RAM ENERGY INC/OK, S-1/A, 1998-02-11

RAM ENERGY INC/OK
S-1/A, 1998-02-11
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 1998

REGISTRATION NO. 333-42641
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

AMENDMENT NO. 2

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------------

RAM ENERGY, INC.*

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 1311 52-1535102
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

JOHN M. LONGMIRE
SENIOR VICE PRESIDENT, TREASURER, SECRETARY
AND CHIEF FINANCIAL OFFICER
9400 BROADWAY EXTENSION, SUITE 130
OKLAHOMA CITY, OKLAHOMA 73114
(405) 478-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------

COPIES TO:

THEODORE M. ELAM, ESQ. CHARLES L. STRAUSS, ESQ.
McAfee & Taft Fulbright & Jaworski L.L.P.
A Professional Corporation 1301 McKinney, Suite 5100
211 North Robinson, Suite 1000 Houston, Texas 77010-3095
Oklahoma City, Oklahoma 73102 (713) 651-5151
(405) 235-9621

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

* THE SUBSIDIARY GUARANTORS OF RAM ENERGY, INC. WILL GUARANTEE THE %
SENIOR NOTES DUE 2008 BEING REGISTERED HEREBY AND THEREFORE ARE ALSO
REGISTRANTS. INFORMATION ABOUT SUCH ADDITIONAL REGISTRANTS APPEARS ON THE
FOLLOWING PAGE.
<PAGE>
ADDITIONAL REGISTRANTS

RB OPERATING COMPANY
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 1311 73-1523738
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>

5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

RLP GULF STATES, L.L.C.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
OKLAHOMA 1311 73-1522976
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>

5100 EAST SKELLY DRIVE, SUITE 650
TULSA, OKLAHOMA 74135
(918) 663-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

JOHN M. LONGMIRE
9400 BROADWAY EXTENSION, SUITE 130
OKLAHOMA CITY, OKLAHOMA 73114
(405) 478-0600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION DATED FEBRUARY 11, 1998

PROSPECTUS

$115,000,000

[LOGO]
RAM ENERGY, INC.

% SENIOR NOTES DUE 2008
---------------------

THE % SENIOR NOTES DUE 2008 (THE "NOTES") ARE BEING OFFERED (THE
"OFFERING") BY RAM ENERGY, INC. INTEREST ON THE NOTES WILL BE PAYABLE
SEMI-ANNUALLY ON AND OF EACH YEAR AT THE INTEREST RATE PER
ANNUM SET FORTH ABOVE, COMMENCING , 1998. THE NOTES WILL MATURE ON
, 2008, AND WILL BE REDEEMABLE AT THE OPTION OF RAM ENERGY, INC., IN
WHOLE OR IN PART, AT ANY TIME ON OR AFTER , 2003, AT THE REDEMPTION
PRICES SET FORTH HEREIN, TOGETHER WITH ACCRUED AND UNPAID INTEREST TO THE DATE
OF REDEMPTION. IN THE EVENT RAM ENERGY, INC. CONSUMMATES A PUBLIC EQUITY
OFFERING ON OR PRIOR TO , 2001, RAM ENERGY, INC., AT ITS OPTION, MAY
USE ALL OR A PORTION OF THE NET PROCEEDS FROM SUCH OFFERING TO REDEEM UP TO 35%
OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ORIGINALLY ISSUED, AT A
REDEMPTION PRICE OF % OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND
UNPAID INTEREST TO THE DATE OF REDEMPTION, PROVIDED THAT AT LEAST 65% OF THE
AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ORIGINALLY ISSUED REMAINS OUTSTANDING
IMMEDIATELY FOLLOWING SUCH REDEMPTION. IN THE EVENT OF A CHANGE OF CONTROL, RAM
ENERGY, INC. WILL BE REQUIRED TO OFFER TO REPURCHASE THE NOTES AT A PRICE EQUAL
TO 101% OF THE PRINCIPAL AMOUNT THEREOF, PLUS ACCRUED AND UNPAID INTEREST TO THE
DATE OF REPURCHASE. SEE "DESCRIPTION OF NOTES."

RAM ENERGY, INC. WILL USE $43 MILLION OF THE AGGREGATE NET PROCEEDS FROM THE
OFFERING TO ACQUIRE THE OUTSTANDING CAPITAL STOCK AND TO REPAY CERTAIN
INDEBTEDNESS OF CARLTON RESOURCES CORPORATION. SEE "USE OF PROCEEDS" AND
"BUSINESS -- THE CARLTON ACQUISITION." THE CLOSING OF THE OFFERING IS
CONDITIONED UPON THE SIMULTANEOUS CLOSING OF THE CARLTON ACQUISITION.

THE NOTES WILL BE SENIOR UNSECURED OBLIGATIONS OF RAM ENERGY, INC. AND WILL
RANK PARI PASSU IN RIGHT OF PAYMENT WITH ALL EXISTING AND FUTURE SENIOR
INDEBTEDNESS AND OTHER SENIOR OBLIGATIONS OF RAM ENERGY, INC., AND SENIOR IN
RIGHT OF PAYMENT TO ALL SUBORDINATED INDEBTEDNESS OF RAM ENERGY, INC. BORROWINGS
BY RAM ENERGY, INC. UNDER ITS REVOLVING CREDIT FACILITY ARE SECURED BY
SUBSTANTIALLY ALL OF RAM ENERGY, INC.'S OIL AND GAS PROPERTIES. PAYMENT OF
INTEREST AND PREMIUM (IF ANY) ON AND PRINCIPAL OF THE NOTES WILL BE
UNCONDITIONALLY GUARANTEED, JOINTLY AND SEVERALLY, ON A SENIOR UNSECURED BASIS
BY THE SUBSIDIARY GUARANTORS. TO THE EXTENT OF PLEDGED COLLATERAL, THE NOTES AND
THE SUBSIDIARY GUARANTEES WILL BE EFFECTIVELY SUBORDINATED TO SECURED
INDEBTEDNESS OF RAM ENERGY, INC. AND THE SUBSIDIARY GUARANTORS. THE INDENTURE
GOVERNING THE NOTES WILL PERMIT RAM ENERGY, INC. AND THE SUBSIDIARY GUARANTORS
TO INCUR ADDITIONAL INDEBTEDNESS IN THE FUTURE, SUBJECT TO CERTAIN LIMITATIONS.
AT SEPTEMBER 30, 1997, AFTER GIVING PRO FORMA EFFECT TO THE CONSUMMATION OF THE
OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM AS DESCRIBED IN "USE
OF PROCEEDS," RAM ENERGY, INC. WOULD HAVE HAD $0.2 MILLION OF OUTSTANDING SENIOR
INDEBTEDNESS OTHER THAN THE NOTES WHICH WOULD RANK PARI PASSU IN RIGHT OF
PAYMENT WITH THE NOTES. SEE "USE OF PROCEEDS."

THE NOTES WILL BE REPRESENTED BY A GLOBAL NOTE REGISTERED IN THE NAME OF THE
NOMINEE OF THE DEPOSITORY TRUST COMPANY, WHICH WILL ACT AS THE DEPOSITORY (THE
"DEPOSITORY"). BENEFICIAL INTERESTS IN THE GLOBAL NOTE WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS MAINTAINED BY THE
DEPOSITORY AND ITS PARTICIPANTS. EXCEPT AS DESCRIBED HEREIN, NOTES IN DEFINITIVE
FORM WILL NOT BE ISSUED. SEE "DESCRIPTION OF NOTES."
---------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE NOTES.
-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Per Note........................................ % % %
Total........................................... $ $ $
</TABLE>

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

(1) Plus accrued interest, if any, from the date of issuance.

(2) RAM Energy, Inc. and the Subsidiary Guarantors have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(3) Before deducting expenses payable by RAM Energy, Inc., estimated to be
$1,150,000.
------------------------

THE NOTES ARE OFFERED BY THE UNDERWRITER, SUBJECT TO PRIOR SALE, WHEN, AS
AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITER. THE UNDERWRITER RESERVES
THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE NOTES WILL BE MADE IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF THE
DEPOSITORY TRUST COMPANY IN NEW YORK, NEW YORK, ON OR ABOUT , 1998.
---------------------

JEFFERIES & COMPANY, INC.

, 1998
<PAGE>
MAP OF PRINCIPAL OPERATING AREAS

[Map shows the location of the Mid-Continent Area and the Permian Basin, the
Company's core operating areas, in the states of Oklahoma, Texas and New

Mexico.]

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

IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. CERTAIN TERMS RELATING TO THE OIL AND GAS BUSINESS
ARE DEFINED IN THE "GLOSSARY OF TERMS" SECTION OF THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, REFERENCES TO "RAM ENERGY" ARE TO RAM ENERGY, INC. AND ITS
SUBSIDIARIES, AS THE CONTEXT REQUIRES, AND REFERENCES TO THE "COMPANY" ARE TO
THE COMBINED OPERATIONS OF RAM ENERGY AND, UNTIL NOVEMBER 30, 1996, THE
PARTNERSHIP (AS DEFINED HEREIN). UNLESS OTHERWISE INDICATED, ALL FINANCIAL AND
QUANTITATIVE INFORMATION PROVIDED IN THIS PROSPECTUS ON A "PRO FORMA" BASIS
GIVES EFFECT, ON THE DATE AND FOR THE PERIODS INDICATED, TO THE COMPLETION OF
THE OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM, THE COMPLETION
OF THE PARTNERSHIP ACQUISITION (AS DEFINED HEREIN), THE COMPLETION OF THE
CARLTON ACQUISITION (AS DEFINED HEREIN) AND THE CONSUMMATION OF CERTAIN OTHER
ACQUISITIONS AND DISPOSITIONS.

THE COMPANY

RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
mid-continent region of Oklahoma and the Texas panhandle (the "Mid-Continent
Area") and in the Permian Basin of West Texas and eastern New Mexico (the
"Permian Basin"). At November 30, 1997, the Company's estimated net proved
reserves, on a pro forma basis, were 114.3 Bcf of natural gas and 4.3 MMBbls of
oil, or 140.1 Bcfe, with a PV-10 Value of approximately $150 million and a
reserve life of approximately 12 years. As of such date, on a pro forma basis,
the Company operated 736 wells, a 165-mile oil and gas gathering system and a
saltwater disposal operation. The Company's interests in the wells it operates
represented approximately 64% of its pro forma PV-10 Value at November 30, 1997.
The Company has grown principally through producing property acquisitions,
acquiring approximately $195 million of oil and gas properties since inception,
including the Carlton Acquisition.

From 1989 to November 1996, the Company primarily developed and operated oil
and gas properties owned jointly by RAM Energy and an institutional limited
partnership (the "Partnership") managed by RAM Energy. During that eight-year
period, the Company drilled 225 oil and gas wells with a 95% success rate. The
Partnership distributed a substantial portion of the net cash flows from these
properties to its partners and the Company did not invest significantly in its
asset base. Management believes that the Partnership's business strategy allowed
the Company's properties to remain under-developed and that these properties
contain significant potential for the addition of reserves and production
through accelerated development and exploration activities.

In November 1996, RAM Energy acquired the limited partner's interest in the
Partnership (the "Partnership Acquisition"). From December 1, 1996 to December
31, 1997, the Company drilled 34 oil and gas wells, all of which were
successfully completed. The Company does not have information with respect to
Carlton's drilling success rates. As a result of the Partnership Acquisition and
the Carlton Acquisition, the Company is pursuing a more aggressive growth
strategy. The Company's historical drilling success rate is not necessarily
indicative of what its future drilling success may be. The Company has
identified a substantial inventory of over 200 development and exploitation
opportunities on its existing properties and on the properties included in the
Carlton Acquisition. These projects generally involve moderate drilling and
completion costs, as they are located primarily in intermediate depth, normally
pressured reservoirs. The Company has budgeted capital spending of $20.3 million
in 1998 for development projects and certain exploration activities. The Company
also intends to continue to pursue attractive oil and gas acquisition
opportunities.

THE CARLTON ACQUISITION

On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton Resources Corporation ("Carlton") for $43.0 million, subject to
closing adjustments (the "Carlton

3
<PAGE>
Acquisition"). Carlton is engaged in the exploration, development and production
of oil and gas properties in the Mid-Continent Area and, to a lesser extent, in
the Permian Basin and other oil and gas producing regions. At November 30, 1997,
Carlton's estimated net proved reserves were 36.8 Bcfe. Carlton also owns and
operates a 165-mile oil and gas gathering system and a saltwater disposal
operation in north central Oklahoma (the "Carmen System"), which the Company
estimates to have a pre-tax net present value of $24.0 million as of November
30, 1997, using a 10% discount factor. The Carmen System purchases, transports
and markets oil and gas production and disposes of produced water from
properties owned by Carlton and other oil and gas companies. The Company
believes the Carlton Acquisition provides the opportunity to improve cash flow
from additional development and exploration activities, gathering and sale of
oil and gas production and reduction of operating and administrative costs.

STRATEGY

The Company's primary goal is to increase reserves, production and cash flow
through the acquisition and aggressive development of oil and gas properties.
Key elements of the Company's growth strategy include:

DEVELOP AND EXPLOIT EXISTING OIL AND GAS PROPERTIES. The Company has
identified over 200 development opportunities on its properties, and plans to
pursue these relatively lower-risk activities, as well as selective exploration
activities. The Company has budgeted capital spending of $20.3 million in 1998,
primarily to complete approximately 75 planned development and exploration
projects, exclusive of acquisitions, as compared to expenditures of $5.8 million
to complete 26 development projects in 1997.

COMPLETE SELECTIVE OIL AND GAS ACQUISITIONS. The Company seeks to acquire
producing oil and gas properties that provide opportunities for reserve
additions and increased cash flow through operating improvements and additional
development and exploratory drilling. The Company believes these criteria are
met in regions that are characterized by long histories of production and
multiple producing oil and gas horizons, such as the Mid-Continent Area and the
Permian Basin.

MAINTAIN AND EXPAND CORE AREAS. Over 90% of the Company's pro forma PV-10
Value as of November 30, 1997 is concentrated in the Mid-Continent Area and the
Permian Basin. The Company believes that its geographic concentration and
region-specific experience provide it with focused, efficient operations. The
Company will continue to pursue acquisitions and drilling opportunities in its
core areas and will evaluate acquisitions that could establish additional core
areas.

REDUCE COSTS THROUGH OPERATING CONTROL. The Company seeks to operate a
substantial number of its producing properties. As a result of the Carlton
Acquisition, the Company will also operate an oil and gas gathering system and a
saltwater disposal operation. The Company believes that operating a high
percentage of its properties provides it with substantial control of the timing,
level and incurrence of expenditures.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
NOTES OFFERED..................... $115,000,000 aggregate principal amount of % Senior
Notes due 2008.

ISSUER............................ RAM Energy, Inc.

MATURITY DATE..................... , 2008.

INTEREST RATE AND PAYMENT DATES... The Notes will bear interest at a rate of % per
annum. Interest on the Notes will accrue from the date
of issuance thereof and will be payable semi-annually in
cash in arrears on and of each year
commencing , 1998.

RANKING........................... The Notes will be senior unsecured obligations of RAM
Energy, Inc., ranking PARI PASSU in right of payment
with all existing and future senior Indebtedness of RAM
Energy, Inc. and senior to all existing and future
Subordinated Indebtedness of RAM Energy, Inc. The Notes
and the Subsidiary Guarantees will be effectively
subordinated to secured Indebtedness of RAM Energy, Inc.
and the Subsidiary Guarantors, including any
Indebtedness under the Credit Facility (as defined
herein), which is secured by liens on certain assets of
the Company. At September 30, 1997, on a pro forma
basis, RAM Energy, Inc. would have had $0.2 million of
outstanding senior Indebtedness other than the Notes
which would rank PARI PASSU in right of payment with the
Notes. Subject to certain limitations, RAM Energy, Inc.
and the Subsidiary Guarantors may incur additional
secured and unsecured Indebtedness in the future. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and
Capital Resources."

SUBSIDIARY GUARANTEES............. The Notes will be unconditionally guaranteed on a senior
unsecured basis by the existing and future Subsidiary
Guarantors. Each Subsidiary Guarantee will rank PARI
PASSU in right of payment to all existing and future
senior Indebtedness of the Subsidiary Guarantors and
senior to all existing and future Subordinated
Indebtedness of the Subsidiary Guarantors.

OPTIONAL REDEMPTION............... The Notes will be redeemable at the option of RAM
Energy, Inc., in whole or in part, at any time on or
after , 2003, at the redemption prices set
forth herein, together with accrued and unpaid interest
to the date of redemption. In the event RAM Energy, Inc.
consummates a Public Equity Offering on or prior to
, 2001, RAM Energy, Inc. has the option to
use all or a portion of the proceeds from such offering
to redeem up to 35% of the aggregate principal amount of
the Notes originally issued at a redemption price equal
to % of the principal amount thereof, together with
accrued and unpaid interest to the date of redemption,
provided that at least 65% of the aggregate principal
amount of the Notes originally issued remains
outstanding immediately following such redemption.
</TABLE>

5
<PAGE>

<TABLE>
<S> <C>
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control, RAM Energy,
Inc. will be required to offer to repurchase the Notes
at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest to
the date of repurchase.

CERTAIN COVENANTS................. The indenture under which the Notes will be issued (the
"Indenture") will contain certain covenants including,
but not limited to, covenants that limit (i) incurrences
of additional indebtedness and issuances of disqualified
capital stock, (ii) restricted payments, (iii) dividends
and other payments affecting subsidiaries, (iv)
transactions with affiliates, (v) asset sales, (vi)
liens, (vii) lines of business and (viii) merger, sale
or consolidation. The Indenture will also contain
covenants regarding the designation of Unrestricted
Subsidiaries (as defined herein), ownership of
Subsidiary Guarantors and issuance of reports.

USE OF PROCEEDS................... RAM Energy, Inc. plans to use the net proceeds from the
Offering primarily to (i) repay indebtedness outstanding
under its existing bank facility, (ii) acquire the stock
and repay certain indebtedness of Carlton in connection
with the Carlton Acquisition and (iii) provide
additional working capital for general corporate
purposes, including the acquisition and development of
oil and gas properties. See "Use of Proceeds."
</TABLE>

For a more detailed discussion of the terms of the Notes, see "Description
of Notes."

RISK FACTORS

An investment in the Notes involves a high degree of risk. The risks that a
potential investor should consider before making an investment in the Notes
include, but are not limited to, risks associated with (i) the Company's
incurrence of substantial indebtedness, (ii) substantial capital requirements
associated with the Company's operations, (iii) the effective subordination of
the Notes, (iv) certain restrictions on repurchases of Notes upon a Change of
Control or other events, (v) the possible limitations on enforceability of the
Subsidiary Guarantees, (vi) the Company's dependence on expanding and developing
oil and gas reserves, (vii) acquisition risks, (viii) the volatility of oil and
gas prices, (ix) hedging transactions, (x) possible writedowns of carrying
values, (xi) uncertainty of estimates of oil and gas reserves and future net
revenues, (xii) drilling and operating hazards and uninsured risks, (xiii) risks
relating to injection wells, (xiv) dependence on distribution and processing
systems, (xv) government regulation and environmental matters, (xvi)
competition, (xvii) the control of the Company by existing stockholders and
(xviii) the absence of a public market for the Notes. See "Risk Factors."

6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following summary historical and pro forma financial data were derived
from the financial statements of the Company and the Partnership, including the
notes thereto (the "Financial Statements"), as well as the selected historical
and pro forma financial and operating information included elsewhere in this
Prospectus. The pro forma financial data are based on the assumptions and
adjustments described in the pro forma combined financial information and do not
purport to present the results of operations and financial position of the
Company and the Partnership as if the Offering and the application of the net
proceeds therefrom, the Partnership Acquisition, the Carlton Acquisition and
certain other acquisitions and dispositions had actually occurred on such dates,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The information set forth below should be read in
conjunction with "Selected Historical and Pro Forma Financial Information and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements included elsewhere
herein.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------- ----------------------
YEAR ENDED ELEVEN YEAR ENDED
PARTNERSHIP COMPANY
----------- ---------
NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, MONTHS ENDED ---------------------- ----------------------
-------------------- NOVEMBER 30, PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
--------- --------- ------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.......................... $ 24,481 $ 21,802 $ 23,456 $ 3,275 $ 31,900 $ 18,744 $ 16,820
Gathering system..................... -- -- -- -- 14,688 -- --
Management fees(3)................... -- -- -- 1,482 22 -- --
Operator overhead fees(3)............ -- -- -- 1,343 -- -- --
Consulting fees(3)................... -- -- -- 153 -- -- --
Other................................ 60 139 7 567 1,356 -- 85
--------- --------- ------------- --------- ----------- ----------- ---------
Total operating revenues........... 24,541 21,941 23,463 6,820 47,966 18,744 16,905

Operating expenses:
Oil and gas production............... 9,839 9,902 7,609 827 10,764 6,153 4,795
Cost of oil and gas purchased........ -- -- -- -- 6,657 -- --
Gathering system..................... -- -- -- -- 1,177 -- --
Depreciation and amortization........ 11,608 9,808 5,114 990 11,944 4,160 5,268
Writedown of oil and gas properties
and equipment...................... 8,700 -- -- -- -- -- --
Management fees(3)................... 1,555 1,606 1,482 -- -- 1,210 --
Operator overhead fees(3)............ 1,746 1,686 1,343 -- -- 1,108 --
General and administrative........... 676 502 378 4,164 3,256 241 3,325
--------- --------- ------------- --------- ----------- ----------- ---------
Total operating expenses........... 34,124 23,504 15,926 5,981 33,798 12,872 13,388
--------- --------- ------------- --------- ----------- ----------- ---------

Operating income (loss)................ (9,583) (1,563) 7,537 839 14,168 5,872 3,517

Other income (expense):
Interest expense..................... (587) (809) (564) (541) (12,554) (484) (3,788)
Interest income...................... 41 59 114 29 536 92 43
Equity in income of the
Partnership........................ -- -- -- 71 71 -- --
Minority interest in the
Partnership........................ -- -- -- 10 10 -- (15)
--------- --------- ------------- --------- ----------- ----------- ---------
Income (loss) before income taxes...... (10,129) (2,313) 7,087 408 2,231 5,480 (243)
Income tax provision (benefit)......... -- -- -- -- 848 -- --
--------- --------- ------------- --------- ----------- ----------- ---------
Net income (loss)...................... $ (10,129) $ (2,313) $ 7,087 $ 408 $ 1,383 $ 5,480 $ (243)
--------- --------- ------------- --------- ----------- ----------- ---------
--------- --------- ------------- --------- ----------- ----------- ---------

COMPANY
--------------------
AT SEPTEMBER 30,
1997
--------------------
AS
ACTUAL ADJUSTED(4)
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 2,031 $ 7,663
Net property and equipment............................................................ 60,100 124,026
Total assets.......................................................................... 70,344 147,158
Long-term debt, including current portion............................................. 62,215 115,215
Stockholders' equity (deficit)(5)..................................................... (1,563) (1,563)

<CAPTION>
PRO FORMA
1997(2)
-----------
<S> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.......................... $ 21,447
Gathering system..................... 7,468
Management fees(3)................... 8
Operator overhead fees(3)............ --
Consulting fees(3)................... --
Other................................ 268
-----------
Total operating revenues........... 29,191
Operating expenses:
Oil and gas production............... 6,796
Cost of oil and gas purchased........ 4,785
Gathering system..................... 569
Depreciation and amortization........ 8,113
Writedown of oil and gas properties
and equipment...................... --
Management fees(3)................... --
Operator overhead fees(3)............ --
General and administrative........... 2,552
-----------
Total operating expenses........... 22,815
-----------
Operating income (loss)................ 6,376
Other income (expense):
Interest expense..................... (9,420)
Interest income...................... 89
Equity in income of the
Partnership........................ --
Minority interest in the
Partnership........................ (15)
-----------
Income (loss) before income taxes...... (2,970)
Income tax provision (benefit)......... (1,129)
-----------
Net income (loss)...................... $ (1,841)
-----------
-----------
<S> <C> <S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................
Net property and equipment............................................................
Total assets..........................................................................
Long-term debt, including current portion.............................................
Stockholders' equity (deficit)(5).....................................................
</TABLE>

7
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY PARTNERSHIP COMPANY
----------------------------------- ---------------------- ----------- ---------
YEAR ENDED ELEVEN YEAR ENDED
NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
DECEMBER 31, MONTHS ENDED ---------------------- ----------------------
-------------------- NOVEMBER 30, PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
--------- --------- ------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.... $ 9,969 $ 7,478 $ 10,837 $ 70 -- $ 8,098 $ 6,421
Cash flow from investing activities.... (5,336) (5,273) (61,621) (59,102) -- (1,625) (5,227)
Cash flow from financing activities.... (4,630) (1,295) 50,620 60,116 -- (4,530) (770)
Capital expenditures................... 4,325 5,380 3,310 250 -- 1,950 14,692
Adjusted EBITDA(6)..................... 10,766 8,304 12,765 1,939 $ 26,729 10,124 8,813
Ratio of:
Earnings to fixed charges(7)......... -- -- 13.57x 1.75x 1.18x 12.32x --
Adjusted EBITDA to interest expense.................................................. 2.13x -- --
Long-term debt to Adjusted EBITDA(8)................................................. -- -- --
Net debt to Adjusted EBITDA(8)....................................................... -- -- --

PRO FORMA
1997(2)
-----------

<S> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.... --
Cash flow from investing activities.... --
Cash flow from financing activities.... --
Capital expenditures................... --
Adjusted EBITDA(6)..................... $ 14,563
Ratio of:
Earnings to fixed charges(7)......... --
Adjusted EBITDA to interest expense.. 1.55x
Long-term debt to Adjusted EBITDA(8). 5.93x
Net debt to Adjusted EBITDA(8)....... 5.54x
</TABLE>

- ------------------------------
(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.

(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.

(3) Under the terms of the Partnership's partnership agreement, RAM Energy was
reimbursed by the Partnership for management fees, operator overhead fees
and certain consulting fees. The Partnership capitalized the consulting
fees.

(4) Pro forma to reflect the Offering and the application of the net proceeds
therefrom and the Carlton Acquisition as if they had occurred on September
30, 1997.

(5) Before giving effect to the redemption of all outstanding shares (77,714
shares) of RAM Energy, Inc.'s Series A Preferred Stock at a redemption price
of $10.00 per share and the redemption of all outstanding shares (69,652
shares) of its Series B Preferred Stock at a redemption price of $10.00 per
share. See "Capitalization" and "Management -- Certain Transactions."

(6) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow as
determined by generally accepted accounting principles ("GAAP"). Adjusted
EBITDA should not be considered as an alternative to, or more meaningful
than, net income or cash flow as determined in accordance with GAAP or as an
indicator of a company's operating performance or liquidity. Certain items
excluded from Adjusted EBITDA are significant components in understanding
and assessing a company's financial performance, such as a company's cost of
capital and tax structure, as well as historic costs of depreciable assets,
none of which are components of Adjusted EBITDA. The Company's computation
of Adjusted EBITDA may not be comparable to other similarly titled measures
of other companies. The Company believes that Adjusted EBITDA is a widely
followed measure of operating performance and may also be used by investors
to measure the Company's ability to meet future debt service requirements,
if any.

(7) For the Partnership, earnings were insufficient to cover fixed charges by
approximately $10,129,000 and $2,313,000 for the years ended December 31,
1994 and 1995, respectively. For the Company, earnings were insufficient to
cover fixed charges by approximately $243,000 and $2,970,000 for the nine
months ended September 30, 1997 and for the nine months ended September 30,
1997, on a pro forma basis, respectively. For purposes of computing the
ratio of earnings to fixed charges, earnings are computed as income from
continuing operations before taxes, plus fixed charges. For the historical
periods, fixed charges consist of interest expense, and for the pro forma
periods, include interest expense and amortization of costs incurred in
connection with the Offering.

(8) The ratio of long-term debt to Adjusted EBITDA is computed on the basis of
annualized Adjusted EBITDA for periods shorter than one year. The ratio of
net debt to Adjusted EBITDA is the ratio of long-term debt, including the
current portion thereof, less cash and cash equivalents, to Adjusted EBITDA,
annualized for periods shorter than one year.

8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA RESERVE AND OPERATING DATA

The following tables set forth summary information with respect to the
estimated proved oil and gas reserves and certain operating data of the Company
and the Partnership at or for the periods shown and on a pro forma basis. See
"Risk Factors," "Selected Historical and Pro Forma Financial Information and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," "Experts" and the Financial Statements
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PARTNERSHIP COMPANY COMPANY
-------------------- ----------- ----------------------
NOVEMBER 30,
DECEMBER 31, ----------------------
--------------------------------- PRO FORMA
RESERVE DATA: 1994 1995 1996 1997 1997(1)
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Proved reserves:
Natural gas (MMcf)................................................... 75,435 68,920 82,885 83,006 114,323
Oil and condensate (MBbls)........................................... 3,770 3,333 4,282 3,376 4,295
Total (MMcfe)........................................................ 98,055 88,918 108,577 103,263 140,092
Proved developed reserves:
Natural gas (MMcf)................................................... 56,792 51,664 62,319 58,717 78,399
Oil and condensate (MBbls)........................................... 2,797 2,714 3,511 2,569 3,182
Total (MMcfe)........................................................ 73,574 67,948 83,385 74,128 97,492
PV-10 Value (in thousands)(2).......................................... $ 56,480 $ 63,913 $ 160,930 $ 116,186 $ 150,403
</TABLE>

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

(1) Pro forma to reflect the Carlton Acquisition as if it had occurred on
November 30, 1997.

(2) PV-10 Value represents the present value of estimated future net revenues
before income tax discounted at 10%, using prices in effect at the end of
the respective periods presented and including the effects of hedging
activities. In accordance with applicable requirements of the Securities and
Exchange Commission (the "Commission"), estimates of the Company's proved
reserves and future net revenues are made using oil and gas sales prices
estimated to be in effect as of the date of such reserve estimates and are
held constant throughout the life of the properties (except to the extent a
contract specifically provides for escalation). The average prices used in
calculating PV-10 Value as of November 30, 1997 were $3.00 per Mcf of
natural gas and $17.99 per Bbl of oil, compared to average prices used as of
December 31, 1996 of $3.78 per Mcf of natural gas and $23.88 per Bbl of oil.
The average prices used in calculating the pro forma PV-10 Value as of
November 30, 1997 were $3.01 per Mcf of natural gas and $17.81 per Bbl of
oil. Average prices as of December 31, 1997, on a pro forma basis, were
$2.75 per Mcf of natural gas and $15.99 per Bbl of oil. These prices, if
applied to estimated proved reserves of the Company as of November 30, 1997,
would result in a PV-10 Value, on a pro forma basis, of $133.3 million at
such date, as estimated by the Company.
<TABLE>
<CAPTION>
PARTNERSHIP
COMPANY -------------
PARTNERSHIP ----------------------------
----------------------------------------------- NINE MONTHS
YEAR ENDED ENDED
YEAR ENDED DECEMBER 31, ELEVEN MONTHS DECEMBER 31, SEPTEMBER 30,
ENDED NOVEMBER ---------------------------- -------------
---------------------------- 30, PRO FORMA
OPERATING DATA: 1994 1995 1996(1) 1996 1996(2) 1996
------------- ------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)............ 9,403 9,700 7,594 711 10,645 6,192
Oil and condensate (MBbls).... 534 463 387 38 487 313
Total (MMcfe)................. 12,605 12,476 9,914 941 13,568 8,072
Average realized prices(3):
Natural gas (per Mcf)......... $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07 $ 2.02
Oil and condensate (per Bbl).. 15.75 16.86 20.59 23.39 20.34 19.99
Per Mcfe...................... 1.94 1.75 2.37 3.48 2.35 2.32
Expenses (per Mcfe):
Lease operating (including
production taxes)........... 0.78 0.79 0.77 0.88 0.79 0.76
Depreciation and
amortization................ 0.92 0.79 0.52 1.05 0.88 0.52
General and
administrative(4)........... 0.32 0.30 0.32 1.26 0.24 0.32

COMPANY
----------------------------

PRO FORMA
OPERATING DATA: 1997 1997(2)
------------- -------------
<S> <C> <C>
Production volumes:
Natural gas (MMcf)............ 5,263 6,931
Oil and condensate (MBbls).... 235 307
Total (MMcfe)................. 6,675 8,774
Average realized prices(3):
Natural gas (per Mcf)......... $ 2.31 $ 2.25
Oil and condensate (per Bbl).. 19.81 19.15
Per Mcfe...................... 2.52 2.44
Expenses (per Mcfe):
Lease operating (including
production taxes)........... 0.72 0.77
Depreciation and
amortization................ 0.79 0.92
General and
administrative(4)........... 0.50 0.29
</TABLE>

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

(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.

(3) Reflects the actual realized prices received by the Company, including the
results of the Company's hedging activities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

(4) For the Partnership, includes management fees and operator overhead fees
charged to the Partnership by RAM Energy during 1994, 1995 and the 1996
periods. For the Company, general and administrative expense is net of
management fees, operator overhead fees and consulting fees, if any,
received by RAM Energy from the Partnership.

9
<PAGE>
FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts included in this
Prospectus, including without limitation statements under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the planned capital
expenditures, increases in oil and gas production, the number of anticipated
wells to be drilled in 1998 and thereafter, the Company's financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. The Company
cautions prospective investors that actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including, without limitation, (i) factors discussed under "Risk Factors" such
as volatility of oil and gas prices, uncertainties inherent in estimating
quantities of oil and gas reserves and projecting future rates of production and
timing of development expenditures, competition, operating risks, acquisition
risks, liquidity and capital requirements and the effects of governmental and
environmental regulation, (ii) adverse changes in the operations acquired in the
Carlton Acquisition or the failure of the Company to achieve anticipated
consolidation cost savings in connection with the Carlton Acquisition and (iii)
adverse changes in the market for the Company's oil and gas production. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.

10
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS,
THE FOLLOWING FACTORS RELATING TO THE COMPANY AND THE OFFERING SHOULD BE
CONSIDERED WHEN EVALUATING AN INVESTMENT IN THE NOTES OFFERED HEREBY.

INCURRENCE OF SUBSTANTIAL INDEBTEDNESS

At September 30, 1997, on a pro forma basis, RAM Energy, Inc. and the
Subsidiary Guarantors would have had $115.2 million of indebtedness (including
current maturities of long-term indebtedness) as compared to a deficit in the
Company's stockholders' equity of $1.6 million. See "Use of Proceeds" and
"Capitalization." The Indenture may limit the amounts of borrowings under bank
facilities, including the Company's bank credit facility (the "Credit
Facility"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Notes -- Certain Covenants."

This level of indebtedness may pose substantial risks to holders of Notes,
including the possibility that the Company might not generate sufficient cash
flow to pay the principal of and interest on the Notes. For the nine months
ended September 30, 1997, on a pro forma basis, the Company's earnings would
have been insufficient to meet its fixed charges, including interest on the
Notes, by approximately $3 million. If the Company is unsuccessful in increasing
its proved reserves, the future net revenues from existing proved reserves may
not be sufficient to pay the principal of and interest on the Notes in
accordance with their terms. Such indebtedness may also adversely affect the
Company's ability to finance its future operations and capital needs, and may
limit its ability to pursue other business opportunities.

The Indenture and the instruments governing the Credit Facility (amended and
restated as a $50.0 million revolving credit facility, effective upon
consummation of the Offering and the Carlton Acquisition, with initial
availability of $25.0 million) impose significant operating and financial
restrictions on the Company. Such restrictions will affect, and in many respects
significantly limit or prohibit, among other things, the ability of the Company
to incur additional indebtedness, pay dividends, repay indebtedness prior to its
stated maturity or engage in mergers or acquisitions. These restrictions could
also limit the ability of the Company to effect future financings, make needed
capital expenditures, withstand a future downturn in the Company's business or
the economy in general, or otherwise conduct necessary corporate activities. A
failure by the Company to comply with these restrictions could lead to a default
under the terms of such indebtedness and the Notes. In the event of default, the
holders of such indebtedness could elect to declare all of the funds borrowed
pursuant thereto to be due and payable together with accrued and unpaid
interest. In such event, there can be no assurance that the Company would be
able to make such payments or borrow sufficient funds from alternative sources
to make any such payment. Even if additional financing could be obtained, there
can be no assurance that it would be on terms that are favorable or acceptable
to the Company. In addition, the Company's indebtedness under the Credit
Facility is secured by a substantial portion of the assets of RAM Energy, Inc.
and the Subsidiary Guarantors. Upon consummation of the Offering and application
of the net proceeds therefrom, no amounts will be outstanding under the Credit
Facility. The pledge of such collateral to existing lenders could impair the
Company's ability to obtain favorable financing. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company has made, and will likely continue to make, substantial capital
expenditures in connection with the acquisition, development, exploration and
production of oil and gas properties. Since 1991, the Company has funded its
capital expenditures through bank borrowings and cash flow from operations.
Future cash flows and the availability of credit are subject to a number of
variables, such as the level of production from existing wells, prices of oil
and gas and the Company's success in locating and producing new reserves. If
revenues were to decrease as a result of lower oil and gas prices, decreased
production or otherwise, and the Company had no availability under the Credit
Facility, the Company could have limited ability to replace its reserves or to
maintain production at current levels, resulting in a decrease in production and
revenues over time. The Company has budgeted $20.3 million for capital

11
<PAGE>
expenditures in 1998, exclusive of acquisitions. The Company expects to use cash
flow from operations, cash balances and borrowings under the Credit Facility to
fund these expenditures. If the Company's cash flow from operations and
availability under the Credit Facility are not sufficient to satisfy its capital
expenditure requirements, there can be no assurance that additional debt or
equity financing will be available.

EFFECTIVE SUBORDINATION

The obligations under the Credit Facility are secured by substantially all
of the proved oil and gas reserves of RAM Energy, Inc. and the Subsidiary
Guarantors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

Holders of secured indebtedness of the Company under the $50 million Credit
Facility will have claims with respect to the assets constituting collateral for
such indebtedness that are prior to the claims of the holders of Notes. In the
event of a default on the Notes, or a bankruptcy, liquidation or reorganization
of RAM Energy, Inc. and the Subsidiary Guarantors, such assets will be available
to satisfy obligations with respect to the indebtedness secured thereby before
any payment therefrom could be made on the Notes. Accordingly, the Notes will be
effectively subordinated to claims of secured creditors of RAM Energy, Inc. and
the Subsidiary Guarantors to the extent of such pledged collateral. At September
30, 1997, on a pro forma basis, RAM Energy, Inc. and the Subsidiary Guarantors
would have had $115.0 million of indebtedness represented by the Notes and $0.2
million of other indebtedness which would rank PARI PASSU in right of payment
with the Notes. In addition, at such date, no amounts would be outstanding under
the Credit Facility and borrowing availability under the Credit Facility would
be $25.0 million.

RESTRICTIONS ON REPURCHASES OF NOTES UPON A CHANGE OF CONTROL AND CERTAIN OTHER
EVENTS

In the event of a Change of Control, RAM Energy, Inc. will be required to
offer to repurchase all Notes then outstanding at a purchase price equal to 101%
of the principal amount thereof, plus accrued interest to the date of
repurchase. In the event of certain asset dispositions, RAM Energy, Inc. will be
required under certain circumstances to use the Excess Cash (as defined herein)
to offer to repurchase the Notes at 100% of the principal amount thereof, plus
accrued interest to the date of repurchase (an "Excess Cash Offer"). See
"Description of Notes -- Repurchase of Notes at the Option of the Holder Upon a
Change of Control" and "-- Certain Covenants."

The events that constitute a Change of Control or require an Excess Cash
Offer under the Indenture may also be events of default under the Credit
Facility or other senior indebtedness of RAM Energy, Inc. and the Subsidiary
Guarantors. Such events may permit the lenders under such debt instruments to
accelerate the debt and, if the debt is not paid, to enforce security interests
on substantially all the assets of RAM Energy, Inc. and the Subsidiary
Guarantors, thereby limiting the Company's ability to raise cash to repurchase
the Notes and reducing the practical benefit of the offer to repurchase
provisions to the holders of the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance that the Company will have
sufficient funds available at the time of any Change of Control or Excess Cash
Offer to make any debt payment (including repurchases of Notes) as described
above. Any failure by RAM Energy, Inc. to repurchase Notes tendered pursuant to
a Change of Control Offer (as defined herein) or an Excess Cash Offer will
constitute an Event of Default under the Indenture. See "Description of Notes --
Certain Covenants."

POSSIBLE LIMITATIONS ON ENFORCEABILITY OF SUBSIDIARY GUARANTEES

RAM Energy, Inc.'s obligations under the Notes will be guaranteed on a
senior unsecured basis by the Subsidiary Guarantors pursuant to the provisions
of the Indenture. The obligations of any Subsidiary Guarantor under its
Subsidiary Guarantee may be subject to review under applicable fraudulent
conveyance statutes in the event of the bankruptcy or other financial difficulty
of any such Subsidiary Guarantor. Under such laws, if a court in a lawsuit by an
unpaid creditor or representative of creditors of any such person, such as a
trustee in bankruptcy of any such person as debtor in possession, were to find
that at the

12
<PAGE>
time such person incurred its obligations under its guarantee or pledged its
assets, it (i) received less than fair consideration or reasonably equivalent
value therefor, and (ii) either (a) was insolvent, (b) was rendered insolvent by
such guarantee or pledge, (c) was engaged in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital or (d)
intended to incur or believed that it would incur debts beyond its ability to
pay such debts as they matured, such court could void such obligations under its
guarantee and direct the return of any amounts paid with respect thereto.
Moreover, regardless of the factors identified in the foregoing clauses (i) and
(ii), a court could take such action if it found that the guarantee was entered
into or the security interest granted with actual intent to hinder, delay or
defraud creditors. The measure of insolvency for purposes of the foregoing will
vary depending on the law of the jurisdiction being applied. Generally, however,
an entity would be considered insolvent if the sum of its debts (including
contingent or unliquidated debts) is greater than all of its property at a fair
valuation or if the present fair salable value of its assets is less than the
amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. There can be no assurance that, after
providing for all prior claims, if any, there would be sufficient assets to
satisfy the claims of the holders of the Notes relating to any voided portion of
such Subsidiary Guarantees.

DEPENDENCE ON EXPANDING AND DEVELOPING RESERVES

The Company's future success depends upon its ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless the Company successfully replaces the reserves that it produces (through
successful development, exploration or acquisition), the Company's proved
reserves will decline. There can be no assurance that the Company will continue
to be successful in its effort to increase or replace its proved reserves.
Approximately 30% of the PV-10 Value of the Company's total proved reserves at
November 30, 1997, on a pro forma basis, was attributable to undeveloped
reserves. Recovery of such reserves will require significant capital
expenditures and successful drilling operations. There can be no certainty
regarding the results of developing these reserves. To the extent the Company is
unsuccessful in replacing or expanding its estimated proved reserves, the
Company may be unable to pay the principal of and interest on the Notes in
accordance with their terms, or otherwise to satisfy certain of its covenants
contained in the Indenture. See "Description of Notes -- Certain Covenants."

ACQUISITION RISKS

The Company's growth strategy includes the acquisition of oil and gas
properties. There can be no assurance, however, that the Company will be able to
identify attractive acquisition opportunities, obtain financing for acquisitions
on satisfactory terms or successfully acquire identified targets. In addition,
no assurance can be given that the Company will be successful in integrating
acquired businesses into its existing operations, and such integration may
result in unforeseen operational difficulties or require a disproportionate
amount of management's attention. Future acquisitions may be financed through
the incurrence of additional indebtedness to the extent permitted under the
Indenture or through the issuance of capital stock. Furthermore, there can be no
assurance that competition for acquisition opportunities in these industries
will not escalate, thereby increasing the cost to the Company of making further
acquisitions or causing the Company to refrain from making additional
acquisitions.

VOLATILITY OF OIL AND GAS PRICES

The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and gas and natural gas
liquids, which are dependent upon numerous factors such as weather, economic,
political and regulatory developments and competition from other sources of
energy. The Company is affected more by fluctuations in natural gas prices than
oil prices, because a majority of its production is natural gas. The volatile
nature of the energy markets and the unpredictability of actions of OPEC members
make it particularly difficult to estimate future prices of oil and gas and
natural gas liquids. Prices of oil and gas and natural gas liquids are subject
to wide fluctuations in response to relatively minor changes in circumstances,
and there can be no assurance that future prolonged decreases in such prices
will not occur. All of these factors are beyond the control of the Company. Any
significant decline in oil and gas prices would have a material adverse effect
on the Company's results of

13
<PAGE>
operations and financial condition. Although the Company may enter into hedging
arrangements from time to time to reduce its exposure to price risks in the sale
of its oil and gas, the Company's hedging arrangements are likely to apply to
only a portion of its production and provide only limited price protection
against fluctuations in the oil and gas markets. See "Business -- Oil and Gas
Marketing and Hedging."

RISK OF HEDGING ACTIVITIES

The Company's use of energy swap and forward sale arrangements to reduce its
sensitivity to oil and gas price volatility is subject to a number of risks. If
the Company's reserves are not produced at the rates estimated by the Company
due to inaccuracies in the reserve estimation process, operational difficulties
or
regulatory limitations, or otherwise, the Company would be required to satisfy
its obligations under potentially unfavorable terms. If the Company enters into
financial instrument contracts for the purpose of hedging prices and the
estimated production volumes are less than the amount covered by these
contracts, the Company would be required to mark-to-market these contracts and
recognize any and all losses within the determination period. Further, under
financial instrument contracts, the Company may be at risk for basis
differential, which is the difference in the quoted financial price for contract
settlement and the actual physical point of delivery price. The Company will
from time to time attempt to mitigate basis differential risk by entering into
physical basis swap contracts. Substantial variations between the assumptions
and estimates used by the Company in its hedging activities and actual results
experienced could materially adversely affect the Company's anticipated profit
margins and its ability to manage risk associated with fluctuations in oil and
gas prices. Furthermore, the fixed price sales and hedging contracts limit the
benefits the Company will realize if actual prices rise above the contract
prices.

As of January 31, 1998, approximately 20% of the Company's estimated natural
gas production for the period of March 1998 through August 1998 was committed to
hedging contracts that established a NYMEX floor price which, after adjustment
for Btu content, results in an equivalent price to the Company of $2.12 per Mcf.
See "Business -- Oil and Gas Marketing and Hedging."

WRITEDOWN OF CARRYING VALUES

The Company periodically reviews the carrying value of its oil and gas
properties under the full cost accounting rules of the Commission. Under these
rules, capitalized costs of proved oil and gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10%. Application of this "ceiling" test generally requires pricing future
revenue at the unescalated prices in effect as of the end of each fiscal quarter
and requires a write-down for accounting purposes if the ceiling is exceeded,
even if prices were depressed for only a short period of time. The Company may
be required to write down the carrying value of its oil and gas properties when
oil and gas prices are depressed or unusually volatile, which would result in a
charge to earnings. Once incurred, a write-down of oil and gas properties is not
reversible at a later date.

UNCERTAINTY OF ESTIMATES OF OIL AND GAS RESERVES AND FUTURE NET REVENUES

This Prospectus contains estimates of the Company's proved oil and gas
reserves, the estimated future net revenues therefrom and the discounted present
value thereof, as of November 30, 1997, based on a report prepared by Forrest A.
Garb & Associates, Inc. ("Garb & Associates") which was audited by Netherland,
Sewell & Associates, Inc. ("Netherland & Sewell"). The Netherland & Sewell audit
was not a financial audit and was not performed by the Company's independent
financial auditors. There are numerous uncertainties inherent in estimating
quantities and future values of proved oil and gas reserves, including many
factors beyond the control of the Company. Each of the estimates of proved oil
and gas reserves, future net revenues and discounted present values relies upon
various assumptions, including assumptions required by the Commission as to
constant oil and gas prices, drilling and operating expenses, capital
expenditures, taxes and availability of funds. The process of estimating oil and
gas reserves is complex, requiring significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data
for each reservoir. As a result, such estimates are inherently

14
<PAGE>
imprecise. Actual future production, oil and gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and gas reserves may vary substantially from those estimated in the report. Any
significant variance in these assumptions could materially affect the estimated
quantity and value of reserves set forth in this Prospectus. In addition, the
Company's reserves may be subject to downward or upward revision, based upon
production history, results of future exploration and development, prevailing
oil and gas prices and other factors, many of which are beyond the Company's
control. The PV-10 Value of the Company's proved oil and gas reserves does not
necessarily represent the current or fair market value of such proved reserves,
and the 10% discount rate required by the Commission may not reflect current
interest rates, the Company's cost of capital or any risks associated with the
development and production of the Company's proved oil and gas reserves. The
estimated future net revenues attributable to the Company's proved oil and gas
reserves, on a pro forma basis, are based on prices in effect at November 30,
1997 ($3.01 per Mcf of natural gas and $17.81 per Bbl of oil), which may be
materially different than actual future prices. As of December 31, 1997, the
average prices, on a pro forma basis, were $2.75 per Mcf of natural gas and
$15.99 per Bbl of oil.

DRILLING AND OPERATING RISKS

Oil and gas drilling activities are subject to numerous risks, many of which
are beyond the Company's
control, including the risk that no commercially productive oil or gas
reservoirs will be encountered. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
canceled as a result of a variety of factors, including unexpected drilling
conditions, pressure irregularities in formations, equipment failures or
accidents, adverse weather conditions, title problems and shortages or delays in
the delivery of equipment. The Company's future drilling activities may not be
successful and, if unsuccessful, such failure will have an adverse effect on
future results of operations and financial condition.

The Company's properties may be susceptible to hydrocarbon drainage from
production by other operators on adjacent properties. Industry operating risks
include the risk of fire, explosions, blow-outs, pipe failure, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures or discharges of toxic gases, the occurrence of any of which could
result in substantial losses to the Company due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. In accordance with
customary industry practice, the Company maintains insurance against the risks
described above. There can be no assurance that any insurance will be adequate
to cover losses or liabilities. The Company cannot predict the continued
availability of insurance, or its availability at premium levels that justify
its purchase.

RISKS RELATING TO INJECTION WELLS

The Company's saltwater injection operations will pose certain risks of
environmental liability to the Company. Although the Company will monitor the
injection process, any leakage from the subsurface portions of the wells could
cause degradation of fresh groundwater resources, potentially resulting in
suspension of operation of the wells, fines and penalties from governmental
agencies, expenditures for remediation of the affected resource, and liability
to third parties for property damages and personal injuries. In addition, the
sale by the Company of residual crude oil collected as part of the saltwater
injection process could impose liability on the Company in the event the entity
to which the oil was transferred fails to manage the material in accordance with
applicable environmental health and safety laws.

DEPENDENCE ON DISTRIBUTION AND PROCESSING SYSTEMS

The marketability of the Company's oil and gas production depends upon the
availability and capacity of gas gathering systems, pipelines and processing
facilities, and any lack of availability or capacity could result in the shut-in
of producing wells or the delay or discontinuance of development plans for
properties. In addition, federal and state regulation of oil and gas production
and transportation, general economic

15
<PAGE>
conditions and changes in supply and demand could adversely affect the Company's
ability to produce and market its oil and gas on a profitable basis.

GOVERNMENTAL REGULATION

Oil and gas operations are subject to various federal, state and local
governmental regulations which may be changed from time to time in response to
economic or political conditions. From time to time, regulatory agencies have
imposed price controls and limitations on production in order to conserve
supplies of oil and gas. In addition, the production, handling, storage,
transportation and disposal of oil and gas, by-products thereof and other
substances and materials produced or used in connection with oil and gas
operations are subject to regulation under federal, state and local laws and
regulations. See "Business -- Regulation."

ENVIRONMENTAL RISKS

The Company is subject to a variety of federal, state and local governmental
laws and regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous materials. These regulations subject the
Company to increased operating costs and potential liability associated with the
use and disposal of hazardous materials. Although these laws and regulations
have not had a material adverse effect on the Company's financial condition or
results of operations, there can be no assurance that the Company will not be
required to make material expenditures in the future. Moreover, the Company
anticipates that such laws and regulations will become increasingly stringent in
the future, which could lead to material costs for environmental compliance and
remediation by the Company. See "Business -- Regulation."

Any failure by the Company to obtain required permits for, control the use
of, or adequately restrict the discharge of hazardous substances under present
or future regulations could subject the Company to substantial liability or
could cause its operations to be suspended. Such liability or suspension of
operations could have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION

The Company operates in a highly competitive environment. The Company
competes with major and independent oil and gas companies and with individual
producers and developers for the acquisition of desirable oil and gas
properties, as well as for the equipment and labor required to develop and
operate such properties. Many of these competitors have financial and other
resources that are substantially greater than those of the Company. See
"Business -- Competition."

CONTROL BY CERTAIN STOCKHOLDERS

At January 31, 1998, three of the Company's directors, two of whom are also
executive officers, beneficially owned 2,025,000 shares of Common Stock
representing, in the aggregate, approximately 74% of the outstanding Common
Stock. As a result, these stockholders are in a position to control the Company.
See "Security Ownership of Management and Principal Stockholders."

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

The Notes will constitute a new issue of securities with no established
trading market, and there can be no assurance as to the liquidity of any markets
that may develop for the Notes, the ability of the holders of Notes to sell
their Notes or the price at which holders would be able to sell their Notes.
Future trading prices of the Notes will depend on many factors, including, among
others, prevailing interest rates, the Company's operating results and the
market for similar securities. The Company does not intend to apply for listing
of the Notes on any securities exchange. The Underwriter has informed the
Company that it currently intends to make a market for the Notes. However, it is
not so obligated, and any such market making may be discontinued at any time
without notice. Accordingly, no assurance can be given that an active public or
other market will develop for the Notes or as to the liquidity of or the trading
market for the Notes. See "Underwriting."

16
<PAGE>
THE COMPANY

RAM Energy was incorporated in 1987 in Delaware. In October 1987, RAM
Energy, as managing general partner, together with New York Life Insurance
Company ("New York Life") and an affiliate of RAM Energy, formed RAMCO-NYL 1987
Limited Partnership. From September 1987 through May 1989, RAM Energy, acting on
its own behalf and on behalf of the Partnership, completed 13 oil and gas
acquisitions at a total cost of approximately $141 million.

From May 1989 to November 1996, RAM Energy conducted drilling and
development activities primarily on behalf of and as the managing general
partner of the Partnership. As a result, the Company maintained a relatively
stable level of proved reserves and did not acquire significant additional
leasehold interests, aggressively develop or explore its existing property base.
In November 1996, RAM Energy purchased New York Life's interest in the
Partnership, effectively terminating the Partnership's activities on a
stand-alone basis.

In the first quarter of 1997, the Company sold certain of its oil and gas
properties located offshore in the Gulf of Mexico, in East Texas and in the
Rocky Mountain area for $10.4 million. In September 1997, the Company concluded
an acquisition of oil and gas properties in the Mid-Continent Area and in the
Louisiana and Mississippi Gulf Coast area for $11.2 million. In December 1997,
the Partnership was liquidated and all of its oil and gas properties and other
assets were distributed to RAM Energy. See "Business."

On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton for $43.0 million (subject to closing adjustments), including
the repayment of existing Carlton debt. The closing of the Carlton Acquisition
is conditioned upon the simultaneous closing of the Offering.

The Company's principal executive and operating offices are located at Suite
650, Meridian Tower, 5100 E. Skelly Drive, Tulsa, Oklahoma 74135, telephone
(918) 663-2800.

17
<PAGE>
USE OF PROCEEDS

The net proceeds to RAM Energy, Inc. from the issuance and sale of the Notes
offered hereby, after deducting the underwriting discount and expenses of the
Offering, are estimated to be $110.4 million. The following table illustrates
the sources and uses of the net proceeds to the Company, as estimated by the
Company's management, in connection with the Offering:

<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- --------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)

Notes............................... $ 110,400 Carlton Acquisition(1).............. $ 43,000
Repayment of existing debt(2)....... 62,000
Working capital..................... 5,400
------------- ---------
Total sources of funds............ $ 110,400 Total uses of funds................. $ 110,400
------------- ---------
------------- ---------
</TABLE>

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

(1) The Carlton Acquisition purchase price is subject to certain adjustments,
and includes the repayment of $24.6 million outstanding under Carlton's
credit facility, which will be extinguished upon completion of the Carlton
Acquisition, and which provided for interest at a weighted average rate of
12.7% at December 31, 1997. See "Business -- The Carlton Acquisition."

(2) Consists of a $62.0 million principal balance under the Credit Facility. The
Credit Facility has been amended and restated as a $50.0 million revolving
credit facility, effective upon consummation of the Offering and the Carlton
Acquisition. Advances under the Credit Facility were used to complete the
Partnership Acquisition and other acquisitions and bear interest at varying
rates for which the weighted average at December 31, 1997, was 8.8%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

18
<PAGE>
CAPITALIZATION

The following table sets forth at September 30, 1997, the cash and cash
equivalents and capitalization of the Company, and to give pro forma effect to
the Offering and the application of the net proceeds therefrom as set forth
under "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 2,031 $ 7,663
--------- ----------
--------- ----------
Long-term debt, including current portion:
Credit Facility(1).................................................................... $ 62,000 --
% Senior Notes due 2008......................................................... -- $ 115,000
Other indebtedness.................................................................... 215 215
--------- ----------
Total long-term debt.................................................................. 62,215 115,215

Stockholders' equity (deficit)(2):
Series A Preferred Stock(2)........................................................... 1 1
Series B Preferred Stock(2)........................................................... 1 1
Common Stock.......................................................................... 22 22
Paid-in capital....................................................................... 1,493 1,493
Retained earnings (deficit)........................................................... (3,080) (3,080)
--------- ----------
Total stockholders' equity (deficit)................................................ (1,563) (1,563)
--------- ----------
Total capitalization................................................................ $ 60,652 $ 113,652
--------- ----------
--------- ----------
</TABLE>

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

(1) The Credit Facility has been amended and restated as a $50.0 million
revolving credit facility, effective upon consummation of the Offering and
the Carlton Acquisition. The initial availability under the amended and
restated Credit Facility will be $25.0 million. The Indenture may limit the
amount the Company may borrow under the Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

(2) Before giving effect to the redemption of all outstanding shares of RAM
Energy, Inc.'s Series A Preferred Stock and Series B Preferred Stock. In
December 1997, RAM Energy, Inc. redeemed all of its outstanding shares of
Series A Preferred Stock (none of which were held by officers, directors or
holders of Common Stock of the Company) for an aggregate redemption price of
$777,140. RAM Energy, Inc. redeemed its Series B Preferred Stock from the
holders thereof (all of whom also are holders of Common Stock) in January
1998, for an aggregate redemption price of $696,520. See "Management --
Certain Transactions."

19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION AND OPERATING DATA

PRO FORMA COMBINED FINANCIAL INFORMATION

The following Pro Forma Combined Statements of Operations and other
financial data for the year ended December 31, 1996 and for the nine months
ended September 30, 1997 reflect the historical results of the Company, adjusted
to give effect to the Offering and the application of the net proceeds
therefrom, the completion of the Partnership Acquisition, the completion of the
Carlton Acquisition and the consummation of certain other acquisitions and
dispositions by the Company as though each of the transactions had occurred on
January 1, 1996.

The Pro Forma Combined Condensed Balance Sheet at September 30, 1997
reflects the historical financial position of the Company as of such date
adjusted to give pro forma effect to the Carlton Acquisition and the Offering
and the application of the net proceeds therefrom as if they had occurred on
September 30, 1997.

The pro forma adjustments are based upon available information and
assumptions that management of the Company believes are reasonable. The Pro
Forma Combined Financial Information does not purport to represent the financial
position or results of operations which would have occurred had such
transactions been consummated on the dates indicated or the Company's financial
position or results of operations for any future date or period. The Pro Forma
Combined Financial Information and notes thereto should be read in conjunction
with the Financial Statements included elsewhere in this Prospectus.

20
<PAGE>
RAM ENERGY, INC.

PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL -----------------------------------------------------
------------------------------------- 1997 1997
PARTNERSHIP COMPANY CARLTON DISPOSITION ACQUISITION COMBINING OFFERING
----------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
NOTE A NOTE B NOTE C NOTE D NOTE E NOTE F
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:

Operating revenues:
Oil and gas....................... $ 23,456 $ 3,275 $ 6,713 $ (5,518) $ 3,974
Gathering system.................. -- -- 14,688
Management fees................... -- 1,482 22 $ (1,482)(1)
Operator overhead fees............ -- 1,343 616 (1,959)(1)
Consulting fees................... -- 153 -- (153)(1)
Other............................. 7 567 782
----------- ----------- ----------- ----------- ----------- ------------
Total operating revenues........ 23,463 6,820 22,821 (5,518) 3,974 (3,594)
Operating expenses:
Oil and gas production............ 7,609 827 2,387 (1,943) 1,884
Other charges to production....... -- -- 754 (754)(3)
Cost of oil and gas purchased..... -- -- 6,657
Gathering system.................. -- -- 1,177
Depreciation and amortization..... 5,114 990 3,269 (1,452) 1,108 2,915(2)
Management fees................... 1,482 -- -- (1,482)(1)
Operator overhead fees............ 1,343 -- -- (1,343)(1)
Consulting fees................... 53 -- -- (53)(1)
General and administrative........ 325 4,164 2,396 (616)(1)
(1,926)(3) (1,087)(8)
----------- ----------- ----------- ----------- ----------- ------------ -------------
Total operating expenses........ 15,926 5,981 16,640 (3,395) 2,992 (3,259) (1,087)
----------- ----------- ----------- ----------- ----------- ------------ -------------

Operating income (loss)............. 7,537 839 6,181 (2,123) 982 (335) 1,087

Other income (expense):
Interest expense.................. (564) (541) (326) 1,092 (1,176) (8,300)(4) $ (2,279)(6)
(460)(7)
Interest income................... 114 29 393
Equity in income of the
Partnership..................... -- 71 --
Minority interest in the
Partnership..................... -- 10 --
----------- ----------- ----------- ----------- ----------- ------------ -------------
Income (loss) before income taxes... 7,087 408 6,248 (1,031) (194) (8,635) (1,652)
Income tax provision (benefit)...... -- -- 2,324 (848)(5) (628)(9)
----------- ----------- ----------- ----------- ----------- ------------ -------------
Net income (loss)................... $ 7,087 $ 408 $ 3,924 $ (1,031) $ (194) $ (7,787) $ (1,024)
----------- ----------- ----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ----------- ----------- ------------ -------------
Net income per common share.........
Weighted average common shares
outstanding (in thousands)........

PRO FORMA
-----------
<S> <C>

INCOME STATEMENT DATA:
Operating revenues:
Oil and gas....................... $ 31,900
Gathering system.................. 14,688
Management fees................... 22
Operator overhead fees............ --
Consulting fees................... --
Other............................. 1,356
-----------
Total operating revenues........ 47,966
Operating expenses:
Oil and gas production............ 10,764
Other charges to production....... --
Cost of oil and gas purchased..... 6,657
Gathering system.................. 1,177
Depreciation and amortization..... 11,944
Management fees................... --
Operator overhead fees............ --
Consulting fees................... --
General and administrative........
3,256
-----------
Total operating expenses........ 33,798
-----------
Operating income (loss)............. 14,168
Other income (expense):
Interest expense..................
(12,554)
Interest income................... 536
Equity in income of the
Partnership..................... 71
Minority interest in the
Partnership..................... 10
-----------
Income (loss) before income taxes... 2,231
Income tax provision (benefit)...... 848
-----------
Net income (loss)................... $ 1,383
-----------
-----------
Net income per common share......... $ 0.51
-----------
-----------
Weighted average common shares
outstanding (in thousands)........ 2,727
-----------
-----------
</TABLE>

(SEE FOOTNOTES ON PAGE 24)

21
<PAGE>
RAM ENERGY, INC.

PRO FORMA COMBINED STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
HISTORICAL
----------------
COMPANY PRO FORMA
------- ---------
ADJUSTMENTS
----------------------------------------------
CARLTON 1997 1997 COMBINING OFFERING
------- DISPOSITION ACQUISITION ---------- ---------
----------- -------
NOTE B NOTE E NOTE F
NOTE C NOTE D
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas................................ $16,820 $4,109 $(1,365) $1,883 $21,447
Gathering system........................... -- 7,468 7,468
Management fees............................ -- 8 8
Operator overhead fees..................... -- 520 $ (520)(1) --
Other...................................... 85 183 268
------- ------- ----------- ------- ---------- ---------
Total operating revenues................. 16,905 12,288 (1,365) 1,883 (520) 29,191
Operating expenses:
Oil and gas production..................... 4,795 1,593 (341) 749 6,796
Other charges to production................ -- 377 (377)(3) --
Cost of oil and gas purchased.............. -- 4,785 4,785
Gathering system........................... -- 569 569
Depreciation and amortization.............. 5,268 2,343 (274) 562 214(2) 8,113
General and administrative................. 3,325 1,860 (520)(1)
(1,298)(3) (815)(8) 2,552
------- ------- ----------- ------- ---------- --------- ---------
Total operating expenses................. 13,388 11,527 (615) 1,311 (1,981) (815) 22,815
------- ------- ----------- ------- ---------- --------- ---------

Operating income (loss)...................... 3,517 761 (750) 572 1,461 815 6,376

Other income (expense):
Interest expense........................... (3,788 ) (2,305 ) 819 (882) (1,081)(4) $(1,838)(6)
(345)(7) (9,420)
Interest income............................ 43 46 89
Minority interest in the Partnership....... (15 ) -- (15)
------- ------- ----------- ------- ---------- --------- ---------
Income (loss) before income taxes............ (243 ) (1,498 ) 69 (310) 380 (1,368) (2,970)
Income tax provision (benefit)............... -- (559 ) (50)(5) (520)(9) (1,129)
------- ------- ----------- ------- ---------- --------- ---------
Net income (loss)............................ $ (243 ) $ (939 ) $ 69 $ (310) $ 430 $(848) $(1,841)
------- ------- ----------- ------- ---------- --------- ---------
------- ------- ----------- ------- ---------- --------- ---------
Net (loss) per common share.................. $ (0.68)
---------
---------
Weighted average common shares
outstanding (in thousands)................. 2,727
---------
---------
</TABLE>

(SEE FOOTNOTES ON PAGE 24)

22
<PAGE>
RAM ENERGY, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL -------------------------
------------------------ CARLTON
COMPANY CARLTON ACQUISITION OFFERING PRO FORMA
----------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS

Current assets
Cash and cash equivalents............................ $ 2,031 $ 232 $ (43,000)(1) $ 48,400(2) $ 7,663
Restricted cash...................................... -- 346 346
Accounts receivable:
Oil and gas sales.................................. 2,898 -- 2,898
Joint interest..................................... 1,399 1,270 2,669
Other.............................................. 46 214 260
Prepaid expenses..................................... 254 826 1,080
----------- ----------- ------------ ----------- -----------
Total current assets............................. 6,628 2,888 (43,000) 48,400 14,916
Property and equipment (net)........................... 60,100 43,306 20,620(1) 124,026
Other assets........................................... 3,616 403 (403)(1) 4,600(2) 8,216
----------- ----------- ------------ ----------- -----------
Total assets..................................... $ 70,344 $ 46,597 $ (22,783) $ 53,000 $ 147,158
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
Account payable:
Oil and gas proceeds due others.................... $ 2,855 -- $ 2,855
Trade.............................................. 3,549 $ 1,938 5,487
Affiliates......................................... -- 22 22
Accrued liabilities:
Interest........................................... 401 -- 401
Gas balancing liability............................ 300 -- 300
Other.............................................. 98 354 452
Long-term debt due within one year................... 9,244 24,572 $ (24,572)(1) $ (9,029)(2) 215
----------- ----------- ------------ ----------- -----------
Total current liabilities........................ 16,447 26,886 (24,572) (9,029) 9,732
% Senior Notes due 2008............................. -- -- 115,000(2) 115,000
Other long-term debt due after one year................ 52,971 -- (52,971)(2) --
Deferred tax liability................................. -- 20,445 1,055(1) 21,500
Other.................................................. 2,489 -- 2,489
Redeemable preferred stock............................. -- 550 (550)(4) --
Stockholders' equity (deficit)......................... (1,563) (1,284) 1,284(1) (1,563)
----------- ----------- ------------ ----------- -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 70,344 $ 46,597 $ (22,783) $ 53,000 $ 147,158
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>

(SEE FOOTNOTES ON PAGE 24)

23
<PAGE>
RAM ENERGY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION

STATEMENTS OF OPERATIONS

NOTE A --

The historical results of the Partnership are presented for the eleven
months ended November 30, 1996 (prior to the acquisition by RAM Energy effective
November 30, 1996). Combining adjustments are included in Note E to eliminate
charges in 1996 by RAM Energy to the Partnership and to recalculate depreciation
and amortization to reflect the revised basis in Partnership assets acquired by
RAM Energy.

NOTE B --

The historical results of Carlton are presented as follows:

YEAR ENDED DECEMBER 31, 1996. The eight months ended August 31, 1996 of the
predecessor to Carlton are combined with the four months results of Carlton
after its acquisition of the predecessor on September 1, 1996. Prior to such
date, Carlton's activities were insignificant. The impact of changes in the
asset values on depreciation and amortization following Carlton's acquisition
were not given separate pro forma effect as the adjustment to consider the
Carlton Acquisition and the resulting valuation of its assets are considered in
Note E.

NINE MONTHS ENDED SEPTEMBER 30, 1997 include the historical results of
Carlton for such period.

NOTE C --

Adjustments to reduce the Company's historical oil and gas revenues and
related costs of certain producing oil and gas properties sold in March 1997,
for the periods prior to their sale.

NOTE D --

Adjustments to increase oil and gas revenues and related costs for the
periods prior to the purchase by the Company in August 1997 of certain producing
oil and gas properties.

NOTE E --

Adjustments to combine the entities and properties presented including
elimination of transactions between entities; adjustment of depreciation and
amortization to consider carrying amounts after purchase allocations and
application of the full cost method of accounting to acquired properties;
interest on debt incurred or reduced by the transactions; adjustments to costs
and expenses to give effect to contractual terms of the Carlton Acquisition; and
adjustment of income taxes resulting from other adjustments. Such adjustments
include:

(1) Elimination of fees billed to the Partnership prior to its acquisition
by RAM Energy, together with related expenses of the Partnership and
reclassification of operator fees recorded by Carlton as recovery of
expenses applied on the full cost method of accounting.

(2) Adjust depreciation and amortization to reflect changes in the asset
values after acquisitions:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Acquired basis.................................. $ 11,944 $ 8,113
Historical basis................................ 9,029 7,899
------- -------
Adjustment...................................... $ 2,915 $ 214
------- -------
------- -------
</TABLE>

(3) The stock purchase agreement executed on December 16, 1997 by RAM Energy
to acquire Carlton, attached as Exhibit 2 to the Registration Statement,
provides that Corporate Employees (defined therein) will resign or be
terminated by closing of the Carlton Acquisition and that the Company
will assign Excluded Assets (defined therein) to the selling stockholders
of Carlton prior to such closing.

Adjustments resulting from contractual requirements of the Carlton stock
purchase agreement to exclude costs and expenses of Corporate Employees
identified and required in such agreement to resign or be terminated at

24
<PAGE>
RAM ENERGY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)

NOTE E -- (CONTINUED)
closing of the Carlton Acquisition and Excluded Assets identified and to be
retained by the selling stockholders of Carlton at such closing:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Salaries and related benefits of Corporate Employees to be
terminated by the closing of the Carlton Acquisition.............. $ 2,159 $ 1,079
Rental and other costs associated with Excluded Assets............. 521 596
------ ------
Total costs and expenses eliminated at the closing of the Carlton
Acquisition....................................................... $ 2,680 $ 1,675
------ ------
------ ------
Included in Carlton historical results as:
General and administrative....................................... $ 1,926 $ 1,298
Other charges to production...................................... 754 377
------ ------
$ 2,680 $ 1,675
------ ------
------ ------
</TABLE>

(4) Additional interest expense resulting from acquisitions:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Partnership -- $60.0 million in debt (eleven months in 1996).... $ 4,675
Less actual..................................................... (564)
-------
Incremental -- Partnership...................................... 4,111
-------
Carlton -- $43.0 million in debt at 10 1/2%..................... 4,515 $ 3,386
Less actual..................................................... (326) (2,305)
------- -------
Incremental -- Carlton.......................................... 4,189 1,081
------- -------
Total incremental............................................... $ 8,300 $ 1,081
------- -------
------- -------
</TABLE>

(5) Income tax effect of inclusion of the Partnership and adjustments to
Combined amounts at 38%:

<TABLE>
<S> <C> <C>
Year ended December 31, 1996........................... $ (848)
-----
-----
Nine months ended September 30, 1997................... $ (50)
-----
-----
</TABLE>

25
<PAGE>
RAM ENERGY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)

NOTE F --

Effects of the Offering as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- -------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
(6) Incremental interest expense of Offering, net of amounts
allocated to acquisitions:

$115.0 million of Senior Notes (at 10 1/2%) due 2008....... $ 12,075 $ 9,056
Interest on other debt..................................... 19 19
------- -------
12,094 9,075
Allocated to transactions and actual....................... 9,815 7,237
------- -------
Incremental................................................ $ 2,279 $ 1,838
------- -------
------- -------
(7) Additional amortization related to deferred offering costs
on debt issuance......................................... $ 460 $ 345
------- -------
------- -------
(8) In connection with the Offering, officers of RAM Energy have executed new employment and other
agreements and the RAM Energy board of directors adopted resolutions which reduced executive and
director compensation, attached as Exhibits 10.5 and 10.6 to the Registration Statement and
described in "Management--Employment and Severance Agreements."

Reductions in general and administrative expense for
reduced executive compensation to reflect new employment
agreements executed in connection with the Offering...... $ (1,087) $ (815)
------- -------
------- -------
(9) Tax effect of adjustments at 38%........................... $ (628) $ (520)
------- -------
------- -------
</TABLE>

26
<PAGE>
RAM ENERGY, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)

BALANCE SHEET

<TABLE>
<S> <C> <C>
(1) Record the Carlton Acquisition as if consummated on September 30, 1997:
Purchase price.............................................................. $ 43,000
---------
---------
Retirement of Carlton debt.................................................. $ 24,572
---------
---------
Redemption of preferred stock............................................... $ 550
---------
---------
Allocation to property and equipment:
Purchase price -- oil and gas properties.................................... $ 26,000
Purchase price -- gathering system.......................................... 17,000
Deferred income taxes....................................................... 21,500
---------
64,500
Carlton -- historical....................................................... 43,306
---------
21,194
Allocation to other assets and liabilities, net............................. 574
---------
Adjustment.................................................................. $ 20,620
---------
---------
(2) Record net proceeds of Offering and retirement of existing debt of Company:
% Senior Notes due 2008..................................................... $ 115,000
Less issuance costs and expenses............................................ 4,600
---------
Net proceeds from the Offering.............................................. 110,400
Retirement of other long-term debt.......................................... 62,000
---------
Net proceeds after retirement of existing long-term debt.................... $ 48,400
---------
---------
</TABLE>

OTHER FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Adjusted EBITDA(1)...................................................... $ 26,729 $ 14,563
Ratio of:
Earnings to fixed charges(2).......................................... 1.18x --
Adjusted EBITDA to interest expense................................... 2.13x 1.55x
Long-term debt to Adjusted EBITDA(3).................................. -- 5.93x
Net debt to Adjusted EBITDA(3)........................................ -- 5.54x
</TABLE>

Definitions applicable to other financial data are as follows:

(1) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow
as determined by GAAP. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP or as an indicator of a company's
operating performance or liquidity. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a
company's financial performance, such as a company's cost of capital and
tax structure, as well as historic costs of depreciable assets, none of
which are components of Adjusted EBITDA. The Company's computation of
Adjusted EBITDA may not be comparable to other similarly titled measures
of other companies. The Company believes that Adjusted EBITDA is a widely
followed measure of operating performance and may also be used by
investors to measure the Company's ability to meet future debt service
requirements, if any.

(2) For purposes of computing the ratio of earnings to fixed charges,
earnings are computed as income from continuing operations before taxes,
plus fixed charges. Fixed charges consist of interest expense and
amortization of costs incurred in connection with the Offering. For the
Company, on a pro forma basis, earnings were insufficient to cover fixed
charges by approximately $2,970,000 for the nine months ended September
30, 1997.

(3) The ratio of long-term debt to Adjusted EBITDA is computed on the basis
of annualized Adjusted EBITDA for periods shorter than one year. The
ratio of net debt to Adjusted EBITDA is the ratio of long-term debt,
including the current portion thereof, less cash and cash equivalents, to
Adjusted EBITDA, annualized for periods shorter than one year.

27
<PAGE>
PARTNERSHIP HISTORICAL FINANCIAL INFORMATION AND OTHER FINANCIAL DATA

The following tables set forth selected historical financial information and
other financial data of the Partnership for the periods shown. The following
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------ NOVEMBER 30,
1992 1993 1994 1995 1996(1)
------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas............................................... $31,093 $ 30,005 $ 24,481 $21,802 $23,456
Other..................................................... 164 74 60 139 7
------- -------- -------- ------- -------
Total operating revenues................................ 31,257 30,079 24,541 21,941 23,463
Operating expenses:
Oil and gas production.................................... 11,809 11,230 9,839 9,902 7,609
Depreciation and amortization............................. 13,860 14,526 11,608 9,808 5,114
Writedown of oil and gas properties and equipment......... -- 15,100 8,700 -- --
Management fees(2)........................................ 1,418 1,518 1,555 1,606 1,482
Operator overhead fees(2)................................. 1,805 1,756 1,746 1,686 1,343
General and administrative................................ 897 676 676 502 378
------- -------- -------- ------- -------
Total operating expense................................. 29,789 44,806 34,124 23,504 15,926
------- -------- -------- ------- -------
Operating income (loss)..................................... 1,468 (14,727) (9,583) (1,563) 7,537

Other income (expense):
Interest expense.......................................... (412) (477) (587) (809) (564)
Interest income........................................... 40 50 41 59 114
------- -------- -------- ------- -------
Net income (loss)........................................... $ 1,096 $(15,154) $(10,129) $(2,313) $ 7,087
------- -------- -------- ------- -------
------- -------- -------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------ AT NOVEMBER 30,
1992 1993 1994 1995 1996
------- -------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 885 $ 353 $ 356 $ 1,266 $ 1,102
Net property and equipment.................................. 89,405 68,701 54,663 49,601 46,198
Total assets................................................ 101,969 76,075 62,967 57,208 115,611
Long-term debt, including currrent portion.................. 10,000 10,000 10,000 10,000 62,800
Total partners' equity...................................... 83,797 61,534 47,775 43,166 48,120
</TABLE>

(SEE FOOTNOTES ON PAGE 30)

28
<PAGE>
RAM ENERGY HISTORICAL FINANCIAL INFORMATION AND OTHER FINANCIAL DATA

The following tables set forth selected historical financial information and
other financial data of RAM Energy for the periods shown. The following
information should be read in conjunction with "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.................................................................... $ 224 $ 236 $ 153 $ 166
Gathering system............................................................... -- -- -- --
Management fees(2)............................................................. 1,548 1,545 1,555 1,606
Operator overhead fees(2)...................................................... 1,805 1,756 1,746 1,686
Consulting fees(2)............................................................. 1,959 1,927 236 163
Other.......................................................................... 369 93 120 84
--------- --------- --------- ---------
Total operating revenues..................................................... 5,905 5,557 3,810 3,705
Operating expenses:
Oil and gas production......................................................... 84 80 76 77
Cost of oil and gas purchased.................................................. -- -- -- --
Gathering system............................................................... -- -- -- --
Depreciation and amortization.................................................. 650 663 406 353
General and administrative..................................................... 4,523 4,310 3,279 3,364
--------- --------- --------- ---------
Total operating expense...................................................... 5,257 5,053 3,761 3,794
--------- --------- --------- ---------

Operating income (loss).......................................................... 648 504 49 (89)

Other income (expense):
Interest expense............................................................... (278) (45) (23) (18)
Interest income................................................................ 88 106 75 73
Equity in income of the Partnership............................................ -- -- -- --
Minority interest in the Partnership........................................... -- -- (101) (23)
--------- --------- --------- ---------
Net income (loss)................................................................ $ 458 $ 565 $ 0 $ (57)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per common share............................................... $ 0.17 $ 0.21 $ 0.00 $ (0.02)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding (in thousands)........................ 2,727 2,727 2,727 2,727
--------- --------- --------- ---------
--------- --------- --------- ---------

NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996(1) 1996(1) 1997
--------- --------- ---------

<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil and gas.................................................................... $ 3,275 $ 148 $ 16,820
Gathering system............................................................... -- -- --
Management fees(2)............................................................. 1,482 1,225 --
Operator overhead fees(2)...................................................... 1,343 1,108 --
Consulting fees(2)............................................................. 153 91 --
Other.......................................................................... 567 78 85
--------- --------- ---------
Total operating revenues..................................................... 6,820 2,650 16,905
Operating expenses:
Oil and gas production......................................................... 827 62 4,795
Cost of oil and gas purchased.................................................. -- -- --
Gathering system............................................................... -- -- --
Depreciation and amortization.................................................. 990 264 5,268
General and administrative..................................................... 4,164 2,517 3,325
--------- --------- ---------
Total operating expense...................................................... 5,981 2,843 13,388
--------- --------- ---------
Operating income (loss).......................................................... 839 (193) 3,517
Other income (expense):
Interest expense............................................................... (541) (14) (3,788)
Interest income................................................................ 29 22 43
Equity in income of the Partnership............................................ 71 -- --
Minority interest in the Partnership........................................... 10 55 (15)
--------- --------- ---------
Net income (loss)................................................................ $ 408 $ (130) $ (243)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per common share............................................... $ 0.15 $ (0.05) $ (0.09)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding (in thousands)........................ 2,727 2,727 2,727
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 4,731 $ 2,211 $ 1,426 $ 524
Net property and equipment....................................................... 1,671 1,317 1,014 995
Total assets..................................................................... 16,524 10,335 10,263 6,485
Long-term debt, including current portion........................................ 2,319 1,254 618 49
Stockholders' equity (deficit)(5)................................................ (2,106) (1,541) (1,571) (1,729)

<CAPTION>
AT SEPTEMBER 30,
--------------------
1996 1996 1997
--------- --------- ---------
<S> <C> <C> <C>

BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 1,607 $ 838 $ 2,031
Net property and equipment....................................................... 54,738 946 60,100
Total assets..................................................................... 71,410 6,030 70,344
Long-term debt, including current portion........................................ 62,984 128 62,215
Stockholders' equity (deficit)(5)................................................ (1,321) (1,858) (1,563)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.............................................. $ 3,534 $ (664) $ 144 $ (233)
Cash flow from investing activities.............................................. (36) (234) (312) (8)
Cash flow from financing activities.............................................. (971) (1,622) (617) (662)
Capital expenditures............................................................. 162 305 79 335
Adjusted EBITDA(3)............................................................... 1,386 1,273 429 314
Ratio of earnings to fixed charges(4)............................................ 2.64x 13.56x 1.00x --

NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996(1) 1996(1) 1997
--------- --------- ---------

<S> <C> <C> <C>
OTHER FINANCIAL DATA:
Cash flow from operating activities.............................................. $ 70 $ 405 $ 6,421
Cash flow from investing activities.............................................. (59,102) (170) (5,227)
Cash flow from financing activities.............................................. 60,116 (79) (770)
Capital expenditures............................................................. 250 187 14,692
Adjusted EBITDA(3)............................................................... 1,939 148 8,813
Ratio of earnings to fixed charges(4)............................................ 1.75x -- --
</TABLE>

(SEE FOOTNOTES ON PAGE 30)

29
<PAGE>
- --------------------------

(1) RAM Energy acquired the limited partner's interest in the Partnership on
November 30, 1996 in the Partnership Acquisition. For periods following that
date, the Partnership and RAM Energy are presented on a consolidated basis.
The Partnership (on an unconsolidated basis) includes the first 11 months of
1996; the Company includes one month (December 1996) of Partnership data on
a consolidated basis.

(2) Under the terms of the Partnership's partnership agreement, RAM Energy was
reimbursed by the Partnership for management fees, operator overhead fees
and certain consulting fees. The Partnership capitalized the consulting
fees.

(3) Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization and writedown of related oil and gas
properties and equipment. Adjusted EBITDA is not a measure of cash flow as
determined by GAAP. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income or cash flow as
determined in accordance with GAAP or as an indicator of a company's
operating performance or liquidity. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a company's
financial performance, such as a company's cost of capital and tax
structure, as well as historic costs of depreciable assets, none of which
are components of Adjusted EBITDA. The Company's computation of Adjusted
EBITDA may not be comparable to other similarly titled measures of other
companies. The Company believes that Adjusted EBITDA is a widely followed
measure of operating performance and may also be used by investors to
measure the Company's ability to meet future debt service requirements, if
any.

(4) For the Partnership, earnings were insufficient to cover fixed charges by
approximately $15,154,000, $10,129,000 and $2,313,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. For RAM Energy, earnings
were insufficient to cover fixed charges by approximately $57,000 for the
year ended December 31, 1995 and by approximately $130,000 and $243,000 for
the nine months ended September 30, 1996 and 1997, respectively. For
purposes of computing the ratio of earnings to fixed charges, earnings are
computed as income from continuing operations before taxes, plus fixed
charges. For the historical periods, fixed charges consist of interest
expense.

30
<PAGE>
HISTORICAL AND PRO FORMA OPERATING DATA

The following table sets forth selected Partnership and Company operating
data for the periods shown and on a pro forma basis to give effect to the
Offering and the application of the net proceeds therefrom, the completion of
the Partnership Acquisition, the completion of the Carlton Acquisition and the
consummation of certain other acquisitions and dispositions. Prior to November
30, 1996, RAM Energy did not own significant reserves and, therefore no
historical operating data is provided for RAM Energy.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------------------------------- ------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, ELEVEN DECEMBER 31,
MONTHS ENDED ------------------------
------------------------------------------ NOVEMBER 30, PRO FORMA
1992 1993 1994 1995 1996(1) 1996 1996(2)
--------- --------- --------- --------- --------------- ----------- -----------

<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Production volumes:
Natural gas (MMcf).......... 9,503 9,515 9,403 9,700 7,594 711 10,645
Oil and condensate
(MBbls)................... 760 644 534 463 387 38 487
Total (MMcfe)............... 14,065 13,382 12,605 12,476 9,914 941 13,568
Average realized prices(3):
Natural gas (per Mcf)....... $ 1.74 $ 2.00 $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07
Oil and condensate (per
Bbl)...................... 19.10 17.01 15.75 16.86 20.59 23.39 20.34
Per Mcfe.................... 2.21 2.24 1.94 1.75 2.37 3.48 2.35
Expenses (per Mcfe):
Lease operating (including
production taxes)......... 0.84 0.84 0.78 0.79 0.77 0.88 0.79
Depreciation and
amortization.............. 0.99 1.09 0.92 0.79 0.52 1.05 0.88
General and
administrative(4)......... 0.29 0.30 0.32 0.30 0.32 1.26 0.24

PARTNERSHIP COMPANY
--------------- --------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
PRO FORMA
1996 1997 1997(2)
--------------- ------------- -----------
<S> <C> <C> <C>
OPERATING DATA
Production volumes:
Natural gas (MMcf).......... 6,192 5,263 6,931
Oil and condensate
(MBbls)................... 313 235 307
Total (MMcfe)............... 8,072 6,675 8,774
Average realized prices(3):
Natural gas (per Mcf)....... $ 2.02 $ 2.31 $ 2.25
Oil and condensate (per
Bbl)...................... 19.99 19.81 19.15
Per Mcfe.................... 2.32 2.52 2.44
Expenses (per Mcfe):
Lease operating (including
production taxes)......... 0.76 0.72 0.77
Depreciation and
amortization.............. 0.52 0.79 0.92
General and
administrative(4)......... 0.32 0.50 0.29
</TABLE>

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

(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.

(4) For the Partnership, includes management fees and operator overhead fees
charged to the Partnership by RAM Energy during 1992, 1993, 1994, 1995 and
the 1996 periods. For the Company, general and administrative expense is net
of management fees, operator overhead fees and consulting fees, if any,
received by RAM Energy from the Partnership.

31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
Mid-Continent Area and the Permian Basin.

Prior to December 1996, RAM Energy conducted drilling and development
activities on behalf of and as the managing general partner of the Partnership.
The Partnership's objective was to replace reserves through a limited
development drilling program and to distribute cash flows from operating
activities. In November 1996, RAM Energy acquired the limited partner's interest
in the Partnership. The historical financial information and operating data
discussed in detail for the periods ended December 31, 1994 through December 31,
1996 are those of the Partnership, whose operations were effectively terminated
on a stand-alone basis on November 30, 1996 as a result of the Partnership
Acquisition. Results for 1996 also include December 1996 results of the Company,
following the Partnership Acquisition. The financial information and operating
data discussed in detail for the periods ended September 30, 1996 and 1997 are
those of the Partnership for the 1996 period and those of the Company for the
1997 period. A summary discussion of RAM Energy's financial results for the
periods ended December 31, 1994 through December 31, 1996 follows "-- Quarterly
Results of Operations."

As the result of certain acquisitions and dispositions of oil and gas
properties, operating results may not be comparable from period to period. In
the first quarter of 1997, the Company sold certain non-core properties for
$10.4 million. In September 1997, the Company concluded the acquisition of
certain interests in oil and gas properties from Quarles Drilling Corporation
for $11.2 million. On December 16, 1997 the Company entered into a definitive
agreement to purchase Carlton for $43.0 million (subject to closing
adjustments), including the repayment of existing Carlton debt. The closing of
the Carlton Acquisition is conditioned upon the simultaneous closing of the
Offering.

The Company's revenue, profitability and cash flow are substantially
dependent upon prevailing prices for oil and gas and the volumes of oil and gas
it produces. In addition, the Company's proved reserves and oil and gas
production will decline as oil and gas are produced unless the Company is
successful in acquiring producing properties or conducts successful exploration
and development drilling activities.

The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are amortized
and charged to operations using the future recoverable units of production
method based on the ratio of current production to total proved reserves,
computed based on current prices and costs. Significant downward revisions of
quantity estimates or declines in oil and gas prices that are not offset by
other factors could result in a writedown for impairment of the carrying value
of oil and gas properties. Once incurred, a writedown of oil and gas properties
is not reversible at a later date, even if oil or gas prices increase.

