances

     Section 5.18 Condemnation

     Section 5.19 Bankruptcy

     Section 5.20 PUHCA/NGA

     Section 5.21 Investment Company

     Section 5.22 Suspense Accounts

Article 6 Representations and Warranties of Purchaser

     Section 6.1 Existence and Qualification

     Section 6.2 Power

     Section 6.3 Authorization and Enforceability

     Section 6.4 No Conflicts

     Section 6.5 Seller's Liability for Brokers' Fees

     Section 6.6 Litigation

     Section 6.7 Financing

     Section 6.8 Texas Deceptive Trade Practices Consumer Protection Act

     Section 6.9 No Reliance

Article 7 Covenants of the Parties

     Section 7.1 Access

     Section 7.2 Government Reviews

     Section 7.3 Notification of Breaches

     Section 7.4 Assignments and Bills of Sale

     Section 7.5 Public Announcements

     Section 7.6 Operation of Business

     Section 7.7 Indemnity Regarding Access

     Section 7.8 Gas Imbalances and Take-or-Pay Make-up Obligations

     Section 7.9 Consents and Preferential Rights

     Section 7.10 Tax Matters

     Section 7.11 Further Assurances

     Section 7.12 Transition Services

     Section 7.13 Replacement of Bonds, Letters of Credit and Guarantees

     Section 7.14 Like-Kind Exchange

     Section 7.15 Arbitration

Article 8 Conditions to Closing

     Section 8.1 Conditions of Seller to Closing

     Section 8.2 Conditions of Purchaser to Closing

Article 9 Closing

     Section 9.1 Time and Place of Closing

     Section 9.2 Obligations of Seller at Closing

     Section 9.3 Obligations of Purchaser at Closing

     Section 9.4 Closing Payment and Post-Closing Purchase Price Adjustments

Article 10 Termination

     Section 10.1 Termination

     Section 10.2 Effect of Termination

     Section 10.3 Distribution of Deposit Upon Termination

Article 11 Post-Closing Obligations; Indemnification; Limitations;
Disclaimers and Waivers

     Section 11.1 Receipts

     Section 11.2 Expenses

     Section 11.3 Assumption and Indemnification

     Section 11.4 Indemnification Actions

     Section 11.5 Survival

     Section 11.6 Recording

     Section 11.7 Independent Investigation

     Section 11.8 Disclaimer Regarding Information

     Section 11.9 Waiver of Trade Practices Acts

     Section 11.10 Post-Closing Audit Rights

Article 12 Miscellaneous

     Section 12.1 Counterparts

     Section 12.2 Notice

     Section 12.3 Binding Agreement

     Section 12.4 Expenses

     Section 12.5 Change of Name

     Section 12.6 Construction

     Section 12.7 Governing Law

     Section 12.8 Captions

     Section 12.9 Waivers

     Section 12.10 Assignment

     Section 12.11 Entire Agreement

     Section 12.12 Amendment

     Section 12.13 No Third-Party Beneficiaries

     Section 12.14 References

                 PURCHASE AND SALE AGREEMENT

     This Purchase and Sale Agreement is by and between
Smith Production Inc., a Texas corporation, and Fidelity
Exploration & Production Company, a Delaware corporation.

     In consideration of the mutual promises and other
valuable consideration recited herein, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:

                         DEFINITIONS

"AFE" shall mean authority for expenditure as used in
Section 5.9.

"Adjustment Period" shall mean the period of time commencing
at the Effective Time and ending on the Closing Date as
discussed in Section 2.2.

"Adjusted Purchase Price" shall mean the Purchase Price
after calculating and applying the adjustments set forth in
Section 2.2.

"Affiliates" with respect to any Person, means any person
that directly or indirectly controls, is controlled by or is
under common control with such Person.

"Agreement" shall mean this Purchase and Sale Agreement.

"Allocated Value" shall mean the allocation of the
unadjusted Purchase Price among each of the Assets as
described in Section 2.3.

"Assets" shall mean the property and property rights set
forth in Section 1.2.

"Assignment and Bill of Sale" shall mean the conveyance
document by which Seller conveys the Assets to Purchaser as
described in Section 3.1(b).

"Assumed Obligations" has the meaning set forth in Section
11.3(a).

"Business Day" means each calendar day except Saturdays,
Sundays, and Federal holidays.

"Closing" has the meaning set forth in Section 9.1(a).

"Closing Date" has the meaning set forth in Section 9.1(b).

"Closing Payment" has the meaning set forth in Section 9.4(a).

"Code" has the meaning set forth in Section 2.3(a).

"Confidentiality Agreement" has the meaning set forth in
Section 7.1(a).

"Contracts" has the meaning set forth in Section 1.2(d).

"Damages" has the meaning set forth in Section 11.3(e).

"Defensible Title" has the meaning set forth in Section 3.2.

"Deposit" has the meaning set forth in Section 2.4.

"DTPA" has the meaning set forth in Section 6.8.

"Effective Time" has the meaning set forth in Section 1.4.

"Environmental Assessment" has the meaning set forth in Section 4.1.

"Environmental Laws" means, as the same have been amended as
of the Effective Time, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section  9601 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. Section  1251 et seq.; the Clean Air Act, 42 U.S.C.
Section  7401 et seq. the Hazardous Materials Transportation
Act, 49 U.S.C. Section  1471 et seq., the Toxic Substances
Control Act, 15 U.S.C. Section Section  2601 through 2629;
the Oil Pollution Act, 33 U.S.C. Section  2701 et seq.; the
Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section  11001 et seq.; and the Safe Drinking Water
Act, 42 U.S.G. Section Section  300f through 300j; and all
similar Laws as of the Effective Time of any Governmental
Body having jurisdiction over the Properties addressing
pollution or protection of the environment and all
regulations implementing the foregoing.

"Environmental Liabilities" shall mean, with respect to the
Properties, any and all environmental response costs, costs
to cure, restoration costs, costs of remediation,
settlements, penalties, fines, attorney fees, and Damages
(i) related to a Material Adverse Environmental Condition
regardless of whether same occurred PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME and/or (ii) incurred or imposed pursuant
to any claim or cause of action by a Governmental Body or
other Person for remediation or response costs or any
remediation obligation or Damages arising out of any
violation of any Environmental Law which is attributable to
the ownership or operation of the Properties PRIOR TO, AT OR
AFTER THE EFFECTIVE TIME.

"Equipment" has the meaning set forth in Section 1.2(f).

"Excluded Assets" has the meaning set forth in Section 1.3.

"Governmental Authorization" has the meaning set forth in
Section 5.14.

"Governmental Body" means any federal, state, local,
municipal or other governmental regulatory agency,
administrative agency, commission, court, tribunal, body or
other authority exercising or entitled to exercise any
administrative, executive, judicial, legislative, police,
regulatory or taxing powers.

"HSR Act" means the Hart-Scott Rodino Antitrust Improvements
Act of 1976 as discussed in Section 7.2.

"Hydrocarbons" shall mean oil, gas, condensate, other
gaseous and liquids products and all products attributable
thereto, produced from or attributable to the Properties.

"Indemnification Notice" has the meaning set forth in
Section 11.4(b).

"Indemnify" has the meaning set forth in Section 11.3(b).

"Indemnified Party" has the meaning set forth in Section
11.4(a).

"Indemnifying Party" has the meaning set forth in Section
11.4(a).

"Lands" has the meaning set forth in Section 1.2(a).

"Laws" means all statutes, rules, regulations, ordinances,
orders, and codes of Governmental Bodies.

"Leases" has the meaning set forth in Section 1.2(a).

"Litigation Expenses" has the meaning set forth in Section
11.3(b)(ix).

"Material Adverse Environmental Condition" shall mean, with
respect to the Properties, any violations of Environmental
Laws; any condition that is required to be remediated or
cured under applicable Environmental Laws in effect at the
time of the Environmental Assessment; the failure to
remediate or cure any condition that is required to be
remediated or cured under applicable Environmental Laws in
effect at the time of the Environmental Assessment; any
action or proceeding before any Governmental Body alleging
potential liability arising out of or resulting from any
actual or alleged violation of, or any remedial obligation
under, any Environmental Law with respect to the Properties
or notice of same to Seller by any Person.

"Net Revenue Interest" shall mean an ownership interest,
expressed either as a decimal or percentage, in the stream
of revenues attributable to the Assets, net of all burdens,
as discussed in Section 3.2(a).

"Permitted Encumbrances" has the meaning set forth in Section 3.3.

"Person" means any individual, firm, corporation,
partnership, limited liability company,
joint venture, association, trust, unincorporated
organization, government or agency or
subdivision thereof or any other entity.

"Properties" shall mean the Units, Leases, Lands and Wells.

"Property Costs" shall mean all operating expenses and
capital expenditures incurred in the ownership and operation
of the Assets and, where applicable, in accordance with the
relevant operating or unit agreement, and overhead costs
charged to the Assets under the relevant operating agreement
or unit agreement, if any. Property Costs shall include
costs of insurance and ad valorem, property, severance,
production and similar Taxes based upon or measured by the
ownership or operation of the Assets or the production of
Hydrocarbons therefrom, but excluding any other Taxes.
Property Costs shall not include liabilities and expenses
attributable to (i) claims, investigations, administrative
proceedings or litigation directly or indirectly arising out
of or resulting from actual or claimed personal injury or
death, property damage or violation of any Law, (ii)
obligations to plug wells, dismantle facilities, close pits
and restore the surface around such wells, facilities and
pits, (iii) obligations to remediate or cure any
contamination of groundwater, surface water, soil or
Equipment under applicable Environmental Laws, (iv)
obligations to furnish make-up gas according to the terms of
applicable gas sales, gathering or transportation contracts,
(v) gas balancing obligations, (vi) obligations related to
the Excluded Assets and (vii) obligations to pay Working
Interests, royalties, overriding royalties or other
interests held in suspense.

"Purchase Price" has the meaning set forth in Section 2.1.

"Purchaser" shall mean Fidelity Exploration & Production
Company.

"Purchaser Indemnitees" shall mean Purchaser, its officers,
directors, shareholders, members, employees, agents,
representatives, Affiliates and subsidiaries.

"Purchaser's Indemnification Obligations" shall mean those
obligations described in Section 11.3(b).

"Records" has the meaning set forth in Section 1.2(h).

"Seller" shall mean Smith Production Inc.

"Seller Operated Assets" shall mean Assets operated by Seller.

"Seller Indemnitees" shall mean Seller, its officers,
directors, shareholders, members, employees, agents,
representatives, Affiliates and subsidiaries.

"Seller's Indemnification Obligations" shall mean those
obligations described in Section 11.3(c).

"Surface Contracts" has the meaning set forth in Section 1.2(e).

"Tabasco/Texan Gardens Field Agreement" shall mean that
certain second Purchase and Sale Agreement between Seller
and Purchaser covering all of Seller's interest in the
Tabasco/Texan Gardens Field, located in Hidalgo County,
Texas and Starr County, Texas, prepared contemporaneously
with the preparation and execution of this Agreement.

"Tax(es)" means all federal, state, local and foreign
income, profits, franchise, sales, use, ad valorem, property,
severance, production, excise, stamp, documentary, real property
transfer or gain, gross receipts, goods and services, registration,
capital, transfer, or withholding Taxes or other governmental fees
or charges imposed by any taxing authority, including any interest,
penalties or additional amounts which may be imposed with
respect thereto.

"Tax Returns" has the meaning set forth in Section 5.8.

"Third Party Claim" has the meaning set forth in Section 11.4(b).

"Title Benefit" shall mean any right or condition that
operates to increase the Net Revenue Interest of Seller in
any Property above the Net Revenue Interest shown on Exhibit
1.2(b), without causing a proportionate increase in Seller's
Working Interest as shown in Exhibit 1.2(b) as discussed in
Section 3.2.

"Title Benefit Amount" has the meaning set forth in Section 3.4(e).

"Title Benefit Notice" has the meaning set forth in Section 3.4(b).

"Title Claim Date" has the meaning set forth in Section 3.4(a).

"Title Defect" has the meaning set forth in Section 3.2.

"Title Defect Amount" has the meaning set forth in Section 3.4(d)(i).

"Title Defect Notice" has the meaning set forth in Section 3.4(a).

"Title Defect Property" has the meaning set forth in Section 3.4(a).

"Units" has the meaning set forth in Section 1.2(c).

"Wells" has the meaning set forth in Section 1.2(b).

"Working Interest" shall mean the gross leasehold ownership
interest in the Leases, or, as the case may be, the gross
ownership interest in fee minerals or other types of
interests which are included within the Assets, as discussed
in Section 3.2(b).

                          ARTICLE 1
                      PURCHASE AND SALE

Section 1.1  Purchase and Sale.

At the Closing, and upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell and
convey the Assets to Purchaser and Purchaser agrees to
purchase, accept and pay for the Assets.

Section 1.2  Assets.

As used herein, "Assets" means an undivided one-half of
Seller's right, title and interest in the following property
rights described in 1.2(a) through 1.2(h), inclusive, as
follows:

     (a) Oil, gas and mineral leases; subleases and other
     leaseholds; carried interests; farmout rights; options;
     and other properties and interests as described on
     Exhibit 1.2(a) attached hereto, subject to such depth
     limitations, exclusions and other restrictions as
     described on Exhibit 1.2 (a) (collectively, the
     "Leases") and all tenements, hereditaments and
     appurtenances belonging to the Leases, together with
     each and every kind and character of right, title,
     claim, and interest that Seller has in and to the
     Leases and the lands covered thereby, pooled, unitized
     or communitized therewith (the "Lands");

     (b) Oil, gas, water, disposal or injection wells
     located on the Lands, whether producing, not producing,
     shut-in, temporarily abandoned or permanently
     abandoned, including the interests in the wells as
     described on Exhibit 1.2(b) attached hereto (the
     "Wells");

     (c) Units which include all or portions of the Leases,
     Lands or Wells as described on Exhibit 1.2(c) attached
     hereto (the "Units") including production from any such
     Unit, whether such Unit production comes from Wells
     located on or off of a Lease, and all tenements,
     hereditaments and appurtenances belonging to the Units;

     (d) Contracts, agreements, orders and instruments by
     which the Assets are bound or to which the Assets are
     subject, or that relate to or are otherwise applicable
     to the Assets, to the extent applicable to the Assets
     rather than Seller's other properties, including,
     without limitation, operating agreements, unitization,
     pooling and communitization agreements, declarations
     and orders, joint venture agreements, farmin and
     farmout agreements, water rights agreements,
     exploration agreements, participation agreements,
     exchange agreements, transportation or gathering
     agreements, agreements for the sale and purchase of
     oil, gas, casinghead gas or processing agreements to
     the extent applicable to the Assets or the production
     of oil and gas and other minerals and products produced
     in association therewith from the Assets (all of which
     are hereinafter collectively referred to as
     "Contracts") but excluding any Contracts to the extent
     transfer is restricted by third-party agreement or
     applicable law and the necessary consents to transfer
     are not obtained pursuant to Section 7.9; provided that
     "Contracts" shall not include the Leases;

     (e) Easements, permits, licenses, servitudes, rights-of-
     way, surface leases and other surface rights ("Surface
     Contracts") appurtenant to, and used or held for use
     primarily in connection with the Properties, excluding
     any Surface Contracts to the extent transfer is
     restricted by third-party agreement or applicable law
     and the necessary consents to transfer are not obtained
     pursuant to Section 7.9;

     (f) Equipment, machinery, fixtures, facilities and
     improvements located on the Properties including,
     without limitation, all tanks, boilers, injection
     facilities, saltwater disposal facilities, compression
     facilities, pumping units and engines, flow lines,
     pipelines, gathering systems, gas and oil treating
     facilities, machinery, power lines, telephone and
     telegraph lines, roads, and other appurtenances, but
     excluding (i) vehicles, (ii) computers and related
     peripheral equipment, (iii) communications equipment
     and (iv) communications licenses granted by the Federal
     Communications Commission or other governmental agency
     (subject to such exclusions, the "Equipment");

     (g) Hydrocarbons produced from or attributable to the
     Properties from and after the Effective Time and all
     oil, gas, condensate and imbalances with co-owners and
     with pipelines and all make-up rights with respect to
     take-or-pay payments; and

     (h) To the extent transferable, photocopies of all non-
     proprietary and non-confidential lease files; land
     files; well files; gas and oil sales contract files;
     gas processing files; division order files; abstracts;
     title opinions; land surveys; and non-confidential logs
     related to the Assets listed above in subsections (a)-
     (g), inclusive, but excluding (i) any books, records,
     data, files, maps and accounting records to the extent
     disclosure or transfer is restricted by third-party
     agreement or applicable law and the necessary consents
     to transfer are not obtained pursuant to Section 7.9,
     (ii) proprietary engineering data, maps and reserve
     studies, (iii) computer software, (iv) work product of
     Seller's legal counsel (other than title opinions), (v)
     records and documents relating to the negotiation and
     consummation of the sale of the Assets and (vi)
     corporate, financial, income and franchise tax and
     legal records of Seller that relate to Seller's
     business generally (whether or not relating to the
     Assets) (subject to such exclusions, the "Records");
     provided, however, that Seller may retain the originals
     of such files and other records as Seller has
     determined may be required for litigation, Tax,
     accounting, and auditing purposes and provide Purchaser
     with copies thereof, excluding, however, the Excluded
     Assets (as defined in Section 1.3).

