10-K405

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001

Or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-753

PENN VIRGINIA CORPORATION

One Radnor Corporate Center, Suite 200

100 Matsonford Road

Radnor, PA 19087

Registrant’s telephone number, including area code: (610) 687-8900

Incorporated in	I.R.S. Employer Identification Number
VIRGINIA	23-1184320

Securities registered pursuant to section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Act:

Title of Each Class	Name of Exchange on which registered
Common Stock, $6.25 Par Value	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

The aggregate market value of the voting stock held by non-affiliates of the Corporation at March 8, 2002 was $342,140,045, based on the closing price of $38.40 per share. As of that date, 8,909,897 shares of common stock were issued and outstanding. The number of shareholders of record of the registrant was 707 as of March 8, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

	Part Into Which Incorporated
(1) Proxy Statement for Annual Shareholders Meeting on May 7, 2002	Part III

1

Penn Virginia Corporation and Subsidiaries

Part I
Item
1.	Business	3
2.	Properties	12
3.	Legal Proceedings	15
4.	Submission of Matters to a Vote of Security Holders	15
Part II
5.	Market for the Registrant’s Common Stock and Related Shareholder Matters	15
6.	Selected Financial Data	16
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
8.	Financial Statements and Supplementary Data	30
9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	55
Part III
10.	Directors and Executive Officers of the Registrant	56
11.	Executive Compensation	56
12.	Security Ownership of Certain Beneficial Owners and Management	56
13.	Certain Relationships and Related Transactions	56
Part IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	56

2

Part 1

General

Penn Virginia Corporation (“Penn Virginia” or the “Company”) is a Virginia corporation founded in 1882. We are engaged in the exploration, development and production of oil and natural gas in the eastern and Gulf Coast onshore areas of the United States. At December 31, 2001, we had proved reserves of approximately 3.9 million barrels of oil and condensate and 229 billion cubic feet (Bcf) of natural gas. We also collect royalties and overriding royalty interests on various oil and gas properties.

Until October 30, 2001, we were also engaged directly in the leasing and management of coal properties in the Central Appalachian region of the United States. In September 2001, we transferred our coal properties and related assets to Penn Virginia Resource Partners, L.P. (the “Partnership” or “PVR”), a newly formed Delaware limited partnership. The Partnership completed its initial public offering (“IPO”) of approximately 7.5 million common units at $21.00 per unit on October 30, 2001. At December 31, 2001 the Partnership owned approximately 493 million tons of proven and probable coal reserves, including approximately 53 million tons of such reserves that were acquired in May 2001 for approximately $33 million. The Partnership’s reserves are generally high quality, low-sulfur bituminous coal and are leased to various operators. At December 31, 2001 the Partnership also owned approximately 174 million board feet of timber. Our wholly owned subsidiary, Penn Virginia Resource GP, LLC, a Delaware limited liability company, serves as general partner of the Partnership. After the IPO, we own approximately 52 percent of the Partnership, consisting of a two percent general partner interest, 49 percent subordinated units, and one percent common units. Accordingly, our revenues related to the coal royalty and land management business are now directly dependent on the Partnership’s payment of quarterly distributions and incentive distributions, which, in turn, are dependent on the ability of the Partnership’s lessees to produce coal. See “Risks Associated with Business Activities—Coal Royalty and Land Management.”

Financial Information

We operate in two primary business segments: (1) oil and natural gas and (2) coal royalty and land management through our interests in PVR. For financial statement purposes, the assets, liabilities and earnings of PVR are included in our consolidated financial statements, with the public unitholders’ ownership interest reflected as a minority interest. See Note 18 (Segment Information) of the Notes to the Consolidated Financial Statements for financial information concerning our business segments.

Oil and Gas Operations

Overview

Our oil and gas properties are located primarily in the eastern and Gulf Coast onshore areas of the United States. At December 31, 2001, we had 253 Bcfe of proved reserves (229 Bcf of natural gas) including 206 Bcfe of working interests and 47 Bcfe of royalty interests. During 2001, we acquired Synergy Oil & Gas, Inc., a privately owned oil and gas company, with operations onshore in the Texas Gulf Coast, for $112 million. We added 59 Bcfe of proved reserves in Texas with the acquisition, along with 27,300 net developed and 10,000 net undeveloped leasehold acres and 214 square miles of 3-D seismic data.

Oil and Gas Production

During 2001, 164,000 barrels of oil and condensate and 13,130 MMcf of natural gas, net to our interest, were produced compared with 31,000 barrels and 11,645 MMcf in 2000. We received average prices of $22.94 and $26.84 per barrel and $4.06 and $3.95 per Mcf for oil and gas sales in 2001 and 2000, respectively.

Exploration and Development

We drilled 154 gross (119.1 net) wells in 2001, of which 130 gross (101.1 net) were development and 24 gross (18.0 net) were exploratory. A total of five gross (3.5 net) exploratory wells were non-productive.

3

Transportation

The majority of our natural gas production is transported to market primarily on three major transmission systems. Nisource, Inc., Dominion Energy, Inc. and Duke Energy, Inc. transported 26 percent, 26 percent and 20 percent, respectively, of our 2001 natural gas production. The remainder was divided among several pipeline companies in Texas, Louisiana and West Virginia. In almost all cases, our natural gas is sold at the interconnects with the transmission pipelines. For additional information, see “Risks Associated with Business Activities—Oil and Gas—Transportation.”

Marketing and Hedging

We generally sell our natural gas using the spot market and short-term fixed price physical contracts. From time to time, we enter into commodity derivative contracts or fixed price physical contracts to mitigate the risk associated with the volatility of natural gas prices. Recent hedging activity has primarily utilized costless collars and fixed price contracts. Gains and losses from hedging activities are included in revenues when the hedged production occurs. We recognized a gain of $1.9 million on hedging activities in 2001, no gain or loss in 2000, and a loss of $0.4 million in 1999. Beginning January 1, 2001 we account for our derivative activities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133 Accounting for Derivative Instrumentsand Hedging Activities, as amended by SFAS 137 and SFAS 138.

In 2001, we hedged approximately 27 percent of our natural gas production at an average floor price of $2.92 per MMbtu and a ceiling price of $4.64 per MMbtu. For 2002, we have hedged approximately 41percent of our anticipated natural gas production at an average floor price of $2.95 per MMbtu and a ceiling price of $3.50 per MMbtu.

For crude oil, we hedged approximately 81 percent of our 2001 crude oil production at an average floor price or $22.53 per barrel and a ceiling price of $28.04 per barrel. In 2002, we have hedged approximately 52 percent of our anticipated crude oil production at an average floor price of $21.31 per barrel and a ceiling price of $25.72 per barrel.

We have in place natural gas hedge positions for 2002 covering approximately 22,682 MMbtu per day. These positions provide average floor and ceiling prices of $2.95 and $3.50 per MMbtu, respectively, and cover approximately 41 percent of anticipated natural gas production.

For 2002, we have hedge positions in place covering approximately 750 barrels per day, or approximately 52 percent of anticipated crude oil production, with average floor and ceiling prices of $21.31 and $25.72 per barrel, respectively.

For 2003, we have a natural gas collar arrangement covering 5,400 MMbtu per day at an average floor price of $2.75 per MMbtu and a ceiling price of $4.48 per MMbtu.

Coal Royalty and Land Management Operations

Overview

At December 31, 2001, the Partnership owned approximately 218,000 acres of coal and timber-bearing land in central Appalachia containing approximately 493 million tons of coal reserves. The Partnership earns coal royalty revenue, based on long-term lease agreements, from 21 coal-mining operators actively mining under 41 separate leases. Coal royalty revenue is based on the higher of a percentage of the gross sales price or a fixed price per ton of coal, with pre-established minimum monthly or annual payments. The Partnership does not operate coal mines. The Partnership provides fee-based coal preparation and transportation facilities to some of its lessees to enhance their production levels and generate additional coal service revenue.

The Partnership’s timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. The Partnership owned approximately 174 million board feet of standing saw timber at December 31, 2001. The Partnership’s timber inventory only includes timber that can be harvested and is greater than 12 inches in diameter.

Coal Production

The Partnership’s lessees mined approximately 15.3 million tons of coal in 2001 and paid an average royalty of $2.11 per ton, compared with approximately 12.5 million tons mined in 2000 at an average royalty of $1.94 per ton.

4

Timber Production

The Partnership sold approximately 8.7 MMbf in 2001 for an average price of $168 per Mbf, compared with 8.5 MMbf at an average price of $257 per Mbf in 2000. Timber is harvested in advance of lessee mining to prevent loss of the resource. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, whereby PVR pays independent contractors to harvest timber while PVR directly markets the product.

Coal Services

The Partnership generates coal service revenues from fees charged to lessees for the use of coal preparation and transportation facilities. The majority of these fees have been generated by the unit train loadout facility, which was completed in April 1999 at a cost of $5.2 million. This facility accommodates 108-car unit trains, which can be loaded in approximately four hours. Lessees utilize the unit train loadout facility to reduce delivery costs incurred by their customers. The Partnership recognized $1.7 million in coal service revenue in 2001 compared with $1.4 million in 2000. Such amounts are reported in other revenues.

Corporate and Other

Investments

During 2001, we sold 3,307,200 shares of Norfolk Southern Corporation (NYSE: NSC) common stock. The shares were sold in open market transactions on the New York Stock Exchange at an average price of $17.39 per share. Our 3,307,200 common shares of Norfolk Southern Corporation generated dividends of $0.2 million in 2001, and $2.6 million in each of 2000 and 1999. We received a quarterly dividend of $0.06 per share in 2001, which was a reduction from the $0.20 per share realized in each of 2000 and 1999. We had no available-for-sale securities at December 31, 2001. The fair value of our equity portfolio at December 31, 2000 was $44.1 million compared with $67.8 million at December 31, 1999. See Note 5 (Investments and Dividend Income) of the Notes to the Consolidated Financial Statements for additional information.

Risks Associated with Business Activities

Oil and Gas

Competition

The oil and natural gas industry is very competitive. Competition is particularly intense in the acquisition of prospective oil and natural gas properties and oil and gas reserves. Our competitive position depends on our geological, geophysical and engineering expertise, our financial resources, our ability to develop properties and our ability to select, acquire and develop proved reserves. We compete with a substantial number of other companies having larger technical staffs and greater financial and operational resources. Many such companies not only engage in the acquisition, exploration, development and production of oil and natural gas reserves, but also carry on refining operations, generate electricity and market-refined products. We also compete with major and independent oil and gas companies in the marketing and sale of oil and natural gas, and the oil and natural gas industry in general competes with other industries supplying energy and fuel to industrial, commercial and individual consumers. We compete with other oil and natural gas companies in attempting to secure drilling rigs and other equipment necessary for drilling and completion of wells. Such equipment may be in short supply from time to time.

Price Volatility

Our oil and gas revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and natural gas. The prices of oil and natural gas realized by us are highly volatile and subject to numerous factors generally beyond our control. The price of oil is generally dependent on world supply and demand, while the price we receive for our natural gas is tied to the specific markets in which such gas is sold. Declines in crude oil prices or natural gas prices adversely impact our revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of our oil and natural gas properties. Due to low commodity prices, in the fourth quarter of 2001, such impairment was recognized on oil and natural gas properties located primarily in Texas. The carrying amount of the properties exceeded the estimated undiscounted future cash flows; thus, we adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. As a result, we recognized a non-cash pre-tax charge of $33.6 million ($21.8 million after tax) related to the impairment of oil and gas properties in the fourth quarter of 2001. There were no impairments of oil and gas properties in 2000 or 1999.

5

Exploratory Drilling

Both development and exploratory drilling involve risks. However, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons than does development drilling. We anticipate the number of exploratory prospects drilled in the short and long-term will increase, compared with historical amounts. Consequently, it is likely that we will experience increased levels of exploration expense in 2002 and beyond.

Transportation

We transport our natural gas to market on various gathering and transmission pipeline systems owned primarily by third parties. Gathering fees are primarily paid by the purchaser of the natural gas. The majority of natural gas sales contracts are one year or less in duration and contain relevant spot market index pricing provisions. Interruptible gathering rates have increased over the years as pipelines have implemented the mandatory unbundling of gathering services (Federal Energy Regulatory Commission Order 636) from other transportation services. In 2001, Dominion Energy, Inc. gathered and transported approximately 26% of our natural gas, Nisource, Inc. (formerly Columbia Gas Transmission) approximately 26%, Duke Energy, Inc. approximately 20%, with the remainder divided among several pipeline companies in Texas, West Virginia and Louisiana. Production could be adversely affected by shutdowns of the pipelines for maintenance or replacement as pipeline flexibility is limited.

Regulation

State Regulatory Matters.    Various aspects of our oil and natural gas operations are regulated by administrative agencies under statutory provisions of the states where such operations are conducted. All of the jurisdictions in which we own or operate producing crude oil and natural gas properties have statutory provisions regulating the exploration for and production of crude oil and natural gas, including provisions requiring permits for the drilling of wells and maintaining bonding requirements in order to drill or operate wells and provisions relating to the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled and the plugging and abandoning of wells. Our operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the number of wells that may be drilled in an area and the unitization or pooling of crude oil and natural gas properties. In addition, state conservation laws establish maximum rates of production from crude oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells. The effect of these regulations is to limit the amounts of crude oil and natural gas we can produce from our wells, and to limit the number of wells or the locations at which we can drill.

Federal Energy Regulatory Commission.    The Federal Energy Regulatory Commission (“FERC”) regulates the transportation and sale for resale of natural gas in interstate commerce under the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978 (“NGPA”). In the past, the Federal government has regulated the prices at which oil and gas could be sold. The Natural Gas Wellhead Decontrol Act of 1989 (the “Decontrol Act”) removed all NGA and NGPA price and nonprice controls affecting producers’ wellhead sales of natural gas effective January 1, 1993. 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.

Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B and 636-C (“Order No. 636”), which require interstate pipelines to provide transportation separate, or “unbundled,” from the pipelines’ sales of gas. Also, Order No. 636 requires pipelines to provide open-access transportation on a basis that is equal for all gas supplies. Although Order No. 636 does not directly regulate gas producers like Penn Virginia Corporation, the FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry. The courts have largely affirmed the significant features of Order No. 636 and numerous related orders pertaining to the individual pipelines, although certain appeals remain pending and the FERC continues to review and modify its open access regulations. In particular, the FERC has recently issued Order No. 637, which, among other things, (i) lifts the cost-based cap on pipeline transportation rates in the capacity release market until September 30, 2002, for releases of pipeline capacity of less than one year, (ii) permits pipelines to charge different maximum cost-based rates for peak and off-peak times, (iii) encourages auctions for pipeline capacity, (iv) requires pipelines to implement imbalance management services, and (v) restricts the ability of pipelines to impose penalties for imbalances, overruns, and non-compliance with operational flow orders. In addition, the FERC recently implemented new regulations governing the procedure for obtaining authorization to construct new pipeline facilities and has issued a policy statement, which it largely affirmed in a recent order on rehearing, establishing a presumption in favor of requiring owners of new pipeline facilities to charge rates based solely on the costs associated with such new pipeline facilities.

6

While any additional FERC action on these matters would affect us only indirectly, these changes are intended to further enhance competition in natural gas markets. We cannot predict what further action the FERC will take on these matters, nor can we predict whether the FERC’s actions will achieve its stated goal of increasing competition in natural gas markets. However, we do not believe that we will be treated materially differently than other natural gas producers and markets with which we compete.

Environmental Matters.    Extensive federal, state and local laws govern oil and natural gas operations, regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which carry substantial administrative, 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 liable for environmental and natural resource damages and cleanup costs without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and natural gas production below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial action to prevent pollution from former operations, such as closure of inactive pits and plugging of abandoned wells. The regulatory burden on the oil and natural gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect our operations, as well as the oil and gas exploration and production industry in general. We believe that we are in substantial compliance with current applicable environmental laws, rules and regulations and that continued compliance with existing requirements will not have a material adverse impact on us. Nevertheless, changes in existing environmental laws or the adoption of new environmental laws have the potential to adversely affect our operations.

Coal Royalty and Land Management

Our revenues related to the coal royalty and land management business are directly dependent on the Partnership’s ability to pay minimum quarterly and incentive distributions to us. Although the Partnership intends to make minimum quarterly distributions of $0.50 per common unit, it can only do so to the extent it has sufficient cash from operations after payment of fees and expenses. In addition, minimum quarterly distributions are payable on our subordinated units only after each common unit has received a distribution of $0.50 plus any arrearages due from prior quarters. Incentive distributions are payable to the general partner subsidiary after cash distributions per unit exceed $0.55 in any quarter. See “Certain Relationships and Related Transactions” in our proxy statement which has been incorporated herein by reference. The Partnership’s revenues and its ability to make minimum quarterly and incentive distributions are subject to several risks, including those described below.

Competition

The coal industry is intensely competitive primarily as a result of the existence of numerous producers. The Partnership’s lessees compete with coal producers in various regions of the U.S. for domestic sales. The industry has undergone significant consolidation that has led to some of the competitors of the Partnership’s lessees having significantly larger financial and operating resources than the Partnership’s lessees do. The Partnership’s lessees primarily compete with both large and small producers in Appalachia. They compete on the basis of coal price at the mine, coal quality (including sulfur content), transportation cost from the mine to the customer and the reliability of supply. Continued demand for the Partnership’s coal and the prices that the Partnership’s lessees obtain are also affected by demand for electricity, environmental and government regulations, technological developments and the availability and price of alternative fuel supplies, including nuclear, natural gas, oil and hydroelectric power. Demand for the Partnership’s low sulfur coal and the prices the Partnership’s lessees will be able to obtain for it will also be affected by the price and availability of high sulfur coal, which can be marketed in tandem with emissions allowances in order to meet federal Clean Air Act requirements.

Operating Risks

General Regulation.    The Partnership’s lessees are obligated to conduct mining operations in compliance with all applicable federal, state and local laws and regulations. These laws and regulations include matters involving the discharge of materials into the environment, employee health and safety, mine permits and other licensing requirements, reclamation and restoration of mining properties after mining is completed, management of materials generated by mining operations, surface subsidence from underground mining, water pollution, legislatively mandated benefits for current and retired coal miners, air quality standards, protection of wetlands, plant and wildlife protection, limitations on land use, storage of petroleum products and substances which are regarded as hazardous under applicable laws and management of electrical equipment containing polychlorinated biphenyls, or PCBs. Because of extensive and comprehensive regulatory requirements, violations during mining operations are not unusual in the industry and,

7

notwithstanding compliance efforts, we do not believe violations by the Partnership’s lessees can be eliminated completely. However, none of the violations to date, or the monetary penalties assessed, have been material to us, to the Partnership or, to our knowledge, to the Partnership’s lessees. We do not currently expect that future compliance will have a material adverse effect on us or the Partnership.

While it is not possible to quantify the costs of compliance by the Partnership’s lessees with all applicable federal and state laws, those costs have been and are expected to continue to be significant. Capital expenditures for environmental matters have not been material to us or the Partnership or its lessees in recent years. The lessees post performance bonds pursuant to federal and state mining laws and regulations for the estimated costs of reclamation and mine closing, including the cost of treating mine water discharge when necessary. Although the Partnership does not accrue for such costs because its lessees are contractually liable for all costs relating to their mining operations, including the costs of reclamation and mine closure, the Partnership has, with respect to some of its smaller lessees, set up escrow funds for them to deposit anticipated reclamation costs or required performance bonds for these costs. Although the lessees typically accrue adequate amounts for these costs, their future operating results would be adversely affected if they later determined these accruals to be insufficient. Compliance with these laws has substantially increased the cost of coal mining for all domestic coal producers.

In addition, the utility industry, which is the most significant end-user of coal, is subject to extensive regulation regarding the environmental impact of its power generation activities which could affect demand for the Partnership’s lessees’ coal. The possibility exists that new legislation or regulations may be adopted which may have a significant impact on the mining operations of the Partnership’s lessees or their customers’ ability to use coal and may require the Partnership, its lessees or their customers to change operations significantly or incur substantial costs.

Certain Regulatory and Legal Matters

Clean Air Act.    The Clean Air Act affects the end-users of coal and could significantly affect the demand for the Partnership’s coal and reduce the Partnership’s coal royalty revenues. The Clean Air Act and corresponding state and local laws extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides and other compounds emitted from industrial boilers and power plants, including those that use the Partnership’s coal. These regulations together constitute a significant burden on coal customers and stricter regulation could further adversely impact the demand for and price of the Partnership’s coal, resulting in lower coal royalty revenues.

In July 1997, the U.S. Environmental Protection Agency adopted more stringent ambient air quality standards for particulate matter and ozone. Particulate matter includes small particles that are emitted during the combustion process. In a February 2001 decision, the U.S. Supreme Court largely upheld the EPA’s position, although it remanded the EPA’s ozone implementation policy for further consideration. Details regarding the new particulate standard itself are still subject to judicial challenge. These ozone restrictions will require electric power generators to further reduce nitrogen oxide emissions. Nitrogen oxides are naturally occurring byproducts of coal combustion that lead to the formation of ozone. Further reduction in the amount of particulate matter that may be emitted by power plants could also result in reduced coal consumption by electric power generators. Future regulations regarding ozone, particulate matter and other ambient air standards could restrict the market for coal and the development of new mines by the Partnership’s lessees. This in turn may result in decreased production by the Partnership’s lessees and a corresponding decrease in the Partnership’s coal royalty revenues. These decreases could adversely effect the distributions we receive from the Partnership.

The Clean Air Act also imposes standards on sources of hazardous air pollutants. These standards have not yet been extended to coal mining operations or by-products of coal combustion, but consideration is now being given to regulating certain hazardous air pollutant components that are found in coal combustion exhaust, including mercury. Like other environmental regulations, these standards and future standards could result in a decreased demand for coal.

Surface Mining Control and Reclamation Act of 1977.    The Surface Mining Control and Reclamation Act of 1977 (“SMCRA”) and similar state statutes impose on mine operators the responsibility of restoring the land to its original state or compensating the landowner for types of damages occurring as a result of mining operations, and require mine operators to post performance bonds to ensure compliance with any reclamation obligations. Regulatory authorities may attempt to assign the liabilities of the Partnership’s lessees to the Partnership if any of the lessees are not financially capable of fulfilling those obligations. In conjunction with mining the property, the Partnership’s lessees are contractually obligated under the terms of their leases to comply with all laws, including SMCRA and equivalent state and local laws, which obligations include reclaiming and restoring the mined areas by grading, shaping and reseeding the soil. Upon completion of the mining, reclamation generally is completed by seeding with grasses or planting trees

8

for use as pasture or timberland, as specified in the approved reclamation plan. To our knowledge, all of the Partnership’s lessees are in compliance in all material respects with applicable regulations relating to reclamation.

CERCLA.    The Partnership could become liable under federal and state Superfund and waste management statutes if its lessees are unable to pay environmental cleanup costs. The Comprehensive Environmental Response, Compensation and Liability Act, known as CERCLA or “Superfund,” and similar state laws create liabilities for the investigation and remediation of releases and threatened releases of hazardous substances to the environment and damages to natural resources. As a landowner, the Partnership is potentially subject to liability for these investigation and remediation obligations.

Mountaintop Removal Litigation.    On October 20, 1999, the United States District Court for the Southern District of West Virginia (“District Court”) issued an injunction against the West Virginia Division of Environmental Protection (“WVDEP”) prohibiting it from issuing permits for the construction of valley fills over both intermittent and perennial stream segments as part of mining operations. Virtually all mining operations (including those of the Partnership’s lessees) utilize valley fills to dispose of excess materials mined during coal production. On April 24, 2001, the Fourth Circuit Court of Appeals overruled the District Court, finding that the 11th amendment to the U.S. Constitution barred the suit against WVDEP in federal court. On July 13, 2001, the Fourth Circuit Court of appeals denied the plaintiffs’ petition for rehearing. In October 2001, the plaintiffs appealed the Fourth Circuit decision to the U.S. Supreme Court. On January 22, 2002, the U.S. Supreme Court refused to hear the appeal. Accordingly, challenges to WVDEP’s enforcement of its mining program cannot be maintained in federal court. However, challenges may be raised in state court against WVDEP or in federal court against the federal Office of Surface Mining (“OSM”), the agency that oversees state regulation of surface mining. If and to the extent state courts rule that the WVDEP is prohibited from issuing permits for the construction of valley fills or federal courts rule that OSM is compelled to impose such a prohibition on WVDEP, the mining operations of the Partnership’s lessees could be affected if legislation is not passed which limits the impact of such a ruling.

Legislation of Weight.    The West Virginia Legislature considered legislation during its last session that would have significantly increased the scope of powers available to enforce the current weight restrictions on trucks carrying coal. Although no legislation was approved to allow such an increase, the issue remains controversial in West Virginia and similar legislation could be proposed again. Were such legislation enacted into law in West Virginia or were the recent increase in enforcement of the existing weight restrictions to continue, our lessees’ costs of transportation would increase. An increase in costs to our lessees could have an adverse effect on our revenues and our lessees’ ability to increase production on our leased properties.

Employees

We had 92 employees at December 31, 2001, including 24 employees who directly provide services for PVR through its general partner. We consider our relations with our employees to be good.

Executive Officers of the Company

The following table sets forth information concerning our executive officers. Each officer is elected annually by the Board of Directors and serves at the pleasure of the Board of Directors.

Name	Age	Position with the Company
A. James Dearlove	54	President and Chief Executive Officer
Frank A. Pici	46	Executive Vice President and Chief Financial Officer
Keith D. Horton	48	Executive Vice President
H. Baird Whitehead	51	Executive Vice President
Nancy M. Snyder	48	Vice President, General Counsel and Secretary
Ann N. Horton	43	Vice President and Controller

A. James Dearlove—Mr. Dearlove is the President and Chief Executive Officer of the Company. He has served in various capacities with the Company since 1977, including Vice President, Senior Vice President and, most recently, President since 1994. Mr. Dearlove was elected to the Company’s Board of Directors effective February 6, 1996. He was appointed Chief Executive Officer in May 1996. Mr. Dearlove is the Chief Executive Officer and a Director of Penn Virginia Resource, GP LLC. He also serves as director of the Powell River Project and the National Council of Coal Lessors.

Frank A. Pici—Mr. Pici is the Executive Vice President and Chief Financial Officer of the Company, which he joined in September 2001. Mr. Pici is the Vice President and Chief Financial Officer of Penn Virginia Resource, GP LLC. From 1996 to

9

August 2001, Mr. Pici was Vice President of Finance and Chief Financial Officer of Mariner Energy, Inc., an energy company. Prior to 1996, he served in various capacities with Cabot Oil & Gas Corporation, including Director, Internal Audit from 1992 to 1994 and Corporate Controller from 1994 to 1996.

Keith D. Horton—Mr. Horton serves as President, Chief Operating Officer and a Director of Penn Virginia Resource, GP LLC. He has served in various capacities with the Company since 1981 and as an executive officer of the Company since 1996. He was appointed Executive Vice President and elected to the Company’s Board of Directors in December 2000. Mr. Horton also serves as a director of the Virginia Mining Association, Powell River Project, Virginia Coal Council and the Central Appalachian Section of the Society of Mining Engineers.

H. Baird Whitehead - Mr. Whitehead is an Executive Vice President of the Company, which he joined in January 2001. He also serves as President of the Company’s oil and gas subsidiary. He was previously employed for 20 years at Cabot Oil & Gas Corporation in various management positions, most recently as Senior Vice President.

Nancy M. Snyder—Ms. Snyder has served as General Counsel and Corporate Secretary since joining the Company in 1997. She was appointed a Vice President of the Company in December 2000. Ms. Snyder is Vice President, General Counsel and a Director of Penn Virginia Resource, GP LLC. Previously, Ms. Snyder was in private and firm practices in the areas of general corporate and securities law.

Ann N. Horton—Mrs. Horton has served as Principal Accounting Officer and Controller of the Company since 1995. She was appointed a Vice President of the Company in December 2000. She has served in various capacities with the Company and its subsidiaries since 1981.

10

The following terms have the meanings indicated below when used in this report.

Bbl—	means a standard barrel of 42 U.S. gallons liquid volume
Bcf—	means one billion cubic feet
Bcfe—	means one billion cubic feet equivalent with one barrel of oil or condensate converted to six thousand cubic feet of natural gas based on the estimated relative energy content
Gross—	acre or well means an acre or well in which a working interest is owned
Mbbl—	means one thousand barrels
MMbbl—	means one million barrels
Mbf—	means one thousand board feet
Mcf—	means one thousand cubic feet
MMbf—	means one million board feet
MMbtu—	means one million British thermal units
MMcf—	means one million cubic feet
Net—	acres or wells is determined by multiplying the gross acres or wells by the owned working interest in those gross acres or wells
NYMEX—	New York Mercantile Exchange
Present value of proved reserves—	means the present value (discounted at 10%) of estimated future cash flows from proved oil and natural gas reserves, as estimated by our independent engineers, reduced by additional estimated future operating expenses, development expenditures and abandonment costs (net of salvage value) associated therewith (before income taxes)
Proved Reserves—	means those estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions
Standardized Measure—	means such amount further reduced by the present value (discounted at 10%) of estimated future income taxes on cash flows
Working Interest—	means a cost-bearing interest under an oil and gas lease that gives the holder the right to produce and develop the minerals under the lease

11

ITEM 2—PROPERTIES

Facilities

We are headquartered in Radnor, Pennsylvania with additional offices in Kingsport, Tennessee; Houston, Texas and Charleston, West Virginia. We believe that our properties are adequate for our current needs.

Title to Properties

We believe that we have satisfactory title to all of our properties in accordance with standards generally accepted in the oil and natural gas and coal royalty and land management industries.

As is customary in the oil and natural gas industry, we make 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 thorough title examination is conducted and curative work is performed with respect to significant defects. To the extent title opinions or other investigations reflect defects, we cure such title defects. If we were unable to remedy or cure any title defect of a nature such that it would not be prudent to commence drilling operations on a property, we could suffer a loss of our investment in the property. Prior to completing an acquisition of producing oil and gas assets, we obtain title opinions on all material leases. Our oil and gas properties are subject to customary royalty interests, liens for current taxes and other burdens that we believe do not materially interfere with the use or affect the value of such properties.

Of the 191,000 acres of coal and timber bearing land, PVR owns 68 percent in fee and 32 percent in mineral. Additionally, PVR leases approximately 27,000 acres of coal and timber bearing land from third parties.

Oil and Gas

Production and Pricing

The following table sets forth production, sales prices and production costs with respect to our properties for the years ended December 31, 2001, 2000 and 1999.

	2001		2000		1999
Production
Oil and condensate (Mbbls)		164		31		32
Natural gas (MMcf)		13,130		11,645		8,679
Total production (MMcfe)		14,114		11,831		8,871
Average sales price
Oil and condensate ($/Bbl)	$	22.94	$	26.84	$	14.47
Natural gas ($/Mcf)		4.06		3.95		2.46
Production cost
Lease operating expense per Mcfe	$	0.40	$	0.38	$	0.46
Lease production taxes per Mcfe		0.31		0.24		0.25
Total production cost per Mcfe	$	0.71	$	0.62	$	0.71
Hedging Summary
Natural gas prices ($/Mcf):
Actual price received for production	$	3.92	$	3.95	$	2.50
Effect of derivative hedging activities		0.14		—		(0.04	)
Average realized price	$	4.06	$	3.95	$	2.46

12

Proved Reserves

We had proved reserves of 229 Bcf of natural gas and 3.9 million barrels of crude oil and condensate at December 31, 2001. The present value of the estimated future cash flows discounted at 10 percent (Pre-tax SEC PV10 Value) at December 31, 2001 was $242 million. At December 31, 2001, we had 172 gross (93 net) proved undeveloped drilling locations.

	Oil and Condensate (MMbbls)	Natural Gas (Bcf)	Natural Gas Equivalents (Bcfe)	Pre-tax SEC PV10 Value ($MM)		Year-end Weighted Average Prices Used
						$ / Bbl		$ / Mcf
2001
Developed	2.2	183	196	$	202
Undeveloped	1.7	46	56		40
Total	3.9	229	252	$	242	$	20.40	$	2.65
2000
Developed	0.1	146	147	$	540
Undeveloped	—	28	28		104
Total	0.1	174	175	$	644	$	23.31	$	9.91
1999
Developed	0.3	138	140	$	116
Undeveloped	0.1	47	47		20
Total	0.4	185	187	$	136	$	21.78	$	2.69

The standardized measure of discounted future net cash flows, which represents the present value of future net revenues after income taxes discounted at ten percent, was $189 million, $467 million and $119 million at December 31, 2001, 2000 and 1999, respectively. The year-end weighted average prices used to determine proved reserves at December 31, 2001, 2000 and 1999 were ($/Bbl) $20.40, $23.31, and $21.78, respectively, for oil and condensate and ($/Mcf) $ 2.65, $9.91 and $2.69, respectively, for natural gas. For information on the changes in standardized measure of discounted future net cash flows, see “Note 20. Supplementary Information on Oil and Gas Producing Activities (Unaudited)” in “Item 8—Financial Statements and Supplementary Data.”

In accordance with the Securities and Exchange Commission’s guidelines, the engineers’ estimates of future net revenues from our properties and the Pre-tax SEC PV10 value thereof are made using oil and natural gas sales prices in effect at the date of such estimates. The prices are held constant throughout the life of the properties except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. Net proved oil and gas reserves for the three years ended December 31, 2001 were estimated by Wright and Company, Inc. Prices for oil and gas are subject to substantial seasonal fluctuations and prices for each are subject to substantial fluctuations as a result of numerous other factors. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Proved reserves are the estimated quantities of natural gas and condensate 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 developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond our control. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount of timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the Pre-tax SEC PV10 value amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to our properties. The information set forth in the foregoing tables includes revisions of certain volumetric reserve estimates attributable to proved properties included in the preceding year’s estimates. Such revisions are the result of additional information from subsequent completions and production history from the properties involved or the result of a decrease (or increase) in the projected economic life of such properties resulting from changes in production prices.

13

Acreage

The following table sets forth our developed and undeveloped acreage at December 31, 2001. The acreage is located in the eastern and southern portions of the United States.

	Gross Acreage	Net Acreage
	(in thousands)
Developed	656	528
Undeveloped	249	122
Total	905	650

Wells Drilled

The following table sets forth the gross and net number of exploratory and development wells drilled during the last three years. The number of wells drilled means the number of wells spud at any time during the respective year. Net wells equal the number of gross wells multiplied by our working interest in each of the gross wells. Productive wells represent either wells which were producing or which were capable of commercial production.

	2001		2000		1999
	Gross	Net	Gross	Net	Gross	Net
Development
Productive	125	96.1	99	75.3	61	38.1
Non-productive	5	5.0	1	0.9	2	2.0
	130	101.1	100	76.2	63	40.1
Exploratory
Productive	19	14.5	1	0.2	16	9.2
Non-productive	5	3.5	5	1.3	3	1.5
Under evaluation	—	—	3	1.4	—	—
	24	18.0	9	2.9	19	10.7
Total	154	119.1	109	79.1	82	50.8

Productive Wells

The number of productive oil and gas wells in which we had a working interest at December 31, 2001 is set forth below. Productive wells are producing wells or wells capable of commercial production.

	Operated Wells		Non-Operated Wells		Total
	Gross	Net	Gross	Net	Gross	Net
Natural gas	687	653	386	55	1073	708

In addition to the above working interest wells, Penn Virginia owns royalty interests in 2,183 gross wells.

Coal Royalty and Land Management

Effective September 14, 2001, we transferred our coal properties and related assets to Penn Virginia Resource Partners, L.P. (NYSE: PVR). An initial public offering of 6.5 million common units at $21.00 per unit was completed and the units began trading on the New York Stock Exchange on October 31, 2001. Including the exercise of an over-allotment option granted to the underwriters of the IPO, 7.475 million common units were sold to the public. After the sale of the common units, we own approximately 52 percent of PVR, consisting of 49 percent subordinated units, a 2 percent general partner interest, and 1 percent of the common units.

14

The Partnership’s coal reserves and timber assets at December 31, 2001 covered 218,000 acres, including fee and leased acreage, in central Appalachia. The coal reserves are in various surface and underground seams.

The Partnership’s proven and probable coal reserves are estimated at 492.8 million tons as of December 31, 2001. Reserves are coal tons that can be economically extracted or produced at the time of determination considering legal, economic and technical limitations. Proven reserves are reserves for which: (a) quantity is computed from dimensions revealed in outcrops, trenches, working or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely, and the geologic character is so well defined, that the size, shape, and depth and mineral content of reserves are well-established. Probable reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves is high enough to assume continuity between points of observation.

In areas where geologic conditions indicate potential inconsistencies related to coal reserves, we perform additional drilling to ensure the continuity and mineablility of coal reserves. Consequently, sampling in those areas involves drill holes that are spaced closer together than those distances cited above.

Reserve estimates are adjusted annually for production, unmineable areas, acquisitions and sales of coal in place. The majority of PVR’s reserves are high in energy content, low in sulfur and suitable for either steam or metallurgical markets.

The amount of coal a lessee can profitably mine at any given time is subject to several factors and may be substantially different from “proven and probable reserves.” Included among the factors that influence profitability are the existing market price, coal quality and operating costs.

The Partnership’s timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. At December 31, 2001, the Partnership owned an estimated 174 MMbf of standing saw timber.

ITEM 3—LEGAL PROCEEDINGS

We are involved in various legal proceedings arising in the ordinary course of business. While the ultimate results of these cannot be predicted with certainty, management believes these claims will not have a material effect on our financial position, liquidity or operations.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of 2001.

PART II

ITEM 5—MARKET FOR THE COMPANY’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Common Stock Market Prices And Dividends

High and low closing stock prices and dividends for the last two years were:

	2001						2000
	Sales Price				Cash Dividends Paid		Sales Price				Cash Dividends Paid
	High		Low				High		Low
Quarter Ended:
March 31	$	37.39	$	30.00	$	0.225	$	18.12	$	15.81	$	0.225
June 30	$	45.10	$	31.10	$	0.225	$	26.88	$	16.38	$	0.225
September 30	$	38.41	$	27.15	$	0.225	$	28.94	$	21.50	$	0.225
December 31	$	38.50	$	27.90	$	0.225	$	33.19	$	25.56	$	0.225

15

The Company’s common stock is traded on the New York Stock Exchange under the symbol PVA.

ITEM 6—SELECTED FINANCIAL DATA

Five Year Selected Financial Data

	Year Ended December 31,
	2001		2000		1999		1998		1997
	(in thousands except share data)
Revenues(a)	$	96,571	$	105,998	$	47,697	$	38,324	$	41,404
Operating income(a,b)	$	1,180	$	65,636	$	20,715	$	10,273	$	18,728
Net income(c)	$	34,337	$	39,265	$	14,504	$	9,591	$	16,018
Per Common share:
Net income, basic	$	3.92	$	4.76	$	1.73	$	1.15	$	1.93
Net income, diluted	$	3.86	$	4.69	$	1.71	$	1.13	$	1.88
Dividends paid	$	0.90	$	0.90	$	0.90	$	0.90	$	0.90
Weighted average shares outstanding, basic		8,770		8,241		8,406		8,310		8,302
Weighted average shares outstanding, diluted		8,896		8,371		8,480		8,463		8,500
Total assets(e)	$	460,171	$	268,766	$	274,011	$	256,931	$	247,230
Long-term debt(d)	$	46,887	$	47,500	$	78,475	$	37,967	$	31,903
Shareholders’ equity	$	185,454	$	171,162	$	154,343	$	170,259	$	163,704

(a) Certain reclassifications have been made to conform to the current year presentation.

(b) Operating income in 2001 included a $33.6 million impairment on oil and gas properties. Operating income in 2000 included a $23.9 million gain on the sale of certain oil and gas properties.

(c) Net income in 2001 included a $54.7 million ($35.6 million after tax) gain on the sale of Norfolk Southern Corporation common stock.

(d) Includes $43.4 million of long-term debt of PVR that is secured by $43.4 million of U.S. Treasuries also held by PVR.

(e) Total assets reflect the $112 million purchase of Synergy Oil & Gas, Inc. in July 2001.

SUMMARIZED QUARTERLY FINANCIAL DATA

Quarterly financial data for 2001 and 2000 were as follows:

	2001									2000
	Quarters Ended									Quarters Ended
	(in thousands, except share data)
	Mar. 31		June 30(a)		Sept. 30		Dec. 31(b)			Mar. 31		June 30		Sept. 30		Dec. 31(c)
Revenues(d)	$	27,121	$	24,741	$	24,031	$	20,678		$	16,574	$	19,277	$	21,359	$	48,788
Operating
Income (loss)		16,935		13,362		6,753		(35,870	)		8,273		10,223		11,454		35,686
Net income	$	10,710	$	43,018	$	4,247	$	(23,638	)	$	5,343	$	6,182	$	7,202	$	20,538
Net income per share(e)
Basic	$	1.25	$	4.88	$	0.48	$	(2.66	)	$	0.65	$	0.75	$	0.88	$	2.46
Diluted	$	1.22	$	4.79	$	0.47	$	(2.63	)	$	0.65	$	0.74	$	0.85	$	2.38
Weighted average shares outstanding:
Basic		8,549		8,820		8,869		8,890			8,222		8,193		8,213		8,353
Diluted		8,755		8,982		9,007		8,989			8,222		8,325		8,473		8,622

16

The sum of the quarters may not equal the total of the respective year’s net income per share due to changes in the weighted average shares outstanding throughout the year.

(a) Net income for the second quarter of 2001 included a $54.7 million ($35.6 million after tax) gain on the sale of Norfolk Southern Corporation Common Stock.

(b) Operating loss for the fourth quarter of 2001 included a $33.6 million impairment on oil and gas properties.

(c) Net income for fourth quarter of 2000 included a $23.9 million ($14.2 million after tax) gain on the sale of certain oil and gas properties.

(d) Certain reclassifications have been made to conform to the current year presentation.

(e) The sum of the quarters may not equal the total of the respective year’s net income per share due to changes in the weighted average shares outstanding throughout the year.

ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following review of operations and financial condition of Penn Virginia Corporation and subsidiaries should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

Overview

Our net income for 2001 was $34.3 million or $3.86 per share (diluted) with operating income of $1.2 million and revenues of $96.6 million. The comparable 2000 results were net income of $39.3 million or $4.69 per share (diluted), operating income of $65.6 million and revenues of $106 million. The results for 2001 reflect the sale of our 3.3 million common share position in Norfolk Southern Corporation and other stocks that were classified as available for sale. Excluding the $54.7 million ($35.5 million after tax) gain on the sale, a net loss of $1.2 million would have been recognized for 2001, a 103 percent decrease from 2000. The 2001 decreases were a direct result of impairments of oil and gas properties of $33.6 million ($21.8 million after tax) and the absence of significant gain on sale of properties. In 2000, we recognized a gain of $23.9 million ($14.2 million after tax) on the sale of non-strategic natural gas properties located primarily in Kentucky and West Virginia. These decreases were offset by a slight increase in the average sales price we received for our natural gas production and an increase in production attributable to the acquisition of certain oil and natural gas properties in the Gulf Coast as well as higher levels of coal royalties.            

Management is committed to expanding our oil and natural gas operations over the next several years through a combination of exploitation and exploration of existing properties and acquisition of new properties. Historically, we have focused most of our operations in the eastern United States and particularly in Appalachia. However, we believe continued growth opportunities, especially in oil and natural gas, will be enhanced by a presence outside the Appalachian Basin. In keeping with that strategy, we acquired Synergy Oil & Gas, Inc., an oil and natural gas company in the Gulf Coast area with proved reserves of 59.4 Bcfe in July 2001 for $112 million. At December 31, 2001, the Synergy properties had proved reserves of approximately 65.4 Bcfe. In addition, we have significant undrilled acreage that we intend to evaluate for drilling potential. We continued our ambitious drilling program in 2001 by drilling a record 154 gross (119.1 net) wells. In 2001, we produced a record 14.1 Bcfe of oil and natural gas, which was a 19 percent increase over 2000. We fund our drilling and acquisitions with a combination of cash flow from operations and our revolving credit facility. The credit facility has a borrowing base of $140 million and had borrowings of $3.5 million outstanding as of December 31, 2001. We also have a $5 million line working capital line of credit with a financial institution.

In September 2001, we transferred our coal properties and related assets to Penn Virginia Resource Partners, L.P. (NYSE: PVR). An initial public offering of 6.5 million common units at $21.00 per unit was completed and the units began trading on the New York Stock Exchange on October 31, 2001. Including the exercise of an over-allotment option granted to the underwriters of the IPO, 7.5 million common units were sold to the public. After the sale of the common units, we own approximately 52 percent of PVR, consisting of 49 percent subordinated units, a 2 percent general partner interest, and 1 percent of common units. For financial statement purposes, the assets, liabilities and earnings of PVR are included in our consolidated financial statements, with the public unitholders’ interest reflected as a minority interest. The Partnership has a $50 million credit facility which was undrawn as of December 31, 2001 and a term loan outstanding in the amount of $43.4 million as of December 31, 2001. The loan is secured by U.S. Treasury Notes owned by the Partnership.

17

The coal and land management segment reported record revenues of $37.5 million for 2001, an increase of 24 percent over the prior year. This increase was attributable to acquisitions, enhanced production from lessees and the commencement of operations on new mines.

In June 2001, we purchased mineral rights to approximately 53 million tons of high quality coal reserves for $33 million. These assets were among the assets transferred to PVR. The acquisition consisted of approximately 28,000 acres located in Boone, Kanawha and Lincoln Counties, West Virginia.

Results of Operations

Consolidated Net Income

Our 2001 net income was $34.3 million, compared with $39.3 million in 2000 and $14.5 million in 1999. Revenues for 2001 were $96.6 million, compared with $106.0 million and $47.7 in 2000 and 1999, respectively.

In 2001, we sold our 3.3 million common shares in Norfolk Southern Corporation and other stocks classified as available for sale. We recorded a pre-tax gain on the stock sale transactions of approximately $54.7 million. This gain was offset in part by an impairment of oil and gas properties of $33.6 million and an increase in expenses associated with the acquisition of the Synergy properties.

In 2000, we recorded a gain of $23.9 million on the sale of non-strategic natural gas properties located in Kentucky and West Virginia. This sale coupled with an increase in natural gas production and coal royalty tonnage resulted in an increase in net income of $24.8 million or 171 percent compared with 1999.

Selected Financial Data

	2001		2000		1999
	(in millions, except share data)
Revenues	$	96.6	$	106.0	$	47.7
Operating costs and expenses		95.4		40.4		27.0
Operating income		1.2		65.6		20.7
Net income		34.3		39.3		14.5
Earnings per share, basic		3.92		4.76		1.73
Earnings per share, diluted		3.86		4.69		1.71

Certain reclassifications have been made to conform to the current year presentation.

Oil and Gas Segment

The oil and gas segment explores for, develops and produces crude oil and natural gas in the eastern and Gulf Coast onshore portions of the United States.

We use the successful efforts method of accounting for our oil and gas operations. Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells including development dry holes, and to drill and equip exploratory wells that find proved reserves are capitalized. Capitalized costs of producing oil and gas fields are amortized using the units-of-production method based on estimates of proved oil and gas reserves on a field-by-field basis. Oil and gas reserve quantities represent estimates only and there are numerous uncertainties inherent in the estimation process. Actual future production may be materially different from amounts estimated and such differences could materially affect future amortization of proved properties. Estimated costs (net of salvage value) of plugging and abandoning oil and gas wells are reported as additional depreciation and depletion expense using the units-of-production method.

The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the cost of the property has been impaired. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Exploratory costs including exploratory dry holes, annual delay rental and geological and geophysical costs are charged to expense when incurred.

Oil and natural gas revenues are generally recorded using the entitlement method in which we recognize our ownership interest in the production as revenue. Each working interest owner in a well generally has the right to a specific percentage of production,

18

although actual production sold may differ from an ownership percentage. Using entitlement accounting, a receivable is recorded when under-production occurs and deferred revenue is recognized when over-production occurs.

We review our long-lived assets to be held and used, including proved oil and natural gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss must be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows. In this circumstance, we would recognize an impairment loss equal to the difference between the carrying value and the fair value of the asset. Fair value is estimated to be the present value of expected future net cash flows from proved reserves, utilizing a risk-adjusted rate of return.

Our revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and natural gas, which are affected by numerous factors that are generally beyond the Company’s control. Crude oil prices are generally determined by global supply and demand. Natural gas prices are influenced by national and regional supply and demand. A substantial or extended decline in the prices of oil or natural gas could have a material adverse effect on our revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of our oil and natural gas properties. Another factor in our future profitability and growth are the results of our exploration and development drilling programs.

Selected Financial and Operating Data

	2001			2000		1999
	(in thousands, except as noted)
Revenues
Oil and condensate	$	3,762		$	832	$	463
Natural gas		53,263			46,019		21,384
Gain on sale of properties		460			23,897		—
Other		293			656		1,095
Total Revenues		57,778			71,404		22,942
Expenses
Lease operating expenses		5,631			4,562		4,090
Exploration expenses		11,514			5,080		1,699
Taxes other than income		4,439			2,809		2,165
General and administrative		5,330			2,656		2,148
Operating expenses before non-cash charges		26,914			15,107		10,102
Depreciation, depletion and amortization		16,418			9,883		6,951
Impairment of properties		33,583			—		—
Total Operating Expenses		76,915			24,990		17,053
Operating Income	$	(19,137	)	$	46,414	$	5,889
Production
Oil and condensate (Mbbls)		164			31		32
Natural gas (MMcf)		13,130			11,645		8,679
Total production (MMcfe)		14,114			11,831		8,871
Prices
Oil and condensate ($/Bbl)	$	22.94		$	26.84		14.47
Natural gas ($/Mcf)		4.06			3.95		2.46
Production cost
Operating cost per Mcfe	$	0.40		$	0.38		0.46
Production taxes per Mcfe		0.31			0.24		0.25
Total production cost per Mcfe	$	0.71		$	0.62	$	0.71
Hedging summary
Natural gas prices ($/Mcf):

19

Actual price received for production	$	3.92		3.95	$	2.50
Effect of derivative hedging activities		0.14		—		(0.04	)
Average price	$	4.06	$	3.95	$	2.46

    Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues.    Oil and gas revenues increased by $10.2 million or 22 percent to $57.0 million in 2001 from 2000. The increase was primarily due to a 19 percent increase in crude oil and natural gas production, mainly related to the Synergy acquisition and to increased production from the Gwinville Field, offset in part by production lost from properties disposed of in the fourth quarter of 2000. Approximately 93 percent of our 2001 production was natural gas. The average natural gas price received during 2001 was $4.06 per Mcf compared with $3.95 per Mcf in 2000, a three percent increase. The average oil price received was $22.94 per barrel for 2001, down 15 percent from $26.84 per barrel in 2000.

Natural gas prices were extremely volatile in 2001. From time to time, we hedge the price received for market-sensitive production through the use of swaps and costless collars. Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. We recognized a gain of $1.9 million in 2001 on hedging activities with no gain or loss recognized in 2000.

Operating expenses.    Production costs, consisting of lease operating expense and taxes other than income, increased from $7.4 million in 2000 to $10.0 million in 2001. Production costs increased from $0.62 per Mcfe in 2000 to $0.71 per Mcfe in 2001. The increase was primarily attributable to the third quarter 2001 Synergy acquisition.

Exploration expenses increased from $5.1 million in 2000 to $11.5 million in 2001. The $11.5 million in 2001 consisted of $2.4 million in seismic expenditures, charges relating to five gross (3.5 net) nonproductive, exploratory wells and the impairment of unproved leasehold costs. Our increased seismic expenditures for the year, compared with $1.7 million in 2000, represented a continued effort to establish a balanced exploratory program.

General and administrative (“G&A”) expenses increased to $5.3 million in 2001 from $2.7 million in 2000. The increase was attributable to the Synergy acquisition and related personnel expenses.

Oil and gas depreciation, depletion and amortization increased to $16.4 million in 2000 from $9.9 million in 2000. This variance was primarily due to increased production and a higher cost basis in the producing assets. The Synergy acquisition was completed when crude oil and natural gas future prices were higher than forecasted prices at year-end 2001. As a result of low commodity prices in the fourth quarter 2001, we subjected all properties to impairment testing and recognized a pretax impairment charge related primarily to our Texas properties of $33.6 million ($21.8 million after tax). The impairment charge will result in lower depreciation, depletion and amortization charges in future periods.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues.    Oil and gas revenues increased $25.0 million to $46.8 million in 2000 from 1999 primarily due to an increase in natural gas production.

Natural gas sales increased 115 percent to a record $46.0 million due to a 34 percent increase in production coupled with a 61 percent increase in the average price received per Mcf. Our $34.7 million acquisition of mineral interests in May 2000 represents 1,111 MMcf of the 2,966 MMcf increase in natural gas production. The development of our $13.7 million acquisition in July 1999 accounted for 1,511 of the increase with the remainder attributable to drilling success in Appalachia.

Natural gas prices were extremely volatile in 2000. In April and May of 2000, we entered into several physical contracts that totaled 9,289 MMcf per day for the remainder of 2000. The volumes under contract accounted for 20 percent of our 2000 production at a price of $3.39 per Mcf. We had one contract remaining that expires in March 2001 covering 18 percent of anticipated first quarter production at $3.12 per Mcf.

Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. We recognized a loss of $0.4 million in 1999 on hedging activities with no gain or loss recognized in 2000.

20

Gain on the sale of properties includes $23.9 million ($14.2 million after tax) related to the sale of mature oil and gas properties located primarily in Kentucky and West Virginia. Proceeds from the December 2000 sale totaled $54.3 million, after closing adjustments.

Operating expenses.    Production costs, consisting of lease operating expense and taxes other than income, increased from $6.3 million in 1999 to $7.4 million in 2000. Production costs decreased from $0.71 per Mcfe in 1999 to $0.62 per Mcfe in 2000. A decrease, on a Mcfe basis, of $0.06 resulted from our May 2000 acquisition of royalty interest for $34.7 million. The remainder of the decrease is attributable to the low operating costs associated with the increased production from our 1999 acquired properties in Mississippi. These decreases, on a Mcfe basis, were offset by an increase in severance taxes related to increased average prices received in 2000.

Exploration expenses increased from $1.7 million in 1999 to $5.1 million in 2000. The $5.1 million in 2000 consists of $1.7 million in seismic expenditures, charges relating to five gross (1.3 net) nonproductive, exploratory wells and unproved leasehold costs. Our increased seismic expenditures for the year, compared with $0.3 million in 1999, represents a continued effort to establish a balanced exploratory program.

General and administrative (“G&A”) expenses increased to $2.7 million in 2000 from $2.1 million in 1999; however, G&A expenses decreased to $0.22 per Mcfe in 2000 from $0.24 Mcfe in 1999. The decrease of $0.02 per Mcfe is attributable to increased production from acquisitions and an accelerated drilling program, offset by additional staffing necessary to accomplish those objectives.

Oil and gas depreciation, depletion and amortization increased to $9.9 million, or $0.84 per Mcfe, in 2000 from $7.0 million, or $0.78 per Mcfe, in 1999. The increase is primarily due to our acquisitions in July 1999 and May 2000.

Coal Royalty and Land Management Segment

The coal royalty and land management segment includes PVR’s mineral rights to coal reserves, its timber assets and its land assets. The assets, liabilities and earnings of PVR are included in our consolidated financial statements, with the public unitholders’ interest reflected as a minority interest.

Coal royalty revenues are recognized on the basis of tons sold by the Partnership’s lessees and the corresponding revenue from those sales. Most coal leases are based on minimum monthly or annual payments, a minimum dollar royalty per ton and/or a percentage of the gross sales price. In addition to coal royalty revenues, the Partnership also generates coal service revenues from fees charged to lessees for the use of coal preparation and transportation facilities.

The coal royalty stream is impacted by several factors, which we generally cannot control. The number of tons mined annually is determined by an operator’s mining efficiency, labor availability, geologic conditions, access to capital, ability to market coal and ability to arrange reliable transportation to the end-user. The possibility exists that new legislation or regulations may be adopted which may have a significant impact on the mining operations of our lessees or their customers’ ability to use coal may require us, our lessees or their customers to change operations significantly or incur substantial costs.

Selected Financial and Operating Data

	2001		2000		1999
	(in thousands, except as noted)
Revenues
Coal royalties	$	32,365	$	24,308	$	17,836
Timber		1,732		2,388		1,948
Coal services		1,660		1,385		982
Other		1,756		2,108		584
Total Revenues		37,513		30,189		21,350
Expenses
Operating costs		3,812		3,480		1,382
General and administrative		5,459		4,847		4,123
Operating Expenses Before Non-cash Charges		9,271		8,327		5,505
Depreciation, depletion and amortization		3,084		2,047		1,269
Total Operating Expenses		12,355		10,374		6,774

21

Operating Income	$	25,158	$	19,815	$	14,576
Production
Royalty coal tons produced by lessees (thousands)		15,306		12,536		8,603
Timber sales (Mbf)		8,741		8,545		9,020
Prices
Royalty per ton	$	2.11	$	1.94	$	2.07
Timber sales price per Mbf	$	168	$	257	$	206

Certain reclassifications have been made to conform to the current year presentation.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues.    Coal royalty and land management segment revenues were $37.5 million in 2001 and $30.2 million in 2000, representing a 24 percent increase.

Coal royalties increased $8.1 million from $24.3 million in 2000 to $32.4 million in 2001. Increased production was the primary factor for the royalty increase. Royalty tons increased 2.8 million from 12.5 million in 2000 to 15.3 million in 2001, or 22 percent. These production increases were attributable to the start up of five new mines, the June 2001 acquisition of new properties and the completion of a capital project on another lease.

Timber revenues decreased to $1.7 million for the year ended December 31, 2001 from $2.4 million for the year ended December 31, 2000, a decrease of $0.7 million, or 27 percent. The decrease is primarily attributable to a decrease in the average price received for the timber from $257 per Mbf for the year ended December 31, 2000 to $168 per Mbf for the year ended December 31, 2001. The decrease reflected overall market conditions as well as the sale of lower priced species and lower quality timber.

Coal services revenue increased to $1.7 million for the year ended December 31, 2001 from $1.4 million in 2000, an increase of $0.3 million, or 20 percent. The increase was a direct result of the addition of a small preparation plant put into service during the year and additional usage of our existing coal service facilities.

Other revenues were $1.8 million for the year ended December 31, 2001 compared with $2.1 million for the year ended December 31, 2000, an decrease of $0.3 million, or 17 percent. The decrease was primarily due to gains from the sale of property and equipment in 2000, offset by the recognition of minimum rental payments received from lessees which are no longer recoupable.

Operating expenses.    Operating expenses were $3.8 million for the year ended December 31, 2001 compared with $3.5 million for the year ended December 31, 2000, an increase of $0.3 million, or 10 percent. This variance was primarily due to an increase in production by lessees on our subleased properties resulting in royalty expense incurred. Production from subleased properties increased from 2.1 million tons for the year ended December 31, 2000 to 2.3 million tons for the year ended December 31, 2001, an increase of 0.2 million tons, or 10 percent.

General and administrative expenses increased to $5.5 million for the year ended December 31, 2001 compared to $4.8 million for the year ended December 31, 2000. This increase was primarily attributable to fees associated with tax preparation and public reporting by the Partnership.

Depreciation and depletion expense for the year ended December 31, 2001 was $3.1 million compared with $2.0 million for the year ended December 31, 2000, an increase of $1.1 million, or 51 percent. This increase primarily resulted from coal production increases of 22 percent. Depreciation and depletion expense increased, on a per ton basis, to $0.20 per ton for the year ended December 31, 2001 from $0.16 for the year ended December 31, 2000. The $0.04 increase on a per ton basis resulted from increased production from the Coal River property, which has a significantly higher cost basis.

Year ended December 31, 2000 compared to year ended December 31, 1999

22

Coal royalty and land management segment revenues were $30.2 million in 2000 compared with $21.4 million in 1999, a 41 percent increase.

Coal royalties increased $6.5 million from $17.8 million in 1999 to $24.3 million in 2000 all on the basis of increased production. Production rose from 8.6 million tons in 1999 to 12.5 million tons in 2000.

Timber revenues increased to $2.4 million for the year ended December 31, 2000 from $1.9 million for the year ended December 31, 1999, an increase of $0.4 million, or 23 percent. The increase was largely attributable to an increase in the average price received for the timber from $206 per Mbf for the year ended December 31, 1999 to $257 per Mbf for the year ended December 31, 2000. The increase in average price received resulted from harvesting higher quality hardwoods during 2000.

Coal services revenue increased to $1.4 million for the year ended December 31, 2000 from $1.0 million in 1999, an increase of $0.4 million, or 41 percent. The increase resulted from the first full year of operations for the unit train loadout facility in 2000 as compared to nine months of operations for 1999.

Other revenues increased to $2.1 million for the year ended December 31, 2000 compared with $0.6 million for the year ended December 31, 1999, an increase of $1.5 million, or 261 percent. That increase was due to a gain on the sale of property and equipment and an increase in minimum rental payments recognized during the first quarter of 2000.