As of January 31, 1998, approximately 20% of the Company's estimated natural
gas production for the period of March 1998 through August 1998 was committed to
hedging contracts that established a NYMEX floor price which, after adjustment
for Btu content, results in an equivalent price to the Company of $2.12 per Mcf.
The Company has not established a formal policy or parameters with respect to
hedging its natural gas production. See "Business -- Oil and Gas Marketing and
Hedging."

All of the Company's computers and operating systems are Year 2000
compliant. Mainframe business software will be modified during 1998 and 1999 at
a cost estimated to be less than $100,000.

32
<PAGE>
RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996

The Company's results of operations for the nine months ended September 30,
1997 are compared herein to the Partnership's results of operations for the nine
months ended September 30, 1996. The results of operations for the nine months
ended September 30, 1996 exclude the results of operations for RAM Energy, Inc.
Because RAM Energy, Inc.'s results are excluded from the nine months ended
September 30, 1996, the nine month periods discussed herein may not be
comparable.

OPERATING REVENUES. Operating revenues decreased by $1.8 million, or 10%,
for the nine months ended September 30, 1997, compared to the year earlier
period, primarily due to overall production volume decreases resulting from the
sale of non-core properties, partially offset by increases in average realized
oil and gas prices.

The following table summarizes production volumes, average sales prices and
period to period comparisons, including the effect on operating revenues, for
the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ 1997 PERIOD COMPARED
TO 1996 PERIOD
PARTNERSHIP COMPANY ------------------------------------
----------- ----------- % INCREASE OPERATING REVENUE
1996 1997 (DECREASE) INCREASE (DECREASE)
----------- ----------- --------------- -------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Core areas:
Natural gas (MMcf)......... 5,076 4,990 (2)% $ (165)
Oil (MBbls)................ 234 215 (8)% (380)
Non-core areas:
Natural gas (MMcf)......... 1,116 272 (76)% (1,938)
Oil (MBbls)................ 79 20 (75)% (1,184)
Total production:
Natural gas (MMcf)......... 6,192 5,263 (15)% (2,103)
Oil (MBbls)................ 313 235 (25)% (1,564)

Average sale prices:
Natural gas (per Mcf)...... $ 2.02 $ 2.31 15% $ 1,781
Oil (per Bbl).............. 19.99 19.81 (1)% (39)
</TABLE>

Production of oil and gas decreased by 25% and 15%, respectively, for the
nine months ended September 30, 1997, compared to the prior year period, due
primarily to the sale in the first quarter of 1997 of certain non-core
properties located offshore Gulf of Mexico, in the Rocky Mountain area and in
east Texas. This decrease in production resulted in a decrease in operating
revenues of $3.7 million. For the nine months ended September 30, 1997, the
average realized natural gas price was $2.31 per Mcf, an increase of 15%, and
the average realized price of oil was $19.81 per Bbl, essentially unchanged,
compared to the nine months ended September 30, 1996. Changes in oil and gas
prices resulted in increased operating revenues of $1.7 million.

OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense decreased by
$1.4 million, or 22%, for the nine months ended September 30, 1997, compared to
the same period in 1996. The oil and gas production expense was $0.72 per Mcfe
for the nine months ended September 30, 1997, a decrease of 5% from $0.76 per
Mcfe for the same period in 1996. This decrease in costs was attributable
primarily to the sale of certain higher cost non-core properties, discussed
above.

GENERAL AND ADMINISTRATIVE ("G&A") EXPENSE. G&A expense, including
management and operator overhead fees, increased by $767,000, or 30%, for the
nine months ended September 30, 1997 and was $0.50 per Mcfe, an increase of 56%
compared to the prior year period, due primarily to the Company's increased
acquisition activity and the addition of technical staff to accommodate the
Company's increased inventory of development drilling opportunities. Per unit
increases were also impacted by decreased

33
<PAGE>
production associated with the sale of non-core properties, which production
declines were not offset by acquisitions which occurred subsequent to such
property sales.

DEPRECIATION AND AMORTIZATION ("D&A") EXPENSE. D&A expense increased by
$1.1 million, or 27%, for the nine months ended September 30, 1997 and was $0.79
per Mcfe, an increase of 52% from the prior year period, due primarily to the
Partnership Acquisition.

INTEREST EXPENSE. Interest expense increased by $3.3 million for the nine
months ended September 30, 1997, compared to the prior year period, due to
additional borrowings by the Company of $62.8 million in November 1996 to fund
the Partnership Acquisition. The average interest rate also increased by 1% on
the revolving portion of the Credit Facility, and approximately 4% on the term
portion of that facility compared to the average interest rate on the
Partnership's previous credit facility.

NET INCOME (LOSS). Due to the factors described above, net income decreased
$5.7 million to a loss of $243,000 for the nine months ended September 30, 1997,
compared to the same period in 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The results of operations for the year ended December 31, 1996, discussed
herein, include results for the Partnership through November 30, 1996, the date
of the Partnership Acquisition at which time the Partnership's operations were
effectively terminated on a stand-alone basis, combined with results for RAM
Energy for the year 1996. The results of operations for the year ended December
31, 1995, discussed herein, are those of the Partnership. Because RAM Energy's
results are excluded from the year ended December 31, 1995, the annual periods
disclosed herein may not be comparable. The following table illustrates the
combination of eleven months of 1996 Partnership operations with the annual 1996
results for RAM Energy, compared to results for the Partnership in 1995:

<TABLE>
<CAPTION>
1996
-------------------------------------
ELEVEN
MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER NOVEMBER DECEMBER DECEMBER
31, 1995 30, 31, 31,
----------- ----------- ----------- -----------
PARTNERSHIP PARTNERSHIP RAM ENERGY COMBINED
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas....................... $ 21,802 $ 23,456 $ 3,275 $ 26,731
Consulting fees................... -- -- 153 153
Other............................. 139 7 567 574
----------- ----------- ----------- -----------
Total operating revenues........ 21,941 23,463 3,995 27,458
Operating expenses:
Oil and gas production............ 9,902 7,609 827 8,436
Depreciation and amortization..... 9,808 5,114 990 6,104
Management fees................... 1,606 1,482 (1,482) --
Operator overhead fees............ 1,686 1,343 (1,343) --
General and administrative........ 502 378 4,164 4,542
----------- ----------- ----------- -----------
Total operating expenses........ 23,504 15,926 3,156 19,082
----------- ----------- ----------- -----------
Operating income (loss)............. (1,563) 7,537 839 8,376
Other income (expense):
Interest expense.................. (809) (564) (541) (1,105)
Interest income................... 59 114 29 143
Equity in income of the
Partnership..................... -- -- 71 71
Minority interest in the
Partnership..................... -- -- 10 10
----------- ----------- ----------- -----------
Net income (loss)................... $ (2,313) $ 7,087 $ 408 $ 7,495
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

34
<PAGE>
For purposes of this presentation, management fees and operator overhead
fees charged by RAM Energy to the Partnership are treated as reimbursements in
order to eliminate these items upon combination.

OPERATING REVENUES. Operating revenues increased by $5.5 million, or 25%,
for 1996 compared to 1995, primarily due to increases in average realized oil
and gas prices, partially offset by production decreases.

The following table summarizes production volumes, average sales prices and
year to year comparisons, including the effect on operating revenues, for the
periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------ 1996 COMPARED TO 1995
--------------------------------
PARTNERSHIP COMBINED OPERATING REVENUE
----------- ----------- % INCREASE INCREASE
1995 1996 (DECREASE) (DECREASE)
----------- ----------- ------------- -----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)...... 9,700 8,305 (14)% $ (2,014)
Oil (MBbls)............. 463 425 (8)% (633)
Average sale prices:
Natural gas (per Mcf)... $ 1.44 $ 2.15 49% $ 5,881
Oil (per Bbl)........... 16.86 20.84 24% 1,692
</TABLE>

Production of oil and gas decreased by 8% and 14%, respectively, for 1996
compared to 1995 due to the natural decline in the rate of production resulting
from a limited development drilling program during the period. This decrease in
production resulted in a decrease in operating revenues of $2.6 million. The
average realized natural gas price was $2.15 per Mcf, an increase of 49%, and
the average realized price of oil was $20.84 per Bbl, an increase of 24%, for
1996 compared to 1995. These higher oil and gas prices resulted in an increase
in operating revenues of $7.6 million.

OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense decreased by
$1.5 million, or 15%, for 1996 compared to 1995. The average operating expense
was $0.78 per Mcfe in 1996, a decrease of 2% from the prior year, impacted by
reduced production during 1996.

G&A EXPENSE. G&A expense, including management and operator overhead fees,
increased by $749,000, or 20%, for 1996 compared to 1995, and was $0.42 per
Mcfe, an increase of 38% from the prior year. This expense increased principally
due to the increased personnel costs in the 1997 period as the result of the
addition of technical personnel in connection with the Partnership Acquisition.

D&A EXPENSE. D&A expense decreased by $3.7 million, or 38% in 1996 compared
to 1995, and was $0.56 per Mcfe, a decrease of 28% compared to the prior year.
D&A expense decreased due to reduced production and an increase in booked
reserves, resulting from the identification of additional development drilling
locations.

INTEREST EXPENSE. Interest expense increased by $296,000, or 37%, for 1996
compared to 1995 as a result of the $62.8 million borrowed for the Partnership
Acquisition at the end of November 1996.

NET INCOME (LOSS). Due to the factors described above, net income increased
$9.8 million to $7.5 million for 1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

OPERATING REVENUES. Operating revenues decreased by $2.6 million, or 11%,
for 1995 compared to 1994, primarily due to decreases in average realized prices
received for natural gas and decreases in oil production, partially offset by
natural gas production increases and increases in prices received for oil.

35
<PAGE>
The following table summarizes production volumes, average sales prices and
year to year comparisons, including the effect on operating revenues, for the
periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------- 1995 COMPARED TO 1994
--------------------------------
PARTNERSHIP OPERATING REVENUE
-------------------- % INCREASE INCREASE
1994 1995 (DECREASE) (DECREASE)
--------- --------- ------------- -----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
Production volumes:
Natural gas (MMcf)......... 9,403 9,700 3% $ 508
Oil (MBbls)................ 534 463 (13)% (1,119)
Average sale prices:
Natural gas (per Mcf)...... $ 1.71 $ 1.44 (16)% $ (2,578)
Oil (per Bbl).............. 15.75 16.86 7% 508
</TABLE>

Natural gas production increased by 3%, while oil production decreased by
13%, in 1995 compared to 1994, due to increased natural gas development
activities and reduced oil development activities. These changes in production
resulted in a net decrease in operating revenues of $611,000. The average
realized natural gas price was $1.44 per Mcf, a decrease of 16%, and the average
realized price of oil was $16.86 per Bbl, an increase of 7%, for 1995 compared
to 1994. Changes in oil and gas prices resulted in a net decrease in operating
revenues of $2.1 million.

OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased by
$63,000, or 1%, in 1995 compared to 1994, due to increased property maintenance
expense, partially offset by lower production taxes attributable to reduced gas
prices. The average operating expense was $0.79 per Mcfe in 1995, an increase of
2% from the prior year.

G&A EXPENSE. G&A expense, including management and operator overhead fees,
decreased by $184,000, or 5%, for 1995 compared to 1994, and was $0.30 per Mcfe,
a decrease of 4% from the prior year. This expense decreased due to reduced
litigation expenses compared to the prior year.

D&A EXPENSE. D&A expense decreased by $1.8 million, or 16%, for 1995
compared to 1994, and was $0.79 per Mcfe, a decrease of 14% compared to the
prior year. D&A expense decreased due primarily to a reduced depreciable base
which was the result of an impairment write-down of $8.7 million at the end of
1994.

INTEREST EXPENSE. Interest expense increased by $222,000, or 38%, for 1995
compared to 1994 primarily due to an increase in the average interest rate to
7.59% in 1995 compared to 5.87% in 1994.

NET INCOME (LOSS). Due to the factors described above, net loss decreased
$7.8 million to a loss of $2.3 million for 1995.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statements of
operations data for the first three quarters of 1996 for the Partnership and the
first three quarters of 1997 for the Company. The fourth quarter of 1996 for the
Partnership was omitted because the Partnership's operations were effectively
terminated on a stand-alone basis upon consummation of the Partnership
Acquisition on November 30, 1996. The unaudited consolidated financial
statements have been prepared on the same basis as the Financial Statements
contained herein and include all adjustments that the Company considers

36
<PAGE>
necessary for a fair presentation of such information when read in conjunction
with the Financial Statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
----------------------------------------- ------------------------
1996 1997
----------------------------------------- ------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 MARCH 31 JUNE 30
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Oil and gas............................................. $ 6,124 $ 6,364 $ 6,256 $ 7,097 $ 4,428
Other................................................... -- -- -- 17 25
----------- ----------- ------- ----------- -----------
Total operating revenues.............................. 6,124 6,364 6,256 7,114 4,453
Operating expenses:
Oil and gas production.................................. 2,266 1,967 1,920 1,661 1,458
Depreciation and amortization........................... 1,401 1,409 1,350 1,841 1,628
Writedown of oil and gas properties and equipment.......
Management fees......................................... 398 405 407 -- --
Operator overhead fees.................................. 368 368 372 -- --
General and administrative.............................. 85 100 56 770 977
----------- ----------- ------- ----------- -----------
Total operating expenses.............................. 4,518 4,249 4,105 4,272 4,063
----------- ----------- ------- ----------- -----------
Operating income (loss)................................... 1,606 2,115 2,151 2,842 390
Other income (expense):
Interest expense........................................ (180) (161) (143) (1,294) (1,138)
Interest income......................................... 48 21 23 22 4
Minority interest in the Partnership.................... -- -- -- (30) 31
----------- ----------- ------- ----------- -----------
Net income (loss)......................................... $ 1,474 $ 1,975 $ 2,031 $ 1,540 $ (713)
----------- ----------- ------- ----------- -----------
----------- ----------- ------- ----------- -----------
Net income (loss) per common share........................ $ 0.56 $ (0.26)
----------- -----------
----------- -----------
Weighted average common shares
outstanding (in thousands).............................. 2,727 2,727
----------- -----------
----------- -----------

SEPTEMBER 30
---------------
<S> <C>

Operating revenues:
Oil and gas............................................. $ 5,295
Other................................................... 43
---------------
Total operating revenues.............................. 5,338
Operating expenses:
Oil and gas production.................................. 1,676
Depreciation and amortization........................... 1,799
Writedown of oil and gas properties and equipment.......
Management fees......................................... --
Operator overhead fees.................................. --
General and administrative.............................. 1,578
---------------
Total operating expenses.............................. 5,053
---------------
Operating income (loss)................................... 285
Other income (expense):
Interest expense........................................ (1,356)
Interest income......................................... 17
Minority interest in the Partnership.................... (16)
---------------
Net income (loss)......................................... $ (1,070)
---------------
---------------
Net income (loss) per common share........................ $ (0.39)
---------------
---------------
Weighted average common shares
outstanding (in thousands).............................. 2,727
---------------
---------------
</TABLE>

RAM ENERGY, INC. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994
THROUGH 1996

Prior to December 1, 1996, RAM Energy, Inc. principally managed the
operations and assets of the Partnership, for which RAM Energy, Inc. received
management fees and operator overhead fees from the Partnership. Other
activities prior to December 31, 1996 were insignificant to RAM Energy, Inc. RAM
Energy, Inc.'s operating revenues and expenses for the three year period ended
December 31, 1996 are shown below:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues........................................................ $3,810 $3,705 $ 6,820
Operating expenses........................................................ 3,761 3,794 5,981
--------- --------- ---------
Operating income (loss)................................................. $ 49 $ (89) $ 839
--------- --------- ---------
--------- --------- ---------
</TABLE>

Operating revenues for 1994 and 1995 consisted primarily of management fees
and operator overhead fees billed to the Partnership. Operating expenses for
1994 and 1995 primarily consisted of $3.3 and $3.4 million, respectively, of G&A
expenses, composed primarily of management and technical personnel expenses. The
balance of operating expenses during 1994 and 1995 consisted primarily of D&A
expenses.

Operating revenues in 1996 increased $3.1 million from 1995 due primarily to
increases related to the Partnership Acquisition, which added $3.1 million of
oil and gas revenues. Management fees and reimbursements during 1996 declined
slightly through the eleven months of the period during which RAM Energy, Inc.
managed the Partnership, as compared to 1995. Operating expenses in 1996
increased $2.2 million from 1995 due primarily to increased D&A expenses,
increased oil and gas production expense and the addition of technical personnel
due to increased reserves and production attributable to the Partnership
Acquisition.

37
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1997, the Company had cash and cash equivalents of $2.0
million ($7.7 million on a pro forma basis).

As of September 30, 1997, on a pro forma basis, the Company would have had
$115.2 million of indebtedness outstanding. Pursuant to the Indenture, the
Company will be allowed to incur up to $30.0 million in Permitted Indebtedness
(as defined herein). Subject to certain limitations in the Indenture, the
Company may incur additional indebtedness, including indebtedness under the
Credit Facility. See "-- Credit Facility."

Funding for the Company's business activities has historically been provided
by operating cash flow and reserve-based bank borrowings. The Company regularly
engages in discussions relating to potential acquisitions of oil and gas
properties or companies engaged in the oil and gas business. The Company has no
present agreement, commitment or understanding with respect to any such
acquisition, other than the Carlton Acquisition. Any future acquisitions may
require additional financing which will be dependent upon financing
arrangements, if any, available at the time.

CREDIT FACILITY. At December 31, 1997, an aggregate of $62.0 million was
outstanding under the Credit Facility with Union Bank of California, N.A. and
Den Norske Bank ASA. The term portion ($7.0 million) matures in June 1998 and
the revolving credit portion ($55.0 million) amortizes quarterly over four years
commencing in June 1998. The Company and Union Bank have amended and restated
the Credit Facility, effective upon consummation of the Offering and the Carlton
Acquisition.

The Credit Facility, as amended and restated, provides for a $50.0 million
revolving commitment which will be payable in full in February 2003. Advances
under the amended Credit Facility will bear interest on a sliding scale based on
the ratio of the aggregate amount outstanding to the borrowing base. The
applicable rate may, at the Company's option, be based either on the Eurodollar
rate or the Union Bank base rate, with the rates ranging from the Eurodollar
rate plus 1.375% to 2.0% or the Union Bank base rate plus 0.0% to 0.5%. The
Company is required to pay a commitment fee on the amount by which the borrowing
base exceeds the aggregate amount outstanding under the Credit Facility. All
amounts outstanding under the Credit Facility are secured by a lien on all oil
and gas reserves, wells, personal property and contract rights of the Company.

The amount of credit available at any time under the amended and restated
Credit Facility may not exceed the borrowing base which, initially, will be
$25.0 million, and will be redetermined semi-annually. The Credit Facility
contains customary covenants which, among other things, require periodic
financial and reserve reporting and limit the Company's incurrence of
indebtedness, liens, dividends, loans, mergers, transactions with affiliates,
investments and sales of assets.

NET CASH PROVIDED BY OPERATING ACTIVITIES. For the nine months ended
September 30, 1997, net cash provided by the Company's operating activities was
$6.4 million compared to $8.1 million for the comparable period in 1996 for the
Partnership. Although core-area natural gas production and the average prices
received for natural gas were higher in the nine months ended September 30, 1997
compared to the comparable period in 1996, these factors were offset by
production decreases attributable to the sale of non-core properties in the
first quarter of 1997.

NET CASH USED IN INVESTING ACTIVITIES. For the nine months ended September
30, 1997, net cash used in the Company's investing activities was $5.2 million
compared to $1.6 million for the Partnership in the comparable period in 1996
attributable primarily to oil and gas development and acquisitions. The Company
has budgeted $20.3 million for capital expenditures in 1998, exclusive of
acquisitions. The Company expects to use cash flow from operations, cash
balances and borrowings under the Credit Facility to fund these expenditures.

38
<PAGE>
BUSINESS

THE COMPANY

RAM Energy is an independent oil and gas company engaged in the acquisition,
development and production of oil and gas properties primarily in the
Mid-Continent Area and in the Permian Basin. At November 30, 1997, the Company's
estimated net proved reserves, on a pro forma basis, were 114.3 Bcf of natural
gas and 4.3 MMBbls of oil, or 140.1 Bcfe, with a PV-10 Value of approximately
$150 million and a reserve life of approximately 12 years. As of such date, on a
pro forma basis, the Company operated 736 wells, a 165-mile oil and gas
gathering system and a saltwater disposal operation. The Company's interests in
the wells it operates represented approximately 64% of its pro forma PV-10 Value
at November 30, 1997. The Company has grown principally through producing
property acquisitions, acquiring approximately $195 million of oil and gas
properties since inception, including the Carlton Acquisition.

From 1989 to November 1996, the Company primarily developed and operated oil
and gas properties owned jointly by RAM Energy and the Partnership. During that
eight-year period, the Company drilled 225 oil and gas wells with a 95% success
rate. The Partnership distributed a substantial portion of the net cash flows
from these properties to its partners and the Company did not invest
significantly in its asset base. Management believes that the Partnership's
business strategy allowed the Company's properties to remain under-developed and
that these properties contain significant potential for the addition of reserves
and production through accelerated development and exploration activities.

In November 1996, RAM Energy acquired the limited partner's interest in the
Partnership and subsequently liquidated the Partnership and distributed all of
its oil and gas properties and other assets to RAM Energy. From December 1, 1996
to December 31, 1997, the Company drilled 34 oil and gas wells, all of which
were successfully completed. The Company does not have information with respect
to Carlton's drilling success rates. As a result of the Partnership Acquisition
and the Carlton Acquisition, the Company is pursuing a more aggressive growth
strategy. The Company's historical drilling success rate is not necessarily
indicative of what its future drilling success may be. The Company has
identified a substantial inventory of over 200 development and exploitation
opportunities on its existing properties and on the properties included in the
Carlton Acquisition. These projects generally involve moderate drilling and
completion costs, as they are located primarily in intermediate depth, normally
pressured reservoirs. The Company has budgeted capital spending of $20.3 million
in 1998 for development projects and certain exploration activities. The Company
also intends to continue to pursue attractive oil and gas acquisition
opportunities.

STRATEGY

The Company's primary goal is to increase reserves, production and operating
cash flow through the acquisition and aggressive development of oil and gas
properties. Key elements of the Company's growth strategy include the following:

DEVELOP AND EXPLOIT EXISTING OIL AND GAS PROPERTIES. The Company has
identified over 200 infill drilling, recompletion, enhanced recovery and
workover opportunities on its properties, and plans to pursue these relatively
lower-risk development activities, as well as selective exploration activities.
The Company has budgeted capital spending of $20.3 million in 1998 primarily to
complete approximately 75 planned development and exploration projects,
exclusive of acquisitions, as compared to expenditures of $5.8 million to
complete 26 development projects in 1997. The Company plans to spend over 80% of
its 1998 budgeted capital expenditures on development projects in the
Mid-Continent Area and the Permian Basin.

COMPLETE SELECTIVE OIL AND GAS ACQUISITIONS. The Company seeks to acquire
producing oil and gas properties that provide opportunities for reserve
additions and increased cash flow through operating

39
<PAGE>
improvements, production enhancement and additional development and exploratory
drilling. The Company believes these criteria are met in regions that are
characterized by long histories of production and multiple producing oil and gas
horizons, such as the Mid-Continent Area and the Permian Basin. As part of its
growth strategy, the Company intends to evaluate acquisitions in other regions
where it can add producing properties, undeveloped acreage and personnel to
establish concentrated operations and economies of scale.

MAINTAIN AND EXPAND CORE AREAS. Over 90% of the Company's pro forma PV-10
Value as of November 30, 1997 is concentrated in the Mid-Continent Area and the
Permian Basin, core areas in which the Company has a significant operating
history. The Company believes that its geographic concentration and
region-specific geological, engineering and production experience provide it
with focused, efficient operations. The Company will continue to evaluate and
pursue acquisitions and drilling opportunities in its core areas and will
evaluate acquisitions that could establish additional core areas.

REDUCE COSTS THROUGH OPERATING CONTROL. The Company seeks to operate a
substantial number of its producing properties. The Company's interests in the
wells it operates represented 64% of its pro forma PV-10 Value at November 30,
1997. As a result of the Carlton Acquisition, the Company will also operate an
oil and gas gathering system and a saltwater disposal operation, which
management believes offers opportunities to reduce overhead and lease operating
expenses. The Company believes that operating a high percentage of its producing
properties and drilling prospects within its core areas provides it with
substantial control of the timing, level and incurrence of operating and
drilling expenditures.

THE CARLTON ACQUISITION

On December 16, 1997, the Company entered into a definitive agreement to
purchase Carlton for $43.0 million, subject to closing adjustments. With the
Carlton Acquisition, the Company will acquire interests in 360 producing oil and
gas wells, primarily located in the Carmen Field in the Mid-Continent Area and
other fields in the Mid-Continent Area, the Permian Basin and other oil and gas
producing regions. The Company will operate 225 of these wells. The Carlton
Acquisition will add approximately 36.8 Bcfe of estimated net proved reserves to
the Company's reserve base, as of November 30, 1997. Carlton's properties
include an attractive combination of established, long-life production and
development and exploratory drilling opportunities, with over 60 identified
projects. The Carlton properties have an estimated reserve life of approximately
15 years.

As part of the Carlton Acquisition, the Company will acquire, own and
operate the Carmen System, a 165-mile oil and gas gathering system and a
saltwater disposal operation in the Carmen Field of the Mid-Continent Area. The
Company estimates that the pre-tax net present value of the Carmen System as of
November 30, 1997 was $24.0 million, using a 10% discount factor. The Carmen
System purchases, transports and markets oil and gas production and disposes of
produced water from properties owned by Carlton and other oil and gas companies.
Of the 169 producing wells currently dedicated to the Carmen System, the Company
will operate 120 wells.

The Carmen System purchases oil and gas at the lease and transports the
production, with associated saltwater, to a collection and separation facility
operated by Carlton. From this point, the natural gas is delivered to a
processing and compression facility operated by Continental Gas, Inc. After
processing, gas volumes are returned to Carlton and sold into a variety of
delivery points. Oil purchasing and gathering, saltwater gathering and saltwater
disposal comprise an integrated operation whereby oil and saltwater are gathered
at the lease and subsequently measured and transported to a central facility
through the liquids gathering line. Upon separation, the oil is aggregated and
sold at a central sales point to a number of crude purchasers, and the saltwater
is disposed into Carlton's saltwater disposal well.

In 1985, a subsidiary of Carlton (the "Carlton Sub") that beneficially owns
Carlton's oil and gas properties and the Carmen System, filed a Chapter 11
bankruptcy reorganization proceeding in the United States Bankruptcy Court for
the Western District of Oklahoma (No. 85-1366-B). Pursuant to the Plan of

40
<PAGE>

Reorganization (the "Bankruptcy Plan") confirmed by the Bankruptcy Court in
1987, the Carlton Sub transferred the undeveloped portion of oil and gas leases
on which there were producing wells owned by limited partnerships for which the
Carlton Sub is the general partner (the "Subject Partnerships") to another
limited partnership (the "Creditors' Partnership") created for the benefit of
the secured creditors of the Carlton Sub and as to which a subsidiary of the
Carlton Sub is the general partner. As part of the Bankruptcy Plan, the
Creditors' Partnership issued to the secured creditors promissory notes secured
by liens on the assets of the Creditors' Partnership. In 1993, the Carlton Sub
purchased these notes and liens. Following such purchase of notes and liens, in
December 1994 a limited partner of certain of the Subject Partnerships filed
claims in the bankruptcy proceeding against the Carlton Sub asserting that the
Carlton Sub, as general partner, (i) did not adequately represent the Subject
Partnerships in the bankruptcy proceeding, (ii) wrongfully transferred assets of
the Subject Partnerships to the Creditors' Partnership and (iii) breached the
partnership agreements of the Subject Partnerships. The claimant-limited partner
also seeks to quiet title to the leases transferred to the Creditors'
Partnership and damages against the Carlton Sub for unjust enrichment. The
Carlton Sub has filed a motion for summary judgment in the bankruptcy
proceeding, which is expected to be ruled upon in the first quarter of 1998. In
February 1996 the claimant-limited partner also filed an action against the
Carlton Sub in the District Court of Oklahoma County, Oklahoma (No.
CJ-96-791-63), seeking an accounting and unspecified damages for an alleged
breach of fiduciary duty. The Carlton Sub has denied these claims and a pretrial
hearing is scheduled for February 1998. Upon completion of the Carlton
Acquisition, the Company intends to vigorously defend both actions. Although the
Company cannot predict the outcome of such litigation, if the claimant-limited
partner were successful on the merits of his claims, Carlton may be required to
return the properties which were transferred to the Creditors' Partnership in
1987, or pay damages equal to the 1987 value of such properties, which the
Company believes would not be material in amount. As part of the Carlton
Acquisition, Carlton's existing stockholders have agreed to indemnify RAM Energy
against all damages, losses, costs and expenses suffered as a result of the
above claims to the extent such damages, losses, costs and expenses exceed
$50,000. In addition, Carlton's existing stockholders have agreed to indemnify
RAM Energy for two years after closing against breaches of representations and
warranties contained in the stock purchase agreement to the extent such
representations and warranties are inconsistent with the actual knowledge of
such stockholders.

The Company believes the Carlton Acquisition provides the opportunity to
improve cash flow from additional development and exploration activities,
gathering and sale of oil and gas production and reduction of operating and
administrative costs. The closing of the Carlton Acquisition is conditioned upon
the simultaneous closing of the Offering.

PRINCIPAL OIL AND GAS PROPERTIES

The Company's oil and gas properties located in the Mid-Continent Area and
the Permian Basin comprised approximately 73% and 18%, respectively, of the
Company's pro forma PV-10 Value as of November 30, 1997. These regions are
large, well established oil and gas producing basins with activities dating from
the early 1900s and are characterized by numerous known producing horizons
ranging from shallow oil and gas production to deep gas reservoirs. The Company
owns interests in numerous properties which provide opportunities to increase
reserves and production through additional development, recompletions, enhanced
recovery methods and the use of 3-D seismic technology. The Company's interests
in the wells it operates represented approximately 64% of its pro forma PV-10
Value at November 30, 1997. The Company has budgeted $16.9 million of its
planned $20.3 million 1998 capital expenditures for additional oil and gas
development in these two regions.

41
<PAGE>
The following table provides information for the Company's major fields as
of November 30, 1997, on a pro forma basis.

NET PROVED RESERVES FOR PRINCIPAL OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
GAS
GAS EQUIVALENT % OF TOTAL
AREA/FIELD OIL (MBBL) (MMCF) (MMCFE) PV-10 VALUE
- ---------------------------------------------------------------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Mid-Continent Area:
Carmen Field........................................................ 601 25,269 28,875 17.3%
Hammon Area......................................................... 272 22,497 24,130 17.8
Strong City Area.................................................... 10 8,427 8,484 5.8
Wickham Ranch Field................................................. 62 6,577 6,946 5.5
Butler Field........................................................ 159 5,719 6,676 5.4
Major County Area................................................... 194 5,030 6,195 4.8
South Thomas Field.................................................. 21 2,922 3,050 3.0
Dewey County Area................................................... 38 2,077 2,304 2.2

Permian Basin:
South Culebra Bluff Field........................................... 1,272 7,772 15,405 10.2
El Dorado Field..................................................... 0 4,047 4,049 2.0
----- --------- ----------- -----

Total - Principal oil and gas properties.......................... 2,629 90,337 106,114 74.0

Gulf Coast Properties................................................. 76 3,821 4,277 4.0

Other properties...................................................... 1,590 20,165 29,702 22.0
----- --------- ----------- -----

Total net proved reserves......................................... 4,295 114,323 140,093 100.0%
----- --------- ----------- -----
----- --------- ----------- -----
</TABLE>

MID-CONTINENT AREA

CARMEN FIELD. The Carmen Field is located in Alfalfa, Major and Woods
Counties, Oklahoma, and produces from the Mississippi, Chester, Red Fork and
Oswego reservoirs at depths ranging from 6,000 to 8,500 feet. The field was
discovered in 1957. The shallower Tonkawa and Cottage Grove formations, as well
as the deeper Hunton, Simpson and Arbuckle formations, have also produced
economically. Upon completion of the Carlton Acquisition, the Company will own
average working and net revenue interests of 44% and 36%, respectively, in over
52,550 gross acres. The Company will have interests in 198 producing wells and
operate 145 of those wells. The Company has identified 64 infill drilling
locations within the field and is evaluating numerous additional potential
locations.

HAMMON AREA. The Hammon Area is comprised of the Northeast Hammon and
Hammon Fields, which are located in Roger Mills and Custer Counties, Oklahoma,
and produces from the Red Fork and Skinner reservoirs at depths ranging from
12,300 to 12,800 feet. The fields were discovered in 1978 and 1981,
respectively. The Company owns average working and net revenue interests of 24%
and 19%, respectively, in over 5,866 gross acres in the Hammon Area. The Company
has interests in 45 producing wells and operates seven of those wells. The
Company has drilled and completed 28 gross wells in this area. Future
development plans include the drilling and completion of 23 infill wells.

STRONG CITY AREA. The Strong City Area includes the Carpenter, Cheyenne and
Strong City Fields, which are located in Roger Mills County, Oklahoma, and
produces from the Skinner and Red Fork reservoirs at depths ranging from 11,900
to 12,500 feet. The area was discovered in 1978. The Company owns average
working and net revenue interests of 17% and 13%, respectively, in over 4,489
gross acres. The Company has interests in 47 producing wells and operates 13 of
those wells. The Company has drilled

42
<PAGE>
19 and completed 18 gross wells in this area. Future development plans include
the drilling and completion of 13 infill wells and two recompletions.

WICKHAM RANCH FIELD. The Wickham Ranch Field is located in Roger Mills
County, Oklahoma, and produces from the Prue and Red Fork reservoirs at depths
ranging from 11,600 to 12,400 feet. The field was discovered in 1978. The
Company owns average working and net revenue interests of 11% and 9%,
respectively, in over 9,146 gross acres. The Company has non-operated interests
in 53 producing wells. The Company has drilled and completed 31 gross wells in
this field. Future development plans include the drilling and completion of 11
infill wells.

BUTLER FIELD. The Butler Field is located in Custer County, Oklahoma, and
produces from the Skinner and Red Fork reservoirs at depths ranging from 11,900
to 12,500 feet. The field was discovered in 1980. The Company owns average
working and net revenue interests of 28% and 23%, respectively, in over 6,833
gross acres. The Company has interests in 17 producing wells and operates nine
of those wells. The Company has drilled three and completed two gross wells in
this field. Future development plans include the drilling and completion of
seven infill wells and one recompletion.

MAJOR COUNTY AREA. The Major County Area of Oklahoma produces from the
Oswego, Manning, Mississippi, Meramec, Hunton and Arbuckle reservoirs at depths
ranging from 6,000 to 8,500 feet. Production in this area commenced in 1949. The
Company owns average working and net revenue interests of 40% and 31%,
respectively, in over 13,935 gross acres. The Company has interests in 77
producing wells and operates 37 of those wells. The Company has drilled and
completed eight gross wells in this field. Future development plans include the
drilling and completion of two infill wells and four recompletions.

SOUTH THOMAS FIELD. The South Thomas Field is located in Custer and Roger
Mills Counties, Oklahoma, and produces from the Red Fork reservoir at depths
ranging from 10,800 to 11,000 feet. The field was discovered in 1975. The
Company owns average working and net revenue interests of 17% and 14%,
respectively, in over 6,404 gross acres. The Company has interests in 30
producing wells and operates 12 of those wells. The Company has drilled and
completed two gross wells in this field. Future development plans include the
drilling and completion of four infill wells.

DEWEY COUNTY AREA. The Dewey County Area of Oklahoma produces from the Red
Fork and Skinner reservoirs at depths ranging from 12,300 to 12,800 feet.
Production in this area commenced in 1952. The Company owns average working and
net revenue interests of 26% and 20%, respectively, in over 13,740 gross acres.
The Company has interests in 31 wells and operates seven of those wells. The
Company has drilled and completed one gross well in this field. The Company is
currently evaluating future development potential of the field.

PERMIAN BASIN

SOUTH CULEBRA BLUFF FIELD. The South Culebra Bluff Field is located in Eddy
County, New Mexico, and produces from the Brushy Canyon reservoir at depths
ranging from 5,800 to 6,350 feet. The field was discovered in 1989. The Company
owns average working and net revenue interests of 48% and 38%, respectively, in
over 2,810 gross acres. The Company has interests in 46 producing wells and
operates 36 of those wells. The Company has drilled and completed 30 gross wells
in this field. Future development plans include the drilling and completion of
nine infill wells and 12 recompletions.

EL DORADO FIELD. The El Dorado Field is located in Schleicher County,
Texas, and produces from the Canyon Sand reservoir at depths ranging from 6,300
to 6,500 feet. The field was discovered in 1948. The Company owns average
working and net revenue interests of 35% and 28%, respectively, in over 4,222
gross acres. The Company has interests in 28 producing wells and operates 27 of
those wells. The Company has drilled five and completed four gross wells in this
field. Future development plans include the drilling and completion of six
infill wells and nine recompletions.

43
<PAGE>
GULF COAST PROPERTIES

The Company owns a 54% working interest and 40% net revenue interest in 602
gross acres in the Newman Field in Hinds County, Mississippi, which produces
from the Cotton Valley reservoir at depths ranging from 16,300 to 17,500 feet.
The Company has an interest in and operates one well in the Newman Field. The
Company also owns average working and net revenue interests of 38% and 32%,
respectively, in 4,366 gross acres in the Egan Field located in Acadia Parish,
Louisiana, which produces from multiple reservoirs at depths ranging from 7,000
to 11,000 feet. The Company owns interests in and operates 29 wells in the Egan
Field. The Company is currently evaluating 3-D seismic data for further drilling
potential.

OIL AND GAS RESERVES

The following table summarizes the estimates of the Company's historical and
pro forma net proved reserves and the related present values of such reserves at
the dates shown. The reserve and present value data for the Company's oil and
gas properties as of November 30, 1997 on an actual and pro forma basis were
prepared by Garb & Associates and audited by Netherland & Sewell. The reserve
and present value data for the Company's oil and gas properties as of December
31, 1994, 1995 and 1996 were prepared by Garb & Associates.

<TABLE>
<CAPTION>
PARTNERSHIP COMPANY COMPANY
-------------------- ---------- -----------------------
NOVEMBER 30,
DECEMBER 31, -----------------------
-------------------------------- PRO FORMA
1994 1995 1996 1997 1997(1)
--------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
RESERVE DATA:
Proved reserves:
Natural gas (MMcf).......................................... 75,435 68,920 82,885 83,006 114,323
Oil and condensate (MBbls).................................. 3,770 3,333 4,282 3,376 4,295
Total (MMcfe)............................................... 98,055 88,918 108,577 103,263 140,092
Proved developed reserves:
Natural gas (MMcf).......................................... 56,792 51,664 62,319 58,717 78,399
Oil and condensate (MBbls).................................. 2,797 2,714 3,511 2,569 3,182
Total (MMcfe)............................................... 73,574 67,948 83,385 74,128 97,492
PV-10 Value (in thousands)(2)................................. $ 56,480 $ 63,913 $ 160,930 $ 116,186 $ 150,403
</TABLE>

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

(1) Pro forma to reflect the Carlton Acquisition as if it had occurred on
November 30, 1997.

Estimated quantities of proved reserves and future net revenues therefrom
are affected by oil and gas prices, which have fluctuated widely in recent
years. There are numerous uncertainties inherent in estimating oil and gas
reserves and their values, including many factors beyond the control of the
producer. The reserve data set forth in this Prospectus represent only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact

44
<PAGE>
manner. The accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates of different engineers, including those used by the Company,
may vary. In addition, estimates of reserves are subject to revisions based upon
actual production, results of future development and exploration activities,
prevailing oil and gas prices, operating costs and other factors, which
revisions may be material. The PV-10 Value of the Company's proved oil and gas
reserves does not necessarily represent the current or fair market value of such
proved reserves, and the 10% discount factor required by the Commission may not
reflect current interest rates, the Company's cost of capital or any risks
associated with the development and production of the Company's proved oil and
gas reserves. The estimated future net revenues attributable to the Company's
proved oil and gas reserves, on a pro forma basis, are based on prices in effect
at November 30, 1997 ($3.01 per Mcf of natural gas and $17.81 per Bbl of oil),
which may be materially different than actual future prices. As of December 31,
1997, the average prices, on a pro forma basis, were $2.75 per Mcf of natural
gas and $15.99 per Bbl of oil.

In general, the volume of production from oil and gas properties declines as
reserves are depleted. Except to the extent the Company acquires properties
containing proved reserves or conducts successful exploitation and development
activities, the proved reserves of the Company will decline as reserves are
produced. The Company's future oil and gas production is, therefore, highly
dependent upon its level of success in finding or acquiring additional reserves.
See "Risk Factors -- Dependence on Expanding and Developing Reserves" and "--
Uncertainty of Estimates of Oil and Gas Reserves and Future Net Revenues."

NET PRODUCTION, UNIT PRICES AND COSTS

The following table presents certain information with respect to oil and gas
production, prices and costs attributable to all oil and gas properties owned by
the Partnership and the Company for the periods shown and on a pro forma basis:
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY PARTNERSHIP COMPANY
-----------------------------------------
ELEVEN MONTHS
YEAR ENDED ENDED
-----------------------
---------------------------------------
-----------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, NOVEMBER 30, ------------------------ --------------------------
------------------------ --------------- PRO FORMA
1994 1995 1996(1) 1996 1996(2) 1996 1997
----------- ----------- --------------- ----------- ----------- ------------- -----------

<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Production volumes:
Natural gas (MMcf).... 9,403 9,700 7,594 711 10,645 6,192 5,263
Oil and condensate
(MBbls)............. 534 463 387 38 487 313 235
Total (MMcfe)......... 12,605 12,476 9,914 941 13,568 8,072 6,675
Average realized
prices(3):
Natural gas (per
Mcf)................ $ 1.71 $ 1.44 $ 2.04 $ 3.34 $ 2.07 $ 2.02 $ 2.31
Oil and condensate
(per Bbl)........... 15.75 16.86 20.59 23.39 20.34 19.99 19.81
Per Mcfe.............. 1.94 1.75 2.37 3.48 2.35 2.32 2.52
Expenses (per Mcfe):
Lease operating
(including
production taxes)... 0.78 0.79 0.77 0.88 0.79 0.76 0.72
Depreciation and
amortization........ 0.92 0.79 0.52 1.05 0.88 0.52 0.79
General and
administrative(4)... 0.32 0.30 0.32 1.26 0.24 0.32 0.50

PRO FORMA
1997(2)
-----------
<S> <C>
Operating Data:
Production volumes:
Natural gas (MMcf).... 6,931
Oil and condensate
(MBbls)............. 307
Total (MMcfe)......... 8,774
Average realized
prices(3):
Natural gas (per
Mcf)................ $ 2.25
Oil and condensate
(per Bbl)........... 19.15
Per Mcfe.............. 2.44
Expenses (per Mcfe):
Lease operating
(including
production taxes)... 0.77
Depreciation and
amortization........ 0.92
General and
administrative(4)... 0.29
</TABLE>

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

(1) Partnership operations were effectively terminated on a stand-alone basis on
November 30, 1996 upon consummation of the Partnership Acquisition.

45
<PAGE>
(2) Pro forma to reflect the Offering and the application of the net proceeds
therefrom, the Partnership Acquisition, the Carlton Acquisition and certain
other acquisitions and dispositions as if they had occurred on January 1,
1996.

PRODUCING WELLS

The following table sets forth the number of productive wells in which the
Company owned an interest, and on a pro forma basis, as of December 31, 1997:

<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------- --------------------
GROSS NET GROSS NET
--------- --- --------- ---
<S> <C> <C> <C> <C>
Natural Gas......................................................................... 760 148 990 229
Oil................................................................................. 1,308 198 1,438 249
--------- --- --------- ---
Total........................................................................... 2,068 346 2,428 478
--------- --- --------- ---
--------- --- --------- ---
</TABLE>

Productive wells consist of producing wells and wells capable of production,
including gas wells awaiting pipeline connections and oil wells awaiting
connection to production facilities. Wells that are completed in more than one
producing horizon are counted as one well.

ACREAGE

The following table sets forth the Company's developed and undeveloped gross
and net leasehold acreage, and on a pro forma basis, as of December 31, 1997:

<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------- --------------------
GROSS NET GROSS NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Developed.............................................................. 230,751 90,828 317,150 119,079
Undeveloped............................................................ 27,790 5,088 27,790 5,088
--------- --------- --------- ---------
Total.............................................................. 258,541 95,916 344,940 124,167
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Approximately 73% of the Company's acreage was located in the Mid-Continent
Area and Permian Basin, on a pro forma basis as of December 31, 1997.
Undeveloped acreage includes leased acres on which wells have not been drilled
or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves. A gross acre is an acre in which an interest is owned. A net
acre is deemed to exist when the sum of fractional ownership interests in gross
acres equals one. The number of net acres is the sum of the fractional interests
owned in gross acres.

DRILLING ACTIVITIES

During the periods indicated, the Company drilled the following wells, but
did not drill any exploratory wells.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- ----------------------
GROSS NET GROSS NET GROSS NET
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Development wells:
Productive............................................ 25 4.5 9 1.1 19 2.8
Non-productive........................................ 1 0.2 -- -- 1 0.2
-- -- --
--- --- ---
Total............................................... 26 4.7 9 1.1 20 3.0
-- -- --
-- -- --
--- --- ---
--- --- ---

1997
----------------------
GROSS NET
----------- ---
<S> <C> <C>
Development wells:
Productive............................................ 29 5.6
Non-productive........................................ -- --
--
---
Total............................................... 29 5.6
--
--
---
---
</TABLE>

46
<PAGE>
OIL AND GAS MARKETING AND HEDGING

The Company's oil and gas production is sold primarily under market
sensitive or spot price contracts. The Company sells substantially all of its
casinghead gas to purchasers under varying percentage-of-proceeds contracts. By
the terms of these contracts, the Company receives a fixed percentage of the
resale price received by the purchaser for sales of natural gas and natural gas
liquids recovered after gathering and processing the Company's gas. The Company
receives between 84% and 100% of the proceeds from natural gas sales and from
40% to 100% of the proceeds from natural gas liquids sales received by the
purchasers of the Company's production when the products are resold. The natural
gas and natural gas liquids are sold primarily based on spot market prices. The
revenues received by the Company from the sale of natural gas liquids are
included in natural gas sales. As a result of the natural gas liquids contained
in the Company's production, the Company has historically improved its price
realization on its natural gas sales. For the year ended December 31, 1996,
purchases of the Company's oil and gas production by Coastal Gas Marketing
accounted for 11.2% of the Company's total oil and gas sales for such period.
For the nine months ended September 30, 1997, purchases of the Company's oil and
gas production by GPM Gas Corp. and American Central Western Oklahoma Gas
Company, L.L.C. accounted for 13% and 12%, respectively, of the Company's total
oil and gas sales for such period.

Periodically the Company utilizes various hedging strategies to manage the
price received for a portion of its future oil and gas production. The Company
does not establish hedges in excess of its expected production. These strategies
customarily emphasize forward-sale, fixed-price contracts for physical delivery
of a specified quantity of production or swap arrangements that establish an
index-related price above which the Company pays the hedging partner and below
which the Company is paid by the hedging partner. These contracts allow the
Company to predict with greater certainty the effective oil and gas prices to be
received for its production and benefit the Company when market prices are less
than the fixed prices provided in its forward-sale contracts. However, the
Company will not benefit from market prices that are higher than the fixed
prices in such contracts for its hedged production. For the nine months ended
September 30, 1997, forward-sale contracts affected prices received for 0% and
38% of the Company's production of oil and gas, respectively.

The Company has only limited involvement with derivative financial
instruments, as defined in SFAS No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" and does not use them for
trading purposes. The Company's objective is to hedge a portion of its exposure
to price volatility from producing oil and gas. These arrangements expose the
Company to credit risk of its counterparties and to basis risk.

EMPLOYEES

As of December 31, 1997, the Company employed 57 people, 27 of whom were
administrative, accounting or financial personnel and 30 of whom were
professional, technical or geological personnel. The Company's future success
will depend partially on its ability to attract, retain and motivate qualified
personnel. The Company is not a party to any collective bargaining agreements
and has not experienced any strikes or work stoppages. The Company considers its
relations with its employees to be satisfactory.

COMPETITION

The oil and gas industry is highly competitive. The Company competes for the
acquisition of oil and gas properties, primarily on the basis of the price to be
paid for such properties, with numerous entities including major oil companies,
other independent oil and gas concerns and individual producers and

47
<PAGE>
operators. Many of these competitors are large, well established companies and
have financial and other resources substantially greater than those of the
Company. The Company's ability to acquire additional oil and gas properties and
to discover reserves in the future will depend upon its ability to evaluate and
select suitable properties and to consummate transactions in a highly
competitive environment.

LEGAL PROCEEDINGS

From time to time, the Company is party to litigation or other legal
proceedings that it considers to be a part of the ordinary course of its
business. The Company is not involved in any legal proceedings, nor is it party
to any pending or threatened claims, that could reasonably be expected to have a
material adverse effect on its financial condition or results of operations. A
subsidiary of Carlton is involved in an adversary proceeding in a Chapter 11
bankruptcy proceeding and is defending a civil action for damages and to quiet
title to certain of Carlton's oil and gas properties. See "Business--The Carlton
Acquisition."

REGULATION

GENERAL. Various aspects of the Company's oil and gas operations are
subject to extensive and continually changing regulation, as legislation
affecting the oil and gas industry is under constant review for amendment or
expansion. Numerous departments and agencies, both federal and state, are
authorized by statute to issue, and have issued, rules and regulations binding
upon the oil and gas industry and its individual members. The Federal Energy
Regulatory Commission (the "FERC") regulates the transportation and sale for
resale of natural gas in interstate commerce pursuant to the Natural Gas Act of
1938 (the "NGA") and the Natural Gas Policy Act of 1978 (the "NGPA"). In the
past, the federal government has regulated the prices at which oil and gas could
be sold. While sales by producers of natural gas and all sales of crude oil,
condensate and natural gas liquids can currently be made at uncontrolled market
prices, Congress could reenact price controls in the future. Deregulation of
wellhead sales in the natural gas industry began with the enactment of the NGPA
in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the
"Decontrol Act"). The Decontrol Act removed all remaining NGA and NGPA price and
nonprice controls affecting wellhead sales of natural gas effective January 1,
1993.

REGULATION OF SALES AND TRANSPORTATION OF NATURAL GAS. The Company's sales
of natural gas are affected by the availability, terms and cost of
transportation. The price and terms for access to pipeline transportation are
subject to extensive regulation. In recent years, the FERC has undertaken
various initiatives to increase competition within the natural gas industry. As
a result of initiatives like FERC Order No. 636, issued in April 1992, the
interstate natural gas transportation and marketing system has been
substantially restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including producers, from
effectively competing with interstate pipelines for sales to local distribution
companies and large industrial and commercial customers. The most significant
provisions of Order No. 636 require that interstate pipelines provide firm and
interruptible transportation service on an open access basis that is equal for
all natural gas suppliers. In many instances, the results of Order No. 636 and
related initiatives have been to substantially reduce or eliminate the
interstate pipelines' traditional role as wholesalers of natural gas in favor of
providing only storage and transportation services. While the United States
Court of Appeals upheld most of Order No. 636 last year, certain related FERC
orders, including the individual pipeline restructuring proceedings, are still
subject to judicial review and may be reversed or remanded in whole or in part.
While the outcome of these proceedings cannot be predicted with certainty, the
Company does not believe that it will be affected materially differently than
its competitors.

The FERC has also announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and a
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated

48
<PAGE>
rates as one such alternative. Both the policy statement and individual pipeline
negotiated rate authorizations are currently subject to appeal before the U.S.
Court of Appeals for the D.C. Circuit. In February 1997, the FERC announced a
broad inquiry into issues facing the natural gas industry to assist the FERC in
establishing regulatory goals and priorities in the post-Order No. 636
environment. Moreover, the FERC has refined the criteria used to distinguish
non-jurisdictional gathering from jurisdictional transportation. Similarly, the
Oklahoma Corporation Commission and the Texas Railroad Commission have been
reviewing changes to their regulations governing transportation and gathering
services provided by intrastate pipelines and gatherers. While the changes being
considered by these federal and state regulators would affect the Company only
indirectly, they are intended to further enhance competition in natural gas
markets. The Company cannot predict what further action the FERC or state
regulators will take on these matters, however, the Company does not believe
that it will be affected by any action taken materially differently than other
natural gas producers with which it competes.

Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC, state commissions and the
courts. The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by the FERC and Congress will continue.

OIL PRICE CONTROLS AND TRANSPORTATION RATES. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. The price the Company receives from the sale of these products
may be affected by the cost of transporting the products to market.

ENVIRONMENTAL. Extensive federal, state and local laws regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment affect the Company's oil and gas operations.
Numerous governmental departments issue rules and regulations to implement and
enforce such laws, which are often difficult and costly to comply with and which
carry substantial civil and even criminal penalties for failure to comply. Some
laws, rules and regulations relating to protection of the environment may, in
certain circumstances, impose strict liability for environmental contamination,
rendering a person or entity liable for environmental damages and cleanup costs
without regard to negligence or fault on the part of such person or entity.
Other laws, rules and regulations may restrict the rate of oil and gas
production below the rate that would otherwise exist or even prohibit
exploration and production activities in sensitive areas. In addition, state
laws often require various forms of remedial action to prevent pollution, such
as closure of inactive pits and plugging of abandoned wells. The regulatory
burden on the oil and gas industry increases the Company's cost of doing
business and consequently affects the Company's profitability. The Company
believes that it is in substantial compliance with current applicable
environmental laws and regulations and that continued compliance with existing
requirements will not have a material adverse impact on the Company's
operations. However, environmental laws and regulations have been subject to
frequent changes over the years, and the imposition of more stringent
requirements could have a material adverse effect upon the capital expenditures
or competitive position of the Company.

The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or the legality of the
original act, on certain classes of persons that are considered to be
responsible for the release of a "hazardous substance" into the environment.
These persons include the current or former owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of hazardous substances at the disposal site. Under CERCLA such
persons may be subject to joint and several liability for the costs of
investigating and cleaning up hazardous substances that have been released into
the environment, for damages to natural resources and for the costs of certain
health studies. Comparable state statutes also impose liability on the owner or
operator of a property for remediation of environmental contamination existing
on such property. In addition, companies that incur liability frequently
confront third party claims because it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and

49
<PAGE>
property damage allegedly caused by hazardous substances or other pollutants
released into the environment from a polluted site.

The Company currently owns or leases, and has in the past owned or leased,
numerous properties that have been used for the exploration and production of
oil and gas and for other uses associated with the oil and gas industry.
Although the Company has followed operating and disposal practices that it
considered appropriate under applicable laws and regulations, hydrocarbons or
other wastes may have been disposed of or released on or under the properties
owned or leased by the Company or on or under other locations where such wastes
were taken for disposal. In addition, the Company owns or leases properties that
have been operated by third parties in the past. The Company could incur
liability under CERCLA or comparable state statutes for contamination caused by
wastes it generated or for contamination existing on properties it owns or
leases, even if the contamination was caused by the waste disposal practices of
the prior owners or operators of the properties.

The Federal Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act of 1976 ("RCRA"), regulates the generation,
transportation, storage, treatment and disposal of hazardous wastes and can
require cleanup of hazardous waste disposal sites. RCRA currently excludes
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of oil and gas from regulation as
"hazardous waste." A similar exemption is contained in many of the state
counterparts to RCRA. Disposal of such non-hazardous oil and gas exploration,
development and production wastes usually is regulated by state law. Other
wastes handled at exploration and production sites or used in the course of
providing well services may not fall within this exclusion. Moreover, stricter
standards for waste handling and disposal may be imposed on the oil and gas
industry in the future. From time to time legislation has been proposed in
Congress that would revoke or alter the current exclusion of exploration,
development and production wastes from the RCRA definition of "hazardous wastes"
thereby potentially subjecting such wastes to more stringent handling and
disposal requirements. If such legislation were enacted, or if changes to
applicable state regulations required the wastes to be managed as hazardous
wastes, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general.

The Company's operations are also subject to the Clean Air Act (the "CAA")
and comparable state and local requirements. Amendments to the CAA were adopted
in 1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from
operations of the Company. The Company may be required to incur certain capital
expenditures in the next several years for air pollution control equipment in
connection with obtaining and maintaining operating permits and approvals for
air emissions. However, the Company believes its operations will not be
materially adversely affected by any such requirements, and the requirements are
not expected to be any more burdensome to the Company than to other similarly
situated companies involved in oil and gas exploration and production activities
or well servicing activities.

The Federal Water Pollution Control Act of 1972 (the "FWPCA") imposes
restrictions and strict controls regarding the discharge of wastes, including
produced waters and other oil and gas wastes, into navigable waters. These
controls have become more stringent over the years, and it is probable that
additional restrictions will be imposed in the future. Permits must be obtained
to discharge pollutants into state and federal waters. The FWPCA provides for
civil, criminal and administrative penalties for unauthorized discharges of oil
and other hazardous substances and imposes substantial potential liability for
the costs of removal or remediation. State laws governing discharges to water
also provide varying civil, criminal and administrative penalties and impose
liabilities in the case of a discharge of petroleum or its derivatives, or other
hazardous substances, into state waters. In addition, the Environmental
Protection Agency has promulgated regulations that require many oil and gas
production sites, as well as other facilities, to obtain permits to discharge
storm water runoff. The Company believes that compliance with existing
requirements under the FWPCA and comparable state statutes will not have a
material adverse effect on the Company's financial condition or results of
operations.

50
<PAGE>
The Company maintains insurance against "sudden and accidental" occurrences
which may cover some, but not all, of the risks described above. Most
significantly, the insurance maintained by the Company may not cover the risks
described above which occur over a sustained period of time. Further, there can
be no assurance that such insurance will continue to be available to cover all
such costs or that such insurance will be available at premium levels that
justify its purchase. The occurrence of a significant event not fully insured or
indemnified against could have a material adverse effect on the Company's
financial condition and results of operations.

REGULATION OF OIL AND GAS EXPLORATION AND PRODUCTION. Exploration and
production operations of the Company are subject to various types of regulation
at the federal, state and local levels. Such regulations include requiring
permits and drilling bonds for the drilling of wells, regulating the location of
wells, the method of drilling and casing wells, and the surface use and
restoration of properties upon which wells are drilled. Many states also have
statutes or regulations addressing conservation matters, including provisions
for the unitization or pooling of oil and gas properties, the establishment of
maximum rates of production from oil and gas wells and the regulation of
spacing, plugging and abandonment of such wells. Some state statutes limit the
rate at which oil and gas can be produced from the Company's properties. See
"Risk Factors -- Governmental Regulation."

TITLE TO PROPERTIES

The Company believes it has satisfactory title to its properties in
accordance with standards generally accepted in the oil and gas industry. As is
customary in the oil and gas industry, the Company makes only a cursory review
of title to farmout acreage and to undeveloped oil and gas leases upon execution
of any contracts. Prior to the commencement of drilling operations, a title
examination is conducted and curative work is performed with respect to
significant defects. To the extent title opinions or other investigations
reflect title defects, the Company, rather than the seller of the undeveloped
property, is typically responsible to cure any such title defects at its
expense. If the Company were unable to remedy or cure any title defect of a
nature such that it would not be prudent to commence drilling operations on the
property, the Company could suffer a loss of its entire investment in the
property. The Company has obtained title opinions on substantially all of its
producing properties. Prior to completing an acquisition of producing oil and
gas leases, the Company performs a title review on a material portion of the
leases. The Company's oil and gas properties are subject to customary royalty
interests, liens for current taxes and other burdens that the Company believes
do not materially interfere with the use of or affect the value of such
properties.

FACILITIES

The Company's principal executive and operating offices are located at Suite
650, Meridian Tower, 5100 E. Skelly Drive, Tulsa, Oklahoma 74135. The Company's
finance and accounting offices, along with the office of the Chairman, are
located at Suite 130, One Benham Place, 9400 N. Broadway Extension, Oklahoma
City, Oklahoma 73114. The Company leases all of its significant facilities. The
Company believes that its facilities are adequate for its current needs.

51
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth names, ages and titles of the directors and
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
William W. Talley II, Ph.D............. 55 Chairman of the Board of Directors
Larry E. Lee........................... 49 President and Chief Executive Officer and Director
M. Helen Bennett(1)(2)................. 50 Director
Gerald R. Marshall(1)(2)............... 63 Director
John M. Reardon(1)(2).................. 56 Director
Larry G. Rampey........................ 52 Senior Vice President - Operations
John M. Longmire....................... 55 Senior Vice President and Chief Financial Officer, Treasurer and
Secretary
Drake N. Smiley........................ 50 Senior Vice President - Land, Legal and Business Development
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

WILLIAM W. TALLEY II, PH.D. has been Chairman of the Board and a director of
the Company since its incorporation in 1987 and was Chief Executive Officer from
1987 to 1989 and from 1992 to October 31, 1997. Dr. Talley served as the Society
of Petroleum Engineers' Distinguished Lecturer on natural gas marketing and
pricing in 1987 and 1988 and was Vice President and director of the Independent
Petroleum Association of America in 1987. Dr. Talley has been an officer and a
principal of the RAM Group, Ltd., an energy and management consulting firm,
since 1974. He is a registered professional engineer.

LARRY E. LEE has been President and a director of the Company since its
incorporation in 1987. Mr. Lee served as its Chief Executive Officer from 1989
to 1992 and has served in such capacity since November 1, 1997. Mr. Lee is a
member of the Oklahoma Independent Petroleum Association and of the Independent
Petroleum Association of America. He served as a director of the Independent
Petroleum Association of America from 1990 to 1992. Mr. Lee has been an officer
and a principal of the RAM Group, Ltd. since 1984.

M. HELEN BENNETT has been a director of the Company since 1992 and was a
Vice President of the Company from December 1996 until November 30, 1997. Mrs.
Bennett has been a limited partner of Goldman, Sachs & Co., an investment
banking firm, since May 1992. From 1980 until 1986, Mrs. Bennett served in
several executive capacities with Time, Incorporated, including General Manager
of Fortune magazine from 1984 to 1986. From 1973 until 1980, she was employed by
McKinsey & Company.

GERALD R. MARSHALL became a director of the Company in December 1997. Since
October 1996, Mr. Marshall has served as Vice Chairman of the Midland Group, an
Oklahoma-based financial services organization. Since December 1993, Mr.
Marshall has served as President and Chief Executive Officer of Midland Asset
Management Co., an asset management and financial consulting firm. He has served
as Chairman and Chief Executive Officer of RAM Management Associates, Inc., a
management contractor for the Resolution Trust Corporation, since March 1990.

JOHN M. REARDON became a director of the Company in December 1997 and served
as an adviser to the Company's Board of Directors from August 1994 until
December 1997. Mr. Reardon has been President and Chief Executive Officer of
Valencia National Bank of Santa Clarita, California, since August 1994. From
1991 to August 1994, he was Senior Vice President of RAMCO Oil & Gas, Inc., a
former subsidiary

52
<PAGE>
of the Company, and of RAM Management Associates, Inc. From 1987 to 1991, Mr.
Reardon was a Senior Vice President of Wells Fargo Bank.

LARRY G. RAMPEY became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since 1989. From 1972 to 1989,
Mr. Rampey held the positions of Vice President of International Operations,
Vice President of Domestic Operations and staff engineer for Reading & Bates
Petroleum Co.

JOHN M. LONGMIRE became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since 1994. Mr. Longmire has
been Chief Financial Officer, Treasurer and Secretary of the Company since
August 1994 and was its Controller from 1990 to February 1994. Previously, he
held various financial management positions with Texas International Company,
Amarex, Inc. and Union Oil Company of California. Mr. Longmire is a Certified
Public Accountant.

DRAKE N. SMILEY became a Senior Vice President of the Company in December
1997 and had been a Vice President of the Company since February 1997. Mr.
Smiley was Vice President - Land and Legal of the Company from 1989 to 1994.
From 1994 until he rejoined the Company in 1997, Mr. Smiley served as Vice
President - Land of Continental Resources, Inc., an independent oil and gas
company. From 1980 to 1989, he was employed by Reading & Bates Petroleum Co.,
serving as Manager of Land. Mr. Smiley is a member of the Oklahoma and Tulsa
County Bar Associations.

The directors are divided into three classes, with each class having as
equal a number of directors as practicable. The directors are elected on a
staggered basis for three-year terms. One class stands for re-election at each
annual meeting of stockholders. The Company's executive officers serve at the
discretion of the Board of Directors. Dr. Talley's term as a director will
expire in 1998, the terms of Mr. Lee and Mr. Marshall will expire in 1999, and
the terms of Mrs. Bennett and Mr. Reardon will expire in 2000.

Dr. Talley and Mr. Lee beneficially own and were formerly executive officers
of Jobs for St. Landry Parish, Inc., d/b/a Standard Fittings Company ("Standard
Fittings"), a manufacturer of pipe fittings. Standard Fittings filed a petition
pursuant to Chapter 11 of the U.S. Bankruptcy Code in January 1997 in the U.S.
Bankruptcy Court for the Western District of Louisiana. The Chapter 11
proceeding was dismissed in June 1997.

EXECUTIVE COMPENSATION

The following table sets forth for 1997 the cash compensation of (i) the
Company's chief executive officer and (ii) each other person who was an
executive officer as of December 31, 1997 (together with the Company's chief
executive officer, the "Named Executive Officers"). As described below, the
Company entered into a severance agreement with Dr. Talley and a revised
employment agreement with Mr. Lee. See "-- Employment and Severance Agreements."

53
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION(2)
- ------------------------------------------------------ ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
William W. Talley II, Ph.D. .......................... $ 540,860 $ 47,500 -- --
Chairman of the Board(3)
Larry E. Lee ......................................... 540,860 47,500 -- --
President and Chief Executive Officer(4)
M. Helen Bennett ..................................... 372,660 24,250 -- --
Vice President(5)
Larry G. Rampey ...................................... 130,000 12,708 -- --
Vice President
John M. Longmire ..................................... 120,000 12,500 -- --
Vice President, Chief Financial Officer, Treasurer
and Secretary
</TABLE>

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

(1) Personal benefits provided by the Company did not exceed the lesser of
$50,000 or 10% of total annual salary and bonus for any Named Executive
Officer. No other annual compensation was paid.

(2) Represents matching contributions made by the Company to the account of the
executive officer under the Company's 401(k) Profit Sharing Plan.

(3) Dr. Talley was Chief Executive Officer until October 31, 1997. Director fees
of $180,860 are included as salary.

(4) Mr. Lee was appointed Chief Executive Officer effective November 1, 1997.
Director fees of $180,860 are included as salary.

(5) Mrs. Bennett was Vice President until November 30, 1997. Director fees of
$168,660 are included as salary.

DIRECTORS' COMPENSATION

Each director received $289,380 in 1996. Dr. Talley and Mr. Lee received
$180,860 in 1997 and Mrs. Bennett received $168,660 in 1997 for serving as
directors. In 1998, the annual fee to be paid to each non-employee director will
be $24,000 plus $1,000 for each meeting attended. Directors who are also
employees of the Company will not receive annual directors fees. Directors are
also reimbursed for travel and other expenses.

EMPLOYMENT AND SEVERANCE AGREEMENTS

The Company is a party to a Special Severance Agreement with Dr. Talley
which continues until Dr. Talley ceases to be Chairman of the Board of the
Company. During the existence of this agreement, Dr. Talley will receive an
annual base salary of at least $240,000 and a bonus as determined by the Board.
The term of the agreement ends upon Dr. Talley's death, disability or voluntary
resignation, and may be terminated by the Company for cause. Upon Dr. Talley's
death, his representatives or, upon his disability, Dr. Talley, will receive
accrued but unpaid salary, bonus and benefits, a pro rata share of any bonus
paid for the preceding year, one year's salary and an amount equal to the
highest bonus paid to him during the term of the agreement. In the event of Dr.
Talley's disability, he will continue to be entitled to receive benefits for the
remainder of the agreement. If Dr. Talley ceases to be Chairman of the Board
other than by reason of death, disability, for cause or by voluntary
resignation, he is entitled to receive his accrued but unpaid salary and
benefits, an amount equal to a pro rata share of any bonus paid for the
immediately preceding year, plus an amount equal to three times his base salary.

The Company has an employment agreement with Mr. Lee for an initial term
expiring in December 2000, subject to annual extensions of one year, at an
annual salary of at least $295,000 and an annual bonus to be determined by the
Board. Under this agreement, Mr. Lee's employment may be terminated by the
Company for death or disability, or for cause, and by Mr. Lee for good reason.
Upon Mr. Lee's death, his representatives or, upon his disability, Mr. Lee, will
receive accrued but unpaid salary, bonus and

54
<PAGE>
benefits, a pro rata share of any bonus paid for the immediately preceding year,
one year's salary and an amount equal to the highest bonus paid to him during
the term of the agreement. In the event of Mr. Lee's disability, he will
continue to be entitled to receive benefits for the remainder of the agreement.
If Mr. Lee ceases to be an employee other than by reason of death, disability,
for cause or by voluntary resignation, he is entitled to receive his accrued but
unpaid salary and benefits, an amount equal to a pro rata share of any bonus
paid for the immediately preceding year, plus an amount equal to three times his
base salary.

The Company has employment and severance agreements with Messrs. Longmire,
Rampey and Smiley. Each of these agreements expires December 31, 1998. Under the
terms of each agreement, the officer's employment may be terminated by the
Company at any time for good cause, or for any other reason upon two weeks prior
notice, subject to certain severance payments.

STOCK INCENTIVE PLAN

The Company's 1998 Stock Incentive Plan (the "Plan") authorizes the grant of
nonqualified stock options, incentive stock options and restricted stock awards
to employees and non-employee directors. The purpose of the Plan is to create
incentives designed to motivate employees of the Company, and any present or
future parent or subsidiary, and directors of the Company to exert maximum
efforts toward the success and growth of the Company and to attract and retain
experienced individuals who by their position, ability and diligence are able to
make important contributions to the Company's success. The Plan is administered
by the Compensation Committee of the Board of Directors; however, awards under
the Plan to non-employee directors are made by the full Board (whether the
Compensation Committee or the Board, the "Committee").

The maximum number of shares of Common Stock for which options and
restricted stock awards may be granted under the Plan is 550,000, subject to
adjustment in the event of any stock dividend, stock split, recapitalization or
reorganization or certain business combinations. Shares subject to previously
expired or terminated options or other forfeited awards which did not result in
the issuance of shares become available again for awards under the Plan. The
shares to be issued under the Plan may be newly issued shares, treasury shares
or shares acquired privately or by open-market purchases. The number of shares
and other terms of each grant are determined by the Committee; provided that the
shares subject to stock options granted under the Plan and the shares of
restricted stock awarded under the Plan in any year to any participant may not
exceed an aggregate of 25,000. Awards under the Plan may, in the discretion of
the Committee, provide for immediate vesting upon a change of control (as
defined in the Plan).

The price payable upon the exercise of both incentive and nonqualified stock
options may not be less than 100% of the fair market value of the Common Stock
at the time of grant or, in the case of an incentive stock option granted to an
employee owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Shareholder"), 110% of the
fair market value of the Common Stock on the date of grant. Incentive stock
options may be granted only to employees, and the aggregate exercise price of
all incentive stock options under all Company plans becoming exercisable for the
first time by an employee during any calendar year may not exceed $100,000. Each
option granted under the Plan will expire on the date specified by the
Committee, but, with respect to incentive stock options, not more than ten years
from the date of grant or, in the case of a 10% Shareholder, not more than five
years from the date of grant. Unless the Committee otherwise provides, a stock
option will terminate three months (one year in the event of an optionee's
disability or three years in the event of an optionee's death) after the
optionee's termination of employment or termination as a director. In no event,
however, will an option be exercisable after its expiration date. The Committee
has the power to accelerate the vesting of options not exercisable on the
optionee's termination date. The exercise price of an option granted under the
Plan may be paid in cash, shares of Common Stock having a fair market value
equal to the exercise price (either shares then owned by the optionee or to be
issued upon exercise of the option) or a combination of cash and Common Stock.
In addition, an optionee may

55
<PAGE>
utilize a broker to effect a contemporaneous sale of sufficient shares subject
to the option to pay the exercise price by following the procedure set forth in
the Plan.

Restricted stock awards will be subject to such terms, conditions,
restrictions and/or limitations as the Committee deems appropriate including,
but not limited to, restrictions on transferability and continued employment (or
service as a director in the case of non-employee directors).

Outstanding options become nonforfeitable and exercisable in full
immediately prior to the liquidation or dissolution of the Company or the merger
or consolidation of the Company or sale of all or substantially all of the
Company's assets if provision is not made in such transaction for the assumption
by the acquiror of outstanding unvested options granted under the Plan or the
substitution of new options therefor. Unexercised outstanding options will
terminate upon the consummation of the dissolution or liquidation of the Company
or such merger, consolidation or sale of assets.

The Plan may be terminated or amended by the Board of Directors at any time,
subject to stockholder approval in the case of amendments to increase the
aggregate number of shares of Common Stock subject to the Plan or to permit
options with below-market exercise prices. If not earlier terminated, the Plan
expires in 2008.

OFFICER AND DIRECTOR LIABILITY

As permitted by the provisions of the Delaware General Corporation Law, the
Company's Certificate of Incorporation, as amended (the "Certificate"),
eliminates in certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These provisions do
not eliminate the liability of a director (i) for a breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
by a director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for liability arising under Section 174 of the
Delaware General Corporation Law (relating to the declaration of dividends and
purchase or redemption of shares in violation of the Delaware General
Corporation Law) or (iv) for any transaction from which the director derived an
improper personal benefit. In addition, these provisions do not eliminate the
liability of a director for violations of federal securities law, nor do they
limit the rights of the Company or its stockholders, in appropriate
circumstances, to seek equitable remedies such as injunctive or other forms of
non-monetary relief. Such remedies may not be effective in all cases.

The Certificate and the Company's Bylaws, as amended (the "Bylaws"), provide
that the Company shall indemnify all of its directors and officers to the full
extent permitted by the Delaware General Corporation Law. Under such provisions,
any director or officer, who in his capacity as such, is made or threatened to
be made a party to any suit or proceeding, may be indemnified if the Board of
Directors determines such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Company. The Certificate, Bylaws and the Delaware General Corporation Law
further provide that such indemnification is not exclusive of any other rights
to which such individuals may be entitled under the Certificate, the Bylaws, any
agreement, vote of stockholders or disinterested directors or otherwise.

The Company expects to enter into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, the Company
will pay on behalf of the indemnitee, and the indemnitee's executors,
administrators and heirs, any amount which he or she is or becomes legally
obligated to pay because of (i) any claim or claims from time to time threatened
or made against him or her by any person because of any act or omission or
neglect or breach of duty, including any actual or alleged error or misstatement
or misleading statement, which he or she commits or suffers while acting in his
or her capacity as a director and/or officer of the Company or an affiliate or
(ii) being a party, or being threatened to be made a party, to any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
an officer, director, employee or agent of the Company or an affiliate or is or
was serving at the request of the

56
<PAGE>
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The payments which the
Company will be obligated to make pursuant to such indemnity agreement include
damages, charges, judgments, fines, penalties, settlements and court costs,
costs of investigation and costs of defense of legal, equitable or criminal
actions, claims or proceedings and appeals therefrom, and costs of attachment,
supersedeas, bail, surety or other bonds. The Company also intends to provide
liability insurance for each of its directors and executive officers.

CERTAIN TRANSACTIONS

The Company redeemed all of its Series B Preferred Stock in January 1998.
The Series B Preferred Stock was issued in 1987 and 1988 for $10.00 per share.
Dr. Talley, Mr. Lee, Mrs. Bennett and Mr. Price beneficially owned in equal
amounts all of the issued and outstanding shares of Series B Preferred Stock.
The redemption price for each share of Series B Preferred Stock was $10.00 per
share, resulting in the payment of $174,130 to each holder, for an aggregate
redemption price of $696,520. The Company issued notes to each holder in the
principal amount of the redemption consideration, with each note payable on or
prior to February 10, 1998 together with interest at an annual rate of 8.5%
until paid. Each of Dr. Talley, Mr. Lee, Mrs. Bennett and Mr. Price has agreed
to guarantee sums due under the Credit Facility in amounts equal to the
respective redemption amounts paid to them, which guarantees will be
extinguished upon consummation of the Offering and the application of the net
proceeds therefrom to repay all sums due under the Credit Facility.

From May through November 1997, the Company employed William S. Price, a
principal stockholder of the Company, as a consultant to assist it in
identifying acquisition opportunities. Mr. Price received $15,000 per month, or
an aggregate of $105,000, pursuant to this consulting agreement.

57
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 31, 1998 by (i) each director of the
Company who owns Common Stock, (ii) each Named Executive Officer who owns Common
Stock, (iii) each person known or believed by the Company to own beneficially 5%
or more of the Common Stock and (iv) all directors and executive officers as a
group. Unless otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.

<TABLE>
<CAPTION>
SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
- ----------------------------------------------------------------------------- -------------- -----------
<S> <C> <C>
William W. Talley II, Ph.D. (1)(2)(3) ....................................... 675,000 24.75%
9400 N. Broadway Extension
Oklahoma City, Oklahoma 73114

Larry E. Lee (1)(2) ......................................................... 675,000 24.75
5100 E. Skelly Drive
Suite 650
Tulsa, Oklahoma 74135

M. Helen Bennett (1)(4) ..................................................... 675,000 24.75
3333 Hagen Road
Napa, California 94558

William S. Price ............................................................ 702,000 25.74
13635 Deering Bay Drive #233
Coral Gables, Florida 33158

All executive officers and directors as a group (8 persons) ................. 2,025,000 74.26
</TABLE>

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

(1) Director

(2) Named Executive Officer

(3) Such shares are held in a trust as to which Dr. Talley has sole voting and
dispositive power.

(4) Such shares are held in a trust as to which Mrs. Bennett has sole voting and
dispositive power.

58
<PAGE>
DESCRIPTION OF NOTES

The Notes will be issued pursuant to the Indenture, to be dated as of the
Issue Date, by and among RAM Energy, Inc., the Subsidiary Guarantors and United
States Trust Company of New York, as Trustee (the "Trustee"). The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following discussion is a summary of the material
provisions of the Indenture and the Notes, and it does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture or the Notes, as applicable. Capitalized
terms used herein, and not otherwise defined herein, have the meanings defined
under the caption "-- Certain Definitions." ALL REFERENCES TO RAM ENERGY, INC.
IN THE FOLLOWING SUMMARY REFER EXCLUSIVELY TO RAM ENERGY, INC. AND NOT TO ANY OF
ITS SUBSIDIARIES. Other capitalized terms not otherwise defined herein have the
meanings assigned to them in the Indenture.

GENERAL

The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration of transfer and exchange at the office of the Registrar, which
currently is the Trustee's corporate trust office in New York, New York. RAM
Energy, Inc. may change the Paying Agent and Registrar without notice to Holders
of the Notes. RAM Energy, Inc. will pay principal (premium, if any) and interest
on the Notes at the corporate trust office of the Trustee or its agency in New
York, New York. In addition, in the event the Notes do not remain in book-entry
form, interest may be paid, at RAM Energy, Inc.'s option, by wire transfer or
check mailed to the registered addresses of the Holders as shown on the Note
Register.

The obligations of RAM Energy, Inc. under the Notes will be guaranteed by
the Subsidiary Guarantors. See "-- Ranking and Subsidiary Guarantees." All of
RAM Energy, Inc.'s Subsidiaries will be Subsidiary Guarantors unless, subject to
certain requirements of the Indenture, RAM Energy, Inc. designates one or more
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to the restrictive covenants of the Indenture. See "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries."

The Indenture will provide for the issuance of up to $115.0 million of Notes
in connection with the Offering (the "Offered Notes"). The Indenture will also
provide the Company the flexibility of issuing additional Notes in the future in
an unlimited amount; however, any issuance of such additional Notes would be
subject to the covenant described in the first paragraph under "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock." The Offered Notes and any such additional Notes
are collectively referred to as the "Notes" in this "Description of Notes."

PRINCIPAL, MATURITY AND INTEREST

The Notes will mature on , 2008. Interest on the Notes will
accrue at the rate of % per annum and will be payable semi-annually on each
and commencing on , 1998, in the case of the Offered Notes,
to the Persons who are registered Holders at the close of business on and
immediately preceding the applicable interest payment date. Interest on the
Notes will accrue from and including the most recent date to which interest has
been paid or, if no interest has been paid, from and including the Issue Date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.

OPTIONAL REDEMPTION

RAM Energy, Inc. will not have the right to redeem the Notes prior to
, 2003. Thereafter, RAM Energy, Inc. may redeem the Notes, at its
option, in whole or in part, at any time, at the

59
<PAGE>
following redemption prices (expressed as a percentage of the outstanding
principal amount) if redeemed during the twelve-month period commencing on
of the years set forth below, plus, in each case, accrued and unpaid
interest thereon to the date of redemption:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. %
2004............................................................................. %
2005............................................................................. %
2006 and thereafter.............................................................. 100.000%
</TABLE>

Notwithstanding the foregoing, at any time on or prior to , 2001,
RAM Energy, Inc. may redeem up to 35% of the aggregate principal amount of the
Notes originally issued, in cash, at a redemption price equal to % of the
principal amount of the Notes so redeemed, together with accrued and unpaid
interest thereon to the redemption date, with the net proceeds of any Public
Equity Offering, PROVIDED that (i) at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding immediately after the
occurrence of each such redemption and (ii) each such redemption occurs within
60 days of the date of the closing of each such Public Equity Offering.

In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or if the
Notes are not listed, on a PRO RATA basis, by lot or by such other method as the
Trustee shall deem fair and appropriate, provided that no Note of $1,000 or less
shall be redeemed in part. Notice of redemption will be sent by first class
mail, at least 30 days and not more than 60 days prior to the date fixed for
redemption, to the Holder of each Note to be redeemed to such Holder's last
address as then shown upon the Note Register. Any notice which relates to a Note
to be redeemed in part only must state the portion of the principal amount to be
redeemed and must state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note in a principal amount equal to the unredeemed
portion thereof will be issued. On and after the date fixed for redemption,
unless RAM Energy, Inc. defaults on its payment obligations, interest will cease
to accrue on the Notes or portions thereof called for redemption.

RANKING AND SUBSIDIARY GUARANTEES

The indebtedness of RAM Energy, Inc. evidenced by the Notes will rank senior
in right of payment to all Subordinated Indebtedness of RAM Energy, Inc. and
PARI PASSU in right of payment with all existing and future senior Indebtedness
of RAM Energy, Inc. Pursuant to the Subsidiary Guarantees, the Subsidiary
Guarantors will unconditionally guarantee, jointly and severally, on a senior
unsecured basis, to each Holder and the Trustee, the full and prompt payment and
performance of RAM Energy, Inc.'s obligations under the Indenture and the Notes,
including the payment of principal of, premium, if any, and interest on the
Notes. The Subsidiary Guarantees will rank PARI PASSU in right of payment with
all existing and future senior Indebtedness of each Subsidiary Guarantor. The
Notes and the Subsidiary Guarantees will be effectively subordinated, however,
to any secured Indebtedness of RAM Energy, Inc. and the Subsidiary Guarantors to
the extent of the collateral therefor, including any Indebtedness under the
Permitted Bank Credit Facility, which currently is secured by substantially all
of RAM Energy, Inc.'s oil and gas properties. As of December 31, 1997, on a pro
forma basis, after giving effect to the issuance of the Notes in the Offering,
and the application of the estimated net proceeds therefrom, RAM Energy, Inc.
would have had $0.2 million of senior Indebtedness outstanding, excluding the
Notes. See "Capitalization."

The Indenture also will provide that each of RB Operating Company and RLP
Gulf States, L.L.C., which constitute all of RAM Energy, Inc.'s Subsidiaries as
of the Issue Date, will be, and each Person (other than an Unrestricted
Subsidiary) that after the Issue Date becomes a Subsidiary of RAM Energy, Inc.
(whether by formation, acquisition or otherwise) shall, simultaneously with
becoming a

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Subsidiary of RAM Energy, Inc., become a Subsidiary Guarantor thereunder. See
"-- Certain Covenants -- Limitation on Incurrences of Additional Indebtedness
and Issuances of Disqualified Capital Stock."

The obligations of each Subsidiary Guarantor will be limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
applicable federal or state law. Each Subsidiary Guarantor that makes a payment
or distribution under the Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a PRO RATA amount, based on
the net assets of RAM Energy, Inc. and each Subsidiary Guarantor, determined in
accordance with GAAP. See "Risk Factors -- Possible Limitations on
Enforceability of Subsidiary Guarantees."

The Indenture will provide that, subject to the following paragraph, each
Subsidiary Guarantor (including any existing or future Subsidiary Guarantor) may
not consolidate or merge with or into (whether or not such Subsidiary Guarantor
is the surviving Person) another Person or sell or convey all or substantially
all of its assets to another Person or group unless (i) the Person formed by or
surviving any such consolidation or merger (if other than such Subsidiary
Guarantor) or the transferee entity (a) is a corporation organized and existing
under the laws of the United States of America, any state thereof, or the
District of Columbia and (b) expressly assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture, in a form
satisfactory to the Trustee, under the Notes and the Indenture, and causes an
opinion of counsel in accordance with the terms of the Indenture to be delivered
to the Trustee, (ii) immediately before and after giving effect to such
transaction, no Default or Event of Default exists and immediately after giving
effect to such transaction, the resulting, surviving or transferee entity could
Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the covenant described herein under the caption "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," and (iii) such Subsidiary Guarantor or the
Person formed by or surviving any such consolidation or merger or the transferee
entity on a pro forma basis will have Net Worth (immediately after giving effect
to the transaction) equal to or greater than the Net Worth of such Subsidiary
Guarantor immediately preceding the transaction. The foregoing will not apply to
a merger, consolidation, sale or other such transaction between Subsidiary
Guarantors or between RAM Energy, Inc. and any Subsidiary Guarantor.

The Indenture will provide that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the properties or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition (other than a lease), by way of such a merger, consolidation or
otherwise, or a disposition of all of the Capital Stock of such Subsidiary
Guarantor) or the Person acquiring such properties or assets (in the event of a
sale or other disposition (other than a lease) of all or substantially all of
the properties or assets of such Subsidiary Guarantor) will be released from and
relieved of any obligations under its Subsidiary Guarantee, PROVIDED that (y)
any Net Cash Proceeds of such sale or other disposition are applied, and the
Trustee has received an officer's certificate from RAM Energy, Inc. that such
Net Cash Proceeds have been or shall be applied in accordance with the covenant
described under the caption "-- Certain Covenants -- Limitation on Asset Sales,"
and (z) all obligations of such Subsidiary Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests that
secure, any other Indebtedness of RAM Energy, Inc. or any of the Subsidiary
Guarantors shall also terminate upon such release, sale or disposition.

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REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL

Upon the occurrence of a Change of Control, RAM Energy, Inc. will be
obligated to make an irrevocable, unconditional offer to repurchase (a "Change
of Control Offer") and will, subject to the provisions described below,
repurchase on a Business Day not more than 60 nor less than 30 days following
the occurrence of such Change of Control (the date on which the repurchase is
effected being referred to herein as the "Change of Control Payment Date"), all
of the then outstanding Notes validly tendered pursuant to such Change of
Control Offer, at a cash purchase price equal to 101% of the principal amount
thereof (the "Change of Control Purchase Price"), plus accrued and unpaid
interest thereon to the Change of Control Payment Date. The Change of Control
Offer is required to remain open for at least 20 Business Days and until the
close of business of the fifth Business Day prior to the Change of Control
Purchase Date.

In order to effect such Change of Control Offer, RAM Energy, Inc. (i) will,
not later than five Business Days after the occurrence of the Change of Control,
notify the Trustee and (ii) will, not later than 20 Business Days after the
occurrence of the Change of Control, make a Change of Control Offer to the
Holders of all of the then outstanding Notes, by sending written notice of a
Change of Control Offer, by first class mail, to each Holder at its registered
address, with a copy to the Trustee. The notice to Holders will contain all
instructions and materials required by applicable law, will contain or make
available to Holders other information material to such Holders' decision to
tender Notes pursuant to the Change of Control Offer and will otherwise govern
the terms of the Change of Control Offer.

On or before the Change of Control Payment Date, RAM Energy, Inc. will, to
the extent lawful, (i) accept for payment Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Purchase Price of all
Notes so tendered, and (iii) deliver or cause to be delivered to the Trustee all
Notes so accepted, together with an officers' certificate listing the Notes or
portions thereof being purchased by RAM Energy, Inc. The Paying Agent will
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price for such Notes, plus accrued and unpaid
interest thereon to the Change of Control Payment Date, and the Trustee will
promptly cancel all Notes so accepted by RAM Energy, Inc. pursuant to the Change
of Control Offer and authenticate and mail (or cause to be transferred by book
entry) to such Holders new Notes equal in principal amount, as applicable, to
any unpurchased portion of the Notes surrendered. Any Notes not so accepted will
be promptly mailed by RAM Energy, Inc. to the Holders thereof. RAM Energy, Inc.
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.

The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture will not contain
provisions that permit the Holders to require that RAM Energy, Inc. repurchase
or redeem the Notes in the event of a takeover, recapitalization or other
similar transaction of RAM Energy, Inc. The provisions of the Indenture may not
afford Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or other similar transaction affecting RAM
Energy, Inc. that may adversely affect the Holders if such transaction is not
the type of transaction included within the definition of "Change of Control."
For example, if RAM Energy, Inc. were to acquire by merger another entity in a
highly leveraged transaction that did not involve a Change of Control of RAM
Energy, Inc., such transaction would not result in a Change of Control as
contemplated by the Indenture. A transaction involving the management of RAM
Energy, Inc. or any other Affiliate or a transaction involving a
recapitalization of RAM Energy, Inc. will result in a Change of Control only if
it is the type of transaction specified in such definition.