Section 1.3 Excluded Assets.

Notwithstanding the foregoing, the Assets shall not include
the following listed items which are excepted and reserved
to Seller and excluded from this Agreement (collectively,
the "Excluded Assets"):

     (a)  The documents, files, records and information excluded
      in 1.2(h) above;

     (b) The equipment, machinery, licenses, fixtures and
     other tangible personal property excluded in 1.2(f)
     above;

     (c) All rights to any refund of Taxes or other costs or
     expenses borne by Seller or
     Seller's predecessors in interest and title
     attributable to periods prior to the Effective Time;

     (d) All rights relating to the existing claims and
     causes of action described in Exhibit 5.7 hereto;

     (e) Seller's bonds, letters of credit, guarantees,
     permits and licenses;

     (f) All trade credits, account receivables, note
     receivables, take-or-pay amounts
     receivable, and other receivables attributable to the
     Assets with respect to any period of time prior to the
     Effective Time;

     (g)  All surface estate fee located on the Properties,
     including, without limitation, all buildings,
     structures and improvements located on the Properties;

     (h) That certain 3-D seismic data and geophysical data
     covering approximately 57 square miles of land that was
     shot, acquired and processed by Synergy Exploration
     L.L.C. on behalf of Seller which covers the Properties
     and other land not covered by this Agreement; and

     (i) All other items listed in Exhibit 1.3.

Section 1.4 Effective Time.

Seller shall transfer possession of the Assets to Purchaser
at the Closing, but the effective time of the transfer of
the Assets shall be May 1, 2005 at 7:00 a.m., local time at
the location of the Properties (the "Effective Time").

Section 1.5 Delivery and Maintenance of Records.

     (a) Seller shall deliver the Records to Purchaser
     within ten (10) days following Closing. Seller may
     retain original Records as set forth in Section 1.2(h)
     and copies of any Records.

     (b) For seven (7) years following Closing, Purchaser
     shall (i) retain the Records, (ii) provide Seller, its officers,
     employees and representatives with access to the Records during
     normal business hours for review and copying at
     Seller's expense and (iii) provide Seller, its
     officers, employees and representatives with access to
     materials received or produced after Closing related to
     any claim for indemnification made under Section 11.3
     of this Agreement (excluding, however, attorney work
     product and attorney-client communications with respect
     to any such claim being brought by Purchaser and
     information subject to an applicable confidentiality
     restriction in favor of third parties) for review and
     copying at Seller's expense.

Section 1.6 Proration of Costs and Revenues.

     (a) Purchaser shall be entitled to all (i) Hydrocarbons
     produced from or attributable to the Properties at and
     after the Effective Time, (ii) proceeds from the sale
     of Hydrocarbons at and after the Effective Time and
     (iii) other income, proceeds, receipts and credits
     earned with respect to the Assets at or after the
     Effective Time. Purchaser shall be liable and
     responsible for (and entitled to any refunds with
     respect to) all Property Costs incurred at and after
     the Effective Time.

     (b) Seller shall be entitled to all (i) Hydrocarbons
     produced from or attributable to the Properties prior
     to the Effective Time, (ii) proceeds from the sale of
     Hydrocarbons prior to the Effective Time and (iii)
     other income, proceeds, receipts and credits earned
     with respect to the Assets prior to the Effective Time.
     Seller shall be liable and responsible for (and
     entitled to any refunds with respect to) all Property
     Costs incurred prior to the Effective Time.

     (c) Right-of-way fees, insurance premiums and other
     Property Costs that are paid periodically and cannot be
     accurately identified as being incurred when paid shall
     be prorated based on the number of days in the
     applicable period falling before and the number of days
     in the applicable period falling at or after the
     Effective Time.

     (d) Ad valorem, production, severance and similar Taxes
     shall be prorated based on the number of units actually
     produced, purchased or sold or proceeds of sale, as
     applicable, before, and at or after, the Effective
     Time. In each case, Purchaser shall be responsible for
     the portion allocated to the period at and after the
     Effective Time, and Seller shall be responsible for the
     portion allocated to the period before the Effective
     Time.

     (e) For purposes of allocating production (and accounts
     receivable with respect thereto), under this Section
     1.6, (i) liquid Hydrocarbons shall be deemed to be
     "from or attributable to" the Properties when they pass
     through the pipeline connecting into the storage
     facilities into which they are run and (ii) gaseous
     Hydrocarbons shall be deemed to be "from or
     attributable to" the Properties when they pass through
     the delivery point sales meters on the pipelines
     through which they are transported. Seller shall
     utilize reasonable interpolative procedures to arrive
     at an allocation of production when exact meter
     readings or gauging and strapping data is not
     available. Seller shall provide to Purchaser, no later
     than four (4) Business Days prior to Closing, all data
     necessary to support any estimated allocation, for
     purposes of establishing the adjustment to the Purchase
     Price pursuant to Section 2.2 hereof that will be used
     to determine the Closing Payment.

                          ARTICLE 2
                       PURCHASE PRICE

Section 2.1  Purchase Price.

The purchase price for the Assets (the "Purchase Price")
shall be Seventy Million Seventy One Thousand Seven Hundred
Sixty Four Dollars (U.S. $70,071,764.00) adjusted as
provided in Section 2.2.

Section 2.2  Adjustments to Purchase Price.

The Purchase Price for the Assets shall be adjusted as
follows:

     (a) Reduced by the aggregate amount of the proceeds received
     by Seller from the sale of Hydrocarbons and other proceeds earned
     and attributable to the Assets during the Adjustment
     Period;

     (b)  Reduced in accordance with Section 3.5, by an amount
     equal to the Allocated Value of those Properties (i) with respect
     to which preferential purchase rights have been exercised prior
     to Closing or (ii) that cannot be transferred at
     Closing because consents to the assignments of those
     Properties have not been obtained;

     (c) Reduced by the aggregate amounts payable to owners
     of working interests, royalties and overriding
     royalties and other interests in the Properties held in
     suspense by Seller as of the Closing Date unless the
     suspended funds are transferred by Seller to Purchaser
     on the Closing Date;

     (d) Reduced by Seller's pro-rata share of ad valorem
     taxes;

     (e) Reduced in accordance with Article 3 by amounts as
     remedies for Title Defects;

     (f) Reduced in accordance with Article 4 pursuant to
     Section 4.3 regarding environmental matters;

     (g) Increased by the amount of all Property Costs which
     have been paid by Seller and incurred during the
     Adjustment Period, except for any Property Costs and
     other such costs already deducted in the determination
     of proceeds in Section 2.2(a);

     (h) Increased or decreased, as appropriate, pursuant to
     the provisions of Section 7.8 dealing with gas
     imbalances and/or take-or-pay make-up obligations; and

     (i) Increased by the amount of any Title Benefit
     pursuant to Section 3.4(e).

     (j) Increased or decreased by other amounts mutually
     agreed to by Seller and Purchaser.

All such adjustments shall be determined in accordance with
generally accepted accounting principles and Council of
Petroleum Accountants Society (COPAS) standards.

The adjustment described in Section 2.2(a) shall serve to
satisfy, up to the amount of the adjustment, Purchaser's entitlement
under Section 1.6 to Hydrocarbon production from or
attributable to the Properties during the Adjustment Period,
and to the other income, proceeds, receipts and credits
earned with respect to the Assets during the Adjustment
Period. Purchaser shall not have any separate rights to
receive any production or income, proceeds, receipts and
credits with respect to which an adjustment has been made.
Similarly, the adjustment described in Section 2.2(g) shall
serve to satisfy, up to the amount of the adjustment,
Purchaser's obligation under Section 1.6 to pay Property
Costs and other costs attributable to the ownership and
operation of the Assets which are incurred during the
Adjustment Period. Purchaser shall not be separately
obligated to pay for any Property Costs or other such costs
with respect to which an adjustment has been made.

Section 2.3   Allocation of Purchase Price.

     (a) Simultaneous with the execution of this Agreement,
     Purchaser will deliver to Seller a draft allocation of the
     unadjusted Purchase Price among each of the Assets, which has been
     made in compliance with the principles of Section 1060 of the
     Internal Revenue Code of 1986, as amended (the "Code"),
     and the Treasury regulations thereunder. Within two (2)
     Business Days after Seller has received Purchaser's
     draft allocation, Seller and Purchaser will attempt to
     agree on the final allocation of the unadjusted
     Purchase Price among each of the Assets; provided,
     however, that in no event shall any such allocation of
     value be deemed final until Seller and Purchaser have
     approved the same in writing. Once approved by all
     parties, such allocation of value shall be attached to
     this Agreement as Exhibit 2.3. The "Allocated Value"
     for any Asset shall equal the portion of the unadjusted
     Purchase Price allocated to such Asset on Exhibit 2.3,
     increased or decreased by its respective proportionate
     share of the price adjustments described in Section
     2.2. After Seller and Purchaser have agreed on the
     Allocated Values for the Assets, Seller and Purchaser
     will be deemed to have accepted such Allocated Values
     for purposes of this Agreement and the transactions
     contemplated hereby. Seller, however, makes no
     representation or warranty to Purchaser as to the
     accuracy of such values. Seller and Purchaser agree (i)
     that the Allocated Values shall be used by Seller and
     Purchaser as the basis for notices to holders of
     preferential rights to purchase and (ii) that neither
     Seller nor Purchaser will take positions inconsistent
     with the Allocated Values in notices to government
     authorities, in audit or other proceedings with respect
     to Taxes, in notices to holders of preferential rights
     to purchase. Purchaser and Seller further agree that,
     on or before the Closing Date, they will mutually agree
     as to the further allocation of the Allocated Values
     included in Exhibit 2.3 as to the relative portion of
     those values attributable to leasehold costs and
     depreciable Equipment.

     (b) In the event that Seller and Purchaser are unable
     to agree as to the Allocated Values, at the sole
     election of Seller, (i) this Agreement may be
     terminated unilaterally by Seller, in which case
     Purchaser shall be entitled to an immediate refund of
     the Deposit from Seller, or (ii) the dispute may be
     submitted to arbitration as provided in Section 7.15
     below.

Section 2.4 Deposit.

Concurrently with the execution of this Agreement, Purchaser
shall wire transfer to Seller an earnest money deposit in an
amount equal to five percent (5 %) of the Purchase Price
(the "Deposit"). The Deposit shall be applied against the
Purchase Price if the Closing occurs or shall be otherwise
distributed in accordance with the terms of this Agreement.

                          ARTICLE 3
                        TITLE MATTERS

Section 3.1 Seller's Title.

     (a) Seller represents and warrants to Purchaser that
     Seller's title to the Wells shown on Exhibit 1.2(b) and
     the Units shown on Exhibit 1.2 (c) as of the Effective
     Time is (and as of the Closing Date shall be)
     Defensible Title.

     (b) The Assignment and Bill of Sale to be delivered by
     Seller to Purchaser shall be in form identical to the
     assignment shown on Exhibit 3.1(b) attached hereto and
     shall contain a special warranty of title by, through
     and under Seller, but not otherwise, to the Leases
     shown on Exhibit 1.2(a), subject to the Permitted
     Encumbrances. Otherwise, the Assignment and Bill of
     Sale shall be without warranty of title, express,
     implied, statutory or otherwise. The Assignment and
     Bill of Sale shall transfer to Purchaser all rights or
     actions on title warranties given or made by Seller's
     predecessors (other than Affiliates of Seller), to the
     extent Seller may legally transfer such rights.

     (c) Purchaser shall not be entitled to protection
     under Seller's special warranty of title in the
     Assignment and Bill of Sale against any Title Defect
     reported by Purchaser to Seller under this Article 3.
     All reported Title Defects shall be covered by the
     provisions of Article 3 and are expressly excluded from
     protection under Seller's special warranty of title in
     the Assignment and Bill of Sale.

Section 3.2 Defensible Title.

As used in this Agreement, the term "Defensible Title" means
that title of Seller which, subject to Permitted Encumbrances:

     (a) Entitles Seller to receive a share of the
     Hydrocarbons produced, saved and marketed from any Unit
     or Well throughout the duration of the productive life
     of such Unit or Well after satisfaction of all
     royalties, overriding royalties, nonparticipating
     royalties, net profits interests or other similar
     burdens on or measured by production of Hydrocarbons (a
     "Net Revenue Interest") of not less than the Net
     Revenue Interest share shown in Exhibit 1.2(b) for the
     Wells and Exhibit 1.2(c) for the Units, except
     decreases in connection with those operations in which
     Seller may after the Effective Time be a non-consenting
     co-owner, decreases resulting from the establishment or
     amendment after the Effective Time of units, and
     decreases required to allow other working interest
     owners to make up past underproduction or pipelines to
     make up past under deliveries;

     (b) Obligates Seller to bear a percentage of the
     Property Costs relating to any Unit or Well not greater
     than the "Working Interest" shown in Exhibit 1.2(b) for
     Wells and Exhibit 1.2(c) for Units without increase
     throughout the productive life of such Wells or Units
     except increases resulting from contribution
     requirements with respect to defaulting co-owners under
     applicable operating agreements and increases that are
     accompanied by at least a proportionate increase in
     Seller's Net Revenue Interest; and

     (c) Is free and clear of liens, encumbrances,
     obligations, security interests, pledges or other
     defects.

The term "Title Defect" shall mean any liens, encumbrances,
obligations, security interests, pledges or other defects,
including, without limitation, discrepancies in Net Revenue
Interest or Working Interest, that cause a breach of
Seller's representation and warranty of Defensible Title in
Section 3.1(a).

The term "Title Benefit" shall mean any right, circumstance
or condition that operates to increase the Net Revenue
Interest of Seller in any Property above that shown on
Exhibit 1.2(b) and Exhibit 1.2(c), without causing a
greater than proportionate increase in Seller's Working
Interest above that shown in Exhibit 1.2(b) and Exhibit 1.2(c).

Section 3.3 Permitted Encumbrances.