Operating expenses were $3.4 million for the year ended December 31, 2000 compared with $1.4 million for the year ended December 31, 1999, an increase of $2.0 million, or 152 percent. This increase was due to the September 1999 acquisition of the Coal River property, which resulted in an increase in production by lessees on subleased properties resulting in royalty expense incurred, continuing property maintenance and additional property taxes. Production on subleased properties increased to 2.1 million tons in the year ended December 31, 2000 from 0.5 million tons in the year ended December 31, 1999.

General and administrative expenses were $4.8 million for the year ended December 31, 2000 compared with $4.1 million for the year ended December 31, 1999, an increase of $0.7 million, or 18 percent. Over these same periods, production increased 46 percent primarily due to acquisitions, the first full year of operation of the unit train loadout facility and the commencement of operations from new mines which resulted in additional general and administrative expense.

Depreciation and depletion expense for the year ended December 31, 2000 was $2.0 million compared to $1.3 million for the year ended December 31, 1999, an increase of $0.7 million, or 61 percent. This increase resulted from the first full year of ownership of the properties and facilities included in the September 1999 acquisition. Depreciation and depletion expense increased slightly, on a per ton basis, to $0.16 per ton for the year ended December 31, 1999.

Corporate and Other

Dividends.    In April 2001, we sold our 3.3 million common share position in Norfolk Southern Corporation at an average selling price of $17.39 per share. Proceeds, net of commissions totaled approximately $57.4 million. As a result, dividend income decreased from $2.6 million in 2000 to $0.2 million in 2001. In January 2001, Norfolk Southern Corporation reduced its quarterly dividend from $0.20 per share to $0.06 per share.

Reserves

Oil and Gas Reserves

Our total proved reserves at year-end 2001 were 252.8 Bcfe, compared with 174.6 Bcfe at 2000 year-end. The increase was largely attributable to our July 2001 acquisition of Synergy Oil & Gas, Inc. for $112 million ($157.4 million including the impact of deferred income taxes), resulting in a 59.6 Bcfe increase in proved reserves. Proved developed reserves increased 50.0 Bcfe, or 34 percent, to 196.4 Bcfe. At year-end 2001, proved developed reserves comprised 78 percent of our total proved reserves, compared with 84 percent at year-end 2000. We had 93 net proved undeveloped drilling locations at year-end 2001, compared with 74 locations at year-end 2000. We acquired 35.9 Bcfe of proved oil and natural gas reserves, primarily consisting of royalty interests, during 2000 for $36.0 million. In December 2000, the Company received $54.3 million, after closing adjustments, from the sale of mature oil and natural gas properties in Kentucky and West Virginia, which contained 66.6 Bcfe of proved oil and natural gas reserves.            

Our comparative reserve replacement measures are as follows:

23

	2001			2000
Finding and development cost (a), ($/Mcfe)
Current year	$	1.41		$	0.82
Three year weighted average		1.24			1.56
Reserve replacement cost (b), ($/Mcfe)
Current year	$	1.26		$	0.92
Three year weighted average		1.09			1.08
Reserve replacement percentage (c), ($/Mcfe)
Current year		660	%		556	%
Three year weighted average		544	%		332	%

Finding and development cost, reserve replacement cost and reserve replacement percentage are not measures presented in accordance with generally accepted accounting principles (“GAAP”) and are not intended to be used in lieu of GAAP presentation. These measures are commonly used by financial statement users as a measurement to determine the performance of a company’s oil and gas activities.

(a)  Finding and development cost is calculated by dividing 1) costs incurred in certain oil and gas activities less proved property acquisitions, by 2) reserve extensions, discoveries and other additions and revisions. Current year finding and development costs used in this calculation exclude $62.2 million for unproved property acquisition costs (including the impact of deferred income taxes) related to the purchase of Synergy Oil & Gas, Inc. No proved reserves were recorded relative to these unproved property acquisition costs, for which future exploration and development activities will be conducted. Had the Synergy unproved property acquisition costs been included in the finding and development cost calculations, current year and three year weighted average cost per Mcfe would have been $3.26 and $2.66, respectively.

(b)  Reserve replacement cost is calculated by dividing 1) costs incurred in certain oil and gas activities, including acquisitions, by 2) reserve purchases, extensions, discoveries and other additions and revisions. Current year reserve replacement costs used in this calculation excludes $62.2 million for unproved property acquisition costs described in footnote (a) above and $27.2 million of deferred income taxes on proved property acquisition costs related to the purchase of Synergy Oil & Gas, Inc. Had the Synergy unproved property acquisition costs and the deferred income taxes on Synergy proved property acquisition costs been included in the reserve replacement cost calculations, current year and three year weighted average cost per Mcfe would have been $2.20 and $1.70, respectively.

(c)  Reserve replacement percentage is calculated by dividing 1) reserve purchases, revisions, extensions, discoveries and other additions, by 2) oil and gas production.

Proven and Probable Coal Reserves

The Partnership’s proven and probable coal reserves were 492.8 million tons at December 31, 2001. Royalties were collected for 15.3 million tons in 2001. Proven and probable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect.

Market Risk

Interest Rate Risk.    The carrying value of our debt approximates fair value. At December 31, 2001, the Company had $3.5 million of long-term debt represented by a secured revolving credit facility (the “Revolver”). The Revolver matures in October 2004 and is governed by a borrowing base calculation that is redetermined semi-annually. The Company has the option to elect interest at (i) LIBOR plus a Eurodollar margin ranging from 1.375 to 1.875 percent, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus a margin ranging from 0.375 to 0.875 percent.    As a result, the Company’s 2002 interest costs will fluctuate based on short-term interest rates relating to the Revolver. The Partnership had borrowed an additional $43.4 million at December 31, 2001 in the form of a term note. The term loan expires in 2004 and is secured by restricted U.S. Treasury Notes. The Partnership has the option to elect interest at (i) LIBOR plus a Euro-rate margin of 0.5 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus .05 percent.

Price Risk Management.    Our price risk management program permits the utilization of fixed-price contracts and financial instruments (such as futures, forward and option contracts and swaps) to mitigate the price risks associated with fluctuations in natural

24

gas prices as they relate to our anticipated production. These contracts and financial instruments are designated as cash flow hedges and accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, as amended by SFAS No. 137 and SFAS No. 138. See Note 7 (Price Risk Management Activities) in the consolidated financial statements of Penn Virginia. The derivative financial instruments are placed with major financial institutions that we believe are of minimum credit risk. The fair value of our price risk management assets are significantly affected by energy price fluctuations. As of March 14, 2002 our open commodity price risk management positions on average daily volumes were as follows:

Natural Gas Collar Arrangements

• 11,855 MMbtus at a weighted average floor price of $3.14 per MMbtu and ceiling price of $4.20 per MMbtu through December 2002

• 5,400 MMbtus at a weight average floor price of $2.75 per MMbtu and ceiling price of $4.48 per MMbtu for 2003

Natural Gas Swap Contracts

• 13,000 MMbtus at a NYMEX price of $2.74 per MMbtu expiring October 2002

Crude Oil Collar Arrangements

• 764 Bbls at a weighted average floor price of $21.31 per Bbl and ceiling price of $25.72 per Bbl through December 2002

Reserve Estimates.    There are many uncertainties inherent in estimating proved oil and natural gas reserve quantities, and projecting future production rates and the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. Proved oil and natural gas reserves are the estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions at the end of the respective years. Proved developed oil and natural gas reserves are those reserves expected to be recovered through existing equipment and operating methods.

Capital Resources and Liquidity

Our contractual obligations as of December 31, 2001 were as follows:

	Payments Due by Period
	Total	1 Year		2-3 Years		4-5 Years		Thereafter
	(in thousands)
Contractual Obligations:
Penn Virginia revolving credit facility	3,500	$	—	$	3,500	$	—	$	—
PVR revolving credit facility	—		—		—		—		—
PVR Term loan(1)	43,387		—		43,387		—		—
Line of credit	1,235		1,235		—		—		—
Rental commitments(2)	6,275		1,598		2,674		2,003		—
Total contractual cash obligations	54,397	$	2,833	$	49,561	$	2,003	$	—

(1) Term loan is secured by U.S. Treasury notes.

(2) Rental commitments primarily relate to equipment, car and building leases.

Cash flows from Operating Activities

Funding for our activities has historically been provided by operating cash flows and bank borrowings. Net cash provided from operating activities was $44.2 million in 2001, compared with $41.7 million in 2000 and $25.1 million in 1999. Our consolidated cash balance increased to $9.6 million in 2001 compared with $0.7 million in 2000 and 1999, respectively.

Cash flows from Investing Activities

We used $179.4 million in investing activities in 2001, compared with $3.3 million in 2000 and $58.7 million in 1999. Capital expenditures, including acquisitions net of non-cash items, totaled $196.0 million, compared with $59.4 million in 2000 and $60.7 million in 1999. Capital expenditures in 2000 were partially offset by proceeds from the sale of certain oil and gas properties totaling

25

$55.2 million after closing adjustments. The following table sets forth capital expenditures, including acquisitions net of non-cash items, made during the periods indicated.

	Year ended December 31
	2001		2000		1999
	(in thousands)
Oil and gas
Acquisitions	$	118,497	$	36,916	$	16,620
Development		30,123		18,317		9,189
Exploration		11,253		3,200		2,587
Support equipment and facilities		1,422		244		209
Coal royalty and land management
Lease acquisitions		32,992		—		30,094
Support equipment and facilities		674		485		1,861
Other		1,077		281		91
Total capital expenditures	$	196,038	$	59,443	$	60,651

We drilled 96.1 net successful development wells, 14.5 net successful exploratory wells and 8.5 net non-productive wells in 2001, compared with 75.3 net successful development wells, 0.2 net successful exploratory wells and 2.6 net non-productive wells in 2000.

Management is committed to expanding its oil and natural gas operations over the next several years through a combination of exploitation, exploration and acquisition of new properties. In July 2001, we acquired all of the outstanding stock of Synergy Oil & Gas, Inc., a Texas corporation. Cash consideration for the stock was $112 million and was funded by long-term debt. The acquisition provided us with a growth platform in highly prospective South Texas. Proved reserves at December 31, 2001 were 59.6 Bcfe. In addition, the acquisition provided numerous future drilling locations. During 2000, we acquired proved natural gas properties in Appalachia at a cost of $36.0 million, including a $34.7 million acquisition of royalty interests in West Virginia and eastern Kentucky. The properties had proved reserves of 35.9 Bcfe at December 31, 2000 in addition to drilling potential.

Capital expenditures for 2002, before lease and proved property acquisitions, are expected to be $44 to $49 million predominantly for the drilling of exploration and development of wells in the oil and gas segment with approximately $1.0 million allocated to the coal royalty and land management segment. In addition, we plan to invest an additional $5 to $6 million in the acquisition and evaluation of seismic data. We plan to drill approximately 120 to 130 gross (80 to 90 net) wells. We continually review drilling expenditures and may increase, decrease or reallocate amounts based on industry conditions. We believe our cash flow from operations and sources of debt financing are sufficient to fund our 2002 planned capital expenditure program.

On October 30, 2001, we completed an initial public offering (IPO) of 7.475 million common units of Penn Virginia Resource Partners, L.P. (NYSE: PVR), a publicly traded master limited partnership (MLP). We had previously transferred our coal reserves and related assets to PVR and own approximately 52 percent of the MLP. Most of the $142.4 million of net proceeds from the IPO was used to repay outstanding borrowings against the Company’s revolving credit facility. In June 2001, we purchased mineral rights to approximately 53 million tons of high quality coal reserves for $33 million in cash.

In September 1999, we completed an acquisition that included over 90 million tons of high quality coal reserves as well as oil and gas leases, timber assets, a short line railroad and a coal loading dock on the Kanawha River in West Virginia. The $30 million acquisition complemented our existing Coal River Properties located on the inland river system in West Virginia. PVR continues to diversify its coal customer base by adding additional lessees and by searching for additional coal reserve acquisition opportunities.

Cash flows from Financing Activities

Net cash provided (used) by financing activities was $144.1 million in 2001, compared with ($38.4) million in 2000 and $34.0 million in 1999.

Penn Virginia has a $150 million secured revolving credit facility (the “Revolver”) led by J.P. Morgan Chase Bank, f.k.a. the Chase Manhattan Bank, with a final maturity of October 2004. The credit facility has a borrowing base of $140 million and had

26

borrowings of $3.5 million against the facility as of December 31, 2001. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation restrictions, among other requirements.    The outstanding balance on the previous Revolver was $47.5 million and $77.7 million at December 31, 2000 and 1999, respectively.    We currently have a $5 million line of credit with a financial institution due in December 2002, renewable annually. We have the option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate loan.

The Partnership has a $50 million revolving credit facility led by PNC Bank which was undrawn as of December 31, 2001. As part of the credit facility the Partnership had also borrowed an additional $43.4 million in the form of a term loan as of December 31, 2001. The term loan expires in October 2004 and is secured by restricted U.S. Treasury Notes. The Partnership has the option to elect interest at (i) LIBOR plus a Euro-rate margin of 0.5 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus .05 percent. The financial covenants of the term loan include, but are not limited to, maintaining certain levels of financial leverage, interest coverage and cash flow.            

Management believes its sources of funding are sufficient to meet short and long-term liquidity needs not funded by cash flows from operations.

Other

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. We currently record our plugging and abandoning costs (net of salvage value) with respect to our oil and gas properties as additional depreciation and depletion expense using the units-of-production method. This statement would require us to recognize a liability for the fair value of our plugging and abandoning liability (excluding salvage value) with the associated costs as part of our oil and gas property balance. We are evaluating the future financial reporting effect of adopting SFAS No. 143 and will adopt the standard effective January 1, 2003.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Ususal and Infrequently Occurring Events and Transactions, for the disposal of segment of a business. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We will adopt the provisions of this Statement in the first quarter of 2002. Under present conditions, management does not expect the initial adoption of SFAS 144 to have material effect on the financial position, results of operation or liquidity.

Environmental Matters

Our operating segments are subject to various environmental hazards. Numerous federal, state and local laws, regulations and rules govern the environmental aspects of our business. Noncompliance with these laws, regulations and rules can result in substantial penalties or other liabilities. We do not believe our environmental risks are materially different from those of comparable companies or that cost of compliance will have a material adverse effect on profitability, capital expenditures, cash flows or competitive position. There is no assurance that changes in or additions to laws, regulations or rules regarding the protection of the environment will not have such an impact. We believe we are materially in compliance with environmental laws, regulations and rules.

In conjunction with the leasing of property to coal operators, all environmental and reclamation liabilities are the responsibility of the lessees. Lessees post performance bonds pursuant to federal and state mining laws and regulations for the estimated costs of reclamation and mine closing, including the cost of treating mine water discharge when necessary.

Forward-Looking Statements

Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. In addition, Penn Virginia and its representatives may from time to time make other oral or written statements that are also

27

forward-looking statements.

Such forward-looking statements include, among other things, statements regarding development activities, capital expenditures, acquisitions and dispositions, drilling and exploration programs, expected commencement dates of coal mining or oil and gas production, projected quantities of future oil and gas production by Penn Virginia, projected quantities of future coal production by PVR’s lessees producing coal from reserves leased from PVR, costs and expenditures as well as projected demand or supply for coal and oil and gas, which will affect sales levels, prices and royalties realized by Penn Virginia.

These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ include, but are not necessarily limited to: the cost of finding and successfully developing oil and gas reserves; the ability to acquire new oil and gas reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and gas; the risks associated with having or not having price risk management programs; Penn Virginia’s ability to obtain adequate pipeline transportation capacity for its oil and gas production; competition among producers in the oil and gas industry generally; the extent to which the amount and quality of actual production differs from estimated proved oil and gas reserves; unanticipated geological problems; availability of required materials and equipment; the occurrence of unusual weather or operating conditions including force majeure events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start-up dates; environmental risks affecting the drilling and producing of oil and gas wells; the timing of receipt of necessary governmental permits; labor relations and costs; accidents; changes in governmental regulation or enforcement practices, especially with respect to environmental, health and safety matters, risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions; changes in financial market conditions; and other risk factors detailed in Penn Virginia’s Securities and Exchange commission filings. Important factors that could effect the results of operations or financial condition of Penn Virginia Resource Partners, L.P. which, in turn, could cause the actual results of operations or financial condition of Penn Virginia to differ, include, but are not necessarily limited to: the cost of finding new coal reserves; the ability to acquire new coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for coal; the risks associated with having or not having price risk management programs; the Partnership’s ability to lease new and existing coal reserves; the ability of lessees to produce sufficient quantities of coal on an economic basis from the Partnership’s reserves; the ability of lessees to obtain favorable contracts for coal produced from the Partnership’s reserves; competition among producers in the coal industry generally and in the Appalachian Basin in particular; the extent to which the amount and quality of actual production differs from estimated mineable and merchantable coal reserves; unanticipated geological problems; availability of required materials and equipment; the occurrence of unusual weather or operating conditions including force majeure or events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start-up dates; environmental risks affecting the mining of coal reserves; the timing of receipt of necessary governmental permits; labor relations and costs; accidents; changes in governmental regulation or enforcement practices, especially with respect to environmental, health and safety matters, including with respect to emissions levels applicable to coal-burning power generators; risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions; the experience and financial condition of lessees of coal reserves, joint venture partners and purchasers of reserves in transactions financed by the Partnership, including their ability to satisfy their royalty, environmental, reclamation and other obligations to the Partnership and others; changes in financial market conditions; and other risk factors detailed in the Partnership’s Securities and Exchange commission filings. Many of such factors are beyond the Partnership’s ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. Many of such factors are beyond Penn Virginia’s ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements.

While Penn Virginia periodically reassesses material trends and uncertainties affecting Penn Virginia’s results of operations and financial condition in connection with the preparation of Management’s Discussion and Analysis of Results of Operations and Financial Condition and certain other sections contained in Penn Virginia’s quarterly, annual or other reports filed with the Securities and Exchange Commission, Penn Virginia does not intend to review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise.

28

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PENN VIRGINIA CORPORATION
March 20, 2001	By:	/s/    FRANK A. PICI
		(Frank A. Pici, Executive Vice President and Chief Financial Officer)

March 20, 2001	By:	/s/    ANN N. HORTON
		(Ann N. Horton, Vice President and Principal Accounting Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/    ROBERT GARRETT         (Robert Garrett)	Chairman of the Board Officer and Director	March 20, 2002
/s/    RICHARD A. BACHMANN         (Richard A. Bachmann)	Director	March 20, 2002
/s/    EDWARD B CLOUES, II         (Edward B. Cloues, II)	Director	March 20, 2002
/s/    A. JAMES DEARLOVE         (A. James Dearlove)	Director and Chief Executive Officer	March 20, 2002
/s/    KEITH D. HORTON         (Keith D. Horton)	Director and Executive Vice President	March 20, 2002
/s/    PETER B. LILLY         (Peter B. Lilly)	Director	March 20, 2002
/s/    MARSHA R. PERELMAN         (Marsha R. Perelman)	Director	March 20, 2002
/s/    JOE T. RYE         (Joe T. Rye)	Director	March 20, 2002

29

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL SECTION

Management’s Report on Financial Information	31
Reports of Independent Public Accountants	32
Financial Statements and Supplementary Data	30

30

Management’s Report on Financial Information

Management of Penn Virginia Corporation is responsible for the preparation and integrity of the financial information included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles, which involve the use of estimates and judgments where appropriate.

The corporation has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and to produce the records necessary for the preparation of financial information. The system of internal control is supported by the selection and training of qualified personnel, the delegation of management authority and responsibility, and dissemination of policies and procedures. There are limits inherent in all systems of internal control based on the recognition that the costs of such systems should be related to the benefits to be derived. We believe the corporation’s systems provide this appropriate balance.

The corporation’s independent public accountants, Arthur Andersen LLP, have developed an understanding of our accounting and financial controls and have conducted such tests as they consider necessary to support their opinion on the financial statements. Their report contains an independent, informed judgment as to the corporation’s reported results of operations and financial position.

The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets regularly with management, the internal auditor and Arthur Andersen LLP, jointly and separately, to review management’s process of implementation and maintenance of internal controls, and auditing and financial reporting matters. The independent and internal auditors have unrestricted access to the Audit Committee.

A. James Dearlove	Frank A. Pici
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer

31

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Penn Virginia Corporation:

We have audited the accompanying consolidated balance sheets of Penn Virginia Corporation (a Virginia corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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 financial position of Penn Virginia Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

AR THUR ANDERSEN LLP

Houston, Texas

February 18, 2002

32

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share data)

	Year Ended December 31,
	2001			2000			1999
Revenues
Oil and condensate	$	3,762		$	832		$	463
Natural gas		53,263			46,019			21,384
Coal royalties		32,365			24,308			17,836
Timber		1,732			2,388			1,948
Dividends		198			2,646			2,646
Gain on the sale of properties		492			24,795			280
Other		4,759			5,010			3,140
		96,571			105,998			47,697
Expenses
Lease operating expenses		9,284			7,629			4,873
Exploration expenses		11,832			5,660			2,146
Taxes other than income		5,433			3,648			2,795
General and administrative		15,680			11,398			8,775
Impairment of oil and gas properties		33,583			—			—
Depreciation, depletion and amortization		19,579			12,027			8,393
		95,391			40,362			26,982
Operating Income		1,180			65,636			20,715
Other income (expense)
Gain on the sale of securities		54,688			—			—
Interest expense		(2,070	)		(7,878	)		(3,298	)
Interest income		1,602			1,458			1,354
Other		14			14			63
Income from operations before minority interest and income taxes		55,414			59,230			18,834
Minority interest		1,763			—			—
Income tax expense		19,314			19,965			4,330
Net Income	$	34,337		$	39,265		$	14,504
Net income per share, basic	$	3.92		$	4.76		$	1.73
Net income per share, diluted	$	3.86		$	4.69		$	1.71
Weighted average shares outstanding, basic		8,770			8,241			8,406
Weighted average shares outstanding, diluted		8,896			8,371			8,480

The accompanying notes are an integral part of these consolidated financial statements.

33

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2001		2000
A S S E T S
Current assets
Cash and cash equivalents	$	9,621	$	735
Accounts receivable		15,403		12,926
Current portion of long-term notes receivable		599		981
Price risk management assets		3,674		—
Other		1,105		652
Total current assets		30,402		15,294
Investments		—		44,080
Property and Equipment
Oil and gas properties (successful efforts method)		335,494		174,504
Other property and equipment		117,789		83,534
		453,283		258,038
Less: Accumulated depreciation, depletion and amortization		72,095		52,922
Net property and equipment		381,188		205,116
Restricted U.S. Treasury Notes		43,387		—
Other assets		5,194		4,276
Total assets	$	460,171	$	268,766
L I A B I L I T I E S  A N D  S H A R E H O L D E R S’  E Q U I T Y
Current liabilities
Current maturities of long-term debt	$	1,235	$	740
Accounts payable		3,987		2,609
Accrued liabilities		13,831		7,154
Current deferred income taxes		—		136
Taxes on income		—		7,296
Total current liabilities		19,053		17,935
Other liabilities		8,877		5,486
Deferred income taxes		55,861		26,683
Long-term debt		3,500		47,500
Long-term loan		43,387		—
Minority interest		144,039		—
Commitments and contingencies (Note 19)
Shareholders’ equity
Preferred stock of $100 par value—Authorized 100,000 shares; none issued		—		—
Common stock of $6.25 par value—16,000,000 shares authorized; 8,921,866 shares issued		55,762		55,762
Paid-in capital		9,869		8,100
Retained earnings		119,125		92,718
Accumulated other comprehensive income		1,756		26,606
		186,512		183,186
Less: 23,765 shares in 2001 and 524,108 in 2000 of common stock held in treasury, at cost		599		10,974
Unearned compensation—ESOP		459		1,050
Total shareholders’ equity		185,454		171,162
Total liabilities and shareholders’ equity	$	460,171	$	268,766

The accompanying notes are an integral part of these consolidated financial statements.

34

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share data)

	Shares Outstanding		Common Stock		Paid-in Capital			Accumulated Other Retained Earnings			Comprehensive Income			Unearned Treasury Stock			Total Compensation ESOP			Stockholders’ Comprehensive Equity			Compre- hensive Income (Loss)
Balance at December 31, 1998	8,366,816		$	55,762	$	8,441		$	53,924		$	65,985		$	(12,403	)	$	(1,450	)	$	170,259		$	12,076
Dividends paid ($0.90 per share)	—			—		—			(7,568	)		—			—			—			(7,568	)
Stock issued as compensation	7,878			—		(13	)		—			—			176			—			163
Exercise of stock options	48,934			—		(365	)		—			—			1,085			—			720
Allocation of ESOP shares	—			—		33			—			—			—			200			233
Net income	—			—		—			14,504			—			—			—			14,504		$	14,504
Other comprehensive loss, net of tax	—			—		—			—			(23,968	)		—			—			(23,968	)		(23,968	)
Balance at December 31, 1999	8,423,628			55,762		8,096			60,860			42,017			(11,142	)		(1,250	)		154,343		$	(9,464	)
Dividends paid ($0.90 per share)	—			—		—			(7,407	)		—			—			—			(7,407	)
Purchase of treasury stock	(363,430	)		—		—			—			—			(6,761	)		—			(6,761	)
Stock issued as compensation	11,163			—		—			—			—			226			—			226
Exercise of stock options	326,397			—		(63	)		—			—			6,703			—			6,640
Allocation of ESOP shares	—			—		67			—			—			—			200			267
Net income	—			—		—			39,265			—			—			—			39,265		$	39,265
Other comprehensive loss, net of tax	—			—		—			—			(15,411	)		—			—			(15,411	)		(15,411	)
Balance at December 31, 2000	8,397,758			55,762		8,100			92,718			26,606			(10,974	)		(1,050	)		171,162		$	23,854
Dividends paid ($0.90 per share)	—			—		—			(7,930	)		—			—			—			(7,930	)
Purchase of treasury stock	(33,991	)		—		—			—						(638	)		—			(638	)
Stock issued as compensation	8,281			—		142			—			—			188			—			330
Exercise of stock options	526,053			—		1,417			—			—			11,216			—			12,633
Allocation of ESOP shares	—			—		210			—			—			(391	)		591			410
Net income	—			—		—			34,337			—			—			—			34,337		$	34,337
Other comprehensive loss, net of tax	—			—		—			—			(24,850	)		—			—			(24,850	)		(24,850	)
Balance at December 31, 2001	8,898,101		$	55,762	$	9,869		$	119,125		$	1,756		$	(599	)	$	(459	)	$	185,454		$	9,487

The accompanying notes are an integral part of these consolidated financial statements

35

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year ended December 31,
	2001			2000			1999
Cash flows from operating activities:
Net income	$	34,337		$	39,265		$	14,504
Adjustments to reconcile net income to netcash provided (used) by operating activities:
Depreciation, depletion and amortization		19,579			12,027			8,393
Impairment of oil and gas properties		33,583			—			—
Gain on the sale of property and equipment		(492	)		(24,795	)		(280	)
Gain on sale of securities		(54,688	)		—			—
Deferred income taxes		(1,888	)		7,006			2,805
Tax benefit from stock option exercises		2,933			1,049			86
Dry hole and unproved leasehold expense		8,953			3,154			1,115
Minority interest		1,763			—			—
Other		479			140			(1,284	)
		44,559			37,846			25,339
Changes in operating assets and liabilities:
Accounts receivable		(2,477	)		(6,046	)		(1,198	)
Other current assets		(2,041	)		161			(133	)
Accounts payable and accrued liabilities		8,055			2,723			604
Taxes on income		(7,296	)		7,296			(576	)
Other assets and liabilities		3,391			(240	)		1,105
Net cash flows provided by operating activities		44,191			41,740			25,141
Cash flows from investing activities:
Proceeds from the sale of securities		57,525			—			—
Proceeds from the sale of property and equipment		1,416			55,208			299
Payments received on long-term notes receivable		1,052			926			1,670
Purchase of restricted U.S. Treasury Notes		(43,387	)		—			—
Property and lease acquisitions		(149,507	)		(36,787	)		(46,714	)
Capital expenditures		(46,531	)		(22,656	)		(13,937	)
Net cash flows used in investing activities		(179,432	)		(3,309	)		(58,682	)
Cash flows from financing activities:
Dividends paid		(7,930	)		(7,407	)		(7,568	)
Proceeds from borrowings		147,895			33,240			44,500
Repayment of borrowings		(191,400	)		(63,509	)		(3,990	)
Proceeds from term loan		43,387			—			—
Proceeds from initial public offering, net		142,373			—			—
Purchases of treasury stock		(638	)		(6,761	)		—
Issuance of stock		10,440			6,084			1,031
Net cash flows provided by (used in) financing activities		144,127			(38,353	)		33,973
Net increase (decrease) in cash and cash equivalents		8,886			78			432
Cash and cash equivalents—beginning of year		735			657			225
Cash and cash equivalents—end of year	$	9,621		$	735		$	657
Supplemental disclosures:
Cash paid during the year for:
Interest (Net of amount capitalized)	$	3,131		$	8,304		$	2,980
Income taxes	$	28,772		$	4,614		$	2,100
Noncash investing activities:
Note receivable for sale of property and equipment	$	—		$	—		$	1,255
Deferred tax liabilities related to acquisition	$	44,280		$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

36

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Nature of Operations

Penn Virginia Corporation (“Penn Virginia” or the “Company”) is an independent energy company that is engaged in two primary lines of business. We explore for, develop and produce crude oil, condensate and natural gas in the eastern and southern portions of the United States. In addition, through our controlling ownership in Penn Virginia Resource Partners, L.P. (the “Partnership” or “PVR”), a Delaware limited partnership, we conduct our coal operations (see “Note 2. PVR—Initial Public Offering and Concurrent Transactions”).

The Partnership enters into leases with various third-party operators for the right to mine coal reserves on the Partnership’s land in exchange for royalty payments. The lessees make payments based on the higher of a percentage of the gross sales price or a fixed price per ton of coal they sell, with pre-established minimum monthly or annual payments. The Partnership also sells timber growing on its land and provides fee-based infrastructure facilities to certain lessees to enhance coal production and to generate additional coal services revenues.

2.    PVR—Initial Public Offering and Concurrent Transactions

On October 30, 2001, PVR completed an initial public offering of 7.5 million common units (including the underwriter’s over-allotment), representing limited partner interests in the Partnership and received proceeds of $142.4 million, after underwriting and offering costs.

In conjunction with the offering, Penn Virginia contributed the assets, liabilities and operations of its coal operations in exchange for i) 1,149,880 common units, 7,649,880 subordinated units and a 2 percent general partner interest; ii) the right to receive incentive distributions (as defined); and iii) cash of approximately $141.5 million representing the repayment of intercompany debt . In addition, after the initial public offering we sold 975,000 of our common units to the Partnership in connection with the sale of the underwriter’s overallottment. After the sale of the 975,000 common units we owned 174,880 units in the Partnership. We used the proceeds from the offering to repay our indebtedness.

In addition, at the closing of the offering, the Partnership borrowed $43.4 million under its term loan facility with PNC Bank and other lenders (see “Note 10. Long-term Debt”).

The common units have preferences over the subordinated units with respect to cash distributions, accordingly, we accounted for the sale of the Partnership units as a sale of a minority interest. At the time our subordinated units convert to common units, we will recognize any gain or loss computed at that time, as paid- in capital. Our subordinated units automatically convert to common units on September 30, 2006, but a portion of the subordinated units may convert after September 30, 2004 if the Partnership meets certain financial tests, namely operating surpluses that exceed the minimum quarterly distributions.

3.    Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Penn Virginia, all wholly-owned subsidiaries, and the Partnership in which we have an approximate 52 percent ownership interest. Penn Virginia Resource GP, LLC, a wholly-owned subsidiary of Penn Virginia, serves as the Partnership’s sole general partner. We own and operate our undivided oil and gas reserves through our wholly-owned subsidiaries. We account for our undivided interest in oil and gas properties using the proportionate consolidation method, whereby our share of assets, liabilities, revenues and expenses is included in the appropriate classification in the financial statements. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments have been reflected that are necessary for a fair presentation of the consolidated financial statements. Certain amounts have been reclassified to conform to the current year’s presentation.

New Accounting Standards

On January 1, 2001, we adopted the Statement of Financial Accounting Standards (“SFAS”) No. 133 Accounting for Derivative Instruments and HedgingActivities as amended by SFAS 137 and SFAS 138. Under SFAS 133, all derivative instruments are recorded on the balance sheet at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or

37

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

loss on the derivative is recognized currently in earnings. To qualify for hedge accounting, the derivative must qualify either as a fair value hedge, cash flow hedge or foreign currency hedge. Currently, we use only cash flow hedges and the remaining discussion will relate exclusively to this type of derivative instrument. If the derivative qualifies for cash flow hedge accounting, the gain or loss on the derivative is deferred in Other Comprehensive Income, a component of Shareholders’ Equity, to the extent the hedge is effective. Any hedge ineffectiveness is recorded immediately in the statement of income in natural gas or crude oil production revenues. If we determine that it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately.

Gains and losses on hedging instruments are included in natural gas or crude oil production revenues in the period that the related production is delivered.

This initial adoption of SFAS No. 133 on January 1, 2001, did not have a material effect on our financial position or results of operations (see Note 7. Price Risk Management Activities).

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. We currently record our plugging and abandoning costs (net of salvage value) with respect to our oil and gas properties as additional depreciation and depletion expense using the units-of-production method. This statement would require us to recognize a liability for the fair value of our plugging and abandoning liability (excluding salvage value) with the associated costs as part of our oil and gas property balance. We are evaluating the future financial reporting effect of adopting SFAS No. 143 and will adopt the standard effective January 1, 2003.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. SFAS No. 144 addresses financial accounting and reporting for the impairment of disposal of long-lived assets. We will adopt the provisions of this Statement in the first quarter of 2002. Under present conditions, management does not expect the initial adoption of SFAS 144 to have a material effect on the financial position, results of operations or liquidity.

Use of Estimates

Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash equivalents/Restricted U.S. Treasury Notes

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. In addition, the Partnership has restricted cash in the form of U.S. Treasury Notes that are used to secure the Partnership’s term loan facility (see “Note 10. Long-Term Debt”). The intended use of the restricted U.S. Treasury Notes is to purchase property and equipment. The average interest rate received on the U.S. Treasury Notes was 1.7 percent for 2001.

Investments

Investments consist of publicly traded equity securities. We classify our equity securities as available-for-sale. Available-for-sale securities are recorded at fair value based upon market quotations. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity until realized (see “Note 17. Accumulated Other Comprehensive Income”). A decline in the market value of any available-for-sale security below cost that is deemed other than temporary, is charged to earnings in the period it occurs resulting in the establishment of a new cost basis for the security. Dividend income is recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold (see “Note 5. Investments and Dividend Income”).

Notes Receivable

Notes receivable are recorded at cost, adjusted for amortization of discounts. Discounts are amortized over the life of the notes receivable using the effective interest rate method.

38

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

Oil and Gas Properties

We use the successful efforts method of accounting for our oil and gas operations. Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells including development dry holes, and to drill and equip exploratory wells that find proved reserves are capitalized. Capitalized costs of producing oil and gas fields are amortized using the unit-of-production method based on estimates of proved oil and gas reserves on a field-by-field basis. Oil and gas reserve quantities represent estimates only and there are numerous uncertainties inherent in the estimation process. Actual future production may be materially different from amounts estimated and such differences could materially affect future amortization of proved properties. Estimated costs (net of salvage value) of plugging and abandoning oil and gas wells are reported as additional depreciation and depletion expense using the units-of-production method.

The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the cost of the property has been impaired. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Exploratory costs including exploratory dry holes, annual delay rental and geological and geophysical costs are charged to expense when incurred.

Other Property and Equipment

Other property and equipment is carried at cost and includes expenditures for additions and improvements, which substantially increase the productive lives of existing assets. Maintenance and repair costs are expensed as incurred. Depreciation of property and equipment is generally computed using the straight-line method over their estimated useful lives, varying from 3 years to 20 years. Coal properties are depleted on an area-by-area basis at a rate based upon the cost of the mineral properties and estimated proven and probable tonnage therein. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and proceeds from disposition is recorded as gain or loss.

Impairment of Long-Lived Assets

We review our long-lived assets to be held and used, including proved oil and gas properties accounted for using the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss must be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows. In this circumstance, we would recognize an impairment loss equal to the difference between the carrying value and the fair value of the asset. Fair value is estimated to be the present value of expected future net cash flows from proved reserves, utilizing a risk-adjusted rate of return.

Concentration of Credit Risk

Substantially all of our accounts receivable at December 31, 2001 result from oil and gas sales and joint interest billings to third party companies in the oil and gas industry. This concentration of customers and joint interest owners may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral from a customer or joint interest owner, we analyze the entity’s net worth, cash flows, earnings and credit ratings. Receivables are generally not collateralized. Historical credit losses incurred on receivables have not been significant.

Substantially all of the Partnership’s accounts receivable at December 31, 2001 result from billings to third party companies in the coal industry. This concentration of customers may impact the Partnership’s overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral from a customer or a lessee, the Partnership analyzes the entity’s net worth, cash flows, earnings and credit ratings. Receivables are generally not collateralized. Historical credit losses incurred by the Partnership on receivables have not been significant.

Risk Factors

Our revenues, profitability, cash flow and future growth rates are substantially dependent upon the price of and demand for natural gas and oil and to a lesser extent coal. Prices for natural gas and oil are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for natural gas and oil, market uncertainty and a variety of additional factors that are beyond our control. We are also dependent upon the continued success of our exploratory drilling program. Other factors that could affect revenues, profitability, cash flow and future growth rates include the inherent uncertainties in oil, natural gas and coal reserve estimates, hedging of our oil and natural gas production with derivative instruments and ability to replace oil, natural gas and coal reserves and finance growth.

Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, notes receivables, U.S. Treasury Notes, accounts payable and long-term debt. The carrying values of cash, marketable securities, accounts receivables, U.S.

39

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

Treasury Notes, accounts payables, and long-term debt approximate fair value. The interest rate on our U.S. Treasury Notes and debt is subject to market fluctuations.

The fair value of notes receivable at December 31, 2001 and 2000 was $ 4.6 million and $5.4 million, respectively.

Revenues

Oil and Gas.    Oil and gas sales revenues are recognized when production is delivered to the buyer. We recognize our natural gas revenue using the entitlement method in which we recognize our ownership interest in natural gas production as revenue. Each working interest owner in a well generally has the right to a specific percentage of production, although actual production sold may differ from an ownership percentage. Using entitlement accounting, a receivable is recorded when under-production occurs and deferred revenue is recognized when over-production occurs.

Coal Royalties.    Coal royalty revenues are recognized on the basis of tons of coal sold by the Partnership’s lessees and the corresponding revenue from those sales. Most coal leases are based on minimum monthly or annual payments, a minimum dollar royalty per ton and/or a percentage of the gross sales price.

Timber.    Timber is sold on a contract basis where independent contractors harvest and sell the timber and, from time to time, in a competitive bid process involving sales of standing timber on individual parcels. Timber revenues are recognized when the timber has been sold or harvested by the independent contractors. Title and risk of loss pass to the independent contractors upon the execution of the contract. In addition, if the contractors do not harvest the timber within the specified time period, the title of the timber reverts back to the Partnership with no refund of original payment.

Coal Services.    Coal services revenues are recognized when lessees use the Partnership’s facilities for the processing and transportation of coal. Coal services revenues consist of fees collected from the Partnership’s lessees for the use of the Partnership’s loadout facility, coal preparation plant, dock loading facility and short-line railroad under operating lease agreements. Revenues associated with coal services are included in other revenues.

Minimum Rentals.    Most of the Partnership’s lessees must make minimum monthly or annual payments that are generally recoupable over certain time periods. These minimum payments are recorded as deferred income. If the lessee recoups a minimum payment through production, the deferred income attributable to the minimum payment is recognized as coal royalty revenues. If a lessee fails to meet its minimum production for certain pre-determined time periods (the recoupment period), the deferred income attributable to the minimum payment is recognized as minimum rental revenues.

Income Tax

We account for income taxes in accordance with the provisions of SFAS No. 109, Accounting forIncome Taxes. This statement requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Using this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates.

4.    Acquisitions and Dispositions

On July 23, 2001, we acquired all of the outstanding stock of Synergy Oil & Gas, Inc., a Texas corporation. Synergy was a privately owned independent exploration and production company with operations primarily in the Texas onshore Gulf Coast and West Texas areas. Cash consideration for the stock was approximately $112 million, which was funded by advances under our revolving credit facility and available cash on hand. The total purchase price was allocated to the assets purchased and the liabilities assumed in the Synergy transaction based upon the fair values on the date of acquisition, as follows (in thousands):

Value of oil and gas properties acquired	$	157,120
Net assets acquired, excluding oil and gas properties		351
Deferred income tax liability		(45,271	)
Cash paid, net of cash acquired	$	112,200

40

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

The following unaudited Pro Forma results of operations have been prepared as though the acquisition had been completed on January 1, 2000. The unaudited Pro Forma results of operations for the years ended December 31, 2001 and 2000 are as follows (in thousands, except share data):

	2001		2000
Revenues	$	114,629	$	128,127
Net income	$	40,026	$	33,773
Net income per share, diluted	$	4.50	$	4.03

5.    Investments and Dividend Income

In April 2001, we sold all of our 3.3 million common share position in Norfolk Southern Corporation and other stocks classified as available-for-sale. The Norfolk Southern Corporation shares were sold at an average price of $17.39 per share. Proceeds from the sales, net of commissions, totaled approximately $57.4 million. We recorded a pre-tax gain on the stock sale transactions of approximately $54.7 million.

Dividend income from our investment in Norfolk Southern Corporation was $0.2 million for the year ended December 31, 2001 and $2.6 million for each of the two years ended December 31, 2000, and 1999.

6.    Notes Receivable

At December 31, 2001, we had two notes receivable outstanding included in Other assets. One note relates to the sale of property and equipment in 1999 for which we received a $1.3 million note for a portion of the proceeds. This note will be repaid in full in 2002. The other note receivable relates to the sale of coal properties located in Virginia in 1986. The note has a stated interest rate of 6.0% per annum and had an original principal amount of $15.0 million pursuant to which we receive quarterly payments through July 1, 2005. In addition, we own a 50 percent residual interest in any royalty income generated from the coal properties sold which are mined after July 1, 2005.

Our notes receivable are collateralized by property and equipment. Maturities of notes receivable are as follows (in thousands):

	December 31,
	2001		2000
Current	$	599	$	981
Due after one year through five years		1,757		2,427
	$	2,356	$	3,408

7.    Price Risk Management Activities

The Company, from time to time, enters into derivative financial instruments to mitigate its exposure to natural gas price volatility. The derivative financial instruments, which are placed with a major financial institution that we believe is a minimum credit risk, take the form of costless collars and swaps. Effective January 1, 2001, the derivative financial instruments were recognized in the financial statements at fair value in accordance with SFAS 133, as amended by SFAS 137 and SFAS 138.

Based upon our assessment of our derivative contracts at December 31, 2001, we reported (i) a net asset of $3.1 million and (ii) accumulated other comprehensive income of $2.0 million, net of income taxes of $1.1 million. In connection with monthly settlements, we recognized net hedging gains in natural gas and oil revenues of $1.9 million for the year ended December 31, 2001. Based upon future oil and natural gas prices as of December 31, 2001, $3.1 million is expected to be reclassified to earnings within the next 12 months. The amounts ultimately reclassified into earnings will vary due to changes in the fair value of the open derivative contracts prior to settlement. We had no outstanding derivative financial instruments at December 31, 2000 or 1999.

41

As of February 18, 2002 our commodity price risk management positions on average daily volumes for the full year 2002 are as follows:

Natural Gas Collar Arrangements

• 11,258 MMbtus at a weighted average floor price of $3.22 per MMbtu and ceiling price of $4.14 per MMbtu through December 2002

Natural Gas Swap Contracts

• 13,000 MMbtus at a NYMEX price of $2.74 per MMbtu expiring October 2002

Crude Oil Collar Arrangements

• 764 Bbls at a weighted average floor price of $21.31 per Bbl and ceiling price of $25.72 per Bbl through December 2002

All hedge transactions are subject to our risk management policy, approved by the Board of Directors. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument’s effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

8.    Property and Equipment

Property and equipment includes (in thousands):

	December 31,
	2001			2000
Oil and gas properties
Unproved	$	58,880		$	2,425
Proved		276,614			172,079
Other property and equipment:
Land		1,773			1,809
Timber		188			188
Coal properties		106,270			72,952
Other equipment		9,558			8,585
		453,283			258,038
Less:    Accumulated depreciation, depletion and amortization		(72,095	)		(52,922	)
Net property and equipment	$	381,188		$	205,116

9.    Impairment of Oil and Gas Properties

In accordance with SFAS No. 121, we review oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. Due to low commodity prices in the fourth quarter of 2001, we estimated the expected future cash flows of our oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For our oil and gas properties located primarily in Texas, the carrying amount of the properties exceeded the estimated undiscounted future cash flows; thus, we adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity prices, timing of future production, future capital expenditures and a discount rate commensurate with our internal rate of return on our oil and gas properties. As a result, we recognized a non-cash pre-tax charge of $33.6 million ($21.8 million after tax) related to the impairment of oil and gas properties in the fourth quarter of 2001. There were no impairments of oil and gas properties in 2000 or 1999.

42

10.    Long-Term Debt

Long-term debt consists of the following (in thousands):

	December 31,
	2001			2000
Penn Virginia revolving credit facility, variable rate of 3.3% at December 31, 2000, due in 2004	$	3,500		$	47,500
PVR Term loan, Variable rate of 2.4 % at December 31, 2001, due in 2004		43,387			—
Line of credit		1,235			740
		48,122			48,240
Less: current maturities		(1,235	)		(740	)
Total long-term debt	$	46,887		$	47,500

The aggregate maturities applicable to outstanding debt at December 31, 2001 are $1.2 million in 2002 and $46.9 million in 2004.

Penn Virginia Revolving Credit Facility

We have a $150 million secured revolving credit facility (the “Revolver”) at December 31, 2001 with a group of major banks, and a borrowing base of $140 million.

The Revolver is governed by a borrowing base calculation and will be redetermined semi-annually. We have the option to elect interest at (i) LIBOR plus a Eurodollar margin ranging from 1.375 to 1.875 percent, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus a margin ranging from 0.375 to 0.875 percent. The weighted average interest rate on borrowings incurred during the year ended December 31, 2001 was approximately 5.9 percent. The Revolver allows for issuance of letters of credit that are limited to no more than $10 million. At December 31, 2001, letters of credit issued were $0.3 million. The financial covenants require us to maintain levels of net worth, debt-to-earnings and dividend limitation restrictions. We are currently in compliance with all of our covenants.

PVR Revolving Credit Facility

The Partnership has a $50.0 million unsecured revolving credit facility (the “Partnership Revolver”), which expires in October 2004, with a group of major banks. The Partnership has the option to elect interest at (i) LIBOR plus a Euro-rate margin ranging from 1.25 percent to 1.75 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus 0.5 percent. The Partnership Revolver allows for working capital draws of no more than $5.0 million and issuance of letters of credit, which are limited to $2 million. The financial covenants of the Partnership Revolver include, but are not limited to, maintaining: (i) a ratio of not more than 2.5:1.0 of total debt to consolidated EBITDA (as defined by the credit agreement) and (ii) a ratio of not less than 4.00:1.00 of consolidated EBITDA to fixed charges. There were no amounts outstanding under the Partnership Revolver at December 31, 2001. The Partnership is currently in compliance with all of its covenants.

PVR Term Loan

The Partnership borrowed an additional $43.4 million in the form of a term loan. The term loan expires in October 2004 and is secured by restricted U.S. Treasury Notes. The Partnership has the option to elect interest at (i) LIBOR plus a Euro-rate margin 0.5 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus 0.5 percent. The financial covenants of the term loan include, but are not limited to, maintaining certain levels of financial leverage, interest coverage and cash flow.

Line of Credit

We have a $5 million line of credit with a financial institution due in December 2002, renewable annually. We have an option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate loan.

43

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

11.    Accrued Liabilities

Accrued expenses are summarized as follows (in thousands):

	December 31,
	2001		2000
Gas imbalances	$	3,128	$	1,310
Taxes other than income		2,700		1,013
Accrued oil and gas royalties		2,042		2,027
Compensation		1,949		1,421
Accrued drilling costs		1,641		197
Other		2,371		1,186
Total Accrued Liabilities	$	13,831	$	7,154

12.    Income Taxes

The provision for income taxes from continuing operations is comprised of the following (in thousands):

	Year ended December 31,
	2001			2000		1999
Current income taxes
Federal	$	21,160		$	10,463	$	1,525
State		42			2,496		—
Total current		21,202			12,959		1,525
Deferred income taxes
Federal		(3,167	)		6,951		2,426
State		1,279			55		379
Total deferred		(1,888	)		7,006		2,805
Total income tax expense	$	19,314		$	19,965	$	4,330

The difference between the taxes computed by applying the statutory tax rate to income from operations before income taxes and our reported income tax expense is as follows (in thousands):

	Year ended December 31,
	2001			2000			1999
Computed at federal statutory tax rate	$	18,777		$	20,731		$	6,592
State income taxes, net of federal income tax benefit		859			1,658			246
Dividends received deduction		(49	)		(648	)		(648	)
Non-conventional fuel source credit		(721	)		(1,570	)		(1,471	)
Percentage depletion		(46	)		(234	)		(414	)
Other, net		494			28			25
Total income tax expense	$	19,314		$	19,965		$	4,330

44

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

The principal components of our net deferred income tax liability are as follows (in thousands):

	December 31,
	2001			2000
Deferred tax assets:
Other long-term assets	$	2,703		$	1,908
Alternative minimum tax credits		439			2,258
Net operating loss carryforwards		1,154			925
Other		178			560
Total deferred tax assets		4,474			5,651
Deferred tax liabilities:
Notes receivable		(747	)		(891	)
Investments		—			(14,437	)
Oil and gas properties		(56,675	)		(14,789	)
Other property and equipment		(2,108	)		(2,142	)
Other		(805	)		(211	)
Total deferred tax liabilities		(60,335	)		(32,470	)
Net deferred tax liability		(55,861	)		(26,819	)
Less:    Net current deferred income tax asset (liability)		—			(136	)
Net non-current deferred tax liability	$	(55,861	)	$	(26,683	)

During 2001, we increased our non-current deferred tax liability by $44.3 million relating to the acquisition of Synergy Oil and Gas, Inc. offset by a decrease of $14.4 million relating to the sale of Norfolk Southern Corporation common stock.

As of December 31, 2001, we had available alternative minimum tax credits of approximately $0.4 million, which can be carried forward indefinitely as a credit. We have various net operating loss carryforwards for tax purposes of approximately $11.4 million which, if unused, will expire from 2009 to 2021.

13.    Pension Plans and Other Post-retirement Benefits

We provide early retirement programs for eligible employees. Benefits are recorded based on the employee’s average annual compensation and yearly services. We provided a noncontributory, defined benefit pension plan, which was frozen in 1996, and terminated in 2001. We recorded an expense of $0.5 million relating to the termination of the retirement plan in 2001.

We also sponsor a defined benefit post-retirement plan that covers employees hired prior to January 1, 1991 who retire from active service. The plan provides medical benefits for the retirees and dependents and life insurance for the retirees. The medical coverage is noncontributory for retirees who retired prior to January 1, 1991 and may be contributory for retirees who retired after December 31, 1990.

45

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

A reconciliation of the changes in the benefit obligations and fair value of assets for the two years ended December 31, 2001 and 2000 and a statement of the funded status at December 31, 2001 and 2000 is as follows (in thousands):

	Pension						Post-retirement Healthcare
	2001			2000			2001			2000
Reconciliation of benefit obligation:
Obligation—beginning of year	$	10,467		$	10,612		$	2,853		$	2,936
Service cost		43			43			11			11
Interest cost		744			763			251			209
Benefits paid		(1,754	)		(1,087	)		(577	)		(324	)
Settlements		(7,879	)		—			—			—
Actuarial (gain) loss		797			113			930			21
Other		(43	)		23			—			—
Obligation—end of year		2,375			10,467			3,468			2,853
Reconciliation of fair value of plan assets:
Fair value—beginning of year		9,941			10,594			975			1,578
Actual return on plan assets		368			223			138			(301	)
Settlements		(7,879	)		—			—			—
Employer contributions		259			259			10			25
Participant contributions		—			—			11			5
Benefit payments		(1,754	)		(1,087	)		(588	)		(324	)
Administrative expenses		(190	)		(48	)		(28	)		(8	)
Transfer to 401 K		(186	)		—			—			—
Reversion to Penn Virginia		(559	)		—			—			—
Fair value—end of year		—			9,941			518			975
Funded status:
Funded status—end of year		(2,375	)		(526	)		(2,950	)		(1,878	)
Unrecognized transition obligation		20			23			—			—
Unrecognized prior service cost		42			48			79			86
Unrecognized (gain) loss		405			(308	)		930			118
Net amount recognized	$	(1,908	)	$	(763	)	$	(1,941	)	$	(1,674	)

The following table provides the amounts recognized in the statements of financial position at December 31, 2001 and 2000 (in thousands):

	Pension						Post-retirement Healthcare
	2001			2000			2001			2000
Accrued benefit liability	$	(2,375	)	$	(1,199	)	$	(1,941	)	$	(1,674	)
Other long-term assets		62			71			—			—
Accumulated other comprehensive income		405			365			—			—
Obligation—end of year	$	(1,908	)	$	(763	)	$	(1,941	)	$	(1,674	)

46

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

The following table provides the components of net periodic benefit cost for the plans for the two years ended December 31, 2001 and 2000 (in thousands):

	Pension						Post-retirement Healthcare
	2001			2000			2001			2000
Service cost	$	43		$	43		$	11		$	11
Interest cost		745			763			251			209
Expected return on plan assets		(901	)		(963	)		(23	)		(42	)
Amortization of prior service cost		6			6			6			6
Amortization of transitional obligation		3			3			—			—
Recognized actuarial (gain) loss		8			(21	)		32			—
Net periodic benefit cost	$	(96	)	$	(169	)	$	277		$	184

The assumptions used in the measurement of our benefit obligation were as follows:

	Pension				Post-retirement Healthcare
	2001		2000		2001		2000
Discount rate	7.25	%	7.50	%	7.25	%	7.50	%
Expected return on plan assets	9.50		9.50		3.00		3.00

For measurement purposes, a 10.0 percent annual rate increase in the per capita cost of covered health care benefits was assumed for 2001. The rate is assumed to decrease gradually to 5.0 percent for 2011 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for post-retirement benefits. A one percent change in assumed health care cost trend rates would have the following effects for 2001 (in thousands):

	One percent Increase		One percent Decrease
Effect on total of service and interest cost components	$	11	$	(10	)
Effect on post-retirement benefit obligation		163		(148	)

14.    Other Liabilities

Other liabilities are summarized in the following table (in thousands):

	December 31,
	2001		2000
Post-retirement health care	$	1,793	$	1,497
Deferred income		3,658		2,749
Pension		2,234		1,059
Other		1,192		181
Total other liabilities	$	8,877	$	5,486

47

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

15.    Earnings Per Share

The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share (“EPS”) for net income for the three years ended December 31 (in thousands, except share data):

	2001		2000		1999
Net income	$	34,337	$	39,265	$	14,504
Weighted average shares, basic		8,770		8,241		8,406
Effect of Dilutive securities:
Stock options		126		130		74
Weighted average shares, diluted		8,896		8,371		8,480
Net income per share, basic	$	3.92	$	4.76	$	1.73
Net income per share, diluted	$	3.86	$	4.69	$	1.71

Antidilutive stock options are precluded from the computation of diluted EPS; however, such options could potentially dilute basic EPS in the future.

16.    Stock Option and Stock Ownership Plans

Stock Option Plans

We have several stock option plans (collectively known as the “Stock Option Plans”) that allow incentive and nonqualified stock options to be granted to key employees and officers and nonqualified stock options to be granted to directors. Options granted under the Stock Option Plans may be exercised at any time after one year and prior to ten years following the grant, subject to special rules that apply in the event of death, retirement and/or termination of an optionee. The exercise price of all options granted under the Stock Option Plans is at the fair market value of the Company’s stock on the date of the grant. At December 31, 2001 there were 300,000 and 250,000 options authorized and available to grant to Directors and employees, respectively.

The following table summarizes information with respect to the common stock options awarded under the Stock Option Plans and grants described above.

	2001			2000			1999
	Shares Under Options	Weighted Avg. Exercise Price		Shares Under Options	Weighted Avg. Exercise Price		Shares Under Options	Weighted Avg. Exercise Price
Outstanding, Beginning of year	725,403	$	19.38	1,014,500	$	18.74	1,002,800	$	18.65
Granted	160,100	$	32.02	46,300	$	16.65	91,800	$	20.27
Exercised	526,053	$	23.35	326,397	$	17.13	49,000	$	16.44
Cancelled	—		—	9,000	$	18.99	31,100	$	23.84
Outstanding, End of year	359,450	$	25.97	725,403	$	19.38	1,014,500	$	18.74
Weighted average of fair value of options granted during the year		$	10.55		$	5.02		$	6.02

48

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

The following table summarizes certain information regarding stock options outstanding at December 31, 2001:

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding at 12/31/01	Weighted Avg. Remaining Contractual Life	Weighted Avg. Exercise Price		Number Exercisable at 12/31/01	Weighted Avg. Exercise Price
$15 to $19	55,200	5.9	$	17.46	55,200	$	17.46
$20 to $24	127,900	5.2	$	21.90	127,900	$	21.90
$25 to $29	26,250	7.0	$	27.11	26,250	$	27.11
$30 to $34	150,100	9.5	$	32.36	—	$	—

We apply the intrinsic value method for reporting compensation expense pursuant to Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” to its stock-based compensation plans. Had compensation expense for our stock-based compensation plans been determined in accordance with the fair value method pursuant to SFAS No. 123 “Accounting for Stock-Based Compensation”, our pro forma net income and earnings per share would have been as follows:

	2001		2000		1999
Net Income (in thousands)	$	33,652	$	39,092	$	14,111
Earnings per share, basic	$	3.84	$	4.74	$	1.68
Earnings per share, diluted	$	3.78	$	4.67	$	1.66

The fair value of the options granted during 2001 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 2.71 percent to 2.92 percent, b) expected volatility of 32.3 percent, c) risk-free interest rate 5.1 percent and d) expected life of eight years

The fair value of the options granted during 2000 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 5.2 percent to 5.4 percent, b) expected volatility of 37.0 percent, c) risk-free interest rate of 6.9 percent to 7.0 percent and d) expected life of eight years.

The fair value of the options granted during 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 4.4 percent to 4.6 percent, b) expected volatility of 38.6 percent, c) risk-free interest rate of 4.8 percent to 4.9 percent and d) expected life of eight years.

The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts.

Employees’ Stock Ownership Plan

In 1996, the Board of Directors extended the Employees’ Stock Ownership Plan (“ESOP”). All employees with one year of service are participants. The ESOP is designed to enable employees to accumulate stock ownership. While there are no employee contributions, participants receive an allocation of stock which has been contributed by the Company. Compensation costs are reported when such shares are released to employees. The ESOP borrowed $2.0 million from the Company in 1996 and used the proceeds to purchase treasury stock. Under the terms of the ESOP, we will make annual contributions over a 10-year period. At December 31, 2001, the unearned portion of the ESOP approximately ($0.5 million) was recorded as a contra-equity account entitled “Unearned Compensation—ESOP.”

Shareholder Rights Plan

In February 1998, the Board of Directors adopted a Shareholder Rights Plan designed to prevent an acquirer from gaining control of the Company without offering a fair price to all shareholders. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $100 par value, at a price of $100 subject to adjustment. The Rights are not exercisable or transferable apart from the common stock until ten days after a person or affiliated group has acquired fifteen percent or more, or makes a tender offer for fifteen percent or more, of the our common stock. Each Right will entitle the holder, under certain circumstances (such as a merger, acquisition of fifteen percent or more of common stock of the Company by the acquiring person or sale of fifty percent or more of the Company’s assets or earning power), to acquire at half the value, either common stock of the Company, a combination of cash, other property, or common stock or other securities of the Company, or common stock of the acquiring person. Any such event would also result in any Rights owned beneficially by the acquiring person or its affiliates becoming null and void. The Rights expire in February 2008 and are redeemable at any time until ten days following the time an acquiring person acquires fifteen percent or more of our common stock at $0.001 per Right.