The existence of a Holder's right to require RAM Energy, Inc. to repurchase
Notes in connection with a Change of Control may deter a third party from
acquiring RAM Energy, Inc. in a transaction that would constitute a Change of
Control.

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The source of funds for any repurchase of Notes upon a Change of Control
will be RAM Energy, Inc.'s cash or cash generated from operations or other
sources, including borrowings or sales of assets. The occurrence of a Change of
Control may result in a default under a Permitted Bank Credit Facility and give
the lenders the right to require RAM Energy, Inc. to repay all Indebtedness
outstanding thereunder; however, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to repay all Indebtedness
owing or to make any required repurchase of the Notes. Any failure by RAM
Energy, Inc. to repurchase Notes tendered pursuant to a Change of Control Offer
will constitute an Event of Default. See "-- Events of Default and Remedies."

RAM Energy, Inc. will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by RAM Energy,
Inc. and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.

The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of RAM Energy, Inc. Although there is a developing body of
judicial opinions interpreting the phrase "all or substantially all," no precise
standard exists under New York law, which is the law governing the Indenture and
the Notes. Accordingly, the ability of a Holder of Notes to require RAM Energy,
Inc. to repurchase such Notes as a result of a sale, lease, transfer, conveyance
or other disposition of less than all of the assets of RAM Energy, Inc. to
another Person or group is uncertain.

To the extent applicable and if required by law, RAM Energy, Inc. will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules, and regulations which may then be applicable to any offer by RAM Energy,
Inc. to repurchase the Notes at the option of Holders upon a Change of Control;
and, if such laws, rules, and regulations require or prohibit any action
inconsistent with the foregoing, compliance by RAM Energy, Inc. with such laws,
rules, and regulations will not constitute a breach of RAM Energy, Inc.'s
obligations with respect to the foregoing.

CERTAIN COVENANTS

The Indenture will contain, among others, the following covenants:

LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS AND ISSUANCES OF
DISQUALIFIED CAPITAL STOCK

The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness or issue any Disqualified Capital Stock, except that RAM Energy,
Inc. or a Subsidiary Guarantor may Incur Indebtedness and RAM Energy, Inc. may
issue shares of Disqualified Capital Stock if, on a pro forma basis, after
giving effect to such Incurrence or issuance, as the case may be, and the
application of the proceeds therefrom, all of the following tests have been
satisfied:

(i) the Consolidated Fixed Charge Coverage Ratio for RAM Energy, Inc's.
Reference Period for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
Incurred or such Disqualified Capital Stock is issued would have been (A) at
least 2.0 to 1.0 if such additional Indebtedness is Incurred or such
Disqualified Capital Stock is issued during the period commencing on the
Issue Date and ending on December 31, 1998 or (B) at least 2.5 to 1.0 if
such additional Indebtedness is Incurred or such Disqualified Capital Stock
is issued at any time thereafter;

(ii) no Default or Event of Default shall have occurred and be continuing at the
time such additional Indebtedness is Incurred or such Disqualified Capital
Stock is issued or would occur as the result of such Incurrence of such
additional Indebtedness or the issuance of such Disqualified Capital Stock;
and

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(iii) RAM Energy, Inc.'s Adjusted Consolidated Net Tangible Assets as of the
last day of the applicable Reference Period are equal to or greater than
150% of the consolidated Indebtedness of RAM Energy, Inc. and the Subsidiary
Guarantors.

Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the Incurrence of
such Indebtedness, RAM Energy, Inc. and any Subsidiary Guarantor may Incur
Permitted Indebtedness.

Any Indebtedness Incurred or Disqualified Capital Stock issued by any Person
that is not a Subsidiary of RAM Energy, Inc. or a Restricted Subsidiary of RAM
Energy, Inc., which Indebtedness or Disqualified Capital Stock is outstanding at
the time such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with RAM Energy, Inc. or a Restricted Subsidiary of RAM Energy,
Inc., as the case may be, shall be deemed to have been Incurred or issued, as
the case may be, at the time such Person becomes a Restricted Subsidiary of, or
is merged into, or consolidated with RAM Energy, Inc. or a Subsidiary Guarantor;
provided, any Indebtedness of Carlton and its Subsidiaries outstanding on the
Issue Date shall be deemed Indebtedness of the Company and its Subsidiaries
outstanding on the Issue Date.

LIMITATION ON RESTRICTED PAYMENTS

(a) The Indenture will provide that RAM Energy, Inc. will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (i) declare
or pay any dividend on, or make any other distribution to holders of, any shares
of Capital Stock of RAM Energy, Inc. or any of its Restricted Subsidiaries
(other than dividends or distributions payable solely in shares of Qualified
Capital Stock of RAM Energy, Inc. or any Restricted Subsidiary or dividends or
distributions payable to RAM Energy, Inc. or any wholly-owned Subsidiary of RAM
Energy, Inc. that is a Subsidiary Guarantor or warrants, rights or options to
acquire Qualified Capital Stock of RAM Energy, Inc. or any of its Restricted
Subsidiaries), (ii) purchase, redeem or otherwise acquire or retire for value
any such shares of Capital Stock of RAM Energy, Inc. or any Affiliate (other
than any Capital Stock owned by RAM Energy, Inc. or any wholly-owned Restricted
Subsidiary of RAM Energy, Inc. that is a Subsidiary Guarantor), or any options,
warrants or other rights to acquire such Capital Stock, (iii) make any principal
payment on or repurchase, redeem, defease or otherwise acquire or retire for
value any Subordinated Indebtedness, prior to any scheduled principal payment,
scheduled sinking fund payment or maturity, or (iv) make any Restricted
Investment (such payments or other actions described in clauses (i) through (iv)
being collectively referred to as a "Restricted Payment"), unless at the time of
and after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the amount determined by
the Board of Directors of RAM Energy, Inc., whose determination shall be
conclusive and evidenced by a Board resolution, a copy of which resolution shall
be delivered to the Trustee),

(1) no Default or Event of Default shall have occurred and be continuing,

(2) RAM Energy, Inc. could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in accordance with the covenant "-- Certain
Covenants -- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," and

(3) the aggregate amount of all Restricted Payments declared or made after
the Issue Date shall not exceed the sum (without duplication) of the following:

(A) 50% of the Adjusted Consolidated Net Income of RAM Energy, Inc. accrued
on a cumulative basis during the period commencing with the first full quarter
after the Issue Date and ending on the last day of RAM Energy, Inc.'s last
fiscal quarter ending prior to the date of such proposed Restricted Payment (or
if Adjusted Consolidated Net Income is a loss, minus 100% of such loss), plus

(B) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. from the issuance or sale (other than to any Restricted Subsidiary of RAM
Energy, Inc.) of shares of Qualified Capital Stock of RAM Energy, Inc. or any
options, warrants or rights to purchase such shares of Qualified Capital Stock
of RAM Energy, Inc., plus

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(C) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. (other than from any Restricted Subsidiary of RAM Energy, Inc.) upon the
exercise of any options, warrants or rights to purchase shares of Qualified
Capital Stock of RAM Energy, Inc., plus

(D) the aggregate Net Proceeds received after the Issue Date by RAM Energy,
Inc. from the issuance or sale (other than to any Restricted Subsidiary of RAM
Energy, Inc.) of Indebtedness or shares of Disqualified Capital Stock that have
been converted into or exchanged for Qualified Capital Stock of RAM Energy,
Inc., together with the aggregate cash received by RAM Energy, Inc. at the time
of such conversion or exchange, minus

(E) the amount of any write-downs or writeoffs, other negative revaluations,
and other negative extraordinary charges not otherwise reflected in Adjusted
Consolidated Net Income of RAM Energy, Inc. during such period.

(b) Notwithstanding paragraph (a) above, RAM Energy, Inc. and the Subsidiary
Guarantors may take the following actions so long as (in the case of clauses (2)
and (3) below) no Default or Event of Default shall have occurred and be
continuing:

(1) the payment of any dividend on Capital Stock of RAM Energy, Inc. or any
Subsidiary Guarantor within 60 days after the date of declaration thereof, if at
such declaration date such declaration complied with the provisions of paragraph
(a) above;

(2) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of RAM Energy, Inc. or any Subsidiary
Guarantor, in exchange for, or out of the aggregate Net Proceeds from, a
substantially concurrent issue and sale (other than to a Subsidiary Guarantor)
of shares of Qualified Capital Stock of RAM Energy, Inc.;

(3) the repurchase, redemption, repayment, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness in exchange for, or out
of the aggregate Net Proceeds from, a substantially concurrent issue and sale
(other than to a Subsidiary Guarantor) of (i) Subordinated Indebtedness
(provided such Indebtedness is on terms no less favorable to the Holders of the
Notes than the terms of the Subordinated Indebtedness being redeemed) or (ii)
shares of Qualified Capital Stock of RAM Energy, Inc.; and

(4) the redemption of 12 shares of Carlton's outstanding redeemable
preferred stock pursuant to the termination of all rights in respect of such
shares, except the right to receive the redemption price payable on the
scheduled redemption thereof as prescribed in Carlton's certificate of
incorporation, which redemption must occur no later than the earlier of (i) the
third anniversary of the issuance of such stock and (ii) April 10, 1998.

The actions described in clause (1) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
paragraph (b) but shall reduce the amount that would otherwise be available for
Restricted Payments under clause (3) of paragraph (a), PROVIDED that any
dividend paid pursuant to clause (1) of this paragraph (b) shall reduce the
amount that would otherwise be available under clause (3) of paragraph (a) when
declared, but not also when subsequently paid pursuant to clause (1) of this
paragraph (b), and provided that any Net Proceeds received under clauses (2) or
(3)(ii) of paragraph (b) shall not be included in subclauses (B) or (C) of
clause (3) of paragraph (a) above.

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES

The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, or permit
or suffer to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary of RAM Energy, Inc. to (i) pay
dividends or make other distributions on its Capital Stock to RAM Energy, Inc.
or any other Restricted Subsidiary of RAM Energy, Inc., (ii) make loans or
advances or pay any Indebtedness or other obligations owed to RAM Energy, Inc.
or to any other Restricted Subsidiary of RAM Energy, Inc., or (iii) transfer any
of its properties or assets to RAM Energy, Inc. or to any other Restricted
Subsidiary of RAM Energy, Inc., except encumbrances and restrictions existing
under (a) the Indenture, any Permitted Bank Credit Facility

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as in effect on the Issue Date and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, PROVIDED that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment or transfer
restrictions than those contained in the Permitted Bank Credit Facility as in
effect on the Issue Date and (b) any agreement of a Person acquired by RAM
Energy, Inc. or a Restricted Subsidiary of RAM Energy, Inc., which restrictions
existed at the time of acquisition, were not put in place in anticipation of
such acquisition, and are not applicable to any Person or property, other than
the Person or any property of the Person so acquired.

LIMITATION ON TRANSACTIONS WITH AFFILIATES

The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, enter directly or indirectly into, or
permit to exist, any transaction or series of related transactions with or for
the benefit of any Affiliate except for transactions made in good faith, the
terms of which are fair and reasonable to RAM Energy, Inc. or such Restricted
Subsidiary, as the case may be, and are at least as favorable as the terms which
could be obtained by RAM Energy, Inc. or such Restricted Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis with Persons
who are not Affiliates and RAM Energy, Inc. delivers to the Trustee (i) with
respect to any transaction or series of related transactions with an Affiliate
involving aggregate consideration in excess of $1 million, an officers'
certificate certifying that such transaction or transactions comply with this
covenant, (ii) with respect to any transaction or series of related transactions
with an Affiliate involving aggregate consideration in excess of $2 million, a
resolution of the Board of Directors set forth in an officers' certificate
certifying that such transaction or transactions comply with this covenant and
that such transaction or transactions have been approved in good faith by a
majority of the disinterested members of the Board of Directors (which
resolution shall be conclusive evidence of compliance with this provision),
PROVIDED that if there is not a majority of disinterested directors able to
approve such transaction, RAM Energy, Inc. shall also deliver an opinion as to
the fairness, from a financial point of view, to RAM Energy, Inc. or such
Restricted Subsidiary of such transaction or transactions issued by an
investment banking firm of recognized national standing, which opinion shall be
conclusive evidence of compliance with this provision, and (iii) with respect to
any transaction or series of related transactions with an Affiliate involving
aggregate consideration in excess of $5 million, an officers' certificate and a
board resolution as described in subclause (ii) above and an opinion as to the
fairness, from a financial point of view, to RAM Energy, Inc. or such Restricted
Subsidiary of such transaction or transactions issued by an investment banking
firm of recognized national standing, which resolution and opinion shall be
conclusive evidence of compliance with this provision; PROVIDED, however, that
this covenant will not restrict (a) transactions between RAM Energy, Inc. and
any of the Subsidiary Guarantors or transactions between Subsidiary Guarantors,
(b) Restricted Payments permitted by the provisions of the Indenture described
under the caption "-- Certain Covenants -- Limitation on Restricted Payments,"
(c) any employee compensation arrangement by RAM Energy, Inc. or any of its
Restricted Subsidiaries which has been approved by a majority of RAM Energy,
Inc.'s disinterested directors and found in good faith by such directors to be
in the best interests of RAM Energy, Inc. or such Restricted Subsidiary, as the
case may be, and (d) customary directors' fees and indemnification and similar
arrangements.

LIMITATION ON ASSET SALES

The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) RAM
Energy, Inc. or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by resolution of the Board of Directors set
forth in an officers' certificate delivered to the Trustee, which determination
shall be conclusive evidence of compliance with this provision) of the assets or
Capital Stock being sold or issued or otherwise disposed of, and (ii) at least
85% of the value of the consideration for such Asset Sale consists of cash, Cash
Equivalents or Exchange Assets or any combination thereof; PROVIDED that the
amount of any liabilities (as shown on RAM

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Energy, Inc.'s or such Restricted Subsidiary's most recent balance sheet) of RAM
Energy, Inc. or any such Restricted Subsidiary (other than contingent
liabilities and liabilities that are Subordinated Indebtedness or otherwise by
their terms subordinated to the Notes or the Subsidiary Guarantees) that are
assumed by the transferee of such assets pursuant to a customary novation
agreement that releases RAM Energy, Inc. and such Restricted Subsidiary from
further liability shall also be deemed to be cash for purposes of this
provision.

Within 365 days after the receipt of any Net Cash Proceeds from an Asset
Sale, RAM Energy, Inc. or such Restricted Subsidiary may apply such Net Cash
Proceeds, at its option, in any order or combination (i) to repay and
permanently reduce Indebtedness outstanding under any Permitted Bank Credit
Facility to which it or any Subsidiary Guarantor is a party, (ii) to make
Capital Expenditures or (iii) to make other acquisitions of assets to be used in
RAM Energy, Inc.'s and the Subsidiary Guarantors' Oil and Gas Business. Pending
the final application of any such Net Cash Proceeds, RAM Energy, Inc. or such
Restricted Subsidiary may temporarily invest such Net Cash Proceeds in any
manner that is not prohibited by the terms of the Indenture, or temporarily
reduce outstanding revolving credit Indebtedness under Permitted Bank Credit
Facilities. Any Net Cash Proceeds from Asset Sales that are not applied as
provided in clauses (i) through (iii) of the first sentence of this paragraph
will (after expiration of the relevant periods) be deemed to constitute "Excess
Cash."

When the amount of Excess Cash exceeds $10.0 million (the date of such
occurrence, the "Excess Cash Offer Trigger Date"), RAM Energy, Inc. will make an
irrevocable, unconditional offer (an "Excess Cash Offer") to the Holders to
purchase the maximum amount of Notes which could be acquired by application of
such amount of Excess Cash as described herein (the "Excess Cash Offer Amount"),
in cash at the purchase price equal to 100% of the principal amount thereof (the
"Excess Cash Offer Price"), together with accrued and unpaid interest to the
Excess Cash Purchase Date.

Notice of an Excess Cash Offer will be sent at least 30 and not more than 60
days prior to the date on which the Notes tendered shall be accepted (the
"Excess Cash Purchase Date"), by first-class mail, by RAM Energy, Inc. to each
Holder at the address on the Note Register, with a copy to the Trustee. Such
notice will set forth the Excess Cash Purchase Date and the Excess Cash Offer
shall remain open for at least 20 Business Days and close no later than 30
Business Days after the date such notice is given. The notice to the Holders
will contain all information, instructions and materials required by applicable
law or otherwise material to such Holders' decision to tender Notes pursuant to
the Excess Cash Offer.

To the extent applicable and if required by law, RAM Energy, Inc. will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any Excess Cash Offer by
RAM Energy, Inc.; and, if such laws, rules and regulations require or prohibit
any action inconsistent with the foregoing, compliance by RAM Energy, Inc. with
such laws, rules and regulations will not constitute a breach of its obligations
with respect to the foregoing.

On or before an Excess Cash Purchase Date, RAM Energy, Inc. will (i) accept
for payment Notes or portions thereof properly tendered pursuant to the Excess
Cash Offer, (ii) deposit with the Paying Agent money sufficient to pay the
Excess Cash Offer Price, plus accrued and unpaid interest thereon to the Excess
Cash Purchase Date of all Notes or portions thereof so accepted, and (iii)
deliver to the Trustee all Notes so accepted together with an officers'
certificate listing the Notes or portions thereof being purchased by RAM Energy,
Inc. The Paying Agent shall promptly mail to Holders of Notes so accepted
payment in an amount equal to the Excess Cash Offer Price, plus accrued and
unpaid interest thereon to the Excess Cash Purchase Date. The Trustee shall
promptly cancel all Notes accepted by RAM Energy, Inc. pursuant to the Excess
Cash Offer and authenticate and mail to the Holders of Notes so accepted new
Notes equal to the principal amount of any unpurchased portion of the Notes
surrendered. Any Notes not so accepted shall be promptly mailed by RAM Energy,
Inc. to the Holders thereof. RAM Energy, Inc. will publicly announce the results
of the Excess Cash Offer on or as soon as practicable after the Excess Cash
Purchase Date.

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If the amount required to acquire all Notes tendered by Holders pursuant to
the Excess Cash Offer (the "Excess Cash Acceptance Amount") shall be less than
the aggregate Excess Cash Offer Amount, then the excess of the Excess Cash Offer
Amount over the Excess Cash Acceptance Amount may be used by RAM Energy, Inc. or
any Subsidiary Guarantor for any of their respective general corporate purposes
to the extent such use is not prohibited or restricted by the Indenture. If the
aggregate principal amount of the Notes surrendered by Holders exceeds the
Excess Cash Offer Amount, then the Trustee shall select the Notes to be
purchased in compliance with the requirements of the principal national
securities exchange on which the Notes are listed or, if the Notes are not so
listed, on a PRO RATA basis by lot or by such method as the Trustee deems fair
and appropriate. Upon consummation of any Excess Cash Offer made in accordance
with the terms of the Indenture, the amount of Excess Cash will be reduced to
zero.

LIMITATION ON LIENS

The Indenture will provide that RAM Energy, Inc. may not, and may not permit
any of its Restricted Subsidiaries to, directly or indirectly, incur or suffer
to exist any Lien upon any of their respective properties or assets, whether now
owned or hereafter acquired, or any income, profits or proceeds therefrom, other
than Permitted Liens.

LIMITATION ON LINES OF BUSINESS

The Indenture will provide that RAM Energy, Inc. will not engage, and will
not permit any of its Restricted Subsidiaries to engage, in any line of business
other than the Oil and Gas Business.

DESIGNATION OF UNRESTRICTED SUBSIDIARIES

The Board of Directors of RAM Energy, Inc. may designate any Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default or
an Event of Default and following such designation, RAM Energy, Inc. could Incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described herein under the caption "-- Limitation on Incurrences of
Additional Indebtedness and Issuances of Disqualified Capital Stock." For
purposes of making such determination, all outstanding Investments by RAM
Energy, Inc. and its Restricted Subsidiaries in the Subsidiary so designated
which have not been repaid in cash will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for Restricted
Payments under clause (3) of paragraph (a) of the covenant described under the
caption "-- Limitation on Restricted Payments." All such outstanding Investments
will be deemed to constitute Restricted Investments in an amount equal to the
greater of the fair market value or book value of such Investments at the time
of such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. In addition, the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
describes additional requirements that a Subsidiary of RAM Energy, Inc. must
satisfy before it may be designated as an Unrestricted Subsidiary by the Board
of Directors of RAM Energy, Inc.

The Indenture will provide that neither RAM Energy, Inc. nor any of its
Restricted Subsidiaries or Unrestricted Subsidiaries may take any action or omit
to take any action which would cause any requirement in the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
not to be at all times satisfied with respect to any Unrestricted Subsidiary,
other than pursuant to a designation or redesignation as provided in the
following paragraph. If, at any time subsequent to the designation of a Person
as an Unrestricted Subsidiary and prior to a corresponding redesignation as
provided in the next paragraph, any requirement in the definition of
"Unrestricted Subsidiary" set forth under the caption "-- Certain Definitions"
is not met with respect to such Unrestricted Subsidiary, then such Unrestricted
Subsidiary shall thereafter cease to be an Unrestricted Subsidiary for purposes
of the Indenture and any Indebtedness of such Subsidiary shall be deemed
Incurred as of such date.

The Board of Directors of RAM Energy, Inc. may designate or redesignate (as
applicable) any Unrestricted Subsidiary of RAM Energy, Inc. as a Restricted
Subsidiary of RAM Energy, Inc.; PROVIDED THAT, (i) if the Unrestricted
Subsidiary has any Indebtedness outstanding or is otherwise liable for any

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Indebtedness or has a negative Net Worth, then immediately after giving pro
forma effect to such designation or redesignation, as applicable, RAM Energy,
Inc. could Incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the provisions described under the heading "--
Limitation on Incurrences of Additional Indebtedness and Issuances of
Disqualified Capital Stock" (assuming, for purposes of this calculation, that
each dollar of negative Net Worth is equal to one dollar of Indebtedness), (ii)
all Indebtedness of such Unrestricted Subsidiary shall be deemed to be Incurred
by a Restricted Subsidiary of Ram Energy, Inc. on the date such Unrestricted
Subsidiary becomes a Restricted Subsidiary, and (iii) no Default or Event of
Default would occur or be continuing after giving effect to such designation.
Any Subsidiary of an Unrestricted Subsidiary shall be an Unrestricted Subsidiary
for purposes of the Indenture.

LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES

The Indenture will provide that RAM Energy, Inc. will not, directly or
indirectly, sell or otherwise dispose of any shares of Capital Stock of any of
its Restricted Subsidiaries, and shall not permit any of its Restricted
Subsidiaries, directly or indirectly, to issue or sell or otherwise dispose of
any of its Capital Stock except (i) to RAM Energy, Inc. or a wholly-owned
Subsidiary of RAM Energy, Inc. that is a Subsidiary Guarantor, or (ii) if all
shares of Capital Stock of such Restricted Subsidiary are sold or otherwise
disposed of. In connection with any sale or disposition of Capital Stock of any
Restricted Subsidiary of RAM Energy, Inc., RAM Energy, Inc. will be required to
comply with the covenant described under the caption "-- Limitation on Asset
Sales."

OWNERSHIP AND RECOGNITION OF SUBSIDIARIES

The Indenture will provide (i) that all of the Capital Stock of each of its
Restricted Subsidiaries be owned, whether directly or indirectly, by RAM Energy,
Inc., except for the redeemable preferred stock referred to in clause (b)(4)
under the caption "-- Limitation on Restricted Payments", which preferred stock
shall be fully and finally redeemed and discharged in the manner and at such
dates as provided in such clause (b)(4) and under the caption "-- Discharge of
Certain Preferred Stock." and (ii) that all Persons (other than an Unrestricted
Subsidiary) now or hereafter becoming a Subsidiary of RAM Energy, Inc. (whether
by formation, acquisition or otherwise) shall be, and shall be recognized as, a
Subsidiary Guarantor for all purposes thereunder.

LIMITATION ON MERGER, SALE OR CONSOLIDATION

The Indenture will provide that RAM Energy, Inc. will not consolidate with
or merge with or into any other Person, or, directly or indirectly, sell, lease,
assign, transfer, or convey all or substantially all of its assets (computed on
a consolidated basis) to another Person or group of Persons acting in concert,
whether in a single transaction or through a series of related transactions,
unless (i) either (a) RAM Energy, Inc. is the continuing Person or (b) the
resulting, surviving, or transferee entity is a corporation organized under the
laws of the United States, any state thereof, or the District of Columbia, and
shall expressly assume all of the obligations of RAM Energy, Inc. under the
Indenture and the Notes by a supplemental indenture, executed and delivered to
the Trustee on or prior to the consummation of such transaction, in form
satisfactory to the Trustee, (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect to such transaction, (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Net Worth of the resulting, surviving or transferee entity is at least equal to
the Net Worth of RAM Energy, Inc. immediately prior to such transaction, (iv)
except for a merger of RAM Energy, Inc. with or into any wholly-owned Subsidiary
of RAM Energy, Inc. that is a Subsidiary Guarantor, the resulting, surviving or
transferee entity would, at the time of such transaction and after giving effect
thereto, be permitted to Incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the covenant described under the
caption "-- Limitation on Incurrences of Additional Indebtedness and Issuances
of Disqualified Capital Stock," (v) each Subsidiary Guarantor shall have
executed and delivered to the Trustee, in form satisfactory to the Trustee, a
supplemental indenture confirming such Subsidiary Guarantor's obligations to pay
the principal of and interest on the Notes pursuant to its Subsidiary Guarantee,
and (vi) the Trustee shall have received, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an

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opinion of counsel, each stating that such consolidation, merger or sale,
conveyance or other transfer and each supplemental indenture in respect thereto
comply with this provision and that all conditions precedent in the Indenture
relating to such transaction have been complied with. For purposes of this
covenant, the Consolidated Fixed Charge Coverage Ratio shall be determined on a
pro forma consolidated basis (after giving effect to the transaction) as if such
transaction had occurred at the beginning of the Reference Period immediately
preceding such transaction.

Upon any consolidation or merger or any transfer of all or substantially all
of the assets of RAM Energy, Inc. in accordance with the foregoing, the
successor Person formed by such consolidation or merger or the Person to whom
such transfer is made, shall succeed to, and be substituted for, and may
exercise every right and power of, RAM Energy, Inc. under the Indenture with the
same effect as if such successor corporation had been named as RAM Energy, Inc.
therein, but RAM Energy, Inc. in the case of a conveyance, transfer or lease of
all or substantially all of the assets of the Company in accordance with the
preceding paragraph shall not be released from the obligation to pay principal
of, premium (if any) and interest on the Notes.

This covenant will include a phrase relating to the sale, lease, transfer,
conveyance or other dispositions of "all or substantially all" of the assets of
RAM Energy, Inc. Although there is a developing body of judicial opinions
interpreting the phrase "all or substantially all," no precise standard exists
under applicable law. Accordingly, the ability of the Holders of the Notes to
declare an Event of Default as the result of such a disposition or series of
dispositions is uncertain.

FUTURE GUARANTORS

Simultaneously with the acquisition (by merger, consolidation, acquisition
of assets, stock or properties or otherwise) or formation of a Person which,
directly or indirectly, becomes a Subsidiary of RAM Energy, Inc., or the
occurrence of any other event, circumstance or transaction pursuant to which,
directly or indirectly, a Person becomes a Subsidiary of RAM Energy, Inc. (in
each case, other than a Person then designated an Unrestricted Subsidiary in
accordance with the provisions under the caption "-- Designation of Unrestricted
Subsidiaries"), RAM Energy, Inc. shall cause such Subsidiary to execute and
deliver a supplement to the Indenture pursuant to which such Subsidiary will
unconditionally guarantee to each Holder and the Trustee the full and prompt
payment and performance of RAM Energy, Inc.'s obligations under the Indenture
and Notes, including the payment of principal of, premium, if any, and interest
on the Notes, such guarantee being limited in maximum amount as otherwise
provided under the caption "-- Ranking and Subsidiary Guarantees," all in form
satisfactory to the Trustee.

DISCHARGE OF CERTAIN PREFERRED STOCK

On or before April 10, 1998, RAM Energy, Inc. shall fully and finally pay
and discharge, or cause to be fully and finally paid and discharged, the
redemption price referred to in clause (b)(4) under the caption "-- Limitation
on Restricted Payments," and if applicable, any interest on such redemption
price accruing from the third anniversary of the issuance of the redeemable
preferred stock referred to in such clause (b)(4) until the earlier of such date
of payment and April 10, 1998. Contemporaneous with the receipt of net proceeds
from the Offering, RAM Energy, Inc. shall deposit in a segregated bank account,
an amount of cash equal to the sum of the redemption price and maximum accrued
interest referred to in the preceding sentence, and neither RAM Energy, Inc. nor
any Restricted Subsidiary of RAM Energy, Inc. shall utilize any such deposited
amount for any purpose other than the payment and discharge of such redemption
price and related accrued interest.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will define an Event of Default as (i) the failure by RAM
Energy, Inc. to pay installments of interest on the Notes as and when the same
become due and payable and the continuance of any such failure for 30 days, (ii)
the failure by RAM Energy, Inc. to pay all or any part of the principal or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, (iii) the failure by RAM
Energy, Inc. to comply with the provisions described

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under the caption "-- Certain Covenants -- Repurchase of Notes at the Option of
the Holder Upon a Change of Control," "-- Limitation on Asset Sales" or "--
Limitation on Merger, Sale or Consolidation," (iv) the failure by RAM Energy,
Inc. or any of its Restricted Subsidiaries to observe or perform any other
covenant or agreement contained in the Notes, the Indenture or any Subsidiary
Guarantee, and the continuance of such failure for a period of 30 days after
written notice is given to RAM Energy, Inc. by the Trustee or to RAM Energy,
Inc. and the Trustee by the Holders of at least 25% of the principal amount of
the Notes then outstanding, (v) certain events of bankruptcy, insolvency or
reorganization in respect of RAM Energy, Inc. or any of the Subsidiary
Guarantors, (vi) a default which extends beyond any stated period of grace
applicable thereto (including any extension thereof) under any mortgage,
indenture or instrument under which there is outstanding any Indebtedness of RAM
Energy, Inc. or any of its Restricted Subsidiaries aggregating in excess of $1.0
million or is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of any applicable grace
period, PROVIDED that a waiver by all of the lenders of such Indebtedness of
such default shall constitute a waiver hereunder for the same period, (vii) one
or more final judgments not covered by insurance aggregating at least $1.0
million at any one time rendered against RAM Energy, Inc. or any of its
Restricted Subsidiaries and not stayed or discharged within 60 days, or (viii)
any of the Indenture, the Notes or the Subsidiary Guarantees ceases to be in
full force and effect (other than by reason of release of a Subsidiary Guarantor
in accordance with the terms of the Indenture), or any of the Indenture, the
Notes or the Subsidiary Guarantees is declared to be null and void or
unenforceable, or the validity or enforceability of any of the Indenture, the
Notes or the Subsidiary Guarantees is denied or contested by the Company, any
Affiliate or any other Person.

The Indenture will provide that if an Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee must, within 90 days
after the occurrence of such Event of Default, give to the Holders notice of
such default; PROVIDED, that, except in the case of default in payment of
principal of, premium, if any, or interest on the Notes, the Trustee will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders of the Notes.

If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (v) above), then in every such case, unless the
principal of all of the Notes shall have already become due and payable, either
the Trustee or the Holders of at least 25% of the principal amount of Notes then
outstanding, by notice in writing to RAM Energy, Inc. (and to the Trustee if
given by Holders), may declare all principal of, premium, if any, and accrued
interest on the Notes to be due and payable immediately. If an Event of Default
specified in clause (v) above occurs, all principal, premium, if any, and
accrued interest on the Notes will be immediately due and payable on all
outstanding Notes without any declaration or other act on the part of the
Trustee or the Holders. The Holders of not less than a majority of the principal
amount of then outstanding Notes are authorized to rescind such acceleration if
(i) any existing Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on the Notes which have become due solely by
such acceleration, have been cured or waived in compliance with applicable
provisions of the Indenture and (ii) the rescission would not conflict with any
judgment or decree.

Prior to the declaration of acceleration of the Notes, the Holders of a
majority of the Notes at the time outstanding may waive on behalf of all the
Holders any Default or Event of Default, except a Default or Event of Default in
the payment of principal of, premium, if any, or interest on any Note not yet
cured, or a Default or Event of Default with respect to any covenant or
provision which cannot be modified or amended without the consent of all of the
Holders of the Notes. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Indenture,
the Holders of a majority of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.

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LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE OF THE
INDENTURE

RAM Energy, Inc. may, at its option and at any time, elect to have all of
the obligations of itself and the Subsidiary Guarantors discharged with respect
to the outstanding Notes ("Legal Defeasance") except as to (i) RAM Energy,
Inc.'s obligations with respect to issuing temporary Notes, registration of
transfer, substitution and exchange of Notes, mutilated, destroyed, lost or
stolen Notes, the maintenance of an office or agency for payment of money for
security payments held in the trust referred to below, (ii) rights of Holders to
receive payments of principal of, premium, if any, and interest on the Notes
(but not the Change of Control Purchase Price or the Excess Cash Offer Price)
when such payments are due from the trust referred to below, (iii) the rights,
powers, trusts, obligations and immunities of the Trustee under the Indenture,
and RAM Energy, Inc.'s obligations in connection therewith, and (iv) the Legal
Defeasance provisions and certain other specified provisions in the Indenture
(the foregoing exceptions (i) through (iv) are collectively referred to as the
"Reserved Rights"). In addition, RAM Energy, Inc. may, at its option and at any
time, elect to have the obligations of itself and the Subsidiary Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance"), and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under the caption "-- Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Notes.

To exercise either Legal Defeasance or Covenant Defeasance, (i) RAM Energy,
Inc. must irrevocably deposit with the Trustee, in trust, for the benefit of the
Holders of the Notes, cash in U.S. dollars, non-callable Government Securities,
which through the payment of interest and principal will provide, no later than
one day before the due date of payment in respect of the Notes, cash in U.S.
dollars, or a combination thereof, in such amount, as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the outstanding Notes on
the stated date for payment thereof or on the applicable redemption date, as the
case may be, and RAM Energy, Inc. must specify whether the Notes are being
defeased to maturity or to a particular redemption date, (ii) in the case of
Legal Defeasance, RAM Energy, Inc. shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
(who may be outside counsel to RAM Energy, Inc.) confirming that (A) RAM Energy,
Inc. has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred, (iii) in the
case of Covenant Defeasance, RAM Energy, Inc. shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred, (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or, insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day (or if a longer period for avoidance
or set aside is then applicable, then one day ending after the conclusion of
such longer period) after the date of deposit, (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, any material agreement or instrument to which RAM Energy, Inc. or
any of its Subsidiaries is a party or by which RAM Energy, Inc. or any of its
Subsidiaries is bound, (vi) RAM Energy, Inc. must have delivered to the Trustee
an opinion of counsel to the effect that (A) such Legal Defeasance or Covenant
Defeasance shall not result in RAM Energy, Inc., any Subsidiary Guarantor, the
trust created with the deposit of funds or the Trustee being subject to
regulation under, or constituting an investment company within the meaning of,
the Investment Company Act of 1940, as amended, and

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(B) after the 91st day (or if a longer period for avoidance or set aside is then
applicable, then one day ending after the conclusion of such longer period)
after the date of deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (vii) RAM Energy, Inc. must deliver to the Trustee
an officers' certificate stating that the deposit was not made by RAM Energy,
Inc. with the intent of preferring the Holders of Notes over the other creditors
of RAM Energy, Inc. or any Subsidiary Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of RAM Energy, Inc., any Subsidiary
Guarantor or others, (viii) no event or condition shall exist that would prevent
RAM Energy, Inc. from making payments of principal of, or premium, if any, or
interest on, the Notes on the date of such deposit or at any time during and
ending on the 91st day (or such longer period as referred to in clause (iv) or
(vi)(B) above) after the date of such deposit and (ix) RAM Energy, Inc. must
deliver to the Trustee an officers' certificate and an opinion of counsel,
which, taken together, state that all conditions precedent provided for relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.

The Indenture will cease to be of further effect as to all outstanding Notes
when (i) all outstanding Notes have been delivered to the Trustee for
cancellation and (ii) RAM Energy, Inc. has paid or caused to be paid the
principal of, premium, if any, and interest on the Notes.

REPORTS

The Indenture will require RAM Energy, Inc. and each Subsidiary Guarantor to
furnish to the Trustee, together with, and at the same time as the delivery of,
the reports and information referred to in the next following paragraph, an
officers' certificate to the effect that responsible officers of RAM Energy,
Inc. have conducted or supervised a review of the activities of RAM Energy, Inc.
and the Subsidiary Guarantors and their respective Subsidiaries and of
performance under the Indenture and that, to the best of such officers'
knowledge, based on their review, each of RAM Energy, Inc. and the Subsidiary
Guarantors has fulfilled all of its obligations under the Indenture or, if there
has been a Default, specifying each Default known to them, its nature and its
status. RAM Energy, Inc. will also be required to notify the Trustee of any
changes in the composition of the Board of Directors of RAM Energy, Inc. or any
of its Subsidiaries or of any amendment to the charter or bylaws of RAM Energy,
Inc. or any of its Subsidiaries.

Each of RAM Energy, Inc. and its Subsidiaries, where applicable, shall
deliver to the Trustee and to each Holder, copies of all reports and information
that it is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. In addition, whether or not required by the rules and
regulations of the Commission, RAM Energy, Inc. will file a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to investors
or prospective investors who request it in writing.

Concurrently with the reports delivered pursuant to the preceding paragraph,
RAM Energy, Inc. will be required to deliver to the Trustee and to each Holder
annual and quarterly financial statements with appropriate footnotes of RAM
Energy, Inc. and its consolidated Subsidiaries, all prepared and presented in a
manner substantially consistent with those of RAM Energy, Inc. required by the
preceding paragraph.

RAM Energy, Inc. is required upon becoming aware of any Default or Event of
Default to deliver to the Trustee a statement specifying such Default or Event
of Default.

AMENDMENTS AND SUPPLEMENTS

The Indenture will contain provisions permitting RAM Energy, Inc., the
Subsidiary Guarantors and the Trustee to amend or supplement the Indenture or
the Notes for limited purposes without the consent of the Holders, including
curing ambiguities, defects or inconsistencies, releasing Subsidiary Guarantees
as described under the caption "-- Ranking and Subsidiary Guarantees" or making
any other change with respect to matters arising under the Indenture, so long as
such change does not adversely affect the rights of any of the Holders. With the
consent of the Holders of not less than a majority of the principal amount of
the Notes then outstanding, RAM Energy, Inc., the Subsidiary Guarantors and the
Trustee will be permitted to otherwise amend or supplement the Indenture;
PROVIDED that no such modification may, without the consent of the Holders of
not less than 66 2/3% of the principal amount of the Notes then

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outstanding, (i) prior to the date on which a Change of Control Offer is
required to be made, amend, change or modify the obligation of RAM Energy, Inc.
to make and consummate a Change of Control Offer as required by the covenant
described herein under the caption "-- Repurchase of Notes at the Option of the
Holder Upon a Change of Control," or (ii) prior to the date upon which an Excess
Cash Offer is required to be made, amend, change or modify the obligation of RAM
Energy, Inc. to make and consummate an Excess Cash Offer required by the
covenant described herein under the caption "-- Certain Covenants -- Limitation
on Asset Sales,"; PROVIDED further, that no such modification may, without the
consent of each Holder (a) change the stated maturity date or the date any
installment of principal of, or any installment of interest on, any Note is due,
or reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, change the coin or currency in
which, any Note or any premium or the interest thereon is payable or impair the
right to institute suit for the enforcement of any such payment on or after the
stated maturity date thereof (or, in the case of redemption, on or after the
redemption date), (b) after the date upon which a Change of Control Offer is
required to be made, alter the provisions of the covenant described herein under
the caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control", (c) after the date upon which an Excess Cash Offer is required to be
made, alter the provisions of the covenant described under the caption "--
Limitation on Asset Sales", (d) reduce the percentage in principal amount of
outstanding Notes, the consent of which is required for any such amendment,
supplemental indenture, or waiver provided for in the Indenture, (e) modify
certain of the amendment or waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of all Holders of the Notes, (f)
except as otherwise permitted under the caption "-- Limitation on Merger, Sale
or Consolidation" or in the last two paragraphs under the caption "-- Ranking
and Subsidiary Guarantees," consent to the assignment or transfer by RAM Energy,
Inc. or any Subsidiary Guarantor of any of their respective rights and
obligations under the Indenture, (g) adversely affect the ranking of the Notes
or the Subsidiary Guarantees, or (h) release any Subsidiary Guarantee in any
case otherwise than in accordance with the terms of the Indenture.

CONCERNING THE TRUSTEE

The Indenture will contain certain limitations on the rights of the Trustee,
should it become a creditor of RAM Energy, Inc. or any Subsidiary Guarantor, to
obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; however, if it acquires any
conflicting interests, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue as Trustee or resign.

The Holders of a majority of the principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture will provide that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of the Notes.

NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS OR DIRECTORS

No stockholder, officer, or director, as such, past, present, or future, of
RAM Energy, Inc. or any of its Subsidiaries or any successor corporation of any
of them shall have any personal liability in respect of the obligations of RAM
Energy, Inc. or such Subsidiary under the Notes, the Indenture or any Subsidiary
Guarantees by reason of his, her or its status as such stockholder, officer, or
director. Such waiver may not be effective to waive liabilities under federal
securities law, and it is the view of the Commission that such a waiver is
against public policy.

GOVERNING LAW

The Indenture, the Notes and the Subsidiary Guarantees will be governed by
the laws of the State of New York.

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CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.

"Adjusted Consolidated Net Income" of RAM Energy, Inc. for any period means
the Net Income of RAM Energy, Inc. and its Subsidiary Guarantors for such
period, determined in accordance with GAAP, excluding (i) the Net Income of any
Unrestricted Subsidiary of RAM Energy, Inc. which is a consolidated Subsidiary
of RAM Energy, Inc. for such period and (ii) the amount of the deduction from
Net Income of RAM Energy, Inc. attributable to the minority interest in any
Unrestricted Subsidiary of RAM Energy, Inc. which is a consolidated Subsidiary
of RAM Energy, Inc. for such period.

"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, (i) the sum of (a) discounted future net revenue
from proved oil and gas reserves of RAM Energy, Inc. and the Subsidiary
Guarantors calculated in accordance with Commission guidelines before any state
or federal income taxes, as estimated or audited by independent petroleum
engineers in one or more Reserve Reports prepared as of the end of RAM Energy,
Inc.'s most recently completed fiscal year as increased by, as of the date of
determination, the discounted future net revenue of (A) estimated proved oil and
gas reserves of RAM Energy, Inc. and the Subsidiary Guarantors attributable to
any acquisition consummated since the effective date of such year-end Reserve
Reports and (B) estimated oil and gas reserves of RAM Energy, Inc. and the
Subsidiary Guarantors attributable to extensions, discoveries and other
additions and upward revisions of estimates of proved oil and gas reserves due
to exploration, development or exploitation, production or other activities
conducted or otherwise occurring since the effective date of such year-end
Reserve Reports which, in the case of sub-clauses (A) and (B), would, in
accordance with standard industry practice, result in such increases, in each
case calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end Reserve Reports), and decreased by, as of the date of
determination, the discounted future net revenue of (C) estimated proved oil and
gas reserves of RAM Energy, Inc. and the Subsidiary Guarantors produced or
disposed of since the effective date of such year-end Reserve Reports and (D)
reductions in the estimated oil and gas reserves of RAM Energy, Inc. and the
Subsidiary Guarantors since the effective date of such year-end Reserve Reports
attributable to downward revisions of estimates of proved oil and gas reserves
due to exploration, development or exploitation, production or other activities
conducted or otherwise occurring since the effective date of such year-end
Reserve Reports which would, in accordance with standard industry practice,
result in such revisions, in each case calculated in accordance with Commission
guidelines (utilizing the prices utilized in such year-end Reserve Reports);
PROVIDED that, in the case of each of the determinations made pursuant to
sub-clauses (A) through (D) above, such increases and decreases shall be as
estimated by RAM Energy, Inc.'s engineers, except that if there is a Material
Change and in connection with the Incurrence of Indebtedness for which the
Consolidated Fixed Charge Coverage Ratio must be determined, all or any part of
an increase in discounted future net revenue resulting from the matters
described in sub-clauses (A) and (B) above is needed to permit the Incurrence of
such Indebtedness, then the discounted future net revenue utilized for purposes
of this clause (i) (a) shall be confirmed in writing by independent petroleum
engineers, PROVIDED further that, if the events referred to in sub-clauses (C)
and (D) above, when taken alone, would not cause a Material Change, then such
written confirmation need only cover the incremental additions to discounted
future net revenue resulting from the determinations made pursuant to
sub-clauses (A) and (B) above to the extent needed to permit the Incurrence of
such Indebtedness, (b) the capitalized costs that are attributable to oil and
gas properties of RAM Energy, Inc. and the Subsidiary Guarantors to which no
proved oil and gas reserves are attributed, based on RAM Energy, Inc.'s books
and records as of a date no earlier than the date of RAM Energy, Inc.'s latest
annual or quarterly financial statements, (c) the Net Working Capital on a date
no earlier than the date of RAM Energy, Inc.'s latest annual or quarterly
financial statements and (d) the greater of (A) the net book value on a date no
earlier than the date of RAM Energy, Inc.'s latest annual or quarterly financial
statements

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and (B) the appraised value, as estimated by independent appraisers, of other
tangible assets (including the amount of Investments in unconsolidated
Subsidiaries) of RAM Energy, Inc. and the Subsidiary Guarantors, as of a date no
earlier than the date of RAM Energy, Inc.'s latest audited financial statements,
minus (ii) the sum of (a) minority interests, (b) any non-current portion of gas
balancing liabilities of RAM Energy, Inc. and its Subsidiary Guarantors
reflected in RAM Energy, Inc.'s latest annual or quarterly financial statements,
(c) the discounted future net revenue, calculated in accordance with Commission
guidelines (utilizing the prices utilized in RAM Energy, Inc.'s year-end Reserve
Reports), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of RAM Energy, Inc. and its Subsidiary
Guarantors with respect to Production Payments on the schedules specified with
respect thereto, (d) the discounted future net revenue, calculated in accordance
with Commission guidelines (utilizing the same prices utilized in RAM Energy,
Inc.'s year-end Reserve Reports), attributable to reserves subject to
participation interests, overriding royalty interests or other interests of
third parties, pursuant to participation, partnership, vendor financing or other
agreements then in effect, or which otherwise are required to be delivered to
third parties and (e) the amount of environmental liabilities payable by RAM
Energy, Inc. or any Subsidiary Guarantor. If RAM Energy, Inc. changes its method
of accounting from the full cost method to the successful efforts method or a
similar method of accounting, Adjusted Consolidated Net Tangible Assets will
continue to be calculated as if RAM Energy, Inc. was still using the full cost
method of accounting.

"Affiliate" means (i) any Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with RAM Energy, Inc.
or any Subsidiary of RAM Energy, Inc. or any officer, director, or employee of
RAM Energy, Inc. or any Subsidiary of RAM Energy, Inc. or of such Person, (ii)
the spouse, any immediate family member, or any other relative who has the same
principal residence of any Person described in clause (i) above, and any Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with, such spouse, family member or other relative, and (iii) any
trust in which any Person described in clause (i) or (ii), above, is a fiduciary
or has a beneficial interest. For purposes of this definition, the term
"control" means (i) the power to direct the management and policies of a Person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, or (ii) the beneficial ownership
of 10% or more of the Voting Stock of such Person (on a fully diluted basis) or
of warrants or other rights to acquire such equity (whether or not presently
exercisable).

"Asset Sale" means (i) any direct or indirect conveyance, sale, transfer or
other disposition (including through damage or destruction for which Insurance
Proceeds are paid or by condemnation), in one transaction or a series of related
transactions, of any of the properties, businesses or assets of RAM Energy, Inc.
or any of its Restricted Subsidiaries whether owned on the Issue Date or
thereafter acquired or (ii) any sale or other disposition by RAM Energy, Inc. of
any Capital Stock of any Affiliate, Unrestricted Subsidiary or any Restricted
Subsidiary of RAM Energy, Inc. Notwithstanding the foregoing, the following will
not be deemed to be an Asset Sale: (a) the conveyance, sale, lease, transfer or
other disposition by any Restricted Subsidiary of RAM Energy, Inc. of any or all
of its assets (upon voluntary liquidation or otherwise) to RAM Energy, Inc.; (b)
the conveyance, sale, lease, transfer or other disposition by any Restricted
Subsidiary of RAM Energy, Inc. of any or all of its assets (upon voluntary
liquidation or otherwise) to another Restricted Subsidiary of RAM Energy, Inc.;
(c) non-material dispositions of assets in the ordinary course of business; (d)
Asset Sales not otherwise included by clauses (a) through (c) or (f) and (g) of
this sentence PROVIDED that the aggregate proceeds from all such Asset Sales do
not exceed $1.0 million in any twelve-month period; (e) the disposition of all
or substantially all of the assets of (A) RAM Energy, Inc. and the Subsidiary
Guarantors, taken as a whole, or (B) RAM Energy, Inc., if such disposition is
governed by the provisions of the covenant captioned "-- Repurchase of Notes at
the Option of the Holder Upon a Change of Control" or "-- Certain Covenants --
Limitation on Merger, Sale or Consolidation;" (f) a conveyance, sale,
assignment, lease, license, transfer, abandonment or other disposal by RAM
Energy, Inc. and the Subsidiary Guarantors of (A) damaged, worn out,
unserviceable or other obsolete property in the ordinary course of business or
(B) other property no longer necessary for the

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proper conduct of their business; and (g) the conveyance, sale, transfer or
other disposition by RAM Energy, Inc. and its Restricted Subsidiaries of crude
oil and natural gas production and refined products in the ordinary course of
business of the Oil and Gas Business.

"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP or,
in the event that such rate of interest is not reasonably determinable,
discounted at the rate of interest borne by the Notes) of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended or may, at the option of the lessor, be extended).

"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in the city of New York, New York are required or
authorized by law or other governmental action to be closed.

"Capital Expenditures" of a Person means expenditures (whether paid in cash
or accrued as a liability) by such Person or any of its Subsidiaries that, in
conformity with GAAP, are or would be included in "capital expenditures,"
"additions to property, plant, or equipment" or comparable items in the
consolidated financial statements of such Person consistent with prior
accounting practices.

"Capital Stock" means, with respect to any Person, (i) any capital stock of
such Person and shares, interests, participations or other ownership interests
(however designated) of such Person, including without limitation, each class of
common stock and preferred stock of such Person, if such Person is a
corporation, (ii) each general or limited partnership interest or other equity
interest of such Person, if such Person is a partnership, (iii) each membership
or similar interest of such Person, if such Person is a limited liability
company and (iv) each other interest or participation that confers on a Person
the right to receive a share of the profits or losses of, or distribution of
assets of, the issuing Person, in each case, including any rights (other than
debt securities convertible into any such interests), warrants or options to
purchase any of the foregoing.

"Capitalized Lease Obligation" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.

"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year, and overnight bank deposits, in each case,
with any Eligible Institution, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) entered into with any Eligible Institution, (v) commercial paper
rated "P-l," "A-l" or the equivalent thereof by Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services, respectively, and in each case maturing
within 180 days after the date of acquisition, (vi) shares of money market
funds, including those of the Trustee, that invest solely in United States
dollars and securities of the types described in clauses (i) through (v), and
(vii) demand and time deposits and certificates of deposit with an Eligible
Institution or with commercial banks insured by the Federal Deposit Insurance
Corporation.

"Change of Control" means the occurrence of (i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related transactions, of
all or substantially all of the assets of RAM Energy, Inc. to any person (as
such term is used in Section 13(d)(3) of the Exchange Act) other than to a
Subsidiary Guarantor, (ii) RAM Energy, Inc. consolidates with or merges into
another Person or any Person consolidates with, or merges into, RAM Energy,
Inc., in any such event pursuant to a transaction in

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which the outstanding Voting Stock of RAM Energy, Inc. is changed into or
exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of RAM Energy, Inc. is
changed into or exchanged for Voting Stock of the surviving or resulting Person
that is Qualified Capital Stock and (b) the holders of the Voting Stock of RAM
Energy, Inc. immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving or resulting
Person immediately after such transaction, (iii) the adoption of a plan relating
to the liquidation or dissolution of RAM Energy, Inc. not involving a merger or
consolidation or a sale or other disposition of assets described in clause (i)
above, (iv) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any person (as defined
above), excluding the Permitted Holders, becomes the "beneficial owner" (as that
term is used in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of RAM Energy, Inc.'s
then outstanding Voting Stock; PROVIDED that the sale of Voting Stock of RAM
Energy, Inc. to a Person or Persons acting as underwriters in connection with a
firm commitment underwriting shall not constitute a Change of Control, or (v)
the first day on which a majority of the members of the Board of Directors of
RAM Energy, Inc. are not Continuing Directors (other than by action of the
Permitted Holders). For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring Voting Stock
of RAM Energy, Inc. will be deemed to be a transfer of such portion of such
Voting Stock as corresponds to the portion of the equity of such entity that has
been so transferred.

"Change of Control Offer" shall have the meaning given to it under the
caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."

"Change of Control Payment Date" shall have the meaning given to it under
the caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."

"Change of Control Purchase Price" shall have the meaning given to it under
the caption "-- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."

"Commission" means the Securities and Exchange Commission.

"Consolidated Fixed Charge Coverage Ratio" on any date means, with respect
to RAM Energy, Inc., the ratio, on a pro forma basis, of (i) the aggregate
amount of EBITDA attributable to continuing operations and businesses (exclusive
of the amounts attributable to operations and businesses discontinued or
disposed of, on a pro forma basis as if such operations and businesses were
discontinued or disposed of on the first day of the Reference Period) for the
Reference Period to (ii) the aggregate Consolidated Interest Expense (exclusive
of amounts attributable to discontinued operations and businesses on a pro forma
basis as if such operations and businesses were discontinued or disposed of on
the first day of the Reference Period, but only to the extent that the
obligations giving rise to such Consolidated Interest Expense would no longer be
obligations contributing to Consolidated Interest Expense subsequent to the date
of discontinuation or disposal) during the Reference Period; PROVIDED, that for
purposes of such computation, in calculating EBITDA and Consolidated Interest
Expense, (a) the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio shall be assumed to have occurred on
the first day of the Reference Period, (b) the Incurrence of any Indebtedness or
issuance of Disqualified Capital Stock or the retirement of any Indebtedness or
Capital Stock during the Reference Period or subsequent thereto shall be assumed
to have occurred on the first day of such Reference Period, and (c) Consolidated
Interest Expense attributable to any Indebtedness (whether existing or being
Incurred) bearing a floating interest rate shall be computed as if the rate in
effect on the date of determination had been the applicable rate for the entire
period, unless RAM Energy, Inc. or any of the Subsidiary Guarantors is a party
to a Swap Obligation (that remains in effect for the 12-month period after the
date of determination) that has the effect of fixing the interest rate on the
date of computation, in which case such rate (whether higher or lower) shall be
used.

"Consolidated Interest Expense" means, for any period, the aggregate
interest expense (without duplication) during such period in respect of all
Indebtedness of RAM Energy, Inc. and the Subsidiary

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Guarantors (including all commissions, discounts, other fees and charges owed
with respect to letters of credit and banker's acceptance financing and costs
associated with Swap Obligations) determined on a consolidated basis in
accordance with GAAP. For purposes of this definition, (i) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board), and
(ii) Consolidated Interest Expense attributable to any Indebtedness guaranteed
by RAM Energy, Inc. or a Subsidiary of such Person other than with respect to
Indebtedness of RAM Energy, Inc. or a Subsidiary Guarantor shall be deemed to be
the interest expense attributable to the item guaranteed.

"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of RAM Energy, Inc. who (i) was a member of such Board of
Directors on the Issue Date or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
nomination or election.

"Covenant Defeasance" shall have the meaning given to it under the caption
"-- Legal Defeasance and Covenant Defeasance; Satisfaction and Discharge of the
Indenture."

"Default" means an event or condition, the occurrence of which is, or with
the lapse of time or giving of notice or both would be, an Event of Default.

"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person or its Subsidiaries that, by its terms or by the terms of
any security into which it is convertible or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased by such Person or its Subsidiaries, including at the option of
the holder, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due, on or prior to
the Stated Maturity Date.

"EBITDA" means for any period the sum of the Adjusted Consolidated Net
Income for such period, plus the sum, without duplication (and only to the
extent such amounts are deducted from net revenues in determining such Adjusted
Consolidated Net Income), of (i) the provision for federal and state income
taxes for such period, (ii) depreciation, depletion, and amortization for such
period, (iii) Consolidated Interest Expense for such period, determined on a
consolidated basis for RAM Energy, Inc. and the Subsidiary Guarantors in
accordance with GAAP, (iv) any charge associated solely with the prepayment of
any Indebtedness (provided that neither the Incurrence of such Indebtedness nor
the making of such prepayment occurred in violation of any provision of the
Indenture) and (v) any other non-cash charges.

"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million and that is rated "A"
(or higher) according to Moody's Investors Service, Inc. or Standard & Poor's
Ratings Services at the time as of which any investment or rollover therein is
made.

"Excess Cash Acceptance Amount" shall have the meaning given to it under the
caption"-- Certain Covenants -- Limitation on Asset Sales."

"Excess Cash Offer" shall have the meaning given to it under the caption "--
Certain Covenants -- Limitation on Asset Sales."

"Excess Cash Offer Amount" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."

"Excess Cash Offer Price" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."

"Excess Cash Offer Trigger Date" shall have the meaning given to it under
the caption "-- Certain Covenants -- Limitation on Asset Sales."

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"Excess Cash Purchase Date" shall have the meaning given to it under the
caption "-- Certain Covenants -- Limitation on Asset Sales."

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.

"Exchange Assets" means assets acquired by RAM Energy, Inc. or any
Subsidiary Guarantor in exchange for assets of RAM Energy, Inc. or any
Subsidiary Guarantor in connection with an Asset Sale, which acquired assets
include proved reserves with a value that, together with the cash or Cash
Equivalents received therefor by RAM Energy, Inc. or such Subsidiary Guarantor,
is equal to or greater than the value of the proved reserves included in the
assets disposed of by RAM Energy, Inc. or such Subsidiary Guarantor in
connection with such Asset Sale; provided, that (i) ownership of such assets
does not violate the covenant "Limitation on Lines of Business" and (ii) during
any fiscal year, RAM Energy, Inc. and the Subsidiary Guarantors can collectively
acquire assets (other than proved reserves, cash or Cash Equivalents) with a
fair market value of up to $500,000 in exchange for assets of RAM Energy, Inc.
and the Subsidiary Guarantors.

"GAAP" means generally accepted accounting principles as in effect in the
United States on the Issue Date applied on a basis consistent with that used in
the preparation of the audited financial statements of RAM Energy, Inc. included
in this Prospectus.

"Government Securities" means securities that are (i) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Security
or a specific payment of principal of or interest on any such Government
Security held by such custodian for the account of the holder of such depository
receipt; provided, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.

"Hedging Contract" means an oil, gas or oil and gas purchase or hedging
agreement, and other agreement or arrangements, in each case, that is designed
to provide protection against fluctuations in the prices of oil or gas, or both.

"Holder" means any Person from time to time in whose name any Note is
registered on the Note Register.

"Hydrocarbons" means oil, natural gas, condensate, and natural gas liquids.

"Incur" means, with respect to any Indebtedness, to create, incur, assume,
guarantee or otherwise become liable for, contingently or otherwise, any
Indebtedness, and the term "Incurrence" when used as a noun shall have a
correlative meaning. Neither the accrual of interest nor the accretion of
original issue discount, nor the accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.

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"Indebtedness" means, with respect to any Person, without duplication (i)
all liabilities, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
or similar instruments or letters of credit or representing the balance deferred
and unpaid of the purchase price of any property acquired by such Person or
services received by such Person, but excluding trade account payables and
accrued liabilities arising in the ordinary course of business that are not
overdue by 90 days or being contested in good faith by appropriate proceedings,
promptly instituted and diligently pursued, (c) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks or Swap
Obligations, (d) for the payment of money relating to a Capitalized Lease
Obligation, (e) for the Attributable Indebtedness associated with any Sale and
Leaseback Transaction or (f) for Production Payments, (ii) reimbursement
obligations of such Person with respect to letters of credit, (iii) all
liabilities of others of the kind described in the preceding clause (i) or (ii)
that such Person has guaranteed or that is otherwise its legal liability (to the
extent of such guarantee or other legal liability) other than for endorsements,
with recourse, of negotiable instruments in the ordinary course of business, and
(iv) all obligations secured by a Lien (other than Permitted Liens, except to
the extent the obligations secured by such Permitted Liens are otherwise
included in clause (i), (ii) or (iii) of this definition and are obligations of
such Person) to which the property or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such Person are subject, regardless of whether the obligations secured thereby
shall have been assumed by or shall otherwise be such Person's legal liability
(but, if such obligations are not assumed by such Person or are not otherwise
such Person's legal liability, the amount of such Indebtedness shall be deemed
to be limited to the fair market value of such property or assets determined as
of the end of the preceding fiscal quarter).

"Insurance Proceeds" means the interest in and to all proceeds (net of costs
of collection, including attorneys' fees) which now or hereafter may be paid
under any insurance policies now or hereafter obtained by or on behalf of RAM
Energy, Inc. or any Subsidiary Guarantor in connection with any assets thereof,
together with interest payable thereon and the right to collect and receive the
same, including, without limitation, proceeds of casualty insurance, title
insurance, business interruption insurance and any other insurance now or
hereafter maintained with respect to such assets.

"Interest Rate or Currency Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.

"Investment" by any Person in any other Person means (i) the acquisition
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership, or other ownership interests or
other securities of such other Person or any agreement to make any such
acquisition, (ii) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the purchase
of property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) and
(without duplication) any amount committed to be advanced, loaned or extended to
such other Person, (iii) the entering into of any guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of such
other Person, (iv) the entering into of any Swap Obligation with such other
Person, or (v) the making of any capital contribution by such Person to such
other Person.

"Investment Grade Rating" means with respect to any Person or issue of debt
securities or preferred stock, a rating in one of the four highest letter rating
categories (without regard to "+" or "-" or other modifiers) by any rating
agency or if any such rating agency has ceased using letter rating categories or
the four highest of such letter rating categories are not considered to
represent "investment grade" ratings, then the comparable "investment grade"
ratings (as designated by any such rating agency).

"Issue Date" means the date of first issuance of the Notes under the
Indenture.

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"Legal Defeasance" shall have the meaning given to it under the caption "--
Legal Defeasance and Covenant Defeasance; Satisfaction and Discharge of the
Indenture."

"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, regardless of whether filed, recorded, or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).

"Material Change" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than either (i) 10% from the end
of the immediately preceding fiscal quarter in the estimated discounted future
net revenue from proved oil and gas reserves of RAM Energy, Inc. and its
Restricted Subsidiaries, or (ii) 20% from the end of the immediately preceding
year in the estimated discounted future net revenue from proved oil and gas
reserves of RAM Energy, Inc. and its Restricted Subsidiaries, in each case
calculated in accordance with clause (i) (a) of the definition of Adjusted
Consolidated Net Tangible Assets; PROVIDED, however, that the following will be
excluded from the calculation of Material Change: (a) any acquisitions of oil
and gas reserves made after the end of the immediately preceding year for which
the discounted future net revenues have been estimated by independent petroleum
engineers since the end of the preceding year and on which a Reserve Report or
Reserve Reports exist and (b) any disposition of properties existing at the
beginning of the current quarter or current year, as the case may be, for
purposes of clause (i) or clause (ii) above, that have been disposed of in
accordance with the covenant described under the caption "-- Certain Covenants
- -- Limitation on Asset Sales."

"Net Cash Proceeds" means an amount equal to (i) the aggregate amount of
cash and Cash Equivalents received by RAM Energy, Inc. or any Restricted
Subsidiary of RAM Energy, Inc. in respect of an Asset Sale, less (ii) the sum of
(a) all reasonable out-of-pocket fees, commissions, and other expenses incurred
in connection with such Asset Sale, including the amount (estimated in good
faith by RAM Energy, Inc.) of income, franchise, sales and other applicable
taxes to be paid, payable or accrued by RAM Energy, Inc. or such Restricted
Subsidiary (in each case as estimated in good faith by RAM Energy, Inc. without
giving effect to tax attributes unrelated to such Asset Sale) in connection with
such Asset Sale, and (b) the aggregate amount of cash and Cash Equivalents so
received which is used to retire any then existing Indebtedness of RAM Energy,
Inc. or any Subsidiary Guarantor (other than the Notes), as the case may be,
which is secured by a Lien on the property which is the subject of the Asset
Sale or which is required by the terms of such Indebtedness to be repaid in
connection with such Asset Sale.

"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined on a consolidated basis in accordance
with GAAP, excluding (without duplication) (i) all extraordinary, unusual and
nonrecurring gains, (ii) the net income, if positive, of any other Person, in
which such Person or any of its consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such Person or a consolidated Subsidiary of such Person during
such period, (iii) the net income, if positive, of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition and (iv) the net income, if positive, of any Subsidiary of such
Person to the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule, or
governmental regulation applicable to such Subsidiary.

"Net Proceeds" means (i) in the case of any sale by a Person of Qualified
Capital Stock or other securities, the aggregate net cash proceeds received by
such Person from the sale of such securities (if such Person is RAM Energy,
Inc., other than to a Restricted Subsidiary of RAM Energy, Inc., and if such
Person is not RAM Energy, Inc., other than to any of its consolidated
Subsidiaries) after payment of reasonable out-of-pocket expenses, commissions
and discounts incurred in connection therewith, and (ii) in the case of any
exchange, exercise, conversion or surrender of any outstanding securities or
Indebtedness of such Person for or into shares of Qualified Capital Stock of
such Person, the net book

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value of such outstanding securities as adjusted on the books of such Person or
Indebtedness of such Person to the extent recorded in accordance with GAAP, in
each case, on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder of such Indebtedness or
securities to such Person upon such exchange, exercise, conversion or surrender
and less (i) any and all payments made to the holders of such Indebtedness or
securities and (ii) all other expenses incurred by such Person in connection
therewith, in each case, in so far as such payments or expenses are incident to
such exchange, exercise, conversion, or surrender).

"Net Working Capital" of any Person means (i) all current assets of such
Person and if such Person is RAM Energy, Inc., the Subsidiary Guarantors, and if
such Person is not RAM Energy, Inc., its Restricted Subsidiaries, minus (ii) all
current liabilities of such Person and its consolidated Subsidiaries other than
the current portion of long term Indebtedness, each item to be determined on a
consolidated basis in conformity with GAAP.

"Net Worth" of any Person means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of such Person and if such Person is RAM Energy,
Inc., the Subsidiary Guarantors, and if such Person is not RAM Energy, Inc., its
Restricted Subsidiaries (which balance sheet shall be as of a date not more than
90 days prior to the date of such computation), less any amounts included
therein attributable to Disqualified Capital Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
(not otherwise deducted from stockholders' equity), and the principal amount of
any promissory notes receivable from the sale of the Capital Stock of such
Person or if such Person is RAM Energy, Inc., any of the Subsidiary Guarantors,
and if such Person is not RAM Energy, Inc., its Restricted Subsidiaries, each
item to be determined in conformity with GAAP.

"Note Register" means the register maintained by or for RAM Energy, Inc. in
which RAM Energy, Inc. shall provide for the registration of the Notes and the
transfer of the Notes.

"Oil and Gas Assets" means assets and properties used in the Oil and Gas
Business.

"Oil and Gas Business" means the business of acquiring, holding, leasing,
selling, exploiting and developing oil and gas assets and properties, including
the exploration for, and exploitation, development, production, processing (but
not refining), purchasing, marketing and transportation of, Hydrocarbons and
other related oil and gas businesses.

"Oil and Gas Securities" means the Voting Stock of a Person engaged in the
Oil and Gas Business, provided that such Voting Stock shall constitute a
majority of the Voting Stock of such Person in the event that such Voting Stock
is not subject to the reporting requirements of the Exchange Act.

"Permitted Bank Credit Facility" means, with respect to any Person, a term,
revolving credit or letter of credit facility, or any combination of such
facilities, with a commercial banking institution, the proceeds of which are
used to acquire Oil and Gas Securities or Oil and Gas Assets, for working
capital and other general corporate purposes, as the same may be amended,
extended or refinanced from time to time.

"Permitted Hedging Transactions" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement transactions) engaged in by RAM Energy, Inc. and the
Subsidiary Guarantors as part of their normal business operations as a risk-
management strategy or hedge against adverse changes in the prices of natural
gas, feedstock or refined products which arise in the ordinary course of
business of RAM Energy, Inc. and the Subsidiary Guarantors; PROVIDED, that such
transactions do not in the case of RAM Energy, Inc. and the Subsidiary
Guarantors, on a monthly basis, relate to more than 90% of their combined
average net natural oil and gas production per month for the most recent 3-month
period measured at the time of such transaction; PROVIDED, further, that, at the
time of such transaction (i) the counterparty to any such transaction is an
Eligible Institution or a Person that has an Investment Grade Rating or has an
issue of debt securities or preferred stock outstanding with an Investment Grade
Rating or (ii) such counterparty's obligation pursuant to such transaction is
unconditionally guaranteed in full by, or secured by a letter of credit issued

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by, an Eligible Institution or a Person that has an Investment Grade Rating or
that has an issue of debt securities or preferred stock outstanding with an
Investment Grade Rating.

"Permitted Holders" means Dr. William W. Talley II, Larry E. Lee, William
Stuart Price and M. Helen Bennett (or (i) their heirs, their estates or any
trusts in which they or any of their immediate family members own, directly or
indirectly, a beneficial interest in excess of 50% or (ii) any corporation,
partnership or other legal entity in which they own, directly or indirectly, a
beneficial interest in excess of 50%).

"Permitted Indebtedness" means, without duplication, (i) the Indebtedness
evidenced by the Offered Notes or the Subsidiary Guarantees, (ii) Indebtedness
owed by any Subsidiary Guarantor to RAM Energy, Inc. or any other Subsidiary
Guarantor or Indebtedness owed by RAM Energy, Inc. to any Subsidiary Guarantor;
PROVIDED that in each case, (a) such Indebtedness is Subordinated Indebtedness,
and (b) upon any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Subsidiary Guarantor ceasing to be a
Subsidiary Guarantor or any other subsequent transfer of any such Indebtedness
(except to RAM Energy, Inc. or a Subsidiary Guarantor), such Indebtedness shall
be deemed to be Incurred and shall be treated as an Incurrence of Indebtedness
for purposes of the "-- Limitation on Incurrences of Additional Indebtedness and
Issuances of Disqualified Capital Stock" covenant at the time the Subsidiary
Guarantor in question ceased to be a Subsidiary Guarantor or the time such
subsequent transfer occurred, (iii) Indebtedness outstanding under a Permitted
Bank Credit Facility so long as the aggregate principal amount of all
Indebtedness outstanding under all Permitted Bank Credit Facilities for RAM
Energy, Inc. and the Subsidiary Guarantors does not exceed $25.0 million less
the amount of Net Cash Proceeds from any Asset Sale applied pursuant to the
covenant "-- Limitation on Asset Sales" to repay or prepay such Indebtedness
that results in a permanent reduction relating thereto, (iv) Swap Obligations of
RAM Energy, Inc. or the Subsidiary Guarantors, (v) Indebtedness outstanding on
the Issue Date (and not repaid with the proceeds of the Offering), (vi)
Indebtedness owed by RAM Energy, Inc. or the Subsidiary Guarantors in an
aggregate principal amount outstanding not to exceed $5.0 million at any one
time, whether of the same type as permitted by clauses (i) through (v) and (vii)
of this definition or otherwise, and (vii) Permitted Refinancing Indebtedness of
RAM Energy, Inc. and the Subsidiary Guarantors.

"Permitted Investment" means, when used with reference to RAM Energy, Inc.
or any Subsidiary Guarantor, (i) trade credit extended to Persons in the
ordinary course of business, (ii) purchases of Cash Equivalents, (iii)
Investments by RAM Energy, Inc. or the Subsidiary Guarantors in Persons which
are or which will, contemporaneously with the making of such Investment, become
wholly-owned Subsidiaries of RAM Energy, Inc. and Subsidiary Guarantors and are
engaged in the Oil and Gas Business, (iv) Investments in Oil and Gas Assets, (v)
Investments in any Person the sole consideration for which consists of Qualified
Capital Stock of RAM Energy, Inc., (vi) Interest Rate and Currency Agreements
with respect to Permitted Bank Credit Facilities entered into with one or more
financial institutions that are lender parties thereto in the ordinary course of
business and not for the purposes of speculation and that are designed to
protect RAM Energy, Inc. against risks or fluctuations in interest rates related
to payment obligations existing and arising under such Permitted Bank Credit
Facilities and Swap Obligations, (vii) advances to officers and employees of RAM
Energy, Inc. or any Subsidiary Guarantor in connection with the performance of
their duties in the ordinary course of business in an amount not to exceed
$250,000 in the aggregate outstanding at any time, (viii) margin deposits in
connection with Permitted Hedging Transactions, (ix) Investments and
expenditures made in the ordinary course of business by RAM Energy, Inc. or the
Subsidiary Guarantors, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring for,
acquiring, developing, enhanced recovery of, processing, gathering, purchasing,
selling, marketing or transporting oil or gas through agreements, transactions,
interests or arrangements, including arrangements which permit a Person to share
risks or costs, comply with regulatory requirements regarding local ownership or
satisfy other objectives customarily achieved through the conduct of the Oil and
Gas Business jointly with third parties, including, without limitation, (a)
ownership interests in Oil and Gas Assets or gathering systems and

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(b) Investments and expenditures in the form of or pursuant to operating
agreements, processing agreements, farm-in agreements, farm-out agreements,
development agreements, area of mutual interest agreements, unitization
agreements, pooling arrangements, joint bidding agreements, service contracts,
joint venture agreements, partnership agreements (whether general or limited),
subscription agreements, stock purchase agreements and other similar agreements
with third parties; PROVIDED that in the case of any joint venture engaged in
processing, gathering, marketing or transporting oil or gas (1) all Indebtedness
of such joint venture (other than a joint venture that is an Unrestricted
Subsidiary) that would not otherwise constitute Indebtedness of RAM Energy, Inc.
or a Subsidiary Guarantor shall be deemed Indebtedness of such Person in
proportion to its direct or indirect ownership interest in such joint venture
and (2) such joint venture shall be reasonably calculated to enhance the value
of the reserves of such Person or marketability of production from such
reserves, (x) other Investments not in excess of $2.5 million at any time
outstanding, and (xi) loans made to officers, directors and employees of RAM
Energy, Inc. or any of the Subsidiary Guarantors approved by the applicable
Board of Directors (or by an authorized officer), the proceeds of which are used
solely to purchase stock or to exercise stock options received pursuant to an
employee stock option plan or other incentive plan, in a principal amount not to
exceed the purchase price of such stock or the exercise price of such stock
options, as applicable.

"Permitted Liens" with respect to any Person means (i) Liens imposed by
governmental authorities for taxes, assessments, or other charges not yet due or
which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of any such
Person in accordance with GAAP, (ii) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen, repairmen, vendors, mineral interest
owners, or other like Liens arising by operation of law in the ordinary course
of business PROVIDED that (a) the underlying obligations are not overdue for a
period of more than 60 days, or (b) such Liens are being contested in good faith
and by appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of any such Person in accordance with GAAP, (iii)
deposits of cash or Cash Equivalents to secure the performance of bids, trade
contracts (other than borrowed money), leases, statutory obligations, surety
bonds, performance bonds, and other obligations of a like nature incurred in the
ordinary course of business (or to secure reimbursement obligations or letters
of credit issued to secure such performance or other obligations), (iv)
easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects incurred in the ordinary course of business which,
in the aggregate, are not material in amount and which do not, in any case,
materially detract from the value of the property subject thereto or materially
interfere with the ordinary conduct of the business of such Person, (v) Liens
securing the Notes, any Subsidiary Guarantee or any Permitted Bank Credit
Facility, (vi) pledges or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance, other types of
social security legislation, property insurance and liability insurance, (vii)
Liens on the assets of any Person existing at the time such assets are acquired
by such Person, whether by merger, consolidation, purchase of assets or
otherwise so long as such Liens (a) are not created, incurred or assumed in
contemplation of such assets being acquired by such Person and (b) do not extend
to any other assets of such Person, (viii) leases or subleases granted to others
(to the extent of any such lessee's normal and customary usage rights
thereunder) or obtained from others (to the extent of any such lessor's title
thereunder), in either case, that do not materially interfere with the ordinary
course of business of any of such Person, (ix) Liens ordinarily and customarily
arising under operating agreements, and (x) any extension, renewal or
replacement of the Liens created pursuant to any of clauses (i) through (ix),
PROVIDED that such Liens would have otherwise been permitted under such clauses,
and PROVIDED further that the Liens permitted by this clause (x) do not secure
any additional Indebtedness or encumber any additional property.

"Permitted Refinancing Indebtedness" means any Indebtedness of a Person
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, other Indebtedness of such Person;
PROVIDED that (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) then outstanding of the Indebtedness for which
the exchange is made or so extended,

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refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (ii) such Permitted
Refinancing Indebtedness (other than Indebtedness under Permitted Bank Credit
Facilities) has a final maturity date later than the final maturity date of, and
has a weighted average life equal to or greater than the weighted average life
of, the Indebtedness for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the Indebtedness
for which the exchange is made or being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes or any
Subsidiary Guarantee (as the case may be), such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes or any Subsidiary
Guarantee (as the case may be), on terms at least as favorable to the Holders of
Notes or any Subsidiary Guarantee (as the case may be) as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, and (iv) with respect to any such Indebtedness
of RAM Energy, Inc. for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, such Permitted Refinancing
Indebtedness shall not be Incurred by any Subsidiary Guarantor.

"Person" means any corporation, individual, joint stock company, joint
venture, partnership, limited liability company, unincorporated association,
governmental regulatory entity, country, state, or political subdivision
thereof, trust, municipality, or other entity.

"Preferred Stock" means, with respect to any Person, any class or classes
(however designated) of Capital Stock of such Person that is preferred as to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person over shares of Capital
Stock of any other class of such Person.

"Production Payment" means any volumetric or dollar-denominated production
payment or other similar burden on the property of RAM Energy, Inc. or any of
its Subsidiary Guarantors.

"Public Equity Offering" means an underwritten public offering, subsequent
to the Issue Date, by a nationally recognized member of the National Association
of Securities Dealers, Inc. of Qualified Capital Stock of RAM Energy, Inc.
pursuant to an effective registration statement filed with the Commission
pursuant to the Securities Act.

"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.

"Reference Period" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Notes or the
Indenture.

"Reserve Report" means a report prepared by independent petroleum engineers
with respect to Hydrocarbon reserves in accordance with guidelines published by
the Commission.

"Restricted Investment" means (i) the designation of a Subsidiary as an
Unrestricted Subsidiary in the manner described in the definition of
Unrestricted Subsidiary and (ii) any Investment other than a Permitted
Investment.

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of such Person.

"Sale and Leaseback Transaction" means an arrangement relating to property
owned on the Issue Date or thereafter acquired whereby a Person or a Subsidiary
of such Person transfers such property to another Person and leases it back from
such other Person.

"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.

"Stated Maturity Date" means , 2008.

"Subordinated Indebtedness" means Indebtedness of RAM Energy, Inc. or a
Subsidiary Guarantor that (i) requires no payment of principal prior to or on
the Stated Maturity Date and (ii) is expressly subordinate and junior in right
of payment to the Notes or the Subsidiary Guarantees, as the case may be.

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"Subsidiary" with respect to any Person means, as of each relevant time, (i)
a corporation with respect to which such Person or its Subsidiaries (or any
combination thereof) own or control, directly or indirectly, at least 50% of
such corporation's Voting Stock, (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner of such partnership
and has more than 50% of the total voting power of partnership interests, or
(iii) any other Person (other than a corporation or a partnership) in which such
Person, one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has (a) at least a 50%
ownership interest or (b) the power to elect or direct the election of the
directors or other governing body of such other Person.

"Subsidiary Guarantee" means any guarantee of the Notes by any Subsidiary
Guarantor pursuant to the provisions of the Indenture.

"Subsidiary Guarantors" means (i) RB Operating Company, a Delaware
corporation, (ii) RLP Gulf States, L.L.C., an Oklahoma limited liability
company, and (iii) each other Person that guarantees the payment and performance
of the Notes in accordance with the provisions of the Indenture, in each case,
until any such Person shall be released and relieved of its obligations as a
Subsidiary Guarantor pursuant to the provisions of the Indenture.

"Swap Obligation" of any Person means any Interest Rate or Currency
Agreement or Hedging Contract entered into with one or more financial
institutions or one or more futures exchanges in the ordinary course of business
and not for purposes of speculation that is designed to protect such Person
against risks or fluctuations that arise in the ordinary course of business of
RAM Energy, Inc. and the Subsidiary Guarantors in (i) interest rates related to
payment obligations on Indebtedness (other than Permitted Indebtedness)
permitted to be Incurred as described under the caption "-- Certain Covenants --
Limitation on Incurrences of Additional Indebtedness and Issuances of
Disqualified Capital Stock" and which shall have a notional amount no greater
than 100% of the principal amount of such Indebtedness being hedged thereby,
(ii) currency exchange rate fluctuations related to the payment obligations on
Indebtedness (other than Permitted Indebtedness) permitted to be Incurred as
described under the caption "-- Certain Covenants -- Limitation on Incurrences
of Additional Indebtedness and Issuances of Disqualified Capital Stock" or to
the foreign currency cash flows reasonably expected to be generated by RAM
Energy, Inc. and the Subsidiary Guarantors and the notional principal amount of
such currency exchange obligations does not exceed the amount of such foreign
currency cash flows to which they relate, or (iii) fluctuations in oil and gas
prices.

"Unrestricted Non-Recourse Indebtedness" of any Unrestricted Subsidiary
means (i) Indebtedness of such Person that is secured solely (other than with
respect to clause (ii) below) by a Lien upon the stock of an Unrestricted
Subsidiary of such Person and as to which there is no recourse (other than with
respect to clause (ii) below) against such Person or any of its assets other
than against such stock (and the dollar amount of any Indebtedness of such
Person as described in this clause (i) shall be deemed to be zero for purposes
of all other provisions of the Indenture) and (ii) guarantees of the
Indebtedness of Unrestricted Subsidiaries of such Person.

"Unrestricted Subsidiary" means, in respect of any Person, any other Person
("Other Person") that would, but for this definition of "Unrestricted
Subsidiary" be a Restricted Subsidiary of such Person organized or acquired
after the Issue Date as to which all of the following conditions apply: (i)
neither such Person nor any of its other Subsidiaries provides, or is obligated
to provide, any credit support of any Indebtedness, or other financial support,
of such Other Person (including any undertaking, agreement or instrument
evidencing such Indebtedness or maintenance or preservation of such Other
Person's financial condition or to cause such Other Person to achieve any
specified levels of operating results); (ii) such Other Person is not liable,
directly or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness and does not own any Capital Stock of, or own or hold
any Lien on any property of, such Person or any of its other Restricted
Subsidiaries; (iii) neither such Person nor any of its Restricted Subsidiaries
has made an Investment in such Other Person unless such Investment was permitted
by the provisions as described under the caption "-- Certain Covenants --
Limitation on Restricted Payments," and neither such Person nor any of its
Restricted Subsidiaries has any obligations to make any Investment

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in such Other Person; (iv) such Other Person, either alone or in the aggregate
with all other Unrestricted Subsidiaries, does not operate or own, directly or
indirectly, any significant portion of the assets or business of such Person and
its other Subsidiaries; and (v) the Board of Directors of such Person, as
provided below, shall have designated such Other Person to be an Unrestricted
Subsidiary on or prior to the date of organization or acquisition of such Other
Person. Any such designation by the Board of Directors of such Person shall be
evidenced to the Trustee by delivering to the Trustee a resolution thereof
giving effect to such designation and an officers' certificate certifying that
such designation complies with the foregoing conditions and was permitted by the
covenant as described under the caption "-- Certain Covenants -- Limitation on
Restricted Payments." TEXTUAL REFERENCES HEREIN TO AN "UNRESTRICTED SUBSIDIARY"
SHALL REFER TO AN UNRESTRICTED SUBSIDIARY OF RAM ENERGY, INC., UNLESS THE
CONTEXT OTHERWISE EXPRESSLY PROVIDES.

"Unrestricted Subsidiary Indebtedness" means, as to any Unrestricted
Subsidiary of any Person, Indebtedness of such Unrestricted Subsidiary (i) as to
which neither such Person nor any Subsidiary of such Person (a) is directly or
indirectly liable (by virtue of such Person or any such Subsidiary being the
primary obligor on, guarantor of, general partner of, or otherwise liable in any
respect to, such Indebtedness), or (b) constitutes a lender, (ii) no default
with respect to which would permit any holder of any Indebtedness of such Person
or any Subsidiary of such Person to declare a default on such Indebtedness of
such Person or any Subsidiary of such Person or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of such Person or any of its Subsidiaries.

"Voting Stock" means Capital Stock of a Person entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers, trustees or similar persons of such Person.

BOOK ENTRY; DELIVERY AND FORM

The Notes will initially be issued in the form of one or more fully
registered global notes (collectively, the "Global Note"). The Global Note will
be deposited on the Issue Date with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depository") and registered in the name of
Cede & Co., as nominee of the Depository (such nominee being referred to herein
as the "Global Note Holder").

The Depository is a limited-purpose trust company organized under the
Banking Law of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository was created to hold securities for its
participating organizations (collectively, the "Participants" or the
"Depository's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic book-
entry changes in accounts of its Participants. The Depository's Participants
include securities brokers and dealers (including the Underwriter), banks and
trust companies, clearing corporations and certain other organizations, some of
which (and/or representatives) own the Depository. Access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies (collectively, the "Indirect Participants" or the
"Depository's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.

The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the Underwriter with portions of the
principal amount of the Global Note and (ii) ownership of beneficial interests
in the Global Note will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depository (with respect to
such interests of the Depository's Participants), the Depository's Participants
and the Depository's Indirect Participants. A beneficial owner is the person who
has the right to sell, transfer or otherwise dispose of an interest in the Notes
and the right to receive the proceeds therefrom, as well as principal, premium
(if any) and interest payable in respect of the Notes. The

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beneficial owner must rely on the foregoing arrangements to evidence its
interest in the Notes. Beneficial ownership of the Notes may be transferred only
by complying with the procedures of a beneficial owner's Participant (e.g., a
brokerage firm) and the Depository. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in the Global Note is
limited to such extent.

So long as the Global Note Holder is the registered owner of the Global
Note, the Global Note Holder will be considered the sole Holder under the
Indenture of the Notes for all purposes under the Indenture and any applicable
laws. Except as provided below, beneficial owners of the Global Note will not be
entitled to have the Notes registered in their names, will not receive or be
entitled to receive physical delivery of the Notes in definitive form and will
not be considered the owners or Holders thereof under the Indenture for any
purpose.

All rights of ownership must be exercised through the Depository and the
book-entry system, and notices that are to be given to registered owners by RAM
Energy, Inc. or the Trustee will be given only to the Depository. It is expected
that the Depository will forward notices to the Participants who will in turn
forward notices to the beneficial owners. Neither RAM Energy, Inc., the Trustee,
the Paying Agent nor the Registrar will have any responsibility or obligation to
assure that any notices are forwarded by the Depository to any Participant or by
any Participant to the beneficial owners. Neither RAM Energy, Inc., the Trustee,
the Paying Agent nor the Registrar will have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the Global Note, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.

Payments in respect of the principal of, premium, if any, and interest on
the Global Note registered in the name of the Global Note Holder on the
applicable record date will be made by RAM Energy, Inc. through the Paying Agent
to or at the direction of the Global Note Holder in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, RAM
Energy, Inc. and the Trustee will treat the persons in whose names Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither RAM Energy, Inc. nor the
Trustee nor any Paying Agent has or will have any responsibility or liability
for the payment of such amounts to beneficial owners in the Global Note. RAM
Energy, Inc. believes, however, that it is currently the policy of the
Depository to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depository. Payments by the Depository's Participants and the Depository's
Indirect Participants to the beneficial owners in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.

As long as the Notes are represented by a Global Note, the Depository's
nominee will be the Holder of the Notes and therefore will be the only entity
that can exercise a right to require the repurchase the Notes. See "-- Certain
Covenants -- Limitation on Asset Sales" and "-- Repurchase of Notes at the
Option of the Holder Upon a Change of Control." Notice by Participants or
Indirect Participants or by owners of beneficial interests in a Global Note held
through such Participants or Indirect Participants of the exercise of the option
to elect to require the repurchase of beneficial interests in Notes represented
by the Global Note must be transmitted to the Depository in accordance with its
procedures on a form required by the Depository and provided to Participants. To
ensure that the Depository's nominee will timely exercise a right to require
repurchase with respect to a particular Note, the beneficial owner of such Note
must instruct the broker or other Participant or Indirect Participant through
which it holds an interest in such Note to notify the Depository of its desire
to exercise a right to require repurchase. Different firms have different
cut-off times for accepting instructions from their customers and, accordingly,
each beneficial owner should consult the broker or other Participant or Indirect
Participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for timely
notice to be delivered to the Depository. RAM Energy, Inc. will not be liable
for any delay in delivery of notices of the exercise of any option to elect to
repurchase any Note.

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If (i) RAM Energy, Inc. notifies the Trustee in writing that the Depository
is no longer willing or able to act as a depository and RAM Energy, Inc. is
unable to locate and appoint a qualified successor within 90 days or (ii) RAM
Energy, Inc., at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Definitive Notes (as defined herein)
under the Indenture, then, upon surrender by the Global Note Holder of its
Global Note, Notes in such form will be issued to each person that the Global
Note Holder and the Depository identify as being the beneficial owner of the
related Notes.

Neither RAM Energy, Inc. nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and RAM Energy, Inc. and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.