As used herein, the term "Permitted Encumbrances" shall mean
any or all of the following:

     (a) Royalties and any overriding royalties,
     reversionary interests and other burdens to the extent
     that they do not, individually or in the aggregate,
     reduce Seller's Net Revenue Interest below that shown
     in Exhibit 1.2(b) and Exhibit 1.2(c) or increase
     Seller's Working Interest above that shown in Exhibit
     1.2(b) and Exhibit 1.2(c) without a corresponding
     increase in the Net Revenue Interest;

     (b) All Leases, unit agreements, pooling agreements,
     operating agreements, production sales contracts,
     division orders and other Contracts applicable to the
     Assets, to the extent that they do not, individually or
     in the aggregate, reduce Seller's Net Revenue Interest
     below that shown in Exhibit 1.2(b) and Exhibit 1.2(c)
     or increase Seller's Working Interest above that shown
     in Exhibit 1.2(b) and Exhibit 1.2(c) without a
     corresponding increase in the Net Revenue Interest;

     (c)  Preferential rights to purchase the Assets with respect
     to which, prior to Closing, (i) waivers are obtained from the
     holders  of such  preferential rights to purchase and/or (ii)
     the appropriate time period for asserting such rights has
     expired without an exercise of such rights;

     (d) Third-party consent to assignment requirements and
     similar restrictions with respect to which waivers or
     consents are obtained by Seller from the appropriate
     parties prior to the Closing Date or the appropriate
     time period for asserting the right has expired or
     which need not be satisfied prior to a transfer;

     (e) Liens for current Taxes or assessments not yet
     delinquent or, if delinquent, being contested in good
     faith by appropriate actions;

     (f) Liens or charges arising in the ordinary course of
     business for amounts not yet delinquent (including any
     amounts being withheld as provided by law), or if
     delinquent, being contested in good faith by
     appropriate actions;

     (g) All rights to consent, by required notices to,
     filings with, or other actions by Governmental Bodies in
     connection with the sale or conveyance of oil and gas leases or
     interests therein if they are not required prior to the sale or
     conveyance;

     (h) Rights of reassignment arising upon final intention
     to abandon or release the Assets, or any of them;

     (i) Easements, rights-of-way, servitudes, permits,
     surface leases and other rights in respect of surface
     operations to the extent that they do not, individually
     or in the aggregate, reduce Seller's Net Revenue
     Interest below that shown in Exhibits 1.2(b) and
     Exhibit 1.2(c) or increase Seller's Working Interest
     above that shown in Exhibits 1.2(b) and Exhibit 1.2(c)
     without a corresponding increase in Net Revenue
     Interest;

     (j) Calls on production under existing Contracts;

     (k) All rights reserved to or vested in any
     Governmental Body to control or regulate any of the
     Assets in any manner and all obligations and duties
     under all applicable laws, rules and orders of any such
     Governmental Body or under any franchise, grant,
     license or permit issued by any such Governmental Body;

     (l) Any encumbrance affecting the Assets which is
     discharged by Seller prior to or at Closing or which is
     expressly assumed, bonded or paid by Purchaser prior to
     or at Closing;

     (m) Any matters shown on Exhibit 1.2(a), Exhibit 1.2(b)
     and Exhibit 1.2(c); and

     (n) Any other liens, charges, encumbrances, defects or
     irregularities which do not, individually or in the
     aggregate, materially detract from the value of or
     materially interfere with the use or ownership of the
     Assets subject thereto or affected thereby (as
     currently used or owned), which would be accepted by a
     reasonably prudent Purchaser engaged in the business of
     owning and operating oil and gas Assets, and which do
     not reduce Seller's Net Revenue Interest below that
     shown in Exhibit 1.2(b) and Exhibit 1.2(c), or
     increase Seller's Working Interest above that shown in
     Exhibit 1.2(b) and Exhibit 1.2(c) without a
     corresponding increase in Net Revenue Interest.

Section 3.4 Notice of Title Defects.

     (a) To assert a claim arising out of a breach of
     Seller's representation and warranty of Defensible
     Title in Section 3.1(a), Purchaser must deliver claim
     notices to Seller (each a "Title Defect Notice") on or
     before ten (10) Business Days prior to the Closing Date
     (the "Title Claim Date"), except as otherwise provided
     in Sections 3.5, 3.6 or 3.7. Each Title Defect Notice
     shall be in writing and shall include (i) a description
     of the alleged Title Defect(s), (ii) the Leases, Units
     or Wells affected by the Title Defect (each a "Title
     Defect Property"), (iii) the Allocated Values of each
     Title Defect Property, (iv) supporting documents
     reasonably necessary for Seller (as well as any title
     attorney or examiner hired by Seller) to verify the
     existence of the alleged Title Defect(s) and (v) the
     amount by which Purchaser reasonably believes the
     Allocated Values of each Title Defect Property are
     reduced by the alleged Title Defect(s) and the
     computations and information upon which Purchaser's
     belief is based. Purchaser shall be deemed to have
     waived all breaches of Seller's representation and
     warranty of Defensible Title in Section 3.1(a) of which
     Seller has not been given notice on or before the Title
     Claim Date.

     (b) Seller shall have the right, but not the
     obligation, to deliver to Purchaser on or before the
     Title Claim Date with respect to each Title Benefit a
     notice (a "Title Benefit Notice") including (i) a
     description of the Title Benefit, (ii) the Leases,
     Units or Wells affected, (iii) the Allocated Values of
     the Units or Wells subject to such Title Benefit and
     (iv) the amount by which the Seller reasonably believes
     the Allocated Value of those Units or Wells is
     increased by the Title Benefit, and the computations
     and information upon which Seller's belief is based.
     Seller shall be deemed to have waived all Title
     Benefits of which it has not given notice on or before
     the Title Claim Date.

     (c) In the event that Seller receives a Title Defect
     Notice, Seller shall have the right, but not the
     obligation, to attempt, at its sole cost, to cure or
     remove any Title Defects of which it has been advised
     by Purchaser in the Title Defect Notice prior to
     Closing.

     (d) Remedies for Title Defects.

     In the event that any Title Defect is not waived by
     Purchaser or cured on or before Closing, Seller shall,
     at its sole election, select one of the following
     options which shall apply regarding uncured Title
     Defects:

          (i) The Purchase Price shall be reduced by an amount agreed
          upon ("Title Defect Amount") pursuant to Section 3.4(g) or
          3.4(i) by Purchaser and Seller as being the value
          of such Title Defect, taking into consideration
          the Allocated Value of the Property subject to
          such Title Defect, the portion of the Property
          subject to such Title Defect and the legal effect
          of such Title Defect on the Property affected
          thereby;

          (ii) Purchaser and Seller shall enter into a
          separate written agreement whereby Seller will as
          soon as reasonably practicable after Closing, at
          the sole cost and expense of Seller, cure or
          remove such Title Defects to Purchaser's
          reasonable satisfaction; or

          (iii) Seller shall retain the affected Property,
          in which event the affected Property shall be
          deleted from this Agreement and the Purchase Price
          shall be reduced by an amount equal to the
          Allocated Value of such affected Property.

     In the event that Seller elects to proceed under
     Section 3.4(d)(i) and, after a reasonable time for good
     faith negotiation, Purchaser and Seller have failed to
     agree on the amount by which the Purchase Price should
     be reduced by Closing, then in such event, Seller, at
     Seller's sole election, may select one of the other
     options in 3.4(d), unilaterally terminate this
     Agreement, in which case Purchaser shall be entitled to
     an immediate refund of the Deposit from Seller, or the
     dispute may be submitted to arbitration as provided in
     Section 7.15.

     (e) With respect to each Unit or Well affected by Title
     Benefits reported under Section 3.4(b), the Purchase
     Price shall be increased by an amount (the "Title
     Benefit Amount") equal to the increase in the Allocated
     Value for such Unit or Well caused by such Title
     Benefits, as determined pursuant to Section 3.4(h). The
     Closing Payment shall be increased by such Title
     Benefit Amount.

     (f) Section 3.4(d) shall be the exclusive right and
     remedy of Purchaser with respect to Seller's breach of
     its warranty and representation of Defensible Title in
     Section 3.1(a).

     (g) The Title Defect Amount resulting from a Title
     Defect shall be determined as follows:

          (i) if Purchaser and Seller mutually agree upon
          the Title Defect Amount, that amount shall be the
          Title Defect Amount;

          (ii) if the Title Defect is a lien, encumbrance or
          other charge which is undisputed and the amount of
          same can be exactly determined and agreed upon by
          Purchaser and Seller, then the Title Defect Amount
          shall be the amount necessary to be paid to remove
          the Title Defect from the Title Defect Property;

          (iii) if the Title Defect represents a discrepancy
          between (A) the Net Revenue Interest for any Title
          Defect Property (which has been agreed to by
          Seller and Purchaser) and (B) the Net Revenue
          Interest or percentage stated on Exhibit 1.2(b)
          and Exhibit 1.2(c), then the Title Defect Amount
          shall be the product of the Allocated Value of
          such Title Defect Property multiplied by a
          fraction, the numerator of which is the Net
          Revenue Interest for the Title Defect Property and
          the denominator of which is the Net Revenue
          Interest or percentage ownership stated on Exhibit
          1.2(b) and Exhibit 1.2(c); and

          (iv) if the Title Defect represents an obligation,
          encumbrance, burden or charge upon or other defect
          in title to the Title Defect Property of a type
          not described in subsections (i), (ii) or (iii)
          above, the Title Defect Amount shall be determined
          by taking into account the Allocated Value of the
          Title Defect Property, the portion of the Title
          Defect Property affected by the Title Defect, the
          legal effect of the Title Defect, the potential
          economic effect of the Title Defect over the life
          of the Title Defect Property, the values placed
          upon the Title Defect by Purchaser and Seller and
          such other factors as are necessary to make a
          proper evaluation.

     (h) The Title Benefit Amount for any Title Benefit
     shall be the product of the Allocated Value of the
     affected Unit or Well multiplied by a fraction, the
     numerator of which is the upwardly revised Net Revenue
     Interest and the denominator of which is the Net
     Revenue Interest stated on Exhibit 1.2(b) and Exhibit
     1.2(c).

     (i) Seller and Purchaser shall attempt to agree on all
     Title Defect Amounts and Title Benefit Amounts prior to
     Closing. If Seller and Purchaser are unable to agree by
     no later than two (2) Business Days prior to Closing,
     Seller, at Seller's sole election, may unilaterally
     terminate this Agreement, in which case Purchaser shall
     be entitled to an immediate refund of the Deposit from
     Seller, or the dispute may be submitted to arbitration
     as provided in Section 7.15.

     (j) Notwithstanding anything to the contrary, there
     shall be no adjustments to the Purchase Price or other
     remedies provided by Seller for Title Defects unless
     (i) each individual Title Defect exceeds $25,000.00 and
     (ii) the aggregate amount of all uncured Title Defects
     exceeds a deductible in an amount equal to two percent
     (2%) of the Purchase Price, after which point Purchaser
     shall be entitled to adjustments to the Purchase Price
     or other remedies only with respect to Title Defects in
     excess of such deductible. Notwithstanding anything to
     the contrary, the aggregate Title Defect Amounts
     attributable to the effects of all Title Defects upon
     any Title Defect Property shall not exceed the
     Allocated Value of the Title Defect Property.

Section 3.5    Consents to Assignment and Preferential
Rights to Purchase.

     (a) Seller shall exercise reasonable efforts to obtain
     all such permissions, approvals and consents by
     governmental authorities and others which are
     reasonably obtainable by Closing and are required to
     vest Defensible Title to the Assets in Purchaser.
     Seller shall notify Purchaser at least five (5)
     Business Days prior to Closing of all required third-
     party consents to the assignment of the Assets to
     Purchaser which have not been obtained and the Assets
     to which they pertain. In no event shall there be
     included in the Assignment and Bill of Sale at Closing
     any Asset subject to a consent requirement that
     provides that transfer of the Asset without consent
     will result in a termination or other material
     impairment of any rights in relation to such Asset. In
     cases where the Asset subject to such a requirement is
     a Contract and Purchaser is assigned the Assets to
     which the Contract relates, but the Contract is not
     transferred to Purchaser due to the unwaived consent
     requirement, Seller shall continue after Closing to use
     reasonable efforts to obtain such consent so that such
     Contract can be transferred to Purchaser upon receipt
     of such consent. In cases where the Asset subject to
     such a requirement is a Property and the third-party
     consent to the sale and transfer of the Property is not
     obtained prior to the Closing Date, Purchaser may elect
     to treat the unsatisfied consent requirement as a Title
     Defect by giving Seller notice thereof in accordance
     with Section 3.4(a), except that such notice must be
     given at least two (2) Business Days prior to the
     Closing Date. In such event, the failure to obtain such
     consent to assignment shall be treated as if the
     affected Assets were subject to a Title Defect that
     resulted in the complete loss of title to such Assets,
     the affected Assets shall be excluded from the
     Assignment and Bill of Sale and the Purchase Price
     shall be reduced under Section 2.2(b) by the Allocated
     Value for such Assets. If a consent requirement with
     respect to which a Purchase Price adjustment is made
     under Section 3.4 is subsequently satisfied prior to
     the date of the final adjustment to the Purchase Price
     under Section 9.4(b), Purchaser shall pay to Seller the
     amount of the previous reduction in the Purchase Price
     and the affected Assets shall be assigned to Purchaser.

     (b) If any preferential rights to purchase any Assets
     are exercised prior to Closing, those Assets transferred to a
     holder of preferential right to purchase as a result of the
     exercise of such preferential rights shall be treated as if
     those Assets were subject to a Title Defect that resulted in
     the complete loss of title to such Assets, and the Purchase
     Price shall be reduced under Section 2.2(b) by the
     Allocated Value for such Assets. Seller shall convey
     such Assets to the holder of preferential right to
     purchase exercising the preferential right to purchase,
     and Seller shall retain the consideration paid by the
     holder of preferential right to purchase for such
     Assets.

Section 3.6 Casualty Loss.

After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is destroyed by
fire or other casualty, this transaction shall nevertheless
close. In the event that the loss resulting from the
casualty is an amount less than five percent (5%) of the
unadjusted Purchase Price, this transaction shall
nevertheless close and Seller shall have no obligation
regarding the casualty. In the event that the resulting loss
is an amount equal to or greater than five percent (5%)of
the unadjusted Purchase Price, Seller, at Seller's sole
election, shall select one of the following options which
shall apply to the casualty: (i) Seller shall cause the
Assets affected by such casualty to be repaired or restored
to at least its condition prior to such casualty, at
Seller's sole cost, as promptly as reasonably practicable
(which work may extend after the Closing Date); or (ii)
Seller shall, at Closing, pay to Purchaser all sums paid to
Seller by third parties by reason of such casualty and shall
assign to Purchaser all of Seller's right, title and
interest (if any) in insurance claims, unpaid awards, and
other rights against third parties other than Seller
Indemnitees arising out of the casualty; or (iii) Seller may
treat such casualty as a Title Defect with respect to the
affected Assets. In the event that Seller elects (i) or
(iii) above, Seller shall retain all rights to insurance and
other claims against third parties with respect to the
casualty.

Section 3.7 Condemnation Loss.

After the date this Agreement is executed but prior to the
Closing Date, if any portion of the Assets is taken in
condemnation or under right of eminent domain, this
transaction shall nevertheless close. In such event, Seller,
at Seller's sole election, shall select one of the following
options which shall apply to the taking: (i) Seller shall,
at Closing, pay to Purchaser all sums paid to Seller by
third parties by reason of such taking and shall assign,
transfer and set over to Purchaser all of Seller's right,
title and interest (if any) in insurance claims, unpaid
awards, and other rights against third parties other than
Seller Indemnitees arising out of the taking; or (ii) Seller
shall treat the taking as if the affected Assets were
subject to a Title Defect that resulted in the complete loss
of title to such Assets, and the Purchase Price shall be
reduced under Section 2.2 by the Allocated Value for such
Assets. In the case of (ii) above, Seller shall retain all
rights to insurance and other claims against third parties
with respect to the taking.

Section 3.8 Limitations on Applicability.

The Seller's representation and warranty of Defensible Title
in Section 3.1(a) shall terminate as of the Title Claim Date
and shall have no further force and effect thereafter.
Thereafter, Purchaser's sole and exclusive remedies with
regard to title to the Assets shall be the special warranty
of title to the Leases contained in the Assignment and Bill
of Sale.

                          ARTICLE 4
                    ENVIRONMENTAL MATTERS

Section 4.1 Environmental Assessment.

Purchaser may, at its option, inspect the Properties and
cause an environmental assessment (the "Environmental
Assessment") of all or any portion of the Properties to be
conducted by a reputable environmental consulting or
engineering firm approved in advance in writing by Seller.
An Environmental Assessment shall be conducted at a time
agreed to by Seller with a representative of Seller present.
Purchaser shall provide Seller with a correct copy of any
Environmental Assessment and all findings made in connection
therewith. Except for such disclosure to Seller, Purchaser
shall maintain the results of any Environmental Assessment
and all findings made in connection therewith as strictly
confidential. All information related an environmental
assessment and all findings made in connection therewith
shall be subject to the terms of the Confidentiality
Agreement. Without the prior written consent of Seller,
Purchaser shall not disclose the results of any
Environmental Assessment and all findings made in connection
therewith to any Person other than (i) the consultant that
conducts the Environmental Assessment, (ii) Purchaser's
lender (only in the events that (a) Purchaser's lender is
lending money to Purchaser in connection with this Agreement
and (b) provided Purchaser's lender first agrees in writing
to keep such information confidential) and (iii) Seller. Any
Environmental Assessment shall be conducted at the sole
risk, cost and expense of Purchaser, and Purchaser shall
Indemnify Seller from and against any and all losses arising
from the Environmental Assessment as provided in Section 7.7
and Section 11.3(b).