49

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

17.    Accumulated Other Comprehensive Income

Comprehensive income represents certain changes in equity during the reporting period, including net income and other comprehensive income, which includes, but is not limited to, unrealized gains from marketable securities, price risk management assets and minimum pension liability adjustments. Reclassification adjustments represent gains or losses realized in net income for each respective year. For the three years ended December 31, 2001, the components of accumulated other comprehensive income are as follows (in thousands):

	Net unrealized holding gain-investments			Price risk management assets			Minimum pension liability			Accumulated other comprehensive income
Balance at December 31, 1998	$	66,287		$	—		$	(302	)	$	65,985
Unrealized holding loss, net of tax of $12,951		(24,052	)		—			—			(24,052	)
Pension plan adjustment, net of tax of $46		—			—			84			84
Balance at December 31, 1999		42,235			—			(218	)		42,017
Unrealized holding loss, net of tax of $8,308		(15,429	)		—			—			(15,429	)
Pension plan adjustment, net of tax of $10		—			—			18			18
Balance at December 31, 2000		26,806			—			(200	)		26,606
Investment holding gain, net of tax of $1,383		8,741			—			—			8,741
Investment reclassification adjustment, net of tax of $19,140		(35,547	)		—			—			(35,547	)
Price risk management unrealized gain, net of tax of $1,940		—			3,603			—			3,603
Price risk management reclassification adjustment, net of tax of $853		—			(1,584	)		—			(1,584	)
Pension plan adjustment, net of tax of $34		—			—			(63	)		(63	)
Balance at December 31, 2001	$	—		$	2,019		$	(263	)	$	1,756

18.    Segment Information

Segment information has been prepared in accordance with SFAS No. 131 Disclosure about Segments of an Enterprise and Related Information. Under SFAS No. 131, operating segments are defined as components of an enterprise about which separate financial information is available and is evaluated regularly by the chief decision maker, or decision-making group, in assessing performance. Our chief operating decision-making group consists of the Chief Executive Officer and other senior officials. This group routinely reviews and makes operating and resource allocation decisions among our oil and gas operations and its coal royalty and land management operations. Accordingly, our reportable segments are as follows:

50

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

Oil and Gas—crude oil and natural gas exploration, development and production.

Coal Royalty and Land Management—the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber.

	Oil and Gas			Coal Royalty and Land Management		All Other			Consolidated
	(in thousands)
December 31, 2001
Revenues	$	57,778		$	37,513	$	1,280		$	96,571
Operating costs and expenses		26,914			9,271		6,044			42,229
Depreciation, depletion and amortization		16,418			3,084		77			19,579
Impairment of oil and gas Properties		33,583			—		—			33,583
Operating income (loss)	$	(19,137	)	$	25,158	$	(4,841	)		1,180
Gain on sale of securities										54,688
Interest expense										(2,070	)
Interest income										1,602
Other										14
Income before minority interest and taxes									$	54,414
Total assets		292,448			162,638		5,085			460,171
Capital expenditures		161,292			33,668		1,078			196,038
December 31, 2000
Revenues	$	71,405		$	30,189	$	4,404		$	105,998
Operating costs and expenses		15,107			8,327		4,901			28,335
Depreciation, depletion and amortization		9,883			2,047		97			12,027
Operating income (loss)	$	46,415		$	19,815	$	(594	)		65,636
Interest expense										(7,878	)
Interest income										1,458
Other										14
Income before taxes									$	59,230
Total assets		142,613			79,803		46,350			268,766
Capital expenditures		58,677			485		281			59,443
December 31, 1999
Revenues	$	23,222		$	21,350	$	3,125		$	47,697
Operating costs and expenses		10,102			5,505		2,982			18,589
Depreciation, depletion and amortization		6,951			1,269		173			8,393
Operating income (loss)	$	6,169		$	14,576	$	(30	)		20,715
Interest expense										(3,298	)
Interest income										1,354
Other										63
Income before taxes									$	18,834
Total assets		120,954			82,723		70,334			274,011
Capital expenditures		28,605			31,955		91			60,651

Operating loss for the Oil Gas segment in 2001 includes a $33.6 million impairment on properties (see “Note 9. Impairment of Oil and Gas Properties”). Operating income for 2000 includes a gain on sale of property of $23.9 million.

51

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

Operating income is total revenue less operating expenses. Operating income does not include certain other income items, gain (loss) on sale of securities, interest expense, minority interest and income taxes. Identifiable assets are those assets used in the operations of each segment.

For the year ended December 31, 2001, two customers of the oil and gas segment accounted for $20.8 million, or 22 percent, and $11.4 million, or 12 percent, respectively, of our consolidated net revenues. For the year ended December 31, 2000, two customers of the oil and gas segment accounted for $13.6 million, or 13 percent, and $10.5 million, or 10 percent, respectively, of our consolidated net revenues.

19.    Commitments and Contingencies

Rental Commitments

Minimum rental commitments under all non-cancelable operating leases, primarily real estate, in effect at December 31, 2001 were as follows (in thousands):

Year ending December 31,
2002	$	1,598
2003		1,390
2004		1,284
2005		1,046
2006		957
Total minimum payments	$	6,275

Legal

We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, management believes these claims will not have a material effect on the financial position, liquidity or operations.

Environmental Compliance

Extensive federal, state and local laws govern oil and natural gas operations, regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which carry substantial administrative, 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 liable for environmental and natural resource damages and cleanup costs without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and natural gas production below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial action to prevent pollution from former operations, such as closure of inactive pits and plugging of abandoned wells. The regulatory burden on the oil and natural gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect our operations, as well as the oil and gas exploration and production industry in general. We believe that we are in substantial compliance with current applicable environmental laws, rules and regulations and that continued compliance with existing requirements will not have a material adverse impact on us. Nevertheless, changes in existing environmental laws or the adoption of new environmental laws have the potential to adversely affect our operations.

The operations of the Partnership’s lessees are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which these operations are conducted. The terms of the Partnership’s coal property leases impose liability for all environmental and reclamation liabilities arising under those laws and regulations on the relevant lessees. The lessees are bonded and have indemnified the Partnership against any and all future environmental liabilities. The Partnership regularly visits the coal property leases to monitor their lessee’s compliance with environmental laws and regulations, as well as reviewing mine activities. Management believes that the Partnership’s lessees will be able to comply with existing regulations and does not expect any material impact on its financial condition or results of operations. The Partnership has neither incurred, nor is aware of, any material environmental charges imposed on it related to its coal properties for the years ended December 31, 2001, 2000 and 1999.

52

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

20.    Supplementary Information on Oil and Gas Producing Activities (Unaudited)

The following supplementary information regarding the oil and gas producing activities is presented in accordance with the requirements of the Securities and Exchange Commission (SEC) and SFAS No. 69 “Disclosures about Oil and Gas Producing Activities”. The amounts shown include our net working and royalty interest in all of our oil and gas operations.

Capitalized Costs Relating to Oil and Gas Producing Activities

	Year Ended December 31,
	2001			2000			1999
	(in thousands)
Proved properties	$	131,444		$	64,107		$	41,084
Unproved properties		58,880			2,425			3,959
Wells, equipment and facilities		142,311			105,283			137,176
Support equipment		2,859			2,689			2,829
		335,494			174,504			185,048
Accumulated depreciation and depletion		(60,073	)		(43,720	)		(69,495	)
Net capitalized costs	$	275,421		$	130,784		$	115,553

Costs Incurred in Certain Oil and Gas Activities

	Year Ended December 31,
	2001		2000		1999
	(in thousands)
Proved property acquisition costs	$	97,147	$	35,999	$	14,069
Unproved property acquisition costs		64,488		917		2,551
Exploration costs		13,406		5,125		3,171
Development costs and other		31,545		18,561		9,398
Total costs incurred	$	206,586	$	60,602	$	29,189

Costs for the year ended December 31, 2001 include deferred income taxes of $45.3 million provided for the book versus tax basis difference related to the acquired Synergy Oil and Gas properties, $27.2 million of which is included in proved property acquisition costs and $18.1 million is included in unproved property acquisition costs.

Results of Operations for Oil and Gas Producing Activities

The following schedule includes results solely from the production and sale of oil and gas and a non-cash charge for property impairments. It excludes general and administrative expenses and gains or losses on property dispositions. The income tax expense is calculated by applying the statutory tax rates to the revenues after deducting costs, which include depletion allowances and giving effect to oil and gas related permanent differences and tax credits.

	Year Ended December 31,
	2001			2000		1999
	(in thousands)
Revenues	$	57,024		$	46,851	$	21,847
Production costs		9,833			7,097		5,092
Exploration costs		11,514			5,080		1,699
Depreciation and depletion		16,418			9,883		6,951
Impairment of oil and gas properties		33,583			—		—
		(14,324	)		24,791		8,105
Income tax expense (benefit)		(5,860	)		8,354		1,864
Results of operations	$	(8,464	)	$	16,437	$	6,241

53

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

Oil and Gas Reserves

The following schedule presents the estimated oil and gas reserves owned by us. This information includes our royalty and net working interest share of the reserves in oil and gas properties. Net proved oil and gas reserves for the three years ended December 31, 2001 were estimated by Wright and Company, Inc. All reserves are located in the United States.

There are many uncertainties inherent in estimating proved reserve quantities, and projecting future production rates and the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions at the end of the respective years. Proved developed oil and gas reserves are those reserves expected to be recovered through existing equipment and operating methods.

Net quantities of proved reserves and proved developed reserves during the periods indicated are set forth in the tables below:

Proved Developed and Undeveloped Reserves

	Oil and Condensate (MBbls)		Natural Gas (MMcf)		MMcfe
December 31, 1998	341		163,873		165,919
Revisions of previous estimates	31		2,106		2,292
Extensions, discoveries and other additions	—		4,661		4,661
Production	(32	)	(8,679	)	(8,871	)
Purchase of reserves	19		23,237		23,351
December 31, 1999	359		185,198		187,352
Revisions of previous estimates	107		(1,893	)	(1,251	)
Extensions, discoveries and other additions	19		30,987		31,101
Production	(31	)	(11,645	)	(11,831	)
Purchase of reserves	11		35,879		35,945
Sale of reserves in place	(394	)	(64,279	)	(66,643	)
December 31, 2000	71		174,247		174,673
Revisions of previous estimates	(438	)	(5,697	)	(8,325	)
Extensions, discoveries and other additions	90		41,395		41,935
Production	(164	)	(13,130	)	(14,114	)
Purchase of reserves	4,361		33,402		59,568
Sale of reserves in place	—		(964	)	(964	)
December 31, 2001	3,920		229,253		252,773
Proved Developed Reserves:
December 31, 1999	326		138,283		140,239
December 31, 2000	71		145,930		146,356
December 31, 2001	2,212		183,134		196,406

The following table sets forth the standardized measure of the discounted future net cash flows attributable to our proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Natural gas prices were escalated only where existing contracts contained fixed and determinable escalation clauses. Contractually provided natural gas prices in excess of estimated market clearing prices were used in computing the future cash inflows only if we expect to continue to receive higher prices under legally enforceable contract terms. Future prices actually received may materially differ from current prices or the prices used in the standardized measure.

Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to our proved oil and gas reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis,

54

PENN VIRGINIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENT—(Continued)

available net operating loss carryforwards and alternative minimum tax credits were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10 percent annual rate.

	Year Ended December 31,
	2001		2000		1999
	(in thousands)
Future cash inflows	$	722,203	$	1,727,923	$	505,685
Future production costs		178,533		205,385		151,220
Future development costs		39,145		19,981		30,431
Future net cash flows before income tax		504,525		1,502,557		324,034
Future income tax expense		127,277		422,485		58,068
Future net cash flows		377,248		1,080,072		265,966
10% annual discount for estimated timing of cash flows		188,305		612,679		146,703
Standardized measure of discounted future net cash flows	$	188,943	$	467,393	$	119,263

Changes in Standardized Measure of Discounted Future Net Cash Flows

	Year Ended December 31,
	2001			2000			1999
	(in thousands)
Sales of oil and gas, net of production costs	$	(47,191	)		(39,754	)	$	(16,755	)
Net changes in prices and production costs		(483,009	)		313,355			32,111
Extensions, discoveries and other additions		37,907			123,223			4,090
Development costs incurred during the period		13,771			16,001			5,330
Revisions of previous quantity estimates		(7,710	)		(4,604	)		1,709
Purchase of minerals-in-place		70,294			121,979			20,438
Sale of minerals-in-place		(906	)		(41,456	)		—
Accretion of discount		64,363			13,628			8,116
Net change in income taxes		122,636			(159,220	)		(11,526	)
Other changes		(48,605	)		4,978			86
Net increase (decrease)		(278,450	)		348,130			43,599
Beginning of year		467,393			119,263			75,664
End of year	$	188,943		$	467,393		$	119,263

As required by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities,” changes in standardized measure relating to sales of reserves are calculated using prices in effect as of the beginning of the period and changes in standardized measure relating to purchases of reserves are calculated using prices in effect at the end of the period. Accordingly, the changes in standardized measure for purchases and sales of reserves reflected above do not necessarily represent the economic reality of such transactions. See the disclosure of “Costs incurred in Certain Oil and Gas Activities” and the statements of cash flows in the financial statements.

ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

55

PART III

ITEMS 10, 11, 12 AND 13— DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Except for information concerning executive officers of the Company included as an unnumbered item in Part 1, in accordance with General Instruction G(3), reference is hereby made to the Company’s definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report.

PART IV

ITEM 14—EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Financial Statements

1.	Financial Statements—The financial statements filed herewith are listed in the Index to Financial Statements on page 30 of this report.
2.	All schedules are omitted because they are not required, inapplicable or the information is included in the consolidated financial statements or the notes thereto.
3.	Exhibits
(1.1)	Underwriting Agreement dated October 24, 2001, among the Partnership, Penn Virginia Resource GP, LLC and Penn Virginia Operating Co., LLC (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 14, 2001.
(3.1)	Articles of Incorporation of Penn Virginia Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999).
(3.2)	Articles of Amendment of Articles of Articles of Incorporation of Penn Virginia Corporation (incorporated by reference to Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999).
(3.3)	Amended bylaws of Registrant (incorporated by reference to Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.
(4)	Rights Agreement dated as of February 11, 1998 between Penn Virginia Corporation and American Stock Transfer & Trust Company, as Agent (incorporated by reference to Exhibit 1.1 to Registrant’s Registration Statement on Form 8-A filed with Securities and Exchange Commission on February 20, 1998.)
(10.1)	Credit Agreement dated as of October 30, 2001 among Penn Virginia Corporation, the lenders party thereto, First Union National Bank, Bank One, NA, and Royal Bank of Canada, as Co-Syndication Agents, and The Chase Manhattan Bank, as Administrative Agent.
(10.2)	Penn Virginia Corporation and Affiliated Companies Employees’ Stock Ownership Plan, as amended.
(10.3)	Penn Virginia Corporation and Affiliated Companies’ Employees’ 401(k) Plan, as amended.
(10.4)	Registrant has adopted a policy concerning severance benefits for certain senior officers of Registrant. The description of such policy is incorporated herein by reference to the description of such policy contained in Registrant’s definitive Proxy Statement dated April 2, 2002.
(10.5)	Penn Virginia Corporation 1994 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.5 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999).
(10.6)	Penn Virginia Corporation 1995 Second Amended and Restated Directors’ Stock Compensation Plan, as amended.
(10.7)	Penn Virginia Corporation 1999 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999).
(10.8)	Omnibus Agreement dated October 30, 2001 among Penn Virginia Corporation; Penn Virginia Resource GP, LLC (“GP, LLC”), Penn Virginia Operating Co., LLC (“Operating Co.”) and Penn Virginia Resource Partners, L.P. (the “Partnership”) (incorporated by reference to Exhibit 10.2 to Registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2001.)
(10.9)	Underwriting Agreement dated October 24, 2001 among Registrant, GP, LLC, the Partnership and Operating Co. and Lehman Brothers Inc. and the other underwriters party thereto (the “Partnership”) (incorporated by reference to Exhibit 10.1 to Registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2001).
(10.10)	Agreement and Plan of Merger dated June 19, 2001 among Registrant, Virginia Acquisition Corp. and Synergy Oil & Gas, Inc. (incorporated by reference to Exhibit 10 to Registrant’s Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2001).
(10.11)	Asset Purchase and Sale Agreement dated as of May 31, 2001 among Penn Virginia Coal Company, Pen Ho;dings, Inc., Pen Coal Corporation and the Elk Horn Coal Corporation (incorporated by reference to exhibit 10 to Registrant’s Report on Form 8-K filed with the Securities Exchange Commission on June 18, 2001).

56

(21	)	Subsidiaries of Registrant.
(23.1	)	Consent of Arthur Andersen LLP.
(99.1	)	Letter Responsive to Temporary Note 3T to Article 3 of Regulation S-X

(b)  Reports on Form 8-K

On November 14, 2001, Registrant filed a report on Form 8-K. The report involved the formation of Penn Virginia Resource Partners, L.P. and was filed under “Item 2. Acquisition or Disposition of Assets.”

On October 5, 2001, Registrant filed a Form 8-K/A amending a Report on Form 8-K which had been filed on July 23, 2001.

57

EX-10.1

[EXECUTION COPY]

EXHIBIT  10.1

CREDIT AGREEMENT

dated as of

OCTOBER 30, 2001

among

PENN VIRGINIA CORPORATION,

as Borrower,

THE LENDERS PARTY HERETO,

FIRST UNION NATIONAL BANK,

BANK ONE, NA, and

ROYAL BANK OF CANADA,

as Co-Syndication Agents,

and

THE CHASE MANHATTAN BANK,

as Administrative Agent

J.P. MORGAN SECURITIES INC.,

as Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

		Page
ARTICLE I    Definitions and Accounting Matters		1
Section 1.01	Terms Defined Above	1
Section 1.02	Certain Defined Terms	1
Section 1.03	Accounting Terms and Determinations	18
Section 1.04	Types of Loans	18
ARTICLE II    Commitments		18
Section 2.01	Loans and Letters of Credit	18
Section 2.02	Borrowings, Continuations and Conversions, Letters of Credit	20
Section 2.03	Changes of Maximum Credit Amounts	22
Section 2.04	Fees	22
Section 2.05	Several Obligations	22
Section 2.06	[Intentionally omitted]	23
Section 2.07	[Intentionally omitted]	23
Section 2.08	Prepayments	23
Section 2.09	Borrowing Base	24
Section 2.10	Assumption of Risks	25
Section 2.11	Obligation to Reimburse and to Prepay	26
Section 2.12	Lending Offices	27
Section 2.13	Repayment of Loans; Evidence of Debt	27
ARTICLE III    Payments of Principal and Interest		28
Section 3.01	Repayment of Loans	28
Section 3.02	Interest	28
ARTICLE IV    Payments; Pro Rata Treatment; Computations; Etc.		29
Section 4.01	Payments	29
Section 4.02	Pro Rata Treatment	29
Section 4.03	Computations	30
Section 4.04	Non-receipt of Funds by the Administrative Agent	30
Section 4.05	Set-off, Sharing of Payments, Etc	30
Section 4.06	Taxes	31

i

TABLE OF CONTENTS

(continued)

		Page
Section 4.07	Disposition of Proceeds	34
ARTICLE V    Additional Costs and Capital Adequacy		34
Section 5.01	Additional Costs	35
Section 5.02	Limitation on Eurodollar Loans	36
Section 5.03	Illegality	36
Section 5.04	ABR Loans Pursuant to Sections 5.01, 5.02 and 5.03	37
Section 5.05	Compensation	37
Section 5.06	Replacement Lenders	37
Section 5.07	Time Limit; Etc	38
ARTICLE VI    Conditions Precedent		39
Section 6.01	Initial Funding	39
Section 6.02	Initial and Subsequent Loans and Letters of Credit	41
Section 6.03	Termination of Agreement	41
ARTICLE VII    Representations and Warranties		42
Section 7.01	Existence	42
Section 7.02	Financial Position; No Material Adverse Effect	42
Section 7.03	Litigation	42
Section 7.04	No Breach	43
Section 7.05	Authority; Enforceability	43
Section 7.06	Approvals	43
Section 7.07	Use of Loans and Letters of Credit	44
Section 7.08	ERISA	44
Section 7.09	Taxes	45
Section 7.10	Titles, Etc	45
Section 7.11	No Material Misstatements	45
Section 7.12	Investment Company Act	46
Section 7.13	Public Utility Holding Company Act	46
Section 7.14	Subsidiaries	46
Section 7.15	Jurisdiction of Incorporation or Organization	47
Section 7.16	Defaults	47

ii

TABLE OF CONTENTS

(continued)

		Page
Section 7.17	Environmental Matters	47
Section 7.18	Compliance with the Law; Maintenance of Properties	47
Section 7.19	Insurance	48
Section 7.20	Hedging Agreements	49
Section 7.21	Restriction on Liens	49
Section 7.22	Intellectual Property	49
Section 7.23	Material Personal Property	49
Section 7.24	Business	49
Section 7.25	Solvency	50
Section 7.26	Licenses, Permits, Etc	50
Section 7.27	Fiscal Year	50
ARTICLE VIII    Affirmative Covenants		50
Section 8.01	Reporting Requirements	50
Section 8.02	Litigation	53
Section 8.03	Maintenance, Compliance with Laws, Inspections, Insurance, Etc	53
Section 8.04	Environmental Matters	54
Section 8.05	Further Assurances	54
Section 8.06	Performance of Obligations	54
Section 8.07	Reserve Reports	55
Section 8.08	Title Information	55
Section 8.09	Additional Collateral; Additional Guarantors.	56
Section 8.10	ERISA Information and Compliance	57
Section 8.11	Business of the Borrower	57
Section 8.12	Payment of Taxes and Claims	57
Section 8.13	Permits, Licenses	58
ARTICLE IX    Negative Covenants		58
Section 9.01	Financial Covenants	58
Section 9.02	Debt	58
Section 9.03	Liens	59
Section 9.04	Dividends, Distributions and Redemptions	60

iii

TABLE OF CONTENTS

(continued)

		Page
Section 9.05	Investments, Loans and Advances	60
Section 9.06	Designation and Conversion of Restricted and Unrestricted Subsidiaries; Debt of Unrestricted Subsidiaries	61
Section 9.07	Nature of Business	61
Section 9.08	Proceeds of Loans	61
Section 9.09	ERISA Compliance	62
Section 9.10	Mergers, Etc	63
Section 9.11	Sale of Oil and Gas Properties	63
Section 9.12	Environmental Matters	64
Section 9.13	Transactions with Affiliates	64
Section 9.14	Subsidiaries	64
Section 9.15	Negative Pledge Agreements	64
Section 9.16	Gas Imbalances, Take-or-Pay or Other Prepayments	64
Section 9.17	Fiscal Year; Fiscal Quarter	65
Section 9.18	Hedging Agreements	65
Section 9.19	Restricted Subsidiaries	65
ARTICLE X    Events of Default; Remedies		65
Section 10.01	Events of Default	65
Section 10.02	Remedies	67
ARTICLE XI    The Agents		68
Section 11.01	Appointment, Powers and Immunities	68
Section 11.02	Reliance by Administrative Agent	69
Section 11.03	Defaults	69
Section 11.04	Rights as a Lender	69
Section 11.05	INDEMNIFICATION	69
Section 11.06	Non-Reliance on the Agents, Arranger and other Lenders	70
Section 11.07	Action by Administrative Agent	70
Section 11.08	Resignation or Removal of Agent	71
Section 11.09	Authority of Administrative Agent to Release Liens	71
Section 11.10	Arranger and the Co-Syndication Agents	71
ARTICLE XII    Miscellaneous		71

iv

TABLE OF CONTENTS

(continued)

		Page
Section 12.01	Waiver	71
Section 12.02	Notices	71
Section 12.03	Payment of Expenses, Indemnities, etc	73
Section 12.04	Amendments, Etc	75
Section 12.05	Successors and Assigns	76
Section 12.06	Assignments and Participations	76
Section 12.07	Invalidity	77
Section 12.08	Counterparts	77
Section 12.09	References	78
Section 12.10	Survival	78
Section 12.11	Captions	78
Section 12.12	GOVERNING LAW; SUBMISSION TO JURISDICTION	78
Section 12.13	Interest	79
Section 12.14	Confidentiality	80
Section 12.15	EXCULPATION PROVISIONS	81
Section 12.16	Collateral Matters; Hedging Agreements	81
Section 12.17	NO ORAL AGREEMENTS	81

v

CREDIT AGREEMENT

THIS CREDIT AGREEMENT, dated as of October 30, 2001, is among: PENN VIRGINIA CORPORATION, a corporation formed under the laws of the Commonwealth of Virginia (the “Borrower”); each of the Lenders from time to time signatory hereto; FIRST UNION NATIONAL BANK (in its individual capacity, “First Union”), BANK ONE, NA(in its individual capacity, “Bank One”), and ROYAL BANK OF CANADA (in its individual capacity, “RBC”), as co-syndication agents for the Lenders (in such capacity, individually, together with its successors in such capacity, each a “Co-Syndication Agent”, and collectively, together with their successors in such capacity, the “Co-Syndication Agents”)); and THE CHASE MANHATTAN BANK (in its individual capacity, “Chase”), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “Administrative Agent”).

The parties hereto agree as follows:

ARTICLE I

Definitions and Accounting Matters

Section 1.01    Terms Defined Above.    As used in this Agreement, each term defined above shall have the meaning indicated above.

Section 1.02    Certain Defined Terms.    As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa):

“ABR” or Alternate Base Rate” means, with respect to any ABR Loan, for any day, the highest of (i) the Federal Funds Rate for any such day plus 1/2 of 1%, (ii) the secondary market rate for three-month certificates of deposit (adjusted for statutory reserve requirements) plus 1%, or (iii) the Prime Rate determined by the Administrative Agent from time to time. Each change in any interest rate provided for herein based upon the ABR resulting from a change in the ABR shall take effect at the time of such change in the ABR.

“ABR Loans” means Loans that bear interest at rates based upon the ABR.

“Additional Costs” shall have the meaning assigned such term in Section 5.01(a).

“Additional Lender Certificate” shall have the meaning assigned to such term in Section 2.01(d) in the form of Exhibit A.

“Adjusted Eurodollar Rate” means the Eurodollar Rate, as adjusted for statutory reserve requirements for eurocurrency liabilities.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Advance Payment Contract” means any contract whereby the Borrower or any of its Restricted Subsidiaries receives or becomes entitled to receive (either directly or indirectly) any

payment (an “Advance Payment”) to be applied toward payment of the purchase price of Hydrocarbons produced or to be produced from Oil and Gas Properties owned by the Borrower or any of its Restricted Subsidiaries and which Advance Payment is paid or to be paid in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, and the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to be, applied as payment for a portion only of the purchase price thereof or of a percentage or share of such production; provided that inclusion of the standard provisions in any gas sales or purchase contract or any similar contract shall not in, in and of itself, constitute such contract as an Advance Payment Contract for the purposes hereof.

“Affected Loans” shall have the meaning assigned such term in Section 5.04.

“Affiliate” of any Person means (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or executive officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person that owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to “control” (including, with its correlative meanings, “controlled by” and “under common control with”) such corporation or other Person.

“Agents” means collectively the Administrative Agent and the Co-Syndication Agents; and “Agent” means either the Administrative Agent or the Co-Syndication Agents, as the context requires.

“Aggregate Commitments” at any time shall equal the sum of the Commitments.

“Aggregate Maximum Credit Amounts” at any time shall equal the sum of the Maximum Credit Amounts of the Lenders, as the same may be reduced pursuant to Section 2.03(b).

“Agreement” means this Credit Agreement, as the same may from time to time be amended, supplemented or restated.

“Applicable Lending Office” means, for each Lender and for each Type of Loan, the lending office of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in its Administrative Questionnaire or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.

“Applicable Margin” means the following rate per annum as applicable based on the Borrowing Base Utilization in effect from time to time:

2

BORROWING BASE UTILIZATION
	“x” <33%	33% £ “x” <66%	66% £ “x”
Adjusted Eurodollar Margin	1.375%	1.625%	1.875%
ABR Margin	0.375%	0.625%	0.875%

As used in this definition, “x” means, at any time, the then current calculation of the Borrowing Base Utilization.

Each change in the Applicable Margin resulting from a change in the Borrowing Base Utilization shall take effect at the time of such change, provided, however, that if at any time, the Borrower fails to deliver a Reserve Report pursuant to Section 8.07(a) within 30 days after the date required for such delivery thereunder, then the “Applicable Margin” means the rate per annum set forth on the then applicable grid when the Borrowing Base Utilization is greater than or equal to 66%. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next change to the Applicable Margin.

“Approved Petroleum Engineers” means Wright & Company, Inc. or such other reputable firm(s) of independent petroleum engineers as shall be approved by the Required Lenders.

“Arranger” means J.P. Morgan Securities Inc., in its capacity as arranger.

“Assignment” shall have the meaning assigned such term in Section 12.06(b).

“Borrowing Base” means at any time an amount equal to the amount determined in accordance with Section 2.09.

“Borrowing Base Deficiency” means at any time an amount equal to the amount by which outstanding Loans plus LC Exposure exceeds the Borrowing Base then in effect.

“Borrowing Base Utilization” means, as of any day, the fraction expressed as a percentage, the numerator of which is the principal balance of all Loans and the LC Exposure outstanding on such day, and the denominator of which is the Borrowing Base in effect on such day.

“Business Day” means any day other than a Saturday or Sunday or any other day on which commercial banks are authorized or required to close in Houston, Texas; and if such day relates to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice by the Borrower with respect to any such borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market.

3

“Capital Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of Person liable (whether contingent or otherwise) for the payment of rent thereunder.

“Casualty Event” means any loss, casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any Property or asset of the Borrower or any of its Restricted Subsidiaries which were included in the most recent Reserve Report having a fair market value in excess of $1,000,000.

“Closing Date” means the date of this Agreement.

“Code” means the Internal Revenue Code of 1986, as amended from time to time and any successor statute.

“Collateral” means any and all “Mortgaged Property” and “Collateral”, as defined in all Security Instruments.

“Commitment” means, for any Lender, its obligation up to the lesser of such Lender’s Maximum Credit Amount or such Lender’s Percentage Share of the then effective Borrowing Base to (i) make Loans and (ii) participate in the issuance of Letters of Credit as provided in Section 2.01(b).

“Commitment Fee Rate” means 0.50% per annum.

“Consolidated Net Income” means with respect to the Borrower and its Consolidated Restricted Subsidiaries, for any period, the aggregate of the net income (or loss) of the Borrower and its Consolidated Restricted Subsidiaries after allowances for taxes for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any Person in which the Borrower or any Consolidated Restricted Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrower and its Consolidated Restricted Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to the Borrower or to a Consolidated Restricted Subsidiary, as the case may be; (ii) the net income (but not loss) during such period of any Consolidated Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Restricted Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Restricted Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (iii) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (iv) any extraordinary gains or losses during such period, including gains or losses attributable to (A) Property sales and (B) stock or other equity purchases or divestitures; and (v) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets; and provided that if the Borrower or any Consolidated Restricted Subsidiary shall acquire or dispose of any Property or stock or other equity interests during such period or a Subsidiary shall be redesignated pursuant to the terms of this Agreement

4

as either an Unrestricted Subsidiary or a Restricted Subsidiary, then, upon delivery to the Administrative Agent of audited or reviewed financial statements or other financial statements acceptable to the Required Lenders which support a recalculation, Consolidated Net Income shall be calculated after giving pro forma effect to such acquisition, disposition or redesignation, as if such acquisition, disposition or redesignation had occurred on the first day of such period.

“Consolidated Subsidiaries” means for any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP.

“Consolidated Restricted Subsidiaries” means any Restricted Subsidiaries that are Consolidated Subsidiaries.

“Consolidated Unrestricted Subsidiaries” means any Unrestricted Subsidiaries that are Consolidated Subsidiaries.

“Debt” means, for any Person the sum of the following (without duplication): (i) all obligations of such Person for borrowed money or evidenced by bonds, bankers’ acceptances, debentures, notes or other similar instruments; (ii) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all obligations under Capital Leases; (v) all obligations under Synthetic Leases; (vi) all Debt (as described in the other clauses of this definition) of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the debtor to the extent of the lesser of the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (ix) obligations to deliver goods or services including Hydrocarbons in consideration of advance payments, including, without limitation, obligations under Advance Payment Contracts; (x) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (xi) any Debt of a partnership for which such Person is liable either by agreement or because of a Governmental Requirement but only to the extent of such liability; (xii) the undischarged balance of any production payment created by such Person or for the creation of which such Person directly or indirectly received payment ; and (xiii) Net Liabilities in respect of Hedging Obligations.

“Default” means an Event of Default or an event which with notice or lapse of time or both would become an Event of Default.

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

“Domestic Subsidiary” means any Restricted Subsidiary organized under the laws of any jurisdiction within the United States of America (including territories thereof).

5

“EBITDAX” means, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: Interest Expense, taxes, depreciation, depletion, amortization, exploration expenses, other similar noncash charges and the amount of cash dividends and distributions paid by the MLP to the Borrower, minus all noncash income added to Consolidated Net Income and any cash dividends, distributions or other payments made by the Borrower to any shareholders of the Borrower.

“Eligible Assignee” means a Person (A) which either: (a) is primarily engaged in the business of commercial banking and is (i) a Lender, (ii) a Subsidiary of a Lender, (iii) a Subsidiary of a Person of which a Lender is a Subsidiary, (iv) a Person of which a Lender is a Subsidiary or (iv) a Lender Affiliate, or (b) is consented to as an Eligible Assignee by both the Borrower and the Administrative Agent, which consent shall not be unreasonably withheld or delayed; provided that no consent of the Borrower shall be required if an Event of Default shall have occurred and be continuing and (B) which can make one of representations contained in Section 4.06(d)(i).

“Engineering Reports” shall have the meaning assigned such term in Section 2.09(c).

“Environmental Laws” means any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which the Borrower or any Restricted Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Restricted Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 (“OPA”), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term “oil” shall have the meaning specified in OPA, the terms “hazardous substance” and “release” (or “threatened release”) have the meanings specified in CERCLA, and the terms “solid waste” and “disposal” (or “disposed”) have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of the Borrower or any Restricted Subsidiary is located establish a meaning for “oil,” “hazardous substance,” “release,” “solid waste” or “disposal” which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment,

6

or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute.

“ERISA Affiliate” means each trade or business (whether or not incorporated) which together with the Borrower or any Subsidiary would be deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code.

“ERISA Event” means (i) a “Reportable Event” described in Section 4043 of ERISA and the regulations issued thereunder for which reporting has not been waived under such regulations, (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (iii) 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, (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

“Eurodollar Loans” means Loans the interest rates on which are determined on the basis of rates referred to in the definition of “Adjusted Eurodollar Rate”.

“Eurodollar Rate” means, with respect to any Eurodollar Loan, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “Eurodollar Rate” with respect to such Eurodollar Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Global Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.

“Event of Default” shall have the meaning assigned such term in Section 10.01.

“Excepted Liens” means: (i) Liens for taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (ii) Liens in connection with workers’ compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (iii) operators’, vendors’, carriers’, warehousemen’s,

7

repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties or statutory landlord’s liens, including lessee or operator obligations under statutes, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on private, state, federal or foreign lands or waters, each of which is in respect of obligations that have not been outstanding more than sixty (60) days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) Liens which (A) arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and (B) are for claims which either are not delinquent or are being contested in good faith by appropriate proceedings and as to which the Borrower or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP, provided that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Restricted Subsidiary or materially impair the value of such Property subject thereto; (v) Liens reserved in oil and gas mineral leases, or created by statute, to secure royalty, net profits interests, bonus payments, rental payments or other payments out of or with respect to the production, transportation or processing of Hydrocarbons, and compliance with the terms of such Hydrocarbon Interests, provided that such Liens secure claims which either are not delinquent or are being contested in good faith by appropriate proceedings and as to which the Borrower or its Restricted Subsidiary shall have set aside on its books such reserves as may be required pursuant to GAAP; (vi) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that (A) no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board of Governors of the Federal Reserve System, and (B) no such deposit account is intended by Borrower or any of its Restricted Subsidiaries to provide collateral to the depository institution; (vii) all other non-consensual defects in title (which might otherwise constitute Liens) arising in the ordinary course of the Borrower’s or such Restricted Subsidiary’s business or incidental to the ownership of their respective Properties; provided that no such Liens shall secure the payment of Debt or shall, in the aggregate, materially detract from the value or marketability of the Property subject thereto or materially impair the use or operation thereof in the operation of the business of the Borrower or such Restricted Subsidiary; (viii) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Borrower or any Restricted Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of

8

real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any Property which in the aggregate do not materially impair the use of such Property for the purposes of which such Property is held by the Borrower or any Restricted Subsidiary or materially impair the value of such Property subject thereto; (ix) Liens on cash or securities pledged to secure performance of surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business; and (x) judgment Liens not giving rise to an Event of Default, provided that (A) any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceeding may be initiated shall not have expired and (B) no action to enforce such Lien has been commenced.

“Existing Credit Facility” means that certain Amended and Restated Credit Agreement, dated as of July 30, 1999, among the Borrower, The Chase Manhattan Bank, and the lenders and the agents party thereto, and the other agreements or instruments executed and delivered in connection with, or as security for the payment or performance of the obligations thereunder, as such agreements may have been amended, supplemented or restated from time to time.

“Fair Market Value” means, with respect to any Property, the cash value which a Person which is not an Affiliate of the Borrower would pay in an arms-length transaction to purchase the specified Property.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent on such day on such transactions as reasonably determined by the Administrative Agent.

“Financial Statements” means the financial statement or statements of the Borrower and its Consolidated Subsidiaries referred to in Section 6.01(r).

“Fiscal Quarter” means a three-month period ending on the last day of December, March, June or September of any year.

“Fiscal Year” means a twelve-month period ending on the last day of December 31 of any year.

“Form W-8 BEN Certification” shall have the meaning assigned to such term in Section 4.06(d).

“Form W-8 ECI Confirmation” shall have the meaning assigned to such term in Section 4.06(d).

9

“GAAP” means generally accepted accounting principles in the United States of America as in effect on the Closing Date.

“Governmental Authority” means, in respect of any Person, the country, the state, county, city and political subdivisions in which such Person or such Person’s Property is located or which exercises valid jurisdiction over such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over such Person or such Person’s Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, the Borrower, the Restricted Subsidiaries or any of their Property or the Administrative Agent, any Lender or any Applicable Lending Office.

“Governmental Requirement” means any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement, including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority.

“Guarantors” means: Penn Virginia Holding Corp., a Delaware corporation, Penn Virginia Oil & Gas Corporation, a Virginia corporation, Penn Virginia Oil & Gas Corporation, a Texas corporation, EnerSearch, Inc., a Virginia corporation, and each other Material Domestic Subsidiary that guarantees the Indebtedness pursuant to Section 8.09(b).

“Guaranty Agreement” means an agreement executed by the Guarantors in substantially the form of Exhibit E guarantying on a joint and several basis, unconditionally, payment of the Indebtedness, as the same may be amended, modified or supplemented from time to time.

“Hazardous Material” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law, and any petroleum, petroleum products or petroleum distillates and associated oil or natural gas exploration, production and development wastes that are not exempted or excluded from being defined as “hazardous substances”, “hazardous materials”, “hazardous wastes” and “toxic substances” under such Environmental Laws.

“Hedging Agreements” means any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction.

“Hedging Obligations” means, with respect to any Person, all liabilities (including but not limited to obligations and liabilities arising in connection with or as a result of early or premature termination of a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Hedging Agreement.

“Highest Lawful Rate” means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved,

10

charged or received on the Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.

“Hydrocarbon Interests” means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature.

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom.

“Incumbent Board” shall have the meaning assigned to such term in Section 10.01(j).

“Indebtedness” means any and all amounts owing or to be owing by the Borrower or any Guarantor (i) to the Administrative Agent, the Issuing Bank and/or Lenders under any Loan Document; (ii) to any Lender or any Affiliate of a Lender under any Hedging Agreements entered into while such Person (or its Affiliate) was a Lender hereunder; and (iii) all renewals, extensions and/or rearrangements of any of the above.

“Indemnified Parties” shall have the meaning assigned such term in Section 12.03(b).

“Indemnity Matters” means any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (including, without limitation, consequential damages) or reasonable costs and expenses of any kind or nature whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such Person seeking indemnification.

“Initial Funding” means the funding of the initial Loans or issuance of the initial Letters of Credit pursuant to Section 6.01.

“Initial Reserve Report” means the report of Wright & Company, Inc. dated as of March 1, 2001 with respect to the value of the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries as of January 1, 2001.

“Interest Expense” means, for any period, the sum (determined without duplication) of the aggregate amount of interest expense paid (or payable) in cash during such period on Debt of the Borrower and its Consolidated Restricted Subsidiaries (including the interest portion of payments under Capital Leases and Synthetic Leases).

“Interest Period” means, with respect to any Eurodollar Loan, the period commencing on the date such Eurodollar Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select as provided in Section 2.02, except that each Interest Period which commences on the last Business Day of a

11

calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month.

Notwithstanding the foregoing: (i) no Interest Period for any Loan may commence before and end after the Termination Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loans would otherwise be for a shorter period, such Loans shall not be available hereunder.

“Investment” means, for any Person: (i) the acquisition (whether for cash, Property, services or securities or otherwise) of equity interests of any other Person or any agreement to make any such acquisition (including, without limitation, any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale), (ii) the making of any deposit with, or advance, loan or other extension of credit to, any 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 Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business), or (iii) the entering into of any guarantee of, or other contingent obligation with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.

“Issuing Bank” means Chase or any other Lender or any Affiliate of any Lender agreed to between the Borrower, the Administrative Agent and such Lender or such Affiliate of any Lender, as applicable.

“LC Commitment” at any time means Ten Million Dollars ($10,000,000).

“LC Exposure” at any time means (without duplication): (i) the aggregate face amount of all undrawn and uncancelled Letters of Credit and (ii) the aggregate of all amounts drawn under all Letters of Credit and not yet reimbursed.

“Lender” means each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06.

“Lender Affiliate” means, (i) with respect to any Lender, (a) an Affiliate of such Lender or (b) any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (ii) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

12

“Letter of Credit Agreements” means the written agreements with the Issuing Bank executed in connection with the issuance by the Issuing Bank of the Letters of Credit, such agreements to be on the Issuing Bank’s customary form for letters of credit of comparable amount and purpose as from time to time in effect or as otherwise agreed to by the Borrower and the Issuing Bank.

“Letters of Credit” means the letters of credit issued pursuant to Section 2.01(b) and all reimbursement obligations pertaining to any such letters of credit, and “Letter of Credit” means any one of the Letters of Credit and the reimbursement obligations pertaining thereto.

“Lien” means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (i) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (ii) production payments and the like payable out of Oil and Gas Properties. The term “Lien” shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property.

“Loan Documents” means this Agreement, the Letter of Credit Agreements, the Letters of Credit, the Security Instruments, any Hedging Agreements with the Lenders or any Affiliates of any Lender, or any notes, all applications, all instruments, certificates and agreements now or hereafter executed or delivered to the Administrative Agent or any Lender pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

“Loans” means Loans made pursuant to Section 2.01(a).

“Majority Lenders” means Lenders having at least seventy-five percent (75%) of the Aggregate Maximum Credit Amounts.

“Material Adverse Effect” means any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations or affairs of the Borrower and its Restricted Subsidiaries taken as a whole, (ii) the ability of the Borrower and its Restricted Subsidiaries taken as a whole to carry out their business as at the Closing Date or meet their obligations under the Loan Documents on a timely basis or (iii) the rights, benefits and remedies of the Lenders under the Loan Documents.

“Material Domestic Subsidiary” means as of any date, any Domestic Subsidiary that (i) is a wholly-owned Restricted Subsidiary and (ii) together with its Restricted Subsidiaries, owns Property having a Fair Market Value of $2,000,000 or more.

“Maximum Credit Amount” means, as to each Lender, the amount set forth opposite such Lender’s name on Annex I under the caption “Maximum Credit Amounts”, as the same may be reduced pursuant to Section 2.03(b), increased pursuant to Section 2.01(d) or modified from time to time to reflect any assignments permitted by Section 12.06(b).

13

“MLP” means Penn Virginia Resource Partners, L.P., a Delaware limited partnership.

“MLP IPO” shall have the meaning set forth in Section 6.01(j).

“Moody’s” means Moody’s Investors Service, Inc. and any successors thereto that is a nationally recognized rating agency.

“Mortgaged Property” means the Property owned by the Borrower or any Guarantor and which is subject to the Liens existing and to exist under the terms of the Security Instruments.

“Multiemployer Plan” means a Plan defined as such in Section 3(37) or 4001(a)(3) of ERISA.

“Net Liabilities” means, with respect to any Person, the net mark-to-market value determined in accordance with GAAP.

“Notice of Termination” shall have the meaning assigned to such term in Section 5.06(a).

“Oil and Gas Properties” means Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests; and all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing.

“Other Taxes” shall have the meaning assigned such term in Section 4.06(b).

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions.

14

“Percentage Share” means the percentage of the Aggregate Maximum Credit Amounts to be provided by a Lender under this Agreement as indicated on Annex I hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b).

“Person” means any individual, corporation, company, limited liability company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

“Plan” means any employee pension benefit plan, as defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA or which is intended to be qualified under Section 401(a) of the Code, excluding any such Plan which is a Multiemployer Plan, and which (i) is currently or hereafter sponsored, maintained or contributed to by the Borrower or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by the Borrower or an ERISA Affiliate.

“Post-Default Rate” means, in respect of any principal of any Loan or any other amount payable under this Agreement or any other Loan Document which is not paid when due, a rate per annum equal to 2% per annum above the ABR as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate.

“Prime Rate” means the rate of interest from time to time announced publicly by the Administrative Agent at the Principal Office as its prime commercial lending rate. Such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate, it being understood that many of the Administrative Agent’s commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make various commercial or other loans at rates of interest having no relationship to such rate.

“Principal Office” means the principal office of the Administrative Agent, presently located at 712 Main Street, Houston, Texas 77002 or such other location as designated by the Administrative Agent from time to time.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Proved Developed Producing Hydrocarbon Reserves” shall mean those Proved Hydrocarbon Reserves which are recoverable from completion intervals currently open and producing to market. Improved recovery reserves are considered to be producing only after an improved recovery project has been installed and is in operation.

“Proved Hydrocarbon Reserves” shall mean those recoverable Hydrocarbons which have been proved to a high degree of certainty by reason of existing production, adequate testing, or in certain cases by adequate core data and other engineering and geologic information on zones which are present in existing wells or in known reservoirs. Reserves that can be produced economically through the application of established improved recovery techniques are included in the proved classification when (a) successful testing by a pilot project or the operation of any

15

installed program in that reservoir or one in the immediate area with similar rock and fluid properties provides support for the engineering analysis on which the project or program was based, and (b) it is reasonably certain the project will proceed. Reserves to be recovered by improved recovery techniques that have yet to be established through repeated economically successful applications are included in the proved category only after successful testing by a pilot project or after the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based. Improved recovery includes all methods for supplement natural reservoir including (1) pressure maintenance, (2) cycling and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids.

“Quarterly Date” means the last day of each March, June, September and December, in each year, the first of which shall be December 31, 2001; provided, however, that if any such day is not a Business Day, such Quarterly Date shall be the next succeeding Business Day.

“Redetermination Date” means the date that the redetermined Borrowing Base becomes effective subject to the notice requirements specified in Section 2.09(b) both for scheduled redeterminations and unscheduled redeterminations.

“Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time.

“Regulatory Change” means, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof.

“Replacement Lenders” shall have the meaning assigned to such term in Section 5.06(b).

“Required Lenders” means, at any time while no Loans or Letters of Credit are outstanding, Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the Aggregate Maximum Credit Amounts; and at any time while Loans or Letters of Credit are outstanding, Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the outstanding aggregate principal amount of the Loans or participation interests in such Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)).

“Required Payment” shall have the meaning assigned such term in Section 4.04.

“Reserve Report” means a report, in form and substance satisfactory to the Administrative Agent, setting forth, as of each January 1 or July 1 (or such other date in the event of an unscheduled redetermination) the oil and gas reserves attributable to the Oil and Gas Properties of the Borrower and the Restricted Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions consistent with SEC reporting requirements at the time.

16

“Responsible Officer” means, as to any Person, the Chief Executive Officer, the President, the Chief Financial Officer or any Vice President of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower.

“Restricted Subsidiary” means, as of any date, (i) any Subsidiary that is not designated as an Unrestricted Subsidiary either (A) on Schedule 7.14 or (B) in the manner set forth in Section 9.06(b). As of the Closing Date, the Restricted Subsidiaries are designated on Schedule 7.14 as such.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw-Hill, Inc., and any successors thereto that is a nationally recognized rating agency.

“Scheduled Redetermination Date” means April 1st and October 1st of each year on which the Borrowing Base is scheduled for redetermination under Section 2.09, commencing April 1, 2002.

“SEC” means the Securities and Exchange Commission or any successor Governmental Authority.

“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust and other agreements or instruments described or referred to in Exhibit F, and any and all other agreements or instruments now or hereafter executed and delivered by the Borrower or any other Person (including participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Indebtedness, as such agreements may be amended, supplemented or restated from time to time.

“Subsidiary” means (i) any Person of which at least a majority of the outstanding shares of stock or other voting interests having by the terms thereof ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time stock of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (ii) any partnership of which the Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated herein, each reference to the term “Subsidiary” means a Subsidiary of the Borrower.

“Synthetic Leases” means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as indebtedness for borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess of, 85% of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease.

17

“Tangible Net Worth” means the consolidated net worth of the Borrower and its Restricted Subsidiaries after subtracting therefrom the aggregate amount of any intangible assets of the Borrower and its Restricted Subsidiaries, including goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks and brand names.

“Taxes” shall have the meaning assigned such term in Section 4.06(a).

“Terminated Lender” shall have the meaning assigned to such term in Section 5.06(a).

“Termination Date” means, unless the Commitments are sooner terminated pursuant to Section 2.03(b) or Section 10.02, October 30, 2004.

“Total Debt” means all Debt of the Borrower and its Restricted Subsidiaries on a consolidated basis described under clauses (i) through (xii) of the definition of “Debt”.

“Type” shall have the meaning assigned such term in Section 1.04.

“Unrestricted Subsidiary” means Penn Virginia Coal Holding, a Delaware corporation, Kanawa Rail Corp., a Virginia corporation, Penn Virginia Technology, Inc., a Delaware corporation, each of their respective Subsidiaries, and any other Subsidiary of Borrower that is designated either (i) on Schedule 7.14 or (ii) in the manner set forth in Section 9.06(b). As of the Closing Date, the Unrestricted Subsidiaries are designated on Schedule 7.14 as such.

“Unused Amount” means the then effective Borrowing Base minus the sum of the outstanding Loans and the LC Exposure.

Section 1.03    Accounting Terms and Determinations.    Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of the Borrower referred to in Section 7.02 (except for changes concurred with by the Borrower’s independent public accountants).

Section 1.04    Types of Loans.    Loans hereunder are distinguished by “Type”. The “Type” of a Loan refers to the determination whether such Loan is a Eurodollar Loan or an ABR Loan.

ARTICLE II

Commitments

Section 2.01    Loans and Letters of Credit.

(a)    Loans.    Each Lender severally agrees, on the terms of this Agreement, to make loans to the Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to but excluding, the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Lender’s Commitment as then in effect; provided,

18

however, that the aggregate principal amount of all such Loans by all Lenders hereunder at any one time outstanding together with the LC Exposure shall not exceed the Aggregate Commitments. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow the amount of the Aggregate Commitments.

(b)    Letters of Credit.    Subject to the terms of this Agreement, each Lender (or its Affiliates) that has agreed to act as an Issuing Bank agrees to extend credit for the account of the Borrower and its Restricted Subsidiaries at any time and from time to time by issuing, renewing, extending or reissuing Letters of Credit; provided, however, that the LC Exposure at any one time outstanding shall not exceed the lesser of (i) the LC Commitment or (ii) the Aggregate Commitments, as then in effect, minus the aggregate principal amount of all Loans then outstanding. The Lenders shall participate in such Letters of Credit according to their respective Percentage Share of the Aggregate Maximum Credit Amounts. Each of the Letters of Credit shall (A) be issued by the Issuing Bank, (B) contain such terms and provisions as are reasonably required by the Issuing Bank, (C) be for the account of the Borrower or one of its Restricted Subsidiaries and (D) expire not later than the earlier of (1) one year from the date of issuance, renewal, extension or reissuance or (2) the Termination Date; provided, any Letter of Credit with a one year tenor may provide for the renewal thereof for additional one year periods which shall in no event extend beyond the Termination Date.

(c)    Limitation on Types of Loans.    Subject to the other terms and provisions of this Agreement, at the option of the Borrower, the Loans may be ABR Loans or Eurodollar Loans; provided that, without the prior written consent of the Majority Lenders, no more than six (6) Eurodollar Loans may be outstanding at any time to any Lender.

(d)    Increase in Aggregate Maximum Credit Amounts.    The Borrower shall have the right, with the prior written consent of the Administrative Agent (provided that such consent shall not be unreasonably withheld), to increase the Aggregate Maximum Credit Amounts; provided that (i) the aggregate amount of all such increases shall not exceed $50,000,000, (ii) no Default or Event of Default shall have occurred and be continuing at the effective date of such proposed increase, (iii) on the effective date of such increase, no Eurodollar Loans shall be outstanding (or if any Eurodollar Loans are outstanding, the effective date of such increase shall be the last day of the Interest Period in respect of such Eurodollar Loans) and (iv) no Lender’s Maximum Credit Amount may be increased without the consent of such Lender.

If the Borrower desires to effect an increase in the Aggregate Maximum Credit Amounts, the Borrower and the financial institution(s) that the Borrower proposes to become a Lender hereunder, and, if applicable, the existing Lender(s) the Borrower proposes to increase their existing Maximum Credit Amount shall execute and deliver to the Administrative Agent a certificate substantially in the form of Exhibit A hereto (an “Additional Lender Certificate”). Upon receipt of such Additional Lender Certificate, if the Administrative Agent consents to the proposed increase in the Aggregate Maximum Credit Amounts: (A) the amount of the Aggregate Maximum Credit Amounts shall be so increased, (B) the Administrative Agent shall amend and distribute to the Borrower and the Lenders a revised Annex I adding or amending, as applicable, the Maximum Credit Amount of any Lender executing the Additional Lender Certificate and the revised Percentage Shares of the Lenders, (C) any such additional Lender shall be deemed to be a party in all respect to this Agreement and the other Loan Documents as of the effective date set

19

forth in such Additional Lender Certificate and (D) upon the effective date set forth in such Additional Lender Certificate, any such Lender party to the Additional Lender Certificate shall purchase a pro rata portion of the outstanding Loans (and participation interests in Letters of Credit) of each of the current Lenders such that the Lenders (including any additional Lender, if applicable) shall hold their Percentage Share of the outstanding Loans (and participation interests) as reflected in Annex I required by this Section 2.01(d). If the Administrative Agent does not consent to the increase in the Aggregate Maximum Credit Amount in accordance with this Section 2.01(d), the Maximum Credit Amount shall remain unchanged.

Section 2.02    Borrowings, Continuations and Conversions, Letters of Credit.

(a)    Borrowings.    The Borrower shall give the Administrative Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each borrowing of Loans hereunder, which shall specify the aggregate amount of such borrowing, the Type and the date (which shall be a Business Day) of the Loans to be borrowed and, in the case of Eurodollar Loans, the duration of the Interest Period therefor.

(b)    Minimum Amounts.    All ABR Loan borrowings shall be in amounts of at least $500,000 or the remaining balance of the Aggregate Commitments, if less, or any whole multiple of $100,000 in excess thereof, and all Eurodollar Loans shall be in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof.

(c)    Notices.    All borrowings, continuations and conversions shall require advance written notice to the Administrative Agent (which shall promptly notify the Lenders) in the form of Exhibit B hereto (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable, from the Borrower to be received by the Administrative Agent not later than 10:00 a.m. Houston, Texas time on the date of each ABR Loan borrowing and not later than 11:00 a.m. Houston, Texas time three (3) Business Days prior to the date of each Eurodollar Loan borrowing, continuation or conversion. Without in any way limiting the Borrower’s obligation to confirm in writing any telephonic notice, the Administrative Agent may act without liability upon the basis of telephonic notice believed by the Administrative Agent in good faith to be from the Borrower prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Administrative Agent’s record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by the Administrative Agent.

(d)    Continuation Options.    Subject to the provisions made in this Section 2.02(d), the Borrower may elect to continue all or any part of any Eurodollar Loan beyond the expiration of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. In the absence of such a timely and proper election, the Borrower shall be deemed to have elected to convert such Eurodollar Loan to a ABR Loan pursuant to Section 2.02(e). All or any part of any Eurodollar Loan may be continued as provided herein; provided that (i) any continuation of any such Loan (or any part thereof) shall be in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing.

20

If a Default shall have occurred and be continuing, each Eurodollar Loan shall be converted to a ABR Loan on the last day of the Interest Period applicable thereto.

(e)    Conversion Options.    The Borrower may elect to convert all or any part of any Eurodollar Loan on the last day of the then current Interest Period relating thereto to a ABR Loan by giving advance notice as provided in Section 2.02(a) to the Administrative Agent (which shall promptly notify the Lenders) of such election. Subject to the provisions made in this Section 2.02(e), the Borrower may elect to convert all or any part of any ABR Loan at any time and from time to time to a Eurodollar Loan by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Eurodollar Loan may be converted as provided herein; provided that (i) any conversion of any ABR Loan into a Eurodollar Loan (or any part thereof) shall be in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing.

(f)    Advances.    Not later than 1:00 p.m. Houston, Texas time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to the Administrative Agent, to an account which the Administrative Agent shall specify, in immediately available funds, for the account of the Borrower. The amounts so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by depositing the same, in immediately available funds, in an account of the Borrower, designated by the Borrower.

(g)    Letters of Credit.    The Borrower shall give the Issuing Bank (which shall promptly notify the Lenders of such request) advance notice to be received by the Issuing Bank not later than 11:00 a.m. Houston, Texas time not less than three (3) Business Days prior thereto of each request for the issuance and at least three (3) Business Days prior to the date of the renewal or extension of a Letter of Credit hereunder which request shall specify the amount of such Letter of Credit, the date (which shall be a Business Day) such Letter of Credit is to be issued, renewed or extended, the duration thereof, the name and address of the beneficiary thereof, the form of the Letter of Credit and such other information as the Issuing Bank may reasonably request all of which shall be reasonably satisfactory to the Issuing Bank. Subject to the terms and conditions of this Agreement, on the date specified for the issuance, renewal or extension of a Letter of Credit, the Issuing Bank shall issue such Letter of Credit to the beneficiary thereof.

In conjunction with the issuance of each Letter of Credit, the Borrower shall execute a Letter of Credit Agreement in form and substance reasonably satisfactory to the Issuing Bank. In the event of any conflict or inconsistency between any provision of a Letter of Credit Agreement and this Agreement, the Borrower, the Issuing Bank, the Administrative Agent and the Lenders hereby agree that the provisions of this Agreement shall govern.

The Issuing Bank will send to the Borrower and each Lender, upon issuance of any Letter of Credit, or an amendment thereto, a true and complete copy of such Letter of Credit, or such amendment thereto.

21

Section 2.03    Changes of Maximum Credit Amounts.

(a)    Maximum Credit Amounts.    The Aggregate Commitments shall at all times be equal to the lesser of (i) the Aggregate Maximum Credit Amounts after adjustments resulting from reductions pursuant to Section 2.03(b) or (ii) the Borrowing Base in effect from time to time.

(b)    Voluntary Reduction/Termination.    The Borrower shall have the right to terminate in whole or to reduce in part the amount of the Aggregate Maximum Credit Amounts at any time or from time to time upon not less than three (3) Business Days’ prior notice to the Administrative Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which in the case of any partial reduction shall not be less than $5,000,000 or any whole multiple of $1,000,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Administrative Agent; provided, however, that the Aggregate Maximum Credit Amounts can never be less than the sum of the outstanding Loans and the LC Exposure.

(c)    Reinstatement.    The Aggregate Maximum Credit Amounts once terminated or reduced may not be reinstated.

Section 2.04    Fees.

(a)    Commitment Fees.    The Borrower shall pay to the Administrative Agent, for the account of each Lender, a commitment fee which shall accrue at the Commitment Fee Rate on the daily average amount of the Unused Amount. Accrued commitment fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Maximum Credit Amounts are terminated or the Termination Date.

(b)    Letter of Credit Fees.

(i)    The Borrower agrees to pay the Administrative Agent, for the account of each Lender, a quarterly letter of credit fee in respect of all Letters of Credit outstanding during such quarter, at a per annum rate equal to the Applicable Margin then in effect from time to time during such quarter for Eurodollar Loans, on such Lender’s Percentage Share of the daily average aggregate stated amount of such Letters of Credit, payable in arrears on each Quarterly Date and on the later of the Termination Date or the date of termination of the last outstanding Letter of Credit.

(ii)    A fronting fee for each Letter of Credit equal to the greater of (i) $500 or (ii) 0.125% per annum on the face amount of each Letter of Credit, shall be payable quarterly in arrears to the Issuing Bank for its own account. In addition, customary administrative, issuance, amendment, payment and negotiation charges shall be payable to the Issuing Bank for its own account.

Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it or to provide funds for disbursements or reimbursements under Letters of Credit on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan or provide funds on such date, but no Lender shall be responsible for the failure of any other Lender

22

to make a Loan to be made by such other Lender or to provide funds to be provided by such other Lender.