SAME-DAY SETTLEMENT AND PAYMENT

The Indenture will require that payments on the Global Note (including
principal, premium, if any, and interest) registered in the name of the Global
Note Holder be made by wire transfer of immediately available funds to the
account specified by the Global Note Holder. With respect to Notes issued in
registered certificated form ("Definitive Notes"), RAM Energy, Inc. will make
all payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Note are expected to
trade in the Depository's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depository to be settled in immediately available funds. RAM Energy, Inc.
expects that secondary trading in Definitive Notes will also be settled in
immediately available funds.

CERTAIN TAX CONSIDERATIONS

The following is a general discussion of certain U.S. federal income tax
considerations relevant to holders of the Notes. This discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor's decision to purchase the Notes, and it is not intended to be wholly
applicable to all categories of investors, some of which, such as dealers in
securities, financial institutions, insurance companies, tax-exempt
organizations, or investors who have hedged the risk of owning Notes, may be
subject to special rules. In addition, this discussion is limited to persons
that will hold the Notes represented thereby as a "capital asset" within the
meaning of section 1221 of the Code.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE
TAX LAWS OR INTERPRETATIONS THEREOF.

INTEREST INCOME

Interest on the Notes will be includable in the income of a holder as
ordinary income under the holder's regular method of accounting. The Notes will
not be treated as having been issued with original issue discount.

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MARKET DISCOUNT

Investors acquiring Notes pursuant to this Prospectus, other than at
original issuance of the Notes, should note that the resale of the Notes may be
adversely affected by the market discount provisions of sections 1276 through
1278 of the Code. Under the market discount rules, if a holder of a Note (other
than a holder who purchased the Note upon original issuance) purchases it at a
market discount (i.e., at a price below its stated redemption price at maturity)
in excess of a statutorily-defined de minimis amount and thereafter recognizes
gain upon a disposition or retirement of the Note, then the lesser of the gain
recognized or the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount in
a Note may be taxable to an investor to the extent of appreciation in the value
of the Note at the time of certain otherwise non-taxable transactions (e.g.,
gifts). Absent an election to include market discount in income as it accrues, a
holder of a market discount Note may be required to defer a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or maintained to purchase or carry such Note until the holder disposes of the
Note in a taxable transaction.

SALE, EXCHANGE OR RETIREMENT OF THE NOTES

Each holder of a Note generally will recognize gain or loss on the sale,
exchange, redemption, retirement or other disposition of the Note measured by
the difference (if any) between (i) the amount of cash and the fair market value
of any property received (except to the extent that such cash or other property
is attributable to the payment of accrued interest not previously included in
income, which amount will be taxable as ordinary income) and (ii) the holder's
adjusted tax basis in the Note (generally, the cost of the Note plus any market
discount previously included in income by the holder, less any principal
payments received by the holder). Any such gain or loss recognized on the sale,
exchange, redemption, retirement or other disposition of a Note should be
capital gain or loss (except as discussed under "Market Discount" above), and
would be long-term capital gain or loss if the Note had been held for more than
one year at the time of the sale or exchange. If the Note had been held for more
than 18 months, such capital gain generally would be subject to tax at a maximum
20% rate.

BACKUP WITHHOLDING AND INFORMATION REPORTING

A holder of Notes may be subject to "backup withholding" at a rate of 31%
with respect to certain "reportable payments," including interest payments and,
under certain circumstances, principal payments on the Notes. These backup
withholding rules apply if the holder, among other things, (i) fails to furnish
a social security number or other taxpayer identification number ("TIN")
certified under penalties of perjury within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to properly report
interest or (iv) fails to provide a certified statement, signed under penalties
of perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the backup withholding rules is
creditable against the holder's federal income tax liability, provided that the
required information is furnished to the IRS. Backup withholding will not apply,
however, with respect to payments made to certain holders, including
corporations and tax-exempt organizations ("exempt recipients"), provided their
exemptions from backup withholding are properly established.

The amount of any "reportable payments", including interest, made to the
holders of Notes (other than to holders which are exempt recipients) and the
amount of tax withheld, if any, with respect to such payments will be reported
to such holders and to the IRS for each calendar year.

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FOREIGN HOLDERS

The following discussion is a summary of certain U.S. federal income tax and
estate tax consequences to a Foreign Person that holds a Note. As used herein,
the term "Foreign Person" means a nonresident alien individual, a foreign
corporation, a nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership, but only if the income or gain on the Note is not
"effectively connected with the conduct of a trade or business within the U.S."
If the income or gain on the Note is "effectively connected with the conduct of
a trade or business within the U.S.," then the foreign individual, corporation,
estate, trust or partnership will be subject to tax on such income or gain in
essentially the same manner as a comparable U.S. holder of Notes, as discussed
above, and in the case of a foreign corporation, may also be subject to the
branch profits tax.

Under the portfolio interest exception to the general rules for the
withholding of tax on interest paid to a Foreign Person, a Foreign Person will
not be subject to U.S. federal income tax (or to withholding) on interest
payments on a Note, provided that (i) the Foreign Person does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote and is not a controlled foreign
corporation with respect to the U.S. that is related to the Company actually or
constructively through stock ownership and (ii) the Company, its paying agent or
the person who would otherwise be required to withhold tax receives either (A) a
statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Note in which the owner certifies that the owner is not
a U.S. person, or, in the case of an individual, that he is neither a citizen
nor a resident of the United States, and which provides the owner's name and
address, or (B) a statement signed under penalties of perjury by the Financial
Institution holding the Note on behalf of the beneficial owner, together with a
copy of the Owner's Statement. As used herein, the term "Financial Institution"
means a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
and that holds a Note on behalf of the owner of the Note. A Foreign Person who
does not qualify for the "portfolio interest" exception, would, under current
law, generally be subject to U.S. federal withholding tax at a flat rate of 30%
(or lower applicable treaty rate) on interest payments.

In general, gain recognized by a Foreign Person upon the redemption,
retirement, sale, exchange or other disposition of a Note (including any gain
representing accrued market discount) will not be subject to U.S. federal income
tax. However, a Foreign Person may be subject to U.S. federal income tax at a
flat rate of 30% (unless exempt by an applicable treaty) on any such gain if the
Foreign Person is an individual present in the U.S. for 183 days or more during
the taxable year of the disposition of the Note and certain other requirements
are met.

Backup withholding and information reporting requirements do not apply to
payments of interest made by the Company or a paying agent to Foreign Persons if
the Owner's Statement described above is received, provided that the payor does
not have actual knowledge that the holder is a United States holder. If any
payments of principal and interest are made to the beneficial owner of a Note by
or through the foreign office of a foreign custodian, foreign nominee or other
foreign agent of such beneficial owner, or if the foreign office of a foreign
"broker" (as defined in applicable Treasury Regulations) pays the proceeds of
the sale of a Note to the seller thereof, backup withholding and information
reporting will not apply. Information reporting requirements (but not backup
withholding) will apply, however, to a payment by a foreign office of a broker
that is a United States person, that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
that is a "controlled foreign corporation" (generally, a foreign corporation
controlled by certain United States shareholders) with respect to the United
States unless the broker has no documentary evidence in its records that the
holder is a Foreign Person and certain other conditions are met or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker is subject to both backup withholding at a rate of 31% and information
reporting unless the holder certifies under penalties of perjury that it is a
Foreign Person or otherwise establishes an exemption.

The procedures described above for withholding tax on interest payments, and
some of the associated backup withholding and information reporting rules, are
the subject of new, final regulations issued in 1997, which will be effective
for payments made after December 31, 1998, subject to certain transition

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rules. These final regulations modify the procedures for establishing an
exemption from withholding tax described above. PROSPECTIVE INVESTORS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT THAT THESE FINAL
REGULATIONS WILL HAVE ON PAYMENTS AFTER DECEMBER 31, 1998 WITH RESPECT TO THE
NOTES.

Subject to applicable estate tax treaty provisions, Notes held at the time
of death (or Notes transferred before death but subject to certain retained
rights or powers) by an individual who at the time of death is a Foreign Person
will not be included in such Foreign Person's gross estate for United States
federal estate tax purposes provided that the individual does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company entitled to vote or hold the Notes in connection with a
United States trade or business.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock, par value of $.01 per
share ("Preferred Stock"). At January 31, 1998, 2,727,000 shares of Common Stock
and no shares of Preferred Stock were outstanding. The Company has reserved
550,000 shares of Common Stock for issuance under the Plan. See "Management --
Stock Incentive Plan."

The following description of certain matters relating to the capital stock
of the Company is a summary and is qualified in its entirety by the provisions
of the Certificate and the Bylaws, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of the Company. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the payment of preferential dividends with
respect to any Preferred Stock that from time to time may be outstanding. In the
event of the dissolution, liquidation or winding-up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of all liabilities of the Company and subject to the prior distribution
rights of the holders of any Preferred Stock that may be outstanding at that
time. The holders of Common Stock do not have cumulative voting rights or
preemptive or other rights to acquire or subscribe for additional, unissued or
treasury shares. All outstanding shares of Common Stock are, and when issued the
shares of Common Stock offered hereby will be, fully paid and nonassessable.

PREFERRED STOCK

The Company has an authorized class of Preferred Stock consisting of
5,000,000 shares, none of which are issued and outstanding. The Board of
Directors is authorized, subject to any limitations prescribed by law, without
further stockholder approval, to issue shares of Preferred Stock from time to
time. The Board of Directors may designate one or more series of Preferred
Stock. Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences and conversion rights.

The Board of Directors has the authority to issue shares of Preferred Stock
and to determine its rights and preferences to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could adversely affect the voting power of holders of
Common Stock and the likelihood that such holders will receive dividend payments
and payments upon liquidation and could have the effect of delaying, deferring
or preventing a change in control of the Company.

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ANTI-TAKEOVER PROVISIONS

The Certificate and Bylaws and the General Corporation Law of Delaware
include a number of provisions which may have the effect of encouraging persons
considering unsolicited tender offers or other unilateral takeover proposals to
negotiate with the Board of Directors rather than pursue non-negotiated takeover
attempts. These provisions include a classified board of directors, authorized
blank check preferred stock, restrictions on business combinations and the
availability of authorized but unissued Common Stock.

CLASSIFIED BOARD OF DIRECTORS. The Certificate contains provisions for a
staggered board of directors with only one-third of the board standing for
election each year. Directors can only be removed for cause. A staggered board
makes it more difficult for stockholders to change the majority of the directors
and instead promotes a continuity of existing management.

BLANK CHECK PREFERRED STOCK. The Certificate authorizes blank check
Preferred Stock. The Board of Directors can set the voting rights, redemption
rights, conversion rights and other rights relating to such Preferred Stock and
could issue such stock in either a private or public transaction. In some
circumstances, the blank check Preferred Stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which the
Board of Directors opposes.

DELAWARE TAKEOVER STATUTE. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"). In general, Section 203
prevents an "interested stockholder" from engaging in a "business combination"
with a Delaware corporation for three years following the date such person
became an interested stockholder, unless (i) prior to the date such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and stock held by certain employee stock plans, or (iii) on or
subsequent to the date of the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock of the corporation not owned by the interested stockholder.

Section 203 defines a "business combination" to include (i) any merger or
consolidation involving the corporation and an interested stockholder, (ii) any
sale, transfer, pledge or other disposition involving an interested stockholder
of 10% or more of the assets of the corporation, (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to an interested stockholder, (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder or (v) the receipt by an
interested stockholder of any loans, guarantees, pledges or other financial
benefits provided by or through the corporation. In addition, Section 203
defines an "interested stockholder" as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.

STOCK PURCHASE AND SUPER MAJORITY VOTING PROVISIONS. The Certificate
includes a provision which requires the affirmative vote of two-thirds of the
outstanding shares of capital stock entitled to vote generally in the election
of directors held by persons who are not interested stockholders (as defined in
the Certificate) to approve the repurchase of any equity securities of the
Company from an interested stockholder unless either (a) such repurchase is made
on the same terms offered to all holders of the same securities or (b) the
Company does not pay above the market price or fair market value of such
securities. The Certificate also includes a provision which requires the
affirmative vote of two-thirds of the outstanding shares of capital stock
entitled to vote generally in the election of directors to (i) sell all or
substantially all of the assets of the Company, (ii) merge or consolidate the
Company with or into any other

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corporation, partnership, limited liability company or other entity, (iii)
dissolve, liquidate or terminate the business of the Company or (iv) alter,
amend or repeal certain sections of the Certificate or the Bylaws.

STOCKHOLDER ACTION

Except as otherwise required by law or the Certificate, with respect to any
act or action required of or by the holders of the Common Stock, the affirmative
vote of the holders of a majority of the issued and outstanding shares of Common
Stock entitled to vote thereon is sufficient to authorize the act or action. See
"-- Anti-Takeover Provisions."

Pursuant to Delaware law, stockholders may take actions without the holding
of a meeting by written consent or consents signed by the holders of a
sufficient number of shares to approve the transaction had all of the
outstanding shares of the capital stock of the Company entitled to vote thereon
been present at a meeting.

UNDERWRITING

Subject to the terms and upon the conditions set forth in the Underwriting
Agreement, RAM Energy, Inc. has agreed to sell to Jefferies & Company, Inc. (the
"Underwriter"), and the Underwriter has agreed to purchase, the Notes at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus.

The Underwriting Agreement provides that the obligation of the Underwriter
to purchase the Notes offered hereby is subject to certain conditions. Under the
terms and upon the conditions of the Underwriting Agreement, the Underwriter is
committed to purchase all of the Notes offered hereby, if any are purchased. The
Underwriter proposes to offer the Notes to the public initially at the public
offering price set forth on the cover of this Prospectus. After the initial
public offering of the Notes, the public offering price may be changed by the
Underwriter.

Prior to the Offering, there has been no public market for the Notes. The
initial public offering price for the Notes will be determined by negotiations
between RAM Energy, Inc. and the Underwriter. Among the principal factors that
will be considered in determining such public offering price will be the
financial strength of the Company in recent periods, prevailing economic
prospects, offerings of companies in related businesses, the prospects for the
Company and the oil and gas industry, and the general conditions prevailing in
the securities markets. The Underwriter does not intend to confirm sales of the
Notes to any accounts over which it exercises discretionary authority.

RAM Energy, Inc. has agreed to indemnify the Underwriter against certain
liabilities that may be incurred in connection with the offering of the Notes,
including liabilities under the Securities Act, or to contribute to the payments
that the Underwriter may be required to make in respect thereof.

The Underwriter has advised the Company that it currently intends to make a
market in the Notes after the consummation of the Offering, as permitted by
applicable laws and regulations; however, it is not obligated to do so, and any
such market making, if commenced, may be discontinued at any time without
notice. Accordingly, there can be no assurance as to the liquidity of the
trading market for the Notes or that any active trading market for the Notes
will develop. See "Risk Factors -- Absence of a Public Market for the Notes."

The closing of the Offering is conditioned upon the simultaneous closing of
the Carlton Acquisition.

In connection with the closing of the Offering, Energy Spectrum Advisors
will receive a finder's fee equal to $150,000 payable from the underwriting
discount otherwise payable to the Underwriter.

LEGAL MATTERS

The validity of the Notes offered hereby will be passed upon for the Company
by McAfee & Taft A Professional Corporation, Oklahoma City, Oklahoma. Certain
legal matters relating to the sale of the Notes will be passed upon for the
Underwriter by Fulbright & Jaworski L.L.P., Houston, Texas.

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EXPERTS

The consolidated financial statements of RAM Energy, Inc. as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996, the financial statements of RAMCO-NYL 1987 Limited Partnership as of
December 31, 1995 and November 30, 1996 and for each of the years in the
two-year period ended December 31, 1995 and for the eleven-month period ended
November 30, 1996 and the consolidated financial statements of Carlton Resources
Corporation (and its predecessor) as of December 31, 1995 and 1996 and for the
year ended December 31, 1995, the eight-month period ended August 31, 1996 and
the four-month period ended December 31, 1996 appearing in this Prospectus and
in the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.

Information relating to the estimated proved reserves of oil and gas and the
related estimates of future net revenues and present values thereof as of
November 30, 1997 on an actual and pro forma basis was estimated by Forrest A.
Garb & Associates, Inc., independent petroleum engineers, and audited by
Netherland, Sewell & Associates, Inc., independent petroleum engineers. The
reserve and present value data for the Company's existing properties as of
December 31, 1994, 1995 and 1996 were estimated by Forrest A. Garb & Associates,
Inc. Such estimates are included herein in reliance on the authority of such
firms as experts in such matters.

AVAILABLE INFORMATION

Prior to the Offering, RAM Energy, Inc. has not been subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended. RAM
Energy, Inc. intends to furnish its stockholders with annual reports containing
audited consolidated financial statements examined and reported on, with an
opinion expressed by, independent public accountants following the end of each
fiscal year and such interim reports as it may determine to be necessary or
desirable.

RAM Energy, Inc. has filed with the Commission a Registration Statement on
Form S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the securities offered pursuant to the Offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information contained in the Registration Statement and in
the exhibits and schedules thereto, certain portions of which are omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered pursuant to
the Offering, reference is made to the Registration Statement, including the
exhibits and schedules thereto.

The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, and copies may be obtained at prescribed rates at the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. This web site can be visited at
http://www.sec.gov.

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GLOSSARY OF TERMS

The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.

BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.

BCF. One billion cubic feet of natural gas.

BCFE. One billion cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.

COMPLETION. The installation of permanent equipment for the production of
oil or natural gas or, in the case of a dry hole, the reporting of abandonment
to the appropriate agency.

DEVELOPMENT WELL. A well drilled within the proved areas of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.

DRY HOLE OR WELL. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.

EXPLORATORY WELL. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of oil or natural gas in another reservoir or to extend a
known reservoir.

FIELD. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.

GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be,
in which a working interest is owned.

MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.

MCF. One thousand cubic feet of natural gas.

MCFD. One thousand cubic feet of natural gas per day.

MCFE. One thousand cubic feet of natural gas equivalent, determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.

MMBBLS. One million barrels of crude oil or other liquid hydrocarbons.

MMCF. One million cubic feet of natural gas.

MMCFE. One million cubic feet of natural gas equivalent determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or
natural gas liquids.

NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells, as the case may be.

OIL. Crude oil, condensate and natural gas liquids.

PV-10 VALUE AND PRESENT VALUE. When used with respect to oil and natural
gas reserves, the estimated future gross revenues to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the date indicated,
without giving effect

97
<PAGE>
to non-property related expenses such as general and administrative expenses,
debt service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.

PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.

PROVED DEVELOPED PRODUCING RESERVES. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and capable of production.

PROVED DEVELOPED RESERVES. Proved reserves that are expected to be
recovered from existing wellbores, whether or not currently producing, without
drilling additional wells. Production of such reserves may require a
recompletion.

PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

PROVED UNDEVELOPED LOCATION. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.

PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.

RECOMPLETION. The completion for production of an existing wellbore in
another formation from that in which the well has been previously completed.

RESERVE LIFE. A ratio determined by dividing the existing reserves
determined as of the stated measurement date by production from such reserves
for the prior twelve month period.

RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.

ROYALTY INTEREST. An interest in an oil and gas property entitling the
owner to a share of oil or natural gas production free of costs of production.

UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.

WELLBORE. The hole drilled by the bit.

WORKING INTEREST. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.

WORKOVER. Operations on a producing well to restore or increase production.

98
<PAGE>
RAM ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
RAM ENERGY, INC. -- NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Balance Sheet as of September 30, 1997 (unaudited)................................... F-2
Statements of Operations for the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-3
Statements of Cash Flows for the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-4
Notes to Unaudited Financial Statements.............................................. F-5
RAM ENERGY, INC. -- YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Report of Independent Auditors....................................................... F-9
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-10
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and
1996............................................................................... F-11
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1994, 1995 and 1996................................................... F-12
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996............................................................................... F-13
Notes to Consolidated Financial Statements........................................... F-14

RAMCO-NYL 1987 LIMITED PARTNERSHIP
Report of Independent Auditors....................................................... F-27
Balance Sheets as of December 31, 1995 and November 30, 1996......................... F-28
Statements of Operations for the years ended December 31, 1994 and 1995 and for the
eleven months ended November 30, 1996.............................................. F-29
Statements of Partners' Equity for the years ended December 31, 1994 and 1995 and for
the eleven months ended November 30, 1996.......................................... F-30
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the
eleven months ended November 30, 1996.............................................. F-31
Notes to Financial Statements........................................................ F-32

CARLTON RESOURCES CORPORATION (AND ITS PREDECESSOR)
Report of Independent Auditors....................................................... F-41

Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................................ F-42

Consolidated Statements of Operations for the year ended December 31, 1995, the eight
month period ended August 31, 1996, the four month period ended December 31, 1996
and the nine month period ended September 30, 1997 (unaudited)..................... F-43

Consolidated Statements of Stockholders' Equity (Deficit) for the year ended December
31, 1995, the eight month period ended August 31, 1996, the four month period ended
December 31, 1996 and the nine month period ended September 30, 1997 (unaudited)... F-44

Consolidated Statements of Cash Flows for the year ended December 31, 1995, the eight
month period ended August 31, 1996, the four month period ended December 31, 1996
and the nine month period ended September 30, 1997 (unaudited)..................... F-45

Notes to Consolidated Financial Statements........................................... F-46
</TABLE>

F-1
<PAGE>
RAM ENERGY, INC.
BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
ASSETS
Current assets (NOTE 4):
Cash and cash equivalents........................................................................ $ 2,030,959
Accounts receivable:
Oil and gas sales.............................................................................. 2,897,636
Joint interest operations, net of allowance for doubtful accounts of $452,818.................. 1,398,874
Other.......................................................................................... 45,643
Prepaid expenses................................................................................. 254,261
-------------
Total current assets............................................................................... 6,627,373
Properties and equipment, at cost (NOTES 2, 3 AND 4):
Oil and gas properties and equipment, based on full cost accounting.............................. 69,064,229
Other equipment.................................................................................. 3,409,392
-------------
72,473,621
Less accumulated amortization and depreciation................................................... 12,373,486
-------------
Net properties and equipment....................................................................... 60,100,135
Other assets (NOTE 4):
Receivable from affiliate not expected to be collected within one year, net of allowance of
$139,695 (NOTE 7).............................................................................. 1,800,000
Loan origination fees, net of accumulated amortization of $253,555............................... 1,282,201
Other............................................................................................ 534,094
-------------
Total assets....................................................................................... $ 70,343,803
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable:
Oil and gas proceeds due others................................................................ $ 2,854,931
Trade.......................................................................................... 3,549,075
Accrued liabilities:
Interest....................................................................................... 401,503
Gas balancing liability........................................................................ 300,000
Other.......................................................................................... 98,200
Long-term debt due within one year (NOTE 4)...................................................... 9,243,900
-------------
Total current liabilities.......................................................................... 16,447,609
Gas balancing liability not expected to be settled within one year................................. 685,244
Long-term debt due after one year (NOTE 4)......................................................... 52,970,824
Contingencies...................................................................................... 600,000
Minority interest.................................................................................. 1,203,468
Stockholders' equity (deficiency):
Series A preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--77,714 shares (liquidating preference $10 per share).............................. 777
Series B preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--69,652 shares (liquidating preference $10 per share).............................. 697
Class A common stock, $225 par value; authorized--222 shares; issued and outstanding--101
shares......................................................................................... 22,725
Paid-in capital.................................................................................. 1,492,805
Accumulated deficit.............................................................................. (3,080,346)
-------------
Stockholders' equity (deficiency).................................................................. (1,563,342)
-------------
Total liabilities and stockholders' equity (deficiency)............................................ $ 70,343,803
-------------
-------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-2
<PAGE>
RAM ENERGY, INC.
STATEMENTS OF OPERATIONS (NOTE 1)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
1996
------------- 1996 1997
PARTNERSHIP ------------ -------------
(PREDECESSOR) COMPANY COMPANY
------------- ------------ -------------
<S> <C> <C> <C>
Operating revenues:
Oil and gas sales.................................................... $ 18,744,175 $ 147,697 $ 16,819,429
Management fees from Partnership..................................... -- 1,224,660 --
Operator's overhead fees from Partnership -- 1,108,423 --
Consulting fees from related parties................................. -- 91,106 --
Other................................................................ -- 78,596 85,301
------------- ------------ -------------
Total operating revenues......................................... 18,744,175 2,650,482 16,904,730

Operating expenses (NOTE 3):
Oil and gas production expenses:
Operator fees to Managing General Partner.......................... 1,108,423 -- --
Other.............................................................. 6,152,880 61,591 4,795,344
Amortization and depreciation........................................ 4,160,423 264,128 5,268,012
General and administrative, overhead and other expenses, net:
Management fee to Managing General Partner......................... 1,209,770 -- --
Other.............................................................. 240,444 2,517,157 3,325,170
------------- ------------ -------------
Total operating expenses......................................... 12,871,940 2,842,876 13,388,526
------------- ------------ -------------
Operating income (loss)................................................ 5,872,235 (192,394) 3,516,204
Other income (expense):
Interest expense..................................................... (483,805) (13,979) (3,787,067)
Interest income...................................................... 91,477 22,000 42,611
Equity in income of partnership...................................... -- 54,800 --

Minority interest in net income of Partnership....................... -- -- (14,572)
------------- ------------ -------------
Net income (loss)...................................................... $ 5,479,907 $ (129,573) $ (242,824)
------------- ------------ -------------
------------- ------------ -------------
Net loss per share (NOTE 7)........................................................... $ (.05) $ (.09)
------------ -------------
------------ -------------
Weighted average shares outstanding (NOTE 7).......................................... 2,727,000 2,727,000
------------ -------------
------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-3
<PAGE>
RAM ENERGY, INC.

STATEMENTS OF CASH FLOWS (NOTE 1)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1996
-------------- 1996 1997
PARTNERSHIP -------------- --------------
(PREDECESSOR) COMPANY COMPANY
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................ $ 5,479,907 $ (129,573) $ (242,824)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Amortization and depreciation.................................. 4,160,423 264,128 5,268,012
Provision for doubtful accounts receivable and other........... -- 105,403 80,000
Equity in income of Partnership................................ -- (54,800) --
Minority interest in net income after acquisition of
Partnership.................................................. -- -- 14,572
Cash provided (used) by changes in operating assets and
liabilities:
Prepaid expenses and deposits................................ 255,119 46,744 111,195
Accounts receivable.......................................... (871,261) 578,123 1,257,741
Accounts payable............................................. (506,112) (200,634) 866,918
Accrued liabilities.......................................... (420,000) (204,000) (934,840)
-------------- -------------- --------------
Total adjustments................................................ 2,618,169 534,964 6,663,598
-------------- -------------- --------------
Net cash provided by operating activities........................ 8,098,076 405,391 6,420,774

CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from Partnership................................... -- 20,305 --
Payments for oil and gas properties and equipment................ (1,950,450) (21,905) (14,506,757)
Proceeds from sales of oil and gas properties and equipment...... 412,998 5,956 9,693,576
Payments for other property and equipment........................ -- (165,271) (185,086)
Proceeds from sales of other property and equipment.............. -- -- 15,139
Advances for development costs................................... (27,868) -- (226,371)
Purchases of other assets........................................ (60,000) -- (17,978)
Proceeds from sale of other assets............................... -- -- --
Other............................................................ -- (9,337) --
-------------- -------------- --------------
Net cash used by investing activities............................ (1,625,320) (170,252) (5,227,477)

CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt............................. (2,500,000) (41,502) (10,396,417)
Proceeds from borrowings on long-term debt....................... -- 120,559 9,626,714
Distributions to partners........................................ (2,030,439) -- --
-------------- -------------- --------------
Net cash provided (used) by financing activities................. (4,530,439) 79,057 (769,703)
-------------- -------------- --------------
Increase in cash and cash equivalents............................ 1,942,317 314,196 423,594
Cash and cash equivalents at beginning of period................. 1,265,980 523,506 1,607,365
-------------- -------------- --------------
Cash and cash equivalents at end of period....................... $ 3,208,297 $ 837,702 $ 2,030,959
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>
RAM ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS

The accompanying unaudited financial statements present the results of
operations and cash flows of RAM Energy, Inc. for the nine-month periods ended
September 30, 1996 and 1997 as well as that for RAM Energy, Inc.'s predecessor,
RAMCO-NYL 1987 Limited Partnership (the "Partnership"), for the nine-month
period ended September 30, 1996. These financial statements include all
adjustments, consisting of normal and recurring adjustments, which, in the
opinion of management, were necessary for a fair presentation of the financial
position and the results of operations for the indicated periods. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year ending December 31,
1997.

NATURE OF OPERATIONS AND ORGANIZATION

RAM Energy, Inc. (Note 7), formerly RAMCO Operating Company ("RAM"
collectively, when referring to RAM Energy, Inc. and its consolidated
subsidiaries, or "REI" when referring to RAM Energy, Inc. only) operates
exclusively in the oil and natural gas industry with activities including the
drilling, completion and operation of oil and natural gas wells. RAM conducts
the majority of its operations in the states of Oklahoma, Texas and New Mexico.

REI serves as the managing general partner of the Partnership. The
Partnership was activated on February 3, 1988 by REI, Oklahoma Double R
Corporation, the special general partner and an affiliate of REI, and New York
Life Insurance Company, the original limited partner. Under the terms of the
limited partnership agreement, as amended, for financial reporting purposes,
virtually all Partnership revenues, costs and expenses are allocated 1.0% to the
managing general partner, 2.5% to the special general partner and 96.5% to the
limited partner prior to Payout Nos. 1 and 2, as defined. Upon reaching these
payouts, the allocation to the managing general partner increases to 11.5% while
that of the limited partner decreases to 86.0%.

Effective November 30, 1996, REI's wholly-owned subsidiary, RB Operating
Company ("RBO"), purchased the limited partner's interest in the Partnership for
$60.0 million, as provided for under the terms of a purchase and sale agreement
previously executed by the parties (Note 2). Funding for the transaction was
obtained from borrowings under a credit agreement with a bank (Note 4).

PRINCIPLES OF CONSOLIDATION

The financial statements of RAM are presented on a consolidated basis and
include the accounts of REI, RBO and the accounts of REI's majority-owned
Partnership beginning December 1, 1996. All significant intercompany
transactions, including transactions between REI or RBO and the Partnership
(beginning December 1, 1996) have been eliminated.

2. ACQUISITIONS AND SALE

In August 1997, RAM purchased certain primarily producing oil and gas
properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). This transaction,
which has been accounted for under the purchase method of accounting, was
financed with additional borrowings under the credit agreement (Note 4).

As described in Note 1, RBO purchased the limited partner's interest in the
Partnership and has reflected this additional ownership in RAM's accompanying
consolidated financial statements beginning on December 1, 1996. This
transaction has been accounted for under the purchase method of accounting.

F-5
<PAGE>
RAM ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITIONS AND SALE (CONTINUED)
RAM sold certain oil and gas properties in 1997 and received cash proceeds
of $10.4 million (before closing adjustments). As required by the credit
agreement (Note 4), such proceeds were used to pay down the principal balance
outstanding under the credit agreement.

3. RELATED PARTY TRANSACTIONS

REI and RBO also serve as operator on many of the wells of the Partnership
and charge operator fees in connection therewith.

4. LONG-TERM DEBT

Long-term debt consists of the following at September 30, 1997:

<TABLE>
<S> <C>
Revolving note payable......................................... $55,000,000
Term note payable.............................................. 7,000,000
Installment loan agreements.................................... 214,724
----------
62,214,724
Less amount due within one year................................ 9,243,900
----------
$52,970,824
----------
----------
</TABLE>

The original maturity date of the term commitment was October 31, 1997. The
maturity date on the term commitment has been extended to June 30, 1998. The
credit agreement, as amended in December 1997, contains various affirmative and
restrictive covenants. These covenants, among other things, restrict mergers
involving RAM and payment of dividends on REI's stock, limit additional
indebtedness and sales or other dispositions of assets, and require RAM to meet
certain financial covenants. In addition, the credit agreement requires RAM to
enter into certain interest rate swaps and collars to hedge the interest rate
exposure associated with the credit agreement.

Effective January 3, 1997, RAM had entered into interest rate swaps and
collars to hedge the interest rate exposure associated with the borrowings under
the credit agreement. As of September 30, 1997, RAM had entered into two
interest rate swaps with notional amounts of $10.0 million each to fix the
interest rate on the borrowings under the revolving commitment and entered into
an interest rate collar to cap the interest rate on an additional notional
amount of $10.0 million of the borrowings under the revolving commitment. Under
the terms of the interest rate swaps, RAM receives the LIBOR three-month rate
(5.66% at September 30, 1997) and pays an average of 6.35% for 1997. Under the
terms of the interest rate

F-6
<PAGE>
RAM ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
collar, RAM pays 5.50% in the event that the LIBOR three-month rate falls below
5.50% and receives 7.14% in the event that the LIBOR three-month rate exceeds
7.14%. The notional amounts under these interest rate swaps and collars are less
than the amounts outstanding under the credit agreement at September 30, 1997.
At September 30, 1997, the effective interest rate for the borrowings under the
revolving commitment was 8.47%. The interest rate swaps mature in January 2000
and January 2002 and the interest rate collar matures in January 1999.

For the interest rate swaps, the differential between the fixed rate and the
floating rate multiplied by the notional amount results in a gain or loss
related to the swap. For the interest rate collar, when the floating rate
exceeds the cap rate, the differential between the floating rate and the cap
rate results in a gain and when the floating rate is less than the floor rate,
the differential between the floating rate and the floor rate results in a loss.
Such gains or losses are included in interest expense in the period for which
the interest rate exposure was hedged. For the nine months ended September 30,
1997, the swap loss included in interest expense was $93,321 (there was no gain
or loss on the interest rate collar for the nine months ended September 30,
1997).

5. FIXED-PRICE CONTRACTS

RAM has entered into certain fixed price contracts to reduce its exposure to
unfavorable changes in natural gas prices which are subject to significant and
often volatile fluctuation. RAM's fixed-price contracts are comprised of
short-term physical delivery contracts. These contracts allow RAM to predict
with greater certainty the effective gas prices to be received from its hedged
production. As of September 30, 1997, these fixed-price contracts are in place
to hedge 1,740,000 MMbtu of RAM's estimated future production through April 1998
from proved gas reserves at a weighted average price of $2.73 per MMbtu.

6. FINANCIAL INSTRUMENTS

The following information is provided regarding the estimated fair value of
financial instruments employed by RAM as of September 30, 1997 and the method
and assumptions used to estimate the fair value of such financial instruments:

The carrying amounts reported in the accompanying balance sheet for cash and
cash equivalents and variable rate long-term debt approximate their fair
values.

The carrying value of RAM's interest rate swaps at September 30, 1997
exceeded the fair value by approximately $192,000, representing the amount
RAM would be required to pay to terminate the contracts at such date.

7. SUBSEQUENT EVENTS

Effective November 1, 1997, the Board of Directors of Oklahoma Double R
Corporation ("DRC") authorized the assignment to REI, in partial payment for the
$1,800,000 indebtedness owed by DRC to REI, of all assets and properties of the
Partnership otherwise distributable to DRC upon dissolution and liquidation of
the Partnership in respect of DRC's 2.5% special general partnership interest in
the Partnership.

Effective November 26, 1997, RBO was merged with and into REI, resulting in
REI becoming the direct owner of all of the assets and properties of RBO and
assuming all of its liabilities. Effective

F-7
<PAGE>
RAM ENERGY, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

7. SUBSEQUENT EVENTS (CONTINUED)
December 1, 1997, REI, as managing general partner and sole limited partner of
the Partnership, and DRC, as special general partner of the Partnership,
authorized the dissolution of the Partnership, the liquidation of all of the
assets of the Partnership into REI and the assumption by REI of all liabilities
of the Partnership.

In November 1997, RAM entered into a letter of intent to purchase certain
producing oil and gas properties and equipment and pipeline gathering systems
located principally in Oklahoma for $43.0 million (subject to closing
adjustments). This transaction is expected to close simultaneously with the
offering of Senior Notes by RAM Energy, Inc.

On December 27, 1997, the Board of Directors of RAM Energy, Inc. approved a
27,000-for-1 stock split of RAM Energy, Inc. common stock and approved the
change of the name of RAM from RAMCO Operating Company to RAM Energy, Inc. The
effects of the stock split on the computations of net income (loss) per share
have been reflected retroactively in the accompanying financial statements.

F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
RAM Energy, Inc.

We have audited the accompanying consolidated balance sheets of RAM Energy,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of RAM Energy,
Inc. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Oklahoma City, Oklahoma
December 15, 1997,

except for the matters described in the last
paragraph of Note 11, as to which the date is

December 27, 1997

F-9
<PAGE>
RAM ENERGY, INC.

CONSOLIDATED BALANCE SHEETS (NOTE 1)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
<S> <C> <C>
1995 1996
----------- ------------
ASSETS
Current assets (NOTE 3):
Cash and cash equivalents........................................................... $ 523,506 $ 1,607,365
Accounts receivable:
Oil and gas sales................................................................. 24,327 5,051,508
Joint interest operations, net of allowance for doubtful accounts of $230,154 in
1995 and $370,693 in 1996....................................................... 768,650 464,826
Related parties (NOTE 2).......................................................... 1,349,412 9,500
Other............................................................................. 62,585 154,060
Prepaid expenses and deposits....................................................... 119,204 365,456
Oil and gas properties and equipment held for sale.................................. -- 5,400,000
----------- ------------
Total current assets.................................................................. 2,847,684 13,052,715
Properties and equipment, at cost (NOTES 2 AND 3):
Oil and gas properties and equipment, based on full cost accounting................. 1,006,495 58,807,298
Other property and equipment........................................................ 3,065,172 3,275,688
----------- ------------
4,071,667 62,082,986
Less accumulated amortization and depreciation...................................... 3,077,142 7,344,660
----------- ------------
Net properties and equipment.......................................................... 994,525 54,738,326
Other assets (NOTE 3):
Receivable from sister corporation not expected to be collected within one year, net
of allowance of $139,695 (NOTES 2 AND 11)......................................... 1,800,000 1,800,000
Loan origination fees, net of accumulated amortization of $33,862................... -- 1,532,927
Investment in Partnership, at equity (Notes 2 and 8)................................ 507,094 --
Other............................................................................... 335,374 285,712
----------- ------------
Total assets.......................................................................... $ 6,484,677 $ 71,409,680
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable:
Trade............................................................................. $ 3,006,309 $ 3,062,826
Oil and gas proceeds due others................................................... 2,021,230 2,474,262
Related parties (NOTE 2).......................................................... 2,548,344 --
Accrued liabilities:
Compensation...................................................................... 293,000 820,200
Interest.......................................................................... -- 384,653
Other (NOTE 2).................................................................... 295,561 300,000
Long-term debt due within one year (NOTE 3)......................................... 31,464 5,475,673
----------- ------------
Total current liabilities............................................................. 8,195,908 12,517,614
Gas balancing liability not expected to be settled within one year.................... -- 914,934
Long-term debt due after one year (NOTE 3)............................................ 17,439 57,508,754
Commitments and contingencies (NOTES 4 AND 8)......................................... -- 600,000
Minority interest..................................................................... -- 1,188,896
Stockholders' equity (deficiency) (NOTES 3, 6 AND 11):
Series A preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--77,714 shares (liquidating preference $10 per share)................. 777 777
Series B preferred stock, $.01 par value; authorized--100,000 shares; issued and
outstanding--69,652 shares (liquidating preference $10 per share)................. 697 697
Class A common stock, $225 par value; authorized--222 shares; issued and
outstanding--101 shares (NOTE 11)................................................. 22,725 22,725
Paid-in capital..................................................................... 1,492,805 1,492,805
Accumulated deficit................................................................. (3,245,674) (2,837,522)
----------- ------------
Stockholders' equity (deficiency)..................................................... (1,728,670) (1,320,518)
----------- ------------
Total liabilities and stockholders' equity (deficiency)............................... $ 6,484,677 $ 71,409,680
----------- ------------
----------- ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-10
<PAGE>
RAM ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE 1)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------ ------------ ------------
Operating revenues (NOTE 2):
Oil and gas sales..................................................... $ 152,992 $ 165,627 $ 3,274,941
Management fees from Partnership...................................... 1,554,929 1,605,743 1,482,293
Operator's overhead fees from Partnership............................. 1,746,145 1,686,043 1,342,777
Consulting income from related parties................................ 236,402 162,748 152,648
Other................................................................. 119,311 85,277 567,536
------------ ------------ ------------
Total operating revenues............................................ 3,809,779 3,705,438 6,820,195

Operating expenses:
Oil and gas production expenses....................................... 75,791 77,209 826,825
Amortization and depreciation......................................... 405,728 353,449 990,032
General and administrative, overhead and other expenses, net of
operator's overhead fees to unrelated interests of $1,382,250,
$1,352,929, and $1,217,796 in 1994, 1995 and 1996, respectively..... 3,279,413 3,363,713 4,164,314
------------ ------------ ------------
Total operating expenses............................................ 3,760,932 3,794,371 5,981,171
------------ ------------ ------------
Operating Income (loss)................................................. 48,847 (88,933) 839,024
Other income (expense):
Interest expense...................................................... (22,691) (18,022) (541,526)
Interest income....................................................... 75,149 72,786 29,434
Equity in income (loss) of Partnership................................ (101,293) (23,129) 70,874

Minority interest in net loss of Partnership.......................... -- -- 10,346
------------ ------------ ------------
Net income (loss)....................................................... $ 12 $ (57,298) $ 408,152
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per share (NOTE 11)................................... $ -- $ (.02) $ .15
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding (NOTE 11)........................... 2,727,000 2,727,000 2,727,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-11
<PAGE>
RAM ENERGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
PREFERRED STOCK CLASS A STOCKHOLDERS'
------------------------ COMMON PAID-IN ACCUMULATED EQUITY
SERIES A SERIES B STOCK CAPITAL DEFICIT (DEFICIENCY)
----------- ----------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993................... $ 777 $ 697 $ 22,500 $ 1,472,186 $ (3,188,388) $ (1,692,228)

Net income..................................... -- -- -- -- 12 12
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1994................... 777 697 22,500 1,472,186 (3,188,376) (1,692,216)

Class A common stock issued (1 share).......... -- -- 225 20,619 -- 20,844

Net loss....................................... -- -- -- -- (57,298) (57,298)
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1995................... 777 697 22,725 1,492,805 (3,245,674) (1,728,670)

Net income..................................... -- -- -- -- 408,152 408,152
----- ----- --------- ------------ ------------- -------------
Balance at December 31, 1996................... $ 777 $ 697 $ 22,725 $ 1,492,805 $ (2,837,522) $ (1,320,518)
----- ----- --------- ------------ ------------- -------------
----- ----- --------- ------------ ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-12
<PAGE>
RAM ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................................................... $ 12 $ (57,298) $ 408,152
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Amortization and depreciation......................................... 405,728 353,449 990,032
Provision for doubtful accounts receivable and other.................. 49,123 17,960 169,624
Provision for uncollectible receivable from sister corporation........ -- 139,695 --
(Gain) loss on sales of other property and equipment.................. (16,910) 2,693 (35,712)
Equity in (income) loss of Partnership................................ 101,293 23,129 (70,874)
Minority interest in net loss after acquisition of Partnership........ -- -- (10,346)
Cash provided (used) by changes in operating assets and liabilities:
Prepaid expenses and deposits....................................... 87,219 114,358 (40,946)
Accounts receivable................................................. (797,114) 1,418,267 (874,505)
Accounts payable.................................................... 34,692 (2,420,341) (971,148)
Accrued liabilities................................................. (15,572) 175,247 505,819
Deferred revenue.................................................... 295,561 -- --
----------- ------------ -------------
Total adjustments....................................................... 144,020 (175,543) (338,056)
----------- ------------ -------------
Net cash provided (used) by operating activities........................ 144,032 (232,841) 70,096
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for acquisition of limited partner's interest in the
Partnership, less cash acquired (NOTE 2).............................. -- -- (58,898,313)
Payments for loan origination fees...................................... -- -- (31,225)
Payments for oil and gas properties and equipment....................... (49,986) (47,098) (21,905)
Proceeds from sales of oil and gas properties and equipment............. 18,555 1,356 55,087
Payments for other property and equipment............................... (29,368) (284,750) (227,781)
Proceeds from sales of other property and equipment..................... -- 27,609 --
Cash distributions received from Partnership............................ 66,300 12,953 21,342
Payments for restricted temporary investments........................... (317,835) -- --
Other................................................................... -- 282,126 1,034
----------- ------------ -------------
Net cash used by investing activities................................... (312,334) (7,804) (59,101,761)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt.................................... (901,001) (629,275) (60,521)
Proceeds from borrowings on long-term debt.............................. 265,012 60,468 176,045
Proceeds from borrowings to acquire Partnership interest................ -- -- 60,000,000
Advances to sister corporation.......................................... (105,654) (146,237) --
Collection of advances to sister corporation............................ 126,500 32,383 --
Proceeds from issuance of Class A common stock.......................... -- 20,844 --
Other................................................................... (1,359) -- --
----------- ------------ -------------
Net cash provided (used) by financing activities........................ (616,502) (661,817) 60,115,524
----------- ------------ -------------
Increase (decrease) in cash and cash equivalents........................ (784,804) (902,462) 1,083,859
Cash and cash equivalents at beginning of year.......................... 2,210,772 1,425,968 523,506
----------- ------------ -------------
Cash and cash equivalents at end of year................................ $ 1,425,968 $ 523,506 $ 1,607,365
----------- ------------ -------------
----------- ------------ -------------
DISCLOSURE OF NONCASH ACTIVITIES
Offset of certain accounts payable and accounts receivable between the
Partnership and the Company........................................... $ -- $ (781,786) $ --
----------- ------------ -------------
----------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-13
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS

NATURE OF OPERATIONS AND ORGANIZATION

RAM Energy, Inc., (NOTE 11) formerly RAMCO Operating Company ("RAM"
collectively, when referring to RAM Energy, Inc. and its consolidated
subsidiaries, or "REI" when referring to RAM Energy, Inc. only) operates
exclusively in the oil and gas industry with activities including the drilling,
completion and operation of oil and gas wells. RAM conducts the majority of its
operations in the states of Oklahoma, Texas and New Mexico.

REI serves as the managing general partner of the RAMCO-NYL 1987 Limited
Partnership (the "Partnership"). The Partnership was activated on February 3,
1988 by REI, Oklahoma Double R Corporation, the special general partner and an
affiliate of REI, and New York Life Insurance Company, the original limited
partner. Under the terms of the limited partnership agreement, as amended, for
financial reporting purposes, virtually all Partnership revenues, costs and
expenses are allocated 1.0% to the managing general partner, 2.5% to the special
general partner and 96.5% to the limited partner prior to Payout Nos. 1 and 2,
as defined. Upon reaching these payouts, the allocation to the managing general
partner increases to 11.5% while that of the limited partner decreases to 86.0%.

Effective December 1, 1996, REI's wholly-owned subsidiary, RB Operating
Company ("RBO"), purchased the limited partner's interest in the Partnership for
$60.0 million, as provided for under the terms of a purchase and sale agreement
previously executed by the parties (NOTES 2 AND 8). Funding for the transaction
was obtained from borrowings under a credit agreement with a bank (NOTE 3).

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of REI and RBO
and effective December 1, 1996, the accounts of REI's majority-owned
Partnership. All significant intercompany transactions, including transactions
between REI or RBO and the Partnership beginning December 1, 1996, have been
eliminated.

OIL AND GAS PROPERTIES AND EQUIPMENT HELD FOR SALE

RAM had certain oil and gas properties and equipment held for sale at
December 31, 1996 for which the proceeds totaling $10.4 million (before closing
adjustments) were closed by March 1997. Because the sales are not considered
extraordinary transactions under the full cost method of accounting for oil and
gas operations, the full cost pool was reduced by the proceeds from such sales
in 1997. As described in Note 3, the proceeds from the sales of the properties
were utilized in 1997 to reduce RAM's long-term debt due within one year by $5.4
million and long-term debt due after one year by $5.0 million. RAM has
classified the $5.4 million portion of the proceeds from oil and gas properties
and equipment held for sale that were used in 1997 to reduce long-term debt due
within one year as a current asset at December 31, 1996, in the accompanying
consolidated balance sheet.

PROPERTIES AND EQUIPMENT

RAM follows the full cost method of accounting for oil and gas operations.
Under this method, all productive and nonproductive costs incurred in connection
with the acquisition, exploration and development of oil and gas reserves are
capitalized. No gains or losses are recognized upon the sale or other
disposition of oil and gas properties except in extraordinary transactions.

F-14
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS (CONTINUED)
With the exception of the plugging and abandonment obligation further
described in Note 8, RAM does not believe that future costs related to
dismantlement, site restoration, and abandonment costs, net of estimated salvage
values, will have a significant effect on its results of operations or financial
position because the salvage value of equipment and related facilities should
approximate or exceed any future expenditures for dismantlement, restoration, or
abandonment. RAM has not incurred any net expenditures for costs of this nature
during the last two years.

To the extent that RAM's net capitalized costs of oil and gas properties and
equipment exceed estimated discounted future net revenues from proved reserves,
plus the lower of cost or estimated fair value of unproved properties (none at
December 31, 1995 and 1996) (the "ceiling amount"), such excess is charged to
expense in the period in which it occurs and is not subsequently reinstated.
Reserve estimates have been prepared by an independent petroleum engineering
firm.

Other property and equipment consists principally of furniture and equipment
and leasehold improvements. Other property and equipment and related accumulated
amortization and depreciation are relieved upon retirement or sale and the gain
or loss is included in operations. Renewals and replacements which extend the
useful life of property and equipment are treated as additions.

The discounted future net revenues at December 31, 1996 include
approximately $44.6 million related to undeveloped and nonproducing properties
on which estimated capital expenditures of approximately $14.9 million will be
required to develop and produce the reserves. Such amounts have been considered
in the calculation of the ceiling amount at December 31, 1996. The funding for
these projects is expected by RAM to be provided from cash flows from
operations.

AMORTIZATION AND DEPRECIATION

Amortization of oil and gas properties and equipment is computed based on
the unit-of-production method using total proved reserves. Depreciation on other
equipment is computed based on the double declining balance method over the
estimated useful lives of the assets which range from three to ten years.
Amortization of leasehold improvements is computed over the term of the
associated lease. Amortization of loan origination costs is computed based on
the straight-line method over the term of the related debt.

GAS BALANCING

RAM records oil and gas sales on the entitlement method, recognizing its net
share of all production as revenue. Any amount received in excess of or less
than RAM's revenue interest is recorded in the net gas balancing liability.

CASH EQUIVALENTS

RAM considers all highly liquid unrestricted investments with a maturity of
three months or less when purchased to be cash equivalents.

CREDIT AND MARKET RISK

RAM sells oil and gas to various customers and participates with other
parties in the drilling, completion and operation of oil and gas wells. Joint
interest and oil and gas sales receivables related to these operations are
generally unsecured. During 1994, 1995 and 1996, RAM's provisions for doubtful

F-15
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION AND BASIS OF
FINANCIAL STATEMENTS (CONTINUED)
accounts receivable were $42,000, $18,000 and $141,000, respectively, while
charge-offs of the allowance in those periods were $28,000, $116,000 and none,
respectively. RAM has established joint interest operations accounts receivable
allowances which management believes are adequate for uncollectible amounts at
December 31, 1995 and 1996.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

LIQUIDITY AND FUTURE OPERATIONS

RAM's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. RAM has a deficiency in
stockholders' equity of $1,320,518 at December 31, 1996. RAM has been successful
in prior years in conducting its operations maintaining a working capital
deficit primarily as a result of the ability to control the timing of cash
disbursements in RAM's capacity as operator of oil and gas properties.

Management believes the acquisition of the limited partner interest in the
Partnership effective December 1, 1996 will improve RAM's cash flow. RAM intends
to continue to strive to improve cash flow, to conduct business effectively and
efficiently within the constraints of the available resources and to operate its
properties as a prudent operator. Management believes that these actions will
allow it to maintain operations and continue as a going concern. Accordingly,
the financial statements do not include any adjustments that might be necessary
should RAM be unable to continue as a going concern in its present form.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheets for cash and cash
equivalents and variable rate long-term debt approximate their fair values. As
more fully described in Note 2, RAM recorded a loss provision of $139,695 in
1995 (none in 1996), to reduce the carrying amount of the receivable from
Oklahoma Double R Corporation, a sister corporation to the estimated fair value
of the collateral.

2. ACQUISITION AND RELATED PARTY TRANSACTIONS

ACQUISITION

As described in Note 1, RBO purchased the limited partner's interest in the
Partnership and has reflected this additional ownership in the accompanying
consolidated financial statements beginning

F-16
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
December 1, 1996. This transaction has been accounted for under the purchase
method of accounting. Details of the acquisition are as follows:

<TABLE>
<S> <C>
Assets acquired:
Accounts receivable:
Oil and gas sales......................................... $ 4,029,383
Related parties -- REI and RBO............................ 2,509,149
Prepaid expenses and deposits............................... 205,306
Note receivable from RBO.................................... 60,000,000
Properties and equipment, net............................... 59,834,123
Loan origination fees and other............................. 1,567,317
-----------
128,145,278

Liabilities assumed:
Accounts payable:
Trade..................................................... 1,521,237
Related parties -- REI and RBO............................ 1,244,452
Accrued liabilities......................................... 95,890
Long-term debt, including amount due within one year........ 62,800,000
Gas balancing liability, including amount expected to be
settled within one year................................... 1,229,518
Commitments and contingencies............................... 600,000
-----------
67,491,097
-----------
60,654,181
Minority interest at December 1, 1996....................... (1,199,242)
Elimination of REI's equity investment in Partnership at
December 1, 1996.......................................... (556,626)
-----------
Net cash paid................................................. $58,898,313
-----------
-----------
</TABLE>

The above amounts are exclusive of certain acquired net natural gas
imbalances of approximately 1.9 billion cubic feet at December 1, 1996. These
imbalances were historically recorded by the Partnership on a net basis within
the cost of acquired oil and gas properties and equipment with balancing of the
net liability subsequently recorded on the sales method which recognizes
imbalances at such time as the remaining reserves on the respective properties
are less than the imbalance position. RAM has elected to continue this method of
accounting for these specific imbalances acquired from the Partnership.

F-17
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
Summarized financial information of the Partnership is as follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- --------------
<S> <C> <C>
Oil and gas sales.............................................. $ 21,801,849 $ 23,455,976
Other revenues................................................. 197,947 121,472
------------- --------------
Total revenues................................................. 21,999,796 23,577,448
Other costs and expenses:
Oil and gas production expenses:
Operator fees to REI....................................... 1,686,043 1,342,777
Other...................................................... 9,901,863 7,609,131
General and administrative:
Management fees to REI..................................... 1,605,743 1,482,293
Overhead and other......................................... 501,941 377,964
Interest expense............................................. 808,942 563,789
Amortization and depreciation................................ 9,808,191 5,114,112
------------- --------------
Total costs and expenses....................................... 24,312,723 16,490,066
------------- --------------
Net income (loss).............................................. $ (2,312,927) $ 7,087,382
------------- --------------
------------- --------------
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- --------------
<S> <C> <C>
Current assets................................................ $ 7,513,413 $ 13,245,525
Note receivable from RBO due after one year................... -- 54,600,000
Oil and gas properties and equipment and other assets......... 49,694,976 47,765,359
------------- --------------
$ 57,208,389 $ 115,610,884
------------- --------------
------------- --------------

Current liabilities........................................... $ 12,367,328 $ 8,561,579
Long-term debt due after one year............................. -- 57,400,000
Other noncurrent liabilities.................................. 1,674,587 1,529,518
Partners' equity.............................................. 43,166,474 48,119,787
------------- --------------
$ 57,208,389 $ 115,610,884
------------- --------------
------------- --------------
</TABLE>

The following pro forma data presents the results of RAM for the years ended
December 31, 1995 and 1996, as if the acquisition of the limited partner
interest in the Partnership had occurred on January 1, 1995. The pro forma
results of operations are presented for comparative purposes only and are not
necessarily indicative of the results which would have been obtained had the
acquisitions been consummated as presented. The following data reflect pro forma
adjustments to include the operating activity of

F-18
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
the Partnership adjusted to reflect RAM's adjusted basis since acquisition and
additional interest related to the acquisition.

<TABLE>
<CAPTION>
PRO FORMA YEAR
ENDED DECEMBER 31,
----------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues........................................... $22,300,400 $27,520,200
---------- ----------
---------- ----------
Net income (loss).................................. $(8,977,200) $1,598,500
---------- ----------
---------- ----------
Net income (loss) per share (NOTE 11).............. $ (3.29) $ .59
---------- ----------
---------- ----------
</TABLE>

RELATED PARTY TRANSACTIONS

The Partnership agreement under which REI serves as the managing general
partner, provides for reimbursement of certain Partnership overhead costs to
REI. The management fee is computed monthly as a percentage of adjusted
cumulative contributed capital, as defined, at the beginning of the month. The
fee for the years ended December 31, 1994 and 1995 and for the eleven-month
period ended November 30, 1996 (the period prior to the acquisition of the
limited partner interest described in Note 1) was $1,554,929, $1,605,743 and
$1,482,293, respectively. Additionally, for the years ended December 31, 1994
and 1995, and for the eleven-month period ended November 30, 1996, $183,582,
$132,063 and $152,648, respectively, for technical personnel costs were charged
to the Partnership and are included in consulting fees from related parties in
the accompanying consolidated financial statements. Upon RAM's purchase of the
limited partner's interest in the Partnership effective December 1, 1996, the
operations of the Partnership are consolidated in those of RAM and subsequent
charges for the management fees and technical personnel costs made by REI to the
Partnership have been eliminated through consolidating adjustments in the
consolidated financial statements.

During 1994, 1995 and 1996, REI and RBO served as operator on many of the
wells of the Partnership. In connection with their services as operator on these
wells, REI and RBO charged the Partnership operator fees of $1,746,145,
$1,686,043 and $1,342,777 in 1994, 1995 and 1996, respectively. At December 31,
1996, the payables and receivables related to transactions between REI and RBO
and the Partnership are intercompany accounts as a result of the acquisition of
the limited partner interest in 1996 and, accordingly, have been eliminated in
the consolidated financial statements.

During the years ended December 31, 1994 and 1995 and the eleven-month
period ended November 30, 1996, REI received cash distributions from the
Partnership of $66,300, $12,953 and $21,342, respectively. No cash contributions
were made in 1994, 1995 or 1996. These cash distributions and contributions are
exclusive of cash flow from operations of the Partnership utilized to fund
development of Partnership properties.

In 1993, REI and RBO identified approximately $554,000 of oil and gas sales
proceeds received and other items which required resolution as a result of a
dispute with the limited partner of the Partnership as to ownership of these
funds. At December 31, 1995, a settlement had been reached on all but $295,561
of the amount. In December 1996, upon completion of the purchase of the limited
partner's interest in the Partnership, the $295,561 was recorded as other income
by RAM.

F-19
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACQUISITION AND RELATED PARTY TRANSACTIONS (CONTINUED)
In 1994 and 1995, RAM paid $861,490 and $339,910, respectively (none in
1996), for a sister corporation's debt service requirements on a joint long-term
debt obligation. RAM received net repayments on advances totaling $20,846 during
1994 and made net advances to the sister corporation of $113,854 in 1995 (none
in 1996).

In September 1994, RAM entered into a loan and security agreement under
which the sister corporation pledged as collateral on the amount due RAM, all of
the future distributions applicable to the sister corporation's investment
ownership interest in the Partnership. The ultimate realization of the
receivable from the sister corporation is dependent upon the value of the
collateral pledged under the loan and security agreement. Management believes
that the receivable is ultimately collectible. A fair market value analysis
using the estimated discounted cash flows from oil and gas reserves attributable
to the sister corporation's ownership interest in the Partnership resulted in a
provision for uncollectible receivable of $139,695 being included in the
consolidated financial statements for 1995 (none in 1994 or 1996). The net
amount of $1,800,000 due from the sister corporation at December 31, 1995 and
1996, is included in the accompanying consolidated balance sheets as a
receivable from the sister corporation not expected to be collected within one
year. (NOTE 11)

3. LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Revolving note payable......................................... $ -- $ 52,000,000
Term note payable.............................................. -- 10,800,000
Installment loan agreements.................................... 48,903 184,427
------------- -------------
48,903 62,984,427
Less amount due within one year................................ 31,464 5,475,673
------------- -------------
$17,439 $ 57,508,754
------------- -------------
------------- -------------
</TABLE>

During November 1996, the Partnership entered into a credit agreement with a
bank consisting of a revolving commitment which provides up to $65.0 million in
borrowings and letters of credit including a $10.8 million term commitment. In
connection with the December 1, 1996 acquisition by RBO of the limited partner
interest in the Partnership, RBO borrowed from the Partnership $60.0 million of
the proceeds from the credit agreement. Borrowings under the credit agreement
are secured by essentially all assets of RAM.

The amount of the revolving commitment is subject to a borrowing base
calculation and certain other limitations as defined in the credit agreement.
The borrowing base relates to RAM's oil and gas reserve base and was $52.0
million at December 31, 1996. The borrowing base is subject to semiannual
redeterminations each April and October. In addition to the foregoing semiannual
redetermination, the lender has the right, at its sole discretion or at the
request of RAM, to make one additional redetermination of the borrowing base
during any twelve-month period. The revolving commitment reduces quarterly
commencing January 31, 1998 by 1/16th through October 31, 2001. Under the
revolving commitment, RAM has the ability to choose the index on which the
interest rate is based. At December 31, 1996, all borrowings under

F-20
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. LONG-TERM DEBT (CONTINUED)
the revolving commitment were accruing interest at a LIBOR-based interest rate
plus 2.5% (aggregate rate of 8%), and interest is payable currently.

The term commitment of $10.8 million has been fully drawn at December 31,
1996. The original maturity date of the term commitment was October 31, 1997.
The maturity date on the term commitment has been extended to June 30, 1998;
however, due to the repayment in 1997 of $5.4 million of the term note payable
as further described below, only the remaining $5.4 million balance of the term
commitment has been classified as due after one year. Interest on the borrowings
under the term commitment is based on the bank's reference rate plus 3% through
May 31, 1997 and 3.5% thereafter (aggregate of 11.25% at December 31, 1996), and
is payable monthly.

The credit agreement contains various affirmative and restrictive covenants.
These covenants, among other things, restrict mergers involving RAM and payment
of dividends on REI's stock, limit additional indebtedness and sales or other
dispositions of assets, and require RAM to meet certain financial covenants. In
addition, the credit agreement requires RAM to enter into certain interest rate
swaps and collars to hedge the interest rate exposure associated with the credit
agreement. Effective January 3, 1997, RAM entered into interest rate swaps to
fix the interest rate on notional amounts of $20.0 million of the borrowings
under the revolving commitment and entered into an interest rate collar to cap
the interest rate on an additional notional amount of $10.0 million of the
borrowings under the revolving commitment.

RAM sold certain oil and gas properties in 1997 and received cash proceeds
of approximately $10.4 million (before closing adjustments). As required by the
credit agreement, such proceeds were used to pay down the principal balance
outstanding under the credit agreement. The bank applied $5.0 million of such
proceeds to the revolving note payable as a result of a preliminary
redetermination of the borrowing base made in 1997 with the balance of $5.4
million applied to the term note payable.

The amount of principal payments required by the credit agreement during
each of the next five years as of December 31, 1996, including consideration of
the extension of the maturity date of the term commitment but exclusive of the
preliminary borrowing base redetermination discussed above, are as follows: 1997
- -- $5,400,000, 1998 -- $8,650,000, 1999 -- $16,250,000, 2000 -- $16,250,000, and
2001 -- $16,250,000.

Interest paid by RAM in 1994, 1995 and 1996 totaled $22,691, $18,022 and
$156,873, respectively.

4. OPERATING LEASES

RAM leases office space, equipment and vehicles under noncancelable
operating lease agreements which expire at various dates through 2000. The
leases provide that RAM pay insurance, taxes and maintenance related to the
leased assets. Rent expense of $552,569, $332,977 and $365,217 was incurred
under operating leases in 1994, 1995 and 1996, respectively.

Future minimum lease payments for operating leases at December 31, 1996 are
as follows:

F-21
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. DEFINED CONTRIBUTION PLAN

RAM has a defined contribution plan for the benefit of substantially all
employees. The plan allows eligible employees to contribute up to 17.5% of their
annual compensation, not to exceed approximately $9,600 in 1996. RAM matched the
first 3.0% of employee contributions through January 1994, and RAM's
contribution in 1994 was $12,111. RAM elected to make a discretionary
contribution of $76,635 in 1996 (none in 1995).

6. PREFERRED STOCK

The Series A and B noncumulative preferred shares are entitled to receive
preferential quarterly dividends at the discretion of REI's Board of Directors.
The maximum quarterly dividends for the Series A and B shares are $0.125 and
$0.30 per share, respectively (no dividends were declared in 1994, 1995 or
1996). Holders of these shares are entitled to a preference in liquidation in
the amount of $10.00 per share plus declared and unpaid dividends, but are not
entitled to vote. REI may redeem the preferred shares at any time at the
discretion of REI's Board of Directors at a price of $10.00 per share plus
declared and unpaid dividends; however, no more than 25,000 shares of the Series
B preferred stock may be redeemed within any twelve-month period.

The holders of the Series B preferred shares are entitled to convert 22,500
of these shares into one share of Class A common stock at any time. Authorized
but unissued Class A common shares are reserved in the amount necessary to
comply with this conversion feature (4 shares at December 31, 1996).

7. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
RAM's deferred tax assets and liabilities as of December 31, 1995 and 1996 are
as follows:

<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Financial depreciation in excess of tax depreciation............. $ 79,269 $ 108,163
Financial charges which are deferred for tax purposes:
Provision for uncollectible receivable from sister
corporation.................................................. 53,084 53,084
Accrued compensation........................................... 77,520 222,680
Other, net..................................................... 111,012 166,725
Net operating loss carryforwards................................. 858,975 464,529
------------- ------------
Total deferred tax assets before valuation allowance............. 1,179,860 1,015,181
Less valuation allowance recognized.............................. (1,008,608) (851,920)
------------- ------------
Net deferred tax assets...................................... 171,252 163,261
</TABLE>

F-22
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Intangible drilling costs capitalized for financial purposes and
expensed for tax purposes...................................... 106,498 111,197
Tax losses from equity method investment in Partnership.......... 64,754 52,064
------------- ------------
Deferred tax liabilities..................................... 171,252 163,261
------------- ------------
Net deferred tax................................................. $ -- $ --
------------- ------------
------------- ------------
</TABLE>

The reconciliation of income taxes computed at the U.S. Federal statutory
tax rates to RAM's income tax expense is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) at statutory rate...... $ 5 $(19,481) $ 138,772
State income taxes.......................... -- (2,005) 17,916
Change in valuation allowance recognized.... (5) 21,486 (156,688)
--------- --------- ---------
Income tax expense.......................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>

At December 31, 1996, RAM has federal income tax net operating loss
carryforwards of approximately $1.2 million which begin expiring in 2002.

8. COMMITMENTS AND CONTINGENCIES

In November 1993, the limited partner of the Partnership filed a lawsuit in
federal district court against REI, the special general partner, and certain
other affiliates of REI. In this lawsuit, the limited partner made numerous
allegations against REI and its affiliates related to REI's operation of the
Partnership as its general partner. In July 1996, the lawsuit was dismissed by
the federal court for lack of federal jurisdiction. The parties entered into a
purchase and sale agreement under which the limited partner's interest in the
Partnership was purchased effective December 1, 1996 (NOTES 1 AND 2). Upon
execution of the purchase and sale agreement, a complete release and discharge
of all claims by the limited partner against REI and its affiliates was
received.

In November 1995, the Partnership entered into a letter of intent to sell an
oil and gas property located in Louisiana state waters in Plaquemines Parish.
The sale was completed in early 1996. The property included several currently
uneconomical wells for which RAM estimates the plugging and abandonment ("P&A")
obligation is approximately $1,020,000. The purchaser provided a letter of
credit and a bond totaling $420,000 to ensure funding of a portion of the P&A
obligation. The P&A obligation would revert to the Partnership in the event the
purchaser does not complete the required P&A activities. As a result, in 1995
the Partnership recorded a contingent liability of $600,000, which is also
included in the accompanying December 31, 1996 consolidated balance sheet.

Effective January 1, 1996, RAM established a severance policy for three
senior officers and directors of REI. This policy provides for severance
benefits to be paid upon involuntary separation as a result of

F-23
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
actions taken by RAM or its successors. Benefits under the policy are
principally based upon length of service to RAM. The covered officers and
directors are not entitled to these separation benefits upon voluntary
separation, including retirement. At December 31, 1996, the severance benefits
under this policy were approximately $630,000 with additional amounts payable
for group medical, health, and life benefits and other consulting fees for
services requested by RAM after termination of the individuals, as applicable. A
provision for these benefits would not be made unless an involuntary termination
was probable.

9. OIL AND GAS PRODUCING ACTIVITIES

Capitalized costs relating to crude oil and gas producing activities and
related accumulated depreciation and amortization are summarized as follows:

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1994 1995 1996
----------- ------------ -------------
Proved crude oil and natural gas properties........ $ 960,754 $ 1,006,495 $ 64,207,298
Accumulated depreciation and amortization.......... (446,815) (518,815) (4,632,819)
----------- ------------ -------------
$ 513,939 $ 487,680 $ 59,574,479
----------- ------------ -------------
----------- ------------ -------------
</TABLE>

Costs incurred in oil and gas producing activities for the years ended
December 31, 1994, 1995 and 1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Acquisition of proved properties......................... $ -- $ -- $ 59,834,123
Development costs........................................ $49,986 $47,098 $ 21,905
</TABLE>

10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)

RAM has interests in crude oil and gas properties that are principally
located in Oklahoma, Texas and New Mexico. RAM does not own or lease any oil and
gas properties outside the United States.

RAM retains independent engineering firms to provide year-end estimates of
RAM's future net recoverable oil, gas, and natural gas liquids reserves.
Estimated proved net recoverable reserves as shown below include only those
quantities that can be expected to be commercially recoverable at prices and
costs in effect at the balance sheet dates under existing regulatory practices
and with conventional equipment and operating methods.

Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered from new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is required for
recompletion.

Net quantities of proved developed and undeveloped reserves of oil and gas,
including condensate and natural gas liquids, are provided below beginning in
1996, the year in which the purchase of the limited

F-24
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
partner interest in the Partnership occurred. Prior to this time, the amounts
were not significant and, therefore, have not been presented below:

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(MILLION (MILLION
BARRELS) CUBIC FEET)
----------- -----------
<S> <C> <C>
December 31, 1995.................................................. 26 550
Purchase of reserves in place...................................... 4,294 83,025
Production......................................................... (38) (690)
----------- -----------
December 31, 1996.................................................. 4,282 82,885
----------- -----------
----------- -----------
Proved developed reserves at December 31, 1996..................... 3,511 62,319
----------- -----------
----------- -----------
</TABLE>

The following is a summary of a standardized measure of discounted net cash
flows beginning in 1996, related to RAM's proved oil and gas reserves. For these
calculations, estimated future cash flows from estimated future production of
proved reserves were computed using crude oil and natural gas prices as of the
end of the period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future. Estimated future income tax expenses
were calculated by applying future statutory tax rates (based on the current tax
law adjusted for permanent differences and tax credits) to the estimated future
pre-tax net cash flows related to proved crude oil and natural gas reserves,
less the tax basis of the properties involved.

RAM cautions against using this data to determine the fair value of its oil
and gas properties. To obtain the best estimate of fair value of the oil and gas
properties, forecasts of future economic conditions, varying discount rates, and
consideration of other than proved reserves would have to be incorporated into
the calculation. In addition, there are significant uncertainties inherent in
estimating quantities of proved reserves and in projecting rates of production
that impair the usefulness of the data.

The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves at December 31, 1996 are summarized as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Future cash inflows........................................................... $ 414,079
Future production and development costs....................................... (125,634)
Future income tax expenses.................................................... (38,560)
--------------
Future net cash flows......................................................... 249,885

10% annual discount for estimated timing of cash flows........................ (110,474)
--------------
Standardized measure of discounted future net cash flows...................... $ 139,411
--------------
--------------
</TABLE>

F-25
<PAGE>
RAM ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the period from December 31,
1995 to December 31, 1996:

<TABLE>
<S> <C>
Sales and transfers of oil and gas produced, net of production
costs........................................................... $ (2,448)
Purchases of reserves in place, including those from purchase of
limited partner interest in Partnership......................... 141,167
Accretion of discount............................................. 63
---------
Net change........................................................ $ 138,782
---------
---------
</TABLE>

During recent years, there have been significant fluctuations in the prices
paid for crude oil in the world markets. This situation has had a destabilizing
effect on the oil posted prices in the United States, including the posted
prices paid by purchasers of RAM's oil. The net weighted average prices of oil
and gas at December 31, 1996 used in the above table were $23.89 per barrel of
crude oil and $3.79 per thousand cubic feet of natural gas.

11. SUBSEQUENT EVENTS

In August 1997, RAM purchased certain primarily producing oil and gas
properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). The purchase was
financed with additional borrowings under the credit agreement.

Effective November 26, 1997, RBO was merged with and into REI, resulting in
REI becoming the direct owner of all of the assets and properties of RBO and
assuming all of its liabilities. Effective December 1, 1997, REI, as managing
general partner and sole limited partner of the Partnership, and DRC, as special
general partner of the Partnership, authorized the dissolution of the
Partnership, the liquidation of all of the assets of the Partnership into REI
and the assumption by REI of all liabilities of the Partnership.

On December 27, 1997, the Board of Directors of RAM Energy, Inc. approved a
27,000-for-1 stock split of RAM Energy, Inc.'s common stock and approved the
change of the name of RAM from RAMCO Operating Company to RAM Energy, Inc. The
effects of the stock split on the computations of net income (loss) per share
have been reflected retroactively in the accompanying financial statements.

F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Partners
RAMCO-NYL 1987 Limited Partnership

We have audited the accompanying balance sheets of RAMCO-NYL 1987 Limited
Partnership as of December 31, 1995 and November 30, 1996, and the related
statements of operations, partners' equity and cash flows for each of the two
years in the period ended December 31, 1995 and for the eleven-month period
ended November 30, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RAMCO-NYL 1987 Limited
Partnership at December 31, 1995, and November 30, 1996 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 and for the eleven-month period ended November 30, 1996 in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Oklahoma City, Oklahoma
December 15, 1997

F-27
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 1,265,980 $ 1,101,687
Restricted temporary investments, at cost which approximates market............... 280,000 --
Accounts receivable from affiliates (NOTES 1 AND 3):
Oil and gas sales............................................................... 4,666,293 4,029,383
Other........................................................................... 1,003,021 2,509,149
Prepaid expenses.................................................................. 298,119 205,306
Note receivable from RBO due within one year (NOTE 3)............................. -- 5,400,000
------------- -------------
Total current assets................................................................ 7,513,413 13,245,525

Note receivable from RBO due after one year (NOTE 3)................................ -- 54,600,000

Properties and equipment, at cost (NOTES 3 AND 4):
Oil and gas properties and equipment, based on full cost accounting............... 142,995,021 144,647,069
Other equipment................................................................... 124,707 124,707
------------- -------------
143,119,728 144,771,776
Less accumulated amortization and depreciation.................................... 93,518,299 98,573,734
------------- -------------
Net properties and equipment........................................................ 49,601,429 46,198,042

Loan origination fees, net of accumulated amortization of $131,973 in 1995 and
$190,650 in 1996.................................................................. 58,677 1,536,092
Other............................................................................... 34,870 31,225
------------- -------------
Total assets........................................................................ $ 57,208,389 $ 115,610,884
------------- -------------
------------- -------------

LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable:
Affiliates (NOTE 3)............................................................. $ 1,347,412 $ 1,244,452
Trade........................................................................... -- 1,521,237
Long-term debt due within one year (NOTE 4)....................................... 10,000,000 5,400,000
Gas balancing liability........................................................... 500,000 300,000
Accrued liability for contingencies (NOTE 5)...................................... 420,000 --
Other accrued liabilities......................................................... 99,916 95,890
------------- -------------
Total current liabilities........................................................... 12,367,328 8,561,579

Gas balancing liability not expected to be settled within one year.................. 1,074,587 929,518
Long-term debt due after one year (NOTE 4).......................................... -- 57,400,000
Contingencies (NOTE 5).............................................................. 600,000 600,000

Partners' equity:
Managing General Partner.......................................................... 507,094 556,626
Special General Partner........................................................... 1,075,409 1,199,242
Limited Partner................................................................... 41,583,971 46,363,919
------------- -------------
Total partners' equity.............................................................. 43,166,474 48,119,787
------------- -------------
Total liabilities and partners' equity.............................................. $ 57,208,389 $ 115,610,884
------------- -------------
------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-28
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
ELEVEN MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED
----------------------------- NOVEMBER 30,
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Oil and gas sales (NOTE 3)....................................... $ 24,481,019 $ 21,801,849 $ 23,455,976
Other............................................................ 59,630 139,431 6,929
-------------- ------------- -------------
Total operating revenues....................................... 24,540,649 21,941,280 23,462,905

Operating expenses:
Oil and gas production expenses (NOTES 3 AND 5).................. 9,838,892 9,901,863 7,609,131
Amortization and depreciation.................................... 11,607,625 9,808,191 5,114,112
Write-down of oil and gas properties and equipment (NOTE 1)...... 8,700,000 -- --
Management fee to Managing General Partner
(NOTE 3)....................................................... 1,554,929 1,605,743 1,482,293
Operator fees to Managing General Partner (NOTE 3)............... 1,746,145 1,686,043 1,342,777
General and administrative expenses.............................. 676,124 501,941 377,964
-------------- ------------- -------------
Total operating expenses....................................... 34,123,715 23,503,781 15,926,277
-------------- ------------- -------------
Operating income (loss)............................................ (9,583,066) (1,562,501) 7,536,628
Other income (expense):
Interest expense................................................. (587,361) (808,942) (563,789)
Interest income.................................................. 41,164 58,516 114,543
-------------- ------------- -------------
Net income (loss).................................................. $ (10,129,263) $ (2,312,927) $ 7,087,382
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-29
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY

<TABLE>
<CAPTION>
MANAGING SPECIAL
GENERAL GENERAL LIMITED
TOTAL PARTNER PARTNER PARTNER
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993..................... $ 61,534,001 $ 690,769 $1,534,597 $59,308,635

Cash distributions to partners................... (4,630,000) (46,300) (115,750) (4,467,950)

Net loss......................................... (10,129,263) (101,293) (253,231) (9,774,739)
-------------- -------------- -------------- --------------
Balance at December 31, 1994..................... 46,774,738 543,176 1,165,616 45,065,946

Cash distributions to partners................... (1,295,337) (12,953) (32,384) (1,250,000)

Net loss......................................... (2,312,927) (23,129) (57,823) (2,231,975)
-------------- -------------- -------------- --------------
Balance at December 31, 1995..................... 43,166,474 507,094 1,075,409 41,583,971

Cash distributions to partners................... (2,134,069) (21,342) (53,352) (2,059,375)

Net income....................................... 7,087,382 70,874 177,185 6,839,323
-------------- -------------- -------------- --------------
Balance at November 30, 1996..................... $ 48,119,787 $ 556,626 $1,199,242 $46,363,919
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-30
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
ELEVEN MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- NOVEMBER 30,
1994 1995 1996
------------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................................................... $ (10,129,263) $(2,312,927) $ 7,087,382
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization and depreciation....................................... 11,607,625 9,808,191 5,114,112
Write-down of oil and gas properties and equipment.................. 8,700,000 -- --
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable from affiliates relating to operating
activities...................................................... (410,643) 1,539,106 (869,218)
Prepaid expenses.................................................. (121,404) (176,715) 92,813
Accounts payable to affiliates relating to operating activities... 1,100,250 (1,410,596) (102,960)
Other accrued liabilities......................................... 1,980 2,046 (4,026)
Accrued liability for contingencies............................... (50,000) 620,000 (420,000)
Gas balancing liability........................................... (730,000) (590,670) (345,069)
Restricted temporary investments and other........................ -- -- 283,645
------------- ----------- -------------
Total adjustments..................................................... 20,097,808 9,791,362 3,749,297
------------- ----------- -------------
Net cash provided by operating activities............................. 9,968,545 7,478,435 10,836,679

CASH FLOWS FROM INVESTING ACTIVITIES
Advance on note receivable from RBO................................... -- -- (60,000,000)
Payments for additions to oil and gas properties and equipment
exclusive of advances............................................... (4,308,533) (5,379,704) (3,310,238)
Proceeds from sales of oil and gas properties......................... 81,364 181,190 1,688,887
Advances paid for development costs................................... (1,106,511) (74,157) --
Payments for purchases of other equipment............................. (16,381) -- --
Proceeds from sales of other equipment................................ 13,762 -- --
------------- ----------- -------------
Net cash used by investing activities................................. (5,336,299) (5,272,671) (61,621,351)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing on long-term debt............................. -- -- 62,800,000
Principal payments on long-term debt.................................. -- -- (10,000,000)
Distributions to partners............................................. (4,630,000) (1,295,337) (2,134,069)
Payments for loan origination fees.................................... -- -- (45,552)
------------- ----------- -------------
Net cash provided (used) by financing activities...................... (4,630,000) (1,295,337) 50,620,379
------------- ----------- -------------
Increase (decrease) in cash and cash equivalents...................... 2,246 910,427 (164,293)

Cash and cash equivalents at beginning of period...................... 353,307 355,553 1,265,980
------------- ----------- -------------
Cash and cash equivalents at end of period............................ $ 355,553 $ 1,265,980 $ 1,101,687
------------- ----------- -------------
------------- ----------- -------------

DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Oil and gas properties obtained utilizing advances for development
costs............................................................... $ 939,966 $ 262,211 $ --
------------- ----------- -------------
------------- ----------- -------------
Accounts payable includes costs related to the addition of loan
origination fees.................................................... $ -- $ -- $ 1,521,237
------------- ----------- -------------
------------- ----------- -------------
Offset of certain accounts payable and accounts receivable between
Managing General Partner and Limited Partner........................ $ -- $ 781,786 $ --
------------- ----------- -------------
------------- ----------- -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-31
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

RAMCO-NYL 1987 Limited Partnership (the "Partnership") was activated on
February 3, 1988 by RAM Energy, Inc., formerly RAMCO Operating Company (the
"Managing General Partner"), Oklahoma Double R Corporation (the "Special General
Partner"), and New York Life Insurance Company (the "Limited Partner"). On
November 30, 1996, the Limited Partner interest in the Partnership was sold to
RB Operating Company ("RBO"), a wholly-owned subsidiary of the Managing General
Partner (NOTE 8). The Partnership was formed for the purpose of acquiring and
developing interests in oil and gas properties.

The Partnership participates in the drilling, completion and acquisition of
oil and gas wells. While the Partnership's sales of oil and gas to various
purchasers are generally unsecured and distributed by an affiliate, the
Partnership has not experienced any significant credit losses from such sales.

PARTICIPATION IN REVENUES, COSTS AND EXPENSES

Under the terms of the limited partnership agreement, as amended (the
"Partnership Agreement"), for financial reporting purposes, virtually all
Partnership revenues, costs and expenses are allocated 1.0% to the Managing
General Partner, 2.5% to the Special General Partner and 96.5% to the Limited
Partner prior to Payout Nos. 1 and 2, as defined. Upon reaching these payouts,
the allocation to the Managing General Partner increases to 11.5% while that of
the Limited Partner decreases to 86.0%.

PROPERTIES AND EQUIPMENT

The Partnership follows the full cost method of accounting for oil and gas
operations. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and gas
reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and gas properties except in extraordinary
transactions.

With the exception of the plugging and abandonment obligation further
described in Note 5, the Partnership does not believe that future costs related
to dismantlement, site restoration, and abandonment costs, net of estimated
salvage values, will have a significant effect on its results of operations or
financial position because the salvage value of equipment and related facilities
should approximate or exceed any future expenditures for dismantlement,
restoration, or abandonment. The Partnership has not incurred any net
expenditures for costs of this nature in 1994, 1995 or 1996.

To the extent that the Partnership's net capitalized costs of oil and gas
properties and equipment exceed estimated discounted future net revenues from
proved reserves plus the lower of cost or estimated fair value of unproved
properties (none at December 31, 1995 or November 30, 1996) (the "ceiling
amount"), such excess is charged to expense in the period in which it occurs and
is not subsequently reinstated. The accompanying financial statements reflect
the pricing of oil and gas products used in the calculations of the
Partnership's oil and gas reserves in accordance with the guidelines established
by the Securities and Exchange Commission, which resulted in a write-down of oil
and gas properties and equipment of $8.7 million in 1994 (none in 1995 or 1996).

The discounted future net revenues at November 30, 1996 include
approximately $28.2 million related to properties on which estimated capital
expenditures of approximately $14.7 million will be required to develop and
produce the reserves. Such amounts have been considered in the calculation of
the ceiling

F-32
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amount at November 30, 1996. The funding for these projects is expected by the
Managing General Partner to be provided from cash flows from operations.

AMORTIZATION AND DEPRECIATION

Amortization of oil and gas properties and equipment is computed based on
the unit-of-production method. Depreciation on other equipment is computed based
on the double declining balance method over the estimated useful lives of the
assets. Amortization of loan origination costs is computed based on the
straight-line method over the term of the related debt.

GAS BALANCING

The Partnership's policy when acquiring oil and gas properties and equipment
has been to record the assets acquired net of the related net gas balancing
liability, if any. The subsequent balancing of the net liability acquired is
recorded on the sales method. At November 30, 1996, the Partnership has a
remaining net overproduced position from the acquired imbalances of
approximately 1,900,000 thousand cubic feet of natural gas that is not reflected
in the gas balancing liability in the accompanying balance sheets.

For other gas imbalance activity subsequent to acquisitions, the Partnership
records sales on the entitlement method, recognizing its net share of all
production as revenue. Any amount received in excess of or less than the
Partnership's revenue interest is recorded in the net gas balancing liability.

CASH EQUIVALENTS

The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

CREDIT AND MARKET RISK

The Partnership conducts a majority of its business in the states of
Oklahoma, Texas and New Mexico and engages exclusively in the oil and gas
industry. As further described in Note 3, the Managing General Partner and RBO
have served as operators on many of the Partnership wells and distribute all oil
and gas sales proceeds to the Partnership. The Managing General Partner and RBO
have certain oil and gas suspense payable accounts totaling approximately $1.7
million at November 30, 1996 related to oil and gas properties in which the
Partnership owns an interest. These suspended payables will ultimately require
funding when the appropriate parties to whom they are due are located or the
amounts become payable to the applicable states' authorities if the appropriate
parties to whom the funds are due cannot be located. In the event the Managing
General Partner or RBO are unable to fund the oil and gas suspense payable
accounts when due, the Partnership may be required to fund such obligations to
the extent they constitute obligations under the Partnership's leases. The
Managing General Partner and RBO are dependent upon the Partnership for future
management fees and other income. While the ultimate resolution of all these
matters and their effects on the accounts described above cannot be predicted
with certainty, the Managing General Partner does not expect such resolution to
have a material effect on the financial position of the Partnership.

F-33
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES

INCOME TAXES

The income or loss of the Partnership for tax purposes is to be included in
the tax returns of the individual partners. Consequently, no provision for
income taxes has been reflected in these financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheets for cash and cash
equivalents, certificates of deposit with a one year maturity, and variable rate
note receivable from RBO and long-term debt approximate their fair values.

2. DISAGREEMENT AND LAWSUIT BETWEEN PARTNERS

In November 1993, the sole Limited Partner of the Partnership filed a
lawsuit in federal district court against the Managing General Partner, the
Special General Partner, which is a sister corporation of the Managing General
Partner, and certain affiliates of the Managing General Partner. In the lawsuit,
the Limited Partner sought dissolution of the Partnership, recovery of fees and
other charges claimed by the Limited Partner to be in excess of the amount
permitted by the Partnership Agreement, and recovery of interest charges on
Partnership funds claimed by the Limited Partner to have been improperly held in
the Managing General Partner's accounts. Although several motions for partial
summary judgment were filed by both sides, the court failed to rule on any
substantive issue in the case and in July 1996, dismissed the Limited Partner's
complaint for lack of jurisdiction.

On July 24, 1996, the Managing General Partner and the Limited Partner
entered into a Purchase and Sale Agreement pursuant to which the Managing
General Partner's subsidiary, RBO, purchased all of the Limited Partner's
interest in the Partnership (NOTE 8).

3. TRANSACTIONS WITH AFFILIATES

The Partnership Agreement provides for reimbursement of Partnership overhead
costs to the Managing General Partner. The management fee is computed monthly as
a percentage (.0833% prior to Payout No. 2 and .04167% thereafter) of adjusted
cumulative contributed capital, as defined, at the beginning of the month. The
management fee for 1994, 1995 and 1996 was $1,554,929, $1,605,743 and
$1,482,293, respectively. The Managing General Partner and RBO serve as
operators on many of the Partnership wells. In connection with their services as
operator on these wells, the Managing General Partner and RBO charged the
Partnership operator fees of $1,746,145, $1,686,083 and $1,342,777 in 1994,
1995, and 1996, respectively. In addition, the Managing General Partner and RBO
distribute all oil and gas sales, net of oil and gas production taxes, and bill
the Partnership for all operating and capital expenditures, including

F-34
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
charges for technical personnel costs provided by the Managing General Partner,
related to the Partnership wells. In connection with these and other
transactions, the Partnership has recorded oil and gas accounts receivable from
these affiliates of $4,666,293 and $4,029,383 at December 31, 1995 and November
30, 1996, respectively. The Partnership's recorded oil and gas accounts
receivable includes $1,414,382 and $1,941,746 at December 31, 1995 and November
30, 1996, respectively, that had actually been received by these affiliates from
purchasers at year end. In addition, the Partnership had advances to and other
receivables from these affiliates of $1,003,021 and $2,509,149 at December 31,
1995 and November 30, 1996, respectively, and accounts payable for oil and gas
operations to these affiliates of $1,347,412 and $1,244,452 at December 31, 1995
and November 30, 1996, respectively.

In connection with the December 1, 1996 acquisition by RBO of the Limited
Partner interest in the Partnership (NOTE 8), in November 1996, RBO borrowed
from the Partnership $60.0 million of the proceeds from the credit agreement
described in Note 4. The Partnership has a note receivable from RBO which is due
at the same time as payments are required under the credit agreement. In
addition, the note bears interest at the same rates and terms as provided for in
the credit agreement.

4. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
NOVEMBER NOVEMBER
31, 1995 30, 1996
----------- -----------
<S> <C> <C>
Revolving note payable.................................. $ -- $52,000,000
Term note payable....................................... -- 10,800,000
Note payable under credit agreement paid off in 1996.... 10,000,000 --
----------- -----------
10,000,000 62,800,000
Less amount due within one year......................... 10,000,000 5,400,000
----------- -----------
$ -- $57,400,000
----------- -----------
----------- -----------
</TABLE>

The amount of the revolving commitment is subject to a borrowing base
calculation and certain other limitations as defined in the credit agreement.
The borrowing base relates to the Partnership's oil and gas reserve base and was
$52.0 million at November 30, 1996. The borrowing base is subject to semiannual
redeterminations each April and October. In addition to the foregoing semiannual
redetermination, the lender has the right, at its sole discretion or at the
request of the Partnership, to make one additional redetermination of the
borrowing base during any twelve-month period. The revolving commitment reduces
quarterly commencing January 31, 1998 by 1/16(th) through October 31, 2001.
Under the revolving commitment, the Partnership has the ability to choose the
index on which the interest rate is based. At November 30, 1996, all borrowings
under the revolving commitment were accruing interest at a LIBOR-based interest
rate plus 2.5% (aggregate rate of 8%), and interest is payable currently.

F-35
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT (CONTINUED)
The term commitment of $10.8 million has been fully drawn at November 30,
1996. The original maturity date of the term commitment was October 31, 1997.
The maturity date on the term commitment has been extended to June 30, 1998;
however, due to the repayment in 1997 of $5.4 million of the term note payable
as further described below, only the remaining $5.4 million balance of the term
commitment, which would otherwise be classified as a current liability in the
accompanying November 30, 1996 balance sheet, has been classified as due after
one year. Interest on the borrowings under the term commitment is based on the
bank's reference rate plus 3.0% through May 31, 1997 and 3.5% thereafter
(aggregate of 11.25% at November 30, 1996), and is payable monthly.

The credit agreement contains various affirmative and restrictive covenants.
These covenants, among other things, restrict mergers involving the Partnership
and the Managing General Partner, payment of distributions to partners by the
Partnership and payment of dividends on the Managing General Partner's stock,
limit additional indebtedness and sales or other dispositions of assets, and
require the Partnership and the Managing General Partner to meet certain
financial covenants. In addition, the credit agreement requires the Partnership
to enter into certain interest rate swaps and collars to hedge the interest rate
exposure associated with the credit agreement. Effective January 3, 1997, the
Partnership entered into interest rate swaps to fix the interest rate on
notional amounts of $20.0 million of the borrowings under the revolving
commitment and entered into an interest rate collar to cap the interest rate on
an additional notional amount of $10.0 million of the borrowings under the
revolving commitment.

The Partnership sold certain oil and gas properties in 1997 and received
cash proceeds of approximately $10.4 million (before closing adjustments). As
required by the credit agreement, such proceeds were used to pay down the
principal balance outstanding under the credit agreement. The bank applied $5.0
million of such proceeds to the revolving note payable as a result of a
preliminary redetermination of the borrowing base made in 1997 with the balance
of $5.4 million applied to the term note payable.

The amount of principal payments required by the credit agreement during
each of the next five years as of November 30, 1996, including consideration of
the extension of the maturity date of the term commitment but exclusive of the
preliminary borrowing base redetermination discussed above, are as follows: 1997
- -- $5,400,000, 1998 -- $8,650,000, 1999 -- $16,250,000, 2000 -- $16,250,000, and
2001 -- $16,250,000.

Interest paid by the Partnership in 1994, 1995 and 1996 totaled $587,361,
$808,942 and $563,789, respectively.

5. CONTINGENCIES

As a result of its acquisition of certain oil and gas properties, the
Partnership was a party to a lawsuit involving certain Indian leases in Custer
County, Oklahoma. The contingent liability of $400,000 was classified as a
current liability in the accompanying balance sheet at December 31, 1995. The
parties achieved a final settlement during 1996 and settlement payments of
approximately the recorded liability have been made and dismissals with
prejudice have been filed as required under the terms of the settlement.

In November 1995, the Partnership entered into an agreement to sell an oil
and gas property located in Louisiana state waters in Plaquemines Parish. The
property includes several currently uneconomical wells for which the Managing
General Partner estimates the plugging and abandonment ("P&A") obligation is
approximately $1,020,000. The purchaser provided a letter of credit and a bond
totaling $420,000 to ensure funding of a portion of the P&A obligation. The P&A
obligation would revert to the

F-36
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CONTINGENCIES (CONTINUED)
Partnership in the event the purchaser does not complete the required P&A
activities. The Managing General Partner believes that the Partnership may
ultimately be required to fund a portion of the P&A obligation. As a result, the
Partnership has recorded a contingent liability of $600,000 in the accompanying
balance sheets.

6. OIL AND GAS PRODUCING ACTIVITIES

Capitalized costs relating to oil and gas producing activities and related
accumulated depreciation and amortization are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER
----------------------- 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Proved oil and gas properties................ $138,271,641 $142,995,021 $144,647,069
Accumulated depreciation and amortization.... (83,664,092) (93,439,682) (98,495,117)
---------- ----------- -----------
$54,607,549 $49,555,339 $46,151,952
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

Costs incurred in crude oil and gas producing activities for the years ended
December 31, 1994 and 1995 and the period ended November 30, 1996, are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- NOVEMBER 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Development costs.................................. $ 4,475,078 $ 5,191,650 $3,310,238
------------ ------------ ------------
------------ ------------ ------------
Amortization rate per equivalent MCF............... $ .92 $ .78 $ .51
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Revenues from one customer in 1996 (none in 1994 or 1995) exceeded 10% of
the Partnership's total crude oil and natural gas sales. The 1996 revenues from
Coastal Gas Marketing of approximately $2,740,000 represent approximately 11.7%
of such sales for the Partnership. The Partnership's management believes that
the loss of this customer would not have a significant impact on the
Partnership's results of operations or financial condition.

7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)

The Partnership has interests in crude oil and gas properties that are
principally located in Oklahoma, Texas and New Mexico. The Partnership does not
own or lease any crude oil and gas properties outside the United States.

The Partnership retains independent engineering firms to provide period-end
estimates of the Partnership's future net recoverable oil, gas, and natural gas
liquids reserves. Estimated proved net recoverable reserves as shown below
include only those quantities that can be expected to be commercially
recoverable at prices and costs in effect at the balance sheet dates under
existing regulatory practices and with conventional equipment and operating
methods.

Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered from new wells on

F-37
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
undrilled acreage or from existing wells on which a relatively major expenditure
is required for recompletion.

Net quantities of proved developed and undeveloped reserves of oil and gas,
including condensate and natural gas liquids, are summarized as follows:

<TABLE>
<CAPTION>
CRUDE OIL NATURAL GAS
(THOUSAND (MILLION
BARRELS) CUBIC FEET)
----------- -----------
<S> <C> <C>
December 31, 1993................................................... 4,020 77,537

Extensions and discoveries.......................................... 131 8,136
Revisions of previous estimates..................................... 153 (836)
Production.......................................................... (534) (9,402)
----- -----------
December 31, 1994................................................... 3,770 75,435

Extensions and discoveries.......................................... 88 3,708
Revisions of previous estimates..................................... (63) (523)
Production.......................................................... (462) (9,700)
----- -----------
December 31, 1995................................................... 3,333 68,920

Extensions and discoveries.......................................... 247 12,071
Sales of minerals in place.......................................... (4) (929)
Revisions of previous estimates..................................... 705 4,383
Production.......................................................... (387) (7,594)
----- -----------
November 30, 1996................................................... 3,894 76,851
----- -----------
----- -----------

Proved developed reserves:
December 31, 1993................................................. 3,053 60,040
December 31, 1994................................................. 2,797 56,792
December 31, 1995................................................. 2,714 51,664
November 30, 1996................................................. 3,177 56,692
</TABLE>

The following is a summary of a standardized measure of discounted net cash
flows related to the Partnership's proved crude oil and natural gas reserves.
For these calculations, estimated future cash flows from estimated future
production of proved reserves were computed using oil and gas prices as of the
end of each period presented. Future development and production costs
attributable to the proved reserves were estimated assuming that existing
conditions would continue over the economic lives of the individual leases and
costs were not escalated for the future. Future income tax expenses were not
considered in computing the standardized measure since the Partnership does not
record income taxes as described in Note 1.

The Partnership cautions against using this data to determine the fair value
of its oil and gas properties. To obtain the best estimate of fair value of the
oil and gas properties, forecasts of future economic conditions, varying
discount rates, and consideration of other than proved reserves would have to be
incorporated into the calculation. In addition, there are significant
uncertainties inherent in

F-38
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUPPLEMENTARY OIL AND GAS RESERVE INFORMATION (UNAUDITED) (CONTINUED)
estimating quantities of proved reserves and in projecting rates of production
that impair the usefulness of the data.

The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows.............................................. $ 191,531 $ 284,661
Future production and development costs.......................... (88,956) (113,155)
------------ ------------
Future net cash flows............................................ 102,575 171,506
10% annual discount for estimated timing of cash flows........... (38,662) (70,791)
------------ ------------
Standardized measure of discounted future net cash flows......... $ 63,913 $ 100,715
------------ ------------
------------ ------------
</TABLE>

The following are the principal sources of change in the standardized
measure of discounted future net cash flows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED
---------------------- NOVEMBER 30,
1994 1995 1996
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales and transfers of crude oil and natural gas
produced, net of production costs.................... $ (12,896) $ (10,214) $ (14,504)
Net changes in prices and production costs............. (10,373) 14,595 18,456
Extensions and discoveries, less related costs......... 7,177 3,980 13,510
Development costs incurred............................. 2,634 3,681 3,061
Sales of minerals in place............................. -- -- (712)
Revisions of previous quantity estimates............... 66 (847) 8,587
Accretion of discount.................................. 6,920 5,648 5,858
Other.................................................. (6,245) (9,410) 2,546
---------- ---------- ------------
Net change............................................. $ (12,717) $ 7,433 $ 36,802
---------- ---------- ------------
---------- ---------- ------------
</TABLE>

During recent years, there have been significant fluctuations in the prices
paid for oil in the world markets. This situation has had a destabilizing effect
on the oil posted prices in the United States, including the posted prices paid
by purchasers of the Partnership's crude oil. The net weighted average prices of
oil and gas at December 31, 1994, December 31, 1995 and November 30, 1996 used
in the above table were $15.93, $17.22 and $22.44 per barrel of oil,
respectively, and $1.67, $1.94 and $2.56 per thousand cubic feet of natural gas,
respectively.

8. SUBSEQUENT EVENTS

Effective December 1, 1996, the Managing General Partner's wholly-owned
subsidiary, RB Operating Company, purchased the Limited Partner's interest in
the Partnership for $60 million, as provided for under the terms of a Purchase
and Sale Agreement previously executed by the parties. Upon execution of

F-39
<PAGE>
RAMCO-NYL 1987 LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. SUBSEQUENT EVENTS (CONTINUED)
the Purchase and Sale Agreement, a complete release and discharge of all claims
by the Limited Partner against the Managing General Partner and its affiliates
was provided.

In August 1997, the Partnership purchased certain primarily producing oil
and gas properties and equipment located principally in Oklahoma, Louisiana and
Mississippi for $11.2 million (before closing adjustments). The purchase was
financed with additional borrowings by the Partnership under the credit
agreement.

Effective December 1, 1997, the Managing General Partner and sole limited
partner of the Partnership at that date, and the Special General Partner of the
Partnership, authorized the dissolution of the Partnership, the liquidation of
all of the assets of the Partnership into the Managing General Partner and the
assumption by the Managing General Partner of all liabilities of the
Partnership.

F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Carlton Resources Corporation

We have audited the accompanying consolidated balance sheet of Carlton
Resources Corporation (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the four months then ended. We have audited the accompanying
consolidated balance sheet of Magic Circle Energy Corporation (the
"Predecessor") as of December 31, 1995, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1995 and the eight months ended August 31, 1996. These financial
statements are the responsibility of the Company's and Predecessor's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1996, and the consolidated results of its operations and its cash
flows for the four months then ended, and the consolidated financial position of
the Predecessor at December 31, 1995 and the results of its operations and its
cash flows for the year then ended and for the eight months ended August 31,
1996, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Tulsa, Oklahoma
December 16, 1997

F-41
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ---------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $1,880,000 $1,335,000 $ 232,000
Restricted cash.................................................... -- 246,000 346,000
Investment securities.............................................. 2,729,000 -- --
Accounts receivable, less allowance for doubtful accounts of
$156,000 at December 31, 1995, $51,000 at December 31, 1996 and
$55,000 at September 30, 1997.................................... 908,000 1,806,000 1,270,000
Receivables from affiliates........................................ 2,141,000 143,000 214,000
Prepaid expenses and other current assets.......................... 168,000 285,000 826,000
------------ ------------ -------------
Total current assets................................................. 7,826,000 3,815,000 2,888,000
Property and equipment, at cost:
Oil and gas properties............................................. 19,395,000 22,732,000 23,442,000
Gathering and disposal systems..................................... 5,794,000 22,708,000 22,855,000
Other.............................................................. 770,000 410,000 336,000
------------ ------------ -------------
25,959,000 45,850,000 46,633,000
Less accumulated depreciation, depletion and amortization.......... 8,792,000 1,066,000 3,327,000
------------ ------------ -------------
Net property and equipment........................................... 17,167,000 44,784,000 43,306,000
Other assets......................................................... 3,000 433,000 403,000
------------ ------------ -------------
Total assets......................................................... $24,996,000 $49,032,000 $46,597,000
------------ ------------ -------------
------------ ------------ -------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................... $1,252,000 $2,429,000 $ 1,938,000
Payables to affiliates............................................. -- 83,000 22,000
Accrued liabilities................................................ 62,000 690,000 354,000
Long-term debt in default.......................................... -- 24,820,000 24,572,000
------------ ------------ -------------
Total current liabilities............................................ 1,314,000 28,022,000 26,886,000
Deferred tax liability............................................... 5,485,000 20,805,000 20,445,000
------------ ------------ -------------
Total liabilities.................................................... 6,799,000 48,827,000 47,331,000
Redeemable preferred stock, $.01 par value; 120 shares authorized; 12
shares issued and outstanding; stated at redemption value.......... -- 475,000 550,000
Stockholders' equity (deficit):
Common stock....................................................... 1,000 -- --
Paid-in capital.................................................... 7,646,000 -- --
Retained earnings.................................................. 10,719,000 -- --
Treasury stock (at cost)........................................... (169,000) -- --
Common stock--10,000 shares of $0.01 par value authorized; 1,025
shares issued and outstanding...................................... -- 1,000 1,000
Paid-in capital.................................................... -- 31,000 31,000
Retained earnings (deficit)........................................ -- (302,000) (1,316,000)
------------ ------------ -------------
Total stockholders' equity (deficit)................................. 18,197,000 (270,000) (1,284,000)
------------ ------------ -------------
Total liabilities and stockholders' equity........................... $24,996,000 $49,032,000 $46,597,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-42
<PAGE>
CARLTON RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------- ---------------------------
YEAR EIGHT MONTHS FOUR MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Gathering systems.................................. $ 9,584,000 $11,731,000 $2,957,000 $ 7,468,000
Oil and gas sales.................................. 6,439,000 4,613,000 2,100,000 4,109,000
Supervision fees and overhead reimbursements....... 556,000 422,000 194,000 520,000
Management fees.................................... 515,000 18,000 4,000 8,000
------------- ------------- ------------ -------------
17,094,000 16,784,000 5,255,000 12,105,000
Costs and expenses:
Oil and gas purchases.............................. 3,518,000 4,993,000 1,664,000 4,785,000
Lease operating expenses and production taxes...... 2,582,000 1,524,000 863,000 1,593,000
Other charges to production........................ 457,000 580,000 174,000 377,000
Gathering system operations........................ 801,000 758,000 419,000 569,000
Depreciation, depletion and amortization........... 2,723,000 2,259,000 1,010,000 2,343,000
General and administrative expenses................ 2,336,000 1,430,000 966,000 1,860,000
------------- ------------- ------------ -------------
12,417,000 11,544,000 5,096,000 11,527,000
------------- ------------- ------------ -------------
4,677,000 5,240,000 159,000 578,000
Other income (expense):
Interest income.................................... 372,000 234,000 159,000 46,000
Interest expense................................... (4,000) -- (326,000) (2,305,000)
Other.............................................. 510,000 464,000 318,000 183,000
------------- ------------- ------------ -------------
878,000 698,000 151,000 (2,076,000)
------------- ------------- ------------ -------------
Income (loss) before income taxes.................... 5,555,000 5,938,000 310,000 (1,498,000)
Income taxes......................................... 2,289,000 2,206,000 118,000 (559,000)
------------- ------------- ------------ -------------
Net income (loss).................................... $ 3,266,000 $ 3,732,000 $ 192,000 $ (939,000)
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-43
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS TREASURY STOCK
STOCK CAPITAL (DEFICIT) AT COST TOTAL
----------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at December 31, 1994................. $ 1,000 $ 7,646,000 $ 7,453,000 $ (134,000) $ 14,966,000
Purchase of treasury stock at cost........... -- -- -- (35,000) (35,000)
Net income for the year...................... -- -- 3,266,000 -- 3,266,000
----------- ------------ ------------- -------------- --------------
Balance at December 31, 1995................. 1,000 7,646,000 10,719,000 (169,000) 18,197,000
Net income for the eight months ended August
31, 1996................................... -- -- 3,732,000 -- 3,732,000
Purchase of treasury stock at cost........... -- -- -- (11,521,000) (11,521,000)
Distribution of properties to stockholders... -- -- (1,290,000) -- (1,290,000)
----------- ------------ ------------- -------------- --------------
Balance at August 31, 1996................... $ 1,000 $ 7,646,000 $ 13,161,000 $ (11,690,000) $ 9,118,000
----------- ------------ ------------- -------------- --------------
----------- ------------ ------------- -------------- --------------
COMPANY
Balance at September 1, 1996................. $ 1,000 $ 31,000 $ (461,000) $ -- $ (429,000)
Accretion of redeemable preferred stock to
redemption value........................... -- -- (33,000) -- (33,000)
Net income for the four months ended December
31, 1996................................... -- -- 192,000 -- 192,000
----------- ------------ ------------- -------------- --------------
Balance at December 31, 1996................. 1,000 31,000 (302,000) -- (270,000)
Accretion of redeemable preferred stock to
redemption value........................... -- -- (75,000) -- (75,000)
Net loss for the nine months ended September
30, 1997 (unaudited)....................... -- -- (939,000) -- (939,000)
----------- ------------ ------------- -------------- --------------
Balance at September 30, 1997 (unaudited).... $ 1,000 $ 31,000 $ (1,316,000) $ -- $ (1,284,000)
----------- ------------ ------------- -------------- --------------
----------- ------------ ------------- -------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES.

F-44
<PAGE>
CARLTON RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
COMPANY
PREDECESSOR ----------------------------
--------------------------- FOUR MONTHS
YEAR ENDED EIGHT MONTHS ENDED
DECEMBER 31, ENDED AUGUST DECEMBER 31,
1995 31, 1996 1996
------------ ------------- ------------- NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $3,266,000 $ 3,732,000 $ 192,000 $ (939,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization............ 2,723,000 2,259,000 1,010,000 2,343,000
Deferred taxes...................................... 2,136,000 1,936,000 (300,000) (360,000)
Change in operating assets and liabilities:
Restricted cash................................... 157,000 (245,000) (1,000) (100,000)
Accounts receivable............................... 164,000 (692,000) 195,000 536,000
Receivables from affiliates....................... (570,000) 1,495,000 96,000 (71,000)
Prepaid expenses and other current assets......... (89,000) (662,000) (225,000) (541,000)
Other assets...................................... 17,000 -- 47,000 30,000
Accounts payable.................................. 589,000 785,000 174,000 (491,000)
Payables to affiliates............................ (109,000) -- 83,000 (61,000)
Accrued liabilities............................... (190,000) 245,000 (81,000) (336,000)
Deferred revenue.................................. (188,000) -- -- --
------------ ------------- ------------- -------------
Net cash provided by operating activities............. 7,906,000 8,853,000 1,190,000 10,000
INVESTING ACTIVITIES
Acquisition of common stock of Predecessor............ -- -- (24,800,000) --
Capital expenditures.................................. (9,125,000) (2,694,000) (164,000) (1,301,000)
Proceeds from asset dispositions...................... 795,000 827,000 -- 434,000
Investment sales and maturities....................... 1,000,000 2,729,000 -- --
Investment purchases.................................. (1,235,000) -- -- --
Other, net............................................ 76,000 4,000 248,000 2,000
------------ ------------- ------------- -------------
Net cash provided by (used in) investing activities... (8,489,000) 866,000 (24,716,000) (865,000)
FINANCING ACTIVITIES
Debt proceeds......................................... -- -- 24,800,000 1,585,000
Debt payments......................................... -- -- (16,000) (1,833,000)
Purchase of common stock.............................. (35,000) (11,521,000) -- --
------------ ------------- ------------- -------------
Net cash (used in) provided by financing activities... (35,000) (11,521,000) 24,784,000 (248,000)
------------ ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents.. (618,000) (1,802,000) 1,258,000 (1,103,000)
Cash and cash equivalents at beginning of period...... 2,498,000 1,880,000 77,000 1,335,000
------------ ------------- ------------- -------------
Cash and cash equivalents at end of period............ $1,880,000 $ 78,000 $ 1,335,000 $ 232,000
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the periods for:
Interest............................................ $ 4,000 $ -- $ 326,000 $ 2,305,000
Income taxes........................................ $ 390,000 $ 558,000 $ 40,000 $ 510,000
</TABLE>

SEE ACCOMPANYING NOTES.

F-45
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

1. COMPANY BUSINESS AND ACQUISITION

Carlton Resources Corporation (the "Company") is an independent oil and gas
company which owns operated and nonoperated interests in properties located
primarily in the Anadarko Basin in Oklahoma, the Gulf Coast of Texas, and the
Austin Chalk area of Texas. In addition, the Company owns and operates an oil
and gas gathering system and plant and a saltwater disposal system in the
Anadarko Basin of Oklahoma. As used herein the term "Company" refers to Carlton
Resources Corporation ("Carlton") and collectively to Carlton and the
Predecessor, Magic Circle Energy Corporation ("Magic").

Effective September 1, 1996, Carlton, which had no previous operations,
acquired all of the outstanding stock of Magic, for $24.8 million in cash. The
acquisition was accounted for under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on fair values at the date of acquisition and is summarized as follows:

<TABLE>
<S> <C>
Current assets......................................................... $2,620,000
Property and equipment................................................. 45,852,000
Other assets........................................................... 437,000
Current liabilities.................................................... (3,002,000)
Net deferred tax liabilities........................................... (21,107,000)
----------
$24,800,000
----------
----------
</TABLE>

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all material intercompany
accounts and transactions. The Company's percentage interests in the assets and
liabilities of certain working interest oil and gas partnerships (for which the
Company serves as general partner) are proportionately consolidated in the
balance sheet.

OIL AND GAS PROPERTIES

Carlton follows the successful efforts method of accounting for its oil and
gas properties. Under this method, all costs to acquire oil and gas interests,
to drill and equip successful exploratory wells and to drill and equip
development wells are capitalized. Geological and geophysical costs and costs to
drill unsuccessful exploratory wells are expensed. When complete units of
depreciable property are retired or sold, the asset cost and related accumulated
depreciation are eliminated with any gain or loss reflected in income. When less
than complete units of depreciable property are disposed of or retired, the
difference between asset cost and salvage value is charged or credited to
accumulated depreciation.

The Predecessor followed the full cost method of accounting for oil and gas
operations. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and gas
reserves are capitalized. No gains or losses are recognized upon the sale or
other disposition of oil and gas properties except in extraordinary
transactions.

Impairment of oil and gas properties is provided when the carrying value of
properties is less than their discounted estimated future net cash flows.

F-46
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's historical experience has been that the salvage value of
equipment on property abandonments will cover the costs of dismantlement and
property restoration.

Depletion, depreciation and amortization of capitalized costs are provided
on the units-of-production method based on proved developed oil and gas
reserves.

GATHERING AND SALTWATER DISPOSAL SYSTEMS

Depreciation of gathering and saltwater disposal systems is determined by
the units of production method based on connected oil and gas supplies.

PROPERTY AND EQUIPMENT--OTHER

Other property and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets.

ENVIRONMENTAL LIABILITIES

Environmental liabilities, which have not been significant, are recognized
when it is probable that a loss has been incurred and the amount is estimable.

CASH AND CASH EQUIVALENTS

Cash equivalents are highly liquid short-term investments that are readily
convertible to known amounts of cash and generally have original maturities
within three months from their date of purchase.

RESTRICTED CASH

Certain amounts which have been posted as deposits or as surety bonds as
required by the Oklahoma Tax Commission have been classified as restricted cash.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash and cash equivalents, investment securities
and long-term debt reported in the balance sheets approximate fair value.

OIL AND GAS SALES

The Company recognizes oil and gas sales on the sales method, when oil and
gas is sold. Under this method the Company may sell more or less than its
entitled share creating an imbalance position. An asset or liability for the
imbalance position is only recorded when the position cannot be recovered from
remaining reserves. The Company's net imbalance positions at December 31, 1996
and 1995 were not material.

F-47
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES

Deferred income taxes are computed using the liability method and are
provided on all temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities. Allowable tax credits are
applied currently as reductions of the provision for income taxes.

CONCENTRATION OF CREDIT RISK

The Company maintains a portion of its unrestricted cash in bank deposit
accounts which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents.

The Company's accounts receivable relate primarily to the sale of oil and
natural gas to purchasers located in the midwestern portion of the United
States. The Company generally does not require collateral from its customers.
Credit losses have been within management's expectations.

DERIVATIVES

The Company does not engage in any hedging or other similar transactions
which are intended to manage risks related to movements in oil and natural gas
prices.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

UNAUDITED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements at September
30, 1997 and for the nine-month period then ended include all adjustments,
consisting of normal and recurring adjustments, which, in the opinion of
management, were necessary for a fair presentation of the financial position at
September 30, 1997 and the results of operations for the nine-month period ended
September 30, 1997. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year ending December 31, 1997.

3. LONG-TERM DEBT

On November 22, 1996, the Company entered into a credit agreement with a
bank for borrowings up to $16,000,000. Proceeds from the borrowings were used to
satisfy the Company's liability for the purchase of the stock of Magic, see Note
1. The loan bears interest at the bank's base rate plus 1 1/4% (9.5% at December
31, 1996 and 10.4% at September 30, 1997) which is payable monthly. Principal
payments are due based upon the reduction in the Borrowing Base, as defined,
initially $16,000,000. The Borrowing Base is redetermined semiannually, based on
certain criteria, and is reduced $200,000 per month. The bank also, at its
discretion, may redetermine the Borrowing Base and the amount by which the
Borrowing Base is

F-48
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

3. LONG-TERM DEBT (CONTINUED)
reduced each month. Any remaining principal or interest balance is due at
maturity (November 22, 1999). At September 30, 1997, $15,785,000 was outstanding
under the credit agreement. The credit agreement is secured by substantially all
of the Company's assets and requires the Company to meet certain financial
ratios and covenants.

Also on November 22, 1996 the Company entered into a pre-production payment
secured note agreement with an energy services company for borrowings up to
$8,800,000. Proceeds from this borrowing were also used to satisfy the Company's
liability for the purchase of the stock of Magic noted above. The borrowing
bears interest at 16% per annum which is payable monthly. Principal and interest
payments are due in the form of a monthly credit which the energy services
company withholds from monthly gas purchases under a gas supply agreement (see
Note 4). The amount of the credit is $135,000 per month through December 1997
and $310,000 per month thereafter until paid in full in December 2000. The
balance of this borrowing was $8,787,000 at September 30, 1997. The note is
secured by a secondary interest in substantially all of the Company's assets and
requires compliance with certain nonfinancial covenants.

In connection with the above borrowing, a contingent warrant agreement was
executed whereby the energy services company acquires the right, under certain
circumstances explained below, to purchase up to 8,800,000 shares, which would
represent 90% of the shares outstanding, subject to adjustment in certain
circumstances, of the Common Stock of Magic Circle Energy Corporation, a
wholly-owned subsidiary of Carlton through which operations are conducted, at $1
per share, plus an amount equal to 16% per annum from the date of the contingent
warrant agreement to date of exercise. Each warrant share becomes exercisable
for each dollar by which the monthly credit, described above, does not equal the
agreed monthly credit under the note agreement. Under certain conditions the
Company can repurchase the warrant shares at a redemption price of $1.25. At
September 30, 1997, no warrants had been issued.

The Company is not in compliance with certain provisions of the credit
agreement discussed above, related to current ratio, tangible net worth and debt
coverage ratio which also cause the Company not to be in compliance with
provisions of the pre-production payment secured note agreement. Accordingly,
the Company has classified the amounts payable under both agreements as a
current liability in the accompanying balance sheets. Management believes they
will be able to obtain waivers for the noncompliance or refinance the debt.

4. GAS PROCESSING AND SUPPLY CONTRACTS

The Company has a gas processing and compression contract which provides for
compression services to the Company in exchange for certain processing rights to
the processor. The contract provides for the processing of a minimum of 10,000
Mcf's of gas per day for the life of the oil and gas leases of the dedicated
area, as defined. Payment to the processor for compression services is in the
form of condensate and liquid hydrocarbons removed by the processor. Cash
payment for compression services is only required if gas volumes delivered fall
below 8,000 Mcf's per day. The Company does not expect to be required to make
any cash payments.

The Company also has a gas supply agreement with the energy services company
as discussed in Note 3 whereby the Company is required to sell to the energy
services company 10,000 Decatherms of

F-49
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

4. GAS PROCESSING AND SUPPLY CONTRACTS (CONTINUED)
natural gas per day through October 2000. The energy services company has
options to extend the agreement through October 2004 and has a right of first
refusal on any gas volumes processed at the Company's facilities which exceed
11,000 Decatherms per day. The agreement provides for base volumes to be sold at
the current published index price less $0.01 and less $0.05 for all option
volumes. If the agreement is extended, base and option volumes will be sold at
the current published index price less $0.05.

5. INCOME TAXES

The income tax provisions on income reconciled to the tax computed at the
statutory federal rate were as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------- ------------
YEAR EIGHT MONTHS FOUR MONTHS
ENDED ENDED ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
------------ ------------- ------------
<S> <C> <C> <C>
Tax at statutory rate....................................... $2,111,000 $ 2,073,000 $ 118,000
Other....................................................... 178,000 133,000 --
------------ ------------- ------------
$2,289,000 $ 2,206,000 $ 118,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>

<TABLE>
<S> <C> <C> <C>
The components of the provision (credit) for
income taxes are as follows:
Current....................................... $ 153,000 $ 270,000 $ 418,000
Deferred...................................... 2,136,000 1,936,000 (300,000)
----------- ----------- -----------
Total provision............................... $2,289,000 $2,206,000 $ 118,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-50
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax asset and liability are
as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $ 3,291,000 $ --
Investment tax credits................................................. 1,810,000 284,000
Original issue discount................................................ 2,435,000 1,353,000
Other.................................................................. 420,000 452,000
------------- -------------
7,956,000 2,089,000

Deferred tax liabilities:
Pre-acquisition basis difference resulting from debt
restructuring........................................................ 11,375,000 6,951,000
Property and equipment................................................. 2,066,000 15,943,000
------------- -------------
13,441,000 22,894,000
------------- -------------
Net long-term deferred tax liabilities................................... $ 5,485,000 $ 20,805,000
------------- -------------
------------- -------------
</TABLE>

At December 31, 1996, the Company has alternative minimum net operating loss
and investment tax credit carryforwards totaling $437,000 which expire through
the year 2008.

6. CONTINGENCIES

A former officer of the Predecessor who was also a limited partner in
certain of the limited partnership drilling programs sponsored by the
Predecessor has brought two separate actions in which the Company, among others,
is a defendant. The first is an adversary proceeding commenced in 1994 relating
to the bankruptcy proceeding of the Predecessor (which was filed in 1985). This
asserts several causes of actions based upon transfers of properties in 1987 by
the Predecessor pursuant to an order of the Bankruptcy Court to a newly formed
limited partnership for the benefit primarily of the secured lender and other
creditors of the Predecessor. The secured lender and the limited partnerships in
which the plaintiff was a limited partner were joined as additional defendants.
The other action was filed in 1996 in Oklahoma state court alleging breaches of
fiduciary duties, rights to an accounting, breaches of contracts and several
other claims relating to the dissolution of certain of the limited partnerships
in which the plaintiff was a limited partner. The plaintiff has purportedly
brought the actions on behalf of himself and the other limited partners in the
relevant limited partnerships, although the actions have not yet been certified
as class actions. The Company denies all allegations and has filed a motion for
summary judgment. While management cannot predict the outcome of these actions,
management believes that the results will not materially affect the Company's
financial position.

The Company is also a party to routine claims and actions incident to the
ordinary course of its business. Management, after review and consultation with
counsel, believes resolution of such contingencies will not materially affect
the financial position or results of operations of the Company.

F-51
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

6. CONTINGENCIES (CONTINUED)
The Company is subject to various federal, state and local environmental
laws and regulations and as such is involved in environmental remediation
projects and ongoing compliance. The Company believes they are currently in
substantial compliance with applicable environmental requirements and does not
expect future costs related to known exposures to exceed amounts currently
accrued.

7. LEASES

Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:

Total rent expense for the year ended December 31, 1995, the eight months
ended August 31, 1996, and the four months ended December 31, 1996 was $133,000,
$89,000 and $47,000, respectively.

8. EMPLOYEE BENEFIT PLAN

The Company sponsors a 401(k) defined contribution plan which provides
employees the opportunity to defer a percentage, 1 to 15%, of their annual
compensation. Effective January 1, 1997, the Company will match employee
contributions 100% up to 3% of compensation deferred. Employees are vested in
Company matching contributions over a seven-year period. The Company contributed
$6,000 to the plan for the four months ended December 31, 1996. The Predecessor
contributed $31,000 and $5,000 for the year ended December 31, 1995 and the
eight months ending August 31, 1996, respectively.

9. RELATED PARTY TRANSACTIONS

Affiliate receivables represent amounts due from oil and gas partnerships in
which the Company has an interest. The Company pays operating expenses and
drilling costs for certain wells and bills the related parties for their
proportionate share. The amounts due also include the Company's share of
earnings of the partnerships that have not been distributed. Payable to
affiliates represents amounts due to oil and gas partnerships for undistributed
oil and gas receipts.

10. REDEEMABLE PREFERRED STOCK

The Company is authorized to issue preferred stock, in one or more series,
and to designate the preferences of each series. At December 31, 1996 (and
September 30, 1997), the Company had authorized 120 shares of Redeemable
Preferred Stock ("Preferred"), $.01 par value with a stated value of $25,000 per
share; 12 shares were issued and outstanding. The Preferred has no dividend
rights and is redeemable on the third anniversary of issuance, March 29, 1998
(scheduled redemption date), at 150% of the stated value plus shares of common
stock of the Company having an aggregate value of $12,500. The Company may, at
its option, redeem the Preferred prior to the scheduled redemption date at the
same amount required at

F-52
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

10. REDEEMABLE PREFERRED STOCK (CONTINUED)
the scheduled redemption date, adjusted for the period the Preferred is
outstanding. Should the Company fail to redeem the Preferred at the scheduled
redemption date, the Preferred will convert into promissory notes payable to the
holders of each Preferred share in the amount of $50,000 per share (total of
$600,000 for the 12 shares outstanding) bearing interest at the then current
interest rate and due one year from the date of scheduled redemption. The
Preferred has preference over common shares in the event of liquidation, has no
voting rights and no dividends can be paid on the common stock as long as the
Preferred is outstanding. The carrying value of the Preferred is being accreted
to the redemption value ($600,000) by periodic changes to retained earnings over
the life of the issue.

11. CRUDE OIL AND NATURAL GAS PRODUCING ACTIVITIES

Capitalized costs relating to crude oil and natural gas producing activities
and related accumulated depreciation, depletion and amortization are summarized
as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Proved crude oil and natural gas properties.............................. $ 19,350,000 $ 22,732,000
Accumulated depreciation, depletion and amortization..................... 7,293,000 708,000
------------- -------------
$ 12,057,000 $ 22,024,000
------------- -------------
------------- -------------
</TABLE>

Costs incurred in crude oil and natural gas producing activities for the
years ended December 31, 1995 and 1996, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Acquisition of properties:
Proved.................................................................... $ 4,310,000 $ 512,000
Unproved.................................................................. 100,000 70,000
Exploration costs........................................................... 786,000 86,000
Development costs........................................................... 2,493,000 810,000
</TABLE>

The amortization rates per barrel of oil equivalent produced for the year
ended December 31, 1995 and the eight months ended August 31, 1996 were $3.12
and $2.99, respectively.

MAJOR CUSTOMERS

In the year ended December 31, 1995, approximately $14,126,000 and
$1,783,000 of the Company's gross revenue was from one customer and a second
customer, respectively. Revenue of $8,612,000 was from one customer for the
eight months ended August 31, 1996. For the four months ended December 31, 1996,
$1,108,000, $1,070,000, $1,004,000 and $630,983, respectively, of the Company's
gross revenue was received from four different customers.

The Company believes that the loss of these customers would not have a
significant impact on the Company's results of operations or financial
condition.

F-53
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)

The Company has interests in crude oil and natural gas properties that are
principally located in Oklahoma and Texas. The Company does not own or lease any
crude oil and natural gas properties outside the United States.

The Company retains independent engineering firms to provide year-end
estimates of the Company's future net recoverable crude oil, and natural gas
reserves. Estimated proved net recoverable reserves as shown below include only
those quantities that can be expected to be commercially recoverable at prices
and costs in effect at the balance sheet dates under existing regulatory
practices and with conventional equipment and operating methods.

Proved developed reserves represent only those reserves expected to be
recovered through existing wells. Proved undeveloped reserves include those
reserves expected to be recovered form new wells on undrilled acreage or from
existing wells on which a relatively major expenditure is required for
recompletion.

Net quantities of proved developed and undeveloped reserves of natural gas
and crude oil, including condensate and natural gas liquids, are provided below.

<TABLE>
<CAPTION>
NATURAL GAS
CRUDE OIL (THOUSAND
(BARRELS) CUBIC FEET)
---------- ------------
<S> <C> <C>
Proved reserves at December 31, 1994............................... 314,000 11,373,000
Purchase of reserves in place...................................... 166,000 6,157,000
Revisions of previous estimates.................................... 209,000 1,203,000
Production......................................................... (113,000) (2,675,000)
---------- ------------
Proved reserves at December 31, 1995............................... 576,000 16,058,000
Purchase of reserves in place...................................... 1,000 5,000
Revisions of previous estimates.................................... 749,000 24,408,000
Production......................................................... (102,000) (2,560,000)
Sales of reserves in place......................................... (50,000) (2,543,000)
---------- ------------
Proved reserves at December 31, 1996............................... 1,174,000 35,368,000
---------- ------------
---------- ------------
Proved developed reserves at December 31, 1995..................... 515,000 14,597,000
---------- ------------
---------- ------------
Proved developed reserves at December 31, 1996..................... 837,000 22,618,000
---------- ------------
---------- ------------
</TABLE>

The following is a summary of a standardized measure of discounted net cash
flows related to the Company's proved crude oil and natural gas reserves. For
these calculations, estimated future cash flows from estimated future production
of proved reserves were computed using crude oil and natural gas prices as of
the end of the period presented. Prices used were $17.70 and $23.62 per barrel
of crude oil at December 31, 1995 and 1996, respectively, and $1.63 and $3.47
per thousand cubic feet of natural gas at December 31, 1995 and 1996,
respectively. Future development and production costs attributable to the proved
reserves were estimated assuming that existing conditions would continue over
the economic lives of the individual leases and costs were not escalated for the
future. Estimated future income tax expenses were calculated by applying future
statutory tax rates (based on the current tax law adjusted for permanent

F-54
<PAGE>
CARLTON RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1995 AND 1996
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 IS UNAUDITED)

12. SUPPLEMENTARY CRUDE OIL AND NATURAL GAS RESERVE INFORMATION (UNAUDITED)
(CONTINUED)
differences and tax credits) to the estimated future pretax net cash flows
related to proved crude oil and natural gas reserves, less the tax basis of the
properties involved.

The Company cautions against using this data to determine the fair value of
its crude oil and natural gas properties. To obtain the best estimate of fair
value of the crude oil and natural gas properties, forecasts of future economic
conditions, varying discount rates, and consideration of other than proved
reserves would have to be incorporated into the calculation. In addition, there
are significant uncertainties inherent in estimating quantities of proved
reserves and in projecting rates of production that impair the usefulness of the
data.

The standardized measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ --------------
<S> <C> <C>
Future cash inflows.............................................. $ 35,893,000 $ 150,401,000
Future production and development costs.......................... 15,726,000 51,946,000
Future income tax expenses....................................... 7,663,000 37,413,000
------------ --------------
Future net cash flows............................................ 12,504,000 61,042,000
10% annual discount for estimated timing of cash flows........... 3,690,000 32,436,000
------------ --------------
Standardized measure of discounted future net cash flows......... $ 8,814,000 $ 28,606,000
------------ --------------
------------ --------------
</TABLE>

The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the years ended December 31,
1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Discounted future net cash flows at the beginning of the year..... $ 5,814,000 $ 8,814,000
Changes during the year:
Sales and transfers of crude oil and natural gas produced, net
of production costs........................................... (3,651,000) (4,326,000)
Net changes in prices and production costs...................... 724,000 16,705,000
Development costs incurred during the period.................... 2,493,000 810,000
Changes in estimated future development costs................... (962,000) (627,000)
Purchases of reserves in place.................................. 5,258,000 2,000
Sales of reserves in place...................................... -- (2,142,000)
Extensions and discoveries, less related costs.................. 4,185,000 1,675,000
Revisions of previous quantity estimates........................ (289,000) 18,203,000
Accretion of discount........................................... 938,000 1,422,000
Net change in income taxes...................................... (1,839,000) (12,131,000)
Changes in production rates (timing) and other.................. (3,857,000) 201,000
------------ ------------
Total changes................................................... 3,000,000 19,792,000
------------ ------------
Discounted future net cash flows at the end of year............... $ 8,814,000 $ 28,606,000
------------ ------------
------------ ------------
</TABLE>

F-55
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
DESCRIBED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Forward-Looking Statements................................................ 10
Risk Factors.............................................................. 11
The Company............................................................... 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Historical and Pro Forma Financial Information and Operating
Data.................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 32
Business.................................................................. 39
Management................................................................ 52
Security Ownership of Management and Principal Stockholders............... 58
Description of Notes...................................................... 59
Certain Tax Considerations................................................ 90
Description of Capital Stock.............................................. 93
Underwriting.............................................................. 95
Legal Matters............................................................. 95
Experts................................................................... 96
Available Information..................................................... 96
Glossary of Terms......................................................... 97
Index to Financial Statements............................................. F-1
</TABLE>

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

$115,000,000

[LOGO]

RAM ENERGY, INC.

% SENIOR NOTES
DUE 2008

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

PROSPECTUS
-----------------

JEFFERIES & COMPANY, INC.

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below is an itemization of the costs expected to be incurred in
connection with the offer and sale of the securities registered hereby. With the
exception of the Securities Act and NASD fees, all amounts are estimates.

<TABLE>
<S> <C>
Securities Act Registration Fee................................. $ 42,528
NASD Filing Fee................................................. 14,916
Printing and Engraving Expenses................................. 200,000
Legal Fees and Expenses......................................... 492,000
Accounting Fees and Expenses.................................... 224,000
Independent Petroleum Engineer Fees............................. 60,000
Fees of Indenture Trustee....................................... 7,500
Miscellaneous................................................... 109,056
---------
Total....................................................... $1,150,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The General Corporation Law of Delaware, under which the Registrant is
incorporated, permits indemnification against expenses, including attorneys'
fees, actually and reasonably incurred by such persons in connection with the
defense of any action, suit or proceeding in which such a person is a party by
reason of his being or having been a director, employee or agent of the
Registrant, or of any corporation, partnership, joint venture, trust or other
enterprise in which he served as such at the request of the Registrant, provided
that he acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, and provided further (if the threatened, pending or completed
action or suit is by or in the right of the corporation) that he shall not have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the corporation (unless the court determines that indemnity would
nevertheless be proper under the circumstances). Article VIII of the
Registrant's Certificate of Incorporation and Article VII of the Registrant's
Bylaws provide for indemnification of the Registrant's directors and officers.
The Delaware General Corporation Law also permits the Registrant to purchase and
maintain insurance on behalf of the Registrant's directors and officers against
any liability arising out of their status as such, whether or not Registrant
would have the power to indemnify them against such liability. These provisions
may be sufficiently broad to indemnify such persons for liabilities arising
under the Securities Act of 1933 (the "Securities Act").

The Company has entered into indemnity agreements with each of its directors
and executive officers. Under each indemnity agreement, the Company will pay on
behalf of the indemnitee, and his executors, administrators and heirs, any
amount which he is or becomes legally obligated to pay because of (i) any claim
or claims from time to time threatened or made against him by any person because
of any act or omission or neglect or breach of duty, including any actual or
alleged error or misstatement or misleading statement, which he commits or
suffers while acting in his capacity as a director and/or officer of the Company
or an affiliate or (ii) being a party, or being threatened to be made a party,
to any threatened, pending or contemplated action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an officer, director, employee or agent of the Company or an affiliate
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The payments which the Registrant will be obligated to make
hereunder shall include, INTER ALIA, damages, charges, judgments, fines,
penalties,

II-1
<PAGE>
settlements and costs, cost of investigation and cost of defense of legal,
equitable or criminal actions, claims or proceedings and appeals therefrom, and
costs of attachment, supersedeas, bail, surety or other bonds. The Company also
provides liability insurance for each of its directors and executive officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S> <C>
1 -- Form of Underwriting Agreement
2 -- Stock Purchase Agreement dated December 16, 1997 among Rolf N. Hufnagel and
Robert E. Davis, Jr. and the Registrant with respect to the Carlton
Acquisition (the "Carlton Agreement")
2.1 -- Certain indemnification provisions set forth in Schedule 4.4 to the Carlton
Agreement
3.1 -- Registrant's Amended and Restated Certificate of Incorporation
3.2 -- Registrant's Amended and Restated Bylaws
4.1 -- Form of Indenture dated as of , 1998 among the Registrant, as
issuer, RB Operating Company and RCP Gulf States, L.L.C., as Subsidiary
Guarantors, and United States Trust Company of New York, as trustee with
respect to % Senior Notes due 2008*
4.2 -- Form of % Senior Notes due 2008 (included in Exhibit 4.1)*
4.3 -- Registrant's Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1)
4.4 -- Registrant's Amended and Restated Bylaws (filed as Exhibit 3.2)
5 -- Opinion of McAfee & Taft A Professional Corporation, including consent*
10.1 -- Sale and Purchase Agreement by and between Quarles Drilling Corporation and
RAMCO-NYL 1987 Limited Partnership dated as of June 16, 1997
10.2 -- Sale and Purchase Agreement by and among RAMCO-NYL 1987 Limited Partnership and
RB Operating Company, and Wynn-Crosby 1996, Ltd., Wildcard Oil & Gas Company,
Wynn-Crosby (Texas), L.L.C. and Providence Energy Corp. dated as of February
13, 1997
10.3 -- Purchase and Sale Agreement by and among New York Life Insurance Company, RAMCO
Operating Company, Oklahoma Double R Corporation, RAMCO-NYL 1987 Limited
Partnership, William W. Talley II, individually and as trustee of the William
W. Talley II 1982 Revocable Trust, Larry E. Lee and M. Helen Bennett,
formerly Fisher, individually and as trustee of the M. Helen Fisher 1992
Trust dated as of July 24, 1996
10.4 -- RAM Energy, Inc. 1998 Stock Incentive Plan
10.5 -- Special Severance Agreement by and between William W. Talley II and the
Registrant dated as of December 1, 1997
10.6 -- Employment Agreement by and between Larry E. Lee and the Registrant dated as of
December 1, 1997
10.7 -- Employment Agreement by and between John Longmire and the Registrant dated as
of December 8, 1997
10.7.1 -- Employment Agreement by and between Larry Rampey and the Registrant dated as of
December 8, 1997
10.7.2 -- Employment Agreement by and between Drake Smiley and the Registrant dated as of
December 8, 1997
10.8 -- Form of RAM Energy, Inc. Indemnity Agreement
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S> <C>
10.9 -- Amended and Restated Credit Agreement among RAMCO Operating Company, as
Borrower, the Banks named in the Credit Agreement and Union Bank of
California, N.A. as Agent dated December 12, 1997 (the "Credit Agreement")
10.10 -- Form of Amended and Restated Revolving Note under the Credit Agreement
(included in Exhibit 10.9)
10.11 -- Form of Amended and Restated Term Note under the Credit Agreement (included in
Exhibit 10.9)
10.12 -- Second Amended and Restated Credit Agreement among RAM Energy, Inc., as
Borrower, the Financial Institutions named in the Credit Agreement and Union
Bank of California, N.A., as Agent dated February 3, 1998 (the "Second
Amended Credit Agreement")*
10.13 -- Form of Second Amended and Restated Revolving Note under the Second Amended
Credit Agreement (included in Exhibit 10.12)*
10.14 -- Form of Promissory Note issued in redemption of Registrant's Series B Preferred
Stock*
12 -- Historic statement re computation of ratio of earnings to fixed charges*
12.1 -- Pro forma statement re computation of ratio of earnings to fixed charges*
21 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Ernst & Young LLP*
23.3 -- Consent of John M. Reardon
23.4 -- Consent of Gerald R. Marshall
23.5 -- Consent of McAfee & Taft A Professional Corporation (included in Exhibit 5)*
23.6 -- Consent of Forrest A. Garb & Associates, Inc.
23.7 -- Consent of Netherland, Sewell & Associates, Inc.
24 -- Power of Attorney
25 -- Statement of eligibility of trustee on Form T-1
27 -- Financial Data Schedule
</TABLE>

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

* Filed herewith.

(b) Financial Statement Schedules--None

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the Underwriting
Agreement certificates for Common Stock in such denominations and registered in
such names as required by the Representatives of the Underwriters to permit
prompt delivery to each purchaser of Common Stock.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of the registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item
14, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.

(4) The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act ("Act") in
accordance with the rules and regulations prescribed by the Commission
under section 305(b)(2) of the Act.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Oklahoma City, State of Oklahoma, on February 11, 1998.

<TABLE>
<S> <C> <C>
RAM ENERGY, INC.

By: LARRY E. LEE*
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed by the following persons in
the capacities indicated on February 11, 1998.

SIGNATURE TITLE
- ------------------------------ --------------------------

WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RAM Energy,
William W. Talley II Inc.

President and Chief
LARRY E. LEE Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of
RAM Energy, Inc.

Senior Vice President,
Secretary, Treasurer and
JOHN M. LONGMIRE Chief Financial Officer
- ------------------------------ (Principal Financial
John M. Longmire Officer and Principal
Accounting Officer) of
RAM Energy, Inc.

M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett

GERALD R. MARSHALL*
- ------------------------------ Director
Gerald R. Marshall

JOHN M. REARDON*
- ------------------------------ Director
John M. Reardon

*By: JOHN M. LONGMIRE
------------------------------
John M. Longmire
ATTORNEY-IN-FACT

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the following
additional Registrant has duly caused this Amendment No. 2 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oklahoma City, State of Oklahoma, on February 11,
1998.

<TABLE>
<S> <C> <C>
RB OPERATING COMPANY

By: LARRY E. LEE*
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>

SIGNATURE TITLE
- ------------------------------ --------------------------

WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RB Operating
William W. Talley II Company

President and Chief
LARRY E. LEE* Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of RB
Operating Company

M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett

*By: JOHN M. LONGMIRE
------------------------------
John M. Longmire
ATTORNEY-IN-FACT

II-6
<PAGE>
SIGNATURES

<TABLE>
<S> <C> <C>
RLP GULF STATES, L.L.C.

By: RAM ENERGY, INC., MANAGER

By: LARRY E. LEE*
-----------------------------------------
Larry E. Lee, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>

SIGNATURE TITLE
- ------------------------------ --------------------------

WILLIAM W. TALLEY II* Chairman of the Board and
- ------------------------------ Director of RAM Energy,
William W. Talley II Inc.

President and Chief
LARRY E. LEE* Executive Officer and
- ------------------------------ Director (Principal
Larry E. Lee Executive Officer) of
RAM Energy, Inc.

M. HELEN BENNETT*
- ------------------------------ Director
M. Helen Bennett

*By: JOHN M. LONGMIRE
------------------------------
John M. Longmire
ATTORNEY-IN-FACT

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement
2 -- Stock Purchase Agreement dated December 16, 1997 among Rolf N. Hufnagel and Robert E. Davis, Jr.
and the Registrant with respect to the Carlton Acquisition (the "Carlton Agreement")
2.1 -- Certain indemnification provisions set forth in Schedule 4.4 to the Carlton Agreement
3.1 -- Registrant's Amended and Restated Certificate of Incorporation
3.2 -- Registrant's Amended and Restated Bylaws
4.1 -- Form of Indenture dated as of , 1998 among the Registrant, as issuer, RB Operating
Company and RCP Gulf States, L.L.C., as Subsidiary Guarantors, and United States Trust Company
of New York, as trustee with respect to % Senior Notes due 2008*
4.2 -- Form of % Senior Notes due 2008 (included in Exhibit 4.1)*
4.3 -- Registrant's Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1)
4.4 -- Registrant's Amended and Restated Bylaws (filed as Exhibit 3.2)
5 -- Opinion of McAfee & Taft A Professional Corporation, including consent*
10.1 -- Sale and Purchase Agreement by and between Quarles Drilling Corporation and RAMCO-NYL 1987
Limited Partnership dated as of June 16, 1997
10.2 -- Sale and Purchase Agreement by and among RAMCO-NYL 1987 Limited Partnership and RB Operating
Company, and Wynn-Crosby 1996, Ltd., Wildcard Oil & Gas Company, Wynn-Crosby (Texas), L.L.C.
and Providence Energy Corp. dated as of February 13, 1997
10.3 -- Purchase and Sale Agreement by and among New York Life Insurance Company, RAMCO Operating
Company, Oklahoma Double R Corporation, RAMCO-NYL 1987 Limited Partnership, William W. Talley
II, individually and as trustee of the William W. Talley II 1982 Revocable Trust, Larry E. Lee
and M. Helen Bennett, formerly Fisher, individually and as trustee of the M. Helen Fisher 1992
Trust dated as of July 24, 1996
10.4 -- RAM Energy, Inc. 1998 Stock Incentive Plan
10.5 -- Special Severance Agreement by and between William W. Talley II and the Registrant dated as of
December 1, 1997
10.6 -- Employment Agreement by and between Larry E. Lee and the Registrant dated as of December 1, 1997
10.7 -- Employment Agreement by and between John Longmire and the Registrant dated as of December 8,
1997
10.7.1 -- Employment Agreement by and between Larry Rampey and the Registrant dated as of December 8, 1997
10.7.2 -- Employment Agreement by and between Drake Smiley and the Registrant dated as of December 8, 1997
10.8 -- Form of RAM Energy, Inc. Indemnity Agreement
10.9 -- Amended and Restated Credit Agreement among RAMCO Operating Company, as Borrower, the Banks
named in the Credit Agreement and Union Bank of California, N.A. as Agent dated December 12,
1997 (the "Credit Agreement")
10.10 -- Form of Amended and Restated Revolving Note under the Credit Agreement (included in Exhibit
10.9)
10.11 -- Form of Amended and Restated Term Note under the Credit Agreement (included in Exhibit 10.9)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
10.12 -- Second Amended and Restated Credit Agreement among RAM Energy, Inc., as Borrower, the Financial
Institutions named in the Credit Agreement and Union Bank of California, N.A., as Agent dated
February 3, 1998 (the "Second Amended Credit Agreement")*
10.13 -- Form of Second Amended and Restated Revolving Note under the Second Amended Credit Agreement
(included in Exhibit 10.12)*
10.14 -- Form of Promissory Note issued in redemption of Registrant's Series B Preferred Stock*
12 -- Historic statement re computation of ratio of earnings to fixed charges*
12.1 -- Pro forma statement re computation of ratio of earnings to fixed charges*
21 -- Subsidiaries of Registrant
23.1 -- Consent of Ernst & Young LLP*
23.2 -- Consent of Ernst & Young LLP*
23.3 -- Consent of John M. Reardon
23.4 -- Consent of Gerald R. Marshall
23.5 -- Consent of McAfee & Taft A Professional Corporation (included in Exhibit 5)*
23.6 -- Consent of Forrest A. Garb & Associates, Inc.
23.7 -- Consent of Netherland, Sewell & Associates, Inc.
24 -- Power of Attorney
25 -- Statement of eligibility of trustee on Form T-1
27 -- Financial Data Schedule
</TABLE>

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

* Filed herewith.

<PAGE>

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

RAM ENERGY, INC.

AND

SUBSIDIARY GUARANTORS

INDENTURE

Dated as of February ______, 1998

UNITED STATES TRUST COMPANY OF NEW YORK

Trustee

________% SENIOR NOTES DUE 2008

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

CROSS REFERENCE TABLE*

TRUST INDENTURE ACT SECTION INDENTURE SECTION

310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
312(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3
313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6;7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6;11.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6

314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3;4.4;11.2

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.12
(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4
(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4
(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3;11.4;11.5
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
315(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.5;11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.11
316 (a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.12
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1

N.A. means not applicable.

*This Cross Reference Table is not part of the Indenture.

<PAGE>

TABLE OF CONTENTS

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . 1
SECTION 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . . 18
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. . . . 18
SECTION 1.4 RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . 19

ARTICLE 2

THE NOTES. . . . . . . . . . . . . . . . 20
SECTION 2.1 FORM AND DATING. . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.2 EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . . 21
SECTION 2.3 REGISTRAR AND PAYING AGENT; DEPOSITORY APPOINTMENT . . . 22
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . 22
SECTION 2.5 HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.6 TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . 23
SECTION 2.7 REPLACEMENT NOTES. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.8 OUTSTANDING NOTES. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.9 TREASURY NOTES . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.10 TEMPORARY NOTES. . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.11 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.12 DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . 26
SECTION 2.13 CUSIP NUMBERS. . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE 3

REDEMPTION AND PREPAYMENT. . . . . . . . . . . . 27
SECTION 3.1 NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . 27
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED. . . . . . . . . . . . 27
SECTION 3.3 NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . 27
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . 28
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . 28
SECTION 3.6 NOTES REDEEMED IN PART . . . . . . . . . . . . . . . . . 29
SECTION 3.7 OPTIONAL REDEMPTION. . . . . . . . . . . . . . . . . . . 29
SECTION 3.8 MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . 29
SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS CASH. . . . . 30

ARTICLE 4

COVENANTS. . . . . . . . . . . . . . . . 31
SECTION 4.1 PAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . 31
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . 32
SECTION 4.3 REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.4 COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . 33
SECTION 4.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.6 STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . 34
SECTION 4.7 LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS
AND ISSUANCES OF DISQUALIFIED CAPITAL STOCK. . . . . . . 34
SECTION 4.8 LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . . . 35

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SECTION 4.9 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES OF THE COMPANY . . . . 37
SECTION 4.10 LIMITATION ON TRANSACTION WITH AFFILIATES. . . . . . . . 37
SECTION 4.11 LIMITATION ON ASSET SALES. . . . . . . . . . . . . . . . 38
SECTION 4.12 LIMITATION ON LIENS. . . . . . . . . . . . . . . . . . . 39
SECTION 4.13 LIMITATION ON LINE OF BUSINESS . . . . . . . . . . . . . 39
SECTION 4.14 DESIGNATION OF UNRESTRICTED SUBSIDIARIES . . . . . . . . 39
SECTION 4.15 LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES OF THE COMPANY . . . . . . . . . 40
SECTION 4.16 OWNERSHIP AND RECOGNITION OF SUBSIDIARIES; FUTURE
GUARANTORS . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 4.17 OFFER TO REPURCHASE UPON CHANGE OF CONTROL . . . . . . . 41
SECTION 4.18 DISCHARGE OF CERTAIN PREFERRED STOCK . . . . . . . . . . 42

ARTICLE 5

SUCCESSORS. . . . . . . . . . . . . . . . 42
SECTION 5.1 LIMITATION ON MERGER OR SALE OR CONSOLIDATION. . . . . . 42
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . 43

ARTICLE 6

DEFAULTS AND REMEDIES. . . . . . . . . . . . . 43
SECTION 6.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 43
SECTION 6.2 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.3 OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.4 WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . 45
SECTION 6.5 CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . 46
SECTION 6.6 LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . 46
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. . . . . . 46
SECTION 6.8 COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . 46
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . 47
SECTION 6.10 PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.11 UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . 48

ARTICLE 7

TRUSTEE . . . . . . . . . . . . . . . . 48
SECTION 7.1 DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 48
SECTION 7.2 RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . 49
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . 50
SECTION 7.4 TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . 50
SECTION 7.5 NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . . 50
SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES. . . . . . . . 50
SECTION 7.7 COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . 51
SECTION 7.8 REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . 51
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . . . 52
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . . 52
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. . 53

ARTICLE 8

LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE . 53

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SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . 53
SECTION 8.3 COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . 54
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . . 54
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS. . . . . . . . . . 55
SECTION 8.6 REPAYMENT TO THE COMPANY . . . . . . . . . . . . . . . . 56
SECTION 8.7 REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.8 SATISFACTION AND DISCHARGE OF INDENTURE. . . . . . . . . 56

ARTICLE 9

AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . 57
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES. . . . . . . . . . . 57
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES . . . . . . . . . . . . 58
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT. . . . . . . . . . . 59
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . 59
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . . . 60
SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC. . . . . . . . . . . . . . 60

ARTICLE 10

SUBSIDIARY GUARANTEES. . . . . . . . . . . . . 60
SECTION 10.1 SUBSIDIARY GUARANTEES. . . . . . . . . . . . . . . . . . 60
SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES . . . . . . . . . . . . 62
SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY . . . . . 62
SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON CERTAIN
TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS. . . . . . . . . . . . 63
SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT. . . . . . . . . . . . 64
SECTION 10.7 CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES . . . . . . . . . . . 64

ARTICLE 11

MISCELLANEOUS. . . . . . . . . . . . . . . 65
SECTION 11.1 TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . 65
SECTION 11.2 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . 66
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . 67
SECTION 11.6 RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . 67
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES
AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . 68
SECTION 11.10 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.12 COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . 68
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC . . . . . . . . . . . . 68

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<PAGE>

INDENTURE dated as of February ______, 1998, by and among RAM ENERGY,
INC., a Delaware corporation (the "COMPANY"), the Subsidiary Guarantors (as
defined herein) and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the
"TRUSTEE").

The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of one another and for the equal and ratable benefit of the
Holders of the ______% Senior Notes due 2008 of the Company (the "NOTES"),
without preference of any issuance of Notes under this Indenture over another:

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 DEFINITIONS.

"ADJUSTED CONSOLIDATED NET INCOME" of the Company for any period means
the Net Income of the Company and the Subsidiary Guarantors for such period,
determined in accordance with GAAP, excluding (i) the Net Income of any
Unrestricted Subsidiary of the Company which is a consolidated Subsidiary of
the Company for such period and (ii) the amount of the deduction from Net
Income of the Company attributable to the minority interest in any
Unrestricted Subsidiary of the Company which is a consolidated Subsidiary of
the Company for such period.

"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means (without duplication),
as of the date of determination, (i) the sum of (a) discounted future net
revenue from proved oil and gas reserves of the Company and the Subsidiary
Guarantors calculated in accordance with Commission guidelines before any
state or federal income taxes, as estimated or audited by independent
petroleum engineers in one or more Reserve Reports prepared as of the end of
the Company's most recently completed fiscal year as INCREASED BY, as of the
date of determination, the discounted future net revenue of (A) estimated
proved oil and gas reserves of the Company and the Subsidiary Guarantors
attributable to any acquisition consummated since the effective date of such
year-end Reserve Reports and (B) estimated oil and gas reserves of the
Company and the Subsidiary Guarantors attributable to extensions, discoveries
and other additions and upward revisions of estimates of proved oil and gas
reserves due to exploration, development or exploitation, production or other
activities conducted or otherwise occurring since the effective date of such
year-end Reserve Reports which, in the case of the preceding sub-clauses (A)
and (B), would, in accordance with standard industry practice, result in such
increases, in each case calculated in accordance with Commission guidelines
(utilizing the prices utilized in such year-end Reserve Reports), and
DECREASED BY, as of the date of determination, the discounted future net
revenue of (C) estimated proved oil and gas reserves of the Company and the
Subsidiary Guarantors produced or disposed of since the effective date of
such year-end Reserve Reports and (D) reductions in the estimated oil and gas
reserves of the Company and the Subsidiary Guarantors since the effective
date of such year-end Reserve Reports attributable to downward revisions of
estimates of proved oil and gas reserves due to exploration, development or
exploitation, production or other activities conducted or otherwise occurring
since the effective date of such year-end Reserve Reports which would, in
accordance with standard industry practice, result in such revisions, in each
case calculated in accordance with Commission guidelines (utilizing the
prices utilized in such year-end Reserve Reports); PROVIDED THAT, in the case
of each of the determinations made pursuant to the preceding

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SUB-CLAUSES (A) THROUGH (D), such increases and decreases shall be as
estimated by the Company's engineers, except that if there is a Material
Change and in connection with the Incurrence of Indebtedness for which the
Consolidated Fixed Charge Coverage Ratio must be determined, all or any part
of an increase in discounted future net revenue resulting from the matters
described in the preceding SUB-CLAUSES (A) AND (B) is needed to permit the
Incurrence of such Indebtedness, then the discounted future net revenue
utilized for purposes of CLAUSE (I)(A) of this definition shall be confirmed
in writing by independent petroleum engineers, PROVIDED FURTHER THAT, if the
events referred to in the preceding SUB-CLAUSES (C) AND (D), when taken
alone, would not cause a Material Change, then such written confirmation need
only cover the incremental additions to discounted future net revenue
resulting from the determinations made pursuant to the preceding SUB-CLAUSES
(A) AND (B) to the extent needed to permit the Incurrence of such
Indebtedness, (b) the capitalized costs that are attributable to oil and gas
properties of the Company and the Subsidiary Guarantors to which no proved
oil and gas reserves are attributed, based on the Company's books and records
as of a date no earlier than the date of the Company's latest annual or
quarterly financial statements, (c) the Net Working Capital on a date no
earlier than the date of the Company's latest annual or quarterly financial
statements and (d) the greater of (A) the net book value on a date no earlier
than the date of the Company's latest annual or quarterly financial
statements and (B) the appraised value, as estimated by independent
appraisers, of other tangible assets (including the amount of Investments in
unconsolidated Subsidiaries) of the Company and the Subsidiary Guarantors, as
of a date no earlier than the date of the Company's latest audited financial
statements, MINUS (ii) the sum of (a) minority interests, (b) any non-current
portion of gas balancing liabilities of the Company and the Subsidiary
Guarantors reflected in the Company's latest annual or quarterly financial
statements, (c) the discounted future net revenue, calculated in accordance
with Commission guidelines (utilizing the prices utilized in the Company's
year-end Reserve Reports), attributable to reserves which are required to be
delivered to third parties to fully satisfy the obligations of the Company
and the Subsidiary Guarantors with respect to Production Payments on the
schedules specified with respect thereto, (d) the discounted future net
revenue, calculated in accordance with Commission guidelines (utilizing the
same prices utilized in the Company's initial or year-end Reserve Reports),
attributable to reserves subject to participation interests, overriding
royalty interests or other interests of third parties, pursuant to
participation, partnership, vendor financing or other agreements then in
effect, or which otherwise are required to be delivered to third parties and
(e) the amount of environmental liabilities payable by the Company or any
Subsidiary Guarantor. If the Company changes its method of accounting from
the full cost method to the successful efforts method or a similar method of
accounting, Adjusted Consolidated Net Tangible Assets will continue to be
calculated as if the Company was still using the full cost method of
accounting.

"AFFILIATE" means (i) any Person, directly or indirectly, controlling or
controlled by or under direct or indirect common control with the Company or
any Subsidiary of the Company or any officer, director, or employee of the
Company or any Subsidiary of the Company or of such Person, (ii) the spouse,
any immediate family member, or any other relative who has the same principal
residence of any Person described in clause (i) above, and any Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with, such spouse, family member or other relative,
and (iii) any trust in which any Person described in CLAUSE (I) OR (II) of
this definition is a fiduciary or has a beneficial interest. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (b) the beneficial ownership of 10% or more of the
Voting Stock of such Person (on a fully diluted basis) or of warrants or
other rights to acquire such equity (whether or not presently exercisable).

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<PAGE>

"AGENT" means any Registrar, Paying Agent or as appointed hereunder, any
co-registrar or authenticating agent.

"ASSET SALE" means (i) any direct or indirect conveyance, sale, transfer
or other disposition (including through damage or destruction for which
Insurance Proceeds are paid or by condemnation), in one transaction or a
series of related transactions, of any of the properties, businesses or
assets of the Company or any of its Restricted Subsidiaries, whether owned on
the Issue Date or thereafter acquired or (ii) any sale or other disposition
by the Company of any Capital Stock of any Affiliate, Unrestricted Subsidiary
or any Restricted Subsidiary of the Company. Notwithstanding the foregoing,
the following will not be deemed to be an Asset Sale: (a) the conveyance,
sale, lease, transfer or other disposition by any Restricted Subsidiary of
the Company of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company; (b) the conveyance, sale, lease, transfer or other
disposition by any Restricted Subsidiary of any or all of its assets (upon
voluntary liquidation or otherwise) to another Restricted Subsidiary of the
Company; (c) non-material dispositions of assets in the ordinary course of
business; (d) Asset Sales not otherwise included by CLAUSES (a) THROUGH (c)
OR (f) AND (g) of this definition, PROVIDED THAT the aggregate proceeds from
all such Asset Sales do not exceed $1,000,000 in any twelve-month period; (e)
the disposition of all or substantially all of the assets of (A) the Company
and the Subsidiary Guarantors, taken as a whole, or (B) the Company, if such
disposition is governed by the provisions of SECTION 4.17 OR 5.01; (f) a
conveyance, sale, assignment, lease, license, transfer, abandonment or other
disposal by the Company and the Subsidiary Guarantors of (A) damaged, worn
out, unserviceable or other obsolete property in the ordinary course of
business or (B) other property no longer necessary for the proper conduct of
their business; and (g) the conveyance, sale, transfer or other disposition
by the Company and its Restricted Subsidiaries of crude oil and natural gas
production and refined products in the ordinary course of business of the Oil
and Gas Business.

"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Leaseback
Transaction means, at the time of determination, the present value
(discounted at the rate of interest implicit in such transaction, determined
in accordance with GAAP or, in the event that such rate of interest is not
reasonably determinable, discounted at the rate of interest borne by the
Notes) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale and Leaseback Transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).

"BANKRUPTCY CUSTODIAN" means any receiver, trustee, assignee, liquidator
or similar officer under any Bankruptcy Law.

"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law of any jurisdiction, domestic or foreign to the United States of
America or any of its states, for the relief of debtors.

"BOARD OF DIRECTORS" means, with respect to a Person, the board of
directors of such Person or if not a board of directors, a comparable
governing body of such Person, or any authorized committee of such board or
governing body, as applicable.

"BOARD RESOLUTION" means, with respect to a Person, a copy of a
resolution certified by (i) the secretary or an assistant secretary of such
Person and (ii) the principal financial officer of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification.

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<PAGE>

"BUSINESS DAY" means any day other than a Saturday, Sunday or any other
day on which banking institutions in the City of New York, New York are
required or authorized by law or other governmental action to be closed.

"CAPITAL EXPENDITURES" of a Person means expenditures (whether paid in
cash or accrued as a liability) by such Person or any of its Subsidiaries
that, in conformity with GAAP, are or would be included in "capital
expenditures," "additions to property, plant, or equipment" or comparable
items in the consolidated financial statements of such Person consistent with
prior accounting practices.

"CAPITAL STOCK" means, with respect to any Person, (i) any capital stock
of such Person and shares, interests, participations or other ownership
interests (however designated) of such Person, including without limitation,
each class of common stock and preferred stock of such Person, if such Person
is a corporation, (ii) each general or limited partnership interest of such
Person, if such Person is a partnership, (iii) each membership or similar
interest of such Person, if such Person is a limited liability company and
(iv) each other interest or participation that confers on a Person the right
to receive a share of the profits or losses of, or distributions of assets
of, the issuing Person, in each case, including any rights (other than debt
securities convertible into any such interests), warrants or options to
purchase any of the foregoing.

"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.

"CARLTON" means Carlton Resources Corporation, a Delaware corporation.

"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of
deposit with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year, and overnight
bank deposits, in each case, with any Eligible Institution, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in CLAUSES (ii) AND (iii) of this definition entered
into with any Eligible Institution, (v) commercial paper rated "P-l," "A-l"
or the equivalent thereof by Moody's or Standard & Poor's, respectively, and
in each case maturing within 180 days after the date of acquisition, (vi)
shares of money market funds, including those of the Trustee, that invest
solely in United States dollars and securities of the types described in
CLAUSES (i) THROUGH (v) of this definition, and (vii) demand and time
deposits and certificates of deposit with an Eligible Institution or with
commercial banks insured by the Federal Deposit Insurance Corporation.

"CHANGE OF CONTROL" means the occurrence of (i) the sale, lease,
transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the Company to any
person (as such term is used in Section 13(d)(3) of the Exchange Act) other
than to a Subsidiary Guarantor, (ii) the Company consolidates with or merges
into another Person or any Person consolidates with, or merges into, the
Company, in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities
or other property, other than any such transaction where (a) the outstanding
Voting Stock of the Company is changed into or exchanged for Voting Stock of
the surviving or resulting Person that is Qualified Capital Stock and (b) the
holders of the Voting Stock of the Company immediately prior to such
transaction

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<PAGE>

own, directly or indirectly, not less than a majority of the Voting Stock of
the surviving or resulting Person immediately after such transaction, (iii)
the adoption of a plan relating to the liquidation or dissolution of the
Company not involving a merger or consolidation or a sale or other
disposition of assets described in CLAUSE (i) of this definition, (iv) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any person (as defined above),
excluding the Permitted Holders, becomes the "beneficial owner" (as that term
is used in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of the Company's then
outstanding Voting Stock; PROVIDED THAT the sale of Voting Stock of the
Company to a Person or Persons acting as underwriters in connection with a
firm commitment underwriting shall not constitute a Change of Control, or (v)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors (other than by action of the
Permitted Holders). For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion
of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.

"COMMISSION" means the Securities and Exchange Commission.

"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" on any date means, with
respect to the Company, the ratio, on a PRO FORMA basis, of (i) the aggregate
amount of EBITDA attributable to continuing operations and businesses
(exclusive of the amounts attributable to operations and businesses
discontinued or disposed of, on a PRO FORMA basis as if such operations and
businesses were discontinued or disposed of on the first day of the Reference
Period) for the Reference Period to (ii) the aggregate Consolidated Interest
Expense (exclusive of amounts attributable to discontinued operations and
businesses on a PRO FORMA basis as if such operations and businesses were
discontinued or disposed of on the first day of the Reference Period, but
only to the extent that the obligations giving rise to such Consolidated
Interest Expense would no longer be obligations contributing to Consolidated
Interest Expense subsequent to the date of discontinuation or disposal)
during the Reference Period; PROVIDED THAT, for purposes of such computation,
in calculating EBITDA and Consolidated Interest Expense, (a) the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (b) the Incurrence of any Indebtedness or issuance of Disqualified
Capital Stock or the retirement of any Indebtedness or Capital Stock during
the Reference Period or subsequent thereto shall be assumed to have occurred
on the first day of such Reference Period, and (c) Consolidated Interest
Expense attributable to any Indebtedness (whether existing or being Incurred)
bearing a floating interest rate shall be computed as if the rate in effect
on the date of determination had been the applicable rate for the entire
period, unless the Company or any Subsidiary Guarantor is a party to a Swap
Obligation (that remains in effect for the 12-month period after the date of
determination) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.

"CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate
interest expense (without duplication) during such period in respect of all
Indebtedness of the Company and the Subsidiary Guarantors (including all
commissions, discounts, other fees and charges owed with respect to letters
of credit and banker's acceptance financing and costs associated with Swap
Obligations) determined on a consolidated basis in accordance with GAAP. For
purposes of this definition, (i) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP (including Statement of Financial Accounting Standards No. 13 of
the Financial Accounting Standards Board), and (ii) Consolidated Interest
Expense attributable to any Indebtedness guaranteed by the Company or a
Subsidiary

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Guarantor, other than with respect to Indebtedness of the Company or a
Subsidiary Guarantor, shall be deemed to be the interest expense attributable
to the item guaranteed.

"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time
of such nomination or election.

"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be the address of the
Trustee specified in SECTION 11.2 or such other address as to which the
Trustee may give notice to the Company.

"DEFAULT" means an event or condition, the occurrence of which is, or
with the lapse of time or giving of notice or both would be, an Event of
Default.

"DEFINITIVE NOTES" means Notes that are in the form of the Note attached
hereto as EXHIBIT A, excluding the paragraphs referred to in footnotes 1 and
2 thereto and the schedule referred to in footnote 3 thereto, but including
the modification referred to in footnote a.

"DEPOSITORY" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in SECTION 2.3 as the
Depository with respect to the Notes, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.

"DISINTERESTED DIRECTOR" means, with respect to any transaction or
series of related transactions in respect of which the Board of Directors is
required to deliver a Board Resolution of such Board of Directors under this
Indenture, a member of such Board of Directors who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.

"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or
upon the happening of an event or the passage of time would be, required to
be redeemed or repurchased by such Person or its Subsidiaries, including at
the option of the holder, in whole or in part, or has, or upon the happening
of an event or passage of time would have, a redemption or similar payment
due, on or prior to the Stated Maturity Date.

"EBITDA" means, for any period, (i) the sum of the Adjusted Consolidated
Net Income for such period, PLUS (ii) the sum, without duplication (and only
to the extent such amounts are deducted from net revenues in determining such
Adjusted Consolidated Net Income), of (a) the provision for federal and state
income taxes for such period, (b) depreciation, depletion, and amortization
for such period, (c) Consolidated Interest Expense for such period,
determined on a consolidated basis for the Company and the Subsidiary
Guarantors in accordance with GAAP, (d) any charge associated solely
with the prepayment of any Indebtedness (PROVIDED THAT neither the
Incurrence of such Indebtedness nor the making of such prepayment occurred in
violation of any provision of this Indenture) and (e) any other non-cash
charges.

"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500,000,000 and that is rated
"A" (or higher) according to

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Moody's or Standard & Poor's at the time as of which any investment or
rollover therein is made.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Commission thereunder.

"EXCHANGE ASSETS" means assets acquired by the Company or any Subsidiary
Guarantor in exchange for assets of the Company or any Subsidiary Guarantor
in connection with an Asset Sale, which acquired assets include proved
reserves with a value that, together with the cash or Cash Equivalents
received therefor by the Company or such Subsidiary Guarantor, is equal to or
greater than the value of the proved reserves included in the assets disposed
of by the Company or such Subsidiary Guarantor in connection with such Asset
Sale; PROVIDED, THAT (i) ownership of such assets does not violate the
provisions of SECTION 4.13 and (ii) during any fiscal year, the Company and
the Subsidiary Guarantors can collectively acquire assets (other than proved
reserves, cash or Cash Equivalents) with a fair market value of up to
$500,000 in exchange for assets of the Company and the Subsidiary Guarantors.

"GAAP" means generally accepted accounting principles as in effect in
the United States on the Issue Date applied on a basis consistent with that
used in the preparation of the audited financial statements of the Company
included in the Prospectus.

"GLOBAL NOTE" means a Note that is in the form of the Note attached
hereto as EXHIBIT A, including the paragraphs referred to in footnotes 1 and
2 thereto and the schedule referred to in footnote 3 thereto, but excluding,
to the extent therein referenced, the text referred to in footnote a thereto.

"GOVERNMENT SECURITIES" means securities that are (i) direct obligations
of the United States of America for the timely payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a
full faith and credit obligation of the United States of America, which, in
either case, are not callable or redeemable as the option of the issuer
thereof, and shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Security or a specific payment of principal of or
interest on any such Government Security held by such custodian for the
account of the holder of such depository receipt; PROVIDED, THAT (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Security or the
specific payment of principal of or interest on the Government Security
evidenced by such depository receipt.

The term "GUARANTEE" means, as applied to any Indebtedness or other
obligation, (i) a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner, of any part or all of such Indebtedness or other
obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of nonperformance) of all
or any part of such Indebtedness or other obligation, including, without
limiting the foregoing, the payment of amounts drawn down under letters of
credit. When used as a verb, "GUARANTEE" has a corresponding meaning.

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<PAGE>

"HEDGING CONTRACT" means an oil, gas or oil and gas purchase or hedging
agreement, and other agreement or arrangements, in each case, that is
designed to provide protection against fluctuations in the prices of oil or
gas, or both.

"HOLDER" means any Person from time to time in whose name any Note is
registered on the Note Register.

"HYDROCARBONS" means oil, natural gas, condensate, and natural gas
liquids.

"INCUR" means, with respect to any Indebtedness, to create, incur,
assume, guarantee or otherwise become liable for, contingently or otherwise,
any Indebtedness, and the term "INCURRENCE" when used as a noun shall have a
correlative meaning. Neither the accrual of interest nor the accretion of
original issue discount, nor the accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.

"INDEBTEDNESS" means, with respect to any Person, without duplication
(i) all liabilities, contingent or otherwise, of such Person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
notes, debentures, or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property acquired by such Person or services received by such Person, but
excluding trade account payables and accrued liabilities arising in the
ordinary course of business that are not overdue by 90 days or being
contested in good faith by appropriate proceedings, promptly instituted and
diligently pursued, (c) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks or Swap Obligations, (d) for the
payment of money relating to a Capitalized Lease Obligation, (e) for the
Attributable Indebtedness associated with any Sale and Leaseback Transaction
or (f) for Production Payments, (ii) reimbursement obligations of such Person
with respect to letters of credit, (iii) all liabilities of others of the
kind described in CLAUSE (i) OR (ii) of this definition that such Person has
guaranteed or that is otherwise its legal liability (to the extent of such
guarantee or other legal liability) other than for endorsements, with
recourse, of negotiable instruments in the ordinary course of business, and
(iv) all obligations secured by a Lien (other than Permitted Liens, except to
the extent the obligations secured by such Permitted Liens are otherwise
included in CLAUSE (i), (ii) OR (iii) of this definition and are obligations
of such Person) to which the property or assets (including, without
limitation, leasehold interests and any other tangible or intangible property
rights) of such Person are subject, regardless of whether the obligations
secured thereby shall have been assumed by or shall otherwise be such
Person's legal liability (but, if such obligations are not assumed by such
Person or are not otherwise such Person's legal liability, the amount of such
Indebtedness shall be deemed to be limited to the fair market value of such
property or assets determined as of the end of the preceding fiscal quarter).

"INDENTURE" means this indenture, as amended or supplemented from time
to time.

"INSURANCE PROCEEDS" means the interest in and to all proceeds (net of
costs of collection, including attorneys' fees) which now or hereafter may be
paid under any insurance policies now or hereafter obtained by or on behalf
of the Company or any Subsidiary Guarantor in connection with any assets
thereof, together with interest payable thereon and the right to collect and
receive the same, including, without limitation, proceeds of casualty
insurance, title insurance, business interruption insurance and any other
insurance now or hereafter maintained with respect to such assets.

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<PAGE>

"INTEREST RATE OR CURRENCY AGREEMENT" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.

"INVESTMENT" by any Person in any other Person means (i) the acquisition
(whether for cash, property, services, securities or otherwise) of Capital
Stock, bonds, notes, debentures, partnership, or other ownership interests or
other securities of such other Person or any agreement to make any such
acquisition, (ii) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) and (without duplication) any amount committed to be advanced, loaned
or extended to such other Person, (iii) the entering into of any guarantee
of, or other contingent obligation with respect to, Indebtedness or other
liability of such other Person, (iv) the entering into of any Swap Obligation
with such other Person, or (v) the making of any capital contribution by such
Person to such other Person.

"INVESTMENT GRADE RATING" means with respect to any Person or issue of
debt securities or preferred stock, a rating in one of the four highest
letter rating categories (without regard to "+" or "-" or other modifiers) by
any Rating Agency or if any such Rating Agency has ceased using letter rating
categories or the four highest of such letter rating categories are not
considered to represent "investment grade" ratings, then the comparable
"investment grade" ratings (as designated by any such Rating Agency).

"ISSUE DATE" means the first date on which the Notes are issued under
this Indenture.

"LIEN" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, regardless of whether filed, recorded, or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).

"MATERIAL CHANGE" means an increase or decrease (excluding changes that
result solely from changes in prices) of more than either (i) 10% from the
end of the immediately preceding fiscal quarter in the estimated discounted
future net revenue from proved oil and gas reserves of the Company and its
Restricted Subsidiaries, or (ii) 20% from the end of the immediately
preceding year in the estimated discounted future net revenue from proved oil
and gas reserves of the Company and its Restricted Subsidiaries, in each case
calculated in accordance with CLAUSE (i)(a) of the definition of "Adjusted
Consolidated Net Tangible Assets"; PROVIDED, HOWEVER, that the following will
be excluded from the calculation of Material Change: (a) any acquisitions of
oil and gas reserves made after the end of the immediately preceding year for
which the discounted future net revenues have been estimated by independent
petroleum engineers since the end of the preceding year and on which a
Reserve Report or Reserve Reports exist and (b) any disposition of properties
existing at the beginning of the current quarter or current year, as the case
may be, for purposes of CLAUSE (i) or CLAUSE (ii) of this definition, that
have been disposed of in accordance with the provisions of SECTION 4.11.

"MOODY'S" means Moody's Investors Service, Inc. and any successor to the
rating agency business thereof.

"NET CASH PROCEEDS" means an amount equal to (i) the aggregate amount of
cash and Cash Equivalents received by the Company or any Restricted
Subsidiary of the Company in respect of an Asset Sale, LESS (ii) the sum of
(a) all reasonable out-of-pocket fees, commissions, and

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<PAGE>

other expenses incurred in connection with such Asset Sale, including the
amount (estimated in good faith by the Company) of income, franchise, sales
and other applicable taxes to be paid, payable or accrued by the Company or
such Restricted Subsidiary (in each case as estimated in good faith by the
Company without giving effect to tax attributes unrelated to such Asset Sale)
in connection with such Asset Sale, and (b) the aggregate amount of cash and
Cash Equivalents so received which is used to retire any then existing
Indebtedness of the Company or any Subsidiary Guarantor (other than the
Notes), as the case may be, which is secured by a Lien on the property which
is the subject of the Asset Sale or which is required by the terms of such
Indebtedness to be repaid in connection with such Asset Sale.

"NET INCOME" of any Person for any period means the net income (loss) of
such Person for such period, determined on a consolidated basis in accordance
with GAAP, excluding (without duplication) (i) all extraordinary, unusual and
nonrecurring gains, (ii) the net income, if positive, of any other Person, in
which such Person or any of its consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such Person or a consolidated Subsidiary of such Person
during such period, (iii) the net income, if positive, of any Person acquired
in a pooling of interests transaction for any period prior to the date of
such acquisition and (iv) the net income, if positive, of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order,
statute, rule, or governmental regulation applicable to such Subsidiary.

"NET PROCEEDS" means (i) in the case of any sale by a Person of
Qualified Capital Stock or other securities, the aggregate net cash proceeds
received by such Person from the sale of such securities (if such Person is
the Company, other than to a Restricted Subsidiary of the Company, and if
such Person is not the Company, other than to any of its consolidated
Subsidiaries) after payment of reasonable out-of-pocket expenses, commissions
and discounts incurred in connection therewith, and (ii) in the case of any
exchange, exercise, conversion or surrender of any outstanding securities or
Indebtedness of such Person for or into shares of Qualified Capital Stock of
such Person, the net book value of such outstanding securities as adjusted on
the books of such Person or Indebtedness of such Person to the extent
recorded in accordance with GAAP, in each case, on the date of such exchange,
exercise, conversion or surrender (PLUS any additional amount required to be
paid by the holder of such Indebtedness or securities to such Person upon
such exchange, exercise, conversion or surrender and LESS (a) any and all
payments made to the holders of such Indebtedness or securities and (b) all
other expenses incurred by such Person in connection therewith, in each case,
in so far as such payments or expenses are incident to such exchange,
exercise, conversion, or surrender).

"NET WORKING CAPITAL" of any Person means (i) all current assets of such
Person and, if such Person is the Company, the Subsidiary Guarantors, and if
such Person is not the Company, its Restricted Subsidiaries, MINUS (ii) all
current liabilities of such Person and its consolidated Subsidiaries other
than the current portion of long term Indebtedness, each item to be
determined on a consolidated basis in conformity with GAAP.

"NET WORTH" of any Person means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and, if such Person is the
Company, the Subsidiary Guarantors, and if such Person is not the Company,
its Restricted Subsidiaries (which balance sheet shall be as of a date not
more than 90 days prior to the date of such computation), LESS any amounts
included therein attributable to Disqualified Capital Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of
treasury stock (not otherwise deducted from stockholders' equity), and the
principal amount of any promissory notes receivable from the

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<PAGE>

sale of the Capital Stock of such Person or, if such Person is the Company,
any of the Subsidiary Guarantor, and if such Person is not the Company, its
Restricted Subsidiaries, each item to be determined in conformity with GAAP.

"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the
Global Notes, or any successor entity thereto.

"NOTE REGISTER" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and the
transfer of the Notes.

"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

"OFFERING" has the meaning assigned to such term in the Prospectus.

"OFFICER" means, with respect to any Person, its chief or principal
executive officer, president, chief or principal financial officer, principal
accounting officer, treasurer, secretary or any vice president of such Person.