Section 4.2 Notice of Material Adverse Environmental
Condition.

Purchaser may notify Seller in writing on or before five (5)
Business Days prior to Closing of any environmental matters
disclosed by the Environmental Assessment that Purchaser
reasonably believes in good faith may constitute a Material
Adverse Environmental Condition. Such notice shall include a
reasonably detailed description of all matters disclosed by
the Environmental Assessment.

Section 4.3 Environmental Remedies.

If Purchaser delivers to Seller a notice pursuant to Section
4.2 that describes a Material Adverse Environmental
Condition, then Seller shall, at its sole election, select
one of the following options which shall apply to all
Material Adverse Environmental Conditions:

     (a) Seller shall reduce the Purchase Price by an amount
     agreed upon in writing by Purchaser and Seller as being
     a reasonable estimate of the cost of remediating or
     curing such Material Adverse Environmental Condition;

     (b) Seller shall retain the Property that is subject to
     such Material Adverse Environmental Condition, in which
     event the affected Property shall be deleted from this
     Agreement and the Purchase Price shall be reduced by an
     amount equal to the Allocated Value of such affected
     Property;

     (c) Seller shall perform or cause to be performed prior
     to Closing, at the sole expense of Seller, such
     operations as may be necessary to remediate or cure
     such Material Adverse Environmental Condition; or

     (d) Seller shall enter into an agreement with Purchaser
     whereby Seller will as soon as reasonably practicable
     after Closing, at the sole cost and expense of Seller,
     perform or cause to be performed such operations as may
     be necessary to remediate or cure such Material Adverse
     Environmental Condition.

In the event that Seller elects to proceed under Section
4.3(a) and Purchaser and Seller have failed to agree on the
amount by which the Purchase Price shall be reduced (which
agreement Seller and Purchaser shall use good faith efforts
to reach) by Closing, then, in such event, the dispute shall
be submitted to arbitration as provided in Section 7.15.

Notwithstanding the foregoing, in the events that (i)
Purchaser conducts an Environmental Assessment on the
Properties which discloses environmental matters that
Purchaser reasonably believes in good faith may constitute a
Material Adverse Environmental Condition; (ii) Purchaser
delivers a notice to Seller as required in Section 4.2;
(iii) the cost of remediating the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 and/or the Environmental
Liabilities attributable to the Material Adverse
Environmental Condition that is described in Purchaser's
notice pursuant to Section 4.2 exceed three percent (3%) of
the unadjusted Purchase Price; and (iv) Purchaser delivers
to Seller written notice of termination of this Agreement at
least five (5) Business Days prior to Closing Date, then, in
the event of the completion and satisfaction of each of the
four conditions listed above, Purchaser, at Purchaser's sole
election, may unilaterally terminate this Agreement without
liability to Seller. If Purchaser terminates this Agreement
pursuant to this section, Purchaser shall be entitled to a
prompt refund of the full amount of the Deposit from Seller.

Section 4.4 Limitations.

     (a) This Article 4 is intended to be the sole and
     exclusive remedy that Purchaser Indemnitees shall have
     against Seller Indemnitees with respect to any matter
     or circumstance relating to Material Adverse
     Environmental Conditions, Environmental Liabilities,
     Environmental Laws, the release of materials into the
     environment, the protection of the environment or
     health or any matters that Purchaser could have
     included in a notice delivered pursuant to Section 4.2.

     (b) Purchaser, on behalf of itself and each of the
     other Purchaser Indemnitees, hereby fully releases and
     discharges the Seller Indemnitees from any and all
     claims at Law or in equity, known or unknown, whether
     occurring before the Effective Time, existing at the
     Effective Time or arising after the Effective Time,
     contingent or otherwise, with respect to all matters
     relating to Material Adverse Environmental Conditions,
     Environmental Liabilities, Environmental Laws, the
     release of materials into the environment, the
     protection of the environment or health or any matters
     that Purchaser could have included in a notice
     delivered pursuant to Section 4.2 EVEN IF SUCH DAMAGES
     OR CLAIMS ARE CAUSED IN WHOLE OR IN PART BY THE
     NEGLIGENCE (WHETHER SOLE, JOINT OR CONCURRENT) OF
     SELLER INDEMNITEES OR THE STRICT LIABILITY OF SELLER
     INDEMNITEES.

     (c) Purchaser acknowledges that Seller has not made and
     will not make any representation or warranty regarding
     any matter or circumstance relating to Material Adverse
     Environmental Conditions, Environmental Laws, the
     release of materials into the environment or protection
     of the environment or health, and that nothing in
     Article 5 or otherwise shall be construed as such a
     representation or warranty.

                          ARTICLE 5
          REPRESENTATIONS AND WARRANTIES OF SELLER

Section 5.1 Disclaimers.

     (a) Except as set forth in Articles 3 and 5 of this
     Agreement, the certificate of Seller to be delivered
     pursuant to Section 9.2(d) or in the Assignment and
     Bill of Sale to be delivered by Seller to Purchaser
     hereunder, (i) SELLER MAKES NO REPRESENTATIONS OR
     WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE
     AND (ii) SELLER EXPRESSLY DISCLAIMS ALL LIABILITY AND
     RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY,
     STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY
     OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES,
     EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES
     (INCLUDING, WITHOUT LIMITATION, ANY OPINION,
     INFORMATION, PROJECTION OR ADVICE THAT MAY HAVE BEEN
     PROVIDED TO PURCHASER BY ANY OFFICER, DIRECTOR,
     EMPLOYEE, AGENT, ATTORNEY, CONSULTANT, REPRESENTATIVE
     OR ADVISOR OF SELLER OR ANY OF SELLER'S AFFILIATES).

     (b) EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN
     ARTICLE 3 OR THIS ARTICLE 5, WITHOUT LIMITING THE
     GENERALITY OF THE FOREGOING, SELLER EXPRESSLY DISCLAIMS
     ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
     STATUTORY OR OTHERWISE AS TO (i) TITLE TO ANY OF THE
     ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY
     DESCRIPTIVE MEMORANDUM, DOCUMENTS, REPORTS OF ANY
     PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL,
     GEOPHYSICAL OR SEISMIC DATA OR INTERPRETATION RELATING
     TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR
     RECOVERABILITY OF HYDROCARBONS OR PETROLEUM SUBSTANCES
     IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE
     OF THE ASSETS OR FUTURE REVENUES THAT MAY BE
     ATTRIBUTABLE TO THE ASSETS, (v) THE PRODUCTION OF
     HYDROCARBONS OR PETROLEUM SUBSTANCES FROM THE ASSETS,
     (vi) THE MAINTENANCE, STATE OR REPAIR OR LACK THEREOF,
     PHYSICAL CONDITION, QUALITY, SUITABILITY FOR ANY
     PURPOSE, DESIGN OR MARKETABILITY OF THE ASSETS, (vii)
     THE CONTENT, CHARACTER OR NATURE OF ANY DESCRIPTIVE
     MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS
     PREPARED BY THIRD PARTIES, (viii) THE ACCURACY AND/OR
     THE COMPLETENESS OF ANY OTHER MATERIALS OR INFORMATION
     THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO
     PURCHASER, ITS AFFILIATES OR ITS EMPLOYEES, AGENTS,
     CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION
     WITH THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION
     RELATING THERETO, (ix) ANY REPRESENTATION OR WARRANTY,
     EXPRESS OR  IMPLIED, STATUTORY OR OTHERWISE, OF
     MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
     CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY
     EQUIPMENT OR (x) ANY IMPLIED OR EXPRESS WARRANTY OF
     FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT.  IT IS
     EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO
     THAT PURCHASER SHALL BE DEEMED TO BE PURCHASING THE
     EQUIPMENT AND PERSONAL PROPERTY IN ITS PRESENT STATUS,
     CONDITION AND STATE OF REPAIR, "AS IS" AND "WHERE IS,"
     WITH ALL FAULTS. PURCHASER HAS MADE OR CAUSED TO BE
     MADE SUCH INSPECTIONS OF THE ASSETS AS PURCHASER DEEMS
     APPROPRIATE.

     (c) Any representation "to the knowledge of Seller" or
     "to Seller's knowledge" is limited to matters within
     the actual knowledge of the officers or management
     employees, including those with titles of "Manager",
     "Vice President" and "President," of Seller. Actual
     knowledge includes information actually personally
     known or information which should have been ascertained
     had a reasonable inquiry or investigation been
     undertaken. The standard of reasonableness is that
     which would be exercised by a reasonably prudent person
     who has been advised that the person is expected to
     make representations and warranties with respect to
     conditions and information relating to the Assets which
     are to be conveyed.

     (d) Subject to the foregoing provisions of this Section
     5.1, Seller represents and warrants to Purchaser the
     matters set out in this Article 5.

Section 5.2 Existence and Qualification.

Seller is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Texas.
Seller is duly qualified to do business as a corporation in
the respective jurisdictions where the Assets are located.

Section 5.3 Power.

Seller has the corporate power to enter into this Agreement,
perform the terms of this Agreement and consummate the
transactions contemplated by this Agreement.

Section 5.4 Authorization and Enforceability.

The execution, delivery and performance of this Agreement
have been or by Closing will have been duly authorized by
all necessary corporate action on the part of Seller. This
Agreement has been duly executed and delivered by Seller
(and all documents required hereunder to be executed and
delivered by Seller at Closing will be duly executed and
delivered by Seller) and this Agreement constitutes the
valid and binding obligation of Seller, enforceable in
accordance with its terms except as such enforceability may
be limited by applicable bankruptcy or other similar laws
affecting the rights and remedies of creditors generally as
well as to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law). As evidence of the foregoing, Seller has
delivered to Purchaser simultaneous with the execution of
this Agreement a unanimous consent executed, adopted and
approved by the board of directors of Seller which
specifically approves the terms of this Agreement, the
execution of this Agreement by Seller and the completion of
the transaction contemplated by this Agreement.

Section 5.5 No Conflicts.

The execution, delivery and performance of this Agreement by
Seller will not (i) violate any provision of the certificate
of incorporation or bylaws of Seller, (ii) result in default
(with due notice or lapse of time or both) or the creation
of any lien or encumbrance or give rise to any right of
termination, cancellation or acceleration under any of the
terms, conditions or provisions of any note, bond, mortgage
or indenture to which Seller is a party or which affect the
Assets, (iii) violate any judgment, order, ruling, or decree
applicable to Seller as a party in interest or (iv) violate
any Laws, rule or decree applicable to Seller or any of the
Assets, except for rights to consent by, required notices
to, and filings with or other actions by Governmental Bodies
where the same are not required prior to the assignment of
oil and gas interests.

Section 5.6 Purchaser's Liability for Brokers' Fees.

Purchaser shall not have any responsibility, liability or
expense, as a result of undertakings or agreements of
Seller, for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in
connection with this Agreement or any agreement or
transaction contemplated hereby.

Section 5.7 Litigation.

Except as set forth in Exhibit 5.7, (a) no investigation,
proceeding, action, suit, or other legal proceeding of any
kind or nature before any Governmental Body or arbitrator
(including any take-or-pay claims) is pending and (b) no
written notice from any Governmental Body or any other
Person has been received by Seller claiming any violation of
or noncompliance with any Laws with respect to the Assets.

Section 5.8 Taxes and Assessments.

With respect to all Taxes related to the Assets, Seller
warrants and represents that (a) all reports, returns,
statements (including estimated reports, returns or
statements), and other similar filings (the "Tax Returns")
relating to the Assets required to be filed on or before the
Closing Date by Seller with respect to any Taxes have been
or will be timely filed with the appropriate Governmental
Body in all jurisdictions in which such Tax Returns are
required to be filed; (b) such Tax Returns are true and
correct in all material respects, and all Taxes reported on
such Tax Returns have been paid; (c) there are not currently
in effect any extension or waiver of any statute of
limitations of any jurisdiction regarding the assessment or
collection of any Tax; (d) there are no administrative
proceedings or lawsuits pending against the Assets or Seller
by any taxing authority; and (e) there are no liens on any
of the Assets except for liens for Taxes not yet due.

Section 5.9 Outstanding Capital Commitments.

As of the Effective Time, there were no outstanding AFEs or
other commitments, either singly or in the aggregate, to
make capital expenditures in excess of $500,000.00 which are
binding on the Assets.

Section 5.10 Compliance with Laws.

To the knowledge of Seller, the Assets operated by Seller
have been and are currently in substantial compliance with
the provisions and requirements of all Laws of all
Governmental Bodies having jurisdiction with respect to the
Assets.

Section 5. 11 Contracts.

Seller has paid its share of all costs including without
limitation, Property Costs, payable by Seller and is not in
default under any Leases and Contracts, except those being
contested in good faith.

Section 5.12 Payments.

With respect to all Seller Operated Assets, all rentals,
royalties, overriding royalty interests, production
payments, and other payments due and/or payable by Seller to
mineral, royalty and other interest owners prior to the
Effective Time with respect to the Assets and the
Hydrocarbons produced therefrom or attributable thereto have
been properly and timely paid. Seller is not obligated under
any contract or agreement for the sale of gas from the
Assets containing a take-or-pay, advance payment,
prepayment, or similar provision, or under any gathering,
transmission, or any other contract or agreement with
respect to any of the Assets to gather, deliver, process, or
transport any gas without then or thereafter receiving full
payment therefor.

Section 5.13 Gas Imbalances.

Exhibit 5.13 sets forth all of Seller's pipeline and
production imbalances and penalties as of the Effective Time
arising with respect to the Assets. Except as disclosed in
Exhibit 5.13, as of the Effective Time, (i) no Person is
entitled to receive any portion of the Seller's Hydrocarbons
produced from the Assets or to receive cash or other
payments to "balance" any disproportionate allocation of
Hydrocarbons produced from the Assets under any operating
agreement, gas balancing or storage agreement, gas
processing or dehydration agreement, gas transportation
agreement, gas purchase agreement, or other agreements,
whether similar or dissimilar, (ii) Seller is not obligated
to deliver any quantities of gas or to pay any penalties or
other amounts, in connection with the violation of any of
the terms of any gas contract or other agreement with
shippers with respect to the Assets, and (iii) Seller is not
obligated to pay any penalties or other payments under any
gas transportation or other agreement as a result of the
delivery of quantities of gas from the Wells in excess of
the contract requirements.

Section 5.14 Governmental Authorizations.

Seller has obtained and is maintaining all federal, state
and local governmental licenses, permits, franchises,
orders, exemptions, variances, waivers, authorizations,
certificates, consents, rights, privileges and applications
therefor (the "Governmental Authorizations") that are
presently necessary or required for the ownership and
operation of the Seller Operated Assets. Seller has operated
the Seller Operated Assets in accordance with the conditions
and provisions of such Governmental Authorizations, and
Seller has not received any notices of violations. No
proceedings are pending or, to Seller's knowledge,
threatened, that might result in any modification,
revocation, termination or suspension of any such
Governmental Authorizations or which would require any
corrective or remediation action by Seller.

Section 5.15 Consents to Assignments and Preferential
Purchase Rights.

Except as set forth on Exhibit 5.15, none of the Assets are
subject to any preferential rights to purchase, restrictions
on assignment or required third-party consents to
assignment, which may be applicable to the transactions
contemplated by this Agreement, except for governmental
consents and approvals of assignments that are customarily
obtained after Closing.

Section 5.16 Non-foreign Person.

Seller is not a "foreign Person" within the meaning of
Sections 1445 and 7701of the Code.

Section 5.17 Payout Balances.