Section 2.06    [Intentionally omitted].

Section 2.07    [Intentionally omitted].

Section 2.08    Prepayments.

(a)    Voluntary Prepayments.    The Borrower may prepay the ABR Loans on any Business Day by giving notice not later than 11:00 a.m. Houston, Texas time on the date of the proposed prepayment to the Administrative Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day), the Type of Loan being prepaid and the amount of the prepayment (which shall be in increments of $1,000,000 that are not less than $1,000,000 or the remaining aggregate principal balance outstanding, if less) and shall be irrevocable and effective only upon receipt by the Administrative Agent; provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. The Borrower may prepay Eurodollar Loans on the same condition as for ABR Loans; provided that (i) such notice be given no later than 11:00 a.m. Houston, Texas time three (3) Business Days prior to the proposed date of prepayment, (ii) the amount of such prepayment is in an increment of $1,000,000 that is not less than $1,000,000 and (iii) such prepayments of Eurodollar Loans shall be subject to the terms of Section 5.05.

(b)    Mandatory Prepayments.

(i)    If at any time the outstanding aggregate principal amount of the Loans plus the LC Exposure exceeds the Aggregate Maximum Credit Amounts, the Borrower shall (A) prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment, and (B) if any excess remains after prepaying all of the Loans, pay to the Administrative Agent on behalf of the Lenders an amount equal to the excess to be held as cash collateral as provided in Section 2.11(b).

(ii)    Upon any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.09, 8.08(c) or 9.11, if the redetermined or adjusted Borrowing Base is less than the aggregate outstanding principal amount of the Loans plus the LC Exposure, then the Borrower shall: (A) prepay the Loans in an aggregate principal amount equal to such excess, together with interest on the principal amount paid accrued to the date of such prepayment, and (B) if a Borrowing Base Deficiency remains after prepaying all of the Loans as a result of an LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to such Borrowing Base Deficiency to be held as cash collateral as provided in Section 2.11(b). The Borrower shall be obligated to make such prepayment and/or deposit of cash collateral within sixty (60) days following its receipt of the written notice of the new Borrowing Base in accordance with Section 2.09(b) or the date the adjustment occurs.

(c)    Generally.    Prepayments permitted or required under this Section 2.08 shall be without premium or penalty, except as required under Section 5.05 for prepayment of Eurodollar

23

Loans. Any prepayments on the Loans may be reborrowed subject to the then effective Aggregate Commitments.

Section 2.09    Borrowing Base.

(a)    Amount.    For the period from and including the Closing Date to but not including the first Redetermination Date, the amount of the Borrowing Base shall be $140,000,000. Notwithstanding the foregoing, the Borrowing Base will be subject to interim adjustments pursuant to either Section 8.08(c) or Section 9.11.

(b)    Redetermination.    On or before March 15th and September 15th of each year, commencing March 15, 2002, the Administrative Agent shall propose in writing to the Borrower and the Lenders a new Borrowing Base in accordance with Section 2.09(c) (assuming receipt by the Administrative Agent of the Engineering Reports in a timely and complete manner). After having received notice of such proposal by the Administrative Agent, each Lender shall have fifteen (15) days to agree with such proposal or disagree by proposing an alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval, such silence shall be deemed to be an approval. If, however, at the end of such 15-day period, the Lenders or the Majority Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, the proposed Borrowing Base, then the Borrowing Base shall be determined in accordance with Section 2.09(d). After such redetermined Borrowing Base is approved by (i) all Lenders in the case of any increase in the Borrowing Base, (ii) the Majority Lenders in the case of any maintenance or any decrease in the Borrowing Base, or (iii) as otherwise determined as provided in Section 2.09(d), the Administrative Agent will notify the Borrower and the Lenders of the amount of the redetermined Borrowing Base, and such amount shall become effective and applicable to the Borrower, the Agents and the Lenders as of the next succeeding April 1st or October 1st, as applicable. Notwithstanding the foregoing, however, any increase in the Borrowing Base shall require approval or deemed approval of all the Lenders as set forth in this Section 2.09(b).

(c)    Engineering Reports.    Upon receipt of the Reserve Report and such other reports, data and supplemental information, including the information provided pursuant to Section 8.07(c), as may, from time to time, be reasonably requested by the Required Lenders (the “Engineering Reports”), the Administrative Agent will evaluate such information. The Administrative Agent, with the approval or deemed approval of the Lenders as set forth in Section 2.09(b), but subject to the terms of Section 2.09(d), shall, in good faith, redetermine the Borrowing Base based upon such information and such other information (including, without limitation, the status of title information with respect to the Oil and Gas Properties as described in the Engineering Reports and the existence of any other Debt) as the Administrative Agent deems appropriate and consistent with its normal oil and gas lending criteria as it exists at the particular time. Such redetermination shall be accomplished not later than and effective as of the first (1st) day of each April and October of each calendar year, assuming that the Borrower shall have furnished the Engineering Reports in a timely and complete manner as required by Section 8.07. In assessing whether to approve or reject a proposed Borrowing Base, each Lender will assess, in good faith, the Engineering Reports and the other information as they deem appropriate and consistent with its respective normal oil and gas lending criteria as it exists at the particular time.

24

(d)    Consensus and Failure of Consensus.    Except as hereinafter provided, the decision of the Lenders or Majority Lenders, as applicable, with respect to any Borrowing Base determination shall control; provided, however, if the Lenders or Majority Lenders, as applicable, have not approved or are not deemed to have approved the Borrowing Base as of the date such a determination is called for in Section 2.09(b), the Administrative Agent shall poll the Lenders to ascertain the highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Lenders or Majority Lenders, as applicable, for purposes of this Section 2.09 and such amount shall then become the Borrowing Base until the next Scheduled Redetermination Date or the next date on which an interim redetermination occurs under Section 2.09(e) or the next adjustment under either Section 8.08(c) or Section 9.11. Notwithstanding the foregoing, however, any increase in the Borrowing Base shall require approval or deemed approval of all the Lenders as set forth in Section 2.09(b).

(e)    Interim Redeterminations.    The Borrower may, at its option, one time during any 12-month period initiate an interim redetermination of the Borrowing Base. In addition, the Borrower may, at its option, in connection with any acquisition (or any series of acquisitions occurring since the most recent redetermination of the Borrowing Base) by the Borrower or a Restricted Subsidiary of Oil and Gas Properties having a purchase price, either individually or in the aggregate, of $50,000,000 or more, initiate an interim redetermination of the Borrowing Base. The Administrative Agent (at the direction of the Required Lenders, in their option) may one time during any 12-month period initiate an interim redetermination of the Borrowing Base. The Borrowing Base also may be redetermined in accordance with Section 9.10(a).

Section 2.10    Assumption of Risks.    The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit or any transferee thereof with respect to its use of such Letter of Credit. None of the Issuing Bank (except in the case of willful misconduct or bad faith on the part of the Issuing Bank or any of its employees), its correspondents or any Lender shall be responsible for: the validity, sufficiency or genuineness of certificates or other documents or any endorsements thereon, even if such certificates or other documents should in fact prove to be invalid, insufficient, fraudulent or forged; for errors, omissions, interruptions or delays in transmissions or delivery of any messages by mail, telex or otherwise, whether or not such messages be in code; for errors in translation or for errors in interpretation of technical terms; the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; the failure of any beneficiary or any transferee of any Letter of Credit to comply fully with conditions required in order to draw upon any Letter of Credit; or for any other consequences arising from causes beyond the Issuing Bank’s control or the control of the Issuing Bank’s correspondents. In addition, neither the Issuing Bank, the Administrative Agent nor any Lender shall be responsible for any error, neglect or default of any of the Issuing Bank’s correspondents; and none of the above shall affect, impair or prevent the vesting of any of the Issuing Bank’s, the Administrative Agent’s or any Lender’s rights or powers hereunder or under the Letter of Credit Agreements, all of which rights shall be cumulative. The Issuing Bank and its correspondents may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation of any matter contained therein, regardless of any notice or information to the contrary. In furtherance and not in limitation of the foregoing provisions, the Borrower agrees that any action, inaction or omission taken or not taken by the Issuing Bank or by any

25

correspondent for the Issuing Bank in good faith in connection with any Letter of Credit, or any related drafts, certificates, documents or instruments, shall be binding on the Borrower and shall not put the Issuing Bank or its correspondents under any resulting liability to the Borrower.

Section 2.11    Obligation to Reimburse and to Prepay.

(a)    If a disbursement by the Issuing Bank is made under any Letter of Credit, the Borrower shall pay to the Administrative Agent within two (2) Business Days after notice of any such disbursement is received by the Borrower, the amount of each such disbursement made by the Issuing Bank under the Letter of Credit (if such payment is not sooner effected as may be required under this Section 2.10 or under other provisions of the Letter of Credit), together with interest on the amount disbursed from and including the date of disbursement until payment in full of such disbursed amount at a varying rate per annum equal to (i) the then applicable interest rate for ABR Loans through the second (2nd) Business Day after notice of such disbursement is received by the Borrower and (ii) thereafter, the Post-Default Rate (but in no event to exceed the Highest Lawful Rate) for the period from and including the third (3rd) Business Day following the date of such disbursement to and including the date of repayment in full of such disbursed amount; provided that any disbursement in respect of a Letter of Credit shall be deemed to have been reimbursed to the Issuing Bank by the Borrower with the proceeds of a borrowing of a ABR Loan from each of the Lenders based upon their Percentage Share of the amount disbursed if the Borrower was otherwise entitled to borrow funds under Section 6.02, but subject to minimum amounts required under Section 2.02(b). The obligations of the Borrower under this Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid or performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, but only to the fullest extent permitted by applicable law, the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Security Instruments; (ii) any amendment or waiver of (including any default), or any consent to departure from this Agreement (except to the extent permitted by any amendment or waiver), any Letter of Credit or any of the Security Instruments; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, the Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the Security Instruments, the transactions contemplated hereby or any unrelated transaction; (iv) any statement, certificate, draft, notice or any other document presented under any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (v) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which appears on its face to comply, but does not comply, with the terms of such Letter of Credit; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

Notwithstanding anything in this Agreement to the contrary, the Borrower will not be liable for payment or performance that results from the gross negligence or willful misconduct of the Issuing Bank, except where the Borrower or any Restricted Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any payment made by the Issuing Bank in connection with such gross negligence or willful misconduct.

26

(b)    In the event of the occurrence of any Event of Default, a payment or prepayment with respect to the LC Exposure is required under Section 2.08(b) or the maturity of the Indebtedness, whether by acceleration or otherwise, an amount equal to the LC Exposure (or the excess attributable to the LC Exposure in the case of Section 2.08(b)) shall be deemed to be forthwith due and owing by the Borrower to the Issuing Bank and the Lenders as of the date of any such occurrence, and the Borrower’s obligation to pay such amount shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such payments shall be held by the Administrative Agent on behalf of the Lenders as cash collateral securing the LC Exposure in an account or accounts at the Principal Office, and the Borrower hereby grants to and by its deposit with the Administrative Agent grants to the Administrative Agent, for the benefit of the Issuing Bank and the Lenders, a security interest in such cash collateral. In the event of any such payment by the Borrower of amounts contingently owing under outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, the Administrative Agent agrees, if no Event of Default has occurred and is continuing or if no other amounts are outstanding under this Agreement or the Loan Documents, to remit to the Borrower amounts for which the contingent obligations evidenced by the Letters of Credit have ceased.

(c)    Each Lender severally and unconditionally agrees that it shall promptly reimburse the Issuing Bank, through the Administrative Agent, an amount equal to such Lender’s Percentage Share of the Aggregate Maximum Credit Amounts of any disbursement made by the Issuing Bank under any Letter of Credit that is not reimbursed by the Borrower according to this Section 2.11 or alternatively, to make a Loan for the account of the Borrower equal to its Percentage Share of the amount disbursed.

Section 2.12    Lending Offices.    The Loans of each Type made by each Lender shall be made and maintained at such Lender’s Applicable Lending Office for Loans of such Type.

Section 2.13    Repayment of Loans; Evidence of Debt.

(a)    The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan of such Lender on the Termination Date.

(b)    Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c)    The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and

27

payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(d)    The entries made in the accounts maintained pursuant to paragraphs (b) or (c) of this Section 2.13 shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of Borrower to repay the Loans in accordance with the terms of this Agreement.

(e)    Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after any assignment pursuant to Section12.06) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

ARTICLE III

Payments of Principal and Interest

Section 3.01    Repayment of Loans.    On the Termination Date, the Borrower shall repay the then outstanding aggregate principal on the Loans.

Section 3.02    Interest.

(a)    Interest Rates.    The Borrower will pay to the Administrative Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date such Loan is made to but excluding the date such Loan shall be paid in full, at the following rates per annum:

(i)    if such a Loan is a ABR Loan, the ABR (as in effect from time to time) plus the Applicable Margin (as in effect from time to time), but in no event to exceed the Highest Lawful Rate; and

(ii)    if such a Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan plus the Applicable Margin (as in effect from time to time), but in no event to exceed the Highest Lawful Rate.

(b)    Post-Default Rate.    Notwithstanding the foregoing, the Borrower will pay to the Administrative Agent, for the account of each Lender, interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, and (to the fullest extent permitted by law) on any other amount payable by the Borrower hereunder or under any Loan Document to or for account of such Lender, for the period commencing on the date such amount was due and payable (after giving effect to any applicable grace periods) until the same is paid in full.

28

(c)    Due Dates.    Accrued interest on ABR Loans shall be payable on each Quarterly Date commencing on December 31, 2001 and on the Termination Date, and accrued interest on each Eurodollar Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand and interest on any Eurodollar Loan that is converted into a ABR Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted) and all accrued and unpaid interest shall be due and payable on the Termination Date.

(d)    Determination of Rates.    Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent shall notify the Borrower and the Lenders to which such interest is payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties hereto.

ARTICLE IV

Payments; Pro Rata Treatment; Computations; Etc.

Section 4.01    Payments.    Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower or any Guarantor under the Loan Documents shall be made in Dollars, in immediately available funds, to the Administrative Agent at such account as the Administrative Agent shall specify by notice to the Borrower from time to time, not later than 1:00 p.m. Houston, Texas time on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim. Each payment received by the Administrative Agent under this Agreement or any Loan Document for account of a Lender shall be paid promptly to such Lender in immediately available funds. Except as provided in clause (iii) of the definition of “Interest Period”, if the due date of any payment under this Agreement or any Loan Document would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to the Administrative Agent of any principal of or interest on any borrowing, the Borrower shall notify the Administrative Agent of the Type of Loans to which such payment shall apply. In the absence of such notice, the Administrative Agent may specify the Type of Loans to which such payment shall apply, but, to the extent possible, such payment or prepayment will be applied first to the Loans comprised of ABR Loans.

Section 4.02    Pro Rata Treatment.    Except to the extent otherwise provided herein, each Lender agrees that: (a) each borrowing from the Lenders under Section 2.01 and each continuation and conversion under Section 2.02 shall be made from the Lenders pro rata in accordance with their Percentage Share of Loan being so borrowed, continued or converted, each payment of commitment fee or Letter of Credit (other than the facing fee) fees under Section 2.04(b)(i) shall be made for account of the Lenders pro rata in accordance with their Percentage Share of the Aggregate Maximum Credit Amounts, and each termination or reduction of the amount of the Aggregate Maximum Credit Amounts under Section 2.03(b) shall be applied to the Maximum Credit Amount of each Lender, pro rata in accordance with its

29

Percentage Share of the Aggregate Maximum Credit Amounts; (b) each payment of principal of Loans shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by all Lenders; (c) each payment of interest of Loans shall be made for account of the Lenders pro rata in accordance with the amounts of interest due and payable to all of the Lenders; and (d) each reimbursement by the Borrower of disbursements under Letters of Credit shall be made for account of the Issuing Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender.

Section 4.03    Computations.    Interest on Eurodollar Loans and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Interest on ABR Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable.

Section 4.04    Non-receipt of Funds by the Administrative Agent.    Unless the Administrative Agent shall have been notified by a Lender or the Borrower prior to the date on which such notifying party is scheduled to make payment to the Administrative Agent (in the case of a Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be made by it hereunder or (in the case of the Borrower) a payment to the Administrative Agent for account of one or more of the Lenders hereunder (such payment being herein called the “Required Payment”), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Lender or the Borrower (as the case may be) has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until but excluding the date the Administrative Agent recovers such amount at a rate per annum which, for any Lender as recipient, will be equal to the Federal Funds Rate, and for the Borrower as recipient, will be equal to the ABR plus the Applicable Margin.

Section 4.05    Set-off, Sharing of Payments, Etc.

(a)    Right of Set-off.    The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers’ lien or counterclaim a Lender may otherwise have, each Lender shall have the right and be entitled (after consultation with the Administrative Agent), at its option, to offset (i) balances held by it or by any of its Affiliates for account of the Borrower or any Restricted Subsidiary at any of its offices, in Dollars or in any other currency, and (ii) amounts due and payable to such Lender (or any Affiliate of such Lender) under any Hedging Agreement, against any principal of or interest on any of such Lender’s Loans, or any other amount due and payable to such Lender hereunder, which is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the

30

Borrower and the Administrative Agent thereof, provided that such Lender’s failure to give such notice or to so consult shall not affect the validity thereof.

(b)    Sharing.    If any Lender shall obtain payment in respect of any principal of or interest on any Loan made by it to the Borrower under this Agreement (or reimbursement as to any Letter of Credit) through the exercise of any right of set-off, banker’s lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender shall have received payment of a greater proportion of the principal or interest (or reimbursement) then due hereunder by the Borrower to all Lenders, then it shall promptly (i) notify the Administrative Agent and each other Lender thereof and (ii) purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans (or participations in Letters of Credit) made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Lenders (or reimbursements of Letters of Credit). To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders (or in interest due thereon, as the case may be) may exercise all rights of set-off, banker’s lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans (or Letters of Credit) in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section 4.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.05 to share the benefits of any recovery on such secured claim.

Section 4.06    Taxes.

(a)    Payments Free and Clear.    Any and all payments by the Borrower hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Bank and the Administrative Agent, taxes imposed on its income, receipts, total assets, net worth, shareholders’ capital and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Administrative Agent, the Issuing Bank or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Administrative Agent, the Issuing Bank or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender, the Issuing Bank or the Administrative Agent is presently doing business in which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be

31

required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders, the Issuing Bank or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender, the Issuing Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law.

(b)    Other Taxes.    In addition, to the fullest extent permitted by applicable law, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any other Loan Document (hereinafter referred to as “Other Taxes”).

(c)    INDEMNIFICATION.    TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER, THE ISSUING BANK AND THE AGENTS FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE ISSUING BANK OR ANY AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING, WITHOUT LIMITATION, PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER’S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER, THE ISSUING BANK OR THE RELEVANT AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, THE ISSUING BANK OR AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED); PROVIDED THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER, THE ISSUING BANK OR SUCH AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE ADMINISTRATIVE AGENT IN THE EVENT SUCH LENDER OR AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT.

32

(d)    Lender Representations.

(i)    Each Lender represents that it is either (1) a corporation or banking association organized under the laws of the United States of America or any state thereof or (2) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a corporation or banking association organized under the laws of the United States of America or any state thereof agrees to provide to the Borrower and the Administrative Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Borrower or the Administrative Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form W-8 ECI (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the “Form W-8 ECI Certification”) or (B) Internal Revenue Service Form W-8 BEN (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the “Form W-8 BEN Certification”). In addition, each Lender agrees that if it previously filed a Form W-8 ECI Certification, it will deliver to the Borrower and the Administrative Agent a new Form W-8 ECI Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form W-8 BEN Certification, it will deliver to the Borrower and the Administrative Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to the Borrower and the Administrative Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Borrower and the Administrative Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Borrower and the Administrative Agent have received a Form W-8 BEN Certification or Form W-8 ECI Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, the Borrower shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless the Borrower or Administrative Agent, as applicable, from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) the Administrative Agent as a result of such Lender’s failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06

33

or (ii) the Borrower or the Administrative Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06.

(ii)    For any period with respect to which a Lender has failed to provide the Borrower with the form required pursuant to this Section 4.06, if any (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that should a Lender which is otherwise exempt from or subject to a reduced rate of withholding tax become subject to taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes.

(iii)    Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or the Administrative Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

Section 4.07    Disposition of Proceeds.    The Security Instruments contain an assignment by the Borrower unto and in favor of the Administrative Agent for the benefit of the Lenders of all of the Borrower’s or its Restricted Subsidiaries’ interest in and to production and all proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property, and the Security Instruments further provide in general for the application of such proceeds to the satisfaction of the Indebtedness and other obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an Event of Default, the Lenders (a) agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and its Restricted Subsidiaries and (b) hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrower and/or such Restricted Subsidiaries.

ARTICLE V

Additional Costs and Capital Adequacy

Section 5.01    Additional Costs.

(a)    Eurodollar Regulations, etc.    The Borrower shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to its making or maintaining any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Eurodollar Loans or

34

such obligation (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement in respect of any of such Eurodollar Loans (other than taxes imposed on the overall net income, receipts, total assets, net worth and franchise and other similar taxes of such Lender or of its Applicable Lending Office for any of such Eurodollar Loans by the jurisdiction in which such Lender has its principal office or Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of such Lender, or any portion of the Aggregate Commitments or Loans of such Lender or the Eurodollar interbank market; or (iii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities) or such Lender’s Commitment or Loans. Each Lender will notify the Administrative Agent and the Borrower of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. If any Lender requests compensation from the Borrower under this Section 5.01(a), the Borrower may, by notice to such Lender, suspend the obligation of such Lender to make additional Eurodollar Loans until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable).

(b)    Regulatory Change.    Without limiting the effect of the provisions of Section 5.01(a), in the event that, by reason of any Regulatory Change or any other circumstances arising after the Closing Date affecting such Lender, the Eurodollar interbank market or such Lender’s position in such market, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Lender so elects by notice to the Borrower, the obligation of such Lender to make additional Eurodollar Loans shall be suspended until such Regulatory Change or other circumstances ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable).

(c)    Capital Adequacy.    Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrower shall pay directly to any Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender or its parent or holding company for any costs which it determines are attributable to the maintenance by such Lender or its parent or holding company (or any Applicable Lending Office), pursuant to any Governmental Requirement following any Regulatory Change, of capital in respect of its Commitment, its Loans or any interest held by it in any Letter of Credit, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender or its parent or holding

35

company (or any Applicable Lending Office) to a level below that which such Lender or its parent or holding company (or any Applicable Lending Office) could have achieved but for such Governmental Requirement. Such Lender will notify the Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as promptly as practicable after it determines to request such compensation.

(d)    Compensation Procedure.    Any Lender notifying the Borrower of the incurrence of Additional Costs under this Section 5.01 shall in such notice to the Borrower and the Administrative Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of the effect of capital maintained pursuant to Section 5.01(c), on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue Letters of Credit, or on amounts receivable by it in respect of Loans or Letters of Credit, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding absent manifest error for all purposes, provided that such determinations and allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by the Borrower within thirty (30) days of the receipt by the Borrower of the notice described in this Section 5.01(d).

Section 5.02    Limitation on Eurodollar Loans.    Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate for any Interest Period:

(a)    the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of “Eurodollar Rate” in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or

(b)    the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of “Eurodollar Rate” in Section 1.02 upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining Eurodollar Loans;

then the Administrative Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans.

Section 5.03    Illegality.    Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender’s obligation to make Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 shall be applicable).

36

Section 5.04    ABR Loans Pursuant to Sections 5.01, 5.02 and 5.03.    If the obligation of any Lender to make Eurodollar Loans shall be suspended pursuant to Sections 5.01, 5.02 or 5.03 (“Affected Loans”), all Affected Loans which would otherwise be made by such Lender shall be made instead as ABR Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such Lender so requests by notice to the Borrower, all Affected Loans of such Lender then outstanding shall be automatically converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal which would otherwise be applied to such Lender’s Affected Loans shall be applied instead to its ABR Loans.

Section 5.05    Compensation.    The Borrower shall pay to each Lender or terminated Lender within thirty (30) days of receipt of written request of such Lender (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding absent manifest error for all purposes, provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability (other than loss of profit) which such Lender determines are attributable to:

(i)    any payment, prepayment or conversion of a Eurodollar Loan properly made by such Lender or the Borrower for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.02) on a date other than the last day of the Interest Period for such Loan or any amount paid in connection with the termination of a Terminated Lender; or

(ii)    any failure by the Borrower for any reason (including, without limitation, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert a Eurodollar Loan from such Lender on the date for such borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02(c).

Section 5.06    Replacement Lenders.

(a)    Terminated Lenders.    If any Lender (i) has notified the Borrower and the Administrative Agent of its incurring Additional Costs under Section 5.01 or (ii) has required the Borrower to make payments for Taxes under Section 4.06, then the Borrower may, unless such Lender has notified the Borrower and the Administrative Agent that the circumstances giving rise to such notice no longer apply, terminate, in whole but not in part, the Commitment of any Lender (other than the Administrative Agent) (the “Terminated Lender”) at any time upon five (5) Business Days’ prior written notice to the Terminated Lender and the Administrative Agent (such notice referred to herein as a “Notice of Termination”).

(b)    Replacement Lenders.    In order to effect the termination of the Commitment of the Terminated Lender, the Borrower shall: (i) obtain an agreement with one or more Lenders to increase their respective Commitment and/or (ii) request any one or more other banking institutions to become parties to this Agreement in place and instead of such Terminated Lender and agree to accept a Commitment; provided, however, that such one or more other banking institutions are reasonably acceptable to the Administrative Agent and become parties by

37

executing an Assignment (the Lenders or other banking institutions that agree to accept in whole or in part the Commitment of the Terminated Lender being referred to herein as the “Replacement Lenders”), such that the aggregate increased and/or accepted Commitment of the Replacement Lenders under clauses (i) and (ii) above equal the Commitment of the Terminated Lender.

(c)    Content of Notice of Termination.    The Notice of Termination shall include the name of the Terminated Lender, the date the termination will occur, and the Replacement Lender or Replacement Lenders to which the Terminated Lender will assign its Commitment and, if there will be more than one Replacement Lender, the portion of the Terminated Lender’s Commitment to be assigned to each Replacement Lender.

(d)    Effecting Termination.    On the date on which the termination will occur, (i) the Terminated Lender shall by execution and delivery of an Assignment assign its Commitment to the Replacement Lender or Replacement Lenders indicated in the Notice of Termination and shall assign to the Replacement Lender or Replacement Lenders each of its Loans (if any) then outstanding and participation interests in Letters of Credit (if any) then outstanding, (ii) the Replacement Lender or Replacement Lenders shall purchase the Indebtedness held by the Terminated Lender at a price equal to the unpaid principal amount thereof plus interest and facility and other fees accrued and unpaid to said date of termination and (iii) the Replacement Lender or Replacement Lenders will thereupon succeed to and be substituted in all respects for the Terminated Lender with like effect as if becoming a Lender pursuant to the terms of Section 12.06(b), and the Terminated Lender will have the rights and benefits of an assignor under Section 12.06(b). To the extent not in conflict, the terms of Section 12.06(b) shall supplement the provisions of this Section 5.06(d). For each assignment made under this Section 5.06, the Replacement Lender shall pay to the Administrative Agent the processing fee provided for in Section 12.06(b). The Borrower will be responsible for the payment of any breakage costs associated with termination of the Terminated Lender as set forth in Section 5.05.

Section 5.07    Time Limit; Etc.

(a)    Time Limit.    Notwithstanding anything to the contrary contained in Sections 5.01 through 5.05, the Borrower shall not be required to reimburse or pay any costs or expenses to any Lender as required by such Sections which have accrued more than 180 days prior to such Lender’s giving notice to the Borrower that such Lender has suffered or incurred such costs or expenses.

(b)    Non-Discriminatory Basis.    None of the Lenders shall be permitted to pass through to the Borrower costs and expenses under Sections 5.01 through 5.05 on a discriminatory basis (i.e. which are not also passed through by such Lender to other customers of such Lender similarly situated when such customer is subject to documents containing similar provisions as those contained in such Sections).

38

ARTICLE VI

Conditions Precedent

Section 6.01    Initial Funding.    The obligation of the Lenders to make the Initial Funding is subject to the receipt by the Agents and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date or as otherwise agreed to in writing among the Borrower, the Agents and the Arranger and the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 6.01, each of which shall be satisfactory to the Administrative Agent in form and substance:

(a)    a certificate of the Secretary or an Assistant Secretary of each of the Borrower and each Guarantor setting forth (i) resolutions of its board of directors with respect to the authorization of the Borrower or such Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Borrower (y) who are authorized to sign the Loan Documents to which the Borrower or each Guarantor is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of such authorized officers, and (iv) the articles or certificate of incorporation and bylaws of the Borrower and each Guarantor, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrower to the contrary;

(b)    certificates of the appropriate state agencies with respect to the existence, qualification and good standing of the Borrower and each Guarantor;

(c)    a compliance certificate which shall be substantially in the form of Exhibit C, duly and properly executed by a Responsible Officer and dated as of the date of Initial Funding;

(d)    this Agreement, duly completed and executed;

(e)    the Security Instruments, including those described on Exhibit F, duly completed and executed in a sufficient number of counterparts for recording, if necessary. In connection with the execution and delivery of the Security Instruments, the Administrative Agent shall:

(i)    be reasonably satisfied that the Security Instruments create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (i) to (v), (vii) and (viii) of the definition thereof) on at least 80% of the total value of all of the Oil and Gas Properties evaluated in the Initial Reserve Report; and

(ii)    have received certificates, together with undated, blank stock powers for each such certificate, representing all of the issued and outstanding capital stock of each of the Guarantors;

(f)    an opinion of (i) Nancy M. Snyder, Esq., General Counsel to Borrower, substantially in the form of Exhibit D-1 hereto, (ii) Vinson & Elkins L.L.P., counsel to the Borrower, substantially in the form of Exhibit D-2 hereto, and (iii) local counsel in each of the

39

following states: Mississippi, Texas, Virginia, West Virginia and any other jurisdictions requested by the Administrative Agent, substantially in the form of Exhibit D-3;

(g)    a certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.19;

(h)    title information as the Administrative Agent may reasonably require satisfactory to the Administrative Agent setting forth the status of title to at least 80% of the value of the Oil and Gas Properties included in the Borrowing Base;

(i)    the Administrative Agent shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries;

(j)    the Administrative Agent shall have received reasonably satisfactory evidence that (i) the initial public offering by the MLP of certain common units representing limited partnership interests in the MLP (the “MLP IPO”) shall have been consummated as contemplated by and pursuant to that certain Form S-1 Registration Statement, as amended, (ii) the MLP IPO has generated net proceeds of at least $90,000,000, and (iii) at least $90,000,000 of the net proceeds of the MLP IPO have been received as a distribution by the Borrower;

(k)    the Lenders shall have received a copy of the unaudited summary, pro forma balance sheets of the Borrower as of June 30, 2001 that show the pro forma effect of the MLP IPO as if such offering had occurred on June 30, 2001, duly certified by a Responsible Officer as fairly presenting, in all material respects, the pro forma financial condition of the Borrower as of such date;

(l)    a certificate of a Responsible Officer of the Borrower certifying that all government and third party approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the financing contemplated hereby and the continuing operations of the Borrower and its Restricted Subsidiaries have been obtained and are in full force and effect. All applicable appeal periods have expired and there are no actual governmental or judicial action restraining, preventing or imposing burdensome conditions on all related transactions, including the concurrent issuance, closing and funding under this Agreement;

(m)    the Initial Reserve Reports;

(n)    the Administrative Agent shall have received satisfactory proof of the Borrower’s termination of the Existing Credit Facility and any obligations of Borrower in connection therewith;

(o)    appropriate UCC search certificates reflecting no prior liens or security interests encumbering the Mortgaged Properties other than permitted by Section 9.03 for each of the following jurisdictions: Delaware, Kentucky, Louisiana, Mississippi, Texas, Virginia and West Virginia;

40

(p)    except as disclosed to Lenders in writing prior to execution of the Credit Agreement, there shall be no pending or threatened litigation against the Borrower or any of its Restricted Subsidiaries, which could reasonably be expected to have a Material Adverse Effect;

(q)    the Lenders shall have received (i) the financial statements of the Borrower and its consolidated Subsidiaries described in Section 7.02(a), and (ii) copies of all financial statements (including pro forma financial statements), material reports, material notices and proxy statements sent by the Borrower to its limited partners and all material SEC filings concerning the MLP IPO; and

(r)    such other documents as the Agents or counsel to the Administrative Agent may reasonably request.

Section 6.02    Initial and Subsequent Loans and Letters of Credit.    The obligation of the Lenders to make Loans to the Borrower upon the occasion of each borrowing hereunder (including the Initial Funding) and to issue, renew, extend or reissue Letters of Credit for the account of the Borrower is subject to the further conditions precedent that, as of the date of such Loans or such issuance, renewal, extension or reissuance and after giving effect thereto:

(a)    no Default shall have occurred and be continuing;

(b)    no Material Adverse Effect shall have occurred;

(c)    the representations and warranties made by the Borrower and the Guarantors in Article VII and in the other Loan Documents shall be true in all material respects on and as of the date of the making of such Loans or issuance, renewal, extension or reissuance of a Letter of Credit with the same force and effect as if made on and as of such date and following such new borrowing, except to the extent such representations and warranties are expressly limited to an earlier date;

(d)    the making of such Loan or the issuance, renewal, extension or reissuance of any Letter of Credit would not conflict with, or cause any Lender to, exceed any applicable Governmental Requirements; and

(e)    the receipt by the Administrative Agent of a timely request therefor under Section 2.02.

Each request for a Loan or issuance, renewal, extension or reissuance of a Letter of Credit by the Borrower hereunder shall constitute a certification by the Borrower to the effect set forth in the preceding sentence as of both the date of such notice and the date immediately following such Loan or issuance, renewal, extension or reissuance of a Letter of Credit.

Section 6.03    Termination of Agreement.    Notwithstanding the foregoing, the obligation of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 12.04) on or prior to 5:00 p.m. Houston, Texas time on December 28, 2001 (and, in the event such conditions are not so satisfied or waived, the Aggregate Commitments shall terminate).

41

ARTICLE VII

Representations and Warranties

The Borrower represents and warrants to the Administrative Agent and the Lenders that each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and reaffirmed on the dates of each Loan and issuance, renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02:

Section 7.01    Existence.    The Borrower and each Restricted Subsidiary: (a) is duly organized or formed, legally existing and in good standing, if applicable, under the laws of the jurisdiction of its formation, except as to any Restricted Subsidiary where the failure to so exist or remain in good standing could not reasonably be expected to have a Material Adverse Effect, (b) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where failure to have such power could not reasonably be expected to have a Material Adverse Effect and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could reasonably be expected to have a Material Adverse Effect.

Section 7.02    Financial Position; No Material Adverse Effect.

(a)    The Borrower has heretofore furnished to the Agent and the Lenders its consolidated balance sheet, and the related consolidated statements of income, cash flows and shareholders’ equity of the Borrower and its consolidated Subsidiaries (x) as of and for the Fiscal Year ended December 31, 2000, audited by and accompanied by the unqualified opinion of Arthur Andersen LLP, independent certified public accountants, and (y) as of and for the Fiscal Quarter ended June 30, 2001, certified by a Responsible Officer of the Borrower that such financial statements present fairly in all material respects, the financial condition and results of operations of the Borrower and its Subsidiaries as of such dates and for such periods. Such financial statements were prepared in accordance with GAAP applied on a consistent basis.

(b)    Except as disclosed to the Agent in writing, neither the Borrower nor any consolidated Restricted Subsidiary of the Borrower has any material contingent liabilities, material liabilities for taxes, unusual and material forward or long-term commitments or material unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the consolidated balance sheets of the Borrower or as otherwise disclosed to the Lenders in writing.

(c)    The Borrower has disclosed to the Lenders in writing any and all facts which, in the reasonable good faith judgment of the Borrower, could reasonably be expected to result in a Material Adverse Effect.

Section 7.03    Litigation.    Except as set forth on Schedule 7.03, at the Closing Date, there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Restricted Subsidiary which involves the possibility of any judgment or liability against the Borrower or any Restricted Subsidiary (a) not fully covered by insurance (except for

42

normal deductibles) and which if adversely determined could reasonably be expected to have a Material Adverse Effect or (b) that could impair the consummation of the MLP IPO.

Section 7.04    No Breach.    Neither the execution and delivery of this Agreement and the Loan Documents nor compliance with the terms and provisions hereof or thereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective charter or by-laws of the Borrower or any Restricted Subsidiary, any Governmental Requirement or any material agreement or instrument to which the Borrower or any Restricted Subsidiary is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower or any Restricted Subsidiary pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents.

Section 7.05    Authority; Enforceability.    The Borrower and each Restricted Subsidiary have all necessary power and authority to execute, deliver and perform its obligations under this Agreement and the Loan Documents to which it is a party. The execution, delivery and performance by the Borrower and each Restricted Subsidiary of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on its part, and this Agreement and the Loan Documents constitute the legal, valid and binding obligations of the Borrower and each Restricted Subsidiary party thereto, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and general principles of equity.

Section 7.06    Approvals.    Other than filings with, and approvals from, the SEC and that will have been obtained prior to the date of the Initial Funding in connection with the MLP IPO, no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any third Person are necessary for the execution, delivery or performance by the Borrower or any Restricted Subsidiary of this Agreement or the Loan Documents or for the validity or enforceability thereof, except for (a) the recording and filing of the Security Instruments as required by this Agreement and (b) those third party approvals or consents which, if not made or obtained, would not cause a Default or Event of Default hereunder, could not reasonably be expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability of the Loan Documents.

Section 7.07    Use of Loans and Letters of Credit.    The proceeds of the Loans and the Letters of Credit shall be used (i) to provide working capital to the Borrower and its Subsidiaries, (ii) to finance capital expenditures and acquisitions (other than acquisitions of “margin stock”) of the Borrower and its Subsidiaries and (iii) to provide for letters of credit for the account of the Borrower and its Subsidiaries. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System). No part of the proceeds of any Loan or Letter of Credit will be used for any purpose which violation the provisions of Regulations U or X of the Board of Governors of the Federal Reserve System.

43

Section 7.08    ERISA.    Except where the taking of such action (or where the failure to take such action, as applicable) could reasonably be expected to have a Material Adverse Effect:

(a)    the Borrower and each ERISA Affiliate have complied with ERISA and, where applicable, the Code regarding each Plan;

(b)    each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code;

(c)    no act, omission or transaction has occurred with respect to any Plan which could result in imposition on the Borrower or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA;

(d)    no Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated in the last six years. No liability to the PBGC (other than for the payment of current premiums which are not past due) by the Borrower or any ERISA Affiliate has been or is expected by the Borrower or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred;

(e)    full payment when due has been made of all amounts which the Borrower or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan;

(f)    the actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrower’s most recently ended Fiscal Year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by an amount in excess of $2,000,000. The term “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA;

(g)    neither the Borrower nor any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, that may not be terminated by the Borrower or any ERISA Affiliate in its sole discretion at any time without any material liability;

(h)    none of the Borrower or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan; and

(i)    none of the Borrower or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan.

44

Section 7.09    Taxes.    Each of the Borrower and its Subsidiaries has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary, except any such taxes which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are being maintained in accordance with GAAP. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. No tax lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such tax or other such governmental charge.

Section 7.10    Titles, Etc.

(a)    Each of the Borrower and the Restricted Subsidiaries has good and defensible title to its material Oil and Gas Properties and good title to its material personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03. After giving full effect to the Excepted Liens, the Borrower or the Restricted Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such Properties shall not in any material respect obligate the Borrower or such Restricted Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower’s or such Restricted Subsidiary’s net revenue interest in such Property.

(b)    All material leases and agreements necessary for the conduct of the business of the Borrower and the Restricted Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of the Borrower and the Restricted Subsidiaries, taken as a whole.

(c)    The rights, Properties and other assets presently owned, leased or licensed by the Borrower and the Restricted Subsidiaries including, without limitation, all easements and rights of way, include all rights, Properties and other assets necessary to permit the Borrower and the Restricted Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the Closing Date.

(d)    All of the assets and Properties of the Borrower and the Restricted Subsidiaries which are reasonably necessary for the operation of its business are in good working condition and are maintained in accordance with prudent business standards.

Section 7.11    No Material Misstatements.    No written information, statement, exhibit, certificate, document or report furnished to the Administrative Agent and the Lenders (or any of them) by the Borrower or any Restricted Subsidiary or any of their Affiliates in connection with the negotiation of this Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statement contained therein not materially

45

misleading in the light of the circumstances in which made and with respect to the Borrower and the Restricted Subsidiaries taken as a whole. There is no fact peculiar to the Borrower or any Restricted Subsidiary which has a Material Adverse Effect or in the future is reasonably likely to have (so far as the Borrower can now foresee) a Material Adverse Effect and which has not been set forth in this Agreement or the other documents, certificates and statements furnished to the Administrative Agent by or on behalf of the Borrower or any Restricted Subsidiary prior to, or on, the Closing Date in connection with the transactions contemplated hereby. There are no statements or conclusions in any Reserve Report which are based upon or include misleading information or fail to take into account material information regarding the matters reported therein, it being understood that each Reserve Report is necessarily based upon professional opinions, estimates and projections and that Borrower does not warrant that such opinions, estimates and projections will ultimately prove to have been accurate. No representation or warranty is made with respect to any Hydrocarbon Interest to which no Proved Hydrocarbon Reserves are properly attributed.

Section 7.12    Investment Company Act.    Neither the Borrower nor any Subsidiary is an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

Section 7.13    Public Utility Holding Company Act.    Neither the Borrower nor any Subsidiary 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,” or a “public utility” within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 7.14    Subsidiaries.    Except as set forth on Schedule 7.14 or as disclosed in writing to the Administrative Agent (which shall promptly furnish a copy to the Lenders) which shall be a supplement to Schedule 7.14, the Borrower has no Subsidiaries. Schedule 7.14 identifies each Subsidiary as either Restricted or Unrestricted, and each Restricted Subsidiary on such schedule is a wholly-owned Subsidiary.

Section 7.15    Jurisdiction of Incorporation or Organization.    The Borrower’s state of incorporation is Virginia. The state of incorporation or organization of each Restricted Subsidiary is stated on Schedule 7.14.

Section 7.16    Defaults.    Neither the Borrower nor any Restricted Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default under any material agreement or instrument to which the Borrower or any Restricted Subsidiary is a party or by which the Borrower or any Restricted Subsidiary is bound which default could reasonably be expected to have a Material Adverse Effect. No Default hereunder has occurred and is continuing.

Section 7.17    Environmental Matters.    Except as could not be reasonably expected to have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect):

46

(a)    neither any Property of the Borrower or any Restricted Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws;

(b)    no Property of the Borrower or any Restricted Subsidiary nor the operations currently conducted thereon or, to the knowledge of the Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws;

(c)    all notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower and each Restricted Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and the Borrower and each Restricted Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations;

(d)    all hazardous substances, solid waste and oil and gas exploration and production wastes, if any, generated at any and all Property of the Borrower or any Restricted Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws;

(e)    the Borrower has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of the Borrower or any Restricted Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment;

(f)    to the extent applicable, all Property of the Borrower and each Restricted Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA, and the Borrower does not have any reason to believe that such Property, to the extent subject to the OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and

(g)    neither the Borrower nor any Restricted Subsidiary has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment.

Section 7.18    Compliance with the Law; Maintenance of Properties.    Neither the Borrower nor any Restricted Subsidiary has violated any applicable Governmental Requirement

47

binding upon it or its Properties or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Except for such acts or failures to act as could not be reasonably expected to have a Material Adverse Effect, the Oil and Gas Properties (and properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties; specifically in this connection, except for those as could not be reasonably expected to have a Material Adverse Effect, (a) after the Closing Date, no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) prior to the Closing Date and (b) none of the wells comprising a part of the Oil and Gas Properties (or properties unitized therewith) is deviated from the vertical more than the maximum permitted by applicable laws, regulations, rules and orders, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on properties unitized therewith, such unitized properties).

Section 7.19    Insurance.    The Borrower has, and has caused all its Restricted Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and (b) insurance coverage in at least amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of the Borrower and its Restricted Subsidiaries. The Agents and the Lenders have been named as additional insureds in respect of such liability insurance policies.

Section 7.20    Hedging Agreements.    Schedule 7.20 sets forth, as of the Closing Date, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Borrower and each Restricted Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement.

Section 7.21    Restriction on Liens.    Neither the Borrower nor any of the Restricted Subsidiaries is a party to any material agreement or arrangement (other than instruments creating Liens permitted by Sections 9.03(c), (d) and (e), but then only on the Property subject of such Lien), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in respect of their respective assets or Properties to secure the Indebtedness and the Loan Documents.

Section 7.22    Intellectual Property.    The Borrower and its Restricted Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data,

48

engineering data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be expected to have a Material Adverse Effect.

Section 7.23    Material Personal Property.    All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Restricted Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Restricted Subsidiaries, in a manner consistent with the Borrower’s or its Restricted Subsidiaries’ past practices (other than those the failure of which to maintain in accordance with this Section 7.23 could not reasonably be expect to have a Material Adverse Effect).

Section 7.24    Business.    The Borrower and its Restricted Subsidiaries have not conducted and are not conducting any business other than businesses relating to the exploration, development, financing, acquisition, ownership, operation, maintenance, storage, transporting and marketing of the Oil and Gas Properties and related activities as currently conducted.

Section 7.25    Solvency.    Neither the Borrower nor any Restricted Subsidiary of the Borrower (i) is “insolvent” (within the meaning of Section 101(32) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Conveyance Act or Section 2 of the Uniform Fraudulent Transfer Act) or will become insolvent as a result of the incurrence of any obligation under any Loan Document to which it is a party; (ii) has unreasonably small capital (after giving effect to the transactions contemplated in any Loan Document to which it is a party) for the conduct of its existing and contemplated business; and (iii) is able to perform its contingent obligations and other commitments as they mature in the normal course of business.

Section 7.26    Licenses, Permits, Etc.    The Borrower and each of its Restricted Subsidiaries possess such valid franchises, certificates of convenience and necessity, operating rights, licenses, permits, consents, authorizations, exemptions and orders of Governmental Authorities, as are necessary to carry on their respective businesses as now conducted and as proposed to be conducted, except to the extent a failure to obtain any such item could not reasonably be expected to result in a Material adverse Effect.

Section 7.27    Fiscal Year.    The Borrower’s Fiscal Year is January 1 through December 31.

ARTICLE VIII

Affirmative Covenants

The Borrower covenants and agrees that, so long as any of the Aggregate Commitments is in effect and until payment in full of all Indebtedness and termination or expiration of any Letters of Credit issued hereunder, all interest thereon and all other amounts payable by the Borrower hereunder and under the other Loan Documents:

49

Section 8.01    Reporting Requirements.    The Borrower shall deliver, or shall cause to be delivered, to the Administrative Agent (and, with respect to the financial statements delivered pursuant to Sections 8.01(a) and (b), with sufficient copies of each for the Lenders):

(a)    Annual Financial Statements.    As soon as available and in any event within 120 days after the end of each Fiscal Year of the Borrower, the audited consolidated and unaudited consolidating statements of income, stockholders’ equity, changes in financial position and cash flow of (i) the Borrower and its consolidated Subsidiaries and (ii) the MLP and its Subsidiaries for such Fiscal Year, and the related audited consolidated and unaudited consolidating balance sheets of the Borrower and its consolidated Subsidiaries and the MLP and its Subsidiaries as at the end of such Fiscal Year, and setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year, and accompanied by either (i) with respect to any audited financial statements, the related opinion of independent public accountants of recognized national standing acceptable to the Administrative Agent which opinion shall state that said financial statements fairly present, in all material respects, the consolidated financial condition and results of operations of the Borrower and its consolidated Subsidiaries and the MLP and its Subsidiaries as at the end of, and for, such Fiscal Year and that such financial statements have been prepared in accordance with GAAP except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a “going concern” or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or (ii) with respect to any unaudited financial statements, the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present, in all material respects, the consolidating financial condition and results of operations of the Borrower and its consolidated Subsidiaries and the MLP and its Subsidiaries in accordance with GAAP, as at the end of, and for, such period.

(b)    Quarterly Financial Statements.    As soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, consolidated and consolidating statements of income, stockholders’ equity, changes in financial position and cash flow of the Borrower and its consolidated Subsidiaries and the MLP and its Subsidiaries for such period and for the period from the beginning of the respective Fiscal Year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present, in all material respects, the consolidated and the consolidating financial condition and results of operations of the Borrower and its consolidated Subsidiaries and the MLP and its Subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments).

(c)    Notice of Default, Etc.    Promptly after the Borrower knows that any Default or any Material Adverse Effect has occurred, a notice of such Default or Material Adverse Effect, describing the same in reasonable detail and the action the Borrower proposes to take with respect thereto.

50

(d)    Other Accounting Reports.    Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any Subsidiary, and a copy of any response by the Borrower or any such Subsidiary of the Borrower, or the Board of Directors of the Borrower or any such Subsidiary of the Borrower, to such letter or report.

(e)    SEC Filings, Etc.    Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by the Borrower to stockholders generally and each regular or periodic report and any registration statement or prospectus filed by the Borrower with any securities exchange or the SEC.

(f)    Notices Under Material Instruments.    Promptly after the furnishing thereof, copies of any financial statement, report or notice furnished to or any Person pursuant to the terms of any preferred stock designation, indenture, loan or credit or other similar agreement in respect of Debt in excess of $2,000,000, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01.

(g)    Hedging Agreements.    Together with the delivery of the financial information to be supplied under Sections 8.01(a) and (b), a report, in form and substance satisfactory to the Administrative Agent, setting forth as of the last Business Day of such Fiscal Quarter or Fiscal Year, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.20, any margin required or supplied under any credit support document, and the counterparty to each such agreement.

(h)    Compliance Certificates.    At the time it furnishes each set of financial statements under Sections 8.01(a) and (b) above, a certificate substantially in the form of Exhibit C hereto executed by a Responsible Officer (i) certifying as to the matters set forth therein and stating that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Section 9.01 and Section 8.09(b) as of the end of the respective Fiscal Quarter or Fiscal Year.

(i)    Taxes and Claims.    In the event (i) not previously disclosed in the financial statements delivered under Sections 8.01(a) and (b) above and (ii) that the amount of contested taxes or claims under Section 8.12 are in excess of $2,000,000 in the aggregate at any one time, written notice from a Responsible Officer of such circumstances, in detail satisfactory to the Administrative Agent.

(j)    Notice of Sales.    In the event the Borrower or any Restricted Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties in accordance with this Agreement (but only if such transaction involves the disposition of Oil and Gas Properties for a

51

value in excess of $2,000,000) prior written notice of such disposition, the price thereof and the anticipated date of closing.

(k)    Information Regarding Borrower and Guarantors.    Prior written notice of any change (i) in the Borrower or any Guarantor’s corporate name or in any trade name used to identify such Person in the conduct of its business or in the ownership of its Properties, (ii) in the location of the Borrower or any Guarantor’s chief executive office or principal place of business, (iii) in the Borrower or any Guarantor’s identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, and (iv) in the Borrower or any Guarantor’s federal taxpayer identification number.

(l)    Casualty and Condemnation.    Prompt written notice, and in any event within three (3) Business Days, of the occurrence of any Casualty Event to the Mortgaged Property or the commencement of any action or proceeding for the taking of any material portion of the Mortgaged Property or any part thereof or interest therein under power of eminent domain or by condemnation, nationalization or similar proceeding.

(m)    Lists of Purchasers.    Promptly following the written request from the Administrative Agent thereof, a list of all Persons disbursing proceeds to the Borrower or any Restricted Subsidiary from its Oil and Gas Properties.

(n)    Other Matters.    From time to time, such other information regarding the business, affairs or financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as the Administrative Agent (at the request of any Lender) may reasonably request.

Section 8.02    Litigation.    The Borrower shall promptly give to the Administrative Agent notice of all legal or arbitral proceedings, and of all proceedings before any Governmental Authority filed against the Borrower or any Restricted Subsidiary, except proceedings which, if adversely determined, could not reasonably be expected to result in liability not fully covered by insurance, subject to normal deductibles, in excess of $2,000,000 (whether individually or in the aggregate).

Section 8.03    Maintenance, Compliance with Laws, Inspections, Insurance, Etc.

(a)    The Borrower shall, and shall cause each Restricted Subsidiary to: (i) except as permitted in Section 9.10, preserve and maintain its existence and all of its material rights, privileges and franchises and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Oil and Gas Properties is located or the ownership of its Properties requires such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect; (ii) keep books of record and account in accordance with GAAP; (iii) comply with all Governmental Requirements if failure to comply with such requirements could reasonably be expected to have a Material Adverse Effect; (iv) upon reasonable notice, permit representatives of the Administrative Agent or any Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent (as the case may be); and

52

(v) keep, or cause to be kept, insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance against risks as is usually carried by such Persons. The loss payable clauses or provisions in said insurance policy or policies insuring any of the Collateral shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and naming the Administrative Agent and the Lenders as “additional insureds” and shall provide that the insurer will endeavor to give at least 30 days prior notice of any cancellation to the Administrative Agent.

(b)    Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, the Borrower will furnish or cause to be furnished to the Administrative Agent a certificate of insurance coverage from the insurer in form and substance satisfactory to the Administrative Agent and, if requested, will furnish the Administrative Agent and the Lenders copies of the applicable policies.

(c)    The Borrower will, and will cause each Restricted Subsidiary to, operate its Properties or cause such Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including, without limitation, applicable pro ration and Environmental Laws and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom, except, in each case, where the failure to comply could not reasonably be expected to have a Material Adverse Effect.

(d)    The Borrower, at its own expense, will, and will cause each Restricted Subsidiary to, do or cause to be done all things reasonably necessary to preserve and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities, and from time to time will make all the reasonably necessary repairs, renewals and replacements so that at all times the state and condition of its material Oil and Gas Properties and other material Properties will be preserved and maintained, except to the extent a portion of such Properties is no longer capable of commercially producing Hydrocarbons. The Borrower will, and will cause each Restricted Subsidiary to, promptly: (i) pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder, and (ii) perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material Properties, except in each case of clauses (i) and (ii) to the extent a portion of such Properties is no longer capable of producing Hydrocarbons in economically reasonable amounts and except for dispositions permitted by Section 9.11. The Borrower will and will cause each Restricted Subsidiary to operate its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other

53

material Properties to be operated in accordance with the practices of the industry and in material compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements. To the extent the Borrower is not the operator of such Property, the Borrower shall use reasonable efforts to cause the operator to comply with this Section 8.03(d).

Section 8.04    Environmental Matters.

(a)    The Borrower will, and will cause each Restricted Subsidiary to, establish and implement such procedures as may be reasonably necessary to continuously determine and assure that any failure of the following could not reasonably be expected to have a Material Adverse Effect: (i) all Property of the Borrower and the Restricted Subsidiaries and the operations conducted thereon and other activities of the Borrower and the Restricted Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, oil and gas production or exploration wastes, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA and (iv) no oil, oil and gas exploration and production wastes or hazardous substances or solid wastes are released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment.

(b)    The Borrower will promptly notify the Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority against the Borrower or its Restricted Subsidiaries or their Properties which the Borrower has knowledge in connection with any Environmental Laws (excluding routine testing and corrective action) if the Borrower reasonably anticipates that such action will result in liability, not fully covered by insurance, subject to normal deductibles, (whether individually or in the aggregate) in excess of $2,000,000.

Section 8.05    Further Assurances.    The Borrower at its expense will, and will cause each Restricted Subsidiary to, promptly execute and deliver to the Administrative Agent all such other documents, agreements and instruments reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the covenants and agreements of the Borrower or any Restricted Subsidiary, as the case may be, in the Security Instruments, Indebtedness and this Agreement, or to further evidence and more fully describe the Collateral, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate in connection therewith.

Section 8.06    Performance of Obligations.    The Borrower will pay the Indebtedness according to the terms set forth in this Agreement and the Loan Documents and the Borrower will and will cause each Restricted Subsidiary to do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents and this Agreement, at the time or times and in the manner specified.

54

Section 8.07    Reserve Reports.

(a)    On or before March 1 and September 1 of each year, commencing March 1, 2002, the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report. The Reserve Report as of December 31 of each year shall be prepared by one or more Approved Petroleum Engineers, and the June 30 Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding December 31 Reserve Report.

(b)    In the event of an unscheduled redetermination, the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report prepared by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report. For any unscheduled redetermination requested by the Required Lenders or the Borrower pursuant to Section 2.09(e), the Borrower shall provide such Reserve Report with an “as of” date as required by the Administrative Agent as soon as possible, but in any event no later than thirty (30) days following the receipt of such request.

(c)    With the delivery of each Reserve Report, the Borrower shall provide to the Administrative Agent and the Lenders, a certificate from a Responsible Officer certifying that, to the best of his knowledge and in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct, (ii) the Borrower or its Restricted Subsidiaries owns good and defensible title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or any Restricted Subsidiary to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of their Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, which certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably required by the Required Lenders and (v) attached thereto is a schedule of the Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Property.

Section 8.08    Title Information.

(a)    On or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by Section 8.07(a), the Borrower will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

55

(b)    If the Borrower has provided title information for additional Properties under Section 8.08(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted Liens having an equivalent value or (iii) deliver title information in form and substance acceptable to the Administrative Agent so that the Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, satisfactory title information on at least 80% of the value of the Oil and Gas Properties evaluated by such Reserve Report.

(c)    If the Borrower is unable to cure any title defect requested by the Administrative Agent or the Lenders to be cured within the 60-day period or the Borrower does not comply with the requirements to provide acceptable title information covering 80% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default or an Event of Default, but instead the Administrative Agent and the Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any time shall not be a waiver as to future exercise of the remedy by the Administrative Agent or the Lenders. To the extent that the Administrative Agent or the Lenders are not satisfied with title to any Mortgaged Property after the 60-day period has elapsed, such unacceptable Mortgaged Property shall not count towards the 80% requirement, and the Administrative Agent may send a notice to the Borrower and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Majority Lenders to cause the Borrower to be in compliance with the requirement to provide acceptable title information on 80% of the value of the Oil and Gas Properties. This new Borrowing Base shall become effective immediately after receipt of such notice.

Section 8.09    Additional Collateral; Additional Guarantors.

(a)    In connection with each redetermination of the Borrowing Base, the Borrower shall review the Reserve Report and the list of current Mortgaged Properties to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such total value, then the Borrower shall, and shall cause its Restricted Subsidiaries to, grant to the Administrative Agent as security for the Indebtedness a first-priority Lien interest (subject only to Excepted Liens of the type described in clauses (i) to (v), (vii) and (viii) of the definition thereof) on additional Oil and Gas Properties not already subject to a Lien of the Security Instruments such that affecting giving effect thereto, the Mortgaged Properties will represent at least 80% of such value. All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements, or other Security Instruments, all in form and substance reasonably satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. In order to comply with the foregoing, if any Restricted Subsidiary places a Lien on its Oil and Gas Properties and such Restricted Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 8.09(b).

56

(b)    In the event that the Borrower determines that any Subsidiary is a Material Domestic Subsidiary, the Borrower shall promptly cause such Material Domestic Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrower shall, or shall cause such Material Domestic Subsidiary to, (A) execute and deliver a supplement to the Guaranty Agreement executed by such Domestic Material Subsidiary, (B) pledge all of the capital stock of such Domestic Material Subsidiary (including, without limitation, delivery of original stock certificates evidencing the capital stock of such Material Domestic Subsidiary, together with an appropriate undated stock powers for each certificate duly executed in blank by the registered owner thereof) and (C) execute and deliver such other additional closing documents, certificates and legal opinions as shall reasonably be requested by the Administrative Agent.

Section 8.10    ERISA Information and Compliance.    As soon as available, and in any event, within ten (10) days after the Borrower obtains knowledge of any of the following, the Borrower will furnish and will cause each ERISA Affiliate to promptly furnish to the Administrative Agent with sufficient copies to the Lenders (i) a written notice signed by a Responsible Officer describing the occurrence of any ERISA Event or of any material “prohibited transaction,” as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, and specifying what action the Borrower or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, (ii) copies of any notice of the PBGC’s intention to terminate or to have a trustee appointed to administer any Plan and (iii) a written notice of the Borrower’s or an ERISA Affiliate’s participation in a Multiemployer Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower will, and will cause each ERISA Affiliate to, (a) satisfy in full and in a timely manner, without incurring any material late payment or underpayment charge or penalty and without giving rise to any Lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (b) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any material late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.

Section 8.11    Business of the Borrower.    The primary business of the Borrower and its consolidated Restricted Subsidiaries is and will continue to be the acquisition, exploration for, development, production, transportation, processing and marketing of Hydrocarbons and accompanying minerals.