"OFFICERS' CERTIFICATE" means a certificate signed by two Officers of
the Company, at least one of whom shall be the principal executive officer,
principal accounting officer or principal financial officer of the Company,
that meets the requirements of SECTION 11.5.

"OIL AND GAS ASSETS" means assets and properties used in the Oil and Gas
Business.

"OIL AND GAS BUSINESS" means the business of acquiring, holding,
leasing, selling, exploring and developing oil and gas assets and properties,
including the exploration for, and exploitation, development, production,
processing (but not refining), purchasing, marketing and transportation of,
Hydrocarbons and other related oil and gas businesses.

"OIL AND GAS SECURITIES" means the Voting Stock of a Person engaged in
the Oil and Gas Business, PROVIDED THAT such Voting Stock shall constitute a
majority of the Voting Stock of such Person in the event that such Voting
Stock is not subject to the reporting requirements of the Exchange Act.

"OPINION OF COUNSEL" means a written opinion of legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of SECTION
11.5. The counsel may be an employee of or counsel to the Company.

"OPINION OF INDEPENDENT COUNSEL" means a written opinion of legal
counsel which is issued by a Person who is not an employee, director or
consultant (other than non-employee legal counsel) of the Company or any of
its Subsidiaries, who may be outside counsel to the Company and who shall be
reasonably acceptable to the Trustee.

"PERMITTED BANK CREDIT FACILITY" means, with respect to any Person, a
term, revolving credit or letter of credit facility, or any combination of
such facilities, with a commercial banking institution, the proceeds of which
are used to acquire Oil and Gas Securities or Oil and Gas Assets, for working
capital and other general corporate purposes, as the same may be amended,
extended or refinanced from time to time.

"PERMITTED HEDGING TRANSACTIONS" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement

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<PAGE>

transactions) engaged in by the Company and the Subsidiary Guarantors as part
of their normal business operations as a risk-management strategy or hedge
against adverse changes in the prices of natural gas, feedstock or refined
products which arise in the ordinary course of business of the Company and
the Subsidiary Guarantors; PROVIDED, THAT such transactions do not in the
case of the Company and the Subsidiary Guarantors, on a monthly basis, relate
to more than 90% of their combined average net natural oil and gas production
per month for the most recent 3-month period measured at the time of such
transaction; PROVIDED, FURTHER, THAT, at the time of such transaction (i) the
counterparty to any such transaction is an Eligible Institution or a Person
that has an Investment Grade Rating or has an issue of debt securities or
preferred stock outstanding with an Investment Grade Rating or (ii) such
counterparty's obligation pursuant to such transaction is unconditionally
guaranteed in full by, or secured by a letter of credit issued by, an
Eligible Institution or a Person that has an Investment Grade Rating or that
has an issue of debt securities or preferred stock outstanding with an
Investment Grade Rating.

"PERMITTED HOLDERS" means Dr. William W. Talley II, Larry E. Lee,
William Stuart Price and M. Helen Bennett (or (i) their heirs, their estates
or any trusts in which they or any of their immediate family members own,
directly or indirectly, a beneficial interest in excess of 50% or (ii) any
corporation, partnership or other legal entity in which they own, directly or
indirectly, a beneficial interest in excess of 50%).

"PERMITTED INDEBTEDNESS" means, without duplication, (i) the
Indebtedness evidenced by the Original Notes or the Subsidiary Guarantees,
(ii) Indebtedness owed by any Subsidiary Guarantor to the Company or any
other Subsidiary Guarantor or Indebtedness owed by the Company to any
Subsidiary Guarantor; PROVIDED THAT in each case, (a) such Indebtedness is
Subordinated Indebtedness, and (b) upon any subsequent issuance or transfer
of any Capital Stock or any other event that results in any such Subsidiary
Guarantor ceasing to be a Subsidiary Guarantor or any other subsequent
transfer of any such Indebtedness (except to the Company or a Subsidiary
Guarantor), such Indebtedness shall be deemed to be Incurred and shall be
treated as an Incurrence of Indebtedness for purposes of the provisions of
SECTION 4.7 at the time the Subsidiary Guarantor in question ceased to be a
Subsidiary Guarantor or the time such subsequent transfer occurred, (iii)
Indebtedness outstanding under a Permitted Bank Credit Facility so long as
the aggregate principal amount of all Indebtedness outstanding under all
Permitted Bank Credit Facilities for the Company and the Subsidiary
Guarantors does not exceed $25,000,000 LESS the amount of Net Cash Proceeds
from any Asset Sale applied pursuant to the provisions of SECTION 4.11 to
repay or prepay such Indebtedness that results in a permanent reduction
relating thereto, (iv) Swap Obligations of the Company or the Subsidiary
Guarantors, (v) Indebtedness outstanding on the Issue Date (and not repaid
with the proceeds of the Offering), (vi) Indebtedness owed by the Company or
the Subsidiary Guarantors in an aggregate principal amount outstanding not to
exceed $5,000,000 at any one time, whether of the same type as permitted by
clauses (i) through (v) and (vii) of this definition or otherwise, and
(vii) Permitted Refinancing Indebtedness of the Company and the Subsidiary
Guarantors.

"PERMITTED INVESTMENT" means, when used with reference to the Company or
any Subsidiary Guarantor, (i) trade credit extended to Persons in the
ordinary course of business, (ii) purchases of Cash Equivalents, (iii)
Investments by the Company or the Subsidiary Guarantors in Persons which are
or which will, contemporaneously with the making of such Investment, become
Wholly Owned Subsidiary Guarantors and are engaged in the Oil and Gas
Business, (iv) Investments in Oil and Gas Assets, (v) Investments in any
Person the sole consideration for which consists of Qualified Capital Stock
of the Company, (vi) Interest Rate and Currency Agreements with respect to
Permitted Bank Credit Facilities entered into with one or more financial
institutions that are lender parties thereto in the ordinary course of
business and not for purposes of speculation and that are designed to protect
the Company

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<PAGE>

against risks or fluctuations in interest rates related to payment
obligations existing and arising under such Permitted Bank Credit Facilities
and Swap Obligations, (vii) advances to officers and employees of the Company
or any Subsidiary Guarantor in connection with the performance of their
duties in the ordinary course of business in an amount not to exceed $250,000
in the aggregate outstanding at any time, (viii) margin deposits in
connection with Permitted Hedging Transactions, (ix) Investments and
expenditures made in the ordinary course of business by the Company or the
Subsidiary Guarantors, and of a nature that is or shall have become customary
in, the Oil and Gas Business as a means of actively exploiting, exploring
for, acquiring, developing, enhanced recovery of, processing, gathering,
purchasing, selling, marketing or transporting oil or gas through agreements,
transactions, interests or arrangements, including arrangements which permit
a Person to share risks or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of the Oil and Gas Business jointly with third parties,
including, without limitation, (a) ownership interests in Oil and Gas
Assets or gathering systems and (b) Investments and expenditures in the
form of or pursuant to operating agreements, processing agreements, farm-in
agreements, farm-out agreements, development agreements, area of mutual
interest agreements, unitization agreements, pooling arrangements, joint
bidding agreements, service contracts, joint venture agreements, partnership
agreements (whether general or limited), subscription agreements, stock
purchase agreements and other similar agreements with third parties; PROVIDED
THAT in the case of any joint venture engaged in processing, gathering,
marketing or transporting oil or gas (1) all Indebtedness of such joint
venture (other than a joint venture that is an Unrestricted Subsidiary of the
Company) that would not otherwise constitute Indebtedness of the Company or a
Subsidiary Guarantor shall be deemed Indebtedness of such Person in
proportion to its direct or indirect ownership interest in such joint venture
and (2) such joint venture shall be reasonably calculated to enhance the
value of the reserves of such Person or marketability of production from such
reserves, (x) other Investments not in excess of $2,500,000 at any time
outstanding, and (xi) loans made to officers, directors and employees of the
Company or any Subsidiary Guarantor approved by the applicable Board of
Directors (or by an authorized officer), the proceeds of which are used
solely to purchase stock or to exercise stock options received pursuant to an
employee stock option plan or other incentive plan, in a principal amount not
to exceed the purchase price of such stock or the exercise price of such
stock options, as applicable.

"PERMITTED LIENS" with respect to any Person means (i) Liens imposed by
governmental authorities for taxes, assessments, or other charges not yet due
or which are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of any
such Person in accordance with GAAP, (ii) statutory Liens of landlords,
carriers, warehousemen, mechanics, materialmen, repairmen, vendors, mineral
interest owners, or other like Liens arising by operation of law in the
ordinary course of business PROVIDED THAT (a) the underlying obligations are
not overdue for a period of more than 60 days, or (b) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of any such Person in
accordance with GAAP, (iii) deposits of cash or Cash Equivalents to secure
the performance of bids, trade contracts (other than borrowed money), leases,
statutory obligations, surety bonds, performance bonds, and other obligations
of a like nature incurred in the ordinary course of business (or to secure
reimbursement obligations or letters of credit issued to secure such
performance or other obligations), (iv) easements, rights-of-way, zoning,
similar restrictions and other similar encumbrances or title defects incurred
in the ordinary course of business which, in the aggregate, are not material
in amount and which do not, in any case, materially detract from the value of
the property subject thereto or materially interfere with the ordinary
conduct of the business of such Person, (v) Liens securing the Notes, any
Subsidiary Guarantee or any Permitted Bank Credit Facility, (vi) pledges or
deposits made in the ordinary course of business in connection with worker's
compensation, unemployment

13
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insurance, other types of social security legislation, property insurance and
liability insurance, (vii) Liens on the assets of any Person existing at the
time such assets are acquired by such Person, whether by merger,
consolidation, purchase of assets or otherwise so long as such Liens (a) are
not created, incurred or assumed in contemplation of such assets being
acquired by such Person and (b) do not extend to any other assets of such
Person, (viii) leases or subleases granted to others (to the extent of any
such lessee's normal and customary usage rights thereunder) or obtained from
others (to the extent of any such lessor's title thereunder), in either case,
that do not materially interfere with the ordinary course of business of any
of such Person, (ix) Liens ordinarily and customarily arising under operating
agreements, and (x) any extension, renewal or replacement of the Liens
created pursuant to any of CLAUSES (i) THROUGH (ix) of this definition,
PROVIDED THAT such Liens would have otherwise been permitted under such
clauses, and PROVIDED FURTHER THAT the Liens permitted by this clause (x) do
not secure any additional Indebtedness or encumber any additional property.

"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of a Person
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund, other Indebtedness of such
Person; PROVIDED THAT (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) then outstanding of the
Indebtedness for which the exchange is made or so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith), (ii) such Permitted Refinancing
Indebtedness (other than Indebtedness under Permitted Bank Credit Facilities)
has a final maturity date later than the final maturity date of, and has a
weighted average life equal to or greater than the weighted average life of,
the Indebtedness for which the exchange is made or being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the
Indebtedness for which the exchange is made or being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment
to the Notes or any Subsidiary Guarantee (as the case may be) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes or
any Subsidiary Guarantee (as the case may be), on terms at least as favorable
to the Holders of Notes or any Subsidiary Guarantee (as the case may be) as
those contained in the documentation governing the Indebtedness for which the
exchange is made or being extended, refinanced, renewed, replaced, defeased
or refunded, and (iv) with respect to any such Indebtedness of the Company
for which the exchange is made or being extended, refinanced, renewed,
replaced, defeased or refunded, such Permitted Refinancing Indebtedness shall
not be Incurred by any Subsidiary Guarantor.

"PERSON" means any corporation, individual, joint stock company, joint
venture, partnership, limited liability company, unincorporated association,
governmental regulatory entity, country, state, or political subdivision
thereof, trust, municipality, or other entity.

"PREFERRED STOCK" means, with respect to any Person, any class or
classes (however designated) of Capital Stock of such Person that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person
over shares of Capital Stock of any other class of such Person.

"PRODUCTION PAYMENT" means any volumetric or dollar-denominated
production payment or other similar burden on the property of the Company or
any Subsidiary Guarantor.

"PROSPECTUS" means the "Prospectus" regarding the issuance of the Notes,
which is included as a part of the Company's Registration Statement on Form
S-1, as amended (Registration No. 333-42641), which was filed with the
Commission on December 18, 1997 and declared effective by the Commission on
February __, 1998.

14
<PAGE>

"PUBLIC EQUITY OFFERING" means an underwritten public offering, subsequent
to the Issue Date, by a nationally recognized member of the National Association
of Securities Dealers, Inc. of Qualified Capital Stock of the Company pursuant
to an effective registration statement filed with the Commission pursuant to the
Securities Act.

"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.

"RATING AGENCIES" means Standard and Poor's and Moody's, or any successor
to the respective rating agency businesses thereof.

"REFERENCE PERIOD" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Notes or this
Indenture.

"RESERVE REPORT" means a report prepared by independent petroleum engineers
with respect to Hydrocarbon reserves in accordance with guidelines published by
the Commission.

"RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee (or any successor
group of the Trustee) with the direct responsibility for the administration of
this Indenture and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.

"RESTRICTED INVESTMENT" means (i) the designation of a Subsidiary as an
Unrestricted Subsidiary in the manner described in the definition of
"Unrestricted Subsidiary" and (ii) any Investment other than a Permitted
Investment.

"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary of such Person.

"SALE AND LEASEBACK TRANSACTION" means an arrangement relating to property
owned on the Issue Date or thereafter acquired whereby a Person or a Subsidiary
of such Person transfers such property to another Person and leases it back from
such other Person.

"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.

"STANDARD AND POOR'S" means Standard and Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and any successor to the rating
agency business thereof.

"STATED MATURITY DATE" means February __, 2008.

"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or a
Subsidiary Guarantor that (i) requires no payment of principal prior to or on
the Stated Maturity Date and (ii) is expressly subordinate and junior in right
of payment to the Notes or the Subsidiary Guarantees, as the case may be.

"SUBSIDIARY" with respect to any Person means, as of each relevant time,
(i) a corporation with respect to which such Person or its Subsidiaries (or any
combination thereof) own or control, directly or indirectly, at least 50% of
such corporation's Voting Stock, (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner of such partnership
and has more than 50% of the total voting power of partnership interests, or
(iii) any other Person (other than a corporation or a partnership) in which such

<PAGE>

Person, one or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has (a) at least a 50%
ownership interest or (b) the power to elect or direct the election of the
directors or other governing body of such other Person.

"SUBSIDIARY GUARANTEE" means any guarantee of the Notes by any Subsidiary
Guarantor pursuant to the provisions of this Indenture.

"SUBSIDIARY GUARANTORS" means (i) RB Operating Company, a Delaware
corporation, (ii) RLP Gulf States, L.L.C., an Oklahoma limited liability
company, and (iii) each other Person that guarantees the payment and performance
of the Notes in accordance with the provisions of this Indenture, in each case,
until any such Person shall be released and relieved of its obligations as a
Subsidiary Guarantor pursuant to the provisions of this Indenture.

"SWAP OBLIGATION" of any Person means any Interest Rate or Currency
Agreement or Hedging Contract entered into with one or more financial
institutions or one or more futures exchanges in the ordinary course of business
and not for purposes of speculation that is designed to protect such Person
against risks or fluctuations that arise in the ordinary course of business of
the Company and the Subsidiary Guarantors in (i) interest rates related to
payment obligations on Indebtedness (other than Permitted Indebtedness)
permitted to be Incurred pursuant to the provisions of SECTION 4.7(a) and which
shall have a notional amount no greater than 100% of the principal amount of
such Indebtedness being hedged thereby, (ii) currency exchange rate fluctuations
related to the payment obligations on Indebtedness (other than Permitted
Indebtedness) permitted to be Incurred pursuant to the provisions of
SECTION 4.7(a) or to the foreign currency cash flows reasonably expected to be
generated by the Company and the Subsidiary Guarantors and the notional
principal amount of such currency exchange obligations does not exceed the
amount of such foreign currency cash flows to which they relate, or (iii)
fluctuations in oil and gas prices.

"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in SECTION 9.3; PROVIDED, HOWEVER, that, in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by such amendments, the Trust
Indenture Act of 1939 as so amended.

"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.

"UNRESTRICTED NON-RECOURSE INDEBTEDNESS" of any Unrestricted Subsidiary
means (i) Indebtedness of such Person that is secured solely (other than with
respect to clause (ii) below) by a Lien upon the stock of an Unrestricted
Subsidiary of such Person and as to which there is no recourse (other than with
respect to clause (ii) below) against such Person or any of its assets other
than against such stock (and the dollar amount of any Indebtedness of such
Person as described in this clause (i) shall be deemed to be zero for purposes
of all other provisions of this Indenture) and (ii) guarantees of the
Indebtedness of Unrestricted Subsidiaries of such Person.

"UNRESTRICTED SUBSIDIARY" means, in respect of any Person, any other Person
("Other Person") that would, but for this definition of "Unrestricted
Subsidiary", be a Restricted Subsidiary of such Person organized or acquired
after the Issue Date as to which all of the following conditions apply:
(i) neither such Person nor any of its other Subsidiaries provides, or is
obligated to provide, any credit support of any Indebtedness, or other financial
support, of such Other Person (including any undertaking, agreement or
instrument evidencing such

<PAGE>

Indebtedness or maintenance or preservation of such Other Person's financial
condition or to cause such Other Person to achieve any specified levels of
operating results); (ii) such Other Person is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness and does not own any Capital Stock of, or own or hold
any Lien on any property of, such Person or any of its other Restricted
Subsidiaries; (iii) neither such Person nor any of its Restricted
Subsidiaries has made an Investment in such Other Person unless such
Investment was permitted by the provisions of SECTION 4.8, and neither such
Person nor any of its Restricted Subsidiaries has any obligations to make any
Investment in such Other Person; (iv) such Other Person, either alone or in
the aggregate with all other Unrestricted Subsidiaries, does not operate or
own, directly or indirectly, any significant portion of the assets or
business of such Person and its other Subsidiaries; and (v) the Board of
Directors of such Person, as provided below, shall have designated such Other
Person to be an Unrestricted Subsidiary on or prior to the date of
organization or acquisition of such Other Person. Any such designation by the
Board of Directors of such Person shall be evidenced to the Trustee by
delivering to the Trustee a Board Resolution thereof giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions and was permitted by the provision of
SECTION 4.8.

"UNRESTRICTED SUBSIDIARY INDEBTEDNESS" means, as to any Unrestricted
Subsidiary of any Person, Indebtedness of such Unrestricted Subsidiary (i) as to
which neither such Person nor any Subsidiary of such Person (a) is directly or
indirectly liable (by virtue of such Person or any such Subsidiary being the
primary obligor on, guarantor of, general partner of, or otherwise liable in any
respect to, such Indebtedness), or (b) constitutes a lender, (ii) no default
with respect to which would permit any holder of any Indebtedness of such Person
or any Subsidiary of such Person to declare a default on such Indebtedness of
such Person or any Subsidiary of such Person or cause the payment thereof to be
accelerated or payable prior to its stated maturity, and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of such Person or any of its Subsidiaries.

"VOTING STOCK" means Capital Stock of a Person entitled (without regard to
the occurrence of any contingency) to vote in the election of the directors,
managers, trustees or similar Persons of such Person.

"WHOLLY OWNED SUBSIDIARY" means any Subsidiary to the extent (i) all of
the Capital Stock or other ownership interests in such Subsidiary, other than
any directors' qualifying shares mandated by applicable law and redeemable
preferred stock of Carlton (as referred in Section 4.8(b)(4)) which is
outstanding on the Issue Date but is fully and finally redeemed and
discharged no later than as provided in Sections 4.8(b)(4) and 4.18, is owned
directly or indirectly by the Company or (ii) such Subsidiary is organized in
a foreign jurisdiction and is required by the applicable laws and regulations
of such foreign jurisdiction to be partially owned by the government of such
foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction or another foreign jurisdiction in order for such Subsidiary to
transact business in such foreign jurisdiction, PROVIDED THAT the Company,
directly or indirectly, owns the remaining Capital Stock or ownership
interests in such Subsidiary and, by contract or otherwise, controls the
management and business of such Subsidiary and derives the economic benefits
of ownership of such Subsidiary to substantially the same extent as if such
Subsidiary were a wholly owned Subsidiary.

"WHOLLY OWNED SUBSIDIARY GUARANTOR" means any Subsidiary Guarantor to
the extent (i) all of the Capital Stock or other ownership interests in such
Subsidiary Guarantor, other than any directors' qualifying shares mandated by
applicable law and redeemable preferred stock of Carlton (as referred in
Section 4.8(b)(4)) which is outstanding on the Issue Date but is fully and
finally redeemed and discharged no later than as provided in Sections
4.8(b)(4) and 4.18, is owned directly or indirectly by the Company or (ii)
such Subsidiary Guarantor is organized in a foreign jurisdiction and is
required by the applicable laws and regulations of such foreign jurisdiction
to be partially owned by the government of such jurisdiction or individual or
corporate citizens of such foreign jurisdiction or another foreign
jurisdiction in order for such Subsidiary

<PAGE>

Guarantor to transact business in such foreign jurisdiction, PROVIDED THAT
the Company, directly or indirectly, owns the remaining Capital Stock or
ownership interests in such Subsidiary Guarantor and, by contract or
otherwise, controls the management and business of such Subsidiary Guarantor
and derives the economic benefits of ownership of such Subsidiary Guarantor
to substantially the same extent as if such Subsidiary Guarantor were a
Wholly Owned Subsidiary of the Company.

SECTION 1.2 OTHER DEFINITIONS.

Defined in
Term Section
---- ----------
"ADJUSTED NET ASSETS"........................... 10.7
"AGENT MEMBERS"................................. 2.1
"BENEFITTED PARTY".............................. 10.1
"CHANGE OF CONTROL OFFER"....................... 4.17
"CHANGE OF CONTROL PAYMENT DATE"................ 4.17
"CHANGE OF CONTROL PURCHASE PRICE".............. 4.17
"COVENANT DEFEASANCE"........................... 8.3
"DTC"........................................... 2.3
"EVENT OF DEFAULT".............................. 6.1
"EXCESS CASH"................................... 4.11
"EXCESS CASH ACCEPTANCE AMOUNT.................. 4.11
"EXCESS CASH OFFER"............................. 4.11
"EXCESS CASH OFFER AMOUNT"...................... 4.11
"EXCESS CASH OFFER PRICE"....................... 4.11
"EXCESS CASH OFFER TRIGGER DATE"................ 4.11
"EXCESS CASH PURCHASE DATE"..................... 4.11
"FUNDING GUARANTOR"............................. 10.7
"INTEREST PAYMENT DATE"......................... Exhibit A
"LEGAL DEFEASANCE".............................. 8.2
"OFFER PERIOD".................................. 3.9
"ORIGINAL NOTES"................................ 2.2
"PAYING AGENT".................................. 2.3
"REGISTRAR"..................................... 2.3
"RESTRICTED PAYMENT"............................ 4.8
"SUBSIDIARY GUARANTEE".......................... 10.1

SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.

Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.

The following TIA terms used in this Indenture have the following meanings:

"INDENTURE SECURITIES" means the Notes and the Subsidiary Guarantees;

"INDENTURE SECURITY HOLDER" means a Holder of a Note;

<PAGE>

"INDENTURE TO BE QUALIFIED" means this Indenture;

"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;

"OBLIGOR" on the Notes means the Company, any Subsidiary Guarantor and any
successor obligor upon the Notes.

All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule under the TIA
have the meanings so assigned to them.

SECTION 1.4 RULES OF CONSTRUCTION.

Unless the context otherwise requires:

(i) a term has the meaning assigned to it;

(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

(iii) "OR" is not exclusive, and "INCLUDING" means "including
without limitation", "including but not limited to" or words of similar
import;

(iv) words in the singular include the plural, and in the plural
include the singular;

(v) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;

(vi) all references herein to particular Articles, Sections,
clauses or subclauses of Sections and Exhibits refer to this Indenture unless
expressly otherwise as indicated;

(vii) provisions apply to successive events and transactions;
and

(viii) references to sections of or rules under the Securities
Act or the Exchange Act shall be deemed to include substitute, replacement
of successor sections or rules adopted by the Commission from time to time.

ARTICLE 2

THE NOTES

SECTION 2.1 FORM AND DATING.

(a) GENERAL. The Notes, the notation thereon relating to the Subsidiary
Guarantees and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A. The Notes may have notations, legends
or endorsements required by law, stock exchange rule or usage. Each Note shall
be issued in fully-registered form, without coupon, in minimum

<PAGE>

denominations of $1,000 and integral multiples thereof, and shall be dated
the date of its authentication.

All Notes issued pursuant to this Indenture shall be considered
collectively to be a single class for all purposes of this Indenture, including,
waivers, amendments, redemptions and offers to purchase.

The terms and provisions contained in the form of the Notes and the
notation thereon relating to the Subsidiary Guarantees annexed hereto as
EXHIBIT A and the Subsidiary Guarantees shall constitute, and are hereby
expressly made, a part of this Indenture, and the Company, the Subsidiary
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.

(b) GLOBAL NOTES.

(i) GENERALLY. The Notes initially offered and sold pursuant to the
Prospectus shall be issued in the form of one or more permanent global notes and
shall be substantially in the form of EXHIBIT A (including the text referred to
in footnotes 1 and 2 thereto and the schedule referred to in footnote 3 thereto,
but excluding, to the extent therein referenced, the text referred to in
footnote a thereto). Each Global Note shall be deposited on behalf of the
purchasers of the Notes represented thereby with, or on behalf of, the
Depository, registered in the name of the Depository or its designated nominee,
duly executed by the Company and authenticated by the Trustee as herein
provided. Each Global Note shall represent such of the outstanding Notes as
shall be specified therein, and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be increased, subject to the limitation set forth in SECTION 2.2, or
decreased, by adjustments made on the records of the Trustee and the Depository
or its nominee as herein provided. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the amount of outstanding Notes
represented thereby shall be made by the Trustee or the Note Custodian, at the
direction of the Trustee, in accordance with instructions given by the Holder
thereof as required by SECTION 2.6. The Notes shall remain in the form of
Global Notes until the occurrence of either of the events specified in CLAUSE
(y) OR (z) of SECTION 2.6(b)(ii) and the completion of the cancellation and
reissuance procedures therein provided.

(ii) BOOK-ENTRY PROVISIONS. The Company shall execute and the Trustee
shall, in accordance with SECTION 2.2, authenticate and deliver each Global Note
that shall be (i) registered in the name of the Depository or its nominee and
(ii) delivered by the Trustee to the Depository or pursuant to the Depository's
instructions or held by the Trustee as Note Custodian for the Depository. With
respect to the Notes that are represented by a Global Note, the Company
authorizes the execution and delivery by the Trustee of a letter of
representation or other similar agreement or instrument in the form customarily
provided by the Depository appointed with respect to such Global Note.

Members of, or participants in, the Depository ("AGENT MEMBERS") shall have
no rights either under this Indenture with respect to any Global Note held on
their behalf by the Depository (or its nominee), or the Note Custodian as its
custodian, or under such Global Note, and the Depository may be treated by the
Company, the Subsidiary Guarantors, the Trustee and any agent of the Company,
the Subsidiary Guarantors or the Trustee as the absolute owner and Holder of
such Global Note for all purposes whatsoever, including the Person (i) through
whom all rights of ownership may be exercised, (ii) to whom all notices are
required to be made, and (iii) entitled to receive payments from or at the
direction of the Company with respect to the Notes. Notwithstanding the
foregoing, (y) the registered Holder of a Global

<PAGE>

Note may grant proxies and otherwise authorize any Person, including Agent
Members and Persons that may hold interests through Agent Members, to take
action that a Holder is entitled to take under this Indenture or the Notes
and (z) nothing herein shall prevent the Company, the Subsidiary Guarantors,
the Trustee or any agent of the Company, the Subsidiary Guarantors or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or shall impair, as between the
Depository and its Agent Members, the operation of customary practices and
procedures of such Depository governing the exercise of the rights of an
owner of a beneficial interest of any Note.

(c) DEFINITIVE NOTES. Notes shall be issued in definitive form upon
either of the occurrences specified in CLAUSE (y) OR (z) of SECTION 2.6(b)(II),
and when so issued, shall be substantially in the form of EXHIBIT A (including
the modification provided for in footnote a thereto, but excluding the text
referred to in footnotes 1 and 2 thereto and the schedule referred to in
footnote 3 thereto) and executed, authenticated and delivered as provided for
in, or referred to by, SECTION 2.6(b)(II).

SECTION 2.2 EXECUTION AND AUTHENTICATION.

One Officer shall sign the Notes for the Company by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates the Note, the Note shall
nevertheless be valid. Each Subsidiary Guarantor shall execute its Subsidiary
Guarantee in the manner set forth in SECTION 10.8.

A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. The form of Trustee's certificate of
authentication to be borne by the Notes shall be substantially as set forth in
EXHIBIT A.

The Trustee shall authenticate (i) the Notes for original issue on the
Issue Date in the aggregate principal amount of $115,000,000 (the "ORIGINAL
NOTES") and (ii) additional Notes for original issue from time to time after the
Issue Date in such principal amount as may be set forth in a written order of
the Company delivered to the Trustee, which written order shall specify (a) the
amount of Notes to be authenticated and the date of original issue thereof and
(b) the amount of Notes to be issued in global form or definitive form. The
aggregate principal amount of Notes outstanding at any time may not exceed
$115,000,000 PLUS such additional principal amounts as may be issued and
authenticated pursuant to CLAUSE (ii) of this paragraph, except as provided in
SECTION 2.8.

The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Notes. An authenticating agent may authenticate Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company or an Affiliate of the
Company.

At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall upon receipt of a written order of
the Company signed by two Officers or by an Officer and either an assistant
secretary or an assistant treasurer of the Company authenticate for original
issue Notes in the aggregate principal amount specified in such order; PROVIDED
THAT the Trustee shall be entitled to receive an Officers' Certificate and an
Opinion of Counsel of the Company that it may reasonably request in connection
with such authentication of Notes. Such order shall specify the amount of Notes
to be authenticated, the date on which the original issue of Notes is to be
authenticated and the aggregate principal amount of Notes then authorized.

<PAGE>

SECTION 2.3 REGISTRAR AND PAYING AGENT; DEPOSITORY APPOINTMENT.

The Company shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange ("REGISTRAR") and an office or
agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar
shall keep a register of the Notes and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "REGISTRAR" includes any co-registrar and the term "PAYING
AGENT" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any
domestically incorporated Wholly Owned Subsidiary Guarantor may act as Paying
Agent, Registrar or co-registrar. The Company shall enter into an appropriate
agency agreement with any Registrar or Paying Agent not a party to this
Indenture. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee of the name and
address of any Agent not a party to this Indenture.

The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.

The Company initially appoints The Depository Trust Company ("DTC") to act
as Depository with respect to the Global Notes.

SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.

The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, of premium, if any, or interest on the Notes and will notify the
Trustee of any default by the Company in making any such payment. While any
such default continues, the Trustee may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon payment over to the
Trustee and upon accounting for all funds disbursed, the Paying Agent (if other
than the Company or a Subsidiary thereof) shall have no further liability for
the money. If the Company or a Subsidiary thereof acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes. Each Paying Agent shall otherwise comply with TIA Section 317(b).

SECTION 2.5 HOLDER LISTS.

The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes, and the Company shall otherwise comply with TIA Section 312(a).

<PAGE>

SECTION 2.6 TRANSFER AND EXCHANGE.

(a) TRANSFER AND EXCHANGE NOTES - GENERALLY. When a Note is presented by
a Holder to the Registrar or co-registrar with a request:

(y) to register the transfer of the Note; or

(z) to exchange such Note for an equal principal amount of Notes
of other authorized denominations,

the Registrar or a co-registrar shall register the transfer or make the exchange
as requested if its requirements for such transactions are met; PROVIDED,
HOWEVER, that each Note presented or surrendered for register of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar or a co-registrar duly executed
by such Holder or by its attorney, duly authorized in writing.

To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's or a co-
registrar's request and upon surrender and submission of the applicable Note or
Notes. No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar governmental charge
payable upon exchange or transfer pursuant to SECTIONS 3.7, 3.9, 4.11, 4.17 and
9.5). Neither the Registrar nor a co-registrar shall be required to register
the transfer or exchange of (i) any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part, or (ii)
any Note the transfer of which is not required by the Company pursuant to this
SECTION 2.6(a). All Notes issued upon any registration of transfer or exchange
pursuant to the applicable terms of this Indenture shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such registration
of transfer or exchange.

The Company shall not be required:

(w) to issue, to register the transfer or exchange of, or
to exchange, Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for
redemption under SECTION 3.2 or repurchase under SECTION 3.9, 4.11 OR
4.17, and ending at the close of business on the day of selection;

(x) to register the transfer or exchange of or to exchange
any Note so selected for redemption or repurchase in whole or in part,
except the unredeemed or unpurchased portion of any Note being
redeemed or repurchased in part;

(y) to register the transfer of or to exchange a Note
between a record date and the next succeeding interest payment date;
or

(z) to register the transfer of or to exchange a Note other
than in amounts of $1,000 or integral multiples thereof.

Prior to due presentment for the registration of a transfer or exchange of
any Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of

<PAGE>

principal of and premium (if any) and interest on such Note and for all other
purposes whatsoever (whether or not the Note is overdue), and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary.

(b) TRANSFER AND EXCHANGE OF GLOBAL NOTES.

(i) GENERALLY. Notwithstanding anything to the contrary contained in
SECTION 2.6(a), transfers of Global Notes shall be limited to transfers thereof
in whole, but not in part, and may be transferred as a whole only by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository; PROVIDED, that each such transfer is effected through the
Depository, its applicable rules and procedures and otherwise in accordance with
this Indenture. The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depository, in accordance with this
Indenture and the rules and procedures of the Depository that apply to such
transfer or exchange.

(ii) EXCHANGE OF GLOBAL NOTES FOR DEFINITIVE NOTES; AUTHENTICATION OF
DEFINITIVE NOTES. Definitive Notes shall be transferred to all beneficial owners
of Global Notes in exchange for their beneficial interest in such Global Notes
IF, AND ONLY IF, either (y) the Company notifies the Trustee in writing that the
Depository has notified it that the Depository is unwilling or unable to
continue as Depository for the Global Notes and a qualified successor Depository
for the Global Notes is not appointed by the Company within 90 days after
delivery of such notice; or (z) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Notes under this
Indenture. Then, upon surrender of the Global Notes by the Depository or on
behalf of the Depository by its nominee or the Note Custodian, the Company shall
execute, and the Trustee shall, upon receipt of an authentication order in
accordance with SECTION 2.2, authenticate and deliver, Definitive Notes to the
Persons that the Depository and, if applicable, its nominee identify as being
the owners of the respective beneficial interests in the Global Notes, in an
aggregate principal amount equal to the principal amount of the Global Notes in
exchange for such Global Notes. Neither the Company nor the Trustee will be
liable for any delay by the Holder of a Global Note or the Depository or any
Agent Member in identifying the beneficial owners of the Notes, and the Company
and the Trustee may rely on, and will be protected in relying on, instructions
from, or pursuant to proxies or similar instruments granted by, the Holder of a
Global Note or the Depository for all such purposes.

(iii) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such
time as all beneficial interests in Global Notes have been exchanged for
Definitive Notes, redeemed, repurchased or canceled, all Global Notes shall be
surrendered to or retained and cancelled by the Trustee in accordance with
SECTION 2.11. At any time prior to such cancellation, if any beneficial
interest in a Global Note is redeemed, repurchased or cancelled, the principal
amount of Notes represented by such Global Note shall be reduced accordingly by
adjustments made on the records of the Trustee and the Depository and further
reflected by an endorsement made on a schedule to such Global Note by the
Trustee or the Note Custodian, at the direction of the Trustee, to reflect such
reduction.

SECTION 2.7 REPLACEMENT NOTES.

If any mutilated Note is surrendered to the Trustee or the Company, and the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Note, the Company shall issue and the Trustee shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by

<PAGE>

the Holder that is sufficient in the judgment of the Trustee and the Company
to protect the Company, the Trustee, any Agent and any authenticating agent
from any loss that any of them may suffer if a Note is replaced. The Company
may charge for its expenses in replacing a Note.

Every replacement Note is an additional obligation of the Company and shall
be entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.

SECTION 2.8 OUTSTANDING NOTES.

The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those redeemed, those repurchased pursuant to SECTION 3.9, 4.11 OR 4.17, those
reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof and those described in this Section as not
outstanding. Except as set forth in SECTION 2.9, a Note does not cease to be
outstanding because the Company, any of the Subsidiary Guarantors or any
Affiliate of the Company or any of the Subsidiary Guarantors holds the Note.

If a Note is replaced pursuant to SECTION 2.7, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Note is
held by a bona fide purchaser.

If the principal amount of any Note is considered paid under SECTION 4.1
and the Paying Agent is not prohibited from paying such money to the Holders on
the date due for the payment of such money, it ceases to be outstanding and
interest on it ceases to accrue.

If the Paying Agent (other than the Company, a Subsidiary or an Affiliate
of any thereof) holds, on a redemption date or maturity date, money sufficient
to pay Notes payable on that date, then on and after that date such Notes shall
be deemed to be no longer outstanding and shall cease to accrue interest.

SECTION 2.9 TREASURY NOTES.

In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, any of the Subsidiary Guarantors or any Affiliate of the Company or any
of the Subsidiary Guarantors, shall be considered as though not outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Notes as to
which either (i) a Responsible Officer actually knows are so owned, or
(ii) written notice of such ownership has been given to the Trustee by the
Company, the Depository or the Registrar, shall be so disregarded.

SECTION 2.10 TEMPORARY NOTES.

Until definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by two Officers thereof. Temporary Notes shall be substantially
in the form of Global Notes or Definitive Notes, as applicable, but may have
variations that the Company considers appropriate for temporary Notes and as
shall be reasonably acceptable to the Trustee. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate Definitive Notes or the
Global Note, as applicable, in exchange for temporary Notes.

Holders of temporary Notes shall be entitled to all of the benefits of this
Indenture.

<PAGE>

SECTION 2.11 CANCELLATION.

The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, redemption, repurchase, replacement or cancellation
and shall destroy (subject to record retention requirements of the Exchange Act)
such cancelled Notes. The Trustee shall provide a certificate of destruction to
the Company from time to time, at the written request of the Company. The
Company may not issue new Notes to replace Notes that it has redeemed,
repurchased, paid or that have been delivered to the Trustee for cancellation.
If the Company or any Subsidiary Guarantor shall acquire any of the Notes (other
than pursuant to SECTION 3.9, 4.11 OR 4.17), such acquisition shall not operate
as a redemption, repurchase or satisfaction of the Indebtedness represented by
such Notes unless and until the same are surrendered to the Trustee for
cancellation pursuant to this SECTION 2.11.

SECTION 2.12 DEFAULTED INTEREST.

If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in SECTION 4.1. The Company shall notify the Trustee in writing of the
amount of defaulted interest proposed to be paid on each Note and the date of
the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or,
upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.

SECTION 2.13 CUSIP NUMBERS.

The Company in issuing the Notes may use "CUSIP" numbers (if then generally
in use), and, if so, the Trustee shall use CUSIP numbers in notices of
redemption or repurchase (as applicable) as a convenience to Holders; PROVIDED
THAT any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Notes or as contained in
any notice of a redemption or repurchase (as applicable) and that reliance may
be placed only on the other identification numbers printed on the Notes, and any
such redemption or repurchase (as applicable) shall not be affected by any
defect in or omission of such numbers. The Company shall promptly notify the
Trustee of any change in the CUSIP numbers.

<PAGE>

ARTICLE 3

REDEMPTION AND PREPAYMENT

SECTION 3.1 NOTICES TO TRUSTEE.

If the Company elects to redeem Notes pursuant to the optional redemption
provisions of SECTION 3.7, it shall furnish to the Trustee, at least 45 days but
not more than 60 days before a redemption date, an Officers' Certificate setting
forth (i) the clause of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.

SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED.

If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
PRO RATA basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate; PROVIDED THAT no Note of $1,000 or less will be
redeemed in part. In the event that less than all of the Notes are to be
redeemed by lot, the particular Notes to be redeemed shall be selected, unless
otherwise provided herein, not less than 30 nor more than 60 days prior to the
redemption date by the Trustee from the outstanding Notes not previously called
for redemption.

The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.

The provisions of the two preceding paragraphs of this SECTION 3.2 shall
not apply with respect to any redemption affecting only a Global Note, whether
such Global Note is to be redeemed in whole or in part. In case of any such
redemption in part, the unredeemed portion of the principal amount of the Global
Note shall be in an authorized denomination.

SECTION 3.3 NOTICE OF REDEMPTION.

Subject to the provisions of SECTION 3.9, at least 30 days but not more
than 60 days before a redemption date, the Company shall mail or cause to be
mailed, by first class mail, a notice of redemption to each Holder whose Notes
are to be redeemed at its registered address. Failure to receive such notice or
any defect in the notice to any such Holder shall not affect the validity of the
proceedings for the redemption of any other Notes or portion thereof.

The notice shall identify the Notes to be redeemed (including CUSIP number)
and shall state:

(i) the redemption date;

(ii) the redemption price;

<PAGE>

(iii) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;

(iv) the name and address of the Paying Agent;

(v) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;

(vi) that, unless the Company defaults in making such
redemption payment, interest on Notes called for redemption ceases to
accrue on and after the redemption date;

(vii) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and

(viii) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on
the Notes.

If any of the Notes to be redeemed is in the form of a Global Note, then
the Company shall modify such notice to the extent necessary to accord with the
procedures of the Depository applicable to redemption.

At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; PROVIDED, HOWEVER, that the Company
shall have delivered to the Trustee, at least 45 days (unless the Trustee and
the Company agree to a shorter period) prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.

SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.

Once notice of redemption is mailed in accordance with SECTION 3.3, Notes
called for redemption become irrevocably due and payable on the redemption date
at the redemption price. A notice of redemption may not be conditional.

SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.

On or prior to the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in SECTION 2.4) money sufficient
to pay the redemption price of and accrued interest on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.

If the Company complies with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the

<PAGE>

failure of the Company to comply with the preceding paragraph, interest shall
be paid on the unpaid principal, from the redemption date until such
principal is paid, and to the extent lawful on any interest not paid on such
unpaid principal, in each case at the rate provided in the Note and in
SECTION 4.1.

SECTION 3.6 NOTES REDEEMED IN PART.

Upon surrender of a Note that is redeemed in part, the Company shall issue
and the Trustee shall authenticate for the Holder at the expense of the Company
a new Note equal in principal amount to the unredeemed portion of the Note
surrendered.

SECTION 3.7 OPTIONAL REDEMPTION.

(a) The Notes will not be redeemable at the Company's option prior to
________ ____, 2003. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' written notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on ________ ____ of the years indicated below:

YEAR PERCENTAGE

2003 ________%
2004 ________%
2005 ________%
2006 and thereafter 100.0000%

(b) Notwithstanding the foregoing, at any time on or prior to
________ ____, 2001, the Company may redeem up to an aggregate of 35% of the
aggregate principal amount of Notes originally issued, in cash, at a redemption
price of _______% of the principal amount thereof, together with accrued and
unpaid interest thereon to the redemption date, with the net proceeds of a
Public Equity Offering; PROVIDED that (i) at least 65% of the aggregate
principal amount of Notes originally issued remains outstanding immediately
after the occurrence of each such redemption and (ii) each such redemption shall
occur within 60 days of the date of the closing of each such Public Equity
Offering.

SECTION 3.8 MANDATORY REDEMPTION.

Except as set forth under SECTIONS 4.11 AND 4.17, the Company shall not be
required to make mandatory redemption payments or sinking fund payments with
respect to the Notes.

SECTION 3.9 OFFER TO PURCHASE BY APPLICATION OF EXCESS CASH.

(a) In the event that, pursuant to SECTION 4.11, the Company shall be
required to commence an Excess Cash Offer, it shall follow the procedures
specified below.

(i) The Excess Cash Offer shall be made to all Holders and shall
remain open for a period of at least 20 Business Days following its
commencement and no longer than 30 Business Days thereafter, except to the
extent that a longer period is required by applicable law (the "OFFER
PERIOD").

<PAGE>

(ii) If the Excess Cash Purchase Date is on or after an interest
record date and on or before the related interest payment date, any accrued
and unpaid interest thereon, if any, shall be paid to the Person in whose
name a Note is registered at the close of business on such record date, and
no additional interest shall be payable to Holders who tender Notes
pursuant to the Excess Cash Offer.

(iii) Within 10 days following any Excess Cash Offer Trigger Date,
the Company shall send, by first class mail, a notice to each of the
Holders at such Holder's registered address, with a copy to the Trustee.
The notice, which shall govern the terms of the Excess Cash Offer, shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Excess Cash Offer, and shall state:

(A) that the Excess Cash Offer Trigger Date has occurred
pursuant to SECTION 4.11 and that the Company is offering to purchase
Notes in the aggregate principal amount of the Excess Cash Offer
Amount, in cash, at the corresponding Excess Cash Offer Price,
together with accrued and unpaid interest thereon, if any, to the
Excess Cash Purchase Date, which shall be a Business Day that is not
earlier than 30 days nor later than 60 days from the date such notice
is mailed;

(B) the amount of accrued and unpaid interest, if any, as
of the Excess Cash Offer Purchase Date;

(D) that, unless the Company defaults in the payment of the
purchase price for the Notes payable pursuant to the Excess Cash
Offer, any such Notes accepted for payment pursuant to the Excess Cash
Offer shall cease to accrue interest after the Excess Cash Offer
Purchase Date;

(E) that Holders electing to have a Note purchased pursuant
to an Excess Cash Offer may only elect to have all of such Note
purchased (subject to the provisions of SECTION 3.9(a)(iii)(H)) and
may not elect to have only a portion of such Note purchased;

(F) that Holders electing to have a Note purchased pursuant
to any Excess Cash Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed to the Company or a Paying Agent at the address
specified in the notice at least three Business Days before the Excess
Cash Purchase Date;

(G) any Holder shall be entitled to withdraw its election
if the Company or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing its election to have such
Note purchased;

(H) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Excess Cash Offer Amount or less
than all of the Notes tendered pursuant to the Excess Cash Offer are
accepted for

<PAGE>

payment by the Company for any reason consistent with this Indenture,
the Trustee shall select the Notes to be purchased in compliance with
the requirements of the principal national securities exchange, if
any, on which the Notes are listed or, if the Notes are not so listed,
on a PRO RATA basis, by lot or by such method as the Trustee deems
fair and appropriate; PROVIDED that Notes accepted for payment in part
will only be purchased in integral multiples of $1,000; and

(I) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered.

If any of the Notes subject to an Excess Cash Offer is in the form of a
Global Note, then the Company shall modify such notice to the extent necessary
to accord with the procedures of the Depository applicable to repurchases.

(b) On or before an Excess Cash Purchase Date, the Company shall comply
with each of the matters set forth in CLAUSES (i) THROUGH (iii) of
SECTION 4.11(f). The Paying Agent shall promptly mail to Holders of Notes so
accepted payment in an amount equal to the Excess Cash Offer Price, plus accrued
and unpaid interest thereon to the Excess Cash Purchase Date. The Trustee shall
promptly cancel all Notes accepted by the Company pursuant to the Excess Cash
Offer and authenticate and mail to the Holders of Notes so accepted new Notes
equal to the principal amount of any unpurchased portion of the Notes
surrendered. Any Notes not so accepted shall be promptly mailed by the Company
to the Holders thereof.

(c) Other than as specifically provided in this SECTION 3.9, any purchase
pursuant to this SECTION 3.9 shall be made pursuant to the provisions of
SECTIONS 3.1 THROUGH 3.6.

ARTICLE 4

COVENANTS

SECTION 4.1 PAYMENT OF NOTES.

The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary
Guarantor, holds as of 11:00 a.m. Eastern Time on the due date money deposited
by the Company in immediately available funds and designated for and sufficient
to pay all principal, premium, if any, and interest then due.

The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
at the rate that is 1% per annum in excess of the then applicable interest rate
on the Notes to the extent lawful; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace period) at the
same rate to the extent lawful.

SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.

The Company shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar

<PAGE>

or co-registrar) where Notes may be presented for payment, surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location,
and any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.

The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; PROVIDED, HOWEVER,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.

The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with SECTION 2.3.

SECTION 4.3 REPORTS.

(a) Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish
to the Trustee and the Holders of Notes (i) either the actual Forms 10-Q and
10-K filed with the Commission within 15 days following the filing thereof,
or all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the consolidated financial condition and results of operations
of the Company and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants, in each case,
within 15 days following the date such filing would be required to be filed
with the Commission, and (ii) either any actual Form 8-K filed with the
Commission within 15 days following the filing thereof, or all information
that would be required to be contained in a filing with the Commission on
Form 8-K if the Company were required to file such Form, in each case, within
15 days following the date such filing would be required to be filed with the
Commission. In addition, whether or not required by the rules and
regulations of the Commission, the Company shall file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. The
Company shall at all times comply with TIA Section 314(a).

(b) Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company'
compliance with any of the covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).

SECTION 4.4 COMPLIANCE CERTIFICATE.

(a) The Company and each Subsidiary Guarantor shall deliver to the
Trustee, together with, and at the same time as the delivery of, the filings,
reports and information referred to in SECTION 4.3(a)(i), an Officers'
Certificate stating that a review of the activities of the Company, the
Subsidiary Guarantors and their respective Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with
a view to determining whether each of the Company and the Subsidiary
Guarantors has kept, observed,

<PAGE>

performed and fulfilled its covenants and obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that
to the best of his or her knowledge, each of the Company and the Subsidiary
Guarantors has kept, observed, performed and fulfilled each and every
covenant and obligation contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions
of this Indenture (or, if a Default or Event of Default shall have occurred
and is continuing, describing all such Defaults or Events of Default of which
he or she may have knowledge and what action each of the Company and the
Subsidiary Guarantors (as applicable) is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge, no event has
occurred and remains in existence by reason of which payments on account of
the principal of or premium, if any, or interest on the Notes are prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto. In addition, the
Company shall notify the Trustee of each change in the composition of the
Board of Directors of the Company and each of the Subsidiary Guarantors and
of each amendment to the charter or bylaws of the Company or each of the
Subsidiary Guarantors, in each case, such notification being made in writing
to the Trustee promptly following the occurrence of each such change in
composition or amendment.

(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to SECTION 4.3 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
ARTICLE 4 or ARTICLE 5 or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.

(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.

SECTION 4.5 TAXES; CORPORATE EXISTENCE.

(a) The Company shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency, all material taxes, assessments,
and governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.

(b) Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, and subject to Article 10 hereof, the corporate,
partnership or other existence of each of its Restricted Subsidiaries, in
accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Restricted Subsidiary;
PROVIDED, HOWEVER, that the Company shall not be required to preserve the
existence of any of its Restricted Subsidiaries, if the Board of Directors of
the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries, taken as a whole, and that the loss thereof is not, and
foreseeably will not be, adverse to the payment and performance of the
obligations under the Notes and otherwise under this Indenture.

SECTION 4.6 STAY, EXTENSION AND USURY LAWS.

The Company covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.

<PAGE>

SECTION 4.7 LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS AND
ISSUANCES OF DISQUALIFIED CAPITAL STOCK.

(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness or issue any
Disqualified Capital Stock, except that the Company or a Subsidiary Guarantor
may Incur Indebtedness and the Company may issue shares of Disqualified Capital
Stock if, on a PRO FORMA basis, after giving effect to such Incurrence or
issuance, as the case may be, and the application of the proceeds therefrom, all
of the following tests have been satisfied:

(i) the Consolidated Fixed Charge Coverage Ratio for the
Company's Reference Period for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
would have been (A) at least 2.0 to 1.0 if such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
during the period commencing on the Issue Date and ending on
December 31, 1998 or (B) at least 2.5 to 1.0 if such additional
Indebtedness is Incurred or such Disqualified Capital Stock is issued
at any time thereafter;

(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is Incurred or
such Disqualified Capital Stock is issued or would occur as the result
of such Incurrence of such additional Indebtedness or the issuance of
such Disqualified Capital Stock; and

(iii) the Company's Adjusted Consolidated Net Tangible Assets
as of the last day of the applicable Reference Period are equal to or
greater than 150% of the consolidated Indebtedness of the Company and
the Subsidiary Guarantors.

(b) Notwithstanding the foregoing, if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
Incurrence of such Indebtedness, the Company and any Subsidiary Guarantor may
Incur Permitted Indebtedness.

(c) Any Indebtedness Incurred or Disqualified Capital Stock issued by any
Person that is not a Subsidiary of the Company or a Restricted Subsidiary of the
Company, which Indebtedness or Disqualified Capital Stock is outstanding at the
time such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with the Company or such Restricted Subsidiary, as the case may be,
shall be deemed to have been Incurred or issued, as the case may be, at the time
such Person becomes a Restricted Subsidiary of, or is merged into, or
consolidated with the Company or a Subsidiary Guarantor; provided, any
Indebtedness of Carlton and its Subsidiaries outstanding on the Issue Date
shall be deemed Indebtedness of the Company and its Subsidiaries outstanding
on the Issue Date.

SECTION 4.8 LIMITATION ON RESTRICTED PAYMENTS.

(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend on, or
make any other distribution to holders of, any shares of Capital Stock of the
Company or any Restricted Subsidiary of the Company (other than dividends or
distributions payable solely in shares of Qualified Capital Stock of the Company
or any Restricted Subsidiary of the Company or dividends or distributions
payable to the Company or any Wholly Owned Subsidiary Guarantor or warrants,
rights or options to acquire Qualified Capital Stock of the Company or any
Restricted

<PAGE>

Subsidiary of the Company), (ii) purchase, redeem or otherwise acquire or
retire for value any such shares of Capital Stock of the Company or any
Affiliate (other than any Capital Stock owned by the Company or any of its
Wholly Owned Subsidiary Guarantors), or any options, warrants or other rights
to acquire such Capital Stock, (iii) make any principal payment on or
repurchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, prior to any scheduled principal payment,
scheduled sinking fund payment or maturity, or (iv) make any Restricted
Investment (such payments or other actions described in clauses (i) through
(iv) being collectively referred to as a "RESTRICTED PAYMENT"), unless at the
time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the
amount determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution, a copy
of which Board Resolution shall be delivered to the Trustee),

(1) no Default or Event of Default shall have occurred and be
continuing,

(2) the Company could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in accordance with the provisions of
SECTION 4.7(a), and

(3) the aggregate amount of all Restricted Payments declared or made
after the Issue Date shall not exceed the sum (without duplication) of the
following:

(A) 50% of the Adjusted Consolidated Net Income of the Company
accrued on a cumulative basis during the period commencing with the
first full quarter after the Issue Date and ending on the last day of
the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or if Adjusted Consolidated Net Income is
a loss, MINUS 100% of such loss), PLUS

(B) the aggregate Net Proceeds received after the Issue Date by
the Company from the issuance or sale (other than with respect to the
Offering and other than to any Restricted Subsidiary of the Company)
of shares of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such shares of Qualified Capital Stock
of the Company, PLUS

(C) the aggregate Net Proceeds received after the Issue Date by
the Company (other than from any Restricted Subsidiary of the Company)
upon the exercise of any options, warrants or rights to purchase
shares of Qualified Capital Stock of the Company, PLUS

(D) the aggregate Net Proceeds received after the Issue Date by
the Company from the issuance or sale (other than to any Restricted
Subsidiary of the Company) of Indebtedness or shares of Disqualified
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company, together with the aggregate cash
received by the Company at the time of such conversion or exchange,
MINUS

(E) the amount of any write-downs or writeoffs, other negative
revaluations, and other negative extraordinary charges not otherwise
reflected in Adjusted Consolidated Net Income of the Company during
such period.

(b) Notwithstanding SECTION 4.8(a), the Company and the Subsidiary
Guarantors may take the following actions so long as (in the case of CLAUSES
(2) AND (3) immediately below) no Default or Event of Default shall have
occurred and be continuing:

<PAGE>

(1) the payment of any dividend on Capital Stock of the Company or
any Subsidiary Guarantor within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of SECTION 4.8(a) above;

(2) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Subsidiary
Guarantor, in exchange for, or out of the aggregate Net Proceeds from, a
substantially concurrent issue and sale (other than to a Subsidiary
Guarantor) of shares of Qualified Capital Stock of the Company;

(3) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Proceeds from, a substantially
concurrent issue and sale (other than to a Subsidiary Guarantor) of
(i) Subordinated Indebtedness (provided such Indebtedness is on terms no
less favorable to the Holders of the Notes than the terms of the
Subordinated Indebtedness being redeemed) or (ii) shares of Qualified
Capital Stock of the Company; and

(4) the redemption of 12 shares of Carlton's outstanding redeemable
preferred stock pursuant to the termination of all rights in respect of
such shares, except the right to receive the redemption price payable on
the scheduled redemption thereof as prescribed in Carlton's certificate of
incorporation, which redemption must occur no later than the earlier of
(i) the third anniversary of the issuance of such stock and (ii) April 10,
1998.

The actions described in CLAUSE (1) of this SECTION 4.8(b) shall be
Restricted Payments that shall be permitted to be made in accordance with this
SECTION 4.8(b) but shall reduce the amount that would otherwise be available for
Restricted Payments under CLAUSE (3) of SECTION 4.8(a), PROVIDED THAT any
dividend paid pursuant to CLAUSE (1) of this SECTION 4.8(b) shall reduce the
amount that would otherwise be available under CLAUSE (3) of SECTION 4.8(a) when
declared, but not also when subsequently paid pursuant to CLAUSE (1) of this
SECTION 4.8(b), and PROVIDED THAT any Net Proceeds received under CLAUSES (2) OR
(3)(ii) of this SECTION 4.8(b) shall not be included in SUBCLAUSES (B) OR (C) of
CLAUSE (3) of SECTION 4.8(a).

SECTION 4.9 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES OF THE COMPANY.

The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, or permit or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i) pay dividends or make other
distributions on its Capital Stock to the Company or any other Restricted
Subsidiary of the Company, (ii) make loans or advances or pay any Indebtedness
or other obligations owed to the Company or to any other Restricted Subsidiary
of the Company, or (iii) transfer any of its properties or assets to the Company
or to any other Restricted Subsidiary of the Company, except encumbrances and
restrictions existing under (a) this Indenture, any Permitted Bank Credit
Facility as in effect on the Issue Date and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, PROVIDED THAT such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment or transfer restrictions than those contained in the Permitted Bank
Credit Facility as in effect on the Issue Date and (b) any agreement of a Person
acquired by the Company or a Restricted Subsidiary of the Company, which
restrictions existed at the time of acquisition, were not put in place in

<PAGE>

anticipation of such acquisition, and are not applicable to any Person or
property, other than the Person or any property of the Person so acquired.

SECTION 4.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES.

The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter directly or indirectly into, or permit to exist, any
transaction or series of related transactions with or for the benefit of any
Affiliate except for transactions made in good faith, the terms of which are
fair and reasonable to the Company or such Restricted Subsidiary, as the case
may be, and are at least as favorable as the terms which could be obtained by
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's length basis with Persons who are not Affiliates
and the Company delivers to the Trustee (i) with respect to any transaction or
series of related transactions with an Affiliate involving aggregate
consideration in excess of $1,000,000, an Officers' Certificate certifying that
such transaction or transactions comply with this covenant, (ii) with respect to
any transaction or series of related transactions with an Affiliate involving
aggregate consideration in excess of $2,000,000, a Board Resolution of the Board
of Directors of the Company set forth in an Officers' Certificate certifying
that such transaction or transactions comply with this covenant and that such
transaction or transactions have been approved in good faith by a majority of
the Disinterested Directors of such Board of Directors (which Board Resolution
shall be conclusive evidence of compliance with this provision), PROVIDED THAT
if there is not a majority of Disinterested Directors able to approve such
transaction, the Company shall also deliver an opinion as to the fairness, from
a financial point of view, to the Company or such Restricted Subsidiary of such
transaction or transactions issued by an investment banking firm of recognized
national standing, which opinion shall be conclusive evidence of compliance with
this provision, and (iii) with respect to any transaction or series of related
transactions with an Affiliate involving aggregate consideration in excess of
$5,000,000, a Board Resolution of the Board of Directors of the Company set
forth in an Officers' Certificate as described in SUBCLAUSE (ii) immediately
above and an opinion as to the fairness, from a financial point of view, to the
Company or such Restricted Subsidiary of such transaction or transactions issued
by an investment banking firm of recognized national standing, which Board
Resolution and opinion shall be conclusive evidence of compliance with this
provision; PROVIDED, HOWEVER, that this covenant will not restrict (a)
transactions between the Company and any Subsidiary Guarantor or transactions
between Subsidiary Guarantors, (b) Restricted Payments permitted by the
provisions of SECTION 4.8, (c) any employee compensation arrangement by the
Company or any of its Restricted Subsidiaries which has been approved by a
majority of the Company's Disinterested Directors and found in good faith by
such directors to be in the best interests of the Company or such Restricted
Subsidiary, as the case may be, and (d) customary directors' fees and
indemnification and similar arrangements.

SECTION 4.11 LIMITATION ON ASSET SALES.

(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by a Board Resolution of the Board of Directors of the Company set forth
in an Officers' Certificate delivered to the Trustee, which determination shall
be conclusive evidence of compliance with this provision) of the assets or
Capital Stock being sold or issued or otherwise disposed of, and (ii) at least
85% of the value of the consideration for such Asset Sale consists of cash, Cash
Equivalents or Exchange Assets or any combination thereof; PROVIDED THAT the
amount of any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or such Restricted
Subsidiary (other than contingent liabilities and liabilities that are
Subordinated Indebtedness

<PAGE>

or otherwise by their terms subordinated to the Notes or the Subsidiary
Guarantees) that are assumed by the transferee of such assets pursuant to a
customary novation agreement that releases the Company and such Restricted
Subsidiary from further liability shall also be deemed to be cash for
purposes of this provision.

(b) Within 365 days after the receipt of any Net Cash Proceeds from an
Asset Sale, the Company or such Restricted Subsidiary may apply such Net Cash
Proceeds, at its option, in any order or combination (i) to repay and
permanently reduce Indebtedness outstanding under any Permitted Bank Credit
Facility to which it or any Subsidiary Guarantor is a party, (ii) to make
Capital Expenditures or (iii) to make other acquisitions of assets to be used in
the Company's and the Subsidiary Guarantors' Oil and Gas Business. Pending the
final application of any such Net Cash Proceeds, the Company or such Restricted
Subsidiary may temporarily invest such Net Cash Proceeds in any manner that is
not prohibited by the terms of this Indenture or temporarily reduce outstanding
revolving credit borrowings under Permitted Bank Credit Facilities. Any Net
Cash Proceeds from Asset Sales that are not applied as provided in CLAUSES
(i) THROUGH (iii) of the first sentence of this SECTION 4.11(b) will (after
expiration of the relevant periods) be deemed to constitute "EXCESS CASH".

(c) When the amount of Excess Cash exceeds $10,000,000 (the date of such
occurrence, the "EXCESS CASH OFFER TRIGGER DATE"), the Company will make an
irrevocable, unconditional offer (an "EXCESS CASH OFFER") to the Holders to
purchase the maximum amount of Notes which could be acquired by application of
such amount of Excess Cash as described herein (the "EXCESS CASH OFFER AMOUNT"),
in cash at the purchase price equal to 100% of the principal amount thereof (the
"EXCESS CASH OFFER PRICE"), together with accrued and unpaid interest to the
Excess Cash Purchase Date. Such Excess Cash Offer shall be effected pursuant to
the provisions of SECTION 3.9 and this SECTION 4.11.

(d) Notice of an Excess Cash Offer will be sent at least 30 and not more
than 60 days prior to the date on which the Notes tendered shall be accepted
(the "EXCESS CASH PURCHASE DATE"), by first-class mail, by the Company to each
Holder at the address on the Note Register, with a copy to the Trustee. Such
notice will set forth the Excess Cash Purchase Date and the Excess Cash Offer
shall remain open for at least 20 Business Days and close no later than 30
Business Days after the date such notice is given. The notice to the Holders
will contain all information, instructions and materials required by applicable
law or otherwise material to such Holders' decision to tender Notes pursuant to
the Excess Cash Offer.

(e) To the extent applicable and if required by law, the Company will
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any Excess Cash Offer by
the Company; and, if such laws, rules and regulations require or prohibit any
action inconsistent with the foregoing, compliance by the Company with such
laws, rules and regulations will not constitute a breach of its obligations
with respect to the foregoing.

(f) On or before an Excess Cash Purchase Date, the Company shall
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Excess Cash Offer, (ii) deposit with the Paying Agent money sufficient to
pay the Excess Cash Offer Price, plus accrued and unpaid interest thereon to the
Excess Cash Purchase Date of all Notes or portions thereof so accepted, and
(iii) deliver to the Trustee all Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Company will publicly announce the results of the Excess Cash
Offer on or as soon as practicable after the Excess Cash Purchase Date.

<PAGE>

(g) If the amount required to acquire all Notes tendered by Holders
pursuant to the Excess Cash Offer (the "EXCESS CASH ACCEPTANCE AMOUNT") shall be
less than the aggregate Excess Cash Offer Amount, then the excess of the Excess
Cash Offer Amount over the Excess Cash Acceptance Amount may be used by the
Company or any Subsidiary Guarantor for any of their respective general
corporate purposes, PROVIDED THAT no such purpose is prohibited or restricted by
this Indenture. Upon consummation of any Excess Cash Offer made in accordance
with the terms of this Indenture, the amount of Excess Cash will be reduced to
zero.

SECTION 4.12 LIMITATION ON LIENS.

The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, incur or suffer to exist any Lien upon any of their
respective properties or assets, whether now owned or acquired after the Issue
Date, or any income, profits or proceeds therefrom, other than Permitted Liens.

SECTION 4.13 LIMITATION ON LINE OF BUSINESS.

The Company shall not engage, and shall not permit any of its Restricted
Subsidiaries to engage, in any line of business other than the Oil and Gas
Business.

SECTION 4.14 DESIGNATION OF UNRESTRICTED SUBSIDIARIES.

(a) The Board of Directors of the Company may designate any Subsidiary of
the Company to be an Unrestricted Subsidiary of the Company if such designation
would not cause a Default or an Event of Default and following such designation,
the Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to SECTION 4.7(a). For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries in the Subsidiary so designated which have not been repaid in cash
will be deemed to be Restricted Payments at the time of such designation and
will reduce the amount available for Restricted Payments under CLAUSE (3) of
SECTION 4.8(a). All such outstanding Investments will be deemed to constitute
Restricted Investments in an amount equal to the greater of the fair market
value or book value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. In addition, the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 describes additional requirements that a
Subsidiary of the Company must satisfy before it may be designated as an
Unrestricted Subsidiary of the Company by the Board of Directors of the Company.

(b) Neither the Company nor any Restricted Subsidiary of the Company nor
any Unrestricted Subsidiary of the Company may take any action or omit to take
any action which would cause any requirement in the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 not to be at all times satisfied with
respect to any Unrestricted Subsidiary of the Company, other than pursuant to a
designation or redesignation (as applicable) as provided in SECTION 4.14(c).
If, at any time subsequent to the designation of a Person as an Unrestricted
Subsidiary of the Company and prior to a corresponding redesignation as provided
in SECTION 4.14(c), any requirement in the definition of "Unrestricted
Subsidiary" set forth in SECTION 1.1 is not met with respect to such
Unrestricted Subsidiary, then such Unrestricted Subsidiary shall thereafter
cease to be an Unrestricted Subsidiary of the Company for purposes of this
Indenture, and any Indebtedness of such Subsidiary shall be deemed Incurred as
of such date.

<PAGE>

(c) The Board of Directors of the Company may designate or redesignate (as
applicable) any Unrestricted Subsidiary of the Company as a Restricted
Subsidiary of the Company; PROVIDED THAT, (i) if such Unrestricted Subsidiary
has any Indebtedness outstanding or is otherwise liable for any Indebtedness or
has a negative Net Worth, then immediately after giving PRO FORMA effect to such
designation or redesignation, as applicable, the Company could Incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the provisions of SECTION 4.7(a) (assuming, for purposes of this calculation,
that each dollar of negative Net Worth is equal to one dollar of Indebtedness),
(ii) all Indebtedness of such Unrestricted Subsidiary shall be deemed to be
Incurred by a Restricted Subsidiary of the Company on the date such Unrestricted
Subsidiary becomes a Restricted Subsidiary, and (iii) no Default or Event of
Default would occur or be continuing after giving effect to such designation or
redesignation, as applicable. Any Subsidiary of an Unrestricted Subsidiary shall
be an Unrestricted Subsidiary for purposes of this Indenture.

SECTION 4.15 LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES OF THE COMPANY.

The Company shall not, directly or indirectly, sell or otherwise dispose of
any shares of Capital Stock of any of its Restricted Subsidiaries and shall not
permit any of its Restricted Subsidiaries, directly or indirectly, to issue or
sell or otherwise dispose of any of its Capital Stock except (i) to the Company
or a Wholly Owned Subsidiary Guarantor, or (ii) if all shares of Capital Stock
of such Restricted Subsidiary are sold or otherwise disposed of. In connection
with any sale or disposition of Capital Stock of any Restricted Subsidiary of
the Company, the Company shall comply with the provisions of SECTION 4.11.

SECTION 4.16 OWNERSHIP AND RECOGNITION OF SUBSIDIARIES; FUTURE GUARANTORS.

The Company shall at all times own, directly or indirectly, all of the
Capital Stock of each of its Restricted Subsidiaries, except for the
redeemable preferred stock referred to in Section 4.8(b)(4), which preferred
stock shall be fully and finally redeemed and discharged in the manner and at
such dates as provided in Section 4.8(b)(4) and 4.18. The Company and each
Subsidiary of the Company recognize and agree that all Persons (other than an
Unrestricted Subsidiary of the Company) now or hereafter becoming a Subsidiary
of the Company (whether by formation, acquisition or otherwise) shall be, and
shall be recognized as, a Subsidiary Guarantor for all purposes of this
Indenture. In furtherance (but not in limitation) of the foregoing,
simultaneously with the acquisition (by merger, consolidation, acquisition of
assets, stock or properties or otherwise) or formation of a Person which,
directly or indirectly, becomes a Subsidiary of the Company, or the occurrence
of any other event, circumstance or transaction pursuant to which, directly or
indirectly, a Person becomes a Subsidiary of the Company (in each case, other
than a Person then designated an Unrestricted Subsidiary of the Company in
accordance with SECTION 4.14), the Company shall cause such Person to become a
Subsidiary Guarantor pursuant to SECTION 10.2.

SECTION 4.17 OFFER TO REPURCHASE UPON CHANGE OF CONTROL.

(a) Upon the occurrence of a Change of Control, the Company shall make an
irrevocable, unconditional offer to repurchase (a "CHANGE OF CONTROL OFFER") and
shall, subject to the provisions of this SECTION 4.17 described below,
repurchase on a Business Day not more than 60 nor less than 30 days following
the occurrence of such Change of Control (the date on which the repurchase is
effected being referred to herein as the "CHANGE OF CONTROL PAYMENT DATE"), all
of the then outstanding Notes validly tendered pursuant to such Change of
Control Offer, at a cash purchase price equal to 101% of the principal amount
thereof (the "CHANGE OF CONTROL PURCHASE PRICE"), plus accrued and unpaid
interest thereon to the Change of Control Payment Date. The Change of Control
Offer shall remain open for at least 20 Business Days

<PAGE>

and until the close of business of the fifth Business Day prior to the Change
of Control Purchase Date.

(b) To effect such Change of Control Offer, the Company (i) shall, not
later than 5 Business Days after the occurrence of the Change of Control, notify
the Trustee and (ii) shall, not later than 20 Business Days after the occurrence
of the Change of Control, make a Change of Control Offer to the Holders of all
of the then outstanding Notes, by sending written notice of a Change of Control
Offer, by first class mail, to each Holder at its registered address, with a
copy to the Trustee. The notice to Holders shall contain all instructions and
materials required by applicable law, shall contain or make available to Holders
other information material to such Holders' decision to tender Notes pursuant to
the Change of Control Offer and shall otherwise govern the terms of the Change
of Control Offer.

(c) On or before the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount sufficient to pay the Change of Control Purchase Price of all
Notes so tendered, and (iii) deliver or cause to be delivered to the Trustee all
Notes so accepted, together with an Officers' Certificate listing the Notes or
portions thereof being purchased by the Company. The Paying Agent will promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
Change of Control Purchase Price for such Notes, plus accrued and unpaid
interest thereon to the Change of Control Payment Date, and the Trustee will
promptly cancel all Notes so accepted by the Company pursuant to the Change of
Control Offer and authenticate and mail (or cause to be transferred by book
entry) to such Holders new Notes equal in principal amount, as applicable, to
any unpurchased portion of the Notes surrendered. Any Notes not so accepted will
be promptly mailed by the Company to the Holders thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.

(d) The Change of Control provisions of this SECTION 4.17 described above
shall be applicable whether or not any other provisions of this Indenture are
applicable.

(e) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Company and repurchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.

(f) To the extent applicable and if required by law, the Company shall
comply with Section 14 of the Exchange Act, the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and other securities laws,
rules and regulations which may then be applicable to any offer by the Company
to repurchase the Notes at the option of Holders upon a Change of Control; and,
if such laws, rules and regulations require or prohibit any action inconsistent
with the foregoing, compliance by the Company with such laws, rules, and
regulations will not constitute a breach of the Company's obligations with
respect to the foregoing.

SECTION 4.18 DISCHARGE OF CERTAIN PREFERRED STOCK.

On or before April 10, 1998, the Company shall fully and finally pay and
discharge, or cause to be fully and finally paid and discharged, the
redemption price referred to in SECTION 4.8(b)(4), and, if applicable, any
interest on such redemption price accruing from the third anniversary of the
issuance of the redeemable preferred stock referred to in such Section and
until the earlier of such date of payment and April 10, 1998.

<PAGE>

Contemporaneous with the receipt of net proceeds from the Offering, the
Company shall deposit in a segregated bank account, an amount of cash equal
to the sum of the redemption price and maximum accrued interest referred to
in the preceding sentence, and neither the Company nor any Restricted
Subsidiary of the Company shall utilize any such deposited amount for any
purpose other than the payment and discharge of such redemption price and
related accrued interest.

ARTICLE 5

SUCCESSORS

SECTION 5.1 LIMITATION ON MERGER OR SALE OR CONSOLIDATION.

The Company shall not consolidate with or merge with or into any other
Person, or, directly or indirectly, sell, lease, assign, transfer or convey all
or substantially all of its assets (computed on a consolidated basis) to another
Person or group of Persons acting in concert, whether in a single transaction or
through a series of related transactions, unless (i) either (a) the Company is
the continuing Person or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia, and shall expressly assume all of the obligations of
the Company under this Indenture and the Notes by a supplemental indenture,
executed and delivered to the Trustee on or prior to the consummation of such
transaction, in form satisfactory to the Trustee, (ii) no Default or Event of
Default shall exist or shall occur immediately after giving effect to such
transaction, (iii) immediately after giving effect to such transaction on a PRO
FORMA basis, the Net Worth of the resulting, surviving or transferee entity is
at least equal to the Net Worth of the Company immediately prior to such
transaction, (iv) except for a merger of the Company with or into any Wholly
Owned Subsidiary Guarantor, the resulting, surviving or transferee entity would,
at the time of such transaction and after giving effect thereto, be permitted to
Incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to SECTION 4.7(a), (v) each Subsidiary Guarantor shall
have executed and delivered to the Trustee, in form satisfactory to the Trustee,
a supplemental indenture confirming such Subsidiary Guarantor's obligations to
pay the principal of and interest on the Notes pursuant to its Subsidiary
Guarantee, and (vi) the Trustee shall have received, in form and substance
reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or sale, conveyance or
other transfer and each supplemental indenture in respect thereto comply with
this provision and that all conditions precedent in this Indenture relating to
such transaction have been complied with.

SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.

Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with SECTION 5.1, the successor
Person formed by such consolidation or merger or the Person to whom such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company therein,

<PAGE>

but the Company in the case of a conveyance, transfer or lease of all or
substantially all of the assets of the Company in accordance with SECTION 5.1
shall not be released from the obligation to pay principal of, premium (if
any) and interest on the Notes.

ARTICLE 6

DEFAULTS AND REMEDIES

SECTION 6.1 EVENTS OF DEFAULT.

An "EVENT OF DEFAULT" occurs upon:

(i) the failure to pay interest on any Note when the same
becomes due and payable and such failure continues for a period of 30 days;

(ii) the failure to pay, when due, the principal of, or premium,
if any, on, any Note whether the same becomes due and payable, at maturity,
upon redemption, by acceleration or otherwise (including the failure to
make a payment to purchase Notes tendered pursuant to a Change of Control
Offer or an Excess Cash Offer);

(iii) a default in the performance or breach of the provisions
of SECTION 4.11, 4.17 OR 5.1 hereof;

(iv) a default in the observance or performance of any covenant
or agreement contained in this Indenture, the Notes or any Subsidiary
Guarantee (other than a covenant or agreement referred to in any of the
preceding CLAUSES (i), (ii) OR (iii)), which default continues for 30 days
after written notice thereof is given to the Company by the Trustee or to
the Company and the Trustee by Holders of at least 25% of the principal
amount of the Notes then outstanding;

(v) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
of the Company (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary of the Company) whether such Indebtedness or
guarantee now exists, or is created after the Issue Date, which default
(A) extends beyond any stated period of grace applicable thereto (including
any extensions thereof) or (B) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of
such default, and, in each case, the outstanding principal amount of any
such Indebtedness of the Company or such Restricted Subsidiary aggregates
in excess of $1,000,000, and PROVIDED, FURTHER, that if any such default is
waived by all lenders, holders or obligees (as applicable) of such
Indebtedness, then such Event of Default under this SECTION 6.1(v) shall be
deemed waived and any consequential acceleration of the Notes shall be
automatically rescinded, so long as such rescission does not conflict with
any judgment or decree;

(vi) a final judgment or final judgments for the payment of
money in excess of $1,000,000 are entered by a court or courts of competent
jurisdiction against the Company or any Restricted Subsidiary of the
Company, and such judgment or judgments remain unpaid and undischarged
for a period (during which execution shall not be effectively stayed) of
60 consecutive days, PROVIDED THAT the aggregate of all such unpaid and
undischarged judgments exceed applicable and in force insurance contracts
(as to which all coverage

<PAGE>

corresponding to the claim or claims made a basis of such judgment or
judgments have been acknowledged and confirmed for timely payment on such
judgment or judgments by the respective insurers of then financial standing
capable of paying such amount or amounts) by at least $1,000,000;

(vii) any of this Indenture, the Notes or the Subsidiary
Guarantees shall for any reason cease to be, or be asserted by the Company
or any Subsidiary Guarantor, as applicable, not to be, in full force and
effect (except pursuant to the release of any Subsidiary Guarantee in
accordance with this Indenture) or shall be declared null and void or
unenforceable, or the validity or enforceability thereof shall be denied or
contested by the Company, any Affiliate or any other Person;

(viii) the Company or any Subsidiary Guarantor, pursuant to or
within the meaning of Bankruptcy Law:

(A) commences a voluntary case,

(B) consents to the entry of an order for relief against it
in an involuntary case,

(D) makes a general assignment for the benefit of its
creditors, or

(E) generally is not paying its debts as they become due;
or

(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:

(A) is for relief, in an involuntary case, against the
Company or any Subsidiary Guarantor;

(B) appoints a Bankruptcy Custodian of the Company or any
Subsidiary Guarantor, for all or substantially all of the property of
the Company or any Subsidiary Guarantor; or

(C) orders the liquidation of the Company or any Subsidiary
Guarantor, for all of substantially all of the property of the Company
or any Subsidiary Guarantor;

and the order or decree remains unstayed and in effect for 60 consecutive
days.

SECTION 6.2 ACCELERATION.

If any Event of Default (other than an Event of Default specified in
CLAUSE (viii) OR (ix) of SECTION 6.1) occurs and is continuing, the Trustee or
the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes by written notice to the Company (and to the Trustee if given
by such Holders) may declare all principal of, premium, if any, and accrued
interest on the Notes to be due and payable immediately. Upon any such
declaration, such principal, premium and accrued interest on the Notes shall
become due and payable immediately. If an Event of Default specified in
CLAUSE (viii) OR (ix) of SECTION 6.1 hereof

<PAGE>

occurs, all principal, premium, if any, and accrued interest on the Notes
will be immediately due and payable on all outstanding Notes without further
declaration or other act on the part of any Person.

The Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of all
of the Holders rescind any such acceleration and its consequences if (i) any
existing Events of Default, other than the non-payment of the principal,
premium, if any, or interest on the Notes which have become due solely by such
acceleration, have been cured or waived in compliance with applicable provisions
of this Indenture and (ii) the rescission would not conflict with any judgment
or decree.

SECTION 6.3 OTHER REMEDIES.

If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.

The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.

SECTION 6.4 WAIVER OF PAST DEFAULTS.

Prior to the declaration of acceleration of the Notes, the Holders of
not less than a majority in aggregate principal amount of the then
outstanding Notes by notice to the Trustee may waive on behalf of the Holders
of all of the Notes an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in
the payment of principal of, or premium (if any) or interest on, any Note not
yet cured (including in connection with a redemption or an offer to purchase
pursuant to SECTIONS 3.7, 3.9, 4.11 OR 4.17) or a Default or Event of Default
with respect to any covenant or provision which cannot be modified or amended
without the consent of the Holders of all the Notes. Upon any such waiver,
such Default or Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.

SECTION 6.5 CONTROL BY MAJORITY.

The Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that the Trustee
determines may be unduly prejudicial to the rights of other Holders of Notes or
that may involve the Trustee in personal liability.

<PAGE>

SECTION 6.6 LIMITATION ON SUITS.

A Holder of a Note may pursue a remedy with respect to this Indenture or
the Note only if:

(i) the Holder of a Note gives to the Trustee written notice
of a continuing Event of Default;

(ii) the Holders of at least 25% in aggregate principal amount
of the then outstanding Notes make a written request to the Trustee to
pursue the remedy;

(iii) such Holder or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;

(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and

(v) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Notes do not give the
Trustee a direction inconsistent with the request.

A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.

SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.

Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, and interest
on the Note, on or after the respective due dates expressed in the Note
(including in connection with a redemption or an offer to purchase pursuant to
SECTIONS 3.7, 3.9, 4.11 OR 4.17), or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.

SECTION 6.8 COLLECTION SUIT BY TRUSTEE.

If an Event of Default specified in SECTION 6.1(i) OR (ii) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due to
the Trustee under SECTION 7.7.

SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.

The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due to the Trustee under SECTION 7.7) and the Holders of the Notes
allowed in any judicial proceedings relative to the Company (or any other
obligor upon the Notes), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property payable
or deliverable on any such

<PAGE>

claims and any custodian in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee, and in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under SECTION 7.7. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under SECTION 7.7 out of the estate in any such proceeding shall
be denied for any reason, payment of the same shall be secured by a Lien on,
and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive
in such proceeding whether in liquidation or under any plan of reorganization
or arrangement or otherwise. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

SECTION 6.10 PRIORITIES.

If the Trustee collects any money pursuant to this ARTICLE 6, it shall pay
out the money in the following order:

FIRST: to the Trustee, its agents and attorneys for amounts due under
SECTION 7.7, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses
of collection;

SECOND: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the
Notes for principal, premium, if any, and interest, respectively; and

THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.

The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this SECTION 6.10.

SECTION 6.11 UNDERTAKING FOR COSTS.

In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard for the
merits and good faith of the claims or defenses made by the party litigant.
This SECTION 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to SECTION 6.6, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Notes.

<PAGE>

ARTICLE 7

TRUSTEE

SECTION 7.1 DUTIES OF TRUSTEE.

(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.

(b) Except during the continuance of an Event of Default:

(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and

(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.

(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:

(iii) this paragraph does not limit the effect of PARAGRAPH (B)
of this SECTION 7.1;

(iv) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and

(v) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to SECTION 6.5.

(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to PARAGRAPHS (a),
(b) AND (c) of this SECTION 7.1.

(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.

<PAGE>

(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.

SECTION 7.2 RIGHTS OF TRUSTEE.

(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.

(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its selection and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.

(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.

(d) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.

(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.

(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.

(g) The Trustee shall not be charged with knowledge of any Default or
Event of Default with respect to the Notes of any series for which it is acting
as Trustee unless either (1) a Responsible Officer shall have actual knowledge
of such Default or Event of Default or (2) written notice of such Default or
Event of Default shall have been given to the Trustee by the Company or any
other obligor on such Notes or by any Holder of such Notes.

SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.

The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with the Company or any Affiliate of the
Company with the same rights it would have if it were not Trustee. However, in
the event that the Trustee acquires any "conflicting interest" (within the
meaning of Section 3.10(b) of the TIA), it must eliminate such conflict within
90 days, apply to the Commission for permission to continue as

<PAGE>

trustee or resign. Any Agent may do the same with like rights and duties.
The Trustee is also subject to SECTIONS 7.1 AND 7.11.

SECTION 7.4 TRUSTEE'S DISCLAIMER.

The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.

SECTION 7.5 NOTICE OF DEFAULT.

If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to Holders of Notes a notice of the Event of
Default within 90 days after it occurs; PROVIDED THAT, except in the case of a
default in payment of principal of, premium, if any, or interest on any Notes,
the Trustee may withhold, and shall be protected in withholding, the notice if
and so long as a committee of its Responsible Officers in good faith determines
that the withholding of such notice is in the interest of the Holders of the
Notes.

SECTION 7.6 REPORT BY TRUSTEE TO HOLDERS OF THE NOTES.

Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in
TIA Section 313(a) has occurred within the 12 months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with
TIA Section 313(b)(2) and Section 313(b)(1). The Trustee shall also transmit by
mail all reports as required by TIA Section 313(c).

A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.

SECTION 7.7 COMPENSATION AND INDEMNITY.

The Company shall pay to the Trustee from time to time such compensation as
shall be agreed between the Company and the Trustee for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.

The Company shall indemnify each of the Trustee and any successor Trustee
against any and all losses, liabilities, damages, claims or expenses, including
taxes (other than taxes based on the income of the Trustee), incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this SECTION 7.7) and

<PAGE>

defending itself against any claim (whether asserted by the Company or any
Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent
any such loss, liability or expense may be attributable to its negligence or
bad faith. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of much counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.

The obligations of the Company under this SECTION 7.7 shall survive the
resignation or removal of the Trustee and the satisfaction and discharge of this
Indenture.

To secure the Company's payment obligations in this SECTION 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal, premium,
if any, and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.

When the Trustee incurs expenses or renders services after an Event of
Default specified in SECTION 6.1(viii) OR (ix) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law. The Trustee shall also be entitled to receive compensation for
extraordinary services in default administration.

The Trustee shall comply with the provisions of TIA Section 313 (b)(2) to
the extent applicable.

SECTION 7.8 REPLACEMENT OF TRUSTEE.

A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this SECTION 7.8.

The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of Notes of a
majority in aggregate principal amount of the then outstanding Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The Company
may remove the Trustee if:

(i) the Trustee fails to comply with SECTION 7.10;

(ii) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;

(iii) a Bankruptcy Custodian or public officer takes charge of the
Trustee or its property; or

(iv) the Trustee becomes incapable of acting.

If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of

<PAGE>

the then outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.

If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of Notes of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with SECTION 7.10,
such Holder of a Note may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in
SECTION 7.7. Notwithstanding replacement of the Trustee pursuant to this
SECTION 7.8, the Company's obligations under SECTION 7.7 shall continue for the
benefit of the retiring Trustee.

SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.

If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee.
As soon as practicable, the successor Trustee shall mail a notice of its
succession to the Company and the Holders of the Notes.

SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.

There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has (together with its parent bank holding company, if any)
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition.

This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section
310(b).

SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.

The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.

<PAGE>

ARTICLE 8

LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND DISCHARGE

SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.

The Company may, at the option of its Board of Directors evidenced by a
Board Resolution set forth in an Officers' Certificate delivered to the Trustee,
at any time, elect to have either SECTION 8.2 or 8.3 applied to all
outstanding Notes upon compliance with the conditions set forth below in
this ARTICLE 8.

SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.

Upon the Company's exercise under SECTION 8.1 of the option applicable to
this SECTION 8.2, the Company and each Subsidiary Guarantor shall, subject to
the satisfaction of the conditions set forth in SECTION 8.4 and continuance of
certain provisions hereinafter referenced, be deemed to have been discharged
from their respective obligations with respect to all outstanding Notes on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, Legal Defeasance means that the Company and
each Subsidiary Guarantor shall be deemed to have paid and discharged the
entire Indebtedness represented by the outstanding Notes, which shall
thereafter be deemed to be "outstanding" only for the purposes of SECTION 8.5
and the other Sections of this Indenture referred to in CLAUSES (i) AND (ii)
of this SECTION 8.2, and the Company and each Subsidiary Guarantor shall be
deemed to have satisfied all of their respective other obligations under such
Notes or any Subsidiary Guarantee (as applicable) and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions,
which shall survive until otherwise terminated or discharged hereunder: (i)
the rights of Holders of outstanding Notes to receive solely from the trust
fund described in SECTION 8.4, and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on
such Notes when such payments are due; (ii) the Company's obligations with
respect to such Notes under SECTIONS 2.3, 2.4, 2.6, 2.7 and 2.10 and SECTION
4.2; (iii) the rights, powers, trusts, duties, obligations and immunities of
the Trustee hereunder, including the Trustee's rights under SECTION 7.7, and
the Company's obligations in connection therewith; (iv) SECTIONS 10.3 AND
10.7; and (v) this ARTICLE 8. Subject to compliance with this ARTICLE 8, the
Company may exercise its option under this SECTION 8.2 notwithstanding the
prior exercise of its option under SECTION 8.3.

SECTION 8.3 COVENANT DEFEASANCE.

Upon the Company's exercise under SECTION 8.1 hereof of the option
applicable to this SECTION 8.3, the Company shall, subject to the
satisfaction of the conditions set forth in SECTION 8.4, be released from its
obligations under the covenants contained in SECTIONS 4.5, 4.7, 4.8, 4.9,
4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 5.1(ii) and 10.2 hereof with
respect to the outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "COVENANT DEFEASANCE"), and such
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it
being understood that such Notes shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Notes, the Company and each Subsidiary Guarantor
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason

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of any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or
an Event of Default under SECTION 6.1(iii) or SECTION 6.1(iv) (as
applicable), and (ii) SECTIONS 6.1(v) and SECTION 6.1(vi) shall not
constitute Events of Default but, except as specified above, the remainder of
this Indenture and such Notes shall be unaffected thereby.

SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.

The following shall be the conditions to the application of either
SECTIONS 8.2 OR 8.3 to the outstanding Notes:

(a) the Company shall irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, (i) cash in United States dollars, (ii)
Government Securities which through the payment of interest and principal
will provide, no later than one day before the due date of payment in respect
of such Notes, cash in United States dollars in an amount, or (iii) or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date;

(b) in the case of an election under SECTION 8.2, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
stating that (i) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (ii) since the date of this Indenture,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Independent Counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;

(c) in the case of an election under SECTION 8.3, the Company shall have
delivered to the Trustee an Opinion of Independent Counsel in the United States
stating that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;

(d) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as SECTION 6.1(viii) OR 6.1(ix) is
concerned, at any time in the period ending on the 91st day (or, if such
irrevocable deposit may be subject to set aside or avoidance under then
applicable bankruptcy or insolvency laws for a period of time longer than 90
days, then one day after the conclusion of such longer period of time) after the
date of the irrevocable deposit referred to in SECTION 8.4(a) (it being agreed
and understood that this condition shall not be satisfied until the expiration
of such period);

(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;

(f) the Company shall have delivered to the Trustee an Opinion of
Independent Counsel to the effect that, as of the date such opinion, (i) such
Legal Defeasance or Covenant

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Defeasance shall not result in the Company, any Subsidiary Guarantor, the
trust arising from the irrevocable deposit referred to in SECTION 8.4(a) or
the Trustee being subject to regulation under, or constituting an investment
company within the meaning of, the Investment Company Act of 1940, as
amended, and (ii) assuming no intervening bankruptcy of the Company between
the date of deposit and the 91st day following the deposit or if a longer
period, the day following the end of such other preference period in effect
at the time of such opinion, as applicable, following the deposit, the trust
funds irrevocably deposited pursuant to SECTION 8.4(a) will not be subject to
the effects of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally under any applicable
United States or state law;

(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the irrevocable deposit referred in SECTION 8.4(a) was
not made by the Company with the intent of preferring the Holders of Notes over
any other creditors of the Company or any Subsidiary Guarantor with the intent
of defeating, hindering, delaying or defrauding creditors of the Company, any
Subsidiary Guarantor or others;

(h) no event or condition shall exist that would prevent the Company from
making payments of the principal of, or premium, if any, or interest on, the
Notes on the date of the irrevocable deposit referred to in SECTION 8.4(a) or at
any time during and ending on the 91st day (or such longer period as referred to
in SECTIONS 8.4(d) and (f)(ii)) after the date of such deposit; and

(i) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.

SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.

Subject to SECTION 8.6, all money and Government Securities (including
the proceeds thereof) deposited with the Trustee (or other qualifying
trustee, collectively for purposes of this SECTION 8.5, the "TRUSTEE")
pursuant to SECTION 8.4 in respect of the outstanding Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee
may determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such
money need not be segregated from other funds except to the extent required
by law.

The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or Government Securities
deposited pursuant to SECTION 8.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Notes.

Anything in this ARTICLE 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or Government Securities held by it as provided in SECTION
8.4 that, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee (which may be the opinion delivered under SECTION 8.4(a)), are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.

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<PAGE>

SECTION 8.6 REPAYMENT TO THE COMPANY.

Subject to the applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of, premium, if any, or interest on any
Note and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Notes shall thereafter, as a secured creditor, look only
to the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in The New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.

SECTION 8.7 REINSTATEMENT.

If the Trustee or Paying Agent is unable to apply any United States
dollars or Government Securities in accordance with SECTION 8.5 by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Notes and the Subsidiary Guarantors'
obligations under this Indenture and the Subsidiary Guarantees shall be
revived and reinstated as though no deposit had occurred pursuant to SECTIONS
8.2 OR 8.3 until such time as the Trustee or Paying Agent is permitted to
apply all such money in accordance with SECTION 8.5; PROVIDED, HOWEVER, that,
if the Company makes any payment of principal of, premium, if any, or
interest on any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money held by the Trustee or Paying Agent.

SECTION 8.8 SATISFACTION AND DISCHARGE OF INDENTURE.

In addition to the options to effect Legal Defeasance and Covenant
Defeasance, and the effects thereof, this Indenture shall cease to be of further
effect (subject to SECTION 8.7) when all outstanding Notes theretofore
authenticated and issued hereunder have been delivered (other than any Notes
which shall have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in SECTION 2.7) to the Trustee for cancellation and
the Company has paid or caused to be paid all sums payable hereunder and
under the Notes. Notwithstanding the satisfaction and discharge referred to
in this SECTION 8.8, the provisions of this Indenture referred to at CLAUSES
(i) THROUGH (v) of SECTION 8.2 shall survive until otherwise terminated or
discharged hereunder. For the avoidance of doubt, in addition to and distinct
from this SECTION 8.8, the Company may elect Legal Defeasance or Covenant
Defeasance (or both) as provided for in SECTION 8.1 THROUGH 8.4.

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ARTICLE 9

AMENDMENT, SUPPLEMENT AND WAIVER

SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES.

(a) Notwithstanding SECTION 9.2, the Company, the Subsidiary Guarantors
and the Trustee may amend or supplement this Indenture or the Notes without the
consent of any Holder of a Note:

(i) to cure any ambiguity, defect or inconsistency;

(ii) to provide for uncertificated Notes in addition to or in place
of certificated Notes;

(iii) to provide for the assumption of the Company's obligations
to the Holders of the Notes pursuant to ARTICLE 5 or SECTION 10.4(b);

(iv) to secure the Notes;

(v) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights under this Indenture of any such Holder;

(vi) to add any Restricted Subsidiary as an additional Subsidiary
Guarantor as provided in SECTION 10.2 or to evidence the succession of
another Person to any Subsidiary Guarantor pursuant to SECTION 10.4 and the
assumption by any such successor of the covenants and agreements of such
Subsidiary Guarantor contained herein and in the Subsidiary Guarantee of
such Subsidiary Guarantor;

(vii) to release a Subsidiary Guarantor from its obligations under
this Indenture and its Subsidiary Guarantee pursuant to SECTION 10.5, or

(viii) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA.

(b) Upon the request of the Company accompanied by a Board Resolution of
its Board of Directors authorizing the execution of any such amendment or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in SECTION 9.6, the Trustee shall join with the Company and the
Subsidiary Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.

SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.

Except as provided below in this SECTION 9.2, the Company and the Trustee
may amend or supplement this Indenture, the Subsidiary Guarantees or the Notes
with the consent of the Holders of at least a majority in aggregate principal
amount of the Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Notes) and, subject to SECTIONS 6.4 AND 6.7, any existing Default or Event
of Default (other than a Default or Event of Default in the payment of the
principal of,

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premium, if any, or interest on the Notes, except a payment default resulting
from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Notes may be waived with the consent of
the Holders of a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase
of, tender offer or exchange offer for Notes).

Upon the request of the Company accompanied by a Board Resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as herein provided, and upon
receipt by the Trustee of the documents described in SECTION 9.6, the Trustee
shall join with the Company and the Subsidiary Guarantors in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.

Subject to SECTIONS 6.4 AND 6.7, the Holders of a majority in aggregate
principal amount of the Notes then outstanding may waive compliance in a
particular instance by the Company and the Subsidiary Guarantors with any
provision of this Indenture or the Notes. However, without the consent of each
Holder affected, an amendment or waiver may not (with respect to any Notes held
by a non-consenting Holder):

(i) change the Stated Maturity Date or the date specified in any
Note as the fixed date on which any principal thereof, or any installment
of interest thereon, is due and payable, or change to an earlier date any
redemption date of, or waive a default in the payment of the principal or
interest on, any such Note or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the coin or currency in which the principal of any Note
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the
Stated Maturity Date or the date specified in any Note as the fixed date on
which any principal thereof or any installment of interest thereon is due
and payable (or, in the case of redemption, on or after the redemption
date);

(ii) after the date upon which a Change of Control Offer or Excess
Cash Offer, as the case may be, is required to be made, amend, change or
modify the obligation of the Company to make and consummate an Excess Cash
Offer with respect to any Asset Sale in accordance with SECTION 4.11 or the
obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control in accordance with SECTION 4.17,
including, in each case, amending, changing or modifying any provisions of
such Sections or any definitions relating thereto;

(iii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture, or the consent of whose Holders is required for any
waiver or compliance with certain provisions of this Indenture;

(iv) modify any of the provisions of this SECTION 9.2 OR SECTION
6.4, except to increase the percentage of such outstanding Notes required
for any such actions or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each such Note affected thereby;

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(v) except as otherwise permitted under ARTICLE FIVE and ARTICLE
TEN, consent to the assignment or transfer by the Company or any
Subsidiary Guarantor of any of its rights and obligations hereunder;

(vi) alter, modify or change the ranking of any of the Notes or any
Subsidiary Guarantee relative to the payment of other Indebtedness or
obligations of the Company or any Subsidiary Guarantor, or otherwise
adversely affect the ranking of the Notes or Subsidiary Guarantees; or

(vii) release any Subsidiary Guarantee in any manner otherwise
than in accordance with the terms of this Indenture, or amend, modify or
change any provision of this Indenture (including the Subsidiary Guarantee)
which provides for the release of any Subsidiary Guarantee.

In addition, without the consent of Holders of not less than 66-2/3% in
aggregate principal amount of the Notes then outstanding, no such amendment,
supplement or waiver may, prior to the date on which a Change of Control Offer
or Excess Cash Offer, as the case may be, is required to be made, amend, change
or modify the obligation of the Company to make and consummate a Change of
Control Offer in the event of a Change of Control or make and consummate an
Excess Cash Offer with respect to any Asset Sale or modify any of the provisions
or definitions with respect thereto (including SECTIONS 4.11 AND 4.17).

It shall not be necessary for the consent of the Holders of Notes under
this SECTION 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.

After an amendment, supplement or waiver under this SECTION 9.2 becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver.

SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.

Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.

SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.

Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder of a Note is a continuing consent by the Holder of a Note and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.

SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.

The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may

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issue and the Trustee shall authenticate new Notes that reflect the
amendment, supplement or waiver.

Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.

SECTION 9.6 TRUSTEE TO SIGN AMENDMENT ETC.

The Trustee shall sign any amendment or supplemental indenture to this
Indenture authorized pursuant to this ARTICLE 9 if the amendment or supplement
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental indenture to
this Indenture until its Board of Directors approves it. In executing any
amendment or supplemental indenture to this Indenture, the Trustee shall be
entitled to receive, and (subject to SECTION 7.1) shall be fully protected in
relying upon, in addition to the documents required by SECTION 11.4, Officers'
Certificates and Opinions of Counsel stating that the execution of such
amendment or supplemental indenture to this Indenture is authorized or permitted
by this Indenture.

ARTICLE 10

SUBSIDIARY GUARANTEES

SECTION 10.1 SUBSIDIARY GUARANTEES.

(a) Each of the Subsidiary Guarantors and each Subsidiary of the Company
that in accordance with SECTION 10.2 is required to guarantee the obligations of
the Company under the Notes and this Indenture hereby jointly and severally and
unconditionally guarantee, on a senior basis (each such guarantee being a
"SUBSIDIARY GUARANTEE"), to each Holder of a Note authenticated and delivered by
the Trustee irrespective of the validity or enforceability of this Indenture,
the Notes or the obligations of the Company under this Indenture or the Notes,
that: (i) the principal of, premium, if any, and interest on the Notes shall be
paid in full when due, whether at the maturity or interest payment or optional
or mandatory redemption date, by acceleration, call for redemption or otherwise,
and interest on the overdue principal and interest, if any, of the Notes and all
other obligations of the Company to the Holders or the Trustee under this
Indenture or the Notes shall be promptly paid in full or performed, all in
accordance with the terms of this Indenture and the Notes and (ii) in case of
any extension of time of payment or renewal of any Notes or any of such other
obligations, they shall be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed for whatever
reason, each Subsidiary Guarantor shall be obligated to pay the same whether or
not such failure to pay has become an Event of Default that could cause
acceleration pursuant to SECTION 6.2. Each Subsidiary Guarantor agrees that
this is a guarantee of payment not a guarantee of collection.

(b) Each Subsidiary Guarantor hereby agrees that its obligations with
regard to its Subsidiary Guarantee shall be unconditional, irrespective of the
validity or enforceability of the Notes or the obligations of the Company under
this Indenture, the absence of any action to enforce the same, the recovery of
any judgment against the Company or any other obligor with respect to this
Indenture, the Notes or the obligations of the Company under this Indenture or
the Notes, any action to enforce the same or any other circumstances (other than
complete performance) that might otherwise constitute a legal or equitable
discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor
further, to the extent permitted by

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law, waives and relinquishes all claims, rights and remedies accorded by
applicable law to guarantors and agrees not to assert or take advantage of
any such claims, rights or remedies, including but not limited to: (i) any
right to require the Trustee, the Holders or the Company (each, a "BENEFITTED
PARTY") to proceed against the Company or any other Person or to proceed
against or exhaust any security held by a Benefitted Party at any time or to
pursue any other remedy in any Benefitted Party's power before proceeding
against such Subsidiary Guarantor; (ii) the defense of the statute of
limitations in any action hereunder or in any action for the collection of
any Indebtedness or the performance of any obligation hereby guaranteed;
(iii) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or the failure of a
Benefitted Party to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of any other Person; (iv)
demand, protest and notice of any kind, including but not limited to, notice
of the existence, creation or incurring of any new or additional Indebtedness
or obligation or of any action or non-action on the part of such Subsidiary
Guarantor, the Company, any Benefitted Party, any creditor of such Subsidiary
Guarantor, the Company or on the part of any other Person whomsoever in
connection with any Indebtedness or obligations hereby guaranteed; (v) any
defense based upon an election of remedies by a Benefitted Party, including
but not limited to, an election to proceed against such Subsidiary Guarantor
for reimbursement; (vi) any defense based upon any statute or rule of law
that provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the principal;
(vii) any defense arising because of a Benefitted Party's election, in any
proceeding instituted under any Bankruptcy Law, of the application of Section
1111(b)(2) under the Bankruptcy Law; (viii) any defense based on any
borrowing or grant of a security interest under Section 364 under the
Bankruptcy Law or (ix) any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever. Each Subsidiary
Guarantor hereby covenants that its Subsidiary Guarantee will not be
discharged except by complete performance of all of the obligations contained
in its Subsidiary Guarantee, the Notes and this Indenture.

(c) If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or any Subsidiary Guarantor, or any custodian,
trustee, or similar official acting in relation to either the Company or such
Subsidiary Guarantor, any amount paid by the Company or such Subsidiary
Guarantor to the Trustee or such Holder, the applicable Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.

(d) Each Subsidiary Guarantor further agrees that, as between such
Subsidiary Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in SECTION 6.2 for the purposes of this Subsidiary
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration as to the Company or any other obligor on the Notes of the
obligations guaranteed hereby and (ii) in the event of any declaration of
acceleration of those obligations as provided in SECTION 6.2, those obligations
(whether or not due and payable) will forthwith become due and payable by such
Subsidiary Guarantor for the purpose of this Subsidiary Guarantee.

SECTION 10.2 ADDITIONAL SUBSIDIARY GUARANTEES.

(a) Simultaneously with (i) the acquisition (by merger, consolidation,
acquisition of assets, stock or properties or otherwise) or formation of a
Person which, directly or indirectly, becomes a Subsidiary of the Company, or
(ii) the occurrence of any other event, circumstance or transaction pursuant to
which, directly or indirectly, a Person becomes a Subsidiary of the

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Company, in each case referred to in the immediately preceding CLAUSES (i)
AND (ii), other than a Person then designated an Unrestricted Subsidiary of
the Company in accordance with SECTION 4.14, the Company then shall (y) cause
such Person to execute a supplemental indenture to this Indenture agreeing to
be bound by its terms applicable to a Subsidiary Guarantor and providing for
a Subsidiary Guarantee of the Notes by such Person, in accordance with the
terms of this Indenture and (z) deliver such supplemental indenture to the
Trustee, accompanied by the Opinion of Counsel and Officers' Certificate
required pursuant to SECTION 9.6.

(b) In furtherance of SECTION 10.2(a), but in no regard diminishing the
immediacy of its requirement that upon a Person becoming a Subsidiary it
simultaneously becomes a Subsidiary Guarantor, in no event whatsoever shall the
Company permit any of its Restricted Subsidiaries, other than a Subsidiary
Guarantor, directly or indirectly, to (i) incur any Indebtedness or guarantee or
secure through the granting of Liens the payment of any Indebtedness of the
Company or any other Restricted Subsidiary or (ii) pledge any intercompany notes
representing obligations of any of its Restricted Subsidiaries to secure the
payment of its or any of the Company's or other Restricted Subsidiary's
Indebtedness, in each case, unless the Company shall (y) cause such Restricted
Subsidiary to execute a supplemental indenture to this Indenture agreeing to be
bound by its terms applicable to a Subsidiary Guarantor and providing for a
Subsidiary Guarantee of the Notes by such Person in accordance with the terms of
this Indenture and (z) deliver such supplemental indenture to the Trustee,
accompanied by the Opinion of Counsel and an Officers' Certificate, required
pursuant to SECTION 9.6.

SECTION 10.3 LIMITATION OF SUBSIDIARY GUARANTORS' LIABILITY.

(a) Each Subsidiary Guarantor and by its acceptance hereof, each
beneficiary hereof, hereby confirm that it is its intention that the Subsidiary
Guarantee by such Subsidiary Guarantor not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to
the extent applicable to any of the Subsidiary Guarantees. To effectuate the
foregoing intention, each such Person hereby irrevocably agrees that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee under
this ARTICLE 10 shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under this Indenture, result in the obligations of
such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law.

(b) For purposes of such limitations and the applicable fraudulent
conveyance laws, any indebtedness of a Subsidiary Guarantor incurred from time
to time pursuant to a Permitted Bank Credit Facility and secured by a perfected
Lien on the assets of such Subsidiary Guarantor (assuming, for purposes of such
determination, that the incurrence of any such indebtedness and the granting of
any such security interest did not violate any such fraudulent conveyance laws)
shall be deemed, to the extent of the value of the assets subject to such Lien,
to have been incurred prior to the incurrence by such Subsidiary Guarantor of
liability under its Subsidiary Guarantee.

(c) Each beneficiary under the Subsidiary Guarantees, by accepting the
benefits hereof, confirms its intention that, in the event of a bankruptcy,
reorganization or other similar proceeding of the Company or any Subsidiary
Guarantor in which concurrent claims

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<PAGE>

are made upon such Subsidiary Guarantor hereunder, to the extent such claims
will not be fully satisfied, each such claimant with a valid claim against
the Company shall be entitled to a ratable share of all payments by such
Subsidiary Guarantor in respect of such concurrent claims.

SECTION 10.4 SUBSIDIARY GUARANTORS MAY CONSOLIDATE ETC., ON CERTAIN TERMS.

(a) No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person) another
Person or, subject to SECTION 10.5, sell, convey or otherwise transfer all or
substantially all of its assets to another Person or group, unless (i) subject
to the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Subsidiary Guarantor)
(A) is a corporation organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia, and (B) expressly
assumes all the obligations of such Subsidiary Guarantor by executing and
delivering a supplemental indenture to this Indenture to the Trustee agreeing to
be bound by its terms applicable to a Subsidiary Guarantor and providing for a
Subsidiary Guarantee of the Notes by such Person, in accordance with the terms
of this Indenture; (ii) immediately before and after giving effect to such
transaction, no Default or Event of Default exists and immediately after giving
effect to such transaction, the resulting, surviving or transferee entity could
Incur $1.00 of additional Indebtedness pursuant to SECTION 4.7(A); and
(iii) such Subsidiary Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have a Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Net Worth of such Subsidiary
Guarantor immediately preceding the transaction. In connection with any
consolidation, merger or sale, conveyance or other transfer contemplated by this
provision, the Subsidiary Guarantor shall deliver, or cause to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or sale, conveyance or other transfer and the supplemental
indenture in respect thereto comply with this provision and that all conditions
precedent in this Indenture provided for relating to such transaction or
transactions have been complied with.

(b) Notwithstanding the foregoing, (i) a Subsidiary Guarantor may
consolidate with or merge with or into, or sell, convey or otherwise transfer
all or substantially all of its assets to, the Company, PROVIDED THAT the
surviving corporation (if other than the Company) shall expressly assume by
supplemental indenture complying with the requirements of this Indenture, the
due and punctual payment of the principal of, premium, if any, and interest on
all of the Notes, and the due and punctual performance and observance of all the
covenants and conditions of this Indenture to be performed by the Company and
(ii) a Subsidiary Guarantor may consolidate with or merge with or into, or sell,
convey or otherwise transfer all or substantially all of its assets to, any
other Subsidiary Guarantor.

SECTION 10.5 RELEASES OF SUBSIDIARY GUARANTORS.

In the event of (i) the designation of any Subsidiary Guarantor as an
Unrestricted Subsidiary of the Company pursuant to the provisions of
SECTION 4.14 or (ii) a sale, conveyance, transfer or other disposition of all or
substantially all of the properties or assets of any Subsidiary Guarantor to a
Person other than the Company or any other Subsidiary Guarantor or an
Unrestricted Subsidiary of the Company, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, in either case, in a transaction or manner that does not
violate any of the covenants or other provision of this Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale, conveyance,
transfer or other disposition (other than a lease), by way of such a merger,

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consolidation or otherwise, or a disposition of all of the Capital Stock of
such Subsidiary Guarantor) or the Person acquiring such properties or assets
(in the event of a sale, conveyance, transfer or other disposition (other
than a lease) of all or substantially all of the properties or assets of such
Subsidiary Guarantor) will be released from and relieved of any obligations
under this Indenture and its Subsidiary Guarantee, PROVIDED that (y) any Net
Cash Proceeds of such sale or other disposition are applied in accordance
with SECTION 4.11 as evidenced by an Officers' Certificate to such effect,
and (z) all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests that secure, any other Indebtedness of the Company or its
Restricted Subsidiaries shall also terminate upon such release, sale or
disposition.

SECTION 10.6 "TRUSTEE" TO INCLUDE PAYING AGENT.

In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this ARTICLE 10 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this ARTICLE 10 in place of the Trustee.

SECTION 10.7 CONTRIBUTION.

In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"FUNDING GUARANTOR") under a Subsidiary Guarantee, such Funding Guarantor shall
be entitled to a contribution from all other Subsidiary Guarantors in a PRO RATA
amount based on the Adjusted Net Assets (as defined below) of each Subsidiary
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Subsidiary Guarantor's
obligations with respect to such Subsidiary Guarantee. "ADJUSTED NET ASSETS" of
such Subsidiary Guarantor at any date shall mean the lesser of the amount by
which (x) the fair value of the property of such Subsidiary Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities, but excluding liabilities under the Subsidiary Guarantee of such
Subsidiary Guarantor at such date and (y) the present fair salable value of the
assets of such Subsidiary Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Subsidiary Guarantor on its debts
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date and after giving effect to any collection from any
Subsidiary of such Subsidiary Guarantor in respect of the obligations of such
Subsidiary under the Subsidiary Guarantees), excluding debt in respect of the
Subsidiary Guarantees, as they become absolute and matured.

SECTION 10.8 EXECUTION OF SUBSIDIARY GUARANTEES.

To evidence its guarantee to each Holder of Notes, each of the Subsidiary
Guarantors hereby agrees to execute its Subsidiary Guarantee in substantially
the form of EXHIBIT A recited to be endorsed on each Note ordered to be
authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby
agrees that its Subsidiary Guarantee set forth in SECTION 10.1 shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee. Each such Subsidiary Guarantee shall be
signed on behalf of each Subsidiary Guarantor by one Officer of such Subsidiary
Guarantor who shall have been duly authorized by all requisite corporate
actions, and the delivery of such Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of such Subsidiary Guarantee on
behalf of such Subsidiary Guarantor. Such signatures upon

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<PAGE>

the Subsidiary Guarantee may be by manual or facsimile signature of such
Officer and may be imprinted or otherwise reproduced on the Subsidiary
Guarantee, and in case any such Officer who shall have signed the Subsidiary
Guarantee shall cease to be such Officer before the Note on which such
Subsidiary Guarantee is endorsed shall have been authenticated and delivered
by the Trustee or disposed of by the Company, such Note nevertheless may be
authenticated and delivered or disposed of as though the person who signed
the Subsidiary Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.

ARTICLE 11

MISCELLANEOUS

SECTION 11.1 TRUST INDENTURE ACT CONTROLS.

If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.

SECTION 11.2 NOTICES.

Any notice or communication by the Company, any of the Subsidiary
Guarantors or the Trustee to any of the others is duly given if in writing and
delivered in person or mailed by first class mail (registered or certified,
return receipt requested), facsimile or overnight air courier guaranteeing next-
day delivery, to such other's address:

If to the Company or any Subsidiary Guarantor:

RAM Energy, Inc.
5100 East Shelly Drive, Suite 650
Tulsa, Oklahoma 74135
Facsimile No.: (918) 663-9214
Attention: Mr. Larry E. Lee

with, in any notice required to be given to the Company pursuant to
Article 6 and, of resignation, pursuant to Section 7.8, a copy to:

C. David Stinson, Esq.
McAfee & Taft
211 North Robinson, Suite 1000
Oklahoma City, Oklahoma 73102

PROVIDED, HOWEVER, the failure to provide or any delay in providing any
"with a copy to" notice or communication shall not impair the effect and
validity of any notice or communication made to the Company, in person, by
first class mail, facsimile or overnight air courier, in each case as
provided in this SECTION 11.2, at its address above or otherwise designated
pursuant to the provisions of this SECTION 11.2.

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<PAGE>

If to the Trustee:

United States Trust Company of New York
114 West 47th Street
25th Floor
New York, New York 10036
Facsimile No.: (212) 852-1626
Attention: Corporate Trust Department
Ms. Patricia Stermer

The Company, any of the Subsidiary Guarantors or the Trustee, by notice
to the others, may designate additional or different addresses for subsequent
notices or communications.

All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if
personally delivered; 5 Business Days after being deposited in the United
States mail, postage prepaid, if mailed; when receipt acknowledged, if sent
by facsimile; the next Business Day after timely delivery to the courier, if
sent for overnight delivery by a courier guaranteeing next-day delivery; and
the second Business Day after timely delivery to the courier, if sent for
second-day delivery by a courier guaranteeing second-day delivery.

Any notice or communication to a Holder shall be mailed by first class
U.S. mail to its address shown on the register kept by the Registrar. Any
notice or communication shall also be so mailed to any Person described in
TIA Section 313(c), to the extent required by the TIA. Failure to mail a
notice or communication to a Holder or any defect in it shall not affect its
sufficiency with respect to other Holders.

If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.

If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.

SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.

Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Subsidiary Guarantors, the Trustee, the Registrar and anyone
else shall have the protection of TIA Section 312(c).

SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.

Upon any request or application by the Company to the Trustee to take
any action under this Indenture, such requesting entity shall furnish to the
Trustee:

(i) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in SECTION 11.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and

(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in SECTION 11.5)

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<PAGE>

stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.

SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.

Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:

(i) a statement that the Person making such certificate or
opinion has read such covenant or condition;

(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;

(iii) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been satisfied; and

(iv) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied; PROVIDED THAT,
with respect to matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate and certificates of public officials.

SECTION 11.6 RULES BY TRUSTEE AND AGENTS.

The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.

SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.

NO STOCKHOLDER, OFFICER OR DIRECTOR, AS SUCH, PAST, PRESENT OR FUTURE,
OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR, SHALL HAVE ANY PERSONAL LIABILITY
FOR ANY OBLIGATIONS OF THE COMPANY OR SUCH SUBSIDIARY GUARANTOR UNDER THE
NOTES, THIS INDENTURE OR THE SUBSIDIARY GUARANTEES, AS THE CASE MAY BE, BY
REASON OF HIS OR HER OR ITS STATUS AS SUCH STOCKHOLDER, OFFICER OR DIRECTOR.
EACH HOLDER BY ACCEPTING A NOTE WAIVES AND RELEASES ALL SUCH LIABILITY. THE
WAIVER AND RELEASE ARE PART OF THE CONSIDERATION FOR ISSUANCE OF THE NOTES
AND THE SUBSIDIARY GUARANTEES. SUCH WAIVER MAY NOT BE EFFECTIVE TO WAIVE
LIABILITIES UNDER THE FEDERAL SECURITIES LAWS, AND IT IS THE VIEW OF THE
COMMISSION THAT SUCH A WAIVER IS AGAINST PUBLIC POLICY.

SECTION 11.8 GOVERNING LAW.

THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.

SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.

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<PAGE>

This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.

SECTION 11.01 SUCCESSORS.

All agreements of the Company or any Subsidiary Guarantor in this
Indenture, the Subsidiary Guarantees and the Notes shall bind its successors
and as provided herein, its assigns. All agreements of the Trustee in this
Indenture shall bind its successors.

SECTION 11.11 SEVERABILITY.

In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

SECTION 11.12 COUNTERPART ORIGINALS.

The parties hereto may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.

SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.

The Table of Contents, Cross Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.

IN WITNESS WHEREOF, the parties hereto have executed this Indenture as
of the date first written above.

"COMPANY"

RAM ENERGY, INC.,
a Delaware corporation

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

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<PAGE>

"SUBSIDIARY GUARANTORS"

RB OPERATING COMPANY,
a Delaware corporation

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

RLP GULF STATES, L.L.C.,
an Oklahoma limited liability company

By RAM ENERGY, INC.
Manager

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

69
<PAGE>

"TRUSTEE"

UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee

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

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<PAGE>

EXHIBIT A

[FORM OF NOTE]

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO, HAS AN INTEREST
HEREIN.(1)

_____% SENIOR NOTES DUE 2008

REGISTERED CUSIP: ____________
No. $

RAM ENERGY, INC., a Delaware corporation (the "COMPANY", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, promises to pay to ____________ ___________________ or
registered assigns, the principal sum of _____________________ Dollars [or such
lesser amount as may be set forth in APPENDIX 1 hereto in accordance with the
Indenture](2) on __________, 2008.

Interest Payment Dates: ________ ____ and _______ ____

Record Dates: ________ ____ and _________ ____

- -------------------
(1) This paragraph should be included in the Note only if issued in global form.

(2) This paragraph should be included in the Note only if issued in global form.

A-1

<PAGE>

Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.

Dated: RAM ENERGY, INC.
---------------------------

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

ATTEST:

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

TRUSTEE'S CERTIFICATE OF AUTHENTICATION:

This is one of the _________% Senior Notes due 2008 referred to in the
within-mentioned Indenture:

Dated:
------------------------------

UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee

By:
---------------------------------
Authorized Signatory

A-2

<PAGE>

[REVERSE OF NOTE]

RAM ENERGY, INC.

______% SENIOR NOTES DUE 2008

Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.

1. INTEREST. RAM Energy, Inc., a Delaware corporation (the "COMPANY",
which term includes any successor Person under the Indenture hereinafter
referred to), promises to pay interest on the principal amount of this Note
at ______% per annum from ______________ ____, ______, until maturity. The
Company shall pay interest semi-annually on ___________ ____ and ___________
____ of each year (each, an "INTEREST PAYMENT DATE"), or if any such day is
not a Business Day, on the next succeeding Business Day commencing
______________, _____. Interest on the Notes shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. The Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal and premium, if any, from time to time on demand at a rate that is
1% per annum in excess of the rate then in effect on this Note to the extent
lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand
at the same rate to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.

2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the ____________ ____ or ___________ ____ next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and interest at the office or agency of
the Company maintained for such purpose within or without the City and State of
New York, [or, at the option of the Company, payment of interest may be made by
wire transfer or check mailed to the Holders at their addresses set forth in the
register of Holders,](a) and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
and interest and premium on, all Global Notes and all other Notes the Holders
of which shall have provided written wire transfer instructions to the
Company or the Paying Agent at least 10 Business Days prior to the applicable
payment date. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.

- --------------------------
(a) This bracketed clause will be inserted in Notes in the event the Notes do
not remain in global form, and in such instance, the proviso completing
this sentence will, to the extent it refers to Global Notes, be deleted.

A-3

<PAGE>

3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of
New York, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any domestically incorporated Wholly Owned
Subsidiary Guarantor may act in any such capacity.

4. INDENTURE AND SUBSIDIARY GUARANTEES. The Company issued the Notes
under an Indenture dated as of February ____, 1998 (the "INDENTURE"), among the
Company, the Subsidiary Guarantors and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The Notes
are general unsecured obligations of the Company limited to $115,000,000 in
aggregate principal amount in the case of Notes issued on the Issue Date.
Payment on each Note is guaranteed on a senior unsecured basis, jointly and
severally, by the Subsidiary Guarantors pursuant to Article 10 of the Indenture.

5. OPTIONAL REDEMPTION.

(a) Except as set forth in SUBPARAGRAPH (b) of this PARAGRAPH 5, the
Company shall not have the option to redeem the Notes prior to
____________ ____, 2003. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' written notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the 12-month period
beginning on ____________ ____ of the years indicated below:

YEAR PERCENTAGE
---- ----------
2003............................................. __________%
2004............................................. __________%
2005............................................. __________%
2006 and thereafter.............................. 100.0000%

(b) Notwithstanding the provisions of SUBPARAGRAPH (a) of this
PARAGRAPH 5, at any time on or prior to ____________ ____, 2001, the Company may
redeem up to an aggregate of 35% of the aggregate principal amount of Notes
originally issued, in cash, at a redemption price of ________% of the principal
amount thereof, together with accrued and unpaid interest thereon to the
redemption date, with the net proceeds of a Public Equity Offering; PROVIDED
that (i) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after the occurrence of each such
redemption and (ii) each such redemption shall occur within 60 days of the date
of the closing of each such Public Equity Offering.

6. MANDATORY REDEMPTION. The Company shall not be required to make
mandatory redemption payments or sinking fund payments with respect to the
Notes.

7. REPURCHASE AT OPTION OF HOLDER.

(a) Upon the occurrence of a Change of Control, the Company shall be
required to make an offer (a "CHANGE OF CONTROL OFFER") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount thereof, plus
accrued and any unpaid interest thereon, if any, to the Change of Control
Payment Date. Within 5

A-4

<PAGE>

Business Days after the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall, not later than 20
Business Days after the occurrence of the Change of Control, make a Change of
Control Offer to the Holders of all of the outstanding Notes by sending
written notice to each Holder at its registered address setting forth the
procedures governing the Change of Control Offer as required by the Indenture.

(b) If the Company or a Restricted Subsidiary consummates any
Asset Sale, within 10 days following each Excess Cash Offer Trigger Date, the
Company shall commence an offer to all Holders of Notes (an "EXCESS CASH
OFFER") pursuant to Sections 3.9 and 4.11 of the Indenture to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Cash at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the
Excess Cash Purchase Date in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate principal amount of Notes
tendered pursuant to an Excess Cash Offer is less than the Excess Cash, the
Company (or any Subsidiary Guarantor) may use such excess for any of their
respective general corporate purposes PROVIDED THAT no such purpose is
prohibited or restricted by the Indenture. Holders of Notes that are the
subject of an offer to purchase will receive an Excess Cash Offer from the
Company prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.

8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before a redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.

9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.

10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.

11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes, and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the

A-5

<PAGE>

Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to secure the Notes, to add or release any
Subsidiary Guarantor pursuant to the terms of the Indenture or to comply with
the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the TIA.

12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for
30 days in the payment when due of interest on the Notes; (ii) default in
payment when due of principal of or premium, if any, on the Notes whether the
same becomes due and payable at maturity, upon redemption, by acceleration or
otherwise (including in connection with an offer to purchase); (iii) a
default in the performance or breach of Section 4.11, 4.17 or 5.1 of the
Indenture; (iv) a default in the observance or performance of any other
covenant or agreement, which default continues for 30 days after written
notice thereof to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding; (v) default under certain other agreements relating
to Indebtedness of the Company or any Restricted Subsidiary of the Company,
which default (A) extends beyond a stated period of grace applicable thereto
(including any extensions thereof) or (B) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date
of such default, and in each case, the outstanding principal amount of such
Indebtedness aggregates in excess of $1,000,000, and PROVIDED, FURTHER, that
if any such default is waived by all obligees thereof, then such Event of
Default under the Indenture shall be deemed waived and any consequential
acceleration of the Notes shall be automatically rescinded, so long as such
rescission does not conflict with any judgment or decree; (vi) certain final
judgments for the payment of money that remain undischarged for a period of
60 consecutive days; (vii) any of the Indenture, the Notes or the Subsidiary
Guarantees shall for any reason cease to be, or be asserted by the Company or
any Subsidiary Guarantor, as applicable, not to be, in full force and effect
(except pursuant to the release of any Subsidiary Guarantee in accordance
with the Indenture),or shall be declared null and void or unenforceable, or
the validity or enforceability thereof shall be denied or contested; and
(viii) certain events of bankruptcy or insolvency with respect to the Company
or any Subsidiary Guarantor. If any Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency with
respect to the Company or any Subsidiary Guarantor, all outstanding Notes
will become due and payable without further action or notice. Holders may
not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Notes then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Notes waive any existing
Default or Event of Default and its consequences under the Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, the Notes. The Company is required to deliver to the Trustee
quarterly (other than for the final quarter of its fiscal year) and annually
a statement regarding compliance with the Indenture, and the Company is
required upon becoming aware of any Default or Event of Default, to deliver
to the Trustee a statement specifying such Default or Event of Default.

13. DISCHARGE AND DEFEASANCE. Subject to the continuance of certain
administrative obligations with respect to the Notes, the Indenture (including
the Subsidiary Guarantees) shall be discharged and cancelled upon the payment of
all of the Notes. Further, subject to certain conditions of the Indenture, the
Company and the Subsidiary Guarantors may be

A-6

<PAGE>

discharged from all of their respective obligations under the Indenture, the
Notes and the Subsidiary Guarantees, except for the continuance of certain
administrative obligations with respect to the Notes, or may be released from
the compliance with restrictive covenants of the Indenture, upon the
irrevocable deposit with the Trustee of funds or Government Securities
sufficient for payment.

14. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.

15. NO RECOURSE AGAINST OTHERS. NO PAST, PRESENT OR FUTURE STOCKHOLDER,
OFFICER OR DIRECTOR OF THE COMPANY OR ANY SUBSIDIARY GUARANTOR, AS SUCH, SHALL
HAVE ANY PERSONAL LIABILITY FOR ANY OBLIGATIONS OF THE COMPANY OR SUCH
SUBSIDIARY GUARANTOR UNDER THE NOTES, THE INDENTURE OR THE SUBSIDIARY
GUARANTEES, AS THE CASE MAY BE, BY REASON OF HIS OR HER OR ITS STATUS AS SUCH
STOCKHOLDER, OFFICER OR DIRECTOR. EACH HOLDER BY ACCEPTING THIS NOTE WAIVES AND
RELEASES ALL SUCH LIABILITY. THE WAIVER AND RELEASE ARE PART OF THE
CONSIDERATION FOR THE ISSUANCE OF THE NOTES AND THE SUBSIDIARY GUARANTEES. SUCH
WAIVER MAY NOT BE EFFECTIVE TO WAIVE LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS, AND IT IS THE VIEW OF THE COMMISSION THAT SUCH A WAIVER IS AGAINST PUBLIC
POLICY.

16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee.

17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).

18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

19. GOVERNING LAW. THIS NOTE AND THE GUARANTEE NOTATION HEREON SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.

The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:

RAM Energy, Inc.
5100 East Shelly Drive, Suite 650
Tulsa, Oklahoma 74135
Facsimile No.: (918) 663-9214
Attention: Mr. Larry E. Lee

A-7

<PAGE>

[FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEES]

For value received, each of the undersigned hereby, jointly and severally,
unconditionally guarantees to the Holder of this Note the payment of all
principal of, premium, if any, and interest on this Note, upon which this
Subsidiary Guarantee is endorsed, in the amounts and at the time when due and
payable, whether at the maturity or interest payment or mandatory redemption
date, by acceleration, call for redemption or repurchase or otherwise, and
interest on the overdue principal and interest, if any, of this Note, if lawful,
and all other obligations of the Company to the Holders or the Trustee under the
Indenture, all in accordance with, and subject to the terms and limitations of,
this Note and Article 10 of the Indenture. Each Subsidiary Guarantor agrees
that this is a guarantee of payment, not a guarantee of collection. Capitalized
terms used herein have the meanings assigned to them in the Indenture unless
otherwise indicated. The Subsidiary Guarantees shall not be valid or obligatory
for any purpose until the certificate of authentication on this Note on which
this Subsidiary Guarantee is noted shall have been executed by the Trustee.
THIS SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES
THEREOF. The Indebtedness evidenced by this Subsidiary Guarantee is, to the
extent and in the manner provided in the Indenture, the senior unsecured
obligation of each Subsidiary Guarantor.

By each of the following, and any other Subsidiary Guarantor as may be
added or substituted from time to time, as Subsidiary Guarantors:

SUBSIDIARY GUARANTORS:

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

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

By
-------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
(for each of the above-listed Subsidiary
Guarantors)

A-8

<PAGE>

ASSIGNMENT FORM

To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to

- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)

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

- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date:
----------------------------

Your Signature:
---------------------------------------
(Sign exactly as your name appears on the face of this
Note)

Signature Guarantee.

A-9

<PAGE>

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Company pursuant to
Section 4.11 or 4.17 of the Indenture, check the box below:

/ / Section 4.11 / / Section 4.17

If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.11 or Section 4.17 of the Indenture, state the amount you
elect to have purchased:

$ (Must be in $1,000 Denominations)
--------------
Date:
--------------------------

Your Signature:
---------------------------------------
(Sign exactly as your name appears on the face of this
Note)

Signature Guarantee:

A-10

<PAGE>

APPENDIX 1

SCHEDULE OF ADJUSTMENTS TO GLOBAL NOTE(3)

The following increases or decreases in the principal amount of this Global
Note in accordance with the Indenture have been made:

<TABLE>
Amount of Signature of
decrease in Principal Amount of authorized
Principal Amount of increase this Global Note signatory of
Date of Amount of this in Principal Amount following such Trustee or Note
Exchange Global Note of this Global Note decrease (or increase) Custodian
-------- -------------- ------------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------

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

- --------------------------------------------------------------------------------------------
</TABLE>

- ------------------------
(3) This schedule should be included only if the Note is issued in global form.

A-11

<PAGE>

Law Offices
McAfee & Taft
A Professional Corporation
Tenth Floor, Two Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102-7103
(405) 235-9621
Fax (405) 235-0439

February 11, 1998

Ram Energy, Inc.
Meridian Tower
5100 East Skelley Dr., Suite 650
Tulsa, Oklahoma 74135

Gentlemen:

We have been requested to render our opinion as to certain matters
regarding ____% Senior Notes due 2008 (the "Notes") of RAM Energy, Inc., a
Delaware corporation ("RAM Energy") which are to be issued pursuant to an
Indenture dated as of February ___, 1998, among United States Trust Company
of New York, as Trustee, RAM Energy and the Subsidiary Guarantors (the
"Indenture"). We have examined RAM Energy's minute books and other corporate
records, the Form S-1 Registration Statement (File No. 333-42641) filed with
the Securities and Exchange Commission on December 18, 1997 and Amendment No.
One thereto filed on February 2, 1998 (the "Registration Statement), the
underwriting agreement between RAM Energy and the underwriter named therein
for the sale of the Notes (the "Underwriting Agreement") filed as an exhibit
to the Registration Statement, the Indenture filed as an exhibit to the
Registration Statement, the form of Notes filed as an exhibit to the
Registration Statement, and have made such other investigation as we deemed
necessary in order to render the opinions expressed herein.

Based on the foregoing, we are of the opinion that:

RAM Energy is duly incorporated and validly existing under the laws
of the State of Delaware, with full power and authority to own its properties
and to conduct its business as described in the preliminary prospectus
contained in the Registration Statement.

The $115,000,000 in aggregate principal amount of the Notes and
Subsidiary Guarantees (as defined in the Registration Statement), when issued
to the underwriter against payment therefore in accordance with the terms of
the Underwriting Agreement and the

<PAGE>

Indenture, will constitute binding obligations of RAM Energy and the
Subsidiary Guarantors (as defined in the Registration Statement), enforceable
against RAM Energy and the Subsidiary Guarantors in accordance with the terms
of the Indenture and the Notes, subject to (a) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws relating to creditors' rights and remedies generally, and (b) general
principles of equity (whether enforcement is sought in a proceeding at law or
in equity).

We hereby consent to the inclusion of this opinion as an exhibit to
the above Registration Statement and to the reference to our firm under the
caption "Legal Matters" and elsewhere in the Prospectus which is a part of
the Registration Statement.

Very truly yours,

/s/ McAFEE & TAFT A PROFESSIONAL
CORPORATION

DJK/mls

<PAGE>

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

$50,000,000

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

Among

RAM ENERGY, INC.

as Borrower,

THE FINANCIAL INSTITUTIONS
NAMED IN THIS CREDIT AGREEMENT

as Banks,

and

UNION BANK OF CALIFORNIA, N. A.

as Agent

February 3, 1998

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

<PAGE>

TABLE OF CONTENTS

Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . 2
Section 1.02. Computation of Time Periods. . . . . . . . . . . . . . . .17
Section 1.03. Accounting Terms; Changes in GAAP. . . . . . . . . . . . .17
Section 1.04. Types of Advances. . . . . . . . . . . . . . . . . . . . .17
Section 1.05. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . .17

ARTICLE II CREDIT FACILITIES

Section 2.01. Commitment for Revolving Advances. . . . . . . . . . . . .18
Section 2.02. Borrowing Base . . . . . . . . . . . . . . . . . . . . . .18
Section 2.03. Method of Borrowing. . . . . . . . . . . . . . . . . . . .20
Section 2.04. Reduction of the Revolving Commitment. . . . . . . . . . .23
Section 2.05. Prepayment of Revolving Advances . . . . . . . . . . . . .23
Section 2.06. Repayment of Revolving Advances. . . . . . . . . . . . . .25
Section 2.07. Letters of Credit. . . . . . . . . . . . . . . . . . . . .25
Section 2.08. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Section 2.09. Interest . . . . . . . . . . . . . . . . . . . . . . . . .30
Section 2.10. Payments and Computations. . . . . . . . . . . . . . . . .32
Section 2.11. Sharing of Payments, Etc.. . . . . . . . . . . . . . . . .33
Section 2.12. Breakage Costs . . . . . . . . . . . . . . . . . . . . . .33
Section 2.13. Increased Costs. . . . . . . . . . . . . . . . . . . . . .34
Section 2.14. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .35

ARTICLE III CONDITIONS OF LENDING

Section 3.01. Conditions Precedent to Initial Revolving Advances . . . .37
Section 3.02. Conditions Precedent to All Borrowings . . . . . . . . . .39

ARTICLE IV REPRESENTATIONS AND WARRANTIES

Section 4.01. Corporate Existence; Subsidiaries. . . . . . . . . . . . .40
Section 4.02. Corporate Power. . . . . . . . . . . . . . . . . . . . . .40
Section 4.03. Authorization and Approvals. . . . . . . . . . . . . . . .40
Section 4.04. Enforceable Obligations. . . . . . . . . . . . . . . . . .40
Section 4.05. Financial Statements . . . . . . . . . . . . . . . . . . .41

-i-

<PAGE>

Section 4.06. True and Complete Disclosure . . . . . . . . . . . . . . .41
Section 4.07. Litigation . . . . . . . . . . . . . . . . . . . . . . . .42
Section 4.08. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . .42
Section 4.09. Investment Company Act . . . . . . . . . . . . . . . . . .42
Section 4.10. Public Utility Holding Company Act . . . . . . . . . . . .42
Section 4.11. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .42
Section 4.12. Pension Plans. . . . . . . . . . . . . . . . . . . . . . .43
Section 4.13. Condition of Property; Casualties. . . . . . . . . . . . .44
Section 4.14. No Burdensome Restrictions; No Defaults. . . . . . . . . .44
Section 4.15. Environmental Condition. . . . . . . . . . . . . . . . . .44
Section 4.16. Permits, Licenses, Etc.. . . . . . . . . . . . . . . . . .45
Section 4.17. Gas Contracts. . . . . . . . . . . . . . . . . . . . . . .45
Section 4.18. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . .45
Section 4.19. Solvency.. . . . . . . . . . . . . . . . . . . . . . . . .45
Section 4.20. Capitalization; Ownership. . . . . . . . . . . . . . . . .46

ARTICLE V AFFIRMATIVE COVENANTS

Section 5.01. Compliance with Laws, Etc. . . . . . . . . . . . . . . . .46
Section 5.02. Maintenance of Insurance . . . . . . . . . . . . . . . . .47
Section 5.03. Preservation of Corporate Existence, Etc.. . . . . . . . .47
Section 5.04. Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . .48
Section 5.05. Visitation Rights. . . . . . . . . . . . . . . . . . . . .48
Section 5.06. Reporting Requirements . . . . . . . . . . . . . . . . . .48
Section 5.07. Maintenance of Property. . . . . . . . . . . . . . . . . .51
Section 5.08. Bank Accounts. . . . . . . . . . . . . . . . . . . . . . .51
Section 5.09. Oil and Gas Properties.. . . . . . . . . . . . . . . . . .52
Section 5.10. Interest Hedge Arrangements. . . . . . . . . . . . . . . .52
Section 5.11. Agreement to Pledge. . . . . . . . . . . . . . . . . . . .52
Section 5.12. Additional Subsidiaries. . . . . . . . . . . . . . . . . .52

ARTICLE VI NEGATIVE COVENANTS

Section 6.01. Liens, Etc.. . . . . . . . . . . . . . . . . . . . . . . .53
Section 6.02. Debts, Guaranties, and Other Obligations . . . . . . . . .54
Section 6.03. Agreements Restricting Liens and Distributions . . . . . .55
Section 6.04. Merger or Consolidation; Asset Sales . . . . . . . . . . .55
Section 6.05. Restricted Payments. . . . . . . . . . . . . . . . . . . .55
Section 6.06. Investments. . . . . . . . . . . . . . . . . . . . . . . .55
Section 6.07. Limitation on Speculative Hedging. . . . . . . . . . . . .56
Section 6.08. Affiliate Transactions . . . . . . . . . . . . . . . . . .56
Section 6.09. Compliance with ERISA. . . . . . . . . . . . . . . . . . .56
Section 6.10. Sale-and-Leaseback . . . . . . . . . . . . . . . . . . . .56

-ii-

<PAGE>

Section 6.11. No Subsidiaries. . . . . . . . . . . . . . . . . . . . . .56
Section 6.12. Change of Business . . . . . . . . . . . . . . . . . . . .56
Section 6.13. Organizational Documents, Name Change. . . . . . . . . . .57
Section 6.14. Rental Expense.. . . . . . . . . . . . . . . . . . . . . .57
Section 6.15. Current Ratio. . . . . . . . . . . . . . . . . . . . . . .57
Section 6.16. Interest Coverage Ratio. . . . . . . . . . . . . . . . . .57
Section 6.17. Senior Notes . . . . . . . . . . . . . . . . . . . . . . .57

ARTICLE VII REMEDIES

Section 7.01. Events of Default. . . . . . . . . . . . . . . . . . . . .58
Section 7.02. Optional Acceleration of Maturity. . . . . . . . . . . . .60
Section 7.03. Automatic Acceleration of Maturity . . . . . . . . . . . .60
Section 7.04. Right of Set-off . . . . . . . . . . . . . . . . . . . . .61
Section 7.05. Actions Under Credit Documents . . . . . . . . . . . . . .61
Section 7.06. Non-exclusivity of Remedies. . . . . . . . . . . . . . . .61

ARTICLE VIII THE AGENT AND THE ISSUING BANK

Section 8.01. Authorization and Action . . . . . . . . . . . . . . . . .61
Section 8.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . .62
Section 8.03. The Agent and Its Affiliates . . . . . . . . . . . . . . .62
Section 8.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . .62
Section 8.05. Indemnification. . . . . . . . . . . . . . . . . . . . . .63
Section 8.06. Successor Agent and Issuing Bank . . . . . . . . . . . . .63

ARTICLE IX MISCELLANEOUS

Section 9.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . .64
Section 9.02. Notices, Etc.. . . . . . . . . . . . . . . . . . . . . . .65
Section 9.03. No Waiver; Remedies. . . . . . . . . . . . . . . . . . . .65
Section 9.04. Costs and Expenses . . . . . . . . . . . . . . . . . . . .65
Section 9.05. Binding Effect . . . . . . . . . . . . . . . . . . . . . .65
Section 9.06. Bank Assignments and Participations. . . . . . . . . . . .65
Section 9.07. Indemnification. . . . . . . . . . . . . . . . . . . . . .68
Section 9.08. Execution in Counterparts. . . . . . . . . . . . . . . . .68
Section 9.09. Survival of Representations, Etc . . . . . . . . . . . . .68
Section 9.10. Severability . . . . . . . . . . . . . . . . . . . . . . .68
Section 9.11. Business Loans . . . . . . . . . . . . . . . . . . . . . .68
Section 9.12. Governing Law. . . . . . . . . . . . . . . . . . . . . . .69

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<PAGE>

EXHIBITS:

Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Compliance Certificate
Exhibit C - Form of Guaranty
Exhibit D - Form of Mortgage
Exhibit E - Form of Notice of Borrowing
Exhibit F - Form of Notice of Conversion or Continuation
Exhibit G - Form of Pledge Agreement
Exhibit H - Form of Note
Exhibit I - Form of Security Agreement
Exhibit J - Form of Transfer Letters
Exhibit K-1 - Form of Borrower's Oklahoma Counsel Opinion
Exhibit K-2 - Form of Agent's Counsel Opinion

SCHEDULES:

Schedule 1 - Borrower, Agent, and Bank Information
Schedule 4.01 - Subsidiaries
Schedule 4.07 - Existing Litigation
Schedule 4.15 - Environmental Issues
Schedule 5.08 - Bank Accounts
Schedule 6.01 - Permitted Existing Liens
Schedule 6.02 - Permitted Existing Debt
Schedule 6.06 - Permitted Investments

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<PAGE>

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

This Second Amended and Restated Credit Agreement dated as of February 3,
1998 is among RAM Energy, Inc., a Delaware corporation formerly known as RAMCO
Operating Company, the Banks (as defined below), and Union Bank of California,
N.A., as Agent for the Banks.

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

INTRODUCTION

A. RAM Energy, Inc., a Delaware corporation formerly known as RAMCO
Operating Company (the "Borrower"), the Banks and the Agent are parties to the
Amended and Restated Credit Agreement dated as of December 12, 1997 (the
"Existing Credit Agreement").

B. The Borrower intends to issue up to $125,000,000 of Senior Notes due
2008 (the "Senior Notes") upon the terms and conditions described in the Form
S-1 Registration Statement filed with the Securities and Exchange Commission on
December 18, 1997, as amended ("Registration Statement"), the proceeds of which
will be used to pay all of the existing revolving and term advances outstanding
under the Existing Credit Agreement.

C. Pursuant to the Stock Purchase Agreement dated as of December 16,
1997 (as the same may be amended, modified or supplemented from time to time as
permitted herein, the "Carlton Purchase Agreement") among Rolf N. Hufnagel and
Robert E. Davis, Jr., as sellers, and the Borrower, as buyer, the Borrower
shall acquire substantially all of the stock of Carlton (the "Carlton
Acquisition").

D. The Banks have consented to the issuance of the Senior Notes pursuant
to the terms set forth in the Registration Statement and the Carlton
Acquisition on the condition that the parties hereto enter into an amendment to
effect certain amendments to the Existing Credit Agreement.

E. To evidence the credit facility requested hereunder, the Borrower,
the Agent and the Banks have agreed that this Agreement is an amendment and
restatement of the Existing Credit Agreement, not a new or substitute credit
agreement or novation of the Existing Credit Agreement, and each reference to a
"Revolving Advance" or a "Letter of Credit" shall include each Revolving
Advance made and each Letter of Credit issued heretofore under the Existing
Credit Agreement as well as each Revolving Advance made and each Letter of
Credit issued hereafter under this Credit Agreement.

<PAGE>
ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

"ACCEPTABLE SECURITY INTEREST" in any Property means a Lien which
(a) exists in favor of the Agent for the benefit of the Agent and the Banks;
(b) is superior to all Liens or rights of any other Person in the Property
encumbered thereby, except to the extent that the rights of another Person are
permitted hereunder; (c) secures the Obligations; and (d) is perfected and
enforceable.

"ADJUSTED REFERENCE RATE" means, for any day, the fluctuating rate per
annum of interest equal to the greater of (a) the Reference Rate in effect on
such day and (b) the Federal Funds Rate in effect on such day plus 1/2%.

"AFFILIATE" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person.
The term "control" (including the terms "controlled by" or "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of Voting Securities, by contract, or otherwise.

"AGENT" means Union Bank of California, N.A., in its capacity as an agent
pursuant to Article VIII and any successor agent pursuant to Section 8.06.

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

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

"APPLICABLE MARGIN" means the following percentages based upon the ratio
of (i) the aggregate outstanding amount of Revolving Advances PLUS the Letter
of Credit Exposure on such day to (ii) the Borrowing Base as of such day:

<TABLE>
Ratio of Outstanding
Revolving Advances PLUS
Letter of Credit Exposure to Applicable Margin Applicable Margin
BORROWING BASE REFERENCE RATE ADVANCES EURODOLLAR RATE ADVANCES
-------------- ----------------------- ------------------------
<S> <C> <C>
< .50 0.00% 1.375%
>- .50 and -< .75 0.25% 1.625%
> .75 0.50% 2.00%
</TABLE>

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<PAGE>

"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered
into by a Bank and an Eligible Assignee, and accepted by the Agent, in
substantially the form of the attached EXHIBIT A.

"BANKS" means the lenders listed on the signature pages of this Agreement
and each Eligible Assignee that shall become a party to this Agreement pursuant
to Section 9.06.

"BORROWER" means RAM Energy, Inc., a Delaware corporation formerly known
as RAMCO Operating Company.

"BORROWING BASE" means at any particular time, the Dollar amount
determined in accordance with Section 2.02 on account of Proven Reserves
attributable to Oil and Gas Properties of the Borrower and the Guarantors
described in the most recent Independent Engineering Report or Internal
Engineering Report, as applicable, delivered to the Agent and the Banks
pursuant to Section 2.02.

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

"CARLTON" means Carlton Resources Corporation, a Delaware corporation.

"CARLTON ACQUISITION DOCUMENTS" means the Carlton Purchase Agreement and
each other material agreement, instrument, or document executed at any time in
connection with the foregoing documents.

"CAPITAL EXPENDITURES" means, for the Borrower and the Guarantors for any
period, the aggregate of all expenditures and costs paid by the Borrower and
the Guarantors during such period that are for items which are capital in
nature, including, without limitation, intangible drilling and development
expenditures.

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

"CASH COLLATERAL ACCOUNT" means a special interest bearing cash collateral
account pledged by the Borrower to the Agent for the ratable benefit of the
Banks containing cash deposited pursuant to Sections 2.05(b), 7.02(b), or
7.03(b) to be maintained at the Agent's office in accordance with
Section 2.07(g) and bear interest or be invested in the Agent's

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<PAGE>

reasonable discretion.

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

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

"COLLATERAL" means (a) all Collateral (as defined in each of the
Mortgages, the Security Agreements, and the Pledge Agreement) and (b) all
amounts contained in the Borrower's and the Guarantors' bank accounts.

"COMPLIANCE CERTIFICATE" means a compliance certificate in the form of the
attached EXHIBIT B signed by a Responsible Officer of the Borrower.

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

"CONVERT," "CONVERSION," and "CONVERTED" each refers to a conversion of
Revolving Advances of one Type into Revolving Advances of another Type pursuant
to Section 2.03(b).

"CREDIT DOCUMENTS" means this Agreement, the Notes, the Letter of Credit
Documents, the Guaranties, the Security Documents, any Interest Hedge
Agreements with a Bank, any Hydrocarbon Hedge Agreements with a Bank, and each
other agreement, instrument, or document executed at any time in connection
with the foregoing documents.

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

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

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

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

(e) obligations of such person under any Interest Hedge Agreement or

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<PAGE>

Hydrocarbon Hedge Agreement;

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

(g) any obligations in connection with any volumetric or production
prepayments;

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

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

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

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

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

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

"EBITDA" means, for the Borrower and the Guarantors for any period,
(a) Net Income for the Borrower and the Guarantors for such period PLUS (b) to
the extent deducted in determining Net Income, Interest Expense, taxes, and
depreciation and amortization for such period.

"EFFECTIVE DATE" means the date on which the conditions set forth in
Section 3.01 are satisfied.

"ELIGIBLE ASSIGNEE" means any commercial bank or other financial
institution approved by the Agent in its sole discretion.

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<PAGE>

"ENGINEERING REPORT" means either an Independent Engineering Report or an
Internal Engineering Report.

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

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

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

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

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

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

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

"EURODOLLAR RATE" means, for the Interest Period for each Eurodollar
Advance comprising part of the same Revolving Borrowing, an interest rate per
annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum)
equal to the rate per annum at which deposits in Dollars are offered by the Los
Angeles office of the Agent to prime banks in the London interbank market at
11:00 a.m. (London time) two Business Days before

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<PAGE>

the first day of such Interest Period in an amount substantially equal to the
Agent's Eurodollar Rate Advance comprising part of such Revolving Borrowing
and for a period equal to such Interest Period.

"EURODOLLAR RATE ADVANCE" means a Revolving Advance which bears interest
as provided in Section 2.09(b).

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

"EVENT OF DEFAULT" has the meaning specified in Section 7.01.

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

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

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

"FINANCIAL STATEMENTS" means the Partnership's audited balance sheet and
statements of income, retained earnings, and cash flow dated December 31, 1996
and the Partnership, the Borrower, Old RBOC and Gulf States' unaudited combined
balance sheet and statements of income, retained earnings, and cash flow dated
September 30, 1997 referred to in Section 4.05, copies of which have been
delivered to the Agent and the Banks.

"GAAP" means United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent with the requirements
of Section 1.03.

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<PAGE>

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

"GUARANTORS" means Gulf States, RBOC, Carlton, Magic Circle Energy
Corporation, a Delaware corporation, Carmen Field Limited Partnership, an
Oklahoma limited partnership, Carmen Development Corp., an Oklahoma
corporation, Magic Circle Acquisition Corp., an Oklahoma corporation, and any
other Person who executes and delivers a Guaranty.

"GUARANTIES" means the Guaranties each in substantially the form of the
attached EXHIBIT C and executed by a Guarantor.

"GULF STATES" means RLP Gulf States, L.L.C., an Oklahoma limited liability
company.

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

"HAZARDOUS WASTE" means the substances regulated as such pursuant to any
Environmental Law.

"HYDROCARBON HEDGE AGREEMENT" means a swap, collar, floor, cap, option,
forward sale or purchase or other contract (including sales contracts with
known prices) which is intended to reduce or eliminate the risk of fluctuations
in the price of the Hydrocarbons.

"HYDROCARBONS" means oil, gas, coal seam gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, and all other liquid and
gaseous hydrocarbons produced or to be produced in conjunction therewith from a
well bore and all products, by-products, and other substances derived therefrom
or the processing thereof, and all other minerals and substances produced in
conjunction with such substances, including, but not limited to, sulfur,
geothermal steam, water, carbon dioxide, helium, and any and all minerals,
ores, or substances of value and the products and proceeds therefrom.

"INDENTURE" means the Indenture among the Borrower, the Subsidiaries of
the Borrower party thereto and United States Trust Company of New York, which
indenture governs the terms and provisions of the Senior Notes.

"INDEPENDENT ENGINEER" means Forrest A. Garb and Associates or any other
engineering firm that the Borrower may engage with the Agent's consent, such
consent not

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<PAGE>

to be unreasonably withheld.

"INDEPENDENT ENGINEERING REPORT" means a report, in form and substance
satisfactory to the Agent and each of the Banks, prepared by an Independent
Engineer, addressed to the Agent and the Banks with respect to the Oil and Gas
Properties owned by the Borrower and the Guarantors (or to be acquired by the
Borrower and the Guarantors, as applicable) which are or are to be included in
the Borrowing Base, which report shall (a) specify the location, quantity, and
type of the estimated Proven Reserves attributable to such Oil and Gas
Properties, (b) contain a projection of the rate of production of such Oil and
Gas Properties, (c) contain an estimate of the net operating revenues to be
derived from the production and sale of Hydrocarbons from such Proven Reserves
based on product price and cost escalation assumptions specified by the Agent,
and (d) contain such other information as is customarily obtained from and
provided in such reports or is otherwise reasonably requested by the Agent or
any Bank.

"INTEREST EXPENSE" means, for the Borrower and the Guarantors for any
period, total interest, letter of credit fees, and other fees incurred in
connection with any Debt for such period, whether paid or accrued, including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under Interest Hedge Agreements and Hydrocarbon Hedge Agreements, all as
determined in conformity with GAAP.

"INTEREST HEDGE AGREEMENT" means an interest hedge, rate swap, or cap, or
similar arrangement between the Borrower and one or more financial institutions
providing for the exchange of nominal interest obligations between the Borrower
and such financial institution or the cap of the interest rate on any Debt of
the Borrower.

"INTEREST PERIOD" means, for each Eurodollar Rate Advance comprising part
of the same Revolving Borrowing, the period commencing on the date of such
Advance or the date of the Conversion of any Reference Rate Advance into such
an Advance and ending on the last day of the period selected by the Borrower
pursuant to the provisions below or by Section 2.03 and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the
Borrower pursuant to the provisions below or by Section 2.03. The duration of
each such Interest Period shall be one, two, three, or six months, in each case
as the Borrower may, upon notice received by the Agent not later than
10:00 a.m. (Los Angeles California time) on the third Business Day prior to the
first day of such Interest Period select; PROVIDED, HOWEVER, that:

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

(b) Interest Periods commencing on the same date for Revolving Advances

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<PAGE>

comprising part of the same Revolving Borrowing shall be of the same duration;

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

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

"INTERNAL ENGINEERING REPORT" means a report, in form and substance
satisfactory to the Agent and each Bank, prepared by the Borrower and certified
by a Responsible Officer of the Borrower, addressed to the Agent and the Banks
with respect to the Oil and Gas Properties owned by the Borrower and the
Guarantors (or to be acquired by the Borrower and the Guarantors, as
applicable) which are or are to be included in the Borrowing Base, which report
shall (a) specify the location, quantity, and type of the estimated Proven
Reserves attributable to such Oil and Gas Properties, (b) contain a projection
of the rate of production of such Oil and Gas Properties, (c) contain an
estimate of the net operating revenues to be derived from the production and
sale of Hydrocarbons from such Proven Reserves based on product price and cost
escalation assumptions specified by the Bank, and (d) contain such other
information as is customarily obtained from and provided in such reports or is
otherwise reasonably requested by the Agent or any Bank.

"INTERIM FINANCIAL STATEMENTS" means the Partnership's unaudited balance
sheet dated as of September 30, 1997 and the Partnership, the Borrower, Old
RBOC and Gulf States' combined unaudited balance sheet dated as of September
30, 1997 and the related statements of income, retained earnings, and cash flow
of the Partnership, the Borrower, Old RBOC and Gulf States for the nine months
then ended, referred to in Section 4.05.

"ISSUING BANK" means Union Bank of California, N.A. and any successor
issuing bank pursuant to Section 8.06.

"LEASES" means all oil and gas leases, oil, gas and mineral leases, oil,
gas and casinghead leases or any other instruments, agreements, or conveyances
under and pursuant to which the owner thereof has or obtains the right to enter
upon lands and explore for, drill, and develop such lands for the production of
Hydrocarbons.

"LEGAL REQUIREMENT" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms

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<PAGE>

of any license or permit issued by, any Governmental Authority, including,
but not limited to, Regulations D, G, T, U, and X.

"LETTER OF CREDIT" means, individually, any letter of credit issued by the
Issuing Bank which is subject to this Agreement and "LETTERS OF CREDIT" means
all such letters of credit collectively.

"LETTER OF CREDIT APPLICATION" means the Issuing Bank's standard form
letter of credit application for either a commercial or standby letter of
credit, as the case may be, which has been executed by the Borrower and
accepted by the Issuing Bank in connection with the issuance of a Letter of
Credit.

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

"LETTER OF CREDIT EXPOSURE" means, at any time, the sum of (a) the
aggregate undrawn maximum face amount of each Letter of Credit at such time,
PLUS (b) the aggregate unpaid amount of all Reimbursement Obligations at such
time.

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

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

"LIQUID INVESTMENTS" means:

(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States maturing within
180 days from the date of any acquisition thereof;

(b) (i) negotiable or nonnegotiable certificates of deposit, time
deposits, or other similar banking arrangements maturing within 180 days from
the date of acquisition thereof ("bank debt securities"), issued by (A) the
Agent or (B) any other bank or trust company so long as such certificate of
deposit is pledged to secure the Borrower or any Guarantors ordinary course of
business bonding requirements, or any other bank or trust company which has
primary capital of not less than $500,000,000.00, if at the time of deposit or
purchase, such bank debt securities are rated not less than "AA" (or the then
equivalent) by the rating service of Standard & Poor's Corporation or of
Moody's Investors Service, Inc., and

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(ii) commercial paper issued by (A) the Agent or (B) any other Person if at
the time of purchase such commercial paper is rated not less than "A-1" (or
the then equivalent) by the rating service of Standard & Poor's Corporation
or not less than "P-1" (or the then equivalent) by the rating service of
Moody's Investors Service, Inc., or upon the discontinuance of both of such
services, such other nationally recognized rating service or services, as the
case may be, as shall be selected by the Borrower with the consent of the
Agent;

(c) repurchase agreements relating to investments described in clauses
(a) and (b) above with a market value at least equal to the consideration paid
in connection therewith, with any Person who regularly engages in the business
of entering into repurchase agreements and has a combined capital surplus and
undivided profit of not less than $500,000,000.00, if at the time of entering
into such agreement the debt securities of such Person are rated not less than
"AA" (or the then equivalent) by the rating service of Standard & Poor's
Corporation or of Moody's Investors Service, Inc.; and

(d) such other instruments (within the meaning of Article 9 of the Texas
Business and Commerce Code) as the Borrower may request and the Agent may
approve in writing, which approval will not be unreasonably withheld.

"MAJORITY BANKS" means, at any time, Banks holding at least 66-2/3% of the
then aggregate unpaid principal amount of the Notes held by the Banks and the
Letter of Credit Exposure of the Banks at such time; provided that if no such
principal amount or Letter of Credit Exposure is then outstanding, "Majority
Banks" shall mean Banks having at least 66-2/3% of the aggregate amount of the
Revolving Commitments at such time.

"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the
business, assets (including the Oil and Gas Properties of the Borrower and the
Guarantors), financial condition, or results of operations of the Borrower or
any Guarantor or (b) a material adverse effect on the Borrower's or any
Guarantor's ability to perform its obligations under this Agreement, any Note,
any Guaranty, or any other Credit Document.

"MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law.

"MORTGAGES" means, collectively, each of the Mortgages, Deeds of Trust,
Security Agreements, Assignments of Production and Financing Statements
executed by any one or more of the Borrower or any of the Guarantors in favor
of the Agent for the ratable benefit of the Agent and the Banks, as the same
may be amended, modified or supplemented from time-to-time, together with any
assumptions or assignments of the obligations thereunder by the Borrower or any
Guarantor, in substantially the form of the attached EXHIBIT D.

"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in

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Section 4001(a)(3) of ERISA.

"NET INCOME" means, for any Person and for any period of its
determination, the net income of such Person determined in accordance with GAAP
consistently applied, but excluding any gains and losses on sales and
retirements of assets and any noncash write-down of assets.

"NOTE" means a promissory note of the Borrower payable to the order of any
Bank, in substantially the form of the attached EXHIBIT H, evidencing
indebtedness of the Borrower to such Bank resulting from Revolving Advances
owing to such Bank.

"NOTICE OF BORROWING" means a notice of borrowing in the form of the
attached EXHIBIT E signed by a Responsible Officer of the Borrower.

"NOTICE OF CONVERSION OR CONTINUATION" means a notice of conversion or
continuation in the form of the attached EXHIBIT F signed by a Responsible
Officer of the Borrower.

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

"OIL AND GAS PROPERTIES" means fee mineral interests, term mineral
interests, Leases, subleases, farm-outs, royalties, overriding royalties, net
profit interests, carried interests, production payments and similar mineral
interests, and all unsevered and unextracted Hydrocarbons in, under, or
attributable to such oil and gas Properties and interests.

"OLD RBOC" means RB Operating Company, an Oklahoma corporation.

"PARTNERSHIP" means RAMCO-NYL 1987 Limited Partnership, a Texas limited
partnership.

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

"PERMITTED LIENS" means the Liens permitted to exist pursuant to
Section 6.01.

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

"PLAN" means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of the Borrower or any member of the Controlled Group
and

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covered by Title IV of ERISA or subject to the minimum funding standards
under Section 412 of the Code.

"PLEDGE AGREEMENT" means the Second Amended and Restated Pledge Agreement
in the form of the attached EXHIBIT G, executed by the Borrower, as the same
may be amended, modified or supplemented from time to time.

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

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

"PROVED DEVELOPED PRODUCING RESERVES" means, with respect to any Oil and
Gas Properties, those quantities of Hydrocarbons, estimated with reasonable
certainty, as demonstrated by geological and engineering data, to be
economically recoverable from such Oil and Gas Properties by producing methods
under existing economic conditions using existing equipment and operating
methods from existing completion intervals open for production in existing
wells which shall have had at least 30 days of continuous production.

"PROVEN RESERVES" means, at any particular time, the estimated quantities
of Hydrocarbons which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
attributable to Oil and Gas Properties included or to be included in the
Borrowing Base under then existing economic and operating conditions (i.e.,
prices and costs as of the date the estimate is made). The prices used may
include consideration of changes in existing prices provided only by
contractual arrangements, but not on escalations based upon future conditions.

"RBOC" means RB Operating Company, a Delaware corporation and a
wholly-owned subsidiary of the Borrower, formerly known as RLP Operating
Company.

"REFERENCE RATE" means a fluctuating interest rate per annum as shall be
in effect from time to time equal to the rate of interest publicly announced by
Union Bank of California, N.A., as its reference rate, whether or not the
Borrower has notice thereof.

"REFERENCE RATE ADVANCE" means a Revolving Advance which bears interest as
provided in Section 2.09(a).

"REGISTER" has the meaning set forth in paragraph (c) of Section 9.06.

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

"REIMBURSEMENT OBLIGATIONS" means all of the obligations of the Borrower
to reimburse the Issuing Bank for amounts paid by the Issuing Bank under
Letters of Credit as established by the Letter of Credit Applications and
Section 2.07(d).

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

"RENTAL EXPENSE" means, for any period, all amounts payable by the
Borrower and the Guarantors during such period under any lease, sublease, or
other instrument (other than a Capital Lease) pursuant to which the Borrower or
any of the Guarantors is entitled to use any Property of another Person, all as
determined in accordance with GAAP.

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

"RESPONSIBLE OFFICER" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, or Vice President.

"RESTRICTED PAYMENT" means, with respect to any Person, (a) any dividends
or other distributions (in cash, property, or otherwise) on, or any payment for
the purchase, redemption, or other acquisition of, any shares of any capital
stock or other equity interests (including partnership interests) of such
Person, other than dividends payable in such Person's stock or other equity
interests or (b) principal or interest payments (in cash, property or
otherwise) on or redemptions of subordinated debt of such Person.

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

"REVOLVING BORROWING" means, subject to Sections 2.03(c)(iii) and 2.05(e),
a borrowing consisting of simultaneous Revolving Advances of the same Type made
by each Bank pursuant to Section 2.03(a), continued by each Bank pursuant to
Section 2.03(b), or Converted by each Bank to Revolving Advances of a different
Type pursuant to Section 2.03(b).

"REVOLVING COMMITMENT" means, for any Bank, the amount set opposite such
Bank's name on the signature pages hereof as its Revolving Commitment, or if
such Bank has entered into any Assignment and Acceptance, as set forth for such
Bank as its Revolving Commitment in the Register maintained by the Agent
pursuant to Section 9.06(c), as such amount may be reduced or terminated
pursuant to Section 2.04 or Article VII.

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"REVOLVING MATURITY DATE" means the earlier of (a) February 2, 2003 or
(b) the earlier termination in whole of the Revolving Commitments pursuant to
Section 2.04 or Article VII.

"SECURITY AGREEMENTS" means the Second Amended and Restated Security
Agreements, each in substantially the form of the attached Exhibit I, one
executed by each of the Borrower and each of the Guarantors, as the same may be
amended, modified, or supplemented from time to time.

"SECURITY DOCUMENTS" means, collectively, (a) the Mortgages, (b) the
Transfer Letters, (c) the Pledge Agreement, (d) the Security Agreements and the
bank account letters in the form of Exhibit A to the Security Agreements,
(e) each other agreement, instrument or document executed at any time in
connection with the Pledge Agreement, the Security Agreements, or the
Mortgages, and (e) each other agreement, instrument or document executed at any
time in connection with securing the Obligations.

"SOLVENT" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including contingent liabilities, of such Person,
(b) the present fair saleable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person is
able to realize upon its assets and pay its debts and other liabilities,
contingent obligations, and other commitments 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 after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and
the prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.

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

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

"TRANSFER LETTERS" means, collectively, the letters in lieu of transfer
orders executed by the Borrower and any of the Guarantors executing a Mortgage
in the form of the attached EXHIBIT J, as each of the same may be amended,
modified or supplemented from time-to-time.

"TYPE" has the meaning set forth in Section 1.04.

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

Section 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".

Section 1.03. ACCOUNTING TERMS; CHANGES IN GAAP.

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

(b) Unless otherwise indicated, all financial statements of the Borrower,
all calculations for compliance with covenants in this Agreement and all
calculations of any amounts to be calculated under the definitions in
Section 1.01 shall be based upon the consolidated accounts of the Borrower and
the Guarantors in accordance with GAAP (or in compliance with the regulations
promulgated by the United States Securities and Exchange Commission regarding
financial reporting) and consistent with the principles applied in preparing
the Financial Statements.

Section 1.04. TYPES OF ADVANCES. Revolving Advances are distinguished by
"Type." The "Type" of a Revolving Advance refers to the determination whether
such

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Revolving Advance is a Eurodollar Rate Advance or Reference Rate Advance.

Section 1.05. MISCELLANEOUS. Article, Section, Schedule, and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.

ARTICLE II

CREDIT FACILITIES

Section 2.01. COMMITMENT FOR REVOLVING ADVANCES.

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

(b) NOTES. The indebtedness of the Borrower to each Bank resulting from
the Revolving Advances owing to such Bank shall be evidenced by a Note of the
Borrower payable to the order of such Bank.

Section 2.02. BORROWING BASE.

(a) BORROWING BASE. The Borrowing Base as of the Effective Date has been
set by the Agent and the Banks and acknowledged by the Borrower as
$25,000,000.00.

(b) CALCULATION OF BORROWING BASE.

(i) The Borrower shall deliver to the Agent and each of the Banks on
or before each March 31, beginning March 31, 1999, an Independent
Engineering Report and such other information as may be reasonably
requested by any Bank with

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respect to the Oil and Gas Properties included or to be included in the
Borrowing Base. Within 30 days after the Agent and the Banks' receipt of
such Independent Engineering Report and other information, the Agent shall
deliver to each Bank the Agent's recommendation for the redetermined
Borrowing Base. Within 15 days after the Banks' receipt of the Agent's
recommendation, the Agent and the Banks shall redetermine the Borrowing
Base in accordance with Section 2.02(d) and the Agent shall promptly notify
the Borrower in writing of the amount of the Borrowing Base as so
redetermined.

(ii) The Borrower shall deliver to the Agent and each Bank on or
before each September 30, beginning September 30, 1998, an Internal
Engineering Report and such other information as may be reasonably
requested by the Agent or any Bank with respect to the Oil and Gas
Properties included or to be included in the Borrowing Base. Within 30
days after the Agent and the Banks' receipt of such Internal Engineering
Report and other information, the Agent shall deliver to each Bank the
Agent's recommendation for the redetermined Borrowing Base. Within 15
days after the Banks' receipt of the Agent's recommendation, the Agent and
the Banks shall redetermine the Borrowing Base in accordance with Section
2.02(d) and the Agent shall promptly notify the Borrower in writing of the
amount of the Borrowing Base as so redetermined.

(iii) In the event that the Borrower does not furnish to the Agent and
the Banks the Independent Engineering Report, Internal Engineering Report
or other information specified in clauses (i) and (ii) above by the date
specified therein, the Agent and the Banks may nonetheless redetermine the
Borrowing Base and redesignate the Borrowing Base from time-to-time
thereafter in their sole discretion until the Agent and the Banks receive
the relevant Independent Engineering Report, Internal Engineering Report,
or other information, as applicable, whereupon the Agent and the Banks
shall redetermine the Borrowing Base as otherwise specified in this
Section 2.02.

(iv) Each delivery of an Engineering Report by the Borrower to the
Agent and the Banks shall constitute a representation and warranty by the
Borrower to the Agent and the Banks that (A) the Borrower and the
Guarantors, as applicable owns the Oil and Gas Properties specified
therein free and clear of any Liens (except Permitted Liens), and (B) on
and as of the date of such Engineering Report each Oil and Gas Property
described as "proved developed" therein was developed for oil and gas, and
the wells pertaining to such Oil and Gas Properties that are described
therein as producing wells ("WELLS"), were each producing oil and gas in
paying quantities, except for Wells that were unitized as water or gas
injection wells or as water disposal wells.

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provided for in Section 2.02(b), the Agent and the Banks may, either in their
sole discretion or at the request of the Borrower and based on such
information as the Agent and the Banks deem relevant (but in accordance with
Section 2.02(d)), make one additional redetermination of the Borrowing Base
during any six-month period. The party requesting the redetermination shall
give the other party at least 10 days' prior written notice that a
redetermination of the Borrowing Base pursuant to this paragraph (c) is to be
performed. In connection with any redetermination of the Borrowing Base
under this Section 2.02(c), the Borrower shall provide the Agent and the
Banks with such information regarding the Borrower and the Guarantors'
business (including, without limitation, its Oil and Gas Properties, the
Proven Reserves, and production relating thereto) as the Agent or any Bank
may request, including, in the case of requests for an increase to the
Borrowing Base of $1,000,000.00 or more, an updated Independent Engineering
Report. The Agent shall promptly notify the Borrower in writing of each
redetermination of the Borrowing Base pursuant to this Section 2.02(c) and
the amount of the Borrowing Base as so redetermined.

(d) STANDARDS FOR REDETERMINATION. Each redetermination of the Borrowing
Base by the Agent and the Banks pursuant to this Section 2.02 shall be made (i)
in the sole discretion of the Agent and the Banks (but in accordance with the
other provisions of this Section 2.02(d)), (ii) in accordance with the Agent
and the Banks' customary internal standards and practices for valuing and
redetermining the value of Oil and Gas Properties in connection with reserve
based oil and gas loan transactions, (iii) in conjunction with the most recent
Independent Engineering Report or Internal Engineering Report, as applicable,
or other information received by the Agent and the Banks relating to the Proven
Reserves of the Borrower and the Guarantors, and (iv) based upon the estimated
value of the Proven Reserves owned by the Borrower and the Guarantors as
determined by the Agent and the Banks. In valuing and redetermining the
Borrowing Base, the Agent and the Banks may also consider the business,
financial condition, and Debt obligations of the Borrower and the Guarantors
and such other factors as the Agent and the Banks customarily deem appropriate.
In that regard, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is essential for the adequate protection of the Agent and the
Banks. No Proven Reserves shall be included or considered for inclusion in the
Borrowing Base unless the Agent and the Banks shall have received, at the
Borrower's expense, evidence of title satisfactory in form and substance to the
Agent that the Agent has an Acceptable Security Interest in the Oil and Gas
Properties relating thereto pursuant to the Security Documents. At all times
after the Bank has given the Borrower notification of a redetermination of the
Borrowing Base under this Section 2.02, the Borrowing Base shall be equal to
the redetermined amount or such lesser amount designated by the Borrower and
disclosed in writing to the Agent and the Banks until the Borrowing Base is
subsequently redetermined in accordance with this Section 2.02.

(e) ASSET SALES. The Borrowing Base shall automatically reduce by the
loan value assigned to each Oil and Gas Property in the Borrowing Base (as
determined by the Banks in their sole discretion) and sold by the Borrower or
any of the Guarantors to a Person

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other than the Borrower or any of the Guarantors.

Section 2.03. METHOD OF BORROWING.

(a) NOTICE. Each Revolving Borrowing shall be made pursuant to a Notice
of Borrowing (or by telephone notice promptly confirmed in writing by a Notice
of Borrowing), given not later than 10:00 a.m. (Los Angeles, California, time)
(i) on the third Business Day before the date of the proposed Revolving
Borrowing, in the case of a Eurodollar Rate Borrowing or (ii) on the Business
Day of the proposed Revolving Borrowing, in the case of a Reference Rate
Borrowing, by the Borrower to the Agent, which shall in turn give to each Bank
prompt notice of such proposed Revolving Borrowing by telecopier or telex.
Each Notice of a Borrowing shall be given by telecopier or telex, confirmed
immediately in writing, specifying the information required therein. In the
case of a proposed Revolving Borrowing comprised of Eurodollar Rate Advances,
the Agent shall promptly notify each Bank of the applicable interest rate under
Section 2.09(b). Each Bank shall, before 10:00 a.m. (Los Angeles, California,
time) on the date of such Revolving Borrowing, make available for the account
of its Applicable Lending Office to the Agent at its address referred to in
Section 9.02, or such other location as the Agent may specify by notice to the
Banks, in same day funds, in the case of a Revolving Borrowing, such Bank's Pro
Rata Share of such Revolving Borrowing. After the Agent's receipt of such
funds and upon fulfillment of the applicable conditions set forth in
Article III, the Agent shall make such funds available to the Borrower at its
account with the Agent.

(b) CONVERSIONS AND CONTINUATIONS. The Borrower may elect to Convert or
continue any Revolving Borrowing under this Section 2.03 by delivering an
irrevocable Notice of Conversion or Continuation to the Agent at the Agent's
office no later than 10:00 a.m. (Los Angeles, California, time) (i) on the date
which is at least three Business Days in advance of the proposed Conversion or
continuation date in the case of a Conversion to or a continuation of a
Revolving Borrowing comprised of Eurodollar Rate Advances and (ii) on the
Business Day of the proposed conversion date in the case of a Conversion to a
Revolving Borrowing comprised of Reference Rate Advances. Each such Notice of
Conversion or Continuation shall be in writing or by telex or telecopier
confirmed immediately in writing specifying the information required therein.
Promptly after receipt of a Notice of Conversion or Continuation under this
Section, the Agent shall provide each Bank with a copy thereof and, in the case
of a Conversion to or a Continuation of a Revolving Borrowing comprised of
Eurodollar Rate Advances, notify each Bank of the applicable interest rate
under Section 2.09(b).

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(i) at no time shall there be more than three Interest Periods
applicable to outstanding Eurodollar Rate Advances and the Borrower may
not select Eurodollar Advances for any Revolving Borrowing at any time
that a Default has occurred and is continuing;

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

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

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

(v) if the Borrower shall fail to select the duration or
continuation of any Interest Period for any Eurodollar Rate Advances in
accordance with the provisions contained in the definition of "Interest
Period" in Section 1.01 and paragraph (b) above, the Agent shall forthwith
so notify the Borrower and the Banks and such

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Revolving Advances shall be made available to the Borrower on the date of
such Revolving Borrowing as Reference Rate Advances or, if an existing
Revolving Advance, Convert into Reference Rate Advances.

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

(e) AGENT RELIANCE. Unless the Agent shall have received notice from a
Bank before the date of any Revolving Borrowing that such Bank shall not make
available to the Agent such Bank's Pro Rata Share of a Revolving Borrowing, the
Agent may assume that such Bank has made its Pro Rata Share of such Revolving
Borrowing available to the Agent on the date of such Revolving Borrowing in
accordance with paragraph (a) of this Section 2.03 and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made its Pro Rata Share of such Revolving Borrowing available to the Agent,
such Bank and the Borrower severally agree to immediately repay to the Agent on
demand such corresponding amount, together with interest on such amount, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid to the Agent, at (i) in the case of the Borrower,
the interest rate applicable on such day to Revolving Advances comprising such
Revolving Borrowing and (ii) in the case of such Bank, the Federal Funds Rate
for such day. If such Bank shall repay to the Agent such corresponding amount
and interest as provided above, such corresponding amount so repaid shall
constitute such Bank's Revolving Advance as part of such Revolving Borrowing
for purposes of this Agreement even though not made on the same day as the
other Revolving Advances comprising such Revolving Borrowing.

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

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Section 2.04. REDUCTION OF THE REVOLVING COMMITMENT.

(a) The Borrower shall have the right, upon at least three Business Days'
irrevocable notice to the Agent, to terminate in whole or reduce ratably in
part the unused portion of the Revolving Commitments; PROVIDED that each
partial reduction shall be in the aggregate amount of $1,000,000.00 or an
integral multiple of $1,000,000.00.

(b) Any reduction and termination of the Revolving Commitments pursuant
to this Section 2.04 shall be applied ratably to each Bank's Revolving
Commitment and shall be permanent, with no obligation of the Banks to reinstate
such Revolving Commitments.

Section 2.05. PREPAYMENT OF REVOLVING ADVANCES.