Exhibit 5.17 contains a complete and accurate list of the
status of any "payout" balances, as of the Effective Time,
for the Wells and Units subject to any reversion, adjustment
at some level of cost recovery, payout or other event other
than termination of a Lease by its terms.

Section 5.18 Condemnation.

To Seller's knowledge, there is no actual or threatened
taking of any part of the Assets by reason of condemnation
or eminent domain proceeding.

Section 5.19 Bankruptcy.

There are no bankruptcy, reorganization, or similar
arrangement proceedings pending, being contemplated by or,
to Seller's knowledge, threatened against Seller or any
Affiliate of Seller.

Section 5.20 PUHCA/NGA.

Seller is not (a) a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a
"holding company," or an "affiliate" of a "subsidiary" of a
"holding company," or a "public-utility company" within the
meaning of the Public Utility Holding Company Act of 1935,
as amended, or (b) subject in any respect to the provisions
of said act. No consent is required in connection with the
transaction contemplated hereby under the Natural Gas Policy
Act of 1978, as amended. Seller is not an interstate
pipeline company within the meaning of the Natural Gas Act
of 1938.

Section 5.21 Investment Company.

Seller is not (a) an investment company or a company
controlled by an investment company within the meaning of
the Investment Company Act of 1940, as amended, or (b)
subject in any respect to the provisions of said act.

Section 5.22 Suspense Accounts.

Except as described on Exhibit 5.22 attached hereto, there
are no obligations to pay any interests of any kind held by
Seller in suspense.

Section 5.23 Material Changes.

Except as provided for or disclosed in Exhibit 5.23 attached
hereto and made a part hereof, between the date of execution
of this Agreement and the Closing Date, there has not been
and will not be any material adverse changes in  he
operations of the Properties by Seller, which change was not
the  result of an industry-wide development affecting other
companies in the oil or gas industries.

                          ARTICLE 6
         REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller the following:

Section 6.1 Existence and Qualification.

Purchaser is a corporation organized, validly existing and
in good standing under the laws of the state of its
incorporation. Purchaser is duly qualified to do business as
a corporation in the respective jurisdictions where the
Assets are located.

Section 6.2 Power.

Purchaser has the corporate power to enter into this
Agreement, perform the terms of this Agreement and
consummate the transactions contemplated by this Agreement.

Section 6.3 Authorization and Enforceability.

The execution, delivery and performance of this Agreement
have been or by Closing will have been duly authorized by
all necessary corporate action on the part of Purchaser.
This Agreement has been duly executed and delivered by
Purchaser (and all documents required hereunder to be
executed and delivered by Purchaser at Closing will be duly
executed and delivered by Purchaser) and this Agreement
constitutes the valid and binding obligations of Purchaser,
enforceable in accordance with their terms except as such
enforceability may be limited by applicable bankruptcy or
other similar laws affecting the rights and remedies of
creditors generally as well as to general principles of
equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). As evidence
of the foregoing, Purchaser has delivered to Seller
simultaneous with the execution of this Agreement either a
resolution or a unanimous consent executed, adopted and
approved by the board of directors of Purchaser which
specifically approves the terms of this Agreement, the
execution of this Agreement by Purchaser and the completion
of the transaction contemplated by this Agreement.

Section 6.4 No Conflicts.

The execution, delivery and performance of this Agreement by
Purchaser, and the transactions contemplated by this
Agreement will not (i) violate any provision of the
certificate of incorporation or bylaws of Purchaser, (ii)
result in a material default (with due notice or lapse of
time or both) or the creation of any lien or encumbrance or
give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license
or agreement to which Purchaser is a party, (iii) violate
any judgment, order, ruling, or regulation applicable to
Purchaser as a party in interest, or (iv) violate any Law,
rule or decree applicable to Purchaser or any of the Assets,
except for rights to consent by, required notices to, and
filings with or other actions by Governmental Bodies where
the same are not required prior to the assignment of oil and
gas interests.

Section 6.5 Seller's Liability for Brokers' Fees.

Seller shall not have any responsibility, liability or
expense, as a result of undertakings or agreements of
Purchaser, for brokerage fees, finder's fees, agent's
commissions or other similar forms of compensation in
connection with this Agreement or any agreement or
transaction contemplated hereby.

Section 6.6 Litigation.

As of the date of the execution of this Agreement there are
(and as of the Closing Date there will be) no actions, suits
or proceedings pending, or to Purchaser's knowledge,
threatened in writing, before any Governmental Body or
brought by any Person against Purchaser or any Affiliate of
Purchaser with respect to this Agreement, the transaction
contemplated by this Agreement or the Assets.

Section 6.7 Financing.

Purchaser has sufficient cash, available lines of credit or
other sources of immediately available funds in United
States dollars to enable it to pay the Closing Payment to
Seller at the Closing.

Section 6.8 Texas Deceptive Trade Practices-Consumer
Protection Act.

With respect to the Texas Deceptive Trade Practices-Consumer
Protection Act, Tex. Bus. & Com. Code Ann. Section 17.41 et
seq. (the "DTPA"), Purchaser acknowledges, represents and
warrants that Purchaser is purchasing the goods and/or
services covered by this Agreement for commercial or
business use; that Purchaser has assets of $5 million or
more according to its most recent financial statement
prepared in accordance with generally accepted accounting
principles; that Purchaser has knowledge and experience in
financial and business matters that enable Purchaser to
evaluate the merits and risks of a transaction such as this;
and that Purchaser is not in a significantly disparate
bargaining position with Seller.

Section 6.9 No Reliance.

Purchaser represents and warrants that Purchaser is
knowledgeable of the oil and gas business and of the usual
and customary practices of producers such as Seller.
Purchaser has been granted access to the Assets and the
Records of Seller relating to the Assets. In making the
decision to enter into this Agreement and consummate the
transactions contemplated hereby, Purchaser has relied
exclusively on Purchaser's own investigation and analysis of
the condition, value, characteristics and qualities of the
Assets. Accordingly, Purchaser acknowledges that Seller has
not made and Purchaser shall not rely upon any
representation or warranty, express, implied, at common law,
by statute or otherwise, other than the warranty made in
Section 3.1, the express representations and warranties made
in Article 5, the certificate of Seller to be delivered
pursuant to Section 9.2(d) and the special warranty of title
in the Assignment and Bill of Sale relating to the Assets.

                          ARTICLE 7
                  COVENANTS OF THE PARTIES

Section 7.1 Access.

     (a) Between the date of execution of this Agreement and
     the Closing Date, Seller will give Purchaser and its
     representatives access to the Assets and the right to
     copy, at Purchaser's expense, the Records in Seller's
     possession, for the purpose of conducting an
     investigation of the Assets, but only to the extent
     that Seller may do so without violating any obligations
     to any third party and to the extent that Seller has
     authority to grant such access without breaching any
     restriction binding on Seller. Such access by Purchaser
     shall be limited to Seller's normal business hours, and
     any weekends and after hours requested by Purchaser
     that can be reasonably accommodated by Seller, and
     Purchaser's investigation shall be conducted in a
     manner that minimizes interference with the operation
     of the Assets. All information obtained by Purchaser
     and its representatives under this Section 7.1 shall be
     subject to the terms of Section 7.7 and the terms of
     that certain confidentiality agreement between Seller
     and Purchaser dated February 2, 2005 (the
     "Confidentiality Agreement").

     (b) PURCHASER ACKNOWLEDGES THAT EXCEPT TO THE EXTENT
     CONTAINED IN AN EXPRESS REPRESENTATION IN ARTICLES 3
     AND 5 OF THIS AGREEMENT, THE CERTIFICATE OF SELLER TO
     BE DELIVERED PURSUANT TO SECTION 9.2(d) OR THE
     ASSIGNMENT AND BILL OF SALE, SELLER HAS MADE NO
     REPRESENTATIONS OR WARRANTIES, WHETHER ORAL OR WRITTEN.
     SELLER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED,
     STATUTORY OR OTHERWISE AS TO THE ACCURACY OR
     COMPLETENESS OF INFORMATION OBTAINED BY PURCHASER FROM
     SELLER OR AS TO SELLER'S TITLE TO THE ASSETS. IN
     ENTERING INTO AND PERFORMING THIS AGREEMENT, PURCHASER
     HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT
     INVESTIGATION OF, AND JUDGMENT WITH RESPECT TO, THE
     ASSETS, THE VALUE OF THE ASSETS, AND SELLER'S TITLE
     THERETO AND UPON THOSE REPRESENTATIONS AND WARRANTIES
     EXPRESSLY SET FORTH IN ARTICLES 3 AND 5 OF THIS
     AGREEMENT, THE CERTIFICATE OF SELLER TO BE DELIVERED
     PURSUANT TO SECTION 9.2(d) OR THE ASSIGNMENT AND BILL
     OF SALE.

Section 7.2 Government Reviews.

If applicable, this Agreement is subject to and conditioned
upon compliance by Seller and Purchaser with the HSR Act. If
required, Seller and Purchaser shall in a timely manner (a)
make all required filings, if any, with and prepare
applications to and conduct negotiations with, each
governmental agency as to which such filings, applications
or negotiations are necessary or appropriate in the
consummation of the transactions contemplated hereby
specifically including but not limited to the HSR Act, (b)
provide such information as each may reasonably request to
make such filings, prepare such applications and conduct
such negotiations and (c) request early termination or
waiver of any applicable waiting period under the HSR Act.
Purchaser shall bear the cost of the HSR Act filing fee made
in connection with this Agreement. Each party shall
cooperate with and use all reasonable efforts to assist the
other with respect to such filings, applications and
negotiations.

Section 7.3 Notification of Breaches.

Until the Closing,

     (a) Purchaser shall notify Seller promptly after
     Purchaser obtains actual knowledge that any
     representation or warranty of Seller contained in this
     Agreement is untrue in any material respect or will be
     untrue in any material respect as of the Closing Date
     or that any covenant or agreement to be performed or
     observed by Seller prior to or on the Closing Date has
     not been so performed or observed in any material
     respect.

     (b) Seller shall notify Purchaser promptly after Seller
     obtains actual knowledge that any representation or
     warranty of Purchaser contained in this Agreement is
     untrue in any material respect or will be untrue in any
     material respect as of the Closing Date or that any
     covenant or agreement to be performed or observed by
     Purchaser prior to or on the Closing Date has not been
     so performed or observed in a material respect.

If any of Purchaser's or Seller's representations or
warranties is untrue or shall become untrue in any material
respect between the date of execution of this Agreement and
the Closing Date, or if any of Purchaser's or Seller's
covenants or agreements to be performed or observed prior to
or on the Closing Date shall not have been so performed or
observed in any material respect, but if such breach of
representation, warranty, covenant or agreement shall (if
curable) be cured by the Closing (or, if the Closing does
not occur, by the date set forth in Section 9.1), then such
breach shall be considered not to have occurred for all
purposes of this Agreement.

Section 7.4 Assignments and Bills of Sale.

On the Closing Date, Seller shall execute and deliver to
Purchaser:

     (a) Assignments and Bills of Sale in sufficient number
     of originals to facilitate recording in each county in
     which the Properties are located and Assignments and
     Bills of Sale necessary to convey to Purchaser all
     federal or state leases, if any, in the form as
     prescribed by the applicable Governmental Body and
     otherwise acceptable to Purchaser and Seller.

Section 7.5 Public Announcements.

Neither party shall make any press release, public
announcement or public disclosure regarding the existence of
this Agreement, the contents hereof or the transaction
contemplated hereby until the transaction contemplated by
this Agreement has closed (i.e., the occurrence of Closing).
In the event that the transaction contemplated by this
Agreement closes, either party may make a press release,
public announcement or public disclosure regarding this
Agreement after the form and contents of the press release,
public announcement or public disclosure have been approved
in writing by the other party. In the event that the
transaction contemplated by this Agreement fails to close,
neither party shall make any press release, public
announcement or public disclosure regarding the existence of
this Agreement, the contents hereof or the transaction
contemplated hereby.  The foregoing provision shall not
restrict disclosures by Purchaser or Seller which are required
by applicable securities or other Laws or regulations of the
applicable rules of any stock exchange having jurisdiction
over the disclosing party or its Affiliates.

Section 7.6 Operation of Business.

This section left blank intentionally.

Section 7.7 Indemnity Regarding Access.

PURCHASER, ON BEHALF OF ITSELF AND THE PURCHASER
INDEMNITEES, SHALL INDEMNIFY, HOLD HARMLESS, DEFEND, SAVE,
RELEASE AND COVENANTS NOT TO SUE SELLER INDEMNITEES, THE
OTHER OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH
PERSONS' DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND
REPRESENTATIVES, FROM AND AGAINST ANY AND ALL DAMAGES
ARISING FROM OR RELATED TO ACCESS TO THE ASSETS BY THE
PURCHASER INDEMNITEES PURSUANT TO SECTION 7.1.

WITHOUT LIMITING THE FOREGOING, PURCHASER'S INDEMNIFICATION
OF SELLER INDEMNITEES, THE OTHER OWNERS OF INTERESTS IN THE
ASSETS, AND ALL SUCH PERSONS' DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS AND REPRESENTATIVES, SHALL INCLUDE
INDEMNIFICATION AGAINST DAMAGES ARISING FROM OR RELATED TO
PERSONAL INJURIES, DEATH, PROPERTY DAMAGE AND CLAIMS MADE BY
LANDOWNERS WHO OWN LAND ADJACENT TO THE PROPERTIES ARISING
FROM OR IN CONNECTION WITH ACTIVITIES, TESTS, ENVIRONMENTAL
ASSESSMENTS OR OTHER OPERATIONS CONDUCTED BY PURCHASER OR
PURCHASER'S REPRESENTATIVES RELATED TO THIS AGREEMENT.

PURCHASER'S INDEMNIFICATION OF SELLER INDEMNITEES, THE OTHER
OWNERS OF INTERESTS IN THE ASSETS, AND ALL SUCH PERSONS'
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND REPRESENTATIVES,
SHALL BE PURSUANT TO AND IN ACCORDANCE WITH ALL OF THE
INDEMNIFICATION PROVISIONS SET OUT IN SECTION 11.3(b) AND
SHALL INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
DAMAGES AND LITIGATION EXPENSES.

Section 7.8 Gas Imbalances and Take-or-Pay Make-up
Obligations.

Subject to the adjustment to the Purchase Price as provided
in this Section 7.8, Purchaser expressly assumes Purchaser's
proportionate share of any and all obligations attributable
to gas production imbalances with co-owners of the
Properties and gas take-or-pay make-up obligations with
purchasers or sellers of natural gas from the Properties.
Should Purchaser (i) determine that the gas imbalance
information set out on Exhibit 5.13 is inaccurate and (ii)
deliver a written notice regarding the gas imbalance to
Seller at least five (5) Business Days prior to Closing,
Seller shall review Purchaser's information regarding the
alleged gas imbalance. If it is determined that there is an
inaccuracy as of the Effective Time in the gas imbalance set
forth on Exhibit 5.13, then the Purchase Price shall be
either increased (if there is aggregate underproduction) or
decreased (if there is aggregate overproduction) on the
basis of $4.00 per MMBtu. This adjustment to the Purchase
Price shall be in full settlement of all production
imbalances on the Assets. Notwithstanding anything to the
contrary contained in this Section 7.8, there shall be no
adjustment to the Purchase Price if it is determined that
actual imbalance volumes are within 15% above or below those
shown on Exhibit 5.13.

The adjustment to the Purchase Price as set forth in this
Section 7.8 is Purchaser's exclusive remedy for (i) any gas
imbalance, (ii) any breach of Seller's representation in
Section 5.13 and (iii) any affirmation of such
representations in the certificate of Seller to be delivered
pursuant to Section 9.2(d), and, at Closing, Purchaser shall
assume Purchaser's proportionate share of Seller's
overproduced or underproduced position in the Wells as of
the Effective Date, including the responsibility for the
payment of royalties with respect to any imbalance and any
obligation to balance, whether in cash or in kind. Purchaser
shall be deemed to have waived any breaches of Section 5.13
if Purchaser fails to give timely written notice to Seller
as provided above.

Section 7.9 Consents and Preferential Rights.