Section 8.12    Payment of Taxes and Claims.    The Borrower will pay, and will cause each of its Restricted Subsidiaries to pay, (a) all taxes imposed upon it or any of its assets or with respect to any of its franchises, business, income or profits before any material penalty or interest accrues thereon and (b) all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a Lien (other than a Permitted Lien) on any of its assets; provided, however, no payment of taxes or claims shall be required if (i) the amount, applicability or validity thereof is currently being contested in good faith by appropriate action promptly initiated and diligently conducted in accordance with good business practices and no material part of the

57

property or assets of the Borrower or any of its Restricted Subsidiaries are subject to levy or execution, and (ii) the Borrower as and to the extent required in accordance with GAAP, shall have set aside on its books reserves (segregated to the extent required by GAAP) deemed by it to be adequate with respect thereto.

Section 8.13    Permits, Licenses.    The Borrower shall, and shall cause each Restricted Subsidiary to, maintain all material patents, copyrights, trademarks, service marks and trade names necessary to conduct its business, including, without limitation all consents, permits, licensees and agreements material to the Oil and Gas Properties.

ARTICLE IX

Negative Covenants

The Borrower covenants and agrees that, so long as any of the Aggregate Commitments is in effect and until payment in full of all Indebtedness hereunder and termination or expiration of any Letters of Credit issued hereunder, all interest thereon and all other amounts payable by the Borrower hereunder and under the other Loan Documents:

Section 9.01    Financial Covenants.

(a)    Total Debt to EBITDAX Ratio: The Borrower will not permit at any time its ratio of Total Debt to EBITDAX (calculated quarterly at the end of each Fiscal Quarter on a rolling four quarter basis) to be more than 3.0 to 1.0.

(b)    EBITDAX to Interest Expense Ratio: The Borrower will not permit at any time its ratio of EBITDAX (calculated quarterly at the end of each Fiscal Quarter on a rolling four quarter basis) to Interest Expense to be less than 2.5 to 1.0.

(c)    Tangible Net Worth: The Borrower will not permit Tangible Net Worth at any time to be less than the sum (without duplication) of (i) $167,000,000, plus (ii) 80% of any adjustments to Tangible Net Worth relating to the MLP IPO, plus (iii) 50% of Consolidated Net Income for each Fiscal Quarter of the Borrower ending after the Closing Date (to the extent for any such Fiscal Quarter Consolidated Net Income is positive), plus (iv) 50% of the net proceeds from the sale of equity securities by the Borrower after the Closing Date; provided that, for the purposes of this calculation, various non-cash events, including, without limitation, FASB 133 non-cash events, shall not contribute to or be deducted from Consolidated Net Income.

Section 9.02    Debt.    Neither the Borrower nor any Restricted Subsidiary will incur, create, assume or suffer to exist any Debt, except:

(a)    the Indebtedness arising under the Loan Documents or any guaranty of or suretyship arrangement for the Indebtedness arising under the Loan Documents;

(b)    Debt of the Borrower and its Restricted Subsidiaries existing on the Closing Date that is listed in Schedule 9.02, and any refinancings, renewals or extensions (but not increases) thereof;

58

(c)    accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which, if greater than ninety (90) days past the invoice or billing date, are being contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been established therefor;

(d)    Debt under Capital Leases (as required to be reported on the financial statements of the Borrower pursuant to GAAP) not to exceed $2,000,000;

(e)    Debt associated with bonds or surety obligations required by Governmental Requirements in connection with the operation of the Oil and Gas Properties;

(f)    intercompany Debt between the Borrower and any Restricted Subsidiary or between Restricted Subsidiaries to the extent permitted by Section 9.05(g); provided that such Debt is not held, assigned, transferred, negotiated or pledged to any Person other than the Borrower or a Restricted Subsidiary, and, provided further, that any such Debt owed by either the Borrower or a Guarantor shall be subordinated to the Indebtedness on terms set forth in the Guaranty Agreement;

(g)    endorsements of negotiable instruments for collection in the ordinary course of business;

(h)    Debt under Hedging Agreements permitted by Section 9.18; and

(i)    other Debt (not included under subsections (a) through (h) of this Section) not to exceed $10,000,000 in the aggregate at any one time outstanding.

Section 9.03    Liens.    Neither the Borrower nor any Restricted Subsidiary will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except:

(a)    Liens securing the payment of any Indebtedness;

(b)    Excepted Liens;

(c)    Liens securing leases giving rise to Debt allowed under Section 9.02(d) but only on the Property under lease;

(d)    Liens (including the deposit of margin) on cash or other securities securing Hedging Agreements permitted by Section 9.18, provided that the aggregate amount of cash and securities upon which such Liens have been granted do not exceed $7,500,000;

(e)    Liens disclosed on Schedule 9.03;

(f)    any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses in this Section 9.03; provided that any such Debt is not increased beyond the amount thereof outstanding on the Closing Date (other than increases associated with the capitalization of refinancing costs) and is not secured by any additional assets; and

59

(g)    additional Liens upon Property created after the date hereof, provided that the aggregate Indebtedness secured thereby and incurred on or after the date hereof shall not exceed $1,000,000 in the aggregate at any one time outstanding.

Section 9.04    Dividends, Distributions and Redemptions.    The Borrower will not directly or indirectly declare or pay or incur any liability to pay, and the Borrower will not permit any of its Restricted Subsidiaries to directly or indirectly declare or pay, or incur any liability to pay any dividends or other distributions; provided that (i) any Subsidiary may pay dividends or make distributions to the Borrower or any Restricted Subsidiary, and (ii) if no Borrowing Base Deficiency then exists and no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may (A) declare and pay dividends solely in additional shares of capital stock of the Borrower, (B) repurchase or redeem shares of its capital stock issued to its employees, officers or directors in an amount not to exceed $1,000,000 in any 12-month period, provided, however, that prior to January 1, 2002, the Borrower and its Restricted Subsidiaries may pay dividends or make distributions in an amount not to exceed $3,000,000 in the aggregate for all such dividends or distributions, and (C) on or after January 1, 2002, pay cash dividends and distributions to its shareholders from funds legally available for such purpose during any Fiscal Quarter in an amount not in excess of the amount of cash dividends or distributions received by the Borrower from the MLP during such Fiscal Quarter.

Section 9.05    Investments, Loans and Advances.    Neither the Borrower nor any Restricted Subsidiary will make or permit to remain outstanding any loans or advances to or investments in any Person, except that the foregoing restriction shall not apply to:

(a)    Investments reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.05;

(b)    accounts receivable arising in the ordinary course of business;

(c)    direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof;

(d)    commercial paper maturing within one year from the date of creation thereof rated in the highest grade by S&P or Moody’s;

(e)    deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as of the date of such Lender’s or bank or trust company’s most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or Moody’s, respectively;

(f)    deposits in money market funds investing exclusively in Investments described in Section 9.05(c), 9.05(d) or 9.05(e);

60

(g)    Investments (i) made by the Borrower in or to the Guarantors, (ii) made by any Restricted Subsidiary in the Borrower or any Guarantor, and (iii) made by the Borrower or any Restricted Subsidiary in or to all other Domestic Subsidiaries which are not Guarantors in an aggregate amount at any one time outstanding not to exceed $5,000,000;

(h)    Investments in direct ownership interests in additional Oil and Gas Properties and gas gathering systems related thereto or related to farm-out, farm-in, joint operating, joint venture or area of mutual interest agreements, gathering systems, pipelines or other similar arrangements which are usual and customary in the oil and gas exploration and production business; and

(i)    other Investments, including Investments in Unrestricted Subsidiaries, not to exceed $10,000,000 in the aggregate at any time.

Section 9.06    Designation and Conversion of Restricted and Unrestricted Subsidiaries; Debt of Unrestricted Subsidiaries.

(a)    Unless designated as an Unrestricted Subsidiary on Schedule 7.14 as of the Closing Date or thereafter pursuant to Section 9.06(b), any Person that becomes a Subsidiary of the Borrower or any of its Restricted Subsidiaries shall be classified as a Restricted Subsidiary.

(b)    The Borrower may designate any Restricted Subsidiary or any newly formed or newly acquired Subsidiary of the Borrower or any Restricted Subsidiary as an Unrestricted Subsidiary if (i) such designation is made by the Borrower in a written notice to the Administrative Agent and (ii) such designation is approved by a vote of the Required Lenders. Except as provided in this Section, no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.

(c)    The Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary if after giving effect to such designation, (i) the representations and warranties of the Borrower and its Restricted Subsidiaries contained in each of the Loan Documents are true and correct on and as of such date as if made on and as of the date of such redesignation (or, if stated to have been made expressly as of an earlier date, were true and correct as of such date), (ii) no Default or Event of Default would exist and (iii) the Borrower complies with the requirements of Sections 8.09, 8.12 and 9.14. Any such designation shall be treated as a cash dividend in an amount equal to the lesser of (A) the Fair Market Value of the Borrower’s direct and indirect ownership interest in such Subsidiary or (B) the amount of the Borrower’s cash investment previously made for purposes of the limitation on Investments under Section 9.05(i).

Section 9.07    Nature of Business.    Neither the Borrower nor any Restricted Subsidiary will allow any material change to be made in the character of its business as an independent oil and gas exploration and production company.

Section 9.08    Proceeds of Loans.    The Borrower will not permit the proceeds of the Indebtedness to be used for any purpose other than those permitted by Section 7.07. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulations U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the

61

Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System, as the case may be.

Section 9.09    ERISA Compliance.    The Borrower will not at any time:

(a)    engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which the Borrower or any ERISA Affiliate could be subjected to either a material civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a material tax imposed by Chapter 43 of Subtitle D of the Code with respect to a Plan;

(b)    terminate, or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower or any ERISA Affiliate to the PBGC which could reasonably be expected to have a Material Adverse Effect;

(c)    fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower or any ERISA Affiliate is required to pay as contributions thereto if such failure could reasonably be expected to have a Material Adverse Effect;

(d)    permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan which exceeds $2,000,000;

(e)    except as provided in Section 9.09(g), permit, or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by more than $2,000,000, with the term “actuarial present value of the benefit liabilities” having the meaning specified in section 4041 of ERISA;

(f)    contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan if such action could reasonably be expected to have a Material Adverse Effect;

(g)    acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (i) any Multiemployer Plan if the funding status of such Multiemployer Plan is such that a total or partial withdrawal from it by such Person could reasonably be expected to have a Material Adverse Effect, or (ii) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the

62

assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by an amount in excess of $2,000,000;

(h)    incur, or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA in excess of $2,000,000; or

(i)    amend, or permit any ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code.

Section 9.10    Mergers, Etc.    Neither the Borrower nor any Restricted Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person (any such transaction, a “consolidation”); provided that

(a)    the Borrower or any Restricted Subsidiary may participate in a consolidation with any other Person; provided that (i) no Default or Event of Default is continuing, (ii) any such consolidation would not cause a Default or Event of Default hereunder, (iii) if the Borrower consolidates with any Person, the Borrower shall be the surviving Person, (iv) if any Restricted Subsidiary consolidates with any Person (other than the Borrower or a Restricted Subsidiary) and such Restricted Subsidiary is not the surviving Person, such surviving Person shall expressly assume in writing (in form and substance satisfactory to the Administrative Agent) all obligations of such Restricted Subsidiary under the Loan Documents and (iv) the Borrowing Base will be redetermined in accordance with Section 2.09;

(b)    any Restricted Subsidiary may participate in a consolidation with the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or any other Restricted Subsidiary (provided that the surviving entity shall be a Restricted Subsidiary).

Section 9.11    Sale of Oil and Gas Properties.    The Borrower will not, and will not permit any Restricted Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any Oil and Gas Property or any interest in any Oil and Gas Property except for (a) the sale of Hydrocarbons in the ordinary course of business; (b) farmouts of undeveloped acreage and assignments in connection with such farmouts; (c) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Restricted Subsidiary or is replaced by equipment of at least comparable value and use; (d) the sale, transfer or other disposition of equity interests in Unrestricted Subsidiaries and (e) sales or other dispositions (including Casualty Events and dispositions resulting from the exercise of eminent domain, condemnation or nationalization) of Oil and Gas Properties or any interest therein or, with the prior written consent of the Required Lenders, all capital stock or other equity interests in Restricted Subsidiaries owning Oil and Gas Properties; provided that such sales or other dispositions of Oil and Gas Properties or Restricted Subsidiaries owning Oil and Gas Properties included in the most recently delivered Reserve Report during any period between two successive Scheduled Redetermination Dates exceeding $5,000,000, individually or in the aggregate, shall result in an adjustment to the Borrowing Base in an amount equal to the value, if any, assigned such Property by the Majority Lenders in good faith; and provided further that if any such sale or other disposition is of a Restricted Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the capital stock of

63

such Restricted Subsidiary. To assign such a value, the Borrower shall give the Administrative Agent and the Lenders notice of the proposed sale or other disposition not less than ten (10) days prior to the date of the proposed sale or other disposition. The Administrative Agent shall, in good faith and utilizing the Engineering Reports delivered in connection with the most recent redetermination of the Borrowing Base (or the initial determination, as applicable), propose to the Lenders a reduction to the Borrowing Base to reflect the value of the Properties being sold or otherwise disposed of. Thereafter, the Lenders shall have five (5) days to approve or object to such proposed amount; and any failure to object shall be deemed to be an approval. In the event there is no approval or deemed approval, the Administrative Agent shall poll the Lenders to ascertain the lowest reduction to the Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required Lenders for purposes of this Section 9.11 and such amount shall then be the allocated value of the Property subject to such sale or disposition.

Section 9.12    Environmental Matters.    Neither the Borrower nor any Restricted Subsidiary will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations could reasonably be expected to result in an Environmental Liability to the Borrower or any of its Restricted Subsidiaries in excess of $4,000,000.

Section 9.13    Transactions with Affiliates.    Neither the Borrower nor any Restricted Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate (other than the Guarantors and wholly-owned Subsidiaries of the Borrower) unless such transactions are otherwise permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm’s length transaction with a Person not an Affiliate.

Section 9.14    Subsidiaries.    The Borrower shall not, and shall not permit any Restricted Subsidiary to, create or acquire any additional Restricted Subsidiary or redesignate an Unrestricted Subsidiary as a Restricted Subsidiary unless the Borrower complies with Section 8.09(b). The Borrower shall not, and shall not permit any Restricted Subsidiary to, sell, assign or otherwise dispose of any capital stock in any Restricted Subsidiary except in compliance with Section 9.11(e).

Section 9.15    Negative Pledge Agreements.     Neither the Borrower nor any Restricted Subsidiary will create, incur, assume or suffer to exist any contract, agreement or understanding (other than this Agreement, the Security Instruments, instruments governing Debt permitted under Section 9.02(h) or other instruments creating Liens permitted by Section 9.03(c) and (e)) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative Agent and the Lenders or restricts any Restricted Subsidiary from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith.

Section 9.16    Gas Imbalances, Take-or-Pay or Other Prepayments.    The Borrower will not allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas

64

Properties of the Borrower and its Restricted Subsidiaries that would require the Borrower or its Restricted Subsidiaries to deliver Hydrocarbons produced on Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor to exceed two (2) Bcf of gas in the aggregate on a net basis for the Borrower and its Restricted Subsidiaries.

Section 9.17    Fiscal Year; Fiscal Quarter.    The Borrower shall not, and shall not permit any of its Subsidiaries to, change its Fiscal Year or any of its Fiscal Quarters.

Section 9.18    Hedging Agreements.    The Borrower will not enter into, and the Borrower will not permit any of its Restricted Subsidiaries to enter into, any Hedging Agreements in respect of Hydrocarbons which would cause the amount of Hydrocarbons which are the subject of Hedging Agreements in existence at such time to exceed either (i) ninety percent (90%) of the Borrower’s and its Restricted Subsidiaries’ production from Proved Hydrocarbon Reserves during the term of such existing Hedging Agreements as set forth on the most current Reserve Report or (ii) one hundred percent (100%) of the Borrower’s and its Restricted Subsidiaries’ production from Proved Developed Producing Hydrocarbon Reserves during the term of such existing Hedging Agreements as set forth on the most current Reserve Report. The Borrower will not, and the Borrower will not permit any of its Restricted Subsidiaries to, post letters of credit to secure obligations under Hedging Agreements which, when added to the amount of cash and other securities pledged under Section 9.03(d) exceeds $7,500,000 in aggregate for all such Hedging Agreements.

Section 9.19    Restricted Subsidiaries.    Except as permitted by Sections 9.10 and 9.11(e), at all times, the Borrower shall directly or indirectly through a wholly-owned Restricted Subsidiary retain full, absolute and unencumbered title to all of the issued and outstanding stock or other ownership interests in each Restricted Subsidiary.

ARTICLE X

Events of Default; Remedies

Section 10.01    Events of Default.    One or more of the following events shall constitute an “Event of Default”:

(a)    the Borrower shall default in the payment or prepayment when due of any Indebtedness, or any fees or other amount payable by it hereunder or under any Loan Document and such default, other than a default of a payment or prepayment of principal (which shall have no cure period), shall continue unremedied for a period of three (3) Business Days;

(b)    (i) the Borrower or any Restricted Subsidiary shall default in the payment when due of any principal of or interest on any of its other Debt in principal outstanding amount aggregating $2,000,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity or (ii) a default or early termination event shall occur and be continuing under any Hedging Agreement between the Borrower or any Restricted Subsidiary and any other Person which results in a net payment being due by the Borrower or

65

such Restricted Subsidiary in excess of $2,000,000 and such payment is not paid when due or within three (3) Business Days thereafter;

(c)    any material representation or warranty made or deemed made herein or in any Loan Document by the Borrower or any Restricted Subsidiary, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or any Loan Document, shall prove to have been false or misleading as of the time made or furnished in any material respect;

(d)    (i) the Borrower or any Restricted Subsidiary shall default in the performance of any of its obligations under Article IX or (ii) the Borrower or any Restricted Subsidiary shall default in the performance of any of its obligations under this Agreement (other than Article IX) or any other Loan Document (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (A) notice thereof to the Borrower by the Administrative Agent or any Lender (through the Administrative Agent) or (B) a Responsible Officer of the Borrower or such Restricted Subsidiary otherwise becoming aware of such default;

(e)    the Borrower or any Restricted Subsidiary shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due;

(f)    the Borrower or any Restricted Subsidiary shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code or (vi) take any action for the purpose of effecting any of the foregoing;

(g)    a proceeding or case shall be commenced, without the application or consent of the Borrower or any Restricted Subsidiary in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such Person of all or any substantial part of its assets, (iii) similar relief in respect of such Person under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) days or (iv) an order for relief against such Person shall be entered in an involuntary case under the Federal Bankruptcy Code;

(h)    a judgment or judgments for the payment of money in excess of $2,000,000 (net of any amount payable because of insurance) in the aggregate shall be rendered by a court against the Borrower or any Restricted Subsidiary and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and the Borrower or such

66

Restricted Subsidiary shall not, within said period of thirty (30) days, or such longer period during which execution of the same shall have been stayed, appeal in good faith therefrom and cause the execution thereof to be stayed during such appeal;

(i)    the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Borrower or a Guarantor party thereto, or cease to create a valid and perfected Lien of the priority required thereby on any of the Collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or the Borrower or any Restricted Subsidiary or any of their Affiliates shall so state in writing; or

(j)    any Person or two or more Persons acting as a group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Securities Exchange Act of 1934) of 35% or more of the outstanding shares of voting stock of the Borrower; or individuals who, as of the Closing Date, constitute the Board of Directors of the Borrower (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Borrower; provided, however, that any individual becoming a director of the Borrower subsequent to the date hereof whose election, or nomination for election by the Borrower’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Borrower.

Section 10.02    Remedies.

(a)    In the case of an Event of Default other than one referred to in Section 10.01 (e), (f) or (g), the Administrative Agent shall, upon request of the Required Lenders, by notice to the Borrower, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.11(b)) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower.

(b)    In the case of the occurrence of an Event of Default referred to in Section 10.01 (e), (f) or (g), the Commitments shall be automatically canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.11(b)) shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower.

67

(c)    In the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity.

(d)    All proceeds received after maturity of the Indebtedness, whether by acceleration or otherwise, shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments; second to accrued interest on the Indebtedness; third to fees; fourth to principal outstanding on the Indebtedness (other than Indebtedness with respect to Hedging Obligations); fifth to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; sixth to Indebtedness with respect to Hedging Obligations; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement.

ARTICLE XI

The Agents

Section 11.01    Appointment, Powers and Immunities.    Each Lender hereby irrevocably appoints and authorizes Chase to act as its administrative agent hereunder and under the Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Neither the Administrative Agent nor any Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to each of their Affiliates and its and its Affiliates’ officers, directors, employees, attorneys, accountants, experts and agents): (i) shall have any duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (ii) makes any representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for herein, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement or any other document referred to or provided for herein or for any failure by the Borrower or any other Person (other than itself) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower and its Subsidiaries or any other obligor or guarantor; (iii) except pursuant to Section 11.07, shall be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct. The Agents may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. The Agents may deem and treat the payee of any Indebtedness as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent.

68

Section 11.02    Reliance by Administrative Agent.    The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by it.

Section 11.03    Defaults.    The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees or failure to reimburse for Letter of Credit drawings) unless the Administrative Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a “Notice of Default.” In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, the Administrative Agent shall give each Lender prompt notice of each such payment Default.

Section 11.04    Rights as a Lender.    With respect to its Commitment and the Loans made by it and its participation in the issuance of Letters of Credit, Chase (and any successor acting as Administrative Agent), and First Union, Bank One or RBC (an any successors acting as Co-Syndication Agents), in their respective capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as an Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include each Agent in its individual capacity. Chase, First Union, Bank One and RBC (and any successor acting as an Agent) and their respective Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if it were not acting as an Agent, and Chase, First Union, Bank One and RBC and their respective Affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders.

Section 11.05    INDEMNIFICATION.    THE LENDERS AGREE TO INDEMNIFY THE AGENTS, THE ARRANGER AND THE ISSUING BANK RATABLY FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENTS, THE ARRANGER OR ANY ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF THEIR AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, ANY LOAN DOCUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION ARISES FROM THE SOLE OR

69

CONCURRENT NEGLIGENCE OF THE AGENTS, THE ARRANGER OR THE ISSUING BANK, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON SEEKING SUCH INDEMNIFICATION.

Section 11.06    Non-Reliance on the Agents, Arranger and other Lenders.    Each Lender acknowledges and agrees that it has, independently and without reliance on the Agents, the Arranger or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and its own decision to enter into this Agreement, and that each Lender will, independently and without reliance upon the Agents, the Arranger or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agents and the Arranger shall not be required to keep themselves informed as to the performance or observance by the Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the properties or books of the Borrower or its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent or Arranger shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of such Agent or any of its Affiliates. In this regard, each Lender acknowledges that Mayer, Brown & Platt is acting in this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein.

Section 11.07    Action by Administrative Agent.    Except for action or other matters expressly required of the Administrative Agent, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Majority Lenders or the Required Lenders, as applicable, (or all of the Lenders as expressly required by Section 12.04) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with indemnities) described in this Section, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Loan Documents or applicable law. If a Default or Event of Default has occurred and is continuing, the Co-Syndication Agents shall not have any obligation to perform any act in respect thereof.

70

Section 11.08    Resignation or Removal of Agent.    Subject to the appointment and acceptance of a successor Agent as provided below, any Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and any Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent; provided that the successor shall have a combined capital and surplus of not less than $200,000,000 or its equivalent in other currencies. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint its successor; provided that the successor shall have a combined capital and surplus of not less than $200,000,000 or its equivalent in other currencies. Upon the acceptance of such appointment hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent’s resignation or removal hereunder as an Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as such Agent.

Section 11.09    Authority of Administrative Agent to Release Liens.    The Administrative Agent is authorized to release any Collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. The Administrative Agent is hereby authorized to execute and deliver to the Borrower, at the Borrower’s sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.11 or is otherwise authorized by the terms of the Loan Documents.

Section 11.10    Arranger and the Co-Syndication Agents.    The Arranger and the Co-Syndication Agents shall have no duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than their duties, responsibilities and liabilities in their capacity as Lenders hereunder.

ARTICLE XII

Miscellaneous

Section 12.01    Waiver.    No failure on the part of the Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

Section 12.02    Notices.    All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made by telecopy, courier or U.S. Mail or in writing and telecopied, mailed or delivered to the intended

71

recipient at the following addresses or in the Loan Documents or, as to any party, at such other address as shall be designated by such party in a notice to each other party:

(a)    if to Borrower, to:

Penn Virginia Corporation
One Radnor Corporate Center, Suite 200
Radnor, PA 19087
Attention:	Frank A. Pici
	Executive Vice President & Chief Financial Officer
Telephone No.:	(610) 687-8900
Telecopier No.:	(610) 687-3688
E-mail:	fpici@pennvirginia.com

with a copy to:

Penn Virginia Corporation
One Radnor Corporate Center, Suite 200
Radnor, PA 19087
Attention:	Nancy M. Snyder, Esq.
	Vice President, General Counsel & Corporate Secretary
Telephone No.:	(610) 687-8900
Telecopier No.:	(610) 687-3688
E-mail:	nsnyder@pennvirginia.com

(b)    if to the Administrative Agent, to:

Loan and Agency Services
The Chase Manhattan Bank
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Telephone No.:	(212) 552-7943
Telecopier No.:	(212) 552-2261
Attention:	Mr. Muniram Appanna

with a copy to:

The Chase Manhattan Bank
600 Travis, 20th Floor
Houston, Texas 77002
Telephone No.:	(713) 216-4327
Telecopier No.:	(713) 216-4117
Attention:	Robert C. Mertensotto

72

(c)    if to any other Agent or Lender, to it at its address (or telecopy number) provided to the Agent and Borrower or as set forth in its Administrative Questionnaire.

Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given when transmitted, if transmitted before 5:00 p.m. local time on a Business Day (otherwise on the next succeeding Business Day) by telecopier and evidence or confirmation of receipt is obtained, or personally delivered or, in the case of a mailed notice, three (3) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid.

Section 12.03    Payment of Expenses, Indemnities, etc.    The Borrower agrees:

(a)    whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of the Administrative Agent in the administration (both before and after the execution hereof and including advice of counsel for the Administrative Agent as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Administrative Agent, the cost of environmental audits, surveys and appraisals at reasonable intervals, the reasonable fees and disbursements of counsel and other outside consultants for the Administrative Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and any of the Lenders); and promptly reimburse the Administrative Agent for all amounts expended, advanced or incurred by the Administrative Agent or the Lenders in accordance with this Agreement in connection with the preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto and to satisfy any obligation of the Borrower under this Agreement or any Loan Document, including without limitation, all costs and expenses of foreclosure;

(b)    TO INDEMNIFY THE AGENTS, THE ARRANGER AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS (“INDEMNIFIED PARTIES”) FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OR ANY OF ITS SUBSIDIARIES OF THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND THE SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY RESTRICTED SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY

73

REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE ADMINISTRATIVE AGENT OR A LENDER’S SHAREHOLDERS AGAINST THE ADMINISTRATIVE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND

(c)    TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE).

74

(d)    No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld or delayed. For purposes of this Section 12.03(d), the parties acknowledge that an indemnitor may not reasonably withhold or delay consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential liability that may be assessed against the Indemnified Party and for which indemnification pursuant to this Section would be required, the amount of such liability to be determined by a nationally recognized defense counsel selected by the Indemnified Party to be substantially likely to be due assuming litigation on the merits of the claim against the Indemnified Party.

(e)    In the case of any indemnification hereunder, the Administrative Agent or Lender, as appropriate shall give notice to the Borrower of any such claim or demand being made against the Indemnified Party and the Borrower shall have the non-exclusive right to join in the defense against any such claim or demand, provided that if the Borrower provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between the Borrower and such Indemnified Party.

(f)    THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY.

(g)    The Borrower’s obligations under this Section shall survive any termination of this Agreement and the payment of the Indebtedness and shall continue thereafter in full force and effect.

(h)    The Borrower shall pay any amounts due under this Section within thirty (30) days of the receipt by the Borrower of notice of the amount due.

Section 12.04    Amendments, Etc.    Any provision of this Agreement or any Security Instrument may be amended, modified or waived with the Borrower’s and the Required Lenders’ prior written consent; provided that (i) no amendment, modification or waiver which extends the Termination Date, increases the Borrowing Base, modifies Section 2.03(a), Section 2.09 or the definition of “Majority Lenders” or “Required Lenders” shall be effective without the consent of all of the Lenders; (ii) no amendment, modification or waiver which forgives the principal amount of any Indebtedness under this Agreement or any other Loan Document, releases any

75

Guarantor (except as set forth in the Guaranty Agreement) or releases all or substantially all of the Collateral (other than as provided in Section 11.09), reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, reduces the percentage set forth in Section 8.09 to less than 80% or modifies this Section 12.04 or Section 12.06(a) shall be effective without consent of all Lenders; (iii) no amendment, modification or waiver which increases the Maximum Credit Amount of any Lender shall be effective without the consent of such Lender; (iv) no amendment, modification or waiver which modifies the rights, duties or obligations of any Agent or the Issuing Bank shall be effective without the consent of such Agent or the Issuing Bank, as applicable; and (v) any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders.

Section 12.05    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

Section 12.06    Assignments and Participations.

(a)    Neither the Borrower nor any Guarantor may assign its rights or obligations hereunder or under this Agreement, the Loan Documents or any Letters of Credit without the prior written consent of all of the Lenders and the Administrative Agent.

(b)    Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement substantially in the form of Exhibit G (an “Assignment”); provided, however, that (A) after giving effect to any such assignment, both the assignee and the assignor shall have Maximum Credit Amounts of at least $5,000,000 (unless the Borrower shall have consented to a smaller amount) and (B) the assignee or assignor shall pay to the Administrative Agent a processing and recordation fee of $3,500 for each assignment. Any such assignment will become effective upon the execution and delivery to the Administrative Agent of the Assignment and a completed Administrative Questionnaire and the consent of the Administrative Agent. Promptly after receipt of an executed Assignment under this Section 12.06(b), the Administrative Agent shall send to the Borrower a copy of such executed Assignment. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a “Lender,” if not already a “Lender,” for all purposes of this Agreement and the other Loan Documents. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a “Lender” hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Administrative Agent shall, upon request of the Borrower or a Lender, prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex I giving effect to all such assignments effected during such month, and will promptly provide the same to the Borrower and each of the Lenders.

(c)    Each Lender may transfer, grant or assign participations in all or any part of such Lender’s interests hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a “Lender” for all purposes of this Agreement and the transferee of

76

such participation shall not constitute a “Lender” hereunder; and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of any of the Loan Documents except to the extent such amendment or waiver would (x) forgive any principal owing on any Indebtedness or extend the final maturity of the Loans, (y) reduce the interest rate or fees applicable to any of the Commitments or the Loans or Letters of Credit in which such participant is participating, or postpone the payment of any thereof, or (z) release any guarantor of the Indebtedness (except as provided in the Loan Documents) or release all or substantially all of the Collateral (except as provided in the Loan Documents) supporting any of the Aggregate Commitments or Loans or Letters of Credit in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the Loan Documents (the participant’s rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation), and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.14.

(d)    The Lenders may furnish any information concerning the Borrower in the possession of the Lenders from time to time to assignees and participants (including prospective assignees and participants); provided that, such Persons agree in writing to be bound by the provisions of Section 12.14.

(e)    Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge all or any of its portion of the Indebtedness to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. Promissory notes shall be issued under this Agreement only to the extent necessary to facilitate pledges under this subparagraph. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder.

(f)    Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.

Sec tion 12.07    Invalidity.    In the event that any one or more of the provisions contained in any of the Loan Documents or the Letters of Credit, the Letter of Credit Agreements shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any Loan Document.

Section 12.08    Counterparts.    This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart.

77

Section 12.09    References.    The words “herein,” “hereof,” “hereunder” and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein.

Section 12.10    Survival.    The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Aggregate Commitments. To the extent that any payments on the Indebtedness or proceeds of any Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent’s and the Lenders’ Liens, security interests, rights, powers and remedies under this Agreement and each Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement.

Section 12.11    Captions.    Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.

Section 12.12    GOVERNING LAW; SUBMISSION TO JURISDICTION.

(a)    THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT.

(b)    ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND

78

DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

(c)    EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED ON ITS SIGNATURE PAGE OF THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF INDEBTEDNESS TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

(d)    EACH PARTY HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.

Section 12.13    Interest.    It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Indebtedness, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Indebtedness shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Indebtedness is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or

79

otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans evidenced by the Loan Documents until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrower’s obligations hereunder.

Section 12.14    Confidentiality.    In the event that the Borrower provides to the Administrative Agent or the Lenders confidential information belonging to the Borrower, if the Borrower shall denominate such information as “confidential”, the Administrative Agent and the Lenders shall thereafter maintain such information in confidence in accordance with the standards of care and diligence that each utilizes in maintaining its own confidential information. This obligation of confidence shall not apply to such portions of the information which (i) are in the public domain, (ii) hereafter become part of the public domain without the Administrative Agent or the Lenders breaching their obligation of confidence to the Borrower, (iii) are previously known by the Administrative Agent or the Lenders from some source other than the Borrower, (iv) are hereafter developed by the Administrative Agent or the Lenders without using the Borrower’s information, (v) are hereafter obtained by or available to the Administrative Agent or the Lenders from a third party who owes no obligation of confidence to the Borrower with respect to such information or through any other means other than through disclosure by the Borrower, (vi) are disclosed with the Borrower’s consent, (vii) must be disclosed either pursuant to any Governmental Requirement or to Persons regulating the activities of the Administrative Agent or the Lenders or by the Administrative Agent or any Lender in any suit, action or proceeding for the purpose of defending itself, reducing its liability or protecting or exercising any claim, right, remedy or interest under or in connection with the Loan Documents or the Hedging Agreements with any Lender (or an Affiliate of such Lender), or (viii) as may be required by law or regulation or order of any Governmental Authority in any judicial, arbitration

80

or governmental proceeding. Further, the Administrative Agent or a Lender may disclose any such information to any other Person engaged by it or other Lender, any independent petroleum engineers or consultants, any independent certified public accountants, any legal counsel employed by such Person in connection with this Agreement or any Loan Document, including without limitation, the enforcement or exercise of all rights and remedies thereunder, or any assignee or participant (including prospective assignees and participants) in the Loans; provided, however, that the Administrative Agent or the Lenders shall receive a confidentiality agreement from the Person to whom such information is disclosed such that said Person shall have the same obligation to maintain the confidentiality of such information as is imposed upon the Administrative Agent or the Lenders hereunder.

Section 12.15    EXCULPATION PROVISIONS.    EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”

Section 12.16    Collateral Matters; Hedging Agreements.    The benefit of the Security Instruments and of the provisions of this Agreement relating to the Collateral shall also extend to and be available to those Lenders or their Affiliates which are counterparties to the Hedging Agreements on a pro rata basis in respect of any obligations of Borrower or any of its Restricted Subsidiaries which arise under any Hedging Agreement that is in effect at such time as such Person (or its Affiliate) is a Lender, but only while such Person or its Affiliate is a Lender.

Section 12.17    NO ORAL AGREEMENTS.    THE LOAN DOCUMENTS (OTHER THAN THE LETTERS OF CREDIT) EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT

81

ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[SIGNATURES BEGIN NEXT PAGE]

82

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

BORROWER:	PENN VIRGINIA CORPORATION
	By:
	Name: Nancy M. Snyder
	Title:   Vice President

[Signature Page - Credit Agreement]

S-1

ADMINISTRATIVE AGENT:	THE CHASE MANHATTAN BANK, as Administrative Agent
	By:
	Name:
	Title:

[Signature Page - Credit Agreement]

S-2

CO-SYNDICATION AGENTS:	FIRST UNION NATIONAL BANK, as Co-Syndication Agent
	By:
	Name:
	Title:

[Signature Page - Credit Agreement]

S-3

BANK ONE, NA, as Co-Syndication Agent

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-4

ROYAL BANK OF CANADA, as Co-Syndication
Agent

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-5

LENDERS:	THE CHASE MANHATTAN BANK, as a Lender
	By:
	Name:
	Title:

[Signature Page - Credit Agreement]

S-6

FIRST UNION NATIONAL BANK, as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-7

BANK ONE, NA, as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-8

ROYAL BANK OF CANADA, as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-9

FORTIS CAPITAL CORP., as a Lender

By:                                                                     

Name:

Title:

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-10

THE FUJI BANK, LIMITED, as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-11

THE SANWA BANK LIMITED, as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-12

TORONTO DOMINION (TEXAS), INC., as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-13

WELLS FARGO BANK TEXAS, N.A., as a Lender

By:                                                                     

Name:

Title:

[Signature Page - Credit Agreement]

S-14

ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS

Aggregate Maximum Credit Amounts

Name of Lender	Percentage Share	Maximum Credit Amount
The Chase Manhattan Bank	11.6666666667%	$17,500,000
First Union National Bank	11.6666666667%	$17,500,000
Bank One, NA	11.6666666667%	$17,500,000
Royal Bank of Canada	11.6666666667%	$17,500,000
Fortis Capital Corp.	10.6666666666%	$16,000,000
The Fuji Bank, Limited	10.6666666666%	$16,000,000
The Sanwa Bank Limited	10.6666666666%	$16,000,000
Toronto Dominion (Texas), Inc.	10.6666666666%	$16,000,000
Wells Fargo Bank Texas, N.A.	10.6666666666%	$16,000,000
TOTAL	100.00%	$150,000,000

Annex I-1

EX-10.2

EXHIBIT 10.2

PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES

EMPLOYEES’ STOCK OWNERSHIP PLAN

(As amended and restated effective as of January 1, 2001)

PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES

EMPLOYEES’ STOCK OWNERSHIP PLAN

TABLE OF CONTENTS

		Page
ARTICLE I      DEFINITIONS		2
ARTICLE II     ELIGIBILITY FOR PARTICIPATION		12
2.1.	Initial Eligibility	12
2.2	Participation	12
2.3.	Participation After Reemployment	12
2.4.	Data	13
2.5.	Omission of Eligible Employee	13
2.6.	Inclusion of Ineligible Employee	13
ARTICLE III     COMPANY CONTRIBUTIONS		13
3.1.	Company Contributions	13
3.2.	Participant Contributions	15
3.3.	Trust Fund	15
ARTICLE IV     PARTICIPANT ACCOUNTS		15
4.1.	Creation of Accounts	15
4.2.	Valuation	15
4.3.	Apportionment of Gain or Loss	15
4.4.	Allocation of Company Contributions	16
4.5.	Allocation of Dividends	16
4.6.	Dividend Limitations	17
4.7.	Special Allocation	17
4.8.	Supplementary Allocation	18
4.9.	Accounting for Allocations	18
4.10.	Special Nonallocation Rule	19
4.11.	Maximum Annual Additions	19
ARTICLE V     VESTING		22
ARTICLE VI     BENEFIT DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES		22
6.1.	General	22
6.2.	Time of Distribution to Participants	22
6.3.	TEFRA 242(b) Elections	23

1

		Page
6.4.	Cash Out	23
6.5.	Valuation for Distribution	23
6.6.	Mode of Distribution	23
6.7.	Form of Distribution	23
6.8.	Option to Have Sponsor Purchase Company Stock	24
6.9.	Restrictions on Participants’ Disposition of Company Stock	24
6.10.	Beneficiary Designation	25
6.11.	Mailing Address	26
6.12.	Delay in Benefit Determination	26
6.13.	Eligible Rollover Distributions	26
6.14.	Administrative Discretion	26
ARTICLE VII     TOP-HEAVY PROVISIONS		26
7.1.	General	26
7.2.	Definitions	27
7.3.	Minimum Contribution for Non-Key Employees	29
7.4.	Social Security	30
7.5.	Employees Covered By Collective Bargaining Agreements	30
ARTICLE VIII     RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS		30
8.1	Claims Procedure	30
8.2.	Litigation	31
ARTICLE IX     PLAN ADMINISTRATOR		32
9.1.	Authority of Plan Administrator	32
9.2.	Conclusive Determination of Plan Administrator	32
9.3.	General Equitable Authority to Correct Record-Keeping Mistakes	32
9.4.	Reliance on Tables, etc	32
9.5.	Identity of Plan Administrator	32
9.6.	Duties of Plan Administrator	33
9.7.	Responsibilities to Participants	33
9.8.	Establishment of Participants’ Accounts	33
9.9.	Plan Expenses	33
9.10.	Indemnification of Plan Administrator	33
ARTICLE X     TRUST FUND		34
10.1.	Designation of Trustee	34
10.2.	Exclusive Benefit	34
10.3.	No Interest in Fund	34
10.4.	Trustee to be Fiduciary	34
10.5.	Investments	34
10.6.	Participant Diversification of Investments	35
10.7.	Voting of Company Stock	35

2

		Page
10.8.	Liability of Trustee	36
10.9.	Indemnification	36
ARTICLE XI     ACQUISITION LOANS		37
11.1.	Acquisition Loan for Financing Purchase of Company Stock	37
11.2.	Release of Financed Shares	37
11.3.	Company Stock Acquired through an Acquisition Loan	38
ARTICLE XII     NO ASSIGNMENT OF BENEFITS		38
12.1.	No Assignment of Benefits	38
12.2.	Qualified Domestic Relations Orders	38
ARTICLE XIII     FIDUCIARY RESPONSIBILITY		39
13.1.	Named Fiduciary	39
13.2.	Bonding of Fiduciaries	39
13.3.	Responsibility of Fiduciaries	39
ARTICLE XIV     FUTURE OF PLAN		39
14.1.	Possibility of Amendment or Termination	39
14.2.	Merger or Consolidation	40
ARTICLE XV     VETERANS’ REEMPLOYMENT RIGHTS		40
15.1.	Crediting Service	40
15.2.	Compensation	40
15.3.	Qualified Military Service	40
15.4.	Earnings and Forfeitures	41
ARTICLE XVI     GENERAL PROVISIONS		41
16.1.	No Employment Rights	41
16.2.	Source of Benefits	41
16.3.	Governing Law	41
16.4.	Incapacity	41
16.5.	Adoption of Plan By Other Employer	41
APPENDIX A— Participating Employers

3

PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES

EMPLOYEES’ STOCK OWNERSHIP PLAN

This is the Penn Virginia Corporation and Affiliated Companies Employees’ Stock Ownership Plan (the “Plan”), as amended and restated, that Penn Virginia Corporation maintains for its eligible employees and those of its affiliates that have adopted the Plan for their eligible employees. This Plan amendment and restatement is effective January 1, 2001. However, any provision of the Plan that is required to have an effective date prior to January 1, 2001, in order to comply with the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act of 2000 or other legislation shall be effective on the earliest date required by law.

Notwithstanding this Plan amendment and restatement, the rights and obligations under the Plan with respect to an employee who terminates employment before the effective date of this amendment and restatement shall be governed by the terms of the Plan as in effect on the date of his termination of employment, and the accrued benefit of any Participant shall not be reduced as a result of this amended and restated Plan.

BACKGROUND

Penn Virginia Corporation and the other Participating Employers maintain the Plan as an employee stock ownership plan for eligible employees to provide a means for them to acquire an equity interest in the Penn Virginia Corporation. The Participating Employers wish to recognize the contribution made to the successful operation of the Participating Employers by their Employees, to encourage broader stock ownership in Penn Virginia Corporation by eligible employees, and to share with Employees the benefits of continued growth in Penn Virginia Corporation profitability. The Plan is a stock bonus plan under section 401(a) of the Code and is intended to be an employee stock ownership plan under section 4975(e)(7) of the Code and regulations thereunder.

The purpose of the Plan is to describe the terms and conditions under which contributions, made pursuant to the Plan and used primarily or exclusively to purchase stock of Penn Virginia Corporation, will be allocated and paid to the Participants and their Beneficiaries. The Plan is for the exclusive benefit of Participants and Beneficiaries. The Board of Directors of Penn Virginia Corporation has authorized the execution of this restated and amended Plan and the Trust Agreement as presented to it.

ARTICLE I

DEFINITIONS

In this Plan, whenever the context so indicates, the singular or plural number and the masculine, feminine or neuter gender shall be deemed to include the other. The following capitalized words and phrases shall have the meanings specified when used in the Plan and the Trust Agreement, unless a different meaning is plainly required by the context.

1.1.  “Account” means the accounts maintained to record the interest of a Participant in Trust Assets held pursuant to Plan and Trust Agreement documents.

1.1.1.  “Company Stock Account” means the Account to which is credited Company Stock, which has been contributed in kind, purchased and paid for by the Trustee with Company Contributions, released from the Unallocated Stock Suspense Account for allocation to the Company Stock Account, or forfeited by other Participants.

1.1.2.  “Company Contribution Account” means the Account to which are credited Company Contributions made in cash and any investments in a Participant’s Account which are not credited to the Participant’s Company Stock Account.

1.2.  “Acquisition Loan” means a loan (or other extension of credit) used by the Trustee to finance the acquisition of Company Stock, which loan constitutes an Exempt Loan, as defined in Section 1.26.

1.3.  “Acquisition Loan Company Contribution” means the amounts contributed to the Plan by the Participating Employers pursuant to Section 3.1 to repay an Acquisition Loan.

1.4.  “Alternate Payee” means any spouse, former spouse, child or other dependent of a Participant who is recognized by a domestic relations order as having a right to receive all or a portion of a Participant’s benefits under the Plan.

1.5.  “Anniversary Date” means December 31^st of each year (the last day of each Plan Year).

1.6.  “Annual Addition” means the sum credited to the Participant under each defined contribution plan for any Limitation Year, of:

1.6.1.  Company Contributions,

1.6.2.  Employee contributions (other than Rollover Contributions), and

1.6.3.  forfeitures.

2

The term “Annual Addition” shall also include the amount allocated to a separate account of the Participant to provide post-retirement medical benefits (a) under a defined benefit plan, as described in section 415(l)(1) of the Code, and (b) with respect to a Participant who is, or was, a Key Employee for any Plan Year, under a welfare benefit fund, as described in section 419A)(d)(2) of the Code. If no more than one-third of the Company Contribution for a Plan Year is allocated to the group of Employees consisting of Highly Compensated Employees, then Company Contributions in Section 1.6.1 above shall not include any portion of the Company Contribution used to pay interest on an Acquisition Loan and charged against the Participant’s Account and “forfeitures” in Section 1.6.3 shall not include forfeitures of Company Stock acquired by the Plan pursuant to an Acquisition Loan and reallocated to the Participant’s Account.

1.7.  “Authorized Leave of Absence” means an unpaid temporary cessation from active employment for the following purposes, provided that all Employees shall be treated alike in like circumstances:

1.7.1.  Temporary leave, such as layoff, which does not exceed six months;

1.7.2.  Absence for illness or disability, provided that such absence does not exceed one year;

1.7.3.  Military service required by law or under leave granted by the Participating Employer, provided the Employee returns within 90 days of his release from active duty or any longer period during which his right to reemployment is legally protected.

1.8.  “Beneficiary” means the person or persons who are designated by a Participant or the Plan to receive benefits payable upon the Participant’s death pursuant to Section 6.10.

1.9.  “Board of Directors” means the board of directors of the Sponsor.

1.10.  “Break in Service” means the failure of a Participant to complete at least 500 Hours of Service during a Plan Year. For purposes of determining whether an Employee has incurred a Break in Service, Hours of Service shall be recognized for “Authorized Leaves of Absence” and “Maternity and Paternity Leaves of Absence.”

For these purposes, Hours of Service shall be credited for the Plan Year in which such absence begins, but only if credit therefore is necessary to prevent the Employee from incurring a Break in Service, or, in any other case, in the immediately succeeding Plan Year. The Hours of Service credited pursuant to this paragraph shall be those which would normally have been credited, but for such absence, or in any case in which the Plan Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited pursuant to this paragraph shall not exceed 501.

3

1.11.  “Code” means the Internal Revenue Code of 1986, as amended from time to time.

1.12.  “Company Contribution” means the total of amounts contributed to the Trust by the Participating Employer to be allocated either to the Company Contribution Account or the Company Stock Account.

1.13.  “Company Stock” means shares of common stock issued by the Sponsor, or shares of preferred stock issued by the Sponsor convertible to common stock, which shares constitute “qualifying employer securities” under section 407(d)(5) of ERISA and under sections 409(l) and 4975(e)(8) of the Code.

1.14.  “Compensation” means Statutory Compensation for a Participant (i) increased by any amounts contributed by an employer on behalf of a Participant pursuant to a salary reduction agreement and not includible in the gross income of an employee under sections 125, 132, 401(k), 402(a)(8), 402(h) or 403(b) of the Code. Compensation shall not exceed $150,000, as adjusted under section 401(a)(17)(B) of the Code.

1.15.  “Direct Rollover” means a payment by the Plan to the Eligible Retirement Plan specified by and delivered to the Distributee.

1.16.  “Disability” means a disability which renders the Participant totally unable, as a result of a bodily or mental disease or injury, to perform any duties for the Participating Employer for which the Participant is reasonably fitted, which disability is expected to be of permanent or long and indefinite duration. This term shall not include any disability directly or indirectly resulting from or related to a criminal act or attempt by the Participant, any injury or disease occurring while compensation to the Participant was suspended, or any injury that was intentionally self-inflicted. Further, this term shall apply only if the Participant’s disability has been demonstrated to the satisfaction of the Plan Administrator.

1.17.  “Distributee” means an employee, former Employee or an Employee’s or former employee’s surviving spouse (and the Employee’s or former Employee’s spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order) who receives a distribution of benefits under this Plan.

1.18.  “Effective Date” means June 1, 1985. The effective date of this amendment and restatement is January 1, 2001, except as otherwise specified.

1.19.  “Eligible Retirement Plan” means an eligible retirement plan account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, “Eligible Retirement Plan” shall mean an individual retirement account or individual retirement annuity.

4

1.20.  “Eligible Rollover Distribution” means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include:

1.20.1.  any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten years or more;

1.20.2.  any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and

1.20.3.  the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

1.21.  “Eligibility Computation Period” means a 12-month period. The first Eligibility Computation Period begins on an Employee’s first day of employment with the Employer. The second Eligibility Computation Period begins on the first day of the Plan Year occurring during the Employee’s first Eligibility Computation Period. Subsequent Eligibility Computation Periods begin on the first day of each following Plan Year.

1.22.  “Employee” means any person employed by the Employer, including officers, shareholders, or directors who are employees, and any person who is a Leased Employee; provided that, if the total number of Leased Employees constitutes 20% or less of the number of all Employees who are not Highly Compensated Employees (including such Leased Employees), then “Employee” shall not include those Leased Employees covered by a plan described in section 414(n)(5)(B) of the Code. Employee shall not include any individual who has been classified by the Employer as an independent contractor (notwithstanding any contrary determination by a governmental agency) or any individual who is a nonresident alien and does not receive from the Employer any earned income or wages that constitute income from sources within the United States.

1.23.  “Employer” means the Sponsor and:

1.23.1.  a parent or subsidiary of the Sponsor (or company under common control with the Sponsor) that is a member of the same controlled group of corporations (within the meaning of section 1563(a) of the Code and determined without regard to sections 1563(a)(4) and 1563(e)(3)(C) of the Code) as the Sponsor; or

1.23.2.  a member of an affiliated service group, as determined under section 414(m) of the Code, of which the Sponsor is a member; or

5

1.23.3.  a trade or business under common control with the Sponsor, as determined under section 414(c) of the Code. “50% Employer” means an Employer, but with the phrase “more than 50%” substituted for the phrase “at least 80%” in section 1563(a) of the Code.

1.24.  “Entry Date” means each January 1, April 1, July 1, and October 1 of a Plan Year.

1.25.  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.26.  “Exempt Loan” means an Acquisition Loan made to the Trust by a disqualified person (as defined in Code section 4975(e)(2)) or a loan to the Trust that is guaranteed by a disqualified person, which Acquisition Loan satisfies the requirements of Department of Labor Regulation §2550.408b-3 and Treasury Regulation §54.4975-7(b) and Section 11.1 hereof.

1.27.  “Financed Shares” means shares of Company Stock acquired with the proceeds of an Acquisition Loan.

1.28.  “Five-Percent Owner” means any Employee who owns (or is considered as owning within the meaning of section 318 of the Code) more than 5% of the outstanding stock of any Participating Employer or stock possessing more than 5% of the total combined voting power of all stock of any Participating Employer. For purposes of this Section 1.28, section 318(a)(2)(c) of the Code shall be applied by substituting “5%” for “50%” each time it appears therein.

1.29.  “Five-Year Break in Service” means five consecutive Breaks in Service.

1.30.  “Fund” means the assets and all earnings, appreciation or additions thereto held by the Trustee under the Trust for the exclusive benefit of Participants or their Beneficiaries.

1.31.  “Highly Compensated Employee” means, effective January 1, 1997, any Employee who:

1.31.1.  was a Five-Percent Owner at the time during the year or preceding year; or

1.31.2.  for the preceding year:

1.31.2.1.  received Statutory Compensation from the Employer in excess of $80,000 (as adjusted under section 414(q) of the Code); and

1.31.2.2.  if the Employer elects was in the “top-paid group” (within the meaning of section 414(q) of the Code) for such preceding year.

6

1.31.3.  For purposes of this Section, “Top Paid Group of Employees” shall mean the group consisting of the top 20% of Employees of the Employer for a Plan Year, when ranked on the basis of Statutory Compensation paid during such year. Solely for purposes of determining the number of Employees to be included in such group the following will be excluded:

1.31.3.1.  Employees who have not completed six months of employment;

1.31.3.2.  Employees who are normally scheduled to complete less than 17 ¹/2 hours per week;

1.31.3.3.  Employees who normally work not more than six months during any year;

1.31.3.4.  Employees who have not reached age 21; and

1.31.3.5.  Employees covered by a collective bargaining agreement (except as may be otherwise provided by regulation of the Secretary of Treasury).

1.31.4.  For the Plan Year in which such determination is being made, an Employee who is not a Highly Compensated Employee for the immediately preceding Plan Year (without regard to this Section 1.31.3) will not be treated as a Highly Compensated Employee under Section 1.31.1 unless the Employee is in the group of 100 Employees who are paid the greatest Statutory Compensation from the Employer during the Plan Year in which such determination is being made.

1.31.5.  For purposes of Section 1.31.1, a former Employee will be considered as a Highly Compensated Employee if the Employee was a Highly Compensated Employee upon separation of service or at any time after reaching age 55.

1.32.  “Hour of Service” means:

1.32.1.  each hour for which an Employee is paid, or entitled to payment for the performance of duties for the Employer;

1.32.2.  each hour for which an Employee is paid (including payments made under a plan maintained to comply with worker’s compensation or disability insurance laws) for a period of vacation, holiday, illness, disability, lay-off, jury duty, temporary military duty, union-authorized lost time or leave of absence.

1.32.3.  each hour for which back pay (ignoring any mitigation of damages) is either awarded or agreed to by the Company is an Hour of Service.

7

1.32.4.  if an Employee is absent from employment for any period because of:

1.32.4.1.  the pregnancy of an individual,

1.32.4.2.  the birth of a child of the individual,

1.32.4.3.  the placement of a child with the individual in connection with the adoption of such child by the individual, or

1.32.4.4.  the provision of care for such child for a period beginning immediately following such birth or placement,

each hour that normally would have been credited to such Employee but for such absence; provided that an Employee shall be credited with no more than 501 Hours of Service on account of any single period of absence described in this Section 1.32.4.

1.32.5.  any other hour required to be credited pursuant to applicable regulations of the Department of Labor.

1.32.6.  No Hours of Service shall be credited on account of payments made solely under a plan maintained to comply with unemployment compensation laws.

Hours of Service shall be credited to the Employee for the applicable 12 month period or periods in which the duties are performed, for which the payment is made, or to which the award, agreement or leave pertains, except that in the case of hours credited under Section 1.36 relating to a Maternity or Paternity Leave of Absence such hours shall be credited if the year in which the absence from work begins if necessary to avoid a Break-in-Service in that year, or in any other case, in the following year. Hours of Service under this Section 1.32 shall be calculated and credited under the provisions of 29 CFR section 2530.200b-2 issued by the United States Department of Labor, which regulations are incorporated herein by reference. Hours of Service shall be credited for any individual who is considered a Leased Employee for purposes of this Plan under section 414(n) of the Code.

1.33.  “Independent Appraiser”  means any appraiser meeting requirements similar to the requirements of the regulations prescribed under section 170(a)(1) of the Code and any requirements of regulations prescribed under section 3(18) of ERISA.

1.34.  “Leased Employee”  means a person who is not an Employee of the Employer, but who provides services to the Employer, where such services are performed pursuant to an agreement between the Employer and any other person or entity, and the person performing the services has done so on a substantially full-time basis for at least one year under the primary direction and control of the Employer. Notwithstanding the foregoing, a person shall not be considered a Leased Employee if:

8

1.34.1.  the person is covered by a money purchase pension plan that (i) covers all employees of the leasing organization (other than those rendering services directly to the leasing organization), (ii) provides a nonintegrated employer contribution rate of at least 10% of compensation (as defined in section 415(c)(3) of the Code, including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Code sections 125, 402(a)(8), 402(h), or 403(b)), and (iii) allows immediate participation and full and immediate vesting, and

1.34.2.  Leased Employees do not constitute more than 20% of that part of the recipient’s workforce consisting of non-Highly Compensated Employees.

This Section 1.34 shall be effective as of January 1, 1997.

1.35.  “Limitation Year”  means the Plan Year or such other 12-consecutive-month period as may be designated by the Board of Directors.

1.36.  “Maternity or Paternity Leave of Absence”  means an absence from work for any period by reason of the Employee’s pregnancy, birth of the Employee’s child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a one-year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a “maternity or paternity leave of absence” shall be those which would normally have been credited but for such absence, or, in any case in which the Plan Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a “maternity or paternity leave of absence” shall not exceed 501.

1.37.  “Normal Retirement Date”  means the date a Participant reaches age 65, or, if later, the fifth anniversary of the date a Participant commenced participation in the Plan.

1.38.  “Participant”  means any Employee who has satisfied the eligibility requirements of Article III and who has an account balance under the Plan.

1.39.  “Participating Employer”  means Penn Virginia Corporation and such of the Employers as have adopted this Plan for eligible Employees. Such Participating Employers are listed in Appendix A to this Plan.

1.40.  “Plan”  means the Penn Virginia Corporation and Affiliated Companies Employees’ Stock Ownership Plan, as set forth in this document and in the Trust Agreement.

1.41.  “Plan Administrator”  means the committee appointed by the Board of Directors by the Board of Directors to supervise the administration of the Plan.

9

1.42.  “Plan Year”  means the 12-month period ending December 31.

1.43.  “Qualified Domestic Relations Order”  means a judgment, decree or order which:

1.43.1.  relates to the provision of child support, alimony, or property rights;

1.43.2.  assigns some or all of a Participant’s benefits under the Plan to an Alternate Payee; and

1.43.3.  satisfies the requirements of section 414(p) of the Code.

1.44.  “Qualified Election Period”  means the six-Plan-Year period beginning with the Plan Year in which the Participant becomes a Qualified Participant.

1.45.  “Qualified Participant”  means any Participant who has reached age 55 and who has 10 Years of Service under this Plan.

1.46.  “Quarterly Valuation Date”  means each March 31, June 30, September 30, and December 31.

1.47.  “Required Beginning Date”  means, effective January 1, 1997, April 1 of the calendar year following the later of:

1.47.1.  the calendar year in which the Participant reaches age 70½; or

1.47.2.  the calendar year in which the Participant retires; provided, that this Section 1.47 shall not apply in the case of a Participant who is a Five-Percent Owner with respect to the Plan Year ending in the calendar year in which the Participant attains age 70½.

1.48.  “Special Allocation”  means the special one time allocation of Company Stock described in Section 4.7.

1.49.  “Sponsor”  means Penn Virginia Corporation.

1.50.  “Statutory Compensation”  means the Participant’s wages, salary, fees for professional services, and other amounts received for personal services rendered in the course of employment with the Participating Employer, including bonuses and payments with respect to overtime service, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses, taxable amounts received by the Participant through accident or health insurance for personal injury or sickness or from a self-insured medical reimbursement plan, moving expenses paid or reimbursed by the Participating Employer in excess of any amount deductible by the Participant, wages or payments in lieu of wages received on account of absence from work for permanent and total Disability, the amount included in the taxable income of the Participant as a result of the grant of

10

a non-qualified stock option by the Company or a 50% Affiliated Company, and the amount includible in the gross income of a Participant as a result of an election described in section 83(b) of the Code. Notwithstanding the foregoing, Statutory Compensation shall include only wages, salaries, payment for overtime service and bonuses for any period in which such limited definition of Statutory Compensation does not increase the allocation of benefits under this Plan to Highly Compensated Employees (taken as a group) relative to the allocation such group of Highly Compensated Employees would receive under the more inclusive definition set forth above.

Statutory Compensation shall not include:

1.50.1.1.  contributions made by an employer to a qualified plan to the extent that, before application of section 415 of the Code to that plan, the contributions are not includible in the gross income of the Participant for the year in which contributed;

1.50.1.2.  employer contributions on behalf of an employee to a simplified pension plan;

1.50.1.3.  any distribution from a plan of deferred compensation, except that any amounts received by an employee pursuant to an unfunded non-qualified plan may be included in that year that such amounts are included in gross income;

1.50.1.4.  amounts realized from the exercise of a non-qualified stock option or from stock or property that is currently taxable under section 83 of the Code;

1.50.1.5.  amounts realized from the sale, exchange, or other disposition of stock acquired through the exercise of a qualified or incentive stock option.