(a) OPTIONAL. The Borrower may prepay Revolving Advances, after giving
by 10:00 a.m. (Los Angeles, California, time) (i) in the case of Eurodollar
Rate Advances, at least two Business Days' or (ii) in case of Reference Rate
Advances, same Business Day's, irrevocable prior written notice to the Agent
stating the proposed date and aggregate principal amount of such prepayment.
If any such notice is given, the Borrower shall prepay Revolving Advances in
whole or ratably in part in an aggregate principal amount equal to the amount
specified in such notice, together with accrued interest to the date of such
prepayment on the principal amount prepaid and amounts, if any, required to be
paid pursuant to Section 2.12 as a result of such prepayment being made on such
date; PROVIDED, however, that each partial prepayment with respect to: (a) any
Revolving Advances shall be applied to Revolving Advances comprising part of
the same Revolving Borrowing; (B) any Reference Rate Advances shall be made in
$500,000.00 multiples and with respect to Revolving Advances only, in an
aggregate principal amount such that after giving effect thereto such Revolving
Borrowing shall have a principal amount outstanding of at least $1,000,000.00
and (C) any Revolving Borrowing comprised of Eurodollar Rate Advances shall be
made in $1,000,000.00 multiples and in an aggregate principal amount such that
after giving effect thereto such Revolving Borrowing shall have a principal
amount outstanding of at least $2,000,000.00. Full prepayments of any
Revolving Borrowing are permitted without restriction of amounts.

(b) BORROWING BASE DEFICIENCY. If the aggregate outstanding amount of
Revolving Advances plus the Letter of Credit Exposure ever exceeds the
Borrowing Base, the Borrower shall after receipt of written notice from the
Agent, take one of the following actions to remedy the Borrowing Base
deficiency:

(i) prepay Revolving Advances or, if the Revolving Advances have
been repaid in full, make deposits into the Cash Collateral Account to
provide cash collateral for the Letter of Credit Exposure, such that the
Borrowing Base deficiency is cured within 10 days after the date such
notice is received;

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(ii) pledge as Collateral for the Obligations additional Oil and Gas
Properties acceptable to the Agent and each of Banks such that the
Borrowing Base deficiency is cured within 30 days after the date such
notice is received; or

(iii) repay the Revolving Advances and make deposits into the Cash
Collateral Account to provide cash collateral for the Letters of Credit,
each in six monthly installments equal to one-sixth of such Borrowing Base
deficiency with the first such installment due 30 days after the date such
notice is received and each following installment due 30 days after the
preceding installment.

Each prepayment pursuant to this Section 2.05(b) shall be accompanied by
accrued interest on the amount prepaid to the date of such prepayment and
amounts, if any, required to be paid pursuant to Section 2.12 as a result of
such prepayment being made on such date. Each prepayment under clauses (i) and
(iii) of this Section 2.05(b) shall be applied to the Revolving Advances as
determined by the Agent and agreed to by the Banks in their sole discretion.

(c) REDUCTION OF REVOLVING COMMITMENTS. On the date of each reduction of
the aggregate Revolving Commitments pursuant to Section 2.04, the Borrower
agrees to make a prepayment in respect of the outstanding amount of the
Revolving Advances to the extent, if any, that the aggregate unpaid principal
amount of all Revolving Advances exceeds the Revolving Commitments, as so
reduced. Each prepayment pursuant to this Section 2.05(c) shall be accompanied
by accrued interest on the amount prepaid to the date of such prepayment and
amounts, if any, required to be paid pursuant to Section 2.12 as a result of
such prepayment being made on such date.

(d) ILLEGALITY. If any Bank shall notify the Agent and the Borrower that
the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other Governmental
Authority asserts that it is unlawful for such Bank or its Eurodollar Lending
Office to perform its obligations under this Agreement to maintain any
Eurodollar Rate Advances of such Bank then outstanding hereunder, (i) the
Borrower shall, no later than 10:00 a.m. (Los Angeles, California, time) (A) if
not prohibited by law, on the last day of the Interest Period for each
outstanding Eurodollar Rate Advance made by such Bank or (B) if required by
such notice, on the second Business Day following its receipt of such notice
prepay all of the Eurodollar Rate Advances of made by such Bank then
outstanding, together with accrued interest on the principal amount prepaid to
the date of such prepayment and amounts, if any, required to be paid pursuant
to Section 2.12 as a result of such prepayment being made on such date,
(ii) such Bank shall simultaneously make a Reference Rate Advance to the
Borrower on such date in an amount equal to the aggregate principal amount of
the Eurodollar Rate Advances prepaid to such Bank, and (iii) the right of the
Borrower to select Eurodollar Rate Advances from such Bank for any subsequent
Revolving Borrowing shall be suspended until such Bank gives notice referred to
above shall notify the Agent that the circumstances causing such

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suspension no longer exist.

(e) NO ADDITIONAL RIGHT; RATABLE PREPAYMENT. The Borrower shall have no
right to prepay any principal amount of any Revolving Advance except as
provided in this Section 2.05, and all notices given pursuant to this Section
2.05 shall be irrevocable and binding upon the Borrower. Each payment of any
Revolving Advance pursuant to this Section 2.05 shall be made in a manner such
that all Revolving Advances comprising part of the same Revolving Borrowing are
paid in whole or ratably in part.

Section 2.06. REPAYMENT OF REVOLVING ADVANCES. The Borrower shall repay
to the Agent for the ratable benefit of the Banks the outstanding principal
amount of each Revolving Advance on the Revolving Maturity Date.

Section 2.07. LETTERS OF CREDIT.

(a) COMMITMENT. From time to time from the Effective Date until the
Revolving Maturity Date, at the request of the Borrower, the Issuing Bank
shall, on the terms and conditions hereinafter set forth, issue, increase, or
extend the expiration date of Letters of Credit for the account of the Borrower
on any Business Day. No Letter of Credit shall be issued, increased, or
extended:

(i) unless such issuance, increase, or extension would not cause the
Letter of Credit Exposure to exceed the lesser of (A) $5,000,000.00 or
(B) the lesser of (1) the aggregate Revolving Commitments LESS the
aggregate outstanding principal amount of all Revolving Advances and (2)
the Borrowing Base LESS the aggregate outstanding principal amount of all
Revolving Advances;

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

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

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

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

(b) PARTICIPATIONS. Upon the date of the issuance or increase of a
Letter of Credit,

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

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

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

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

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

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

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

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

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

PROVIDED, HOWEVER, that nothing contained in this paragraph (e) shall be deemed
to constitute a waiver of any remedies of the Borrower in connection with the
Letters of Credit or the Borrower's rights under Section 2.07(f) below.

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

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

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

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

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<PAGE>

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

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

(g) CASH COLLATERAL ACCOUNT.

(i) If the Borrower is required to deposit funds in the Cash
Collateral Account pursuant to Sections 2.05(b), 7.02(b), or 7.03(b), then
the Borrower and the Agent shall establish the Cash Collateral Account and
the Borrower shall execute any documents and agreements, including the
Agent's standard form assignment of deposit accounts, that the Agent
requests in connection therewith to establish the Cash Collateral Account
and grant the Agent a first priority security interest in such account and
the funds therein. The Borrower hereby pledges to the Agent and grants
the Agent a security interest in the Cash Collateral Account, whenever
established, all funds held in the Cash Collateral Account from time to
time, and all proceeds thereof as security for the payment of the
Obligations.

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

(iii) The Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially

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equivalent to that which the Agent accords its own property, it being
understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any
such funds.

Section 2.08. FEES.

(a) COMMITMENT FEES.

(i) The Borrower agrees to pay to the Agent for the account of each
Bank a commitment fee on the average daily amount by which (A) such Bank's
Pro Rata Share of the Borrowing Base exceeds (B) the sum of (1) such
Bank's outstanding Revolving Advances and (2) such Bank's Pro Rata Share
of the Letter of Credit Exposure, from the Effective Date until the
Revolving Maturity Date. The commitment fee shall be equal to the
following percentages per annum based upon the ratio of (A) the aggregate
outstanding amount of Revolving Advances PLUS the Letter of Credit
Exposure on such day to (B) the Borrowing Base as of such day:
<TABLE>
Ratio of Outstanding
Revolving Advances PLUS
Letter of Credit Exposure to
BORROWING BASE COMMITMENT FEE PERCENTAGE
-------------- -------------------------
<S> <C>
< .50 0.25%
>- .50 and < - .75 0.30%
> .75 0.35%
</TABLE>
(ii) The commitment fees shall be due and payable quarterly in
arrears on the last day of each March, June, September, and December after
the Effective Date and on the Revolving Maturity Date.

(b) LETTER OF CREDIT FEES. The Borrower agrees to pay (i) to the Agent
for the pro rata benefit of the Banks a fee per annum for each Letter of Credit
issued hereunder equal to the Applicable Margin for Eurodollar Advances on the
face amount of such Letter of Credit, but with a minimum annual fee of $500.00
on each Letter of Credit and (ii) to the Issuing Bank, a fee for each Letter of
Credit of .125% per annum of the face amount of such Letter of Credit. Each
such fee shall be payable annually in advance on the date of the issuance,
increase or extension of the Letter of Credit, but, in the case of an increase
or extension only, on the amount of such increase or for the period of such
extension.

(c) FACILITY FEES. The Company agrees to pay to the Agent for the
account of each Bank a facility fee equal to .20% of the initial Borrowing Base
amount as of Effective Date.

Section 2.09. INTEREST. The Borrower shall pay interest on the unpaid
principal

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amount of each Revolving Advance made by each Bank from the date of such
Revolving Advance until such principal amount shall be paid in full, at the
following rates per annum:

(a) REFERENCE RATE ADVANCES. If such Revolving Advance is a Reference
Rate Advance, a rate per annum equal at all times to the Adjusted Reference
Rate in effect from time to time PLUS the Applicable Margin in effect from time
to time, payable in arrears on the last day of each month and on the date such
Reference Rate Advance shall be paid in full, PROVIDED that any amount of
principal which is not paid when due (whether at stated maturity, by
acceleration, or otherwise) shall bear interest from the date on which such
amount is due until such amount is paid in full, payable on demand, at a rate
per annum equal at all times to the Adjusted Reference Rate in effect from time
to time PLUS the Applicable Margin PLUS 3.00% per annum.

(b) EURODOLLAR RATE ADVANCES. If such Revolving Advance is a Eurodollar
Rate Advance, a rate per annum equal at all times during the Interest Period
for such Revolving Advance to the Eurodollar Rate for such Interest Period PLUS
the Applicable Margin in effect from time to time, payable on the last day of
such Interest Period, and, in the case of six-month Interest Periods, on the
day which occurs during such Interest Period three months from the first day of
such Interest Period, PROVIDED that any amount of principal which is not paid
when due (whether at stated maturity, by acceleration, or otherwise) shall bear
interest from the date on which such amount is due until such amount is paid in
full, payable on demand, at a rate per annum equal at all times to the Adjusted
Reference Rate in effect from time to time PLUS the Applicable Margin PLUS
3.00% per annum.

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

(d) USURY RECAPTURE.

(i) If, with respect to any Bank, the effective rate of interest
contracted for under the Credit Documents, including the stated rates of
interest and fees contracted for hereunder and any other amounts
contracted for under the Credit

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Documents which are deemed to be interest, at any time exceeds the Maximum
Rate, then the outstanding principal amount of the loans made by such Bank
hereunder shall bear interest at a rate which would make the effective rate
of interest for such Bank under the Credit Documents equal the Maximum Rate
until the difference between the amounts which would have been due at the
stated rates and the amounts which were due at the Maximum Rate (the "Lost
Interest") has been recaptured by such Bank.

(ii) If, when the loans made hereunder are repaid in full, the Lost
Interest has not been fully recaptured by such Bank pursuant to the
preceding paragraph, then, to the extent permitted by law, for the loans
made hereunder by such Bank the interest rates charged under Section 2.09
hereunder shall be retroactively increased such that the effective rate of
interest under the Credit Documents was at the Maximum Rate since the
effectiveness of this Agreement to the extent necessary to recapture the
Lost Interest not recaptured pursuant to the preceding sentence and, to
the extent allowed by law, the Borrower shall pay to such Bank the amount
of the Lost Interest remaining to be recaptured by such Bank.

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

Section 2.10. PAYMENTS AND COMPUTATIONS.

(a) PAYMENT PROCEDURES. The Borrower shall make each payment under this
Agreement and under the Notes not later than 10:00 a.m. (Los Angeles,
California, time) on the day when due in Dollars to the Agent at 445 S.
Figueroa Street, Los Angeles, California 90071 (or such other location as the
Agent shall designate in writing to the Borrower), in same day funds and shall
send notice of such payments to the Agent at 500 N. Akard, Suite 4200, Dallas,
Texas 75201. The Agent shall promptly thereafter cause to be distributed like
funds relating to the payment of principal, interest or fees ratably (other
than amounts payable solely to the Agent, the Issuing Bank, or a specific Bank
pursuant to Section 2.08(c) or (d), 2.09(c), 2.12, 2.13, 2.14, 8.05, or 9.07,
but after taking into account payments effected pursuant to Section 9.04) (i)
before the acceleration of the Revolving Advances pursuant to Section 7.02 or
7.03, in accordance with each Bank's Pro Rata Share and (ii) after the
acceleration of the Revolving Advances pursuant to Section 7.02 or 7.03, in
accordance with each Bank's Pro Rata Share to the Banks for the account of
their respective Applicable Lending Offices, and like funds relating to the
payment of any other amount payable to any

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Bank or the Issuing Bank to such Bank for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of
this Agreement.

(b) COMPUTATIONS. All computations of interest based on the Reference
Rate and of fees shall be made by the Agent on the basis of a year of 365 or
366 days, as the case may be, and all computations of interest based on the
Eurodollar Rate and the Federal Funds Rate shall be made by the Agent, on the
basis of a year of 360 days, in each case for the actual number of days
(including the first day, but excluding the last day) occurring in the period
for which such interest or fees are payable. Each determination by the Agent
of an interest rate or fee shall be conclusive and binding for all purposes,
absent manifest error.

(c) NON-BUSINESS DAY PAYMENTS. Whenever any payment shall be stated to
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
PROVIDED, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.

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

Section 2.11. SHARING OF PAYMENTS, ETC. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Revolving Advances or Letter of Credit
Obligations made by it in excess of its Pro Rata Share of payments on account
of the Revolving Advances or Letter of Credit Obligations obtained by all the
Banks, such Bank shall notify the Agent and forthwith purchase from the other
Banks such participations in the Revolving Advances made by them or Letter of
Credit Obligations held by them as shall be necessary to cause such purchasing
Bank to share the excess payment ratably with each of them; PROVIDED, however,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Bank, such purchase from each Bank shall be rescinded and such
Bank shall repay to the purchasing Bank the purchase price to the extent of
such Bank's ratable share (according to the proportion of (a) the amount of the
participation sold by such Bank to the purchasing Bank as a result of such
excess payment to (b) the total amount of such excess payment) of

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such recovery, together with an amount equal to such Bank's ratable share
(according to the proportion of (a) the amount of such Bank's required
repayment to the purchasing Bank to (b) the total amount of all such required
repayments to the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
The Borrower agrees that any Bank so purchasing a participation from another
Bank pursuant to this Section 2.11 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Bank were the direct
creditor of the Borrower in the amount of such participation.

Section 2.12. BREAKAGE COSTS. If (a) any payment of principal of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Revolving Advance, whether as a result of any payment pursuant
to Section 2.05, the acceleration of the maturity of the Notes pursuant to
Article VII, or otherwise, or (b) the Borrower fails to make a principal or
interest payment with respect to any Eurodollar Rate Advance on the date such
payment is due and payable, the Borrower shall, within 10 days of any written
demand sent by any Bank to the Borrower through the Agent, pay to the Agent for
the account of such Bank any amounts required to compensate such Bank for any
additional losses, out-of-pocket costs or expenses which it may reasonably
incur as a result of such payment or nonpayment, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by any Bank to fund or maintain such Revolving Advance.

Section 2.13. INCREASED COSTS.

(a) EURODOLLAR RATE ADVANCES. If, due to either (i) the introduction of
or any change (other than any change by way of imposition or increase of
reserve requirements included in the Eurodollar Rate Reserve Percentage) in or
in the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to any Bank of agreeing to make or making, funding, or maintaining
Eurodollar Rate Advances, then the Borrower shall from time to time, upon
demand by such Bank (with a copy of such demand to the Agent), immediately pay
to the Agent for the account of such Bank additional amounts sufficient to
compensate such Bank for such increased cost. A certificate as to the amount
of such increased cost and detailing the calculation of such cost submitted to
the Borrower and the Agent by such Bank shall be conclusive and binding for all
purposes, absent manifest error.

(b) CAPITAL ADEQUACY. If any Bank or the Issuing Bank determines in good
faith that compliance with any law or regulation or any guideline or request
from any central bank or other governmental authority (whether or not having
the force of law) affects or would affect the amount of capital required or
expected to be maintained by such Bank or the Issuing Bank or any corporation
controlling such Bank or the Issuing Bank and that the amount of such capital
is increased by or based upon the existence of such Bank's

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

(c) LETTERS OF CREDIT. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or Governmental Authority
charged with the administration thereof shall either (i) impose, modify, or
deem applicable any reserve, special deposit, or similar requirement against
letters of credit issued by, or assets held by, or deposits in or for the
account of, the Issuing Bank or (ii) impose on the Issuing Bank any other
condition regarding the provisions of this Agreement relating to the Letters of
Credit or any Letter of Credit Obligations, and the result of any event
referred to in the preceding clause (i) or (ii) shall be to increase the cost
to the Issuing Bank of issuing or maintaining any Letter of Credit (which
increase in cost shall be determined by the Issuing Bank's reasonable
allocation of the aggregate of such cost increases resulting from such event),
then, upon demand by the Issuing Bank, the Borrower shall pay to the Issuing
Bank, from time to time as specified by the Issuing Bank, additional amounts
which shall be sufficient to compensate the Issuing Bank for such increased
cost. A certificate as to such increased cost incurred by the Issuing Bank, as
a result of any event mentioned in clause (i) or (ii) above, and detailing the
calculation of such increased costs submitted by the Issuing Bank to the
Borrower, shall be conclusive and binding for all purposes, absent manifest
error.

Section 2.14. TAXES.

(a) NO DEDUCTION FOR CERTAIN TAXES. Any and all payments by the
Borrower shall be made, in accordance with Section 2.10, free and clear of
and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Bank, the Issuing Bank, and
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Bank, the Issuing Bank, or the
Agent (as the case may be) is organized or any political subdivision of the
jurisdiction (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes") and, in the case of each Bank and the Issuing Bank, Taxes by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision of such jurisdiction. If

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the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable to any Bank, the Issuing Bank, or the Agent, (i) the sum
payable shall be increased as may be necessary so that, after making all
required deductions (including deductions applicable to additional sums
payable under this Section 2.14), such Bank, the Issuing Bank, or the Agent
(as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made; PROVIDED, however, that if the
Borrower's obligation to deduct or withhold Taxes is caused solely by such
Bank's, the Issuing Bank's, or the Agent's failure to provide the forms
described in paragraph (d) of this Section 2.14 and such Bank, the Issuing
Bank, or the Agent could have provided such forms, no such increase shall be
required; (ii) the Borrower shall make such deductions; and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.

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

(c) INDEMNIFICATION. THE BORROWER INDEMNIFIES EACH BANK, THE ISSUING
BANK, AND THE AGENT FOR THE FULL AMOUNT OF TAXES OR OTHER TAXES (INCLUDING,
WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON
AMOUNTS PAYABLE UNDER THIS SECTION 2.14) PAID BY SUCH BANK, THE ISSUING BANK,
OR THE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES
OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE
MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE
AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS
FROM THE DATE THE BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE AGENT ON
BEHALF OF ITSELF AS AGENT, THE ISSUING BANK, OR ANY SUCH BANK. IF ANY BANK,
THE AGENT, OR THE ISSUING BANK RECEIVES A REFUND IN RESPECT OF ANY TAXES PAID
BY THE BORROWER UNDER THIS PARAGRAPH (C), SUCH BANK, THE AGENT, OR THE ISSUING
BANK, AS THE CASE MAY BE, SHALL PROMPTLY PAY TO THE BORROWER THE BORROWER'S
SHARE OF SUCH REFUND.

(d) FOREIGN BANK WITHHOLDING EXEMPTION. Each Bank and Issuing Bank that
is not incorporated under the laws of the United States of America or a state
thereof agrees that it shall deliver to the Borrower and the Agent (i) two duly
completed copies of United States Internal Revenue Service Form 1001 or 4224 or
successor applicable form, as the case may

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be, certifying in each case that such Bank is entitled to receive payments
under this Agreement and the Notes payable to it, without deduction or
withholding of any United States federal income taxes, (ii) if applicable, an
Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the
case may be, to establish an exemption from United States backup withholding
tax, and (iii) any other governmental forms which are necessary or required
under an applicable tax treaty or otherwise by law to reduce or eliminate any
withholding tax, which have been reasonably requested by the Borrower. Each
Bank which delivers to the Borrower and the Agent a Form 1001 or 4224 and
Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to
deliver to the Borrower and the Agent two further copies of the said letter
and Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or
other manner of certification, as the case may be, on or before the date that
any such letter or form expires or becomes obsolete or after the occurrence
of any event requiring a change in the most recent letter and form previously
delivered by it to the Borrower and the Agent, and such extensions or
renewals thereof as may reasonably be requested by the Borrower and the Agent
certifying in the case of a Form 1001 or 4224 that such Bank is entitled to
receive payments under this Agreement without deduction or withholding of any
United States federal income taxes. If an event (including without
limitation any change in treaty, law or regulation) has occurred prior to the
date on which any delivery required by the preceding sentence would otherwise
be required which renders all such forms inapplicable or which would prevent
any Bank from duly completing and delivering any such letter or form with
respect to it and such Bank advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax, and in the case of a Form W-8 or W-9, establishing
an exemption from United States backup withholding tax, such Bank shall not
be required to deliver such letter or forms. The Borrower shall withhold tax
at the rate and in the manner required by the laws of the United States with
respect to payments made to a Bank failing to timely provide the requisite
Internal Revenue Service forms.

ARTICLE III

CONDITIONS OF LENDING

Section 3.01. CONDITIONS PRECEDENT TO INITIAL REVOLVING ADVANCES. This
Agreement shall become effective on the date the following conditions precedent
shall have been satisfied:

(a) DOCUMENTATION. The Agent shall have received the following duly
executed by all the parties thereto, in form and substance satisfactory to the
Agent and the Banks, and, where applicable, in sufficient copies for each Bank:

(i) this Agreement, a Note payable to the order of each Bank in the
amount of its Revolving Commitment, the Guaranties, the Pledge Agreement,
the

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Security Agreements, and Mortgages encumbering substantially all of the
Borrower's and the Guarantors' Oil and Gas Properties and all attached
exhibits and schedules;

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

(iii) a favorable opinion of the Agent's counsel dated as of the
Effective Date and substantially in the form of the attached EXHIBIT K-2
covering the matters discussed in such Exhibit;

(iv) a certificate of the secretary or an assistant secretary of the
Borrower certifying its Certificate of Incorporation and Bylaws, the
resolutions of the board of directors of the Borrower authorizing this
Agreement and related transactions, and the incumbency and signatures of
the officers of the Borrower authorized to execute this Agreement and
related documents;

(v) a certificate of the secretary or an assistant secretary of each
Guarantor certifying the existence of such Guarantor, the certificate or
articles of incorporation and bylaws or other equivalent organizational
documents of such Guarantor, the resolutions of the board of directors or
other equivalent managing body of such Guarantor authorizing the Guaranty
of such Guarantor and related transactions, and the incumbency and
signatures of the officers of such Guarantor authorized to execute the
Guaranty of such Guarantor and related documents;

(vi) a certificate dated as of the Effective Date from the president
or chief financial officer of the Borrower stating that (A) all
representations and warranties of the Borrower set forth in this Agreement
are true and correct in all material respects; (B) no Default has occurred
and is continuing; and (C) the conditions in this Section 3.01 have been
met;

(vii) appropriate UCC-1 or UCC-3 Financing Statements covering the
Collateral for filing with the appropriate authorities;

(viii) stock certificates required in connection with the Pledge
Agreement and stock powers executed in blank for each such stock
certificate;

(ix) insurance certificates naming the Agent loss payee or additional
insured evidencing insurance which meets the requirements of this
Agreement and the Security Documents and which is satisfactory to
insurance consultants or brokers satisfactory to the Agent;

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<PAGE>

(x) an environmental review by an environmental consultant
acceptable to the Agent, covering the Oil and Gas Properties and other
related Properties of Carlton, in form and substance satisfactory to the
Agent;

(xi) certified copies of each of the Carlton Acquisition Documents,
each certified as of the Effective Date by a Responsible Officer of the
Borrower as being true and correct copies of such documents as of the
Effective Date;

(xii) certified copies of each of the documents pertaining to the
offering of the Senior Notes, including, without limitation, the
Indenture, as being true and correct copies of such documents as of the
Effective Date;

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

(b) CARLTON ACQUISITION. The Carlton Acquisition shall have been
consummated and all conditions to the Carlton Acquisition shall have been
satisfied in form and substance satisfactory to the Agent.

(c) SENIOR NOTES. The Borrower shall have issued the Senior Notes in an
original principal amount outstanding at least equal to $115,000,000 upon
substantially the same terms and conditions as set forth in the Borrower's
Registration Statement and upon such terms and conditions as are reasonably
acceptable to the Agent.

(d) REDEMPTION. The Borrower shall have fully redeemed its Series A
Preferred Stock and Series B Preferred Stock.

(e) PAYMENT OF FEES. On the date of this Agreement, the Borrower shall
have paid the fees required by Section 2.08(d) and all costs and expenses which
have been invoiced and are payable pursuant to Section 9.04.

(f) TITLE. The Agent shall be satisfied in its sole discretion with the
title to the Oil and Gas Properties included in the Borrowing Base and that
such Oil and Gas Properties constitute a percentage of such Collateral
reasonably satisfactory to the Agent.

(g) AGENT'S LIENS. The Agent shall be satisfied that the Liens granted
to it under the Security Documents, other than with respect to the Oil and Gas
Properties, are Acceptable Security Interests and that all actions or filings
necessary to protect, preserve and validly perfect such Liens have been made,
taken or obtained, as the case may be, and are in full force and effect.

(h) MATERIAL ADVERSE CHANGE. No event or circumstance that could cause a
Material Adverse Change shall have occurred.

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<PAGE>

Section 3.02. CONDITIONS PRECEDENT TO ALL BORROWINGS. The obligation of
each Bank to make a Revolving Advance on the occasion of each Revolving
Borrowing and of the Issuing Bank to issue, increase, or extend any Letter of
Credit shall be subject to the further conditions precedent that on the date of
such Revolving Borrowing or the issuance, increase, or extension of such Letter
of Credit:

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

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

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

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

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants as follows:

Section 4.01. CORPORATE EXISTENCE; SUBSIDIARIES. The Borrower is a
corporation duly organized and validly existing under the laws of Delaware and
in good standing and qualified to do business in each jurisdiction where its
ownership or lease of Property or conduct of its business requires such
qualification. Each Guarantor is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of formation and in good standing
and qualified to do business in each jurisdiction where its ownership or lease
of property or conduct of its business requires such qualification and where a
failure to be qualified could reasonably be expected to cause a Material
Adverse Change. The Borrower

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<PAGE>

and the Guarantors have the Subsidiaries listed on Schedule 4.01.

Section 4.02. CORPORATE POWER. The execution, delivery, and performance
by the Borrower of this Agreement, the Notes, and the other Credit Documents to
which it is a party and by the Guarantors of the Guaranties and the other
Credit Documents to which they are a party and the consummation of the
transactions contemplated hereby and thereby (a) are within the Borrower's and
the Guarantors' corporate powers, (b) have been duly authorized by all
necessary corporate action, (c) do not contravene (i) the Borrower's or any
Guarantor's certificate or articles of incorporation, bylaws or other similar
governance documents or (ii) any law or any contractual restriction binding on
or affecting the Borrower or any Guarantor, and (d) will not result in or
require the creation or imposition of any Lien prohibited by this Agreement.

Section 4.03. AUTHORIZATION AND APPROVALS. No consent, order,
authorization, or approval or other action by, and no notice to or filing with,
any Governmental Authority is required for the due execution, delivery, and
performance by the Borrower of this Agreement, the Notes, or the other Credit
Documents to which the Borrower is a party or by each Guarantor of its Guaranty
or the other Credit Documents to which it is a party or the consummation of the
transactions contemplated thereby. At the time of each Revolving Borrowing, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required for such Revolving Borrowing or the
use of the proceeds of such Revolving Borrowing.

Section 4.04. ENFORCEABLE OBLIGATIONS. This Agreement, the Notes, and
the other Credit Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower and the Guaranties and the other Credit
Documents to which each Guarantor is a party have been duly executed and
delivered by the Guarantors. Each Credit Document is the legal, valid, and
binding obligation of the Borrower and each Guarantor which is a party to it
enforceable against the Borrower and each such Guarantor in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors' rights generally and by general principles of equity.

Section 4.05. FINANCIAL STATEMENTS. The audited balance sheet of the
Partnership and the combined unaudited balance sheet of the Partnership, the
Borrower, and Old RBOC as at December 31, 1996 and the related audited
statements of income, cash flow, and retained earnings of the Partnership and
the related unaudited combined statements of income, cash flow, and retained
earnings of the Partnership, the Borrower, and Old RBOC for the fiscal year
then ended, copies of which have been furnished to each Bank, and the balance
sheet of the Partnership and the combined balance sheet of the Partnership, the
Borrower, Old RBOC and Gulf States as at September 30, 1997, and the related
statements of income, cash flow, and retained earnings of the Partnership and
the related combined statements of income, cash flow, and retained earnings of
the Partnership, the Borrower, Old

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RBOC and Gulf States for the nine months then ended, copies of which have
been furnished to each Bank, fairly present, subject, in the case of the
balance sheets as at September 30, 1997, and said statements of income, cash
flow, and retained earnings for the nine months then ended, to year-end audit
adjustments, the financial condition of the Partnership and the combined
financial condition of the Partnership, the Borrower, Old RBOC and Gulf
States as at such dates and the results of operations of the Partnership and
the combined results of the operations of the Partnership, the Borrower, Old
RBOC and Gulf States for the periods ended on such dates, and such balance
sheets and statements of income, cash flow, and retained earnings were
prepared in accordance with GAAP. Since the date of the Financial
Statements, no event or circumstance that could cause a Material Adverse
Change has occurred.

Section 4.06. TRUE AND COMPLETE DISCLOSURE. All factual information
(excluding estimates) heretofore or contemporaneously furnished by or on behalf
of the Borrower or any of the Guarantors in writing to any Bank or the Agent
for purposes of or in connection with this Agreement, any other Credit Document
or any transaction contemplated hereby or thereby is, and all other such
factual information hereafter furnished by or on behalf of the Borrower and the
Guarantors in writing to the Agent or any of the Banks shall be, true and
accurate in all material respects on the date as of which such information is
dated or certified and does not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements contained
therein not misleading at such time. All projections, estimates, and pro forma
financial information furnished by the Borrower were prepared on the basis of
assumptions, data, information, tests, or conditions believed to be reasonable
at the time such projections, estimates, and pro forma financial information
were furnished.

Section 4.07. LITIGATION. Set forth on SCHEDULE 4.07 is an accurate
description of all of the Borrower's and the Guarantors' pending litigation
existing on the Effective Date. There is no pending or, to the best knowledge
of the Borrower, threatened action or proceeding affecting the Borrower or any
of the Guarantors before any court, Governmental Agency or arbitrator, which
could reasonably be expected to cause a Material Adverse Change or which
purports to affect the legality, validity, binding effect, or enforceability of
this Agreement, any Note, or any other Credit Document.

Section 4.08. USE OF PROCEEDS. All Revolving Advances and Letters of
Credit shall be used to finance the acquisition and development of oil and gas
reserves and for general corporate purposes. 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). No proceeds of any
Revolving Advance will be used to purchase or carry any margin stock in
violation of Regulation G, T, U or X.

Section 4.09. INVESTMENT COMPANY ACT. Neither the Borrower nor any of
the Guarantors is an "investment company" or a company "controlled" by an
"investment

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company" within the meaning of the Investment Company Act of 1940,
as amended.

Section 4.10. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any of the Guarantors is a "holding company," or a "Subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"Subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended. Neither the Agent nor any of
the Banks, solely by virtue of the execution, delivery and performance of, and
the consummation of the transactions contemplated by, the Credit Documents
shall not be or become subject to regulation (a) as a "holding company", or an
"affiliate" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended, (b) under the Federal Power Act, as
amended, (c) as a "public utility" or "public service corporation" or the
equivalent under the applicable law of any state, or (d) under the applicable
laws of any state relating to public utilities or public service corporations.

Section 4.11. TAXES.

(a) REPORTS AND PAYMENTS. All Returns required to be filed by or on
behalf of the Borrower, the Guarantors, or any member of the Controlled Group
(hereafter collectively called the "Tax Group") have been duly filed on a
timely basis or appropriate extensions have been obtained and such Returns are
and will be true, complete and correct, except where the failure to so file
would not be reasonably expected to cause a Material Adverse Change; and all
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto will have been paid in full on a timely basis, and no other
Taxes will be payable by the Tax Group with respect to items or periods covered
by such Returns, except in each case to the extent of (i) reserves reflected in
the Financial Statements and the Interim Financial Statements, (ii) taxes that
are being contested in good faith, or (iii) such Taxes, the failure to pay
which would not cause a Material Adverse Change. The reserves for accrued
Taxes reflected in the financial statements delivered to the Banks under this
Agreement are adequate in the aggregate for the payment of all unpaid Taxes,
whether or not disputed, for the period ended as of the date thereof and for
any period prior thereto, and for which the Tax Group may be liable in its own
right, as withholding agent or as a transferee of the assets of, or successor
to, any Person, except for such Taxes or reserves therefor, the failure to pay
or provide for which does not and could not cause a Material Adverse Change.

(b) TAXES DEFINITION. "Taxes" in this Section 4.11 shall mean all taxes,
charges, fees, levies, or other assessments imposed by any federal, state,
local, or foreign taxing authority, including without limitation, income, gross
receipts, excise, real or personal property, sales, occupation, use, service,
leasing, environmental, value added, transfer, payroll, and franchise taxes
(and including any interest, penalties, or additions to tax attributable to or
imposed on with respect to any such assessment).

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state, local, or foreign report, estimate, declaration of estimated Tax,
information statement or return relating to, or required to be filed in
connection with, any Taxes, including any information return or report with
respect to backup withholding or other payments of third parties.

Section 4.12. PENSION PLANS. All Plans are in compliance in all material
respects with all applicable provisions of ERISA. No Termination Event has
occurred with respect to any Plan, and each Plan has complied with and been
administered in all material respects with applicable provisions of ERISA and
the Code. No "accumulated funding deficiency" (as defined in Section 302 of
ERISA) has occurred and there has been no excise tax imposed under Section 4971
of the Code. No Reportable Event has occurred with respect to any
Multiemployer Plan, and each Multiemployer Plan has complied with and been
administered in all material respects with applicable provisions of ERISA and
the Code. The present value of all benefits vested under each Plan (based on
the assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed the value of the assets of such Plan
allocable to such vested benefits. Neither the Borrower nor any member of the
Controlled Group has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability. As of the most
recent valuation date applicable thereto, neither the Borrower nor any member
of the Controlled Group would become subject to any liability under ERISA if
the Borrower or any member of the Controlled Group has received notice that any
Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing
as of the Effective Date and current factual circumstances, the Borrower has no
reason to believe that the annual cost during the term of this Agreement to the
Borrower or any member of the Controlled Group for post-retirement benefits to
be provided to the current and former employees of the Borrower or any member
of the Controlled Group under Plans that are welfare benefit plans (as defined
in Section 3(a) of ERISA) could, in the aggregate, reasonably be expected to
cause a Material Adverse Change.

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

Section 4.14. NO BURDENSOME RESTRICTIONS; NO DEFAULTS.

(a) Neither the Borrower nor any of the Guarantors is a party to any
indenture,

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loan, or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporate restriction or provision of applicable
law or governmental regulation which could reasonably be expected to cause a
Material Adverse Change. The Borrower and the Guarantors are not in default
under or with respect to any contract, agreement, lease, or other instrument
to which the Borrower or any Guarantor is a party and which could reasonably
be expected to cause a Material Adverse Change. Neither the Borrower nor any
Guarantor has received any notice of default under any material contract,
agreement, lease, or other instrument to which the Borrower or such Guarantor
is a party.

(b) No Default has occurred and is continuing.

Section 4.15. ENVIRONMENTAL CONDITION.

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

(b) CERTAIN LIABILITIES. Except as set forth on Schedule 4.15, to the
Borrower's actual knowledge, none of the present or previously owned or
operated Property of the Borrower or any Guarantor or of any of their former
Subsidiaries, wherever located, (i) has been placed on or proposed to be placed
on the National Priorities List, the Comprehensive Environmental Response
Compensation Liability Information System list, or their state or local
analogs, or have been otherwise investigated, designated, listed, or identified
as a potential site for removal, remediation, cleanup, closure, restoration,
reclamation, or other response activity under any Environmental Laws; (ii) is
subject to a Lien, arising under or in connection with any Environmental Laws,
that attaches to any revenues or to any Property owned or operated by the
Borrower or any of the Guarantors, wherever located, which could reasonably be
expected to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past
operations which has caused at the site or at any third-party site any
condition that has resulted in or could reasonably be expected to result in the
need for Response that would cause a Material Adverse Change.

(c) CERTAIN ACTIONS. Except as set forth on Schedule 4.15, without
limiting the foregoing, (i) all necessary notices have been properly filed, and
no further action is required under current Environmental Law as to each
Response or other restoration or remedial project undertaken by the Borrower or
the Guarantors or any of their former Subsidiaries on

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any of their presently or formerly owned or operated Property and (ii) the
present and, to the Borrower's best knowledge, future liability, if any, of
the Borrower and the Guarantors which could reasonably be expected to arise
in connection with requirements under Environmental Laws will not result in a
Material Adverse Change.

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

Section 4.17. GAS CONTRACTS. Neither the Borrower nor any of the
Guarantors, as of the date hereof, (a) is obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Borrower's and the Guarantors' Oil and
Gas Properties at some future date without receiving full payment therefor at
the time of delivery, or (b) except as has been disclosed to the Agent, has
produced gas, in any material amount, subject to, and none of the Borrower's
and the Guarantors' Oil and Gas Properties is subject to, balancing rights of
third parties or subject to balancing duties under governmental requirements.

Section 4.18. LIENS. On the Effective Date, all governmental actions and
all other filings, recordings, registrations, third party consents and other
actions which are necessary to create and perfect the Liens provided for in the
Security Documents will have been made, obtained and taken in all relevant
jurisdictions.

Section 4.19. SOLVENCY. Before and after giving effect to the making of
the initial Revolving Advances, the Borrower is Solvent.

Section 4.20. CAPITALIZATION; OWNERSHIP.

(a) Except as otherwise permitted by Section 6.14, the authorized capital
stock of the Borrower consists of 15,000,000 shares of common stock, par value
$0.01 per share, of which 2,727,000 shares are issued and outstanding as of the
Effective Date; and 5,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares are issued and outstanding as of the Effective Date.
The authorized capital stock of RBOC consists of 1,000 shares of common stock,
par value $1.00 per share, of which 1,000 shares are issued and outstanding.
The authorized capital stock of Carlton consists of 10,000 shares of common
stock, par value $0.01 per share, of which 1,125 shares are issued and
outstanding as of the Effective Date; and 1,000 shares of preferred stock, par
value $0.01 per share, of which 12 shares are issued and outstanding as of the
Effective Date. All of the issued and outstanding stock of the Borrower, RBOC
and Carlton are duly and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of capital

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stock of the Borrower, RBOC or Carlton has been issued in violation of any
preemptive rights of the current or past shareholders of such entity.

(b) There are no shares of capital stock or other equity securities of
the Borrower, RBOC or Carlton outstanding other than those indicated in the
foregoing paragraph and there are no outstanding rights against the Borrower,
RBOC, Carlton or their shareholders relating to the capital stock of the
Borrower, RBOC or Carlton. There are no voting trusts, voting agreements,
proxies or any other agreements or understandings with respect to the voting of
any voting securities of the Borrower, RBOC or Carlton.

ARTICLE V

AFFIRMATIVE COVENANTS

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

Section 5.01. COMPLIANCE WITH LAWS, ETC. The Borrower shall comply, and
cause each of the Guarantors to comply, in all material respects with all Legal
Requirements. Without limiting the generality and coverage of the foregoing,
the Borrower shall comply, and shall cause each of the Guarantors to comply, in
all material respects, with all Environmental Laws and all laws, regulations,
or directives with respect to equal employment opportunity and employee safety
in all jurisdictions in which the Borrower, or any of the Guarantors do
business; PROVIDED, however, that this Section 5.01 shall not prevent the
Borrower, and shall cause each of the Guarantors to, or any of the Guarantors
from, in good faith and with reasonable diligence, contesting the validity or
application of any such laws or regulations by appropriate legal proceedings.
Without limitation of the foregoing, the Borrower shall, and shall cause each
of the Guarantors to, (a) maintain and possess all authorizations, permits,
licenses, trademarks, trade names, rights and copyrights which are necessary to
the conduct of its business and (b) obtain, as soon as practicable, all
consents or approvals required from any states of the United States (or other
Governmental Authorities) necessary to grant the Agent an Acceptable Security
Interest in the Borrower's and the Guarantors' Oil and Gas Properties.

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Section 5.02. MAINTENANCE OF INSURANCE.

(a) The Borrower shall, and shall cause each of the Guarantors to,
procure and maintain or shall cause to be procured and maintained continuously
in effect policies of insurance in form and amounts and issued by companies,
associations or organizations reasonably satisfactory to the Agent covering
such casualties, risks, perils, liabilities and other hazards reasonably
required by the Agent.

(b) All certified copies of policies or certificates thereof, and
endorsements and renewals thereof shall be delivered to and retained by the
Agent. All policies of insurance shall either have attached thereto a Lender's
Loss Payable Endorsement for the benefit of the Agent, as loss payee in form
reasonably satisfactory to the Agent or shall name the Agent as an additional
insured, as applicable. The Borrower shall furnish the Agent with a
certificate of insurance or a certified copy of all policies of insurance
required. All policies or certificates of insurance shall set forth the
coverage, the limits of liability, the name of the carrier, the policy number,
and the period of coverage. In addition, all policies of insurance required
under the terms hereof shall contain an endorsement or agreement by the insurer
that any loss shall be payable in accordance with the terms of such policy
notwithstanding any act of negligence of the Borrower, or a Guarantor or any
party holding under the Borrower or a Guarantor which might otherwise result in
a forfeiture of the insurance and the further agreement of the insurer waiving
all rights of setoff, counterclaim or deductions against the Borrower and the
Guarantors. All such policies shall contain a provision that notwithstanding
any contrary agreements between the Borrower, the Guarantors, and the
applicable insurance company, such policies will not be canceled, allowed to
lapse without renewal, surrendered or amended (which provision shall include
any reduction in the scope or limits of coverage) without at least 30 days'
prior written notice to the Agent. In the event that, notwithstanding the
"lender's loss payable endorsement" requirement of this Section 5.02, the
proceeds of any insurance policy described above are paid to the Borrower or a
Guarantor, the Borrower shall deliver such proceeds to the Agent immediately
upon receipt.

Section 5.03. PRESERVATION OF CORPORATE EXISTENCE, ETC. The Borrower
shall preserve and maintain, and cause each of the Guarantors to preserve and
maintain, its corporate existence, rights, franchises, and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified, and cause
each such Guarantor to qualify and remain qualified, as a foreign corporation
in each jurisdiction in which qualification is necessary or desirable in view
of its business and operations or the ownership of its Properties, and, in each
case, where failure to qualify or preserve and maintain its rights and
franchises could reasonably be expected to cause a Material Adverse Change.

Section 5.04. PAYMENT OF TAXES, ETC. The Borrower shall pay and
discharge, and cause each of the Guarantors to pay and discharge, before the
same shall become delinquent, (a) all taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits or Property
that are material in amount, prior to the date on which penalties

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attach thereto and (b) all lawful claims that are material in amount which,
if unpaid, might by law become a Lien upon its Property; PROVIDED, HOWEVER,
that neither the Borrower nor any such Guarantor shall be required to pay or
discharge any such tax, assessment, charge, levy, or claim which is being
contested in good faith and by appropriate proceedings, and with respect to
which reserves in conformity with GAAP have been provided.

Section 5.05. VISITATION RIGHTS. At any reasonable time and from time to
time, upon reasonable notice, the Borrower shall, and shall cause the
Guarantors to, permit the Agent and any Bank or any of its agents or
representatives thereof, to (a) examine and make copies of and abstracts from
the records and books of account of, and visit and inspect at its reasonable
discretion the properties of, the Borrower and any such Guarantor, and
(b) discuss the affairs, finances and accounts of the Borrower and any such
Guarantor with any of their respective officers or directors.

Section 5.06. REPORTING REQUIREMENTS. The Borrower shall furnish to the
Agent and each Bank:

(a) ANNUAL FINANCIALS. (i) As soon as available and in any event not
later that 90 days after the end of each fiscal year of the Borrower and the
Guarantors, (A) a copy of the annual audit report for such year for each of the
Borrower, including therein the Borrower's balance sheet as of the end of such
fiscal year and the Borrower's statements of income, cash flows, and retained
earnings, in each case certified by Ernst & Young, L.L.P. or other independent
certified public accountants of national standing and including any management
letters delivered by such accountants to the Borrower or any Guarantor in
connection with such audit, (B) a certificate of such accounting firm to the
Agent and the Banks stating that, in the course of the regular audit of the
business of the Borrower, which audit was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting firm has
obtained no knowledge that a Default has occurred and is continuing, or if, in
the opinion of such accounting firm, a Default has occurred and is continuing,
a statement as to the nature thereof, and (C) a Compliance Certificate executed
by the Chief Financial Officer or Chief Accounting Officer of the Borrower and
(ii) a copy of the unaudited annual consolidating financial statements of each
of the Guarantors, including therein such Guarantor's balance sheet and
statements of income, cash flows, and retained earnings for such fiscal year;

(b) QUARTERLY FINANCIALS. As soon as available and in any event not
later than 60 days after the end of each of the first three quarters of each
fiscal year of the Borrower, (i) the Borrower's unaudited balance sheet and the
Borrower's statements of income, cash flows, and retained earnings for the
period commencing at the end of the previous year and ending with the end of
such quarter, all in reasonable detail and duly certified with respect to such
consolidated statements (subject to year-end audit adjustments) by the Chief
Financial Officer or Chief Accounting Officer of the Borrower as having been
prepared in accordance with GAAP and (ii) a Compliance Certificate executed by
the Chief Financial Officer or

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Chief Accounting Officer of the Borrower;

(i) As soon as available but in any event on or before March 31 of
each year, an Independent Engineering Report dated as of January 1 for
such year.

(ii) As soon as available but in any event on or before September 30
of each year an Internal Engineering Report dated as of July 1 for such
year.

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

(d) QUARTERLY REPORTS. As soon as available and in any event within 60
days after the end of each quarter, a report certified by a Responsible Officer
of the Borrower in form and substance satisfactory to the Bank prepared by the
Borrower (i) for each of the Borrower and the Guarantors' Oil and Gas
Properties detailing production, revenue, and price information and associated
operating expenses and further detailing any changes to any producing
reservoir, production equipment, or producing well which could cause a Material
Adverse Change and (ii) detailing which of the Borrower's and the Guarantors'
Oil and Gas Properties have been sold in the prior quarter;

(e) ANNUAL BUDGET. As soon as available and in any event within 90 days
before the end of each fiscal year, the Borrower's annual operating budget in
form and substance satisfactory to the Agent for the following fiscal year;

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

(g) SECURITIES LAW FILINGS. Promptly and in any event within 15 days
after the sending or filing thereof, copies of all final (as opposed to draft
or preliminary) proxy material, reports and other information which the
Borrower or any of the Guarantors sends to or files with the United States
Securities and Exchange Commission or sends to any equity holder of the
Borrower or a Guarantor;

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

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

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

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

(l) OTHER GOVERNMENTAL NOTICES. Promptly and in any event within five
Business Days after receipt thereof by the Borrower or any Guarantor, a copy of
any notice, summons, citation, or proceeding seeking to modify in any material
respect, revoke, or suspend any material contract, license, or agreement with
any Governmental Authority;

(m) MATERIAL CHANGES. Prompt written notice of any condition or event of
which the Borrower has knowledge, which condition or event has resulted or may
reasonably be expected to result in (i) a Material Adverse Change or (ii) a
breach of or noncompliance with any material term, condition, or covenant of
any material contract to which the Borrower or

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any of the Guarantors is a party or by which they or their properties may be
bound;

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

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

Section 5.07. MAINTENANCE OF PROPERTY. The Borrower shall, and shall
cause each of the Guarantors to, maintain their owned, leased, or operated
Property in good condition and repair; and shall abstain, and cause each of the
Guarantors to abstain from, and not knowingly or willfully permit the
commission of waste or other injury, destruction, or loss of natural resources,
or the occurrence of pollution, contamination, or any other condition in, on or
about the owned or operated property involving the Environment that could
reasonably be expected to result in Response activities and that could
reasonably be expected to cause a Material Adverse Change.

Section 5.08. BANK ACCOUNTS. The Borrower and the Guarantors shall
maintain the bank accounts indicated on the attached SCHEDULE 5.08 for the
purposes indicated on such Schedule; shall cause each depositary institution
maintaining a lock box, collection, revenue or other account in which proceeds
of Collateral are deposited ("Revenue Accounts") to enter into an agreement
with the Agent in substantially the form of Exhibit A to the Security
Agreements; and agrees to deposit therein all proceeds of any sales of
Hydrocarbons attributable to the Borrower's and the Guarantors' Oil and Gas
Properties unless and until the Agent directs it to act otherwise. The
Borrower or the Guarantors, as applicable, may, prior to the occurrence and
continuance of a Default or Event of Default, make withdrawals from the Revenue
Accounts to pay operating costs and expenses or to other bank accounts used to
pay operating costs and expenses. After the occurrence and continuance of a
Default or Event of Default, all amounts deposited in the Revenue Accounts
shall be retained by the Agent as collateral for the Obligations. The Agent
does not waive or relinquish any of its rights or interests arising under the
Credit Documents by permitting the Borrower and the Guarantors to collect and
deposit the proceeds of sales of Hydrocarbons attributable to Borrower's Oil
and Gas Properties. The Borrower shall have no other bank accounts other than
the accounts listed on SCHEDULE 5.08 and accounts for which the Agent has
consented.

Section 5.09. OIL AND GAS PROPERTIES. Not later than March 31, 1998, the
Agent

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shall be satisfied that (a) the Liens granted to it under the Security
Documents are Acceptable Security Interests and that all actions or filings
necessary to protect, preserve and validly perfect such Liens have been
made, taken or obtained, as the case may be, and are in full force and
effect, (b) the Security Documents encumber substantially all of the Oil and
Gas Properties of the Borrower and the Guarantors, and (c) with respect to
the Oil and Gas Properties included in the Collateral, the Agent shall have
received supplemental or new title opinions addressed to it issued by counsel
to the Borrower that is experienced in the examination of title to Oil and
Gas Properties (which title opinions shall be in form and substance
acceptable to the Agent in its sole discretion and shall include opinions
regarding the before payout and after payout ownership interests held by the
Borrower and the Guarantors for all wells located on the Oil and Gas
Properties covered thereby) as to the ownership of Oil and Gas Properties of
the Borrower and the Guarantors included in the Borrowing Base, and
reflecting that the Agent has an Acceptable Security Interest in such Oil and
Gas Properties of the Borrower and the Guarantors, constituting a percentage
of such Collateral reasonably satisfactory to the Agent. If the Agent shall
determine that, as of the date of any Borrowing Base determination, the
Borrower shall have failed to comply with clause (c) of the preceding
sentence, the Agent may notify the Borrower in writing of such failure and,
within 30 days from and after receipt of such written notice by the Borrower,
the Borrower shall execute and deliver to the Agent satisfactory title
evidence (including supplemental or new title opinions meeting the foregoing
requirements) in form and substance acceptable to the Agent in its reasonable
business judgment as to the Borrower's and the Guarantor's ownership of such
Oil and Gas Properties and the Agent's Lien and security interest therein as
are required to maintain compliance with this Section 5.09.

Section 5.10. INTEREST HEDGE ARRANGEMENTS. The Borrower shall have
entered into hedging transactions as reasonably agreed upon by the Agent and
the Borrower to fix, cap or collar the interest rate on the Revolving Advances
at an interest rates to be agreed to by the Agent and the Borrower.

Section 5.11. AGREEMENT TO PLEDGE. The Borrower shall, and shall cause
each Guarantor to, grant to the Agent an Acceptable Security Interest in any
Property of the Borrower or any Guarantor now owned or hereafter acquired
promptly after receipt of a written request from the Agent.

Section 5.12. ADDITIONAL SUBSIDIARIES. No later than ten days after any
Person becomes a Subsidiary of the Borrower, at the Agent's request the
Borrower will cause such Person to execute and deliver to the Agent a Guaranty
in substantially the form of Exhibit C, a Security Agreement in substantially
the form of Exhibit I, and such other documents, governmental certificates,
agreement as the Agent may reasonably request, together with such evidence of
corporate authority to enter into such Credit Documents as the Agent may
reasonably request, including without limitation, opinions of legal counsel
regarding such corporate authority and the enforceability of such Credit
Documents.

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ARTICLE VI

NEGATIVE COVENANTS

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

Section 6.01. LIENS, ETC. The Borrower shall not create, assume, incur,
or suffer to exist, or permit any of the Guarantors to create, assume, incur,
or suffer to exist, any Lien on or in respect of any of its Property whether
now owned or hereafter acquired, or assign any right to receive income, except
that the Borrower and the Guarantors may create, incur, assume, or suffer to
exist:

(a) Liens securing the Obligations;

(b) Liens specified in the attached SCHEDULE 6.01 on the Property owned
by the Borrower and the Guarantors which is specified therein securing only the
Debt disclosed to be secured by such Liens therein;

(c) Liens securing purchase money Debt or Capital Leases to the extent
such Debt is permitted under Section 6.02(f); PROVIDED that (i) each such Lien
only encumbers the property acquired in connection with the creation of such
Debt or Capital Lease and all proceeds therefrom and (ii) the fair market value
of the collateral securing any such Debt may exceed the outstanding principal
amount of such Debt only to the extent such excess is within customary
commercial bank lending and collateralization requirements;

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

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

(f) Liens to operators and non-operators under joint operating agreements
arising in the ordinary course of the business of the Borrower or the relevant
Guarantor to secure amounts owing, which amounts are not yet due or are being
contested in good faith by

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appropriate proceedings, if such reserve as may be required by GAAP shall
have been made therefor;

(g) easements, rights-of-way, restrictions, and other similar
encumbrances, and minor defects in the chain of title that are customarily
accepted in the oil and gas financing industry, none of which interfere with
the ordinary conduct of the business of Borrower or any Guarantor or materially
detract from the value or use of the Property to which they apply; and

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

Section 6.02. DEBTS, GUARANTIES, AND OTHER OBLIGATIONS. The Borrower
shall not, and shall not permit any of the Guarantors to, create, assume,
suffer to exist, or in any manner become or be liable in respect of, any Debt
except:

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

(b) Debt of any Guarantor owing to the Borrower or any other Guarantor;
PROVIDED that such Debt is incurred in the ordinary course of business and is
subordinated to the Obligations in a manner satisfactory to the Agent;

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

(d) Debt existing under Interest Hedge Agreements and Hydrocarbon Hedge
Agreements;

(e) the Senior Notes;

(f) Debt resulting from the conversion of Carlton's outstanding
redeemable preferred stock upon the terms and conditions of Carlton's
Certificate of Incorporation as in effect on the Effective Date, not to exceed
$600,000 plus any interest accrued prior to payment; and

(g) Debt not otherwise permitted under this Section 6.02 in an aggregate
principal amount outstanding at any time not to exceed $500,000.00.

Section 6.03. AGREEMENTS RESTRICTING LIENS AND DISTRIBUTIONS. The
Borrower shall

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not, nor shall it permit any of the Guarantors to, enter into any agreement
(other than a Credit Document or the Indenture) which except with respect to
specific Property encumbered to secure payment of Debt related to such
Property, imposes restrictions upon the creation or assumption of any Lien
upon its Properties, revenues or assets, whether now owned or hereafter
acquired.

Section 6.04. MERGER OR CONSOLIDATION; ASSET SALES. The Borrower shall
not, and shall not permit any of the Guarantors to:

(a) merge or consolidate with or into any other Person; or

(b) sell, lease, transfer, or otherwise dispose of any of its Property
outside of the ordinary course of business or any of its Oil and Gas
Properties, except (i) sales of Hydrocarbons in the ordinary course of
business, (ii) sales of assets outside the ordinary course of business in an
aggregate amount for any six-month period not to exceed $500,000.00; and (iii)
sales of equipment no longer used or useful in the Borrower or the Guarantors'
business or equipment salvaged in connection with any plugging or abandonment
of any well.

Section 6.05. RESTRICTED PAYMENTS. The Borrower shall not, and shall not
permit any of the Guarantors to, make or pay any Restricted Payment, other than
the payment of dividends on shares of the Borrower's preferred stock issued in
connection with future acquisitions provided that at the time of the payment of
such dividends (i) the aggregate amount of such dividend payments does not
exceed $500,000 during any fiscal year; (ii) no Default or Event of Default has
occurred and is continuing; and (iii) no Borrowing Base deficiency exist.

Section 6.06. INVESTMENTS. The Borrower shall not, and shall not permit
any of the Guarantors to, make or permit to exist any loans, advances, or
capital contributions to, or make any investment in, or purchase or commit to
purchase any stock or other securities or evidences of indebtedness of or
interests in any Person, except:

(a) Liquid Investments;

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

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

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(d) loans, advances, or capital contributions to, or investment in, or
purchases or commitments to purchase any stock or other securities or evidences
of indebtedness of or interests in any Person, specified in the attached
SCHEDULE 6.06.

Section 6.07. LIMITATION ON SPECULATIVE HEDGING. The Borrower shall not,
and shall not permit any of the Guarantors to, purchase, assume, or hold a
speculative position in any commodities market or futures market in excess of
75% of Proven Reserves.

Section 6.08. AFFILIATE TRANSACTIONS. Except as expressly permitted
elsewhere in this Agreement or otherwise approved in writing by the Agent, the
Borrower shall not, and shall not permit any of the Guarantors to, make,
directly or indirectly: (i) any investment in any Affiliate; (ii) any
transfer, sale, lease, assignment, or other disposal of any assets to any such
Affiliate or any purchase or acquisition of assets from any such Affiliate; or
(iii) any arrangement or other transaction directly or indirectly with or for
the benefit of an such Affiliate (including without limitation, guaranties and
assumptions of obligations of an Affiliate); PROVIDED that the Borrower and the
Guarantors may enter into any arrangement or other transaction with any such
Affiliate providing for the leasing of property, the rendering or receipt of
services or the purchase or sale of inventory and other assets in the ordinary
course of business if the monetary or business consideration arising therefrom
would be substantially as advantageous to the Borrower and the Guarantors as
the monetary or business consideration which it would obtain in a comparable
arm's length transaction with a Person not such an Affiliate.

Section 6.09. COMPLIANCE WITH ERISA. The Borrower shall not, and shall
not permit any of the Guarantors to, (a) terminate, or permit any Affiliate to
terminate, any Plan so as to result in any material (in the opinion of the
Majority Banks) liability of the Borrower or any of its Affiliates to the PBGC
or (b) permit to exist any occurrence of any Reportable Event (as defined in
Title IV of ERISA), or any other event or condition, which presents a material
(in the opinion of the Majority Banks) risk of such a termination by the PBGC
of any Plan.

Section 6.10. SALE-AND-LEASEBACK. The Borrower shall not, nor shall it
permit any of the Guarantors to, sell or transfer to a Person any property,
whether now owned or hereafter acquired, if at the time or thereafter the
Borrower or a Guarantor shall lease as lessee such property or any part thereof
or other property which the Borrower or a Guarantor intends to use for
substantially the same purpose as the property sold or transferred.

Section 6.11. NO SUBSIDIARIES. The Borrower shall not, and shall not
permit any Guarantor to, have any Subsidiaries, except those Subsidiaries of
which prior written notice is given to the Agent.

Section 6.12. CHANGE OF BUSINESS. The Borrower shall not, nor shall it
permit any of the Guarantors to, materially change the character of their
business as presently and

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normally conducted or engage in any type of business not related to their
business as presently and normally conducted.

Section 6.13. ORGANIZATIONAL DOCUMENTS, NAME CHANGE. The Borrower shall
not, nor shall it permit any of the Guarantors to, amend, supplement, modify or
restate their articles or certificate of incorporation and bylaws or other
equivalent organizational documents without prior written notice to and prior
or subsequent consent of the Agent, which consent shall not be unreasonably
withheld provided that such amendments, supplements, modifications or
restatements are in form and substance reasonably satisfactory to the Agent.
The Borrower shall not, nor shall it permit any of the Guarantors to, change
their name without giving the Agent reasonable notice thereof. The Borrower
agrees that at any time, at the Borrower's expense, the Borrower will, or will
cause any of the Guarantors to, promptly execute and deliver all further
instruments and documents, and take all further action, that may be reasonably
necessary or that the Agent or any Bank may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.

Section 6.14. RENTAL EXPENSE. The Borrower shall not permit the
consolidated Rental Expense of the Borrower and the Guarantors to exceed
$1,000,000.00 in any fiscal year of the Borrower.

Section 6.15. CURRENT RATIO. The Borrower shall not permit as of the
last day of any fiscal quarter the ratio of the consolidated current assets of
the Borrower and the Guarantors to the consolidated current liabilities of the
Borrower and the Guarantors to be less than 1.00 to 1.00 at any time.

Section 6.16. INTEREST COVERAGE RATIO. The Borrower shall not permit as
of the last day of any fiscal quarter the ratio of (a) consolidated EBITDA for
the Borrower and the Guarantors for the four fiscal quarters ending on such
date to (b) Interest Expense for such period to be less than (i) 1.25 to 1.00
from the Effective Date through March 31, 1999 and (ii) 1.50 to 1.00
thereafter.

Section 6.17. SENIOR NOTES. The Borrower shall not prepay, repay or
redeem the Senior Notes except for prepayments or redemptions permitted or
required pursuant to the terms of the Indenture, other than the mandatory
redemption of the Senior Notes required by Section 4.17 of the Indenture. The
Borrower shall not amend, supplement or modify the Indenture as in effect on
the Effective Date in any manner materially adverse to the interests of the
Banks, without the prior written consent of the Banks.

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ARTICLE VII

REMEDIES

Section 7.01. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under any Credit Document:

(a) PAYMENT. The Borrower shall fail to pay when due any principal,
interest, fees, reimbursements, indemnifications, or other amounts payable
hereunder, under the Notes, or under any other Credit Document;

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

(c) COVENANT BREACHES. (i) The Borrower shall (A) fail to perform or
observe any covenant contained in Section 5.02(a), 5.05, or 5.08 or Article VI
of this Agreement or (B) fail to perform or observe any other term or covenant
set forth in this Agreement or in any other Credit Document which is not
covered by clause (i)(A) above or any other provision of this Section 7.01 if
such failure shall remain unremedied for 30 days after written notice of such
default shall have been given to such Person by the Agent or any Bank or for 10
days after such Person had actual knowledge of such default PROVIDED that such
Person did not give written notice thereof to the Agent within such 10 days or
(ii) any Guarantor shall fail to perform or observe any covenant contained in
its Guaranty;

(d) CROSS-DEFAULTS. (i) The Borrower or any Guarantor shall fail to pay
any principal of or premium or interest on its Debt which is outstanding in a
principal amount of at least $100,000.00 individually or when aggregated with
all such Debt of the Borrower or the Guarantors so in default (but excluding
Debt evidenced by the Notes) when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise),
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; (ii) any other
event shall occur or condition shall exist under any agreement or instrument
relating to Debt which is outstanding in a principal amount of at least
$100,000.00 individually or when aggregated with all such Debt of the Borrower
and the Guarantors so in default, and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;

(e) INSOLVENCY. The Borrower or any of the Guarantors shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts

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generally, or shall make a general assignment for the benefit of creditors;
or any proceeding shall be instituted by or against the Borrower or any of
the Guarantors seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or
other similar official for it or for any substantial part of its property
and, in the case of any such proceeding instituted against the Borrower or
any such Guarantor, either such proceeding shall remain undismissed for a
period of 30 days or any of the actions sought in such proceeding shall
occur; or the Borrower or any of the Guarantors shall take any corporate
action to authorize any of the actions set forth above in this paragraph (e);

(f) JUDGMENTS. Any judgment or order for the payment of money in excess
of $100,000.00 shall be rendered against the Borrower or any of the Guarantors
and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;

(g) TERMINATION EVENTS. Any Termination Event with respect to a Plan
shall have occurred, and, 30 days after notice thereof shall have been given to
the Borrower by the Agent, (i) such Termination Event shall not have been
corrected and (ii) the then present value of such Plan's vested benefits
exceeds the then current value of assets accumulated in such Plan by more than
the amount of $100,000.00 (or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount);

(h) PLAN WITHDRAWALS. The Borrower or any member of the Controlled Group
as employer under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$100,000.00;

(i) BORROWING BASE. Any failure to cure any Borrowing Base deficiency in
accordance with Section 2.05;

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

(k) SECURITY DOCUMENTS. Any Security Document shall at any time and for
any reason cease to create the Lien on the property purported to be subject to
such agreement in

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accordance with the terms of such agreement, or cease to be in full force and
effect, or shall be contested by the Borrower or any Guarantor;

Section 7.02. OPTIONAL ACCELERATION OF MATURITY. If any Event of Default
(other than an Event of Default pursuant to paragraph (e) of Section 7.01)
shall have occurred and be continuing, then, and in any such event,

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

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

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

Section 7.03. AUTOMATIC ACCELERATION OF MATURITY. If any Event of
Default pursuant to paragraph (e) of Section 7.01 shall occur,

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

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

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Obligations; and

Section 7.04. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, the Agent and each Bank is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Agent or such Bank to or for the credit or the account of the
Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement, the Notes held by the Agent or such
Bank, and the other Credit Documents, irrespective of whether or not the Agent
or such Bank shall have made any demand under this Agreement, such Notes, or
such other Credit Documents, and although such obligations may be unmatured.
The Agent and each Bank agrees to promptly notify the Borrower after any such
set-off and application made by the Agent or such Bank, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Agent and each Bank under this Section 7.04 are
in addition to any other rights and remedies (including, without limitation,
other rights of set-off) which the Agent or such Bank may have.

Section 7.05. ACTIONS UNDER CREDIT DOCUMENTS. Following an Event of
Default, the Agent shall at the request, or may with the consent, of the
Majority Banks, take any and all actions permitted under the other Credit
Documents, including enforcing it rights under the Security Documents and the
Guaranty for the ratable benefit of the Banks.

Section 7.06. NON-EXCLUSIVITY OF REMEDIES. No remedy conferred upon the
Agent is intended to be exclusive of any other remedy, and each remedy shall be
cumulative of all other remedies existing by contract, at law, in equity, by
statute or otherwise.

ARTICLE VIII

THE AGENT AND THE ISSUING BANK

Section 8.01. AUTHORIZATION AND ACTION. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof and of the other Credit Documents, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Credit Document (including, without limitation,
enforcement or collection of the Notes), the Agent shall not

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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 Majority
Banks, and such instructions shall be binding upon all Banks and all holders
of Notes; PROVIDED, however, that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is contrary to
this Agreement, any other Credit Document, or applicable law.

Section 8.02. AGENT'S RELIANCE, ETC. Neither the Agent nor any of its
directors, officers, agents, or employees shall be liable for any action taken
or omitted to be taken (INCLUDING THE AGENT'S OWN NEGLIGENCE) by it or them
under or in connection with this Agreement or the other Credit Documents,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (a) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) may consult with legal counsel (including
counsel for the Borrower), independent public accountants, and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants, or experts; (c) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties, or
representations made in or in connection with this Agreement or the other
Credit Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
this Agreement or any other Credit Document on the part of the Borrower or the
Guarantors or to inspect the property (including the books and records) of the
Borrower or the Guarantors; (e) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency, or
value of this Agreement or any other Credit Document; and (f) shall incur no
liability under or in respect of this Agreement or any other Credit Document by
acting upon any notice, consent, certificate, or other instrument or writing
(which may be by telecopier or telex) believed by it to be genuine and signed
or sent by the proper party or parties.

Section 8.03. THE AGENT AND ITS AFFILIATES. With respect to its
Commitments, the Revolving Advances made by it and the Notes issued to it, the
Agent shall have the same rights and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent. The term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include the
Agent in its individual capacity. The Agent and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower or any of the Guarantors, and
any Person who may do business with or own securities of the Borrower or any
such Guarantor, all as if the Agent were not an agent hereunder and without any
duty to account therefor to the Banks.

Section 8.04. BANK CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based
on the Financial Statements and the Interim Financial Statements and such other
documents and

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information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it
shall, independently and without reliance upon the Agent or any other Bank
and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement.

Section 8.05. INDEMNIFICATION. THE BANKS SEVERALLY AGREE TO INDEMNIFY
THE AGENT AND THE ISSUING BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (TO THE EXTENT NOT REIMBURSED BY THE
BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY
AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE AGENT
AND THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
ANY ACTION TAKEN OR OMITTED BY THE AGENT OR THE ISSUING BANK UNDER THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT (INCLUDING THE AGENT'S AND THE ISSUING
BANK'S OWN NEGLIGENCE), PROVIDED THAT NO BANK SHALL BE LIABLE FOR ANY PORTION
OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE AGENT'S
AND THE ISSUING BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITATION OF THE FOREGOING, EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY
UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING
COUNSEL FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT, TO THE EXTENT THAT THE AGENT IS NOT REIMBURSED FOR SUCH
BY THE BORROWER.

Section 8.06. SUCCESSOR AGENT AND ISSUING BANK. The Agent or the Issuing
Bank may resign at any time by giving written notice thereof to the Banks and
the Borrower and may be removed at any time with or without cause by the
Majority Banks upon receipt of written notice from the Majority Banks to such
effect. Upon receipt of notice of any such resignation or removal, the
Majority Banks shall have the right to appoint a successor Agent or Issuing
Bank only with the consent of the Borrower, which consent shall not be
unreasonably withheld. If no successor Agent or Issuing Bank shall have been
so appointed by the Majority Banks with the consent of the Borrower, and shall
have accepted such

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appointment, within 30 days after the retiring Agent's or Issuing Bank's
giving of notice of resignation or the Majority Banks' removal of the
retiring Agent or Issuing Bank, then the retiring Agent or Issuing Bank may,
on behalf of the Banks and the Borrower, appoint a successor Agent or Issuing
Bank, which shall be, in the case of a successor agent, a commercial bank
organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.00
and, in the case of the Issuing Bank, a Bank. Upon the acceptance of any
appointment as Agent or Issuing Bank by a successor Agent or Issuing Bank,
such successor Agent or Issuing Bank shall thereupon succeed to and become
vested with all the rights, powers, privileges, and duties of the retiring
Agent or Issuing Bank, and the retiring Agent or Issuing Bank shall be
discharged from its duties and obligations under this Agreement and the other
Credit Documents, except that the retiring Issuing Bank shall remain the
Issuing Bank with respect to any Letters of Credit outstanding on the
effective date of its resignation or removal and the provisions affecting the
Issuing Bank with respect to such Letters of Credit shall inure to the
benefit of the retiring Issuing Bank until the termination of all such
Letters of Credit. After any retiring Agent's or Issuing Bank's resignation
or removal hereunder as Agent or Issuing Bank, the provisions of this Article
VIII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent or Issuing Bank under this Agreement and the
other Credit Documents.

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ARTICLE IX

MISCELLANEOUS

Section 9.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Majority Banks
and the Borrower, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; PROVIDED,
however, that no amendment, waiver, or consent shall, unless in writing and
signed by all the Banks, do any of the following: (a) waive any of the
conditions specified in Section 3.01 or 3.02, (b) increase the Revolving
Commitment of the Banks, (c) reduce the principal of, or interest on, the Notes
or any fees or other amounts payable hereunder or under any other Credit
Document, (d) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder or extend
the Revolving Maturity Date, (e) change the percentage of Banks which shall be
required for the Banks or any of them to take any action hereunder or under any
other Credit Document, (f) amend Section 2.11 or this Section 9.01, (g) amend
the definition of "Majority Banks," (h) release any Guarantor from its
obligations under any Guaranty, or (i) release any collateral securing the
Obligations, except for releases of Collateral sold as permitted by this
Agreement; and PROVIDED, further, that no amendment, waiver or consent shall,
unless in writing and signed by the Agent or the Issuing Bank in addition to
the Banks required above to take such action, affect the rights or duties of
the Agent or the Issuing Bank, as the case may be, under this Agreement or any
other Credit Document.

Section 9.02. NOTICES, ETC. All notices and other communications shall
be in writing (including, without limitation, telecopy or telex) and mailed by
certified mail, return receipt requested, telecopied, telexed, hand delivered,
or delivered by a nationally recognized overnight courier, at the address for
the appropriate party specified in SCHEDULE 1 or at such other address as shall
be designated by such party in a written notice to the other parties. All such
notices and communications shall, when so mailed, telecopied, telexed, or hand
delivered or delivered by a nationally recognized overnight courier, be
effective when received if mailed, when telecopy transmission is completed,
when confirmed by telex answer-back, or when delivered by such messenger or
courier, respectively, except that notices and communications to the Agent
pursuant to Article II or VIII shall not be effective until received by the
Agent.

Section 9.03. NO WAIVER; REMEDIES. No failure on the part of any Bank,
the Agent, or the Issuing Bank to exercise, and no delay in exercising, any
right hereunder or under any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

Section 9.04. COSTS AND EXPENSES. The Borrower agrees to pay on demand
(a) all reasonable out-of-pocket costs and expenses of the Agent in connection
with the preparation, execution, delivery, administration, modification, and
amendment of this Agreement, the Notes, the Guaranties, and the other Credit
Documents including, without limitation, the

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reasonable fees and out-of-pocket expenses of counsel for the Agent with
respect to advising the Agent as to its rights and responsibilities under
this Agreement, and (b) all out-of-pocket costs and expenses, if any, of the
Agent, the Issuing Bank, and each Bank (including, without limitation,
reasonable counsel fees and expenses of the Agent, the Issuing Bank, and each
Bank) in connection with the enforcement (whether through negotiations, legal
proceedings, or otherwise) of this Agreement, the Notes, the Guaranties, and
the other Credit Documents.

Section 9.05. BINDING EFFECT. This Agreement shall become effective when
it shall have been executed by the Borrower and the Agent, and when the Agent
shall have, as to each Bank, either received a counterpart hereof executed by
such Bank or been notified by such Bank that such Bank has executed it and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Agent, the Issuing Bank, and each Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
or delegate its duties under this Agreement or any interest in this Agreement
without the prior written consent of each Bank.

Section 9.06. BANK ASSIGNMENTS AND PARTICIPATIONS.

(a) ASSIGNMENTS. Any Bank may assign to one or more banks or other
entities all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Revolving Advances owing to it, the Notes held by it, and the participation
interest in the Letter of Credit Obligations held by it); PROVIDED, HOWEVER,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of such Bank's rights and obligations assigned under this Agreement,
(ii) the amount of the Commitments and Revolving Advances of such Bank being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall be, if to an
entity other than a Bank, not less than $5,000,000.00 and shall be an integral
multiple of $1,000,000.00, (iii) each such assignment shall be to an Eligible
Assignee, (iv) the parties to each such assignment shall execute and deliver to
the Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with the Notes subject to such assignment, and (v) each
Eligible Assignee (other than the Eligible Assignee of the Agent) shall pay to
the Agent a $2,500 administrative fee. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least three
Business Days after the execution thereof, (a) the assignee thereunder shall be
a party hereto for all purposes and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder and (B) such Bank
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
such Bank's rights and obligations under this Agreement, such Bank shall cease
to be a party hereto).

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<PAGE>

(b) TERM OF ASSIGNMENTS. By executing and delivering an Assignment and
Acceptance, the Bank thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than
as provided in such Assignment and Acceptance, such Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency of value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such Bank makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the Guarantors or the performance or observance by the Borrower or
the Guarantors of any of their obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.05 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Bank or any other Bank
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Bank.

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

(d) PROCEDURES. Upon its receipt of an Assignment and Acceptance
executed by a Bank and an Eligible Assignee, together with the Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of the attached Exhibit A,
(i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt notice thereof to the
Borrower. Within five Business Days after its receipt of such notice, the
Borrower shall execute and deliver to the Agent in exchange for the surrendered
Notes (A) if such Eligible Assignee has acquired a Revolving Commitment, a new
Note to the order of such Eligible

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<PAGE>

Assignee in an amount equal to the Revolving Commitment assumed by it
pursuant to such Assignment and Acceptance and (B) if such Bank has retained
any Revolving Commitment hereunder, a new Note to the order of such Bank in
an amount equal to the Revolving Commitment retained by it hereunder. Such
new Notes shall be dated the effective date of such Assignment and Acceptance
and shall otherwise be in substantially the form of the attached Exhibit H.

(e) PARTICIPATIONS. Each Bank may sell participations to one or more
banks or other entities in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitments, the Revolving Advances owing to it, its participation interest in
the Letter of Credit Obligations, and the Notes held by it); PROVIDED, HOWEVER,
that (i) such Bank's obligations under this Agreement (including, without
limitation, its Commitments to the Borrower hereunder) shall remain unchanged,
(ii) such Bank shall remain solely responsible to the other parties hereto for
the performance of such obligations, (iii) such Bank shall remain the holder of
any such Notes for all purposes of this Agreement, (iv) the Borrower, the
Agent, and the Issuing Bank and the other Banks shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement, and (v) such Bank shall not require the
participant's consent to any matter under this Agreement, except for change in
the principal amount of the Notes, reductions in fees or interest, releasing
all or substantially all of any collateral, or extending the Revolving Maturity
Date. The Borrower hereby agrees that participants shall have the same rights
under Sections 2.12, 2.13, 2.14(c), and 9.07 as a Bank to the extent of their
respective participations.

Section 9.07. INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE AGENT,
THE BANKS, THE ISSUING BANK, AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM, AND DISCHARGE, RELEASE, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, OR
DAMAGES WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THEM IN ANY
WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED
BY THEM UNDER THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT (INCLUDING ANY SUCH
LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF THE
PERSON BEING INDEMNIFIED'S OWN NEGLIGENCE), BUT EXCLUDING ANY SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES INCURRED BY REASON OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED.

Section 9.08. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

-69-

<PAGE>

Section 9.09. SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties contained in this Agreement or made in writing by or on behalf of
the Borrower in connection herewith shall survive the execution and delivery of
this Agreement and the Credit Documents, the making of the Revolving Advances
and any investigation made by or on behalf of the Banks, none of which
investigations shall diminish any Bank's right to rely on such representations
and warranties. All obligations of the Borrower provided for in Sections 2.12,
2.13, 2.14(c), 9.04, and 9.07 and all of the obligations of the Banks in
Section 8.05 shall survive any termination of this Agreement and repayment in
full of the Obligations.

Section 9.10. SEVERABILITY. In case one or more provisions of this
Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality,
and enforceability of the remaining provisions contained herein or therein
shall not be affected or impaired thereby.

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

Section 9.12. GOVERNING LAW. This Agreement, the Notes and the other
Credit Documents shall be governed by, and construed and enforced in accordance
with, the laws of the State of Texas. Without limiting the intent of the
parties set forth above, (a) Chapter 15, Subtitle 3, Title 79, of the Revised
Civil Statutes of Texas, 1925, as amended (relating to revolving loans and
revolving tri-party accounts), shall not apply to this Agreement, the Notes, or
the transactions contemplated hereby and (b) to the extent that any Bank may be
subject to Texas law limiting the amount of interest payable for its account,
such Bank shall utilize the indicated (weekly) rate ceiling from time to time
in effect as provided in Article 5069-1.04 of the Revised Civil Statutes of
Texas, as amended. Each Letter of Credit shall be governed by the Uniform
Customs and Practice for Documentary Credits, International Chamber of Commerce
Publication No. 500 (1993 version).

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

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<PAGE>

RESOLUTION OF ANY DISPUTES UNDER THIS AGREEMENT AND THE CREDIT DOCUMENTS, AND
HEREBY IRREVOCABLY WAIVE ANY CLAIM THAT SUCH JURISDICTION IS IMPRACTICAL OR
INCONVENIENT.

THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

EXECUTED as of the date first above written.

BORROWER:

RAM ENERGY, INC.

By: /s/ Larry E. Lee
-----------------------------------
Larry E. Lee
President

AGENT:

UNION BANK OF CALIFORNIA, N.A.

By: /s/ Tony R. Weber
-----------------------------------
Tony R. Weber
Senior Vice President and Manager

By: /s/ Carl Stutzman
-----------------------------------
Carl Stutzman
Vice President

-71-

<PAGE>

BANKS:

REVOLVING COMMITMENT UNION BANK OF CALIFORNIA, N.A.
$50,000,000

By: /s/ Tony R. Weber
-----------------------------------
Tony R. Weber
Senior Vice President and Manager

By: /s/ Carl Stutzman
-----------------------------------
Carl Stutzman
Vice President

-72-

<PAGE>

EXHIBIT H

FORM OF SECOND AMENDED AND RESTATED REVOLVING NOTE

$____________ __________________

For value received, the undersigned RAM Energy, Inc., a Delaware
corporation formerly known as RAMCO Operating Company ("Borrower"), hereby
promises to pay to the order of ________________________ ("Bank") the
principal amount of ____________________ Dollars ($______________) or, if
less, the aggregate outstanding principal amount of the Revolving Advances
(as defined in the Credit Agreement referred to below) made by the Bank to
the Borrower, together with interest on the unpaid principal amount of the
Revolving Advances from the date of such Revolving Advances until such
principal amount is paid in full, at such interest rates, and at such times,
as are specified in the Credit Agreement.

This Note is one of the Second Amended and Restated Revolving Notes
referred to in, and is entitled to the benefits of, and is subject to the
terms of, the Second Amended and Restated Credit Agreement dated as of
February 3, 1998 (as the same may be amended or modified from time to time,
the "Credit Agreement"), among the Borrower, the banks party thereto (the
"Banks") and Union Bank of California, N.A., as agent for the Banks (the
"Agent"). Capitalized terms used in this Note that are defined in the Credit
Agreement and not otherwise defined in this Note have the meanings assigned
to such terms in the Credit Agreement. The Credit Agreement, among other
things, (a) provides for the making of the Revolving Advances by the Bank to
the Borrower in an aggregate amount not to exceed at anytime outstanding the
Dollar amount first above mentioned, the indebtedness of the Borrower
resulting from each such Revolving Advance being evidenced by this Note and
(b) contains provisions for acceleration of the maturity of this Note upon the
happening of certain events stated in the Credit Agreement and for
prepayments of principal prior to the maturity of this Note upon the terms
and conditions specified in the Credit Agreement.

Both principal and interest are payable in lawful money of the United
States of America to the Agent at the location or address specified by the
Agent to the Borrower in same day funds. The Bank shall record payments of
principal made under this Note, but no failure of the Bank to make such
recordings shall affect the Borrower's repayment obligations under this Note.

<PAGE>

This Note is secured by the Security Documents and guaranteed under the
Guaranties.

Except as specifically provided in the Credit Agreement, the Borrower
hereby waives presentment, demand, protest, notice of intent to accelerate,
notice of acceleration, and any other notice of any kind. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of the
holder of this Note shall operate as a waiver of such rights.

This Note shall be governed by, and construed and enforced in accordance
with, the laws of the state of Texas (except that Tex. Rev. Civ. Stat. Ann.
Art, 5069, Ch. 15, which regulates certain revolving credit loan accounts
shall not apply to this Note).

RAM ENERGY, INC.

By: _____________________________

Name: ___________________________

Title: __________________________

<PAGE>

PROMISSORY NOTE

$174,130 Oklahoma City, Oklahoma
January 5, 1998

FOR VALUE RECEIVED, RAM Energy, Inc. a Delaware corporation ("Maker"),
hereby promises to pay to __________________________ ("Payee"); at the
address furnished in writing to Maker by Payee for such purpose, of if no
address is so furnished, at the last known address of Payee as it appears in
the corporate records of Maker, the principal sum of One Hundred Seventy-Four
Thousand One Hundred Thirty and no/100 Dollars ($174,130), together with
interest at the rate of eight percent (8%) per annum on the unpaid principal
amount thereof outstanding from and after the time Payee has complied with
Conditions to Payment (i) and (ii) below (and during the time Condition to
Payment (iii) below is satisfied) and until said principal amount shall be
paid in full.

This Promissory Note (this "Note") is issued pursuant to that certain
Notice of Redemption of RAMCO Operating Company Series B Preferred Stock (the
"Notice of Redemption"), issued December 23, 1997. Capitalized terms used but
not defined herein have the meanings ascribed to such terms in the Notice of
Redemption.

Provided that all Conditions for Payment are satisfied and written notice
of satisfaction of Conditions (i) and (ii) below is given to Maker by Payee,
this Note shall be due and payable in full on February 10, 1998. Maker shall
have the right to prepay this Note without premium or penalty.

The Conditions to Payment of this Note are (i) execution by Payee and
delivery to Union Bank of a Limited Guaranty, (ii) Payee's furnishing to
Union Bank such additional information or collateral as may be required by the
terms of the Limited Guaranty or as agreed to by Union Bank, and (iii) the
Banks under the Credit Agreement shall not have declared the Obligations (as
defined in the Credit Agreement) to be forthwith due and payable, or if so
declared, all of such Obligations shall have been paid in full or the notice
of acceleration withdrawn. Payment of this Note is expressly subordinated to
payment of the Obligations in the event the Condition to Payment described at
(iii) above is not satisfied at the time payment is due and shall remain so
subordinated until such time as said Condition is satisfied. The Conditions
to Payment described at (i) and (ii) above may be waived in the sole
discretion of the Maker.

Maker hereby waives presentment, protest, notice of protest, notice of
dishonor, diligence of collection and any and all other notices (except as
expressly provided herein) and defenses under this Note other than payment.
This Note shall be governed by and construed and enforced in accordance with
the laws

<PAGE>

of the State of Oklahoma. All payments hereunder shall be deemed made when
received if delivered in person or by courier or wire transfer, or, if mailed
by first class mail, postage prepaid, addressed to Payee at the address
provided above for payment.

IN WITNESS WHEREOF, Maker has executed and delivered this Note at Oklahoma
City, Oklahoma, as of the date first above written.

RAM Energy, Inc. a Delaware
corporation

By
-----------------------------------
Vice President

-2-

<PAGE>

EXHIBIT 12 - HISTORIC COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

RAM ENERGY, INC.

Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Earnings(1) $458 $565 $ 0 $(57) $408 $(130) $ (243)
Fixed Charges(2) 278 45 23 18 542 14 3,787
Ratio 2.64:1 13.56:1 1.00:1 1.75:1

RAMCO-NYL 1987 LIMITED PARTNERSHIP

<TABLE>
Eleven Months Nine Months
Year Ended December 31, Ended Ended
------------------------------------ November 30, September 30,
1992 1993 1994 1995 1996 1996
---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earnings(1) $1,096 $(15,154) $(10,129) $(2,313) $7,087 $5,480
Fixed Charges(2) 412 477 587 809 564 484
Ratio(3) 3.66:1 13.57:1 12.33:1
</TABLE>

(2) "Fixed Charges" is interest expense. No interest has been capitalized;
no preferred stock dividends have been declared, and no rental expense has
been reclassified or treated as interest expense.

(3) For RAM Energy, earnings were insufficient to cover fixed charges by
approximately $57,000 for the year ended December 31, 1995 and by
approximately $130,000 and $243,000 for the nine months ended September 30,
1996 and 1997, respectively. For the Partnership, earnings were
insufficient to cover fixed charges by approximately $15,154,000,
$10,129,000 and $2,313,000 for the years ended December 31, 1993, 1994
and 1995, respectively.

<PAGE>

EXHIBIT 12.1 - PRO FORMA COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

RAM ENERGY, INC.

Pro Forma Pro Forma
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
Earnings(1) 2,231 (2,970)
Fixed Charges(2) 12,554 9,420
Ratio(3) 1.18:1 -

(1) "Earnings" represents income (loss) before provision for federal and
state income taxes or income tax benefits. There were no discontinued
operations, extraordinary items, or cumulative effects of accounting changes
for any of the included periods. "Fixed charges" consist of interest
expense and amortization of costs incurred in connection with the
Offering.

(2) Pro forma to give effect to the issuance of $115 million of Senior
Notes due 2008 with an assumed stated interest rate of 10.50% in
the Offering, and net proceeds to RAM Energy, Inc. of $110.4 million.
For purposes of computing the Ratio of Earnings to Fixed Charges,
interest expense includes interest on the Senior Notes together with
amortization of the underwriting discounts and expenses of the Offering;
for the period ended December 31, 1996, amortization expense was $460,000
and for the period ended September 30, 1997 amortization expense was
$345,000.

The ratio of earnings to fixed charges has been computed using an
assumed interest rate of 10.50%. An increase or decrease of 1/8th of 1%
would not affect the calculated ratio for either Pro Forma period.

(3) Earnings were insufficient to cover fixed charges by approximately
$2,970,000 for the nine months ended September 30, 1997.

<PAGE>

EXHIBIT 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 15, 1997, except for the matters
discussed in the last paragraph of Note 11, as to which the date is December
27, 1997 with respect to the consolidated financial statements of RAM Energy,
Inc. and to the use of our report dated December 15, 1997 with respect to the
financial statements of RAMCO-NYL 1987 Limited Partnership, in Amendment No. 2
to the Registration Statement (Form S-1) and related Prospectus of RAM Energy,
Inc. for the registration of $115,000,000 of Senior Notes.

ERNST & YOUNG LLP

Oklahoma City, Oklahoma
February 11, 1998

<PAGE>

EXHIBIT 23.2

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 16, 1997, with respect to the
consolidated financial statements of Carlton Resources Corporation (and its
predecessor) included in Amendment No. 2 to the Registration Statement (Form
S-1) and related Prospectus of RAM Energy, Inc. for the registration of
$115,000,000 of Senior Notes.

ERNST & YOUNG LLP

Tulsa, Oklahoma
February 11, 1998