     (a) Seller shall promptly prepare and send notices to
     the holders of any required consents to assignment of
     any Assets requesting such consents. Seller shall use
     reasonable efforts to obtain all such consents which
     are reasonably obtainable by Closing and are required
     to vest Defensible Title to the Assets in Purchaser.
     Purchaser shall cooperate with Seller in seeking to
     obtain such consents. In the event that Seller is
     unable to obtain such consents that are required to
     vest Defensible Title to the Assets, Purchaser may
     elect to treat the unsatisfied consent requirement as a
     Title Defect and the procedures set forth in Section
     3.5(a) shall apply.

     (b) Seller shall promptly prepare and send notices to
     the holders of any applicable preferential rights to
     purchase any Asset requesting waivers of such
     preferential rights to purchase. The consideration
     payable under this Agreement for any particular Assets
     for purposes of preferential purchase right notices
     shall be the Allocated Value for such Assets. Seller
     shall use reasonable efforts to cause such waivers of
     preferential rights to purchase (or the exercise
     thereof) to be obtained and delivered prior to Closing.
     Purchaser shall cooperate with Seller in seeking to
     obtain such waivers of preferential rights.

     If the holder of a preferential right to purchase
     exercises such right, Seller shall tender to such third
     party the required interest in the affected Asset at a
     price equal to the Allocated Value (reduced
     appropriately, as determined by mutual agreement of
     Purchaser and Seller, if less than the entire Asset
     must be tendered), and to the extent that such
     preferential right to purchase is exercised and such
     interest in such Asset is actually sold to the third
     party so exercising such right, the Assets transferred
     will be treated as if subject to a Title Defect and the
     procedures set forth in Section 3.5(b) shall apply.

     Should a holder of a preferential right to purchase
     fail to exercise its preferential right to purchase as
     to any portion of the Assets prior to Closing and the
     time for exercise or waiver has not yet expired prior
     to Closing, subject to the remaining provisions of this
     Section 7.9, such Assets shall be included in the
     transaction contemplated by this Agreement at Closing
     and the following procedures shall be applicable:

     (i) An Assignment and Bill of Sale from Seller to
     Purchaser of the Assets affected by such preferential
     right to purchase shall be delivered into an escrow
     account, Purchaser shall take beneficial possession of
     the affected Assets and Purchaser shall be entitled to
     all production, income, proceeds, receipts and credits
     to which Purchaser would be entitled under Section
     11.1. Purchaser shall Indemnify Seller Indemnitees
     against Damages for which Purchaser would be liable
     under the terms of Sections 11.2 and 11.3 with respect
     to the affected Assets. Record title to the affected
     Assets shall not be transferred and the Assignment and
     Bill of Sale shall not be released to Purchaser from
     the escrow account until such preferential right to
     purchase has been waived or has expired. PURCHASER'S
     INDEMNIFICATION OF SELLER INDEMNITEES SHALL BE PURSUANT
     TO AND IN ACCORDANCE WITH THE INDEMNIFICATION
     PROVISIONS SET OUT IN SECTION 11.3(b) AND SHALL
     INCLUDE, WITHOUT LIMITATION, INDEMNIFICATION AGAINST
     DAMAGES AND LITIGATION EXPENSES.

     (ii) Seller shall continue to use reasonable efforts to
     obtain the waiver of the preferential right to purchase
     and shall continue to be responsible for the compliance
     with the preferential right to purchase.

     (iii) Should the holder of the preferential right to
     purchase exercise same, Purchaser and Seller agree to
     cause the affected Assets to be transferred to such
     holder on the terms and provisions set out herein and
     in the applicable preferential right to purchase
     provision. In such event, Seller shall pay the
     Allocated Value, subject to applicable adjustments, for
     such Asset to Purchaser, and Seller shall be entitled
     to retain the consideration paid for the affected Asset
     by the holder of the preferential right to purchase.

     (iv) If the preferential right to purchase is waived
     after the Closing Date or if the time limit for the
     exercise of the preferential right to purchase expires
     without being exercised, Seller and Purchaser shall
     take all reasonable actions necessary to ensure that
     the affected Assets are promptly conveyed out of escrow
     to Purchaser.

     (v) Once the provisions of subparagraph (iv) have been
     satisfied and all obligations in connection therewith
     have been fulfilled, the Closing shall be deemed to
     have occurred for all purposes hereunder with respect
     to the affected Assets.

     Should any third party bring any suit, action or other
     proceeding seeking to restrain, enjoin or otherwise
     prohibit the consummation of the transactions
     contemplated hereby in connection with a claim to
     enforce preferential rights, the Assets affected by
     such suit, action or other proceeding shall be excluded
     from the Assets transferred at Closing and the Purchase
     Price shall be reduced by the Allocated Value of such
     excluded Assets. Promptly after the suit, action or
     other proceeding is dismissed or settled or a judgment
     is rendered, Seller shall sell to Purchaser and
     Purchaser shall purchase from Seller all such Assets
     not being sold to the third party for a purchase price
     equal to the Allocated Value of such Assets, adjusted
     as provided in Section 2.2.

Section 7.10 Tax Matters.

     (a) Subject to the provisions below, Seller shall be
     responsible for all Taxes attributable to all times
     prior to Effective Time, including without limitation,
     income Taxes arising as a result of the gain recognized
     on the transfer of the Assets. Purchaser shall be
     responsible for Purchaser's proportionate share of all
     such Taxes attributable to all periods of time at and
     after the Effective Time.

     (b) This section left blank intentionally.

     (c) This section left blank intentionally.

     (d) Purchaser shall pay any sales, use, excise,
     registration, documentary, stamp or transfer Taxes,
     recording fees incurred and imposed with respect to the
     conveyance of the Properties contemplated hereby.

Section 7.11 Further Assurances.

After Closing, Seller and Purchaser shall take such further
actions and execute, acknowledge and deliver all such
further documents as are reasonably requested by the other
party for carrying out the purposes of this Agreement or of
any document delivered pursuant to this Agreement.

Section 7.12 Transition Services.

This section left blank intentionally.

Section 7.13 Replacement of Bonds, Letters of Credit and
Guarantees.

None of the bonds, letters of credit and guarantees, if any,
posted by Seller with Governmental Bodies and relating to
the Assets shall be transferred to Purchaser.

Section 7.14 Like-Kind Exchange

Purchaser and Seller agree to use reasonable cooperation so
that the transfer of the Properties shall, at either party's
election, be accomplished in a manner enabling the transfer
of the Properties to qualify as a like-kind exchange of
property within the meaning of Section 1031 of the Code. If
such an election is made, the parties shall reasonably
cooperate to effect such like-kind exchange, which
cooperation shall include (i) having any cash payment be
paid directly from a 1031 account which has been established
with a qualified intermediary, as that term is defined in
Section 1031 of the Code, in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code and (ii) assigning rights to the Properties to a
qualified intermediary or an escrow agent acting as a
qualified intermediary for the purpose of receiving an
assignment of the Properties in a manner which enables such
transfer of the Properties to qualify as part of a like-kind
exchange of property within the meaning of Section 1031 of
the Code. In such events, the parties shall cooperate in the
negotiation and execution of such additional documents.

Section 7.15 Arbitration.

Disputed matters related to Allocated Values in Section
2.3(b), remedies for Title Defect Amounts in Section 3.4(d),
Title Benefits Amounts in Section 3.4(i), downward
adjustment to the Purchase Price to reflect the costs of
remediation in Section 4.3 and the final settlement
statement in Section 9.4(b) may be submitted, as provided in
the respective Sections listed above, to arbitration
pursuant to the following provisions:

(a) The parties shall jointly select a mutually acceptable
person as the sole arbitrator under this Agreement. If the
parties are unable to agree upon the designation of one
person as arbitrator, then each party shall appoint one
arbitrator and the two arbitrators so chosen shall appoint a
third arbitrator and the three arbitrators shall arbitrate
any dispute.

(b) Any arbitration hearing shall be held in Houston, Texas
at a location acceptable to the arbitrator.

(c) The arbitrator shall settle disputes in accordance with
the Texas General Arbitration Act and the Rules of the
American Arbitration Association. The decision of the
arbitrator shall be binding upon the parties and may be
enforced in any court of competent jurisdiction.  Seller and
Purchaser, respectively, shall bear their own legal fees and
other costs incurred in presenting their respective cases.
The charges and expenses of the arbitrator shall be shared
equally by Seller and Purchaser.

(d) In fulfilling his duties hereunder, the arbitrator shall
be bound by the terms of this Agreement. In fulfilling any
of his arbitration duties, the arbitrator may consider such
other matters as in the opinion of the arbitrator are
necessary or helpful to make a proper evaluation.
Additionally, the arbitrator may consult with and engage
disinterested third parties, including, without limitation,
petroleum engineers, attorneys and consultants, to advise
the arbitrator.

(e) If any arbitrator selected hereunder should die, resign
or be unable to perform his duties hereunder, the parties
selecting such arbitrator shall select a replacement
arbitrator. The aforesaid procedure shall be followed from
time to time as necessary.

                          ARTICLE 8
                    CONDITIONS TO CLOSING

Section 8.1 Conditions of Seller to Closing.

The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject, at the option of
Seller, to the satisfaction on or prior to Closing of each
of the following conditions:

     (a) Representations. The representations and warranties
     of Purchaser set forth in Article 6 shall be true and
     correct in all material respects as of the date of this
     Agreement and as of the Closing Date as though made on
     and as of the Closing Date;

     (b) Performance. Purchaser shall have performed and
     observed, in all material respects, all covenants and
     agreements to be performed or observed by it under this
     Agreement prior to or on the Closing Date;

     (c) Pending Litigation. No suit, action or other
     proceeding by a third party, including any Governmental
     Body, seeking to restrain, enjoin or otherwise prohibit
     the conveyance of the Assets or the consummation of the
     transactions contemplated by this Agreement shall be
     pending;

     (d) Deliveries. Purchaser shall have delivered to
     Seller duly executed counterparts of the Assignment and
     Bill of Sale and the other documents and certificates
     to be delivered by Purchaser under Section 9.3;

     (e) Payment. Purchaser shall have paid the Closing Payment;

     (f) HSR Act. Only if applicable, any waiting period
     applicable to the consummation of the transaction
     contemplated by this Agreement under the HSR Act shall
     have lapsed or terminated (by early termination or
     otherwise).

     (g) Approval by Board of Directors. Purchaser shall
     have delivered to Seller either (i) a resolution
     executed by the board of directors of Purchaser which
     specifically approves the terms of this Agreement, the
     execution of this Agreement by Purchaser and the
     completion of the transaction contemplated by this
     Agreement or (ii) a unanimous consent of the board of
     directors of Purchaser which specifically approves the
     terms of this Agreement, the execution of this
     Agreement by Purchaser and the completion of the
     transaction contemplated by this Agreement.

     (h) Tabasco/Texan Gardens Field Agreement.
     Contemporaneously with the preparation and execution of
     this Agreement, Purchaser and Seller have prepared a
     second Purchase and Sale Agreement covering all of
     Seller's interests in the Tabasco/Texan Gardens Field,
     Hidalgo County, Texas and Starr County, Texas. Closing
     of the transaction contemplated by the Tabasco/Texan
     Gardens Field Agreement shall occur simultaneously with
     the Closing of the transaction contemplated by this
     Agreement.

Section 8.2 Conditions of Purchaser to Closing.

The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject, at the option of
Purchaser, to the satisfaction on or prior to Closing of
each of the following conditions:

     (a) Representations. The representations and warranties
     of Seller set forth in Article 5 shall be true and
     correct as of the date of this Agreement and as of the
     Closing Date as though made on and as of the Closing
     Date (other than any representations and warranties
     that refer to a specified date which need only be true
     and correct on and as of such specified date);

     (b) Performance. Seller shall have performed and
     observed, in all material respects, all covenants and
     agreements to be performed or observed by it under this
     Agreement prior to or on the Closing Date;

     (c) Pending Litigation. No suit, action or other
     proceeding by a third party (including any Governmental
     Body) seeking to restrain, enjoin or otherwise prohibit
     the conveyance of the Assets or the consummation of the
     transactions contemplated by this Agreement shall be
     pending;

     (d) Deliveries. Seller shall have delivered to
     Purchaser duly executed counterparts of the Assignment
     and Bill of Sale and the other documents and
     certificates to be delivered by Seller under Section 9.2;

     (e) HSR Act. Only if applicable, any waiting period
     applicable to the consummation of the transaction
     contemplated by this Agreement under the HSR Act shall
     have lapsed or terminated (by early termination or
     otherwise).

     (f) Approval by Board of Directors. Seller shall have
     delivered to Purchaser a unanimous consent of the board
     of directors of Seller which specifically approves the
     terms of this Agreement, the execution of this
     Agreement by Seller and the completion of the
     transaction contemplated by this Agreement.

     (g) Tabasco/Texan Gardens Field Agreement.
     Contemporaneously with the preparation and execution of
     this Agreement, Purchaser and Seller have prepared a
     second Purchase and Sale Agreement covering all of
     Seller's interests in the Tabasco/Texan Gardens Field,
     Hidalgo County, Texas and Starr County, Texas. Closing
     of the transaction contemplated by the Tabasco/Texan
     Gardens Field Agreement shall occur simultaneously with
     the Closing of the transaction contemplated by this
     Agreement.

                          ARTICLE 9
                           CLOSING

Section 9.1 Time and Place of Closing.

     (a) Consummation of the purchase and sale transaction
     as contemplated by this Agreement (the "Closing"),
     shall take place at the offices of Seller located at
     14425 Torrey Chase, Suite 190 Houston, Texas 77014, at
     10:00 a.m., local time, on or before May 5, 2005 unless
     otherwise agreed to in writing by Purchaser and Seller.

     (b) The date on which the Closing occurs is herein
     referred to as the "Closing Date."

Section 9.2 Obligations of Seller at Closing.

At the Closing, Seller shall deliver or cause to be
delivered to Purchaser, among other things, the following:

(a) Assignment and Bill of Sale of the Assets, in
sufficient number of originals to allow recording in
all counties in which the Properties are located and
other appropriate jurisdictions and offices, as
applicable, duly executed by Seller;

     (b) assignments, on appropriate forms, of state and of
     federal leases, if any, comprising portions of the
     Assets, duly executed by Seller; and

     (c) a certificate duly executed by an authorized
     corporate officer of Seller, dated as of Closing,
     certifying on behalf of Seller that the conditions set
     forth in Sections 8.2(a) and 8.2(b) have been
     fulfilled.

Section 9.3 Obligations of Purchaser at Closing.

At the Closing, Purchaser shall deliver or cause to be
delivered to Seller, among other things, the following:

     (a) a wire transfer of the Closing Payment in
     immediately available U.S. dollars;

     (b) copies of the Assignment and Bill of Sale of the
     Assets, duly executed by Purchaser, and

     (c) a certificate duly executed by an authorized
     corporate officer of Purchaser dated as of Closing,
     certifying on behalf of Purchaser that the conditions
     set forth in Sections 8.1(a) and 8.1(b) have been
     fulfilled.

Section 9.4 Closing Payment and Post-Closing Purchase Price
Adjustments.

     (a) Not later than two (2) Business Days prior to the
     Closing Date, Seller shall prepare and deliver to
     Purchaser, based upon the best information available to
     Seller, a preliminary settlement statement estimating
     the Adjusted Purchase Price after giving effect to all
     Purchase Price adjustments set forth in Section 2.2 and
     the Deposit. The preliminary settlement statement
     delivered in accordance with this Section 9.4(a) shall
     constitute the dollar amount to be paid by Purchaser to
     Seller at the Closing (the "Closing Payment").

     (b) As soon as reasonably practicable after the Closing
     but not later than one hundred twenty (120) days
     following the Closing Date, Seller shall prepare and
     deliver to Purchaser a final settlement statement
     setting forth the final calculation of the Adjusted
     Purchase Price and showing the calculation of each
     adjustment, based, to the extent possible on actual
     credits, charges, receipts and other items before and
     after the Effective Time and taking into account all
     Title Defect and Title Benefit adjustments under
     Section 3.4. Seller shall, at Purchaser's request,
     supply reasonable documentation available to support
     any credit, charge, receipt or other item. Not later
     than the thirty (30) days following receipt of the
     final settlement statement, Purchaser shall deliver to
     Seller a written report containing any changes that
     Purchaser proposes be made to the final settlement
     statement. The parties shall undertake to agree on the
     final statement of the Adjusted Purchase Price no later
     than one hundred eighty (180) days after the Closing
     Date. In the event that the parties cannot reach
     agreement within such period of time, either party may
     refer the remaining matters in dispute to arbitration
     as provided in Section 7.15.