1.50.1.6.  other amounts that receive special tax benefits, such as premiums for group term life insurance to the extent not included in gross income, or contributions made by an employer toward the purchase of an annuity contract described in section 403(b) of the Code; and

1.50.1.7.  Statutory Compensation received in excess of $150,000, as adjusted according to section 401(a)(17) of the Code and governmental regulations.

1.51.  “Supplementary Allocation”  means the special one time allocation of Company Stock described in Section 4.8.

1.52.  “Trust” or “Trust Fund”  means the trust fund created under this Plan.

1.53.  “Trust Agreement”  means the agreement between the Sponsor and the Trustee concerning the Trust Fund.

11

1.54.  “Trust Assets”  mean the Company Stock and other assets held in the Trust for the benefit of Participants.

1.55.  “Trustee”  means one or more corporate persons and/or individuals selected from time to time by the Board of Directors to serve as trustee or co-trustee of the Trust Fund.

1.56.  “Unallocated Stock Suspense Account”  means an account containing Company Stock acquired with the proceeds of an Acquisition Loan and which has not been released from such account and allocated to the Participants’ Company Stock Accounts.

1.57.  “Year of Service”  means, for eligibility to participate in the Plan, a 12 month period, measured from an Employee’s initial date of hire, or anniversaries thereof, during which the Employee completes 1,000 Hours of Service; for all other purposes, Year of Service means a Plan Year during which an Employee completes 1,000 Hours of Service.

ARTICLE II

ELIGIBILITY FOR PARTICIPATION

2.1.   Initial Eligibility.    All Employees employed by the Participating Employer are eligible to participate in the Plan except for those Employees who are members of a collective bargaining unit unless a collective bargaining agreement covering those Employees provides for their participation in the Plan. All such eligible Employees shall participate in the Plan as of the Entry Date occurring immediately after the date upon which the Employee completes a Year of Service for eligibility to participate.

2.2.   Participation.    A Participant shall share in contributions under Section 3.1 made as of each Quarterly Valuation Date for each such calendar quarter during which he has 250 Hours of Service and (i) is employed on the Quarterly Valuation Date, or (ii) terminates employment with the Participating Employer during the calendar quarter upon death or after reaching age 55. A Participant shall also share in contributions under Section 3.1 made as of each of the Quarterly Valuation Dates in any Plan Year if the Participant has at least 1,000 Hours of Service as a Participant during the Plan Year and is employed on the last day of the Plan Year, irrespective of whether the Participant achieved 250 Hours of Service in each calendar quarter.

2.3.   Participation After Reemployment.    A Participant whose employment with the Participating Employer is terminated and who subsequently again becomes an eligible Employee shall be readmitted as a Participant as of the first day he receives Compensation from the Participating Employer.

2.4.   Data.    The Plan Administrator shall furnish each eligible Employee who becomes a Participant in the Plan with a form requesting such information as the Plan Administrator may desire, including, but not limited to, date of birth of the Employee and the Beneficiary designation of such Employee. Participants shall also provide the Plan Administrator with such other data at such other times and in such form as the Plan

12

Administrator may consider necessary or appropriate for the determination of the Employee’s rights and benefits under the Plan and shall otherwise cooperate fully with the Plan Administrator in the administration of the Plan.

2.5.   Omission of Eligible Employee.    If, in any fiscal year of the Participating Employer, any Employee who should be included as a Participant in the Plan is erroneously omitted, and discovery of such omission is not made until after a contribution by the Participating Employer for the year has been made, the Participating Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the Participating Employer would have contributed if he or she had not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code.

2.6.   Inclusion of Ineligible Employee.    If, in any fiscal year of the Participating Employer, any Employee who should not have been included as a Participant in the Plan is erroneously included, and discovery of such incorrect inclusion is not made until after a contribution by the Participating Employer for the year has been made, the Participating Employer shall not be entitled to recover the contribution made with respect to the ineligible Employee regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible Employee shall constitute a forfeiture for the Plan Year in which the discovery is made. A forfeiture shall be deemed to be a Company Contribution to the Plan made pursuant to Section 3.1 of the Plan Year in which such forfeiture occurs.

ARTICLE III

COMPANY CONTRIBUTIONS

3.1.   Company Contributions.

3.1.1.  The Participating Employer may make a contribution to the Trust Fund for each Plan Year to be allocated to the Account of each Participant eligible to receive such allocation under Section 2.2. The contribution, if any, shall be in an amount to be determined by the Board of Directors in its sole discretion, provided that the Participating Employer shall make a contribution at least in an amount that will allow the Trust Fund to satisfy any currently maturing obligations under any Acquisition Loan, or, if such Acquisition Loan is from the Participating Employer, shall extend the term of such Acquisition Loan so as to prevent default by the Trust under such Acquisition Loan.

3.1.2.  Company Contributions may be paid in cash, shares of Company Stock, or by forgiveness of indebtedness, as determined by the Sponsor, provided however, that Company Contributions shall be paid in cash to the extent necessary for the Trust Fund to satisfy any currently maturing obligations under any Acquisition Loan.

13

3.1.3.  Any Company Contributions made in Company Stock that is readily tradable on an established public market shall be deemed to have a value for purposes of determining the amount of such Company Contribution that is:

3.1.3.1.  the average of the closing bid and asked price per share of such Company Stock on the over-the-counter market for the last trading day immediately preceding the date the Company Stock is contributed to the Plan; or

3.1.3.2.  if Company Stock should become listed on a national securities exchange, or reported on the National Market System of the National Association of Securities Dealers Automated Quotation System, the mean between the high and low trading prices for the Company Stock on that exchange or system on the day Company Stock was traded which immediately precedes the date the Company Stock is contributed to the Plan; or

3.1.3.3.  if Company Stock is not readily tradable on an established public market, or if the Trustee determines that such quotations or trading prices do not accurately reflect the market value, the fair market value of the Company Stock as of the date of the Company Contribution as determined by an Independent Appraiser.

3.1.4.  Any Company Contributions made by forgiveness of indebtedness shall be pursuant to a written certificate of the Sponsor describing the indebtedness that is forgiven, the date of forgiveness, and the principal and interest portions thereof.

3.1.5.  Company Contributions for any Plan Year shall be paid to the Trust Fund no later than the due date (including extensions thereof) for filing the Participating Employer’s income tax return for the fiscal year of the Participating Employer ending within such Plan Year. In no event shall the Company Contribution under this Section 3.1 for any Plan Year exceed the lesser of:

3.1.5.1.  the maximum amount the Participating Employer is permitted to deduct as an expense on its federal income tax return; or

3.1.5.2.  the maximum amount which may be credited for such Plan Year in accordance with individual maximum Annual Addition limitations as set forth in Section 4.11.

3.1.6.  If any part of the Company Contribution for a Plan Year is in cash for purposes other than discharging Acquisition Loan indebtedness, such cash shall be applied by the Trustee to the purchase of Company Stock at such time that such Company Stock is available for purchase and the Trustee deems it desirable to purchase such Company Stock.

3.2.   Participant Contributions.    No Participant shall be required or permitted to make any contributions to the Plan.

14

3.3.   Trust Fund.

3.3.1.  The contributions deposited by the Participating Employer in the Trust Fund in accordance with this Article III shall constitute a fund held for the benefit of Participants and their eligible Beneficiaries under and in accordance with this Plan. No part of the principal or income of the Trust Fund shall be used for, or diverted to, purposes other than for the exclusive benefit of such Participants and their eligible Beneficiaries (including necessary administrative costs); provided, however, in the case of a contribution made by the Participating Employer (a) as a mistake of fact, or (b) for which a tax deduction is disallowed, in whole or in part by the Internal Revenue Service, the Participating Employer shall be entitled to a refund of said contributions.

3.3.2.  Any refund of contributions described in Section 3.3.1 must be made (a) within one year after payment of a contribution made as a mistake of fact, or (b) within one year after disallowance of the tax deduction, to the extent of such disallowance.

ARTICLE IV

PARTICIPANT ACCOUNTS

4.1.   Creation of Accounts.    The Plan Administrator shall create and maintain adequate records to disclose the interest in the Trust Fund of each Participant and Beneficiary under the Plan. Such records shall be in the form of individual Accounts (including a Company Stock Account for each Participant), and credits and charges shall be made to such Accounts in the manner herein described. The maintenance of individual Accounts is only for accounting purposes, and a segregation of the assets of the Trust Fund to each Account shall not be required. Distributions made from an Account shall be charged to the Account as of the date paid.

4.2.   Valuation.    The value of the Trust Fund shall be computed as of the close of business on each Quarterly Valuation Date on the basis of the fair market value of the assets of the Trust Fund. The fair market value of Company Stock held by the Trust shall be determined as set forth in Section 3.1.3 as of each Quarterly Valuation Date on a per share basis for each share of Company Stock.

4.3.   Apportionment of Gain or Loss.    The value of the Trust Fund as computed pursuant to Section 4.2 shall be compared with the value of the Trust Fund as of the previous Quarterly Valuation Date. Any difference in the value, not including contributions made since the preceding Quarterly Valuation Date, shall be the net increase or decrease of the Trust Fund, and such amount shall be ratably apportioned by the Trustee on its books among the Participants’ Accounts. Dividends paid with respect to Company Stock allocated to Participant’s Accounts or credited to the Unallocated Suspense Account shall be accounted for pursuant to Section 4.6.

4.4.   Allocation of Company Contributions.

4.4.1.  Each Company Contribution under Section 3.1 shall be allocated as of the last day of the calendar quarter for which the contribution is made among the Company

15

Contribution Account and the Company Stock Account of eligible Participants in the proportion that his Compensation for that calendar quarter bears to the Compensation of all Participants eligible to share in the Company Contribution on that Quarterly Valuation Date under Section 2.2. Each Participant’s Company Contribution Account shall be credited with the Participant’s allocable share of the Company Contribution contributed in cash and the Participant’s appropriate Account shall be debited for the Participant’s allocable share (to be determined by the same method used to allocate Company Contributions) of cash payments made by the Trustee for the acquisition of Company Stock or for the payment of principal and/or interest on an Acquisition Loan. Each Participant’s Company Stock Account shall be credited with the Participant’s allocable share of Company Stock contributed in kind by the Participating Employer for the calendar quarter or purchased and paid for by the Trustee out of the Participant’s Company Contribution Account.

4.4.2.  Notwithstanding the foregoing provisions, if a Participant has 1,000 Hours of Service as a Participant during the Plan Year and is employed on the last day of the Plan Year, but did not receive an allocation of Company Contributions on any Quarterly Valuation Date occurring during the Plan Year, then such Participant shall receive an additional allocation of the Company Contribution made as of the last Quarterly Valuation Date occurring during the Plan Year sufficient so that the total allocation to the Participant of Company Contributions for all Quarterly Valuation Dates occurring during the Plan Year is in the proportion that his Compensation for the Plan Year bears to the Compensation of all Participants for all periods during the Plan Year in which such Participants were eligible to share in the Company Contribution.

4.5.   Allocation of Dividends.    Cash dividends paid with respect to unallocated shares of Company Stock shall be applied to the repayment of the Acquisition Loan under which such stock was purchased and Company Stock allocated as a consequence of such repayment shall be allocated according to Section 4.4. Subject to Section 4.6, any cash dividends paid on shares of Company Stock allocated to Participants’ Company Stock Accounts and remitted to the Trust Fund will, at the direction of the Sponsor and prior to the close of the Plan Year in which paid, be:

4.5.1.  applied to repayment of an outstanding Acquisition Loan relating to the Company Stock upon which the dividend is received, or

4.5.2.  distributed to Participants in cash, or

4.5.3.  invested in Company Stock.

4.6.   Dividend Limitations.

4.6.1.  If cash dividends paid on allocated shares of Company Stock are applied to repayment of an Acquisition Loan pursuant to Section 4.5.1, each Participant Account holding allocated shares shall receive an allocation of Company Stock for the Plan Year having a

16

fair market value at least as great as the amount of the cash dividend that would have been allocated to the Participant’s Account but for the Acquisition Loan payment.

4.6.2.  The unallocated shares of Company Stock to be allocated to Participant Accounts pursuant to Section 4.5.1 as a consequence of cash dividends on allocated shares of Company Stock shall be allocated to Participant Accounts in the proportion to which the cash dividend is attributable to Company Stock held in each Participant Account.

4.6.3.  If cash dividends on allocated shares of Company Stock are invested in Company Stock pursuant to Section 4.5.3, the Participant shall receive an allocation of such Company Stock with a fair market value at least as great as the value of the dividend that would be paid on Company Stock previously allocated to such Participant’s Account. Effective January 1, 2002, the Sponsor may, in its sole discretion, permit Participants to elect to receive payments under Section 4.5.1 or Section 4.5.2 instead of having such dividends reinvested under Section 4.5.3. Such election will be permitted in accordance with nondiscriminatory policies and procedures.

4.6.4.  Any stock dividends on Company Stock shall be credited to the Accounts to which such Company Stock is allocated.

4.7.   Special Allocation.

4.7.1.  Subject to Section 4.7.2, the following shares of Company Stock shall be allocated to current Participants’ Accounts in a non-discriminatory manner, pursuant to a Special Allocation:

4.7.1.1.  Company Stock purchased by application of certain cash dividends paid on unallocated shares prior to June 30, 2001; and

4.7.1.2.  Company Stock allocated to Participants’ Accounts in excess of the family aggregation limits of section 414(q) of the Code prior to January 1, 1997.

4.7.2.  The following limitations and conditions shall apply to the Special Allocation:

4.7.2.1.  Only Participants who rendered an Hour of Service during the first two calendar quarters in the 2001 Plan Year will be eligible to receive a Special Allocation;

4.7.2.2.  The total Special Allocation to all eligible Participants (as described in Section 4.7.2.1) shall be at least equal to the sum of (i) the excess of the current fair market value of shares of Company Stock described in Section 4.7.1.1 over the amount paid for such shares (determined at the date of allocation) and (ii) the fair market value (determined at the date of determination) of the shares forfeited from Participants’ Accounts due

17

to the application of the family aggregation rules of section 414(q) of the Code prior to January 1, 1997;

4.7.2.3.  The Company Stock shall be allocated to Participants in a manner analogous to the allocation of Company Contributions under Section 4.4, except that the Statutory Compensation taken into account in determining a Participant’s allocation shall be limited to 50% of the permissible limit on includible Statutory Compensation under section 401(a)(17) of the Code; and

4.7.2.4.  Notwithstanding anything in the Plan to the contrary, a Participant who forfeits Company Stock due to the application of the family aggregation rules of section 414(q) of the Code shall not share in any portion of the Special Allocation under Section 4.7.1.2 and shall have the portion of the Special Allocation under Section 4.7.1.1 reduced by the shares of Company Stock so forfeited.

4.8.   Supplementary Allocation.

4.8.1.  Subject to Section 4.8.2, Company Stock purchased by cash invested in a money market account held in the Unallocated Stock Suspense Account as of December 31, 2001, shall be allocated to current Participants’ Company Stock Accounts in a non-discriminatory manner, pursuant to this Supplementary Allocation.

4.8.2.  The following limitations and conditions shall apply to the Supplementary Allocation:

4.8.2.1.  Only Participants who rendered an Hour of Service during the 2001 Plan Year will be eligible to receive a Supplementary Allocation;

4.8.2.2.  The Company Stock shall be allocated to Participants’ Company Stock Accounts in a manner analogous to the allocation of Company Contributions under Section 4.4; and,

4.8.2.3.  The Statutory Compensation taken into account in determining a Participant’s allocation shall be limited by the permissible amount of includible Statutory Compensation under section 401(a)(17) of the Code.

4.9.   Accounting for Allocations.    The Plan Administrator shall establish or provide for the establishment of accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants’ Accounts provided for in this Article. From time to time such procedures may be modified for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan and the provisions of this Article.

18

4.10.   Special Nonallocation Rule.

4.10.1.  Notwithstanding Sections 4.3, 4.4, 4.5 and 4.6, no “Section 1042 Stock” (as hereafter defined) shall be allocated to any “Section 1042 Participant” (as hereafter defined) during the “Section 1042 Nonallocation Period” (as hereafter defined). Section 1042 Stock shall be allocated according to Section 4.4, except that the Compensation of all Section 1042 Participants shall be excluded. The foregoing restriction shall cease to apply to any Section 1042 Stock in the Suspense Account at such time as such stock ceases to be Section 1042 Stock.

4.10.2.  For the purposes of this Section 4.10:

4.10.2.1.  “Section 1042 Stock” means Company Stock purchased by the Trustee but only if in connection with such purchase, the seller of such Company Stock has timely elected application of section 1042 of the Code to such sale and the sale of such Company Stock and purchase of replacement securities by the seller meets all applicable requirements of section 1042 of the Code;

4.10.2.2.  “Section 1042 Participant” means:

(A)  a Participant who has made an election under section 1042 with respect to Company Stock or other employer securities; or

(B)  any spouse, ancestor, lineal descendent or brother or sister (by whole or by half blood) of a Participant who has made an election under section 1042 with respect to Company Stock or other employer securities; or

(C)  a Participant who owns, directly or indirectly (after application of the attribution rules provided in section 318(a) of the Code without regard to section 318(a)(2)(B)(i)) more than 25% of the value of any class of outstanding stock (or more than 25% of the total value of any class of outstanding stock) of the Participating Employer.

4.10.2.3.  “Section 1042 Nonallocation Period” means the period with respect to any Section 1042 Stock beginning on the date of sale of such section 1042 Stock and ending on the later of (i) the date of the allocation of Company Stock attributable to the final payment of all Acquisition Loans with respect to such Section 1042 Stock, or (ii) the date which is ten years after the date of sale of such Section 1042 Stock.

4.11.   Maximum Annual Additions.    The provisions of this Section shall be construed to comply with the maximum Annual Additions permitted under section 415 of the Code. Notwithstanding anything in this Article to the contrary, the maximum allocations credited to a Participant’s Accounts for any “limitation year” shall equal the lesser of (i) $35,000 or (ii) 25% of the Participant’s Statutory Compensation for such Limitation Year.

19

4.11.1.  the Participant’s own contributions, determined without regard to rollover contributions (as defined in sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3) of the Code) and without regard to employee contributions to a Simplified Employee Pension which are excludable from gross income under section 408(b) of the Code, allocated for any Limitation Year to any Participant under this and any other defined contribution plan maintained by the Participating Employer.

4.11.2.  If the Company Contributions under this Plan and any other defined contribution plan maintained by the Participating Employer would cause such plans to exceed the limitations set forth in Section 4.11.1, then the following remedial measures shall be taken in the following order to attempt to comply with such limitations:

4.11.2.1.  If Company Stock cannot be allocated to a Participant’s Account because of the limitation contained in Section 4.11.1, but would be able to be allocated consistent with such limitation if not more than one-third of the Company Contribution were allocated to the group of Employees consisting of Highly Compensated Employees, and allocation of such Company Stock exclusively on behalf of non-Highly Compensated Employees would result in not more than one-third of the Company Contribution allocated to the group of Employees consisting of Highly Compensated Employees, then such Company Stock shall be allocated to the Accounts of non-Highly Compensated Employees notwithstanding Section 4.4.

4.11.2.2.  If Company Contributions and/or forfeitures cannot be allocated to a Participant’s Account because of the limitation contained in subsection 4.11.1, such Company Contributions and/or forfeitures will be allocated to the Accounts of the remaining Participants in accordance with Section 4.2 and provided such allocations do not result in any Highly Compensated Employee receiving an allocation of Company Contributions and/or forfeitures for such Plan Year that is greater as a percentage of Statutory Compensation than the allocation of Company Contributions and/or forfeitures for such year as a percentage of Statutory Compensation for any non-Highly Compensated Employee.

4.11.2.3.  If Company Contributions otherwise allocable to the Accounts of Participants would exceed the limits of Section 4.11.1 as a result of a reasonable error in estimating the Participants’ Statutory Compensation, the Plan Administrator shall determine the amount of the excess and the Trustee shall hold the excess in a suspense account until the following Plan Year (or succeeding Plan Years), at which time it shall be allocated pursuant to Section 4.4 to the Accounts of all Participants before Company Contributions Company may be made for the Plan Year. Amounts held in the suspense account shall share in the investment gains and losses of the Trust Fund.

4.11.2.4.  If the limits of Section 4.11.1 will be exceeded as a result of a Company Contribution to another qualified plan and the Participating Employer is permitted by law and by the terms of such other qualified plan to reduce the Company Contribution to such qualified plan or to receive refund of a portion of the Company Contribution to such qualified plan, the Participating Employer shall reduce its Company

20

Contribution to such qualified plan or exercise its right to receive a refund from such qualified plan to the extent necessary to comply with the limitations set forth in Section 4.11.1.

4.11.3.  For Plan Years beginning before January 1, 2000, if in any Limitation Year a Participant in this Plan is also a participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the Annual Addition referred to in Section 4.11.3.2 shall be reduced, if necessary, so that the sum of the fractions described in Sections 4.11.3.2 and 4.11.3.3 does not exceed 1.0 for such Limitation Year.

4.11.3.1.  Defined Benefit Fraction.    The defined benefit fraction for any Limitation Year is a fraction, the numerator of which is the Participant’s projected annual benefit under the defined benefit pension plans in which he has participated, determined as of the close of the Limitation Years of such plans, and the denominator of which is the lesser of: (A) 1.25 x $90,000; or (B) 140% of the Participant’s highest average Statutory Compensation over any three consecutive calendar years. For the purpose of this Subsection, “projected annual benefit” shall mean the annual benefit to which a Participant would be entitled under the terms of a defined benefit plan if he had continued employment until his normal retirement date under such plan and as if his Statutory Compensation for the purpose of such plan had continued at the same rate.

4.11.3.2.  Defined Contribution Fraction.    The defined contribution fraction for any Limitation Year is a fraction, the numerator of which is the sum of the Annual Additions to the Participant’s accounts under all defined contribution plans sponsored by the Employer for the Limitation Year, and the denominator of which is the sum of the lesser of: (A) 1.25 x $30,000 or (B) 35% of the Participant’s Statutory Compensation for such Limitation Year.

This Section 4.11.3. shall no longer be applicable for Plan Years beginning on or after January 1, 2000.

4.11.4. (1)  The dollar limitations described in Sections 4.11.1 and 4.11.3 shall be adjusted in accordance with governmental regulations describing the method and amount of such adjustments.

            (2)  The dollar limitations described in Sections 4.11.1 and 4.11.3 shall not reduce the Annual Additions to the Account of any Participant under the Plan prior to the Effective Date, using the applicable maximum dollar limitations then in effect.

4.11.5.  Contributions allocated to an Individual Medical Benefit Account, as defined in section 415(l)(2) of the Code, shall be treated as an Annual Addition to a defined contribution plan for purposes of the determining application of the limitations described in Sections 4.11.1 and 4.11.3.

21

4.11.6.  Amounts attributable to medical benefits allocated to an account established under section 419A(d) of the Code on behalf of a Key Employee (as defined in Section 7.2.3) shall be treated as an Annual Addition to a defined contribution plan for purposes of determining application of the limitation described in Sections 4.11.1 and 4.11.3.2.

ARTICLE V

VESTING

The Accounts of all Participants shall be fully (100%) vested at all times.

ARTICLE VI

BENEFIT DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES

6.1.   General.    A Participant shall not be permitted to withdraw any portion of his interest under the Plan while he is employed by the Participating Employer, except in the case of dividends distributed in cash to Participants as set forth in Section 4.5 and distributions required by law and set forth in Section 6.2.3. All distributions shall be subject to mandatory withholding rules as may be in effect under the Code and accompanying regulations unless a Distributee elects a Direct Rollover set forth in Section 6.13. All distributions shall be made solely in accordance with this Article VI.

6.2. Time of Distribution to Participants.

6.2.1.  Unless the Participant elects otherwise in writing, distribution of benefits to a Participant (or his beneficiary) under the Plan shall be made as soon as administratively feasible after the Quarterly Valuation Date coinciding with or next following the date upon which the Participant terminates his employment with the Participating Employer, whether as a result of death, Disability, retirement at or after his Normal Retirement Date, or for any other reason.

6.2.2.  All benefits accrued on behalf of a Participant who dies or suffers a Disability shall be distributed within five years of the date of death or Disability, or if sooner, on the date that the Participant would have reached age 70½. If a Participant dies or suffers a Disability after distribution of his benefits have commenced, such Participant’s remaining interest in the Plan shall be distributed at least as rapidly as under the method of distribution being used as of the date of the Participant’s death.

6.2.3  Notwithstanding any Participant election or any other provision of this Plan, each Participant under the Plan shall receive his entire benefit under the Plan not later than his Required Beginning Date. Distributions under this Article VI shall be made in accordance with section 401(a)(9) of the Code and the regulations thereunder. The provisions of this Section 6.2.3 shall override any distribution option otherwise provided in the Plan that is inconsistent with section 401(a)(9) of the Code. With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2002, the Plan will apply the minimum

22

distribution requirements of section 401(a)(9) of the Code in accordance with the regulations under section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. The preceding sentence shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Code section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service.

6.3.   TEFRA 242(b) Elections.    Notwithstanding anything in this Article VI to the contrary, in the event a Participant made, and filed with the Plan Administrator, a retirement benefit payment election prior to 1984 under section 242(b) of the Tax Equity and Fiscal Responsibility Act of 1982, such Participant’s retirement benefit shall be paid to the Participant or his Beneficiary in such form and over such period as the Participant shall have elected. This Section 6.3 shall not apply in the event such a Participant subsequently revokes such 242(b) benefit payment election.

6.4.   Cash Out.    No Participant shall be required to receive a distribution of all or part of the balance of his Accounts prior to his Normal Retirement Date if the total value of his Accounts under this Plan is or has ever been greater than $5,000.

6.5.   Valuation for Distribution.    For the purpose of paying the amounts to be distributed to a Participant or his Beneficiaries pursuant to Section 6.7 or determining the fair market value of Company Stock to be repurchased by the Participating Employer pursuant to Section 6.8, the value of Company Stock held within the Trust Fund and the value of the Participant’s interest in Company Stock shall be determined by an Independent Appraiser in accordance with the provisions of Section 3.1.3 as of the Quarterly Valuation Date coincident with or immediately preceding the date upon which the Participant is to receive a distribution from the Plan.

6.6.   Mode of Distribution.

6.6.1.  Unless a Participant elects to receive distribution of his benefits in equal annual installments, the distribution of the Participant’s Accounts will be in a lump sum.

6.6.2.  A Participant may not elect a distribution period longer than his life expectancy as determined according to life expectancy tables set forth under the Code. All benefits must be distributed by the Participant’s Required Beginning Date.

6.7.   Form of Distribution.    Distribution of a Participant’s Account will be made in shares of Company Stock or cash; provided, however that the Plan Administrator shall provide written notification to the Participant of his right to demand that the value of the portion of his Account not diversified pursuant to Section 10.6 be distributed solely in whole shares of Company Stock, with cash to be distributed with respect to any remainder portion. If, however, the Participating Employer’s certificate of incorporation or its bylaws restrict ownership of substantially all of the Company’s Stock to its employees and/or to qualified trusts established for the benefit of its employees, a Participant’s benefits shall be paid in cash and he shall not have any right to request that they be paid in Company Stock.

23

6.8.   Option to Have Sponsor Purchase Company Stock.    Any Participant who receives Company Stock not readily tradable on an established market pursuant to Section 6.7, and any person who has received Company Stock not readily tradable on an established market from such a Participant by reason of the Participant’s death or incompetency shall have the right to require the Sponsor to purchase all (but not less than all) Company Stock received in a distribution from the Trust for its current fair market value (hereinafter referred to as the “Put Option”). The Put Option may only be exercised by a person described in the preceding sentence and may not be transferred either separately or together with any Company Stock to any other person. The Put Option shall be subject to the following rules:

6.8.1.  The Put Option shall be exercisable only with respect to the entire distribution of Company Stock received by a Participant from the Trust.

6.8.2.  The Put Option shall be exercised by written notice to the Sponsor during the first 60 days after the Company Stock is distributed by the Plan and for a 60-day period commencing one year after the Company Stock is distributed by the Plan, and, if exercised, the Trustee may, in his sole discretion, assume the Company’s rights and obligations with respect to purchasing the Company Stock.

6.8.3.  If the Sponsor is required to repurchase Company Stock distributed to a Participant as part of a distribution of a Participant’s entire Accounts within a single taxable year of the Participant, (a) the amount to be paid must be paid in substantially equal periodic payments (not less frequently than annually) over a period beginning not later than 30 days after the exercise of the Put Option described above and not exceeding five years, and (b) there must be adequate security provided and a reasonable rate of interest paid on the unpaid amounts referred to in (a).

6.8.4.  If the Sponsor is required to repurchase Company Stock as part of an installment distribution, the amount to be paid for the Company Stock shall be paid not later than 30 days after the exercise of the Put Option described above.

6.8.5.  Nothing contained in this Section 6.8 shall be deemed to obligate the Sponsor to register any Company Stock under any federal and state securities law or to create a public market to facilitate transferability of Company Stock.

6.9.   Restrictions on Participants’ Disposition of Company Stock.    Any Participant who receives Company Stock not readily tradable on an established market pursuant to Section 6.7, and any person who has received Company Stock not readily tradable on an established market from such a Participant by reason of the Participant’s death or incompetency shall, prior to any sale or other transfer of the Company Stock, first offer in writing to sell Company Stock to the Sponsor and the Plan at its fair market value.

6.9.1.  This restriction shall apply to any non-gratuitous transfer, whether voluntary, involuntary, or by operation of law, except that it shall not apply to a transfer either to a Participant’s personal representatives or to the bank or other investment institution receiving

24

the Company Stock in a rollover contribution. Either the Sponsor or the Trustee may accept the offer within 14 days after it is delivered.

6.9.2.  If a Participant who has received Company Stock pursuant to Section 6.7 shall have received a bona fide written offer from a prospective buyer in excess of the current fair market value of the Company Stock as determined according to Section 3.1.3, then, notwithstanding Section 3.1.3, the fair market value of the Company Stock shall be the amount of the offer, however, the Plan shall not be permitted to purchase the Company Stock from the Participant.

6.9.3.  Any Company Stock distributed by the Plan shall bear a conspicuous legend describing the right of first refusal under this Section 6.9 as well as any other restrictions upon the transfer of the Company Stock pursuant to the Sponsor’s certificate of incorporation, the Sponsor’s bylaws, or federal or state securities laws and regulations.

6.10.   Beneficiary Designation.

6.10.1.  Death benefits under the Plan shall be paid to the Participant’s surviving spouse unless the Participant establishes to the satisfaction of the Plan Administrator either that he has no spouse or that his spouse cannot be located, or

6.10.1.1.  such spouse consents in writing not to receive such benefit and consents to the specific beneficiary designated by the Participant,

6.10.1.2.  such consent acknowledges its own effect, and

6.10.1.3.  such consent is witnessed by a notary public.

6.10.2.  Except as provided in Section 6.10.1, each Participant shall have the unrestricted right at any time to designate the Beneficiary or Beneficiaries who shall receive, on or after his death, his interest in the Trust Fund. Such designation shall be made by executing and filing with the Plan Administrator a written instrument in such form as may be prescribed by the Plan Administrator for that purpose. Except as provided in this Section 6.10.2, the Participant shall also have the unrestricted right to revoke and to change, at any time and from time to time, any Beneficiary designations previously made. Such revocations and/or changes shall be made by executing and filing with the Plan Administrator a written instrument in such form as may be prescribed by the Plan Administrator for that purpose. No designation, revocation, or change of Beneficiary shall be valid and effective unless and until filed with the Plan Administrator. If no Beneficiary designation is made, or if the Beneficiary named in such designation predecease the Participant, or if the Beneficiary cannot be located by the Plan Administrator, the interest of the deceased Participant shall be paid to the Participant’s surviving spouse or, if none, to the Participant’s estate.

25

6.11.   Mailing Address.    Benefit payments and notifications hereunder to any Participant shall be deemed made when mailed to the last address furnished to the Plan Administrator.

6.12.   Delay in Benefit Determination.    If the Plan Administrator is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment pursuant to Section 6.2, the benefits shall in any event be paid within 60 days after they can first be determined.

6.13.   Eligible Rollover Distributions.    Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee’s election under this Section, a Distributee may elect, at the time and in the manner set forth herein, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in an Direct Rollover. If a Distributee elects to receive his Distribution of a Participant’s Account in cash or a combination of Company Stock and cash, or as described in Section 6.5, is required to receive such distribution in cash, and such distribution is an Eligible Rollover Distribution, the Distributee shall receive written notice, as more fully described in Section 6.13, of his right to request that the distribution be transferred as a Direct Rollover. Such Direct Rollover shall be completed pursuant to the written directions of the Distributee. Such written directions shall acknowledge the Distributee’s intention that the distribution be paid to an Eligible Retirement Plan as a Direct Rollover, and must contain the name of the new Trustee and the address of the Distributee to which the distribution should be sent. Upon its’ receipt of the directions, the Plan Administrator shall communicate such directions to the Trustee, who will draw the distribution check payable to the new receiving Trustee. The Plan Administrator and or Trustee will mail the check payment as soon as is administratively feasible to the Distributee at the address listed by the Distributee in his written directions.

6.14.   Administrative Discretion.    Benefits under this Plan will be paid only if the Plan Administrator decides in its sole discretion that the applicant is entitled to them.

ARTICLE VII

TOP-HEAVY PROVISIONS

7.1.   General.    The following provisions shall apply automatically to the Plan and shall supersede any contrary provisions for each Plan Year in which the Plan is a Top-Heavy Plan. It is intended that this Article shall be construed in accordance with the provisions of section 416 of the Code.

26

7.2.   Definitions.    The following definitions shall supplement those set forth in Article I the Plan:

7.2.1.  “Aggregation Group” shall mean:

7.2.1.1.  each plan (including a frozen plan or a plan that has been terminated during the 60-month period ending on the Determination Date) of the Employer in which a Key Employee is a participant;

7.2.1.2.  each other plan (including a frozen plan or a plan that has been terminated during the 60-month period ending on the Determination Date) of the Employer that enables any plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code; and

7.2.1.3.  each other plan (including a frozen plan or a plan that has been terminated during the 60-month period ending on the Determination Date) of the Employer that is included by the Sponsor if the Aggregation Group, including such a plan, would continue to meet the requirements of sections 401(a)(4) and 410 of the Code.

7.2.2.  “Determination Date” shall mean the last day of the preceding Plan Year, except that for the first Plan Year it shall mean the last day of that Plan Year.

7.2.3.  “Key Employee” for any Plan Year shall mean any Employee or former Employee who at any time during the 60-month period ending on the last day of that Plan Year is described below. The term “Key Employee” shall also include the beneficiaries of such persons:

7.2.3.1.  An officer of the Employer having Compensation for a Plan Year during such period greater than 50% of the amount in effect under section 415(b)(1)(A) of the Code;

7.2.3.2.  One of the ten employees of the Employer with:

(A)  Statutory Compensation greater than the amount described in section 415(c)(1)(A) of the Code; and

(B)  at least one-half of 1% of the ownership interests in the Employer;

who own (or are considered as owning, within the meaning of section 318 of the Code) the largest interests in the Employer.

7.2.3.3.  A person who (after application of section 318 of the Code) owns more than 5% of the outstanding stock of the Employer or who owns stock possessing more than 5% of the voting power of

27

7.2.3.4.  A person who (after application of section 318 of the Code, substituting “5%” for “50%” in section 318(a)(2)(C)) (i) owns more than 1% of the outstanding stock of the Employer or who owns stock possessing more than 1% of the voting power of all Company Stock; and (ii) who has Statutory Compensation in excess of $150,000.

The above determination will be made in accordance with section 416(l) of the Code. No more than 50 employees (or, if less, the greater of three employees or 10% of the greatest number of employees, including Leased Employees within the meaning of section 414(n) of the Code, employed by the Employer during the 60-month period ending on the Determination Date) shall be treated as officers. Employees shall not include employees described as excluded according to Section 2.1.

7.2.4.  “Key Employee Ratio” shall mean the ratio for any Plan Year, calculated as of the Determination Date of such Plan Year, determined by comparing the amount described in Section 7.2.4.1 with the amount described in Section 7.2.4.2 after deducting from each such amount any portion thereof described in Section 7.2.4.3. The present value of accrued benefits under all qualified defined benefit plans included in the Aggregation Group shall be determined on the basis of the 1988 Unisex Mortality Table and an interest rate of 7%.

7.2.4.1.  The sum of (A) the present value of all accrued benefits of Key Employees under all qualified defined benefit plans included in the Aggregation Group, (B) the balances in all of the accounts of Key Employees under all qualified defined contribution plans included in the Aggregation Group, and (C) the amounts distributed from all plans in such Aggregation Group to or on behalf of any Key Employee during the period of five Plan Years ending on the Determination Date, except benefits paid on account of death in excess of the accrued benefit or account balances immediately prior to death.

7.2.4.2.  The sum of (A) the present value of all accrued benefits of all participants under all qualified defined benefit plans included in the Aggregation Group, (B) the balances in all of the accounts of all participants under all qualified defined contribution plans included in the Aggregation Group, and (C) the amounts distributed from all plans in such Aggregation Group to or on behalf of any participant during the period of five Plan Years ending on the Determination Date.

7.2.4.3.  The sum of (A) all rollover contributions (or fund to fund transfers) to the Plan by an Employee from a plan sponsored by an employer that is not the Employer, (B) any amount that is included in Sections 7.2.4.1 and 7.2.4.2 for a person who is a Non-Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year, and (C) any amount that is included in Sections 7.2.4.1 and 7.2.4.2 for a person who had not performed any services for the Employer at any time during the five-year period ending on the Determination Date.

7.2.5.  “Non-Key Employee” shall mean any person who is an Employee or a former Employee of the Employer in any Plan Year but who is not a Key Employee as to

28

that Plan Year. The term “Non-Key Employee” shall also include the beneficiaries of such persons.

7.2.6.  “Top-Heavy Plan” shall mean each plan in an Aggregation Group if, as of the applicable Determination Date, the Key Employee Ratio exceeds 60%, determined in accordance with section 416 of the Code.

Solely for the purpose of determining if the Plan, or any other plan included in a Required Aggregation Group of which this Plan is a part, is top-heavy, the accrued benefit of an Employee other than a Key Employee shall be determined under (A) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer, or (B) if there is no such method, as if such benefit accrued not more rapidly than at the slowest accrual rate permitted under the fractional accrual rate of section 411(b)(1)(C) of the Code.

7.3.   Minimum Contribution for Non-Key Employees.

7.3.1.  In each Plan Year in which the Plan is a Top-Heavy Plan, each Participant who is a Non-Key Employee (except a Participant who is a Non-Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year) and who is employed by the Employer on the last day of such Plan Year will receive a total minimum Company Contribution (including forfeitures) under the Plan of not less than 3% of the Participant’s Statutory Compensation. All such Participants shall receive such minimum Company Contribution regardless of whether the Participant has performed 1,000 Hours of Service for such Plan Year.

7.3.2.  The percentage set forth in Section 7.3.1 shall be reduced to the percentage at which contributions, including forfeitures, are made (or required to be made) for a Plan Year for the Key Employee for whom such percentage is the highest for that Plan Year. This percentage shall be determined for each Key Employee by dividing the contributions for such Key Employee by his Statutory Compensation for the Plan Year. All defined contribution plans required to be included in an Aggregation Group shall be treated as one plan for the purpose of this Section; however, this Section shall not apply to any plan that is required to be included in an Aggregation Group if such plan enables a defined benefit plan in the Aggregation Group to meet the requirements of section 401(a)(4) or section 410 of the Code.

7.3.3.  If a Non-Key Employee described in Section 7.3.1 participates in both a defined benefit plan and a defined contribution plan described in Section 7.2.1.1 and 7.2.1.2, the Participating Employer is not required to provide such Non-Key Employee with both the minimum benefit under the defined benefit plan and the minimum contribution. In such event, the Non-Key Employee shall receive the minimum contribution provided under the defined benefit Top-Heavy Plan.

7.3.4.  Notwithstanding the foregoing, if the maximum contribution described by Section 7.3 is required to be made with regard to any Non-Key Employee participating in the Penn Virginia and Affiliated Companies 401(k) Plan (the “401(k) Plan”),

29

pursuant to the terms of the 401(k) Plan and the Employer is not required to provide minimum contributions under both the 401(k) Plan and this Plan, then such Non-Key Employee shall receive a minimum contribution under the 401(k) Plan, but not under this Plan.

7.4.   Social Security.    The Plan, for each Plan Year in which it is a Top-Heavy Plan, must meet the requirements of this Article without regard to any Social Security or similar contributions or benefits.

7.5.   Employees Covered By Collective Bargaining Agreements.    Sections 7.3 and 7.4 shall not apply with respect to any employee included in a unit of employees covered by a collective bargaining agreement if there is evidence that retirement benefits were the subject of good faith bargaining between the Participating Employer and the employee representatives.

ARTICLE VIII

RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS

8.1.   Claims Procedure.    The Plan Administrator shall administer a claims procedure as follows:

8.1.1.  Initial Claim.    A Participant or Beneficiary who believes himself entitled to benefits hereunder (the “Claimant”), or the Claimant’s authorized representative acting on behalf of such Claimant, must make a claim for those benefits by submitting a written notification of his claim of right to such benefits. Such notification must be on the form and in accordance with the procedures established by the Plan Administrator. Except for benefits paid pursuant to Section 6.4, no benefit shall be paid under the Plan until a proper claim for benefits has been submitted.

8.1.2.  Procedure for Review.    The Plan Administrator shall establish administrative processes and safeguards to ensure that all claims for benefits are reviewed in accordance with the Plan document and that, where appropriate, Plan provisions have been applied consistently to similarly situated Claimants. Any notification to a Claimant required hereunder may be provided in writing or by electronic media, provided that any electronic notification shall comply with the applicable standards imposed under 29 CFR § 2520.104b–1(c).

8.1.3.  Claim Denial Procedure.    If a claim is wholly or partially denied, the Plan Administrator shall notify the Claimant within a reasonable period of time, but not later than 90 days after receipt of the claim, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 180 days from receipt of the claim. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Plan Administrator expects to render a benefit determination. A benefit denial notice shall be written in a manner calculated to be understood by the Claimant and shall set forth:

30

(i)  the specific reason or reasons for the denial, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, with reasons therefor, and (iv) the procedure for reviewing the denial of the claim and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA following an adverse benefit determination on review.

8.1.4.  Appeal Procedure.    In the case of an adverse benefit determination, the Claimant or his representative shall have the opportunity to appeal to the Plan Administrator for review thereof by requesting such review in writing to the Plan Administrator within 60 days of receipt of notification of the denial. Failure to submit a proper application for appeal within such 60 day period will cause such claim to be permanently denied. The Claimant or his representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. A document, record or other information shall be deemed “relevant” to a claim in accordance with 29 CFR § 2560.503-1(m)(8). The Claimant or his representative shall also be provided the opportunity to submit written comments, documents, records and other information relating to the claim for benefits. The Plan Administrator shall review the appeal taking into account all comments, documents, records and other information submitted by the Claimant or his representative relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

8.1.5.  Decision on Appeal.    The Plan Administrator shall notify a Claimant of its decision on appeal within a reasonable period of time, but not later than 60 days after receipt of the Claimant’s request for review, unless the Plan Administrator determines that special circumstances require an extension of time for processing the appeal. If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60-day period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Plan Administrator expects to render a benefit determination. An adverse benefit decision on appeal shall be written in a manner calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons for the adverse determination, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the Claimant’s claim (the relevance of a document, record or other information will be determined in accordance with 29 CFR § 2560.503–1(m)(8)) and (iv) a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA.

8.2.   Litigation.    In order to operate and administer the claims procedure in a timely and efficient manner, any Claimant whose appeal with respect to a claim for benefits has been denied, and who desires to commence a legal action with respect to such claim, must commence such action in a court of competent jurisdiction within 90 days of receipt of

31

notification of such denial. Failure to file such action by the prescribed time will forever bar the commencement of such action.

ARTICLE IX

PLAN ADMINISTRATOR

9.1.   Authority of Plan Administrator.    The Plan Administrator shall be the Plan’s “named fiduciary” and “administrator” as those terms are defined by ERISA, and its agent designated to receive service of process. The Plan Administrator shall have exclusive responsibility and authority to control and manage the operation and administration of the Plan, including the interpretation and application of its provisions, except to the extent such responsibility and authority are otherwise specifically (a) allocated to the Sponsor or the Trustee under the Plan and Trust Agreement; (b) delegated to other persons by the Sponsor, the Plan Administrator, or the Trustee; or (c) allocated to other parties by operation of law. The Plan Administrator shall have no investment responsibility with respect to the Trust Fund.

9.2.   Conclusive Determination of Plan Administrator.    The Plan Administrator shall have full responsibility and authority to interpret the Plan and such reasonable interpretation, made in good faith, shall be final and conclusive on any Employee, former Employee, Participant, former Participant and Beneficiary.

9.3.   General Equitable Authority to Correct Record-Keeping Mistakes.    Pursuant to the partial list of enumerated powers as set forth in this Article IX, the Plan Administrator shall have general equitable authority to correct allocation errors, as set forth in Article III, made as a result of good faith error(s) in record-keeping for the Plan.

9.4.   Reliance on Tables, etc.    In administering the Plan, the Plan Administrator will be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by any accountant, Trustee, counsel or other expert who is employed or engaged by the Plan Administrator or by the Sponsor on the Plan Administrator’s behalf.

9.5.   Identity of Plan Administrator.    The Plan Administrator shall be a committee selected by the Board of Directors. Any individual(s), including but not limited to a director, shareholder, officer, or other employee of the Sponsor, shall be eligible to serve as the Plan Administrator. If the Board of Directors does not designate a Plan Administrator, the Plan Administrator shall be the Sponsor and the Board of Directors may appoint an Administrative Committee to advise the Sponsor in performance of its duties as Plan Administrator. If created, the committee shall have three members as appointed from time to time by the Board of Directors. The committee shall operate according to rules and procedures similar to those set forth for operation of the Trustee described in Article X below. The Board of Directors shall have the power to remove the Plan Administrator and/or members of the committee at any time without cause and without notice. The Board of Directors shall notify the Trustee upon removal, resignation, or other replacement of the Plan Administrator and/or members of the committee.

32

9.6.   Duties of Plan Administrator.    The Plan Administrator shall keep whatever records may be necessary to implement the Plan and shall furnish whatever reports may be required from time to time by the Trustee and whatever information may be necessary properly to administer the Trust. The Plan Administrator shall see to the filing with the appropriate government agencies of all reports and returns required under ERISA and other applicable laws. In addition, the Plan Administrator shall establish reasonable procedures to determine the qualified status of domestic relations orders that relate to the Plan, as provided in section 414(p) of the Code.

9.7.   Responsibilities to Participants.    The Plan Administrator’s responsibilities shall include, but not be limited, to the following. The Plan Administrator shall determine which Employees are to enter the Plan according to the terms of the Plan. The Plan Administrator shall furnish to each eligible Employee whatever summary plan description, summary annual reports, and other notices and information may be required by ERISA. The Plan Administrator also shall determine when a Participant or his Beneficiary qualifies for benefits under the Plan and shall provide for the distribution of benefits in the proper form and amount from the assets of the Trust Fund. The Plan Administrator shall, at least 30 but no more than 90 days prior to making any distribution, including a distribution that qualifies as an Eligible Rollover Distribution according to section 402(a)(5)(E) of the Code, furnish the Distributee with the written statement required by section 402(f) of the Code. The required written statement must explain the tax consequences of the distribution, including the circumstances under which the distribution may be transferred to an Eligible Retirement Plan as described in section 402(c)(8)(B) of the Code, without being subject to current tax, and under which a lump-sum distribution may be taxed at favorable forward-averaging rates.

9.8.   Establishment of Participants’ Accounts.    The Plan Administrator shall maintain on its records for each Participant any and all Accounts that may be necessary in connection with participation in the Plan.

9.9.     Plan Expenses.    The reasonable expenses incurred by the Plan Administrator in connection with the operation of the Plan, including, but not limited to, the expenses incurred by reason of the engagement of professional assistants and consultants, shall be expenses of the Plan and shall be payable from the Trust Fund at the direction of the Plan Administrator. The Sponsor shall have the option, but not the obligation, to cause the Participating Employer to pay any such expenses, in whole or in part, and, by doing, to relieve the Trust Fund from the obligation of bearing such expenses. Payment of any such expenses by the Participating Employer on one occasion shall not bind the Participating Employer to pay any similar expenses on any subsequent occasion.

9.10.   Indemnification of Plan Administrator.    Each person who serves as Plan Administrator and any other person who is an employee or director of the Participating Employer shall be indemnified by the Participating Employer against expenses (other than amounts paid in settlement to which the Participating Employer does not consent) reasonably incurred by him in connection with any action to which he may be a party by reason of his performance of

33

administrative functions and duties under the Plan, except in relationship to matters as to which he shall be adjudged in such action to be personally guilty of willful misconduct in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as the person serving as Plan Administrator may enjoy as a matter of law or by reason of insurance coverage of any kind. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the person serving as a Plan Administrator or other person may be entitled pursuant to the bylaws of the Participating Employer.

ARTICLE X

TRUST FUND

10.1.   Designation of Trustee.    The Sponsor, by appropriate resolution of its Board of Directors, shall name and designate a Trustee and enter into a Trust Agreement with such Trustee. The Sponsor shall have the power, by appropriate resolution of its Board of Directors, to amend the Trust Agreement. All of the assets of the Plan shall be held in trust by the Trustee for use in accordance with this Plan in providing for the benefits hereunder.

10.2.   Exclusive Benefit.    No part of the corpus or income of the Trust Fund shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries, except as specifically provided in this Plan and in the Trust Agreement.

10.3.   No Interest in Fund.    No person shall have any interest in, or right to, any part of the assets or income of the Trust Fund, except to the extent expressly provided in this Plan and in the Trust Agreement.

10.4.   Trustee to be Fiduciary.    The Trustee shall be a fiduciary with respect to management and control of Trust Assets and shall have exclusive and sole responsibility for the custody and investment thereof in accordance with the Trust Agreement.

10.5.   Investments.

10.5.1.  The Trustee shall invest each Participant’s Company Contribution Account in an investment medium dedicated to Company Stock, except as set forth in Section 10.6 and except as otherwise prudent and necessary. All contributions allocated to Participants’ Company Contribution Accounts and not invested in Company Stock or pursuant to Section 10.6 shall be held by the Trustee in cash or cash instruments. Such investments acquired in the manner prescribed by the Plan shall be held by or for the Trustee.

10.5.2.  If the Trustee shall receive a tender for all or a portion of the Company Stock held by the Plan from any person other than the Sponsor, the Trustee shall communicate the tender, along with all accompanying materials, to Participants. The Trustee shall also provide Participants with such information, including the opinions of professional advisors as may be engaged by the Trustee in his discretion, as shall be necessary for Participants to make an informed decision with respect to such tender. Each Participant in the Plan shall direct the Trustee as to tender of shares of Company Stock held in his individual Account in the

34

Trust and not held in the Unallocated Stock Suspense Account with respect to such tender offer. Such direction shall be made upon a proxy form upon which directions may be indicated to the Trustee. The Trustee shall tender such allocated shares of Company Stock as instructed by Participants. Unallocated Shares in the Suspense Account and allocated shares for which no direction is received shall be tendered in proportion to the number of shares of Company Stock tendered by Participants according to the above-described proxy as a fraction of all shares of Company Stock for which directions are received from Participants. Fraction shares of Company Stock for which directions are received shall be combined to the extent practicable to reflect Participants’ directions. Subject to a decision in favor of such tender (if such tender offer is not from the Sponsor) and subject to any restrictions on transfer of Company Stock contained in the certificate of incorporation or the bylaws of the Sponsor, the Trustee may sell shares of Company Stock to any person (including the Sponsor) provided that any such sale must be made at a price not less favorable to the Plan than fair market value.

10.6.   Participant Diversification of Investments.

10.6.1  Notwithstanding any Plan provision to the contrary, a Participant who is a Qualified Participant may elect, within 90 days after the last day of each Plan Year in his Qualified Election Period, to direct the investment of 25% or 50% with respect to the last year of the Qualified Election Period) of the sum of (A) the value of his Accounts, determined as of the Valuation Date coincident with the last day of the preceding Plan Year, plus (B) the aggregate amount of distributions paid to the Participant during his Qualified Election Period. The amount of the Participant’s Account a Participant may direct shall be reduced by the aggregate amount of distributions paid to the Participant during his Qualified Election Period.

The Participant shall make an election under this Section in writing in a form prescribed by the Plan Administrator.

10.6.2.  A Qualified Participant who makes an election under this Section 10.6 to direct a portion of his Account under the Plan shall either: (a) be offered the opportunity to invest the diversified portion in at least three investment options under the Plan other than investment in employer securities; or (b) receive, upon the Participant’s written consent, the directed portion as a distribution under the Plan. Any investment or distribution under this Section 10.6 shall be made within 90 days after the last day of the 90-day election period described above in which the Participant elects to receive a distribution.

10.7.   Voting of Company Stock.    Each Participant in the Plan shall direct the Trustee as to voting of shares of Company Stock held in his individual Account in the Trust and not held in the Unallocated Stock Suspense Account with respect to all corporate matters upon which the Sponsor’s shareholders are entitled or permitted to vote. At the time proxy materials are forwarded to the Sponsor’s shareholders for each annual or special meeting, the Sponsor shall furnish each Participant who has an Account that includes Company Stock such proxy materials and a proxy form upon which voting directions may be indicated to the Trustee. Each Participant shall have one vote for each share of Company Stock credited to his Accounts. The Trustee shall vote such allocated shares of Company Stock as instructed by Participants. Shares

35

of Company Stock held by the Plan in the Unallocated Stock Suspense Account and allocated shares for which no direction is received shall be voted in the same proportion as allocated shares for which direction is received from Participants. Fractional shares of Company Stock for which directions are received shall be combined to the extent practicable to reflect Participants’ directions.

10.8.   Liability of Trustee.    The Trustee and all persons employed by the Sponsor who are engaged in administering the Plan shall be entitled to rely upon all valuations, certificates and reports furnished by an accountant on behalf of the Trust or by an Independent Appraiser selected by the Trustee, and upon all opinions given by any legal counsel selected by the Trustee. The Trustee, the Participating Employer, and its officers and directors and all persons employed by Participating Employers who are engaged in administering the Plan (a) shall be fully protected with respect to any action taken by them in good faith which is based upon such valuation, certificate, report or opinion and all actions so taken shall be conclusive and binding upon all persons under the Plan; and (b) shall not be personally liable by reason of any instrument made or executed by them or on their behalf or in the course of administering the Plan or for any mistake of judgment made by them or any other person, or for any neglect, omission or wrongdoing of any other person or for any loss to the Plan unless resulting from their own willful misconduct.

10.9.   Indemnification.    Each Trustee who is an individual and each director and officer of the Participating Employer shall be indemnified by the Participating Employer to the extent permitted by law against all expenses (including costs and attorneys’ fees) actually and necessarily incurred or paid by him in connection with the defense of any action, suit or proceeding in any way relating to or arising from the Plan to which he may be made a party by reason of his being or having been a Trustee, or a director or officer of the Participating Employer or by reason of any action or omission or alleged action or omission by him in such capacity, and against any amount or amounts which may be paid by him (other than to the Participating Employer) in reasonable settlement of any such action, suit or proceeding, where it is in the interest of the Participating Employer that such settlement be made. In cases where such action, suit, or proceeding shall proceed to final adjudication, such indemnification shall not extend to matters as to which it shall be adjudged that such Trustee or, director or officer of the Participating Employer is liable for willful misconduct in the performance of his duties as such. The right of indemnification herein provided shall not be exclusive of other rights to which any Trustee, director or officer of the Participating Employer may now hereafter be entitled, shall continue as to a person who has ceased to be a Trustee or, director or officer of the Participating Employer and shall inure to the benefit of the heirs, executors and administrators of such Trustee, director or officer of the Participating Employer.

ARTICLE XI

ACQUISITION LOANS

11.1.   Acquisition Loan for Financing Purchase of Company Stock.    The Trustee may cause the Plan to incur Acquisition Loans from time to time to finance the acquisition of Company Stock or to repay a prior Acquisition Loan. An installment obligation incurred in

36

connection with the purchase of Company Stock shall be treated as an Acquisition Loan. Except as provided below, an Acquisition Loan shall be for a specific term, shall bear a reasonable rate of interest and shall not be payable on demand except in the event of default, provided that the default provisions under such Acquisition Loan comply with exempt loan regulations issued under section 4975(d)(3) of the Code. An Acquisition Loan shall be without recourse against the Plan. The only Trust Assets that may be given as collateral on an Acquisition Loan are Financed Shares acquired with the proceeds of the Acquisition Loan and Financed Shares pledged as collateral on a prior Acquisition Loan repaid with the proceeds of the current Acquisition Loan. No person entitled to payment under an Acquisition Loan shall have any right to Trust Assets other than collateral given for such Acquisition Loan, contributions made under this Plan to meet the Plan’s obligations under such Acquisition Loan, and earnings attributable to the collateral or to investment of such contributions. If an Acquisition Loan is an Exempt Loan, the Acquisition Loan documents must provide for a transfer of Trust Assets on default only upon and to the extent of the failure of the Trust to meet the payment schedule of the Acquisition Loan. Any pledge of Financed Shares must provide for the release of the shares so pledged as payments on the Acquisition Loan are made and such Financed Shares are allocated to Participants’ Company Stock Accounts under Section 4.4. The Trustee may use Company Contributions and earnings attributable to Company Contributions (including cash dividends received on Financed Shares to the extent described in Section 4.5, including both dividends paid on unallocated Financed Shares and dividends paid on allocated Financed Shares, that the Trustees determines should be applied to repayment of the Acquisition Loan related to such Financed Shares) to make payments of principal and/or interest on any Acquisition Loan.

11.2.   Release of Financed Shares.    Any Financed Shares acquired by the Trust shall initially be credited to the Unallocated Stock Suspense Account and will be allocated to the Company Stock Accounts of eligible Participants only as payments on the Acquisition Loan are made by the Trustee. The number of Financed Shares to be released from the Unallocated Stock Suspense Account for allocation to Participants’ Company Stock Accounts for each Plan Year shall be the number of Financed Shares held in the Unallocated Stock Suspense Account immediately before the release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal paid on the Acquisition Loan for that Plan Year and the denominator of which is the sum of the numerator and the total of all payments of principal on that Acquisition Loan to be paid during the remaining term of the Acquisition Loan.

Notwithstanding the foregoing, the release method described shall be used only if:

11.2.1.  the Acquisition Loan provides for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payments of such amounts for ten years;

11.2.2.  interest included in any payment on the Acquisition Loan is disregarded only to the extent that it is interest determined under standard loan amortization tables; and

37

11.2.3.  the sum of the expired duration of an Acquisition Loan, the renewal period, the extension period, and the duration of a new Acquisition Loan does not exceed ten years by reason of a renewal, extension, or refinancing of an Acquisition Loan.

If any of these three conditions are not met, then, notwithstanding the foregoing, the numerator of the fraction above shall be the amount of principal and interest paid on the Acquisition Loan for that Plan Year and the denominator shall be the sum of the numerator and the total of all payments of principal and interest on that Acquisition Loan to be paid during the remaining term of the Acquisition Loan. The Plan Administrator may also designate, by certificate provided to the Trustee after the Trust has entered into an Acquisition Loan but prior to release of stock resulting from repayment of such Acquisition Loan, that the release method shall be according to payments of principal and interest rather than principal only. Such certificate shall be binding upon the Trustee.

11.3.   Company Stock Acquired through an Acquisition Loan.    Company Stock acquired with the proceeds of an Acquisition Loan shall not at that time or any time thereafter be subject to any put, call, option, buy-sell or other similar arrangement, other than the Put Option described in Section 6.8. This restriction and the Put Option described in Section 6.8 shall continue notwithstanding termination of this Plan or termination of the status of this Plan as an employer stock ownership plan under section 4975(c)(7) of the Code and regulations thereunder.

ARTICLE XII

NO ASSIGNMENT OF BENEFITS

12.1.   No Assignment of Benefits.    A Participant’s Account or his entitlement to receive any benefit under this Plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process, except in accordance with a Qualified Domestic Relations Order as defined in section 414(p) of the Code and described in Section 12.2 below.