     (c) All payments made or to be made hereunder to Seller
     shall be by electronic transfer of immediately
     available funds in U.S. dollars to:

          JPMorgan Chase Bank
          For account of Smith Production Inc.
          Account No. 034 000 25957
          ABA No. 113 0006 09

All payments made or to be made hereunder to Purchaser shall
be by electronic transfer of immediately available funds to
a bank and account specified by Purchaser in writing to
Seller.

                         ARTICLE 10
                         TERMINATION

 Section 10.1 Termination.

This Agreement may be terminated as follows:

     (a) by the mutual prior written consent of Seller and
     Purchaser prior to Closing;

     (b) by Seller in the events that (i) Closing has not
     occurred on the Closing Date; (ii) Seller is not
     otherwise in default under the provisions of this
     Agreement; and (iii) the Conditions of Seller to
     Closing in Section 8.1 have not been satisfied;

     (c) by Purchaser in the events that (i) Closing has not
     occurred on the Closing Date; (ii) Purchaser is not
     otherwise in default under the provisions of this
     Agreement; and (iii) the Conditions of Purchaser to
     Closing in Section 8.2 have not been satisfied;

     (d) by Seller pursuant to 2.3(b), 3.4(d) and 3.4(i);
     and

     (e) by Purchaser pursuant to 4.3.

Section 10.2 Effect of Termination.

If this Agreement is terminated pursuant to Section 10.1,
this Agreement shall become void and of no further force or
effect except for the provisions of Section 5.6 (Purchaser's
Liability for Brokers' Fees), Section 6.5 (Seller's
Liability for Brokers' Fees), Section 7.7 (Indemnity
Regarding Access) and Section 12.4 (Expenses) and the
Confidentiality Agreement. The provisions and agreements
listed in the preceding sentence shall survive the
termination of this Agreement and shall continue in full
force and effect. Seller shall be free immediately to enjoy
all rights of ownership of the Assets and to sell, transfer,
encumber or otherwise dispose of the Assets to any party
without any restriction under this Agreement.

Section 10.3 Distribution of Deposit Upon Termination

(a) If Seller terminates this Agreement pursuant to Section
10.1(b), then Seller may retain the Deposit as liquidated
damages free of any claims by Purchaser. Purchaser and
Seller agree that the actual amount of damages resulting
from such a termination would be difficult if not impossible
to determine accurately because of the unique nature of this
Agreement, the unique nature of the Assets, the
uncertainties of applicable commodity markets and
differences of opinion with respect to such matters, and the
liquidated damages provided for herein are a reasonable
estimate by the parties of such damages.

(b) If this Agreement is terminated for any reason other
than the reasons set forth in Section 10.1(b), then Seller
shall deliver the Deposit to Purchaser immediately free of
any claims by Seller.

(c) Notwithstanding anything to the contrary in this
Agreement, Purchaser shall not be entitled to receive
interest on the Deposit, whether the Deposit is applied
against the Purchase Price or returned to Purchaser pursuant
to this Section 10.3.

(d) The retention of the Deposit by Seller or the return of
the Deposit to Purchaser as described above shall constitute
the only remedies of Purchaser and Seller, respectively, in
the event of termination or breach of this Agreement.
Purchaser and Seller hereby waive all other remedies that
might be available to either party including, without
limitation, remedies available in equity, at common law and
by statute including litigation and specific performance.

                         ARTICLE 11
         POST -CLOSING OBLIGATIONS; INDEMNIFICATION;
             LIMITATIONS; DISCLAIMERS AND WAIVERS

Section 11.1 Receipts.

(a) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Purchaser is entitled under
Section 1.6 shall be the sole property and entitlement of
Purchaser, and, to the extent received by Seller, Seller
shall fully disclose, account for and remit the same
promptly to Purchaser.

(b) All production from or attributable to the Assets (and
all products and proceeds attributable thereto) and all
other income, proceeds, receipts and credits earned with
respect to the Assets which are not reflected in the final
settlement statement to which Seller is entitled under
Section 1.6 shall be the sole property and entitlement of
Seller and, to the extent received by Purchaser, Purchaser
shall fully disclose, account for and remit the same
promptly to Seller.

Section 11.2 Expenses.

(a) All Property Costs which are not reflected in the final
settlement statement for which Seller is responsible under
Section 1.6 shall be the sole obligation of Seller, and
Seller shall promptly pay same, or if same have been paid by
Purchaser, Seller shall promptly reimburse Purchaser for and
hold Purchaser harmless from and against same.

(b) All Property Costs which are not reflected in the final
settlement statement for which Purchaser is responsible
under Section 1.6 shall be the sole obligation of Purchaser,
and Purchaser shall promptly pay same, or if same have been
paid by Seller, Purchaser shall promptly reimburse Seller
for and hold Seller harmless from and against same.

(c) Seller is entitled to resolve all joint interest audits
and other audits of Property Costs covering periods prior to
the Effective Time.

Section 11.3 Assumption and Indemnification.

(a) In the event of Closing, as of the Effective Time,
Purchaser shall become liable for, assume, perform and
discharge all of the obligations and liabilities of Seller,
known or unknown, with respect to the Assets, regardless of
whether such obligations or liabilities arose prior to the
Effective Time, at the Effective Time or after the Effective
Time. Said obligations and liabilities are referred to as
the "Assumed Obligations." Purchaser, however, does not
assume any obligations or liabilities of Seller to the
extent that they are attributable to or arise out of the:

          (i) Excluded Assets; or

          (ii) actions, suits or proceedings, if any, set
          forth on Exhibit 5.7, or

          (iii) claims for wrongful death and/or personal
          injury related to the Properties which claims
          arose before the Effective Time; or

          (iv) continuing responsibility of the Seller under
          Section 11.2 or matters for which Seller is
          required to Indemnify Purchaser under this Article
          11.

(b) PURCHASER SHALL INDEMNIFY, COVENANT NOT TO SUE, SAVE,
RELEASE, DEFEND, DISCHARGE AND HOLD SELLER INDEMNITEES
HARMLESS (COLLECTIVELY, "INDEMNIFY") FROM AND AGAINST
DAMAGES, INCURRED OR SUFFERED BY SELLER INDEMNITEES THAT ARE
CAUSED BY, OR ARISE OUT OF OR RESULT FROM:

          (i) THE ASSUMED OBLIGATIONS; OR

          (ii) THE OWNERSHIP, USE OR OPERATION OF THE ASSETS
          AT AND AFTER THE EFFECTIVE TIME; OR

          (iii) ENVIRONMENTAL LIABILITIES; OR

          (iv) ACCESS TO THE ASSETS IN SECTION 7.7; OR

          (v) PREFERENTIAL RIGHTS TO PURCHASE IN SECTION
          7.9(b)(i); OR

          (vi) PURCHASER'S OBLIGATIONS UNDER THIS AGREEMENT;
          OR

          (vii) THE BREACH OF ANY OF PURCHASER'S COVENANTS OR
          AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS
          AGREEMENT, SAVE AND EXCEPT FOR COVENANTS OR
          AGREEMENTS CONTAINED IN SECTION 7.7 (ACCESS TO THE
          ASSETS) AND SECTION 7.9(b)(i)(RELATED TO
          PREFERENTIAL RIGHTS TO PURCHASE) WHICH ARE COVERED
          ABOVE; OR

          (viii) THE BREACH OF ANY REPRESENTATION OR
          WARRANTY MADE BY PURCHASER IN ARTICLE 6 OF THIS
          AGREEMENT OR IN THE CERTIFICATE DELIVERED BY
          PURCHASER AT CLOSING PURSUANT TO SECTION
          9.3(d)(CERTIFICATE OF CORPORATE OFFICER OF
          PURCHASER); OR

          (ix) THE LITIGATION EXPENSES (DEFINED BELOW).

          THE INDEMNIFICATION OBLIGATIONS OF PURCHASER IN
          THIS PARAGRAPH SHALL BE REFERRED TO HEREIN AS
          "PURCHASER'S INDEMNIFICATION OBLIGATIONS."

PURCHASER SHALL INDEMNIFY SELLER INDEMNITEES AGAINST DAMAGES
FOR MATTERS COVERED BY PURCHASER'S INDEMNIFICATION
OBLIGATIONS ARISING OUT AND RESULTING FROM:

          1.  THE NEGLIGENCE OF SELLER, WHETHER THE
          NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
          CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
          GROSS NEGLIGENCE; AND
          2.  THE STRICT LIABILITY OF SELLER, BUT EXCLUDING CLAIMS
          BASED ON THE WILLFUL MISCONDUCT OF SELLER.

COSTS OF ATTORNEY FEES, COSTS OF COURT, EXPENSES FOR HIRING
INVESTIGATORS AND INVESTIGATING, DEFENDING LITIGATION,
PROSECUTING LITIGATION, HIRING EXPERT WITNESSES, COSTS OF
SETTLEMENT AND ANY AND ALL COSTS AND EXPENSES PERTAINING TO
ANY LITIGATION SHALL COLLECTIVELY BE REFERRED TO AS THE
"LITIGATION EXPENSES." PURCHASER SHALL INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST ALL LITIGATION EXPENSES ARISING
FROM, BASED UPON, RELATED TO OR IN ANY WAY CONNECTED WITH
PURCHASER'S INDEMNIFICATION OBLIGATIONS

IT IS UNDERSTOOD AND AGREED THAT PURCHASER'S OBLIGATION TO
INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST THE LITIGATION
EXPENSES IS (I) SEPARATE AND APART FROM PURCHASER'S
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM DAMAGES AND
(II) IS NOT DEPENDENT UPON PURCHASER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY SELLER INDEMNITEES FROM AND AGAINST
DAMAGES. PURCHASER'S OBLIGATION TO INDEMNIFY SELLER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.

PURCHASER 'S INDEMNITY OBLIGATIONS TO SELLER INDEMNITEES
HEREUNDER SHALL BE LIMITED TO THE EXTENT OF PURCHASER'S
PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.

PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THIS
INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE TEST, AND THAT THE PARTIES CLEARLY INTEND TO
TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.

PURCHASER AND SELLER BOTH AGREE AND STIPULATE THAT THESE
INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.

(c) SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST AND
FROM ALL DAMAGES INCURRED OR SUFFERED BY PURCHASER
INDEMNITEES THAT ARE CAUSED BY, OR ARISE OUT OF OR RESULT
FROM:

          (i) THE OBLIGATIONS AND LIABILITIES DESCRIBED IN
          SECTION 11.3(a)(i), 11.3(a)(ii) AND 11.3(a)(iii);
          OR

          (ii) SELLER'S BREACH OF ANY OF SELLER'S COVENANTS
          OR AGREEMENTS CONTAINED IN ARTICLE 7 OF THIS
          AGREEMENT; OR

          (iii) THE BREACH OF ANY REPRESENTATION OR WARRANTY
          MADE BY SELLER IN ARTICLE 5 OF THIS AGREEMENT OR
          IN THE CERTIFICATE DELIVERED BY SELLER AT CLOSING
          PURSUANT TO SECTION 9.2(d)(CERTIFICATE OF
          CORPORATE OFFICER OF SELLER); OR

          (iv) SELLER'S OBLIGATIONS UNDER THIS AGREEMENT; OR

          (v) THOSE CERTAIN LAWSUITS STYLED XTO Energy Inc.
          v Smith Production Inc.; Cause No. 2004-68579 in
          the District Court of Harris County, Texas; 281st
          Judicial District and Julie Dale, et al., v Smith
          Production Inc.; Cause No. DC-05-121 in the
          District Court of Starr County, Texas; 381st
          Judicial District; OR

          (vi) LITIGATION EXPENSES.

          THE INDENMIFICATION OBLIGATIONS OF SELLER IN THIS
          PARAGRAPH SHALL BE REFERRED TO HEREIN AS "SELLER'S
          INDEMNIFICATION OBLIGATIONS."

SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES AGAINST DAMAGES
FOR MATTERS COVERED BY SELLER'S INDEMNIFICATION OBLIGATIONS
ARISING OUT OF AND RESULTING FROM:

          1. THE NEGLIGENCE OF PURCHASER, WHETHER THE
          NEGLIGENCE IS ORDINARY, ACTIVE, PASSIVE, JOINT,
          CONCURRENT OR SOLE BUT EXCLUDING CLAIMS BASED ON
          GROSS NEGLIGENCE; AND
          2. THE STRICT LIABILITY OF PURCHASER, BUT EXCLUDING
          CLAIMS BASED ON THE WILLFUL MISCONDUCT OF
          PURCHASER.

SELLER SHALL INDEMNIFY PURCHASER INDEMNITEES FROM AND
AGAINST THE LITIGATION EXPENSES ARISING FROM, BASED UPON,
RELATED TO OR IN ANY WAY CONNECTED WITH SELLER'S
INDEMNIFICATION OBLIGATIONS.

IT IS UNDERSTOOD AND AGREED THAT SELLER'S OBLIGATION TO
INDEMNIFY PURCHASER INDEMNITEES FROM AND AGAINST THE
LITIGATION EXPENSES IS (I) SEPARATE AND APART FROM SELLER'S
OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM DAMAGES
AND (II) IS NOT DEPENDENT UPON SELLER'S SUBSTANTIVE
OBLIGATION TO INDEMNIFY PURCHASER INDEMNITEES FROM AND
AGAINST DAMAGES. SELLER'S OBLIGATION TO INDEMNIFY PURCHASER
INDEMNITEES FROM AND AGAINST THE LITIGATION EXPENSES SHALL
APPLY IRRESPECTIVE OF WHETHER THE SUBSTANTIVE INDEMNITY
OBLIGATION COMPLIES IN ALL RESPECTS WITH THE EXPRESS
NEGLIGENCE RULE. PURCHASER AND SELLER BOTH AGREE AND
STIPULATE THAT THIS INDEMNIFICATION AGREEMENT COMPLIES WITH
AND SATISFIES ALL OF THE REQUIREMENTS SET FORTH IN ETHYL
CORP. V. DANIEL CONSTRUCTION CO., 725 S.W.2d 705 (TEX.1987)
AND ALL SUBSEQUENT CASES, DRESSER INDUSTRIES, INC. V. PAIGE
PETROLEUM, INC., 853 S.W. 2d 505 (TEX. 1993) AND ALL
SUBSEQUENT CASES AND ALL OTHER APPLICABLE REQUIREMENTS OF
TEXAS LAW.

SELLER'S INDEMNITY OBLIGATIONS TO PURCHASER INDEMNITEES
HEREUNDER SHALL BE LIMITED TO THE EXTENT OF SELLER'S
PROPORTIONATE INTEREST IN ANY AFFECTED ASSETS.

SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THIS
INDEMNIFICATION AGREEMENT COMPLIES WITH THE EXPRESS
NEGLIGENCE TEST AND THAT THE PARTIES CLEARLY INTEND TO
TRANSFER THE RISK OF LOSS FOR THE INDEMNITEE'S NEGLIGENCE.

SELLER AND PURCHASER BOTH AGREE AND STIPULATE THAT THESE
INDEMNIFICATION PROVISIONS ARE CONSPICUOUS.

(d) Notwithstanding anything to the contrary contained in
this Agreement, in the event that Closing occurs,
thereafter, this Section 11.3 shall be deemed to contain the
parties' exclusive remedies against each other with respect
to breaches of the representations, warranties, covenants
and agreements of the parties contained in Articles 5, 6 and
7 and the affirmations of such representations, warranties,
covenants and agreements contained in the certificate
delivered by each party at Closing pursuant to Sections
9.2(d) or 9.3(d), as applicable.