12.2.   Qualified Domestic Relations Orders.    A person other than a Participant or his Beneficiary may acquire an interest in the Participant’s benefits pursuant to a Qualified Domestic Relations Order. Upon receipt of a Domestic Relations Order, the Plan Administrator shall promptly notify the Participant and any Alternate Payee named in such order of the receipt of such order and the Plan’s procedures for determining the qualified status of Domestic Relations Orders. The order must not require any form or type of benefit of any option not available under this Plan, must not require the Plan to provide benefits greater in value than the Actuarial Equivalent of the benefits otherwise provided hereunder, and must not require any payment which would be in conflict with a payment required to be made to another Alternate Payee under the terms of a prior Qualified Domestic Relations Order. Within a reasonable period after receipt of such order (but in no event longer than eighteen months) the Plan Administrator shall notify the Participant and each Alternate Payee of its determination. Pending such determination the Plan Administrator shall direct the Trustees to segregate the Trust Assets subject to such order in either a separate account in the Trust Fund or in an escrow account. At the conclusion of the eighteen-month period (or on such earlier date as the determination of

38

qualified status has been made) the Trust Assets subject to the order shall be paid pursuant to the terms of the order provided the order is qualified. If the order is not qualified (or no determination can be made within such time period) the Trust Assets shall be paid in the same manner as if the order had not been issued. The Plan Administrator shall establish reasonable procedures to implement the requirements of this Section 12.2.

ARTICLE XIII

FIDUCIARY RESPONSIBILITY

13.1.   Named Fiduciary.    The Plan Administrator, the Trustee, and the Sponsor shall be the Named Fiduciaries for the Plan within the meaning of section 402(a) of ERISA.

13.2.   Bonding of Fiduciaries.    The Plan Administrator shall insure that the Trustee and all other Plan fiduciaries handling funds are bonded in accordance with section 412 of ERISA.

13.3.   Responsibility of Fiduciaries.    Any fiduciary with respect to the Plan shall discharge his duties solely in the interests of Participants and Beneficiaries for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying reasonable expenses of the Plan. In addition, any fiduciary with respect to the Plan shall discharge his duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.

ARTICLE XIV

FUTURE OF PLAN

14.1.   Possibility of Amendment or Termination.    The Sponsor reserves the right to amend or terminate this Plan (in whole or in part) and the Trust Agreement at any time, by action of its Board of Directors. Neither amendment or termination of the Plan shall retroactively reduce the accrued benefits or vested rights of Participants nor permit any part of the Trust Assets to be diverted to or used for any purpose other than for the exclusive benefit of the Participants (and their Beneficiaries).

The Sponsor specifically reserves the right to amend the Plan and the Trust Agreement retroactively in order to satisfy any applicable requirements of the Code and ERISA.

The Sponsor further reserves the right to terminate the Plan in the event of a determination by the Internal Revenue Service (after a timely “Application for Determination” is filed) that the Plan initially fails to satisfy the applicable requirements of section 401(a) of the Code. In that event, all Trust Assets shall (upon written direction of the Sponsor) be returned to the respective Participating Employers, and the Plan and the Trust shall terminate.

14.2.   Merger or Consolidation.    In the event of the merger or consolidation of this Plan with another plan, or the transfer of Trust Assets (or liabilities) to another plan, the

39

Account balances of each Participant immediately after such merger, consolidation, or transfer must be at least as great as immediately before such merger, consolidation, or transfer (as if the Plan had then terminated).

ARTICLE XV

VETERANS’ REEMPLOYMENT RIGHTS

Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to Qualified Military Service will be provided in accordance with section 414(u) of the Code as summarized below:

15.1.   Crediting Service.

15.1.1.  An Employee reemployed by the Employer in accordance with Chapter 43 of Title 38 of the United States Code shall be treated as not having incurred a Break in Service with the Employer by reason of such Employee’s period of Qualified Military Service.

15.1.2.  Upon reemployment by the Employer in accordance with Chapter 43 of Title 38 of the United States Code, an Employee’s period of Qualified Military Service shall be deemed service with the Employer for purposes of determining the vested percentage of the Employee’s Account.

15.2.   Compensation.    An Employee who is in Qualified Military Service shall be treated as receiving compensation from the Employer during such period of Qualified Military Service equal to:

15.2.1.  the compensation the Employee would have received during such period if the Employee were not in Qualified Military Service, determined based on the rate of pay the Employee would have received from the Employer but for absence during the period of Qualified Military Service; or

15.2.2.  if the compensation the Employee would have received during such period was not reasonably certain, the Employee’s average compensation from the Employer during the 12-month period immediately preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service).

15.3.   Qualified Military Service.    For purposes of the Plan, the term “Qualified Military Service” means any service in the “uniformed services” (as defined in Chapter 43 of Title 38 of the United States Code) by any Employee if such Employee is entitled to reemployment rights under such Chapter with respect to such service.

40

15.4.   Earnings and Forfeitures.    Nothing in this Article XVI shall be construed as requiring:

15.4.1.  any crediting of earnings to an Employee with respect to any contribution before such contribution is actually made; or

15.4.2.  the allocation of any forfeiture with respect to the period of an Employee’s Qualified Military Service.

ARTICLE XVI

GENERAL PROVISIONS

16.1.   No Employment Rights.    Neither the action of the Sponsor or another Participating Employer in establishing the Plan, nor any provisions of the Plan, nor any action taken by the Participating Employer or by the Plan Administrator shall be construed as giving to any Employee of the Participating Employer the right to be retained in its employ, or any right to payment except to the extent of the benefits provided in the Plan to be paid from the Trust Fund.

16.2.   Source of Benefits.    All benefits payable under the Plan shall be paid or provided solely from the Trust Fund, and the Participating Employer assumes no liability or responsibility therefor.

16.3.   Governing Law.    Except to the extent superseded by ERISA, all questions pertaining to the validity, construction, and operation of the Plan shall be determined in accordance with the laws of the Commonwealth of Pennsylvania.

16.4.   Incapacity.    If the Plan Administrator deems any Participant or Beneficiary who is entitled to receive benefits hereunder incapable of receiving or disbursing the same by reason of age, illness, or infirmity or incapacity of any kind, the Plan Administrator may direct the Trustee to apply such payments directly for the comfort, support and maintenance of such Participant or Beneficiary, or to pay the same to any responsible person caring for the Participant or Beneficiary who is determined by the Plan Administrator to be qualified to receive and disburse such payments for the Participant’s or Beneficiary’s benefit; and the receipt by such person shall be a complete acquittance for the payment of the benefit. Payments pursuant to this Section shall be complete discharge to the extent thereof of any and all liability of the Participating Employer, the Plan Administrator, the Trustee, and the Trust Fund.

16.5.   Adoption of Plan By Other Employer.    Any Participating Employer presently existing or hereafter acquired may, with the consent of the Sponsor, adopt this Plan and the Trust created hereunder. In the event that a Participant is transferred from a Participating Employer to another Participating Employer, the Participant shall retain his Accounts under the Plan and all credits for service under the Plan.

41

To record the adoption of this amendment and restatement of the Plan, Penn Virginia Corporation has caused this document to be executed this              day of             , 2001.

PENN VIRGINIA CORPORATION
By:	/s/
	President

Attest:	/s/
	Secretary

Seal

42

APPENDIX A

Penn Virginia Corporation

Penn Virginia Coal Company

Penn Virginia Oil and Gas Corporation

Penn Virginia Oil and Gas Corporation, a Texas corporation (effective July 1, 2001)

Penn Virginia Resources GP, LLC (effective September 14, 2001)

EX-10.4

EXHIBIT 10.4

PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES

EMPLOYEES’ 401(K) PLAN

(As Amended, Restated and

Renamed Effective December 1, 2001)

TABLE OF CONTENTS

		Page
ARTICLE I.     DEFINITIONS		5
ARTICLE II.     PARTICIPATION		16
2.1.	Eligibility for and Election to Make Elective Deferral Contributions	16
2.2.	Eligibility Requirements for Matching Contribution	16
2.3.	Ineligible Employees	16
2.4.	Participation Following Termination of Employment	17
2.5.	Time of Participation—Excluded Employees	17
ARTICLE III.     CONTRIBUTIONS		17
3.1.	Participant Contributions	17
3.2.	Participating Employer Contributions	19
3.3.	Maximum Deferral	19
3.4.	Limitation on Elective Deferral Contributions—Code Section 401(k)	20
3.5.	Limitation on Matching Contributions—Code Section 401(m)	22
3.6.	Aggregate Limitation on Elective Deferral Contributions and Matching Contributions	24
3.7.	Plan Aggregation; Special Rule	25
3.8.	Recovery of Participating Employer Contributions	25
ARTICLE IV.     CREDITS TO ACCOUNTS		26
4.1.	Maintenance of Accounts	26
4.2.	Payment of Contributions	26
4.3.	Allocations to Participants’ Accounts	27
4.4.	Purchase of Shares of Investment Funds	28
4.5.	Limitations on Annual Additions to Participants’ Accounts—Code Section 415	29
4.6.	Elimination of Excess Annual Additions	30

1

		Page
ARTICLE V.     VESTING		31
5.1.	Full Vesting At All Times	31
ARTICLE VI.     ENTITLEMENT TO BENEFITS		31
6.1.	Termination of Employment	31
6.2.	Deferred Distribution	31
6.3.	Death	31
6.4.	Amount of Distribution	31
ARTICLE VII.     PAYMENT AND FORM OF BENEFITS		31
7.1.	Benefit Commencement Date	31
7.2.	Earliest Distribution Date	32
7.3.	Forms of Benefit Payment	33
7.4.	Fractional Shares of Stock	34
7.5.	Stock Restrictions	34
7.6.	Death Benefits	34
7.7.	Election of Benefit Form	34
7.8.	Change of Election	35
7.9.	Required Distributions—Code Section 401(a)(9)	35
7.10.	TEFRA 242(b) Elections	36
7.11.	Benefit Transfers	36
7.12.	Distribution Pursuant to a Qualified Domestic Relations Order	37
ARTICLE VIII.     WITHDRAWALS DURING EMPLOYMENT		37
8.1.	In-Service Withdrawal—Savings Contribution Account	37
8.2.	Withdrawals After Age 59 1/2	37
8.3.	Hardship Withdrawal—Elective Deferral Contribution Account	37
8.4.	Definition of Qualified Emergency	38
8.5.	Requirements for Hardship Withdrawal	38
8.6.	Distribution of Amounts Withdrawn	39
ARTICLE IX.     LOANS TO PARTICIPANTS		39
9.1.	Plan Loans	39
9.2.	Loan Requirements	39
9.3.	Maximum Number of Loans Permitted	41
ARTICLE X.     INVESTMENTS		41
10.1.	Investment Funds	41
10.2.	Investment Elections	42

2

		Page
10.3.	Change of Election	42
ARTICLE XI.     TOP-HEAVY PROVISIONS		42
11.1.	Top-Heavy Requirements	42
11.2.	Minimum Contribution Requirement	43
ARTICLE XII.     PLAN ADMINISTRATION		43
12.1.	Fiduciary Responsibility	43
12.2.	Appointment and Removal of Committee	43
12.3.	Compensation and Expenses of Committee	44
12.4.	Committee Procedures	44
12.5.	Plan Interpretation	44
12.6.	Exclusive Benefit Rule	44
12.7.	Consultants	44
12.8.	Method of Handling Plan Funds	44
12.9.	Delegation and Allocation of Responsibility	44
12.10.	Claims Procedure	45
12.11.	Litigation	46
ARTICLE XIII.     AMENDMENT AND TERMINATION		46
13.1.	Amendment	46
13.2.	Termination or Partial Termination	47
ARTICLE XIV.     VETERANS’ REEMPLOYMENT RIGHTS		47
14.1.	Crediting Service	47
14.2.	Elective Deferral Contributions	47
14.3.	Matching Contributions	48
14.4.	Compensation	48
14.5.	Earnings and Forfeitures	48
ARTICLE XV.     MISCELLANEOUS		48
15.1.	Merger; Consolidation or Transfer of Assets or Liabilities	48
15.2.	Limited Purpose of Plan	49
15.3.	Non-alienation	49
15.4.	Facility of Payment	49
15.5.	Impossibility of Diversion	49
15.6.	Unclaimed Benefits	49
15.7.	Construction	49
15.8.	Governing Law	49
15.9.	Contingent Effectiveness of Plan Amendment, Restatement and Renaming	49

3

	Page
APPENDIX A— Participating Employers	52
APPENDIX B— Compliance with Benefit and Contribution Limits	53
APPENDIX C—Investment Funds

4

PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES

EMPLOYEES’ 401(K) PLAN

(As Amended, Restated and Renamed

Effective December 1, 2001)

This is the PENN VIRGINIA CORPORATION AND AFFILIATED COMPANIES EMPLOYEES’ 401(k) PLAN (the “Plan”), amended, restated and renamed, effective December 1, 2001, except as otherwise provided, covering the eligible employees of Penn Virginia Corporation and such of its affiliated entities as have adopted the Plan for their eligible employees. The rights and obligations under the Plan with respect to an employee who terminated employment before the applicable effective date of this amendment, restatement and renaming shall be governed by the terms of the Plan as in effect on the date of his termination of employment.

The amendment, restatement and renaming of the Plan is generally effective December 1, 2001. However, any provision of the Plan that is required to have an effective date prior to December 1, 2001, in order to comply with the Uruguay Round Agreements Act, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act of 2000, or other legislation shall be effective on the earliest date required by law.

ARTICLE I.

DEFINITIONS.

The following words and phrases as used herein have the following meanings unless a different meaning is plainly required by the context:

1.1.  “Account”  means a Participant’s account in the Fund, including the following sub-accounts:

1.1.1.  “Elective Deferral Contribution Account”  to which a Participant’s Elective Deferral Contributions are allocated, together with any income, gains and losses credited thereto;

1.1.2.  “Matching Contribution Account”  to which Matching Contributions are allocated, including Stock attributable to Sponsor and Participating Employer matching contributions allocable to Participants’ Elective Deferral Accounts, together with any income, gains and losses credited thereto;

1.1.3.  “Qualified Nonelective Contribution Account”  to which Qualified Nonelective Contributions, if any, are allocated, together with any income, gains and losses credited thereto;

5

1.1.4.  “Rollover Contribution Account”  to which a Participant’s Rollover Contributions are allocated, together with any income, gains and losses credited thereto; and,

1.1.5.  “Savings Contribution Account”  to which a Participant’s Savings Contributions are allocated, together with any income, gains and losses credited thereto.

1.2.  “Account Balance”  means, for the purpose of Article XI relating to the provisions that will take effect if the Plan is a Top-Heavy Plan, the sum of:

1.2.1.  the balance, as of the Determination Date, standing to the credit of a Participant (or Beneficiary) in his Account, except for amounts maintained in a Rollover Contribution Account attributable to Rollover Contributions made after 1983 that are treated as “unrelated” under section 416 of the Code and the regulations thereunder;

1.2.2.  contributions due as of the Determination Date and, in the first Plan Year, the amount of any contributions made after the Determination Date that are allocated as of a date in such first Plan Year; and

1.2.3.  the aggregate distributions made with respect to such Participant (or Beneficiary) under the Plan during the five-year period ending on the Determination Date. Distributions of a Participant’s Account due to death shall be treated as distributions for purposes of this Section.

The term “Account Balance” shall not include any amount held or distributed on behalf of any Participant who is a Former Key Employee, or who has not performed services for the Employer at any time during the five-year period ending on the Determination Date. The term “Account Balance” also shall not include amounts attributable to deductible employee contributions as defined in section 72(o)(5)(A) of the Code.

1.3.  “Aggregation Group”  means:

1.3.1.  a Required Aggregation Group, or

1.3.2.  a Permissive Aggregation Group.

1.4.  “Annual Addition”  means the sum credited to the Participant under each Defined Contribution Plan, for any Limitation Year, of:

1.4.1.  Employer contributions,

1.4.2.  Employee contributions (other than Rollover Contributions), and

1.4.3.  forfeitures.

6

The term “Annual Addition” shall also include the amount allocated to a separate account of the Participant to provide post-retirement medical benefits (a) under a Defined Benefit Plan, as described in section 415(l)(1) of the Code, and (b) with respect to a Participant who is, or was, a Key Employee for any Plan Year, under a welfare benefit fund, as described in section 419A(d)(2) of the Code.

1.5.  “Beneficiary”  means:

1.5.1.   the Participant’s spouse;

1.5.2.  the person, persons or trust designated by the Participant, with the consent of the Participant’s spouse if the Participant is married, as direct or contingent beneficiary in a manner prescribed by the Committee; or

1.5.3.  if the Participant has no spouse and has failed to make an effective beneficiary designation, the Participant’s estate.

A married Participant may designate a Beneficiary other than his spouse, provided that such spouse consents to such designation in writing in a manner prescribed by the Committee. The spouse’s consent must be witnessed by a notary public and must acknowledge the effect of such beneficiary designation. Such consent shall not be required if the Participant establishes to the satisfaction of the Committee that the consent cannot be obtained because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by regulations. A subsequent spouse of a Participant shall not be bound by a consent executed by any previous spouse of the Participant.

1.6.  “Board of Directors”  means the board of directors of the Sponsor.

1.7.  “Break-in-Service”  means a 12 consecutive month period, measured from the date an Employee is first credited with an Hour of Service or any anniversary thereof (or his reemployment commencement date or any anniversary thereof), within which he is not credited with more than 500 Hours of Service.

1.8.  “Claimant”  means a Participant or Beneficiary claiming a benefit under the Plan.

1.9.  “Code”  means the Internal Revenue Code of 1986, as amended.

1.10.  “Committee”  means the Committee appointed by the Board of Directors to supervise the administration of the Plan.

1.11.  “Compensation.”

1.11.1.  General Rule.    Compensation means, except as otherwise provided in this Section 1.11, all amounts that are treated as wages for Federal income tax

7

withholding under section 3401(a) of the Code (determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed) for the Plan Year including overtime pay, but excluding bonuses and severance pay, plus amounts that would be paid to the Employee during the year but for the Employee’s election under a cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code, a qualified transportation fringe benefit program described in section 132(f)(4) of the Code, a simplified employee pension described in section 402(b) of the Code, an annuity program described in section 403(b) of the Code, or a simple retirement account described in section 408(p) of the Code. Notwithstanding the preceding sentence, Compensation shall not include contributions by the Employer to this or any other plan or plans for the benefit of its employees, except as otherwise expressly provided in this Section 1.11, or amounts identified by the Employer as expense allowances or reimbursements regardless of whether such amounts are treated as wages under the Code.

1.11.2.  Limitations on Annual Additions.    For the purposes of Section 4.5, relating to limitations on Annual Additions to Participants’ Accounts, Section 11.2, relating to the minimum contribution requirement if the Plan should become a Top-Heavy Plan, and the Sections defining the terms “Highly Compensated Employee” and “Key Employee,” Compensation shall include all amounts that are treated as wages for Federal income tax withholding under section 3401(a) of the Code (determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed) and actually paid to the Participant during the Limitation Year plus amounts that would be paid to the Employee during the year but for the Employee’s election under a cash or deferred arrangement described in section 401(k) of the Code, a cafeteria plan described in section 125 of the Code, a qualified transportation fringe benefit program described in section 132(f)(4) of the Code, a simplified employee pension described in section 402(h) of the Code or an annuity program described in section 403(b) of the Code.

1.11.3.  Maximum Annual Dollar Limit.    The annual Compensation of each Employee taken into account for any purpose under the Plan, other than those described below in this subsection, shall not exceed $170,000 (as adjusted under section 401(a)(17) of the Code). This Section shall not apply for purposes of determining which individuals are Key Employees under Section 1.29 or the limitations on Annual Additions to Accounts under section 415 of the Code.

1.12.  “Elective Deferral Contribution”  means a pre-tax contribution made pursuant to Section 3.1.1 for the Plan Year by a Participating Employer at the election of the Participant, in lieu of receipt of current compensation.

1.13.  “Defined Benefit Plan”  means any employee pension plan maintained by the Employer that is a qualified plan under section 401(a) of the Code and is not a Defined Contribution Plan.

1.14.  “Defined Contribution Plan”  means an employee pension plan maintained by the Employer that is a qualified plan under section 401(a) of the Code and

8

provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account, and any income, expenses, gains, and losses, and any forfeitures from accounts of other participants that may be allocated to such participant’s account.

1.15.  “Determination Date”  means:

1.15.1.  if the Plan is not included in an Aggregation Group, the last day of the preceding Plan Year; or

1.15.2.  if the Plan is included in an Aggregation Group, the Determination Date as determined under Section 1.15.1 that falls within the same calendar year as the determination date of each other plan included in such Aggregation Group.

1.16.  “Effective Date”  of the Plan means May 1, 1964. The effective date of this amendment, restatement and renaming of the Plan is December 1, 2001, except as otherwise specifically stated herein.

1.17.  “Employee”  means:

1.17.1.  an individual who is employed by the Employer;

1.17.2.  an individual who is not employed by the Employer but is a leased employee within the meaning of section 414(n)(2) of the Code; provided that, if the total number of leased employees constitutes 20% or less of the Employer’s nonhighly compensated work force, within the meaning of section 414(n)(5)(C)(ii) of the Code, the term “Employee” shall not include those leased employees covered by a “safe harbor” plan described in section 414(n)(5)(B) of the Code; and

1.17.3.  when required under Section 1.27, for purposes of crediting Hours of Service, a former Employee.

1.18.  “Employer”  means the Sponsor and:

1.18.1.   any other employer included with the Sponsor in a controlled group of corporations or trades or businesses within the meaning of section 414(b) or section 414(c) of the Code, or an affiliated service group within the meaning of section 414(m) of the Code; and

1.18.2.  any other entity required to be aggregated with the Sponsor pursuant to regulations under section 414(o) of the Code;

provided that any such employer shall be included within the term “Employer” only while a member of such a group including the Sponsor.

9

1.19.  “ERISA”  means the Employee Retirement Income Security Act of 1974, as amended.

1.20.  “Excess Aggregate Contributions”  means that amount of Matching Contributions made by or on behalf of a Participant for a Plan Year that exceeds the limitation on Matching Contributions set forth in section 401(m) of the Code.

1.21.  “Excess Contributions”  means that amount of a Participant’s Elective Deferral Contribution for a Plan Year that exceeds the limitation on Elective Deferral Contributions set forth in section 401(k) of the Code.

1.22.  “Excess Deferrals”  means that amount of a Participant’s “elective deferrals,” as defined in section 402(g)(3) of the Code, for his taxable year, including his Elective Deferral Contributions under Section 3.1.1, that exceeds the dollar limitation on “elective deferrals” under section 402(g) of the Code.

1.23.  “Five-Percent Owner”  means any Employee who owns (or is considered as owning within the meaning of section 318 of the Code) more than 5% of the outstanding stock of the Sponsor or any Participating Employer or stock possessing more than 5% of the total combined voting power of all stock of the Sponsor or any Participating Employer or, if a Participating Employer is not a corporation, any person who owns more than 5% of the capital or profits interest in such a Participating Employer. For purposes of this Section, section 318(a)(2)(C) of the Code shall be applied by substituting “5%” for “50%” each time it appears therein.

1.24.  “Former Key Employee”  means an Employee or former Employee who is a Non-Key Employee with respect to the Plan for the Plan Year if such individual was a Key Employee with respect to the Plan for any prior Plan Year.

1.25.  “Fund”  means the assets and all income, gains and losses thereon held by the Trustee under the trust agreement for the exclusive benefit of Participants and their Beneficiaries.

1.26.  “Highly Compensated Employee,”  effective January 1, 1997, means any Employee who:

1.26.1.  was a Five-Percent Owner at any time during the Plan Year or preceding Plan Year;

1.26.2.  receives Compensation from the Employer in excess of $80,000 (as adjusted under section 414(q) of the Code); or

1.26.3.  if the Employer so elects, was, for the preceding Plan Year, in the group consisting of the top 20% of Employees (excluding, solely for purposes of determining

10

the number of Employees in the top 20%, Employees described in section 414(q)(8) of the Code) when ranked on the basis of Compensation paid during such Plan Year.

1.27.  “Hour of Service”  means:

1.27.1.  each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer;

1.27.2.  each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer, provided that an Employee shall be credited with no more than 501 Hours of Service on account of any single continuous period during which he performs no duties;

1.27.3.  each hour during which an Employee is absent on active duty in the military service of the United States under leave of absence granted by the Employer or when required by law, provided he returns to employment with the Employer within 90 days after his release from active duty or within such longer period during which his right to reemployment is protected by law;

1.27.4.  solely for the purpose of determining whether a Break-in-Service has occurred, if an Employee is absent from employment for any period by reason of the:

1.27.4.1.  pregnancy of the Employee,

1.27.4.2.  birth of a child of the Employee,

1.27.4.3.  placement of a child with the Employee in connection with the adoption of such child by the Employee, or

1.27.4.4.  provision of care for such child for a period beginning immediately following such birth or placement,

each hour that normally would have been credited to such Employee but for such absence, or if the Plan is unable to determine such hours, eight hours for each day of such absence; provided that an individual shall be credited with no more than 501 Hours of Service on account of any single period of absence described in this Section 1.27.4; and

1.27.5.  each hour not described above during which an Employee is absent, on furlough or temporary layoff, with leave of or at the direction of the Employer in accordance with the Employer’s standard personnel practices for any reason other than maternity or paternity leave described above; provided that the Employee returns to employment when the leave expires and further provided that an Employee shall be credited with no more than 501 Hours of Service on account of any single, continuous period of absence.

11

Hours of Service shall be credited to the Employee for the applicable 12 month period or periods in which the duties are performed, for which the payment is made, or to which the award, agreement or leave pertains, except that in the case of hours credited under Section 1.27.4, relating to maternity or paternity leave, such hours shall be credited in the year in which the absence from work begins if necessary to avoid a Break-in-Service in that year, or in any other case, in the following year. Hours of Service under this Section 1.27 shall be calculated and credited under the provisions of 29 CFR §2530.200b-2 issued by the United States Department of Labor, which regulations are incorporated herein by reference.

1.28.  “Investment Fund” means one of the investment funds, including Stock, made available under the Plan, in which the Participant may elect to invest all or a portion of his Account pursuant to Article X.

1.29.  “Key Employee” means an Employee or former Employee (whether living or deceased) with respect to the Plan Year, who at any time during the Plan Year that includes the Determination Date or any of the four preceding Plan Years is (or was):

1.29.1.  an officer of the Employer who receives Compensation greater than 50% of the amount in effect under section 415(b)(1)(A) of the Code for such Plan Year; provided that in no event shall the number of individuals treated as officers exceed 50 employees, or, if it would result in a smaller number of officers, the greater of three employees or 10% of the total number of employees;

1.29.2.  one of the 10 Employees having annual Compensation from the Employer of more than the maximum dollar limitation of section 415(c)(1)(A) of the Code and owning (or considered as owning within the meaning of section 318 of the Code) the largest interest in the Employer, provided that such interest is more than 0.5% of the ownership interest in the Employer. For purposes of this Section, section 318(a)(2)(C) of the Code shall be applied by substituting “5%” for “50%” each time it appears therein. If an Employee’s ownership interest changes during a Plan Year, his ownership interest for the year is the largest interest owned at any time during the Plan Year. If two Employees have the same ownership interest in the Employer during the five Plan Years ending on the Determination Date, the Employee having the larger annual Compensation from the Employer for the Plan Year during any part of which that ownership interest existed shall be treated as having a larger interest;

1.29.3.  a Five-Percent Owner; or

1.29.4.  a person who has annual Compensation from the Employer of more than $150,000 and who would be classified as a Five-Percent Owner if “1%” were substituted for “5%” each time it appears in the definition of such term.

For purposes of determining ownership in the Employer under this Section, the employer aggregation rules of sections 414(b), 414(c) and 414(m) of the Code shall not apply.

1.30.  “Limitation Year” means the Plan Year.

12

1.31.  “Matching Contribution” means the contribution to the Plan made by the Sponsor or another Participating Employer for the Plan Year pursuant to Section 3.2.1 and allocated to a Participant’ s Matching Contribution Account.

1.32.  “Non-Highly Compensated Employee” means an Employee who is not a Highly Compensated Employee.

1.33.  “Non-Key Employee” means any Participant in the Plan (including a Beneficiary of such Participant) who is not a Key Employee with respect to the Plan for the Plan Year.

1.34.  “Normal Retirement Date” means the date Participant reaches age 65.

1.35.  “Participant” means an Employee who has met the eligibility requirements of Article II and who has elected to participate in the Plan. An individual who qualifies as a Participant, and elects to participate, shall continue to be a Participant until all benefits due him under the Plan have been paid.

1.36.  “Participating Employer” means the Sponsor and:

1.36.1.  any corporation that, with the Sponsor, is a member of an affiliated group of corporations for purposes of section 1504 of the Code and that has been authorized by the Board of Directors, and its own board of directors, to participate in the Plan; and

1.36.2.  any partnership in which the Sponsor or another Participating Employer is a partner, and that has been authorized by the Board of Directors to participate in the Plan. The names of the Participating Employers participating in the Plan are set forth in Appendix A.

1.37.  “Permissive Aggregation Group” means:

1.37.1.  each Defined Benefit Plan or Defined Contribution Plan of the Employer included in a Required Aggregation Group; and

1.37.2.  any other Defined Benefit Plan or Defined Contribution Plan of the Employer if the group of plans consisting of such plan and the plan or plans included in the Required Aggregation Group, when considered as a single plan, meets the requirements of sections 401(a)(4) and 410 of the Code.

1.38.  “Plan” means the Penn Virginia Corporation and Affiliated Companies Employees’ 401(k) Plan, as set forth in this document and in the related trust agreement pursuant to which the Trust is maintained.

1.39.  “Plan Year” means the 12-month period ending each December 31.

13

1.40.  “Qualified Domestic Relations Order” or “QDRO” means a domestic relations order that meets the requirements of section 414(p) of the Code.

1.41.  “Qualified Military Service” means any service in the “uniformed services” (as defined in Chapter 43 of Title 38 of the United States Code) by any Employee if such Employee is entitled to reemployment rights under such Chapter with respect to such service.

1.42.  “Qualified Nonelective Contribution” means any contribution (other than a Matching Contribution or a Profit Sharing Contribution) made to the Plan by a Participating Employer and allocated to a Participant’s Qualified Nonelective Contribution Account that:

1.42.1.  the Participant may not elect to receive in cash until distributed from the Plan;

1.42.2.  is 100% vested and nonforfeitable when made; and

1.42.3.  is subject to the distribution restrictions of section 401(k)(2) of the Code.

1.43.  “Required Aggregation Group” means:

1.43.1.  each Defined Benefit Plan or Defined Contribution Plan of the Employer in which a Key Employee participated (regardless of whether such plan has been terminated) during the five Plan Years ending on the Determination Date; and

1.43.2.  each other Defined Benefit Plan or Defined Contribution Plan of the Employer that enables any plan described in the preceding subsection to meet the requirements of section 401(a)(4) or section 410 of the Code, including any such plan terminated within the five-year period ending on the Determination Date.

1.44.  “Required Beginning Date,” effective January 1, 1997, means April 1 of the calendar year following the later of:

1.44.1.  the calendar year in which the Participant reaches age 70½, or

1.44.2.  the calendar year in which the Participant retires; provided, that this Section 1.44.2 shall not apply in the case of a Participant who is a Five-Percent Owner with respect to the Plan Year ending in the calendar year in which the Participant reaches age 70½.

1.45.  “Retirement Plan” means the Penn Virginia and Affiliated Companies Employees’ Retirement Plan, terminated effective December 31, 2000.

14

1.46.  “Retirement Plan Transfer Account” means the separate account maintained under the Trust that has been established solely by funds transferred from the trust maintained under the Retirement Plan to this Plan, as a “qualified replacement plan” under section 4980(d)(2) of the Code. The initial balance of the Retirement Plan Transfer Account shall be equal to 25% of the “employer reversion,” described by section 4980(c)(2) of the Code, from the Retirement Plan. The Retirement Plan Transfer Account shall be invested in the default Investment Fund identified in Appendix C as of the date of transfer.

1.47.  “Rollover Contributions” means a Participant’s rollover contribution or trustee-to-trustee transfer made to his Rollover Contribution Account.

1.48.  “Savings Contribution” means a Participant’s voluntary, after-tax contributions made to his Savings Contribution Account.

1.49.  “Sponsor” means Penn Virginia Corporation.

1.50.  “Stock” means voting common stock of the Sponsor of the same class and having the same voting and dividend rights as that common stock of the Sponsor that from time to time is listed for public trading on the over-the-counter market, or, if applicable, a national securities exchange, and that is described in section 4975(e)(8) of the Code or in Treas.Reg. § 54.4975-12.

1.51.  “Super Top-Heavy Plan” means the Plan if it would be a Top-Heavy Plan if “90%” were substituted for “60%” each time it appears in Section 1.52 and Section 1.53.

1.52.  “Top-Heavy Group” means an Aggregation Group in which, as of the Determination Date, the sum of:

1.52.1.  the aggregate of the Account Balances of Key Employees under all Defined Contribution Plans included in the Aggregation Group, and

1.52.2.  the aggregate present value of cumulative accrued benefits for Key Employees under all Defined Benefit Plans included in the Aggregation Group,

exceeds 60% of a similar sum determined for all Employees included in the Aggregation Group

1.53.  “Top-Heavy Plan” means the Plan, if as of the Determination Date:

1.53.1.  the aggregate of the Account Balances of Key Employees exceeds 60% of the aggregate of the Account Balances of all Employees; or

1.53.2.  the Plan is part of a Required Aggregation Group that is a Top-Heavy Group.

15

Notwithstanding the preceding sentence, the Plan shall not be considered a Top-Heavy Plan for any Plan Year in which the Plan is a part of a Required Aggregation Group or a Permissive Aggregation Group that is not a Top-Heavy Group.

1.54.  “Trust” means the legal entity created by the trust agreement between the Sponsor and the Trustee, fixing the rights and liabilities with respect to controlling and managing the Fund for purposes of the Plan.

1.55.  “Trustee” means the trustee or trustees designated by the Board of Directors and named in the trust agreement and any amendments thereto.

1.56.  “Valuation Date” means the close of each day the New York Stock Exchange is open for business.

1.57.  “Year of Service” means a 12 consecutive month period beginning on the date an Employee performs his first Hour of Service (or his reemployment commencement date following a Break-in-Service) and each anniversary thereof during which such Employee is credited with at least 1,000 Hours of Service with the Employer.

ARTICLE II.

PARTICIPATION.

2.1.  Eligibility for and Election to Make Elective Deferral Contributions.    Except as provided in Section 2.4, an Employee shall be eligible to make Elective Deferral Contributions to the Plan as of the first day of any payroll period. An Employee who is eligible to participate in the Plan may elect to make Elective Deferral Contributions to the Plan and shall become a Participant in the Plan by making an election to participate in the form designated by the Committee or its delegate. His election shall authorize the Sponsor or the appropriate Participating Employer to withhold the percentage of his Compensation to be paid into his Elective Deferral Contribution Account and provide such additional information as the Committee may reasonably require. Such election shall be effective as soon as administratively practicable.

2.2.  Eligibility Requirements for Matching Contribution.    A Participant will be eligible to receive a Matching Contribution on the first day of the month coinciding with or next-following the completion of one Year of Service; provided that such Participant is then making Elective Deferral Contributions to the Plan.

2.3.  Ineligible Employees.    Each of the following Employees shall be ineligible to participate in the Plan:

2.3.1.  an Employee who is employed by an Employer that is not the Sponsor or another Participating Employer;

16

2.3.2.  an Employee who is a member of a unit of employees as to which there is evidence that retirement benefits were the subject of good faith collective bargaining, unless a collective bargaining agreement covering those employees provides for their participation in the Plan;

2.3.3.  a leased employee, within the meaning of section 414(n)(2) of the Code;

2.3.4.  an Employee who is a non-resident alien and who has no income from sources within the United States; and

2.3.5.  an individual who has been classified by the Employer as an independent contractor, notwithstanding a contrary determination by any court or governmental agency.

2.4.  Participation Following Termination of Employment.    An Employee who terminates his employment shall be eligible to participate as of the next payroll period that follows his reemployment as an eligible Employee. A rehired Employee who had not previously met the conditions for eligibility for a Matching Contribution under Section 2.2 may become eligible to receive a Matching Contribution upon meeting such conditions and upon application for participation in accordance with Section 2.1. Such election shall be effective as soon as administratively practicable. Years of Service credited before a Break-in-Service shall be counted in determining an Employee’s eligibility to participate in the Plan.

2.5.  Time of Participation—Excluded Employees.    An Employee otherwise eligible to participate in the Plan, but excluded under Section 2.3, shall be eligible to become a Participant beginning on the next payroll period that follows the date upon which the applicable provision of Section 2.3 ceases to apply, provided he is then an eligible Employee. A Participant who becomes subject to any provision of Section 2.3 shall cease to be eligible to make or receive contributions under the Plan as of the last day of the payroll period during which any such provision becomes applicable.

ARTICLE III.

CONTRIBUTIONS.

3.1.  Participant Contributions.    A Participant may make Elective Deferral Contributions and Rollover Contributions to the Plan.

3.1.1.  Elective Deferral Contributions.    Subject to the limits of Sections 3.1 and 3.3, each Participant may elect to have his pre-tax Compensation, for the remainder of the Plan Year and thereafter until his election is amended or revoked, reduced through payroll deduction by an amount that is not less than 1% and does not exceed 15% of such Compensation, which is paid into his Elective Deferral Contribution Account. If a Participant takes a hardship withdrawal from his Elective Deferral Contribution Account, before January 1, 2002, he shall be prohibited from making Elective Deferral Contributions for 12

17

months after the receipt of the hardship withdrawal. Effective for withdrawals on or after January 1, 2002, the prohibition from making Elective Defferal Contributions shall be six months.

3.1.1.1.  Election to Change Rate of Elective Deferral Contributions.    The percentage designated by a Participant as a rate of contribution under Section 3.1.1 shall automatically apply to increases and decreases in his rate of Compensation. Except as provided in Section 3.1.1.2, a Participant may elect to change the rate of his Elective Deferral Contributions to any other permissible rate in the manner permitted by the Plan Administrator, in its discretion. Any such election shall be effective as soon as practicable following receipt by the Committee or its delegate of written notice to change his Elective Deferral Contribution rate.

3.1.1.2.  Suspension and Resumption of Elective Deferral Contributions.    A Participant may suspend his Elective Deferral Contributions at any time. Any such election shall be effective as soon as practicable following receipt by the Committee or its delegate of written notice of such suspension. Such Participant may not resume Elective Deferral Contributions until the first day of the payroll period coincident with or immediately following the next payroll period. Such Participant may elect to resume Elective Deferral Contributions by filing written notice with the Committee or its delegate. Any such election shall be effective as soon as practicable following receipt by the Committee or its delegate of such written notice. Such notice shall indicate a rate of Elective Deferral Contributions in accordance with Section 3.1.1.

3.1.2.  Rollover Contributions.    With the approval of the Committee, an Employee, excluding any Employee who is ineligible under Section 2.3, may establish a Rollover Contribution Account, which shall consist of amounts:

3.1.2.1.  distributed to the Employee from either an employee pension plan that is qualified under section 401(a) of the Code, or an individual retirement arrangement described in section 408(d)(3)(A)(ii) of the Code, that is rolled over into the Plan pursuant to section 402(c) or section 408(d)(3)(A)(ii) of the Code, whichever is applicable; or

3.1.2.2.  transferred (in accordance with section 401(a)(31) of the Code and with the approval of the Committee) directly from the trustee or custodian of another qualified employee pension plan that is qualified under section 401(a) of the Code to the Trustee in the form acceptable to the Trustee; provided that such transferred amounts are not subject to the annuity provisions of sections 401(a)(11) and 417 of the Code and that the transfer does not eliminate a protected benefit under section 411(d)(6) of the Code.

18

3.1.3.  Savings Contributions.    Before January 1, 1997, Participants could elect to have Savings Contributions made to the Plan on an after-tax basis. Savings Contributions cannot be made to the Plan on or after that date.

3.2.  Participating Employer Contributions.

3.2.1.  Matching Contributions.    For each Plan Year each Participating Employer shall contribute on behalf of each Participant employed by it who has rendered one Year of Service an amount equal to 100% of such Participant’s Elective Deferral Contributions made under Section 3.1.1, provided that the Participating Employer Matching Contribution shall not exceed an amount equal to the lesser of (a) 6% of each Participant’s Compensation or (b) $4,000, for the year. Effective January 1, 2002, the source for all Matching Contributions shall be the Retirement Plan Transfer Account, until such time as the balance of the Retirement Plan Transfer Account equals zero.

3.2.2.  Qualified Nonelective Contributions.    If the limitation on Elective Deferral Contributions set forth in Section 3.4.1 or the limitation on Matching Contributions set forth in Section 3.5.1 is exceeded (or not deemed to be satisfied as provided in those Sections), at the direction of the Committee a Participating Employer shall make Qualified Nonelective Contributions to the Qualified Nonelective Contribution Account of each eligible Non-Highly Compensated Employee in the amount necessary to meet the limitation set forth in such Sections. Qualified Nonelective Contributions shall be treated as Elective Deferral Contributions or Matching Contributions as determined by the Committee for all purposes of the Plan. Such contributions shall be allocated in the proportion that each eligible Non-Highly Compensated Employee’s Compensation bears to the total Compensation of all such eligible Employees.

3.3.  Maximum Deferral.    Notwithstanding any other provision of the Plan to the contrary the Plan (and any other plan maintained by the Employer) shall not accept Elective Deferral Contributions under Section 3.1.1 for any taxable year of a Participant in excess of $10,500, as adjusted under section 402(g) of the Code. For the taxable year following the taxable year in which a Participant receives a hardship withdrawal, the amount determined under the preceding sentence shall be reduced by the amount of such Participant’s Elective Deferral Contributions for the taxable year during which the hardship withdrawal occurs.

3.3.1.  Distribution of Excess Elective Deferrals.    If a Participant has Excess Deferrals for a taxable year of that Participant, the Participant may, by March 1 of the following taxable year, notify the Committee that the Participant elects to withdraw all or any portion of such Excess Deferrals, plus any income and minus any loss allocable thereto, as determined under Section 3.3.2, from this Plan, even though the amounts contributed to this Plan as Elective Deferral Contributions for that Participant did not, in themselves, result in an Excess Elective Deferral. If the Participant makes such an election, the amount determined in accordance with the preceding sentence shall be distributed to the Participant no later than the April 15 following the date of such election, notwithstanding any other provision of this Plan. The amount of Excess Elective Deferrals that may be distributed with respect to a Participant for

19

a taxable year must first be reduced by any Excess Contributions previously distributed with respect to such Participant for the Plan Year beginning with or within the taxable year.

3.3.2.  Determination of Income, Gain or Loss.    The income, gain or loss allocable to Excess Deferrals shall be determined by multiplying the income, gain or loss allocable to the Participant’s Elective Deferral Contributions for the Participant’s taxable year (calculated for such taxable year and for the period from the end of such taxable year to the date of distribution) by a fraction. The numerator of the fraction is such Participant’s Excess Deferrals for such taxable year and the denominator is the balance of the Participant’s Deferral Account on the last day of such taxable year, reduced by the income and gain and increased by the loss allocable to such balance for the taxable year.

3.4.  Limitation on Elective Deferral Contributions—Code Section 401(k).    The provisions of this Section 3.4 shall be deemed satisfied for any Plan Year in which the Plan satisfies Code section 401(k)(12).

3.4.1.  Notwithstanding any provision of the Plan to the contrary, the elections by Participants under Section 3.1 shall be limited as provided in section 401(k) of the Code, so that the “average deferral percentage,” as defined below, for the eligible Highly Compensated Employees, shall bear a relationship to the “average deferral percentage” for the eligible Non-Highly Compensated Employees that meets one of the alternative tests described in section 401(k) of the Code and summarized below, as the Committee shall determine for such Plan Year:

3.4.1.1.  the average deferral percentage for the eligible Highly Compensated Employees shall not exceed 125% of the average deferral percentage for the eligible Non-Highly Compensated Employees; or

3.4.1.2.  the average deferral percentage for the eligible Highly Compensated Employees shall not exceed the lesser of:

(i)   200% of the average deferral percentage for the eligible Non-Highly Compensated Employees, or

(ii)   the average deferral percentage for the eligible Non-Highly Compensated Employees plus two percentage points.

3.4.2.  At the election of the Sponsor, Section 3.4.1 may be applied by substituting “for the Plan Year” in place of “for the preceding Plan Year” in Section 3.4.1; provided, however, such an election, once made, may not be changed except in accordance with procedures established by the Internal Revenue Service.

3.4.3.  The term “average deferral percentage” means the average of each eligible Employee’s actual deferral percentage that is equal to the following ratio:

20

3.4.3.1.  the amount of each eligible Employee’s Elective Deferral Contribution allocated to the Fund on behalf of such Employee for the applicable Plan Year, to

3.4.3.2.  the Employee’s Compensation, as defined in Section 1.11.1, for the applicable Plan Year.

For the Plan Year in which an Employee becomes eligible, resumes eligibility or ceases to be eligible to make Elective Deferral Contributions, the only Compensation that shall be taken into account is that which is, or but for his election under Section 3.1 would be, received by him while he is a Participant.

3.4.4.  Treatment of Excess Contributions.    If neither test described in Section 3.4.1 is met (or deemed satisfied), or in the Committee’s opinion will be met (or deemed satisfied), the Committee, at its discretion, shall:

3.4.4.1.  direct that the amount of future Elective Deferral Contributions under Section 3.1 by the Highly Compensated Employees be reduced, by any reasonable method, including first reducing the Elective Deferral Contributions by those Highly Compensated Employees contributing the greatest percentage of their Compensation to the next highest percentage, then reducing the Elective Deferral Contributions by all Highly Compensated Employees contributing at the highest remaining percentage, including those subject to previous reductions, and continuing to apply the same reduction to the extent necessary to meet one of the tests; or

3.4.4.2.  make Qualified Nonelective Contributions to the Qualified Nonelective Contribution Account of each Participant who is a Non-Highly Compensated Employee to the extent necessary to meet one of the tests; or

3.4.4.3.  cause the Excess Contributions, adjusted for any income, gain or loss, to be distributed to the Highly Compensated Employees on whose behalf such Excess Contributions were made within 2½ months after the end of the Plan Year for which they were allocated.

3.4.5.  Determination of Amount of Excess Contributions.    The amount of a Highly Compensated Employee’s Excess Contributions for a Plan Year is the amount necessary to reduce the amount of his Elective Deferral Contributions to a maximum adjusted percentage, which shall be the highest percentage that would cause one of the tests in Section 3.4.1 to be met if each such Highly Compensated Employee who had an actual deferral percentage greater than the maximum adjusted percentage had, instead, such lower percentage. The aggregate amount of Excess Contributions on behalf of all Highly Compensated Employees shall be distributed as follows:

21

3.4.5.1.  the Elective Deferral Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Elective Deferral Contributions are reduced by the amount required to cause that Highly Compensated Employee’s Elective Deferral Contributions to equal the dollar amount of the Elective Deferral Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Elective Deferral Contributions; provided, however, if a lesser reduction, when added to the total dollar amount already distributed under this Section, would equal the aggregate Excess Contributions the lesser reduction amount shall be distributed; and

3.4.5.2.  if the total amount distributed under Section 3.4.5.1 is less than the aggregate Excess Contributions, the process set forth in Section 3.4.5.1 shall be repeated.

3.4.6.  Determination of Income, Gain or Loss.    The income, gain or loss allocable to Excess Contributions shall be determined by multiplying the income, gain or loss allocable to the Participant’s Elective Deferral Contributions for the Plan Year (calculated for such Plan Year and for the period from the end of the Plan Year to the date of distribution) by a fraction. The numerator of the fraction is such Participant’s Excess Contributions for such Plan Year and the denominator is the balance of the Participant’s Deferral Account on the last day of such Plan Year, reduced by the income and gain and increased by the loss allocable to such balance for the Plan Year.

3.5.  Limitation on Matching Contributions—Code Section 401(m).    The provisions of this Section 3.5 shall be deemed satisfied for any Plan Year in which the Plan meets the requirements of Code section 401(m)(11).

3.5.1.  Notwithstanding any provision of the Plan to the contrary, Matching Contributions shall be limited as provided in section 401(m) of the Code, so that the “average contribution percentage,” as defined below, for the eligible Highly Compensated Employees for the current Plan Year shall bear a relationship to the “average contribution percentage” for the eligible Non-Highly Compensated Employees that meets one of the alternative tests described in section 401(m) of the Code and summarized below, as the Committee shall determine for such Plan Year:

3.5.1.1.  the average contribution percentage for the eligible Highly Compensated Employees shall not exceed 125% of the average contribution percentage for the eligible Non-Highly Compensated Employees; or

3.5.1.2.  the average contribution percentage for the eligible Highly Compensated Employees shall not exceed the lesser of:

(i)   200% of the average contribution percentage for the eligible Non-Highly Compensated Employees, or

22

(ii)   the average contribution percentage for the eligible Non-Highly Compensated Employees plus two percentage points.

3.5.2.  The term “average contribution percentage” means the average of each eligible Employee’s actual contribution percentage that is equal to the following ratio:

3.5.2.1.  the amount of the Sponsor and Participating Employer Matching Contribution made on behalf of such eligible Employee for the Plan Year, to

3.5.2.2.  the Employee’s Compensation for the Plan Year.

For the Plan Year in which an Employee becomes eligible, resumes eligibility or ceases to be eligible to receive Matching Contributions, the only Compensation that shall be taken into account is that which is, or but for the Employee’s election under Section 3.1 would be, received by the Employee while he is eligible to participate.

3.5.3.  Treatment of Excess Aggregate Contributions.    If neither test described in Section 3.5.1 is met (or deemed satisfied), or in the Committee’s opinion will be met (or deemed satisfied), the Committee, at its discretion, shall:

3.5.3.1.  make Qualified Nonelective Contributions to the Qualified Nonelective Contribution Account of each Participant who is a Non-Highly Compensated Employee to the extent necessary to meet one of the tests; or

3.5.3.2.  cause Excess Aggregate Contributions, adjusted for income, gain or loss thereon, to be distributed as additional Compensation to Participants on whose behalf the Excess Aggregate Contributions were contributed within 2½ months after the end of the Plan Year for which they were contributed.

3.5.4.  Determination of Amount of Excess Aggregate Contributions.    The amount of a Highly Compensated Employee’s Excess Aggregate Contributions for a Plan Year is the amount necessary to reduce the amount of his Matching Contributions to a maximum adjusted percentage, which shall be the highest percentage that would cause one of the tests in Section 3.5.1 to be met if each such Highly Compensated Employee who had an actual contribution percentage greater than the maximum adjusted percentage had, instead, such lower percentage. The aggregate amount of Excess Aggregate Contributions on behalf of all Highly Compensated Employees shall be distributed as follows:

3.5.4.1.  the Matching Contributions of the Highly Compensated Employee(s) with the highest dollar amount of Matching

23

Contributions are reduced by the amount required to cause that Highly Compensated Employee’s Matching Contributions to equal the dollar amount of Matching Contributions of the Highly Compensated Employee(s) with the next highest dollar amount of Matching Contributions; provided, however, if a lesser reduction, when added to the total dollar amount already distributed under this Section, would equal the aggregate Excess Aggregate Contributions the lesser reduction amount shall be distributed; and

3.5.4.2.  if the total amount adjusted under Section 3.5.4.1 is less than the aggregate Excess Aggregate Contributions, the process set forth in Section 3.5.4.1 shall be repeated.

3.5.5.  Determination of Income, Gain or Loss.    The income, gain or loss allocable to Excess Aggregate Contributions shall be determined by multiplying the income, gain or loss allocable to the Participant’s Matching Contributions for the Plan Year (calculated for such Plan Year and for the period between the end of the Plan Year and the last day of the month preceding the date of distribution) by a fraction. The numerator of the fraction is such Participant’s Excess Aggregate Contribution for such Plan Year and the denominator is the balance of the Participant’s Matching Contribution Account on the last day of such Plan Year, reduced by the income and gain and increased by the loss allocable to such balance for the Plan Year.

3.6.  Aggregate Limitation on Elective Deferral Contributions and Matching Contributions.    The limitation on Elective Deferral Contributions under Section 3.4.1 or the limitation on Matching Contributions under Section 3.5.1 shall be reduced, as determined by the Committee, to the extent necessary so that the sum of the average deferral percentage (as determined under Section 3.4) and the average contribution percentage (as determined under Section 3.5), for the eligible Highly Compensated Employees during the Plan Year does not exceed the “aggregate limit” on Elective Deferral Contributions and Matching Contributions determined under this Section 3.6. The “aggregate limit” shall be the greater of:

3.6.1.  the sum of:

3.6.1.1.  125% of the greater of:

(i)   the average deferral percentage of the eligible Non-Highly Compensated Employees as determined under Section 3.4 for the Plan Year, or

(ii)   the average contribution percentage of the eligible Non-Highly Compensated Employees as determined under Section 3.5 for the Plan Year, and

24

3.6.1.2.  two plus the lesser of the amount determined under subsection (i) or subsection (ii) immediately above, but not more than 200% of such lesser amount; or

3.6.2.  the sum of:

3.6.2.1.  125% of the lesser of:

(i)   the average deferral percentage of the eligible Non-Highly Compensated Employees for the Plan Year, or

(ii)   the average contribution percentage of the eligible Non-Highly Compensated Employees for the Plan Year, and

3.6.2.2.  two plus the greater of the amount determined under subsection (i) or (ii) immediately above, but not more than 200% of such greater amount.

3.7.  Plan Aggregation; Special Rule.

3.7.1.  The actual deferral percentage and the actual contribution percentage for an eligible Employee who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions or Matching Contributions allocated to his accounts under two or more plans described in section 401(a) of the Code or arrangements described in section 401(k) of the Code that are maintained by the Employer, shall be determined as if all such Elective Deferral Contributions and Matching Contributions were made under a single arrangement.

3.7.2.  For purposes of satisfying the limitation on Elective Deferral Contributions and the limitation on Matching Contributions, in the event that this Plan satisfies the requirements of sections 410(b) or 401(a)(4) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of sections 410(b) or 401(a)(4) of the Code only if aggregated with this Plan, then actual deferral percentages and actual contribution percentages of eligible Employees shall be determined as if all such plans were a single plan.

3.7.3.  The determination and treatment of the actual deferral percentage and the actual contribution percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.

3.8.  Recovery of Participating Employer Contributions.    Any Participating Employer may recover contributions made under the Plan as follows:

3.8.1.  If a contribution is made by a Participating Employer under a mistake of fact, the excess of the amount contributed over the amount that would have been

25

contributed had there not occurred a mistake of fact may be recovered by the Participating Employer within one year after payment of the contribution.

3.8.2. Participating Employer contributions are conditioned upon their deductibility under section 404 of the Code; therefore, the contribution attributable to any Plan Year as to which deductibility is disallowed may be recovered, to the extent of the amount of the disallowance, within one year after the disallowance.

Income and gains attributable to the excess contribution in the case of a mistake of fact or a disallowed deduction may not be recovered by the Participating Employer. Losses attributable to such contribution shall reduce the amount any Participating Employer may recover.

ARTICLE IV.

CREDITS TO ACCOUNTS.

4.1.  Maintenance of Accounts.    The Committee shall maintain or cause to be maintained an Elective Deferral Contribution Account, a Matching Contribution Account, a Savings Contribution Account, a Qualified Nonelective Contribution Account and a Rollover Contribution Account for each Participant, as required by the terms of the Plan. The records of each Account shall separately reflect:

4.1.1.  the number of shares of Investment Funds allocated to each such Account,

4.1.2.  the Trustee’s tax cost basis, as that basis would be computed for Federal income tax purposes, in each share of Stock held as part of each such Account, the extent to which such Stock is attributable to contributions made under Sections 3.1 and 3.2, and

4.1.3.  the amount of any withdrawals from each such Account.

4.2.  Payment of Contributions.

4.2.1.  Participant Contributions.    Elective Deferral Contributions shall be paid over by the Participating Employer to the Trustee as of the earliest date on which such Elective Deferral Contributions can reasonably be segregated from the Participating Employer’s general assets, but in no event later than the 15th business day of the month following the month in which such amounts would otherwise have been payable to the Participant in cash. Elective Deferral Contributions shall be allocated to Participants’ Accounts no later than the time required by the Code.

4.2.2.  Participating Employer Matching Contributions.    Matching Contributions shall be paid to the Trustee at the same time that Elective Deferral Contributions to which they relate are paid. Such Matching Contributions shall be allocated to Participants’ Accounts no later than the time required by the Code.

26

4.2.3.  Qualified Nonelective Contributions.    Payment of the Participating Employers’ Qualified Nonelective Contributions shall be made within the time prescribed by the Code as the time within which contributions must be made in order to constitute an allowable Federal income tax deduction for the Employer’s taxable year for which the contribution is made. Such contributions shall be allocated to Participants’ Accounts no later than the time required by the Code.

4.2.4.  Payment for Tax Purposes.    In any event, all contributions hereunder shall be made within the time prescribed by the Code as the time within which contributions must be made in order to constitute an allowable Federal income tax deduction for the Participating Employer’s taxable year for which the contributions are made.

4.3.  Allocations to Participants’ Accounts.    As of each Valuation Date, the Trustee shall credit the Accounts of each Participant as follows:

4.3.1.  Cash dividends, Stock purchased with cash dividends, Stock representing stock dividends and additional Stock received upon stock splits shall be allocated among the Elective Deferral Contribution, Matching Contribution, Qualified Nonelective Contribution and Rollover Contribution, and Savings Contribution Accounts of Participants in the same proportion as the number of shares of Stock in each Participant’s applicable Accounts on the immediately preceding Valuation Date. If any property other than cash or Stock is distributed with respect to Stock held in Participants’ Accounts, that property shall be sold by the Trustee. The proceeds of such sale shall then be considered a cash distribution, with the same record date as the date of receipt by the Trustee.

4.3.2.  As of each Valuation Date, any increase or decrease in the number of shares of an Investment Fund other than Stock since the preceding Valuation Date shall be computed by the Trustee and credited to or deducted from the Accounts of all Participants who have designated an investment in that Investment Fund. Each such Account’s share of any increase or decrease shall be that portion that bears the same ratio to the total as the portion of:

4.3.2.1.  the Participant’s Account invested in that Investment Fund as of the preceding Valuation Date bears to

4.3.2.2.  the total of all Participants’ Accounts invested in the Investment Fund as of the preceding Valuation Date.

4.3.3.  For the purpose of determining such increase or decrease, the balance at the preceding Valuation Date shall be reduced by amounts since properly paid from the Fund, and, in any case where a distribution falls due on a Valuation Date it shall not be regarded as due until the next day. The Committee shall provide for the establishment of accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants’ Accounts provided for in this Article. From time to time, such procedures may be modified for the purpose of achieving equitable and nondiscriminatory allocations among the

27

Participants’ Accounts in accordance with the provisions of this Article. The fair market value of investments held in the Fund shall be conclusively determined by the Trustee in accordance with any reasonable method permitted under regulations issued by the Secretary of the Treasury and such reasonable and uniform rules as the Trustee may adopt.

4.3.4.  After the allocations prescribed in Sections 4.3.1 and 4.3.2 have been made, shares of the Investment Funds purchased with Elective Deferral Contributions, Savings Contributions, Qualified Nonelective Contributions, Rollover Contributions or Matching Contributions shall be allocated among the Accounts of Participants in the ratio that the dollar amount of each Participant’s designated allocation of Investment Funds bears to the total purchases of each such Investment Fund by the Trustee.

4.3.5.  The value of Stock purchased by exercise of rights represented by the Stock and the value of such Stock represented by the cash purchase price shall both be allocated in accordance with Section 4.3.1.

4.3.6.  As soon as practicable following each calendar quarter of a Plan Year, the Trustee shall send or cause to be sent to each Participant a statement showing the number of shares of the Investment Funds held in the Participant’s Account, the market value of each share of the applicable Investment Fund, the amount of cash held in each of his Accounts, as of such Valuation Date, and the amount of earnings, dividends, withdrawals, loans, loan repayments and transfers from each such Account.

4.4.  Purchase of Shares of Investment Funds.

4.4.1.  So much of the cash contributed under Section 3.1 or Section 3.2 as is designated for the purchase of Stock shall be applied by the Trustee to the purchase of Stock if administratively practicable on the 15^th day of each month (or next following day that Stock is traded if Stock is not traded on the 15^th day of the month) and the last day of each month (or next following day that Stock is traded if not traded on the last day of the month) (each a “Stock Purchase Date”). If a Participant designates investment in Stock after the time it is administratively practicable to make a purchase on the Stock Purchase Date immediately following such designation, Stock shall be purchased with respect to such election on the next following Stock Purchase Date; provided that he has not changed such designation to invest otherwise. During the period between designation of Stock as an investment and the purchase of the Stock, the applicable portion of a Participant’s Account shall be invested in the Black-Rock U.S. Treasury Money Market Fund (or similar interest-bearing account).

4.4.2. Stock may be purchased on the open market, from the Sponsor or in a private transaction from a shareholder who is neither a “disqualified person” within the meaning of section 4975 of the Code nor a “party in interest” within the meaning of section 3(14) of ERISA. Unless otherwise instructed by the Board of Directors, the Trustee shall purchase all such Stock on the open market.