The parties shall have all other remedies at law or in
equity for breaches of all provisions of this Agreement
other than Articles 5, 6 and 7. Notwithstanding anything to
the contrary contained herein, none of Purchaser, Seller or
any of their respective Affiliates shall be entitled to
either punitive or consequential damages as a remedy in
connection with a breach of any provision of this Agreement
and/or the transactions contemplated hereby, and each of
Purchaser and Seller, for itself and on behalf of its
Affiliates, hereby expressly waives any right to punitive or
consequential damages in connection with a breach of any
provision of this Agreement and/or the transactions
contemplated hereby.

(e) "Damages" shall mean the amount of any and all
liability, loss, cost, diminution in value, expense, claim,
demand, notice of violation, investigation by any
Governmental Body, cause of action, administrative
proceeding, payment, charge, obligation, fine, penalty,
deficiency, award or judgment incurred or suffered by any
Indemnified Party arising out of or resulting from the
indemnified matter, including reasonable fees and expenses
of attorneys, consultants, accountants or other agents and
experts reasonably incident to matters indemnified against,
and the costs of investigation and/or monitoring of such
matters, and the costs of enforcement of the indemnity.

Section 11.4 Indemnification Actions.

All claims for indemnification under Section 11.3 shall be
asserted and resolved as follows:

     (a) For purposes of this Article 11, the term
     "Indemnifying Party" shall mean the party having an
     obligation to indemnify the other party pursuant to
     this Article 11, and the term "Indemnified Party" shall
     mean the party having the right to be indemnified by
     the other party pursuant to this Article 11.

     (b) To make a claim for indemnification under Section
     11.3, an Indemnified Party shall provide to the
     Indemnifying Party a written notice (the
     "Indemnification Notice") which specifies the basis of
     the Indemnified Party's entitlement to indemnification
     under this Agreement. In the event that the
     Indemnification Notice is based upon a claim by a third
     party against the Indemnified Party (a "Third Party
     Claim"), the Indemnified Party shall provide its
     Indemnification Notice promptly after the Indemnified
     Party has actual knowledge of the Third Party Claim and
     shall enclose a copy of all papers (if any) served with
     respect to the Third Party Claim; provided that the
     failure of any Indemnified Party to give notice of a
     Third Party Claim as provided in this Section 11.4
     shall not relieve the Indemnifying Party of its
     obligations under Section 11.3 except to the extent
     such failure results in insufficient time being
     available to permit the Indemnifying Party to
     effectively defend against the Third Party Claim or
     otherwise prejudices the Indemnifying Party's ability
     to defend against the Third Party Claim.

     (c) The Indemnifying Party shall have thirty (30) days
     from its receipt of an Indemnification Notice to notify
     the Indemnified Party whether it will assume the
     defense of the Indemnified Party against such Third
     Party Claim at the sole cost and expense of the
     Indemnifying Party. The Indemnified Party is
     authorized, prior to and during such thirty (30) day
     period, to file any motion, answer or other pleading
     that it shall deem necessary or appropriate to protect
     its interests or those of the Indemnifying Party and
     that is not prejudicial to the Indemnifying Party.

     (d) If the Indemnifying Party assumes the defense of a
     Third Party Claim pursuant to an Indemnification
     Notice, the Indemnifying Party shall diligently defend,
     at its sole cost and expense, the Indemnified Party
     against the Third Party Claim. The Indemnifying Party
     shall have full control of such defense and
     proceedings, including any compromise or settlement
     thereof. If requested by the Indemnifying Party, the
     Indemnified Party agrees to cooperate in contesting any
     Third Party Claim which the Indemnifying Party elects
     to contest. The Indemnified Party may participate in,
     but not control, any defense or settlement of any Third
     Party Claim controlled by the Indemnifying Party
     pursuant to this Section 11.4(d). An Indemnifying Party
     shall not, without the written consent of the
     Indemnified Party, (i) settle any Third Party Claim or
     consent to the entry of any judgment with respect
     thereto which does not include an unconditional written
     release of the Indemnified Party from all liability in
     respect of such Third Party Claim or (ii) settle any
     Third Party Claim or consent to the entry of any
     judgment with respect thereto in any manner that may
     materially and adversely affect the Indemnified Party
     (other than as a result of money damages covered by the
     indemnity).

     (e) If the Indemnifying Party does not assume the
     defense of the Indemnified Party against a Third Party
     Claim or assumes the defense, but fails to diligently
     prosecute or settle the Third Party Claim, then the
     Indemnified Party shall have the right to defend
     against the Third Party Claim at the sole cost and
     expense of the Indemnifying Party, with counsel of the
     Indemnified Party's choice, subject to the right of the
     Indemnifying Party to assume the defense of the Third
     Party Claim at any time prior to settlement or final
     determination thereof. If the Indemnifying Party has
     not yet assumed the defense of the Indemnified Party,
     the Indemnified Party shall send written notice to the
     Indemnifying Party of any proposed settlement or final
     determination of the Third Party Claim and the
     Indemnifying Party shall have the option for ten (10)
     days following receipt of such notice to (i) assume
     defense against the Third Party Claim in writing and
     (ii) if so assumed, reject, in its reasonable judgment,
     the proposed settlement or final determination of the
     Third Party Claim.

     (f) In the event that the Indemnification Notice sets
     forth a claim for Damages based upon an inaccuracy or
     breach of a representation, warranty or covenant or
     obligation in this Agreement, the Indemnification
     Notice shall specify the representation, warranty,
     covenant or obligation which was inaccurate or
     breached. In such case, the Indemnifying Party shall
     have thirty (30) days from its receipt of the
     Indemnification Notice to (i) cure the Damages
     complained of, (ii) accept the claim for such Damages
     or (iii) dispute the claim for such Damages. If the
     Indemnifying Party does not notify the Indemnified
     Party within such thirty (30) day period that it has
     cured the Damages or that it disputes the claim for
     such Damages, the amount of such Damages shall
     conclusively be deemed a liability of the Indemnifying
     Party hereunder.

Section 11.5 Survival.

In the event of Closing:

     (a) The representation and warranty of Seller in
     Section 3.1(a)(Defensible Title) shall terminate on the
     Title Claim Date (3.4(a)). The remainder of the
     representations, warranties, covenants and agreements
     provided for in this Agreement shall terminate upon
     Closing except as may otherwise be expressly provided
     herein.

     (b) Purchaser's Indemnification Obligations in Section
     11.3(b) shall terminate as of the times set out below
     except in each case as to matters for which a specific
     written claim for indemnity has been delivered to the
     Indemnifying Party on or before such termination date:
     11.3(b)(i), 11.3(b)(ii), 11.3(b)(iii) and 11.3(b)(iv)
     shall not terminate and shall continue without time
     limit; 11.3(b)(v) shall terminate six months after the
     end of the term of the escrow described in 7.9(b)(i);
     11.3(b)(vi), 11.3(b)(vii) and 11.3(b)(viii) shall
     terminate six months after Closing; and 11.3(b)(ix)
     shall continue in force and effect until the
     termination of the survival period of each of the other
     Purchaser's Indemnification Obligations in 11.3(b)(i)-
     11.3(b)(viii), inclusive.

     (c) Seller's Indemnification Obligations in Section
     11.3(c) shall terminate as of the times set out below
     except as to matters for which a specific written claim
     for indemnity has been delivered to the Indemnifying
     Party on or before such termination date: 11.3(c)(i)
     and 11.3(c)(v) shall not terminate and shall continue
     without time limit; 11.3(c)(ii), 11.3(c)(iii) and
     11.3(c)(iv) shall terminate six months after Closing;
     and 11.3(c)(vi) shall continue in force and effect
     until the termination of the survival period of each of
     the other Seller's Indemnification Obligations in
     11.3(c)(i)- 11.3(c)(v), inclusive.

     (d) The Confidentiality Agreement shall survive Closing.

     (e)  Except as provided above, all other provisions in
     this Agreement shall terminate at Closing except for
     the following provisions which shall survive Closing:
     (i) Section 7.5 - Prohibition against Public Announcements
     (ii) Section 7.11 - Further Assurances
     (iii) Section 11.1 - Receipts
     (iv) Section 11.2 - Expenses
     (v) Section 11.4 - Indemnification Actions
     (vi) Section 11.7 - Independent Investigation
     (vii) Section 11.8 - Disclaimer Regarding Information
     (viii) Section 11.9 - Waiver of Trade Practices Acts
     (ix) Section 11.10 - Post-Closing Audit Rights
     (x) Section 12.5 - Change of Name
     (xi) Section 12.7 - Governing Law

Section 11.6 Recording.

As soon as practicable after Closing, Purchaser shall record
the (i) Assignment and Bill of Sale in the appropriate
counties as well as with all appropriate governmental
agencies, (ii) forms prescribed by the applicable
Governmental Body to transfer status of operator from Seller
to Purchaser with respect to Seller Operated Assets that are
wholly owned by Seller, and (iii) assignments necessary to
convey to Purchaser all federal or state leases, if any, in
the form as prescribed by the applicable Governmental Body
and provide Seller with copies of all recorded or approved
instruments.

Section 11.7 Independent Investigation.

In making the decision to enter into this Agreement and
consummate the transactions contemplated hereby, Purchaser
has relied exclusively on Purchaser's own investigation and
analysis of the condition, value, characteristics and
qualities of the Assets. Seller hereby expressly disclaims
and negates any representation or warranty, express,
implied, at common law, by statute or otherwise, other than
the warranty made in Section 3.1, the express
representations and warranties made in Article 5, the
certificate of Seller to be delivered pursuant to Section
9.2(d) and the special warranty of title in the Assignment
and Bill of Sale relating to the Assets.

Section 11.8 Disclaimer Regarding Information.

Seller hereby expressly negates and disclaims, and Purchaser
hereby waives and acknowledges that Seller has not made, any
representation or warranty, express or implied, relating to (a) the
accuracy, completeness or materiality of any information, Records,
data or other materials (written or oral) now, heretofore,
or hereafter furnished to Purchaser by or on behalf of
Seller or (b) production rates, recompletion or rework
opportunities, decline rates, geological or geophysical data
or interpretations, the quality, quantity, recoverability or
cost of recovery of any Hydrocarbon reserves, any product
pricing assumptions, or the ability to sell or market any
Hydrocarbons after Closing.

Section 11.9 Waiver of Trade Practices Acts.

     (a) The Purchaser's rights and remedies with respect to
     this Agreement and with respect to all acts or
     practices of Seller, past, present or future, in
     connection with this Agreement shall be governed by
     legal principles other than the DTPA. Purchaser hereby
     waives the applicability of the DTPA to this Agreement
     and any and all duties, rights or remedies that might
     be imposed by the DTPA, whether such duties, rights and
     remedies are applied directly by the DTPA itself or
     indirectly in connection with other statutes; provided,
     however, Purchaser does not waive Section  17.555 of
     the DTPA.

     (b) Purchaser expressly recognizes that the price for
     which Seller has agreed to perform Seller's obligations
     under this Agreement has been predicated upon the inapplicability
     of the DTPA and Purchaser's agreement to waive the applicability
     of the DTPA. Purchaser further recognizes that Seller, in
     determining to proceed with the entering into of this
     Agreement, has expressly relied on such waiver by
     Purchaser and the inapplicability of the DTPA.

Section 11.10 Post-Closing Audit Rights.

Following Closing, Seller shall have the same rights of a
non-operator as Purchaser has under joint operating
agreements covering the Assets to audit the books and
records of the operators of any of the Assets. Seller shall
be entitled to collect from operators all amounts claimed
due for any period of time prior to the Effective Time as  a
result of audits.

                         ARTICLE 12
                        MISCELLANEOUS

Section 12.1 Counterparts.

This Agreement may be executed in counterparts, each of
which shall be deemed an original instrument, but all such
counterparts together shall constitute but one agreement.

Section 12.2 Notice.

All notices which are required or may be given pursuant to
this Agreement shall be sufficient in all respects if given
in writing and delivered personally, by facsimile or by
registered or certified mail, postage prepaid, as follows:

If to Seller:

Smith Production Inc.
14425 Torrey Chase, Suite 190
Houston, Texas 77014
Attention: Glenn R. Smith

Telephone: 281.583.0196
Facsimile: 281.893.6396

If to Purchaser:

Fidelity Exploration & Production Company
Attention: Darwin L. Subart
1700 Lincoln, Suite 4600
Denver CO 80203
Telephone: (303) 893-3313
Telecopy: (720)931-9646

Either Party may change its address by notice to the other
in the manner set forth above. All notices shall be deemed
to have been duly given at the time of receipt by the party
to which such notice is addressed.

Section 12.3 Binding Agreement

This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
successors and assigns.

Section 12.4 Expenses.

All expenses incurred by Seller in connection with or
related to the authorization, preparation or execution of
this Agreement, the Assignment and Bill of Sale delivered
hereunder and the Exhibits hereto, and all other matters
related to the Closing, including without limitation, all
fees and expenses of counsel, accountants and financial
advisers, shall be borne solely and entirely by the party
incurring same.

Section 12.5 Change of Name.

As promptly as practicable, but in any case within thirty
(30) days after the Closing Date, Purchaser shall eliminate
Seller's name and any variants thereof from the Assets
acquired pursuant to this Agreement and, except with respect
to such grace period for eliminating existing usage,
Purchaser shall have no right to use any logos, trademarks
or trade names belonging to Seller or any of its Affiliates.

Section 12.6 Construction.

Both Seller and Purchaser have had (i) substantial input
into the drafting and preparation of this Agreement and (ii)
the opportunity to exercise business discretion in relation
to the negotiation of the details of the transaction
contemplated hereby. This Agreement is the result of arm's-
length negotiations from equal bargaining positions and
shall not be construed against either party.

Section 12.7 Governing Law.

This Agreement and the legal relations between the parties
shall be governed by and construed in accordance with the
laws of the State of Texas without regard to principles of
conflicts of laws otherwise applicable to such
determinations.

Section 12.8 Captions.

The captions in this Agreement are for convenience only and
shall not be considered a part of or affect the construction
or interpretation of any provision of this Agreement.

Section 12.9 Waivers.

Any failure by any party or parties to comply with any of
its or their obligations, agreements or conditions herein
contained may be waived in writing, but not in any other
manner, by the party or parties to whom such compliance is
owed. No waiver of, or consent to a change in, any of the
provisions of this Agreement shall be deemed or shall
constitute a waiver of, or consent to a change in, other
provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise
expressly provided.

Section 12.10 Assignment.

No party shall assign all or any part of this Agreement, nor
shall any party assign or delegate any of its rights or
duties hereunder, without the prior written consent of the
other party and any assignment or delegation made without
such consent shall be void.

Section 12.11 Entire Agreement.

The Confidentiality Agreement, this Agreement and the
documents to be executed hereunder and the Exhibits attached
hereto constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede all
prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties
pertaining to the subject matter hereof.

Section 12.12 Amendment.

     (a) This Agreement may be amended or modified only by
     an agreement in writing executed by both parties.

     (b) No waiver of any right under this Agreement shall
     be binding unless executed in writing by the party to
     be bound thereby.

Section 12.13 No Third-Party Beneficiaries.

Nothing in this Agreement shall entitle any Person other
than Purchaser and Seller to any claims, cause of action,
remedy or right of any kind.

Section 12.14 References.

In this Agreement:

     (a) References to any gender include a reference to all
     other genders;

     (b) References to the singular include the plural, and
     vice versa;

     (c) Reference to any Article or Section means an
     Article or Section of this Agreement;

     (d) Reference to any Exhibit means an Exhibit that is
     incorporated into and made a part of this Agreement;

     (e) Unless expressly provided to the contrary,
     "hereunder", "hereof", "herein" and words of similar
     import are references to this Agreement as a whole and
     not any particular Section or other provision of this
     Agreement; and

     (f) "Include" and "including" shall mean include or
     including without limiting the generality of the
     description preceding such term.

IN WITNESS WHEREOF, this Agreement has been signed by each
of the parties hereto on the dates shown below to be
effective as of the Effective Time.

SELLER:                            PURCHASER:

Smith Production Inc.              Fidelity Exploration & Production Company

By: /s/ GLENN R. SMITH             By: /s/ DARWIN L. SUBART
Printed Name: Glenn R. Smith           Printed Name: Darwin L. Subart
Title: President                       Title: President
Date: April 19, 2005                 Date: April 19, 2005

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