28

4.4.3.  If Stock is purchased from the Sponsor, the price shall be the average of the closing bid and asked prices of the Stock on the date of purchase, and no commission shall be paid. If the Stock should be listed on a national securities exchange, the purchase price of such Stock shall be the mean between the high and low trading prices for the Stock on that exchange on the purchase date. If there are no such quotations or if the Committee determines that such quotations do not accurately reflect the fair market value, the price shall be the fair market value of the Stock as determined by an independent appraisal.

4.4.4.  So much of the cash contributed under Section 3.1 as is designated for purchase of Investment Funds other than Stock shall be applied by the Trustee to the purchase of Investment Funds other than Stock as soon as practicable following the close of each business day.

4.4.5.  Any cash remaining after completion of each purchase shall be held by the Trustee for future purchases. Purchases shall be made in the name of the Trustee for the account of the Plan. Certificates for shares shall be issued in the Trustee’s name or in the name of the Trustee’s nominee, and shall be delivered to and held by the Trustee, the Trustee’s nominee or the custodian for any shares of Investment Funds other than Stock.

4.5.  Limitations on Annual Additions to Participants’ Accounts—Code Section 415.

4.5.1.  Primary Limit.    The maximum Annual Addition to any Participant’s Account for any Limitation Year beginning on or after December 1, 2001, shall be the lesser of:

4.5.1.1.  $35,000; or

4.5.1.2.  25% of the Participant’s Compensation for such Limitation Year.

4.5.2.  Combined Limit.    Effective for Plan Years beginning before January 1, 2000, if a Participant participates in one or more Defined Contribution Plans and one or more Defined Benefit Plans to which the Employer contributes on his behalf, the sum of the defined benefit fraction and the defined contribution fraction shall not exceed 1.0.

4.5.2.1.  Defined Benefit Fraction.    The defined benefit fraction for any Limitation Year is a fraction (i) the numerator of which is the Participant’s projected annual benefit (determined as of the close of the Limitation Year) under all such Defined Benefit Plans (whether or not terminated), and (ii) the denominator of which is the lesser of (A) $90,000 or the applicable dollar limit for such Limitation Year multiplied by 1.25 (1.0 if the Plan is a Super Top-Heavy Plan), or (B) the Participant’s average Compensation for the three consecutive calendar years of active participation, that produces the highest average, multiplied by 1.4.

29

4.5.2.2.  Defined Contribution Fraction.    The defined contribution fraction for any Limitation Year is a fraction (i) the numerator of which is the total of the Participant’s Annual Additions as of the close of the Limitation Year, and (ii) the denominator of which is the lesser of the following amounts determined for the Limitation Year and for each prior Limitation Year for which the Participant was an Employee (regardless of whether any Plan was in existence during such year):

(A)  $30,000 or the applicable dollar limit for each such Limitation Year multiplied by 1.25 (1.0 if the Plan is a Super Top-Heavy Plan), or

(B)  35% of the Participant’s Compensation, as defined in Section 1.11.2, for each such Limitation Year.

4.5.2.3.  Transitional Rule:    The denominator of the defined contribution fraction under Section 4.5.2.2 for all Limitation Years ending before January 1, 1983 shall, at the Committee’s election, be the denominator determined for the Limitation Year ending in 1982, multiplied by a fraction, (i) the numerator of which is the lesser of $51,875 or 35% of the Participant’s 1981 Compensation and (ii) the denominator of which is the lesser of $41,500 or 25% of the Participant’s 1981 Compensation.

The method by which these combined limits will be met is set forth in Appendix B attached hereto.

4.5.3.  For purposes of applying the limitations of this Section, all Defined Contribution Plans (without regard to whether such Defined Contribution Plan has been terminated) maintained by the Employer will be treated as one Defined Contribution Plan.

4.6.  Elimination of Excess Annual Additions.    If the limitations described in Section 4.5.1 would be exceeded for any Participant, such Participant’s excess Annual Addition shall be placed in an unallocated suspense account and used to reduce Participating Employer contributions for all Participants in the next Limitation Year and each succeeding Limitation Year, if necessary.

4.6.1.  If in accordance with this Section 4.6, a suspense account is in existence during any Limitation Year, such account shall share in the income, gains and losses of the Fund.

4.6.2.  The combined limits on contributions and benefits described in Section 4.5.2 shall be met in accordance with Appendix B after the requirements of Section 4.6 have been met.

30

ARTICLE V.

VESTING.

5.1.  Full Vesting At All Times.    A Participant shall at all times have a 100% vested interest in the amounts standing to the credit of his Account.

ARTICLE VI.

ENTITLEMENT TO BENEFITS.

6.1.  Termination of Employment.    Upon termination of a Participant’s employment for any reason other than death, he shall be entitled to payment based on the number of shares of Investment Funds, and any additional cash credited to his Account, determined as of the Valuation Date coinciding with or next following such termination.

6.2.  Deferred Distribution.    If a Participant elects to defer distribution of his Account under Section 7.1.3, the amount to which he is entitled shall be based upon the number of shares of Investment Funds, and any additional cash credited to his Account, determined as of the Valuation Date coinciding with or next following the distribution date elected.

6.3.  Death.

6.3.1.  Death While Employed.    The Beneficiary of a Participant whose employment is terminated by reason of his death shall be entitled to the entire amount in the Participant’s Account, determined as of the Valuation Date coinciding with or next following the date of his death.

6.3.2.  Death After Termination of Employment and Prior to Payment of Any Benefits.    If a Participant who is entitled to benefits under Section 6.1 dies before receiving the benefit described in such Section, his Beneficiary shall be paid the amount to which the Participant would have been entitled had he lived.

6.3.3.  Death After Installment Payments Have Begun.    If a Participant who is entitled to a benefit under Section 6.1 dies after receiving one or more installment payments, his Beneficiary shall receive the amount payable under Section 7.3.2.4.

6.4.  Amount of Distribution.    The amount of the distribution under this Article VI shall be equal to the net proceeds of liquidation of the shares of Investment Funds and any shares of Stock received in kind.

ARTICLE VII.

PAYMENT AND FORM OF BENEFITS.

7.1.  Benefit Commencement Date.

7.1.1.  General Rule.    Subject to Sections 7.1.2, 7.1.3, and 7.1.4, any benefit due a Participant under Article VI shall be paid as soon as administratively feasible after

31

the Valuation Date coinciding with or next following the date upon which the Participant becomes entitled to such benefit, unless transferred pursuant to an election under Section 7.11.

7.1.2.  Cash-Outs.    The following is effective January 1, 1998:

7.1.2.1.  If the value of a Participant’s vested Account is $5,000 or less, his benefit shall be paid under Section 7.1.1 without his consent as soon as administratively feasible.

7.1.2.2.  Subject to Section 7.1.3, if the value of the Participant’s vested Account is more than $5,000 as of the date of any distribution, payment to such Participant shall not be made unless the Participant consents in writing to the distribution. Consent to such distribution shall not be valid unless the Participant is informed of his right to defer receipt of the distribution.

7.1.2.3.  Notwithstanding any provision of this Plan to the contrary, if a Participant has begun to receive distributions pursuant to an optional form of benefit under which at least one scheduled periodic distribution has not been made, and if the Participant’s vested Account, determined at the time of the first distribution under that optional form of benefit, exceeded the cash-out limit in effect under section 411(a)(11) of the Code, then such Participant’s vested Account is deemed to continue to exceed the cash-out limit.

7.1.3.  Benefit Deferral by Election.    A Participant entitled to a benefit of more than $5,000 may elect to defer payment of that benefit until his Required Beginning Date, or, if earlier, such time as the Participant requests payment in writing.

7.1.4.  Required Beginning Date.    Notwithstanding Sections 7.1.1, 7.1.2, 7.1.3 and 7.1.5, distribution shall be made or shall begin not later than a Participant’s Required Beginning Date.

7.1.5.  Default Provision.    If a Participant fails to request payment, payment shall be made by the Participant’s Required Beginning Date.

7.2.  Earliest Distribution Date.    No distribution of the portion of a Participant’s Account that is attributable to his Elective Deferral Contributions or Qualified Nonelective Contributions shall be made earlier than:

7.2.1.  the Participant’s death or other separation from service;

7.2.2.  the Participant’s reaching age 59 ¹/2;

32

7.2.3.  in the case of Elective Deferral Contributions (and income allocable thereto credited to a Participant’s Account as of December 31, 1988), the Participant’s incurring an expense that qualifies for a hardship withdrawal under Article VIII; or

7.2.4.  the occurrence of an event described in section 401(k)(10) of the Code.

7.3.  Forms of Benefit Payment.    The forms of benefit payable under the Plan shall be:

7.3.1.  a lump sum distribution; or

7.3.2.  subject to the minimum required distribution rules described in Section 7.9, monthly installments over a period not to exceed 10 years. In the event the Participant elects installment payments:

7.3.2.1.  a Participant may elect to change his election of Investment Funds at any time during the installment term, in accordance with the provisions of Article X.

7.3.2.2.  income, gains or losses on such account or investment shall be accumulated,

7.3.2.3.  each year of the installment term the Trustee shall pay to a Participant (or his Beneficiary) from his Account an amount equal to his then-current balance multiplied by a fraction, the numerator of which is one and the denominator of which initially is the period of installments, reduced by one for each year thereafter, so that in the last year of the installment period the Account is exhausted, and

7.3.2.4.  on the death of the Participant any then-remaining balance of such Account shall be paid to the Participant’s Beneficiary in accordance with Section 7.6.2.

7.3.2.5.  A Participant who has elected to receive his benefit in the form of installment payments may receive the balance of his distribution in a lump sum effective as of any Valuation Date, by delivering an election to the Committee or its delegate before such date.

Subject to Section 7.4, distributions from a Participant’s Account shall be made entirely in cash or partly in cash and partly in Stock, as elected by the Participant pursuant to a procedure established by the Committee. If a Participant elects to receive distribution of amounts attributable to Stock in cash, the Trustee may (a) purchase for the Plan the shares of Stock at their fair market value on the date they are to be delivered, (b) sell such shares on the market, or (c) purchase a portion of such shares for the Plan and sell the remainder on the market.

33

Distribution of Investment Funds other than Stock shall always be in cash and shall be equal to the net proceeds of liquidation of such shares.

7.4.  Fractional Shares of Stock.    Before any distribution is made of a Participant’s Account pursuant to this Article VII, any fractional share of Stock allocated to such Account shall be converted to cash, on the basis of its pro rata share of the price of a whole share of Stock on the Valuation Date determined pursuant to Article VI.

7.5.  Stock Restrictions.    Any shares of Stock distributed pursuant to the terms of the Plan shall be subject to such restrictions on their subsequent transfer as shall be necessary or appropriate, in the opinion of counsel for the Sponsor, to comply with applicable Federal and state securities laws, and may bear appropriate legends evidencing such restrictions.

7.6.  Death Benefits.

7.6.1.  Death Before Distribution Has Begun.    Subject to Sections 7.6.3 and 7.7, if the Participant dies before distribution of his Account has begun, his Beneficiary shall receive his entire Account in a cash lump sum as soon as administratively feasible after the Valuation Date coinciding with or next following the Participant’s death.

7.6.2.  Death After Distribution Has Begun.    Subject to Sections 7.3.2.6, 7.6.3 and 7.7, if the Participant had elected installment payments under Section 7.3.2 and dies before the installment term has been completed, his Beneficiary shall continue to receive distributions in the form and pursuant to the timetable elected by the Participant; provided that if the Participant’s Beneficiary is his surviving spouse, such spouse may elect in accordance with Section 7.6.3 to defer payment or in accordance with Section 7.7 to receive a lump sum distribution of the remaining Account balance. If the spouse elects to receive a lump sum distribution, such distribution shall only be in cash and shall be payable as soon as administratively feasible after the Valuation Date coinciding with or next following the Beneficiary’s election.

7.6.3.  Election By Spouse to Defer Benefit Payment.    If the Beneficiary is the Participant’s spouse and the Participant’s Account Balance is more than $5,000 on the date of his death, the spouse may elect to defer distribution of the Participant’s benefit until a date not later than December 31 following the date the Participant would have reached age 70½ had he lived.

7.7.  Election of Benefit Form.    A Participant or Beneficiary who is the Participant’s surviving spouse shall elect a payment option under Section 7.3 by notifying the Committee, in writing, of his election and the proposed date of distribution or timetable for receipt of installment payments. A Beneficiary who is not the Participant’s spouse shall not be entitled to make an election as to the form of benefit payment. If the Beneficiary fails to request payment, payment shall be made in a cash lump sum no later than the Participant’s Required Beginning Date.

34

7.8.  Change of Election.    Any Participant or surviving spouse electing a benefit payment option under Section 7.3 may revoke such election and file a new election in writing with the Committee at any time before benefit payments begin. A Beneficiary who is not the Participant’s spouse shall not be entitled to change the form of benefit payment.

7.9.  Required Distributions—Code Section 401(a)(9).    Distributions under this Article VII shall be made in accordance with section 401(a)(9) of the Code and the regulations thereunder, as generally described in this Section 7.9. The provisions of this Section 7.9 shall override any distribution option otherwise provided in the Plan that is inconsistent with section 401(a)(9) of the Code. With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2002, the Plan shall apply the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code in accordance with the regulations under section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. The preceding sentence shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service.

7.9.1.  Distribution Beginning During Participant’s Life.    The Account of the Participant shall be distributed to him:

7.9.1.1.  not later than his Required Beginning Date, or

7.9.1.2.  beginning not later than his Required Beginning Date and, subject to any shorter period elected under Section 7.3.2, shall be payable over the life of such Participant or over the joint lives of such Participant and his Beneficiary (or over a period not extending beyond the life expectancy of such Participant or the joint life expectancies of such Participant and his Beneficiary); provided, however, that if the Beneficiary is not the Participant’s surviving spouse, such distribution shall be modified in accordance with the minimum incidental death benefit rule of Treas. Reg. § 1.401(a)(9)-2.

Life expectancy under this Section 7.9.1 shall be determined under Treas. Reg. § 1.72-9. The life expectancy of a Participant and his spouse shall not be recalculated on an annual basis.

7.9.2.  Distribution Following Death of a Participant.

7.9.2.1.  If the Participant dies after distribution of his Account has begun and before his entire Account has been distributed to him, the remaining portion of his Account shall be distributed at least as rapidly as under the method of distribution in effect on the date of his death.

7.9.2.2.  Subject to Section 7.9.2.3, if the Participant dies before distribution of his Account has begun, his entire Account shall be distributed by December 31 of the fifth year after the year of his death, unless the remainder of his Account is payable to a designated Beneficiary over the life

35

of such Beneficiary (or over a period not extending beyond the life expectancy of such Beneficiary) and such distribution begins not later than December 31 of the year after the year of the Participant’s death.

7.9.2.3.  If the Beneficiary is the Participant’s spouse, the date on which distributions under Section 7.9.2.2 are required to begin is the date on which the Participant would have reached age 70½ had he lived. If such spouse dies before such distributions begin, distribution shall be made in accordance with Section 7.9.2.2 as if the spouse were the Participant.

Life expectancy under this Section 7.9.2 shall be determined using the Beneficiary’s attained age in the year distributions are required to begin.

7.10.  TEFRA 242(b) Elections.    Notwithstanding anything in this Article VII to the contrary, in the event a Participant made, and filed with the Committee, a retirement benefit payment election prior to 1984 under section 242(b) of the Tax Equity and Fiscal Responsibility Act of 1982, such Participant’s retirement benefit shall be paid to the Participant or his Beneficiary in such form and over such period as the Participant shall have elected. This Section shall not apply in the event such a Participant subsequently revokes such section 242(b) benefit payment election.

7.11.  Benefit Transfers.    This Section will apply to distributions from a Participant’s Account made after December 31, 1992.

7.11.1.  Eligibility.    If one or more distributions from a Participant’s Account constitutes an “eligible rollover distribution,” within the meaning of sections 402(c)(2) and (4) of the Code and regulations thereunder, the Participant may elect to have all or a portion (but not less than $500) of the distribution paid directly to an individual retirement account or annuity (an “IRA”) or a plan qualified under Code section 401(a) or section 403(a) (collectively, an “eligible retirement plan”). The Participant may not elect to have portions of an eligible rollover distribution paid directly to more than one eligible retirement plan. In addition, the Participant shall not be permitted to elect a direct rollover with respect to eligible rollover distributions that are reasonably expected to total less than $200 during the year.

7.11.2.  Procedures.    The Committee shall make such payment upon receipt from the Participant of the name of the eligible retirement plan to which such payment is to be made, a representation that the eligible retirement plan is an IRA or a plan qualified under section 401(a) or section 403(a) of the Code, and such other information and/or documentation as the Committee may reasonably require to make such payment. The Participant’s election to make or not to make a direct rollover with respect to one distribution that is part of a series of payments shall apply to all future distributions until the Participant subsequently changes the election.

7.11.3.  Failure to Elect.    If the Participant fails to elect whether or not a distribution is to be paid in a direct rollover, the Participant shall be deemed to have elected not

36

to have any portion of the distribution paid in a direct rollover. This Section shall apply, to the extent required by law, to a Beneficiary who is the Participant’s surviving spouse and to a spouse or former spouse who is an alternate payee (as defined in section 414(p) of the Code) under a QDRO, except that only an IRA shall be deemed to be an eligible retirement plan with respect to a surviving spouse of a deceased Participant.

7.12.  Distribution Pursuant to a Qualified Domestic Relations Order.    Any benefit payable from a Participant’s Account to an alternate payee (as defined by section 414(p) of the Code) pursuant to the terms of a QDRO, shall, at the alternate payee’s election, provided such election is consistent with the terms of the QDRO, be paid:

7.12.1.  in a lump sum as soon as administratively practicable after the determination that the QDRO satisfies the provisions of section 414(p) of the Code, without regard to whether the Participant is then eligible to receive benefits under the Plan; or

7.12.2.  at any other time and in any manner permitted by the Plan and the terms of the QDRO, provided that such benefit must be paid, or begin to be paid, no later than the Participant’s Normal Retirement Date.

ARTICLE VIII.

WITHDRAWALS DURING EMPLOYMENT

8.1.  In-Service Withdrawal—Savings Contribution Account.    A Participant may at any time, but no more than once each Plan Year, withdraw any part or all of the assets in his Savings Contribution Account. As soon as administratively practicable following the Committee’s receipt of a request for withdrawal under this Section, it shall direct the Trustee to pay to the Participant the amount he has elected to withdraw in a single sum. The amount of the withdrawal shall be based on the number of shares of Investment Funds held in the Savings Contribution Account as of the Valuation Date immediately preceding the request for withdrawal and shall be equal to the net proceeds of liquidation of such shares by the Trustee.

8.2.  Withdrawals After Age 59½.    A Participant who is currently employed and has reached age 59½ shall be entitled to withdraw any portion of his vested interest in the amount credited to his Account as of the Valuation Date next following the date he submits a request for such withdrawal to the Committee or its delegate.

8.3.  Hardship Withdrawal—Elective Deferral Contribution Account.    An eligible Participant may elect to withdraw up to 100% of his Elective Deferral Contributions (and earnings credited on those contributions through December 31, 1988), exclusive of any amount loaned to the Participant under Article IX. Such election shall be in writing and submitted to the Committee at such time and in such manner as shall be prescribed by the Committee. A Participant is eligible to make a hardship withdrawal under this Section only if the withdrawal is for a purpose that the Committee determines is a Qualified Emergency, as defined below, and the requirements of Section 8.5 are met. No more than one hardship withdrawal shall be permitted

37

during any 12-month period. No withdrawals for reasons of hardship may be made from a Participant’s Matching Contribution Account.

8.4.  Definition of Qualified Emergency.    As used in this Article VIII, the term “Qualified Emergency” means an immediate and heavy financial hardship of the Participant. The following circumstances, and no others, meet the definition of “Qualified Emergency”:

8.4.1.  payment of tuition-related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant or his spouse, child or dependent;

8.4.2.  payment of medical expenses described in section 213(d) of the Code that have been incurred by the Participant, his spouse or dependent or a distribution necessary to obtain medical care described in section 213(d) of the Code;

8.4.3.  the purchase or construction (excluding mortgage payments) of the Participant’s principal residence;

8.4.4.  the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

8.4.5.  funeral expenses of a family member;

8.4.6.  payment of federal, state or local taxes (and related penalties and interest) after the time such taxes would otherwise be due; provided, however, that the Committee shall, in a uniform and nondiscriminatory manner, examine all of the facts and circumstances related to the payment of such taxes, including: a Participant’s base rate of pay, the amount of the overdue taxes, the tardiness in payment of such taxes, the availability of other sources for payment of such taxes, and other objective factors that the Committee reasonably determines are relevant; and

8.4.7.  any other expense that is deemed to be a Qualified Emergency expense by the Internal Revenue Service.

8.5.  Requirements for Hardship Withdrawal.    A hardship withdrawal under Section 8.3 shall be permitted only if the following requirements are met:

8.5.1.  the distribution does not exceed the amount of the Qualified Emergency expense (including a reasonable amount to enable the Participant to pay taxes and penalties on such withdrawal);

8.5.2.  the Participant has obtained all distributions other than hardship withdrawals and all non-taxable loans currently available under all plans maintained by

38

the Employer unless obtaining such a loan would increase the severity of the Participant’s hardship;

8.5.3. the Plan and all other plans maintained by the Employer suspend Elective Deferral Contributions and other contributions by the Participant for at least 12 months after the receipt of the hardship withdrawal if received before January 1, 2002, and six months if received on or after January 1, 2002; and

8.5.4. the Plan and all other plans maintained by the Employer provide that the Participant may not make Elective Deferral Contributions for the Participant’s taxable year immediately following the taxable year of the hardship withdrawal in excess of the applicable limit imposed on Elective Deferral Contributions under Section 3.3 for such taxable year, less the amount of the Participant’s Elective Deferral Contributions for the taxable year of the hardship withdrawal.

If the Secretary of the Treasury prescribes additional methods for meeting the requirements for hardship withdrawal, such additional methods shall be incorporated herein by reference.

8.6.  Distribution of Amounts Withdrawn.    As soon as administratively practicable following the Committee’s receipt of a request for withdrawal and, in the case of a hardship withdrawal request under Section 8.3, its determination that the requirements of Section 8.3 are met, it shall direct the Trustee to pay to the Participant the amount he has elected to withdraw in a cash lump sum. The withdrawal shall be made on a pro-rata basis from all of the Investment Funds. The amount of the hardship withdrawal shall be based on the number of shares of Investment Funds held in the Elective Deferral Account as of the Valuation Date immediately preceding the request for withdrawal and shall be equal to the net proceeds of liquidation of such shares by the Trustee.

ARTICLE IX.

LOANS TO PARTICIPANTS.

9.1.  Plan Loans.    The Committee may cause the Trustee to lend to any Participant who applies for a loan the amount applied for by the Participant, upon such terms as the Committee may see fit, subject to all of the requirements of this Article. Loans shall be made available from a Participant’s Elective Deferral, Matching, Qualified Nonelective, Rollover and Savings Contribution Accounts.

9.2.  Loan Requirements.

9.2.1. Such loans shall be made available to all Participants, whether or not actively employed by the Employer, subject only to each such Participant’s demonstration, on the basis of uniform and non-discriminatory rules and procedures established by the Committee, of his ability to repay the loan, plus interest. The loan shall be made effective as of the first day of the month following the date of approval of a Participant’s loan request.

39

9.2.2.  The amount of the loan, when added to the outstanding balance of all prior loans to such Participant, shall not exceed the lesser of:

9.2.2.1.  $50,000, reduced by the excess (if any) of (i) the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which such loan was made, over (ii) the outstanding balance of loans from the Plan immediately before the loan in question was made; or

9.2.2.2.  the greater of:

9.2.2.2.1.  50% of the amount in the Participant’s Account that is vested; or

9.2.2.2.2. $10,000.

For the purpose of the borrowing limitations of this Section, all Employers in a controlled group of employers, within the meaning of section 414(b) or section 414(c) of the Code, or a part of an affiliated service group, within the meaning of section 414(m) of the Code, shall be considered as one employer and all of the Defined Benefit Plans and Defined Contribution Plans shall be considered to be a single plan.

9.2.3.  The minimum amount of any loan shall be at least $1,000.

9.2.4.  Subject to Section 9.3, in no event shall a Participant have more than two loans outstanding at any time.

9.2.5.  An amount equal to the principal amount of the loan shall be security for such loan.

9.2.6.  The loan shall be repaid, on the basis of substantially level amortization, within five years from the date the loan is made; provided, however, that if the loan proceeds are used to acquire or build a dwelling that is, or will be within a reasonable period of time, the Participant’s principal residence, the term of the loan shall be as determined by the Committee. In the case of a loan to a Participant who is actively employed by the Employer, repayments shall be made by monthly payroll withholding. In the case of a loan to anyone other than a Participant who is actively employed by the Employer, repayments shall be made monthly directly to the Plan by delivery of the payment to the Committee.

9.2.7.  The loan shall bear a fixed or variable rate of interest commensurate with the interest rates charged by persons in the business of lending money on a regional basis for loans that would be made under similar circumstances, as determined by the Committee or its delegate from time to time.

40

9.2.8.  Except as provided in Section 9.2.9, a Participant who fails to make any installment payment due under a Plan loan by the last day of the calendar quarter following the calendar quarter in which the required installment payment was originally due shall be treated as having a deemed distribution equal to the entire outstanding balance of the loan.

9.2.9.  A Participant with an outstanding loan whose active service is temporarily interrupted due to a leave of absence, either without pay from the Employer or at a rate of pay (after income and employment tax withholding) that is less than the amount of the installment payments, may suspend loan payments for a period of not longer than one year, provided the loan is repaid by the latest date permitted under section 72(p)(2)(B) of the Code and the installments due after the leave ends (or, if earlier, after the first year of the leave) must not be less than those required under the terms of the original loan.

9.2.10.  The loan amount shall be debited against the Participant’s Account on a pro rata basis from all of the Investment Funds held under that Participant’s Account and repayments of principal and interest shall be credited to such Participant’s Account in accordance with the Participant’s current investment election with respect to future contributions.

9.2.11.  The Participant shall agree at the time the loan is made that the outstanding principal and interest on the loan at the time the Participant or his Beneficiary receives a distribution under Article VII shall be deducted from the amount otherwise distributable to such Participant or Beneficiary.

9.2.12.  No note or other document evidencing any such loan shall be negotiable or otherwise assignable.

9.3.  Maximum Number of Loans Permitted.

9.3.1.  Effective December 1, 2001, except as provided in Section 9.3.2, a Participant may only have one loan outstanding at any one time. A Participant may not apply for a second loan to refinance a previous loan.

9.3.2.  If a Participant has two loans outstanding on December 1, 2001, he shall be permitted to repay each outstanding loan in accordance with its terms. However, upon the repayment of one loan, such Participant shall not be eligible to apply for another loan until the remaining outstanding loan is repaid.

ARTICLE X.

INVESTMENTS.

10.1  Investment Funds.    Each Participant shall elect the manner in which his Elective Deferral Contributions, Matching Contributions, Savings Contributions, Qualified

41

Nonelective Contributions and Rollover Contributions, if any, are to be invested. The Investment Funds available to Participants are:

10.1.1. the Investment Funds listed in Appendix C attached hereto; and

10.1.2. Stock.

Net income, gain or loss with respect to the Investment Funds shall only affect the Accounts invested in each such fund.

10.2.  Investment Elections.    A Participant may elect to have his Elective Deferral Contributions, Matching Contributions, Savings Contributions, Qualified Nonelective Contributions and Rollover Contributions, if any, invested entirely in one Investment Fund, or he may elect to have such amounts invested in more than one Investment Fund, by making an election with the Committee (or its delegate) or the Trustee in the nondiscriminatory manner then-permitted at the Committee’s discretion (including, if the Committee so chooses, by electronic or telephonic instruction). Subject to the requirements of Section 4.4, such election shall be effective as soon as administratively practicable. A Participant’s election shall specify the percentage of each future contribution or each Account to be invested in an Investment Fund, provided that the percentage to be invested in any one Investment Fund must be equal to 1% or a multiple thereof. Such election shall remain in effect until a new election is made. As soon as administratively feasible after the effective date of an investment election subject to the limitations of Section 4.4, the Trustee shall invest contributions received in accordance with such election. If a Participant fails to make an election from among the available Investment Funds, the amounts contributed to the Participant’s Account shall be invested in the default investment identified in Appendix C. Appropriate sub-accounts shall be established to reflect a Participant’s investment elections.

10.3.   Change of Election.    A Participant may change an election of Investment Funds or may elect to transfer existing Account balances, except as limited by Section 10.2, among Investment Funds effective as soon as administratively practicable. The Participant shall direct such change or transfer in such manner as is then-permitted by the Committee or its delegate (including, if the Committee so chooses, by electronic or telephonic instruction) before any payroll period. As soon as administratively feasible after the effective date of a change in an investment election or an election to transfer existing Account balances, subject to the limitations of Section 4.4, the Trustee shall effect such election.

ARTICLE XI.

TOP-HEAVY PROVISIONS.

11.1.   Top-Heavy Requirements.    Notwithstanding anything in the Plan to the contrary, for any Plan Year that the Plan is a Top-Heavy Plan, the Plan shall meet the requirements of this Article.

42

11.2.   Minimum Contribution Requirement.

11.2.1.  Except as provided in Section 11.2.2, this Plan shall provide a minimum contribution allocation for each Participant who is a Non-Key Employee in an amount equal to at least 3% of such Participant’s Compensation for such Plan Year. In addition, for each Participant who is a Non-Key Employee and who also participates in the Penn Virginia Corporation and Affiliated Companies Employees’ Stock Ownership Plan for a Plan Year during which both plans are top-heavy within the meaning of section 416(g) of the Code, the Employer shall meet the minimum contribution requirements of section 416 for both plans under this Plan.

11.2.2.  Unless the Plan is part of a Required Aggregation Group and enables a Defined Benefit Plan that is included in such Required Aggregation Group to satisfy sections 401(a)(4) and 410 of the Code, the percentage minimum contribution required hereunder shall in no event exceed the percentage contribution made for the Key Employee for whom such percentage is the highest for the Plan Year.

11.2.3.  The minimum contribution required hereunder shall not be integrated with Social Security benefits and shall be made for each Non-Key Employee who is employed at the end of the Plan Year in question, regardless of whether such Non-Key Employee has been credited with 1,000 Hours of Service in such Plan Year and regardless of such Non-Key Employee’s level of Compensation and whether such Non-Key Employee elected to make contributions under Section 3.1 for such Plan Year.

ARTICLE XII.

PLAN ADMINISTRATION.

12.1.   Fiduciary Responsibility.    The Plan shall be administered by the Committee, which shall be the Plan’s “named fiduciary” and “administrator,” as those terms are defined by ERISA, and its agent designated to receive service of process. All matters relating to the administration of the Plan, including the duties imposed upon the Plan administrator by law, except those duties relating to the control or management of Plan assets, shall be the responsibility of the Committee. All matters relating to the control and management of Plan assets shall, except to the extent delegated in accordance with the trust agreement, be the sole and exclusive responsibility of the Trustee.

12.2.   Appointment and Removal of Committee.    The Committee shall consist of at least three persons who shall be appointed and may be removed by the Board of Directors. Persons appointed to the Committee may be, but need not be, employees of the Employer. Any Committee member may resign by giving written notice to the Board of Directors, which notice shall be effective 30 days after delivery. Notwithstanding the foregoing, any Committee member who is an Employee of the Employer shall be deemed to have resigned from the Committee effective upon his termination of employment. A Committee member may be removed by the Board of Directors by written notice to such Committee member, which notice shall be effective upon delivery. The Board of Directors shall promptly select a successor following the

43

resignation or removal of the Committee member, if necessary to maintain a Committee of at least three members.

12.3.   Compensation and Expenses of Committee.    Members of the Committee who are Employees shall serve without compensation. Members of the Committee who are not Employees may be paid reasonable compensation for services rendered to the Plan. Such compensation, if any, and all ordinary and necessary expenses of the Committee shall be paid by the Fund unless paid by the Sponsor or Participating Employer.

12.4.   Committee Procedures.    The Committee may enact such rules and regulations for the conduct of its business and for the administration of the Plan as it may deem desirable. The Committee may act either at meetings at which a majority of its members are present or by a writing signed by a majority of its members without the holding of a meeting. Records shall be kept of the actions of the Committee. No member of the Committee who is a Participant in the Plan shall vote upon any matter affecting only his Account. The Committee may appoint a Secretary who need not be a member of the Committee.

12.5.   Plan Interpretation.    The Committee shall have the authority and responsibility to interpret and construe the Plan and to decide all questions that may arise regarding the rights of Participants thereunder including, without limitation, questions or eligibility for participation, eligibility for benefits, Account balance and the payment and distribution thereof, and shall have the authority to deviate from the terms of the Plan to the extent the Committee shall determine to be necessary or appropriate to operate the Plan in compliance with provisions of applicable law. Any such determinations shall be binding and conclusive upon all interested persons.

12.6.   Exclusive Benefit Rule.    The Committee shall administer the Plan for the exclusive benefit of Participants and their Beneficiaries.

12.7.   Consultants.    The Committee may, and to the extent necessary for the preparation of required reports shall, employ accountants, actuaries, attorneys and other consultants or advisors. The fees charged by such accountants, actuaries, attorneys and other consultants or advisors shall be paid by the Fund unless paid by the Participating Employers.

12.8.   Method of Handling Plan Funds.    No Committee member shall, in his capacity as a Committee member, at any time, handle any assets of the Fund. All payments to the Fund shall be made by the Employee of the Participating Employer charged with that responsibility. Benefit payments from the Fund shall be made by the Trustee.

12.9   Delegation and Allocation of Responsibility.    The Committee, by unanimous action in writing, may delegate any Plan administrative responsibility to any employee of the Employer and may allocate any of its responsibilities to one or more members of the Committee. In the event of any such delegation or allocation the Committee shall establish procedures for the thorough and frequent review of the performance of such duties. Persons to whom responsibilities have been delegated may not delegate to others any

44

discretionary authority or discretionary control with respect to the management or administration of the Plan.

12.10.   Claims Procedure.    The Committee shall administer a claims procedure as follows:

12.10.1.  Initial Claim.    If a Participant or Beneficiary (“Claimant”) believes that he is entitled to a benefit under the Plan, the Claimant or the Claimant’s authorized representative acting on behalf of such Claimant, must make a claim for those benefits by submitting a written notification of his claim of right to such benefits. Such notification must be on the form and in accordance with the procedures established by the Committee. Except for benefits paid pursuant to Section 7.1.4, no benefit shall be paid under the Plan until a proper claim for benefits has been submitted.

12.10.2.  Procedure for Review.    The Committee shall establish administrative processes and safeguards to ensure that all claims for benefits are reviewed in accordance with the Plan document and that, where appropriate, Plan provisions have been applied consistently to similarly situated Claimants. Any notification to a Claimant required hereunder may be provided in writing or by electronic media, provided that any electronic notification shall comply with the applicable standards imposed under DOL Reg. §2520.104b-1(c).

12.10.3.  Claim Denial Procedure.    If a claim is wholly or partially denied, the Committee shall notify the Claimant within a reasonable period of time, but not later than 90 days after receipt of the claim, unless the Committee determines that special circumstances require an extension of time for processing the claim. If the Committee determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 180 days from receipt of the claim. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Committee expects to render a benefit determination. A benefit denial notice shall be written in a manner calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons for the denial, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the Claimant to perfect the claim, with reasons therefor, and (iv) the procedure for reviewing the denial of the claim and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA following an adverse benefit determination on review.

12.10.4.  Appeal Procedure.    In the case of an adverse benefit determination, the Claimant or his representative shall have the opportunity to appeal to the Committee for review thereof by requesting such review in writing to the Committee within 60 days of receipt of notification of the denial. Failure to submit a proper application for appeal within such 60 day period shall cause such claim to be permanently denied. The Claimant or his representative shall be provided, upon request and free of charge, reasonable access to, and

45

copies of, all documents, records and other information relevant to the claim. A document, record or other information shall be deemed “relevant” to a claim in accordance with DOL Reg. §2560.503-1(m)(8). The Claimant or his representative shall also be provided the opportunity to submit written comments, documents, records and other information relating to the claim for benefits. The Committee shall review the appeal taking into account all comments, documents, records and other information submitted by the Claimant or his representative relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

12.10.5.  Decision on Appeal.    The Committee shall notify a Claimant of its decision on appeal within a reasonable period of time, but not later than 60 days after receipt of the Claimant’s request for review, unless the Committee determines that special circumstances require an extension of time for processing the appeal. If the Committee determines that an extension of time for processing is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60-day period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate: (i) the special circumstances necessitating the extension and (ii) the date by which the Committee expects to render a benefit determination. An adverse benefit decision on appeal shall be written in a manner calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons for the adverse determination, (ii) the specific reference to the Plan provisions on which the denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the Claimant’s claim (the relevance of a document, record or other information will be determined in accordance with DOL Reg. §2560.503-1(m)(8)) and (iv) a statement of the Claimant’s right to bring a legal action under section 502(a) of ERISA.

12.11.   Litigation.    In order to operate and administer the claims procedure in a timely and efficient manner, any Claimant whose appeal with respect to a claim for benefits has been denied, and who desires to commence a legal action with respect to such claim, must commence such action in a court of competent jurisdiction within 90 days of receipt of notification of such denial. Failure to file such action by the prescribed time shall forever bar the commencement of such actions.

ARTICLE XIII.

AMENDMENT AND TERMINATION.

13.1.   Amendment.    The Plan may be amended at any time and from time to time by the Board of Directors, provided that no amendment shall divest any vested interest of any Participant or Beneficiary, and no amendment shall be effective unless the Plan continues to be for the exclusive benefit of the Participants and their Beneficiaries. In addition, no amendment shall decrease any Participant’s vested interest, eliminate or reduce any benefit subsidy or early retirement benefit, or eliminate any optional form of benefit except in accordance with sections 411(d)(6) and 412(c)(8) of the Code.

46

13.2.   Termination or Partial Termination.    While the Sponsor and each other Participating Employer intends to continue the Plan indefinitely, each reserves the right to terminate or partially terminate the Plan at any time as to its Employees. If the Plan is terminated or partially terminated, or if all contributions cease completely, the Fund shall continue to be held for distribution as provided in Article VII or, in the case of a complete termination, shall be distributed as soon as administratively feasible after such termination; provided that the Employer has not established or does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code). No new Participants shall thereafter be admitted to the Plan as new Participants, and neither the Sponsor nor any other Participating Employer shall make further contributions to the Fund.

ARTICLE XIV.

VETERANS’ REEMPLOYMENT RIGHTS.

Notwithstanding any provision of the Plan to the contrary, benefits and service credit with respect to Qualified Military Service shall be provided in accordance with section 414(u) of the Code as summarized below:

14.1.   Crediting Service.

14.1.1.  An Employee reemployed by the Employer in accordance with Chapter 43 of Title 38 of the United States Code shall be treated as not having incurred a Break in Service with the Employer by reason of such Employee’s period of Qualified Military Service.

14.1.2.  Upon reemployment by the Employer in accordance with Chapter 43 of Title 38 of the United States Code, an Employee’s period of Qualified Military Service shall be deemed service with the Employer for purposes of determining the vested percentage of the Employee’s Account.

14.2.   Elective Deferral Contributions.

14.2.1.  Subject to Section 14.2.2, any Employee who has performed Qualified Military Service and who is entitled to the benefits of Chapter 43 of Title 38 of the United States Code shall be permitted to make additional Elective Deferral Contributions under the Plan during the period which begins on the Employee’s reemployment date with the Employer and has the same length as the lesser of:

14.2.1.1.  the product of three and the period of Qualified Military Service which resulted in such rights; and

14.2.1.2.  five years.

14.2.2.  Notwithstanding any provision of the Plan to the contrary, the maximum amount of Elective Deferral Contributions that an Employee shall be permitted to

47

make pursuant to the preceding subsection shall be the amount of Elective Deferral Contributions that the Employee would have been permitted to make under the Plan in accordance with the limitations of sections 402(g), 404(a) and 415 of the Code during the period of Qualified Military Service if the Employee had continued to be employed by the Employer during such period and had received compensation in accordance with Section 14.4 below. The amount of Elective Deferral Contributions determined under the preceding sentence shall be reduced by any Elective Deferral Contributions actually made by the Employee to the Plan during the period of Qualified Military Service.

14.3.   Matching Contributions.    Each Participating Employer shall make Matching Contributions with respect to any Elective Deferral Contributions made by an Employee pursuant to the preceding subsection that would have been required had such Elective Deferral Contributions actually been made during the period of such Employee’s Qualified Military Service.

14.4.   Compensation.    An Employee who is in Qualified Military Service shall be treated as receiving compensation from the Employer during such period of Qualified Military Service equal to:

14.4.1.  the compensation the Employee would have received during such period if the Employee were not in Qualified Military Service, determined based on the rate of pay the Employee would have received from the Employer but for absence during the period of Qualified Military Service; or

14.4.2.  if the compensation the Employee would have received during such period was not reasonably certain, the Employee’s average compensation from the Employer during the 12-month period immediately preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service).

14.5.   Earnings and Forfeitures.    Nothing in this Article XIV shall be construed as requiring:

14.5.1.  any crediting of earnings to an Employee with respect to any contribution before such contribution is actually made; or

14.5.2.  the allocation of any forfeiture with respect to the period of an Employee’s Qualified Military Service.

ARTICLE XV.

MISCELLANEOUS.

15.1.   Merger; Consolidation or Transfer of Assets or Liabilities.    The Board of Directors reserves the right to merge or consolidate the Plan with any other defined contribution pension plan qualified under section 401(a) of the Code, or to transfer Plan assets or liabilities to any other defined contribution pension plan qualified under section 401(a) of the Code; provided

48

that the amounts standing to the credit of each Participant’s Account immediately after any such merger, consolidation or transfer of assets or liabilities shall be at least equal to the amounts standing to the credit of the Participant’s Account immediately before such merger, consolidation or transfer.

15.2.  Limited Purpose of Plan.    The establishment or existence of the Plan shall not confer upon any employee the right to be continued as an employee. The Employer expressly reserves the right to discharge any employee whenever in its judgment its best interests so require.

15.3.   Non-alienation.    No benefit payable under the Plan shall be subject in any manner to anticipation, assignment, or voluntary or involuntary alienation. This Section shall not preclude the Committee and the Trustee from complying with the terms of a Qualified Domestic Relations Order.

15.4.   Facility of Payment.    If the Committee, in its sole discretion, deems a Participant or Beneficiary who is entitled to receive any payment hereunder to be incompetent to receive the same by reason of age, illness or any infirmity or incapacity of any kind, the Committee may direct the Trustee to apply such payment directly for the benefit of such person, or to make payment to any person selected by the Committee to disburse the same for the benefit of the Participant or Beneficiary. Payments made pursuant to this Section shall operate as a discharge, to the extent thereof, of all liabilities of the Sponsor, the Participating Employers, the Committee, the Trustee and the Fund to the person for whose benefit the payments are made.

15.5.   Impossibility of Diversion.    All Plan assets shall be held as part of the Fund, until paid to satisfy allowable Plan expenses or to provide benefits to Participants or their Beneficiaries. It shall be impossible, unless Section 3.8 applies, for any part of the Fund to be used for, or diverted to, purposes other than the exclusive benefit of the Participants or their Beneficiaries or the payment of the reasonable expenses of the administration of the Plan.

15.6.   Unclaimed Benefits.    If a Participant or Beneficiary to whom a benefit is payable under the Plan cannot be located following a reasonable effort to so by the Committee, such benefit shall be forfeited but will be reinstated if a claim therefor is filed by the Participant or Beneficiary.

15.7.   Construction.    The masculine gender includes the feminine and the singular includes the plural, unless the context clearly indicates otherwise.

15.8.   Governing Law.    Except to the extent such laws are superseded by federal law, the laws of the Commonwealth of Pennsylvania shall govern.

15.9.   Contingent Effectiveness of Plan Amendment, Restatement and Renaming.    The effectiveness of the Plan, as amended, restated and renamed, including but not limited to the contributions made by the Sponsor and the other Participating Employers, shall be subject to and contingent upon a determination by the District Director of Internal Revenue that

49

the Plan and Trust continue to be qualified under the applicable provisions of the Code. If the District Director determines that the amendment, restatement and renaming adversely affects the qualified status of the Plan or the tax-exempt status of the Fund, then, upon notice to the Trustee, the Board of Directors shall have the right further to amend the Plan or to rescind the amendment, restatement and renaming.

50

To record the adoption of the amendment, restatement and renaming of the Plan, PENN VIRGINIA CORPORATION has caused authorized officers to affix its corporate name and seal this      day of             , 2001.

[CORPORATE SEAL]		PENN VIRGINIA CORPORATION
Attest:	/s/	By:	/s/

51

APPENDIX A

TO

PENN VIRGINIA CORPORATION

AND AFFILIATED COMPANIES EMPLOYEES’

401(K) PLAN

Participating Employers

Penn Virginia Corporation

Penn Virginia Coal Company

Penn Virginia Oil and Gas Corporation

Penn Virginia Oil and Gas Corporation, a Texas corporation (effective January 1, 2002)

Penn Virginia Resources GP, LLC (effective September 14, 2001)

52

APPENDIX B

COMPLIANCE WITH

BENEFIT AND CONTRIBUTION LIMITS FOR

PENN VIRGINIA CORPORATION AND AFFILIATED

COMPANIES EMPLOYEES’ PENSION BENEFIT PLANS

This Appendix sets forth the order in which the benefit accruals and contributions provided under the qualified employee pension benefit plans maintained by Penn Virginia Corporation and its Affiliated Companies shall be reduced in the event that the combined limits on benefits and contributions provided in section 415(e) of the Code are exceeded as to any participant in one or more of the plans.

I.    DEFINITIONS.

1.1  “Employee Stock Ownership Plan” means the Penn Virginia Corporation and Affiliated Companies Employees’ Stock Ownership Plan.

1.2  “401(k) Plan” means the Penn Virginia Corporation and Affiliated Companies Employees’ 401(k) Plan. The following sub-Accounts are maintained for each Participant in the 401(k) Plan:

1.2.1  Elective Deferral Contribution Account, holding the Participant’s pre-tax salary Elective Deferral Contributions;

1.2.2  Matching Contribution Account, holding the employer matching contributions on the pre-tax salary Elective Deferral Contributions and the employer matching contributions on the after-tax contributions made to the Savings Contribution Account; and

1.2.3  Savings Contribution Account, holding the Participant’s after-tax savings contributions.

II.    REDUCTION OF CONTRIBUTIONS AND BENEFITS.

The order in which the benefits and contributions shall be reduced is as follows: -

2.1  First, the Participant’s annual benefit under the Retirement Plan shall be reduced, but not below $0.00, so that the limits are met;

2.2  Second, the Participant’s rate of contributions to his Savings Account in the 401(k) Plan shall be reduced, so that the limits are met;

2.3  Third, the Participant’s rate of contributions to his Elective Deferral Contribution Account in the Retirement/Savings Plan shall be reduced, so that the limits are met; and

53

2.4  Fourth, the Participant’s quarterly allocations under the Employee Stock Ownership Plan shall be reduced, so that the limits are met.

54

EX-10.6

EXHIBIT 10.6

PENN VIRGINIA CORPORATION

Second Amended and Restated 1995 Directors’ Stock Compensation Plan

1.    Purpose.

The purposes of the Plan are to attract and retain the services of experienced and knowledgeable directors and to encourage Eligible Directors of Penn Virginia Corporation to acquire a proprietary and vested interest in the growth and performance of the Company, thus enhancing the value of the Company for the benefit of its shareholders.

2.    Definitions.

As used in the Plan, the following terms shall have the meanings set forth below:

(a)  “Board” means the Board of Directors of the Company.

(b)  “Cashless Exercise” means the manner of exercise of an Option described in Section 6(h).

(c)  “Common Stock” means the common stock, par value $6.25 per share, of the Company.

(d)  “Company” means Penn Virginia Corporation.

(e)  “Eligible Director” means (i) with respect to grants made prior to January 1, 2001, each director of the Company, including Non-employee Directors, and (ii) with respect to grants made after January 1, 2001, each Non-employee Director.

(f)  “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(g)  “Fair Market Value” means with respect to the Common Stock on any given date the closing stock market price for a Share (as reported by the New York Stock Exchange, any other exchange on which the Shares are listed or any other recognized stock quotation service), or in the event that there shall be no closing stock price on such date, the closing stock price on the date nearest preceding such date.

(h)  “Grant Date” means the date on which an Option is granted or a Share is issued pursuant to Section 5 of the Plan.

(i)  “Option” means any stock option granted under the Plan and described in Section 5 hereof. All Options shall be non-qualified options.

(j)  “Option Agreement” means a written instrument evidencing an Option granted hereunder and signed by an authorized representative of the Company and the Optionee.

(k)  “Non-employee Director” means each director of the Company who is not an employee of the Company.

(l)  “Optionee” means an Eligible Director who receives an Option under the Plan.

(m)  “Plan” means the Second Amended and Restated 1995 Directors’ Stock Compensation Plan.

(n)  “Shares” means shares of Common Stock of the Company.

3.    Administration.

Subject to the terms of the Plan, the Board shall have the power to interpret the provisions and supervise the administration of the Plan.

4.    Shares Subject to the Plan.

Subject to adjustment as provided in Section 7, the total number of Shares which may be issued pursuant to the Plan shall be 300,000 Shares. Any Shares issued pursuant to the Plan may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. Shares subject to Options that either wholly or in part expire or are forfeited or terminated shall be available for future issuance under the Plan.

5.    Grant of Shares and Options.

On February 8, 1995, or, with respect to any person who was not an Eligible Director on such date, on the date such person first becomes an Eligible Director, each Eligible Director shall be granted an Option to acquire 10,000 Shares. Thereafter, on the first business day of each year from 1996 through 2004, inclusive, each Eligible Director on such date shall be granted an Option to acquire an additional 200 Shares. In addition, except as otherwise determined by the Board, effective on and after October 25, 2000 through the termination of the Plan each Non-employee Director shall receive 1,000 Shares issuable on the date of the Company’s annual meeting; $2,500 payable quarterly, at the Non-employee Director’s option, either in cash or Shares; and $1,000 in meeting fees ($1,250 for the committee chairman) for each Board and committee meeting attended by the Non-employee Director which shall be paid, at the Non-employee Director’s option, in cash or Shares.

6.    General Terms Regarding Option Grants.

The following provisions shall apply to each Option:

(a)  Option Price.    The purchase price per Share purchasable under an Option shall be 100% of the Fair Market Value of a Share on the Grant Date.

(b)  Restrictions on Transferability.    An Option shall not be transferable prior to the date on which it becomes exercisable unless otherwise determined by the Board and specified in the Option Agreement. Thereafter, unless otherwise determined by the Board and specified in the Option Agreement, an Option shall not be transferable otherwise than (i) by will or the laws of descent and distribution or (ii) to the spouse, children or grandchildren of the Optionee or a trust for the exclusive benefit of any such family member, provided, however, that no such family member shall be permitted to make any subsequent transfer of any such Options except back to the original Optionee and all Options transferred to any such family member shall remain subject to all terms and conditions set forth herein. During the lifetime of the Optionee, an Option shall be exercisable only by him or by any transferee to whom an Option was transferred in accordance with subsection (b)(ii). Upon the death of an Optionee or the transfer in accordance with subsection (b)(ii), the person to whom the rights shall have been transferred or passed by will or by the laws of descent and distribution may exercise any Options in accordance with the provisions of the Plan.

(c)  Periods of Exercise of Options.    Subject to Section 8, each Option shall become exerciseable one year after the Grant Date and shall expire ten years after the Grant Date except as hereinafter provided:

(i)  In the event an Optionee ceases to be an Eligible Director for any reason, any Option then held by such Optionee which is not exercisable at the time of such cessation shall expire. An Option exercisable on the date of such cessation shall, except as otherwise provided in Subsection (c)(ii), be exercisable for the remainder of its term to the extent exercisable as of the date of such cessation.

2

(ii)  In the event of the death of an Optionee, any Option granted to such Optionee, which has not expired pursuant to subsection (c)(i), shall remain exercisable for six months after the date of death. An Option exercisable after the date of death shall be exercisable only to the extent exercisable as of the date of death and in no event beyond the tenth anniversary of its Grant Date

(d)  Payment.    Full payment for Shares purchased upon the exercise of an Option shall be made in cash or, at the election of the person exercising the Option and subject to the approval of the Board at the time of exercise, by surrendering, or by the Company’s withholding from Shares purchased, Shares with an aggregate Fair Market Value, on the date immediately preceding such exercise date, equal to all or any portion of the option price not paid in cash. Payment for shares purchased upon the exercise of an Option may also be made pursuant to a Cashless Exercise.

(e)  Issuance of Certificates; Payment of Cash.    Only whole Shares shall be issuable upon exercise of Options. Any right to a fractional Share shall be satisfied in cash. Upon receipt of payment of the option price and any withholding taxes payable pursuant to subsection (g), the Company shall deliver to the exercising Optionee a certificate for the number of whole Shares and a check for the Fair Market Value on the date of exercise of the fractional Share to which the person exercising the Option is entitled. The Company shall not be obligated to deliver any certificates for Shares until such Shares have been listed (or authorized for listing upon official notice of issuance) upon each stock exchange upon which outstanding Shares of such class at the time are listed nor until there has been compliance with such laws or regulations as the Company may deem applicable. The Company shall use its best efforts to effect such listing and compliance.

(f)  Date and Notice of Exercise.    Except with respect to Cashless Exercises, the date of exercise of an Option shall be the date on which written notice of exercise, addressed to the Company at its main office to the attention of its Secretary, is hand delivered, telecopied or mailed, first class postage prepaid; provided that the Company shall not be obliged to deliver any certificates for Shares pursuant to the exercise of an Option until the Company shall have received payment in full of the option price for such Shares and any withholding taxes payable pursuant to subsection (g). Each such notice of exercise shall be irrevocable when given. Each notice of exercise must include a statement of preference as to the manner in which payment to the Company shall be made (Shares or cash, a combination of Shares and cash or by Cashless Exercise).

(g)  Payment of Withholding Taxes.    Full payment for the amount of any taxes required by law to be withheld by the Company upon the exercise of an Option shall be made, on or before the date such taxes must be withheld, in cash or, at the election of the person recognizing income upon exercise of the Option and subject to the approval of the Board, by surrendering, or by the Company’s withholding from Shares purchased, Shares with an aggregate Fair Market Value on the date immediately preceding the date the withholding taxes due are determined equal to all or any portion of the withholding taxes not paid in cash. Payment for such taxes may also be made pursuant to a Cashless Exercise.

(h)  Cashless Exercise.    In addition to the methods of payment described in Sections 6(e) and 6(g), an Optionee may exercise and pay for Shares purchased upon the exercise of an Option through the use of a brokerage firm acceptable to the Company to make payment to the Company of the option price and any taxes required by law to be withheld upon exercise of the Option either from the proceeds of a loan to the Optionee from the brokerage firm or from the proceeds of the sale of Shares issued pursuant to the exercise of the Option, and upon receipt of such payment the Company shall deliver the Shares issuable under the Option exercised to such brokerage firm (a “Cashless Exercise”). Notwithstanding anything stated to the contrary herein, the date of exercise of a Cashless Exercise shall be the date on which the broker executes the sale of exercised Shares or, if no sale is made, the date the broker receives the exercise loan notice from the Optionee to pay the Company for the exercised Shares.

3

7.    Adjustments Upon Changes in Capitalization

In the event of a stock dividend, stock split, recapitalization, combination, subdivision, issuance of rights, or other similar corporate change or event, including a property distribution, sale of assets, spin-off or restructuring of the Company, the Board shall make an appropriate adjustment in the aggregate number of Shares issuable under the Plan, the number of Shares subject to each then outstanding Option and the option price of each then outstanding Option.

8.    Change in Control.

(a)  Effect of Change in Control.    Notwithstanding anything in the Plan to the contrary, (i) subject to any applicable pooling-of-interest accounting rules, in the event of a Change in Control of the Company, the Options granted hereunder shall vest and become immediately exercisable; (ii) in the event of a Change in Control of the Company as defined in Section 8(b)(iii), the Company may provide in any agreement with respect to such merger or consolidation that the surviving corporation shall grant options to the Optionees to acquire shares in such corporation with respect to which the excess of the fair market value of the share of such corporation immediately after the consummation of such merger or consolidation over the option price shall not be less than the excess of the Fair Market Value of the Shares over the Option price of Options, immediately prior to the consummation of such merger or consolidation; and (iii) in the event the Company does not survive as an independent publicly traded company and the Options are not replaced as provided in subsection (a)(ii), the Options shall automatically terminate immediately following such change in control.

(b)  Definition.    For purposes of the Plan, a “Change in Control of the Company” shall be deemed to have occurred if:

(i)  any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee of other fiduciary holding securities under an employee benefit plan of the Company or any company owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes, after the effective date of the Plan, the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities;

(ii)  during any period of two consecutive years (not including any period prior to the effective date of the Plan), individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in any of clauses (i), (iii) and (iv) of this Section 8(b)) whose election by the Board or whose nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason (other than retirement) to constitute at least a majority thereof;

(iii)  the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

(iv)  the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

4

9.    Amendments and Termination.

The Board may amend, alter, or terminate the Plan, but no amendment, alteration, or termination shall be made (i) that would impair or adversely affect the rights of an Optionee under an Option theretofore granted, without the Optionee’s consent, or (ii) without the approval of the shareholders if such approval is necessary to comply with any tax, stock exchange or regulatory requirement, or if the proposed alteration or amendment would increase the aggregate number of Shares that may be issued pursuant to the Plan (other than pursuant to Section 7 hereof).

10.    General Provisions.

(a)  Compliance with Regulations.    All certificates for Shares issued and delivered under the Plan pursuant to a grant of Shares or pursuant to the exercise of any Option shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. The Company shall not be required to issue or deliver any Shares under the Plan prior to the completion of any registration or qualification of such Shares under any federal or state law, or under any ruling or regulation of any governmental body or national securities exchange, that the Board in its sole discretion shall deem to be necessary or appropriate.

(b)  Other Plans.    Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required by applicable law or the rules of any stock exchange on which the Common Stock is then listed; and such arrangements may be either generally applicable or applicable only in specific cases.

(c)  Withholding of Taxes.    Each Optionee shall pay to the Company, upon the Company’s request, all amounts necessary to satisfy the Company’s federal, state and local tax withholding obligations, if any, with respect to the any grant or exercisepursuant to this Plan.

(d)  Conformity With Law.    If any provision of the Plan is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan or any grant under any law deemed applicable by the Board, such provision shall be construed or deemed amended in such jurisdiction to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.

(e)  Insufficient Shares.    In the event there are insufficient Shares remaining to satisfy all of the Share or Option grants under Section 5 made on the same day, such grants shall be reduced pro-rata.

11.    Effective Date and Termination.

The Board shall submit this Second Amendment and Restatement of the Plan to the shareholders of the Company for their approval at the 2001 annual meeting of shareholders. Any Option granted with respect to the additional 100,000 Shares added to the Plan by this Second Amendment and Restatement before the approval of this Second Amendment and Restatement by the shareholders of the Company shall be expressly conditioned upon, and any such Option shall not be exercisable until, such approval on or prior to the date of the 2001 annual meeting of such shareholders. If this Second Amendment and Restatement is approved by the shareholders, the Plan shall terminate on the second business day of 2004. If such shareholder approval is not received at or before the 2001 annual meeting, this Second Amendment and Restatement shall be void and the Plan shall continue as in effect prior to this Second Amendment and Restatement. The Board shall have the right to terminate the Plan at any time. Upon termination of the Plan, all Options outstanding under the Plan shall continue pursuant to their terms.

5

EX-23.1

EXHIBIT 23.1

            CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our report dated February 18, 2002, included in the Annual Report of Penn Virginia Corporation on Form 10-K for the year ended December 31, 2001, into Penn Virginia Corporation’s previously filed Registration Statements Nos. 33- 49438, 33-96465, 33-5965, 33-96463, 333-82304 and 333-82274 on Form S-8.                          

ARTHUR ANDERSEN LLP

Houston, Texas

March 22, 2002

EX-99.1

EXHIBIT 99.1

[LETTERHEAD OF PENN VIRGINIA CORPORATION]

March 22, 2002

Securities and Exchange Commission

Washington, DC 20549

RE: Letter responsive to Temporary Note 3T to Article 3 of Regulation S-X

Dear Sir or Madam:

In compliance with Temporary Note 3T to Article 3 of Regulation S-X, I am writing to inform you that Arthur Andersen LLP (“Andersen”) has represented to Penn Virginia Corporation (“PVA”) that Andersen’s audit of the consolidated balance sheets of PVA and its subsidiaries as of December 31, 2001 and December 31, 2000, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three fiscal years in the period ended December 31, 2001, was subject to Andersen’s quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards and that there was appropriate continuity of Andersen personnel working on the audit, availability of national office consultation and availability of personnel at foreign affiliates of Andersen to conduct the relevant portions of the audit.

Sincerely,

/s/    JAMES DEARLOVE        

A. James Dearlove

Chief Executive Officer